BATON ROUGE — A state audit found that LSU failed to properly oversee one of its affiliates, leading to millions of dollars in unapproved compensation and potential violations of state and federal law.

The Louisiana Legislative Auditor released the investigative audit on May 13 and delivered it to the District Attorney for the 19th Judicial District of Louisiana and the U.S. Attorney for the Middle District of Louisiana.

The audit focused on Stephenson Technologies Corporation, known as STC, an LSU affiliate created to pursue research and development contracts with the federal government for LSU's financial benefit. The LSU Board of Supervisors approved STC as an affiliate in September 2015.

LSU's own internal audit flagged problems as far back as February 2019, finding that STC had not signed an affiliation agreement with LSU, had not reimbursed LSU for financial support it received and had paid unapproved compensation to an LSU employee. The new audit found LSU did not act on those recommendations.

At the center of the findings is Jeffrey Moulton, who LSU hired in 2014 as executive director of its cybersecurity research unit. He earned a base LSU salary of $251,577 per year and remained a full-time LSU employee through his resignation effective July 1, 2021.

According to the audit, STC paid at least $1.3 million to or for the benefit of Moulton between 2017 and 2022. That included wages, incentive pay, deferred compensation, severance, a golf club membership and lease payments for a Baton Rouge condo he claimed as his personal residence.

Because Moulton was a full-time LSU employee, he was prohibited from receiving compensation from STC without LSU's approval. The audit found no evidence that LSU's president or provost ever provided written approval for any of it.

The audit also found that LSU's internal auditor flagged a "clearly false representation" on an outside employment form Moulton submitted in June 2018. He answered "no" when asked whether his outside work would involve an entity doing business with his university unit, a "yes" answer would have triggered a higher-level review.

The audit says 87 percent of the compensation paid to Moulton came after LSU's internal audit was completed in February 2019.

Beyond the compensation issues, the audit found that STC management, including Moulton and John Pursley, incorporated a separate nonprofit called Stellar in September 2018. They obtained more than $57 million in federal research and development contracts for Stellar that did not benefit STC or LSU and records show they received at least $5.5 million in reported compensation and taxable benefits from Stellar between 2019 and 2023.

The audit says STC is financially distressed and reliant on state funding from the Louisiana Department of Economic Development to cover operating expenses. By directing funds to Stellar, Moulton and others may have breached fiduciary duties to STC and LSU and violated state and federal law, according to the audit.

STC also paid $626,554 for leasehold improvements and $412,426 to lease expanded office space in Baton Rouge between December 2021 and October 2024. About one-fourth of that space was used by Stellar and the audit found no evidence the STC Board approved funding office space for an outside organization.

The audit also found that STC paid $616,929 to Scott Draughon through his Florida company for legal services between January 2019 and January 2022. Draughon reviewed, edited and negotiated contracts on STC's behalf, but the audit found no record that he is licensed to practice law in Louisiana and that he is ineligible to practice law in Florida.

The audit attempted to interview Moulton, Pursley, Draughon and a fourth individual but none of them responded.

The audit includes several recommendations for LSU, including implementing policies to ensure formal affiliation agreements are in place, requiring written contracts that disclose compensation and benefits and periodically auditing affiliates to verify they are operating for LSU's benefit.