August 31, 2018; Courier Journal and Oshkosh Northwestern
In general, support foundations for universities assist their schools in raising money for programs, student scholarships, and faculty development. With public universities, they also provide funding streams that are a step removed from the omnipresence of state oversight, because their dollars are donated, not from the pockets of taxpayers.
Although there are regulations and a great deal of accountability in the running of such foundations, stories from NPQ this year have shown examples of university support foundation behavior that range from sloppy all the way to fraudulent. Repercussions follow when laws are ignored, and they can continue for months and years. Here is an update to some university foundation stories NPQ has been covering.
• The New York state comptroller’s audits of 30 of the support foundations in the State University of New York (SUNY) system found 10 with deficiencies, ranging from retirement party expenses and travel expenses without documentation up to housing loans to individuals. SUNY is responding to the comptroller’s issues and has followed up with a request for applicable policies from all its affiliated foundations.
• After losing $42 million from its endowment, in 2017 the University of Louisville Foundation had a $2 million forensic financial audit performed by an outside accounting firm to determine how it happened. The audit revealed risky investments and excessive compensation—three university administrators were on the receiving end of $3.9 million. The university and the foundation have filed a lawsuit against six defendants, including the former U of L president, James Ramsey.
Now, the IRS will take its turn auditing the University of Louisville Foundation. The foundation actually informed the IRS last August that there were noncompliance issues. The foundation was then notified on August 24th of this year that Internal Revenue Service agents would be on the premises from September 11th through 13th.
Keith Sherman, the Foundation’s interim executive director, stated they are cooperating with the IRS and hope to demonstrate how complete and wide-ranging the changes have been to prevent it from happening again. “A new board chair, new directors, and new day-to-day operators took over the old regime and set the Foundation on a path of reform,” Sherman said. “The comprehensive changes in the Foundation’s policies and procedures that have occurred over the last 18 months were to address the wrongs of the past.”
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Ramsey’s attorney, Steve Pence, said the university informed the IRS of the noncompliance in order to pressure the former university president to return his compensation.
• The University of Wisconsin-Oshkosh will be getting the bill for the U of W-Oshkosh Foundation’s debt. The U of W-Oshkosh Foundation declared bankruptcy, with $15 million in loans for large building projects. The chancellor and the vice chancellor led both the school and the foundation. In an apparent conflict of interest, the chancellor and vice chancellor signed memoranda of understanding that the university would cover the foundation’s debt for each project.
Felony charges were filed against the administrators, and a federal judge recently ruled that the university must pay the debt to the U of W-Oshkosh Foundation. Donations and endowment dollars must follow their donors’ intent, and benefactors aren’t likely to pony up for debts due to malfeasance. Since the money to pay that debt would come from Wisconsin taxpayers, the state can, and likely will, appeal the decision.
While she denied the request from the Foundation that Wisconsin pay the attorney and court costs, Chief US Bankruptcy Judge Susan Kelley determined that the contracts created by the former administrators, which proved that the school can pay the debt, are enforceable. “There is no question that the construction of facilities designed to serve the University’s students and the surrounding community serves a public purpose,” Kelley wrote in her decision.
A capital campaign may be a better choice than crippling loans. It would certainly be an improvement over felony charges.
University support foundations often have sizable endowments, which are not always restricted. Even without restrictions, it would be best to avoid malfeasance or tangling with state statutes regarding cy pres and deviation from donor intent in order to “invade an endowment fund in order to meet the charity’s financial obligations.” Stick with honoring the assumed intentions of all those who would donate to a school foundation: to benefit the students and the school.—Marian Conway
Disclosure: This author is the chair of the board of SUNY Empire State College Foundation. Empire did not appear in the NYS comptroller’s list of foundations with lapses.
