Report I970051 Summary - December 1999
The California State University at Fullerton Mismanaged Trust Accounts, Contracts, and Donated Funds
RESULTS IN BRIEF
We received allegations under the Reporting of Improper Governmental Activities Act (act) that the California State University at Fullerton (campus) illegally established an all-purpose trust account, used funds in that account to pay for many types of expenditures, and diverted surplus funds to the account. Also, the allegations stated that an official in the campus's Business and Financial Affairs division (business division) improperly spent her division's fee revenues and also improperly engaged in contracting and hiring. Finally, the allegations stated that the campus improperly created an auxiliary organization to which it transferred donated funds along with the power to invest and manage them.
We investigated and substantiated these allegations and also uncovered additional improper activities. Although many of the problems we identified may not seem significant in isolation, collectively they demonstrate serious mismanagement at the campus. Based on the evidence we reviewed, we concluded the following:
- The campus acted without statutory authority when its business division improperly established an all-purpose state trust account, known as the University Trust Project account, and deposited more than $683,000 into it from July 1994 through August 1998.
- During the same period, the business division improperly used more than $628,000 from this all-purpose account to pay for campus expenditures not authorized by state laws and, in January 1995, illegally diverted more than $219,000 of its unspent utilities funds to the account. The unspent utilities funds should have been returned to the State's General Fund.
- The business division improperly directed to an account it controls $15,000 in reimbursements that should have gone to the State. In addition, the business division official named in the allegations improperly used funds from this account to pay for consulting services supplied by acquaintances and former business division employees.
- The business division apparently charged other campus departments too much for administrative services and improperly used $197,000 in surplus fees to pay for costs unrelated to providing administrative services. According to the state law cited by the campus as its authority to make such charges, the funds should only be used to pay for the costs of providing those services.
- The business division official named in the allegations circumvented official contracting policies and procedures when she authorized more than $158,000 worth of work through contracts and service orders, at times without any contractual documents, with her acquaintances and former business division employees.
- The same business division official engaged in questionable personnel practices when she reassigned two of her staff to management positions instead of recruiting for the best candidates, hired an employee who did not meet the minimum qualifications required for the job, placed a contractor in a management personnel plan position on an emergency basis and subsequently hired her as a manager at a higher level than the previous position, and hired another consultant as a management employee on a temporary basis without recruiting for the post.
- Campus officials participated in the creation of an auxiliary organization known as the University Advancement Foundation (UAF) and transferred to this organization the investment and management of millions of dollars donated to the campus.
- From July 1994 to June 1998, campus officials inappropriately authorized payments of about $104,000 from nonstate accounts maintained at the California State University, Fullerton, Foundation (campus foundation) and the UAF for food, entertainment, flowers, gifts, and other questionable expenditures for themselves and other campus employees.
- The campus violated its fiduciary duty over funds designated for President's Scholars by transferring the funds to other accounts and commingling them with funds that can be used for other purposes.
- The campus led donors to believe that it had raised more than $1 million for scholarships at its Front and Center fundraising events in 1995, 1996, and 1997 when, in fact, it set aside only $556,000 for that purpose.
Because campus employees told the campus president about some of the improprieties before we began our investigation, and because he participated in the creation of the UAF, we submitted our report to the chancellor of California State University (CSU). The chancellor responded that CSU's review of our report and their further investigation did not find any serious mismanagement at the campus. He concluded, "there were errors of judgment and mistakes in some instances." Nevertheless, he reported that, with the full support of the campus, he has initiated an evaluation of the campus's fiscal management to ensure that appropriate internal control systems are in place.