Report 2016-130 Recommendation 12 Responses

Report 2016-130: The University of California Office of the President: It Failed to Disclose Tens of Millions in Surplus Funds, and Its Budget Practices Are Misleading (Release Date: April 2017)

Recommendation #12 To: University of California

To ensure that its staffing costs align with the needs of campuses and other stakeholders, by April 2018 the Office of the President should evaluate and identify needed changes in employee benefit policies to ensure that they include reasonable safeguards to control costs.

1-Year Agency Response

Policy revisions to the Senior Manager Group policies for car allowances, employer contributions toward a Retirement Savings Plan, relocation allowances and moving reimbursements were approved by the Regents Governance and Compensation Committee on March 14, 2018.

http://regents.universityofcalifornia.edu/regmeet/mar18/g1.pdf (item attachments show the "marked up" revisions)

Revised and approved stipend procedures and policies at the Office of the President were published here:

https://www.ucop.edu/local-human-resources/_files/policies/ppsm/PPSM30_stipend.pdf

https://www.ucop.edu/local-human-resources/_files/policies/ppsm/ppsm30.pdf

Regarding the CSA's concern about UCOP business meeting meals for its employees, UCOP revised its policy to lower the daily maximum for all meals to $74 per day and require that meetings be a minimum of three hours. Revised business meeting and entertainment policies and procedures for UCOP were published here:

https://www.ucop.edu/business-resource-center/policies-and-guidance/guidelines/new-restrictions-on-use-of-ucop-funds.html

California State Auditor's Assessment of 1-Year Status: Fully Implemented

The Office of the President has taken action on all of the benefit policies we outline in Table 9 in our report. The changes we identified at six months paired with the changes described below make these policies sufficient to address the concerns we raise in the report and our recommendation.

Car Allowances: On March 15, 2018, the Regents approved an amendment to its car allowance policy. Under the new policy the university no longer offers car allowances to new senior management hires or appointees. Employees who currently receive these allowances will be able to continue to receive them as long as they remain in their current position.

Business Meetings and Entertainment: On April 19, 2018, the Office of the President issued a letter announcing a new daily maximum on business meals for meetings that is effective immediately. According to the letter, the new policy reduces the daily maximum for meeting meals from $174 to $74.

Employer Contributions Toward a Retirement Savings Plan for SMGs: On March 15, 2018, the Regents approved an amendment to the senior management supplemental benefit program. Under the new policy, the university no longer offers participation in this program to new senior management hires or appointees. Employees who currently receive the employer contributions may continue to receive them as long as they remain in their current position.

Stipends: The Office of the President formalized its local policy related to stipends-its human resources has approval authority for stipends that do not exceed 20 percent of an employee's base salary, whereas stipends over 20 percent, and up to 25 percent, of an employee's base salary must be approved by the Executive Director of UCOP Operations.

6-Month Agency Response

Changes to systemwide policies were made for car allowances, meal limits during business travel, hotel rates, relocation allowances, moving reimbursements and senior manager supplemental retirement contributions, effective October 2017. Changes to policies at the Office of the President were made in October 2017 for issuance of cell phones and other electronic devices and for stipends.

California State Auditor's Assessment of 6-Month Status: Partially Implemented

The Office of the President has taken action on most of the benefit policies we outline in Table 9 of our report. Although the Office of the President asserts it made changes to systemwide policies, we determined that this recommendation remains partially implemented due to actions the Office of the President and the regents need to take to change its policies for car allowances, business meetings and entertainment, employer contributions toward a retirement savings plan for SMGs, and stipends. Moreover, many of the policy changes only effect new hires or appointees and do not apply to current staff.

Incomplete

Car Allowances: In October, the Office of the President added an administrative note to the car allowance policy stating that the President is no longer recommending or approving automobile allowances for new hires or new appointees. The note further states that current recipients may continue to receive automobile allowances until they step down from their current positions or change positions. Although we recognize this action as a positive step that meets the spirit of our recommendation, until the regents take action to approve the policy changes the Office of the President's approach creates the risk that in the future a president may choose to remove the administrative note and restart the practice of issuing car allowances. To implement this recommendation fully, the Office of the President needs to take policy revisions to the regents for approval who would vote to change the policy.

