Colleges Caught when Donors Touched by Scandal

Recently, the Associated Press reported that 47 American colleges and universities have endowments exceeding $1 billion. How much of those endowments, and of the many donations made to less financially well off schools have a whiff of scandal to them. After all, some of the high-flying CEOs and much sought after alumni donors of only a few years ago find themselves embroiled, accused and even convicted of financial misdeeds today.

Schools across the country are finding themselves tied to the recent string of corporate scandals like Enron, Tyco, WorldCom and others. What is a school to do when a prominent and generous donor, probably an alum, find themselves facing years behind bars at worst, disgrace and unemployment at best, as these scandals work their way through the courts?

Many schools adopt a wait-and-see attitude citing the presumption of innocence. But that only works until a person is convicted. Of course, if the person is acquitted, then the taint of scandal, on their gift, and presumably on the person, is lifted. Unfortunately, as Arthur Andersen employees can attest, it can take years and numerous appeals, to be acquitted and then it may be too late. The taint of scandal is permanent even if the conviction is reversed.

The Pittsburgh Post-Gazette reports that the gifts made by embattled donors are not usually directly linked to any alleged or actual misdeeds. That means the issues facing the colleges and universities who benefited from the largesse of better days are generally limited to name association. If the school is fortunate, the association is easily disguised by taking the donor’s name off public lists and publications. If the gift was significant, however, schools may find themselves wondering whether they should change the name of scholarships, professorships, awards, buildings/facilities or entire schools.

In some instances, schools return the money, either because they have to or to separate themselves from the scandal. Schools including the University of Oregon and the University of Michigan have given money back in recent years.

The Chronicle of Higher Education estimates that more than $100 million received by colleges and universities from donors in 2003 was from firms or individuals suspected, accused or convicted of fraud. This is only a fraction of the total amount given to schools that year. Nonetheless, the 2001 College and Beyond survey, published in Nonprofit Management and Leadership, found that half of all donations were given by the most generous 1 percent of donors, indicating that the size of the gift, the number of institutions involved or both could be significant.

Many schools are not even aware of alleged misdeeds or investigations until they are reported in the media.

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