April 25, 2017 2016-130

The Governor of California
President pro Tempore of the Senate
Speaker of the Assembly
State Capitol
Sacramento, California 95814

Dear Governor and Legislative Leaders:

At the request of the Joint Legislative Audit Committee, the California State Auditor’s Office presents this audit report regarding the University of California Office of the President. 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. Furthermore, when we sought independent perspective from campuses about the quality and cost of the services and programs the Office of the President provides to them, the Office of the President intentionally interfered with our audit process. Auditing standards require that we disclose this interference and prohibit us from drawing valid conclusions from this portion of our work.

Specific concerns we discuss in the audit report include the following:

The Office of the President has accumulated more than $175 million in undisclosed restricted and discretionary reserves; as of fiscal year 2015–16, it had $83 million in its restricted reserve and $92 million in its discretionary reserve.
More than one-third of its discretionary reserve, or $32 million, came from unspent funds from the campus assessment—an annual charge that the Office of the President levies on campuses to fund the majority of its discretionary operations.
In certain years, the Office of the President requested and received approval from the Board of Regents (regents) to increase the campus assessment even though it had not spent all of the funds it received from campuses in prior years.
The Office of the President did not disclose the reserves it had accumulated, nor did it inform the regents of the annual undisclosed budget that it created to spend some of those funds. The undisclosed budget ranged from $77 million to $114 million during the four years we reviewed.
The Office of the President was unable to provide a complete listing of the systemwide initiatives, their costs, or an assessment of their continued benefit to the university.
While it appears that the Office of the President’s administrative spending increased by 28 percent, or $80 million, from fiscal years 2012–13 through 2015–16, the Office of the President continues to lack consistent definitions of and methods for tracking the university’s administrative expenses.

We found it particularly troublesome that the Office of the President intentionally interfered in our efforts to assess the types and quality of services it provides to campuses. Correspondence between the Office of the President and the campuses shows that the Office of the President inappropriately reviewed campuses’ survey responses, which resulted in campuses making changes to those responses prior to submitting them to us—campus statements that were critical of the Office of the President had been removed or substantially revised, and negative ratings had been changed to be more positive.

Taken as a whole, these problems indicate that significant change is necessary to strengthen the public’s trust in the University of California. To achieve this change, we believe the Legislature should increase its oversight of the Office of the President.

Respectfully submitted,

ELAINE M. HOWLE, CPA
State Auditor