Report 94123 Summary - January 1996

California Community Colleges: The Chancellor's Office Inadequately Controlled Its Economic Development Program and, Along With the Department of Education, Circumvented State Contracting Procedures


The Chancellor's Office:

The Chancellor's Office and the Department of Education:

The Board of Governors of the California Community Colleges (board) was established to provide statewide leadership to California's community colleges. The Legislature appropriates funds to the board for the support of the Chancellor's Office and for various local assistance programs administered by the community college districts, such as the Economic Development Program. The mission of the Economic Development Program is to advance California's economic growth and competitiveness through quality education and services. To accomplish this mission, the Chancellor's Office awards grants to various community colleges throughout the State to support the community colleges' efforts to provide education, training, and technical services to California business and industry. Our review focused on the Chancellor's Office's procedures for awarding Economic Development grants and monitoring and reviewing grant expenditures. Specifically, we noted the following concerns:

We were also asked to determine whether the Chancellor's Office used federal funds for the program in accordance with the Vocational Education State Plan (state plan). The state plan addresses Vocational Education programs rather than Economic Development programs; however, because our initial review of contracts that the Chancellor's Office and the Department of Education (department) issued to obtain assistance in preparing the state plan raised concerns, we expanded the scope of our audit. Specifically, we examined the process that the Chancellor's Office and the department used to obtain the services of community colleges and a private contractor to prepare the state plan for 1994-96. During this review, we noted the following concerns:

The board has adopted new policies regarding approval and use of grants and contracts at the Chancellor's Office. Specifically, in September 1995, the board adopted a policy stating that contracts must be reviewed by it if amended in such a way as to make them exceed either $100,000 or three years in duration, or if they involve consulting services over $50,000.

The board also adopted a policy that requires the Chancellor's Office to seek board approval before entering into any grants which exceed $100,000 or three years in duration. Although the revised policy improves control over the process for awarding grants, it includes a provision that states that the new procedures shall not apply to grants distributed on an allocation formula basis that has been reviewed and approved by the board. Since many of the grants awarded by the Chancellor's Office are distributed based on an allocation formula basis, including grants for the Economic Development Program, those grants would be exempt from the revised board policies. Therefore, the board should reconsider the provision in its policy that excludes these grants.

In addition, the Chancellor's Office has created a Grants and Contracts processing unit as part of the Fiscal Division. This unit processes grant awards, verifies and logs quarterly and final fiscal reports, and reconciles fiscal data with the accounting unit. Specialists in the Economic Development and Vocational Education Division monitor the programmatic aspects of the grants. Finally, the Grants and Contracts unit maintains the master files for audit purposes.

The Superintendent of Public Instruction of the Department of Education has implemented new policies regarding approval and use of contracts at the department. Specifically, in January 1995, the superintendent issued a policy stating that effective immediately she will review all proposed contracts. In addition, she stated that requests to extend contracts beyond the original ending date must be accompanied by a full explanation of the reason for the extension and a summary of the work completed to date. The superintendent also stated that effective April 1, 1995, contracts not fully executed by the starting date will receive personal review by her as to the reasons for the delay. Furthermore, the superintendent discouraged the use of sole-source contracts, stating that any requests for such contracts will be closely reviewed and approved by her. Finally, she stated that it will no longer be acceptable to circumvent appropriate contracting procedures through Budget Act language that mandates a specific contractor.


To ensure adequate control over Economic Development Program funds, the Chancellor's Office should:

The Chancellor's Office should also reimburse the State for the amount of unnecessary costs incurred as a result of its inappropriate use of an interjurisdictional exchange contract.

The Chancellor's Office and the department should:

Agency Comments

The Chancellor's Office agrees with many of the findings in the report and it plans to give serious consideration to our recommendations. However, the Chancellor's Office disagrees with our conclusion that by paying the deputy chancellor through a contract with State Center it circumvented the state budget process and it created a conflict of interest by allowing the deputy chancellor to approve grants to State Center. In addition, the Chancellor's Office did not agree that State Center incurred excessive travel costs. Finally, with respect to payments for the state plan, the Chancellor's Office disagrees with our conclusion that it can neither assure that it received the services it paid for, nor that the costs paid for the services were reasonable.

The department generally supports the recommendations for ensuring compliance with state contracting requirements. However, the department disagrees with our final recommendation suggesting that it determine whether amounts paid to the contractor were appropriate.