Report 2012-113 Summary - December 2013

California State University's Extended Education

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It Is Unclear Whether Supplanting Occurred, and Campuses Did Not Always Document Their Adherence to Laws, Policies, and Procedures

HIGHLIGHTS

Our review of extended education programs highlighted the following:

RESULTS IN BRIEF

The California State University (CSU) is a system of 23 campuses located throughout California. The State appropriates money in the annual budget from the State's General Fund to the CSU to provide higher education. CSU in turn allocates that money to the campuses to provide state-supported courses and programs, which make up the majority of courses and programs CSU offers. In addition, CSU campuses offer extended education courses and programs that must be self-supported; students or third parties, such as employers, typically pay for these courses and programs.1 Although CSU does not have an explicit definition of extended education,2 according to a 2002 executive order issued by the CSU's Office of the Chancellor (Chancellor's Office), extended education programs include all self-supported instructional programs designed and used to provide increased access to the educational resources of the system and to otherwise facilitate use of those resources. Examples of extended education include off-campus instruction, distance education, programs offered on irregular calendars or schedules, multi-campus and regional programs, international education, and other programs designed to serve students in both state-supported and self-supported programs on and off campus.

State law establishes the Board of Trustees of the CSU (board), which governs the CSU system and is responsible for managing, administering, and controlling the campuses. In addition, the board delegates certain responsibilities to the chancellor, who is the chief executive officer of the CSU, and to the campus presidents, who are the chief executive officers of their campuses. Our audit focuses on for-credit extended education within the CSU, specifically governance by the board, the chancellor, and the campus presidents at CSU Long Beach, CSU Sacramento, and San José State University (San José State).

The California Education Code and executive orders issued by the chancellor prohibit CSU campuses from "supplanting" state-supported courses offered during the regular academic year with self-supported courses. One apparent purpose of this prohibition is to ensure that CSU campuses do not reclassify state-supported courses as self-supported courses to increase the fees they charge to students. However, state law and Chancellor's Office policy do not define the word supplant, and the term can be interpreted in more than one way. To supplant technically means "to replace"; however, that raises the question of how many courses need to be replaced for it to be considered supplanting. It is important to note that for the purposes of this audit report, we considered whether any supplanting at all occurred and the extent to which it occurred.

To determine whether any supplanting occurred, we considered two interpretations of the term—a narrower interpretation based on CSU's position in a lawsuit, as well as a broader, "plain meaning" interpretation. In a 2010 lawsuit, CSU took the position that as long as a campus had not completely replaced a state-supported course offering that was necessary to achieve a CSU degree with a self-supported course, it had not violated the prohibition. CSU stated that, in other words, a campus could not require students to enroll in a self-supported course as the only path to their degree.

A "plain meaning" interpretation also exists. According to our legal counsel, when state law does not define a statutory term, the ordinary, plain meaning of a word is considered first in determining the Legislature's intent. Although the ordinary, plain meaning of supplant is "to replace," it is not clear whether the Legislature intended to prohibit a CSU campus from replacing all state-supported sections of a course that it would normally offer during the regular academic year with self-supported versions of the same course, or whether replacing some of the sections of that course with self-supported versions would also violate the prohibition.

We analyzed the campuses' course data for fiscal years 2007-08 through 2011-12 using both CSU's narrower definition and the broader, plain meaning definition. Regardless of the interpretation we used, we identified potential instances of supplanting. Using the narrower definition, we observed that the three reviewed campuses provided a total of 26 courses where potential supplanting may have occurred. In these instances, during a fiscal year the campuses offered a course that was necessary for degree completion only as a self-supported course, not as a state-supported course. Using the broader definition, we identified a total of 914 instances at the three campuses when the number of state-supported sections of a course declined and the number of self-supported sections for the same course increased from one year to the next.

