The Hebrew University of Jerusalem used “creative accounting” to present a sham of financial health to the Council of Higher Education’s Planning and Budgeting Committee, according to a study commissioned by the panel. It claims that 1.17 billion shekels ($309 million) are missing from the university’s endowments.
The study, ordered by the committee in 2014, reviewed the university’s 2013 financial statements. It claims the university undermined donors’ trust by using money from endowments and other funds with strictly defined uses to cover deficits and recurring expenses.
The university is only permitted to use revenue from these funds, not the capital, and only for specified purposes, the report notes.
In a response, the university said its use of the money was legal and was done in consultation with its legal advisors. The university also said it would study the council's report and that many of the "irregularities" it shows for 2012-13 "have since been handled."
"A detailed response including a correction of most of the irregularities that the report pointed out, has been submitted to the council," the university also said.
The University added that it has launched a series of programs meant to solve its budgetary problems and to fund pension payments at the expense of ongoing activities, with the Council's approval. "The university's actuarial deficit is firstly the responsibility of the Council and the Finance Ministry, who have taken the obligation in writing 16 years ago, in parallel to the university's obligation to stop insuring new employees with a budgetary pension, to aid the university in funding its pension obligations and have violated this obligation," the university said.
The university said it was first to identify the problematic nature of budgetary pensions, changing its contracts with its employees to a cumulative pension 16 years ago. "The university reiterates its call to the Finance Ministry and to the Council to continue discussions and to work jointly with all sides and with the university staff in order to reach a comprehensive solution to allow strong financial conduct by the university and to stand up to its academic goals."
"It's important to remember that the Hebrew University is tasked with great public and academic responsibility. The university's contribution to science, to the city of Jerusalem and to the State of Israel is immense, and thus the solution must be comprehensive. Harming the Hebrew University is harming the State of Israel and its global standing."
The report notes in particular that some 10 million shekels earmarked for research was used to sponsor the 2013 Israeli Presidential Conference. Hebrew University staged a science exhibition at the conference.
“Hebrew University is in a very bad financial state,” states the report, “to the extent of difficulties meeting its financial obligations and carrying out projects it committed to vis-a-vis donors.”
The report says the university has a 1.3-billion-shekel deficit and negative cash flow amounting to hundreds of millions of shekels a year.
“The university’s liquidity is in a terrible state, which plays out inter alia as taking money earmarked for research and other special projects out of endowment funds to cover ongoing operations,” states the report.
The university’s endowment equals 66% of its total assets. Yet the university created the impression that its cash and liquid assets were greater than they were in fact, in order to conceal its liquidity problems, the report said.
The Planning and Budgeting Committee and the Finance Ministry consider the report’s findings very grave.
A higher education official who spoke on condition of anonymity said that the university’s method "reminds of pyramid schemes."
“The university spent nearly half its funds. As long as the university or its researchers continued to raise money you couldn’t tell, but when fundraising slowed the university couldn’t handle it, and it was exposed, the official said, adding that had the university been a publicly held company, its actions would have spurred a probe by the Israel Securities Authority.
Hebrew University submitted a report to the budgeting committee indicating that it ended 2013 without a deficit, and received a government grant as a result. In fact, the university had a deficit of 114 million shekels for the year, the study found.
Hebrew University is considered Israel’s leading university, based on international rankings. In 2013, its annual budget was 2.7 billion shekels. Half came from the state and half from tuition, donations and research grants.
As a result of the report, the committee froze 17.1 million shekels in university assets until the problems uncovered in the report are resolved. The funds had been earmarked for pension payments.
The committee threatened to impose new sanctions if additional misconduct is found.
The university’s board of governors was given until Friday to submit a proposal for fixing the problems.
The report was completed by the Schmidt Ben-Tsvi Nukrai & Co. accounting firm in September. The treasury and the board of governors have been discussing its findings for a few weeks.
In a response, the university said: “Cash received for research and special projects, as well as for investing in property, is indeed used for funding the university’s ongoing operations, but you cannot say that all the university’s operations are funded by these sources.”
As of September, Hebrew University’s endowment should have contained assets of 2.8 billion shekels, according to the university’s reports. In practice, though, these assets totaled only 1.69 billion shekels, meaning the university had used 1.17 billion shekels over the years, “apparently in order to cover deficits,” stated the report.
Not only did the university use these funds for inappropriate purposes and withdraw money from the investments themselves, it borrowed an additional 40 million shekels from these funds, states the report.
The university argued that its withdrawals from these funds were temporary, and that this was a legally acceptable practice. It added that future monies would be used to cover current debts. It had consulted with its legal advisors in using the money, it added.
In response to the publication of the report, University President Menahem Ben-Sasson assailed the council and accused it of responsibility for the university’s dire financial situation.
Ben-Sasson has been demanding that the state fund a larger portion of the university’s pension obligations, in exchange for implementing the remainder of an efficiency plan. Currently, pension payments account for 655 million shekels a year, one-quarter of the university’s budget.