The report was issued by acting Rhode Island state auditor Dennis Hoyle Wednesday. It concluded that the institute, which runs youth games in Connecticut and worldwide, could not show how it spent a $575,000 grant it received from the state.
"The institute needs to significantly improve its financial accountability, particularly since it is largely dependent upon grants and other support from governmental and private organizations," it states.
The report also states that the institute, which is based in Rhode Island and headed by West Hartford resident Daniel Doyle Jr., should implement appropriate financial control measures and routine oversight processes and procedures, such as independent annual financial audits.
"Dennis Hoyle did an excellent job in bringing many concerns to light," said Rhode Island House Speaker Gordon Fox, who called for the audit last fall. "However, without the proper documentation from the institute, we are still left with a number of unanswered questions regarding how the $575,000 was spent."
Fox forwarded Hoyle's report to the state police because of the unanswered questions, said Larry Berman, the lawmaker's spokesman.
"They would be the appropriate authority to look into that," he said.
The institute responded to the auditor's report Wednesday through a press release issued by RDW Group Inc., a Rhode Island-based public relations company owned by Doyle's brother.
"We appreciate the spirit in which the Auditor General has engaged in this review of State grant monies provided to the Institute for International Sport," said Michael Healy, chairman of the institute, in the prepared written statement. "Further, we agree with many of the findings within the report and readily admit that the Institute's past financial controls were inadequate."
Healy says the institute has introduced new accounting software and has retained new accountants who are preparing responses to Wednesday's report. The accountants' initial findings are positive and have been shared with the state auditor, he said.
The institute leases land from the University of Rhode Island, but owns two buildings on the property, both of which the institute plans to sell to help pay down debt. One building is finished; the other is not.
The unfinished building is the subject of the audit.
The audit of the $575,000 government grant was given given to the institute in 2007 for the construction of the institute's second building — a space for a new Center for Sports Leadership. The money was spent, but the project remains incomplete.
Doyle says construction on the building stopped because the institute did not get a separate $4 million grant that it was informally promised. That money was expected to cover the programming costs, he said.
The institute estimates that it spent about $200,000 to construct the building, but could only provide the state with cancelled checks totaling $163,400. Vendor invoices, purchase orders or contracts were mostly not provided.
"Normal financial accountability measures appropriate for an entity of the Institute's size were not evident during the course of our review," the report states.
Doyle has said the institute had an informal understanding with state officials that some of the $575,000 could be used for programming expenses. The auditor's report says Doyle provided the state auditor a letter addressed to legislative leaders requesting an amendment to the grant's original terms. It was signed by an institute board member.
The legislative department has no record of receipt, according to the auditor's report.
This week, Doyle has said the institute will honor its commitment to the state by completing construction on the building before it leaves Rhode Island in September. The institute has not secured a new location yet, but it plans to make an announcement in May.
In addition to the buildings on the University of Rhode Island campus, the institute has established a peace center in rented office space on Lewis Street in Hartford. The center is devoted to exploring peace initiatives.
The institute also owned several properties on Bald Head Island in North Carolina, including two homes. While the property was meant to be an investment, the institute neither made money by renting the homes or from high property values.
The two homes and three of the four vacant parcels of land that the institute owned have now been lost to foreclosure. A bank is suing the institute over the last piece of property.
On Tuesday, a lengthy story about the institute's financial troubles and the pending audit appeared in The Courant. Hours after the story was published, Middlebury College in Vermont announced that Doyle resigned from his post at the school.
Doyle worked as the senior director of the Center for Social Entrepreneurship at the school. The center opened last month.
A college spokesman said Doyle resigned for personal reasons, but Doyle said it was always his intention to resign shortly after the center was established.
Later that day, a University of Rhode Island spokesman told said URI was breaking an agreement it had with the institute. Doyle's paycheck and benefits were processed by the university and then reimbursed by the institute. The university is now terminating that practice and any future employment opportunities that path through the institution, the university spokesman said, adding that URI is owed $380,000, including money it advanced to the institute for Doyle's salary.
The auditor's report states that the university has the right to force the sale of other real estate owned by the institute if the money is not paid, but it has not exercised the option.
Doyle had been listed as a Rhode Island state employee since 1986 and was currently on leave without pay due to his employment at Middlebury College.
"Use of the State's payroll system by the Institute was formalized in an agreement; however, we believe the practice is questionable and should not be continued or repeated," the auditor's report says. "It affords access to State benefit programs that would otherwise be unavailable to Institute employees. Further, it puts the University in an unintended business relationship with a private organization by advancing funds thereby creating a vested interest in their viability in order to collect amounts owed."
In addition to the state police, Rhode Island Attorney General Peter Kilmartin will look at the auditor's report about the institute. Amy Kempe, spokeswoman for the attorney general, said Wednesday that Kilmartin is aware of the report and will review it.