The Ohio Inspector General concluded a three- year-plus investigation Tuesday with the release of a report finding an “appearance of impropriety” relating to a real-estate lease Ohio University signed for a home for former OU President Roderick McDavis in spring 2015.
The report also found that roughly $20,000 in payments wrongfully went to OU donor and local landlord John Wharton for work on the South Side Athens home while it was listed for sale by Wharton. This was at the same time that McDavis and his wife were living in the home, with OU paying the rent.
The report lists seven recommendations for changes to university processes to prevent a situation like this from happening again, and gave the university a 60-day deadline to respond with how it may implement those changes.
John Biancamano, OU’s general counsel, said in a conference call Tuesday that the university “can’t argue” with the OIG’s finding that there was an appearance of impropriety in the situation.
“We would certainly agree that in the future, these are situations to be avoided,” Biancamano said. “The IG found that there was no evidence of a quid pro quo (however); no evidence to support the allegation that the university had decided to buy the house in return for a promise of a large gift.”
Deb Shaffer, OU’s vice president for finance and administration, noted that OU has made a “number of changes to our business processes” as a result of the OIG investigation and an internal investigation the university started after the controversy.
“Those have predominately related to the way we processed real-estate invoices,” Shaffer said.
Biancamano said that the university has further strengthened a “firewall” between its Advancement (fundraising) office and OU’s real estate department.
Shaffer noted, however, that the university can only do so much; she said OU must allow itself to continue doing business with donors, and to make business decisions based on “business” and not on any information about what donors may or may not have pledged.
The OIG’s Office, according to the report, did not find wrongdoing by the university in a number of other areas related to this controversy outside of those listed above. Additionally, while the report does state that the case has been forwarded to the Ohio Auditor of State’s Office for “review and consideration,” it has not been forwarded to the Ohio Attorney General’s Office or the local Prosecutor’s Office for consideration of criminal charges (that only happens on rare occasions after OIG reports).
Dominic Binkley, a representative of the state Auditor’s office, said Tuesday that they had not received the report yet, but “when we do, our staff will evaluate it to determine what, if any, further actions are warranted.”
The OIG’s office had been requesting records from OU since April 2015, just a month after the university entered into a lease-to-purchase agreement with Wharton for a home he owned at 31 Coventry Lane in Athens to house then President McDavis and his wife, Deborah. Wharton at the time was a frequent OU donor. The university almost bought the home from Wharton for about $1.15 million, but stepped away from the deal after news broke about Wharton apparently seeking to donate approximately $100,000 to Ohio Athletics in connection with the housing deal (which he never acted upon), while making good on a previous $100,000 pledge to OU Athletics.
The OIG found that it had “reasonable cause” to believe the appearance of impropriety occurred in the situation outlined above, and confirmed (through interviews and public records obtained from the university) that Wharton had in fact approached Athletics Director Jim Schaus about that potential donation on Feb. 27, 2015, and Schaus told OU Athletics donor-relations staffer Ryan White shortly after that.
“The (OIG) determined Wharton had discussions with the Athletic Department about a conditional $100,000 donation contemporaneously to negotiations with the Real Estate Department about a lease agreement with a purchase option for a property owned by Wharton,” the report reads. “The (OIG) further determined that Wharton’s various relationships with university staff in conjunction with his history of donating to both Ohio University and the Ohio University Foundation provides the appearance that Wharton received preferential treatment by the university when they selected a property owned by him as a temporary residence for the McDavises.”
The OIG also found that White had disclosed the fact that Wharton planned to donate $100,000 in connection with the housing deal to McDavis during a March 14 OU women’s basketball event in Cleveland. Wharton – when interviewed by investigators – said he had made the pledge to Schaus in “confidence,” and didn’t expect Schaus to tell White about it.
The OIG, however, found “no evidence” that McDavis, Schaus or White had shared Wharton’s conversations regarding his potential $100,000 gift with any “members of the negotiating team” during negotiation of the lease for 31 Coventry Lane, considering the fact that White did not create a donor-contact report about Wharton’s pledge until March 23, 2015, after the lease-purchase agreement was signed. The members of the negotiating team were then-VP for Finance and Administration Stephen Golding, then-Director of Real Estate Donna Goss and OU’s general counsel office.
