Report 2010-105 Recommendations and Responses in 2012-041

Report 2010-105: University of California: Although the University Maintains Extensive Financial Records, It Should Provide Additional Information to Improve Public Understanding of Its Operations

Department Number of Years Reported As Not Fully Implemented Total Recommendations to Department Not Implemented After One Year Not Implemented as of Most Recent Response
University of California 1 8 7 6

Recommendation To: University of California

To address the variations in per student funding of its campuses, the university should complete its reexamination of the base budgets to the campuses and implement appropriate changes to its budget process. As part of its reexamination of the base budget, it should:
• Identify the amount of general funds and tuition budget revenues that each campus receives for specific types of students (such as undergraduate, graduate, and health sciences) and explain any differences in the amount provided per student among the campuses.
• Consider factors such as specific research and public service programs at each campus, the higher level of funding provided to health sciences students, historical funding methods that favored graduate students, historical and anticipated future variations in enrollment growth funding, and any other factors applied consistently across campuses.
• After accounting for the factors mentioned above, address any remaining variations in campus funding over a specified period of time.
• Make the results of its reexamination and any related implementation plan available to stakeholders, including the general public.

Response

As the University's July 26, 2012 response states, a systemwide work group consisting of Chancellors and other campus and Office of the President leadership, and faculty met for nearly a year to review the distribution of State funds across the system. It issued a set of recommendations that has been shared publicly; the basics of these recommendations were described in UC's response to BSA. These recommendations will be implemented over a multi-year period, the first phase of which was initiated in allocations associated with the 2012-13 fiscal year. It was the preference of the systemwide taskforce to use new and incremental State funding to achieve the rebenching of State funds. The length of time to complete this process depends entirely on the future of funding increases from the State.

  • California State Auditor's Assessment of Status: Not Fully Implemented
  • Completion Date: Unknown
  • Response Date: October 2012

Recommendation To: University of California

To help improve accountability in the university's budget process, and to help minimize the risk of unfair damage to its reputation, the university should take additional steps to increase the transparency of its budget process. Specifically, the Office of the President should update its budget manual to reflect current practices and make its revised budget manual, including relevant formulas and other methodologies for determining budget amounts, available on its Web site.

Response

The University regards this commitment as a high priority. However, many aspects of the University's budget process have changed recently and the University anticipates that more changes could occur depending on the outcome of Proposition 30 on the November 2012 ballot. Because of this uncertainty, and the understaffing of the office responsible for this function, completion of a new budget manual has been delayed. The University intends to complete a new budget manual during the 2013-14 fiscal year.

  • California State Auditor's Assessment of Status: Not Fully Implemented
  • Completion Date: FY13-14
  • Response Date: October 2012

Recommendation To: University of California

To help improve accountability in the university's budget process, and to help minimize the risk of unfair damage to its reputation, the university should take additional steps to increase the transparency of its budget process. Specifically, the Office of the President should continue its efforts to increase the transparency of its budget process beyond campus administrators to all stakeholders, including students, faculty, and the general public. For example, the Office of the President could make information related to its annual campus budget amounts, such as annual campus budget letters and related attachments, available on its Web site.

Response

The University has long provided extensive budgetary information that is accessible to students, faculty, and the general public. More recently, the University has expanded online links to ensure easy access to the wide variety of budgetary and other information that is available on the University.

The University has created a website accessed directly from the University's Office of the President home page that serves as a portal to extensive budgetary information. The site -- http://budget.universityofcalifornia.edu/ -- provides easy links to the Budget for Current Operations (http://budget.universityofcalifornia.edu/files/2011/11/2012-13_budget.pdf); a “Budget Basics” site that provides basic facts about the UC budget; sites with information on financial aid and tuition and fees; overview charts depicting UC's principal sources of funds and expenditures of core funds; and a “Myths and Facts” site that addresses a number of widely-held misconceptions about the UC budget. The portal also provides a direct link to the UC Office of Budget and Capital Resources website (http://budget.ucop.edu/). The Budget and Capital Resources site offers readily identifiable links to current and previous budgets for current operations and capital improvements. The operating and capital budget documents include a summary of each year's budget request to the State, as well as detailed information on every major area of the University's budget and appendices presenting UC's annual income and expenditures, historical information on expenditures by fund category, enrollments, and mandatory student charge levels (by category of student). The document includes a detailed Table of Contents and index for easy reference. The Budget and Capital Resources website also provides clearly labeled links to major budget presentations, including all budget-related presentations given to the Board of Regents, current and past reports submitted to the State legislature, and news updates on developments on the State and UC budgets.

