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AU Scandal Atypical in Post-Enron Era, College Presidents Say

By Lois Romano
Washington Post Staff Writer
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.

While most of the American board now says Ladner is too damaged to stay in his job, the scandal is likely to affect the university for years. Students and faculty are furious, and angry donors have barraged the school with e-mails threatening to cancel pledges. Board investigators are looking into the apparent breakdown of its auditing apparatus.

Despite Ladner's explanation that much of the spending was business-related, school administrators scoffed at the notion that a president has to spend tens of thousands of dollars to raise money. "My experience is that the truly wealthy philanthropists don't want you to spend money like that," said Patricia McGuire, president of Trinity University in Washington. "I took a big donor to lunch the other day at Union Station. That's where she wanted to go."

At the University of Miami, Shalala said she maintains all the guest lists for university-related events for auditors and the Internal Revenue Service. "I am very conscious of my spending. Everything is in the open," said Shalala, a former secretary of health and human services. "I was in the public sector. . . . When in doubt, I just pay for it myself."

Administrators also say that they must view themselves as role models for students and that Ladner's lifestyle does not set a good tone. "It's a values issue as much as anything else," McGuire said. "We have to reflect values that we expect our children to learn."

This is not the first time a university has been ensnared in a high-profile spending scandal. In the mid-1990s, Long Island's Adelphi University was embarrassed when it was revealed that the board had authorized a $1.2 million apartment in Manhattan for its president, as enrollment was plummeting. The New York State Board of Regents dismissed the entire board. Boston University also became entangled in a financial fiasco when it became public that many board members were receiving work contracts from the university.

Allen E. Koenig, partner in charge of the higher education section at R.H. Perry & Associates Inc., an executive search firm, said he advises board members to be "very careful to be able to justify a salary" and to audit a president's expense account on a quarterly basis.

University of Kentucky President Lee T. Todd Jr. hired a new internal auditor when he started the job five years ago so that audits would be done proactively rather than reactively. In August, at a board retreat, he had the school's treasurer go over the provisions of Sarbanes-Oxley for the board.

At Tufts University, the chairman of the board personally must sign off on Bacow's expense account before it goes through other checkpoints. Bacow also changed auditors after Sarbanes-Oxley. He said he does not have a university credit card, turned down a university car and never flies first class, although he is entitled to.

"When I took his job, I made a decision not to redecorate the house or my office," Bacow said. "You always run the risk of someone coming in and asking for $25,000 for something and you say no. I don't want anyone to hear anyone say, 'Well, he decorated his house.' "

Staff writer Valerie Strauss and research editor Lucy Shackelford contributed to this report.

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