State Releases Audit of UC System

After more than a year of research and investigation, the state auditor has released her audit of the UC system. The major findings can be found in the following passage: “the university budgeted widely varying amounts to its 10 campuses. For fiscal year 2009–10, the per-student budget amount ranged from $12,309 for the Santa Barbara campus to $55,186 for the San Francisco campus. Although the university identified four factors that it believes contributed to the differing budget amounts, it did not quantify their effects. The university can also improve the transparency of its financial operations. Although the university publishes annually a report of the campuses’ financial schedules, it could provide other information including beginning and ending balances for individual funds and could publish consistent information for its auxiliary enterprises. We further reported that the Office of the President needs to more precisely track about $1 billion of expenses annually that it currently tracks in a single accounting code—Miscellaneous Services—and that a recent change in university policy allows campuses to subsidize auxiliary enterprises with funding from other sources, despite the intent that they be self-supporting. Finally, we discovered two instances when the university designated $23 million in student funding to pay for capital projects on the Los Angeles campus that were not authorized by the student referendum establishing the fee.” These findings reveal that the UC has been covertly redistributing state funds and student tuition dollars without the knowledge of student, parents, and taxpayers. Moreover, while the UC has improved aspects of its budget transparency, there still is a great deal of money that cannot be traced. In short, the UC fails to act like a public institution because it does not provide important information to the public.

In its response to these criticisms, the UC argues that its budgetary system is simply too complex to explain, and a more detailed analysis of its spending and funding would require many staff hours and years to gather: “I cannot help but comment on the extraordinary time and effort – and considerable expense on the part of the BSA and the University – that went into this audit, which in the end found only minor issues to address. We are proud of the fact that we have come through this review with validation of so many of our procedures and policies which in recent years have come under considerable public scrutiny. But, at what cost? I urge the Legislative Audit Committee to require those who seek to use the limited audit resources of the State to provide more evidence of malfeasance than innuendo and presupposition behind their requests.” The UC clearly does not get it if they think that the audit only dealt with “minor issues” like the secret redistribution of state funds and student tuition or the inability of the system to track its own expenses.

In response to UC’s response, the auditor retorts: “We appreciate the university’s concern about the trade‐off in staff time to implement this recommendation. In that light, the university may wish to consider implementing a Web site similar to the one we created that contains supplemental accounting information we obtained during this audit. On our Web site, we present a link (www.bsa.ca.gov/reports/2010‐105/) to information related to public funding from the university’s corporate financial system related to fund categories; fund groups; and funds that includes beginning balances, revenues, expenses, transfers, and ending balances. Our information technology team created this Web site using fewer than 60 hours of staff time. We therefore fail to see why the university believes it needs between 12 and 18 months to review and implement this recommendation.” As the auditor implies, on the one hand, the system says that it highly transparent, and at the same time, they argue that they cannot afford to clarify their complicated budgetary system.

In one of the more surprising findings in the audit, we found out that the regents have the authority to use any student voted fees for any purpose the regents want to pursue: “According to the Office of the President, referendum results are advisory under Section 84.20 of the policy, and the regents retain ultimate authority under the State Constitution to impose or modify any and all student fees, including those established by campus‐based referenda.” So if the students vote to fund a learning center, the regents can use the money to fund a new athletic center.

Speaking of athletics, the regents have also authorized a change in policy that allows self-supporting auxiliaries to be funded by multiple funding sources: “Campuses are provided the flexibility to organize and manage their auxiliary operations to meet their individual needs under the University’s Business and Finance Bulletin A-72, Establishment of Auxiliary Enterprises (BFB-72). Generally, auxiliaries are self-supporting, although they are not required to be self-supporting. Other appropriate funds can be used to support auxiliary organizations at the discretion of the chancellor. Donor gifts are an example of funds from other appropriate sources that may be used to support an auxiliary organization. Funds from other sources are only used when permitted.” In other words, self-supporting entities don’t have to be self-supporting.

Turning to the most controversial aspect of the report, the auditor points out that the campuses serving the most under-represented students also get the lowest level of findings. While it is understandable that the university objects to this conclusion, they cannot object to the facts. Whatever the cause, the reality is that Black and Hispanic students may be receiving an inferior education because their tuition dollars are going to support non-under-represented professional students on other campuses. A more accurate description of this situation is that a side-effect of undergraduates subsidizing graduate and professional students on other campuses is that under-represented students are being under-funded.

As the report indicates, the UC is going through the process of changing its funding streams so that campuses get to keep their tuition dollars and other revenue; however, the university still has not figured out what to do about state funds, which make up for most of the inequity caused by redistribution. Furthermore, the UC has argued that the new funding model will be revenue neutral, which means that the wealthy campuses will remain wealthy, while the poor campuses stay poor.

On a positive note, the auditor calls for the UC to distinguish among the costs of undergraduate, graduate, and professional education: “As part of its reexamination of the base budget, it should . . . identify the amount of revenues from the general funds and tuition budget that each campus receives for specific types of students (such as undergraduate, graduate, and health sciences) and explain any differences in the amount provided per student among the campuses.” If the UC does clarify these difference, we can begin to see how the university is really spending its money.

More later.

Click here for UC’s counter-productive spin