The University's “Reporting Transparency” website represents another major easily-accessed portal to a great deal of additional budgetary and financial information that may be of interest to UC stakeholders and the general public. Among the 22 websites linked from this portal – at http://www.universityofcalifornia.edu/reportingtransparency/ -- are links to the University's actuarial audit reports, various sites related to operating and capital improvement budgets, compensation reports, and a number of financial reports (including the University's consolidated audited financial reports, reports on benefit plans, bonds, endowments, private support from campus foundations, revenue and expense trends, and the Treasurer's Office investments). The site also provides links to extensive statistical summaries on UC students and staff and student admissions.

The “Reporting Transparency” site also links to the University's annual Accountability Report (http://accountability.universityofcalifornia.edu/) . This expansive report presents detailed data on statistical indicators over time related to many facets of the University enterprise. These indicators track data related to enrollment and budget, undergraduate student admissions, graduate academic and professional degree students, affordability, faculty and other academic employees, staff, institutional diversity, research activity, health sciences and services, teaching and learning (metrics related to quality of the academic program), research, health sciences and services, private giving, the capital improvements program and sustainability, and UC rankings.

With respect to making information such as annual allocation letters publicly accessible on the web, the University regards this statement as a possible suggestion, rather than a strict recommendation, and does not intend to post allocation letters on the web. The allocation letters represent incremental changes to campus budgets for only those programs affected by change in that particular year. As such, the letters provide a thoroughly incomplete and misleading picture of the funding for any given program. Rather than advancing transparency, these letters would be highly misunderstood by the general public and create an enormous additional workload for budget offices throughout the system as they tried to explain what everything in the allocation letters means. So many materials are now available on the web and elsewhere that give a far more complete picture of how funds are expended and, we believe, provide a far more comprehensive and understandable view of the University's budget.

  • California State Auditor's Assessment of Status: Fully Implemented
  • Completion Date: October 2012
  • Response Date: October 2012

Recommendation To: University of California

To increase the transparency of university funds, the Office of the President should make available annually financial information regarding its funds, including beginning and ending balances; revenues, expenses, and transfers; and the impact of these transactions on the balances from year to year.

Response

The campus financial schedules for the year ending June 30, 2013 will contain this data. The June 30, 2013 reports will be published November 2013.

  • California State Auditor's Assessment of Status: Not Fully Implemented
  • Completion Date: November 2013
  • Response Date: October 2012

Recommendation To: University of California

To ensure that the campus financial information published by the Office of the President can be better evaluated by interested stakeholders, the university should disclose instances in which campuses subsidize auxiliary enterprises with revenues from other funding sources and should disclose the sources of that funding.

Response

We developed a model for collecting this data and will be collecting the data for the year ending June 30, 2012. We expect to publish the data by 12/31/2012.

  • California State Auditor's Assessment of Status: Not Fully Implemented
  • Completion Date: December 2012
  • Response Date: October 2012

Recommendation To: University of California

To improve the transparency of its expenses, the university should identify more specific categories for expenses that are recorded under the Miscellaneous Services accounting code and should implement object codes that account for these expenses in more detail.

Response

The information systems changes were completed prior to 6/30/2012. Data is now being gathered in the correct accounts for fiscal year 2012-2013. We expect miscellaneous services to significantly decrease for fiscal year 2012-2013

  • California State Auditor's Assessment of Status: Not Fully Implemented
  • Completion Date: June 2013
  • Response Date: October 2012

Recommendation To: University of California

To ensure that campuses do not inappropriately use revenues generated from student fees imposed by referenda, the university should ensure that it, the regents, and the campuses do not expand the uses for such revenues beyond those stated in the referenda.

