An audit of Capital Public Radio by the California State University Chancellor's office has turned up numerous instances of financial mismanagement at the Sacramento-based NPR member station.
Those include a failure to make payments the past two years on an $8 million loan the station's FCC license holder, Sacramento State, assumed for tenant improvements to the station's planned downtown Sacramento building.
The station has also failed to pay rent for the past year on the building the company now broadcasts from on the campus of Sac State, according to the report released on Wednesday.
The audit noted numerous specific instances of poor financial practices and record keeping, adding CapRadio “lacked complete and current policies and procedures in almost every financial and operational area reviewed.” Those included processes such as cash handling and disbursements, the issuing of gift receipts and procurement.
It also found CapRadio took out more than $1.1 million in loans for studio equipment and furniture that had not been approved by the station’s board of directors.
The audit said CapRadio kept incomplete records and found several financial discrepancies. In one notable case, CapRadio purchased a piano for $90,000 that was appraised to be worth $175,000, with the station recording the difference as a “gift in kind.” The audit found the appraisal did not meet IRS requirements, while the piano is currently in a storage unit.
Additionally, the audit found CapRadio “did not appear to be fully satisfying its purpose as an instructionally related activity for the benefit of enrolled students at Sacramento State, and contributing to the educational mission of the university.” It did not have hands-on student involvement in staffing, internships or programming. CapRadio’s student internship programs were suspended during the pandemic and have not resumed.
Following the audit’s release, Sacramento State President Luke Wood announced that “operational management of CapRadio will be placed directly under University supervision, while the news and entertainment programming of the National Public Radio affiliate will remain independent.” The university said in a statement it will also "oversee and manage CapRadio’s accounting department, endowment, and finances."
Recently-retired Sacramento State President Robert Nelsen requested the audit in 2022 after the university recognized discrepancies in financial statements. Wood began his leadership of Sac State in July 2023.
“One thing is abundantly clear: We have real and immediate work to do to ensure CapRadio’s financial controls and operational processes are disciplined, sound, and transparent going forward,” Wood said in a written statement. “The financial implications of CapRadio’s mismanagement have significant consequences for Sacramento State, but we will make it through.”
He added: “Now is the time for the community to continue its support for CapRadio. Given the changes the University and CapRadio board are putting into place, donors should feel confident moving forward that their generous contributions will be well stewarded.”
CapRadio Interim General Manager Tom Karlo said in an interview on Thursday the station and university are “working together to say we're going to fix this. We are not dodging anything on what happened.”
“These are very serious observations,” Karlo added. “And I personally, and along with the CapRadio board and Sacramento State, we take every one of these things as seriously as we can and we are working as a team to go forward.”
Karlo said Sacramento State’s greater oversight of CapRadio operations and finances won’t interfere with the station’s news coverage or music programming.
“There will be no intervention from the university on what our listeners are hearing on the air,” Karlo said. “Our editorial firewall will stay in place.”
Audit follows CapRadio layoffs
The audit comes one month after CapRadio laid off 12% of its staff and canceled four music shows because of ongoing financial issues. Nine of the employees were based in Sacramento and three worked in Chico at North State Public Radio, which CapRadio operates.
The station gave three additional workers a final employment date, Karlo said at the time. Before the layoffs, the NPR member station had 102 positions.
The canceled Saturday music shows were “Mick Martin’s Blues Party,” “Hey, Listen!,” “K-ZAP on CapRadio” and “At the Opera.” Three of them aired on CapRadio’s news station, while one ran on the music station. National programming is scheduled to replace the canceled music shows.
Members of CapRadio board of directors were not available for interviews.
The station has seen numerous leadership changes over the past few years. Rick Eytcheson retired as general manager in 2020 after serving in that role since 2006. He was replaced by Jun Reina, another CapRadio longtime employee, who had been the station’s chief operating officer and chief financial officer. Eytcheson stayed on at the station as president emeritus until June 30, 2023.
Then in March 2023, the CapRadio board announced that it would begin a search for a new general manager, with Reina staying on until the new leader was in place. Reina left CapRadio in June.
“Most of the leadership is gone,” said Karlo, who took over as interim General Manager in August. “And I feel that on a day-to-day basis. We have no [chief executive officer], we have no [chief financial officer]. And the team is working unbelievably to make sure that we are going forward.”
Previously, Karlo served as general manager of San Diego’s NPR and PBS station KPBS from 2009 through 2020, and has spent 47 years in public media.
Costly downtown projects
The audit also raised significant questions about whether CapRadio can afford to pay for its current and future office spaces, including two long-delayed downtown Sacramento buildings that are costing “$218,245 per month,” auditors wrote.
CapRadio’s downtown projects include a new headquarters at 730 I Street and a separate live event space at 1010 8th Street. But CapRadio is behind payment by $1.8 million plus interest on an $8 million loan Sac State took out to help the station pay for tenant improvements at the new headquarters.
It has also failed to pay rent to Sacramento State since September 2022 for its current Folsom Boulevard office, which CapRadio had expected to vacate two years ago with the planned move downtown. The audit said Sac State is creating a new rental agreement to cover the period of non-payment.
“Based on our review of CPR’s financial statements and CPR management’s acknowledgment of prior cash‐flow issues, it is unclear whether CPR will be able to make payment on its obligations to the campus, or even continue to make payments on the new downtown locations and associated leased equipment and furniture, which equal a total payment of $218,245 per month,” auditors wrote. “These issues and others described in this report raise both financial and going‐concern issues for CPR.”
Asked whether CapRadio can pay for the downtown projects and is committed to them, Karlo said “we are going forward like we are moving down there. We are thinking that we will begin moving down in early 2024.”
“I’m hoping that they can work. It is a real observation,” he said, referring to the question raised in the audit, “and we hope that we can make it work.”
Karlo added that CapRadio is trying to determine whether it can open its event space sooner than next year.
Millions in outstanding bills
CapRadio announced the layoffs on Aug. 31, the same day the board approved the budget for the 2023-24 fiscal year, two months after the year began. Of the $21 million in expected revenue, at least $5 million are one-time funds, according to information Board Treasurer Bena Arao presented during the August budget meeting. Operating expenses are projected at $19.2 million, an increase of 8% compared to the prior year.
The budget’s expenses also include $3.3 million in outstanding bills CapRadio has yet to pay from the 2022-23 and 2021-22 fiscal years.
This won’t be the last audit of CapRadio’s financial troubles.
Sacramento State has commissioned a “forensic examination to determine the origins and causes” of CapRadio’s operational and financial problems.
“We are fighting to save our auxiliary,” Wood added. “CapRadio has been part of the fabric of Sacramento and northern California for decades. It is important to us to maintain the health and integrity of such a valuable and beloved media institution.”
The audit report can be found on the Cal State website.
Disclosure: This story was reported and written by Homelessness and Housing Affordability Reporter Chris Nichols and edited by News Editor Chris Hagan, with additional reporting by Insight Host Vicki Gonzalez. Senior Producer Drew Sandsor edited content for CapRadio newscasts. Following NPR’s protocol for reporting on itself, no CapRadio corporate official or news executive reviewed this story before it was posted publicly.
