Salt Lake Community College's Small Business Development Center has a lot of house cleaning to do to avoid future ethical lapses and to bring its training into federal compliance, according to a new state auditor's report.

The auditor's fraud unit began an investigation last spring after an anonymous whistle-blower told college officials about illegal and fraudulent activities. The audit came at the request of the college.

"We did not want this investigation to be internal," said Don Porter, SLCC vice president for business services. That was to avoid accusations of "cover-up" and "witch hunt."

Five of the business center's employees were placed on administrative leave during the investigation. Several people, Porter said, are no longer "affiliated" with the center. It was unclear if any of those had been fired.

The state released a report Tuesday that listed the following areas of "significant weakness" within the development center:

Questionable relationship with the NxLeveL Foundation (the NEF provides "entrepreneurial training and resources to potential small business owners" on the SLCC campus).

Employee ethics violations.

Failure to follow proper procedures for conflict-of-interest statements.

Noncompliance with federal training requirements.

Other violations included inappropriate expenditure of state and private grant funds, noncompliance with the solicitation of gifts policy, violation of purchasing policies, excessive pay to instructors and credit card problems.

The first four weaknesses listed in the report were considered "reportable" conditions. That means the federal Small Business Administration and the state's Division of Business and Economic Development, both funding sources for the development center, will be or have already been alerted of the violations.

"Any time you violate regulations of an agency who has given you a grant, then you run the risk of that grant being taken away," Porter said.

For example, the development center was given a $25,000 grant from the state division, but none of it was used to pay for costs connected to NEF training, the audit found.

Despite this and several other incidents of inappropriate spending of grant money, Porter said he has been given "good assurances" that state and federal sources will not pull their funding of the development center.

Rod Linton, DBED deputy director, said the state, which provides $300,000 annually to the business center, will continue to be a "strong supporter."

But the problems don't end there.

Business center employees were using the college's time to operate the NEF "without compensation or benefit to the SBDC." Conflicts of interest also arose with college employees who were also NEF board members. The college's plan now is to terminate all relationships with NEF.

One of the ethics violations included a development center counselor who was paid $1,750 through a private business for services that should have been provided for free through the school. Another counselor received a $700 finder's fee from a bank for referring a development center client to that bank. One result of ethics missteps is that the college is recruiting a new regional director and staff for the development center.

The center's counselors and personnel are also expected to sign conflict-of-interest statements, but when investigators checked, there were none. After the state's check, a document was later retrieved that asked for statements from counselors that were to be backdated to January 2003. The college is now requiring that all development center employees have conflict-of-interest statements on file.

The development center also violated the Small Business Administration's training requirements, with 37 percent of the 9,700 client training hours being out of compliance. More oversight and auditing are expected in the area of training.

Porter said any grant money that was misspent has been returned to restore the integrity of those contributions.

"If we don't have integrity, we don't have much," he said.

A separate audit ordered by former Commissioner for Higher Education Cecilia Foxley found the college had misused almost $160,000 in funds intended to help colleges provide specific job training for Utah businesses. The college agreed to return that money to the Utah College of Applied Technology.