The Cost of a Scandal

by Caitlin McCabe

Pressure was mounting on Holden Thorp to act.

There were the students, the faculty, the alumni, the Board of Trustees, the Rams Club. Each was exhausted. For two years, they had defended their University that had been weakened by scandal, and they wanted answers. They pleaded for the then-48-year-old chancellor to help.

Thorp wanted to give them a solution, he said. It was August 2012, and he, too, had been burned by the athletic controversy that had exploded into academics.

Once celebrated as the young chemist-turned-leader of the University, Thorp found himself abandoned during a period of difficult decisions. When he ousted UNC’s football coach on the brink of a new season, some students and faculty turned against him. went viral. Just 18 hours later, the athletic director announced his retirement. When UNC forced the rogue chairman of the Department of African and Afro-American Studies to retire — a man Thorp once called a “great colleague” — the community called the move too little, too late.

He was facing the most difficult years of his life, he would later say publicly.

Thorp wanted to investigate the scandals, he said, but he knew there was a perception that UNC would protect its sports programs at all costs. External help would come with an expensive price tag, and he wrestled with the idea of hiring experts who would charge thousands of dollars.

But he wanted to restore trust in the University — the only place he had applied for college, and where he spent most of his career. So he reached externally, tapping Baker Tilly, a national academic auditing firm based in Virginia, and former Gov. Jim Martin to investigate the academic scandal. For four months of work, they produced a report of their findings — and a bill of more than $1 million.

That $1 million charge represents just a small piece of the larger price UNC has paid to repair the damages associated with three years of controversy. Since June 2010, UNC has spent more than $5.03 million on three scandals — academic, athletic and sexual assault — that have afflicted the community.

The $5 million total comes from two hefty burdens: the use of external experts — including lawyers, consultants and public relations firms — who charged UNC thousands of dollars for their work, and expensive severance packages paid to University officials tied to the scandals. The total, which represents the most significant costs the University bore, comes from numbers and invoices provided by UNC.

University officials say costs associated with controversies are not financed with tuition dollars but instead through three main sources: state funds, the athletic budget and the UNC-Chapel Hill Foundation Inc., a portion of the University’s endowment established through private donations. A small portion of the costs were paid through miscellaneous University funds, a spokeswoman said.

Only about 36 percent of the costs were financed by the endowment’s private funds, according to data provided by a University spokeswoman — leaving about 61 percent of the scandals to be financed through the University’s athletic budget, and roughly 3 percent to be financed by state funding.

Paying for the costs through the athletic budget and state funds, both of which are comprised of money from the public, calls into question how much — or even if — the public should be responsible for footing the bill for the University’s missteps.

The costs also point to a trend of using external experts to resolve alleged misconduct at UNC. Some outside experts charged hundreds of dollars per hour of work. Meanwhile, University professors and administrators with years of experience in consulting, communication and law remained untapped.

But administrators said outside expertise was needed to ensure public trust — despite the cost.

“There were all these skeptics out there who thought we weren’t looking as deeply (at the scandals) as we could,” Thorp said. “There wasn’t any choice but to get an external team to do it.”

“It would have been my preference to not have to spend that money,” Thorp said. “But I have no hesitation in saying that using the consultant every time we did it was the right thing to do.”

When Thorp was named chancellor in 2008, UNC’s reputation was marked by unremitting success. Two national championships in women’s soccer. The opening of the state’s only public cancer hospital on campus. Yet another national championship — this time, for men’s basketball. Nearly 10 years of being named the best value in American public higher education by Kiplinger’s Personal Finance magazine.

In June 2010, however, prosperity shifted when NCAA investigators contacted UNC on the suspicion that football players were receiving improper benefits. An investigation began immediately, believed to have been prompted by tweets from Marvin Austin, UNC’s defensive tackle at the time. His account, @ANCHORMANAUSTIN, depicted a life off of the football field — shopping sprees, trips to Miami, expensive restaurant bills and alcohol.

“Jus got to D.C an I’m feeln a shopn spee..nobody gon be fresh as ME!!!” Austin tweeted in April 2010. His account closed once the NCAA investigation began.

In early weeks, the investigation fixated on Austin and Greg Little, a UNC senior wide receiver, and their suspected ties to Terry Shawn Watson, an Atlanta-based sports agent. Those suspicions became a reality in March 2013 when evidence of Watson mailing Austin $2,000 in cash — addressed to a fake name — emerged.

Watson was indicted in October 2013 with 13 counts of providing illegal benefits to Austin, Little and a third UNC football player, Robert Quinn. Watson provided them with nearly $24,000, according to the indictments.

