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Kansas Board of Regents
Confidential Exit Analysis Related to the Retirement of Dr. Jon Wefald
President of Kansas State University
Prepared by Grant Thornton LLP
April 27, 2009


SECTION 1: ENGAGEMENT SUMMARY
Engagement Overview, Scope and Approach
On October 21, 2008, Grant Thornton LLP (“Grant Thornton”) was engaged by the Kansas Board of
Regents (the “Regents”) to assist the Regents in the performance of an exit analysis of certain non-State
funded accounts administered and/or controlled by President Jon Wefald of Kansas State University (“KSU”
or the “University”) or his direct subordinates.
The key objective of this engagement was to evaluate whether financial transactions involving these
employees within the specified accounts for the period 2003 to the present were for legitimate business
purposes and were appropriately documented and approved.
An analysis of specific accounts and entities identified by the Regents and the Kansas State University
Foundation (“Foundation”) for the period 2003 to the present was conducted. The identified accounts and
entities included:
· Kansas State University Alumni Association (“Alumni Association”);
· Foundation account funds provided for the benefit of the University, specifically funds provided to
the National Institute for Strategic Technology Acquisition and Commercialization (“NISTAC”) and
its affiliated entities and the Kansas State University Golf Course Management and Research
Foundation (“KSUGCMRF”), and the Discretionary Funds provided for President Wefald and
former Vice President for Institutional Advancement Bob Krause; and
· Intercollegiate Athletics Association (the “Athletics Department”) non-State funded accounts.
In conducting our analysis, Grant Thornton:
· Interviewed President Wefald and other key personnel of the University, the Alumni Association,
KSUGCMRF, the Foundation, the Athletics Department and NISTAC;
· Analyzed general ledgers of the KSUGCMRF, the Foundation, NISTAC and its affiliated entities,
and the Athletics Department and performed testing of certain account transactions;
· Analyzed Statement of Substantial Interest forms, Conflict of Interest and Time Commitment forms
and employment contracts and related documents for various individuals; and
· Analyzed minutes of meetings of Boards of Directors and various Committees for the entities
reviewed.
Our services were provided in accordance with the Statement of Standards for Consulting Services
promulgated by the American Institute of Certified Public Accountants and, accordingly, do not constitute a
rendering by Grant Thornton or its partners or staff of any legal advice, nor do they include the compilation,
review or audit of financial statements. Because our services were limited in nature and scope, they cannot be
relied upon to discover all documents and other information or provide all analyses that may be of
importance in this matter. For instance, any procedures we performed cannot be relied upon to give
assurance that any defalcations or fraudulent transfers that might have taken place were discovered.
Scope Limitations
Not all information requested by Grant Thornton was available for our inspection. Specifically, supporting
documentation for 13 selected cash disbursements by the Athletics Department, the original July 2, 2001
employment contract information and the 2005 BMA Annuity information for former Athletics Director Tim
Weiser and the NutriJoy, Inc. Stockholders’ Agreement among The Coca-Cola Company (“Coca-Cola”),
NISTAC and NutriJoy, Inc. (“NutriJoy”) related to Coca-Cola’s purchase of a controlling interest in NutriJoy
were not available.
Mr. Bob Cavello, Associate Director of Athletics, indicated that the supporting documentation for the 13
selected disbursements, representing $845,000, could not be located or was no longer available due to normal
record retention practices. The payees in question included former Athletics Director Tim Weiser, former
Head Football Coach Bill Snyder, and former Vice President for Institutional Advancement and Athletics
Director Bob Krause, among others. Therefore, we were unable to determine whether these transactions
were for a legitimate business purpose and were appropriately documented and approved.
Mr. Cavello originally indicated that the Athletics Department had neither a copy of Mr. Weiser’s original
2001 contract nor the documentation supporting the Athletics Department’s 2005 purchase of the BMA
Annuity to fund the matching of Mr. Weiser’s deferred compensation account. Mr. Cavello indicated that he
requested these documents from Mr. Weiser’s advisors, but they did not become available during our
engagement. Subsequently, we were told that Mr. Krause indicated that there was no July 2, 2001 contract
for Mr. Weiser, although one was specifically noted by date in the “Third Amendment to Contract for Tim
Weiser.” We have identified possible tax issues related to Mr. Weiser’s employment contracts and various
payments made to him there under. Please refer to the “Intercollegiate Athletics Association” section of this
report for further detail on this issue.
Mr. Kent Glasscock, President of NISTAC, indicated that the NutriJoy Stockholders’ Agreement related to
Coca-Cola’s purchase of a controlling interest in NutriJoy could not be shared with Grant Thornton due to
confidentiality concerns. Therefore, our analyses rely solely on verbal representations regarding the rights
that accrue to the various classes of common stock. Our interest in this document was to determine if the
University and the Foundation, through their investments in and financial support of NISTAC, are being
treated fairly in comparison to other classes of investors. Please refer to the “NISTAC Cluster” section of
this report for further detail on this issue.

Primary Findings
Significant progress and growth has occurred at the University during the tenure of President Wefald with the
significant assistance of former Vice President for Institutional Advancement Bob Krause. Notable
accomplishments under President Wefald’s leadership include:
· University enrollment has increased 52%;
· Academic excellence has grown as evidenced by the 125 Rhodes, Marshall, Truman, Goldwater and
Udall Scholarships awarded to KSU students since 1986;
· Significant funds have been raised contributing to the rebuilding of the Athletics Program and 2.2
million square feet of new buildings and renovations throughout the campus;
· The University has developed a prominent Food Safety and Security Program; and
· KSU has drawn national attention through its selection as the site for the new National Bio and
Agro-Defense Facility.
President Wefald shared with us that his management style is to hire good people and to delegate to them the
authority and responsibility they need to accomplish the goals he has set for them. Therefore, rather than
having a straight line of reporting to President Wefald, we found that many of the entities, for which we were
instructed to analyze accounts, report to President Wefald through the Office of Vice President for
Institutional Advancement, concentrating a great deal of responsibility and oversight in that office. Mr.
Krause held the position of Vice President for Institutional Advancement from its initiation in August 1986
through October 1, 2008.
Over the years, as President Wefald delegated responsibilities to Mr. Krause, Mr. Krause’s sphere of influence
grew from student recruitment and retention, University relations and alumni affairs to include extensive
responsibility for coordinating the activities of the Alumni Association, the Foundation and the Athletics
Department with those of the University. In addition, Mr. Krause was given responsibility for economic
development on behalf of the University. Therefore, Mr. Krause’s involvement in most of the entities and or
accounts we were asked to analyze was notable as detailed below.
· Mr. Krause’s involvement in the Athletics Department was more than cursory. During the period
under review, Mr. Krause participated in contract and compensation negotiations for head coaches
and Athletics Director Tim Weiser, often being the only signatory to the contract on behalf of the
Athletics Department or University as the Vice President for Institutional Advancement and/or the
sole member of the Athletics Director Compensation Committee. Mr. Krause was also very
involved in the financial affairs, fundraising efforts and strategic direction of the Athletics
Department. Prior to his current position as Athletics Director, Mr. Krause served as the Interim
Athletics Director on four occasions. Due to the level of Mr. Krause’s involvement in the Athletics
Department, President Wefald approved an “Overload Contract” for Mr. Krause under which the
Athletics Department compensated him in an amount approximating 25% of his base salary as Vice
President for Institutional Advancement from 2003 through 2008. A payment was also approved in
2001 for Mr. Krause’s responsibilities as Interim Athletics Director during that year.
· Mr. Krause was one of the initial visionaries of and has been instrumental in the development and
funding of the Colbert Hills Golf Course. He personally guaranteed a portion of the construction
debt and is currently making payments on a personal promissory note related to that guarantee. He
also serves as the Assistant Treasurer of KSUGCMRF.
· Mr. Krause was also responsible for and very involved in economic development efforts on the
University’s behalf. Mr. Krause served as the University’s representative to NISTAC, the Executive
Chair of NISTAC, as a director of a wholly-owned subsidiary of NISTAC and currently serves as
Chairman of NutriJoy, one of the most commercially successful private businesses incubated by
NISTAC. Reportedly, the 2008 sale of a majority interest in NutriJoy to Coca-Cola would not have
occurred without Mr. Krause’s involvement and leadership.
However, we found that the concentration of influence by President Wefald through his aggregation of
reporting and oversight duties in Mr. Krause has led to a blurring of the lines between some of the entities we
reviewed. The Foundation, the Alumni Association, KSUGCMRF, NISTAC and the Athletics Department
view themselves, and are viewed by others, as part of or associated with the institution of KSU. However,
they are all separate legal entities apart from the University. They all have as a common goal the advancement
of KSU and have at times entered into transactions with one another in support of that goal. However, as
separate legal entities, any transactions among them should be appropriately disclosed, approved and
documented allowing for transparency of intent and substance. The failure to do so raises the question of the
legitimacy of the transaction. Our report details numerous instances where transactions between the various
entities did not meet this standard.
We found that conflicts of interest are inherent in the structure of NISTAC as the bylaws allow
directors/officers of the NISTAC Cluster to personally own stock in and serve on the boards of directors of
incubated companies. This duality of interest, to the University through its involvement in NISTAC and to
the incubated companies as directors and/or stockholders, should be closely monitored by the University and
the Foundation.
We found that KSUGCMRF and the Athletics Department have entered into transactions with employees of
the University or its various affiliate entities which may result in favorable tax treatment to that employee in
situations where it may not be warranted and/or may result in tax liability and possible penalties to the
involved entity. In these particular instances, Grant Thornton is not offering a tax opinion on the
transactions, but rather bringing the transaction forward so that appropriate tax opinions may be sought.
The overall findings of our work revealed that reporting responsibility for and, in some cases, apparent
authority over KSUGCMRF, the Foundation, NISTAC and the Athletics Department is effectively centered
under Mr. Krause. This situation has led to a laxity in some transactions among those entities and with the
University. There is a need for more formalization, structure, accountability and transparency in the manner
in which the University and its related entities interact and transact with one another. Conflicts of interest
can and do exist which should be carefully considered and managed to ensure that the legitimacy of
transactions and to avoid perceptions of possible self-dealing or mismanagement.
 

