Report 2015-107 Recommendation 14 Responses

Report 2015-107: The University of California: Its Admissions and Financial Decisions Have Disadvantaged California Resident Students (Release Date: March 2016)

Recommendation #14 To: University of California

To maximize the savings and new revenue from the Working Smarter initiative and ensure that the university uses them for its academic and research missions, the Office of the President should ensure that it substantiates that projects are actually generating savings and new revenue and that it can demonstrate how the university uses these funds.

Annual Follow-Up Agency Response From October 2021

As noted in the University's earlier response, some activities that were formerly part of the Working Smarter portfolio were one-time actions. We interpreted the 2016 recommendation as applying to any new purported savings from ongoing programs.

To improve the University's ability to document and track savings, the University has further enhanced its Benefit Bank tool to facilitate the capture and quantification of distinct categories of benefits: actualized (a benefit with a defined quantity and absolute/firmly known value); projected (a benefit that has an estimated value based on past behavior and known future conditions, usually resulting from sourcing event); and both (a benefit with both a firmly known value for the current fiscal year and estimated value for future years). The Benefit Bank user interface was modified, and new concept training videos were introduced to guide benefit submitters. Consistent with the University's commitment to continual improvement, a newly enhanced and more in-depth Actualized & Projected training video series was released in early 2021 (see https://ucprocure.zendesk.com/hc/en-us/articles/360032836591-How-to-identify-Benefits-with-Actualized-and-or-Projected-Reporting-Types).

Other efforts that were formerly part of the Working Smarter portfolio report savings in other contexts (e.g., the University's annual report to the Legislature on the Statewide Energy Partnership program).

California State Auditor's Assessment of Annual Follow-Up Status: Partially Implemented

Annual Follow-Up Agency Response From November 2020

Some activities that were formerly part of the Working Smarter portfolio were one-time actions. We interpreted the 2016 recommendation as applying to any new purported savings from ongoing programs.

One example of an ongoing program is the Family Member Eligibility Reverification Program in which the University confirms the eligibility of family members who are claimed as a dependent and covered by UC's health benefits. The University conducted its most recent large-scale verification in 2017, which resulted in an estimated annual cost reduction of $21M associated with active employees and $2M associated with retirees (based on a 25% random sample of the retiree population). These savings translate into a slightly lower composite benefit rate compared to what the rate would have been without such savings—which ultimately affects the benefit-related expenses incurred by departments and fund sources across the system.

The University has previously cited tools that it has introduced to track projected cost savings, cost avoidance, and other incentives or revenue associated with procurement activities across the UC System. The Benefit Bank tool has been expanded to include savings related to the University's travel program. Other efforts that were formerly part of the Working Smarter portfolio report savings in other contexts (e.g., the University's annual report to the Legislature on the Statewide Energy Partnership program).

As we have previously noted, in many cases it is not possible to determine actual savings—only estimated savings. For example, cost savings associated with establishing a standardized laptop configuration in order to allow a campus to make volume purchases at a discounted price will depend on the hypothetical volume of purchases and laptop configurations that would have otherwise occurred, which is by necessity an estimate. The same is true for savings or benefits achieved through Connexxus, the UC and CSU systemwide travel program.

California State Auditor's Assessment of Annual Follow-Up Status: Partially Implemented

The UC's Benefit Bank website and its response here indicate that it is developing a process that may implement our recommendation to substantiate the savings the initiative generates from improved procurement practices, and to demonstrate how the university uses these funds. However, the Office of the President does not address how it will substantiate the savings from all 13 projects it included in the Working Smarter initiative.

Annual Follow-Up Agency Response From November 2019

UCOP Procurement Services continues to refine its 'Benefit Bank' tool (see https://www.ucop.edu/procurement-services/procurement-systems/uc-benefit-training.html) to track projected cost savings, cost avoidance, and other incentives or revenue associated with procurement activities across the UC System and trains procurement managers on how to document and record benefits when placing purchase orders. This tool allows the University to more accurately estimate benefits that are being realized. It should be noted, however, that in many cases it is not possible to determine "actual" savings—only estimated savings. For example, cost savings associated with establishing a standardized laptop configuration in order to allow a campus to make volume purchases at a discounted price will depend on the hypothetical volume of purchases and laptop configurations that would have otherwise occurred, which is by necessity an estimate. Nevertheless, it represent a serious and rigorous effort to quantify the estimated benefits associated with these activities, consistent with the intent of the recommendation.

California State Auditor's Assessment of Annual Follow-Up Status: Pending

The UC's Benefit Bank website and its response here indicate that it is developing a process that may implement our recommendation to substantiate the savings the initiative generates from improved procurement practices, and to demonstrate how the university uses these funds. However, this procurement program is only 1 of the 13 projects in the Working Smarter initiative, representing $170 million of the $664 million of claimed savings. The Office of the President does not address how it will substantiate the savings from these other 12 projects.

Annual Follow-Up Agency Response From October 2018

Due to competing priorities and staff turnover, we have not finalized the proposed template for distribution to other UCOP or campus departments. This remains a pending action item in 2018-19.

