Auditor's Report

Ethics Issues Raised in University of Montana Space Programs

By Courtney Lowery, 6-15-06

A legislative audit report released this week concludes that several former University of Montana employees may have violated state ethics codes in their employment and involvement with UM's now controversial space privitization programs. The investigation also concluded that the University of Montana failed to adequately oversee the formation, federal funding and operations of the programs.

The possible "conflicts of interest" the audit refers to involve Llyod Chesnut, former Vice President of Research and Development, his assistant George Bailey and his wife Rollene. Chesnut, who is also under investigation in Texas for work he did at the University of North Texas, was instrumental in the development of the Inland Northwest Space Alliance -- a non-profit built with federal money that came through his university office. Shortly after leaving UM in 2003, Chesnut recieved payments of $15,000 as the president of the alliance, partially while he was in Texas. Rollene served as INSA's business manager -- even after the couple moved to Texas, earning $104,000 from the alliance until 2005. Bailey, who helped Chesnut in securing funding for INSA currently serves as the non-profit's executive director.

The Department of Justice, which prosecutes such ethics violations, had not yet received the audit report Thursday afternoon, said spokeswoman Lynn Solomon. Nor had it recieved a request to investigate from the State Legislative Audit office.

The audit, which is scheduled to be officially released June 20th, says the Legislative Audit Division has made referrals involving possible violations by the former vice president and former assistant vice president to both the Attorney General and the Commissioner of Political Practices. "These referrals cite potential violations of the sections of the ethics code addressing cooling off periods for state employees and nepotism," the audit says.

INSA, developed with federal money, some secured by Sen. Conrad Burns, is under the umbrella of UM's Northern Rockies Consortium for Space Privitization. Both were billed as attempts to bring space research and jobs to Montana, but were thrown into the spotlight earlier this year when the Board of Regents began questioning what the two programs had to show for the millions of dollars they had spent. The Comissioner of Higher Education's office requested the legislative audit and later, news broke that the FBI and NASA were also investigating possible ethics violations.

As for what the programs accomplished, the audit found that while the consortium had acheived some of NASA's expectations of education and outreach, joint efforts by the NRCSP and INSA have not lived up to their mission of furthering the commercialization of space technologies in the region.

According to the audit, because Chesnut's office was in charge of evaluating such research projects and the federal funding for them, the apparent revolving door between INSA and his office went undisclosed and undocumented. The university had no oversight then, or perhaps knowledge, of what was going on.

"Essentially, the former Vice President was in a position to act as judge and jury on the question of whether he or his direct subordinates had potential conflicts of interest," the audit reads.

President George Dennison's office should be responsible for making sure employees overseeing research activities (the Vice President's office) are subject to an independent review that could catch potential conflicts of interest, the audit concluded. It also recommended that the university revise procedures in general to ensure disclosure of possible conflicts of interest in sponsored research.

The formation of INSA in itself could also be investigated for state ethics violations, according to the audit. Because the university did not get approval from the Board of Regents for INSA in the first place, (the audit says the university considered seeking board review, but then decided it was unecessary), it avoided approval for commercializing the research done under its care. The audit says because the President's office decided to not disclose the formation of INSA, it effectively loses exemption from state laws dealing with those activities. Auditors have sent refferals to "relevant offices" on these possible violations, the audit says.

Questions about INSA's lobbying efforts were also raised by the audit. As the audit notes, INSA paid a Washington D.C. firm (later identified in various news reports as the firm of former Burns Chief of Staff Leo Giacometto) for lobbying services in 2004, but never reported that activity to UM relative to the federal grant. Federal law regulates and restricts lobbying activities for recipients of federal funding. The audit recommended that in the future, UM require disclosure of lobbying efforts by sub-contractors that cost more than $100,000.

One more thing the audit found is that INSA hired a D.C. technology firm for some work assigned to the organization without authorization from the university. In total, the audit showed more than $1.8 million paid to subcontractors. Auditors recommended that the university take steps to ensure subcontracts paid through university funded be pre-approved. It also recommended that any consulting be pre-approved ($47,000 of INSA's budget was for consulting) and ensure that a competitive bidding process and other proper procedures with nongovernmental entities took place.??

As Jennifer McKee and Betsy Cohen reported in the Missoulian last month, INSA gave a no-bid contract for $270,000 in 2004 to Compressus Inc., a D.C. company that employed Giacometto and had Burns' daughter, Keeley, on its board of advisers.

The university concurred with all five of the auditors' reccomendations. In a letter to auditors, Dennison wrote Tuesday, "... University personnel will take the necessary actions to strengthen our controls and procedures." Dennison assured that all revised policies and procedures would be in place by the beginning of fall semester. He added, "We will continue to make improvements and strive to provide accountability and appropriate internal controls in all aspects of our operations."

Comissioner Sheila Sterns also thanked the audit office in a letter dated Monday, writing "as always, your staff members handled themselves in a very professional manner in complex and challenging circumstances."

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