Audit pointed to colleges risky loan
- Todd Murphy
- Portland Tribune - News
• Could Lewis & Clark board have prevented final loan payout? • September 2001 record showed oddities in investment account
An independent audit that apparently alerted Lewis & Clark College's board of trustees to a risky $10.5 million loan made to an Idaho oil recycling company is dated September 2001 Ñ two months before the final $4.5 million was disbursed.
It's not clear when board members actually read the audit document, but a college spokesman has said the audit alerted trustees to the loan.
And the date of the document could be important because it suggests that some trustees might have known about the loan before the final $4.5 million was disbursed two months later.
If that were the case, trustees responsible for college funds could have prevented the disbursement of that final $4.5 million on Nov. 9, 2001, to a company that had been losing money for years.
Former Lewis & Clark President Michael Mooney resigned two weeks ago in the wake of the controversy surrounding news of the loan. Environmental Oil Processing Technology Inc., of Nampa, Idaho, eventually defaulted on the loan without making any payments and is now bankrupt.
Despite repeated calls, the Tribune has not heard from Lewis & Clark board of trustees Chairman Fred Fields and other trustees to talk about their knowledge of the loan.
Mooney approved the loan in March 2001 without formal approval from the board of trustees, violating at least three college investment policies in doing so: The loan exceeded the college's $1 million limit for short-term investments with any one company; it was for a period longer than the 271-day limit for short-term investments; and it represented a far riskier investment than the investment policy recommends.
After Mooney's approval in March 2001, the college disbursed the $10.5 million to Environmental Oil from then through November 2001. Environmental Oil had promised to repay the loan Ñ with 12 percent interest Ñ by March 2002.
Mooney has spoken little about the loan since four weeks ago, the day after it was revealed in a Willamette Week article. But he said then that he made the loan without board of trustee approval.
A spokesman for the board said last week that the trustees first learned of the loan in November 2001 Ñ the month that the final $4.5 million was given to Environmental Oil.
'It was November of 2001 that the board's audit committee first met on this,' said Brian Gard, a public relations executive the college has hired to deal with questions about the loan. The board's audit committee received the annual audit in November, and that was when the transaction came to their attention, he said.
Gard would not say on what day in November the board learned about the loan, but the college redrew the loan papers on Nov. 5 for the purpose of asking Environmental Oil for more collateral. And the company's filings with the Securities Exchange Commission say it received the $4.5 million loan on Nov. 9.
The annual audit, produced by the accounting firm KPMG and addressed to 'The Board of Trustees, Lewis and Clark College,' is dated Sept. 7, 2001. The audit report is part of Lewis & Clark's annual filing of financial records with the Oregon Department of Justice.
Asked Thursday about the time lag between the September date of the audit and November, Gard said he would reconfirm with trustees the date of the audit committee meeting and would ask whether any trustees saw the audit before November.
On Friday, Gard said 'all of that area' is part of the investigation undertaken by the Portland law firm Tonkon Torp at the request of the college. 'And other than what I've already said, I'm going to defer any further comment on that until that review and analysis is complete,' he said.
KPMG also declined comment, citing client confidentiality.
It's not clear how much of the $10.5 million the college will be able to recover from the company. The loan, which was made from the college's operating funds, represented about 11 percent of the college's general fund budget and about 8 percent of its endowment.
Numbers show story
The September 2001 audit does not give specific details about the loan. But it does show high numbers in some accounts that would suggest an unusual investment was being made.
A column in the audit detailing assets in the 'operations' account shows about $5.9 million in 'cash and cash equivalents' and $6,125,304 in 'investments' Ñ a high amount for investments in that account compared with previous Lewis & Clark audits. (At the time of the audit, the college had disbursed about $6 million of the loan.)
The prior year's audit showed, in the same section, about $10.4 million in cash and cash equivalents and $172,109 in investments. And the audit completed in 1999 showed about $8.7 million in cash and cash equivalents and $169,097 in investments.
The September 2001 audit also listed in an 'investments' column, 'short-term notes receivable' in the amount of $6 million. There is no such category in the previous two years' audits.
Beyond the audit's date, there exists another potential connection between the board of trustees and earlier knowledge of the controversial loan.
After Mooney approved the Environmental Oil loan with help from a finance vice president at the college, amended loan papers were prepared by Portland's Stoel Rives law firm, which does legal work for the college.
(The law firm's name and an April 10, 2001, date are part of the fax stamp at the top of the loan papers, which are among the records in Environmental Oil's bankruptcy case in a federal court in Idaho. The papers do not indicate which Stoel Rives lawyer prepared the papers.)
Gersham Goldstein, a Lewis & Clark trustee through the 2001-02 school year, is a partner at Stoel Rives. He works in the law firm's taxation department. Goldstein did not return calls to his office last week. Citing the ongoing investigation, Gard said he would not comment on when Goldstein first learned of the loan.
Trustees oversee finances
What the trustees knew about the controversial loan Ñ especially what they knew before all of the $10.5 million was disbursed Ñ could be important because the board of trustees is ultimately responsible for the college's finances.
The trustees of any nonprofit Ñ including a private college such as Lewis & Clark Ñ are by state law responsible for the organization's finances and responsible for ensuring that the organization's assets 'are invested prudently,' according to a nonprofit guide from Oregon's Department of Justice.
Officials with the department's Charitable Activities Section have said the department will hold off on investigating the Lewis & Clark loan if college leaders assure department officials that the Tonkon Torp investigation will be thorough and that the college will issue a detailed report to the public on what the investigation found.
Fields has said college leaders plan to do that. Gard said college officials hope that the Tonkon Torp investigation will be finished by August.