California State Auditor's Assessment of Annual Follow-Up Status: Pending

Annual Follow-Up Agency Response From November 2017

In order to improve and standardize the reporting of new revenue-generation or cost-reduction efforts, the Financial Planning and Analysis unit has developed a new reporting package for project owners to complete and submit in order to document and substantiate the financial impact of such efforts. The reporting package includes a standard template, instructions on how to use the template, a worksheet for estimating revenue increases and/or cost reductions, and a definition of terms so that project owners can present the impact of their programs in a more uniform manner. Program owners are also asked to provide supporting source documents for any realized actuals, including annual reports or details from the general ledger, and any analysis of prior year data that is used to estimate revenue generation or cost reductions.

The template will be reviewed by staff in the divisions of the Chief Financial Officer and the Chief Operating Officer for any revisions prior to its dissemination to relevant staff at the Office of the President and/or campuses.

California State Auditor's Assessment of Annual Follow-Up Status: Pending

1-Year Agency Response

The Working Smarter portfolio included many projects with readily quantifiable discounts or revenues. For example, over the course of four years, the University realized $130.4 million in revenue by optimizing the allocation of campus working capital between UC's Short Term Investment Pool (STIP) and its Total Return Investment Pool (TRIP). The University also reduced its employer costs for UC's health benefits by $35 million in a single year after conducting a full validation of every individual claimed as a dependent and covered by UC's health benefits. Other projects delivered benefits in the form of cost or risk avoidance, which by its nature is more difficult to quantify. The estimated fiscal impact of over $660 million generated by Working Smarter projects is well supported by documented revenues and savings, together with responsible estimates where those are not readily available due to the nature of the project.

It is not feasible to track the use of revenues and savings attributable to Working Smarter projects to the degree requested by the auditor. For example, UC Campus Connexions is a program that provides insurance coverage to faculty, staff, students, foundations, alumni associations, and other parties for events and activities held on campus. The program has reduced insurance costs for these individuals and organizations while at the same time protecting the University against property damage or lawsuits arising from these activities. UC is not in a position to track how savings to individuals or third-party organizations are ultimately used. UC has acknowledged that its data systems cannot track how all revenues and savings are ultimately used but has provided direction to chancellors as indicated in its response to #13.

Nevertheless, UC committed to having a new Financial Planning and Analysis unit (within Budget Analysis and Planning) undertake efforts to improve and standardized how savings are tracked.

California State Auditor's Assessment of 1-Year Status: No Action Taken

Contrary to the university's claim, during the course of our audit the university was unable to substantiate, with accounting records or other credible evidence, any of the $664 million of savings and new revenue it claimed to have generated under the Working Smarter initiative. In its post-audit responses, the university has not provide any new documentation to substantiate this savings and new revenue. That said, we look forward to reviewing the results of the Financial Planning and Analysis unit's efforts to improve and standardize the university's efforts in this area.

6-Month Agency Response

The University has rigorous requirements for demonstrating savings that are achieved by Working Smarter and other cost-saving or revenue-generating initiatives. However, improvements to standardize and more consistently track these data can be made. The Financial Planning and Analysis unit within the Chief Financial Officer division will undertake this assignment and strengthen processes for tracking savings generated.

With regard to how savings and new revenue are used, no existing information system would allow tracking of these savings and new revenue across the highly decentralized UC system with any degree of specificity. However, the University develops a budget plan every year that assumes a certain level of savings will be achieved in order to meet the requirements of its expenditure plan. Departments are and will continue to be expected to generate these savings to ensure the budget plan priorities are met.

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

We look forward to reviewing the university's implementation of strengthened processes for tracking data for the Working Smarter initiative because, despite the university's claim that it has "rigorous requirements for demonstrating savings that are achieved by Working Smarter and other cost-saving or revenue-generating initiatives," our audit found that it was unable to substantiate any of the $664 million of claimed savings and new revenue generated.

60-Day Agency Response

The University has rigorous requirements for demonstrating savings that are achieved by Working Smarter and other cost-saving or revenue-generating initiatives. However, improvements to standardize and more consistently track these data can be made. The Financial Planning and Analysis unit within the Chief Financial Officer division will undertake this assignment and strengthen processes for tracking savings generated.

With regard to how savings and new revenue are used, the University is a highly decentralized system, with responsibility for most expenditures residing at the departmental level. As a result, there is no existing information system that would allow tracking of these savings and new revenue across the system with any degree of specificity. However, the University develops a budget plan every year that assumes a certain level of savings will be achieved in order to meet the requirements of its expenditure plan. Departments are and will continue to be expected to generate these savings to ensure the budget plan priorities are met.

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

We followed up with the university and asked when the Financial Planning and Analysis unit within the Chief Financial Officer division will undertake this assignment. The university subsequently indicated that its 60-day response provided sufficient information on the status of its progress in implementing this recommendation.

The university stated that the Financial Planning and Analysis unit within the Chief Financial Officer division will strengthen processes for tracking savings generated at some unspecified point in the future. Thus, the status of this recommendation is pending.

All Recommendations in 2015-107

Agency responses received are posted verbatim.