SECTION 2: ENGAGEMENT SCOPE AND APPROACH
Objective and Scope
The key objective of this engagement was to evaluate whether financial transactions within the specified
accounts that fell under the control of President Wefald or one of his direct subordinates for the period 2003
to the present were for legitimate business purposes and were appropriately documented and approved.
Approach
In conducting our analysis, Grant Thornton:
· Interviewed key personnel of the University, the Alumni Association, KSUGCMRF, the Foundation,
the Athletics Department and the NISTAC Cluster;
· Reviewed general ledgers of the KSUGCMRF, the Foundation, the NISTAC Cluster, and the
Athletics Department and performed testing of certain account transactions;
· Reviewed Statement of Substantial Interest forms, Conflict of Interest and Time Commitment forms
and employment contracts and related documents for various individuals; and
· Reviewed minutes of meetings of Boards of Directors and various Committees of certain entities.
Interviews
We interviewed the following key personnel:
· Dr. Jon Wefald, President of the University;
· Mr. Bob Krause, Athletics Director, former Vice President for Institutional Advancement of the
University and former Executive Chair of NISTAC;
· Mr. Bruce Shubert, Vice President of Finance and Administration of the University;
· Ms. Fran Willbrant, Controller of the University;
· Ms. Cindy Bontranger, Budget Director of the University;
· Ms. Amy Button Renz, President of the Alumni Association;
· Mr. Brad Sidener, Senior Vice President and Chief Financial Officer of the Alumni Association;
· Mr. Bernie Haney, Executive Director of KSUGCMRF and Assistant Director/Development-Golf
Programs of the Athletics Department;
· Mr. Gary Hellebust, President and Chief Executive Officer of the Foundation;
· Mr. Bruce Kent, Counsel for Gift Planning of the Foundation;
· Mr. Alan Klug, Vice President for Administration and Finance and Chief Financial Officer of the
Foundation;
· Ms. Christy Scott, Compliance Officer of the Foundation;
· Ms. Lois Cox, Director of Investments of the Foundation;
· Ms. Deborah Depew, Assistant Director of Accounting Services of the Foundation;
· Mr. Kent Glasscock, President and Executive Committee member of NISTAC;
· Ms. Victoria Appelhans, Vice President of Finance for NISTAC;
· Mr. Bob Cavello, Associate Director of Athletics;
· Mr. Kim Linck, Assistant Business Manager of Athletics; and
· Ms. Tami Breymeyer, Director of Licensing.
Document Reviews
We reviewed the following documentation:
· The financial statements for the University, the Alumni Association, KSUGCMRF, the Colbert Hills
Golf Course, the Foundation, the NISTAC Cluster, and the Athletics Department for the fiscal yearend
periods of June 30, 2003 through 2008;
· Reviewed the Discretionary Funds at the Foundation and the general ledgers of KSUGCMRF, the
NISTAC Cluster and the Athletics Department and performed testing of certain account
transactions;
· Reviewed Statement of Substantial Interest forms, Declaration for Conflict of Interest and Time
Commitment forms and employment contracts and associated documents for various individuals.
 

SECTION 3: FINDINGS AND RECOMMENDATIONS
Kansas State University Alumni Association
Scope
Our work at the Alumni Association involved interviewing President Amy Button Renz and Senior Vice
President and Chief Financial Officer Brad Sidener. We reviewed the Alumni Association fiscal year-end
financial statements for 2003 through 2008. However, no cash disbursement testing was performed at the
Alumni Association at the request of the Foundation. Mr. Sidener indicated that neither President Wefald
nor any of his direct reports received any compensation or reimbursement from the Alumni Association
during the period under review.
 

Overview
The KSU Alumni Association is a 501(c)(3) educational non-profit organization. The Alumni Association
reports to the President through the Office of the Vice President for Institutional Advancement. It receives
State funding to maintain a database of KSU alumni. Maintenance of the database is currently shared with
the Foundation for fund raising purposes. In the past, the Alumni Association and the Foundation charged
each other for services with respect to the alumni database but that has been discontinued as it was proving
to be a wash. The database contains approximately 260,000 names including geographic and biographic data,
and donation receipts history.
Revenues come from membership dues, annual gifting, affinity partnerships, Alumni Center use, catering
commissions, sponsorship money and advertising. There is a tiered rate for Alumni Center use depending on
affiliation (KSU Departments, the Foundation and Alumni Association members receive discounts). Usage
fees up to $1,250 annually for President Wefald’s wife are waived so she may use the Alumni Center for
public relations. Both the Foundation and the Athletics Department receive a $2,000 annual allotment.
Usage above that amount (which is the norm) is billed at the appropriate rate. The Alumni Association may
waive usage fees for specific events at its discretion. The Foundation hosts 10 to 15 events each year. The
Athletics Department hosts six to eight events each year.
Expenses are primarily staff payroll and benefits, general administration, programs, magazines and
recruitment events. The Alumni Association owns the building but the University owns the surrounding
land, including parking lots. Programs include 30 Athletics events and “watch parties.” The Alumni
Association also uses the University jet on a per mile basis, although sometimes the charge is shared with the
Athletics Department (e.g. a coach speaks at an Alumni Association sponsored event).
The Alumni Association maintains its own bank account and also has an Imprest Account at the University
Controller’s Office to pay KSU-related “vendors” such as student payroll, University jet, grounds keeping and
miscellaneous minor University charges.
Findings and Recommendations
Based on the information available to us for our review, we had no material findings or recommendations.
 

Kansas State University Golf Course Management and Research Foundation
Scope
Our work at KSUGCMRF and the Colbert Hills Golf Course (the “Golf Course”) involved interviewing
KSUGCMRF Executive Director Bernie Haney regarding KSUGCMRF’s general structure, history and the
2005 debt restructuring; Foundation Assistant Director of Accounting Services Deborah Depew with regard
to KSUGCMRF’s books and records maintained by the Foundation; and Director of Licensing Tami
Breymeyer regarding the interface between KSUGCMRF, the Golf Course and the Athletics Department.
Mr. Haney, KSUGCMRF’s sole employee, is a “fractional employee” in that 10% of his time is dedicated to
KSUGCMRF and 90% is dedicated to the Athletics Department for his position as Assistant
Director/Development – Golf Programs. Mr. Haney’s responsibilities for KSUGCMRF include fundraising,
budget development and oversight, maintaining/developing relationships with benefactors and corporate
partners, and serving as the liaison among KSUGCMRF, the Golf Course, the Athletics Department, the
Men’s and Women’s Golf Coaches, Grand Mere Development1 and the University.
We reviewed KSUGCMRF’s and the Golf Course’s fiscal year-end financial statements for the years 2003
through 2008 as well as KSUGCMRF’s general ledger for the same period. We tested cash disbursement
transactions equal to or greater than $500 for selected individuals (representing 80.6% of the category) and all
other cash disbursements, including payroll, equal to or greater than $2,500 (representing 74.1% of the
category). Neither President Wefald nor any of his direct reports received any compensation or
reimbursement from KSUGCMRF or the Golf Course during the period under review.
 

Overview
KSUGCMRF is a 501(c)(3) educational non-profit organization and a wholly-owned subsidiary of the
Foundation. It is a separate legal entity from the University and the Athletics Department. KSUGCMRF is
supported primarily through specified private donations, overseen by the Foundation. KSUGCMRF receives
private donations in support of its on-going operations; dedicated for the construction of a new 13,500
square foot clubhouse to be completed in January 2010; and for “The First Tee.” “The First Tee” is a
national not-for-profit organization designed to give disadvantaged and minority youths an opportunity to be
involved in golf.
The Golf Course is owned by KSUGCMRF and is leased (at no cost) to Golf Generations, Inc. Golf
Generations is a for-profit corporation responsible for all daily operations and maintenance of the Golf
Course, for which it charges KSUGCMRF an annual fee of $24,000. Golf Generations employs seven fulltime
and 50-60 part-time employees which are paid through the operations of the Golf Course. Net income
from operations of the Golf Course rolls up into KSUGCMRF’s financials which in turn roll up into the
financials of the Foundation.
1 Grand Mere Development is the luxury residential/commercial development surrounding the Golf Course. Grand
Mere Development is owned by members of the Vanier family. The Vanier family are significant supporters of the
University and the Athletics Department and are the in-laws of Mr. Krause. Mr. Krause stated that he and his wife do
not have any financial ownership or interest in Grand Mere Development.

KSUGCMRF has ties to the Athletics Department through support for KSU’s Men’s and Women’s Golf
Teams. The Golf Course serves as the home course for the Men’s and Women’s Golf Teams for which it
receives $20,000 a year from the Athletics Department. The January 1, 2006 Operating Lease between
KSUGCMRF and Golf Generations, Inc. indicates that “…the Kansas State men and women’s golf teams
shall have free use of the Golf Course, except that such members shall be responsible for the food and
beverages charges and merchandise purchased at the Golf Course. In addition, the teams shall have free use
of the driving range and the practice facilities at the Golf Course…” However, a July 26, 2005 letter from
former Athletics Director Tim Weiser to the President of KSUGCMRF indicates that the Athletics
Department agreed to the annual $20,000 per year payment on behalf of the golf teams as the operating
budgets of the golf teams could not absorb this cost. The letter further indicates that an “alternative source
of funding” was secured to pay this expense and indicates that if that source becomes unavailable, then the
Athletics Department’s support of the annual $20,000 payment would end. Mr. Krause indicated that the
$20,000 per year paid by the Athletics Department was to reimburse the Golf Course for the golf teams’ use
of the locker area and indoor practice facilities. However, the practice facilities appear to be available to the
golf teams without charge per the Operating Lease and $20,000 a year for the use of the locker area could be
seen by some as questionable. The Athletics Department, as a “founding member” of the Golf Course,
receives four permanent play passes for its general use. Mr. Krause, the current Athletics Director, serves as
the Assistant Treasurer of KSUGCMRF and has check approval and signatory authority.
KSUGCMRF also has ties to the University through the College of Agriculture’s Turf Management
curriculum. The College of Agriculture pays $40,000 annually for access to the Golf Course for turf
management experiments, but receives no playing rights. In addition, the Kansas State Student Union
donates $5,000 annually to support discounted greens fees for KSU students.
 

