University foundation settled FOIA lawsuit, underwent forensic audit

The University of Louisville Foundation‘s ‘forensic’ audit will be released Thursday and is expected to reveal how the foundation handled endowment funds from 2010 to 2016.

The audit was a decision made by the University of Louisville Board of Trustees, who became increasingly frustrated with the Foundation’s lack of transparency – specifically concerning which university employees were being paid by the Foundation. The Foundation used an outside accounting firm to manage its “deferred compensation” plan, which resulted in the foundation paying more than $20 million to about a dozen high-ranking administrators over the years.

“The foundation’s former longtime attorney said in March that the foundation created separate companies, whose sole purpose was to manage the deferred compensation, ‘for obfuscation purposes, clearly,’” according to WDRB. The foundation created these companies for the purpose of subcontracting work and management of documents, which they did with the accounting firm that kept records of the extra pay. Using an independent firm to house the information was intended to provide “privacy” for the administrators who received the extra pay, former foundation attorney David Saffer told WDRB.

To dig deeper into how else the foundation is handling its funds, the board hired Alvarez & Marsal, a Chicago firm, to perform the investigation under a $1.7 million contract.

This is only the latest in an ongoing effort to shed light on the foundation. Last September the foundation, which handles all of the private funding for the second largest university in Kentucky, was sued by the Kentucky Center for Investigative Reporting for delaying and blocking access to records requests. The Foundation was found by the Kentucky Supreme Court to be a public agency back in 2005 because it was created by the university to fill a necessary function, so it is subject to open records requests.

Between August and mid-September 2016 – when the KyCIR began its lawsuit – the attorney general ruled four times that the University of Louisville Foundation was required to hand over the documents as per Kentucky’s Open Records Act. KyCIR settled the lawsuit with the Foundation in December. In the settlement agreement, the Foundation produced the requested documents and agreed to pay $15,000.

This isn’t the first time the University of Louisville Foundation has been brought to court for violating the Open Records Act. In 2001, The Courier-Journal requested the identities of donors and amounts contributed to the University of Louisville’s “McConnell Center.” The Foundation refused to hand over the documents, stating that it was not a public agency and therefore not subject to the Open Records Act. The Foundation also refused on the grounds that “it would be an unwarranted invasion of the personal privacy of each of these donors.”

Though there was disagreement among the courts as to whether the requests qualified as “a clearly unwarranted invasion of personal privacy,” the Kentucky Supreme Court and Court of Appeals upheld the Jefferson Circuit Court decision that the University of Louisville Foundation is a public agency under statutes KRS 61.870(1)(g) and KRS 61.870(1)(j). This decision means the Foundation is subject to the Open Records Act and must respond to open records requests unless they fall under an exception, such as content of private donations.

It’s unusual for universities to actively seek transparency from their nonprofit foundations, but the tribulations of the U of L Foundation may finally be shaking loose the systemic pattern of secrecy it relied on. As the SPLC reported last fall, the lawsuit and lack of transparency led two of the foundation’s major donors to withhold further contributions until an audit was conducted. This secrecy has hurt the organization over the past fiscal year, with endowment gifts to the university at less than half of their total value from the previous year.

All of this occurred while former university president James Ramsey was head of both the University of Louisville and the Foundation. According to a 2015 Courier-Journal article, Ramsey was paid $1.3 million by the Foundation for the previous school year. It also states that Ramsey’s salary was 2.5 times higher than the other 14 presidents and chancellors in the Atlantic Coast Conference.

In an effort to combat the transparency problem, the Foundation has adopted its first detailed operating budget and ended a “deferred compensation” program that cost more than $20 million.

However, according to an article by KyCIR, the Foundation isn’t the only area where secrecy has occurred. Pizza franchise entrepreneur “Papa” John Schnatter pulled $1.5 million from an expansion of the Papa John’s Cardinal Stadium, but the athletics department was not informed of this change. The agreement, published on the KyCIR website, was signed by Schnatter and Ramsey, who served as the chairman of the athletic association board of directors, in addition to his role as university president and head of the Foundation.

The Chicago firm performing the investigation will present its findings to University of Louisville’s board of trustees in a special meeting Thursday.