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Diving certificate:

• A state examination of the University of Maryland Global Campus questions raised about whether the university administration is adequately overseeing a spin-off company on which UMGC has spent hundreds of millions of dollars in recent years.
• UMGC did not assess whether the nonprofit UMGC Ventures and other spin-offs “achieve their intended purposes and objectives in the most effective manner,” the audit found. These problems may have contributed to the failure of a $25.7 million IT project that ended without a usable product for UMGC, the report said.
• In addition, between the end of 2018 and 2022, UMGC spent approximately $184.1 million on IT services from ventures “without competitive bidding and without verifying whether the amounts paid were appropriate,” the audit concluded.

Diving insight:

The University of Maryland’s Education College founded UMGC in 1947 to serve senior students and military personnel. Today it specializes in online programs and has satellite campuses across the country. The majority of its revenue – which amounted to nearly half a billion dollars in fiscal year 2022 – come from tuition fees. From the 2022 financial year, it had almost 87,000 students.

UMGC’s first spin-off company was HelioCampus in 2015, which emerged from the institution’s analytics department. It was created to provide third-party services such as data analytics to help universities, including UMGC, increase enrollment and improve student success.

Next came Ventures in 2016. When UMGC was founded as a tax-exempt holding company for commercialized companies, the university gave it $15 million in seed capital and transferred ownership of HelioCampus to the new company. The following year, UMGC spun off its 100-person technology office into a venture subsidiary called AccelerEd to provide paid IT services to educational institutions.

UMGC hired AccelerEd to build a new student information system, an IT project that went over budget and over schedule. The product was “ultimately deemed unusable and abandoned” – after the university had already paid ventures $25.7 million, auditors said.

An independent vendor found that the initiative had “numerous significant project oversight and management issues related to Ventures and its partner,” the report said. Although these issues “directly contributed to the failure of the project,” the auditors said, UMGC did not seek reimbursement or damages from the company.

Although Ventures is designed to be an independent company, most of its revenue comes from UMGC and the university’s president appoints the majority of the spin-off’s board members.

However, UMGC officials did not provide business and financial details about Ventures for the audit, which was conducted by Maryland’s Office of Legislative Audits.. Campus officials cited the company’s tax regulations as the reason, as the company should not actually be under the direct control of the university.

UMGC officials also could not provide details of Ventures’ 2019 sale of a majority stake in HelioCampus to a private equity firm for about $26 million.

The state auditors concluded that “the scope of work performed exclusively for UMGC by Ventures and its subsidiaries calls into question the claimed independence of the various companies.”

In fact, UMGC plays a critical role in Ventures’ financial life: The university’s spending on AccelerEd’s IT services accounted for $198.1 million of Ventures’ $215.3 million in revenue during fiscal years 2017-2022.

According to the report, UMGC’s spending through Ventures was made without a competitive procurement process or adequate oversight. For example, invoices for Ventures’ IT services did not include a breakdown of costs incurred and services provided during the period.

“Such information would be helpful in determining the future continuation of this agreement, the appropriate costs, and the practicality or potential value to UMGC of obtaining future services through a competitive bidding process,” the report said.

In a response to the audit submitted by Ellen Herbst, UMGC’s vice chancellor for administration and finance, the university agreed with most of the auditors’ recommendations, including strengthening contract oversight and financial controls at ventures and third-party vendors.

However, the UMGC objected to the recommendation to ensure competitive IT procurement in the future, arguing that an exception in state law for spin-offs did not require this.

In a message to university leadership about the audit, UMGC President Gregory Fowler said Ventures contributed to the university’s success, but added, “I am deeply grateful for the work of the auditors, understand its importance, and am fully committed to addressing the concerns and recommendations outlined in the report.”

He noted that UMGC had taken steps to obtain third-party evaluations of Ventures’ services and had implemented new processes recommended by the auditors in advance of the report.