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Audit Of U of L Foundation Is ‘Cautionary Tale,’ Expert Says

James Ramsey
J. Tyler Franklin
James Ramsey

The state audit of the University of Louisville Foundation found infighting, secrecy and a leader with unchecked power, but none of that was a big surprise.

The audit released Wednesday followed months of intense scrutiny for the university’s nonprofit.

For critics, it confirmed complaints that the foundation withheld records, lacked good money management and engineered deals behind the backs of some board members. But those who have long defended the tenure of former president James Ramsey, including Ramsey himself, saw misleading findings and no smoking gun.

An expert interviewed by WFPL’s Kentucky Center for Investigative Reporting found cause for concern in the relationship between the foundation and university, which the auditor called “at times, indistinguishable.”

The foundation exists to manage U of L’s endowment, and it’s a separate entity. State dollars at publicly funded U of L must be kept separate from private donations for specific causes.

That should concern taxpayers and donors, said James Finkelstein, professor emeritus at George Mason University and an expert in university compensation.

“The lines between the foundation and the university became very, very blurred over the years, and so you didn’t know who was working for whom and when they were doing it,” said Finkelstein, who reviewed the audit at KyCIR’s request. “I think it’s a cautionary tale for other public universities and their foundations.”

One of the ways Ramsey’s dual role as president of the foundation and university caused a conflict, Finkelstein noted, is that he drew most of his pay from the foundation. The university’s board is appointed by the governor, but the foundation’s board of directors selects its own new members -- and Ramsey was chairman of the nominating committee. So in effect, he chose the people who set the bulk of his pay.

A clear theme of the report was a lack of transparency, from Ramsey and staff holding back key documents from auditors and board members left in the dark about bylaws and their own records requests.

The obfuscation slowed the audit down by several months. Harmon said the foundation will have to pay for the cost of the 18-month audit, which was about $186,000 at his most recent estimate.

The foundation’s responsiveness improved after Ramsey was forced out as university president in July and as foundation president in September, Harmon noted. But still, financial records like vendor lists and reports comparing budgets to actual spending had to be created for his auditors.

Those types of records would be basic for an institution of any size, Harmon said, and available to board members.

“Certainly, even something as small as my personal church, they have budget to actuals and we review that once a month,” Harmon said.

University leaders accepted Harmon’s findings and took responsibility for actions at the foundation that didn’t “align with best practices.”

Much of the report pertained to Ramsey, who for his part denied most of the findings.
“The numerous delays on requests for information and documentation only served to further prolong our examination and illustrate the need for full transparency and accountability at U of L and the foundation,” Harmon said.

The report is Harmon’s first big political splash since he was elected last year. He unseated former auditor Adam Edelen, who first launched the special audit in early 2015. Edelen praised the report Wednesday, calling it a “blatant rebuke to those who have been defenders of the status quo.”

“My hope is that this just ends whatever lingering arguments there might be,” Edelen said. “Clearly the university and its foundation needs substantive reform to provide a better product for students, faculty and staff and to provide a better deal for taxpayers.”

No 'Smoking Gun'

Bob Hughes, a U of L trustee who was president of the foundation board until September, said he agrees more checks and balances are needed, but he also supports everything Ramsey did.

The report lacked a “smoking gun,” he said.

“This whole thing comes down to, does the process follow policy and what was the result of that?” Hughes said. “In my opinion, it did follow policy and nobody can argue with the progress at the university during [Ramsey’s] tenure.”

Hughes said he stood by the foundation’s decision to offer Ramsey a 4 percent raise in 2014, which the auditor found was above what Ramsey was entitled to. Ramsey’s contract stated that his foundation raise should mirror his university raise, and the U of L board offered Ramsey 2 percent.

The auditor asserted that the foundation board added another 2 percent to Ramsey’s university pay, so the 4 percent foundation raise would align.

Hughes said he doesn’t recall doing that. He also thinks fears about losing donors is overblown, as he personally hasn’t lost confidence in the foundation.

That view is in sharp contrast to interim president Neville Pinto, who raised that issue almost immediately at Wednesday’s press conference.

“Restoring stakeholder and donor confidence is an absolute priority for our university,” Pinto said. “It’s a new day at the foundation, with new leadership.… the leadership is committed to openness and transparency.”

Foundation chairwoman Brucie Moore said the work to improve is already underway.

“This audit provides a roadmap for further improvements… and we look forward to continuing the work necessary to ensure that public confidence and trust is fully restored,” Moore said.

One lingering question centers on the future of Kathleen Smith, who is on paid administrative leave from the foundation. She retired as U of L’s chief of staff in September.

The auditor’s report was highly critical of Ramsey’s decision — made days before his resignation — to give Smith a new contract naming her the foundation's acting chief administrative officer, a role that the auditor said belonged to Ramsey. The contract included a provision that she would receive six months pay if she were terminated without cause -- and Harmon said Smith didn’t provide auditors with the copy until months after it was signed.

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.

“Dr. Ramsey’s letter in sum is an encapsulation of actions that had already been taken by the foundation board of directors,” Oldfather said. “It is a non-event.”

[documentcloud url="http://www.documentcloud.org/documents/3238379-KY-State-Auditor-Governance-Examination-of-U-of.html"]

Kate Howard can be reached at  khoward@kycir.org 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.

Kate Howard is the managing editor of the Kentucky Center for Investigative Reporting.