Following weeks of tension between the boards of the University of Louisville and its nonprofit foundation, the chairs of both boards appeared happy with a compromise reached Friday on the terms by which the foundation’s finances will be audited by an independent, national accounting firm.
After nearly two hours in a closed executive session, the UofL Foundation approved a resolution to create a joint advisory committee that will select an accounting firm to audit the foundation’s finances, which have withstood increasing scrutiny and criticism over the past year. The university will ultimately hire and pay for this firm, in addition to directing the audit.
Major donors of the university recently informed the foundation that they would withhold future donations until a forensic accounting firm was hired to conduct a thorough independent audit of their finances. That was followed by a near-unanimous resolution passed by the trustees threatening to sue the foundation unless it took steps to increase its transparency, with board chair Larry Benz laying out a series of actions the foundation must take for a “pathway to restored confidence” — including the forensic audit by a firm selected and directed by the university.
While citing the need for an audit and increased transparency, Brucie Moore — the new board chair of the foundation — had expressed reluctance toward giving the university such power in Thursday’s board of trustees meeting, emphasizing that the foundation is a separate entity entitled to some degree of independence.
However, both Benz and Moore told reporters after the meeting that the compromise reached by the foundation board on Friday was a major step in the right direction, with Benz saying that the trustees may soon rescind their previous resolution threatening to sue the foundation.
“Today we made incredible progress,” said Benz, adding that in the span of the last week, the foundation’s increased urgency to fulfill the demands of donors and trustees “has been nothing short of miraculous.”
The joint advisory committee created Friday to select the audit firm will be chaired by Diane Medley, a new member of the foundation board and prominent local CPA. The committee will also have three trustees — including Benz and Moore, who serve on both boards — the university’s CFO Harlan Sands, foundation board member Dr. Mark Lynn and the foundation’s yet-to-be-named interim executive director. Benz said that while the committee will select the firm, the university will post the RFP for the firm and hire it, ultimately directing the course of the audit.
“Our public has demanded that this process be done independent and through the university, and that has been fulfilled,” said Benz. “And I couldn’t be happier or more proud of the astute members that got together and came to that conclusion.”
Moore told reporters that it was important to hire a nationally recognized and independent accounting firm to conduct the audit and satisfy every question that has been raised about the foundation’s finances, “but most importantly it will satisfy the donors and other stakeholders of this university… We’re absolutely going to do that.”
Asked if the steps taken Friday would satisfy major donors like the James Graham Brown Foundation who called for an independent forensic audit, Moore said “I hope they will let us know that as we go forward.”
Benz says that since the foundation has now followed through on “the overwhelming majority of all of those pathways to restored confidence” — the most important one being the independent audit — if such progress proceeds as planned “I will be able to make a recommendation to the trustees at the next meeting to rescind that resolution” threatening to sue the foundation.
In Friday’s board meeting, foundation CFO Jason Tomlinson also gave a detailed presentation on the nonprofits finances, mostly as a rebuttal to recent media reports. Tomlinson said that while investments of the university’s endowment managed by the foundation have taken a hit lately, he asserted that a recent Courier-Journal report overstated its claims that the endowment had shrunk over the last decade and that the foundation might have overspent endowment assets. He said that the investments had outperformed other funds over the past two decades, though conceded that the endowment had spent more in the past decade than it had received in investment returns.
Tomlinson also defended the university’s “cash transfer” of $38 million to the foundation in order to pay off debts — which was first reported by WDRB and has been a point of contention for Benz — saying that it was approved by both the university and foundation boards. Benz chimed in to say that neither board knew of nor approved such a transfer, which he said should be more accurately described as a loan. When asked why Tomlinson did not consider that to be a loan, he replied — after a long pause — that “it was meant to be an investment,” saying such transfers to the foundation have been common since 1970.
Benz told reporters that he was thankful for Tomlinson’s presentation, but it didn’t quell any of his concerns about the $38 million loan or the foundation’s endowment practices. Moore declined to specifically comment on the presentation, saying that it brought up issues that the coming audit will examine in detail.
The foundation board also approved a resolution authorizing the hiring of an interim executive director to lead the foundation in the near future, as well as a national search for a permanent executive director. Another resolution created a committee that will be chaired by board member Junior Bridgeman, which will focus on the foundation’s governance and examine national best practices for university nonprofits, working in tandem with the current examination by the state auditor’s office that began last year and is expected to conclude this fall.