Are NCF student scholarship funds going to Richard Corcoran’s salary?
The New College Foundation is being confronted with an extremely important issue: at the Foundation’s July 16th Governance Committee meeting and the July 23rd Audit Committee meeting, Foundation board members brought up that the Foundation staff can’t seem to definitely confirm that restricted funds – money that donors asked to be spent only on specific programs – are actually being spent by New College of Florida in line with donor restrictions.
To fulfill their fiduciary duty, the Foundation Board needs to request clear, detailed information from its staff about how money is spent. They need receipts and bank account information that establish donor restricted funds have not been spent inappropriately. It is a lapse in fiduciary duty if the Board fails to determine if donor wishes are respected. Donor confidence has been shaken because of unanswered questions about whether restricted funds are going to new athletics programs or Richard Corcoran's salary of $1.3 million per year. Beyond donor confidence, which threatens future funding, the Foundation needs to require transparency from staff to ensure there is no long-term risk that misuse of funds is discovered and the Foundation has to suddenly pay back large sums of money to the restricted funds. This could lead to a hit to the endowment and impair the Foundation's ability to deliver on budgetary promises to fund college programs.
The high-level numbers do not make it clear if restricted funds are staying restricted
Foundations and other non-profit entities are bound by rules for how funds can be spent. When a donor gives money to the Foundation, they can choose to have control over how their gift is allocated. In order to understand our concerns/questions about the NCF Foundation's spending, it is first important to understand 1) the sources of Foundation dollars; 2) differences between restricted and non-restricted funds; and 3) how the Foundation decides how much they can allocate in a given year. To that end, some definitions:
Endowment: money held by the Foundation intended to support the college in perpetuity via the returns/interest being spent while the corpus is preserved.
Corpus: the principle funds of an endowment, contrasted with the return from investing the fund.
Non-endowment funding: funds coming from external sources such as grants, donations, third-party trusts paying dividends to the Foundation, etc. which are not held in the New College Foundation’s endowment.
Restricted funds: may only be used for specific purposes, e.g. PepsiCo Endowed Chair funds can only be used for that specific professor’s salary, scholarship funds may only be used for student scholarships, etc.
Unrestricted funds: may be used for any purpose.
Spending policy rate: the Foundation board sets a predetermined percentage of the endowment fund they will spend each year – this is different than using a rolling average or some other method to decide how much funding to budget for given the actual endowment return for a given year can’t be known ahead of time. The New College Foundation reduced its total spending rate in 2023 from 5.5% to 3.5%. The spending policy rate has two components:
The administrative fee, set at 2.25% for the New College Foundation, which are unrestricted dollars, and;
The direct spend, also referred to as the program spend, which is set at 1.25%, and which must be spent in accordance with any restrictions of the corpus.
Enhancements: an overarching term for improvements to the school which might include programs, buildings, research grants, faculty pay, etc.
Looking at the New College Foundation budget for FY2024, there is $544,028 budgeted to go to New College of Florida from various endowed programs including some specifically for scholarships and enhancements, plus $1,295,510 of non-endowed funds labeled “Scholarships & Enchancements” (typo in the original, budget begins on page 23 of the October 2023 NCF Board of Trustees materials).
As the budget excerpt above shows (highlights added), the endowment and non-endowment funding add up to a bit over $1.8 million. Now an important question: how much of that $1.8MM related to scholarships and enhancements is restricted to being spent on scholarships and specific enhancements – that is, must be spent on scholarships and specific enhancements?
The answer is unclear from the publicly available budgets, documents, or public board meeting discussions to date.
But let’s hazard a guess, and start with scholarships. During fiscal year ‘23, the Foundation provided $1.1MM in scholarships (see page 249), presumably most of which was restricted, so let’s guess that $900k of that $1.8MM is restricted to scholarships.
But in the Foundation budget, we only see $500k being allocated to scholarships:
Under this guess, a reasonable person is left with the uncomfortable possibility that donor intent was not honored for up to ~$400k of restricted scholarship funds which did not go to scholarships, but instead went to one of the other funding areas: athletics, college lobbyist, and Richard Corcoran’s salary (listed as “President Salaries”).
Looking at enhancements, we also don’t know how much of that $1.8MM is restricted to enhancements that do not include athletics, college lobbyist fees, or Richard Corcoran’s salary. But if we took a reasonable guess that most of the other $900k has some level of restrictions for enhancements, we’d be very surprised to see that the Foundation budget shows only $133,682 allocated for enhancements.
In total, the New College Foundation allocated only $633,682 of that $1.8MM to scholarships and enhancements for FY2024.
A reasonable person is left to wonder: is only a third of that $1.8MM actually restricted to scholarships and enhancements, which would mean two-thirds of that $1.8MM is totally unrestricted?
And if not, how much of that $1.8MM was supposed to go to scholarships and enhancements and instead went to other programs: athletics, college lobbyist, and Richard Corcoran’s salary?
And most importantly: is the Foundation board of directors doing their fiduciary duty to ensure they know the answers to these questions and are properly stewarding funds so that they’re spent in line with donor restrictions?
What should the Foundation board do?
