One month after the sudden resignation of President Kayse Shrum shook the Oklahoma State University community, institution officials responded to an open records request today with a report outlining how $41 million of state appropriations “were not properly restricted and in some instances were co-mingled with other funds,” including $11.5 million of “improper” transfers to the OSU Innovation Foundation, whose director resigned last month as well.
Internal auditors said Shrum’s administration “did not fully include or disclose” a total of $55.5 million in legislative appropriations to the Board of Regents for the Oklahoma Agricultural & Mechanical Colleges, which governs OSU.
“Such actions in some cases violated state laws and policies, thereby posing financial and reputational risks to the institution,” auditors wrote. “This report also outlines corrective actions that promote transparency and accountability. These actions include the establishment of restricted funds within OSU’s general ledger, reimbursement of misallocated funds, and strict adherence to state law, OSU policies and procedures, Oklahoma State Regents for Higher Education policies and OSU/A&M Board policies.”
Beyond the misdirection of restricted funds, auditors identified “high” risks related to $55.5 million of state appropriations “not fully” being reported to OSU’s governing board, the Innovation Foundation lacking its own funding and “simultaneous executive role assignments” creating “conflict of interest concerns.” The report (embedded below) was released one day before the next meeting of the Board of Regents, which is expected to discuss the findings at some point during their two days of gatherings.
Regarding that $55.5 million figure, auditors said it reflected money appropriated by the Oklahoma Legislature to the OSU Medical Authority between Fiscal Year 2023 and FY 2025, which ends June 30.
In addition to the $11.5 million improperly transferred to the OSU Innovation Foundation, auditors identified $20.5 million co-mingled with other funds and $24 million improperly deposited into unrestricted auxiliary funds as opposed to the primary budget of Education & General Funds, which constitute state appropriations and student tuition dollars intended to carry out the instruction, research and public service functions of the university. Auditors recommended various repayments between the OSU entities throughout their report.
“OSU did not fully include or disclose the legislatively appropriated funds, totaling $55.5 million for [FY 23 through FY 25], in the budgets it presented to the OSU/A&M Board for approval under [board policy that] also requires board approval of significant budget revisions,” auditors wrote. “Failure to obtain board budgeting approval for the legislatively appropriated funds undermines the board’s governance of the institution and its ability to conduct fiscal oversight and ensure accountability. Additionally, the absence of formal budget approval violates state law, policy, exposes the board to liability, and may lead to reputational risks, and diminished stakeholder confidence in the institution’s adherence to financial protocols.”
Auditors focused specific attention on the OSU Innovation Foundation, which became the rebranded name of the OSU Research Foundation in 2023. The Innovation Foundation has a mission to “maximize the impact of OSU’s excellence in aerospace and advanced mobility, energy, agriculture, and One Health by translating innovative applied research into products and services, facilitating strong partnerships with aligned industry and regional partners, and investing in the development of emerging companies.”
Noting that more than 95 percent of the Innovation Foundation’s overall funding has been derived from state money appropriated to the OSU Medical Authority, auditors wrote that it had “generated only 2 percent of its revenue independently” so far in FY 25.
“The reliance on legislative appropriations to sustain the foundation’s operations raises concerns about financial sustainability and compliance with legislative intent,” auditors wrote. “The decline in grant revenue further exacerbates the foundation’s financial instability, potentially impacting its ability to achieve its research objectives. Moreover, the use of legislative appropriations in violation of state law poses legal and ethical risks.”
Auditors broke down the $11.5 million improperly transferred from OSU to its associated Innovation Foundation, writing that $4.9 million intended for the Oklahoma Aerospace Institute for Research and Education was provided to a fund for the Human Performance and Nutrition Research Institute. Similarly, $1.4 million intended for OAIRE was sent to the Innovation Foundation for facility and operational costs, and $1 million of OAIRE funding was spent on Innovation Foundation compensation for executive and administrative personnel.
Lance Latham, OSU’s chief communications officer, sent NonDoc a statement Wednesday afternoon about the audit.
“OSU remains focused on its land-grant mission to provide accessible education, conduct groundbreaking research, grow the state’s workforce, and deliver high-quality health care for Oklahomans,” Latham said. “Newly appointed Interim President Dr. Jim Hess is taking swift action, along with the OSU/A&M Board of Regents, to address these matters. Dr. Hess has underscored that while the financial decisions and transactions which occurred are concerning, they were isolated and do not impact OSU’s overall financial foundation, which remains the strongest among Oklahoma’s institutions of higher education.”
Jennifer Callahan, an OSU regent who chairs the board’s Governance Review Task Force, also released a statement.
