UC Administrators Overspent on Administrative Salaries, Failed to Disclose $175 Million in Reserve Funding, State Audit Concludes

The University of California Office of the President failed to disclose $175 million in reserve funding to the UC Regents, overspent on administrative salaries, and impeded the audit process, a state audit concluded Tuesday.

“Our report concludes that the Office of the President has amassed substantial reserve funds, used misleading budgeting practices, provided its employees with generous salaries and atypical benefits, and failed to satisfactorily justify its spending on systemwide initiatives,” State Auditor Elaine Howle wrote in a letter to Governor Jerry Brown.

The audit claims that the UC Office of the President (UCOP) did not disclose $175 million in reserve funds it accumulated over four years to the UC Regents, the governing board of the University of California. This large fund was a result of UCOP receiving more funds than it actually spent each year, which it kept in two reserves: restricted and discretionary.

More than $32 million of the discretionary reserve came from “unspent funds from the campus assessment,” which is an annual fee that UCOP collects from campuses. This implies that UCOP overcharged campuses and consequently, students, for funds it did not use or disclose.

This audit comes four months after the UC Regents voted to raise tuition for the first time in six years, which was strongly urged by UC President Janet Napolitano. In fall 2017, students will pay an additional $282 towards tuition and $54 toward student services. In total, these tuition hikes will bring in roughly $88 million. In an interview with the Sacramento Bee, Howle said her report brings the tuition hike into question if discretionary funds have been available.

“Why did we need to increase tuition if the Office of the President has $175 million in reserve that nobody knew about?” she said.

The audit also found that UCOP pays executive and administrative positions significantly higher salaries than the state pays government employees with similar roles. Reviewing just 20 positions at UCOP, such as human resource management and accounting, the report concluded that UCOP could save at least $3 million if it paid salaries more aligned to state standards.

In her letter, Howle also expressed concern over the Office of the President inappropriately intervening in the auditing process. In October 2016, the auditor’s office solicited feedback from UC campuses on UCOP’s services and programs, as well as its process for determining the campus assessment, the yearly campus fee. The auditor’s office learned in February 2017 that UCOP screened survey responses, with its deputy chief of staff conducting a conference call with all campuses to discuss the survey, even though campuses were asked not to share survey responses with anyone outside of the campus.

In some cases, survey results changed before and after UCOP screened them. For example, UC San Diego responded that it was “dissatisfied with the transparency regarding what the campus assessment pays for within the Office of the President,” but the response the auditor’s office received stated the campus was “satisfied with the level of transparency.” UCSD’s comments about concerns with UCOP’s budget process were also deleted.

The UC Regents and UCOP published their own responses to the audit on Tuesday.

Monica C. Lozano, Chair of UC Board of Regents and Charlene Zettel, Chair of the Compliance and Audit Committee, formally asked that several recommendations from the audit be removed before they are officially presented to the State Legislature. They wrote that some of Howle’s suggestions infringe on the autonomy of the UC, like legislative funding control, a third party audit, and an open hearing on systemwide and presidential initiatives.

“One of your recommendations calls on the Legislature to directly appropriate funding for UCOP’s budget, while limiting its ability to seek additional financial support from campuses. This is deeply troubling for many reasons, key among them the undermining of the constitutional autonomy of the University,” they wrote.

Auditor Howle responded to both statements in brief at the end of the audit. In response to the Regents, Howle modified the wording of the audit slightly based on their suggestion, but ultimately concluded that in light of the number of concerns she found while conducting the audit she would not remove the recommendations themselves.

Napolitano disputed the $175 million reserve saying much of the fund is already allocated for systemwide initiatives and programs that range from research grants to programs like the UC Washington Center. She claimed that this left $38 million in the reserve, not $175 million, which is ten percent of UCOP’s operating budget.

“Ten percent is a prudent and reasonable reserve amount for the University to be fully prepared for unexpected expenses such as cybersecurity threat response, and emerging issues, such as support for undocumented students,” she wrote.

Howle disagreed with Napolitano’s response, writing that the $38 million figure represents the minimum, uncommitted amount. “Furthermore, because the Office of the President has significant flexibility in how it spends its discretionary reserve, it can choose to make different decisions with these reserves in the future,” she wrote.

Despite a willingness to modify the document slightly based on the Regents’ suggestions, Howle found much of Napolitano’s critique to be unsubstantiated.

“We have not made assertions; we have developed conclusions based on evidence,” Howle wrote.

Shine Cho is the News Editor of The Triton. Gabriel Schneider provided additional reporting.