Audit reveals secret millions at UC
SACRAMENTO — The University of California hid $175 million from the public in secret funds while its administrators demanded more money from the state, according to a report released Tuesday by state Auditor Elaine Howle.
Under the leadership of Janet Napolitano, the UC Office of the President amassed millions in the secret reserve funds in part by overestimating how much it needed to run the 10-campus university system — and then spending less than budgeted, the audit said. From 2012 to 2016, the office sought increased funding based on the inflated estimates, not actual spending, according to Howle.
Howle also accused the university of interfering with the audit by inappropriately screening the confidential responses of campus administrators to her office’s survey, resulting in some answers being changed or deleted. She said she is looking into whether the university violated any laws or policies on interference.
The alleged changes were “very troubling to us,” Howle said.
The stunning revelations about the secret money immediately drew criticism and calls for the UC Board of Regents — which the audit said did not know about the hidden millions — to reverse its decision to increase tuition by 2.5 percent this fall.
“It’s outrageous and unjust
to force tuition hikes on students while the UC hides secret funds, and I call for the tuition decision to come back before the Board of Regents for reconsideration and reversal,” Lt. Gov. Gavin Newsom, one of 26 regents, in a statement.
Napolitano denied the audit’s claims that her office improperly kept money stashed away, saying the money was set aside for unexpected expenses.
The audit also far overstated how much money was set aside, Napolitano’s office said in a statement. “The true amount is $38 million, which is roughly 10 percent of (the office’s) operating and administrative budget, a prudent and reasonable amount for unexpected expenses such as cybersecurity threat response and emerging issues like increased support for undocumented students and efforts to prevent sexual violence and sexual harassment.”
About $32 million of the $175 million that Howle’s audit found in the secret reserve came from campus assessment fees — money that the auditor said could have been spent on students and should be returned to the campuses.
Even as it accumulated the campus fees, Napolitano persuaded the Board of Regents to increase those fees in two of the four years audited, Howle said.
In addition to setting aside money in the secret funds, Napolitano’s office created a secret budget to spend the money, the audit said.
Some of the secret funds were allocated for communications and brand management ($4.7 million), the president’s residence ($862,000), nonresident recruiting ($1.8 million) and an initiative that allows students at historically black colleges and universities to participate in UC summer research programs ($5.2 million).
The audit also found salaries within the Office of the President are significantly higher than those for comparable state employees, and that the UC headquarters offered job perks not seen in the public sector that totaled $21.6 million over the years audited.
Those included supplemental retirement accounts with employer contributions and allowing employees to book high-priced hotels when traveling for work, the audit said.
Howle compared the hidden fund to the 2012 controversy in the California Department of Parks and Recreation, which was found to have stowed $54 million in special funds for more than a decade as state parks were facing closure.
“This is a similar situation,” Howle said. “I’m sure that regents had the best interest of their students in mind when they decided they had to increase tuition, but they didn’t know there was a reserve amount out there that could have covered a portion of that tuition increase, reduced the amount or maybe eliminated it completely.”
The UC audit was ordered by state lawmakers to determine whether UC’s Oakland headquarters was was wisely spending its $686 million annual budget. Lawmakers said they were frustrated that spending in Napolitano’s office nearly doubled in recent years and that no one at UC could pinpoint how big the office’s staff is, with totals varying by nearly 500 people depending on who was counting.
The auditor pegged the Office of the President’s staff at nearly 1,700 employees. The office provides administrative services to the university system’s 10 campuses, such as managing the UC pension fund, and oversees systemwide programs such as online education.
In requesting the audit, Assemblyman Phil Ting, D-San Francisco, chairman of the budget committee, and Assemblyman Kevin McCarty, DSacramento, chairman of the budget subcommittee on education finance, said they hoped to identify redundancies between administrative services provided by Napolitano’s office and those of individual campuses. That savings could help reduce the need for tuition increases, they said.
To find those potential redundancies, state auditors sent confidential surveys to each campus. Howle said her office learned in February that the deputy chief of staff in Napolitano’s office had improperly screened responses before they were sent to auditors.
As a result, Howle said, answers that were critical of the Office of the President were deleted or changed in the survey to put the office in a better light. The audit did not identify the chief of staff who allegedly screened the responses or say who had deleted or changed campuses’ answers.
“I’ve never had a situation like that in my 17 years as state auditor,” Howle said. “My attorneys are looking at whether any improper government activities occurred.”
The statement issued by Napolitano’s office did not address the allegation.
Ting said lawmakers will hold a hearing next week to go over the audit. He said that if the $175 million had been directed toward student enrollment, more than 35,000 additional students could have attended UC schools.
“There is more money out there to fund more California students at UC,” Ting said at a press conference in his Capitol office. “It’s clear that the Office of the President themselves can pay for additional students out of their discretionary budget.”
The state auditor recommended changing how the Office of the President is funded so that the Legislature has more oversight. Napolitano’s statement said a change would threaten the university’s autonomy.