U backtracks on settlement spending

The school didn’t follow policy that requires Board of Regents approval of lawsuit money.

Brian Edwards

Over the last two years, University of Minnesota leaders failed to seek proper approval before allocating $21.6 million won from lawsuits.
 
School policy requires that the Board of Regents approve how the school spends settlement money.
 
In 2014, the University was awarded money from two lawsuits. The funds were deposited in the school’s general fund and allocated by President Eric Kaler. Regents corrected the errors in the school budget last month, with administrators calling the error a mistake concerning an infrequently used policy.
 
Certain legal settlements have to be put into central reserves until approved for use by regents, according to board policy.
 
At last month’s board meeting, University Chief Financial Officer Richard Pfutzenreuter said the funds should have been included in the budget under central reserves to be compliant with board policy. 
 
Instead, the money was deposited into a University ledger until it received a recommended designation 
 
The money from the lawsuits — which related to overcharged health care accounts and a contaminated well on the West Bank campus — was used to refund the overcharged medical accounts, balance the University’s Law School deficit and aid in University of Minnesota-Duluth’s enrollment plan, among others.
 
Regents are required to approve any modifications to the central reserves or any expenses greater than $250,000. Any amount under that needs to be approved by the president and reported to the regents at their next meeting.
 
Some of the allocations were included in the 2016 budget — like $3.25 million for the law school and the $1.9 million for UMD, but it was not specified that the funds being used were from the lawsuits.
 
A similarly large settlement of about $5 million was properly deposited into the central reserves in fiscal year 2011.
 
Regent Michael Hsu said despite initial concern from regents over the mistake, he believed there was enough information to approve the resolution and finish up fiscal year 2015’s finances.
 
Still, he said he believes the oversight reflects poorly on the school.
 
“It’s a little bit embarrassing for the board and the administration,” Hsu said. “It’s important that we follow our policies, especially when it involves millions of dollars.”
 
The school indicated that this type of large settlement is rare and that it forgot about the board policy.
 
“Once we found out about that, we made an effort to bring it back through and make sure the correct account was reflected,” said Regent Richard Beeson.
 
He said the board looked back to see how often the school receives large settlements of this kind and found that it wasn’t often, and the mistake was an oversight by the University’s finance staff.
 
Many of these items end up as a part of the budget in some form, but Beeson said he is glad the school went back and properly rectified the error. 
 
At October’s board meetings, regents amended both the 2015 and 2016 fiscal year budgets to include the allocations from the lawsuits and come into compliance with board policy.