Report 2015-107 Recommendation 16 Responses

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

Recommendation #16 To: University of California

To determine if the campuses are using funds to further the goals of the University of California system and the Legislature, the Office of the President should begin regularly monitoring and analyzing how campuses are using both state funds and nonresident supplemental tuition. If, after the close of the fiscal year, the Office of the President determines that campuses are not using state funds and/or nonresident supplemental tuition in accordance with those goals, the Office of the President should take steps to correct the campuses' spending decisions as soon as possible.

Annual Follow-Up Agency Response From October 2021

As the University has previously noted, campus departments routinely charge expenditures to a pooled fund source that consists of a combination of core funds - including but not limited to State General funds, tuition and fees paid by in-state students, and tuition and fees paid by nonresident students. Campuses then associate expenditures to a specific component of core funds (e.g., nonresident tuition) after the fact, ensuring that any expenditure attributed to a fund is consistent with the permitted use of the fund. This approach is far more efficient than asking individual departments to track multiple fund sources and to choose among them when covering thousands of individual expenditures.

Because these individual components of core funds are largely fungible, how a campus decides to attribute a particular expenditure to a particular component of core funds (e.g., nonresident tuition) can vary by campus and, more importantly, is not representative of the actual role played by that component in overall campus expenditures from core funds. For this reason, oversight provided by the Office of the President continues to focus on campus expenditures from core funds as a group rather than from any specific component of core funds.

California State Auditor's Assessment of Annual Follow-Up Status: Will Not Implement

The university's position is unchanged from its previous response. The university's response indicates that it will not take any efforts to monitor campuses' use of state funds and nonresidential supplemental tuition. Page 70 of our report illustrates the importance of monitoring how the university spends nonresident tuition in the context of enrolling additional resident students. It says "Because as recently as December 2014 the university publicly declared that nonresident revenue allows campuses to maintain and increase enrollment of residents, we expected the Office of the President to have directed the campuses to spend nonresident revenue on activities that result in enrolling additional residents. At the least, we expected the Office of the President to be monitoring how campuses spend nonresident revenue to ensure the prudency of their decisions."

Annual Follow-Up Agency Response From November 2020

Campus departments routinely charge expenditures to a pooled fund source that consists of a combination of core funds - including but not limited to State General funds, tuition and fees paid by in-state students, and tuition and fees paid by nonresident students. Campuses then associate expenditures to a specific component of core funds (e.g., nonresident tuition) after the fact, ensuring that any expenditure attributed to a fund is consistent with the permitted use of the fund. This approach is far more efficient than asking individual departments to track multiple fund sources and to choose among them when covering thousands of individual expenditures.

Because these individual components of core funds are largely fungible, how a campus decides to attribute a particular expenditure to a particular component of core funds (e.g., nonresident tuition) can vary by campus and, more importantly, is not representative of the actual role played by that component in overall campus expenditures from core funds. For this reason, oversight provided by the Office of the President continues to focus on campus expenditures from core funds as a group rather than from any specific component of core funds.

California State Auditor's Assessment of Annual Follow-Up Status: Will Not Implement

The university's response indicates that it will not take any efforts to monitor campuses' use of state funds and nonresidential supplemental tuition. Page 70 of our report illustrates the importance of monitoring how the university spends nonresident tuition in the context of enrolling additional resident students. It says "Because as recently as December 2014 the university publicly declared that nonresident revenue allows campuses to maintain and increase enrollment of residents, we expected the Office of the President to have directed the campuses to spend nonresident revenue on activities that result in enrolling additional residents. At the least, we expected the Office of the President to be monitoring how campuses spend nonresident revenue to ensure the prudency of their decisions."

Annual Follow-Up Agency Response From November 2019

In response to the California State Auditor's recommendation, the University developed the "Core Fund Expenditures Report" for the 2016-17 and 2017-18 fiscal years and will conduct a similar analysis for 2018-19. The report analyzes 3-year trends in campus expenditures by function and by object category (salaries and wages, scholarships and fellowships, employee benefits, supplies and materials, utilities, etc.) to review how campuses are using core funds, identify any material increases in campus spending (particularly in areas which do not directly relate to educating students or which are meant to be self-supporting) and conduct campus-to-campus comparisons.

In instances where UCOP staff identified large year-to-year variances or material increases in expenditures that did not appear to be related to instruction or research, staff consulted with campus budget staff to understand the reason for the expenditures and to confirm that expenditures were, in fact, consistent with the intended uses of core funds. This is now an ongoing responsibility of the UCOP Budget Analysis and Planning department.

