AU Scandal Atypical in Post-Enron Era, College Presidents Say
Sunday, October 9, 2005
As university presidents around the country watch the spending scandal at American University unfold, there is bewilderment that the private school has yet to resolve the controversy swirling around its president at a time when most schools are becoming increasing vigilant about finances.
"That situation is just unbelievable, and they keep trying to keep him. He should be gone," said University of Miami President Donna E. Shalala, referring to Benjamin Ladner, whose fate will probably be decided by the board of trustees on Monday.
"He should have known better," she added. "Trustees have to have a trust that whomever has the job has an ethical compass."
In a dozen interviews with top administrators of major colleges and universities, many were stunned that Ladner seemed impervious to the public perception of his lavish spending habits and by the lax oversight by American's board of trustees.
A measure of these educators' dismay was their willingness to speak on the record to emphasize that the situation at American is not reflective of universities in general and would not happen at their schools. In recent years, school presidents have become increasingly sensitive not only to how they spend their schools' money -- but also to the perception of how they account for it.
High on administrators' radar screens is the 2002 Sarbanes-Oxley law -- designed to regulate public corporations in the aftermath of the Enron scandal. As nonprofits, the schools are not bound by the law, but most opted to follow its spirit by instituting stricter accounting oversight and accountability practices.
"These are such sensitive jobs," said William E. Kirwan, chancellor of the University of Maryland system. "If a president's antennae aren't up on these issues, they should be. And if they're not, you wonder why they were hired. . . . Most schools recognize that you have to adhere to the bill's policies and practices to ensure that the excesses of the corporate world don't occur."
Kirwan said that as a result of Sarbanes-Oxley, he recommended that the internal audit committee for the state system no longer report to him but directly to the board. He said that American "obviously had a lax system."
"I look at all expenditures in terms of the equivalent of tuition," said Tufts University President Lawrence S. Bacow. "If we spend $30,000 -- that's the cost of one full-time tuition."
The American board suspended Ladner in August after an anonymous letter raised questions about his personal and travel expenses. He has denied wrongdoing and insists he operated within the parameters of his contract. An independent report, commissioned by the board of trustees and disputed by Ladner, has questioned more than a half-million dollars in spending -- including for his personal chef, a chauffeur and an engagement party for his son.
Public colleges and universities are historically subjected to a higher level of scrutiny than private institutions because they rely much more on public funding. But in the changing environment, educators maintain that all institutions of higher learning should embrace transparent standards of accountability because most take some federal money.
"This runs contrary to what is going on in the rest of country. Schools have made adjustments in light of the Sarbanes-Oxley bill," said David Ward, president of the American Council on Education. Ward said that when he was the chancellor at the University of Wisconsin at Madison, he had what he called the "smell test." "If it didn't smell right or didn't look right, we didn't do it," Ward said.