Ontario Auditor General Bonnie Lysyk has upheld her conclusion that Laurentian University did not have to file for creditor protection under the Companies’ Creditors Arrangement Act (CCAA) in response to its financial troubles.
Lysyk first made this statement in a scathing preliminary report released in April, and repeated the statement in her full, 117-page special report on Laurentian, which was released today. You can read the report online here.
The report does not name names regarding specific actions that were taken, instead referring to people’s titles. Lysyk does include a full list of LU administrators from 2010 to 2022, as well as a list of board of governors members as of March 31, 2020.
The auditor general is set to hold a press conference on the matter at 11:30 a.m. this morning following the report being tabled in the legislature, which happened around 10:30 a.m.
Lysyk was tasked with a value-for-money audit of Laurentian University’s finances by the legislature’s Standing Committee on Public Accounts last year.
This was in the wake of Laurentian becoming the first publicly funded university to seek creditor protection under the CCAA when it filed under the federal law on Feb. 1, 2021.
A press release issued alongside the report today stated Laurentian's overdependence on external legal and financial advisors led to the “unsuitable and damaging choice” to seek creditor protection using a legal process designed for private sector entities.
That decision was made because the taxpayer-funded university was in a perilous financial position, resulting largely from a series of “questionable strategic decisions” made by senior administration and a “lack of competent financial oversight and transparency” from the board of governors, said the press release from Lysyk.
“Although Laurentian’s operations were impacted by several external factors, the main cause of its financial decline from 2010 to 2020 was its poorly planned and costly capital expansion and modernization,” said Lysyk in the report’s overall conclusion.
“As the university began to amass more than $87 million in debt to pay for this capital expansion, the senior administration exacerbated the situation by making a series of questionable financial and operational decisions, including amending its internal policies to allow it to incur even more debt and increasing its senior administration’s costs.
“The poor management of the university’s financial affairs and operations was allowed to continue because of weak board governance and ministry oversight.
“Laurentian did not have to file for CCAA protection in response to its financial decline. Instead of following precedent and making a robust effort to secure government assistance to build an effective go-forward plan or work transparently with its unions, Laurentian, on the advice of external counsel, chose to file for creditor protection under CCAA.
“That choice led to significant repercussions for the publicly funded university, including the elimination of academic programs, job reductions, substantial additional costs, and a loss of transparency.”
The primary responsibility for Laurentian’s financial deterioration falls to the university’s senior administrators, who undertook capital expenditures without fully considering how the related debt would be repaid, said the press release.
Lysyk said that since at least 2007, Laurentian had been using restricted funds on capital projects.
The primary responsibility for Laurentian’s financial deterioration falls to the university’s senior administrators, who undertook capital expenditures without fully considering how the related debt would be repaid, said the AG. Lysyk laid out the following financial points:
• Since at least 2007, Laurentian had been using restricted funds on capital projects.
• In 2010, Laurentian weakened its Capital Debt Policy, allowing it to take on more debt.
• By 2012/13, Laurentian no longer had sufficient cash and investments on hand to cover its deferred contributions, primarily research grants.
• In 2013, the Board approved a proposal by senior administration to delay the elimination of Laurentian’s accumulated deficit, then rewarded the executive who came up with the plan.
• In 2016, when its main lender refused to issue it more debt, Laurentian obtained a line of credit that it became dependent on for sustaining its cash flow.
Although, as stated above, the report does not name names, it did talk about what happened when Laurentian hired a new president in 2009. That president was Dominic Giroux, who remained LU’s president until 2017, and is now the president of Health Sciences North.
“From then on, the university moved to expand and upgrade its facilities and programs in an attempt to increase enrolment, donations and research grants,” the report said.
The report said that from March 1, 2020, the restructuring process had cost Laurentian more than $30.1 million ($17.1 million for financial advice and monitoring and $13.0 million for legal fees).
This is nearly equivalent to the amount of full severance of $32.8 million the 109 faculty members terminated through the CCAA process were entitled to, as determined by Laurentian, the report said.
Laurentian also paid $2.8 million in fees for financial advice and another $2.5 million for legal expenses prior to filing for CCAA in January 2021.
“Our audit found that, under the guidance of external counsel, senior administration and the board of governors were more focused on pushing Laurentian into the CCAA process, and less on working transparently and cooperatively with the ministry, and faculty and staff labour unions,” Lysyk said, in the press release.
“Quite frankly, one has to question whether paying more than $30 million and counting for external legal and financial advisors would not have been better spent on educating students.”
Besides an assessment of what caused Laurentian’s insolvency, the report also includes recommendations for the university, its board of governors and senate, as well as the Ministry of Colleges and Universities and the Office of the Integrity Commissioner of Ontario.
You can read those recommendations starting on page 67 of the report. Among the recommendations for LU are establishing goals in a new strategic plan and preparing a new long-term capital plan.
In a situation that became national news, Laurentian refused to provide privileged (confidential) information to Lysyk’s audit team last year, saying they did not have to do so under provincial legislation.
Due to this dispute, Lysyk asked the courts for an interpretation of what is allowed for under the Auditor General Act. In January, a judge ruled that the act does not give AG the right to see privileged documents.
However, Laurentian did end up later having to hand over most of the requested documents after the legislature issued a rare Speaker’s Warrant.
Lysyk appealed the court decision regarding the privileged documents, with the hearing on that matter having been heard by the Ontario Court of Appeal on Nov. 15.
The AG commented on this situation in the press release that accompanied her full report on Laurentian University.
She thanked the province’s Standing Committee on Public Accounts, as well as the members of the legislature, for their support.
Lysyk said the finalization of the report was also made possible with the co-operation of Jeff Bangs, who is now chair of Laurentian’s Board of Governors, as well as current board members, and the Ministry of Colleges and Universities.
Laurentian University provided a response to the work of Lysyk’s audit team within the report.
“The university hopes the valuable lessons learned from the Auditor General’s review will benefit all of the higher education sector and other public sector institutions,” LU said, in part, adding that it agrees with the recommendations in the report.