State Auditor Calls For UCOP Financial Transparency

Minh Hua
Campus Beat Reporter

A 2017 audit from state Auditor Elaine Howle claimed that the University of California Office of the President (UCOP) failed to disclose $175 million in reserve funds, calling into question the transparency of UC President Janet Napolitano office’s business practices.

However, nearly a year after the deadline for improvements, a new report from Howle concluded that Napolitano “is still doing business in a way that lets her office amass ‘virtually an unlimited amount’ of money” due to an absence of appropriate reserve policies, reported Nanette Asimov of the San Francisco Chronicle.

According to Howle’s 2017 audit, UCOP “did not disclose the reserves it had accumulated” and that “more than one-third of [UCOP’s] discretionary reserve, or $32 million, came from unspent funds from the campus assessment.”

These assessment fees are money that UCOP requires each UC campus to pay annually for the purposes of financing its operations. However, the 2017 audit stated that UCOP budgeted 55 million more dollars for the 2015-16 fiscal year than it had actually spent. Additionally, “UCOP did not provide the Regents with its actual fiscal year 2014-15 expenditures and instead only provided what it planned to spend in that previous fiscal year — which turned out to be overestimated.”

Critics of UCOP’s actions believe that the reserve funds could’ve been used towards something more beneficial. Howle stated that much of the $32 million could have been spent on students and that part of the amount should be returned to the campuses.

According to Melody Gutierrez of the San Francisco Chronicle,” Howle said, “I’m sure that Regents had the best interest of their students in mind when they decided they had to increase tuition, but they didn’t know there was a reserve amount out there that could have covered a portion of that tuition increase, reduced the amount or maybe eliminated it completely.”

In January 2017, the Regents voted 16-4 to raise tuition for the first time since 2010-11, a 2.5 percent increase, reported Teresa Watanabe of the L.A. Times. It was only last year that the UC Regents approved a budget plan that saw the first decrease of tuition in nearly 20 years — an amount of $60.

In addition to negating tuition hikes, the reserve could have partly addressed the steady decrease in UC enrollment of California residents.

Currently, California residents pay $13,900 in tuition and student fees, and nonresidents face tuition and student fees of $42,900. In general, international students pay twice as much as California residents in tuition and fees, which leads to the issue of increased competition for California residents.

According to Gary Robbins of the San Diego Union-Tribune, UC San Diego, pressured by reduced state funding, heavily increased its enrollment of international students, resulting in the number of international students now accounting for almost 25 percent of the school’s enrollment versus six percent in 2008.

Similarly, the number of international students soared from 3.4 percent UC Santa Barbara’s enrollment in 2008 to 13.7 percent in 2018.  Whereas the number of enrolled residents only increased by 875 from 2008 to 2018, the surge for international students was 2,829.

Napolitano challenged the 2017 audit’s claims in a letter, claiming that “UCOP’s budget and financial approaches reflect strategic, deliberate, and transparent spending and investment in UC and State priorities.”

Napolitano broke down the usage of the $175 million in systemwide programs and initiatives such as research grants and support for medical centers. In the end, Napolitano concluded that only $38 million is leftover in the actual reserve, a “prudent and reasonable” amount for unexpected expenses such as cybersecurity threat response and support for undocumented students.

In addition to the reserve funds, Howle also alleged that UCOP was engaged in questionable practices and, in particular, that it interfered in its own assessment.

According to Howle, campus statements that were critical of UCOP had been removed or revised, and negative ratings had been changed to be more positive.

In an interview with the San Francisco Chronicle, assemblyman Phil Ting stated, “One of the core questions that I had asked that wasn’t answered was there is administration at [UCOP] and administration at each of the 10 campuses, is there any duplication? That question wasn’t answered because [UCOP] intercepted all the campus surveys and had them rewritten.”

Unreported duplications within staff can lead to inflated budget estimates, siphoning resources from research, an infrastructure critical to UC’s goal as a research university. In fact, there has been a plethora of discourse concerning the growth of academic versus non academic functions at UC.

According to a report compiled by retired UC Berkeley professor Charles Schwartz, while total staff employment grew 62 percent in the entire UC system, management grew 308 percent; in comparison, total student enrollment grew 62 percent.

The trend is similar for UC Santa Barbara, where total staff employment grew 36 percent while management grew 258 percent.

However, according to Christopher Newfield, an English professor at UCSB, administrative bloat isn’t the only issue that the audit brings up.

Newfield states “the tragedy of this particular audit is that UCOP is so busy saying it did nothing wrong that it can’t tell the more important story, which is that research is a vital public function that costs enormous amounts of money.  UCOP has to subsidize a lot of it or it won’t actually happen. It has to use state money to do this, as it always has.”

After the 2017 audit was released, then California Governor Jerry Brown withheld $50 million from UC in his revised budget plan, “saying the money would be released only when UC makes progress in fixing the financial problems identified in the audit and meets other conditions set by his office,” reported Asimov and John Wildermuth of the San Francisco Chronicle.

As of Feb. 2019, UCOP has implemented four out of Howle’s 16 recommendations, which includes: “a plan to restructure salaries for employee development and pay equity; documentation of all spending requests; a published review of spending initiatives; and documentation of money to returned to campuses: $40 million by the end of this month,” reported Asimov.