Auditors identify more than $17 million in questioned costs, financial mismanagement at Eastern Gateway Community College

COLUMBUS — State auditors questioned more than $17 million in spending at Eastern Gateway Community College during one of the final years of its operations, Auditor of State Keith Faber announced Tuesday.

The total represents the entirety of federal student aid programs at the now-closed school, where “pervasive deficiencies in recordkeeping” and derelict accounting and controls led to rampant financial mismanagement of public resources.

College officials routinely spent money without verifying the expenses were proper or allowed and borrowed money without fully disclosing details to lenders or grasping the financial implications of the debt. The college also did not fully track student enrollment and attendance and could not verify that student aid was properly disbursed, among multiple issues identified by auditors.

“This goes beyond sloppiness and honest mistakes,” Auditor Faber said. “The public should be outraged.”

In total, auditors identified 44 findings, including questioned costs, material weaknesses, and other issues in their review of Eastern Gateway’s finances from July 1, 2022, through June 30, 2023.

The full audit report is available online at ohioauditor.gov/auditsearch/search.aspx. Additional financial audits will be released by the Auditor of State’s Office in coming months covering the college’s final years of activity.

Tuesday’s audit details insufficient program oversight and a lack of policies and financial controls that led to unauthorized expenses and financial reporting errors. For example, the college’s former chief financial officer and controller did not prepare a monthly reconciliation of all accounts, leading to an inaccurate accounting of college spending and resources. Auditors noted, “Collectively, these items contributed to the college’s cash flow crisis and eventual closure….”

Among other issues identified in Tuesday’s audit report:

Documentation to support spending through federally funded financial aid, TRIO programming and adult education were incomplete and inconsistent and based on unreliable data systems. Auditors noted that they were “unable to obtain audit evidence supporting the college’s compliance with applicable federal requirements for these programs.”

The former chief financial officer failed to obtain a certificate of estimated resources or certify to the county auditor the total funds from all sources available for expenditures, as required. The college’s former board of trustees also failed to adopt a formal appropriations measure, meaning “all expenses the college’s former chief finance officer and former controller made” were in violation of state law.

The college failed to form a records commission and meet other requirements under the state’s open records laws, and “Public records were improperly maintained as a result of the deficiency.”
 
It appears that the former chief executive officer did not provide the college’s bond counsel or board of trustees with an accurate appraisal of a parking garage facility in Youngstown. As a result, college officials “authorized issuance of $13.6 million in bonded debt that was used, in part, for the acquisition of a parking garage for which the cost of demolition exceeded the estimated land value.”

The lack of critical documentation and accounting issues led to $17 million-plus in questioned costs, 100% of federally funded financial aid for eligible students. Auditors wrote, “An institution’s record-keeping practices are paramount to ensuring a proper administration of Title IV programs. The college failed to provide adequate source documentation … hindering a thorough review of the college’s distance education programs, including evidence that students commenced attendance….”

The Auditor of State’s Special Investigations Unit (SIU) has an ongoing investigation under way on Eastern Gateway Community College’s operations. Findings for recovery could be issued in future audit reports.

SIU, along with the Jefferson County Sheriff’s Office, the Ohio State Highway Patrol’s Computer Crimes Unit, the U.S. Secret Service, the Coumbus Division of Police’s Digital Forensics Unit, and the Ohio Narcotics Intelligence Center, executed a search warrant in January 2024 related to that investigation.

Since 2019, the Special Investigations Unit has assisted in 147 convictions resulting in more than $16 million in restitution (see Map of SIU Convictions since January 2019). The team receives hundreds of tips of suspected fraud annually. Tips can be submitted anonymously online or via SIU’s fraud hotline at 866-FRAUD-OH (866-372-8364).

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