“The OSU/A&M Board of Regents has a responsibility to ensure the financial integrity and oversight of its member institutions and has procedures in place to fulfill that responsibility,” Callahan said. “The board and OSU administration are committed to transparency and to taking swift action that protects the university’s commitment to students.”
Saying she is on sabbatical with OSU after resigning as president and that she did not receive a copy of the audit before its release, Shrum sent NonDoc a statement after 10 p.m. Wednesday:
Most importantly, there is absolutely no money missing. No state money has been taken. All of the money is still in OSU accounts and was spent on delivering education and research per the mission of the university.
Second, as president of the university I utilized the legal counsel of the Board of Regents. The transfer of funds from OSUMA to OSU was approved by the Board of Regents with input from legal counsel. The research institutes and structure of the Innovation Foundation was presented to the Board of Regents on multiple occasions and the regents have members serving on the Innovation Foundation Board.
Third, I do not have any knowledge that any laws were broken. To my knowledge, absolutely nothing was done that was wrong or inappropriate. My training is as a physician, not a lawyer, and I relied upon the same legal advice that the Board of Regents were given.
Any implication that anything was done wrong, based on everything that I knew during my tenure as president, is simply not accurate.
Email: ‘The plan is to move it around the areas of need’
In response to NonDoc’s open records request, OSU officials also released more than half a dozen emails among university administrators that highlighted internal conversations about the questionable financial decisions outlined in the audit. One of the emails from an Innovation Foundation financial professional in October 2023 included a line that likely raised the eyebrows of auditors and potentially the unknown whistleblowers who filed complaints through OSU’s institutional reporting system.
“I assume we can transfer funds between the entities if we determine there is another need in another area but wasn’t sure,” wrote Stephanie Rossander, a fiscal accounts manager for the Innovation Foundation.
Meanwhile, an August 2024 email from Christa Louthan, the university’s chief human resources officer and an assistant vice president, criticized then-Innovation Foundation executive director Elizabeth Pollard for her hiring practices. Pollard told The O’Colly that she resigned from the Innovation Foundation after learning Shrum would be departing OSU.
Louthan’s email involved a new “executive administrative associate” at the Innovation Foundation, for whom the maximum salary listed in the hiring range was $62,500. The Innovation Foundation wished to hire an individual with a starting pay of $85,000. Louthan outlined equity concerns — the average pay for an employee with that title was $60,217 — and concerns with the candidate’s experience.
“For this specific issue, I will communicate my concerns with Elizabeth Pollard this afternoon unless you direct otherwise,” Louthan wrote to Eric Polak, who served at the time as the interim senior vice president for administration and finance. “Based upon past experience with her regarding compensation levels, she likely will not agree with my assessment and will push forward with her desired rate of pay. This has become common practice with her and something that we will need to discuss in more detail at a later date. It is also quite possible that she will take this up directly with you or Jerome [Loughridge, senior vice president and chief of staff].”
Another August 2024 email highlighted how some university and Innovation Foundation administrators were well aware that state appropriations were being diverted to the Innovation Foundation. In writing to OAIRE director Jamey Jacob about one of the $5 million transfers, Innovation Foundation director of fiscal operations Adam Niehenke noted that the foundation faced fiscal challenges.
“OSUMA allocated money to the Innovation Foundation, but similar to FY 24 the plan is to move it around the areas of need/lack of funding. OAIRE is fully covered,” Niehenke wrote. “How we are covering all of our gaps is an ongoing conversation.”
While the audit itself includes appendices offering greater detail about the dollars in question, the $55.5 million of appropriated funds spanned three fiscal years:
- Fiscal Year 2023
- $10 million for “polytechnic” programs;
- $5 million for the Academic Research Center; and
- $500,000 for the Nursing Fund.
- Fiscal Year 2024
- $5 million for “polytechnic” programs;
- $5 million for academic research at the OSU Center for Health Sciences; and
- $5 million for OSU’s Oklahoma Aerospace Institute for Research & Education.
- Fiscal Year 2025
- $10 million for the Human Performance and Nutrition Research Institute at the OSU Innovation Foundation;
- $5 million for OSU’s Oklahoma Aerospace Institute for Research & Education;
- $5 million for “polytechnic” programs; and
- $5 million for academic research at the OSU Center for Health Sciences.
