LOUISVILLE, Ky. (WDRB) --  Former University of Louisville President James Ramsey operated the university’s legally separate foundation for years without typical “checks and balances” – resulting in poor record keeping, improper loans between the organizations, an unauthorized raise for Ramsey and the hiring of his former chief of staff to a top foundation job in violation of the nonprofit’s bylaws.

Those are among the findings of a “governance examination” released Wednesday by Kentucky Auditor of Public Accounts Mike Harmon.

A year-and-a-half in the making, Harmon’s report lays most of the blame for the foundation’s problems on Ramsey, his former Chief of Staff Kathleen Smith and foundation Chief Financial Officer Jason Tomlinson.

It also cites an “environment of distrust” that existed between some university trustees and Ramsey’s administration, leading to a “dysfunctional governing climate” that may have kept the university’s governing board from doing its job.  

The report does not allege any illegal activity or diversion of funds for personal use.

Ramsey disputes the conclusions in a written response included in the report.

His attorney, Steve Pence, told reporters Wednesday that Ramsey never exceeded his authority and that the report’s findings amounted to “process” issues rather than wrongdoing.

"Of course processes can be improved, but to say that somehow Dr. Ramsey acted outside the scope of his authority -- he did not," Pence said. "This report confirms that. This report confirms that he always acted in the best interest of the university."

Pence defended the “professional” business people Ramsey helped select to the foundation board over the years and bristled at Harmon’s suggestion that they need an orientation to get a handle on their responsibilities.  

The foundation, which has a board separate from the university trustees, manages U of L’s $715 million endowment and is the custodian of all funds donated to the university.

Its operations have been heavily scrutinized since early 2015, when public tax returns showed the foundation paid made multi-million-dollar payments to Ramsey and his top aides.

Ramsey resigned under pressure from the university in July, and from the foundation in September, after 14 years leading both organizations.

Harmon’s report is highly critical of Ramsey’s “dual role” over both organizations. While the foundation and university are legally separate, their administrative functions were “at times indistinguishable” with “ambiguous lines of authority and responsibility.”

The auditor’s office said it had trouble obtaining “consistent, complete and accurate” information from the foundation.

Smith, who has been on administrative leave since Sept. 27, managed the flow of information to Harmon’s office.

Harmon’s report said the foundation staff may have been “selective” in the records it provided related to the hiring of former longtime foundation director Burt Deutsch.

WDRB first reported Deutsch’s unilateral hiring by Ramsey to a no-bid, six-figure consulting contract from 2013 to 2014.

When reviewing documents related to Deutsch’s contract, the auditors found what appeared to be an internal note saying the foundation had more information on the Deutsch but that it would only be added “if needed” and with “discretion.”

The auditors also noted a lack of basic financial records at the foundation – even questioning whether Tomlinson had “sufficient information to properly manage the financial operations of an organization of this size.”

The foundation provided inconsistent reports showing payments to outside vendors – and ultimately did not have an accurate and complete list of payments, according to Harmon’s report.

The foundation also lacked simple reports – common in public agencies – showing how actual expenses compared to the organization’s budget, the auditors said.

Operating without sufficient oversight, Ramsey improperly loaned $67 million in university funds in 2014 and 2015 to the foundation, the auditors found.

As WDRB first reported in June, Ramsey loaned $38 million of the university’s short-term cash to the U of L Real Estate Foundation - a sister organization to the foundation -- in 2015 without telling either the trustees or the foundation’s board.

The auditors referenced that loan and a similar loan made in 2014 for $29 million.

The auditors also said Ramsey’s hiring of Smith as the foundation’s acting chief administrative officer – which WDRB first reported in October – appears to have violated the foundation’s bylaws.

Harmon’s office noted that Smith, who wore many hats at the university and foundation, did not tell the auditors about her appointment as acting CAO of the foundation in her interview with them on August 23 – though the appointment had been made only a month before.

Notably absent from the report is any discussion of the foundation’s lucrative compensation arrangements for Ramsey, Smith and other administrators – including deferred pay, bonuses and special payments meant to offset their federal, state and local income taxes.

The report’s sole finding related to compensation criticizes the foundation board’s decision in 2014 to approve a larger raise for Ramsey than the university trustees had recommended.

The auditor’s office said the move violated Ramsey’s contract with the foundation – which linked his foundation pay to his university pay.

In his response, Ramsey said the foundation board was well within its rights to approve the raise.

The exam criticizes the lack criteria for awarding car allowances to university employees. It found that Ramsey gave Smith a $12,000-per-year car allowance dating back at least to 2007 and that 10 other employees -- all associated with athletics -- got car allowances.

(While not mentioned in Harmon's exam, WDRB has reported that University Holdings, a foundation sub-organization funded with endowment loans, provided car allowances to three university president's office employees besides Smith).   

Under new leadership since September, the foundation has "already" implemented "substantial change and corrective action," according to a joint response to Harmon's exam by Neville Pinto, the university's acting president, and foundation board chairwoman Brucie Moore.

They mentioned this month's hiring of an executive director to oversee the foundation and a forthcoming "forensic" audit that will more closely examine the foundation's finances. That report is due next summer.

Harmon said the foundation will owe his office about $186,000 for the examination. He said it's standard practice for agencies to pay the costs of being examined by the auditor's office.

A copy of the report is below:

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