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The R.D. Parker Building on the Laurentian University campus in Sudbury, Ont., is photographed on Sept 12, 2022.Fred Lum/the Globe and Mail

Ontario’s Auditor-General says Laurentian University should have worked with the provincial government to find solutions, rather than file for creditor protection on the advice of external counsel, after years of poor strategic decisions and weak board oversight put its finances in peril.

Auditor-General Bonnie Lysyk said Laurentian’s primary problem was significant spending on new building projects that were not accompanied by plans to ensure their viability, which she labelled a risky “build it and they will come” strategy.

The millions in capital spending did not result in significant enrolment gains or increased revenue.

Sudbury-based Laurentian declared insolvency in February, 2021. At the time, it said it was weeks away from being unable to meet payroll. It was the first Canadian public university to file for creditor protection under the Companies’ Creditors Arrangement Act, or CCAA, a piece of legislation designed for private-sector entities.

As a result of the insolvency, 116 faculty and 79 staff lost their jobs. At the same time, Laurentian terminated its agreements with its three federated universities, Huntington, Thorneloe and the University of Sudbury, which resulted in a further 146 job losses.

The upheaval has had a destabilizing impact on the university, which saw applications from Ontario high schools drop by more than 40 per cent, and more broadly the city of Sudbury and Northern Ontario.

In April, 2021, a committee of the Ontario legislature asked the office of the Auditor-General to conduct a special audit of Laurentian’s operations to determine what happened. The report was tabled in the legislature Thursday morning.

Ms. Lysyk found a succession of oversight failures that led to deteriorating finances. But she also said the university deliberately chose the CCAA route, which allowed it to cut jobs and bypass collective agreements, rather than working with unions and the provincial government to find a more orderly solution.

“Laurentian’s leaders made a bad situation worse by declining government assistance, circumventing obligations to work with faculty and staff, and opting to file for court protection,” Ms. Lysyk said in her report.

She said more than 900 students had their studies “short circuited,” more than 340 jobs were lost, and millions of dollars were wasted in the process.

Ms. Lysyk said the university made the strategic choice to file for insolvency, based in part on advice from external counsel. It repaid the bank line of credit it had been using to help fund day-to-day operations, which precipitated a spending crunch. Had it not done so, it could have funded its operations for another year, the Auditor-General said, giving it time to devise a plan with the provincial government. The province had indicated a willingness to provide financial assistance for a short time if Laurentian opened its books and worked with an external adviser.

“Our audit found that, under the guidance of external counsel, senior administration and the board of governors were more focused on pushing Laurentian into the CCAA process and less on working transparently and co-operatively with the ministry and faculty and staff labour unions,” Ms. Lysyk said. “Quite frankly one has to question whether paying more than $30-million and counting for external legal and financial advisers would not have been better spent on educating students.”

She identified a number of issues including a bloated senior administration, which spent beyond its means.

Ms. Lysyk found in her report that Laurentian began spending money that ought to have been reserved for research on capital projects as early as 2007 and improperly labelled these funds “internal financing.” She said it was unclear whether the board had enough information to understand that this financing was coming from money reserved for another purpose.

For years nearly all university finances were run through a single bank account, which may have obscured what was happening and made board oversight more difficult, the Auditor-General said. The university adopted a segregated bank account system in December, 2020.

As of April, 2021, the university’s obligation for research costs was $36.5-million.

Ms. Lysyk noted that although people within the university were aware of preparations to file for creditor protection, Laurentian’s own audited financial statements as late as 2020 made no mention of any issues. She said it was clear the university had not disclosed to its auditors that it was preparing to declare insolvency.

She also pointed out that universities in Ontario don’t have a legislated obligation to operate sustainably.

The Ministry of Colleges and Universities said in its response to the report that it would immediately institute a new process to assess the financial health of universities.

Laurentian University board chair Jeff Bangs, who was installed this year, said the university accepts and will implement the report’s recommendations.

The university had its plan of arrangement with creditors approved in October and is hoping to move forward on a more solid financial footing.