Audit of UofL Foundation raises potential bylaw violations in recent actions
12/14/2016 07:10 PM
FRANKFORT – State Auditor Mike Harmon released a long-awaited audit of the University of Louisville Foundation on Wednesday, detailing numerous governance issues at the organization that mostly pointed back to former UofL President James Ramsey.
While university and foundation officials indicated their intent to use the report as “a roadmap” as they enact changes at the organization, Ramsey vehemently denied any wrongdoing in a written response to the audit, which disputes nearly every finding in Harmon’s report expect for one detailing the dysfunctional working relationship between the UofL board of trustees and his administration.
The audit, which began in June 2015 and can be viewed here, primarily dealt with bylaw violations at the foundation but nothing illegal, and Harmon said he would not refer the report to law enforcement.
The report raises questions about dual roles held by Ramsey and a handful of others at the university and the foundation, including Kathleen Smith, Ramsey’s former chief of staff who has been placed on paid administrative leave. Ramsey, in his written response, said university presidents had also been president of the school’s foundation “since 1970.”
Still, auditors questioned whether administrators receiving pay and fringe benefits from the foundation, which handles the school’s $662 million endowment, and its affiliated entities actually created administrative efficiencies as intended.
In Smith’s case, auditors say she did not tell them she served as interim chief administrative officer at the foundation during their interview with her Aug. 23, despite the fact that Ramsey appointed her to the position a day after he tendered his resignation as university president July 21.
Harmon says that may have violated the foundation’s bylaws since the move was not approved by the board.
“The bylaws specify that the president is the chief administrative officer and general manager,” Harmon told reporters during a press conference at his office.
“The bylaws also set forth a process for appointment and approval of foundation officers that was not followed. The former president altered his own role by issuing an appointment letter for the chief administrative officer position without any formal action or approval by the foundation board or any of its committees.”
Auditors also detailed a pair of loans approved by Ramsey that sent $67 million to the foundation and one of its affiliate organizations, the UofL Real Estate Foundation. The first, a $29 million loan to the foundation in June of 2014, was repaid with 1 percent interest as of June 2015 while the second, a $38 million loan to ULREF in July 2015, had a $9.8 million balance as of June 22, according to the audit.
ULREF sent $22 million of that loan to the foundation until it “could restructure a property loan for another affiliate,” according to the audit, which indicates that money was repaid on June 22.
Both transactions came without board approval, with Ramsey signing off on the deals on behalf of both the university and the foundation.
Harmon said his office performed a benchmark survey of other universities with similar endowment foundations and received responses from 28, including Duke, Florida State, Notre Dame and Wake Forest, on numerous subjects.
“When asked if those universities are permitted to loan funds to their foundation through a loan or receivable agreement, 93 percent … of those who responded said they are not,” he said.
Ramsey said university counsel told him the arrangements were made without issue and auditors for both UofL and the foundation “raised no issue.” He wrote that if either UofL or foundation boards wanted him to obtain approval or notify him of the moves “they simply could have directed that the CFO or I do so.”
Auditors also questioned the foundation board’s decision to grant Ramsey a 4 percent raise in 2014 – 2 percent for his foundation salary and 2 percent for his university salary to be paid by foundation funds – after the UofL board approved a 2 percent raise. The foundation’s decision to alter Ramsey’s pay at UofL appears to violate terms of his foundation contract, which stipulates that pay raises match percentages granted by the university.
Ramsey said the auditor’s recommendation that the foundation comply with compensation practices detailed in their employment contracts “exceeds the scope of your mission; it is for the ULF Board, not your office, to determine whether ULF’s interests are best served by modifying the terms of its contracts.”
Despite Ramsey’s misgivings with the audit, acting UofL President Neville Pinto and UofL Foundation Chairwoman Brucie Moore said changes have already been implemented at the foundation, which is undergoing a separate forensic audit.
Pinto said the organization has hired a law firm to handle a backlog of open records requests and hired a new executive director in Keith Sherman, among other actions, to improve transparency at the agency.
“The audit will serve as a road map for the foundation as we work to continue its practices and operation,” he said.
“We’ve made many corrections,” Moore said later. “We have many more to do, and we will certainly do that because as everyone that’s spoken here today, the University of Louisville Foundation is critical to the University of Louisville, to the City of Louisville and to the state.”
Harmon, who said the foundation’s willingness to comply with requests for information and interviews changed after Ramsey’s departure, said the foundation will owe his office $186,000 for the audit.
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