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Report Number: 2016-122

California State University
Stronger Oversight Is Needed for Hiring and Compensating Management Personnel and for Monitoring Campus Budgets

Response to the Audit


The California State University
Office of the Chancellor

April 4, 2017

Ms. Elaine Howle
State Auditor
California State Auditor
621 Capitol Mall, Suite 1200
Sacramento, California 95814

Dear Ms. Howle:

The California State University (CSU) welcomes the opportunity to respond to the draft audit report California State University – Stronger Oversight is Needed for Hiring and Compensating Management Personnel and for Monitoring Campus Budgets.

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Before responding to the specific recommendations, I wish to address a few observations about the audit report that provide important context for the audit findings. One of the points noted in the audit is the higher growth rate of management personnel plan employees compared to other employee groups. However, the audit report does not note that there were four employee groups (academic student employees, academic support, health care support and confidential) with higher growth rates. Those groups combined grew by twice the number of management personnel plan employees over the same period. Also, it is important to note that the term “management personnel” is a very broad label that applies to employees who perform a wide variety of functions in the CSU. As referenced in the audit, almost 60 percent of management personnel are classified as professionals or supervisors and many provide direct support to students to increase graduation rates, shorten time to degree, and close achievement gaps. Lastly, although the audit primarily addresses changes in internal staffing patterns, it is important to recognize that CSU’s management staffing levels and administrative costs are much lower than other similar higher education institutions both within California and nationally.

State Auditor Recommendations and CSU Responses

Recommendation 1: Develop a policy that requires its own divisions and departments and campuses to prepare written justifications for both the purpose and specific number of proposed additional management positions. As appropriate, these should justify the number of management personnel positions to be hired based on a workload staffing analysis and the number of people to be supervised.

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Response: We note that the State Auditor found that the purpose of management personnel plan positions was clear and supported. As described in the audit, each position requires a formal written description that specifies the job duties and time-base. As each hire is made on an individual basis, approval of the written position description constitutes approval of the purpose, specific job duties, and the time-base of the individual hired to perform those duties. Thus, the CSU believes that the current policy provides proper justification for both the purpose and number of positions. However, the CSU will provide additional guidance regarding information required to justify the number of management personnel positions when an entirely new classification or position is created or more than one position is contemplated.

Recommendation 2: Require human resources units to maintain these justifications and make them publicly available to stakeholders when requested. No later than one year following the issuance of this new policy, the Chancellor’s Office should begin monitoring its own divisions and departments and campuses to ensure that they are properly justifying all new management personnel hires.

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Response: The CSU will provide additional guidance regarding the maintenance and provision of records related to establishing management personnel plan positions as well as compliance monitoring protocols.

Recommendation 3: Ensure that each campus creates, implements, and adheres to a written merit evaluation plan for management personnel in accordance with Title 5 of the California Code of Regulations. Furthermore, the Chancellor’s Office should monitor campuses to ensure that they are complying with their merit evaluation plans and are only granting raises to management personnel based on merit as evidenced by documented current performance appraisals.

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Response: The Chancellor’s Office will provide additional guidance to campus presidents (who are responsible for hiring and evaluating management personnel) to ensure that appropriate processes are in place regarding monitoring and compliance with management personnel policies, including existing policies that require performance evaluations prior to granting merit increases.

Recommendation 4: Work with campuses, bargaining unit representatives, the Public Employment Relations Board, and others as necessary, to come to an agreement on the appropriate classification of coaches. The Chancellor’s Office should take into account the concerns that San Diego State raised about the labor market for these employees.

Response: The CSU has initiated discussions and meetings have been held with the campuses and the relevant collective bargaining unit to implement changes required to accommodate classification and compensation needs for athletic coaches.

Recommendation to the Legislature: To improve its budget oversight for CSU, the Legislature should require CSU to submit an annual report that provides information on specific activities that CSU engaged in during the prior year to meet the State’s goals for student access.

