Special Report

CSU Documents Reveal Financial Mismanagement and Efforts to Avoid Accountability

California Faculty Association 

August 2010

EXECUTIVE SUMMARY

According to internal documents from the California State University administration, auditors have found an inappropriate co-mingling of state general funds (public money) with the other funds (such as those raised privately or generated by revenue operations) held in the university’s 90 affiliated auxiliary organizations.

The documents indicate high level executives in the CSU Chancellor’s Office, including the CSU system’s Executive Vice Chancellor and Chief Financial Officer, are aware that public money is being improperly deposited in funds controlled by CSU auxiliaries. All funds and accounts in CSU auxiliaries and foundations are shielded from the state’s open records laws and from public scrutiny because of a loophole in the state Public Records Act. The Chancellor is fighting legislative actions to close the loophole.

For at least the past several months, CSU executives have known about the inappropriate housing of state funds in accounts controlled by its non-profit auxiliaries and foundations rather than in accounts controlled by the public agency. To date, however, it appears as though the Chancellor’s Office is unable or perhaps unwilling to make the necessary corrections to its practices to fix what has been discovered by the auditors.

The documents reveal a sense of urgency on the part of the CSU administration to clean up these problems and before they are uncovered or caught by a state audit. University Auditor Larry Mandel reported on March 23, 2010 that an “audit of UC could lead to an audit of the CSU so we would like to be ahead of the curve – fix the problem before an audit happens.”

At the same time, however, the administration reduced the number of financial audits of the 23 campuses last year and according to these documents is planning to stop auditing individual campus financial statements altogether in the near future. In a meeting on August 11-12, 2009, Assistant Vice Chancellor George Ashkar reported on the CSU’s audit plans with KPMG, the global accounting firm that has been auditing the CSU since 1996-97: “KPMG agreed to reduce the scope of their audits with a plan to complete ten full-scope audits this year, and twelve next year. George’s goal is to eliminate full-scope audits next year at campuses.”

In February 2009, Senator Leland Yee (D-San Francisco) introduced legislation that would close the loophole in California’s Public Records Act that currently exempts university-affiliated foundations and auxiliaries from the transparency standards to which other state agencies are held. During that year, Sen. Yee’s bill (SB 218) moved virtually unopposed and with strong bipartisan support through both houses of the California legislature. The bill was vetoed by Gov. Schwarzenegger. A modified version was reintroduced in December 2009 as SB 330. Since the beginning of the 2009-10 legislative session, CSU Chancellor Reed has spent almost $300,000 on outside lobbyists to assist the administration’s in-house lobby team’s attempt to defeat both bills.

The internal documents referred to in this report are minutes of meetings of the CSU system’s chief administrators and business officers (CABO). They were obtained and analyzed by the California Faculty Association. The CABO group includes Vice Presidents of Administration and Finance from each campus, the CSU system’s Chief Financial Officer, Vice Chancellor of Human Resources, and a number of other Chancellor’s Office executives and high level managers.[1]



[1] A list of CABO members is published at http://www.calstate.edu/cabo/cabo-roster.shtml and included in Appendix A to this report.