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The main entrance to the Laurentian University campus on Feb. 1, 2021.Gino Donato/The Globe and Mail

Laurentian University made a strategic decision to opt for creditor protection rather than work with the Ontario government to right its finances, the province’s Auditor-General says in a preliminary report, leading to nearly 200 job losses, millions in added costs and damage to the postsecondary institution’s reputation.

The university did not seek comprehensive help from the government as its financial situation worsened, or find an alternative path that could have averted some of the damaging consequences of insolvency, Auditor-General Bonnie Lysyk says. Instead, the university had been planning for a year, with outside consultants and lawyers, to use the Companies Creditors Arrangement Act, which grants wide latitude for emergency cost-cutting measures.

“We believe Laurentian did not have to file for CCAA protection,” the report released Wednesday says. “Had it sought to work earlier and more transparently with Ministry staff, had it not prematurely paid off and relinquished its line of credit in 2020, and had it accepted the temporary funding assistance that the province ultimately offered, Laurentian would have had sufficient time for its financial situation to be reviewed jointly with the province and a go-forward plan put in place.”

Laurentian became the first publicly-funded Canadian university to file for CCAA protection in February, 2021, a decision that unleashed a contentious process that eliminated a third of the university’s academic programs. The university also terminated 195 faculty and staff, including dozens of tenured professors. More than 900 students had their course plans disrupted as classes and programs disappeared. Applications from new students have since plummeted, raising further doubts about the school’s future.

The report said Laurentian’s financial problems date back more than a decade to a plan to modernize and expand its campus, described as a risky “build it and they will come” approach. The new buildings more than doubled the university’s debt between 2010 and 2016, but didn’t generate enough additional revenue or attract new students. As its fiscal woes escalated, the university spent funds designated for research purposes and employee health benefits just to keep the lights on. They inappropriately labeled these transfers “internal financing,” the report says.

The report identifies poor management on the part of university and poor oversight from the board of governors and its audit committee for failing to halt these practices. The Auditor-General also highlights the Ministry of Colleges and Universities (MCU) for failing to proactively intervene and respond to Laurentian’s deteriorating finances.

The idea of using the CCAA to address Laurentian’s financial problems was first raised by an external law firm that was working with university administrators in 2019. Laurentian appears to have decided to pursue this path in the Spring of 2020, the report says. The university did not go to the MCU and explain its situation and seek help, nor did it trigger the financial-exigency clause in its collective agreement, which would have led to a lengthier process working with the faculty union to reduce costs.

In August, 2020, Laurentian mentioned the possibility of using the CCAA to then-minister Ross Romano, but did not detail its situation or formally request a bailout. The explicit request for help to the ministry was made in December, 2020, at which point the amount they were seeking was large and time was short, the report says.

The decision to go the CCAA route has also led to large additional costs for the university, with more than $24-million spent on lawyers and consultant fees and a $24.7-million charge stemming from changes to its loan agreements.

The university claimed initially that its difficulties stemmed in part from the costs of paying its faculty, but the report says that was not the case. Administrative costs, which grew 75 per cent in the last decade, were higher than at comparable schools while faculty costs were similar, the report concludes.

By using the CCAA, rather than the financial-exigency clause in its collective agreement with professors, the university was able to fire people with little or no severance and outside the rules agreed upon in their contracts.

“The report validates everything we’ve said for the last 14 months. We always said the CCAA process is not appropriate,” said Laurentian faculty association president Fabrice Colin.

The Canadian Association of University Teachers called the report a damning indictment of Laurentian’s administration and demanded the resignation of president Robert Haché and other senior administrators.

Laurentian responded to a Globe request to interview Dr. Haché with a statement from the interim chair of its board, Jeff Bangs. The statement said the board welcomes and will carefully examine the report’s findings.

Asked if Laurentian was led down the wrong path by pricey advisers, Ms. Lysyk told reporters at Queen’s Park that it was clear the CCAA process gathered its own momentum, but that ultimately the board and the management of university were responsible.

“I think what happened here is that they turned to people that they thought would give them an option that they maybe hadn’t considered in the past to deal with a lot of issues that would require a lot of work,” she said.

The Auditor-General also said she planned to bring forward recommendations to increase oversight of university finances in a future final report, in order to ensure another institution does not end up in the same situation. She said other provinces have more rules over the bottom lines of their universities, such as requiring balanced budgets and controlling capital spending.

Ontario’s Minister of Colleges and Universities Jill Dunlop said the government has taken action to protect the interests of students throughout Laurentian’s troubles. She stressed that the university is an independent, autonomous institution that has made its own decisions.

The Opposition NDP’s France Gélinas, the MPP for the Sudbury-area riding of Nickel Belt, said the report shows the government could have intervened to stop Laurentian from going over the brink and that new rules are needed to ensure the same thing does not happen to other institutions.

With a report from Jeff Gray

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