In the face of additional disclosures and embarrassment, Richard Willey has finally been fired. Although this action by PHEAA’s Board of Directors comes far too late, it at least converts Willey’s termination from an “early retirement” effective December 31, 2007, to a forced termination.

As headline grabbing and eye-catching as the latest disclosures are regarding spending of over $100,000 at Hersheypark and multi-million dollar bonus amounts paid during the past three years, my opinion is that these disclosures are still only the tip of the iceberg.

The state Auditor General’s performance audit, which uncovered and commendably disclosed these matters, is reported to be ongoing. Also, PHEAA’s board of directors should promptly deal with Willey in a manner commensurate with the damage his actions have caused to PHEAA’s reputation and to the public trust, by requiring Willey to partially compensate PHEAA for the public monies squandered under his régime. 

As the Chief Executive Officer of PHEAA, Willey, at a minimum, seems to have breached his fiduciary duty to PHEAA’s Board of Directors and employees and to the people of Pennsylvania. To partially remedy this apparent breach, PHEAA’s Board should require Willey to reimburse PHEAA for at least (a) past bonus amounts Willey engineered for his own benefit, (b) some portion of the lavish spending that occurred (including $45,000 to rent a private jet) and (c) the over $400,000 Willey caused PHEAA to pay lawyers (at hourly rates ranging up to $500), including his previous employer, Stevens & Lee, in a vain attempt to withhold information from public disclosure.

 Also, the Board should take all necessary steps, including litigation, to insure that all bonus amounts paid to Willey are not included as part of Willey’s salary for the purpose of determining any pension amounts Willey may otherwise be entitled to receive. The prospect of the taxpayers of Pennsylvania having to fund pension payments to Willey, which could eventually total over $8 million, should Willey live to age 85, would be an additional travesty, not to mention an unjust reward to this former lobbyist who has disgraced PHEAA and its Board. 

Next, the Board should clean house at PHEAA. Willey didn’t act alone. Others, probably including Willey’s highly compensated Executive Vice Presidents and other key lieutenants, were either involved with Willey or complicit with him. At a minimum, these 23 executives, who the Auditor General characterized as “elitist”, were silent in the face of wide-spread profligacy when they had a fiduciary duty to speak out and protect the public’s money with which they were entrusted.

The PHEAA Board’s complicity in Willey’s and the 22 other key executives’ transgressions and their active participation in a scheme to substantially increase their pension benefits, are separate, troubling issues.

As a part of the house cleaning, the Board should work directly with the Auditor General to insure that all wrong doings or wasteful practices are publicly disclosed, discontinued and remedied. In this regard the Board should carefully examine at least the following:

Payments to lobbyists which have been reported to aggregate approximately $1 million per year. 

· Why does a component unit of Pennsylvania's state government need to pay lobbyists anything, much less $1 million per year of public funds, when PHEAA has 16 Pennsylvania state legislators on its board of directors? Where does the $1 million really end up? 

Aggregate Annual Cost of Certain Payments and Relationships to Political Contributions and Perks For Lawmakers and/or Other Elected Officials

· The Board should ascertain and publicly disclose the total annual amounts for all professional/consultant-type fees paid to lawyers (including bond counsels), investments bankers, financial advisers, brokers, accountants, public relations firms, lobbyists and any and all other "service and/or consultant-type” fees, with a particular view to ascertaining the necessity of and value received for such fees (particularly payments made pursuant to no-competition arrangements)  and the direct or indirect relationship, if any, of such payments with current or former members of Pennsylvania's Legislature  (or other elected officials) and current and/or former members of PHEAA's executive management and Board of Director members.

· It is believed that the aggregate annual total of such payments will be eye-opening, and an amount far in excess of what a private industry company conducting a comparable business would expend for necessary services. Political contributions, or non-arms’-length transactions or arrangements made by any of these firms to current or former elected state officials or present or former PHEAA executive management, should taint any payments made by PHEAA to these firms.

· The Board should require PHEAA’s management to follow a strict policy of requiring all providers of goods and services, including professional services, to compete for the privilege of doing business with PHEAA.  As one example, PHEAA should not be paying $330 to $500 an hour for legal fees to politically-favored firms, when competent attorneys in other law firms in the state may provide comparable legal services for $200-$250 per hour.

Business Purpose and Justification For Related Foundations

· The Board should review the business purpose and justification for the formation and existence of PHEAA’s three affiliated, “charitable purpose” foundations. Specifically, what rationale was provided to the Board as justification for requiring these entities to be established separate from PHEAA, with separate management and cost structures? 

· Additionally the Board should critically examine expenses incurred by the foundations for propriety; particularly expenses incurred by or initiated by PHEAA and paid by or charged to the foundations. The President and CEO of one “foundation” is Michael H. Hershock, the former CEO of PHEAA. He is believed to have an annual salary from this foundation in the range of $150,000, plus fringe benefits, including provision for pension benefits. As the Board is aware, Mr. Hershock also receives an annual pension from PHEAA in an amount believed to be approximately $222,000.

· The Board should ensure that these foundations are not de facto conduits established to provide additional compensation and benefits to Mr. Hershock and possibly fees and benefits to others. Do the foundations pass the prudent investor rule insofar as utilization of PHEAA’s public monies is concerned? From a common sense public perspective, there does not appear to be any legitimate business purpose for these foundations, or functions performed by them that cannot be performed by PHEAA.

Finally, and most importantly, the Board should examine the rationale and effectiveness of (a) its own corporate governance, (b) the necessity for, the total annual cost and cost effectiveness of its financial derivatives, interest rate swaps and related counter-party fee arrangements, (c) student lending practices and (d) PHEAA’s overall structure, policies, ethics, employment practices and policies and culture in relation to its charter mission as authorized by the state.

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