Cash Disbursements
Of the cash disbursements selected for testing, only 60% had a payment request in the form of a formal
memo or informal notation, and only 7% had any notation that could be considered an “approval.” Copies
of checks were attached to only 9% of the cash disbursement packets tested. We noted disbursements paid
to Mr. Haney for reimbursement of expenses were not approved. We also noted disbursements for “Cash”
totaling $4,000, but most did not have evidence of approval.
Bridge Loan Guarantees
The Golf Course was built in 2000 on 315 acres of grazing land purchased by KSUGCMRF from the Vanier
family, long-time KSU supporters/donors and in-laws of Mr. Krause. The family retained approximately
700 acres surrounding the golf course site for the Grand Mere Development consisting of luxury residences
and commercial properties.

Initial funding for the construction of the Golf Course included $12 million in specific donations, $8 million
in bonds payable and a $4.1 million line of credit (the construction “Bridge Loan”). The Bridge Loan was
personally guaranteed by six individuals, including Mr. Krause. Within a few years of opening, the Golf
Course was financially distressed. In early 2005, KSUGCMRF defaulted on its bonds, resulting in a financial
restructuring in June 2005. Negotiations with the indenture trustee and bond guarantor resulted in a $2
million settlement in payment of the bonds. KSUGCMRF then bought back the Golf Course for $2 million
borrowed from Kansas State Bank. The original Bridge Loan had been paid down to $1.8 million and was
then owned by Columbian Bank & Trust. Effective June 30, 2005, the six personal guarantors executed notes
payable to Columbian Bank & Trust individually for one-sixth of the outstanding Bridge Loan and
KSUGCMRF’s debt to Columbian Bank & Trust was retired. Three of the guarantors chose to pay off their
loans to Columbian Bank & Trust during 2005. The other three guarantors, including Mr. Krause,
renegotiated or refinanced their promissory notes to extend the maturity date as much as five years.
Although KSUGCMRF’s debt was retired in full when the guarantors took on their personal obligations, the
debt remains on KSUGCMRF’s balance sheet in a line item entitled “Non Recourse Line of Credit.” Five of
the guarantors made a lump sum contribution or are making periodic contributions to the KSUGCMRF in
the amount of their principal and interest payments due, which KSUGCMRF pays to Kansas State Bank with
instructions to forward to the appropriate financial institution to pay down the guarantors’ personal debt. It
appears that the transactions are structured in this manner so that the loan payments can be counted by the
guarantors as “designated contributions” and therefore be considered tax deductible donations to
KSUGCMRF. This is confirmed by an October 18, 2005 email from Mr. Krause to the other guarantors with
a copy to Mr. Bernie Haney, Mr. Alan Klug, an individual at Kansas State Bank and a member of the
Foundation’s external audit team.
The IRS could potentially view this as an improper transaction as the debt being repaid is the debt of the
individual guarantors and not that of KSUGCMRF, yet KSUGCMRF is receipting the payments as tax
deductible donations. We spoke with the member of KSUGCMRF’s external audit team copied on the
previously referenced email. The auditor indicated that he was aware of the structure of the transaction. He
indicated that he had not sought an opinion from any taxing authority regarding the structure, but believed
that the payments would be viewed as being made in support of the KSUGCMRF and therefore would be
deductible by the guarantors.
Given that Mr. Krause has held various positions within the University and its affiliates during the period in
which he has been making payments on his personal guarantee, we analyzed the compensation paid to him or
on his behalf by the Foundation, the Athletics Department and the NISTAC Cluster to determine if any of
those organizations could be making directly or funding the guarantee payments on his behalf out of accounts
under our review. It does not appear that the Foundation, the Athletics Department or the NISTAC Cluster
made payments for Mr. Krause’s personal guarantee or on his behalf based on both the timing and the
amount of payments made.
Findings and Recommendations
With regard to cash disbursements, formal payment request forms detailing the business purpose of the
request for payment should be completed. In addition, cash disbursements should not be made without the
necessary approvals.
The Foundation, as the parent of KSUGCMRF, should consider the manner in which the Bridge Loan and
its related guarantees are being reported by KSUGCMRF and paid to and receipted by KSUGCMRF for debt
no longer in the entity’s name and determine if the situation warrants further review. KSUGCMRF’s
financial statements are currently inaccurate as they list as a liability a debt not legally owed by KSUGCMRF.
The appearance of a conflict of interest or preferential treatment for the guarantors should be factored into
the Foundation’s decision.
The relationship between KSUGCMRF, the Golf Course and the Athletics Department should be reviewed
and appropriately formalized and documented. Currently, the $20,000 annual payments by the Athletics
Department for the golf teams’ use of the locker area and indoor practice facilities do not appear to be
required by the Operating Lease with Golf Generations (which post-dates the 2005 letter from former
Athletics Director Tim Weiser). The Operating Lease specifically speaks to the free use of the Golf Course,
the driving range and the practice facilities at the Golf Course. All transactions between KSUGCMRF, the
Golf Course and the Athletics Department should be appropriately formalized and documented.
 

Kansas State University Foundation
Scope
Our work at the Foundation involved interviewing President and Chief Executive Officer Gary Hellebust,
Counsel for Gift Planning Bruce Kent and Vice President for Finance and Administration and Chief
Financial Officer Alan Klug. We also spoke with Director of Investments Lois Cox and Compliance Officer
Christy Scott about specific transactions. We reviewed the Discretionary Funds ledger for the period fiscal
year 2003 through the present and selected 517 items for testing. We tested cash disbursement transactions
greater than or equal to $750 if paid to individuals (representing 47.2% of President Wefald’s Discretionary
Funds and 54.2% of Mr. Krause’s Discretionary Funds) and all other cash disbursements in excess or equal to
$1,500 (representing 20.0% of President Wefald’s Discretionary Funds and 28.3% of Mr. Krause’s
Discretionary Funds).

Overview of Discretionary Funds
An annual Discretionary Fund with an average amount of approximately $380,000 was made available to
President Wefald by the Foundation through an account entitled “University Welfare and Development.” An
annual Discretionary Fund with an average amount of $265,000 was made available to the Vice President for
Institutional Advancement (formerly Mr. Krause) by the Foundation through an account entitled “University
Recruitment and Public Relations.” The source of funding for these accounts was unrestricted funds at the
Foundation. President Wefald has traditionally used the funds for official hospitality, to pay the non-State
funded portion of travel expenses, to support University departments that have smaller budgets and for
miscellaneous expenses related to his office. Mr. Krause has used his funds for official hospitality, to pay the
non-State funded portion of travel expenses and for miscellaneous expenses related to his office. In addition,
vehicles for President Wefald, his wife and a member of his staff as well as for Mr. Krause are paid for out of
the Discretionary Funds.
Our review of the cash disbursements from the Discretionary Funds found that, in general, appropriate
supporting documentation and approvals were present. However, a few transactions were noted in which the
purpose of transaction did not appear to be an appropriate use of the Discretionary Funds or was missing.
For instance, in September 2003, Discretionary Funds in the amount of $1,191.00 were used to reimburse
Mrs. Wefald for the air fare for Ms. Kerry Wefald to accompany her on a trip to New York for the Friends of
the Arts through the Marianna Kistler Beach Museum of Art. The purpose of the trip was not noted in the
supporting documentation. Furthermore, no reason for Ms. Kerry Wefald’s attendance was proffered other
than that Kerry was an alumna and “very good at meeting people and making them feel welcome.”
Assumedly, Kerry Wefald is a relative of President and Mrs. Wefald. The Foundation questioned the
appropriateness of the reimbursement as a handwritten note to the Chief Financial Officer approving
payment indicated that “The Wefalds have agreed they will make only “support gifts” from the fund in the
future, therefore avoiding any misperception that the funds were not utilized correctly.”
Furthermore, the supporting documentation for some transactions, such as various monthly payments made
in 2005 and 2006 in the $700 to $800 range to RB Enterprises, Inc, carries no explanation at all. The
payments appear to be installment payments of some kind, but there is no indication of what is being paid or
its business purpose.
Additionally, a few instances of duplicate reimbursement of an expense were noted. It is our understanding
that the Foundation requires the submission of the original receipt to assist in protecting against duplicate
reimbursements. However, we noted a few instances where a receipt was submitted for an expense and then
a short time later, a charge or other account statement with the same expense would be submitted and both
would be paid.

An example is the dinner tab at the Manhattan Country Club on October 27, 2006 for the BRI Dedication.
On November 2, 2006, Charles Reagan submitted a check request against President Wefald’s Discretionary
Fund payable to the Manhattan Country Club in the amount of $4,005.51. The support was the actual
itemized dinner tab from the Country Club. The Foundation issued check #101540 on November 9, 2006 to
the Manhattan Country Club in the amount of $4,005.51. On November 6, 2006, Charles Reagan submitted
a check request against President Wefald’s Discretionary Fund payable to the Manhattan Country Club in the
amount of $4,237.79. The support was a Manhattan Country Club account statement in the name of Susan
Peterson-Thomas, a member of President Wefald’s staff. The statement included a line item dated October
27, 2006 for “Banquets/Parties” in the amount of $4,005.51. An electronic copy of the dinner tab from the
October 27, 2006 event was attached and matched the previously submitted documentation exactly. The
Foundation issued check #101645 on November 13, 2006 to the Manhattan Country Club in the amount of
$4,237.79. Therefore, the Foundation double paid the Manhattan Country Club in this instance. If it has not
done so, the Foundation should research these cash disbursement to determine if they were appropriately
reimbursed by the Manhattan Country Club or Ms. Peterson-Thomas.
In another instance, on June 25, 2007, Marilyn Land submitted a check request against Mr. Krause’s
Discretionary Fund payable to Wal-Mart in the amount of $107.51. The support was the actual June 20, 2007
itemized receipt from Wal-Mart. The receipt indicated that the items were charged against an account. The
Foundation issued check #112564 on June 28, 2007 payable to Wal-Mart in the amount of $107.51. On July
18, 2007, Marilyn Land submitted a check request against Mr. Krause’s Discretionary Fund payable to Wal-
Mart in the amount of $107.51. The support was the Wal-Mart account statement in the name of “Vice
President for Inst AD.” The statement included a line item dated June 20, 2007 in the amount of $107.51.
The Foundation issued check #113660 on August 2, 2007 to Wal-Mart in the amount of $107.51. Therefore,
it appears that Foundation double paid Wal-Mart in this instance. If it has not done so, the Foundation
should research these cash disbursements to determine if they were appropriately reimbursed by Wal-Mart.
A final issue relates to the different hats that Mr. Krause wore in support of the University and its related
entities and the appropriate payment of his expenses by the various University and University-related entities.
On three occasions in 2006 and 2007, Mr. Krause requested reimbursement from his Discretionary Fund
totaling $889.76 for dinners related to NutriJoy, an incubated company of NISTAC in which NISTAC and
Mr. Krause personally hold stock. In addition, during this period of time, Mr. Krause was both the Executive
Chair of NISTAC and Chairman of the Board of NutriJoy. In fact, Mr. Krause had become a 15% fractional
employee of the NISTAC Cluster due to the amount of time he was spending on NISTAC business unrelated
to the University. Two of the three dinners directly related to NutriJoy’s potential partnership with Coca-
Cola. The Foundation should consider a methodology to share expenses with other entities when an
individual is representing, in part, interests outside the University.