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Response: Numerous reports are presently provided to the state legislature regarding state performance measures including student access, such as the Report on Greater Statewide Degree Attainment; California State University Report: Preliminary Institutional Financial Aid Programs; Report on Utilization of Facilities; Report on Academic Sustainability Plan; an annual report to the Director of Finance and the state legislature pursuant to section 9795 of the Government Code regarding progress in improving CSU’s four-year graduation rates and two-year transfer student graduate rates; and many others. The annual report recommended in the audit duplicates some information already found in other reports. The CSU remains committed to working with the Legislature to develop and improve appropriate and meaningful reporting regarding the critical services provided by the university.

Recommendation 5: To ensure effective, consistent budget oversight at CSU campuses, the Chancellor’s Office should require campuses to develop and implement budget oversight policies that define the minimum level and frequency of reviews that budget managers are required to perform, including the periodic comparison of budgets to actual spending levels, the types of corrective actions to take when they identify budget anomalies, and the retention of appropriate records of those reviews.

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Response: Responsibility and accountability for budget management and oversight is delegated to the campus president and chief financial officer. The Chancellor’s Office will provide additional guidance regarding best practices for campus budget oversight as suggested in this recommendation.

Recommendation 6:  To minimize concerns regarding possible conflicts of interest, the Chancellor’s Office should work with the Board of Trustees to develop, approve, and implement an executive compensation policy that expressly prohibits the use of foundation funds to pay campus presidents.

Response: The Chancellor’s Office will propose to the Board of Trustees a revision of the existing executive compensation policy to reflect the current practice prohibiting the use of foundation funds to pay campus presidents.

Recommendation 7: To better ensure the reasonability of the reimbursements CSU pays for moving and relocation expenses, the Chancellor’s Office should take the following actions by October 2017:

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Response: Moving and relocation payments that are necessary to recruit high level talent to CSU can vary considerably based on the circumstances of the relocation. As the audit notes, in some cases payments associated with a sale of a residence factor into the reimbursement and increase the total reimbursed cost. The CSU will consider establishing a cap on relocation payments accompanied by opportunities for written exceptions to the cap if approved by an appropriate administrator and consistent with compliance monitoring protocols.

Recommendation 8: The Chancellor’s Office should finish developing the Common Human Resources System and implement it as scheduled by December 2019.

Response: We concur.

Recommendation 9: Once it receives the results of its consultant’s study on executive compensation, the Chancellor’s Office should collaborate as soon as possible with interested parties, such as the legislative analyst, to develop methodologies for future compensation comparisons that consider total compensation.

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Response: The Chancellor’s Office is in the process of gathering data required for consideration of institutions for compensation comparisons. Once the data is available, the Chancellor’s Office will collaborate with relevant parties to consider institutions for compensation comparison purposes.

Recommendation 10: Within six months, the Chancellor’s Office should revise its policy to clarify when campuses need to obtain indemnifications from management personnel who will be on paid administrative leave and should begin monitoring campuses to ensure that they are adhering to its policy.

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Response: The Chancellor’s Office will evaluate the existing policy for clarity and will implement a training program designed to ensure that campuses follow the existing management personnel plan paid administrative leave policy and provide recommended compliance monitoring protocols.

Recommendation 11: Within six months, the Chancellor’s Office should begin monitoring campuses to ensure that they are complying with the faculty bargaining unit requirements for disclosing outside employment.

Response: The Chancellor’s Office will implement a training program designed to ensure that campus faculty follow outside employment reporting requirements and provide recommended compliance monitoring protocols.

Please do not hesitate to contact me if you have questions.

Sincerely,

Timothy P. White
Chancellor

TPW/bw



Comments

CALIFORNIA STATE AUDITOR’S COMMENTS ON THE RESPONSE FROM THE CALIFORNIA STATE UNIVERSITY

To provide clarity and perspective, we are commenting on CSU's response to our audit. The numbers below correspond to the numbers we have placed in the margin of CSU’s response.