“At the time, we just didn’t even know what we didn’t know,” said Jan Boxill, chairwoman of the UNC faculty.

Facing the potential collapse of its multi-million dollar sports program, UNC tapped its first external expert — Rick Evrard, an attorney with Bond, Schoeneck & King, of Kansas — to serve as UNC’s lawyer for the investigation.

Meanwhile, the athletic probe burst into academics. Allegations swirled that a then-undergraduate tutor — later identified as Jennifer Wiley — gave athletes inappropriate academic help. She was enigmatic to the public, but had a cozy relationship with top athletic officials: She had been privately employed as a tutor for the son of Butch Davis, UNC’s head football coach.

Wiley, now Jennifer Wiley Thompson, was indicted in October 2013 on four counts of athlete-agent inducement. A third indictment has been issued to Patrick Jones, a Georgia real estate agent, on allegations that he provided $725 to Quinn, the football player. Two unsealed indictments remain.

Three years prior — long before indictments and court dates — suspicions of inappropriate help were validated by the University’s student-led Honor Court. In October 2010, the court found Michael McAdoo, a defensive lineman for UNC, guilty of receiving too much help from Wiley on a paper for a class taught by Julius Nyang’oro, chairman of the Department of African and Afro-American Studies.

That same paper was later determined to have been largely plagiarized — a revelation undetected by the Honor Court, the athletic department and Nyang’oro, who allowed McAdoo in his 400-level course. One oddity with the upper-level class stands out: McAdoo had never taken English 100: Basic Writing.

As allegations surrounding the shady link between athletics and academics intensified, the University reached externally a second time. In January 2011, UNC hired William King, an attorney with Lightfoot, Franklin & White of Birmingham, Ala.

Both attorneys, King and Evrard, knew dealing with the NCAA was no small undertaking. Evrard worked as an NCAA investigator for seven years. King had represented big-time sports in universities across the nation. They knew the damage the NCAA could inflict.

That expertise came at a high price: $467,406.49, which includes the fees and travel expenses for both lawyers, confirmed UNC spokeswoman Karen Moon.

The bill was picked up by two funds. About $219,000 came from the UNC Foundation, a portion of the University’s endowment. The remaining $248,000 came from the athletic budget, Moon said.

The athletic budget typically does not set aside funds for unexpected expenses, such as legal fees, said Martina Ballen, chief financial officer of the athletic department.

“Had I budgeted for it?” Ballen asked. “No.”

“I don’t know if the foundation ran out of money,” she said. “We were just told that we would have to pick up the remaining amount.”

She said extra revenue from men’s basketball and football from that year helped offset the costs.

“It’s very difficult to have cushion money. We spend almost everything we make,” Ballen said. “But it was a one-time expense, and we found a way to cover it.”

Within months, the attorneys faced big challenges: nine alleged violations that the NCAA meted out to UNC. The allegations implicated Wiley, the tutor, seven football players and a former assistant coach, John Blake, who resigned in 2010 amid speculation of ties to the improper benefits.

Davis, head football coach, wasn’t named in the allegations. Yet one month later, Thorp fired him in an abrupt and widely disputed decision. It was a blow to Thorp’s reputation: Athletic donors threatened to terminate funding. circulated fervently. “I support Butch” shirts spread across campus, and fans decried Thorp during games.

And it cost the University financially. For terminating Davis’ contract, UNC is now paying a severance package of $2.7 million, on the condition that Davis will not coach in college or a professional league before January 2015. Davis has already received more than $1.5 million of that severance pay and has yet to take another coaching position. He has, however, accepted a job as special assistant to the head coach for the Tampa Bay Buccaneers — a position that allows Davis to return to football without formally coaching.

“$2.7 million is a lot, but the good news was that we didn’t have to pay it all at once,” Ballen said. “It just so happened that [the severance packages] hit around the same time that our revenue was increasing with a new television contract, so we were able to cover it.”

Money budgeted for Davis’ salary was also used for the severance package in the first year, Ballen said. Now, her department is responsible for paying Davis $590,000 each year until 2015.

Blake collected severance, too: $74,500 as part of a settlement for his resignation. Both severance packages came from the athletic budget.

With the exit of Davis, the University suddenly began to swiftly unravel: Dick Baddour, UNC’s athletic director, announced his resignation less than 18 hours after Davis’ dismissal. One month later, Nyang’oro resigned as chairman of the African studies department and later was forced into retirement. Two investigations of Nyang’oro’s department were launched — one internally, and one by the State Bureau of Investigation.

