The University of Louisville Foundation audit released Thursday paints a picture of excessive and often secret spending on investments, real estate and lavish pay that left the school’s endowment depleted.
The 132-page audit of the public university’s foundation detailed questionable loans to foundation subsidiaries, a $21 million deferred compensation plan shrouded in secrecy and numerous unbudgeted transactions that were hidden from board members.
U of L commissioned the $1.7 million audit in November, following donor complaints and media scrutiny. The findings released Thursday confirmed that the foundation’s finances were in disarray — and that former leaders intentionally obscured the truth.
U of L board chair J. David Grissom said in a prepared statement that the “disturbing picture” of actions described in the audit happened under different leadership. New leaders are committed to “open and honest action” said Grissom, who was appointed to the board in January.
Auditing firm Alvarez & Marsal noted that former president James Ramsey’s hard drive was “erased and repurposed,” and that U of L failed to preserve the computers and mobile devices of employees under scrutiny. Ramsey declined to be interviewed in person by auditors. His attorney, Steve Pence, said Thursday he has not yet read the audit.
Among the audit’s findings:
- The foundation liquidated $42 million of its endowment to cover unbudgeted spending.
- Foundation staffers failed to properly account for transactions and lowballed the numbers on investments that were underwater.
- The foundation overpaid for real estate to the tune of $10.3 million.
- The foundation bought properties for the University of Louisville Athletic Association in exchange for cash and waived required ticket donations.
The nonprofit University of Louisville Foundation manages a nearly $800 million endowment and oversees fundraising for the public university. Ramsey ran the foundation and the university for more than 14 years, until his ouster last year. There was almost no differentiation between their staffs or bank accounts, auditors said.
It’s unclear what actions, if any, will result from the audit. Grissom said the board will consider in the coming weeks if it should take any legal action.
In the months since the examination was launched, both the board of trustees and the foundation board of directors were completely recast. The two boards enacted several reforms since last summer, and prevented future school presidents from serving a dual role at the university and its nonprofit fundraising group.
Cash Management Woes
The foundation’s cash management drew harsh criticism from auditors.
The costs auditors deemed excessive: $5.2 million in unbudgeted marketing and advertising; $4.5 million in legal and landscaping expenditures; $243,000 in consulting fees.
The foundation over-spent its budget on deferred compensation plans too. Emails show Ramsey’s former chief of staff, Kathleen Smith, and former foundation attorney David Saffer sought to intentionally segregate these plans from the foundation’s books and make it difficult for the media to “figure out.”
Smith’s attorney, Ann Oldfather, called the audit a “one-sided smear campaign” and said it ignored Smith’s 46 years of service and contributions to the foundation.
Oldfather said that there was “not even a whiff” of wrongdoing.
“Alvarez and Marsal chooses its words carefully, but it does not conclude (even after the $1.7M price tag on its audit) that anyone was over-compensated. Its complaints are about the budget amount, or alleged lack of adequate understanding by the foundation board,” Oldfather said in a released statement.
Smith raised more than 50 times the money that she received via compensation from the university and foundation, Oldfather added.
Gracious Deals With Athletics
Though U of L’s athletics department is one of few in the country that turns a profit, the foundation often covered pricey perks and land transactions without getting all of its investment back.
Staffers told auditors they didn’t know about many of the arrangements between athletics and the foundation until Smith was placed on administrative leave last fall.
The foundation spent $15.1 million, for example, on athletics costs including reorganizing the football coaching staff and property development. In return, the athletics association gave U of L $2 million and waived $9.6 million in required donations associated with the president’s office season tickets.
The foundation still paid $800,000 for the cost of those tickets.
The athletic spending contributed to the shrinking endowment, auditors said. When the foundation bought the University of Louisville Golf Course in Simpsonville, Kentucky, it liquidated investments.
Among the misleading transactions were foundation “loans” of $52.2 million to its subsidiaries. The subsidiaries generated little or no revenue and the money went to investments or loan payments, the auditors said, so the money probably won’t ever be repaid.
Only $35 million of the loans were authorized by the foundation’s board, auditors found. One loan was also used to artificially inflate the endowment’s worth.
Risky, Bad Investments
The foundation also invested $9.9 million in high-risk startups only valued at about $1.7 million.
Board members didn’t learn the investments’ true value until fiscal year 2015.
Overpaying For Real Estate
The foundation overpaid by millions on eight properties — and invested heavily in properties that wouldn’t generate any revenue.
U of L also had no current use for nearly all of the non-revenue properties, though the foundation spent $30 million to acquire them.
Ground leases at revenue-generating properties, meanwhile, were below-market. The foundation surrendered up to $141,000 a year in potential rent, the report said.
U of L Leaders Look Forward
The foundation has already made numerous changes, but its leaders acknowledged Thursday that more work remains.
The foundation ended its deferred compensation plan and lowered its spending rate earlier this year. The foundation’s executive director and board chair both said they need more time before addressing the audit.
Interim university president Gregory Postel said the report should answer “many questions about the past and close the door on a sad chapter in the university’s history.”
Postel noted he’s working to return the university to solid financial footing. Last week, he instituted a U of L hiring freeze for at least the next few months.
This story has been updated.
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 Sandra Frazier, former member Stephen Campbell and attorney Ann Oldfather have donated. Attorney David Saffer previously served on Louisville Public Media’s board.