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The chancellor’s statement that our audit report "does not note" certain employee groups with higher growth rates than the growth rate for management personnel is inaccurate. In Figure 5, we specifically identify the growth rates of the various employee categories that we included within nonfaculty support staff, including the four employee groups the chancellor references in his response. We also include here the Chancellor’s Office’s perspective explaining the growth rates for two of these categories—academic support employees and academic student employees—were so much higher than other categories within nonfaculty support staff.

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The scope and objectives of our audit did not include comparing CSU’s management staffing levels and administrative costs to those of other similar higher education institutions in the State and nationally. Therefore, we have no comment on the applicability of the chancellor’s statement to our audit report. Nevertheless, it does not change our conclusion that staffing levels and compensation for CSU management personnel have increased at a faster rate than other employee groups and that CSU needs to improve its oversight for hiring and compensating management personnel, as we discuss extensively in this section of our report.

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Despite the chancellor’s assertion to the contrary, we believe that CSU’s current policy falls short of providing proper justification for increases to the number of management personnel positions. CSU’s policy—HR 2012–15, dated November 2012—states that campuses should provide position descriptions to management personnel and staff, and that those position descriptions should contain a purpose section (reason the position exists), among other information. However, as we mention, we expected to see staffing analyses or other evidence that justified both the purpose of the additional personnel and the number of personnel that were hired. We further state that campuses were often unable to justify the number of management personnel they hired and consequently could not demonstrate that they are providing services in the most cost‑effective manner.

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The chancellor’s statement that "CSU will provide additional guidance regarding information required to justify the number of management personnel positions" may not fully address our recommendation. We recommended that the Chancellor’s Office require its divisions and departments and campuses to prepare written justifications for both the purpose and specific number of proposed additional management personnel positions. We believe this recommendation falls squarely within the responsibility of the Chancellor’s Office to develop systemwide policies. We are concerned that the issuance of mere guidance to campuses with no mandate for adherence will not sufficiently correct the issues we identified in our report. When reviewing CSU’s updates on its implementation of our recommendations in two, six, and 12 months, we will assess CSU’s new guidance to verify that it actually requires written justifications of the number of management personnel.

Additionally, it is unclear from the chancellor’s comment whether campuses will have to justify the hiring of an additional management personnel position for a classification already in existence. The chancellor stated that CSU’s guidance will apply "when an entirely new classification or position is created or more than one position is contemplated." We will review CSU’s updates in two, six, and 12 months to make sure that they appropriately address our recommendation.

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The chancellor’s statement that "CSU will provide additional guidance regarding the maintenance and provision of records related to establishing management personnel plan positions" may not fully address our recommendation. We recommended that the Chancellor’s Office require human resource units to maintain justifications and make them publicly available when requested. We are concerned that the issuance of mere guidance to campuses with no mandate for adherence will not sufficiently correct the issues we identified in our report. When reviewing CSU’s updates in two, six, and 12 months, we will assess CSU’s new guidance to verify that it actually requires human resource units to maintain justifications and make them publicly available when requested.

Similarly, the chancellor’s statement that the CSU will provide "compliance monitoring protocols" may not sufficiently address our recommendation. The statement implies that the Chancellor’s Office may not perform the monitoring itself, but rather provide such protocols (or guidance for the protocols) to the campuses so that they monitor themselves. Because the concerns we describe occurred at the campus level, we specifically addressed our recommendation to the Chancellor’s Office. Our recommendation states that the Chancellor’s Office should begin monitoring its divisions and departments and campuses to ensure that they are justifying all new management personnel hires. We will review CSU’s updates in two, six, and 12 months to make sure that they include steps for the Chancellor’s Office monitoring.

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The chancellor’s response that his office "will provide additional guidance to campus presidents…to ensure that appropriate processes are in place regarding monitoring and compliance" does not sufficiently address our recommendation. Rather than providing guidance to campus presidents regarding monitoring, the recommendation states that "the Chancellor’s Office should monitor its own divisions and departments and campuses to ensure they are complying with their merit evaluation plans and are granting raises to management personnel only based on merit as evidenced by current, documented performance evaluations." We will review CSU’s updates in two, six, and 12 months to make sure that they appropriately address this part of our recommendation.

