Recent controversy involving the investments and other activities of a university-affiliated development foundation may serve as a prompt for health system board leaders to assure the appropriate legal, compliance and internal audit support of any system-affiliated development foundation.

The university foundation was the subject of an investigative media report that was critical of the actions of the foundation in acquiring a majority position in a former factory facility from its owner, a prominent university donor. While the expectation appeared to be that the acquisition would generate substantial financial benefits to the foundation, the transaction was ultimately undone after the foundation had been  unsuccessful in its efforts to sell the factory. The focus of the report was on both the diligence and related process applied by the foundation in deciding to enter into the transaction, and on allegations that the actual goal of the transaction was to facilitate certain tax planning strategies of the seller/donor.

The accuracy and perspective of such investigative media reports are often subject to question. Nevertheless, the extent of the coverage and the nature of the allegations themselves can be a useful reference point for health system leaders. The value of organized fundraising activities notwithstanding, the separate fundraising and asset investment corporations supporting (and under the control of) the health system should be subject to the same legal, compliance and accounting oversight as all other controlled corporations in the system, particularly with respect to the unique charitable registration and solicitation, charitable trust and exempt organization tax issues to which such foundations are subject. 

Corporate Law and Governance Update

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