New UofL leaders praise audit, but Ramsey and his chief ally take issue with focus on ‘process’ over results

State Auditor Mike Harmon

State Auditor Mike Harmon

State Auditor Mike Harmon’s examination of the University of Louisville Foundation highlights a number of “serious weaknesses” with the administration of former President James Ramsey, including a lack of transparency, apparent violations of foundation bylaws to give Ramsey a raise and his top aide a lucrative position, and an absence of checks and balances.

The report from the state auditor’s office received praise from those who have filled in the leadership vacuum after Ramsey’s resignations this summer from his positions leading both the university and its nonprofit foundation. UofL’s acting president Neville Pinto and new foundation board chair Brucie Moore spoke at Harmon’s press conference in Frankfort on Wednesday and called his recommendations a “road map” for their ongoing reforms to restore public confidence.

That positive take on the audit was not shared by Ramsey, who issued a blistering six-page letter to Harmon responding to his report. Ramsey’s letter criticized the audit for failing to praise the success of the foundation under his leadership and attempted to rebut many of its findings, concluding that the examination itself was unnecessary and may subvert the foundation board’s independence from political influence.

Bob Hughes, one of Ramsey’s chief defenders — who remains on the university’s board of trustees but was recently replaced by Moore as chair of the foundation board — told IL in a phone interview Wednesday that he agreed with most of Ramsey’s criticism. While he took no issue with Harmon’s recommendations, he felt the examination only covered problems of “process,” ignoring what he calls the outstanding progress of the university and its foundation under Ramsey’s leadership.

“I don’t think this report will be any part of Jim Ramsey’s legacy,” said Hughes. “The main reason being is, this is a question of process. It’s not a question of results. And the results of Dr. Ramsey’s tenure are just undeniable, both by numbers and visually, to look at that. How he accomplished that will not be a significant part of his legacy.”

No criminal charges recommended by audit

While state auditors can refer their findings to the attorney general or other law enforcement agencies to recommend prosecution of the subjects of their investigations, Hughes pointed out that Harmon did not do so in this case.

“The important part of this thing is there was no smoking gun found,” said Hughes. “There was no criminality, there was no malfeasance in anything pointed out.”

U of L Board of Trustees member and U of L Foundation board chair Bob Hughes, the chief supporter of President James Ramsey

Bob Hughes at a press conference in early 2016 | Photo by Joe Sonka

Hughes noted that every time he spoke to people in the auditor’s office, “I always asked the question: ‘Have you found anything of a criminal nature? Have you found anything that would give me big causes for concern?’ And every time the answer was no. Now I hope with the forensic audit that they’ve decided to conduct, that that will be the case as well.”

forensic audit of the foundation’s finances is now underway, as a joint committee made up of members of both the university and foundation boards hired global personal services firm Alvarez & Marsal to conduct the investigation. Hughes resisted a forensic audit while he was the foundation’s board chair — arguing there was no fraud or criminal activity involved to warrant it — but Moore agreed to do so in order to restore the confidence of major donors.

At Wednesday’s press conference, Harmon noted he did not make any criminal referrals in the governance exam, but added that he didn’t know “if anything additional will come out in the forensic audit, and we are certainly supportive of the forensic audit.” Hughes is confident that Alvarez & Marsal also will find no criminal activity.

“We’ll see what it finds, and if it finds something I stand corrected,” said Hughes. “But I have no reason to believe there will be anything other than a clean audit… I’ve been there (on university boards) 11 and a half years and I never saw anything during that period time that gave me cause for that concern.”

Hughes defends transparency of foundation

The lead finding of Harmon’s examination blasted the foundation for failing to promptly supply his investigators with requested documents and information, stating that “the difficulties encountered in obtaining consistent, complete, and accurate information timely during the examination exemplify the need for improved accountability and transparency within the Foundation.”

During his press conference, Harman said, “I’m sure many of the reporters here encountered issues with obtaining documents and information from the foundation and UofL as part of your all’s work. Let me just say from our standpoint: We can relate.”

However, Hughes believes this aspect of Harmon’s report is too harsh, saying he also was involved in the process of responding to the auditor’s office and they did the best they could with limited staff.

“(The auditor’s office) did not understand the limited staff, the small staff, the flooding of requests coming from the press, coming from open record requests, coming from board members,” said Hughes. “And then at the same time trying to conduct the day-to-day business of the foundation, which is very complicated. That part was a little harsh, but at the same time, too, I give the auditor’s office the benefit of the doubt. They didn’t know all of that, the volume of that. I did, and certainly Kathleen (Smith) and Dr. Ramsey and others knew.”

Ramsey made the same arguments in his letter responding to the auditor’s report, which was rebutted by Harmon, who stated foundation leaders “rejected or ignored” their suggestions to speed up the process and may have attempted to “sanitize information.” Harmon also noted that these delays and inconsistencies continued until Moore took over for Hughes, “at which time the majority of outstanding requests were quickly resolved.”

Asked at the press conference if Kathleen Smith, Ramsey’s chief of staff, and foundation CFO Jason Tomlinson intentionally misled his office’s investigators, Harmon was not willing to go that far, but said “when the information is not forthcoming, it does create red flags, which makes us ask additional questions.”

Harmon questions validity of Smith’s contract

One of Harmon’s findings in the report stated that Ramsey appeared to violate foundation bylaws when he hired his longtime chief of staff to a lucrative position at the foundation without any formal submission to or approval by the foundation board. Ramsey signed Smith’s employment agreement just one day after he was forced to resign from the university.

Asked if Smith’s contract is therefore invalid, Harmon told reporters, “That’s an issue that would have to be addressed by the board. I know the board is reviewing that particular contract now. Based on our review of the foundation bylaws, it does appear that it was done out of compliance with the bylaws.”

