Eagle Lake Marina controversy leads to shakeup at the Lassen College Foundation

May 11, 2022May 11, 2022 swilliams

At its Tuesday, May 10 meeting, the Lassen College Foundation addressed the issues surrounding an audit of the Eagle Lake Marina and its aftermath. The office of LCC’s President/Superintendent Dr. Trevor Alberston issued the following statement regarding the matter.

Last night the Lassen College Foundation approved three resolutions, each by a wide margin. These resolutions were presented following the April 20, meeting of the LCF Board. It was during the April 20, meeting that the preliminary findings of the draft audit of the Foundation and its for-profit arm, Lassen Cougar Enterprises, were presented at the request of now former Board President Michael O’Kelly.

Following the requested review of the preliminary findings of the draft audit, Mr. O’Kelly proposed that Lassen Cougar Enterprises, including the McCulloughs, enter an agreement with the Foundation which would pay the Foundation only $50,000, but would remove LCF of any oversight, because then LCE would only be defrauding itself, meaning, that if fraud were to occur within a separate entity it would somehow be acceptable.

The proposal also suggested that the McCulloughs continue to operate the Eagle Lake Marina and Campgrounds. Of course, the McCulloughs had already resigned during the audit, and their resignations were accepted by the foundation at the April 20, meeting. Mr. O’Kelly’s proposed contract would have netted the foundation less than half of the amount of money it had received on average in previous years. In prior years, LCE had paid as “rent” to the foundation $250,000 in 2021, and $125,000 the year before. Mr. O’Kelly’s proposal overlooked the fact that the Foundation cannot sell assets such as the USFS Special Use Permit for less than fair market value.

Mr. O’Kelly’s statements during the April meeting — and subsequent behavior, including (alleged) false statements made to the public — did not sit well with the broad majority of his peers on the foundation board. The majority felt that the oversight of public money and public interest are essential, and that fraud is never acceptable. Board members also expressed grave concern over the impact that a failure to quickly and fully address the findings of the audit could have on the college’s accreditation, financial position and reputation in the community, all of which place in jeopardy the availability of higher education in the region.

An audit is part of a required and annual process designed to ensure the reliability and credibility of operations and accounting practices at the college, and within the separate college foundation and its for-profit arm. The impetus for scrutiny of the college and foundation accounting and operations came following the resignation of previous Lassen College Superintendent/President Dr. Marlon Hall, who retired suddenly in December of 2019. By the end of the previous president’s tenure, the college found itself edging towards deficit spending and depletion of its monetary reserves. In response to this and following serious concerns over operational and fiscal practices which were expressed by the Lassen College Board of Trustees, the institution was placed on “Enhanced Fiscal Monitoring” by its accrediting agency, ACCJC; at roughly the same time, the California Community Colleges Chancellor’s Office coordinated a review of Lassen College and associated auxiliaries by the Fiscal Crisis and Management Assistance Team. FCMAT is an agency designed to help school and college districts engage in sound fiscal and management practices and aid those districts in emerging from financial and leadership troubles. As part of these actions, the college, the foundation, and the foundation’s for-profit arm were obligated to ensure the reliability and credibility of all financial practices and operations, which was in-part conducted through the annual audit.

At last night’s meeting, Mr. O’Kelly was voted out of his position on the foundation board by his fellow board members by a vote of 5 to 2 (one foundation board member was absent) The only no votes came from Mr. O’Kelly’s and Mr. Barnetche. The resolution relinquishing the special use permit came amid concerns over Mr. O’Kelly’s lack of concern regarding the draft audit, and his argument for eliminating fiscal and operational oversight of LCE as part of a proposed contract with the two recently-resigned employees. Additionally, the foundation board voted to make clear the removal of Richard St. Peter, whose status on the board could not reliably be determined, due to inadequate documentation of his fluctuations in status between being a regular board member and a board member emeritus.

The foundation board’s adoption of the resolution relinquishing back to the USFS its Special Use Permit to operate Eagle Lake Marina and Campground was by a vote of 5 to 2 (with one board member being absent). The permit was held by the college foundation, despite the reality that it was in-fact being operated by a separate entity, the for-profit Lassen Cougar Enterprises. This was contrary to both the permit application and a requirement that the U.S. Forest Service provide approval of such an arrangement, which was never requested by the foundation leadership — a requirement that was explicitly stated in the permit application.

The foundation will appropriately work with the USFS to best ensure the continuity of operations at the marina and campgrounds until a new concessionaire is identified. The decision to relinquish the permit was the result of several facts, including the absence of contemporaneous records maintained by LCE Inc., the absence in LCE of internal controls, the sudden resignations during the audit process of the two full-time employees who previously ran operations at Eagle Lake and concerns about the relatively small percentage of revenue flowing from Eagle Lake operations to the Foundation, which since 2009 has averaged only approximately 15 percent of all revenue generated; the remainder of the revenue was eaten-up by overhead costs, expenses and retention of some of those dollars in accounts at the for-profit Lassen Cougar Enterprises, which at last check totaled nearly $200,000 in one account alone.

Finally, the foundation board voted by a wide margin of 5 to 1 (again, with one board member being absent) to remove from the board of directors of its for-profit subsidiary Mr. St. Peter, Mr. O’Kelly, and Mr. Scott McCullough, who was simultaneously a former full-time employee of the same for-profit entity. In their place, the foundation board voted to replace those individuals with Mr. Morgan Nugent, and Mr. Lou Hamilton; and Mrs. Sophia Wages remains. The intent of “Winding Down” the operations of the for-profit entity ahead of its eventual dissolution and transfer of funds to its non- profit parent entity, the foundation, is to ensure the availability of such funds for use in supporting student scholarships.

As of the time of this release, while the audits of the foundation and the for-profit Lassen Cougar Enterprises have been completed, the former officers and directors of LCE have not been willing to sign the auditor’s requested management representation letter, a standard step in an audit process where those with management responsibilities simply attest to the accuracy of the information they have provided to the auditor.

In the meantime, the college’s annual audit was completed over a month ago but cannot be accepted by the college’s board of trustees until the audits of both the foundation and its for-profit corporation are resolved. The lack of signed audits from the foundation and its subsidiary are already impacting college operations, as the institution cannot complete the requirement set forth by the state chancellor’s office to provide annual audits to that agency and the ability of the college, which is currently running a budget surplus, to receive an increase on its line of credit to support day-to- day operations as it continues to emerge from the impacts of COVID-19.