According to the OIG report, this situation did not represent a true “quid pro quo” conflict of interest because OU “would have had to purchase 31 Coventry Lane and Wharton would have had to enter into an agreement or donated $100,000 to Ohio University.” The OIG noted that the $100,000 pledge was canceled on April 6, 2016.
In general, the OIG report did find that the McDavises had lunch with Wharton in early February 2015, very early on in the process of seeking a new home – because Deborah had broken her foot while dodging a bat inside the traditional president’s residence on Jan. 26, 2015. (McDavis said he called Wharton on Jan. 27 or Jan. 28 to set up the lunch). After the lunch, they left to tour three properties in Athens, including 31 Coventry Lane (which wasn’t on the market for rent or sale yet). The OIG report also noted that “Wharton and McDavis met for lunch a couple times a year to talk about sports, and that Wharton assisted Deborah McDavis in renting a property for her mother.”
The NEWS previously has reported that Wharton had donated or pledged about $320,000 to OU over the last 40 years as of spring 2016.
THE OIG’S OFFICE found that because OU did not own 31 Coventry Lane and its lease of the home ended on June 30, 2017, roughly $20,000 in repairs the university funded for the “appearance” of Wharton’s property while the property was listed for sale should not have been made by the university. That’s out of a total of $317,856 the university paid to Wharton for expenses related to the lease of 31 Coventry Lane.
“The OIG determined the university should not have paid Wharton totaling $20,449.84 for: Duplicate receipts and work orders ($249.19); landlord expenses ($369.53); replacement of the composite decking ($5,019.18); and the replacement of sod ($14,811.94).”
One of the recommendations in the OIG report is for the university to work with the Whartons to determine who’s the responsible party for each of the expenses listed as duplicate charges, or that were determined “to not be the university’s responsibility.”
In total, the OIG found that “wrongful acts or omissions” occurred in the two situations listed above – i.e., the $20,000 payments and the appearance that Wharton got “preferential treatment” in the decision to lease his home. However, the OIG did not find that “wrongful acts or omissions” occurred in other instances
where the office investigated the university, including: Realtor referrals to Wharton by university administration to new OU staffers; and a university lease for another property at 4 University Terrace negotiated by Wharton.
Specifically, the OIG investigators said that in an October 2017 interview with Wharton, he admitted that university Athletics Director Schaus referred people to him.
“Wharton said if Schaus was hiring a new coach, Schaus would inform the new hire about Wharton’s firm and the names of other real-estate firms,” the report reads, although Schaus said in a follow-up interview that those hires choose “their own realtor.”
Wharton also confirmed to investigators that he had received requests from various university employees to take “prospective candidates” on a campus and city tour. He also provided the following real-estate services to university employees:
• Sold a house to Schaus and former VP for University Advancement Bryan Benchoff.
• Assisted White in finding a builder for his current home.
• Assisted Goss in contacting and negotiating the purchase of her first home in Athens at “no cost.”
• Referred a former University Advancement employee to a local businessman or developer to rent an apartment.
Still, the OIG found “no evidence” of new or potential staff being directed to exclusively use Wharton or his company, Ohio Realty, for their realtor needs.
The OIG report noted that the university purchased the furniture inside the home – valued at $113,849 – for $75,000 after appraising it. The furniture was “distributed to other various university buildings for use” after the McDavises vacated the property.
The home was eventually sold by Wharton to a local resident for $700,000, according to Athens County Auditor’s website.
Biancamano in the conference call Tuesday said that one “positive” outcomes from the investigation is that it’s given the university an opportunity to “re-examine” its processes, including providing training and “re-training” to employees on how to avoid potential conflicts of interest.
Biancamano also confirmed during the call that no university employees were disciplined as a result of the investigation or the controversy.
“All the information available to us is that university employees acted in good faith,” he said. “…There were systemic weaknesses that we’ve tried to correct.”