HUMBOLDT COUNTY RESIDENTS AWOKE THURSDAY
MORNING, AUG. 2, to a black headline on page 1 of the Times-Standard
that read, "Fraud at HSU; school feels betrayed." The
alleged perpetrator was one John Sterns, an administrator who
padded his expense account and exaggerated his fund-raising prowess.
In the Aug. 7 edition of the weekly Arcata Eye, Editor
Kevin Hoover summed up the story in a single sentence:
"From July 1998 to last March, a smart,
well-liked and spectacularly dishonest Humboldt State University
employee systematically looted the school for cash and perks,
all the while cooking the university's books to show millions
in donation dollars which didn't exist."
What had been previously reported was that
Sterns -- who was in charge of all university fund-raising, alumni
and public relations, and ancillary university programs that
included public radio station KHSU, the Natural History Museum
and the First Street Gallery -- was fired March 20 and a criminal
investigation was launched. Last month law enforcement concluded
its work and turned over three binders of evidence and interviews
to District Attorney Terry Farmer. Farmer will likely file embezzlement
charges against Sterns soon.
Not much has been revealed about that criminal
investigation, but in the meantime the results of a parallel
special investigation by the auditor of the California State
University Chancellor's Office were released.
What are the charges -- the case against
Sterns --presented by the auditor's report?
That Sterns was reimbursed for $41,000
in phony travel and entertainment costs from one account through
the HSU Foundation, which acts as a bank for university grants,
programs and donations.
That he charged $14,000 in personal items
to the Foundation's credit card.
That approximately half of his $29,000
regular HSU travel expenses were bogus.
That he falsified records of gifts, pledges
and bequests to the tune of $15 million, directing one staff
member to enter $6 million in "donations" into the
computer on a single day with no paperwork.
That he routinely closed trust accounts
and transferred funds to cover his misdeeds.
According to the report, Sterns also oversaw
the printing and distribution of promotional material bragging
about his fund-raising successes. He lied to faculty regarding
the nature and source of support for equipment and programs.
He lied about the nature and availability of student scholarships
and he apparently told at least one hapless parent his tax deductible
"gift" to the university could be used as a scholarship
for his own child. Sterns prepared fraudulent financial statements
for KHSU, signing the name of a non-existent San Francisco accountant
and submitted fraudulent reports to the Corporation for Public
Broadcasting to obtain funding, some of which the station may
have to return.
Sterns created and sent bogus memos, signing
the names of Alumni Board members and others, and he altered
board minutes. He often forged the signature of his immediate
supervisor, Vice President Don Christensen and on one occasion,
HSU President Alistair McCrone.
Sterns was so good at his job, his salary
rose from $77,000 to $98,000 in two years.
The chancellor's report saved some of its
findings -- and criticism -- for the university administration.
The university "did not exercise appropriate and sufficient
oversight and control" over the Sterns department or over
the use of university and alumni funds. University trust fund
transfers, cash receipts and donations were "inadequately
managed and controlled." And, the report concluded, university
administrators "did not take sufficient and suitable action
upon presentation of certain facts and circumstances regarding
[Sterns'] administration [of his department]."
"Various `red flags' regarding [Sterns']
activities were neither seen nor adequately acted upon by campus
administration," according to the report.
Sterns had only two supervisors -- Christensen
Christensen, a former journalist, college
instructor and administrator, came to HSU as director of university
relations in 1981 and was promoted to vice president in 1987.
He initiated various fund-raising efforts for the university
and watched donations grow from less than $100,000 per year to
more than $2 million annually by 1986. That figure rose to $5
million in recent years.
In 1991-92 due to "chronic lack of
funding from the state" the university administration was
reorganized. Seven colleges became four, the positions of three
deans were eliminated, and four vice presidents became three.
Christensen assumed nearly all duties performed by the former
vice president of administrative affairs including personnel,
procurement, fiscal affairs, physical planning, plant operations
and environmental health and safety. That organizational structure,
in place during Sterns' tenure, was criticized in the chancellor's
"We believe that because the scope
of the vice president's responsibility included both university
advancement (fund raising, public relations) and university administration
(budgeting, accounting, personnel services, auxiliary services),
the level of oversight provided was extremely vulnerable to compromise,
insufficient oversight was inevitable."
Christensen held a press conference the
day the 57-page chancellor's report was released. Last week he
agreed to a more lengthy interview in an attempt to answer the
most obvious question, "How could this have happened?"
