Last Updated on November 22, 2022 by YGK News Staff
By: Mia Jensen, Local Journalism Initiative Reporter
In a much-anticipated document about Laurentian University’s financial downfall, blame is placed squarely on senior administration and the board of governors for questionable decision-making, lack of oversight and transparency, pricey capital expansion projects, and an overdependence on external advisers.
After months of delay due to lack of cooperation from administration, Ontario Auditor General Bonnie Lysyk released her full report Thursday on Laurentian University’s decade-long financial decline and consequential decisions to declare insolvency and pursue creditor protection.
The report was tabled before the Legislative Assembly of Ontario on Thursday.
Since Feb. 1, 2021, the university has been undergoing a court-monitored restructuring under the Companies’ Creditors Arrangement Act (CCAA). Designed for private sector entities, it was the first time a public, taxpayer-funded institution had used the Act to address its debts.
The 117-page document, according to Lysyk, aimed to answer questions about how Laurentian’s financial affairs were allowed to deteriorate as significantly as they did, and why the “unsuitable and damaging choice” to seek protection under the CCAA was made.
Lysyk did not mince words in her condemnation of the conduct of Laurentian’s senior administration and board of governors.
“Laurentian’s leaders made a bad situation worse by declining government assistance, circumventing obligations to work with faculty and staff, and opting to file for court protection under the Companies’ Creditors Arrangement Act,” she said. “A succession of oversight failures allowed the University’s financial health to decline so precipitously that the academic careers of 932 students were short-circuited, 341 jobs were lost, and millions of dollars were wasted.”
The decision also led to the loss of 76 programs and a projected negative impact on enrolment expected to continue for the next five to seven years.
Her report also found that Laurentian was overdependent on external legal and financial advisers, who encouraged the university to pursue a corporate-style restructuring.
“… Under the guidance of external counsel, senior administration and the Board of Governors were more focused on pushing Laurentian University into the CCAA process, and less on working transparently and cooperatively with the Ministry, and faculty and staff labour unions,” said Lysyk. “Quite frankly, one has to question whether paying more than $30 million and counting for legal and financial advisors would have been better spent on educating students.”
In addition to the $30 million in fees to private advisors and lawyers, the decision also resulted in a reach of debt agreements with $24.7 million in associated costs. As of Sept. 12, Laurentian has incurred $54.7 million throughout its restructuring, in addition to the $107 million in debt prior to filing for CCAA.
CCAA restructuring “strategically planned”
The report reiterated Lysyk’s earlier conclusion that Laurentian’s decision to file for creditor protection was deliberate and strategic.
According to Lysyk, Laurentian planned and chose to take steps towards the CCAA as early as 2019, when the idea was first presented by its legal counsel. For nearly a year before filing for creditor protection, Laurentian engaged lawyers and consults that directed them to focus on preparing to pursue CCAA protection.
Lysyk added that Laurentian failed to pursue viable alternative that could have avoided the process altogether. That included not engaging with the Ministry of Colleges and Universities in a timely manner.
The report points to a number of failures on Laurentian’s part. In 2020, the university prematurely paid off its line of credit, and then rejected an offer by the Ministry to cover half the costs of an independent financial review in August. A few months later, in January 2021, it declined to accept an offer from the Ministry for temporary funding assistance.
“Had Laurentian sought to work earlier and more transparently with Ministry staff … Laurentian would have had sufficient time for its financial situation to be reviewed jointly with the Province with a go-forward plan put in place.”
Risky capital expansion and lack of oversight to blame
From 2010 to 2020, Laurentian incurred more than $87 million in long-term debt, bringing its total debt up to $107 million.
Despite existing debts prior to 2010, the university pursued a number of major capital expansion projects without evaluating their financial viability or revenue potential.
Lysyk said the department’s audit found no evidence that Laurentian had a sustainable plan to evaluate the viability of these projects or their ability to fund them.
According to the report, Laurentian even amended its capital debt policy in 2010 to allow it to incur more debt for these poorly considered projects. In 2016, when its primary lender, Royal Bank of Canada, refused to provide more long-term debt, it opened short-term lines of credit to fund the projects instead.
“As its ability to fund capital projects weakened, Laurentian started to inappropriately draw on funds that had been restricted for other purposes, such as money designated for research projects and employees’ retirement health benefits.”
Weak oversight by Laurentian’s board of governors was a driving factor in the poor management of the university’s investments and financial affairs.
“The Board did not receive, or ensure it received, sufficient information about the University’s finances, cash flow, plans and operations, and consequently approved capital spending proposals that led to increasing debt without adequately assessing those proposals.”
Laurentian also failed at its obligations to transparency.
The report found that the board did not follow best governance practices and became increasingly less transparent. It held unnecessary closed-door meetings, did not evaluate its own performance, and did not avoid practices that created a perception of conflict of interest.
It also failed to work with faculty and staff unions. The report found that Laurentian intentionally delayed providing financial information to the Laurentian University Faculty Association up to the filing under CCAA, and did not trigger the financial exigency clause in their collective agreement, despite multiple requests from LUFA to do so.
Administration, not faculty costs, deemed excessive
From 2010 to 2020, costs associated with senior administration jumped 75 per cent, which the report said exacerbated the university’s financial difficulties.
According to the report, Laurentian breached provincial compensation-restraint legislation, by compensating senior administration $389,000 more than legislatively permitted.
Senior administration was also responsible for accruing excessive expenses “without documented justification.”
The included $2.4 million on Special Advisors to the President and other senior administrators and $1.4 million in discretionary expense funds. It also included $8.5 million in legal costs, $3 million of which was for CCAA preparations.
The university has previously tried to suggest that “excessive faculty costs” were to blame for its financial decline, something Lysyk rejects.
“Our examination found that overall faculty costs did not significantly surpass those of comparable universities, and that its overall academic programming had positively contributed to the University.”
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