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State audit finds UC president's office paid excessive salaries to top staff and mishandled budget money

The administration of the University of California system pays its executives salaries and benefits significantly higher than those given to state employees in similar roles, and failed to disclose up to $175 million in budget reserve funds as it recently proposed a raise in tuition, according to a state audit released Tuesday.

The audit findings, state lawmakers said Tuesday, confirm problems that have been a concern to them for years. University of California spending has been a perennial hot-button issue for legislators, students and union officials, many of whom have questioned the system's priorities and transparency — and whether its educational mission has suffered.

In a letter to Gov. Jerry Brown and the Legislature, State Auditor Elaine Howle detailed systemic budgetary reporting failures in the office of UC President Janet Napolitano.

“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,” Howle wrote.

Administrative growth and executive compensation have been two of the more contentious UC system expenditures in recent years. The Times reported two years ago that the number of UC employees making more than $500,000 annually had grown by 14% in the previous year and the system's administrative ranks had swelled by 60% over the decade — far outpacing tenure track faculty.

UC officials defended the increases as necessary to compete with other world-class institutions and keep up with advancing technology and growing enrollment.

The university's budget — larger than those of some 25 state governments — is so big and so complex that it can be puzzling even to California legislative experts and watchdogs.

Lawmakers said Tuesday that the audit they requested shows the UC Office of the President sitting on tens of millions of dollars that could have been used to admit more students or avoid a recent proposal to raise tuition by nearly 3% next fall.

“It is shocking. It is disappointing, but it’s not totally unexpected,” said Assemblyman Kevin McCarty (D-Sacramento), who asked for the audit with another legislator.

“We’re jacking up tuition for middle-class families, we are squeezing access, and at the same time we are sitting on this $175-million suitcase in the corner,” McCarty said.

The Legislature, which gives the UC system billions of dollars annually, plans to use the audit findings to demand reforms as part of this year’s budget process, he said.

Napolitano disputed the audit’s finding that there were tens of millions in surplus funds hidden and not committed to any program. The money has been assigned to various university initiatives, she said.

The audit was highly critical of how the university system administration handled money.

“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.

Assemblyman Phil Ting (D-San Francisco), who joined McCarty in requesting the audit, had asked that it determine whether individual campuses were duplicating any administration services provided by the Office of the President.

“That question was not answered because the UC Office of the President intercepted all of the confidential surveys and had the answers changed,” Ting said. McCarty added that legislators will hold a hearing on the alleged interference next week to make sure there are consequences for UC administrators.

“It’s clear there needs to be systemic reform from top to bottom of the university, and this is merely the first step,” Ting said of the overall audit findings.

Students are frustrated by the problems and want reform, said Ralph Washington Jr., president of the University of California Students Assn. He is concerned legislators may use the audit to say the UC system doesn’t need so much money from the state’s general fund.

“Students definitely don’t want their tuition to go up,” he said.

Given recent tuition hikes, Howle recommended that the Office of the President give available funds in the reserves back to the 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.

Napolitano agreed with the vast majority of recommendations for improving budget processes and spending, but said the auditors misunderstand how the $175 million was budgeted.

“In fact, [the UC Office of the President’s] budget and financial approaches reflect strategic, deliberate and transparent spending and investment in UC and state priorities,” said a statement by the Office of the President.

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

“The recommendations to [the UC president's office] are helpful,” Napolitano wrote.

However, Board of Regents Chair Monica Lozano and Regent Charlene Zettel asked Howle to remove recommendations that they said encroach on the autonomy of the university system as laid out in California’s Constitution, including proposals to require legislative approval of 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.

Auditors said salaries paid to staff in the UC president's office are much higher than the pay of comparable positions in other state government jobs. Administrative salaries amounted to a combined $2.5 million more than the maximum annual salaries for comparable state employee positions, auditors found.

Updates from Sacramento »

For instance, the UC system’s chief investment officer has a base salary of $615,000, while the top investment officer with the state’s teachers’ retirement system is paid $568,000, the audit found.

University of California’s executive vice president and chief financial officer is paid $412,000, while an executive doing a comparable job with the California State University system makes $341,000. The UC system’s general counsel is paid $428,000 a year, while an employee in the same position with the California Public Employees’ Retirement System takes in $414,000, the audit says.

“Ten 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,” the audit said.

On benefits, the Office of the President provided a standard state retirement plan, but also offered its executives a retirement savings account, contributing up to 5% of the executives’ salaries. Those contributions have totaled 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.

Auditors said the Office of the President also reimbursed questionable travel expenses, including a ticket for a theater performance and limousine services.

The audit’s overall conclusion was that 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.

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

Times staff writer Kim Christensen contributed to this report.

patrick.mcgreevy@latimes.com

Twitter: @mcgreevy99

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