Report 2016-130 Recommendation 3 Responses

Report 2016-130: The University of California Office of the President: It Failed to Disclose Tens of Millions in Surplus Funds, and Its Budget Practices Are Misleading (Release Date: April 2017)

Recommendation #3 To: University of California

To determine the amount of money that it can reallocate to campuses and to ensure that it publicly presents comprehensive and accurate budget information, by April 2018 the Office of the President should document and review the restrictions on its funds and fund commitments to determine whether it can reallocate any of these funds to its discretionary budget for eventual reallocation to campuses.

1-Year Agency Response

Categories and definitions for fund restrictions were created based on the University's accounting policies and generally accepted accounting principles. All of the funds on the general ledger for the Office of the President were reviewed and assigned an appropriate fund restriction category. The results of this process were presented to the Regents Finance and Capital Strategies Committee on March 14, 2018. The fund restriction working group recommended that 68 funds with total balances of $74.7 million as of June 30, 2017 be reclassified as unrestricted and undesignated. The Regents item F10 contains supporting documentation, including a table in Attachment B, summarizing the Office of the President funds and their classification based on the definitions can be found at the link below.

http://regents.universityofcalifornia.edu/regmeet/mar18/f10.pdf

UCOP has provided the CSA with documentation supporting its analysis of fund restrictions.

  • Completion Date: March 2018
  • Response Date: April 2018

California State Auditor's Assessment of 1-Year Status: Partially Implemented

We assessed this recommendation as partially implemented because the Office of the President did not provide us information regarding its reviews of fund commitments. According to the fund balances the Office of the President presented at the March Regents meeting, the Office of the President had $404 million in total fund balances which are composed of:

-$43 million in restricted funds according to generally accepted accounting principles (11 percent of total funds)

-$361 million in unrestricted funds (89 percent of total funds)

--$223 million designated (62 percent of unrestricted funds)

--$138 million undesignated (38 percent of unrestricted funds)

The $223 million in unrestricted designated funds are funds to be used for a specific purpose. For example, the Regents designated $75 million for its home loan program. Therefore, the amount that is unrestricted and undesignated amounts to $138 million or 38 percent of unrestricted funds; however, the president has the ability to also designate these funds as committed. Because the Office of the President did not provide us the data that supports its fiscal year 2018-19 budget, as discussed in recommendation 5, it is unclear how much of these unrestricted and undesignated funds it will determine are committed and therefore unavailable for reallocation to campuses for student or campus priorities.

By applying new fund definitions, the Office of the President increased the number of unrestricted and undesignated funds from 13 funds to 81 funds. In other words, the amount of unrestricted and undesignated funding increased by $75 million from $63 million to $138 million.


6-Month Agency Response

The workgroup formulated a project scope and workgroup charter . The group has identified a list of funds used within the UCOP budget (500+) and created a file to track them , along with their respective key attributes.

Next steps in the review include identifying funds with external restrictions and subsequently validating this information with departments and divisions across UCOP.

The workgroup will then review the restrictions and evaluate any opportunities to relieve restrictions to support unrestricted budget categories, with the input of key subject-matter experts and the Executive Budget Committee.

  • Estimated Completion Date: April 2018
  • Response Date: October 2017

California State Auditor's Assessment of 6-Month Status: Pending

The status of this recommendation is pending the Office of the President's review of fund restrictions. The Office of the President plans to report on its fund restrictions, commitments, and balances by April 2018. According to the Office of the President's working list of restricted funds, there are 521 active restricted funds. The Office of the President asserts that only 136 of those funds are restricted for Office of the President budget purposes, but not restricted per the university's financial audit or generally accepted accounting principles. Therefore, the Office of the President has discretion to make the policy decision to remove the restrictions on these funds.


60-Day Agency Response

A fund restrictions work group has been formed and is meeting twice monthly. The work group consists of staff members from UCOP and systemwide finance, and will draw on subject matter experts as required (e.g. Office of General Counsel). The work group has identified the scope which includes: (1) Review all restricted funds, (2) Evaluate use of fund categories to separate based on least / most restrictive definitions, (3) Apply a materiality methodology to focus on the largest opportunity areas, (4) Develop comprehensive documentation for future use and regular reviews, and (5) Establish where fund restrictions can be removed or modified.

The work group has finalizing a work plan and is launching the analysis and documentation phase. This involves identifying all funds and any existing documentation. It includes understanding the restrictions as well as identifying how or who made the initial restriction (e.g. Federal Research grant vs. UCOP restriction). In addition, the work plan includes assessment of existing best practices and benchmarks.

  • Estimated Completion Date: April 2018
  • Response Date: June 2017

California State Auditor's Assessment of 60-Day Status: Pending

The status of this recommendation is pending the Office of the President's review of fund restrictions. The Office of the President plans to report on its fund restrictions, commitments, and balances by April 2018.


All Recommendations in 2016-130

Agency responses received are posted verbatim.