State auditor urges UC regents to boost oversight of budget but says audit found nothing 'nefarious'

When state Auditor Elaine Howle told a joint legislative committee this month that University of California central administrators had amassed a $175-million undisclosed surplus, paid fat salaries and interfered in her audit, lawmakers cried foul. One compared UC administrators to corrupt officials in Bell. Another called for UC President Janet Napolitano to resign. Some wanted to know whether UC officials had committed any crimes and should be subpoenaed.

But UC regents struck a markedly different tone when Howle came to talk to them about the audit Thursday. Regents thanked her profusely for her work and said they would implement all 33 of her recommended reforms for more transparent and effective budget practices. She assured them, in turn, that she’d found nothing criminal or “nefarious” in Napolitano’s budget practices.

In their two-day meeting at UC San Francisco, the regents also adopted the public university system’s first limit on nonresident enrollment, but the audit was in the spotlight, starting with students protesting Wednesday that the university shouldn’t be hiking tuition if it had money lying around.

Many regents rallied around Napolitano, telling Howle on Thursday that the UC president was a leader of vision, action and integrity.

"It really hurt my heart" to hear people blast Napolitano's character, said Regent Bonnie Reiss of the harsh criticism after the audit was released. "There aren't many people of her quality" willing to step into such high-profile public jobs.

"This is not an audit of the president," Howle said. "I have great respect for her. I'm not here to critique her leadership. This is an audit of the process ... [the president's office] is not doing a good job."

Asked by several regents whether she considered the surplus a "slush fund" — as some critics have called it — Howle said: "You will not find 'slush fund' or 'hidden fund' in my report."

But she said her office found no evidence that regents had approved Napolitano's decisions on how to budget the extra money.

Napolitano has said that much of it was earmarked for such priorities as money to help prevent sexual violence and harassment, make progress toward climate change goals and support students who are in the country without legal authorization.

Regent Harvey Brody told Howle that he and his fellow board members had fully discussed those initiatives and were proud of them.

UC officials told regents they have started working on financial reforms, such as developing more detailed and transparent budget documents, analyzing appropriate staffing and salary levels, creating a budget reserve policy and reviewing travel and entertainment expenses.

The regents themselves committed to stronger oversight through more frequent reviews of UC budgets and presidential initiatives, public meetings about spending decisions and the hiring of an outside consultant to implement a three-year corrective action plan. Last week, they unanimously voted to hire an independent investigator to help uncover facts about the intervention of central administrators in the confidential surveys auditors sent to campuses.

But several regents said they opposed the auditor's recommendation that the state Legislature directly fund the president's office, which currently is supported by campus fees. Assembly Speaker Anthony Rendon, an ex-officio regent, told reporters later that legislators have not fully vetted that recommendation and he had not yet endorsed it.

For many regents, a major takeaway of the three-hour discussion was clearing up the confusion and innuendos of wrongdoing sparked by the audit.

"There has been no criminal activity. No slush funds. Nobody's integrity has been questioned," said Regent Sherry Lansing. "I feel it's important these distortions have been cleared up."

In other business Thursday, regents approved an $813.5 million budget for the president’s office for 2017-18 — an 18.5% increase over last year — with the condition that they will continue to review it and make adjustments if needed at their July meeting. Rendon was one of two who voted against it, saying it was inappropriate to expand the budget amid concerns raised by the state audit and student struggles to pay for college.

The regents’ approval of limits on nonresidents, which was proposed earlier this month, should settle for now the prolonged fight over who gets admitted into the prestigious public research university. The action also is expected to trigger release of $18.5 million held back by state officials until such a policy was in place.

Regents voted Thursday to limit nonresident undergraduate enrollment to 18% at UC Davis, UC Santa Barbara, UC Santa Cruz, UC Riverside and UC Merced. Four campuses that already exceed that level — UCLA, UC Berkeley, UC San Diego and UC Irvine — will be allowed to keep but not increase the higher percentages they enroll in 2017-18.

Nonresidents currently make up 16.5% of the system's 210,170 undergraduates.

The new policy is a compromise between those who believe nonresident students squeeze out Californians and others who welcome their diversity and the $27,000 in additional annual tuition they pay. UC’s original proposal of a 20% systemwide cap drew so much disagreement that regents delayed a scheduled vote on it in March.

A state audit last year found that UC hurt Californians by accepting too many out-of-state and international students. UC has disputed those findings, saying the extra tuition has helped them enroll more California students and provide them with better services. UC added about 7,500 California undergraduates last fall, the largest increase since World War II.

Hadi Makarechian was one of two regents to vote against the limit. Makarechian, an Armenian born in Iran, noted that he once was a foreign student and that other university leaders who are immigrants include UC Santa Barbara Chancellor Henry Yang and Chief Investment Officer Jagdeep Singh Bachher.

"What are we doing to this university? Building a wall," he said.

Regent George Kieffer said he struggled with his decision but ultimately decided to support the limits as a "balance between conflicting and competing interests."

teresa.watanabe@latimes.com

Twitter: @teresawatanabe

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UPDATES:

8:15 p.m.: This article was updated with the location of the meeting, at UC San Francisco.

This article was originally published at 7:15 p.m.

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