However, because of the different interpretations of the term supplanting, we could not be certain whether these campuses supplanted state-supported courses with self-supported courses, or the extent to which they did. We therefore cannot conclude that the three campuses violated the California Education Code. Until the Legislature and CSU define supplanting and direct all CSU campuses to establish a method for tracking and evaluating the movement between state-supported and self-supported courses and course sections, any instances of supplanting will remain unclear.

We also examined the process CSU uses to set fees for self-supported courses and programs. Contrary to the CSU student fee policy, the three campuses we examined did not always prepare statements of revenues and expenditures when setting fees for extended education programs, although CSU policy requires campus presidents to consider the information on these statements before establishing or adjusting any fee. In addition, two of the three campuses we reviewed raised fees using unjustified methodologies. When campuses do not follow the CSU student fee policy, they cannot justify the fees they set and charge students for extended education courses and programs. On the other hand, we do not believe a systemwide cap for extended education fees is necessary. Although state law requires CSU to generate adequate revenues to cover the costs of extended education, it does not specify a maximum amount of fees for extended education that campuses can charge. However, CSU's student fee policy embraces one of the three policies that are the foundation of the California Master Plan for Higher Education: maintaining low fees. A systemwide fee cap is not necessary because the CSU student fee policy for extended education, if campuses follow it, appears reasonable and is consistent with state law. Finally, the Chancellor's Office can improve its oversight of extended education fees by reviewing each campus's inventory of fees to determine their appropriateness. Until it does so, the Chancellor's Office cannot identify extended education fees that may be more than adequate to cover the costs of courses and programs.

Our analysis also found that extended education revenues generally exceeded extended education expenditures during fiscal years 2007-08 through 2011-12 for the three campuses we reviewed. Consequently, each campus had increases in the year-end fund balances of its Continuing Education Revenue Fund (CERF) trust account. Two campuses violated the Chancellor's Office's carry-forward fund policy when their reserve balances exceeded six months of their annual operating expenditures. The policy requires campuses to submit spending plans to explain why they require reserve balances in excess of six months of their operating expenditures. However, the Chancellor's Office waived the requirement that campuses submit these spending plans because of uncertainties surrounding the State's budget. Yet, by waiving the requirement, the Chancellor's Office missed opportunities to ensure that campuses spent their CERF trust account fund balances appropriately. For instance, we question San José State's allocation of $13.2 million, or 47 percent of the costs for its $28 million campuswide instructional technology upgrade project (project) to extended education when extended education accounts for only 14.2 percent of San José State's operating fund revenue, 7.1 percent of its overall expenditures, and 25 percent of its student body. The campus's failure to allocate the project's costs using a reasonable and equitable distribution method is contrary to cost allocation principles as described in the State Administrative Manual and CSU policy.

Further, campuses need to improve their oversight of extended education expenditures. We were unable to conclude that 10 of the 41 extended education transactions we tested were reasonable, allowable, or related to the support and development of extended education instructional programs, primarily because the campuses lacked sufficient documentation. For example, CSU Long Beach reimbursed the California State University Long Beach Research Foundation (foundation) for salaries, benefits, and administrative fees without a written agreement between the campus and the foundation describing the work the employees would perform for the extended education program or the amount of the administrative fee to be paid. State regulations require the chancellor and auxiliary organizations, such as the foundation, to enter into a written agreement to identify the functions the auxiliary organization will perform. In addition, San José State was unable to demonstrate that three of the 10 expenditures we reviewed, totaling roughly $9,400, related to the purchase of lab supplies, two generators, and flooring for one of its classrooms were for the support and development of extended education instructional programs or were reasonable and allowable. CSU Long Beach and CSU Sacramento could not provide partnership agreements to support the methodology and percentages they used to allocate a portion of the extended education fees to other campus colleges and departments, which are referred to as campus partners, that assist in the development and administration of extended education instructional programs.

