Lawmakers Demand Audit on Fee Accounting

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Worried Nevada lawmakers called Wednesday for a prompt audit to see why $3.4 million in fees generated by a college savings program that was overseen by former Nevada Treasurer Brian Krolicki apparently was spent on ads instead of going to state coffers as intended.

"It looks like some hanky-panky was going on," Assembly Ways and Means Chairman Morse Arberry, D-Las Vegas, said after the fees were outlined by Krolicki's successor in the treasurer's office, Kate Marshall. Krolicki was elected lieutenant governor in November.

Assembly Speaker Barbara Buckley, D-Las Vegas, a Ways and Means
member, questioned whether lawmakers had authorized the "off-the-books account" through which an ad agency was paid $2.2 million - half of that for ads that featured Krolicki promoting the program during the 2006 campaign season. A committee staffer said there was no legislative authorization for the account.

Krolicki, a Republican who served two four-year terms as treasurer, didn't attend the hearing. He said afterward that politics played a part in the Democrat-controlled committee's review of the fees, and added that his handling of the College Savings Plan of Nevada was done "by the book."

"Treasurer Marshall brought up several items of concern that she had, and I am confident that there are answers to all of the half-statements that she provided," Krolicki said.

Krolicki said a Senate hearing on the program had been delayed to enable Marshall to review more records, but the Assembly moved ahead with its hearing without "the same sense of decorum" shown by the GOP-run Senate.

"I think part of the decision to move forward was because of a political element," he added.

Marshall, a Democrat, said she wanted an audit of the program, which started in 2001 and is nearing $3 billion in investments. Besides the fees, she also voiced concerns about a late-December contract amendment that limited future fees from fund managers to the state.

In her statement to the lawmakers, Marshall said the contract amendment "may not be in the best interest of the state." She also said she was hampered in getting information because records weren't immediately available.

Arberry said he understood that some computer records in the treasurer's office that could have helped explain matters had been
erased prior to Marshall taking over on Jan. 1.

The college savings program is managed by Upromise Investments Inc. and Vanguard Group. Upromise, as part of its efforts to promote the program, contracted with Reno-based Rose-Glenn Advertising for the ads.

Upromise and Vanguard get a percentage of the investments as their fees for management services. As part of its agreement, Upromise markets the plan and works directly with the advertising agency.

The fees to the state since 2001 total nearly $5 million, according to Marshall. But she said only $1.6 million went into a state account and the $3.4 million balance appears to have been "redirected" to cover the ad costs and also to pay for legal help.

Besides the ad costs, a Sacramento law firm was paid nearly $1 million for what Krolicki described as services that provided "an entire soup-to-nuts framework for the program."

Because he was featured in the ads promoting the college savings
program, Krolicki faced a complaint last year to the state Ethics
Commission that he was using the ads to advance his campaign for
lieutenant governor. But the commission's executive director
recommended dismissal of the complaint, saying there was no
credible evidence to substantiate a potential law violation.

The Dec. 28 contract amendment with Upromise altered a contract that wasn't going to expire for 20 years, Marshall said, adding that the change resulted in a one-time fee of $1 million and no future fees after that. She said the fees from Upromise have been climbing rapidly and last year amounted to $413,875.

The amendment also changed a fee arrangement with Vanguard, from
a percentage basis to a flat $1.5 million yearly plus any Consumer Price Index allowance. Last year, Vanguard's percentage fees totaled $937,740.

Marshall said she had found no other state with a similar college savings program that has agreed to the sort of one-time fee that Upromise was charged.

(Copyright 2007 by The Associated Press. All Rights Reserved.)