In a scathing report, Ontario Auditor General Bonnie Lysyk said she believes the data shows Laurentian University did not have to file for creditor protection under the Companies Creditors’ Arrangement Act (CCAA).
This action was “strategically planned” and Laurentian “chose to take steps to file for creditor protection in the Ontario Superior Court of Justice on February 1, 2021.”
“In our view, there were many people hired by Laurentian who were more focused on laying the track that guided the train toward the CCAA process, and less on working co-operatively and with full transparency with the Ministry of Colleges and Universities and faculty and staff labour unions,” Lysyk said.
These assertions are among those in a 13-page preliminary report on Laurentian University’s finances tabled by Lysyk on April 13.
Laurentian University continues to undergo court-supervised restructuring after declaring insolvency more than a year ago.
The restructuring has included massive program and employee cuts, and the termination of ties with the federated universities operating on campus. Yet to come is a “plan of arrangement” in which Laurentian makes a plan to pay off its creditors, and finally exit the CCAA.
The auditor general was tasked with a value-for-money audit of Laurentian by the Ontario legislature’s Standing Committee on Public Accounts almost a year ago.
Lysyk said she’s only able to table a preliminary report on Laurentian at this time because of the university’s resistance — which has included legal challenges — to providing full information to her audit team.
“The delays have meant our office continued to receive and review information from Laurentian into April 2022,” she said.
Lysyk decided to table a preliminary report now “on what we’ve learned so far” because of the upcoming spring provincial election.
“We plan to work with Laurentian’s new chair and board of governors to finalize a comprehensive special report and release it in the near future,” said Lysyk, in a press release issued alongside her report.
“We hope Laurentian can emerge from the CCAA proceedings as soon as possible with a plan of arrangement, and with a strengthened foundation it can use to attract and educate future students, recruit top educators and conduct world-class research.”
Poor management to blame for LU’s financial struggles
Lysyk said that although external factors such as tuition freezes and the COVID-19 pandemic impacted Laurentian, her team has determined that the primary cause of the university’s financial deterioration from 2010 to 2020 was its pursuit of poorly considered capital investments.
“It proceeded with expansion projects without procedures in place requiring senior administrators to make a reasonable assessment of the value and viability of the plans, or to fully consider the risks associated with a rapid growth in debt,” the report said,
“We also found there was poor management of the university’s financial affairs and operations, exacerbating the situation.”
This poor management was allowed to continue in large part because of weak oversight by Laurentian’s board, Lysyk said. It lacked key operational and governance practices and expertise, and allowed transparency to decline.
For its part, the Ministry of Colleges and Universities, which is the primary government ministry responsible for monitoring the financial health of post-secondary institutions, did not proactively intervene in a timely manner to provide guidance to help Laurentian slow — or ultimately respond to — its worsening financial deterioration, said Lysyk’s report.
She said an external law firm that was working with the university on other business first introduced the concept of the creditor-protection process in 2019 to senior administration.
“We believe that serious consideration of the concept lay dormant until the spring of 2020, when Laurentian made the decision to actively pursue creditor protection,” she said.
The report said that as Laurentian’s financial situation grew increasingly dire, the university did not follow the normal broader public sector precedent by making comprehensive and clear efforts to seek financial assistance from the Ministry of Colleges and Universities.
It instead focused on advocating to elected officials and their staff, on the advice of external consultants.
In August 2020, Laurentian raised the potential of CCAA to then Minister of Colleges and Universities Ross Romano, but did not clearly define how much financial assistance was required from the province to avoid a CCAA filing, Lysyk said.
An explicit request for funding to the ministry was not made until December 2020, at which point the ask was “significant and the timeline for intervention was short.”
“Had it sought to work earlier and more transparently with ministry staff, had it not prematurely paid off and relinquished its line of credit in 2020, and had it accepted the temporary funding assistance that the province ultimately offered, Laurentian would have had sufficient time for its financial situation to be reviewed jointly with the province and a go-forward plan put in place,” said the auditor general’s report.
Lysyk said that nearly a year before Laurentian filed for CCAA protection, it had engaged lawyers and other consultants to explore strategic options, but the primary focus was on filing for CCAA protection.
“We believe that Laurentian’s actions in this regard were significantly influenced by these external parties,” she said.
As of March 3 of this year, the university had incurred legal and other financial consultant fees associated with its insolvency of more than $24 million.
Laurentian kept faculty in the dark on financial troubles
Lysyk’s report also details Laurentian’s dealings with the Laurentian University Faculty Association (or LUFA), which represents faculty at the university, with regards to the financial crisis.
She said the university’s contract with LUFA contains a financial exigency clause, designed to deal with dire financial circumstances.
Triggering this clause — which is included in most university faculty labour contracts in Canada, Lysyk said — would have required senior administration to work in partnership with LUFA to address Laurentian’s financial situation.
In 2020, LUFA requested that Laurentian’s senior administration trigger this clause and provide it with additional information on the university’s finances, Lysyk said.
“Laurentian’s senior management intentionally delayed providing information and did not trigger the clause,” she said.
“Instead, senior administration, with Board approval, chose to use CCAA protection, starting a process that diverted more money to external advisors through professional fees, was less transparent, and likely has had, and will continue to have, a greater impact on students, faculty, the community of Sudbury and the university’s reputation.”
Lysyk said that prior to its CCAA process, Laurentian suggested a significant cause of its financial decline was “excessive faculty costs.”
However, she said her audit team found Laurentian’s overall faculty costs did not significantly surpass those of comparable universities.
“In contrast, we found that it was high senior administrator salaries and expenses that negatively impacted Laurentian’s financial situation,” she said.
“From 2010 to 2020, the university’s senior administration costs grew by about 75 per cent, peaking in 2018 at more than $4 million annually, and the relative size of its senior administration had been consistently larger than most other Ontario universities.”
Lysyk also provided some observations on how a similar situation could be prevented from happening elsewhere.
She said mechanisms need to be set up that both respect universities’ academic independence and prevent them from falling so deep into financial distress that the situation negatively affects students, faculty and staff.
She said Ontario should consider the types of legislated limits on university deficits, borrowing and major capital expenditures found in other provinces.
In Nova Scotia, for instance, the government introduced the Universities Accountability and Sustainability Act in 2015 in response to instances of post-secondary institutions experiencing financial difficulties. This act serves to identify and correct financial difficulties before they become emergencies.
“Whatever model Ontario chooses, annual funding should be dependent on each university demonstrating to the Ministry that it has fully functioning governance structures in place,” Lysyk said,
“For instance, each board should have and follow clear ground rules on how it oversees its university’s activities.”
Sudbury.com reached out to Laurentian University for its response to Lysyk's report. We received a written statement from Jeff Bangs, the new interim chair of Laurentian's board of governors.
Bangs, one of several members appointed to Laurentian's board of governors by the province as part of a shakeup of the governing body last December, said Laurentian will "carefully examine" Lysyk's findings "as we build a new foundation for success and take steps to ensure Laurentian can never repeat the mistakes of the past.
"We look forward to working with the Auditor General and her team in an open and transparent manner to help her complete her final report."
Bangs added that after taking time to digest the report, Laurentian will share information about additional actions it is taking as a result of the findings.
"We know that our successful recovery will come from essential changes within the institution," he said. "Laurentian is absolutely committed to seeing this transformation to completion — and will do what is necessary to acquire the skills, operational efficiencies, transparency, and accountability that is required and expected from Laurentian.
"The board of governors will ensure the university works with all of our stakeholders, particularly our labour partners, to bring the CCAA process to a conclusion, end this chapter in the university's history, and build a brighter future."