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We disagree with the Chancellor's statement that the annual report we recommend "duplicates some information already found in other reports." As we indicate here, none of the reports to the Legislature that we described require CSU to specify how it used state appropriations to improve student success. Our recommendation to the Legislature eliminates this gap.

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The chancellor’s statement that the CSU "will provide additional guidance regarding best practices for campus budget oversight" does not fully address our recommendation. We recommended that "the Chancellor’s Office should require campuses to develop and implement budget oversight policies..." We are concerned that the issuance of mere guidance to campuses with no mandate for adherence will not sufficiently correct the issues we identified in our report. We will review CSU’s updates in two, six, and 12 months to make sure that they appropriately address our recommendation.

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The chancellor’s response failed to address the last bullet point of our recommendation: "follow up with the campuses to ensure that they have sufficiently complied with CSU policy regarding the adoption of thresholds and caps for reimbursing staff for moving and relocation expenses and that those thresholds and caps are reasonable." We will review CSU’s updates in two, six, and 12 months to assess the status of its implementation of this recommendation.

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CSU’s reluctance to provide written justifications for moving and relocation reimbursement amounts above a certain threshold is troubling. As indicated by our recommendations, we believe that CSU needs to do more than merely "consider establishing a cap on relocation payments." We state here that CSU’s current policy does not set monetary thresholds for these reimbursements. Based on the range of moving and relocation reimbursement amounts shown in Table 4 of our report, we are concerned that some of the larger reimbursements appear questionable. For instance, Table 4 shows that CSU reimbursed the president of Sonoma State University $76,280 for relocation and moving expenses. CSU reported this reimbursement amount to the board in 2016 for the president’s relocation from Sacramento, which is about 90 miles from the campus and resulted in a reimbursement of about $848 per mile. Table 4 also shows that CSU reimbursed the president of San Diego State $70,225 for moving and relocation expenses. CSU reported this 2012 reimbursement amount to the board for the president’s relocation from Sterling, Virginia, which is about 2,675 miles from San Diego and resulted in a reimbursement of about $26 per mile. Without a further justification, this first reimbursement appears questionable. We acknowledge that CSU may have valid business purposes for paying large reimbursements to executives and that the reimbursement amounts claimed may in fact be reasonable and necessary. However, written explanations for larger reimbursements would help CSU increase transparency for stakeholders that those relatively high reimbursement amounts paid to CSU executives and campus employees for relocation and moving expenses are in fact reasonable and necessary.

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The chancellor’s response does not completely address our recommendation. Specifically, it omits mention of collaborating with interested parties "to develop methodologies for future compensation comparisons that consider total compensation." We will review CSU’s updates in two, six, and 12 months to make sure that they address all aspects of our recommendation.

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The chancellor’s response that his office "will evaluate the existing policy for clarity and will implement a training program" does not sufficiently address our concern or our recommendation. Here we describe how two campuses improperly applied the Chancellor’s Office policy related to administrative leave. Because of the campuses’ misapplication of this policy, we recommended that the Chancellor’s Office revise the policy for clarity. We will review CSU’s updates in two, six, and 12 months to make sure that they sufficiently address our recommendation.

Furthermore, the chancellor’s response that his office will "provide recommended compliance monitoring protocols" does not sufficiently address our recommendation; it implies that the Chancellor’s Office will not perform the monitoring itself. Our recommendation states that the Chancellor’s Office "should begin monitoring campuses to ensure that they are adhering to its policy." Because we found that all five instances of the problem occurred at the campus level and because the campuses misapplied the Chancellor's Office's policy, it is important that the Chancellor's Office itself be responsible for the follow‑up monitoring. We will review CSU’s updates in two, six, and 12 months to make sure that they appropriately address this part of our recommendation.



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