How to Get Rich by Founding a School

What happens when higher education becomes not an end in itself, but a means for rapacious gain? Consider the current case in point: A small,
primarily online Massachusetts institution, the National Graduate School of
Quality Management (NGS), and its former president, Robert J. Gee. A team of
student investigative reporters at Northeastern University, combing through
publicly accessible tax documents, discovered some astonishing figures.

NGS had in 2009
paid Gee $732,891. Gee’s wife, formally listed on payroll as “VP Reg Affairs,”
received a salary of $100,000. In addition, the school spent more than $130,000 on
two new Mercedes Benz cars for the Gees, loaned Gee $41,000 to purchase a
two-week timeshare in the US Virgin Islands (which the school later transferred
to its name, assuming the mortgage and reimbursing Gee for the money he had
already spent on the timeshare), and then shelled out $3.25 million for a
residential compound on Oyster Pond overlooking Martha’s Vineyard. The sign in
front of the complex reads “National Graduate School Oyster Pond Campus,” but
the school’s documents state that the six-bedroom house on the property was to
be Gee’s home.

Gee shifted the
costs of his lavish lifestyle onto the school, using tuition dollars and
charitable donations to fund his posh lifestyle and using the school’s
nonprofit status to sidestep sales tax. Now the school is in financial trouble
with Bank of America, and has to renegotiate the terms of the mortgage on the
Oyster Pond property after failing to maintain the proper debt to net worth
ratio. Most of the students at NGS are non-traditional, looking to finish a
partially-completed bachelor’s degree or pick up a graduate degree after
gaining some work experience.

Gee founded the
school in 1994, serving as its first and–until now–only president. In 2006,
he got a 17-year contract guaranteeing a salary of at least $400,000 per year
until 2023, when Gee will be 79. Among the perks included were an annual bonus
of at least 15% of his salary, travel costs for the Gees’ trips to the
timeshare, allowance for expenses “well above the norm” (yes, this was the
language in the contract), renovations to his home prior to any school event
being held there, and reimbursement for clothing and luggage that wore out as a
result of his travel. Gee was entitled to 4 weeks of paid vacation each year,
along with 30 sick days; at the end of each year he was paid for any unused
leave.

In contrast, the
median salary for a chief executive of a single institution is $255,859,
according to a recent study by the College and University Professional
Association for Human Resources. It’s true that larger institutions typically
pay their presidents more, justifying the expense as necessary to draw top
administrators. Tufts
University, for instance,
pays its president $738,596. But Tufts has nearly 11,000 employees and more
than 5,000 students.

NGS has fewer
than 400 students, relies on part-time professors, and has neither the branding
nor the breadth of educational offerings that justify such an expensive
president. Gee’s credentials are questionable as well. He has
claimed a graduate degree from Harvard, but the university has no record that
he earned one. (Gee does have a PhD in Literature from the University of Ottawa). Non-profit expert Elizabeth K. Keating,
hired by the Boston Globe to investigate NGS’s suspicious financial standing,
commented, “If I sat down to write a fictional case study that was designed to
wave red flags about an organization that is misusing its tax exemption for
personal gain, this would be it.”

As a result, the
New England Association of Schools and Colleges will review NGS in September,
two years sooner than its standard periodic review. Because the Association
requires that a school devote “all, or substantially all, of its gross income
to the support of its educational purposes and programs,” NGS may lose its
accreditation. NGS currently allocates about 50% of its budget for academic
purposes.

Massachusetts
Attorney General Martha Coakley has launched a separate investigation into the
school’s mismanagement of funds. If the IRS decides to investigate as
well, NGS could lose its tax-exempt status. Then currently enrolled students
would have to find other programs and complete their degrees elsewhere.

One cause of the
scandal is an uninvolved board of trustees that for the most part blindly
followed Gee’s commands. Scott Adams, a board member until 2007, described the
board as Gee’s “puppet” that “rubberstamped” his proposals. John Rabbit, on the
board from the founding of the school in 1994 until 2006, recalled Gee saying
“he was president for life” and considered NGS “his school.” At times, past
board members say, when Gee didn’t consult the board about financial matters,
the board failed to confront him. When Gee did bring matters before the board,
the trustees approved his proposals.

But the larger
cause of the failure here appears to be a simple lack of ethics and a
determination by a submissive board to look the other way. How many other small
and obscure schools are operated this way?

—————-
Rachelle DeJong is a student at The King’s College and an intern at Manhattan Institute.