Q: In your March letter to the Chancellor's
Office, you estimate the actual dollar amount lost from Sterns'
alleged embezzlement was about $5,000 to $10,000. It now appears
to be about $70,000, plus the salary increases he obtained over
the last two years. Any other out-of-pocket losses to Humboldt
Christensen: None that I know of -- and
I'm not sure that's entirely the case. John did travel. If that's
the total amount he received from the Foundation, there was some
legitimate travel within those figures.
Q: Do you have a figure on how much
Sterns spent on university purchases and programs from the estimated
60 trust accounts he closed out over the last two and a half
That wouldn't have been money into John's
pocket. No, we don't have a figure yet. It's going to take some
work. But the [restricted] trusts funds will be reopened and
replenished [using unrestricted funds]. We are committed to that.
And it's not a loss per se. The money's not missing. It was spent
Q: What is the impact on the Natural
History Museum and other ancillary programs of the university?
The museum has an account within the Foundation.
There are no financial impacts. No money is missing. Same with
the First Street Gallery.
Q: What about KHSU? There are two years
of fabricated audits which puts the station's Corporation for
Public Broadcasting funding in jeopardy -- $120,000 of the station's
$500,000 operating budget. Is it true that station maintained
its own set of books tracking donations and that those audits
are being redone?
Yes. We had that same procedure in university
advancement [manual entry by more than one person to safeguard
against potential fraud]. John just dismantled it. He told advancement
staff, `We don't have to continue.'
Q: How did Sterns assume control over
some scholarship funds, which are normally handled by the financial
John's argument was we have a number of
scholarships that haven't been awarded lately. They had been
dormant. The pool isn't large enough and we don't have enough
students applying. What I would like to do is contact the donors
and see if they would be willing to rework the criteria, to support
the President's Scholar Program, for instance.
What he did was to write the individual
saying we haven't been able to find a recipient and with your
permission we'd like to use it [for other purposes]. If I don't
hear from you by Sept. 1, I will assume this is OK. He never
sent the letter. He put it in the file.
Q: The report mentions athletic fund
We argued against putting it into the report.
John wasn't really involved in the athletics at all. John's role
was that he distorted the figures in the athletic reports [as
he did other university donations] in the annual report to the
Q: What about the Foundation's $55,000?
How did he gain control over Foundation funds?
Those were operating funds. It's really
not a loss to the Foundation because they have a line item in
their budget for $10,000 per year that they set up for development.
If it's misspent, they have "lost" nothing. We can
be angry, as dear as resources are around here, that it was misused.
But it not a true loss.
The Foundation is just a bank for the university.
A bank doesn't tell you how to spend your money. John had signature
control over that fund.
Q: What about the $15 million. Who was
counting on that money?
The money doesn't exist. I don't know of
any [departments or programs that will be affected] except the
[Elizabeth Hans, director of community
relations, elaborated, saying, "Although Sterns told Fish
and Game, `We have a donor who can match your $300K grant,' we
went back to them and told them, `This guy does not have a donor.
Are you still interested? And we have a certain amount of time
still to raise the funds.]
Q: What about the microscope promised
to one department?
It's being purchased. We will use unrestricted
Q: You've said that no donations were
I don't think so.
Q: You told alumni board members that
what really happened is that Sterns was "moving money around,
exaggerating fund-raising figures, for self-aggrandizement"
and that the actual dollar loss to the university "was small
-- in the five figures."
That was the initial feeling. It still
Q: Did you suggest at one point it could
be handled as a personnel matter with Sterns put on administrative
No. I may have said because there are elements
of personnel issues here, I couldn't talk about something.
Q: It's often said that embezzlement
is the most underreported crime because the victim -- in this
case, the university -- feels humiliated, you used the word betrayed.
I can't tell you how many people in the
local community who have come up to me since this thing happened
and said, "The same thing happened to me. So-and-so took
me for $70,000. I had a bookkeeper who was with me for eight
years and they left with $90,000."
It's quite different in how you handle
it in the public sector and the private sector. If you look at
the cases of embezzlement that have received tremendous media
attention in the last year or two -- Trinidad, Eureka High School,
Humboldt Area Foundation, HSU -- but I assure you, there are
businesspeople all over the community who have been stung.
But the thing is they show the individual
the door. There's no prosecution. They swallow their loss. They
don't want the exposure. There's a lot bitterness. I've had people
say, "That son of a bitch is still living and working here."
We have no such options. We have a legal
and moral obligation [to make the loss public].
Q: What exactly triggers a "special
investigation" by the chancellor's office? Certainly not
someone cheating on a mileage report?
We didn't know what the magnitude was.
