Report 2016-130 Recommendation 32 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 #32 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 2020 the Office of the President should evaluate its budget process to ensure that it is efficient and has adequate safeguards that ensure that staff approve and justify all budget expenditures. If the Office of the President determines that its safeguards are sufficient, it should begin developing a multiyear budget plan.

Annual Follow-Up Agency Response From October 2022

The University of California prepares its consolidated annual budget each fall, and it is presented to the UC Regents in November. This total amount is inclusive of any amount that would be subsequently allocated to UCOP under a campus assessment for the operations of the Office of the President. The university's timeline is consistent and aligned with other California State agencies. This process allows ample time to inform the Governor's budget released in January.

The UCOP campus assessment is best established with knowledge of the level of support from the State of California. This approach allows the University to optimize allocations across the system's key priorities. Further, this timing allows the university to highly leverage year-to-date actual expenditures used to set annual budgets at the Office of the President.

To ensure financial safeguards, UCOP has implemented new financial systems that include budgetary controls and improved management reporting. Financials are reviewed regularly during the year include three times each year with the UC Regents.

California State Auditor's Assessment of Annual Follow-Up Status: Partially Implemented

We assessed this recommendation as partially implemented because the Office of the President still has not changed the timing of its budget process to align with the timing of the state budget process. As we have previously noted, the failure to change its budget process may hinder the Legislature, Governor, and Department of Finance when making decisions regarding the UC's portion of the state budget. This is a critical recommendation that, if successfully implemented, will significantly improve stakeholders' ability to hold the Office of the President accountable.

Annual Follow-Up Agency Response From October 2021

UCOP has added budgetary safeguards sufficient to begin developing a multi-year budget plan. Completed process and safeguard improvements include:

-Improved budget process with enhanced stakeholder involvement, transparency and budget presentation

-Adoption of the CSA Budget presentation (Figure 11)

-Fully engaged Executive Budget Committee (EBC) to bolster campus oversight and collaboration

-Clear definitions for UCOP programs and initiatives and fund types, and documented policies for fund balances and reserves

-Mid-year and Year-end reporting of fund balances, reserves and actual expenditures

-Implementation of an updated budget system (Oracle) with budgetary controls and improved management reports

UCOP has addressed the timing of the budget in Item 5, above. This year's budget was approved in May 2021 ahead of the July 1st start date of the FY21-22 fiscal year.

UCOP's new planning and budget system included functionality to prepare three-year budgets that can be used for improved understanding of future funding needs, priorities setting, and other strategic considerations. UCOP is currently testing this functionality and intends to implement an annual process to complete multi-year budgets in the Oracle system.

California State Auditor's Assessment of Annual Follow-Up Status: Partially Implemented

We assessed this recommendation as partially implemented because the Office of the President still has not changed the timing of its budget process to align with the timing of the state budget process. As we have previously noted, the failure to change its budget process may hinder the Legislature, Governor, and Department of Finance when making decisions regarding the UC's portion of the state budget. This is a critical recommendation that, if successfully implemented, will significantly improve stakeholders' ability to hold the Office of the President accountable.

Annual Follow-Up Agency Response From April 2020

UCOP has determined that its safeguards are sufficient to begin developing a multi-year budget plan. Completed process and safeguard improvements include:

-Adoption of clear definitions for UCOP programs and initiatives and fund types

-Improved budget process with enhanced stakeholder involvement

-Reconvened Executive Budget Committee (EBC) to bolster campus participation

-Adoption of CSA Budget presentation (Figure 11)

-Mid-year and Year-end reporting of fund balances, reserves and actual expenditures

-Documented policies for fund balances and reserves; and

-Implementation of an updated budget system with budgetary control capability (Oracle)

To review controls and safeguards, UCOP retained Deloitte to undertake an internal controls review in December 2018. Because some of the new processes were still being implemented, UCOP Internal Audit conducted a follow-up review which was completed in April 2020. No significant findings were identified in this review.

