Ramsey, UofL respond after auditor blasts UofL Foundation's finances

FRANKFORT, KY (WAVE) - In a 59-page report released Wednesday, Kentucky Auditor Mike Harmon blasted the University of Louisville Foundation for a wide-ranging list of problems that he said included both organizations' governing practices, a lack of transparency and oversight and multiple large paychecks for former President Dr. James Ramsey and members of his staff.

"The dual role that president Ramsey had was not unique," Harmon said. "There was a couple of presidents prior that had that role. How he utilized that role, we just had some concerns that there needed to be additional oversight."

In a letter of response to the auditor, Ramsey denied wrongdoing, and wrote that any problems "are a consequence of UofL and ULF's remarkable growth and progress."

Added Ramsey's attorney, Steve Pence: "But it's clear Dr. Ramsey never exceeded the scope of his authority. He's never done anything wrong. He's always acted for the benefit of the University."

Pence also said the board of trustees was never in the dark about how Ramsey was running the Foundation.

The audit, which began during former Kentucky Auditor Adam Edelen's administration, was opened in response to complaints filed with the auditor's office regarding the relationship between UofL and ULF and the way the Foundation was being run. Specifically, auditors looked at the role of former UofL and former ULF President Ramsey, who ran both organizations.

The UofL Foundation controls more than $650 million in endowment funds, and covers scholarships and research, among other key programs at the university.

The audit made eight separate findings and recommendations, including taking issue with $67 million in loans from the University to the Foundation and an affiliate organization, without prior notification to, or approval by, the UofL Board of Trustees. The fact that Ramsey ran both groups made it easier for the loans to go through without the approval of either board. As of June 22, 2016, the Foundation still owes the University $9.8 million in taxpayer money.

What happened with all that money will be the subject of a second, more detailed audit being done by an outside agency. The results of that audit won't be known until next year. Although UofL rules permit the university to loan money to its Foundation, a survey of 15 other benchmark universities showed no other schools engaged in that practice.

Harmon also wrote the use of Foundation funds was designed to circumvent advice from University legal counsel when the University used Foundation funds to make more than $2 million in payments to employees for a voluntary retirement program between November 2013 and March 2016.

UofL's general counsel team had previously warned university funds could not be used for those payments.

Harmon said that finding is "something that could have legal ramifications."

Harmon also called into question the "significant compensation and benefits awarded to UofL administrators for their roles" in ULF.

The Foundation supplements the salary of the UofL president because of limits set in place by state law on how much the president of a public university can earn. Those laws, some argue, also limit the talent a public university can attract.

But the audit said Ramsey's compensation package went well above reasonable levels.

In July 2014, after Ramsey turned down an additional 2-percent merit increase amid tuition hikes at UofL, auditors found the Foundation's Board of Directors more than made up for it by approving its own 2-percent salary increase to be paid by the Foundation in addition to a 25-percent bonus.

In all that year, Ramsey earned $2,791,386 in salaries, benefits, retirement and deferred compensation payments.

That same year, Ramsey's executive assistant, Kathleen Smith, earned $859,181 in salaries, benefits, retirement and deferred compensation payments.

Yet auditors found Ramsey also gave Smith a new benefits package on his way out the door in the summer of 2016. In a letter dated July 22, Ramsey, who handed in his resignation a day earlier, promoted Smith to Chief Administrative Officer without ever getting official approval from the ULF Board.

The promotion assured Smith six months of administrative leave at her current salary plus deferred compensation if she was pushed out of ULF. That's exactly what happened in September, when the ULF Board of Trustees put Smith on paid administrative leave just two weeks after her retirement from the university.

Harmon's report seemed to question the legitimacy of Smith's appointment as CAO.

"It appears the action was taken unilaterally by the former UofL and ULF President, and as such may not be a valid appointment or binding agreement," Harmon wrote.

"I think that Dr. Ramsey giving Kathleen Smith a new contract on his way out the door definitely was in line with what auditors seemed to think was a theme here," said Kate Howard, a reporter for WFPL's Kentucky Center for Investigative Reporting, a partner of WAVE 3 News.

Howard has been looking into spending at the Foundation for the past seven months.

"There was just a lack of control," she said. "There weren't enough people involved in decisions."

The auditor found that the above-average executive pay came during a period in which the Foundation itself was actually losing money.

Harmon wrote that the Foundation reported losses of more than $46 million in fiscal year 2015, and losses on investments, annuities and obligations of $4.8 million.

The auditor also said a complete lack of transparency by Ramsey and ULF staff blocked investigators from doing their job, delaying the final report for months, driving up the cost of the audit from $125,000 to $186,000. That cost will be paid by the Foundation.

In its response to the audit, the University of Louisville said a number of corrective actions already are taking place at ULF, including a second, more detailed forensic audit that will investigate not just the relationship between UofL and the Foundation, but also how the Foundation was spending its money and any improper relationships between donors and vendors who received Foundation money.

UofL also said the current interim president/chief operating officer of the university, Neville Pinto, would not serve as President of the Foundation.

Shortly after the findings were released, Pinto did not deny problems under his ousted predecessor, Dr. James Ramsey.

"We agree with the overall findings of the report," Pinto said. "We know that much work needs to be done."

In his response, Ramsey added that while he agreed a conflict among some UofL Board members created "an environment of distrust in a dysfunctional governing climate," he said his performance was not the problem.

"Every board evaluation of the President, including the final evaluation in July 2015, found that the University and the Foundation met or exceeded the annual goals set by both boards," Ramsey wrote.

Wednesday morning, Pinto issued a statement in response to Harmon's findings:

"We recognize and appreciate that many in the community -- including UofL faculty and staff, students, alumni, supporters, donors and other stakeholders -- have concerns about whether the foundation has adhered to best practices," he wrote. "Foundation Chair Moore and I are committed to fully addressing these concerns. Considerable time and energy have been and will continue to be spent addressing the issues that have been identified by the State Auditor.  It is truly a new day for the University of Louisville and the University of Louisville Foundation."

Copyright 2016 WAVE 3 News. All rights reserved.