University of California administrators hid $175 million from the public, its governing board and lawmakers in a secret reserve fund even as the UC raised tuition and asked the state for more funding, the state auditor said in a scathing report released Tuesday.
Auditor Elaine Howle said the office of UC President Janet Napolitano also overcharged the system's 10 campuses to fund its operations, paid its employees significantly more than state employees and interfered in the auditing process.
"Taken as a whole, these problems indicate that significant change is necessary to strengthen the public's trust in the University of California," Howle wrote in the report.
The audit found that over the course of four years, the UC's central bureaucracy amassed more than $175 million in reserve funds by spending significantly less than it budgeted for and asking for increases in future funding based on its previous years' over-estimated budgets rather than its actual expenditures.
"In effect, the Office of the President received more funds than it needed each year, and it amassed millions of dollars in reserves that it spent with little or no oversight," the report said.
Napolitano denies the audit's claim and said it unfairly mischaracterizes her office's budget processes and practices.
She said much of the $175 million Howle identified is already committed to systemwide university programs ranging from research grants to medical and academic programs, leaving just $38 million in reserves for unexpected expenses such as the need to respond to cybersecurity threats.
Napolitano argues the amount accounts for 10 percent of the operating and administrative budget. She called it "a modest amount for an organization our size."
The office argued it did not need to disclose its reserves because the regents had approved the spending in previous years' budgets.
Howle said the undisclosed funds included $32 million collected from campuses that could have been spent for other purposes.
University employees and lawmakers, who requested the audit, expressed outrage over the audit's findings.
"Today we learned that after squandering millions of public dollars on bloated management and unaccountable 'initiatives,' (the Office of the President) has effectively been operating a slush fund that shields hundreds of millions of public dollars from public scrutiny," said Kathryn Lybarger, president of UC's largest employee union, said in a statement.
She criticized the office's "skyrocketing executive pay and continued exploitation of low wage contractors," a reference to the audit's finding that the 10 executives in the office were paid a total of $3.7 million in the 2014-15 fiscal year — over $700,000 more than the combined salaries of their highest paid state employee counterparts.
Lybarger, who pushed for reform and oversight, also blasted Napolitano's interference in the investigation, comparing it "keeping two sets of books" so UC leaders could sustain their "pattern of deception."
Lt. Governor Gavin Newsom, a member of the UC Board of Regents, said the audit calls into question the university's decision to raise this fall's tuition for the first time in six years when it has money available. The decision in January increases the cost of tuition and fees for California residents, who currently pay $12,294 a year, to $12,630.
"It is outrageous and unjust to force tuition hikes on students while the U.C. hides secret funds, and I call for the tuition decision to come back before the Board of Regents for reconsideration and reversal," he said.
Newsom also said that he hopes the "overdue moment" will serve as "as an agent for change rather than denial."
Floating the idea of a "third-party corrective action plan," Newsom continued: "The audit must serve as a wake-up call for the Board of Regents, as a catalyst for serious soul-searching within the U.C.’s administration, and demands a reboot of the relationship between the system and its governing body."
Among her recommendations for reforms, Howle suggested that state lawmakers should increase oversight of the office.
However, she said the office's attempt to interfere with the audit process by reviewing surveys auditors sent to the campuses "cast doubt on whether it will make a genuine effort to change."
In 2012, the director of the California Parks Department resigned after it came to light that the department hid $54 million in parks funding for more than a decade, at the same time the state threatened to close dozens of parks to save money amid a state budget crisis. The state auditor recommended new accounting methods, which were later adopted.