We acted on fairly limited information. We said in the letter
we thought the loss was $5,000 to $10,000 -- and we had no
idea at the time that we let him go that he was falsifying audits
for KHSU, moving scholarship monies around. I said at the press
conference, after a while you almost wanted to laugh because
you were through crying. Just when you thought everything was
tied up, the auditor would ask you about something else.
We had no idea that he was buying things
and saying they were going to the alumni house and the property
was disappearing and he was substituting secondhand goods --
that sort of thing.
Q: Some are questioning the university
It's a tough job to serve on a search committee.
It's mostly volunteer on weekends and nights. You review maybe
150 applications, start background checks, begin by talking to
references, narrowing the field to the top candidates. ...
Before we hired John, there was one person
on that list of references that I happened to know really quite
well because she had been in the system at one time and I had
worked with her at another institution. I called her. The comments
were, "He's great, he's bright, he's energetic. I'd hire
him back in a minute."
We don't do police investigations, but
we are certainly talking about that now.
Q: Describe Sterns' reputation with
the faculty? One administrator said, "He was candy to the
faculty -- bright and charming. They thought he was visionary."
Until recently, just weeks ago, there were
still administrators and faculty who didn't believe there weren't
still gifts out there. Because they believed him. He was very
bright. He knew the business. He knew fund raising. If he had
applied his time and energy seeking gifts, he would have been
very successful. For some reason beyond comprehension, he didn't.
He was very good at talking to faculty.
He'd go out and within days he would have the money for them.
Well, he was simply taking it out of unrestricted funds, awarding
the gift and going back and booking a gift of a like amount as
an anonymous gift to the institution. And that would come through
the record-keeping system.
Q: When confronted with a discrepancy,
he always had answers?
Most of the time it was just some excuse
that was plausible. There was one point that he was noticeably
upset and nervous, when it was called to my attention that a
travel reimbursement -- signed by me -- was forged (June 2000).
I asked him if he'd done it and he denied it. I said I want you
to speak to everyone in your department and ask them if in fact
they had signed my signature. A couple days later, he said everyone
had denied it.
It sounds ridiculous in hindsight, but
we have had instances at the university for expediency sake --
we're a bureaucracy -- we have a grant that has to go in and
people have signed signatures. It's a troubling thing, but it
was my belief that it was John who had signed [the travel claims].
I'm no handwriting expert but I can look at the signatures and
his signature and there were certain similarities.
That prompted me to go back and look at
certain records in the Foundation and I found a number of relatively
minor but questionable expenditures which I then called him in
to my office ...
Q: For instance?
A subscription to The Economist
that went to his home. I said if this is a reference material
it doesn't go to your home, it goes to the office. I want you
to pay for it. We listed things and he was asked to repay the
money [about $225].
I sent [Sterns] a note that said when you
were travelling, henceforth I want you to seek less extravagant
accommodations and when you are going to the airport, when it's
available, I want you to take public transportation rather than
taxis. That memo was sent and he repaid the Foundation.
Q: What happened next?
Late last year, October or November, [after
noticing some low balances in several trust accounts] I was concerned
that he was using discretionary money to augment his department,
which I felt was inappropriate, like to hire temporary help.
I removed his sole signature authority over three accounts --
the alumni, the partnership and the parent fund-raising accounts.
And the Foundation was informed that any reimbursements out of
those accounts would have to receive my signature.
I believe the combination of his loss of
direct access to those three accounts and then the pending loss
of access to three other accounts [when Sterns was notified in
January that the three ancillary programs would be assigned to
the new position of director of community relations being created]
-- that prompted him to start looking for another job.
Q: How did he convince the Foundation,
for instance, that his claims were legitimate?
If they get a request for a transfer of
funds, they may ask for appropriate documentation: What is the
authorization? John would say, "Good question. You have
every right to ask for that. I'll get you the documentation."
For example, he says there was a decision at the last alumni
board meeting to transfer $5,000 from the alumni association
to enrollment management. He goes back, doctors the minutes and
says here's the minutes authorizing the transfer.
John Sterns' accounts all carried receipts.
The documentation was always there.
Q: What about university accounts? What
is the claims process?
He submitted them to me, for my signature.
There were claims that I would sit down and say, "John.
Here's a claim for lunch last Saturday and here's another for
lunch on the same Saturday. How could this happen?" And
he would say, "I had lunch with [so-and-so] at the Hyatt
Regency in San Francisco. She's a potential donor. About an hour
and a half later -- you can see it was a small bill because all
I had was ice tea -- we paid for a second lunch because he was
a prospective donor, too.
He had answers.
Q: How did he falsify fund-raising reports
to the Chancellor's Office? When are pledges, for instance, counted
as "real" donations?
When I was in university advancement, there
was no such thing as "booking" pledges. It has changed.