California State Auditor's Assessment of Annual Follow-Up Status: No Action Taken

Page 70 of our report illustrates the importance of monitoring how the university spends nonresident tuition in the context of enrolling additional resident students. It says "Because as recently as December 2014 the university publicly declared that nonresident revenue allows campuses to maintain and increase enrollment of residents, we expected the Office of the President to have directed the campuses to spend nonresident revenue on activities

that result in enrolling additional residents. At the least, we expected the Office of the President to be monitoring how campuses spend nonresident revenue to ensure the prudency of their decisions."

The university's response states the university developed its core fund expenditures report in response to this recommendation, however, the core fund expenditures report does not differentiate between state funds and nonresident supplemental tuition. Page 3 of the core funds report explains "This report focuses on the $8.4 billion of these expenditures that were made from "core funds". Core funds consist of State General Funds, student tuition and fees, and UC General Funds (primarily nonresident supplemental tuition)."

This report does not serve to implement our recommendation to monitor and analyze how campuses are using both state funds and nonresident supplemental tuition, and in fact it is difficult to see how this report represents any change to the university's practices. Page 70 of our report clarifies that the finding relates to tracking the use of nonresident revenue: "Further, aside from a high-level collection of financial information that it uses primarily to detect spending anomalies, the Office of the President does not systematically monitor how each campus uses its nonresident revenue separately from other revenue sources at the campuses."

Annual Follow-Up Agency Response From October 2018

Consistent with the University's response last year, the Financial Planning & Analysis ("FP&A") unit developed and piloted a methodology for reviewing the last three years of core fund expenditures at each UC campus. Staff reviewed expenditures in FY2015, FY2016, and FY2017. At the systemwide level, core fund expenditures increased to varying degrees across all functional areas, with the slowest growth occurring in core-funded student financial aid. (This is consistent with the University's decision to hold Tuition flat during this period, which is the single biggest source of core-funded student financial aid at UC. It is also consistent with actions taken by the Regents in 2015 to eliminate, over time, financial aid provided to nonresident undergraduate students from the University's systemwide pool of needbased aid and to redirect those funds to other parts of the University's budget.) Staff will further refine the methodology to identify issues or trends for discussion with campus budget staff as appropriate and to incorporate expenditure data from FY2018, which became available only a few weeks ago.

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

Annual Follow-Up Agency Response From November 2017

The Financial Planning & Analysis ("FP&A") unit has developed a prototype analytical tool and report for use in analyzing core funds expenditures at each UC campus during the past three years. The tool and report have the potential to provide useful information about trends in spending by function and by expense type to identify any significant year-to-year variances and to ensure that core funds are used in a manner consistent with the University's core mission. Upon final testing and review of the tool, UCOP staff will use it to conduct annual analyses to better understand spending patterns at each campus and to identify issues or trends for discussion with campus budget staff as necessary. For material variances, staff will consult with campuses to better understand the reasons for the variance, and recommend any action for future changes, if applicable. Staff will begin using this tool and reporting template beginning in early 2018 to review expenditures through FY2017.

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

1-Year Agency Response

The Financial Planning and Analysis unit has been tasked with developing models for tracking and evaluating campus expenditures from core funds as a whole, including State General Funds, UC General Funds, and tuition and fees. The models would be reviewed by campuses and UCOP in order to create a standardized "dashboard" (or dashboards) to enable meaningful analyses of campus expenditures over time and differences in expenditures across campuses. The FP&A unit is only just beginning their work on this. Because developing a framework for monitoring and evaluating expenditures will be a consultative effort, the UC anticipates a September 2017 delivery date.

California State Auditor's Assessment of 1-Year Status: Pending

We look forward to reviewing the "dashboard" upon its completion. Work is ongoing by the university, so the pending assessment will remain unchanged.

6-Month Agency Response

The Office of the President will develop and implement a process to regularly evaluate campus expenditures from core funds - State General Funds, Nonresident Supplemental Tuition, other UC General Funds, and student tuition and fees - and will continue to take appropriate measures to ensure that those expenditures are aligned with the University's core missions.

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

60-Day Agency Response

The Office of the President will develop and implement a process to regularly evaluate campus expenditures from core funds - State General Funds, Nonresident Supplemental Tuition, other UC General Funds, and student tuition and fees - and will continue to take appropriate measures to ensure that those expenditures are aligned with the University's core missions.

California State Auditor's Assessment of 60-Day Status: No Action Taken

We asked the university whether it has begun this process and why it believed the process would take until September 2017 to implement. The university subsequently stated that its initial 60-day response provided sufficient information. Because the university did not provide any specifics as to what steps it intends to take or when it will begin to develop the process, we consider the university to have taken no action on this recommendation.

All Recommendations in 2015-107

Agency responses received are posted verbatim.