The University of Louisville hoped to put to rest years of media scrutiny and donor concerns on Thursday when it released a lengthy forensic audit from an outside firm.
The audit provoked a new question: is it really an audit?
The university called it an audit. It signed a contract for a forensic audit. But if you look at the report, the auditing firm dubbed the $1.7 million work product a special “forensic investigation.”
Attorneys for former staffers and at least one former board member pounced Friday on the wording difference, implying that if the examination of University of Louisville Foundation’s books didn’t meet auditing standards, the damning conclusions it reached were not objective.
Chicago auditing firm Alvarez & Marsal found at U of L a depleted endowment, excessive spending and discussion between administrators about concealing records. Halfway through the first page of the report, the firm noted that it didn’t perform an audit or follow “generally accepted auditing standards.”
Former U of L Foundation board member Bob Hughes tweeted, “Under Limitations of Report, is it a forensic audit? It says it did not perform an audit on page 1 under Intro.”
Steve Pence, representing former U of L President James Ramsey, said, “You can tell from the first couple pages a lot about this report.”
Attorney Ann Oldfather, who represents former U of L chief of staff Kathleen Smith, said the “purported ‘facts’ in the A&M ‘audit’” are riddled with inaccuracies.
Is this a battle of semantics, or a substantive difference?
According to an expert and a national group, it appears to be semantics. There aren’t any formal guidelines for forensic auditing.
The examination is formidable enough for Attorney General Andy Beshear to give it a close look.
Beshear, whose office could investigate whether state money was misspent or nonprofit rules broken, said on Monday his staff will start gathering information on the matter. Beshear spokesman Terry Sebastian said the office would treat the information the same whether it's technically an audit or not.
"We would independently confirm anything contained in the audit. That would include securing any documents or conducting any interviews," Sebastian said.
The auditing firm referred questions to U of L spokesman John Karman. Karman said in an email that the forensic investigation is “a very different exercise” than an audit.
A forensic investigation like this one “seeks to uncover potentially concealed facts related to an entity’s activities” versus examining just financials, Karman said.
University of Arkansas professor G. Stevenson Smith, who wrote a textbook on forensic accounting, said this type of work differs from what most people consider an audit, because audits have formal rules and conclude with an opinion.
When the firm noted it wasn’t an audit, it appeared to be distancing itself from those sorts of standards, Smith said.
“In forensic auditing, it’s more up to the investigator as to how the examination should be done,” Smith said.
Smith did find it odd, though, that the university selected the firm and monitored its work given the university’s close ties to the foundation. Instead, Smith typically recommends a special prosecutor-style arrangement with an outside party.
The Public Company Accounting Oversight Board is a nonprofit that oversees audits of public companies. Its website notes: “Although forensic audits may examine financial reporting and internal control matters, the objective of a forensic audit is not expressly articulated in an established set of standards. Rather, users of forensic audits (e.g., audit or special investigative committees, management, and regulators) establish their objectives on a case-by-case basis.”
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. The C.E. & S. Foundation is a major donor. University board member Sandra Frazier, former member Stephen Campbell and attorney Ann Oldfather have donated.