UNC was in the crossfire of a public relations disaster.

The University began to assemble a team of public relations experts at the urging of the Board of Trustees and the Board of Governors, UNC’s top decision-making bodies.

“Our board was uneasy about whether we were doing the best things we could in terms of public relations,” Thorp said.

So UNC hired three communication experts: Douglas Sosnik, FleishmanHillard and Sheehan Associates. Each was tapped at different times, but all had the same strategy: coaching Thorp on how to spin the University’s image and regain the public’s trust.

Their approach was marked by honesty and transparency, diverging from the tight-lipped approach that characterized administrators up to that point. There was an emphasis on moving forward and restoring confidence in UNC. Campus-wide emails, sent after months of silence, echoed that strategy.

“My decision last week to ask head football coach Butch Davis to step down was difficult,” said an Aug. 4, 2011, email signed by Thorp. “I think it was the right decision, and I wanted to let you know why I made that call.”

Other emails acknowledged UNC’s own wrongdoing.

“We made mistakes, and we take responsibility for that,” said a March 12, 2012, email signed by Thorp. “So we will accept our sanctions and move forward.”

And Thorp pleaded for support.

“I hope you’ll continue to support our student-athletes and the Tar Heel football team,” the Aug. 4, 2011, email said. “They will play their hearts out, just like last year.”

When their work was done, the three firms left behind a bill of $531,493.43.

Individually, Sosnik charged $144,078.57, FleishmanHillard charged $367,498.04, and Sheehan Associates charged $19,916.82 for two consultations, Moon said. All costs were funded through the UNC Foundation, she added.

The high costs were necessary, said Sallie Shuping-Russell, secretary of the Board of Trustees. She said the Trustees and the Board of Governors pressed Thorp for the extra public relations help when they realized the reputation of the University was in jeopardy.

“It was no longer just about the athletics program,” Shuping-Russell said. “It became about the integrity of our school.”

“We were dealing with a level of issues that we didn’t have internal people to sufficiently handle,” she added. “It wasn’t like our internal team was just issuing the news — suddenly, we were the news.”

In the spring of 2012, the NCAA handed down sanctions for the nine alleged violations related to UNC’s academic fraud and impermissible benefits. Postseason bans and scholarship reductions were issued. Among the most significant penalties: a $50,000 self-imposed fine, adding yet another dent to the athletic budget, which financed the penalty.

An internal investigation conducted by two administrators, Jonathan Hartlyn and William Andrews, closed that semester. In a damning report, the investigation confirmed what many had dreaded: Between 2007-11, more than 50 classes in the African studies department had unauthorized grade changes and were conducted as ‘no-show’ classes, meaning they did not physically meet. No costs were incurred from the internal investigation, Moon said.

The internal investigation, however, failed to uncover one key document: the transcript of Julius Peppers, a UNC football and basketball player in the early 2000s who now plays for the Chicago Bears. The transcript surfaced just two months after the internal investigation, and indicated Peppers excelled in his African studies classes while failing most everything else.

An exasperated public demanded to know the extent of the academic scandal. So Thorp, in his tough decision that cost more than $1 million, hired Baker Tilly and former Gov. Martin. The team determined that the erroneous classes and grades in the African studies department dated back to 1997 — a decade earlier than UNC had previously determined.

“Baker Tilly did exactly what we asked them to do,” Thorp said. “We established when the problems began, and we did it by an external set of people.”

And they did it with a lucrative contract. The firm sent eight consultants to UNC, each charging between $100 and $440 per hour. Some months, the combined hourly rates amounted to more than $150,000, according to invoices.

The work by Baker Tilly was sporadic, invoices indicate. Sometimes, consultants from the firm would make quick two-day, one-night trips, charging $164 for stays in the Carolina Inn. The next day, they would leave, not returning for days or weeks at a time.

And they included travel expenses — totaling close to $10,000 some months. Details of those expenses were not provided.

The invoices also reveal that Baker Tilly continued to work for UNC beyond December 2012, when Martin and the firm concluded the investigations they were asked to complete. One invoice, dated March 29, 2013, billed the University for more than $30,000 for “Public Records Request Support.” No details were provided about this expense. UNC has been criticized in recent years for its reluctance to release public records related to the scandal.

In total, Moon said Baker Tilly charged $940,000. But invoices for the firm reveal a larger number: about $1,034,639 — all of which were financed by the UNC Foundation.

The University could not provide an explanation for the discrepancy of nearly $100,000 before this article’s deadline.

