Transparency in the charitable world has been a hot topic for years. Yet deep murkiness still surrounds the fundraising and finances of higher ed institutions, especially those that raise money through supporting foundations that may be little known within the academic community to which they belong. That murkiness can make it hard, if not impossible, for donors to do proper due diligence on colleges and universities.
In 2015, I wrote about the University of Connecticut Foundation, which had resisted full disclosure for so long that it inspired five different bills in the Connecticut legislature aimed at opening the curtain behind which the foundation operates. Not only was the foundation holding its information close to the vest, it had gotten a state law passed that exempted the university foundation from Freedom of Information Act requirements!
In the spring of 2016, the university and the Connecticut legislature agreed upon a bill. This bill, however, did little more than require the disclosure of donor names—unless the donor requests that their identity not be made public. Essentially, nothing has changed in Connecticut.
As distasteful as the UConn situation is, the circumstances at the City University of New York (CUNY) are worse. CUNY is a very large educational system that operates seven community colleges, 11 senior colleges and five graduate and professional schools. The system serves approximately 275,000 students. Rumors have been circulating for some time about the financial goings on at CUNY. In November 2016, the State of New York Office of the Inspector General released a preliminary report—a somewhat unusual action, but justified by the Inspector General because of what she considered the dire need to “strengthen the fiscal integrity and oversight of the system.” Federal prosecutors from the office of the U.S. Attorney for the Eastern District of New York are also involved in their own investigation of the CUNY situation. At the center of this financial disarray is a tangle of nonprofit foundations that support CUNY.
Each of the CUNY senior colleges has at least one nonprofit foundation that supports the college, but which is legally separate from it. What does this mean? These foundations probably have governing boards that do not overlap with the institution they support to a degree that would require the activity of the two to be consolidated for financial and tax reporting purposes. They exist to provide financial support to the academic institution, but their financial condition is not reported together with the supported institution.
In addition, there are other foundations established to support the broader CUNY system. All told, these supporting nonprofit organizations maintain approximately $1 billion in funds—none of which is clearly evident to the donor who might be investigating the financial strength of the college to which he or she is inspired to donate.
What is the probability that the college or university to which you are donating or writing into your will has more wealth than they let on? I believe there is a high probability that your alma mater has a foundation or two fundraising on its behalf. The assets of these foundations are not easily discovered unless you know their exact name and how to find information about them. CUNY has one called the 21st Century Foundation and another called the Research Foundation of the City University of New York. Would you think to look for these entities if you were doing your donor due diligence before donating to the City University of New York?
Of course, CUNY had a host of other issues that led to their recent bad press; hopefully, your alma mater is more centralized with sound internal controls, policies and procedures. But the large tangle of supporting foundations at CUNY enabled a system with few checks and balances. It is an undeniable truth that your alma mater likely has a few non-profit foundations adding to its financial condition that are not readily apparent to you as a donor.