A related concern is the possibility that requests for reimbursement could be made to more than one entity
utilizing copies of the same documentation allowing for the duplicate reimbursement of expenses. All
University-related entities should have a policy of only accepting original receipts. Only when original
receipts are not available should a charge account statement be accepted, and then only with appropriate
consideration and approval.
 

Scholarship Deficit
Scholarships are routinely offered to students through the University’s Office of Student Financial Aid. We
were told that the Office of Student Financial Aid typically offers more in scholarships than it intends to
fund, as not all scholarships extended are accepted. The primary sources of the scholarship funds are
donations and endowments overseen by the Foundation. Other sources of monies to fund scholarships
historically came from the Kansas State University Student Assistance Foundation from the resale of Sallie
Mae loans typically in the range of $600,000 to $800,000. Supplemental scholarship funds were available to
the Vice President for Institutional Advancement’s office in the form of Alumni License Plate fees, logo
royalties and funds from a Pepsi contract, typically in the range of $440,000. It is our understanding that the
Office of Student Financial Aid and the Kansas State University Student Assistance Foundation were under
the direction of the Office of the Vice President for Institutional Advancement, formerly Mr. Krause.
Mr. Krause indicated that the Foundation gives the Office of Student Financial Aid a line of credit with
which to fund the individual scholarships. After it has been determined which scholarships will be funded by
which endowments or donations, due to various eligibility requirements of some scholarships, the line of
credit is reconciled against the various monies available for scholarship use at the Foundation.
Mr. Krause indicated that in 2007 the Scholarship Fund at the Foundation became overdrawn by
approximately $2.4 million. He indicated that the cause was twofold. A much higher than normal
scholarship acceptance rate that year, and a recent change in federal regulations which had caused the
activities of the Kansas State University Student Assistance Foundation to go dormant, effectively truncating
that traditional source of scholarship funding. Per Mr. Krause, this period of time also coincided with a
period in which his office ceased to receive the normal “accounting” or “reconciliation” of funds available for
scholarships from the Foundation. The Foundation disagrees with Mr. Krause and indicated to us that Mr.
Krause had been given the same “accounting” or “reconciliation” of funds available for scholarships that had
been provided in the past and that it appeared that scholarships in excess of the amount of available funds
were offered with the expectation that the Foundation would somehow fund any shortfall. The Foundation
also disagrees that the acceptance rate for scholarships was abnormally high for 2007.
In March 2008, the Foundation informed Mr. Krause of the approximate $2.4 million shortfall and requested
a proposal for repayment. However, Mr. Krause indicated that his office and its reporting departments did
not have sufficient funds to cover the deficit in full. The initial proposal submitted by the Office of the Vice
President for Institutional Advancement was to repay the funds over a five to eight year period from the only
remaining sources available to it with which to fund scholarships: the Alumni License Plate fees, logo
royalties and funds from a Pepsi contract. This proposal was reportedly unacceptable to the Foundation due
to the length of time for repayment. A second proposal was to have the Athletics Department pay an
additional $400,000 a year directly to the Foundation. This proposal shortened the repayment period, but was
also rejected by the Foundation.
As of June 30, 2008, a negotiated repayment plan was reached. The Office of the Vice President for
Institutional Advancement would contribute Alumni License Plate fees, logo royalties and funds from a Pepsi
contract in the amount of $447,000 for fiscal year 2008, $440,000 for fiscal year 2009, and $312,000 for fiscal
year 2010. Of the $625,000 in Discretionary Funds annually made available to the Office of the President
and the Office of the Vice President for Institutional Advancement from the Foundation, $400,000 would be
applied against the scholarship account deficit in fiscal years 2008, 2009 and 2010. The resulting $400,000
shortfall in the Discretionary Funds in those years would be funded by the Athletics Department. The
Athletics Department would reduce or cease its payment of the Institutional Support Fee to the University’s
Controller’s Office, expected to approximate $180,000 per year. In addition, the University would transfer
$220,000 per year to the Athletics Department which would then be transferred to the Foundation.
Reportedly, the transaction was structured in this manner as the University is prohibited from transferring
funds directly to the Foundation. We questioned the Athletics Department’s responsibility for involvement
in this transaction and were told that as the Athletics Department fell under the purview of Mr. Krause, Mr.
Krause elected to solve the issue in this manner and that the Athletics Department clearly did not have any
responsibility for the payments. Per President Wefald, this arrangement was negotiated with his knowledge
and approval.
Findings and Recommendations
Disbursements from the Discretionary Funds should strictly adhere to the Foundation’s Accounting Policy
Manual which requires that every disbursement request provide documentation justifying the business
purpose of the expense and how it benefits KSU. The Accounting Policy Manual also states that credit card
statements detailing monthly charges are not adequate receipts for documentation purposes. Any
disbursement requests not complying with the Accounting Policy Manual should be denied until
appropriately amended and supported.
If it has not already done so, the Foundation should research the detailed instances of duplicate
reimbursement and ensure that they are appropriately resolved.
In the event an individual requests reimbursement for an event or trip where he or she was clearly
representing the University and a party or entity unrelated to the University, the reimbursement should be
divided fairly between the University and the other entities deriving benefit from the event or trip.
The amount of funds available for scholarships should be determined and formally communicated to all
concerned parties prior to the awarding of scholarships. The entities awarding scholarships should ensure
that they do not offer scholarships in excess of the available funding. Appropriate controls may require the
submission of scholarship letters to the Foundation prior to their presentation to students.
Given that the Discretionary Funds generally go to activities that benefit the entire University and its related
entities, it is unclear why it is appropriate for the Athletics Department to fund any shortfalls caused by the
deficit in the scholarship accounts or for any other reason. It would seem that the traditional source of
funding, being unrestricted funds at the Foundation, is the most appropriate source of funding. Any amounts
transferred by the Athletics Department to the Discretionary Funds at the University should be formally
documented to include approval by the appropriate board or committee of the Athletics Department.
Furthermore, formal acknowledgement by the University Controller’s office regarding the reduction in the
Institutional Support Fee to be paid by the Athletics Department should also be documented.
 

