The long-awaited forensic audit of the University of Louisville Foundation was released Thursday afternoon, following a nearly three-hour meeting of the UofL board of trustees in which members discussed the audit’s findings.
The 132-page audit documents recorded and unrecorded endowment losses related to lines of credit and startup company investments without proper disclosure to and oversight from the foundation’s board of directors. It also sheds light on excessive and unbudgeted endowment spending on employee compensation, real estate investments and the UofL Athletic Association.
Interim UofL President Greg Postel told media in a prepared statement after the meeting that the audit report “should answer many questions about the past and close the door on a sad chapter in the university’s history,” while trustees chairman J. David Grissom said that it “paints a disturbing picture.” Postel, Grissom and foundation board chairwoman Diane Medley all noted that the audit covered a seven-year period under the previous administration of former university and foundation president James Ramsey, ending last summer, and that the new leadership already has begun enacting reforms to improve the management and transparency of the organization.
The report states that Ramsey declined to be interviewed in person by the auditors, as did eight of the foundation’s former board members who served during this time period. In addition to many examples of excessive spending of endowment assets, auditors also found emails from Ramsey’s former top aides that talked about ways to withhold information from the public on staff compensation packages and loans from the university to foundation entities. Auditors also found that the university’s IT department had erased and repurposed Ramsey’s hard drive prior to the investigation beginning.
“The board has not yet determined what legal actions, if any, should be taken as a result of the forensic investigation conclusions,” stated Grissom. “However, I would anticipate that the board, after consulting with counsel, will, within the next couple of weeks, make that determination… We will discuss the forensic investigation more fully at our regular board meeting on June 15.”
Chicago-based firm Alvarez & Marsal was paid $1.7 million to conduct the audit, which was launched at the request of previous leadership of the university and foundation boards in December. The foundation — the nonprofit that manages the university’s nearly $800 million endowment — started facing heavy criticism two years ago due to multimillion-dollar compensation payments to then-president Ramsey and his top staff.
The push for a forensic audit began last September, when university trustees voted for a resolution threatening legal action against the foundation unless its board and leadership increased its transparency and agreed to a forensic audit — both specific requests of major university donors in order to restore their confidence in the foundation going forward. In the following week, former UofL president James Ramsey submitted his resignation as head of the foundation, as did Bob Hughes — Ramsey’s chief defender — from his position as chairman of the foundation’s board of directors.
The makeup of the foundation’s board and leadership would change several more times — as Keith Sherman was named interim executive director and board chairwoman Brucie Moore was replaced by Diane Medley in January — but each iteration pushed through new reforms to increase the foundation’s transparency and comply with investigators from the state auditor’s office and Alvarez & Marsal, all in a stated effort to restore confidence in the organization.
Among the audit’s findings:
- The foundation invested $9.9 million in high-risk startup companies that are now valued at $1.7 million.
- The foundation loaned $52 million of endowment funds to its subsidiaries that will likely not be able to repay that amount, without proper disclosure to and oversight from its board.
- The foundation overstated the market value of its endowment, which resulted in excessive endowment spending and misleading disclosures on its spending policy.
- The foundation’s deferred compensation plan spent $21.8 million on employees, much of which was not transparent or approved by its board.
- The foundation acquired eight properties at an aggregate $10.3 million above the appraised value, and paid $30.1 million for non-revenue generating properties, without providing directors sufficient information.
- The foundation paid $4.9 million in compensation to UofL Athletic Association employees, and paid more than $800,000 annually toward football and men’s basketball tickets for the president’s office.
- In the last three fiscal years, the foundation expended $5.2 million for marketing and advertising and $4.5 million for legal fees and landscaping, which were deemed to contribute to foundation spending exceeding its budget.
The full audit can be read below: