Book depository funds misused for years

The book depository stores rarely used books and journals, loaning them to area universities.

The depository in Perrysburg's Levis Park houses more than a million books and journals.

Inside the Northwest Ohio Regional Book Depository, more than a million old books and journals line cardboard trays stacked on shelves a staggering 30 feet into the air.

A modified forklift sits at the ready to transport employees to the upper shelves when requests come in from area universities for the rarely used books that are stored there.

It is, by all accounts, a low-tech operation.

McHugh

Yet it was in the near anonymity of the quiet operation in Perrysburg's Levis Park that depository manager Michael McHugh, a Bowling Green State University employee since 1995, allegedly used the university's money to buy more than $400,000 worth of computers, printers, digital cameras, Palm Pilots, and other high-tech gadgets. When his purchases raised no eyebrows at BGSU, investigators say he then sold the electronics on the Internet auction site eBay or kept them for his own use.

For nearly six years, the spending spree continued un-detected.

Then on Oct. 18, employees in BGSU's purchasing department noticed "a spike in payables" to Office Depot and called a hot line set up by the university to alert auditors to suspicious expenditures.

Within 24 hours, Mr. McHugh was told he was being suspended while the university investigated. He immediately admitted to university officials that he had been stealing from his employer for years, according to court records.

"This is not something I take lightly," BGSU President Sidney Ribeau said last week. "It's never happened at the university, and you can rest assured this is not going to happen again."

The book depository stores rarely used books and journals, loaning them to area universities.

The university fired Mr. McHugh in November and he was arrested Dec. 1. A Wood County grand jury indicted him Dec. 20 on felony charges of theft in office and telecommunications fraud. The man who received stellar reviews year after year for his management expertise at the depository pleaded not guilty to the charges and has been in the Wood County jail in lieu of $100,000 cash bond since his arrest.

Through his attorney, Gregory Bakies, Mr. McHugh, 44, declined to be interviewed for this story. Under questioning by BGSU police and university administrators, though, Mr. McHugh said "he had in fact been making purchases of electronic equipment through various vendors using university funds and then selling these items on eBay for his own profit," states an affidavit filed by BGSU police in Municipal Court.

At a subsequent interview with his attorney present, police said Mr. McHugh "also admitted to misusing university funds for his own benefit and that he started this practice in 2000 or 2001."

Presented with four June, 2003, invoices from Apple Computer that totaled $106,639, Mr. McHugh reportedly said that yes, that was all computer equipment he bought with university purchase orders and resold for his own benefit.

Why didn't anyone in BGSU's purchasing department notice the pricey orders for computers?

Why didn't library officials, to whom Mr. McHugh reported, ask why the depository - which has just two other full-time employees and a half-dozen part-timers - needed so many new computers?

A review of the purchase orders and invoices from the depository showed only that the bills were paid. In one March 25, 2003, e-mail, an account clerk in BGSU's information technology services department asked Mr. McHugh whether he had received his entire Apple order, which was delivered directly to the depository.

"I now have received the entire order," he replied. "Thanks for your help."

Chris Dalton, BGSU's senior vice president for finance and administration, said it's far simpler to see the fraudulent purchases in hindsight.

"We're a $400 million a year operation so from the university's perspective, from where I sit, we're looking at something that occurred over multiple years - roughly five years - so you're talking about $400,000 total spread out over five years," he said. "It's not as easy to notice this as you might think. If you now know that it happened and go back and look, it's obvious."

One thing that was obvious to BGSU officials was that the depository, which initially had operated within the $400,000 to $450,000 budget allocated to it by the Ohio Board of Regents, began to seriously erode its carryover balance by the end of fiscal 2003 and finished the fiscal year more than $50,000 in the red in 2005 and 2006.

About the same time, the Board of Regents had begun reducing funding to the state's five book depositories. Mr. McHugh's performance evaluations seem to place the blame for the depository's budget problems on state cuts rather than local spending.

"During these challenging budgetary times, Michael has both managed his budget and met the mission of the depository," his supervisors wrote in July, 2003.

In May, 2005, his evaluation by then-Dean of Libraries Lorraine Haricombe included concerns that he was not submitting vendor invoices in a timely fashion, which had resulted in "calls from BGSU's business office about delayed payments to vendors and staff time associated with paying invoices."

She did not raise concerns about what the invoices were for, only that they weren't being paid on time.

By May, 2006, Ms. Haricombe noted that Mr. McHugh had implemented "cost saving measures to reduce the depository's annual budget shortfall." She stated that he "should be commended for cost savings of up to $12,000/year in telecommunications" and wrote, "In all cases he represents BGSU well."

Mr. Dalton said the budget office did question Mr. McHugh about his budget shortfalls but always received "plausible explanations."

Mr. McHugh, he said, found ways to get around the systems in place to prevent opportunities for theft, but he declined to elaborate.

"He learned how to use the system. I can't get into specific criminal activity," Mr. Dalton said.

Wood County Assistant Prosecutor Gwen Howe-Gebers, who is handling the criminal case, said she's not entirely surprised the thefts went undetected so long.

"That's the idea of an embezzlement. It's secret. If they weren't doing it in a secretive manner, they'd get caught a lot sooner than they are," she said.

Mr. Ribeau said several employees were in a position to see and review invoices and purchase orders from the depository, and that may have been part of the problem. In the future, he said, all purchases at the depository will be reviewed by the same individual so that there is better oversight and more likelihood that patterns or unusual purchases are detected.

BGSU also is installing new administrative management software that should allow it to better track spending in all departments. Mr. Ribeau said the new program would not permit certain purchases, such as computer equipment, without authorization.

"He beat the system," Mr. Ribeau said of Mr. McHugh. "In many cases he went right under the maximum purchase request that required additional authorization. He spread it out over a continued period of time where at some point he would purchase a lot, then there would be a long lull where he wouldn't purchase anything."

Mr. Ribeau said the alleged fraud also might have been easier to pull off because the depository is 12 miles north of the BGSU campus. It was built in Levis Park as a central location for the universities that use it, including the University of Toledo and its medical school.

"He took advantage of all those things," Mr. Ribeau said.

The theft allegations have stunned the small circle of people who run the four other book depositories that serve Ohio's state-run universities.

Thomas Atwood, director of libraries at the Northeastern Ohio Universities College of Medicine, which operates a depository for nearby Kent State University, the University of Akron, Cleveland State University, and the medical college, said the depositories are continuing to look for ways to be more efficient even though they already operate with small staffs and small budgets. They've been so efficient, he said, that news of Mr. McHugh's alleged embezzlement was shocking.

"I find it all just unfathomable," Mr. Atwood said. "I just don't even understand how that can happen. There are so many checks and balances in the system."

Joseph Branin, director of libraries at Ohio State University, said Ohio State has had to supplement its depository budget because of state funding cuts.

"We're working hard to make a better case for funding so this possible scandal doesn't come along at a good time," he said. "It never would be good, but at a time when we're trying to show how important and effective the depositories can be, it's very unfortunate if it's true."

Contact Jennifer Feehan at:

jfeehan@theblade.com

or 419-353-5972.