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NEWS RELEASE
For Immediate Release
Contact: Steve Halvonik 717-787-1381

Auditor General Jack Wagner Finds PHEAA Gave
$7.5 Million in Bonuses to Hundreds of Employees

Another $108,000 spent on employee appreciation day at Hersheypark

HARRISBURG, Oct. 4, 2007 – The Pennsylvania Higher Education Assistance Agency, the commonwealth’s leading provider of financial loans and grants for post-secondary education, has a far more extensive and lucrative bonus/incentive program for employees and management than has been previously revealed to the public, and it has cost taxpayers millions of dollars that could have been used to help needy students, Auditor General Jack Wagner said today.

In addition, PHEAA spent $108,000 to entertain employees at Hersheypark in April, one month after the agency’s board publicly said that it was clamping down on excessive spending.

Details of the employee bonus program and the Hersheypark expense are contained in an interim report of a special performance audit by the Department of the Auditor General that Wagner sent today to Richard E. Willey, PHEAA’s president and chief executive officer.

"The Hersheypark outing is a clear indication that reform at PHEAA has not occurred," said Wagner, who called on PHEAA to immediately, permanently and completely discontinue all incentive/bonus programs for executives and management employees. He added that PHEAA should not raise executive and management base salaries to compensate for the elimination of bonuses and incentives.

Noting that 12 PHEAA executives earned more than Gov. Rendell's annual salary of $164,500 during the 2006-07 fiscal year, Wagner said: "With the ever-increasing cost of higher education, PHEAA has forgotten its fundamental duty as a government agency – to put Pennsylvania students and families first."

Auditors found that PHEAA has paid out more than $7.5 million in bonuses since July 1, 2004. The bonuses/incentives extend below executive management to include hundreds of other managers as well as a sliver of union workers whose incentives are provided through a collective bargaining agreement. About 325 employees received bonuses in Fiscal Year 2006-07.

Auditors found that PHEAA awarded $6.4 million in bonuses during the three years ended June 30, 2007. An additional $1.1 million was given only to the 23 highest-ranking executives on Sept. 7, 2007.

Wagner said the $6.4 million in bonuses/incentives could have provided 1,702 Pennsylvania students a maximum education grant, which ranged from $3,300 to $4,500 during the audit period. Or, PHEAA could have provided 2,563 borrowers $2,500 apiece in loan forgiveness.

The interim report is the result of an ongoing special performance audit that began April 17, following public reports of questionable, non-essential spending by PHEAA. It is the first performance audit of PHEAA by the Department of the Auditor General since PHEAA’s inception in 1963. Although the auditor general typically does not comment on ongoing audits, generally accepted government auditing standards permit interim reporting of significant matters.

"The matters discussed in this report require immediate corrective action," Wagner said in his letter to Willey. "The corrective action is urgent based on the matters themselves, but it becomes more urgent in light of the transition necessitated by your announced retirement."

A 1963 state law established PHEAA to assist Pennsylvania residents in obtaining loans to attend post-secondary educational institutions both inside and outside the commonwealth. A 1966 state law established the Pennsylvania State Grant Program through which PHEAA issues monetary grants to state residents.

Auditors found that the Pennsylvania General Assembly gave PHEAA, which has 2,600 employees, at least $400 million a year for grants and special programs during each year of the audit period July 1, 2004, through June 30, 2007. The General Assembly provided $451.6 million during FY 2006-07, with 85 percent earmarked for the state grant program and the rest for loan forgiveness and scholarships.

Wagner said that PHEAA’s board has given the top 23 executives a separate and elite compensation package far different from those received by other PHEAA employees. The elite compensation is structured in such a way that both base salaries and bonuses are included in the employee’s annual salary for pension calculation purposes.

For example, the chief executive officer and president was paid a base salary of $289,118 a year and received a $180,857 bonus in Fiscal Year 2006-07. However, his actual annual base salary used for calculating his future pension payment was the total of the two amounts, $469,975.

"PHEAA's executive bonus program is a double-dip for recipients, who receive bonuses up front and higher pensions after retirement," Wagner said. "It’s also a double whammy for taxpayers, who must bear the financial impact of these bonuses not once, but twice." Wagner said. "This must end."

Auditors found that, on March 23, one day after the board of directors had issued a press release saying it would tighten its belt on travel and other expenses, PHEAA signed an agreement to hold an annual appreciation event for employees and their guests at Hersheypark. Several days before the amusement park outing, which was attended by 3,500 employees and their guests,

PHEAA shelled out $23,864 to four Pennsylvania newspapers to promote an image-polishing advertisement titled, “Why Does PHEAA Work?”

"You said you looked forward to embracing any of our recommendations that would help PHEAA’s operations to become more efficient and effective in servicing the commonwealth," Wagner said in his letter to Willey. "It is our expectation that you will immediately implement the recommendations in this interim report."

Auditor General Jack Wagner is responsible for ensuring that all state money is spent legally and properly. He is the commonwealth’s elected independent fiscal watchdog, conducting financial audits, performance audits, and special investigations. The Department of the Auditor General conducts approximately 5,000 audits per year. To learn more about the Department of the Auditor General, taxpayers are encouraged to visit the department’s website at www.auditorgen.state.pa.us.

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