Harvard Natural Target for IRS Audit, Administrator Says

The University's top finance official has described the Internal Revenue Service's decision to include Harvard in its audit of 40 institutions of higher education as a natural consequence of Harvard's large and diverse operations.

“Given the size and complexity of our institution, it is not a surprise that we were one of the several institutions selected for the follow-up examination,” University Chief Financial Officer Daniel S. Shore wrote in an e-mailed statement to The Crimson.

The University has clashed with federal regulators in the past—especially Senator Charles E. Grassley, who has investigated Harvard’s ties to pharmaceutical companies and applauded the IRS’s decision in 2008 to examine U.S. colleges' and universities’ use of their tax-exempt status.

But Jill Gerber, Grassley’s press secretary, said Wednesday that the Senator's office had not pushed the IRS to audit Harvard and that the IRS tends to maintain a degree of independence in these types of decisions.

The coming audit will focus on the University’s unrelated business income (revenue streams that are not tax-exempt) and compensation practices—an issue which has drawn scrutiny from some alumni in the past.

Much of the criticism of excessive compensation in recent years has been directed at money managers at Harvard Management Company, the organization that invests Harvard’s endowment.

In 2005, Jack R. Meyer, then-CEO of HMC who presided over a long period of endowment growth, left the organization with 30 employees to start a hedge fund after some alumni protests resulted in a flurry of negative media attention and salary decreases for top-performing HMC portfolio managers.

It was unclear Wednesday which University officers' compensation would be examined in the audit and whether the audit would also include HMC. The IRS did not return requests for comment.

University spokesman John D. Longbrake said that notice of the upcoming audit was delivered to the University and added that the University and HMC are considered separate legal entities in several respects. For instance, HMC and the University file separate non-profit tax returns.

Though concerns have persisted over compensation at HMC—where managers can net millions of dollars—top officers at the University itself earn modest salaries in comparison with administrators at peer institutions like Columbia and Yale, and have avoided similar criticism.

During the fiscal year ending in 2008, University President Drew G. Faust took home $693,739—a salary that makes Faust the 56th highest paid university president in the country.

“Of all the lists we top, I’m glad Harvard is not number one on this list,” former Dean of the College Harry R. Lewis ’68 quipped to The Crimson when that news broke last fall.

—Staff writer Elias J. Groll can be reached at egroll@fas.harvard.edu.