A scathing audit of The University of Louisville’s endowment foundation has uncovered widespread mismanagement by its officers, including unauthorized spending on executive compensation, football bowl game trips, and basketball tickets, as well as investments in risky startups, questionable real estate acquisitions, and a lack of transparency.
The 135-page audit, conducted by business management consultant Alvarez & Marsal, found that:
- The foundation’s substandard information technology policies and procedures resulted in lost data for certain custodians.
- The endowment’s board of directors lacked knowledge and oversight of certain significant transactions.
- Foundation officers did not provide the board of directors with sufficient information to allow them to make informed decisions.
- The foundation commingled its cash, resulting in an inability to identify the source of funds for a specific disbursement.
The audit also said the foundation purchased properties at prices above the appraised values, and that some of these properties don’t generate revenue and aren’t being used.
“The endowment’s real estate acquisition process lacked formal policies and procedures,” said the audit, “and in some cases there was no formal purchase approval or identification of funding.” It added “it appears [foundation] officers failed to provide the board of directors sufficient information related to the real property acquisitions.”
The audit also discovered that the University of Louisville Athletic Association (ULAA), and the foundation conducted transactions in which the foundation purchased properties or funded other expenditures on behalf of ULAA. In return, the ULAA waived required donations for football and men’s basketball tickets, and transferred cash to the university. Additionally, the endowment funded the office of the president’s purchase of $800,000 for season tickets each fiscal year.
“These property and ticket purchases contributed to [the foundation’s] liquidation of endowment pool assets in excess of the spending policy allocation,” said the audit. The foundation “also liquidated endowment assets to fund an intercompany loan to CCG to purchase a golf course.”
To make matters worse, the foundation’s officers “worked to conceal the details of its arrangements with ULAA.”
The audit also uncovered questionable loan practices by the endowment. It said University Holdings Inc. (UHI), a subsidiary of the foundation, loaned foundation subsidiaries $52.2 million of endowment funds that it will likely not be able to repay. Additionally, this exceeded the $35 million authorized by the foundation’s board of directors.
Alvarez & Marsal also said it discovered that the executive committee of the foundation’s board of directors authorized the foundation to invest $10 million of funds in new ventures.
“Ultimately [the foundation] invested $9.9 million in high-risk startup companies which are currently valued around $1.7 million,” said Alvarez & Marsal in its audit.
In late 2004, the endowment’s board of directors authorized the foundation’s president to spend $5 million over five years of an undesignated “quasi endowment” referred to as the Evergreen Fund to carry out “specific projects.” According to the audit, The Evergreen Fund’s market value just before the board’s authorization was $17.6 million. In 2007, the ULF Board of Directors modified its authorization, removing the time restriction and, apparently, the amount restriction.
The endowment “spent the entirety of the $17.6 million Evergreen Fund before March 31, 2014,” said the audit. “Moreover, a number of expenditures funded, such as executive compensation and bowl game trips, do not appear to be in accordance with the ‘special projects’ for which the foundation’s board authorized the funds.”
After meeting behind closed doors for two hours to discuss the audit, the foundation’s board of trustees said it would create an ad hoc committee to determine appropriate responses to the report’s findings, including possible litigation, though they did not clarify against whom.
“There is a lot of information in there that requires further investigation, further analysis,” said foundation chairwoman Diane Medley after the meeting, according to WDRB-TV in Louisville. “The report goes a long way to leading us down the path of where we need to look, which we very much appreciate, but there is more work that needs to be done.”
Medley said she didn’t doubt the report’s findings, but said the foundation board wants to independently confirm “certain actions that people took” by reviewing documentation rather than relying on the auditor’s analysis.
“We do not want to go out and instigate any kind of litigation ourselves that is not thought out, that is not accurate,” she said.