Audit reveals CapRadio’s wide financial mismanagement; Sacramento State takes over NPR station

One month after Capital Public Radio announced layoffs of 12% of its workforce and its interim chief warned it barely had enough cash to continue, an audit released Wednesday found significant financial problems that led Sacramento State President Luke Wood to announce the university is assuming operational control of the NPR member station.

“One thing is abundantly clear: We have real and immediate work to do to ensure CapRadio’s financial controls and operational processes are disciplined, sound, and transparent going forward,” Wood said in a statement. “The financial implications of CapRadio’s mismanagement have significant consequences for Sacramento State, but we will make it through.

“Now is the time for the community to continue its support for CapRadio. Given the changes the university and CapRadio board are putting into place, donors should feel confident moving forward that their generous contributions will be well stewarded.”

Wood outlined a series of moves to have CapRadio’s accounting, endowment and financial operations be overseen by the university rather than CapRadio management and its board of directors.

A chief content officer overseeing CapRadio’s programming will remain a CapRadio employee, “ensuring CapRadio’s journalistic independence,” the university said.

Wood also ordered yet another “forensic examination” to delve deeper into the details of how the operation became so troubled. That is expected to be completed early next year.

The moves stem from an audit initiated by former Sacramento State President Robert Nelsen last year after university officials “recognized discrepancies in financial statements,” the university said.

The 33-page audit released Wednesday found a number of management failings, including annual audits by an outside firm that “have been identified as potentially inaccurate,” the audit said.

Among the findings cited in the audit:

▪ More than $1.1 million in studio equipment and furniture loans were taken out without approval by CapRadio’s board. “These loans were signed by the executive vice president and (general manager), an individual who did not have written delegation of authority from the board.”

▪ Credit card charges were not properly reviewed and, in some cases, late fees and charges over the card limit were incurred.

▪ CapRadio accepted gifts “without written delegation of authority from the campus president” and processed an $85,000 “gift-in-kind” that actually was a discounted purchase of a piano that is now in storage.

▪ The operation did not have written agreements with either of the two entities that handled vehicle donations to CapRadio as a fundraising device.

▪ And CapRadio was not doing enough to involve students in its operations, a traditional educational byproduct of campus broadcast operations.

The audit also found that an $8 million loan from the university to CapRadio “was not properly executed” and that CapRadio had fallen behind its repayment schedule by $1.8 million as of July.

The university said the audit findings “detail long-standing issues, including a lack of financial and governance processes and protocols, lines of credit and loans secured without campus approval or CapRadio Board of Directors awareness, submission of inaccurate or incomplete financial information to the board, the Corporation for Public Broadcasting, external auditors, and the University, and much more.”

The audit comes as CapRadio has had to contend with difficulties from the pandemic, as well as falling revenue and expenses from construction projects for two new buildings it leased downtown for a new headquarters and performance space.

CapRadio also is in the midst of a 15-year, $2 million radio tower relocation project for the tower that transmits KXPR’s classical and jazz music station.

Sac State owns the license for CapRadio’s two stations — KXJZ-FM (90.9) and KXPR-FM (88.9) — and CapRadio also operates North State Public Radio, which has two stations owned by Chico State.

An audit of CapRadio’s finances as of June 30, 2022, found the operation had total liabilities of more than $27.2 million compared to liabilities the year before of about $5.5 million.

That audit found CapRadio had total net assets of about $13.2 million as of June 30, 2022, compared to about $14.6 million the previous year.

Because of its financial difficulties, CapRadio had been unable to pay Sacramento State the $17,787 monthly rent on its existing on-campus headquarters, and on Aug. 30 CapRadio announced the layoffs of 15 workers and canceled four music programs.

The announcement came weeks after CapRadio’s board of directors brought in Tom Karlo, a longtime Southern California public broadcasting executive, to serve as interim general manager.

Karlo, who was brought in at Wood’s urging, replaced Jun Reina, who served as general manager and vice president as the operation continued its expansion efforts. He announced his decision to step down from the station in March.

Reina could not be reached for comment Wednesday; a message left at a phone listing for him was not returned. CapRadio Board Chair Andrea Clark also did not immediately respond to a request for comment.

The audit found that CapRadio had taken out six five-year loans totaling $1.3 million for furniture and studio equipment between August 2022 and February 2023, but that “the documents were not signed by the third‐party vendors.”

“In addition, we were unable to fully verify the purchase of these equipment and furniture during our walk-through,” the audit said. “Per CPR management, these assets were in boxes stored onsite, as well as at a paid off‐site facility, while the newly leased locations are still being renovated.

“In our review of the finance committee minutes, we found board approval for only one of these loans, in the amount of $245,524. There was no board approval documented for the additional studio equipment and furniture loans noted above.”

The auditors also questioned the extent to which CapRadio was using its operations to benefit Sac State students.

“Based on discussions with campus and CPR management, we noted that CPR did not have hands‐on student involvement in staffing, internships, or programming and therefore did not appear to provide any instructionally related activities for the benefit of Sacramento State students,” the audit found. “We also noted that the campus has a student‐run radio station that is not affiliated with CPR.”

And, the audit found that CapRadio’s tracking of donations to its operations was sloppy.

“We also selected 20 cash receipts and reviewed them to ensure that deposits were appropriately reviewed and verified, accurately recorded, and timely deposited,” the audit said. “However, we found that CPR did not maintain adequate documentation for 18 of the 20 deposits, all of which related to donations, and therefore were unable to complete our review.

“For example, documentation, such as deposit slips, batch summary reports, check deposit logs, and copies of checks, was not always retained.”

There also were questions about how some travel expenses were handled, including a $10,000 hotel bill.

“For three travel expenses, the travel authorization form was not retained, as required by CPR policy,” the audit found. “Additionally, two travel claims did not have receipts to support reimbursable charges.

“There was also an unexplained discrepancy between a credit card charge of $10,611.80 that was paid by CPR and the corresponding hotel bill of $10,000, and itemized receipts were not provided for a travel expense of $7,478.75.”

The operation’s vehicle donation program also had problems, the audit found, with CapRadio recording the value of one vehicle as $27,917 in one place and $21,917 in another.

“In conversations with CPR, we learned that this was their standard practice for recording vehicle donations,” the audit found. “By recording the gross amount in the donor system, CPR received higher funding from the Corporation for Public Broadcasting (CPB), which provides matching funds for gifts raised by CPR.

“It was unclear whether this method of reporting (gift-in-kind) values to CPB was appropriate.”

The audit also found problems with CapRadio’s oversight of its expenses.

“For five expenditures totaling $48,576, no supporting documentation was provided,” the audit found. “These expenditures included payments for credit cards, underwriting, equipment, and gift cards.

“For eight expenditures totaling $87,917, only the invoice was provided. These expenditures are related to items such as consulting services, training and subscriptions.

“Appropriate supporting documentation would have included a fully executed contract or agreement, check payment, and management approval.”

CapRadio recently ran its on-air listener fundraising drive, urging listeners to donate by citing its financial problems and asking for the community’s help, and Wood noted in his statement the importance of the operation to the region.

“We are fighting to save our auxiliary,” Wood said, referring to the operation. “CapRadio has been part of the fabric of Sacramento and Northern California for decades.

“It is important to us to maintain the health and integrity of such a valuable and beloved media institution.”