Lawyers hired by the executive committee of American University's Board of Trustees have concluded that suspended President Benjamin Ladner should reimburse the university more than $115,000 for personal expenses and that he should have reported more than $350,000 in additional taxable income over three years, according to three sources who have seen the document.
The report says that Ladner should refile his personal tax returns with the Internal Revenue Service and that the school should amend its annual nonprofit tax returns, said the sources, who spoke on the condition of anonymity because of the sensitivity of the investigation.
Ladner's attorneys have argued that the spending in question was appropriate according to the terms of his 1997 contract. But lawyers hired by the executive committee concluded that the board should not consider the 1997 agreement enforceable because it probably would not be upheld in court. The contract, which some board members say they never saw, included a more generous severance package than his initial contract, as well as more compensation and other perks.
Ladner did not return phone calls last night. Last month, his attorneys disputed initial findings of the audit committee in a letter to the board counsel: "As you know, we have concluded that the figures presented by [the auditors] and you, both for reimbursement and tax reporting, are very exaggerated and in many cases demonstrably wrong."
The report was distributed late yesterday to the 24 voting members of the board in advance of Monday's meeting to determine the fate of Ladner, who came to the 11,000-student university in Northwest Washington in 1994 and was suspended in August. The investigation began last spring when some board members received an anonymous letter questioning Ladner's personal and travel expenses.
Ladner has said he was abiding by the terms of his 1997 contract. He also said auditors overstated the amount of personal spending by him and his wife, Nancy, a full-time volunteer for the university, and underestimated the amount of time they spent on university business over the years. He has offered to reimburse the university more than $21,000 for some events, such as birthday parties.
Employees of nonprofit universities, which are tax-exempt organizations, are bound by certain rules. Personal spending has to be repaid promptly or declared as income on the employee's tax return, according to experts on tax law. If the personal spending is approved by the school, the IRS may consider it imputed income, an extra benefit.
Ladner and his wife have been paying taxes on a certain percentage of the university-paid expenses at their house and for their cars. His attorneys have said he is willing to add about $32,000 to his imputed income for the years in question.
The IRS has contacted the school once, according to sources familiar with the investigation.
The report distributed to the board is not binding on the panel but represents the opinion of an independent law firm brought in by the executive committee of the board last year, as well as a group of independent auditors. The law firm is Arnold & Porter, and the auditors are from Protiviti, an independent risk-consulting group. Some board members have adamantly disputed earlier reports with similar conclusions and defended Ladner, who they said has raised academic standards and improved facilities.
One key issue under investigation has been the 1997 contract that Ladner signed with then-board chairman William I. Jacobs. Jacobs said in an interview Wednesday that he told board members there was a new contract for Ladner but did not have it passed around.
Robert Pence, who was on the board from 1989 to 1998, distributed a letter to the board yesterday saying that he has asked many of his fellow trustees about their recollections of the contract. "Anyone who says they discussed this with me (or all of the then-current members of the board) is not telling the truth," Pence said.
Jacobs said on Wednesday, "We did not want the contract to be in the newspaper the next day, and if anybody wanted to know specifics about the contract, they could find out whatever they wanted." Nobody asked, he said.