After years of scrutiny into excessive compensation of ex-officials and financial mismanagement, the IRS is auditing the University of Louisville Foundation, the foundation confirmed Friday.
First reported by the Courier Journal, the school’s endowment manager will be audited Sept. 11-13 as IRS officials look into the 2016 compensation of former foundation officials, including ex-president James Ramsey.
The reported overcompensation of former foundation officials has led to multiple third-party audits. ULF self-reported instances of overcompensation found by the Korn Ferry Hay group in May to the IRS, according to a statement from the foundation.
Korn Ferry determined that five officials made over $3.9 million in extra compensation between 2010 and 2016, according to the audit results. Ramsey made the bulk of that, pulling in around $3 million, Korn Ferry found.
The IRS will look at other audits of the foundation, which oversees UofL’s $721 million endowment, including a state audit and a forensic audit conducted by Alvarez & Marsal.
“The Foundation has been proactively communicating with the IRS in expectation of a formal inquiry and is looking forward to completing the review,” the statement said.
Due to public scrutiny, Earl Reed, the foundation’s board chairman, said they “anticipated” that the IRS would want to know more about the compensation.
Audit findings, in part, ultimately led to a joint UofL and ULF lawsuit against Ramsey, former chief of staff Kathleen Smith, former foundation legal counsel and other former foundation officials.
The suit accuses Ramsey and company of knowingly depleting the foundation’s funds, despite warnings from their financial managers that they were overspending. Defendants are also accused of receiving excessive compensation and making risky financial decisions.
The first round of oral arguments in the suit are slated to begin the first week of October. Attorneys for Ramsey and Smith did not immediately respond to requests for comment about the audit.
A 2015 Insider article examined the possibility that ULF was breaking the IRS’ rules for nonprofits, potentially resulting in financial penalties or a loss of nonprofit status. IRS rules prohibit excessive benefits and compensation to nonprofit officials.
Nonprofit officials can receive extra compensation legally if the organization’s board approves it, independently compares compensation data to those in similar positions and documents why the officials deserves the money, Insider reported. Some of ULF’s tax forms said they did those things, but Insider could not corroborate it with foundation meeting minutes.
Since Ramsey left the school and organization in 2016, the foundation has focused on preventing mismanagement. For example, one person cannot be president of both UofL and ULF, as Ramsey had been.
“The Foundation has undergone a complete transformation in compensation, governance, staff and structure. A new board chair, new directors, and new day-to-day operators took over the old regime and set the Foundation on a path of reform,” Interim Foundation Director Keith Sherman said in the statement.
Insider reached out to Sherman but he said he had no additional comment.
The foundation is now a “well-run organization,” Reed said in a statement, adding that they now use best practices for fiscal health.
“We look forward to this opportunity to tell our story to the IRS,” Reed said in the statement. “We want them to understand all the steps we have taken to clean up the mess. We also hope to enlist their support in pursuing repayment of the excess compensation.”
Donations to UofL and the foundation have dropped over the past few years as donors feared their dollars would be misspent. With a new president at the school, donations have been on the rise over the past few months.
“(The foundation) is vital to the success of the University community at large and there is no better time to invest in the University of Louisville,” Reed said.
In a statement, Neeli Bendapudi, president of the university, said: “The university has not been asked to provide any documentation. I am confident that the foundation will provide the information the IRS is seeking and that the IRS will conduct a thorough, fair investigation into the excessive compensation matter. Meanwhile, our donors should know, as I do, that the foundation leadership has made the necessary reforms to ensure it is on the right path and is acting as a responsible steward of their generous gifts.”