University of Wisconsin System Administration needs to better oversee and monitor relationships with foundations and other nonprofit organizations formed to support state universities, the Legislative Audit Bureau said in a report released Friday.
The audit revealed a web of relationships between UW institutions and affiliated organizations that received hundreds of millions in payments over the past decade, but have not been adequately separated from or overseen by the university.
The lack of oversight and monitoring procedures led UW administrators to grossly underreport the amount of money paid to affiliate groups, auditors said, and make it impossible to say for certain how much they had been paid.
In addition, some UW institutions resisted providing information sought by auditors by employees, saying they had been ordered not to provide it by the governing boards of affiliate organizations, auditors said. And some UW employees said requested information did not exist or could not be easily located.
The audit was requested by the legislature’s Joint Audit Committee last year, after two former top administrators at UW-Oshkosh were accused of improperly transferring more than $11 million to the UW System to the UW-Oshkosh Foundation, a nonprofit founded to support the university. But because of pending litigation, the dealings of UW-Oshkosh foundation were not included in the audit.
In a response included with the audit report, UW System President Ray Cross trumpeted the fact that the audit revealed no illegal transactions between UW institutions and affiliates.
“One abundantly clear conclusion from the audit is that LAB did not identify illegal guarantees or loans at other UW institutions such as those allegedly executed by the former Chancellor and Vice Chancellor/Chief Business at UW-Oshkosh under the former administration,” Cross wrote. “This confirms the findings of the UW System’s internal review.”
UW campuses reported paying an estimated $257.9 million to affiliated organizations, including an estimated $168.0 million to affiliated organizations that were not primary fundraising foundations or real estate foundations, between 2007 and 2017, the LAB audit report said.
The number of affiliated organizations is large. In 2016-2017, for example, UW institutions had relationships with 90 affiliated organizations, two-thirds of which were not primary fundraising foundations, the audit report said.
The UW System failed to identify even half the payments made by UW institutions to primary fundraising groups and other affiliated organizations between 2010 and 2017, the audit reported.
State auditors identified an estimated $81.6 million in such payments — compared to $36.5 million identified by UW administration — auditors said.
But the amount of such payments cannot be accurately determined because UW System Administration had not assigned a unique identification number in its accounting system to each affiliated organization.
An examination of the relationships between UW institutions and 25 primary fundraising organizations found that they were not adequately separated between 2007 and 2017, according to the audit report.
The entanglements stemmed from such things as UW employees who served as voting members of the governing boards of affiliate organizations, or inadequate records for reimbursement for the services of UW employees who served as executive directors or development staff at the affiliates or payment for UW office space.
UW Administration did not have a specific policy for governing the relationships between UW institutions and primary fundraising foundations until one was adopted by the Board of Regents in December, 2017. But state auditors said they reviewed five operating agreements required to comply with the new policy and found they did not consistently address payment for UW employees’ work, rent for UW office space or the services and payment affiliates were required to provide for UW assets.
The UW System does not have a policy for governing relationships with affiliated organizations that are not primary fundraising or real estate foundations, which auditors recommend they develop.
Auditors also described the difficulty they encountered in getting information from UW institutions in their report.
“UW employees did not provide us with all requested information related to our audit that they possessed, and to which statutes grant us access,” they wrote. “Some UW employees indicated that governing boards of foundations directed them not to provide us with certain information.”
As to withholding information from the auditors to comply with the directives of affiliated groups, the auditors said: “There is no exception to our statutory authority that allows an outside governing board to restrict a UW employee’s responsibility to comply with our requests for access to audit-related information that they possess.”
In his response to the audit, Cross said that the UW System and Board of Regents have already established appropriate standards for campus relationships with foundations.
But the UW System and the Board of Regents should have the opportunity to address campus relationships with other affiliated organizations before LAB imposes criteria and standards for them.
UW System administrators and institutions were cooperative with LAB throughout the year-long review process, Cross said. While the audit report recognized that LAB cannot demand information from private entities, “LAB also creates the impression that UW employees were somehow a hindrance to information sought by auditors," namely minutes of foundation board meetings and information about donors, he wrote.
On the contrary, the UW System facilitated meetings to help LAB gather information deemed confidential under state law, Cross said.
Cross also said that UW agrees with many LAB recommendations, like assigning vendor numbers, setting practices to better track transactions between UW institutions and affiliates, and create a policy for relationships with organizations that are not primary fundraising organizations.
The UW System Administration is to report to the Joint Audit Committee on its progress on audit recommendations by June 29.