On Wednesday evening, Ramsey’s attorney Steve Pence said in an interview on WHAS Radio that he found this particular finding in the report outrageous, as the examination took 18 months and could only conclude that it “appeared” to be a violation of foundation bylaws.

In September, Smith was placed on paid administrative leave from her position at the foundation, which remains in effect. Smith’s attorney Ann Oldfather did not return a voicemail from IL seeking comment.

Who is to blame for board ‘dysfunction?’

The state auditor also found that the “dysfunctional” relationship and conflict between university trustees and the Ramsey administration created an environment of mistrust, which led to administrators withholding information from trustees due to their fear of further criticism. Much of this conflict occurred between competing factions on the board of trustees — those demanding more transparency from Ramsey and those defending the former president from criticism — though Harmon declined to directly state in the report which had caused the conflict.

One example cited in the report was when board of trustees treasurer Steve Campbell requested information about how much compensation Ramsey received from the foundation and what other UofL employees were being paid from its funds. The report states that Campbell initially was told the matter was complicated, and then told by Ramsey’s staff and Hughes that he “could go out and obtain this information by himself.”

James Ramsey | Photo by Joe Sonka

James Ramsey in the spring of 2016 | Photo by Joe Sonka

The audit report states that Hughes told the office’s investigators he didn’t know what was provided to Campbell, but “if I had to take an educated guess, it was probably a convoluted answer with the realization that it was going to be used as a weapon.”

Asked in his press conference if trustees pushing for transparency from the Ramsey administration could be blamed for the dysfunction, Harmon again declined to assign blame but repeated that “once that dysfunction occurred, the flow of information either ceased or began to trickle. Not just to us, but also board members. And if board members are asking simple questions about information and it’s not being provided, that to me is dysfunctional.”

Gov. Matt Bevin also cited “dysfunction” as a reason for his controversial executive orders this summer abolishing the university’s board of trustees — whose members were moving to push Ramsey out — and creating a new board with entirely new members, which happened a day after Ramsey told the governor he would resign to a new board. A judge later ruled Bevin did not have the legal authority to make these moves, reinstating the board that Bevin abolished; however, Bevin’s office currently is appealing the ruling and believes the Kentucky General Assembly will ratify his executive orders in next year’s session, reinstating the board he created with his own appointees.

Asked if his report supports the actions taken by Bevin in regards to the UofL Board of Trustees, Harmon said the governor made a good-faith effort to correct the dysfunction, but “whether it was appropriate or not, I’ll leave that to others to make that determination.”

The spokeswoman for Gov. Bevin did not reply to an email from IL seeking comment on Harmon’s report. Larry Benz, current chair of the board of trustees that Bevin still is seeking to abolish, also declined to comment.

Hughes released a statement shortly after his interview with IL that addressed the board’s “dysfunction,” claiming that the faction of trustees who caused it by their criticism of the Ramsey administration are now in positions of leadership on the boards of both the university and foundation. He also stated that the “negativism and dysfunction” continues at the trustee level, which “needs to stop now for the good of the university and all that it serves.”

Asked if he approves of the current direction taken by the foundation and its board under new chairwoman Brucie Moore, Hughes replied, “I don’t know what that direction is.” Asked if that was a subtle critique, he replied, “I go by what was supposed to be the research park behind Papa Johns Stadium when I’m in town for a board meeting, and there’s nothing happening. There’s no shovels moving dirt… I don’t know when the progress is going to start back up.”

Hughes went on to say that he hopes the progress the foundation witnessed under Ramsey will “restart,” and it will be “independent and free of political influence and micromanagement.”

“Now in fairness to Brucie (Moore) and some of the other board there, they’ve got to take care of the findings of this audit first,” said Hughes. “And I understand that. But again, hopefully we’ll get back to the amazing trajectory and progress that was happening under Jim Ramsey. I think that’s what all the alumni and current students want.”

Trustee who requested audit feels vindicated, rips Hughes
Steve Wilson | Courtesy of 21c

Former UofL trustee Steve Wilson | Courtesy of 21c

Former trustee Steve Wilson first requested the examination of the foundation by former state Auditor Adam Edelen in April 2015. On Wednesday, he released a statement praising Harmon for continuing the examination, calling his report “a reassuring example of good government at its best” that vindicates the concerns of he and other trustees.

“As many current and former members of the Board of Trustees thought and publicly stated, the former University Administration deceived the University community; disseminated misleading, incomplete and inaccurate information; and, undertook expensive efforts to cover up the truth,” stated Wilson. “These individuals richly compensated themselves without proper checks and balances while, today, the University and its Foundation are challenged to rebuild its depleted endowment and public trust.”

Wilson did not save his scorn for the Ramsey administration, also directing strong criticism at Hughes for his “enabling slumber” and saying he should resign from the university’s board of trustees.

“Additionally, the audit exposes Bob Hughes, the former Chairman of both the Board of Trustees and Foundation, who repeatedly claims he was ‘unaware’ of important and basic rules, facts, and activities regarding governance and financial affairs,” stated Wilson. “Unfortunately, Dr. Hughes is still sitting on the U of L Board of Trustees but should resign so that Governor Bevin can appoint a new Trustee who is focused on the University’s future, not the past. Dr. Hughes’ enabling slumber in his former leadership roles and his uncivil treatment of trustees trying to do the right thing stands in stark contrast to the current Chairs of both the Board of Trustees and Foundation. Larry Benz and Brucie Moore are working to implement the recommendations provided by the State Auditor, as well as make other difficult decisions to lead the University forward after years of administrative and board neglect.”

Asked to respond to Wilson, Hughes replied in an email: “Let’s see if they recreate the progress made prior to his arrival. That stands for itself, and no cartoon can diminish that. I am sorry he is fixated on me.”