THE INSPECTOR GENERAL of the quasi-governmental Corporation for Public Broadcasting (CPB) is considering an audit of KCTS-TV in light of a Seattle Weekly story raising questions about the public station's financial dealings, including its partnership with a troubled offshore bank (see "Negative Numbers at Channel 9," Dec. 4).
SEATTLE WEEKLY COVERAGE OF KCTS • KCTS Mess: Negative numbers at Channel 9. (12/4/2002) • Over Extended: A provider of federal money says it might audit public KCTS. (12/18/2002) • S.O.S. at KCTS: 'Opaque' finances lead a production consultant to call for the CEO's resignation. (3/12/2003) • What's Wrong with Channel 9: Big ambitions, expanding overhead, shrinking local programming . . . does Channel 9 know what it's doing? (11/06/1996)
"We're thinking about it," says Inspector General Ken Konz.
Konz is gathering information on the extent of grants given KCTS by the federally funded CPB, along with the various requirements attached. Once he knows that, probably in about a week's time, he says he will make a decision on whether to audit, which entails sending staffers to Seattle, or whether he might perhaps review the station's financial documents from Washington, D.C. He says he could do some "preliminary work" as well for the National Science Foundation, a regular KCTS backer that has given money to a show also funded by the offshore bank, to see if the federal money is being used appropriately. (The foundation says it would be receptive to such information but has no current plans to conduct its own investigation.)
"If the inspector general has a question, I would assume that we would talk to him," responds station chief Burnill Clark. "But I can't imagine what his question would be."
"I can't either," adds chairman of the board Doug Beighle, sitting in a TV viewing room with Clark at the station's Seattle Center offices. "But if he'd like to come audit, let him come."
The CPB is a private nonprofit organization but holds the status of a "designated federal entity" because of its role in distributing federal money to the country's public television and radio stations. (The separate Public Broadcasting Service, in contrast, receives money from the stations that are its members.) The president appoints CPB's board of directors. Its inspector general, who issues reports to Congress, is entitled to demand any station's financial documents.
A CPB AUDIT is a rare occurrence. With a limited staff, Inspector General Konz says he audits at most six stations a year. But he is especially concerned about KCTS, he says, because it is "a major station in a major area." According to station documents, it has the fourth-largest viewing audience among the 347 public-TV stations nationwide.
"Clearly, the continued losses raise a question of financial stability," Konz says, referring to deficits the station has been running since 1996.
He says he might also look into the accuracy of KCTS financial records used to determine the amount of money it gets from CPB. And he says it's possible he would delve into the offshore-bank deal if its funding goes into programs also funded by CPB.
The bank, the Caribbean-based Omnicorp Financial Group, is investing $3 million in seven KCTS programs, hoping to make a return on foreign rights and spin-off products. Omnicorp markets itself as a means of escaping government regulation and taxes, once promised interest rates as high as 60 percent, and has had a controller step in at the bequest of regulators because of its own financial problems.
"I am concerned about it, as I think any member of the public should be," Konz says. "If public tax dollars go into a place, you want it to be on the up and up."
In fact, at least $5.7 million in federal tax money went to the station in the latest year for which information is available (the fiscal year ending June 30, 2001)—more than a quarter of KCTS' approximately $20 million annual budget. The federal money includes a $1.5 million base grant from the CPB and two $1 million-plus awards from the National Science Foundation.
At the station's offices, however, CEO Clark, who has been in his job for 27 years, and board chair Beighle, a retired Boeing executive, maintain that there's nothing untoward about their relationship with Omnicorp.
"YOU CAN'T JUST TAKE a knee-jerk reaction to the word 'offshore' and have that equated with something sinister," Beighle asserts. But, in the main, he and Clark sidestep the ethical issues and concentrate on the rigor with which they vetted Omnicorp—through law, banking, and law-enforcement sources—a process that they say established that the bank was "legit." But somehow, that vetting missed red flags like the wildly high, unsustainable 60 percent interest rate investors in Omnicorp were offered.
Beighle notes that since then the bank has fallen into near insolvency, but adds: "Fortunately, we got the money up front."
Certainly, the station needs the money, though Beighle and Clark downplay financial problems. "We're having a cash-flow problem. I don't think we're wallowing in red ink," Beighle says, despite the recurring deficits. Board members have not approved a budget more than five months into the fiscal year, he says, because they are waiting to see if more money will come in that will allow them to avoid "draconian steps."
The station has decided on one step, though. After Christmas, it plans to close its two unprofitable Channel 9 stores, one at Pacific Place and the other at Redmond Town Center.
If the board is contemplating truly fundamental changes, a change in leadership for example, it's giving no sign. A lot might depend on the inspector general's decision.