NISTAC Cluster
Scope
Our work at the NISTAC Cluster involved interviewing former NISTAC Executive Chair Bob Krause,
NISTAC President Kent Glasscock, and NISTAC Vice President of Finance and Chief Financial Officer
Vicki Appelhans. We reviewed financial statements and general ledgers for NISTAC, Mid-America
Technology Management, Inc., (“MTM”) and Manhattan Holdings, LLC (“Holdings”) for fiscal years 2003
through 2008. In addition, we reviewed the minutes of the Boards of Directors for each entity for calendar
years 2001 through 2008 and the employment contracts and compensation agreements for Messrs. Glasscock
and Krause. We tested 22 cash disbursement transactions greater than or equal to $500 if paid to selected
individuals (non-payroll) or for select investments. This represented 99.6%, 42.6% and 100% of the category
for NISTAC, MTM and Holdings, respectively. We also tested 105 other cash disbursements (excluding
payroll) greater than or equal to $15,000. This represented 55.1%, 73.9% and 100% of the category for
NISTAC, MTM and Holdings, respectively.
Overview
The NISTAC Cluster consists of the following related entities:
· NISTAC is a 501(c)(3) Educational non-profit organization whose mission is to create and sustain a
formal network that will support technology advancement, technology transfer, education and
scientific research nationwide. NISTAC’s objective is economic development through facilitating the
commercialization of new technologies and the promotion of related research and education.
Development and commercialization focuses on two distinct portfolios of patents: patents donated
by corporations (Technology Acquisition, Development and Commercialization or “TADAC”), and
patents originating at KSU and provided by the Kansas State University Research Foundation
(“KSURF”). NISTAC commercializes both TADAC and KSURF patents and provides
administrative services to startup companies licensing TADAC and KSURF patents, as well as
laboratory and office space as needed.
· MTM is a for-profit entity and a wholly-owned subsidiary of NISTAC. MTM provides management,
human resources and financial services to companies incubated by NISTAC. NISTAC positions
(President, CFO etc.) are held by employees leased from MTM.
· Holdings is an investment vehicle that provides seed capital funds for startups being incubated by
NISTAC. Holdings is jointly owned by the City of Manhattan, the Foundation and the Kansas
Technology Enterprise Corporation (“KTEC”)2 in equal portions.
The University’s relationship to NISTAC is through financial support and the donation or transfer of
intellectual property to be commercialized through incubated companies. During the period under review,
the University and its affiliated entities have paid NISTAC between $200,000 and $830,000 per year for
NISTAC’s role in acquiring, administering and protecting licensed technologies and intellectual property on
the University’s behalf for research and economic development. In addition, as previously mentioned, the
Foundation is a one-third owner in Holdings.
NISTAC is currently assisting several startup companies, some of which are barely more than a shell with an
annual Secretary of State filing. Two companies (NanoScale Materials, Inc. and NutriJoy, Inc.) have grown to
the point of being self-managed. Two other companies are repositories for groups of related patents rather
than multiple startups with single patents.
In addition to investments made by the NISTAC Cluster, companies incubated by NISTAC have access to a
network of “Angel Investors” who are regularly given the opportunity to invest in startup companies under
NISTAC’s management. In particular, it was noted that President Wefald, Mr. Krause and Mr. Krause’s wife
are investors in companies incubated by NISTAC.
2 KTEC is a private/public partnership established by the state of Kansas to promote technology based economic
development. KTEC supports strategic research and development at NISTAC and eight other Business Assistance
Incubators throughout the state. KTEC also provides support through two state-wide networks. Each site has a
specific focus and provides a set of services including everything from shared lab space to access to investment capital
for early-stage companies. KTEC supports NISTAC through grants and is also an owner/investor in Holdings. Our
work did not involve any analysis of KTEC information or data.
Until his resignation on September 3, 2008, Mr. Krause held various positions within the NISTAC Cluster.
Mr. Krause was the University’s representative to NISTAC, the Chairman of NISTAC, a board member of
MTM , and a member of Holdings’ Advisory Board during the period under review. Due to the amount of
time he was spending on non-University related NISTAC business, he was appointed Executive Chair of
NISTAC and given a 15% fractional employment contract in 2006.3 His compensation as NISTAC
Executive Chair was all placed into a deferred compensation plan and was paid out in January of 2009,
subsequent to his resignation from NISTAC, MTM and Holdings. Mr. Krause was eligible for bonuses, both
cash and equity in startup companies invested in by NISTAC. However, upon his resignation, Mr. Krause
declined to take receipt of any equity awards due him.
Conflict of Interest
A conflict of interest occurs when an individual or organization has an interest that might compromise their
objectivity and reliability. A conflict of interest exists even if no improper acts result from it, and can create an
appearance of impropriety that can undermine confidence in the conflicted individual or organization. Such a
conflict exists relative to the NISTAC Cluster as directors of NISTAC and its affiliated entities are permitted
to hold stock in and serve as directors/officers of investee companies. This can call into question their
decision-making in situations such as that involving NutriJoy as described below.
NutriJoy, Inc.
NutriJoy was jointly founded by NISTAC and KSURF in 2000 to develop and commercialize nutritional
technologies donated to NISTAC by The Procter & Gamble Company and technologies derived separately
from research within KSU. NutriJoy’s two main brands, Calc-C® and Goodbites™, are based upon the
donated technologies. NISTAC and its affiliate companies hold significant ownership in NutriJoy largely via
NISTAC’s licensing of intellectual property to NutriJoy and the conversion of loans into equity. Under the
original terms of the License Agreements between NISTAC and NutriJoy, NISTAC received an annual
license maintenance fee and royalties on licensed product sales by either NutriJoy or its sublicensees.
Since 2000, NutriJoy has been supported in part through a network of loans and/or equity investments by
NISTAC, MTM, Holdings and KSURF. In addition, NutriJoy has been invested in by Angel Investors,
including President Wefald, Mr. Krause, and Mr. Glasscock.4 Reportedly, Mr. Krause and President Wefald
invested in NutriJoy in 2002 purchasing 37,500 and 35,000 shares, respectively, with cash at the $1 per share
stated par value.
3 In fiscal year 2007, Mr. Krause was a 15% employee of NISTAC/MTM per his contract with those entities and a 90%
employee with the University as Vice President for Institutional Advancement. His total contracted time totaled 105%.
4 NISTAC declined to identify other “Angel Investors” due to confidentiality concerns. However, it was verbally
indicated that only Dr. Wefald and Mr. Krause were the only “Angel Investors” that were employed by the University or
any of its affiliates.
Per the License Agreements between NISTAC and NutriJoy, in the event NutriJoy becomes insolvent or
otherwise ceases business operations, all technology rights revert back to NISTAC. Given that the value of
NutriJoy is largely vested in the intellectual property it controls, such a reversion of the patents could strip
NutriJoy of its revenue generating assets, preventing a recovery of cash investments by NutriJoy’s
stockholders. This became of concern to some of NutriJoy’s stockholders in the Spring of 2005. NutriJoy
was experiencing cash flow difficulties that threatened its existence while it was pursuing a strategic
partnership with a large food or beverage company. One of the transactions being considered at that time
was the acquisition of NutriJoy’s underlying intellectual property by the strategic partner. Under that
scenario, NISTAC alone could agree to sell and assign the underlying patent rights away from NutriJoy,
effectively rendering NutriJoy’s stock worthless.
Given its cash flow difficulties in 2005, NutriJoy sought to raise additional equity funds to enable it to
continue operating and to attempt to complete the transaction with the proposed strategic partner. The
Boards of NISTAC and MTM agreed to convert their collective $200,000 in outstanding loans to NutriJoy to
equity investments subject to the contingency of an additional $200,000 being raised from existing
stockholders. Other key stockholders, who had the financial wherewithal to match the investment, made
their additional investments contingent upon the receipt of assurances from NISTAC that cash investors in
NutriJoy would not be disadvantaged relative to NISTAC in any future realization of capital returns from the
technologies licensed to NutriJoy. Therefore, in a Resolution in Lieu of Meeting dated April 21, 2005, the
Executive Committee of NISTAC (chaired by Mr. Krause who was also a cash investor in NutriJoy)
recommended that “Any future capital, non-royalty financial returns arising from the sale and assignments of
intellectual properties, now licensed from NISTAC to NutriJoy, are allocated first to repay cash investments
by stockholders if a normal proportional allocation of such returns, according to stockholdings held by each,
are insufficient to do so.” The Resolution would specifically apply to any transaction within three years of the
date of the Resolution.
The recommended allocation of proceeds would postpone any financial returns to NISTAC on its non-cash
(received in lieu of licensing fees or royalties) investments in NutriJoy until all cash-based investors had a
return of their $1 per share par value. Allowing the cash investors to receive a return of capital first would
allay investors’ fears and contribute to NISTAC’s stated purpose of promoting investment in the startup
companies. The Resolution was presented to and approved by the full NISTAC Board of Directors at their
May 17, 2005 meeting. The Executive Committee Resolution does not address whether or not members
holding a cash investment in NutriJoy, such as Mr. Krause and Mr. Glasscock, recused themselves from this
action. However, the NISTAC Board minutes note that directors who personally supported NutriJoy in
executive or financial capacities abstained from voting on the Board’s approval of the Resolution.
Further, at the same May 17, 2005 meeting of NISTAC’s Board of Directors, the Executive Committee
sought approval to make “quick and binding decisions involving a possible sale of intellectual properties and
rights held by NISTAC and licensed to NutriJoy.” The reasoning behind this request was that NutriJoy was
currently engaged in highly confidential and sensitive discussions that could possibly lead to an “urgent need”
for NISTAC to make such decisions without sufficient time for Board approval. Reportedly, the then
Chairman of NISTAC and NutriJoy, Dr. Ron Sampson, was at odds with the remainder of the NutriJoy
Board regarding the possible strategic partnerships. This led to the NISTAC Board creating an “Augmented
Executive Committee” apart from the existing Executive Committee, for the purpose of making decisions in
the NutriJoy situation only. The members of the “Augmented Executive Committee” were specifically
chosen because they had no personal interest or involvement with NutriJoy. Three of the five Executive
Committee members, Messrs. Sampson, Krause and Glasscock, had personal interest in NutriJoy through
their board position at NutriJoy and/or personal ownership of NutriJoy stock. It appears that the Board was
attempting to address the conflict of interest on the Executive Committee by the creation of the “Augmented
Executive Committee.” However, NutriJoy was not successful in obtaining a significant strategic partnership
at that time, and the Augmented Executive Committee was disbanded.
Due to NutriJoy’s continued need for cash infusions to support operations, NISTAC’s Executive Committee
approved an additional investment in NutriJoy in January 2006. In conjunction with that investment and the
planned phased retirement of Dr. Sampson from the NISTAC and NutriJoy Boards, NISTAC’s Executive
Committee “strongly encouraged the NutriJoy Board to invite the Chair of the NISTAC Board, Mr. Krause,
to join their Board.” Mr. Krause was subsequently appointed Chairman of NutriJoy’s Board.
Under Mr. Krause’s leadership and with his significant personal involvement, NutriJoy successfully pursued a
significant strategic partnership with Coca-Cola. In August 2007, NISTAC’s Executive Committee discussed
and reaffirmed the April 2005 Resolution that would result in NISTAC not receiving a financial return on its
843,750 NutriJoy shares acquired via licensing or other services in advance of capital recovery of other
stockholders. Additionally, the Executive Committee stated NISTAC’s willingness to negotiate to eliminate
its ongoing royalty requirement in order to facilitate a sale of stock. Messrs. Krause and Glasscock were
authorized by the Executive Committee to negotiate with NutriJoy, on behalf of NISTAC, a capitalized
future return for eliminating its royalty requirement. It appears from the NISTAC Board minutes that the
binding decision with regard to the Coca-Cola transaction was made by the five member Executive
Committee, inclusive of Messrs. Krause and Glasscock.
In late January 2008, Coca-Cola acquired a majority interest in NutriJoy. As a result NutriJoy Class A (cash)
stockholders received a cash distribution of approximately 68¢ per share accounted for as a return of capital.
We were told that under the terms of the NutriJoy Stockholders’ Agreement, Class A stockholders must
receive $1.00 for their shares before any distributions are paid to other classes of stockholders. Class A
stockholders receiving cash distributions include, but are not limited to NISTAC, Holdings, KSURF, MTM,
the Robert Steven Krause Revocable Trust dated 5/16/03, Kenton L. Glasscock Trust dated 6/1/01, and
Jon and Ruth Ann Wefald. NISTAC received a cash distribution of $375,725.26 on the 550,315 NutriJoy
Class A shares, but not on the 843,750 Class B shares it had acquired in relation to the donation of the
intellectual property.
In addition to giving up the cash distribution on its Class B shares, NISTAC also gave up on-going
compensation due from NutriJoy and its sublicensees under the 2000 License Agreement related to the
annual license maintenance fees; all royalty payments due from NutriJoy, its affiliates and sublicensees; and all
non-royalty sublicensee payments. Compensation to NISTAC is now addressed in the January 2, 2008
Second Amendment to License Agreement which reads “The parties agree that NISTAC is entitled to certain
contingent payments in exchange for the rights granted by it in this Agreement. The contingent payment
amounts, if any, are as described in Section 2.4 of the Stockholders Agreement for NutriJoy, Inc. dated of
even date herewith and the circumstances under which such payments are due to Licensor from Licenses.”
It should be noted that we requested and were denied access to the NutriJoy Stockholders’ Agreement
referred to above. Mr. Glasscock indicated that the referred to payments will be a modest distribution to
NISTAC after all Class A stockholders have received a return of $1 per share, but prior to any distribution to
Class B (NISTAC) or Class C (Coca-Cola) stockholders.
The NutriJoy Stockholders’ Agreement may provide further relevant information regarding the Coca-Cola
transaction and further description of the rights of the various classes of NutriJoy stock as well as stock
awards to officers and directors. Had we been allowed to review this document, it is possible that findings of
an adverse nature may have been identified.
Wildman Harrold Report
The NISTAC Cluster was originally established in the 1990s using a model developed by KTEC. In
discussions with similarly-structured entities, NISTAC management became concerned that their corporate
structure might be incompatible with recent changes to governing regulations and tax laws. In 2005,
NISTAC engaged the services of Wildman, Harrold, Allen & Dixon, LLP (“Wildman Harrold”) to make an
assessment of the structure of the NISTAC Cluster and its operations and employee compensation policies.
On March 6, 2006, Wildman Harrold prepared a report which found that the Boards of Directors and
Committees of NISTAC, MTM and Holdings were “too intertwined.” At NISTAC’s August 22, 2006 Board
of Directors meeting, several personnel changes were made to the Boards of NISTAC and MTM as well as
changes to the NISTAC Executive Committee and Compensation Sub-Committee to address this
recommendation. In addition, various findings addressed the manner in which equity compensation was
awarded, specifically:

