UNC’s Project Kitty Hawk Cleans Up After a CEO’s Departure

In July 2022, as the University of North Carolina System’s new online degree startup Project Kitty Hawk was just getting on its feet, CEO Wil Zemp took a business trip to Miami. On his expense report for the trip, he described meeting with Venture Hive, a company that builds corporate and university innovation programs, to “stress test the business plan.”

Zemp had a big job ahead. The state legislature had awarded the UNC System $97 million from pandemic recovery money to create a nonprofit that would partner with campuses to run online-degree programs for working adults. System President Peter Hans promised that the venture would be a game changer. Zemp’s task was to get Kitty Hawk off the ground.

More than two years and $72 million in spending later, Project Kitty Hawk—often called PKH—has 639 students in 11 online programs. Enrollment goals have been cut by half amid changing federal guidance, and a state audit released last month found the UNC System had violated “federal and state laws, rules, and regulations” that require it to monitor the nonprofit.

Zemp resigned last April, about three weeks after The Assembly reported on Kitty Hawk. Almost immediately after his departure, the organization launched a review of expenditures. Current leadership has since adopted a stricter business travel expense policy, and in late September, after completing its expenditure review, returned more than $102,000 from purchases it deemed unallowable under its new rules. 

The disallowed purchases include $2,800 to a New Hampshire brewery, more than $21,000 to rent a Chapel Hill apartment, and $25,000 to the Armed Services National YMCA Headquarters for a Washington, D.C. black-tie gala. (Zemp had been a board^⁠ member there.) 

They also include $4,250.17 spent at a Ritz-Carlton hotel for Zemp’s Miami trip. Zemp’s expense report, which The Assembly obtained, says the bill included meals with Venture Hive employees. Zemp told The Assembly that he met with two Venture Hive employees, though he doesn’t remember who they were. 

But Venture Hive CEO Susan Amat says that she has found no record of a meeting. She told The Assembly that Zemp reached out to her via text while he was in Miami, but she was in Montana. Venture Hive has never worked with Zemp or Project Kitty Hawk, she said. 

The UNC System declined comment on specific expenditures and said questions would have to be referred to Zemp.

These revelations are yet another mark against a project with ambitious goals–helping thousands of North Carolina’s working adults earn online college degrees and boosting enrollment as the number of college-age students drops off. PKH now forecasts a $1.5 million shortfall in fiscal year 2027. 

The UNC System and current Project Kitty Hawk leadership aren’t admitting fault for the lack of monitoring or misspending. PKH says it adhered to its operating agreement with the UNC System. The System described federal monitoring rules as confusing and ever-changing, and said reasonable people can disagree about them. 

But for faculty, many of whom have been skeptical from the start, Kitty Hawk’s missteps are “deeply disappointing,” said UNC System Faculty Chair Wade Maki, and they contrast sharply with pressure that campuses face to scrutinize every expenditure. “I have vice chancellors at my institution who sign off on every $5 purchase,” said Maki, who teaches at UNC-Greensboro. “Why isn’t that a good practice for this entity?”

Spending During ‘Startup Mode’

The announcement of Zemp’s resignation gave no hint of problems. He had a close relative battling a serious medical condition and it was decided he would step down, according to an email to employees from then-UNC Board of Governors Chairman Randy Ramsey and UNC System President Peter Hans. The two led Kitty Hawk’s board of directors. 

“The firm is in a strong position thanks to Wil and to all of you,” they wrote. “The UNC System and the Board of Directors are as optimistic about PKH’s future as we’ve ever been.” 

But behind the scenes, the N.C. Office of State Budget and Management was auditing the nonprofit as part of its regular oversight. It also had received a whistleblower complaint alleging unallowable and unnecessary expenses. 

With Zemp gone, UNC System Executive Vice President for Policy and Strategy Andrew Kelly was appointed the new CEO. He was a logical choice. He’d helped conceive the project, and since March 2023, PKH had been paying the UNC system $108,280 a year for his part-time services. That role, however, had been to help “accelerate the business in partnering with the universities,” he said, not to provide financial oversight.

