An Analysis of the Legal Status of University Foundations, their Oversight, and the Authority of the PEER Committee to Review University Foundations
Introduction
In recent months, the PEER Committee has received complaints regarding university foundations and their relationship to the universities they support. Questions regarding the propriety of certain transactions, including the transfer of funds between foundations, have arisen, as well as concerns about overlapping board memberships and questionable contracting practices.
Rather than commence a review of selected or all university foundations, the PEER Committee chose to review the current oversight environment for these foundations, including a determination of the various participants in foundation oversight, and further chose to examine the Committee’s legal authority to review foundations should the Committee choose to do so at a future date.
In developing this analysis, PEER limited its scope to Mississippi’s university foundations, meaning those organizations affiliated with a Mississippi university that provide general support to the university through fundraising, as well as athletic foundations that provide financial support to the university’s athletic programs. Not within the scope of this review are the alumni organizations, although much of what is said in this report could be applied to them.
PEER focused on three broad issues:
The following three sections of this summary correspond to these questions and provide PEER’s answers. The final section provides PEER’s recommendations.
The Relationship of the Foundations to the Individual Universities and to the Board of Trustees of Institutions of Higher Learning (IHL)
The relationship of foundations to the universities is one of an independent contractor to its principal. The foundations are not-for-profit corporations, not organizational subdivisions of a university. IHL policy requires that foundations contract with universities and sets out certain requirements to be included in the contracts. Further, foundations must also provide certain financial audits and reports and operate within generally accepted accounting principles as required by IHL policy.
External Oversight of University Foundations
No external governmental agency has authority to oversee all foundation operations. The federal Internal Revenue Service has some oversight authority for the university foundations due to their status as tax-exempt organizations. Regarding state oversight, upon request of the Governor or a legislator, the State Auditor may audit a foundation’s use of any state funds provided by the university. The PEER Committee also has oversight of university foundations’ contractual relationships with the universities.
State law exempts university foundations from the regulations of the Secretary of State’s Office regarding charitable fundraising. Foundations kept independent from a university’s control would most likely be shielded from public attempts to review records due to the Mississippi Public Records Act’s definition of “public body.”
While IHL has recently expanded oversight of university foundations while constructively addressing the issue of their integrity and independence, additional oversight measures could improve and enhance public assurance of institutional integrity. The Board of Trustees of Institutions of Higher Learning could refine its current policy to provide additional assurances that the integrity of foundation operations and fundraising is not compromised. PEER believes that the strengths associated with incremental increases in oversight would outweigh the weaknesses.
PEER’s Authority to Review Foundations
MISS. CODE ANN. Section 5-3-51 et seq. gives the PEER Committee authority to review multiple types of entities for multiple purposes, the ultimate goal of which is to effect legislative oversight. Specifically, CODE Section 5-3-57 gives PEER authority to review the contracts of agencies and to review public officers’ and employees’ functions. Thus PEER has broad statutory authority to review university foundations in the future should the Committee see fit.
Upon the request of a legislator or citizen, the PEER Committee could review the operations of a university foundation to determine whether foundations are in compliance with their contracts and IHL policy, as well as to make policy recommendations on the extent to which oversight could be improved.
Recommendations