With friendly experts like these, who needs enemies? Last week, Sweet Briar’s law firm, Williams Mullen, filed an “Expert Report” dated May 26, 20151 conducted by Harold G. Martin, Jr., CPA. This main report was 73 pages long, and has all kinds of data in it. The report essentially parrots everything the board has said in the past justifying their decision to close.
But far more interesting was a 15 page supplement to that report filed today, and I have to say, I am baffled as to why Sweet Briar’s attorneys decided to file it of record. It’s the kind of thing that I would have tripped over my shoelace and accidentally dropped in the shredder.
Let me just cut and paste some of the highlights (the notes he is referencing are from the June 30, 2014 audited financial statements):
5. Based on my professional experience and educational background, as well as the scope of work I have performed in connection with this matter as described elsewhere in this Supplemental Report, it is my professional opinion, to a reasonable degree of certainty, that:
- Note 12: Unrestricted Net assets – The amount of unrestricted net investments in land, buildings, and equipment as stated in Note 12 for the financial statements for the fiscal year ended June 30, 2014, was understated. Further, this resulted in a corresponding overstatement of the amount of unrestricted funds functioning as endowment for this same period. For the fiscal year ended June 30, 2014, the unrestricted net investments in land, buildings, and equipment was understated by $ 17,514,042 and the unrestricted funds functioning as endowment were overstated by this same amount. 2
- Note 15: Endowment (unrestricted endowment) – As result of the aforementioned adjustment, the amount of the unrestricted endowment as presented in Note 15 of the financial statements for the fiscal year ended June 30, 2014, was also overstated by $17,514,042.
- Note 15: Endowment (board-designated, temporarily restricted endowment funds) – Further, the amount of the board-designated, temporarily restricted endowment funds as presented in Note 15 for the financial statements for the fiscal year ended June 30, 2014, was understated by $7,601,131.
- Note 15: Endowment (total) – After restating Note 15 for the financial statements to reflect the aforementioned adjustments for the fiscal year ended June 30, 2014, Sweet Briar’s unrestricted endowment declined from $28,608,602 to $11,094,560, the temporarily restricted endowment increased from $12,973,516 to $20,574,647, the permanently restricted endowment remained unchanged at $54,367,027, and the total endowment declined from $95,949,145 to $86,036,234.3
- Projected Fund Available to Fund Operations – With respect to the financial projections, after making the adjustment to reduce the amount of unrestricted funds functioning as endowment, the amount of the unrestricted net assets available for operations (excluding land, building, and equipment) declined to $17,274,340 as of June 30, 3014. The projected ending value of unrestricted net assets available for operations declined to $10,916,737 as of June 30, 2015. Under Option 1 (which assumes the College closed on June 30, 2015), the projected ending value of unrestricted net assets available for operations declined to $396,510 as of June 30, 2016. Under Option 2 (which assumes the College remained open), the projected ending value of unrestricted net assets available for operations declined to a deficit of$15,117,295 as of June 30, 2016.4
$17.5 million is one hell of a big number to miss things by, as is $9 million.
Also, the financials show investments of $88 million, and the supplemental report says the total endowment is only $86 million. How do you have more investments than endowment?? I’m not a CPA, but that seems like someone has a broken calculator or something. I’ll need an accountant who understands endowments to ‘splain what it means. As best as I can tell, they are just shuffling endowment money from one column to another and not changing the bottom line.
He then goes into some scenarios – one for shutting down the college and another based on no freshman class for year and then shutting down. They seem to be ignoring the fact that Saving Sweet Briar has got $15 million over 5 years pledged, with more than a third of that in the first 30 days. It also looks as if they anticipate the sum total of $0.00 being donated if they stay open. There are so many things wrong with the assumptions it’s not even funny.
All this leaves me wondering… Who misrepresented the numbers in the audited financial reports? Was it Cherry Bekaert, the independent auditor who prepared the audited financials, the Finance and Investment Committee, or Scott Shank (he is a CPA)? In looking at the calculations the expert did, it looks like this goes back prior to Shank, which then begs the question of why he didn’t catch it.
I’ll have more on this as information comes available.
This report contains links to 20 different source documents of great value.↩
Meh. Minor detail there. Only off by $17.5 million.What’s $17.5 million between friends, right?↩
This has to be some type of Common Core accounting method since the investments are listed at $88 million.↩
The assumptions made to arrive at this calculation make no sense↩