With the state audit still in progress, Kitty Hawk did its own review of past expenditures. It adopted stricter spending rules, and in a September 25 memo, PKH Chief Financial Officer Rae Williams wrote Jennifer Haygood, the UNC System’s CFO, to say that the nonprofit was returning $102,284.91. 

The spending didn’t violate Kitty Hawk’s previous operating agreement with the UNC System, Williams wrote, but “our commitment to transparency and responsible use of State resources compels us to immediately remit” the funds. (The previous agreement, which The Assembly has obtained, did not explicitly cover business travel.)

Williams, who was hired in January 2023, told The Assembly that she had discussed concerns about Kitty Hawk’s rate of spending with its board members and the UNC System shortly after she’d arrived. When she came on board, PKH had been outsourcing its accounting and was “very much in startup mode.” Her focus, however, was long-term sustainability, not past expenditures.

Around the same time, Kitty Hawk’s board directed its leadership “to tighten travel policies, reduce travel expenses, and limit administrative expense,” the UNC System said in a written response to questions from The Assembly.

Kitty Hawk declined to share its previous business travel expense policy, but its new one follows the UNC System policy more closely and includes rules that former employees and contractors say weren’t followed under Zemp—no spending on alcohol or airline club memberships, pre-approval for entertainment-related expenses, a $60 daily maximum for meals during in-state travel. 

Kitty Hawk also would not release the list of expenditures it disallowed, and the UNC System says it doesn’t have the list.

But Kelly acknowledged in response to The Assembly’s specific questions that the disallowed expenditures include bills for the Ritz-Carlton, the Chapel Hill apartment, the New Hampshire brewery, and the Armed Services YMCA.  The Assembly learned of these through public records, an expense report, and interviews with a half dozen former employees and contractors.

Several former employees, who asked not to be named for fear of professional retaliation, said that under Zemp’s leadership, Kitty Hawk regularly paid for alcohol, entertaining, and pricey hotels, especially in its first year of operation.

“It never seemed like money was an issue,” one former employee said. “We went out on their dime. They ordered lunches to the office. Basically, anything that was happening, we would get lunch.” Said another: “It was essentially a big party.”

A third former employee said when she raised concerns about alcohol purchases, Zemp replied that Kitty Hawk was private and had its own rules. 

Before Kitty Hawk hired Zemp, 54, he had worked seven years at Southern New Hampshire University, a private online education powerhouse with more than 160,000 students. There, he’d filled several roles including chief strategy and innovation officer. 

Zemp’s Kitty Hawk hires included more than a dozen people who also had worked at Southern New Hampshire. Most continued to live outside North Carolina and work remotely, including Chief Operating Officer David Eby in Kansas, and others in Massachusetts, Oklahoma, and New Hampshire. There were so many New Hampshire employees that Kitty Hawk rented meeting space at the Manchester brewery, where a Kitty Hawk employee was also an owner. 

Hiring out-of-staters to shepherd such a project would be unlikely on UNC campuses, but as a private nonprofit affiliated with the UNC system, Kitty Hawk had greater flexibility. And it needed specific skills quickly. “The complexity of the task and the tight timeline necessitated flexibility on the location of personnel,” wrote the UNC System in response to The Assembly’s questions.

According to former employees and contractors, many of these remote employees would fly to North Carolina every month or two, expensing bills for rental cars, meals, and hotels. Chapel Hill’s four-star Siena Hotel was a popular spot. 

Zemp also traveled frequently. And while the UNC System’s Financial Policy Manual forbids using grant money for entertainment, PKH’s financial transactions include dozens of expense reports and credit card bills identified as “entertainment.” 

PKH had fewer than 50 employees until late 2023, and it provides services only to North Carolina’s public campuses. But it spent $257,000 on travel for fiscal year 2023, according to its latest IRS filing. In fiscal year 2024, with a headcount of around 50, travel expenses declined to $237,000, Williams said. 

Zemp didn’t agree to an interview, but responded to some of The Assembly’s questions via email.

He pointed out that PKH was a private non-profit organization, not a state entity, “and we operated in accordance with our operating agreement. During my time with the organization, we were audited on several occasions and no major concerns were raised.”