Now, because everyone wants to portray their development as successful
[those numbers can be inflated]. They don't do anything illegal,
but they certainly stretch the reporting.
It's much easier for someone to come to
me, and when I say, "Well, I don't see all the cash, where's
the cash?" And [Sterns] says, "We've got this commitment
and that commitment, and now all this is reportable. And we have
this request that is pending, and ...
You scratch your head and say, "Is
this how we're doing things now?" and he says, "Well,
we're following these bequests. They are being counted by the
Q: And these reports were always signed
off by you?
I usually signed them. I don't know if
any were forged.
Q: When you saw the enormous leap in
fundraising -- from $1.6 million in 1997-98 to $6 million to
$11 million -- was there a noticeable leap in expenses to raise
There was a noticeable increase. He was
travelling a lot. If you saw the itinerary -- in retrospect,
you'd probably have to be Superman to carry it out --it was an
Most of the time it was [to San Francisco].
He was always very good about telling you who he was going to
be calling on and you'd have the vice president of such-and-such
company or this Foundation head. The appointments would be laid
out two hours apart sometimes for three or four days. It was
a killer schedule. You'd look at it and say, "My God, we've
never had these kinds of contacts..."
Q: You were thrilled?
Q: When were you made aware of a specific
donation, for instance, the $2 million anonymous gift? Did he
tell where it supposedly came from?
No. Sometimes he would use a name from
a past or prior reporting period, an alum or somebody who'd been
close to the university, a former faculty or staff member, friend
of the institution.
Q: Did you notice the discrepancies
between the fund-raising reports and actual donations through
the Foundation for instance?
The Foundation has been having some phenomenal
years. You've got a mixture of grants and development and contracts
in there. You don't separate them. You wouldn't say, "How
come we have $11 million when the Foundation only has $6 million?"
Even in the President's message to the faculty this year, the
one he will be issuing, it says [the Foundation] is reporting
a record year.
Q: HSU has had only a few donors in
the past in the million-dollar range?
[Dr. Louis] Schatz is by far the largest.
He has made a number of contributions to the university in the
past for total giving of possibly $6 million.
Q: And others? The late William Smullin?
Po Chung of DHL? Would those be under a million?
Q: You mentioned at the press conference
an anticipated $8 million gift the university is about to receive.
Is that the Booneville [Mendocino County] property being willed
to the university? When is it expected to be officially accepted?
Probably in the next two months. It will
be somewhere between $7.5 million and $8 million. It's taken
many, many years. I've been working with [the donor] on that
gift for a long time. It's 4,000 acres of land and a million
dollar endowment to maintain it.
Q: How do you assess the overall damage
to the university's credibility and future fund-raising abilities?
One of the things we have to do is communicate
to our alums and friends, because there has been a lot of miscommunication
and misunderstanding out there.
I believe we can say that John didn't pocket
donations to this university, that endowments were not jeopardized.
In those cases where trust funds were moved or used for another
purpose, we'll return those. I think we can make a good case
for continuing support for the institution.
If I had to go out there and say, someone
walked off with a million dollars, well ... That's not the case.
Q: The report seems to paint a picture
of an HSU administrator with university credit cards, expense
accounts, buying gifts, travelling, having country club dinners.
Is this normal for fund raising?
There is always going to be some expense
involved in entertainment. The IRS has rules about what you can
give people, for instance.
The kind of things John claimed --from
Northtown Books, small bowls from Fire & Light --were modest
things. We do other things. We've bestowed honorary doctorates,
with the consent and support of the faculty.
Q: The report is pretty damning about
"inadequate oversight and control" of university advancement,
of university advancement funds and "inadequate response
to actual ... deficiencies." How do you respond? What about
the "various red flags"?
Some employees are relatively high maintenance.
In certain areas, John was high maintenance. We had philosophical
I believe that because we are a state institution,
what you do has to be above reproach. If you go to San Francisco,
you search out before you get a reasonable hotel room. Try to
find one with a state rate of $89 or $90 a night. Or if you can't,
you stay at some place for $150. But you don't stay for three
nights at the Hyatt Regency for $280 to $325 a night. You don't
jump in a cab when there's a shuttle that goes to the airport.
I though John was kind of cavalier about use of state monies.
Again, I take issue with the auditor's
report. When we were faced with issues, we acted on them. When
there was an issue of forgery, I went through and found expenses
that I though were inappropriate and he was made to repay the
Foundation. When there were issues of inappropriate charges to
augment his budget, his signature authority was removed from
In hindsight you could stand back and say,
"How didn't you know?" But we didn't. We still do things
here in a way that I characterize as doing your best to recruit
good people, putting your faith in them, trusting them, working
with them but not looking over their shoulder. I'm not a micromanager.
