Monday, December 21, 2009

The New UC Mega Scandal? The U.S. Senate Investigates the UC Budget

In 2007, David Kessler, the Dean of the UCSF Medical School was fired after he complained that the campuses had provided him with false and misleading information concerning the state of its budget. According to the documents sent by the UC to senate investigators Kessler did not understand that many of UC’s budget documents are crafted for particular audiences, and the only legally accountable budgetary figures are found in the audited annual statements (attachment B, page 5). In other words, UC admits that the budgetary figures it releases to its employees and the public are often at odds with its own financial statements.

At the heart of the dispute between Kessler and UCSF is the question of indirect funds for external grants and the use of endowment funds. Kessler contends that he was promised access to over $46 million in funds that he could use at his discretion, while the university argues that the dean did not understand the nature of endowments and grants. According to the official UC response to the federal investigators, while endowment money is usually dedicated to specific purposes, many different administrators have discretion over the actual use of the funds. Likewise, external grants often come with indirect funds that are sent to the Office of the President and then redistributed back to the local programs. According to the UC’s legal representation, indirect funds associated with external grants are stored in a Facilities and Administrative “cost pool,” and these funds may be “spent by the University in its discretion” (Attachment A, page 7). The translation of this statement is that the campus has great deal of flexibility in regards to how it uses the large sum of money gathered by the indirect costs of grants (a total of $1 billion in 2009).

The university claims that for each federal grant, it receives an additional 26% for indirect costs, and the real cost should be closer to 29-30% (page 8). Here is where a major accounting conflict ensues. I have been arguing with several UC faculty members about how indirect costs are distributed and accumulated, and I have argued the following: There is no way of knowing if grants individually or on the whole make or lose money. Since most grants give the same generalized percentage to administration, staff, utilities, and maintenance, it is impossible to track the flow of money pertaining to any particular grant. For instance, if my grant to develop a new drug pays $10,000 into general administration, how could anyone tell if I paid enough of many different administrators' salaries.

When you get into the actual details of a grant, you discover, like every other part of the university, that money from many different sources gets mixed together. For example, if I am a dean, I am being paid out of state funds, student fees, grant overhead, some endowment money, etc. This mixing of funds is precisely what the U.S. Senate is investigating in relation to federal NIH grants - the feds have told me that they cannot track the flow of money because it all gets sent to UCOP and then redistributed back to the campus. Also, a question that I was asked by a senate staffer was "how do you put the price on a grant using a particular facility; after all, UC does not appreciate its assets and lists each building based on its original value" (which is also a fiscal fiction). We would all like to believe that this system is rational, but it is not.

This same problem of accounting for grant money is also causing problems for the U.S. Senate’s investigation of the use of endowment funds. After Kessler made his original allegations, the UC embarked on three separate reviews of their accounting processes, and they found no malfesiance. However, UCSF has just signed on for another expensive audit with Pricewaterhouse Coopers, and this time, they promise to look at the actual financial statements regarding the grants and endowment funds. One of the issues in the Kessler case is the question of how much discretion a dean has in relation to an endowment gift. The UC’s lawyers argue that in the case of a grant given for cancer research, the dean may have tremendous latitude in deciding how the endowed funds are used, and the central argument of the administration is that most endowments give a fair amount of discretion to the administration (page 11). What is troubling is that the UC falsely testified to the
state senate that an external audit showed that the tracking of endowments and grants could be verified by the audited financial statements. It turns out, that the outside consultants never tried to match these different records, and they were never given the proper documentation to audit the UC’s financial statements.

To be continued.

23 comments:

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  3. I have been a lecturer for 24 years, but before that I was on tenure track at the U of Arizona. I was told that all grants included 25-30% extra which routinely went to the President's office -- this was usual and customary. From that pool, I was told, he was able to build (or initiate) a new football stadium. It would not surprise me if all big universities have such a system. From a business point of view, it gives the "boss" a large pool of discretionary cash.

    cclecturer@gmail.com

    ReplyDelete
  4. Thanks for your efforts and accomplishments, Bob. I'd like you and your readers to take a glance at http://oxtogrind.org/archive/364 (TOSCA). We have the imprimaturs of Howard Zinn and a host of high profile figures worldwide (See http://oxtogrind.org/archive/336 for a short list) in our effort to BECOME THE REGENTS for the UC system. Among other things... which should please "Zen" (who was on the same DNow! episode which featured you). I expect to meet with the UC-Berkeley Coordinating Committee on the 10th... and I'd like feedback from one and all prior to that. Blessings in solidarity, The Ox at tosca.2010@yahoo.com

    ReplyDelete
  5. Why haven’t UC administrators been charged with fraud if they admit to releasing falsified documents? The dean’s control over the additional funds also presents a conflict of interest allowing him or her to siphon funds from instruction grants to pay for additional “administrative fees.” In addition it is absurd that the senate cannot track grant money because it is funneled through the UC Office of the President. This situation could inspire corruption and continued misuse of government funds.

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  6. It is amazing how much flexibility the university has in using indirect funds, external grants and the use of endowment funds. The system of redistributing grants at the Office of the President creates a gray area for using grants for purposes differing from the original intention. In the end, the discrepancies in financial documents alone should be penalized and the purposes and real distributions of various funds and grants should be made public.

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  7. It appears like the UC system is looking for scape goats on which to blame the loss of funds on, but at the same time Kessler should have been much more cautious with the money and made wiser investments.

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  8. It’s frustrating; every time there is a story about the UC system and money it’s never positive. When are we ever going to here about the UC system giving their students some extra money or lowering tuition? It seems like this will never happen. The UC system is always trying to hide and make use of their money in secretive ways. I also find it incredible how the UC system can even hide it’s use of money from the senate. It makes me feel that if the senate can’t bust them then no one can. It seems that all higher education schools are in it for the business and not for education. What I found extremely ridiculous was that UC lists it’s buildings based on its original value. It’s crazy how nothing has been done even though there was admittance to the release of falsified documents. All this makes me extremely angry. It is very difficult to sit here and read that it is impossible to track the use of grant money.

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  9. More than anything, I find this very entertaining. It is similar to watching a movie based on a badly-written novel: you know what is going to happen, yet you are forced to drink the kool-aid and engage yourself in the idiocy that is presented to you--hookline and sinker.

    At times I wonder to myself how this can be overlooked, then I remember that I'm living in America; land of the brave and home of the free, no?

    ReplyDelete
  10. The flexibility of the UC system to spend their money is sometimes necessary to run its operations smoothly, but I believe that more careful tracking and accounting of the funds distributed should be implemented. The government and students should not blindly give away their money without some kind of sure way to know where the money is going.

    ReplyDelete
  11. @Sofia:

    Point taken, but there is a fine, thin line of ice between flexibility of where funds are spent and outright money-funneling idiocy. Currently, that line of ice is being blowtorch'd.

    ReplyDelete
  12. 46 million could be used to improve our universities by so much. It seems Kessler is the only honest administrator from all the UCs and CSUs for revealing how the budget is actually used.

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