Regent says employee tip led to internal OSU audit that showed alleged misspending

STILLWATER — A member of the OSU/A&M Board of Regents said Friday the kernels that led to an Oklahoma State University internal audit — which appears to have led to former President Kayse Shrum’s surprise resignation — were planted in June with a whistleblower’s tip from an OSU employee.

Regent Jennifer Callahan, who led a regents’ task force investigating governance issues at OSU, spoke with reporters after a regularly scheduled board meeting, two days after the audit, which OSU said showed misspending by the OSU Innovation Foundation of money that was legislatively appropriated for other purposes.

Callahan said the audit “speaks for itself” as far as who bore responsibility for what happened and that the Innovation Foundation “is working on it right now” to reimburse the entities to which the money originally had been appropriated.

What to know about the OSU audit findings

Among the findings of the audit were that the university did not properly account for $41 million in legislatively appropriated funds between July 1, 2022, through Jan. 15, 2025, a time during which Shrum was serving as president.

The scope of the audit was limited to an amount of about $55.5 million for fiscal years 2023 to 2025, and sought to try and understand the specific restrictions and intended uses of the appropriated funds. It did not include all legislative appropriations during that time.

In investigating the alleged misspending, Callahan said, “The system worked — board oversight, independent internal audit functions, independent external audit functions, as well as state laws that were in place to manage this, all showed that the system worked.”

According to the audit’s executive summary, the $41 million in funds “were not properly restricted and in some instances were co-mingled with other funds, leading to expenditures that were not aligned with the restricted purposes.” The improper handling of funds, the audit said, included unauthorized transfers to the OSU Innovation Foundation, one of Shrum’s favored projects, which was rebranded in 2023 from its former name, the Oklahoma State University Research Foundation.

“Such actions in some cases violated state laws and policies, thereby posing financial and reputational risks to the institution,” the audit said.

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Callahan said the university is willing to work with other state agencies, including the state auditor’s office, if it’s determined that will fulfill the regents’ goal of transparency.

“The report speaks specifically to the state laws that were violated,” Callahan said. “There are specific relations as it relates to, if you want to call them auxiliary or affiliated entities. There is a heightened level of scrutiny, and I think for good reason, that when taxpayer dollars are transferred to an entity, that even if it’s a 501(c)3 (nonprofit), it’s a private entity.”

Kayse Shrum disputes findings of OSU audits

Shrum hasn’t responded to multiple messages left by The Oklahoman since her resignation, but in a statement issued to the Tulsa World, she disputed the findings of the audit, saying regents and attorneys were aware of the transfers of money between entities and did not raise any concerns.

“I do not have any knowledge that any laws were broken,” Shrum told the newspaper. “To my knowledge, absolutely nothing was done that was wrong or inappropriate. My training is as a physician, I am not a lawyer, and I relied upon the same legal advice that the Board of Regents were given. 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.”

Asked for a response, Callahan said, “You’d probably have to see what was actually communicated to the regents before you decide responsibility.”

Callahan apparently spearheaded the investigation after the Oklahoma Senate confirmed her to a seat on the OSU/A&M board in July. She joined the board about a month after the initial whistleblower complaint, she said, and was briefed in August about the issue. At the same time, she said, she was asked to replace a former regent on the board of the Innovation Foundation.

Callahan, an attorney, said she observed an August meeting of the Innovation Foundation board “and became concerned about its governance structure and its failure to comply with the Open Meeting Act.” She said that due to her concerns, she never formally attended a meeting as a board member.

In November, she received a briefing concerning the issues with spending of state funds and soon formed a Governance Task Force with two other regents, Joe Hall and Chris Franklin. That task force found “serious issues” and eventually presented the findings during an executive session during a January meeting, after which Callahan made a motion to freeze funds associated with the Innovation Foundation, which passed unanimously.

Shrum officially resigned from OSU on Feb. 2, but OSU officials kept the situation so secret the regents didn’t officially announce Shrum’s resignation until two days later, neglecting to give a heads-up to key state higher education officials, including Chancellor Sean Burrage and Dennis Casey, the chair of the Oklahoma State Regents for Higher Education.

Less than a week after Shrum resigned, regents named Jim Hess as OSU’s interim president. Board Chair Jimmy Harrel opened the OSU portion of Friday’s meeting by expressing the board’s confidence in Hess. Later in the meeting, the board approved an annual salary for Hess of $650,000. Harrel said the board would determine the timeline for the OSU presidential search “at a later date.”

What the audit found about the Innovation Foundation

According to its website, the Innovation Foundation’s mission “is 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 — all for the benefit of society.”

A key finding in the audit was the Innovation Foundation lacked “independent funding” and “is not operating with financial independence and has inappropriately utilized legislative appropriations intended for OSU.” The audit found the foundation “relied on inappropriately transferred legislatively appropriated funds intended for OSU special projects to support 96% of (its) operating costs.” Callahan confirmed that number Friday.

More: What is OSU’s Innovation Foundation? Funding in spotlight as Kayse Shrum, another resigns

The Innovation Foundation’s executive director, Elizabeth Pollard, resigned soon after Shrum. Pollard told the Tulsa World, “The Innovation Foundation followed University policy and procedures, including financial reporting into University systems.”

Asked how much responsibility Pollard had in the situation, Callahan paused a moment before responding, “We know what her title was, right? I think, again, the audit report speaks for itself.”

The audit also found that between 2023 and 2025, $55.5 million in legislatively appropriated funds from the OSU Medical Authority were not fully presented to the OSU/A&M regents’ board for budgetary approval, something required by both the board and the Oklahoma State Regents for Higher Education.

The audit said $41 million of that amount had been transferred from the Medical Authority to OSU. It also said OSU transferred $11.5 million in legislatively appropriated funds to the Innovation Foundation — money provided through OSUMA and intended for the University.

This article originally appeared on Oklahoman: Regent: OSU audit on alleged misspending sparked by employee complaint