The report notes that auditors spoke with more than a dozen OSU personnel when reviewing the issues at hand. While the audit only listed titles, those interviewed appear to be:
- OSU/A&M Board Chief Executive Officer Jason Ramsey;
- OSU/A&M Board Director of Public Policy Steve Thompson;
- OSU/A&M Board Deputy Director of Public Policy Karlee Belle Gholson;
- OSU/A&M Board General Counsel Steve Stephens;
- OSU/A&M Board Deputy General Counsel and OSU Chief Legal Officer Brandee Hancock;
- OSU/A&M Board Assistant General Counsel Erika Artinger;
- OSU Chief of Staff Jerome Loughridge;
- OSUMA Chief Executive Officer, OSU Interim Senior Vice President for Administration and Finance, OSU-CHS Vice President for Administration and Finance Eric Polak;
- (Now former) Innovation Foundation Chief Executive Officer and President Elizabeth Pollard;
- Innovation Foundation Director of Finance Adam Niehenke;
- OSU Associate Vice President for Administration and Finance Tammy Eck;
- OSU Director of Budget Kelly Murphy;
- OSU Controller Rita Hesser;
- OSU’s external audit principal; and
- Executive director of Oklahoma Aerospace Institute for Research and Education Jamey Jacob.
Pollard sent NonDoc a statement following the publication of this article.
“The Innovation Foundation followed university policy and procedures, including financial reporting into university systems,” she wrote. “We worked collaboratively with OSU’s president, CFO, and the A&M Board of Regents office of legal counsel. The IF board of directors, regent representation and management were regularly informed. We stand by and are proud of our accomplishments. When given the opportunity to review any audit findings, I’ll look forward to sharing my recollection of events. No funds are missing to my knowledge.”
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Hilbert: ‘The OSU regents acted swiftly’
On Feb. 7, the OSU Board of Regents named longtime administrator Jim Hess as interim president, praising his experience with many of the institution’s facets. Throughout the audit released Wednesday, Hess was listed among the “individuals responsible” for executing recommended reforms, which include various deadlines for implementation this summer.
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While the fiscal concerns identified at OSU are sure to cast some political caution on this session’s budget requests — including $300 million for a new College of Veterinary Medicine building and a $150 million “new category” request to designate OSU and the University of Oklahoma as “research” institutions — House Speaker Kyle Hilbert (R-Bristow) praised his alma mater for “swiftly” acting “to correct the situation.”
“We have a system of checks and balances to ensure taxpayer dollars are spent according to legislative intent and are used efficiently and transparently. For our state universities this means to the direct benefit of our students and Oklahoma taxpayers. This audit report appears to show that the OSU regents acted swiftly to correct the situation as soon as they were made aware. The checks in this system are what caught problematic and undisclosed transactions,” Hilbert said. “I appreciate the university’s cooperation with the legislature in this matter and have been told this is an isolated incident. I have been assured by Dr. Hess and the board of regents that every dollar of taxpayer money will be spent as directed by the Legislature and changes in processes have been and will continue to be made to ensure this does not happen again.”
One of the reforms recommended in the audit involves the avoidance of conflicts of interest caused by “simultaneous executive role assignments” throughout the OSU system. In particular, auditors noted that both Shrum and Pollard served on the board of the Innovation Foundation, even though Pollard was also its executive director.
The report outlined those “simultaneous” role concerns involving:
- Former OSU President Kayse Shrum also served as the board chair and member of the Innovation Foundation;
- OSU-CHS President Johnny Stephens also served as a board director and member for the Innovation Foundation and an OSUMA board member;
- OSU-CHS Vice President for Administration and Finance Eric Polak also served as the OSU interim senior vice president for administration and finance (as of July 2024), CEO of OSUMA and board director and member of the Innovation Foundation (as of July 2024);
- Retired OSU Senior Vice President for Administration and Finance Joe Weaver (prior to July 2024) also formerly served as a board director and member of the Innovation Foundation (prior to July 2024);
- CEO and board director of the Innovation Foundation Elizabeth Pollard also served as an OSU employee reporting directly to the OSU system president.
- OSU Provost and Senior Vice President for Academic Affairs Jeanette Mendez also served as a board director and member for the Innovation Foundation; and
- OSU Vice President for Research and Board Director Kenneth Sewell also served as a member of the Innovation Foundation.
Auditors expressed concern about those arrangements and recommended changes.
“With certain OSU executive leadership serving in simultaneous executive positions with authority over the legislative requests, allocation and distribution of funds, there were blurred governance responsibilities and a structure that raises concerns about potential conflicts of interest and segregation of duties,” auditors wrote. “Ultimately $11.5 million in legislatively appropriated funds were provided to the Innovation Foundation, Inc. without a contract for repayment or reimbursement and without approval of the Board of Regents as required by [Title 70, Section 4306(C) of state statute], Article 10, Section 15 Oklahoma Constitution, and Board Policy 1.12. As a result, some state appropriated funds were utilized for unauthorized and unrelated purposes, and were not retained in full by OSU, the intended recipient.”
Read the full OSU Innovation Foundation report
(Update: This article was updated at 5:45 p.m. Wednesday, March 5, 2025, to include a statement from Elizabeth Pollard. It was updated again at 10:30 p.m. to include comment from Dr. Kayse Shrum.)