Martin also worked sporadically, but worked for free, only billing his expenses. After four months of work, his expenses totaled more than $1,800. Invoices from Martin detail everything from his $164 stays at The Carolina Inn to his $6.07 Bojangles’ dinner, featuring a Chicken Supremes Combo and a Mountain Dew. Also included: $14 valet parking bills at The Carolina Inn and a $53.91 room service charge.

Martin’s charges were also financed by the UNC-Chapel Hill Foundation, Moon said.

While one controversy was being investigated on campus, another unraveled: Matt Kupec, UNC’s chief fundraiser, was found to have spent $17,000 of University money on personal trips, many with the mother of former UNC basketball star Tyler Hansbrough. An internal review was launched, but at no cost, Moon said.

Thorp announced his resignation one week after news of the travel broke. The next day, records surfaced indicating he had traveled with the two.

The sting of the scandals lingered in the fall of 2012, but the turmoil had lulled. Then, in January 2013, a new scandal erupted.

Five women — three current students, one former student and a former administrator — accused the University of inappropriately handling sexual assault on campus. They alleged that UNC treated sexual assault survivors insensitively and detailed the violations in two complaints with the U.S. Department of Education’s Office for Civil Rights.

There were also hefty legal allegations: Melinda Manning, the former assistant dean of students who joined the complaints, alleged that administrators pressured her to underreport sexual assault cases in 2010. When she didn’t comply, she said, the number of incidents was reduced by three without her knowledge — allegations that, if found to be true, are a violation of federal law.

Soon after, UNC received a third federal complaint when then-sophomore Landen Gambill, one of the original complainants, said the University retaliated against her for speaking up about sexual assault.

One federal investigation was opened. Then a second. Then a third. Students rallied on the steps of South Building, just yards from Thorp’s office. The phrase “intimidate rapists” was spray painted on mailboxes, dumpsters and the Campus Y, UNC’s Center for Social Justice.

Thorp reached externally, seeking a consultant who could examine UNC’s sexual assault policies. He hired Gina Smith, a legal expert who had worked with other universities facing similar issues.

She spent eight months flying to and from the University periodically, conducting meetings and forums before producing a report of her findings. Thorp said her help was vital — UNC needed someone to help implement federal mandates for handling sexual assault on campus.

Her help cost $160,000, the flat fee Smith charged for her services. Unlike the two former scandals, UNC used state funds, funneled through taxpayer money, to pay for Smith’s work. The funds could be used because they directly related to the safety of the UNC community, Moon said.

UNC tapped state funds again when it retained Barbara Lee, a Rutgers University professor, to conduct an external review of Gambill’s claims of retaliation. She found no evidence of retaliation, and for her investigation charged $7,500.

While the consultants worked to address sexual assault on campus, UNC wrapped up one of its final expenses for the athletic and academic scandals: the Hunter Rawlings panel, requested by Thorp as a way to find solutions for balancing academics and athletics. The five-member panel, including Rawlings, president of the Association of American Universities, donated its time.

But production expenses for the panel, catered lunches and a hotel room for Rawlings added up to nearly $2,800. The expenses were paid through University funds, not the UNC Foundation, though Moon could not specify which funds were used.

No three of the funds used to finance the $5 million scandals are alike.

The UNC Foundation draws its funding entirely from private donations. The athletic budget draws revenue from ticket sales, television contracts and student fees, among other sources. State funds come from taxpayers — many of whom who have no relation to UNC.

About a third of the money spent during the three scandals came from the UNC Foundation, a subset of what is considered the University’s endowment, according to data provided by the University. It was used for about $1,786,951 — a piece of the foundation’s overall $217.4 million value, according to 2012 data.

The foundation is made entirely of private donations, large and small, from alumni, outside affiliates, students and faculty, among others. It primarily funds scholarships, professorships and fellowships, but in times of controversy, the foundation can pick up the tab.

Not just any foundation funds can be used, said Kevin Seitz, interim vice chancellor for finance and administration. Only funds donated with no ties, called ‘unrestricted funds,’ are eligible.

“People like to know exactly what their money is going for,” Seitz said. “They don’t tend to give it unrestricted.”

The University could not provide an exact estimate for what percentage of donations is unrestricted, but Seitz described them as limited.

“I’m guessing only about 1 percent of funds are unrestricted,” Seitz said. “And even the unrestricted funds have to be prioritized for things like scholarships and professorships. A much smaller part is for special needs, like a consultant.”

When unrestricted funds are not available or suited for a specific controversy, UNC can turn to two other sources of funding: the athletic budget and state funding. Rarely, such as for the Rawlings’ panel, are University funds used.

