Audit criticizes College Illinois managers
The agency that oversees the College Illinois prepaid tuition program didn't follow sound business practices — or state law — when it hired San Francisco-based Grigsby & Associates for investment advice, according to a state audit released Thursday.
The Illinois Student Assistance Commission hired the firm to advise College Illinois on debt restructuring, but it gave only one opinion to ISAC: to invest $12.8 million in ShoreBank Corp. The investment was lost last year when ShoreBank collapsed.
The audit also found that College Illinois had a deficit of $338 million on June 30, slightly less than its $342 million deficit in 2009.
"Any time you have an analysis which raises potential red flags as to the soundness of the investment, you'd hope that the entity would pay attention to those things — that in this case, ISAC would be vigilant and prudent in their investments, particularly given the fact that they have a $338 million deficit," Illinois Auditor General William Holland told the Chicago Sun-Times.
College Illinois allows state residents the chance to lock in current tuition prices for future students, guarding against rising college costs. Because the program is not guaranteed by the state, holders of 55,000 current prepaid tuition contracts would be out of luck if the money runs out before their children are enrolled in college.
The program has been under increased scrutiny since a published report that the plan is 31 percent underfunded despite a projected return that is higher than prepaid tuition plans in other states.
The audit found that Grigsby & Associates may not have been objective when giving the investment advice because there was no way the firm could be paid if the ShoreBank investment was not made.
Auditors contend that the firm prepared its report suggesting the ShoreBank investment before ISAC signed a contract with it. Grigsby & Associates was paid $255,600 after the investment was made.
Grigsby & Associates claims it is one of the country's oldest minority-owned banking firms. Among its listed clients are the Metropolitan Pier & Expo Authority, Cook County and the City of Chicago.
Its founder, Calvin Grigsby, was indicted twice on federal bribery charges in Florida and acquitted both times. He was also fined by a California ethics board in 1996 for campaign contribution violations.
Grigsby did not return a call seeking comment.
College Illinois spokesman John Samuels declined to comment on the audit. He pointed to a statement the agency issued to the auditor saying future requests for proposals would be more precise.