When governance systems fail: the case of Long Island College Hospital

• In Event: Fraud and Governance Failures

Abstract

Long Island College Hospital (LICH), a not-for-profit hospital in the Brooklyn neighborhood of New York City, was a leader in hospital care. At its peak, LICH had 516 beds and employed over 700 physicians. In 1999 LICH received a bequest of approximately $138 million earmarked as a permanent restricted endowment that allowed the hospital to spend annually only the endowment’s yearly income. Yet less than one year after receipt of the gift the hospital sought to amend the terms of the donor restriction, receiving approval to use the funds as collateral for debt. In later years, the hospital received approval to use the endowment principal to pay for operating expenses and malpractice claims. Eventually, much of the bequest was used not as required by the original terms of the donation but to prop up a failing hospital that ultimately closed in 2015.

Using LICH as an example, the paper considers the failure of formal governance systems to protect the bequest throughout the lifecycle of the bequest - from the offer of the bequest to the hospital, to the acceptance by the institution, and through the existence of the permanent endowment under the stewardship of the hospital. This paper will investigate reasons for the failure and provide potential alternative governance systems that, if implemented, could help ensure charitable contributions and bequests are adequately protected and monitored.

Authors

• Ellen Lippman, University of Portland

• Teri O Grimmer, The University of Portland