Senate Committee Starts Investigation of American University’s Board

American University and its Board of Trustees are under investigation by the Senate Finance Committee over the severance pay and compensation paid to the institution’s former president, Benjamin Ladner.

In a four-page letter to the board last week, Sen. Charles E. Grassley, the Iowa Republican who is the committee’s chairman, said he was “deeply troubled” by how the trustees had handled Mr. Ladner’s departure.

The controversy over Mr. Ladner’s remuneration is bolstering efforts by Senator Grassley to impose new rules on charitable and other tax-exempt nonprofit organizations and their boards.

In the letter, Mr. Grassley demanded that the university provide an extensive array of documents that would help senators to determine if the board had approved overly high salary and perks for Mr. Ladner and other top officials, and to see if there is “sufficient transparency regarding your highly compensated officers, directors, trustees, and employees.”

“The Finance Committee has been engaged in a bipartisan review of charities and reform of charities, and it appears the AU board could be a poster child for why review and reform are necessary,” Senator Grassley wrote in the letter, which was addressed to Thomas A. Gottschalk, acting chairman of the American board.

Mr. Grassley plans to propose a package of legislative measures designed to improve accountability at nonprofit organizations.

A spokeswoman for American said the institution’s officials had no comment on Mr. Grassley’s inquiry.

Mr. Ladner resigned as president of American last month and accepted a severance package that included a pretax sum of $950,000 and $2.75-million in benefits earned during his 11-year tenure.

An audit commissioned by the board had found that Mr. Ladner had improperly charged $125,000 in personal and travel expenses to the university during the past three years, and that $398,000 in other charges he had made must be reported to the Internal Revenue Service as part of his taxable income.

In such circumstances, Mr. Grassley said, the board’s decision to award the severance package to Mr. Ladner was alarming.

“Such actions raise significant questions about what other things a charity that has such a cavalier attitude toward the tax laws might be doing, especially in light of escalating tuition increases,” he wrote.

Mr. Grassley said he was dissatisfied that the audit commissioned by the university’s board had covered just three years of Mr. Ladner’s time in office.

“Given the extraordinarily troubling findings from the audit of the most recent time period, please inform me of your plans to conduct a complete audit of the entire 11 years,” he wrote.

Senator Grassley also asked the university to describe how it handles expenses and requests for reimbursement, to “explain whether such policies were followed and enforced with respect to Mr. Ladner,” and to discuss what policy changes it might be considering.

Mr. Grassley made clear that he wanted to know if trustees had violated a federal law that gives the IRS the authority to fine charity officials, such as Mr. Ladner, for receiving salaries and other benefits that are deemed excessive, as well as to penalize trustees who approve the compensation.

The senator requested “all material, discussion, legal opinions, compensation studies and analysis, or other related items used by the AU board” when making decisions about Mr. Ladner’s compensation, severance pay, and expense reimbursements, including minutes of board and committee meetings and written materials.

“Identify consultants, accountants, lawyers, and/or other outside advisers used” to set pay, wrote Mr. Grassley, who also asked for similar information about American’s compensation of other top officials, beyond Mr. Ladner.

Trustees’ Qualifications

On the matter of board governance, Mr. Grassley said he wanted a short biography of each board member who served during Mr. Ladner’s 11-year tenure, including the trustees’ qualifications and reasons for selection, as well as the disclosure of the compensation, loans, or property leases provided to board members by the university.

Mr. Grassley also asked the institution to describe all no-bid contracts issued over the past 11 years that exceeded $100,000 and how they were awarded; to provide all correspondence with the IRS for the past five years; to state if it plans to amend tax returns previously filed with the federal government; and to explain how the institution has used proceeds from tax-exempt bonds.

Last month Mr. Gottschalk and Gary M. Abramson, chairman-elect of American’s governing board, issued an apology for the board’s performance in dealing with the Ladner controversy, acknowledging that the board had lacked a “clear understanding” of Mr. Ladner’s contracts and various forms of compensation.

“Had we been more vigilant and had more robust processes, the situation we have had to confront might never have occurred,” the two trustees wrote. “The board has resolved to do better, much better, in the future.”

In addition, four former trustees who resigned during the course of the investigation into Mr. Ladner’s spending issued a strongly worded letter that criticized the board for the severance agreement. The former trustees argued that “the university owes Ben Ladner nothing” and that the board could have legally refused to give Mr. Ladner the one-time payment or to grant him the previously earned retirement benefits.

A copy of Senator Grassley’s letter is on the Web site of the Senate Finance Committee, http://finance.senate.gov.

Paul Fain, a reporter at The Chronicle of Higher Education, contributed to this article.