He also defended specific expenditures Kitty Hawk has deemed unallowable: The $25,000 Armed Services YMCA gala sponsorship helped Kitty Hawk build relationships with personnel and dependents on N.C. military bases, a target audience for its online degree programs. The Chapel Hill apartment lodged individuals in town for company business and was used for meetings and storage. And the brewery provided space for dozens of meetings for New Hampshire employees. 

Zemp spent at least a week in Miami, records show. He maintains he met two Venture Hive employees at a Ritz-Carlton, even though Venture Hive’s CEO said she checked with her team and verified that no one met with Zemp.

“I realize that some of the travel expenses were high,” he wrote, “but I can tell you that the trip to Miami in July/August 2022 was very productive.”

Venture Hive “provided valuable feedback on PKH’s development phases and assisted with our flywheel modeling,” he added.

The Assembly asked Zemp for the names of the two Venture Hive team members he said he met with. He said he doesn’t remember: “Those meetings took place more than two years ago.”

‘Time Was of the Essence’

Project Kitty Hawk was launched in a rush. In late 2021, it was one of hundreds of projects funded by the state legislature using pandemic recovery dollars. But its $97 million came with a catch: The money had to be spent or returned by the end of 2026. 

The UNC System moved quickly. In January 2022, its Board of Governors approved Hans’ slate of appointments to Kitty Hawk’s inaugural board. By state statute, the board includes the UNC Board of Governors chair, the UNC System president, three chancellors, and four individuals with experience in higher education, business management, or both.

The new board hired Zemp less than a month later. Kelly had met him in 2021, as he and colleagues were finalizing plans for the effort. Zemp was among the people “whose brain we picked on the concept,” Kelly said in a February interview. At the time, Zemp was director of global education initiatives at Amazon Web Services.

It was “an expedited search and recruitment process,” Kelly said. “To put it lightly, time was of the essence.”

The UNC System was betting that PKH could take market share from major out-of-state online players such as Liberty, Strayer, and Southern New Hampshire universities. Though most UNC campuses already offered online degrees, Hans promised that Kitty Hawk would create a better product, partnering with campuses to meet the needs of adult learners, especially working adults with some college coursework but no degree.

It would offer eight-week courses all year long, asynchronously to accommodate students’ work schedules. Counselors would help students navigate challenges. And it would focus on programs such as nursing, information technology, and business administration, that address labor market needs. 

To get PKH up and running quickly, its leaders opted to “build by partnership,” spending millions to hire vendors—Archer Education, Collegis Education, Accenture, Verity IQ, Profhire, Amazon Web Services—to help build and run the operation. Payments to Amazon Web Services alone topped $6 million from October 2022 to April 2023, financial records show. 

But in February 2023, new guidance from the U.S. Department of Education dealt Kitty Hawk a major blow. The department said it was reconsidering its 2011 exemption that had permitted colleges to engage in revenue sharing with online program management companies. 

Known as OPMs, these for-profit companies run online degree programs at many universities. Colleges like them because OPMs assume upfront costs and financial risks. But they’ve been criticized by consumer advocates for taking too much of the revenue and for hard-sell recruiting and huge marketing budgets that drive up tuition costs. 

PKH’s plan had been to create a nonprofit OPM that would assume startup costs and financial risks, but give universities a bigger cut of revenues. When the new federal guidance threatened to disallow revenue sharing, PKH switched to a model that charges campuses fees for its services. This meant revenue growth would be slower, and it created a big challenge for a company that was supposed to be self-supporting once its federal funds ran out. 

But four former employees and contractors say the business model switch wasn’t PKH’s only problem. The company also struggled because some employees lacked relevant experience.

One former employee likened the build process to attempting to construct a house without a blueprint. A former contractor agreed: “People in the seats were not qualified to be in the seats. There was all this chit-chat. All kinds of words. But no real plan.” 

While some employees were swamped, others had little to do. One had so few tasks that she quickly found another job and left after a few months. “There was no direction coming from anywhere,” she said. “Truthfully, they should have never hired me.” 

