State Audit Finds Dysfunction, Rule-Breaking, Lack of Transparency at U of L Foundation
A state audit of the University of Louisville Foundation found a president with too much unchecked power, numerous examples of broken bylaws and a “dysfunctional governing climate” at the school’s nonprofit.
But the 59-page report released Wednesday by State Auditor Mike Harmon stopped short of making referrals for a criminal investigation.
The audit report describes a nonprofit organization that was run unilaterally by then-university president James Ramsey, who kept his board of directors in the dark about financial transactions and the bylaws governing them. Shortly after the investigation began, Harmon said, the foundation withheld public records and information and questioned Harmon’s auditors when they sought spending information. The obfuscation slowed the audit down by several months.
“The numerous delays on requests for information and documentation only served to further prolong our investigation and illustrate the need for full transparency and accountability at U of L and the foundation,” Harmon said at a press conference Wednesday morning.
Chief among the report’s findings was that the school’s nonprofit fundraising arm was at times indistinguishable from U of L. While the foundation exists to support U of L, it’s a separate entity, and state dollars at publicly funded U of L must be kept separate from private donations for specific causes.
The set-up allowed Ramsey to green-light foundation loans from the university without telling board members. He also took other unilateral actions that were only possible because he led both organizations, the auditor said.
While many of the issues raised in the report aren’t new, the report confirmed and added new details to governance and financial problems often disputed by Ramsey and some board members.
Interim U of L President Neville Pinto said the university agrees with the overall findings of the report. Changes have already been made to improve transparency, Pinto said, and the university is committed to doing more. WFPL’s Kentucky Center for Investigative Reporting sued the foundation in September for access to its ethics and disclosure forms, as well as payroll and financial documents. The suit is pending.
“Restoring stakeholder and donor confidence is an absolute priority for our university,” Pinto said Wednesday. “It’s a new day at the foundation, with new leadership. … the leadership is committed to openness and transparency.”
The audit found:
- Ramsey loaned the foundation $67 million of the university’s money without getting approval from the U of L board.
- Foundation board members gave Ramsey a raise that exceeded what his contract allowed -- and raised his university base pay by 2 percent more than the U of L board authorized. The foundation funded the increase, but didn’t have the authority to give it.
- Administrative operations between U of L and the U of L Foundation were not properly separated, resulting in ineffective governance and few appropriate checks and balances.
- Foundation staffers delayed the auditor’s request for records “which, along with numerous open records violations, validated concerns of poor transparency.” Documents were “sanitized,” and some basic accounting records weren’t available.
- Conflict among members of the U of L Board and the administration created an “environment of distrust” and a dysfunctional governing climate.
- Board members had no formal orientation and weren’t trained on rules they were required to follow. The university’s CFO, Harlan Sands, was not included in foundation finance committees, and board members said they didn’t know he should have been. Sands recently accepted a job at the Wharton School of Business at the University of Pennsylvania.
In his report, Harmon recommended that the ULF board create an internal audit function; that board members learn bylaws and get trained; that they don’t exceed their authority; and that U of L administration stop loaning money to the foundation and its affiliates.
Harmon stopped short of recommending that the foundation be led by someone other than the university’s president, although his study of other universities showed that the arrangement is unique to U of L. Instead, Harmon said checks and balances need to be stronger and the policies clearer if U of L continues with that arrangement.
University officials said in a written response to the report that they’ve already instituted some changes, such as hiring an interim executive director, bringing in new attorneys and establishing a new foundation committee to oversee the foundation’s governance.
In the response, interim U of L president Neville Pinto and U of L Foundation board chair Brucie Moore promised a more detailed action plan in the next two months.
Ramsey, who resigned from U of L in July and from the foundation in September, authored his own defense and submitted it to the auditor’s office. Ramsey was defiant in his response, disputing nearly all the findings except those that talked about board dysfunction.
Ramsey said the relationship between U of L and the foundation, and the procedures the auditor questions, “allowed for and facilitated” the university’s growth. Ramsey refuted the auditor’s claim that he possessed “undue influence” over the board, and instead blamed “certain members” for being disengaged.
“It is important to note in your examination that, despite cumulative state budget cuts ($339m), the University has never been academically stronger while maintaining absolute financial integrity,” Ramsey wrote.
The foundation is the nonprofit fundraising arm for U of L, and it also manages its roughly $662 million endowment. It funds scholarships, research and academic programs at the university, and has taken heat in recent months for high executive pay and donor fears that money isn’t being well spent.
The auditor’s report was also highly critical of Ramsey’s decision -- made days before his resignation -- to give a new contract to Kathleen Smith, who was U of L chief of staff and foundation assistant secretary. The contract named her acting chief administrative officer, a role that the auditor said belonged to Ramsey, and included a provision that she would receive six months pay if she were terminated without cause. Ramsey acted outside of the bylaws and the agreement may not be binding, the auditor said.
Ann Oldfather, a Louisville attorney who represents Smith, said she has no doubt the agreement is valid. She said Smith’s contract formalized an agreement that was already in place and board members knew about. It was not a favor from Ramsey, Oldfather said, and it didn’t give Smith any benefits she wasn’t already entitled to.
“This is not someone who is getting new money. She wasn’t,” Oldfather said. “This is not someone who is getting new benefits. She wasn’t. And I personally am distressed by the reporting that makes it look as if Dr. Ramsey was doing her a favor when the reverse was true.”
Smith is on paid administrative leave from the foundation. She retired from the university in September.
Kate Howard can be reached at email@example.com and (502) 814.6546.
Disclosures: In 2015, the University of Louisville, which for years has donated to Louisville Public Media, earmarked $3,000 to KyCIR as part of a larger LPM donation. University board member Stephen Campbell and former member Sandra Frazier have donated. Attorney Ann Oldfather has donated.