Response

The University's position was clearly stated in its original response to the audit and has not changed. We disagree with this recommendation and strongly dispute BSA's conclusion that revenue generated by a campus-based student fee on the Los Angeles campus (the SPARC fee) was inappropriately identified to fund two capital projects on the Los Angeles campus.

The University's Policy on Compulsory Campus-Based Student Fees (Policy) describes “Compulsory campus-based student fees [which] may only be established, increased, or renewed following a referendum in which students vote in favor of the compulsory fees, except as provided in Section 83.00 of these Policies.” These fees and their terms are only effective after approval by The Regents or the President. Once a fee has been imposed by The Regents or the President, the terms of its collection and expenditure are binding throughout the life of the fee. Typically, these terms are the same as those contained in the referendum. However, the Board of Regents (and by delegated authority, the President) retains ultimate authority pursuant to its constitutional autonomy to impose or modify any and all student fees – including those established in response to campus-based referenda. Moreover, a referendum may contain errors, unworkable terms, unacceptable provisions, or ambiguities that The Regents (or the President) may correct when approving the fee. Although The Regents and the President do not take such actions lightly, modifications to fee terms are well within their authority.

After the SPARC fee was approved by The Regents for assessment on the Los Angeles campus, The Regents later approved the use of SPARC fee revenue for two capital projects not specifically named in the referendum passed by students. However, The Regents' approval of the SPARC fee stated that the revenue could be used for the facilities named in the referendum language “and similar needs of other student-fee supported activity and recreational facilities on the Los Angeles campus.” Because the Regental approval of the SPARC fee included this language, using SPARC fee revenue for the South Campus Student Center project and the intended use of SPARC fee revenue for the Pauley Pavilion project is consistent with the purpose of the fee as defined by The Regents' action. In addition, a student-majority advisory board created via the SPARC fee referendum, the Student Activities Center Board of Governors (SAC BOG), voted in favor of supporting the use of SPARC fee revenue to contribute towards the South Campus Student Center project.

The BSA also refers to a California court ruling as support for its finding that The Regents (and by delegated authority, the President) do not maintain authority to modify campus-based fees. For the purposes of this audit, the University assumes that the BSA refers to the California Court of Appeal ruling in Kashmiri v. Regents of the University of California.

That ruling, however, does not stand for the proposition that the BSA asserts. Rather the Kashimiri ruling is limited to its specific circumstances. The Court concluded that the University could not increase student fees (1) for a specific academic term once the University had issued student bills for that term and (2) if the University had explicitly advised students that certain professional degree fees would remain constant over a period of time. As such, the principles asserted in Kashmiri do not apply to the general terms of (including the use of funds generated by) the SPARC Fee or any other campus-based student fee.

Although the University disagrees with the BSA's recommendation and conclusion about the use of SPARC fee revenue on the Los Angeles campus, the University does plan to issue guidelines to further clarify that student referendum results are solely advisory to The Regents and the President.

In addition, UC's Office of the President (UCOP) and the campuses currently collaborate on efforts to avoid the need for changes from referenda language. When student referenda for campus-based fees are in the planning stages at the campus level, campuses frequently send draft referenda language to UCOP prior to printing final language on student ballots. The draft language is currently circulated among Budget and Capital Resources, General Counsel, and Student Affairs staff for review and comment. Staff work closely with the campuses to clarify any potentially confusing language in the referenda, including, in the case of capital project fees, ensuring that the financial planning for building projects has been sound.

UCOP staff work with the campuses to ensure that referendum language is specific to the capital project(s) in question and to avoid leaving the door open to funding unnamed capital projects in the future. UCOP may not want to restrict campus flexibility in the future, however. Campuses benefit from flexibility in their fund sources, future funding needs cannot always be anticipated, and it can be difficult to capture all potential uses of revenue generated by compulsory campus-based student fees.

  • California State Auditor's Assessment of Status: Will Not Implement
  • Response Date: October 2012

Current Status of Recommendations

All Recommendations in 2012-041