Business Meetings and Entertainment: We expressed a concern in our audit that the amount the Office of the President reimburses for business and entertainment costs is too high. The Office of the President has taken some actions to change its costs for business meetings and entertainment, but has not revised the university policy that allows for the reimbursement of these costs. In May 2017, the Office of the President implemented new restrictions disallowing expenditures on retirement events and limiting the cost of morale building events to $19 per person or $500 in total, whichever is less. The policy also states that Office of the President funds cannot be used for any form of entertainment such as tickets to a fine arts or sporting events. However, because the Office of the President has not taken steps to update the university's policy, we still have concerns. For example, based on our reading of the May 2017 memo and the university's policy, Office of the President employees could still charge between $19 and $81 for business meetings provided to its employees. To implement this recommendation fully, the Office of the President needs to update the university's business meeting and entertainment policy to lower these reimbursable costs.

Employer Contributions Toward a Retirement Savings Plan for SMGs: In October, the Office of the President added an administrative note to the senior management supplemental benefit policy stating that the President is no longer recommending or approving participation in this program for new hires or new appointees. The note further states that current recipients may continue to participate in the program until they step down from their current positions or change positions. We recognize this action as a positive step that meets the spirit of our recommendation. However, until the regents take action to approve policy changes that affect the compensation of SMG employees, the Office of the President's approach creates the risk that in the future a president may choose to remove the administrative note and allow new SMG employees to participate in the program. The Legislature made $50 million of funding contingent upon the university demonstrating a good faith effort at adopting a policy that does not provide supplemental retirement payments to any new SMG employees no later than May 1, 2018. To implement this recommendation fully, the Office of the President needs to take policy revisions to the regents for approval so they can vote to change the policy.

Stipends: In October 2017, the Executive Director of UCOP Human Resources sent an e-mail to all Office of the President managers and supervisors reissuing the Office of the President's procedures for approving stipends. In this e-mail, she establishes additional controls for Office of the President employees that exceed the requirements of the university's compensation policy. Specifically, according to this e-mail, the Office of the President's human resources recommends that stipends do not exceed 20 percent of an employee's base salary; whereas, the policy allows stipends to reach 25 percent of an employee's base salary. Although we recognize that this action is a positive step that meets the spirit of our recommendation, to implement this recommendation fully, the Office of the President needs to establish formal policies and procedures for the approval of stipends that reconcile the difference between the recommendation from its human resources and its formal policy.

Complete

Cell Phones: In October, the Office of the President issued a mobile device policy that includes many safeguards to control costs and ensure the proper distribution and tracking of cell phones and other electronics. This policy is sufficient to address our recommendation.

Meals: In October, the Office of the President updated its travel policy to limit the allowable per-person reimbursement for meals and incidentals to $62 per day. The policy also states that meal reimbursements must not be treated as a per diem and must be for the actual and reasonable costs incurred. This policy aligns with that of the California State University and is therefore more reasonable and justified. This policy is sufficient to address our recommendation.

Lodging: In October, the Office of the President updated its travel policy to limit in-state and out-of-state lodging reimbursements to a traveler's actual costs not to exceed $275 per night. The policy also states that lodging reimbursements must be reasonable for the locality of travel. This lodging policy aligns with that of the California State University and is therefore more reasonable and justified. This policy is sufficient to address our recommendation.

Relocation Allowance: In October 2017, the Office of the President removed its policy on relocation allowances and replaced it with a more specific policy on reimbursable relocation expenses. The new policy allows the university to reimburse an appointee for the cost to sell his/her former primary residence or for the settlement of an unexpired lease. This policy is sufficient to address our recommendation.

Moving Reimbursement: In October 2017, the Office of the President updated its moving reimbursement policy. The new policy clearly outlines which costs the university will reimburse for and places limits on those costs. It also made some costs that were previously reimbursable—such as the assembly and disassembly of unusual items like swing sets and swimming pools—unallowable. This policy is sufficient to address our recommendation.

Performance Bonuses: In May 2017, the Office of the President implemented new restrictions regarding employee bonuses. Specifically, it limited STAR Awards to $500 per person. Moreover, the policy only allows one award per person or team per fiscal year and the awards must recognize a specific project or event that is above and beyond the normal scope of an employee's regular job. These changes address our recommendation.

60-Day Agency Response

A memo restricting the use of funds for retirement parties and gifts, morale-building activities, STAR awards and spot awards at the Office of the President was issued on May 31, 2017 and the changes were effective immediately. Benchmarking of UC policies to other universities, CSU, the state of California and federal rates is underway.

California State Auditor's Assessment of 60-Day Status: Partially Implemented

The May 31, 2017 memo included reductions in employee benefits such as bonuses and additional safeguards to control costs. Full implementation of this recommendation is pending the review of other employee benefit policies.

All Recommendations in 2016-130

Agency responses received are posted verbatim.