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NDSU didn't keep sufficient tabs on logo revenue, audit finds

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FARGO — North Dakota State University has not properly tracked the trademark revenues it receives through an outside firm that manages royalty income from the school's logo, according to a state audit released Monday, June 29.

The North Dakota Auditor’s Office found NDSU “did not collect the contractually obligated amount of royalties” from a firm called Learfield IMG College for at least two of four quarters reviewed in the biennium ending July 30, 2019, according to the audit. The university also doesn’t have a written policy on distributing royalty revenues and earned income from licensed merchandise, the audit said.

"The university should ensure revenues received from trademarks are being used responsibly and effectively,” State Auditor Josh Gallion said in a statement. “That means monitoring revenues and having a proper policy in place.”

NDSU pulled in $1.3 million in royalty revenue in the last biennium.

Learfield offers a number of branding services to universities and colleges around the U.S., including licensing services under the name CLC. Before signing a contract with the company in 2001, NDSU managed its licensing through its athletics department, the audit said.

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Learfield, which is supposed to provide a royalties check to NDSU at the end of every quarter, also earns a percentage of the total royalties. “As more merchandise is sold, the percentage that Learfield keeps gets incrementally smaller,” the audit said.

Learfield was only supposed to make up to 27% from royalties produced in the Summit League, but the audit found the firm took in 30% of NDSU's royalties.

The university previously kept a spreadsheet on checks received, but the school switched to recording total royalties received halfway through the last biennium, the audit said.

“This number included both North Dakota State University’s and Learfield’s revenues combined,” the audit said. “This makes comparing one quarter financials to the next quarter financials nearly impossible, as they are two completely different sets of data.”

Learfield made an extra $206 that it wasn't supposed to for the two quarters, which is inconsequential, Deputy State Auditor Brianna Ludwig said in an email.

“For the other two quarters, we were unable to obtain the entire quarterly report from NDSU, so we were unable to make a determination if the amounts collected were proper and in accordance with the contract," she said.

NDSU said it has reviewed the recommendations of the audit, adding it will "implement improvements where appropriate."

Learfield, which did not return a phone message seeking comment Monday, also manages licensing for the University of North Dakota in Grand Forks, Dickinson State University, University of Mary in Bismarck, Minot State University, the North Dakota State College of Science and Williston State College.

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North Dakota has to perform audits on financial transactions by law. It chose the licensing program due to the national popularity of the NDSU logo.

It also looked at faculty contracts since there was a “potential risk for error” with the large number of professors. The audit found NDSU did not ensure all faculty received proper evaluations, had complete and valid contracts, and had all required information included in their official personnel file, as required by state law.

“In several instances, there was no documentation of student input being taken into consideration when an annual evaluation was conducted,” the audit said.

NDSU said it would follow recommendations to fix these issues.

Audits also were released Monday for Williston and Lake Region state colleges, which found the two schools did not properly bid out several projects to receive competitive prices. A Valley State University audit also found it did not provide documentation showing a competitive bidding process for two out of 11 transactions tested.

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