Penn State reported incorrect financial information

This story was produced by the State College regional bureau of Spotlight PA, an independent, nonpartisan newsroom dedicated to investigative and public-service journalism for Pennsylvania. Sign up for our regional newsletter, Talk of the Town.

STATE COLLEGE — Penn State University reported incorrect financial information to the Pennsylvania Department of Education last winter, errors that remained public for months and highlight longstanding problems with how the school discloses and handles conflicts of interest.

The university acknowledged the incorrect filings following a Spotlight PA review of Penn State trustees’ business connections, the trustees’ annual conflict of interest disclosure, and reports the university is required to submit to the state when it receives taxpayer funds from the legislature.

In an email to Spotlight PA, a university spokesperson wrote that the December 2022 report contained “inaccurate information.” A spokesperson later told Spotlight PA the error was caused by the university including 2020 financial data in its 2022 filing.

An analysis of the filings and other university documents also revealed that at least one trustee did not disclose more than $250,000 in income to a related business over three years on university-mandated conflict of interest forms.

Penn State defended the trustee’s lack of disclosure, arguing the trustee was not aware of the transactions and was therefore not in violation of the university’s policy.

The university expects conflicts of interest with trustees because they have business ties, a spokesperson wrote in an email. The school’s approach in such instances, the spokesperson said, is determining “not how to eliminate conflicts, but rather, how conflicts should be appropriately disclosed.”

“Publication of our board conflict of interest disclosure summary is purely voluntary and done in the spirit of transparency,” the spokesperson wrote. “There is no law or regulation that requires us to publish this information and, to our knowledge, few peer institutions follow our lead.”

In a 2017 report on the university, former Pennsylvania Auditor General Eugene DePasquale said the board’s conflict policy — which the trustees approved and does not specify penalties for violations — makes it easy to “avoid accountability.”

Limited insight

Each year, Penn State requires its trustees to disclose “actual or apparent” conflicts of interest and sign a statement agreeing to follow the board’s policy. The university then publishes the conflicts online with descriptions of the involved companies and trustees and how much money was spent.

The board’s bylaws define a conflict as when “a Trustee, family member or related entity has an interest that may lead the Trustee to act in a way that is incompatible with or a breach of the Trustee’s fiduciary duty to the institution or use such Trustee’s role to achieve personal gain or benefit or gain or benefit to family, friends or associates.”

The conflict disclosure document is one of the few ways the public can understand the inner workings of Penn State, which is largely exempt from Pennsylvania’s open records law.

The other main window into the four state-related universities — Lincoln University, Penn State, Temple University, and the University of Pittsburgh — is an annual list of all contracts over $1,000 that the schools must file every year they receive taxpayer money in an annual appropriation.

To better understand the university’s business connections, Spotlight PA compared the Penn State trustees’ disclosures from fiscal year 2022, as well as the trustee business connections detailed on the university’s website, with the list of thousands of contracts the university provided to the Pennsylvania Department of Education for the same fiscal year.

The newsroom conducted a similar analysis for previous fiscal years using copies of the board’s disclosures for fiscal years 2020 and 2021.

Problems with Penn State’s filings

Spotlight PA’s analysis revealed multiple problems, including contracts in which dollar amounts did not match the board’s conflict of interest document and money paid to a trustee or a business connected to a trustee that was not disclosed.

In response to questions from Spotlight PA, Penn State acknowledged that it incorrectly claimed in its original report to have paid a trustee nearly $30,000 and that it overstated payments to a law firm connected to a trustee by more than $134,000 in fiscal 2022.

The total number of errors Penn State included in the report is unknown. Penn State did not respond to a question about whether the university had an estimate. The document was removed from the Department of Education’s website in July and the state law mandating the public report does not detail any form of discipline for filing incorrect information.

On Monday, the department posted Penn State’s corrected document.

In its original filing, Penn State reported to the state that it paid Trustee Jay Paterno nearly $30,000 in fiscal year 2022. In its statement to Spotlight PA, Penn State said there was no payment to Paterno in fiscal year 2022 and that its inclusion on the filing was an “error.”

However, the university did pay Paterno nearly $30,000 in fiscal year 2020. The payment was not included on the trustee’s conflict of interest disclosure that year.

A Penn State spokesperson said the money was part of a legal settlement and that Paterno “consulted with counsel and was advised that the litigation settlement payment in FY20 did not represent a conflict for the disclosure form.”

Paterno, reached by phone, confirmed the university’s statement and did not offer further comment.

David Kleppinger is vice chair of the trustee board and chair emeritus of the law firm McNees, Wallace and Nurick. The trustee disclosure document reported that the university paid the law firm $16,625.94 for work in Dauphin County in fiscal year 2022.

However, the university initially told the Department of Education that it paid the law firm a sum nine times greater.

A university spokesperson told Spotlight PA that the figure provided to the state was wrong. The corrected filing released this week reflects the amount listed on the trustee disclosure document.

Unreported income

Penn State Trustee Stanley Rapp, who was previously a board member of the engineering firm Herbert, Rowland and Grubic, did not disclose any conflicts of interest for fiscal years 2020, 2021, and 2022 on his university-mandated form.

But according to filings with the Pennsylvania Department of Education, the university had a contract with Herbert, Rowland and Grubic each year during that period and paid the firm a total of $251,416.98 over the three years.

In a statement, a university spokesperson said the oversight was not a violation of the university’s policy because the board’s governing document requires that trustees only report “known” conflicts.

The university spokesperson said the board’s 2023 disclosure document will reflect the payments to the engineering firm.

Rapp did not respond to multiple requests for comment by phone and email. Ryan Albright, director of marketing for Herbert, Rowland and Grubic, said in an email that Rapp left the firm’s board in 2022.

In his 2017 report on the university, DePasquale recommended that Penn State trustees and employees be subject to the state’s ethics act, which is overseen by the independent State Ethics Commission and carries financial penalties for violations.

The university argued its policies and board’s bylaws were adequate.

The auditor general questioned the university's stance, noting it was unclear whether the school penalizes trustees who fail to disclose conflicts. The report also noted that Penn State’s policy does not designate who would decide such penalties.

“The definitions of the provisions are not concise,” DePasquale’s report said of Penn State’s policy. “It is difficult to read, understand, and apply. The effect of this obfuscation is easily recognizable: the less clear the parameters, the easier it is to avoid accountability for and transparency about conflict transactions and dealings.”

The university has defended itself against recent criticisms of a perceived lack of transparency, including the board’s interpretation of Pennsylvania’s open meetings law that has allowed top Penn State officials to regularly meet in private for more than a decade. The board’s leadership has requested that trustees ask questions during private sessions rather than public meetings.

SUPPORT THIS JOURNALISM and help us reinvigorate local news in north-central Pennsylvania at spotlightpa.org/donate/statecollege. Spotlight PA is funded by foundations and readers like you who are committed to accountability and public-service journalism that gets results.