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University of California administration is paying excessive salaries and mishandling funds, state audit says

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LOS ANGELES — The administration of the University of California system pays top workers salaries significantly higher than that of similar state employees, has provided millions of dollars in benefits not typical to the public sector and failed to disclose to the Board of Regents and the public that it had $175 million in budget reserve funds, a state audit found Tuesday.

The audit triggered a dispute with UC President Janet Napolitano, who said charges of hidden funds were false, while two members of the UC Board of Regents charged recommendations to give the Legislature budget authority over the Office of the President encroached on UC’s constitutional powers.

The audit of the Office of the President also found that it failed to satisfactorily justify its spending on systemwide initiatives and “inappropriately” screened surveys submitted by auditors to campus officials.

“Our report concludes that the Office of the President has amassed substantial reserve funds, used misleading budgeting practices, provided its employees with generous salaries and atypical benefits, and failed to satisfactorily justify its spending on systemwide initiatives,” State Auditor Elaine Howle wrote to Gov. Jerry Brown and the Legislature.

“Furthermore, when we sought independent perspective from campuses about the quality and cost of the services and programs the Office of the President provides to them, the Office of the President intentionally interfered with our audit process,” Howle wrote.

The audit was requested by legislators concerned about high tuition and complaints of a bloated administration overseeing the UC system’s 10 campuses.

“The reserve included $32 million in unspent funds it received from an annual charge levied on the campuses — funds that campuses could have spent on students,” the audit said.

Auditors said salaries paid to those in the president’s office are much higher than the pay of comparable positions in other state government jobs.

Napolitano agreed with the vast majority of recommendations for improving budget processes and spending, but denied that $175 million was hidden from the UC Board of Regents.

In a letter to Howle, the president said changes were already underway.

“The recommendations to (the UC president’s office) are helpful,” Napolitano wrote. “We welcome this constructive input, which aligns with our proactive efforts to continually improve UCOP’s operations, and UCOP intends to implement the recommendations.”

However, Board of Regents Chair Monica Lozano and Regent Charlene Zettel asked Howle to remove recommendations that they feel encroach on the constitutional autonomy of the university system, including proposals to have the Legislature approve the Office of the President’s budget and to appoint a third party to oversee operations.

“As written, we believe these recommendations threaten the University’s standing as a constitutionally autonomous entity, and the Board of Regents itself,” the regents wrote.

Administrative salaries amounted to $2.5 million more than the maximum annual salary ranges for comparable state employees, auditors found.

For instance, an accounting manager’s maximum annual salary is $169,000 at UC compared with $156,000 for other state employees.

An information system manager can make $258,000 with UC, but $150,000 with other state agencies.

The audit said: “10 executives in the Office of the President whose compensation we analyzed were paid a total of $3.7 million in fiscal year 2014-15 — over $700,000 more than the combined salaries of their highest paid state employee counterparts.”

On benefits, the Office of the President provided a regular retirement plan but also offered its executives a retirement savings account into which the office contributes up to 5 percent of the executives’ salaries — about $2.5 million over the past five years, the audit found.

“The Office of the President also spent more than $2 million for its staff’s business meetings and entertainment expenses over the past five years — a benefit that the State does not offer to its employees except in limited circumstances,” the audit said..

The audit said the Office of the President has not managed its own budget — which amounted to $747 million in fiscal year 2015–16 — “in a fiscally prudent or transparent way.”

Napolitano said the audit was in error in claiming her office failed to publicly disclose tens of millions in surplus funds.

“In fact, UCOP’s budget and financial approaches reflect strategic, deliberate and transparent spending and investment in UC and state priorities,” she wrote.

Howle disagreed.

“Significant reforms are necessary to strengthen the public’s trust in the Office of the President,” the audit concluded.

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