Audit of Oklahoma State University finds mismanagement of $41 million in state funds

An audit report released on Wednesday by the Office of Internal Audit at Oklahoma Agricultural and Mechanical Colleges Board of Regents has found significant issues in the allocation and management of legislatively appropriated funds at Oklahoma State University.

Former OSU President Kayse Shrum responded to the audit on Thursday and said legal counsel was consulted for all financial management.

"As President of the University, I utilized the legal counsel of the board of regents. The transfer of funds from OSUMA to OSU was approved by the board of regents with input from legal counsel. The research institutes and structure of the Innovation Foundation was presented to the Board of Regents on multiple occasions and the regents have representation on the board of the Innovation Foundation," said Shrum.

See Full Statement: Former OSU President Kayse Shrum Responds To Audit; Says Legal Counsel Was Followed

The audit concluded that a total of $41 million in state funds received between July 1, 2022, and January 15, 2025, were not properly restricted and were in some cases mixed with other funds, leading to expenditures that did not align with their intended purposes.

The funds were provided by the Oklahoma Legislature to the Oklahoma State University Medical Authority (OSUMA) for educational and research activities at OSU.

The audit details four ways that the mismanaged funds were handled improperly (See Audit Page 4 Below):

1. $11.5 million of the $41M was transferred to the Innovation Foundation, Inc. without a written contract approved by the OSU/A&M Board as required by state law and Board policy. The Innovation Foundation is a research foundation formerly known as the Oklahoma State University Research Foundation.
2. What is The Innovation Foundation, and why are they at the center of an OSU audit?
3. $20.5 million $41M were “co-mingled with other funds” according to the report, a practice prohibited by OSU policy and accounting standards.
4. $24 million $41M were deposited into unrestricted auxiliary funds rather than restricted Education & General funds. The Office of Internal Audit indicates that this appears impermissible under state law.
5. $4 million $41M was deposited into restricted capital funds but was not specified for the restricted purposes

$55.5 million was the total amount of money appropriated to the Cooperative Agreements. The audit was limited to the $41 million of the 55.5M that had been transferred.

TIMELINE: What led to the OSU audit?

This report comes just a few weeks after OSU's president Kayse Shrum resigned. The Innovation Foundation's CEO also resigned a few days after former President Shrum.

In a statement, Lance Lathamn with OSU said:

“OSU remains focused on its land-grant mission to provide accessible education, conduct groundbreaking research, grow the state's workforce, and deliver high-quality health care for Oklahomans. Newly appointed Interim President Dr. Jim Hess is taking swift action, along with the OSU/A&M Board of Regents, to address these matters. Dr. Hess has underscored that while the financial decisions and transactions which occurred are concerning, they were isolated and do not impact OSU’s overall financial foundation, which remains the strongest among Oklahoma’s institutions of higher education.”

Records Request Findings- Emails

In documents obtained through a records request, there is discussion about the allocation and management of funds at Oklahoma State University (OSU), specifically between entities like the OSU Medical Authority (OSUMA), OAIRE, HPNRI, and the Innovation Foundation. 

Quote from 5/30/2023 OSU Leadership budget meeting minutes:

“Kayse noted there is $10,000,000 in the base from OSUMA (Johnny will go back and review) $5,000,000 Poly-Tech $5,000,000 OAIRE Take the $5,000,000 from OSUMA and fund OSURF and OAIRE. Remove both from Priorities. Take $500,000 from OAIRE and give to HPNRI for the first year. Kayse recommended to request additional funds from ARPA. (Johnny and Jerome to talk with Jessica). She also recommends to ask for HPNRI as well as the Pharm Development Lab.”

Quote from the Director of Budget, Kelly Murphy, in an email to Stephanie Rossander, Fiscal Accounts Manager at The Innovation Foundation: 11/21/2023

“Then, when we had information on actual revenue coming into the institution, Leadership went through the huge list of all needs across the institution and made adjustments to areas requesting funds to fit into the amount of money we had to give out. There were differing amounts all over the place from what was requested, which is normal. What I have noted from the minutes from that meeting was that HPNRI would be getting $500k of the OAIRE funds for that first year. No other funds were allocated that I'm aware of. This is what I know.”

Quote from Adam Niehenke, OSU Director of Finance, in an email to OSU Regents Professor of Aerospace Engineering in the School of Mechanical and Aerospace Engineering, Jamey Jacob: 8/6/2024

“OSUMA allocated money to The Innovation Foundation, but similar to FY24 the plan is to move it around the areas of need/lack of funding. OAIRE is fully covered. How we are covering all of our gaps is an ongoing conversation. I'd say end of next week, but it may go out further.”

Quotes from 1/14/2024 The Innovation and Cowboy Budget & Gap Discussion agenda:

“OSUMA funds internal audit/legal is having problems in chart 9. Is this an issue from your point of view?”

“If we don’t apply F&A rates on OSUMA funds the are total GAP grows to $6M”

“FY25 gaps can be covered by OSUMA F&A. In FY26 will OSUMA funding levels repeat? If not does the University fund the gaps created and how does that impact the service agreement FY26? (F&A taken from FY25 OSUMA is covering FY25 but research spend will be over multiple years)”

Quote from Stephanie Rossander, Fiscal Accounts Manager at The Innovation Foundation to Elizabeth Pollard, former Innovation Foundation CEO: 10/13/2023

“OSU Medical Authority Funds - Kelly Murphy did mention when I was asking about the funds that they got the information from a meeting with the President. I assume it was a board meeting but didn't ask. So that is the reason she said $500k goes to HPNRI that was removed from the $4M for OAIRE. I assume we can transfer funds between the entities if we determine there is another need in another area but wasn't sure. Just wanted to mention where Kelly got the information.”

Kayse Shrum responded with the following statement:

"I have been asked to comment on news articles about the release of an internal audit performed on behalf of the Oklahoma State University Board of Regents. I only received a copy of this audit yesterday by reading a news article. 

Most importantly, there is absolutely no money missing. No state money has been taken . All of the money is still in OSU accounts and was spent on delivering education and research per the mission of the university.

Second, as President of the University I utilized the legal counsel of the board of regents. The transfer of funds from OSUMA to OSU was approved by the board of regents with input from legal counsel. The research institutes and structure of the Innovation Foundation was presented to the Board of Regents on multiple occasions and the regents have representation on the board of the Innovation Foundation.

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

Any inference that anything was done wrong, based on everything that I know during my tenure as President, is simply not accurate. 

As you may know, I am currently on a sabbatical and no longer the President. I am currently acting only as a mother, wife and grandmother of my new grandson."

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Originally published Wednesday, 3/5/2025