Kitty Hawk also spent time and money on tasks and purchases that some former employees and contractors saw as nonessential, or simply a waste.

For instance, the online programs Kitty Hawk powers are marketed under the universities’ names, not the PKH moniker. But in 2023, the company redesigned its brand and logo as part of what it called the “Project Kitty Hawk Brand Manifesto,” according to an internal document. That year, it paid $110,000 to WANT Branding, financial transactions show. 

Some former employees praise Zemp and Kitty Hawk’s mission. Bill Lightfoot, who was senior program manager of academic affairs before leaving in early 2023, calls Zemp “one of the finest and effective leaders I have had the pleasure of working with in higher education over the past 25 years.” 

And Erin Neuhardt, a former senior strategic outreach manager who left in April, said she’s proud she could contribute to PKH’s mission of expanding access to education for adult learners. “Working in the startup environment requires a willingness to roll up your sleeves and adapt to ambiguity—the exact reason I wanted to be a part of the project—and it was immensely rewarding,” she said. 

Zemp, a decorated retired Army colonel who’d completed tours in Iraq and Afghanistan, often talked about his military background, former employees said. Motivational messages associated with military survival training became part of Kitty Hawk’s corporate culture. 

In June 2023, for instance, Zemp sent employees and contractors gift packages that included T-shirts, sweatshirts, and pens, along with stickers with survival-training messages: Expect to self rescue. Hope is not a good plan. No one is coming: It’s up to us. 

Any ambitious project encounters challenges, Zemp wrote in his response to The Assembly. “While we did not achieve all of our goals while I was there, I am confident that Project Kitty Hawk is well positioned for the future and will serve as a valuable resource for the University of North Carolina system and the people who live here.”

Questions About Compensation and Oversight

In addition to faulting the UNC System for failing to monitor PKH, the state’s audit, released in October, concluded that the nonprofit isn’t on track “to achieve legislative intended results.” 

It also examined a sampling of PKH expenditures, but did not perform a full accounting. 

Its review of eight employee expense reports, totaling about $48,000, questioned or deemed unallowable 28 percent of the total amount. It also flagged more than $52,000 from nearly $5 million in other expenditures that it disallowed or questioned, which means auditors need more information to decide whether the purchase was allowable. The state audit doesn’t reveal what any of these questioned or unallowable expenditures were. 

The largest questioned expense in the audit, by far, was more than $762,000 that PKH’s board voted to spend on bonuses in June 2023, months before the company had launched its first online degree program. 

But the audit’s stated rationale for questioning the bonuses is based on an error. It says that PKH did not meet its 2023 target enrollment, but PKH didn’t launch its first program until October 2023 and had no enrollment goal that year. The audit erroneously says it was supposed to have 10,900 students, but that’s its 2026 goal for new-student starts. The N.C. Office of State Budget and Management is aware of the error, but it hasn’t been corrected. The state didn’t respond to The Assembly’s question about it.

Kelly defended the bonuses in an October 25 memo to his board responding to the audit. He wrote that the board had assessed PKH’s progress using detailed criteria and voted to award 65 percent of the potential bonus pool. 

Kelly said in an interview that Kitty Hawk, as a tech company, needs to offer performance-based bonus pay to be competitive. He faulted the state for failing to correct “a material elementary error.” Kitty Hawk is “pursuing appropriate remedies,” he said, but declined to say what they would be.  

After tax deductions, 27 employees received a total of $705,249. The average award for the 26 employees other than Zemp was $19,600, according to Kelly’s memo. While the memo doesn’t reveal the former CEO’s bonus, the math would suggest Zemp got nearly $200,000 of the $705,249. In his memo to the board, Kelly also disputed that PKH wasn’t on track to meet its legislative goals. He cited legislative language that calls for PKH to work toward enhancing digital learning programs and boosting the number of N.C. residents with post-secondary credentials and concluded that “based on a plain reading of the statute”  the audit’s assertion was wrong.

As a private nonprofit, PHK isn’t required to disclose as much spending information as a public institution, even though it is funded entirely with public money. But its fiscal year 2023 IRS filing, the most recent available, listed Zemp’s calendar year 2022 compensation as $390,676, including $90,000 of “bonus and incentive” pay.

