The price of 'obfuscation' | U of L Foundation spent at least $174,000 on outside accounting for extra pay program
The University of Louisville Foundation has spent at least $174,000 – and likely much more – to have an outside accounting firm manage the “deferred compensation” plan through which the nonprofit organization handed out more than $20 million in extra pay to about a dozen high-ranking administrators over the years.
LOUISVILLE, Ky. (WDRB) -- The University of Louisville Foundation has spent at least $174,000 – and likely much more – to have an outside accounting firm manage the “deferred compensation” plan through which the nonprofit organization handed out more than $20 million in extra pay to about a dozen high-ranking administrators over the years.
In recent months, foundation officials have acknowledged that the administration of former U of L President James Ramsey tried to keep the lucrative extra compensation quiet by tracking it separately with an outside firm.
For example, 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.”
Those foundation-created companies did little except to contract with accounting firm Dean Dorton Allen Ford to keep all records of the extra pay.
Housing the information with an independent firm was intended, in part, to provide “privacy” for Ramsey and the other administrators who got the extra pay, former foundation attorney David Saffer told WDRB in March.
“It appears that, by setting up a separate a corporation, you could outsource administration, and it also insulated the information from internal constituents at the university and the foundation; nobody else had access to it,” foundation executive director Keith Sherman, who joined the organization in December, told the foundation board in March.
Under new leadership, the foundation froze the extra pay program in March. But the foundation still owes about $600,000 in payouts that have not been collected.
The “privacy” that Saffer referenced hasn’t been free for the foundation, a charitable nonprofit dedicated to supporting U of L and managing its $785 million endowment.
The foundation spent $174,227 with the accounting firm, Dean Dorton, between July 2015 and March 2017, according to information provided in response to an open records request.
The foundation likely has spent much more with the accounting firm since 2010 – when, according to Sherman, Dean Dorton first began working on the deferred compensation plan.
But the foundation has no records of the pre-July 2015 spending with Dean Dorton because the organization did not have its own accounting system and instead used the university’s, the foundation said in response to WDRB’s request.
WDRB has asked the university’s records custodian to search for the pre-2015 records.
Firm calculates extra benefits added to payouts
To be sure, Dean Dorton’s job determining the size of each administrator’s exact payout under the “deferred compensation” program is no simple task.
The firm not only keeps track of how much pay was promised to each administrator on different “vesting” dates, but also calculates how much interest the foundation needs to add to their balances, similar to a 401(k) retirement account.
Under the foundation’s now-frozen program, administrators are entitled to the same investment returns on their deferred pay as the foundation earned for the university’s endowment.
To demonstrate the power of the compounded returns, Dr. Donald Miller of U of L’s James Graham Brown Cancer Center saw his deferred compensation grow from $1 million in 2006 to $2.2 million by the time he withdrew it from the foundation in 2016, records show.
But aside from the interest, the foundation also added, on average, 75 percent to the extra payments to effectively cancel out the administrators’ income taxes on the money.
Dean Dorton determines just how much the foundation needs to add to satisfy each administrator’s federal, state and Louisville Metro income taxes on the payouts. Those extra payments are called tax “gross ups.”
Attempt to conceal ‘destined to fail from the start’
Under Ramsey, who was president of the both the university and foundation from 2002-2016, the foundation created Minerva-Louisville LLC in 2011 and then replaced it with DCPA LLC in 2014.
The sole purpose of each company was to administer the deferred compensation plan.
The companies were created to “allow the accounting and the statement management and all of the documentation to be housed in one particular place…to be managed by an outside accounting firm,” Saffer told WDRB on March 14.
But, as Saffer told the foundation board that day, any attempt to conceal the extra pay was “destined to fail from the very beginning” because the information ultimately came out in public records requests.
The foundation replaced Saffer, of the law firm Stites & Harbison, with Franklin Jelsma of Wyatt Tarrant & Combs in April.
Since January, foundation leaders have acknowledged that the organization spent far too much in the last five years under Ramsey’s administration.
In April, the foundation board adopted a budget that slashes the organization’s expected spending in the fiscal year starting July 1 by 45 percent, to about $82 million.
On June 8, the university will release a “forensic audit” of the foundation’s finances, which is expected to be the definitive word on what, if any, wrongdoing took place at the organization during the Ramsey era.
A Chicago consulting firm has been working on the report since the fall.
Copyright 2017 WDRB News. All rights reserved.