The UC Office of the President has approximately $175 million in undisclosed funds, which includes $33 million received from an annual charge levied on campuses, according to a report published on Tuesday by the California State Auditor.
In the report, the state auditor said UCOP failed to handle its budget in a “fiscally prudent or transparent way.” UCOP allegedly “misled” UC Regents by inflating budget figures and giving disproportionately large salaries and benefits to employees.
The state auditor also reported that UCOP intentionally interfered with the audit process. UCOP allegedly removed campus statements that were critical of UCOP, sending more positive, edited versions to the state auditor’s office instead.
The state auditor questions in the report whether the office will make a “genuine effort to change” because of such an interference.
“Because the Office of the President inappropriately inserted itself into the survey process, auditing standards prohibit us from drawing conclusions based on the survey results,” the report read. “As a result, the Office of the President missed an opportunity to receive feedback from its key stakeholders, and it demonstrated an unwillingness to receive constructive feedback.”
A letter dated April 5 sent from UC President Janet Napolitano to State Auditor Elaine Howle addressed these claims. Napolitano said the report “fundamentally and unfairly mischaracterizes UCOP’s budget practices,” but she said UCOP welcomes the input and finds the recommendations “helpful.”
According to the audit, UCOP Budget Director Eva Goode told the state auditor that UCOP can use the discretionary funds for any project within UCOP or any of the campuses. The state auditor said, however, that this contradicts a 2006 policy passed by the Regents prohibiting UCOP from spending any funding until the Regents approve a budget each year.
The state auditor said UCOP believed disclosing these funds was unnecessary since Regents had approved the spending in previous years. However, the state auditor said there was no evidence provided to dispute the agency’s claims.
The audit also calls this into question because administrative expenses have increased by $80 million from 2012 to 2016, an increase of 28 percent in four years.
The audit also states UCOP provided little information about the budget and that the information available is sometimes misleading, which the state auditor said makes it “difficult, if not impossible” for the Regents and state legislature to understand the budget and operations.
The state auditor’s office analyzed 10 executive positions and found they were paid a total of $3.7 million, over $700,000 more than the combined salaries of comparable state executives. The senior vice president for governmental relations was paid $130,000 more than the top three highest paid employees in similar state positions, the state auditor reported.
According to the audit, UCOP uses salary survey data coming almost entirely from the private sector to determine salaries, but this is much higher than typical for state employees.
The state auditor said UCOP defended the increased salaries by stating the higher education environment necessitates higher pay, but the state auditor’s office found this insufficient with regard to administrative staff like financial analysts who have similar tasks regardless of who they work for.
The state auditor also alleged employee benefits within the UC are significantly higher than standard, with UCOP spending at least $21.6 million from 2011 to 2016 on employee benefits. Such benefits are not typical within the public sector, the state auditor said.
The office also spent over $2 million on business meetings and entertainment expenses over five years, according to the audit.
Because of the extent of the concerns identified, the state auditor’s office recommends significant reforms including reallocating savings to campuses, setting targets for reduced salaries and implementing practices for budgeting ensuring accountability and purposeful use.
Napolitano’s letter addresses many areas of the draft which she believes misrepresent UCOP.
She first said the $175 million figure the audit quoted was actually $38 million of available and uncommitted reserve. She also said $175 million is an inaccurate figure, since $5 million of that amount is not UCOP-related “balance fund data.”
Napolitano further broke down the $170 million figure, saying that $83 million of it is restricted and $87 million of it is unrestricted.
The $83 million of restricted funds support a “range of programs and initiatives,” Napolitano said. These include support for the UC Washington Center, UC health and lab research grant programs.
Of the $87 million of unrestricted funds, $49 million are already committed to various programs including but not limited to support for UC Merced, law students and the creation of a new medical school. This leaves $38 million in unrestricted funds, which accounts for about 10 percent of the budget, Napolitano said.
Napolitano said 10 percent of the budget is a reasonable amount to have in savings in case of unexpected expenses.
She also said the audit’s recommendations to reduce or eliminate systemwide or presidential initiatives would “impede the ability of some of our most vulnerable students to succeed, undermine research into critical issues and lessen UC’s public service impact.”
Napolitano said the report “understates the extensive controls” she implemented when she joined UCOP in 2013. The vast majority of expenditures, she said, are reviewed and approved by her “personally.”
Napolitano added that she has “concerns” that the audit does not take into consideration UCOP operating in 15 different activity areas, including “administration of systemwide retirement plans” while “none of the other 10 largest system offices … provide more than four functions.”
Napolitano’s six-page letter was released following statewide outcries.
The largest UC employee union, AFSCME, expressed outrage over UCOP’s misconduct and gratitude toward the auditor in a statement from Local 3299 President Kathryn Lybarger.
Lybarger said UCOP’s alleged interference in the auditing process reflects “a continuing pattern of deception” toward the state legislature, which she said UCOP has used to justify tuition hikes, high executive pay and “continued exploitation of low wage contractors.”
“Our students, patients and colleagues deserve better,” Lybarger said in a statement Tuesday.
UC Regent and Lieutenant Governor Gavin Newsom, in response, called for the reversal of tuition hikes that the Regents approved in November.
“The audit must serve as a wakeup call for the Board of Regents, as a catalyst for serious soul-searching within the UC’s administration and demands a reboot of the relationship between the system and its governing body,” Newsom said in a statement on Tuesday.
“It is outrageous and unjust to force tuition hikes on students while the U.C. hides secret funds, and I call for the tuition decision to come back before the Board of Regents for reconsideration and reversal,” he added.