· Grants of equity to employees (by way of the MTM Deferred Compensation Trust, the “MTM
Trust”) may violate reasonable compensation rules promulgated by the IRS relating to not-for-profit
entities.
· Incentive compensation to employees should be properly allocated. Employees of NISTAC and
MTM should only be rewarded for the work they have performed for each entity.
· Up to one-third of all equity compensation of NISTAC and MTM is funded into the MTM Trust but
MTM Trust documents list MTM as the sole entity funding the MTM Trust.
· NISTAC royalty/licensing income and incentive equity grants to employees are inversely related.
Should NISTAC receive equity for royalty and licensing fees instead of cash, employees may be
unjustifiably rewarded at the expense of NISTAC’s profitability.
NISTAC’s Compensation Sub-Committee established a cap of “three times salary” with respect to incentive
compensation relating to licensing revenues. With respect to equity compensation, NISTAC is currently
working with the law firm of Husch Blackwell Sanders LLP to develop equity compensation rules that are
compatible with the recommendations of Wildman Harrold.
Findings and Recommendations
NISTAC has an established protocol for disclosing conflicts of interest through its bylaws which requires that
directors declare their interest and/or engagement with another party or entity in advance to the other
directors and abstain from voting on any agreement with the entity in which they have a personal interest. In
relation to the Coca-Cola transaction, the April 17, 2007 NISTAC Board minutes indicate that the Board
empowered the Executive Committee to take necessary and binding actions in between Board meetings with
the understanding that the Executive Committee would give due consideration to maximizing potential long
term value for NISTAC while meeting other objectives within its mission. The motion passed unanimously.
Mr. Glasscock was a member of the NISTSAC Board, President of NISTAC and a shareholder in NutriJoy,
yet it was not noted that he abstained from voting. Furthermore, Mr. Krause was Executive Chair of the
Board of NISTAC, Chairman of NutriJoy and a shareholder in NutriJoy, yet it was not noted that he
abstained from voting. On August 15, 2007 the Executive Committee of the Board met to review the terms
of the proposal by Coca-Cola to acquire a controlling interest in NutriJoy. The Executive Committee
consisted of Messrs. Krause and Glasscock, both stockholders in NutriJoy, and three other members who
reportedly did not own NutriJoy stock. A motion passed unanimously to recommend the Coca-Cola
proposal to NutriJoy and affirming that NISTAC was 1) waiving the distribution of any financial return on its
shares acquired in lieu of cash until all existing shareholders have recovered their capital investment; and 2)
eliminating its royalty requirements in order to facilitate a sale of stock. Furthermore, the Executive
Committee authorized Mr. Krause and Mr. Glasscock to negotiate with NutriJoy on behalf of NISTAC a
capitalized future return for the elimination of its royalty requirement. Again, Mr. Glasscock was a member
of the NISTAC Board, President of NISTAC and a shareholder in NutriJoy, yet it was not noted that he
abstained from voting. Mr. Krause was Executive Chair of the Board of NISTAC, Chairman of NutriJoy and
a shareholder in NutriJoy, yet it was not noted that he abstained from voting.
While NISTAC has established a written protocol to address conflicts of interest, it does not appear that the
protocol is followed. The possibility for future conflicts of interest such as that arising from the Coca-Cola
transaction and the actions of Mr. Krause and other NutriJoy shareholders who were also in a position of
influence at NISTAC should be carefully considered by the University and the Foundation. The Foundation
may want to consider increasing their oversight through Board and Executive Committee participation to
ensure that they are fully informed with regard to NISTAC and its incubated companies’ operations.
With regard to the Wildman Harrold report, NISTAC should obtain positive confirmation from Wildman
Harrold or Husch Blackwell Sanders LLP that the current composition of its various Boards of Directors,
Committees and Sub-Committees and Advisory Boards conforms to the recommendations of the Wildman
Harrold report and any subsequent changes in regulation and tax law.
NISTAC should continue working with Husch Blackwell Sanders LLP to revise its compensation policies to
ensure compliance with all regulations and tax laws. The resulting recommendations and implementation of
those recommendations by the NISTAC Cluster should be reviewed by the University and the Foundation.
Intercollegiate Athletics Association
Scope
Our work at the Athletics Department involved interviewing Athletics Director Bob Krause, Associate
Director of Athletics for Business Operations Bob Cavello, and Assistant Business Manager Kim Linck. We
reviewed the minutes of the Intercollegiate Athletics Council for fiscal years 2001 through 2008 and reviewed
employment contracts, and related documents for various coaches and Athletics Directors. We also reviewed
the general ledgers for fiscal years 2003 through 2009 year-to-date and selected 500 items for cash
disbursements testing. We tested cash disbursement transactions greater than or equal to $5,000 if paid to
individuals, not including payroll (representing 90.4% of the category), payments to KSU Aviation greater
than or equal to $3,500 (representing 60.3% of the category), payments to KSUGCMRF greater than or equal
to $10,000 (representing 68.4% of the category) and miscellaneous payments equal to or in excess of $50,000
(representing 32.4% of the category).
Not all information requested by Grant Thornton was available for our inspection. Specifically, we did not
receive supporting documentation for 13 selected disbursements by the Athletics Department as well as the
original July 2, 2001 employment contract and 2005 BMA Annuity documentation for former Athletics
Director Tim Weiser. Mr. Bob Cavello, Associate Director of Athletics, indicated that the supporting
documentation for the 13 selected disbursements, representing $845,000, could not be located or was no
longer available due to normal record retention practices. The payees in question included former Athletics
Director Tim Weiser, former Head Football Coach Bill Snyder, and former Vice President for Institutional
Advancement and Athletics Director Bob Krause, among others. Therefore, we were unable to determine if
these transactions were for a legitimate business purpose and were appropriately documented and approved.
Mr. Cavello originally indicated that the Athletics Department did not have a copy of Mr. Weiser’s original
2001 contract nor the documentation supporting the Athletics Department’s 2005 purchase of an annuity to
fund the matching of Mr. Weiser’s deferred compensation account. Mr. Cavello indicated that he requested
these documents from Mr. Weiser’s advisors, but they did not become available during our engagement.
Subsequently, we were told that Mr. Krause indicated that there was no original July 2, 2001 contract for Mr.
Weiser although one is specifically referred to by date in the “Third Addendum to Contract for Tim Weiser.”
We have identified possible tax issues related to Mr. Weiser’s employment contracts and various payments
made to him there under which are discussed later in this report.
Overview
The Athletics Department is organized as a 501(c)(3) educational non-profit organization and is a separate
legal entity from the University. Its day-to-day operations fall under the responsibility of the Athletics
Director.
The Intercollegiate Athletics Council (“Advisory Council”) serves in an advisory capacity to the Athletics
Director. Voting members of the Advisory Council are comprised of two alumni members, two student
members, two faculty-at-large members, one faculty representative to the NCAA, the Big 12 Conference and
any other conferences in which the University may affiliate, one alternate faculty representative and the
Chairperson. The Athletics Director and the Alumni Board and Foundation Board liaisons are non-voting
members. The Advisory Council is largely limited to the discussion of budgetary matters, use of facilities,
promotional activities, equal opportunity for all athletics, academic progress of athletes and personal conduct
of athletes and employees of the Athletics Department. The Advisory Council does not function as a
standard board of directors and in reality appears to provide little in the way of “checks and balances” with
regard to the operations of the Athletics Department.
The Athletics Directors have historically reported to President Wefald through Mr. Krause as Mr. Krause was
given responsibility for implementing the Memorandum of Understanding between the Athletics Department
and the University by coordinating the daily activities and interests of the University with those of the
Athletics Department. Therefore, Mr. Krause, with President Wefald’s approval, has always been
significantly involved in negotiating coaches’ and Athletics Directors’ contracts, and was very involved in the
financial affairs, fundraising efforts and strategic direction of the Athletics Department.

