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California State Auditor Report Number : 2014-121

University of California, Davis
It Has Not Identified Future Financing for the Strawberry Breeding Program nor Collected All Available Revenues

June 9, 2015 2014-121

The Governor of California
President pro Tempore of the Senate
Speaker of the Assembly
State Capitol
Sacramento, California 95814

Dear Governor and Legislative Leaders:

As requested by the Joint Legislative Audit Committee, the California State Auditor presents this audit report concerning the University of California, Davis (UC Davis). This report concludes that UC Davis has not identified how it will continue to fund the Strawberry Breeding Program (strawberry program), which lost over half of its funding in fiscal year 2013–14. Such a drop in funding places the viability of the strawberry program in jeopardy because the existing funding mechanisms for the strawberry program did not adequately cover this recent loss. For example, under the current process for distributing patent income, most of the patent income the strawberry program generates does not come back to the strawberry program. In fiscal year 2010–11, the strawberry program’s patents generated roughly $7 million, but UC Davis ultimately distributed only $556,848 back to the strawberry program. We believe that UC Davis could address the strawberry program’s recent loss of funding by increasing this allocation as necessary to adequately fund the program. Furthermore, UC Davis’ royalty rates remain lower than those charged by other universities; therefore, we recommended that it reassess the appropriateness of the current royalty rates charged to licensees and consider adjusting them.

In addition, UC Davis does not always collect all revenues that are available to the strawberry program. For example, UC Davis did not collect $157,000 in late fees from licensees that were late in making their royalty payments during fiscal years 2010–11 through 2012–13. By choosing not to pursue collecting late payment fees, UC Davis is foregoing opportunities to offset some of the program’s recent loss of funding. Moreover, we identified past discounts totaling roughly $245,000 that UC Davis provided to licensees, around the time the Non‑California Discount Revenue Program’s (discount program) agreements ended, without receiving any commensurate benefit. UC Davis may have been able to collect additional revenue during that time; however, it set up the agreements that governed the discount program in a way that prevented it from doing so. Finally, UC Davis may be missing out on royalties it is owed because it lacks an adequate process for ensuring that licensees are accurately reporting their sales.

Respectfully submitted,

State Auditor

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