UCOP recently implemented a new planning and budget system which was another pre-requisite to developing a multi-year budget. Given these milestones, UCOP has begun developing a multi-year budget plan as described in the UCOP Budget Manual. Among the many benefits of this effort, UCOP expects to realize:

-Improved understanding of mid to long range priorities

-Measurement of the impacts of external economic factors

-Greater alignment between presidential vision/strategy and resources needed to execute those strategies

-Enhanced ability to anticipate workforce skill sets and needs over the coming years

-Better ability to communicate UCOP financial requirements to all stakeholders; and

-Ability to evaluate alternative scenarios and trade-offs

California State Auditor's Assessment of Annual Follow-Up Status: Partially Implemented

Although the Office of the President's proposed budget included important aspects such as multi-year budgeting, we assessed this recommendation as partially implemented because, after three years, the Office of the President still has not changed the timing of its budget process to align with the timing of the state budget process. The Office of the President's budget, yet again, will not be approved before the start of the fiscal year. As we have previously noted, the failure to change its budget process may hinder the Legislature, Governor, and Department of Finance when making decisions regarding the UC's portion of the state budget. This is a critical recommendation that, if successfully implemented, will significantly improve stakeholders' ability to hold the Office of the President accountable.

Annual Follow-Up Agency Response From November 2019

Completion of this recommendation is scheduled for April 2020.

California State Auditor's Assessment of Annual Follow-Up Status: Pending

The status of this recommendation is pending the Office of the President's implementation of our budget recommendations due in April 2020.

Annual Follow-Up Agency Response From April 2019

The Office of the President has initiated efforts to implement this recommendation and will provide a status update on its progress at the next reporting milestone.

California State Auditor's Assessment of Annual Follow-Up Status: Pending

The status of this recommendation is pending the Office of the President's implementation of our budget recommendations due in April 2020.

1-Year Agency Response

Implementation of this recommendation will be dependent on actions taken in response to the April 2019 recommendations.

The Office of the President currently relies on UCLA's financial systems and a budget planning and reporting tool (BDS) developed by UCOP. Budget and reporting needs have evolved, and the current BDS system, initially implemented for the FY2011-2012 budget, does not support new requirements consistent with best-practices or the recommendations of the California State Auditor.

A project is underway to assess replacement of the Budget Development System to:

- support improved budgets that are clear, transparent, and comprehensive and align processes, presentations and financial systems to support this;

- develop and document repeatable, best-practices processes supported by financial systems; and

- broaden stakeholder involvement and continue developing multi-year strategic plans that are aligned with the UC mission and the campuses.

UCOP is addressing reporting and planning requirements to identify an efficient, cost effective way to partner with UCLA and/or another campus in implementation of a new system. Because system implementation projects are long, UCOP is also working to incrementally improve existing BDS functionality to satisfy requirements in the 2018-2020 timeframe. UCOP continues to explore options and will make a decision in the next few months on the long-term financial system solution after completing due diligence on project scope, functionality, timing and costs and reviewing options with stakeholders.

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

The status of this recommendation is pending the Office of the President's implementation of our budget recommendations due in April 2019 and April 2020.

6-Month Agency Response

Implementation of this recommendation will be dependent on actions taken in response to the April 2018 recommendations.

High-level financial system requirements analysis has included evaluation of new technology and the handling of process flows, financial controls and required resources. UCOP will require the functionality to complete multi-year budgets.

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

The status of this recommendation is pending the Office of the President's implementation of our budget recommendations due in April 2018 and April 2019.

60-Day Agency Response

Implementation of this recommendation is dependent on actions taken in response to the April 2018 recommendations.

A budget process work group has been formed and has begun early stages of scoping a robust budget system to replace the existing limited functionality of the current Budget Development System (BDS). In connection with the UCLA financial systems replacement project (UCOP leverages UCLA general ledger and procurement modules), the work group is reviewing budget systems at some of the campuses to evaluate process and technology. In connection with a BDS replacement, the work group will (1) evaluate current process, flows and budget controls and (2) evaluate technology and implement updated systems with new policies, procedures and controls documented in our requirements. Any UCOP investment in an updated budgeting tool will be functionality to complete multi-year budgets.

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

The status of this recommendation is pending the Office of the President's implementation of our budget recommendations due in April 2018 and April 2019.

All Recommendations in 2016-130

Agency responses received are posted verbatim.