The New College Foundation’s board should first receive clarity on exactly which funds are restricted to scholarships and enhancements, and which are not. There was discussion of this at the July 23, 2024 Foundation Audit Committee meeting, with indications from Foundation staff that while this has not been made available to the board it could be made available to the board quickly and before their August 21st board meeting. We hope to see that happen.
The Foundation board should also receive a more detailed breakout of the $1,295,510 non-endowed “Scholarships & Enhancements” dollars, including any restrictions. At a minimum, breaking this into two separate categories, one for scholarships and one for enhancements, would give a much more useful level of detail for the board to understand what the money is intended for rather than lumping potentially different monies together in a single category.
The Foundation board should request a list of expenses billed to each restricted fund so they can confirm the funds were spent correctly. If, as it seems based on discussion in the public Foundation board meetings, that the Foundation is sending New College essentially a lump sum of money and does not reimburse for specific expenses (e.g. for each scholarship disbursement, for each endowed chair paycheck, etc.), then this would require New College of Florida to provide those receipts to the Foundation. With scholarships, for example, it would be prudent to see a list of all scholarship disbursements broken out by funding source (E&G, Foundation, etc.).
The board should request from New College of Florida the college’s process for tracking use of restricted funds. If the Foundation is sending money to the college but not receiving receipts, then the Foundation has no way to ensure donor intent is being honored unless the college categorizes expenses and allocates them carefully by fund and by restrictions for use of those funds.
As an illustrative example: imagine a donor giving funds that they want restricted to cancer research, which the nonprofit then gives to another organization in the form of a research grant – the nonprofit would receive receipts and financial summaries back from the grant recipient in order to ensure the money was actually spent on cancer research and thus honoring donor intent. In the same way, the New College Foundation needs to ensure that money donors restricted to scholarships or other enhancements were actually spent by the college in line with those restrictions, and receiving receipts and expense reports from the college is required to fulfill the Foundation’s fiduciary duty to donors of restricted funds.
This kind of restricted fund accounting is the norm, and the requirement, within the nonprofit world. Below are two examples of the kinds of processes that exist between Florida universities and their respective Foundations, one a defined process and the other a routine audit, and these can serve as a model for the New College Foundation:
FIU provides for a defined process: “Restricted contribution revenues in excess of $2,000 are typically tracked via a unique project in PantherSoft. Each project is assigned to a school, college, or business unit based on the donor’s purpose and restrictions. The school, college, or business unit makes use of these funds to support the educational, research, and public service mission of the University and in accordance with the donor’s designation or intent. Deans and faculty members often work with the Foundation Development Office during the solicitation of potential donors. The school, college, or business unit utilizing these funds are aware of the donor’s designation or intent and are responsible for adhering to these restrictions. The school, college, or business unit serves as the first level of approval before any request for disbursement is submitted to the Foundation Finance Office.” From https://oia.fiu.edu/wp-content/uploads/2020/12/Audit-of-Compliance-with-Donor-Confidentiality-and-Intent.pdf
UF report on routine Foundation audit: “The Office of Internal Audit conducted an audit of the University of Florida Foundation endowed restricted gift funds for the period January 1, 2014 through December 31, 2014. The primary objectives of this audit were to evaluate controls to determine if university units used the funds in accordance with donor intent, foundation policies and university directives; that donor intent was adequately communicated to university units; and that transfers of endowed restricted funds to the university were deposited intact and processed through appropriate channels.” From https://trustees.ufl.edu/media/trusteesufledu/minutes/2015/Audit_December-3,-2015.pdf
The Novo Collegian Alliance encourages the New College Foundation board to take the necessary step to confirm that restricted funds are being spent by New College of Florida in line with donor restrictions. It is their fiduciary duty as board members of a tax-exempt charity, important for the long-term financial health of the Foundation, and directly addressing these concerns would be an important step in gaining back trust with the alum community who are an important long-term donor base for the Foundation.
FAQs
The Foundation and the college both have an annual audit - wouldn’t it show any problems with restricted funds not being used correctly?
Probably not. The New College Foundation’s audit does not seem to look at whether the source of funds (“revenues”) are restricted or not. These kinds of audits often have language at the end of the documents making clear that compliance with funding restrictions (e.g. from grants, donors, contracts, etc.) is outside the scope of the audit. Most routine audits look at the transactions that are available in the organization’s financial books, and if the Foundation is sending money to the College for scholarships in a lump sum, the expenses would not be in the Foundation’s books and hence not available for audit. One way to think of this: the Foundation has the restrictions for scholarships and enhancements, and New College has the receipts for scholarships and enhancements, but neither entity has both the restrictions and the receipts, so any audit of any single organization’s internal books can’t determine if restricted funds were spent correctly.
Can’t the endowment funds be used for anything New College of Florida’s administration wants?
Not entirely. In the Foundation’s 3.5% direct spend rate, 2.25% of that is an admin fee and can be used for anything – but the other 1.25% carries any restrictions that the corpus has. In the discussion above, the $544,028 comes from that 1.25% direct spend portion, which would carry any restrictions from the corpus.
What if the Foundation doesn’t know exactly which funds are restricted or what those restrictions are?
That needs to be remedied ASAP to avoid negative consequences, including potentially millions of dollars being misused and having to be paid back to the appropriate funds, leading to a huge budget shortfall down the road.