UNC turned to the athletic budget for all expenses related to the athletic scandal — a $3.1 million total, pending Davis’ collection of his remaining severance. And that’s a big expense for a budget that typically only operates with a net surplus of $100,000 or $200,000 each year, according to data provided by the athletic department.

To increase that small surplus, the athletic department has turned to other revenue sources, such as increasing the student athletic fee. But the increases, including a proposed $4.75 jump for next year, have been met with contention.

The fees have helped bring in more than $7 million of revenue in recent years, according to data from the athletic department. Ballen said that money hasn’t been used to pay for the athletic scandal.

“In no way did we rely on fee increases to fund the costs,” Ballen said, adding that the increases are used to combat inflation and fund all sports besides men’s basketball and football.

To pay for the expenses related to the sexual assault controversy, UNC used one final alternative: state funds, which were tapped for $167,500.

UNC received nearly $487 million in state appropriations in 2012. Moon said the University was able to use a portion of those funds because sexual assault allegations directly related to the safety and well-being of students at UNC.

Hodding Carter, a UNC professor of leadership and public policy, said that while concerns exist that UNC is using taxpayer dollars to repair its own missteps, that isn’t a problem.

“It is the natural course of institutions to have things go wrong,” Carter said. “Today, so many people say ‘I don’t want to pay for this, or I don’t want to pay for that.’”

“But there are common obligations, and sometimes those will be more unfair to some than others.”

After three controversies and $5 million dollars, UNC’s handling of the events points to two questions: Was the money well spent? Was looking externally the right thing to do?

No and no, said Carter, the UNC public policy professor.

“If you decide to hire outsiders, you are making some kind of statement, which isn’t too positive about insiders,” Carter said.

“You lead the distinct impression that there is no way to ever trust anything that comes out of the inside,” he said. “And that, of course, is so demeaning that it’s ridiculous.”

Far too often, Carter said, consultants are only hired to support the position of the administration.

“If you’re going to hire outside anything,” he said, “You better be damn well sure that those outsiders are ruthless, unyielding in their demand for information and absolutely committed beyond their paycheck.”

In June 2013, questions of just how ruthless external experts were emerged when email exchanges between Nyang’oro and academic counselors surfaced. The emails had gone undetected by the Baker Tilly-Martin investigation and the internal Hartlyn-Andrews investigation, which had both limited the scandal to only academics, not athletics. The emails indicated otherwise. And they were enough for skeptics to question the legitimacy of external help.

The email correspondence, published by The (Raleigh) News & Observer, featured Nyang’oro and multiple academic counselors from UNC’s Academic Support Program for Student-Athletes.

“I hear you are doing me a big favor this semester and that I should be bringing you lots of gifts and cash???????” wrote Cynthia Reynolds, who oversaw academic support for football players, to Nyang’oro. The email was just one of many from counselors — many of whom offered Nyang’oro tickets and “guest coaching” opportunities in messages decorated with emoticons and flattery.

Despite the surfacing of the emails, Thorp said he stands by his use of consultants.

“I don’t regret a single one of those decisions,” Thorp said. “I don’t see how we could have possibly answered how everything started on our own.”

Boxill said external consultants were crucial for attempting to keep a unified faculty.

“I think if we had the faculty running investigations, the situation would have been more contentious and split,” Boxill said. “It would have divided the faculty.”

“We wanted to bring consensus,” she said. “With all of the other issues going on during these years — budget cuts, people losing their jobs, faculty retention — a unified faculty was so critical.”

And the external help was invaluable, she said.

“Especially with athletics, we were talking about so much money,” she said. “Most people aren’t equipped to be able to understand all of that. So it’s not a bad idea to bring in a consulting firm who is familiar with the workings of a university.”

Problems arise when external consultants don’t understand universities, said Stanley Katz, a professor of public and international affairs at Princeton University who has written about the use of consultants.

“Not all consultants understand what the capacities of educational institutions can do,” Katz said. “They aren’t businesses.”

And external help is inexcusable for public relations, he said.

“Universities ought to be able to handle their own public relations,” Katz said. “If the university sees the problem as a public relations issue, then it isn’t internalizing the fact that there is a problem with the way (the university) handles (itself).”

Despite the criticism, Thorp — now provost at Washington University in St. Louis, and months removed from his most trying days — stands by the $5 million spent on the scandals.

“Could we have gotten to this point more cheaply and with less turbulence?” Thorp asked. “Possibly.”

“But it was a tough situation, and I think Carolina is in a good position to move forward.”