Finally, neither CSU Long Beach nor CSU Sacramento notified the Chancellor's Office as required before each converted a state-supported degree program to a self-supported program. CSU Long Beach did not notify the Chancellor's Office before converting its Master of Arts in Dance program in the summer of 2009, and CSU Sacramento did not notify the Chancellor's Office when it converted its Master of Science in Geology program in the fall of 2011. According to its assistant vice chancellor of academic programs and faculty development, the Chancellor's Office established a requirement of such notification to prevent instances of supplanting and to ensure compliance with all applicable laws and policies. Without this notification, CSU Long Beach and CSU Sacramento did not provide the Chancellor's Office the opportunity to help ensure that the campuses did not supplant their state-supported programs with extended education programs.

RECOMMENDATIONS

LEGISLATURE

To provide sufficient direction to the CSU Chancellor's Office and CSU campuses regarding the supplanting of state-supported courses or programs by self-supported courses or programs, the Legislature should enact clarifying statutory language during the 2014 Legislative Session regarding its intent for California Education Code, Section 89708. This clarifying language should include a definition of the term supplant and a description of how CSU should measure whether supplanting is occurring. The clarifying language should also require each CSU campus to take all reasonable steps to ensure that when it makes course or program offering decisions, those decisions do not force students who are attempting to earn a degree to take self-supported courses that are required as a condition of degree completion.

CSU CHANCELLOR'S OFFICE

To help the Legislature clarify its intent regarding supplanting as identified in the California Education Code, Section 89708, the Chancellor's Office should immediately begin working with the Legislature and its staff to that end.

Until the Legislature clarifies its intent regarding California Education Code, Section 89708, the Chancellor's Office should immediately finalize its executive order pertaining to extended education. This guidance should identify appropriate oversight mechanisms for ensuring campuses' compliance with this law.

Within six months of the date the Legislature clarifies its intent regarding California Education Code, Section 89708, the Chancellor's Office should develop and issue final guidance to campuses regarding supplanting, including identifying appropriate oversight mechanisms for ensuring campuses' compliance with this law.

To effectively monitor and ensure that the campuses set fees for extended education in accordance with state law and CSU policy, the Chancellor's Office should immediately take the following actions:

To ensure that campuses spend their CERF trust account fund balances appropriately, the Chancellor's Office should immediately take the following actions:

CSU LONG BEACH

To strengthen its oversight of payments made from the CERF trust account, CSU Long Beach should immediately take the following actions:

To help the Chancellor's Office enforce state law that prohibits supplanting state-supported courses and programs, CSU Long Beach should immediately remind all relevant employees to notify the Chancellor's Office before converting state-supported degree programs to self-supported degree programs.

CSU SACRAMENTO

To strengthen its oversight of payments made from the CERF trust account, CSU Sacramento should immediately do the following:

To help the Chancellor's Office enforce state law that prohibits supplanting state-supported courses and programs, CSU Sacramento should immediately remind all relevant employees to notify the Chancellor's Office before converting state-supported degree programs to self-supported degree programs.

SAN JOSÉ STATE

To ensure that its CERF trust account bears a reasonable portion of the costs for its campuswide instructional technology upgrade project, San José State should immediately determine the proportionate share of the project cost each stakeholder, including extended education, should bear and, if necessary, transfer funds back to the CERF trust account.

To strengthen its oversight of payments made from the CERF trust account, San José State should ensure that it retains documentation to demonstrate that payments are for the support and development of CSU self-supported instructional courses and programs and that they are reasonable and allowable.

AGENCY COMMENTS

Although the Chancellor's Office and the three campuses concurred with our recommendations, their responses did not always identify plans for implementing them. The California State Auditor's Office will monitor the Chancellor's Office's and campuses' implementation of their respective recommendations.

1 CSU uses several different terms when referring to extended education, including continuing education, special session, and self-support or self-supported courses and programs. We use the term self-supported for this report, unless another term was specifically cited in state law or CSU policy.

2 In February 2013 the Chancellor's Office stated it was drafting an executive order that would define extended education. However, as of December 10, 2013, it had not issued that executive order.