Kelly declined to say whether Zemp received a payout when he left. 

He also declined to share his own PKH salary. As the UNC system’s executive vice president, Kelly earned more than $400,000 in fiscal year 2024, public records show. He continues in a part-time role as the UNC system’s senior advisor for strategy. The UNC System now pays Kitty Hawk $75,000 a year for Kelly’s services, according to public documents; Kelly says he took a base pay cut to move to the nonprofit. 

The UNC System has now stepped up its monitoring of PKH. As of July 1, it receives a monthly summary from PKH showing “expenditures by cost category and additional cost details for travel and administrative expenses,” the System said in a response to The Assembly’s questions. 

This is an about-face from an earlier stance. In June, as the state’s audit was nearing completion, the System office sent the N.C. Pandemic Recovery Office a memo arguing that Kitty Hawk was merely a contractor hired by the UNC System, not the sub-recipient of the System’s $97 million grant, as the state claimed. 

As a contractor, the UNC System said, PKH wasn’t required to follow the spending rules the state was insisting on. And the UNC System wasn’t required to monitor according to those rules. 

But the System’s own documents identified PKH as a sub-recipient.

 When The Assembly asked the UNC System about the memo, it responded that federal rules are confusing and ever-changing, and reasonable people can disagree about whether PKH is a contractor or sub-recipient. But the nonprofit, its board of directors, and the UNC System office have agreed that “complying with cost principles was the right thing to do, given our commitment to transparency and responsible use of state resources.”

This month, the N.C. Pandemic Recovery Office, which monitors the state’s pandemic recovery funds, sent consultants hired from the accounting firm Deloitte to work with the UNC System to bring its PKH monitoring into compliance. 

The office also could follow up the state’s audit, which only sampled PKH expenditures, with a thorough accounting. Stephanie McGarrah, head of the N.C. Pandemic Recovery Office declined comment. 

Kitty Hawk’s Path Forward

Kitty Hawk now projects a $1.5 million shortfall in fiscal year 2027. This isn’t a total surprise. The company’s revenue projections took a hit in 2023 after federal guidance changed and PKH decided to charge campuses for services instead of sharing revenue. It also cut by its half enrollment prediction of 30,800 students by 2028.

But Kelly says a projected shortfall is just that—a projection. It can change. To close the gap, Kitty Hawk is cutting spending and developing new revenue sources. It also may stop giving startup grants and deferring fees for new campus partners. These grants and deferrals now go to PKH’s three current campus partners when they launch new programs. They don’t pay the fees until their program portfolios become profitable. 

Kitty Hawk’s fiscal year 2025 budget is $5 million less than last year’s $38.6 million. Budgeted travel costs are down 43 percent. The nonprofit is reducing reliance on contractors and bringing functions such as student admissions and recruitment in-house. It’s also giving priority to North Carolinians when it makes new hires. “We feel good about the combination of cost containment and revenue generation that we’ve got,” Kelly said.

Kelly also touts the success of ReUp, a company PKH hired to contact and re-enroll former UNC System students who never graduated. PKH paid ReUp $3.8 million and offers the service to campuses for free. It has re-enrolled nearly 2,900 students. 

PKH enrollment has been growing. Eleven Kitty Hawk-powered online degree programs now operate at N.C. Central, East Carolina, and Appalachian State universities. 

Kelly says he’s cautiously optimistic that current enrollment of 639 students will surpass 1,000 by January, when three more Appalachian State programs hold their first classes. 

But one educational technology expert who’s been following Kitty Hawk from the start said the company has a hard road ahead. Phil Hill, the Phoenix-based publisher of the On EdTech newsletter, said it’s hard to make the numbers work without revenue sharing. “I don’t believe the projections,” he said. 

UNC System President and Kitty Hawk board chair Hans declined to be interviewed for this article, but gave a statement: “North Carolina faces significant demographic and economic shifts in the future, so it is critical that we get this right. And we will with Andrew Kelly’s leadership.”