Laurentian University has “strategically” sheltered itself from creditors in 2021, Ontario’s Auditor General says in a preliminary report on the institution’s financial difficulties released Wednesday.
Auditor General Bonnie Lysyk investigated the restructuring at the request of a group of Ontario MPs. The Northern Ontario university filed for protection under the Companies’ Creditors Arrangement Act (CCAA) in February 2021 after declaring itself insolvent. In the weeks that followed, the establishment cut 72 programs, including 29 in French, and dozens of professors were fired.
This drastic measure was facilitated by the use of the restructuring process, notes Bonnie Lysyk. “By sheltering itself from its creditors under the CCAA, Laurentian was able to circumvent the provisions of its collective agreements,” writes the Auditor General. In addition, the restructuring allowed Laurentian to “limit full disclosure of financial and operational information to the public”.
In her preliminary investigation report, Bonnie Lysyk asserts that the university could have avoided going through a restructuring under judicial protection. “The university broke with the usual broader public sector precedents in making a comprehensive and clear effort to seek funding from the Ministry of Colleges and Universities,” she wrote. 40% of the university’s income comes from the government.
According to Bonnie Lysyk, the university was slow to submit a formal request for funding to the ministry. A request was not submitted until December 2020, but the government’s response time was too short and it was “accompanied by insufficient information”. A few months earlier, in August 2020, Laurentian presented the potential of the CCAA to the department, but did not define the amount necessary to avoid legal proceedings. Laurentian University is the first public university in Canada to restructure under the CCAA.
The Auditor General suggests that about a year before the start of the restructuring, legal proceedings were already in the cards. Lawyers and consultants hired by the university considered strategic options to improve the financial situation of the institution — which was then heavily in debt — but that these options “mostly focused on the application for protection under the CCAA “.
Overpaid executives
Over the past ten years, the university’s debt has soared, notes Bonnie Lysyk in her audit. Long-term debt in 2020-21 reached $89.9 million. Between 2014 and 2019, Laurentian’s principal and interest payments on long-term debt nearly quadrupled. Senior management has not developed a long-term financial plan taking into account the risks associated with debt growth.
In contrast, the university’s senior executive salaries and expenses “have had a negative impact on Laurentian’s financial condition,” the report reads. However, according to the university, it was instead the excessive costs of its faculty that was a “significant cause of its financial decline”. Yet, notes Bonnie Lysyk, Laurentian’s overall faculty costs “did not significantly exceed those of comparable universities.”
According to the Auditor General, the salaries of senior executives at Laurentian exceeded the limits set by the law aimed at capping the compensation of executives in the parapublic sector. For its part, the institution’s Board of Governors — the equivalent of the board of directors — “did not ensure that
the administration provided him with the information necessary to fully understand […] the financial viability of the university”.
Little ministerial oversight
Bonnie Lysyk also points the finger at the Ministry of Colleges and Universities in her audit. Its lack of oversight of post-secondary institutions has “prevented officials from fully recognizing and addressing the serious financial problems facing Laurentian.” Financial monitoring of universities only started in 2014-2015, but by then the institution had already had financial problems for at least five years.
When the department finally identified Laurentian’s financial problems, officials made no attempt to intervene proactively, the auditor general said. “Even if it had wanted to, the ministry does not have the clear legislative authority to intervene and unilaterally demand changes to the activities of a university,” she continues.
The Ministry of Colleges and Universities is thus criticized for its role in the file of the restructuring in less than a month. In her report investigating cuts specifically to Laurentian’s French-language programs, French Language Services Commissioner Kelly Burke concluded that the department had been lax in failing to prevent the university’s French-language programs from being cut. who were protected under the French Language Services Act.
This story is supported by the Local Journalism Initiative, funded by the Government of Canada.