Press Release: UC President Napolitano Responds to State Audit Report

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On April 25, 2017 state auditor Howle audited the University of California Office of the President (UCOP) and found an alarming number of issues in which UCOP administrates its budget. The full 167-page report can be found here.

What is in the Report?

According to the state audit report, the University of California Office of the President had an undisclosed budget (a budget whose specific expenditures were not revealed to Board of Regents, legislators, or the public)  that ranged from $77M- $114M. The report indicated the use of, “misleading budgetary practices” that misinformed the Board of Regents and legislators about budgetary practices. The Office of the President also regularly asked the Board of regents to increase a budget that failed to be based on real time expenditures, as the UCOP consistently underspent their budget.. Although The Office of the President did not spend the money allocated to the office, UCOP increased campus assessments (fees UCOP charges to individual UC Campuses). Even though the Office of the President consistently underspent revenue gained from these campus assessments. State auditor Howle strongly believes that at least $38M of its uncommitted reserves can be refunded to the UC campuses.

Not only did the Office of the President continuously underspend revenue and was unable to provide accurate listings on system-wide initiatives (“a term that the Office of the President uses to describe programs that benefit the entire university system”), UCOP spent more than $2M on staff meetings and entertainment expenses over the past 5 years. Auditor Howle also revealed that within the 2014-2015 fiscal year, 10 executives were paid a sum of $3.7M; approximately, “$700,000 more than the combined salaries of the highest paid state employee counterparts,” In efforts to assess the quality of the University of California Office of the President, the state auditor asked each individual campus to rate the quality of UCOP in a survey. The Office of the President interfered with the surveys by reviewing responses initially submitted to the Office of the President; campuses willingly resubmitted them after a conference call with the office of the president. Due to the interference of the surveys, the state auditor was legally obligated to deem the feedback that would provide constructive criticism dismissible and was unable to draw conclusions from the survey.

What the State Auditor Wants Reformed:

According to the state auditor, significant change is crucial in order for UCOP’s actions to align with the mission of the University of California, specifically with items listed below:

  1. Between the years 2012-2016, the president’s discretionary budget has increased by 475% and has supported organizations such as the Global Food Initiative (given $1.5M) and more that is undoubtedly placing priority on external organizations over campus needs. The report indicates that the University of California President Office has not evaluated the initiatives purposes/intent is and is questioning the priority that UCOP has on students.
  2.     The Office of the President in comparison to similar sized institution holds more administrative staff than its counterparts, leading to unnecessary administrative spending.
  3.     The Office of the President does not have a concrete way in tracking administrative costs and does not require its independent auditor to verify its expenditures for accuracy. These limitations cause for expenditures to be unreliable and inaccurate.
  4.     The Office of the President has misled legislators and Board of regents according to the report. When the state auditor requested for more information on statements related to the budget they were unable to do so and subsequently provided inaccurate information about its budget. In one instance the audit findings displayed that the Office of the President did not share $83M of significant budget changes to the Board of Regents.
  5.     The audit report is expressing with great urgency to legislators to contract an independent third-party that can aid the regents in three-year plan that will lead to increasing transparency and accountability.

<insert picture of 3 year plan>

Recommendations for Legislature, Regents, and the Office of the President:

Legislature:

  1.     Demand that regents hire and independent third-party to aid in the three-year corrective action plan.
  2.     After the 3-year plan is completed, legislature will assess the UCOP’s new budget, staffing policies, and commitment to ongoing transparency and if need be, will need to directly appropriate the following items.
  3.     Allocate the exact necessary budget in order to eliminate campus assessments.

The Regents:

  1.     As well as recommending legislature to contract a third-party, state auditor Howle is urging the Board of Regents to hire an independent third party as well to aid the 3-year plan.
  2.     Hold a public meeting for university stakeholders in order to discuss if campus initiatives should continue to be prioritized over student funding.
  3.     Implement the recommendations above and report periodically on UCOP’s progress.

The Office of the President:

  1.     By 2018 the Office of the President should have a clear definition of all campus initiatives and develop a comprehensive list of system-wide initiatives, president initiatives, and include the purpose of maintaining these initiatives with actual cost.
  2.     By 2019 UCOP should establish spending targets for system-wide initiatives and administrative costs as well as publish the results from these initiatives. UCOP is also highly urged to keep track of budget practices and report its budget annually.
  3.     By 2020 the Office of the President should publicly publish its president and system wide initiatives as well as report to the regents. The Office of the President should reallocate funds for all initiatives as well as administrative costs to campuses.

President Napolitano Responds to the UC Press:

On May 5th, 2017 President Napolitano held a press conference with a variety of UC newspapers to respond to the state audit findings. She explained that she is willing to make all recommendations with the exception that legislature should directly appropriate budgets of the Office of the President. This ultimately affects the constitutional autonomy (authority to who may teach, what they teach, how it should be taught, and who may be admitted to study) of the UC and is therefore being disapproved by President Napolitano and the Board of Regents.  President Napolitano also disagreed with the characterization of $175M being undisclosed with the notion that it was truly only $170M and of that $83M are restricted funds (a reserve of money that may only be used for specific purposes such as administering labs) of the remaining fund $49M have been allocated for system wide and presidential initiatives. According to Napolitano, the budget has been allegedly disclosed to the Board of Regents. $38M of those reserves is also allegedly for emergencies that may arise in the UC.

In response to State auditor Howle’s explanation that there is a lack of a verifiable way to track budget use, President Napolitano has agreed to the use of the 3-year plan. She also apologized in a legislative hearing about inappropriately interfering with survey results from individual UC campuses. The purpose of the interference, according to Napolitano, was to ensure that survey results were, “accurate,” and results properly reflected the views of campus leaders.

In the audit report, state auditor Howle highly recommends to use between $38-175M of its undisclosed reserves to other campus priorities. Lt. Governor Gavin Newsom also questioned the tuition hike and expressed interest in revoking the tuition increase made last January. When Napolitano was asked about what she is doing to ensure college affordability remains a priority for UCOP, she responded by saying that the UC has the most robust financial aid program in the country and explained that tuition dollars vs. one year savings that are used solely for president and campus initiatives may not be used for tuition dollars. This response expressed that the Board of Regents are not considering revoking the board decision of increasing tuition.

Napolitano also argued that she was not out of touch with student needs as she regularly visits UC campuses and has meetings with UCSA representatives to discuss student needs. Overall, Napolitano agreed that she would be willing to make all recommendations except for the one that threatened the UC constitutional autonomy.

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After state auditor Howle revealed the controversial state budget practices, Senator Ed-Hernandez introduced a constitutional amendment that would limit the 138-year old UC autonomy. In order for the amendment to pass-  legislature and then voters would have to vote in favor of amending the constitution. For more information about the amendment introduced visit the LA Times article here.

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