Trustees question SUNY foundations’ related-party deals

Trustees question SUNY foundations’ related-party deals

Campus foundations and other nonprofits affiliated with the State University of New York reported more than two dozen “related-party transactions” to the public system’s top auditor over the past calendar year, a disclosure that raised concern from trustees about policies governing conflicts of interest at the nominally private entities, according to video of an audit committee meeting last month.

There are 31 campus-related foundations—fundraising vehicles with hundreds of millions of dollars in annual revenues—and scores of other nonprofits that serve various purposes in support of SUNY campuses. The university revised guidelines regulating foundations in 2016 to enhance their transparency and accountability, though it has opposed legislation that would curb the entities’ non-academic contracting and codify that they are subject to the Freedom of Information Law.

At the end of last year, as required by SUNY policy, foundations and their affiliates reported that on 29 occasions they had done business with vendors linked to at least one of their board members, university auditor Michael Abbott told the committee.

In all of the 29 reported transactions, Abbott said, the conflicted foundation board member did not participate in the discussion, decision, or vote to hire the vendor. Twenty-one of the transactions were “sub-board decisions” in which the board “was not involved,” the auditor said.

Abbott provided five anonymized examples of the 29 deals, which range considerably in size:

¶ A construction company owned by a foundation board member was awarded a project at a campus through a competitive bidding process.

¶ A campus bought $841 in business cards and brochures from a local printing company owned by a foundation board member.

¶ A foundation purchased $6 million worth of health insurance plans for employees. The foundation and the insurance company share a board member.

¶ A foundation paid an investment fund $1.3 million to manage $39 million in investments. “Individuals connected with the firm” were not involved in the decision, Abbott said. (It was unclear from the auditor’s explanation exactly how many board members are connected with the investment fund—and what that connection is.)

¶ A campus purchased $200 million in utilities from a local company. The campus president, who is also a foundation board member, is on the utility company board. An “energy buying group” within the SUNY system administration “closely monitors, regulates, [and] makes recommendations” to campuses, and the group did not involve the president in the decision, Abbott said.

SUNY press secretary Holly Liapis, who has not responded to any inquiries from The Alt in months, did not respond to questions related to the five examples. We have submitted a Freedom of Information Law request seeking records related to the reported transactions.

Multiple board members seemed irked or concerned by Abbott’s presentation. Trustee Joseph Belluck directed some criticism at the auditor himself.

“I don’t understand why these people are even on the foundations, if these are the types of issues they have,” Belluck said. “And frankly, this is not the first time, Mike, that you and Eileen [McLaughlin, SUNY’s chief financial officer] have come to us with things like this, and it’s almost like you are apologizing for the things that these foundations and their boards have done.”

“You’re the university auditor,” Belluck went on. “Your job is to protect the university.” A foundation board member doesn’t need to be directly involved “to influence what happens, especially if they’re in a position of leadership and they have the authority to…affect people’s employment,” he said.

Trustee Edward Spiro, who chairs the audit committee, pushed back, saying criticism of Abbott and McLaughlin was inappropriate. “If we made a mistake in not adopting rigid enough guidelines,” he said, “then it’s on us and we should change it.”

Abbott said all the transactions in question comported with SUNY policy and state nonprofit law—and that if there were violations, he would have reported them to the committee. The auditor also suggested that a more restrictive policy on related-party transactions might dissuade volunteers with considerable expertise from serving on foundation boards.

Nevertheless, after other trustees also questioned the current state of affairs, committee chair Spiro acknowledged a “real desire” on the part of the board to “revisit our actually recently adopted guidelines to make sure that they’re sufficiently strict in regulating” conflicts of interest.

John Kaehny, executive director of Reinvent Albany, a good government group, applauded the effort by SUNY and its foundations to track and report conflicts of interest, but said the university ought to strengthen its guidelines immediately. Foundations should not “do business with any firm whose owner, owner’s family or anyone who would directly benefit” is on the foundation’s board, he said, because the risk of corruption is too high.

Two of the examples cited by Abbott are particularly problematic, according to Kaehny.

First, he said, school presidents should not be on the boards of companies doing business with their campuses, as in the utility example. Presidents have “vast ability” to influence contracting and to share intelligence that might extend an unfair advantage to potential vendors, he said.

Second, in Kaehny’s view, companies owned by foundation board members should not do business with that campus, as in the construction firm example. Company owners—unlike board members—exercise control and have knowledge of day-to-day operations, he said.

At the audit committee meeting, trustee Cary Staller also singled out the construction company example as one that especially would warrant “extra” vigilance. “It’s not like buying some business cards,” since construction projects often involve change orders and “unforeseen circumstances” that make it difficult to determine “what the right price should be,” he said.

Toward the end of the committee’s discussion, trustee Carl Spielvogel remarked that an editorial on “malfeasance in Albany” had appeared in The New York Times that morning. The piece mentioned, among other corruption cases, the upcoming federal trial of former SUNY Polytechnic Institute president Alain Kaloyeros, who is alleged to have rigged bids for upstate construction projects through a SUNY-affiliated nonprofit, Fort Schuyler Management Corporation, several years ago.  

“We didn’t need that shot in the head,” Spielvogel said.

“I agree,” said trustee Spiro. “Hopefully one of the takeaways from today’s meeting…is that we have taken some significant, affirmative steps to strengthen risk management and our audit function—and we’re going to continue to strengthen both areas as is necessary.”

Shortly after that exchange, trustee Eric Corngold asked if the protracted process of finalizing agreements between the foundations and their respective campuses, as required under the guidelines adopted in 2016, had been completed. At the committee’s last meeting in October, as reported by The Alt, seven such contracts were still outstanding, to Corngold’s chagrin. Some of those agreements, at least in interim form, have since been approved by the state comptroller’s office, according its Open Book New York database.

“We’re gonna get to that in executive session,” Spiro told Corngold.

When the committee resumed its public session after about 30 minutes, it reported that no action had been taken.

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