However, under Mr. Krause some processes within the Athletics Department have not always been
appropriately structured and formalized. Furthermore, transactions involving other University-related entities
have not always been appropriately structured and transparent given that the Athletics Department is a
separate legal entity. Examples of such instances are detailed below.
Imprest Account
Most of the operating funds for the Athletics Department are kept in a bank account (“Bank 14”) maintained
by the University Controller’s office. The Business Office of the Athletics Department submits check
requests to be processed by the University Controller’s office and, except for disbursements from state funds
or greater than $75,000, the University Controller’s office does not review the requests or any supporting
documentation.
In addition to the Bank 14 account, the Athletics Department maintains and controls an Imprest Account at a
local bank from which it can make disbursements without having to go through the Controller’s office.
Funding for the Imprest Account comes from disbursements out of the Bank 14 account. While the
University Controller’s office can monitor the amount of money flowing through the Imprest Account, they
do not have the opportunity to review or monitor any payments being made from that account.
Per Mr. Cavello, the purpose of the Imprest Account was to provide funds in cases where payment was
needed sooner than the 10 day processing period for payments going through the Bank 14 account. He
indicated that payments through the Imprest Account (also known as the “Contingency Fund”) were for staff
and team travel. Our analysis has shown that approximately $1,400,000 in annual disbursements flowed
through the Imprest Account during Fiscal Years 2003 through 2005 and approximately $2,000,000 in annual
disbursements during Fiscal Years 2006 through 2008.
While approximately 95% of these disbursements were for travel-related payments and reimbursements, we
found a number of contract payments to the personal corporations of Mr. Weiser, Mr. Snyder and Mr.
Krause for compensation in excess of their base salary. The majority of such payments were made through
the Bank 14 account maintained by the University Controller’s office. It is not clear why contract payments
would be made through the Imprest Account as they do not relate to travel. As with other payments to
employees’ personal corporations, the supporting documentation was minimal, usually consisting of an email
from Mr. Cavello to Ms. Christy Scott directing that a payment be made. We obtained a file memo dated July
28, 2005 from Ms. Christy Scott which memorialized one such payment to Mr. Weiser’s personal corporation
and stated “For confidentiality reasons, the check will be written from the Imprest account…” Our analysis
of Mr. Weiser’s compensation showed that the amount paid represented payments due him under his 2005
contract and it is unclear why this particular payment required confidentiality, or from whom.


With the exception of one payment, all the payments were under the $75,000 review benchmark for the
Controller’s office. However, a payment of $121,726.25 was made to Mr. Weiser’s personal corporation from
the Imprest Account. On December 14, 2006, Mr. Weiser emailed Mr. Cavello and Ms Scott and asked for a
check payable to Weiser Way on January 1, 2007 consisting of the remainder of his “additional
compensation” (compensation in excess of base salary as described below). Mr. Weiser indicated in the email
that he had some taxes to pay by December 31, 2006 that he needed to cover with the remaining additional
compensation, but that he did not want that income to be considered as received in 2006. A handwritten
note on the email indicates that the Controller’s office could not prepare a check dated January 1, 2007, so
the fund were transferred from the Bank 14 account to the Imprest Account on December 14, 2006 and a
manual check dated January 1, 2007 was issued out of the Imprest Account in the amount of $121,726.25.
It is recommended that the use of the Imprest Account be limited to its stated intent of travel-related
expenses and reimbursements. We have been told that all future related to compensation will be made
through the University’s payroll system.

Institutional Support Fee
Although the Athletics Department is a separate legal entity, it utilizes various back-office functions of the
University’s Controller’s Office such as bookkeeping and check writing services. The Athletics Department
has historically paid the Controller’s Office a fee for these services through an Institutional Support Fee,
which approximates 2.25% of gross receipts excluding student fees and University interdepartmental sales.
The fee owed the Controller’s Office is traditionally paid by the Athletics Department to the University in
June of every year. During the period under analysis, fees paid to the Controller’s Office averaged $195,000
per year.
However, on June 6, 2008, the Athletics Department transferred $80,000 to the Foundation to augment the
Discretionary Funds of President Wefald ($54,400) and Mr. Krause ($25,600). The source of these funds was
$80,000 of the $180,000 Institutional Support Fee due the University Controller. Per discussions with
Foundation personnel, we were told that disbursements from the Discretionary Funds had not been subject
to any formal budget, but generally averaged $650,000 for the two accounts. It is our understanding that the
$80,000 transfer was predicated by the perceived need for additional Discretionary Funds by President
Wefald and Mr. Krause above and beyond the amount provided by the Foundation for fiscal year 2008, and
not because of any obligation on the part of the Athletics Department. We were told that Mr. Krause
requested the transfer of funds from the Athletics Department as those funds were under his area of
responsibility. We were not provided documentation indicating that this transfer was approved by any board
or committee of the Athletics Department nor by the University Controller’s Office. However, we were
told that Mr. Bruce Shubert, the Vice President of Administration and Finance of the University, to whom
the Controller reports, verbally approved the transaction. Mr. Shubert indicated that “from time to time, the
Institutional Support Fee is adjusted for selected departments based on either University or departmental
circumstances – those adjustments are not always reduced to writing.”
Furthermore, the Athletics Department participation in resolving the scholarship deficit at the Foundation by
transferring the Institutional Support Fee due the University for the next three years to the Discretionary
Funds at the Foundation has already been detailed in this report.
Potential Tax Issues
In reviewing various contract documentation and payments made by the Athletics Department to coaches
and other individuals, we encountered a variety of possible tax issues. The potential issues are detailed below.
 

Employee or Independent Contractor
Our analysis of compensation paid through the Athletics Department revealed that over the period analyzed,
Mr. Krause, Mr. Weiser, Mr. Wooldridge and Mr. Snyder all received salaries, which were recorded on W-2
forms. However, those individuals also received additional compensation in the form of “consulting fees,”
“contract pay,” “professional fees” or “overload contracts.” In many instances, this additional compensation
was not paid to the individual through the University payroll system, but rather to a private corporation or
limited liability company set up by the individual. For instance, Mr. Weiser received his additional
compensation through an entity named “The Weiser Way.” Mr. Wooldridge received his additional
compensation through an entity named “Pershing.” Mr. Snyder received his additional compensation
through an entity named “SSM, Inc.” and Mr. Krause, at times, received his through an entity named
“Horizon Ranch.” The additional compensation for Messrs. Weiser, Wooldridge, Snyder and Krause was not
run through the University’s payroll system. It was instead expensed through the Athletics Department’s
“Contract Pay” or "Miscellaneous Expense” accounts. We were told that this was the long standing practice
of the Athletics Department and was done in part because the additional compensation may not have been
funded by State funds and in part to provide confidentiality for the individuals receiving the additional
compensation. With the exception of Mr. Krause, as described below, it appears that all described
compensation would be directly related to the individual’s performance of their duties as coaches of a
University athletics team. It does not appear that any of the compensation would be due the coaches for
“consulting services” unrelated to their roles as coach.
The Athletics Department acquires payroll services for its employees through the University Controller.
Therefore, all Athletics Department payroll is run through the University’s payroll system. According to the
University Controller, University employees’ taxable income is now reported to the IRS though the W-2
form. However, historically, there have been individuals that received consulting fees or other forms of
compensation that did not run through the University’s payroll system. If the payment did not run through
the University’s payroll system, no withholdings were deducted from the compensation.

If consulting fees were paid to an individual, who was not an employee, the University filed an IRS Form
1099. However, if the consulting fees were paid to a corporation, such as SSM, Inc., The Weiser Way, or
Horizon Ranch, LLC the University did not have an IRS reporting requirement, and the reporting of that
income to the taxing authorities was the responsibility of the recipient.
In reviewing Coach Bill Snyder’s contract dated June 18, 2001, it was noted that compensation was outlined
in a variety of ways including: annual salary (base salary), other duties (e.g., television shows, appearances,
endorsements) and performance bonuses. Coach Snyder’s base salary was paid through the University payroll
system and was subject to appropriate payroll deductions. The remainder, a majority of total compensation,
was paid outside of the payroll system primarily to Coach Snyder’s corporation, SSM, Inc., and was not
subject to payroll deductions. The following fringe benefits were also noted: country club membership,
founder privilege at Colbert Hills, the use of football facilities for football camps, football suite as long as he
lives in the Manhattan, Kansas area, home football game tickets, home basketball game tickets, two courtesy
vehicles, undergraduate education expenses for his daughters, and a guaranteed 5-year contract extension as
Associate Athletics Director for his son after Coach Snyder’s departure.
In addition to the June 18, 2001 contract with Mr. Snyder, the Athletics Department located a November 13,
1996 contract between Mr. Snyder’s personal corporation, SSM, Inc., and the Athletics Department. That
contract appears to address many of the same issues addressed in the June 18, 2001 contract and may be
considered to have been usurped or amended by the June 18, 2001 contract. It is difficult to see how Mr.
Snyder could be defined to be an employee of the Athletics Department under the 2001 contract and an
employee of SSM, Inc. under the 1996 contract simultaneously for appearing to provide the same services
under both contracts.
In reviewing former Athletics Director Tim Weiser’s contract documents and addendums, it was noted that
compensation was outlined in a variety of ways including: base salary and annual longevity award/bonus. Mr.
Weiser’s base salary was paid through the University’s payroll system and was subject to payroll deductions.
The remainder, a majority of total compensation, was paid outside of the payroll system primarily to Mr.
Weiser’s corporation, The Weiser Way, and was not subject to payroll deductions. The following fringe
benefits were also noted: country club membership, founder privilege at Colbert Hills, two courtesy vehicles,
clothing allowance and vacation expenses.
Generally, the employer must withhold income taxes, withhold and pay Social Security and Medicare taxes,
and pay unemployment tax on wages paid to an employee. The employer generally does not have to withhold
or pay any taxes on payments to independent contractors. Further, any fringe benefits provided are taxable
and must be included in the recipient’s pay unless tax law specifically excludes it.

Considering the terms of the contracts above, it is possible the IRS would not view Coach Snyder or Mr.
Weiser as independent contractors in part, rather than employees in whole, for tax purposes. Many
universities do pay their coaches for appearances and endorsements through a contract with the coach’s
personal corporation. However, it is our understanding that the taxing authorities do not look favorably on
those situations if it is the Athletics Department or the University who is arranging for/negotiating the
appearances and the endorsements on behalf of the coach, such as is the situation at KSU. If the Athletics
Department classifies an employee as an independent contractor and does not have a reasonable basis for
doing so, it may be held liable for employment taxes for that employee. Further, at the time of this analysis,
documentation had not been provided to determine how fringe benefits received by Coach Snyder or Mr.
Weiser were being reported for tax purposes.
This issue of employee or independent contractor was reportedly raised by the Athletics Department’s
external auditors in 2005 and resulted in a change going forward for contracts for newly hired coaches.
However, it does not appear that changes were made to the manner in which already established
compensation arrangements, such as for Coach Snyder and Mr. Weiser, were accounted for. Moving forward
it is understood that all employees have total compensation accounted for through the payroll system subject
to the proper payroll deductions. However, it is recommended that the Athletics Department and University
conduct a thorough review to identify all possible independent subcontractor and fringe benefit
arrangements. To the extent such arrangements exist, they should be reviewed by an independent, qualified
third-party to ensure that they comply with the applicable tax laws.
 

