August 11, 2017; Louisville Business First and U.S. News and World Report (Associated Press)
We continue to cover the University of Louisville Foundation, an example of a philanthropic foundation failing in fiscal responsibility, losing millions of dollars, and then attempting to rebuild itself. While unfortunate for that organization, we are learning from the process, from the exposure of the malfeasance through the steps in recovery.
The first step to rescuing a foundation so beset is replacing the leadership. The next step toward fixing it is to find everything that’s wrong. Doing so requires a forensic audit—a thorough, scientific accounting of every dollar spent and every dollar of revenue. That’s an expensive proposition, but two foundations have stepped up to pay for the 269-page audit, $1 million each.
The James Graham Brown Foundation and the C.E. and S. Foundation requested an investigation of the U of L Foundation in September of 2016. The two foundations offered funding for the inquiry at that time, with the caveat that they would not be providing any other donations until the audit was completed. (According to the letter requesting the investigation, the James Graham Brown Foundation has granted the University of Louisville and its affiliates $72 million since 1955.)
Both foundations are located in Louisville, and are strong, consistent funders for city programs and the university. The James Graham Brown Foundation, according to their tax filing, was designated as a nonprofit by the IRS in 1964 and donated $15.9 million to organizations in 2015, almost all of which are located in Kentucky. The C.E. and S. Foundation was founded in 1985, donated $3 million in 2015 to organizations, the majority in Kentucky.
J. David Grissom, the chairman of the university’s board of trustees, stated, “Our goal with this forensic investigation has been to restore the confidence of our donors in the U of L Foundation.” He went on to say that the support from the two foundations will assist in mending the present lack of confidence that exists with other donors.
Now former U of L vice president of advancement Keith Inman told the U of L Foundation board of directors on July 18th that the foundation needed major donors to make public donations to help rekindle the support of other donors. Inman is now the president of Kosair Charities.
Sign up for our free newsletters
Subscribe to NPQ's newsletters to have our top stories delivered directly to your inbox.
Inman also explained that total contributions to U of L foundation were down by $93.9 million, or about 39 percent, compared to fiscal 2016.
Accounting for strictly philanthropic giving, the foundation was down by about $21 million in fiscal 2017 from fiscal 2016, Inman said.
The president and CEO of the James Graham Brown Foundation, Mason Rummel, said, “We welcome the opportunity to help offset the costs and expenses of the forensic investigation. It is our hope that a $1 million grant for this purpose will signal our support and appreciation of the hard work and commitment the university’s board of trustees has shown in the continued improvement of this important institution.”
When there is a problem, even failure, in a nonprofit organization, it could be considered a natural reaction for funders to step back and take themselves out of the picture. A funder wants to be part of a successful program and mission. It is a brave move for philanthropic foundations to see a problem within an organization and take what could be sizeable risk by making the commitment to assist in the reparation.
In the midst of its struggle to come back, however, a consultant hired by the University of Louisville Foundation was arrested. Robert Mims had worked for the foundation for two weeks as a contract financial consultant when he was charged with theft or shoplifting over $10,000 and under $1 million.
The foundation’s executive director, Keith Sherman, said Mims had no access to financial accounts or confidential information, that his “alleged lapses in judgment were unrelated to his work for the foundation,” and that “based on his positive professional references and his work for us we could not have foreseen the alleged behavior.”
The U of L Foundation has discovered that once an organization appears on the front page, its every step for the foreseeable future will be scrutinized. The new leaders must be extremely careful to examine every document and vet each person they hire and every person who volunteers in their name. Actually, that’s good advice for every nonprofit and would prevent the trouble that put them on the front of the news in the first place.—Marian Conway