Audit Criticizes Former Nevada Treasurer

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A top elected official came under fire Monday as legislative auditors described how budget controls were bypassed in the big Nevada College Savings Program that he oversaw and promoted in ads that ran during his campaign season.

Assemblywoman Sheila Leslie, D-Reno, head of an audit subcommittee, said in going over the audit of the $3.3 billion program that "sloppy comes to mind."

Lt. Gov. Brian Krolicki said he relied on legal advice in overseeing the program in his former elective post of state treasurer. The Republican official added that as far as the money invested in the program goes, "this has been balanced to the penny."

Kate Marshall, the new state treasurer who had pressed for the audit, said investments weren't mishandled but she was concerned about the way in which the program had been managed.

Marshall, a Democrat, also said she had heard reports of records on the program being destroyed and also said that when she took over as treasurer in January it was difficult to find the information that legislative auditors needed to complete their report.

Krolicki said he knew nothing about any records being destroyed and also defended the ads promoting the college savings program.

Because he was featured in the ads, Krolicki faced a complaint last year to the state Ethics Commission that he was using the ads to advance his successful campaign for lieutenant governor. But the complaint was dismissed.

Legislative auditors said more than $6 million in state funds were used to pay for program expenses, in excess of amounts authorized by lawmakers. Also, auditors said the funds were handled outside the state's accounting system and the treasurer's office hadn't set up accounting or internal control procedures.

The $6 million included more than $3.4 million paid by program managers to a plan adviser. Another $1.5 million was paid for marketing and advertising and nearly $1 million for legal services by a Sacramento law firm, at a rate of about $429 an hour, auditors said.

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.

Krolicki also defended a late-December contract amendment, saying changes in the fee arrangements with Vanguard and Upromise were needed to ensure the state remained competitive and didn't lose Vanguard.

Marshall has said the amendment altered a contract with Upromise that wasn't going to expire for 20 years. She added 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.

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