Good morning all.  Last week, in the course of writing a series on Laurentian University, I ran a feature comparing accumulated annual deficits at various Canadian universities.  I stand by what I wrote in it.  However, it has been drawn to my intention that people may have been overly influenced by the blog title (“who’s next?”) and not enough by the text itself, which was more cautious in drawing conclusions – if this is the case, I regret that.  Also, some of the institutions named in that blog have suggested that my analysis is partial at best, and have asked for some space to present a different picture.  I thus invite you to read counter-arguments from Concordia University and St. Thomas University by clicking the respective links (pdfs will appear in a separate tab).

Anyways: on to today’s installment.

Today I want to focus in on some of the unresolved puzzles of the Laurentian affair and what the rest of the sector should take from them.  I think there are five such puzzles.

(1) What about the single bank-account?  I have been one of many people asking how in the hell the university managed to mix all its funds in a single bank account.  However, a well-informed colleague tells me this is wide of the mark: in fact, most universities in Canada – including all the big ones – use but a single bank account.  They use fund accounting, of course, to make sure various funds are not mixed, but still only a single bank account.  This seems a bit weird to me, but I am assured it is true.  Still, this leads me to the second question, specifically with respect to the question of the breach of fund accounting which is:

(2) HOW DID KPMG NOT NOTICE ANYTHING?  I mean, I get it, if something was going on for a single year, you might not catch on, but these guys have been Laurentian’s auditors for at least eight years.  Missing something as big as breaching the restricted/unrestricted barrier on the fund accounting should have been obvious.  Obviously, we’re never going to get a decent answer in public, because that’s not the way things work.  Every single university and college in the country which uses KPMG as an auditor (and there are at least a dozen) needs to call them in and get a definitive answer to that question for themselves.  Because if they can’t explain how this slipped by at Laurentian, there’s no guarantee they aren’t missing this at your institution, too.  Please, do it: quality improvement starts by calling these people out on the carpet.   

(3) How did the Board not know about the fund mixing?  Well, this is the real question, isn’t it?  At a fundamental level, the Board should have caught this.  I don’t know why they didn’t, but my assumption is simply that they didn’t ask the right questions.  They took management assurances at face value and did not ask for the kinds of documents that could have exposed the problem (particularly when it seems that a simple bank statement would have sufficed to expose the problem).  It’s not clear why the Board did not do this.  Was it simply that the Board was too close to management (note that Laurentian’s VP Administration, Lorella Hayes, was in fact a Board Member at the time she was appointed to her position) and this did not have the right amount of distance?   Or did the Board not have enough people with the right financial skills to ask the right questions? 

(4) How is it possible that a Board not have people with those kinds of skills?  Ok, so this is not about Laurentian specifically: I don’t know its current members well and so am not in a position to comment.  But you must understand that the way a University Board works is fundamentally different to the way any other non-profit Board works.  On a regular non-profit Board, the Board itself has a responsibility to ensure that it has the right kinds of skills =.  That doesn’t just mean financial skills – it can mean marketing, or communications, or fundraising, or whatever – it depends on the nature of the organization.  But the point is, the matrix of skills available to the Board is in the Board’s hands.  It won’t always get it right, but it has the ability to get it right.

There are a very few Canadian universities where the Board selects its own successors (at least apart from the elected faculty, student, staff and alumni members): Queen’s, McGill and Mount Allison, for instance.  However, most institutions have a substantial chunk of the Board appointed by their respective provincial government.  And folks, I know this may shock you, but not all provincial governments are equally careful in listening to universities and colleges when they say, “we need someone who can fulfill X and Y roles on our Board”.  I may shock you further by saying some provincial governments pay a lot more attention to getting party loyalists on Boards rather than think through what skills these loyalists have to offer the institutions in their governing roles.

I am not saying this is what happened at Laurentian.  What I am saying is that the casual way some Canadian provinces choose to handle their role in selecting governors is a source of systemic risk.   If we were talking about institutions as they were in the 60s and 70s when PSE institutions were relatively simple enterprises and took most of their money from government, it would be one thing.  But today, institutions across the country go out and earn substantial sums of money from for-profit or cost-recovery projects (or in Laurentian’s case, large research endeavours) and quite frankly very few Boards of Governors are structured in ways that provide for adequate oversight of those activities (see this 2015 Alberta Auditor General’s report for more on this, starting on page 21).  If people really want to take lessons from what’s happened in Laurentian and pay more attention to institutional finances and risk, they could do a lot worse than to scrutinize how provincial governments choose Board members.

(5) Any implications for Laurentian’s Board? Well, it’s pretty clear the Board itself thinks there might be consequences, because it has retained legal counsel (Lenczner Slaght Royce Smith Griffin LLP, and if you can say that three times fast, you deserve some candy) separate from that of the university itself (Thornton Grout Finnegan LLP). And I am pretty sure that part of the price of a bailout from Queen’s Park is going to be a very large number of Board resignations: the finance committee at the very least, but possibly the whole thing: there is simply no way government is going to hand over more money to the same oversight Board that got the institution into trouble in the first place.  But for that we may need to wait for April/May when the current conservancy period is over.