Unrestrained spending, lack of oversight led to disaster at Laurentian, auditor says

Laurentian report reveals cause of insolvency After a review of Laurentian University operations from 2010 to 2020, the Ont. AG has released her findings on why it declared insolvency

Ontario’s auditor general has painted a damning picture of the path that led Laurentian University to declare insolvency.

Released Thursday, Bonnie Lysyk’s audit of the school’s financial situation before it entered the Companies’ Creditor Arrangement Act process details a litany of extremely poor decisions that went unquestioned by LU’s board of governors.

“We found that the primary cause of Laurentian’s financial decline was its pursuit of major capital projects without adequate consideration for how they would be collectively funded or ultimately used,” she wrote in her report.

“As the university began to accumulate more than $87 million in debt, it started to inappropriately draw on funds that were restricted for research projects or retirement.”

While he is not named specifically, the auditor said problems were especially exacerbated during the tenure of former president Dominic Giroux between 2009 and 2017.

The school was burdened by a massive capital spending campaign that included the east residence ($20.6 million in debt), a new research lab (a $5.9 million debt), a campus modernization completed in 2018 (a $43 million debt) and student centre in 2019 (an $8 million debt).

Lysyk said the mantra was “build it and they will come,” but that proved not to be true. And rather than business plans, projects were often pursued without studying whether there was demand.

“We found no documentation showing the institution had a viable financial plan that addressed whether these major capital investments would be sustainable for the university,” the report said.

“For example, the 2008–2011 strategic plan shows the impetus for pursuing the School of Architecture was ‘community responsiveness’ — that is, stakeholders from the community wanted a school of architecture at Laurentian, not that architecture was assessed as an area of growing demand in alignment with Laurentian’s existing core strengths or goals.”

While new buildings went up, money was not set aside to maintain LU’s existing buildings, contributing to a $135 million infrastructure deficit.

As the cost of paying its debts grew, the administration began drawing on funds from bursaries and other purpose-driven donations, which were improperly kept in a general revenue fund.

“By April 2020, the university had $37.4 million in deferred contributions for research grants, restricted donations and other funds received on behalf of third parties but only had cash and short-term investments of $3.4 million available to meet those future spending obligations,” the report said.

The school became heavily reliant on tuition from international students to buttress revenues, growing to 550 international students providing $9.3 million in revenue a year.

But international events intervened, first a diplomatic dispute with Saudi Arabia that led to an exodus of students from that nation.

“In 2018/19, Laurentian lost 130 students from Saudi Arabia,” the report said.

“These students would have paid an estimated $3 million in tuition revenues and ancillary fees over the full length of their degrees.”

Then the COVID-19 pandemic hit, tanking revenues from international students even further. Laurentian could no longer keep shuffling revenue around and was facing a crisis by late 2020.

Lysyk said rather than be transparent about what was happening, the school became even more secretive and began consulting with lawyers who recommended the CCAA route.

'GIDDY WITH EXCITEMENT'

“As late as the end of November 2020, board members were voicing concern that Laurentian’s leadership had not made reasonable efforts to pursue options outside of CCAA, such as negotiations with the faculty union or seeking financial support from the government,” Lysyk’s report said.

“They described Laurentian’s insolvency lawyers as ‘giddy with excitement to try something new.’”

The insolvency declaration was made in February 2021, the report said, setting off a process that had a high human cost in terms of jobs lost, as well as serious damage to the school’s reputation.

While the university claimed that high faculty costs were partly to blame, Lysyk wrote that salary costs were in line with other universities and it was spending on administration salaries that was out of whack.

“Between 2010 and 2020, Laurentian’s senior administrator costs grew by about 75 per cent, increasing between 2010 and 2018 and declining thereafter,” the report said.

“In 2018, the cost for senior administrator salaries at the university peaked at over $4 million. The relative size of its senior administration had been consistently larger than most other Ontario universities.”

“It is difficult to quantify the damage that may have been done to Laurentian’s reputation, given the stigma associated with filing for CCAA protection from insolvency,” Lysyk wrote.

“The university’s brand, for now, has been tarnished. The university’s alumni, as much as its current students and employees, may be understandably distressed by the association of their credentials and their scholarship with the mismanagement, weak oversight, legal battles and political gamesmanship of their university.”

Moving forward, she said her report can act as a starting point for the institution to move forward.

“Hopefully, the release of this special report will assist Laurentian in its efforts to renew itself so it can attract more students, generate world-class research and serve as an academic, scientific and cultural focal point for Sudbury and the rest of northern Ontario,” Lysyk said.

Read the full report here.