Forensic audit details several million in excessive spending, lax oversight at U of L Foundation

06/08/2017 06:52 PM

A six-month forensic audit of the University of Louisville Foundation details several millions of dollars in excessive spending on things like compensation, real estate and investments, often with the endowment’s board left in the dark.

The 135-page report by Alvarez & Marsal Disputes and Investigations was released Thursday following a closed-door U of L board of trustees meeting that lasted more than three-and-a-half hours.

University officials stressed that the questionable spending practices happened under previous leadership, although they did not mention former U of L President Jim Ramsey by name. Alvarez & Marsal’s forensic audit looked at U of L Foundation activities from July 1, 2010, through June 30, 2016.

Ramsey, who resigned as president of the university July 28 and as head of the foundation Sept. 16, declined auditors’ request for an in-person interview, instead offering to respond to questions in writing. Auditors declined his offer, according to the report.

J. David Grissom, chairman of the U of L board of trustees, said the audit “paints a disturbing picture.”

“Let me be perfectly clear: The activities highlighted in this forensic investigation happened under a previous university leadership and under a previous foundation board,” Grissom said after the board adjourned. “The new leadership and new board have committed to open and honest action and communication, and we have already taken steps to review our policies and our procedures.

“The board has not determined what legal actions, if any, should be taken as a result of the forensic investigation conclusions. However, I would anticipate that the board, after consulting with counsel, will within the next couple of weeks make that determination.”

Auditors found that the U of L Foundation board had limited knowledge of significant transactions by the nonprofit, with meeting minutes showing such items included in consent agendas that are typically reserved for routine expenditures.

Alvarez & Marsal also discovered that, at times, foundation leaders would exceed spending limits set by the nonprofit’s board or spend millions from the endowment without board approval.

For example, the report says that the foundation’s board of directors never directly authorized a $10 million grant to the James Graham Brown Cancer Center, with funding traveling from the foundation through a subsidiary, University Holdings Inc., and the U of L Research Foundation. Auditors could not find a resolution authorizing the grant.

They also found that the foundation had paid $10.3 million above the appraised value for eight properties and spent $30.1 million on real estate that didn’t generate revenue. According to the audit, the foundation’s board held little or no discussion when real estate opportunities came up for a vote, with some board members saying they felt the deals were too far along for their input. In one case, the board voted on a $5.5 million purchase “several weeks after the transaction closed,” the report says.

Auditors further noted that the foundation paid university employees $1.7 million through University Holdings Inc. from 2010 through 2016, amounts that were not included in budgets presented to the board.

The foundation also paid some employees and retirees of the university’s athletics department $4.9 million during that 2010 through 2016 period, with U of L Athletics Director Tom Jurich earning $1.8 million; his son, Senior Associate Athletic Director for Development Mark Jurich, taking home $791,000; and retired men’s basketball coach Denny Crum getting $2.3 million, according to the report.

U of L Athletics Association spokesman Kenny Klein noted that the payments to Mark Jurich represent his total compensation as a university employee and that the president’s office handled his salary to avoid the appearance of nepotism. Klein also says Crum received payments from the foundation in recognition of his role in developing U of L.

The nonprofit also spent $15.1 million on the ULAA’s behalf — $8.8 million for 10 properties, $2.3 million to finance property developments and $4 million toward the buy-out of former football coach Steve Kragthorpe — in exchange for $2 million from the ULAA and waiving the $9.6 million in required donations for football and basketball season tickets bought by Ramsey’s office.

Of that $15.1 million total, $4 million went toward the purchase of the Cardinal Golf Club in Simpsonville, plus $1.85 million in equity donated to the foundation on the ULAA’s behalf. Klein said the athletics department is paying on that note and has been responsible for the 18-hole golf course’s maintenance.

He also questioned $1.5 million in properties linked to ULAA, which the report says were tabbed for parking and street development near the university’s baseball stadium, and said $8.2 million represented a more accurate number of foundation funding than the $15.1 million listed by auditors.

The report further criticized the foundation’s $21.8 million paid in deferred compensation, $12.5 million of that going to nine employees. Auditors noted that deferred compensation amounts had been excluded from the foundation’s budget, resulting in “the ULF finance staff scrambling for funds to pay the deferred compensation taxes and withdrawals.” In one instance, the foundation used $3.5 million of a $5 million lease payment from Louisville Metro Government meant for improvements to a city-owned park to help fund its deferred compensation program, according to the report.

Dr. Greg Postel, acting president at U of L, said the audit “answers many questions about the past and hopefully will begin to close the door on a very difficult chapter in the university’s history.”

“I think it is also important to note that while this audit and the media attention associated with it has been a distraction, it has not in any way taken away from the excellent, quality education that we are providing for students at the University of Louisville,” Postel said.

“Our students, faculty and staff are looking forward,” he continued. “I’m asking that our alumni, donors and friends do the suame. Let’s work together to continue our mission and continue to make the University of Loisville the best metropolitan university in the United States.”

Diane Medley, a U of L trustee and chairwoman of the U of L Foundation, said she would not make any comments on the findings until she’s had time to digest the report.

Still, she noted that the foundation has already taken steps to improve its operations and oversight. Such reforms include prohibiting the university president from serving as the foundation president, holding monthly board meetings, establishing a board orientation program, terminating the deferred compensation program and setting new spending guidelines that include authorization protocols based on the size of the expenditure.

“As you know, we do have a new leadership team, both internal and at the board level, and that group is totally committed to moving forward in a positive way,” Medley said.

Officials who spoke after Thursday’s meeting did not take questions on the audit’s findings. The board is set to meet again next week.

Steve Pence, Ramsey’s attorney, did not return a request for comment.

This report has been updated to include Klein’s comments.


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