Friday, May 14, 2010
The Internal Revenue Service released a long awaited interim report on the responses it received to a questionnaire sent to a sample of 400 public and private nonprofit colleges and universities. Among the highlights:
- The report provides results for the 177 private institutions and 167 public institutions that responded. Of the remaining schools in the sample, 31 indicated they were not the type of organization targeted by the survey (e.g., not tax-exempt or only offering a two-year degree), 11 provided system-wide responses and were not included in the interim report, one was removed because it had been assigned to an incorrect size category, and 13 schools did not respond. The 13 non-respondents were referred to Exempt Organizations Examination (memo to self: always respond to letters from the IRS).
- Top executive compensation ranged from an average of $428,000 (median $361,000) for large schools (15,000 or more students) to an average of $202,000 (median $174,000) for small schools (fewer than 5,000 students). For the small schools the highest paid person other than an officer, director, trustee, or key employee was most often a faculty member (approximately 50% of the time) while at the large schools it was most often a sports coach (43%), followed in frequency by a faculty member (34%).
- Most although not all schools followed commonly recommended (including by the IRS) governance practices such as using the rebuttable presumption of reasonableness process to set at least some executive compensation (55% of the 122 small private schools that responded to this question, 71% of the 28 medium private schools, and 63% of the 8 large private schools), having a writing conflict of interest policy (over 80% in all categories), and making financial statements publicly available (over 75% in all categories).
- Almost all schools had an endowment fund, with target and actual spending rates of approximately 5 percent across the three size categories the IRS applied. An interesting question is whether this finding provides additional support for a mandatory payout rate - is this too little? - or undermines such a requirement - enough is already being spent without a legal mandate. (Not surprisingly, Senator Grassley has an opinion on this point.)
- A significant majority of the schools reported having related entities, with a large minority having at least 50% control of one or more such entities.
- Most schools had international activities, including educational programs outside the United States and foreign investments (often through investment entities - can you say "blocker corporation"?).
The IRS launched more than 30 examinations based on responses to the questionnaire, focusing primarily on executive compensation and unrelated business income issues, including the previously blogged about audit of Harvard University. The final report will include additional analysis and further information relating to responses.
For press coverage, see USA Today.