Q: How and when was President McCrone
The president and I didn't know until March.
Staff became concerned in February. It all happened very quickly.
It was something of a bombshell. Within five days, no more than
a week, John was dismissed.
There was really a confluence. I was called
by Michael Goodman [university ombudsman] and asked to attend
a meeting. He didn't say much initially. The president also gave
me a document on which his signature was forged [establishing
a scholarship] at that time. He said, would you investigate.
I didn't have a chance.
But some things were caught. John tried
to move some scholarship money once and one of our employees
[in accounting] said, "You can't do this. These are the
result of a bequest. It takes a court order [to change]."
[Sterns] was thwarted.
Q: Of the nine professional staff in
university advancement below Sterns, four ended up going to a
friendly professor, the university ombudsman and individual alumni
board members to tell their stories -- to anyone but you. Why?
It's the most hurtful side of this and
I've told the staff. The reason is John drove a wedge between
us. He told them I hated them. He severed the communication line
between [his] staff and administrators.
Q: Wasn't the big change for you in
1992 when you were given additional duties?
I'm a journalist. ... I'm not an accountant.
I never had responsibility for fiscal affairs. If ever I was
vulnerable, it was that area. If someone said, "You know
there was embezzlement going on in your fiscal affairs department,
why didn't you know?" I would have flat out said I was too
damn dumb to realize what was going on.
"I was trying to learn areas that
were outside my area of expertise -- capital outlay, new construction,
infrastructure, union contracts, personnel issues. It was a challenge
for me, it was exciting, but it was brand new.
The one area I was pretty comfortable with,
that I thought was in pretty good shape ... [was university advancement].
Q: The university says in the report
that it is going to take until February 2002 to correct deficiencies.
Some will be tough to meet by then. When
you talk about restoring money to these trust funds, until you
know how much money ... It's going to take time.
Q: You said in the press conference
other staff are not under suspicion of wrongdoing. How bout staff
who allowed the falsification of the time cards of student-employees?
Or the staff "analyst" who entered $6 million in donations
in one day with no documentation?
The last finding in the auditor's report
said something like, "Continue your investigation to see
if anyone else is culpable" -- and we are. We have to look
and see if in fact people were cooperating in any way with John.
Q: Specifically, the report found that
"the scope of the VP's duties ... insufficient oversight
was inevitable." What about other universities of similar
We're quite unusual. We are thinly structured
from an administrative standpoint. We have fewer VPs than any
other campus. We have no associate VPs. We have an $11 million
budget and over 200 employees [under one VP].
The auditor essentially said, "You're
vulnerable." I admit it.
Q: Was there any link between your growing
unease with Sterns and the cancelled Daly building project in
Eureka? You needed to raise $10 million?
The president and I worked hard on that
project. John Sterns had only a marginal role, to prepare a draft
of a proposal, which I reworked. There was some enthusiasm [from
potential donors], but the commitments weren't there. We went
to the city once and they said to try harder -- and we did.
There were other factors. The city talked
about a parking structure. Initially they made a commitment and
they backed out. They told us they would acquire all the buildings
on that one block and build a structure below with parking above.
So it didn't happen. Then the Eureka Theater thing happened and
the City Council got behind that. We felt it was confusing --
two theater projects, even though they were different. We couldn't
get it clear in people's minds.
Q: You said in the press conference
that although the chancellor's report was critical of the administration,
neither you nor McCrone were admonished or reprimanded.
Q: There are always rumors about when
McCrone might retire? Do you have any information?
I think he still enjoys this stuff. It's
a big part of his life. He still has a great deal of vitality
and energy. I don't know. I suspect he'll tell us some day.
But I know I will go to opening convocation
Aug. 22 and I'll encounter someone -- faculty or staff -- who
will stop me and say, "I hear the president's going to announce
his retirement today." The same thing happens every year
It's kind of Jeanne Dixonesque. Some day
it will happen. But he's not sharing his plans with me.
Q: I understand you plan to retire to
Bend, Ore., at some point?
I'm turning 60. We recently bought a house
in Bend and my wife and daughter are there. It was a decision
we made before the Sterns situation. [The daughter is beginning
high school this month.]
I don't know. I'm going to retire some
day. I don't think it'll be too much longer. Although it's been
a short time, I find it difficult to be without my family.
I want to get this [Sterns] thing straightened
out. I want to get Maggie Hardy on board, our new director of
university advancement, and rebuild that operation. I don't want
to leave this in shambles. It's hurtful to see what's happened.