AU will hand over dozens of documents to the U.S. Senate Finance Committee today, including information on how the trustees decided ousted President Benjamin Ladner's salary, as part of the committee's ongoing probe into mismanagement among nonprofit organizations.
AU caught the Senate's attention because the school "seemed to be the latest in a series of examples of excessive compensation and weak board management," said Jill Gerber, press secretary for the finance committee led by Sen. Charles Grassley, R-Iowa.
In a letter requesting the documents in October, Grassley said "it appears the AU board could be a poster child for why review and reform are necessary."
The committee will incorporate its findings in future legislation, some of which will likely focus on executive compensation, Gerber said. The committee began to look at nonprofits in the wake of financial malfeasance at the United Way and the Red Cross in 2002. Dozens of other nonprofits have received similar requests from the finance committee, but AU is the first university among them.
The committee requested a copy of Ladner's employment contract and records of the discussion that determined his salary. It also asked for minutes of board meetings, all correspondence with the Internal Revenue Service for the past five years and the board's opinion on whether it has been transparent enough in its operations.
Trustees admitted to poor governance in a letter sent to the AU community in October.
"We are chagrined that the board's own processes over the years did not allow us to have a clear understanding of what contracts were in place, their provisions, and the various forms of compensation which the president was receiving," wrote then-acting chair Tom Gottschalk and then-chairman-elect Gary Abramson. "We acknowledge this deficiency and we apologize to the entire community for it."
David Taylor, the AU president's chief of staff, said he didn't know if any of the private documents would be made public after they were sent to the Senate.
"Chairman Grassley's general rule of conduct is to make as much public as possible," Gerber said, but federal law prevents the committee from releasing some types of documents, such as tax returns.
IRS eyes nonprofits
Tax-exempt organizations like AU are facing increased scrutiny not only from the Senate, but also from the IRS, which began to crack down on nonprofits last year. Gerber said the Senate's work is "complementary but separate" from that of the IRS.
IRS Commissioner Mark Everson testified before the finance committee in April about the agency's reform project, which holds executive compensation as one of its highest priorities. The agency aims to explore how nonprofits set up salaries and how they are reported to the IRS, and also to create "positive tension for organizations as they decide on compensation arrangements," Everson said in written testimony.
The IRS has sent out about 1,250 letters to tax-exempt organizations requesting information about their leaders' compensation, according to an agency report. Taylor said AU's finance office has not received such a letter.
The IRS is seeing trends in inappropriate compensation among the 500 organizations it has reviewed so far, Everson said.
"It is too early to state any findings definitively, but we are seeing issues in the reporting of loans and deferred compensation, as well as whether all "perks" are being appropriately reported," he said.
The IRS's project includes a redesign of tax form 990, a document that all tax-exempt organizations must complete each fiscal year and make available to the public. The new form for 2005 requires more detailed information about executive compensation. AU has not yet filed the form for this year.
If 501(c)(3) nonprofits like AU award their leaders what the IRS deems "excess benefits," the organization could lose its exempt status or face fines. The fines could be levied against Ladner, board members or the university itself, according to former trustee Paul Wolff, a lawyer familiar with the tax code.
Taylor said the university's outside counsel, Arnold and Porter LLP and Manatt, Phelps and Phillips LLP, said it is "not likely" that AU will lose its 501(c)(3) status.
The IRS determines whether compensation is excessive by comparing it to that of executives of similar institutions doing similar work, Everson said.
The agency completed a random audit of an AU retirement fund account a year ago and turned up nothing abnormal, Taylor said.
Others look into AU
AU also faces scrutiny from the U.S. Attorney's office, which requested documents from the university more than a month ago. Channing Phillips, principal assistant U.S. attorney, said the case is still open but could not comment further on a pending investigation. If charges are brought against AU, it would happen in the coming months, he said.
The Middle States Commission on Higher Education, which accredits AU, is also taking a closer look at the university. AU must send the commission a report "related to our ongoing compliance with their accreditation standards related to leadership and governance," according to Interim President Neil Kerwin's report to trustees in November. The report is due to the commission this month, Taylor said.
Board chair Gary Abramson declined to comment for this article.
Explainer: AU in Congress
If the trustees make major changes to the university's governance, they may have to get the approval of Congress, which chartered AU in 1893. Adjustments to the bylaws, however, wouldn't require the federal government's approval.
AU isn't unique in its charter. Almost all the universities in the District have the same arrangement with Congress, according to John Childers, president of the Consortium of Universities of the Washington Metropolitan Area, of which AU is a member.
Before 1975, D.C. had no local government and was controlled by three commissioners appointed by Congress, he said. A university started today would be chartered by the state government like the University of the District of Columbia, which formed in 1975 just after the District was granted home rule. Universities elsewhere in the country are chartered by their state governments.
Georgetown University was the first to be chartered here in 1815. AU and George Washington University, chartered in 1821, both claim to be the realization of President George Washington's vision for a national university in the nation's capitol, according to their Web sites.
Childers said it's difficult to tell which school is closer to Washington's ideals, but said that both are national universities in that they draw students from around the country and the world.
AU's charter has been amended five times, the most recent of which was in 1996. That amendment and related changes in the bylaws reduced the size of the board by about half to arrive at the present minimum membership of 25, according to Mark Huey, assistant to the president. The group can reach quorum with 11 members present.
In 1953 an amendment to the charter gave the United Methodist Church more control over the university. Now all trustees must be approved by the church and the charter can have no further amendments without the church's blessing.
According to a 1953 report from the church's board of education provided by church archivist Dale Patterson, the closer ties came as part of a deal to provide funding to the school.
"All help for the university is contingent on the amending of the university charter to safeguard the interest of the Methodist Church," the report said.
AU used to have a Government Relations office with a lobbyist, Yvonne Knight, that advocated for the university at all levels of government. The office was abolished last spring to cut costs, according to David Taylor, the president's chief of staff.
No lobbyists have been hired to lobby the Senate regarding its investigation of nonprofits, Taylor said.