Overload Contract
According to President Wefald, Mr. Krause has long been involved in the University’s Athletics Department,
in effect serving as President Wefald’s liaison to the department. Since 1986, Mr. Krause has served as the
Interim Athletics Director on four occasions prior to his full-time appointment. On average, Mr. Krause has
devoted in excess of 20 hours of his often 80 hour work week to Athletics Department activities. In
recognition of the amount of time Mr. Krause was devoting to the Athletics Department, in excess of his
normal responsibilities as Vice President for Institutional Advancement, President Wefald approved an
“Overload Contract” for Mr. Krause beginning in 2003. The Overload Contract was documented in the
form of an addendum to Mr. Krause’s contract as Vice President for Institutional Advancement.
Mr. Krause was eligible for and received compensation equal to 25% of his salary as Vice President for
Institutional Advancement from the Athletics Department. However, as discussed previously, the payments
for the “Overload Contract” were not run through the University’s payroll system, but rather through the
Athletics Department’s Miscellaneous Expense account. Some of the payments were made in the name of
“Horizon Ranch” and did not appear to be subject to any withholdings. Although Mr. Krause was not an
employee of the Athletics Department at the time these payments were made, they should still be reviewed
from a tax perspective to ensure that they were handled appropriately. As the Athletics Department reported
to the University through Mr. Krause, the payments could be viewed by the taxing authorities as payments
due to Mr. Krause as an employee of the University.
Informal Deferred Compensation Arrangement
Through testing, it was observed that Coach Snyder may have had an informal deferred compensation
arrangement as a matter of course from at least fiscal year 2002 and continuing beyond Coach Snyder’s
departure from the KSU football program in November 2005. The June 18, 2001 contract between Coach
Snyder and the Athletics Department stated that the described “annual compensation will be distributed
periodically to the employee or SSM, Inc. as mutually determined by the University and the employee.” At
some point in time, the aforementioned section of the contract was amended by the striking of the phrase “to
the employee or” so that the annual compensation for Mr. Snyder is directed to be paid to SSM, Inc. This
amendment is not dated and bears the hand written initials RSK, assumedly Robert S. Krause. Coach
Snyder’s base salary was paid through the University’s payroll system and was subject to payroll deductions.
However, as previously discussed, the remainder, a majority of total compensation, was paid outside of the
payroll system primarily to Coach Snyder’s corporation, SSM, Inc.
The amount and timing of the payments to SSM, Inc. appear to have been determined by Coach Snyder.
Rather than paying all compensation owed Coach Snyder in the year it was earned, or formally deferring that
compensation, the Athletics Department kept track of the additional compensation owed to Coach Snyder in
an Excel spreadsheet and paid it to Coach Snyder upon his request. This often resulted in compensation
earned in a particular year not being paid out for several years. Mr. Cavello confirmed that as of December
31, 2008 Coach Snyder was still owed nearly $900,000 in outstanding compensation by the Athletics
Department which was earned in fiscal years 2005 and 2006.
New regulations governing nonqualified deferred compensation plans went into effect on January 1, 2009.
The regulation provides that all amounts deferred under a deferred compensation arrangement must be
included in gross income if the arrangement is not in compliance with the rules under Internal Revenue Code
(“IRC”) § 409A. Failure to comply could subject the Athletics Department to penalties and interest.
It is recommended the Athletics Department and University conduct a thorough review to identify all
possible deferral arrangements, qualified and unqualified. To the extent such arrangements exist, an
independent, qualified third-party should be hired to analyze the agreements and their accounting to ensure
compliance with IRC § 409A both in operation and form, and all other applicable laws.
BMA Annuity for TimWeiser
Pursuant to the :Fourth Addendum to Contract for Tim Weiser,” dated March 31, 2005, the Athletics
Department agreed to take on “additional responsibilities” with regard to the 2002 Deferred Compensation
Agreement with Mr. Weiser. The Athletics Department agreed to match all previous and future deferred
compensation and interest thereon under the Deferred Compensation Agreement up to a maximum amount
of $1 million. To fund this future obligation, the Athletics Department purchased a BMA Annuity with an
initial funding of $400,000.
Supporting documentation attached to a cash transaction we tested indicated that the amounts due Mr.
Weiser under the BMA Annuity contract would only be paid to Mr. Weiser upon his termination of
employment and would be subject to all applicable employment taxes at that time. Mr. Weiser left the
Athletics Department on June 14, 2008 and received his settlement payout on July 14, 2008. The supporting
documentation for the amounts paid to Mr. Weiser upon his leaving the Athletics Department does not
indicate that applicable employment taxes were withheld. Furthermore, the payment was made to The Weiser
Way and not through the University’s payroll system. As discussed previously, it was not the Athletics
Department practice to withhold taxes unless payments were made through the University’s payroll system.
Payments made to Mr. Weiser upon his leaving the Athletics Department should be reviewed from a tax
perspective to ensure that it adheres to all applicable tax laws and regulations.
Loan to TimWeiser
On January 3, 2008, Mr. Krause, as the Vice President for Institutional Advancement and the sole member of
the Athletic Director Compensation Committee, approved a loan agreement and promissory note between
the Athletics Department and Mr. Weiser resulting in a loan of $500,000 to Mr. Weiser funded January 6,
2008. The loan agreement indicated that “The Borrower shall not be required to justify or explain the
purpose of any Loan. The Loan(s) shall automatically be approved by the Lender upon Borrower’s written
request to the Lender.” These are not standard clauses in even the most informal of lending agreements.
The loan plus interest was due at the earliest date that Mr. Weiser was no longer the KSU Athletics Director.
The loan was repaid on July 14, 2008 from funds the Athletics Department owed Mr. Weiser from the
Borrower’s Matching Dollar Account (funded by the BMA Annuity) under Mr. Weiser’s Separation
Agreement.
This is reportedly the sole instance of the Athletics Department making a loan to an employee. We found no
evidence that this transaction was discussed with or approved by anyone other than Mr. Krause.
Documentation reviewed indicates that Mr. Krause was aware of Mr. Weiser’s impending resignation when
he approved the loan. Therefore, risk of repayment did not appear to be a consideration. However, we
question the appropriateness of the Athletics Department serving as a lending entity to any individual. One
would expect that the lending of monies in this magnitude would be strictly formalized by the Athletics
Department, if it was allowed at all.

Bill Snyder’s Founder’s Membership at Colbert Hills
Although not noted in the 2001 and more recent contract documents we reviewed for Mr. Snyder, a review of
the Athletics Department general ledger revealed that the Athletics Department was paying for a $100,000
Founder’s membership at Colbert Hills on behalf of Mr. Snyder. Payments of $12,500 were paid to
KSUGCMRF periodically and posted against accrued payroll for Mr. Snyder. The last such payment was
dated February 25, 2004.
On March 30, 2005, a $12,500 payment was made to SSM, Inc., for “SVC PROVIDED-COLBERT.”
Reportedly, in late 2007 or early 2008, KSUGCMRF notified Mr. Snyder that his last payment due of $12,500
had never been received. Mr. Snyder indicated that he had made all payments due. Therefore, Mr. Krause
authorized the payment of $12,500 from the Athletics Department on behalf of Mr. Snyder and had the
payment charged to “Miscellaneous Expense” rather than run through “Accrued Payroll expense.”
It appears that the 2008 payment may represent a double payment by the Athletics Department of the last
payment due KSUGCMRF on behalf of Mr. Snyder. The accounting documentation indicates that the
March 30, 2005 payment of $12,500 that went to SSM, Inc., may have been due KSUGCMRF. The Athletics
Department should research this transaction to determine the appropriateness of the 2008 payment to
KSUGCMRF.


Bill Snyder’s Current Contract
We requested Mr. Snyder’s contract documents related to his current position as Head Football Coach.
Initially we were given an “Initial Appointment Term” document which noted only his base salary. When we
requested the contracting documents related to his entire compensation package, we were told they were still
being negotiated, some three months after he accepted the position, and were not available for review. We
then received a “Revised Initial Term Appointment” document which noted his salary at the $1.85 million
widely reported in the press.
As noted above, previously Mr. Snyder’s compensation was split with his base salary running through the
University’s payroll system and the remainder being paid to his personal corporation without any
withholdings. We strongly urge the Athletics Department to have the current contract and compensation
documents put through a financial as well as legal review to make sure that the Athletics Department is in
compliance with all appropriate accounting and tax laws with regard to the payment of Mr. Snyder’s
compensation.
Findings and Recommendations
Contract negotiations and compensation matters within the Athletics Department should be subjected to
legal and financial reviews. We were told that historically not all compensation matters were subjected to a
legal or financial review which should have addressed the areas of concern noted above. Reportedly, all final
contracts are now reviewed by the University’s General Counsel’s Office. However, financial reviews are
more apt to occur during the external audit process. We would recommend that all contract and
compensation matters be subject to an initial financial review which should specifically address any tax
concerns. In addition, contracts should be reviewed on a periodic basis to ensure that changes in accounting
standards or tax laws are appropriately applied.
All transactions between the Athletics Department and the University or any University related entity should
be formalized with regard to structure, accountability and transparency. Formal, documented approval
processes should be instituted to ensure that all transactions are appropriately vetted prior to being recorded.
CONCLUSION
The University has benefitted greatly from the leadership of President Wefald and the efforts of Mr. Krause.
Both gentlemen exhibit an obvious passion for KSU. However, the concentration of influence under Mr.
Krause has resulted in an informality with regard to how the University and some of its related entities
interact and transact. This has raised suspicions among the interested parties with regard to the intent behind
various transactions that we researched and which are detailed in our report.
In general, the Office of the President should be mindful that although Kansas State University is affiliated
with several entities with a common goal, the support and advancement of the University, many of these
affiliated entities are separate legal entities unto themselves. As such, each entity should conduct its activities
and pursue its mission cognizant of the need for clear lines of delineation which require a degree of structure,
formality and transparency.
Furthermore, the reporting structure supporting the Office of the President should be robust and diverse
enough to allow for the identification and disclosure of potential conflicts of interest so that they can be
appropriately managed.