Audit Rips Cal State Fullerton

A state report accuses officials at Cal State Fullerton of mismanaging funds, spending scholarship money on meals, entertainment and an oil change and circumventing hiring and contracting procedures to give work to friends.

“Although many of the problems we identified may not seem significant in isolation,” said the report released Tuesday by the state Auditor’s Office, “collectively they demonstrated serious mismanagement on campus.”

In a written response, California State University Chancellor Charles Reed downplayed the auditors’ conclusions. “As a result of our review and investigation, we did not find any serious mismanagement at the university,” said the man who heads the 22-campus system. “We do agree that there were errors of judgment and mistakes in some instances.” The university is taking steps to prevent future problems, the statement said.

Cal State Fullerton President Milton A. Gordon said he agreed with Reed.

The chancellor’s and president’s offices are conducting their own evaluations of campus business operations and management. The results are expected by the end of the month.

Nearly all the allegations in the report centered on expenses Cal State Fullerton charged to nonprofit foundations that carry out much of its fund-raising and on the personnel and financial activities of a woman in the school’s business division. She was not identified by name in the report.

“If there were one or two of these hiring issues, we wouldn’t report on it,” said Ann Campbell, director of investigations for the State Auditor’s office, “but this one official is involved in so many of those problems, we had to. This is the person who is supposed to ensure everything is being spent correctly, that everything undergoes correct review, and this person was circumventing all of them.”

Ken Swisher, spokesman for the state university system, said no one had been disciplined for actions the auditors uncovered. No university employees are mentioned by name in the report.

Campbell expressed surprise that Cal State Fullerton officials did not publicly express more concern about the problems uncovered. “I’m surprised they’d have the nerve to put out that response,” she said.

The investigation began about two years ago with a tip to the state auditor’s whistle-blower hotline. Campbell said the investigation was delayed two months when auditors learned that employees were being instructed to tell their supervisors if investigators contacted them. “That’s not the way we do business,” said Campbell, who used to sit on the board of the alumni association at Cal State Sacramento. “I know there were some employees who felt intimidated.”

The 58-page report documented the misuse of about $1 million but said that an additional $7.7 million was transferred to a fund-raising group called the University Advancement Foundation.

According to the report, the foundation was established in 1993 without the legally required approval of the state university chancellor. In addition, its board had no campus staff, faculty or student members, another violation of state law.

The report says that from July 1994 through June 1998, university employees spent $104,000 in donations--money that should have gone toward educational uses--on food, flowers, entertainment, parties and gifts. The university also spent money for holiday, retirement and birthday parties “as well as an annual staff appreciation event for campus employees.”

“We could not understand why campus officials and their staff so frequently had to conduct university business over meals paid for with donated funds,” the report said.

Auditors sent the report Tuesday to the Internal Revenue Service, state Franchise Tax Board and the state Registry of Charitable Trusts, who could use it to review the University Advancement Foundation’s tax-exempt status.

“That’s one of the unfortunate things about the report,” Campbell said. “It will hamper the ability to raise funds. If you donated $100,000 to the foundation and read in a report they spent over $100,000 taking each other out to lunch, are you going be real anxious to give them another $100,000?”

Among the expenses the foundation paid that auditors questioned were:

* A $6,000 laptop computer a campus executive bought for a retiring Cal State Fullerton administrator.

* Twelve carwashes and a lube and oil job for the car of a campus administrator costing $150.

* More than $2,600 in finance charges for credit cards held by officials in the president’s and university advancement offices.

* About $5,500 the advancement office paid to reimburse employees for tuition and fees for classes they took, even though the school already had a tuition reduction program.

The report also said officials had violated the law in the handling of funds donated for President’s Scholars scholarships, a program that provides a free ride for the university’s brightest incoming freshmen.

Auditors said funds were misspent and restricted funds were misused.

“By not adhering to restrictions placed on the use of donated funds and by not distributing the scholarship money it raised, the campus has violated the public trust and sabotaged its own mission,” the report said.

Auditors also focused on the practices of the employee in the business division, saying she had violated university rules on competitive bidding and gave $158,000 in work to friends and former co-workers.

The woman engaged in “questionable personnel practices” by not looking for the best candidates, the report said. In one instance she “hired an employee who did not meet the minimum qualifications required for the job.”

In addition, the report found, her division improperly set up a trust account and used the money “to pay for campus expenditures not authorized by state laws.” The report said the division “illegally diverted” about $220,000 from its utilities fund, money that should have been returned to the state’s general fund.

The report also notes that Gordon, the campus president, refused to sign a statement recounting the information he gave to investigators.

Campbell said the statement, which is signed under penalty of perjury, is routine, and it is rare for someone to refuse to sign. “I found it quite peculiar,” she said. “What we were asking him doesn’t have any criminal repercussions.”

She said investigators want the statements made under penalty of perjury to ensure people will stand by what they say.

The report says the auditors have “less confidence in the accuracy of our understanding because of the president’s unwillingness both to confirm the statements and to certify them under penalty of perjury.”

In its statement, the state university system declared that the request to sign such a statement is “a misuse of process and the refusal to sign it is a matter of principle. . . . The president was entirely cooperative and at all times truthful in his responses to the investigator, and his refusal to sign a statement under penalty of perjury in no way reflects upon the accuracy of his statements.”

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Times staff writer Kate Folmar contributed to this story.