Report 2015-107 Recommendation 7 Responses

Report 2015-107: The University of California: Its Admissions and Financial Decisions Have Disadvantaged California Resident Students (Release Date: March 2016)

Recommendation #7 To: University of California

To improve its internal operations and promote cost savings related to the nearly $13 billion it spent on employee salaries in fiscal year 2014-15, the university should conduct a systemwide assessment to identify ways to streamline and reduce its employee costs.

Agency Response*

Employee and retiree benefits represent nearly one-third of all employee-related expenditures from core funds. Because the level and cost of these expenditures are directly influenced by systemwide programs, policies, and contracts, employee and retiree benefits are an appropriate area of focus for systemwide review to achieve future cost savings or cost containment.

In March 2016, the Board of Regents approved a new retirement program for future employees that will bolster the long-term financial stability of UC and its retirement program and should, over time, reduce the cost of funding the University's retirement program compared to what would have otherwise been required under the current retirement program. Among other changes, the new plan caps Pensionable earnings at the Public Employees' Pension Reform Act (PEPRA) limit.

In June 2017, the Board authorized an increase in the University's employer contribution rate and additional contributions to UCRP, which will improve the plan's funded status and reduce the need for additional UCRP contributions in the future.

In addition, implementation activities resulting from the recent audit of the UCOP budget have the potential to reduce employee costs through changes to salary setting processes, changes to employee reimbursement policies, and implementing a more structured approach to workforce planning.

  • Response Type†: Annual Follow Up
  • Estimated Completion Date: Ongoing
  • Response Date: November 2017

California State Auditor's Assessment of Status: Pending

The Office of the President intends to conduct an evaluation of employee benefit policies as part of its response to our 2017 audit.


Agency Response*

UC has assessed the workforce trends noted by the auditor. The assessment showed that nearly all of the increase in headcount was attributable to (a) campus medical centers, where the increase was in response to increased patient demand, and (b) student workers, which is to be expected due to increased enrollment during that period. The assessment found that the number of general campus staff supported by core funds actually had actually declined during that period.

UC is pursuing a variety of cost-saving efforts that are designed to control employee-related expenses. These include, but are not limited to, sustained efforts to control health care expenditures for current employees and retirees and strategies to reduce the unfunded liability of the UC Retirement Plan - which will, over time, lead to lower required employer contributions and a corresponding reduction in UCRP costs paid from the University's operating budget compared to what would otherwise be required.

  • Response Type†: 1-Year
  • Estimated Completion Date: Ongoing
  • Response Date: March 2017

California State Auditor's Assessment of Status: Partially Implemented

The university does not indicate in its response that it has conducted a systemwide assessment to identify ways to streamline and reduce its employee costs. Rather, its response indicates that it is pursuing a variety of cost-saving efforts, but that appear limited to certain benefits rather than a more global review of all employee costs, including compensation. Thus, we consider this recommendation to be partially implemented until the assessment is complete.


Agency Response*

The University will continue and expand a variety of efforts that began under the Working Smarter initiative to improve efficiencies and to achieve cost savings in multiple areas of the University's budget.

The annual budget plan developed by UC as the basis for its request for State funding will build projections of savings, new revenue, or other positive fiscal impact into its estimates as a way of helping to meet its cost increases. Identifying opportunities to reduce costs, to increase productivity, or to identify new revenue is a continuous and ongoing effort. As a result, the implementation status of this recommendation is most accurately characterized as "Not Fully Implemented."

  • Response Type†: 6-Month
  • Estimated Completion Date: Ongoing
  • Response Date: August 2016

California State Auditor's Assessment of Status: No Action Taken

As we stated in our 60-day public assessment, the university does not indicate in its response that it plans to conduct a systemwide assessment to identify ways to streamline and reduce its employee costs, therefore it has taken no action at this time to address our recommendation. Furthermore, as noted in our report, we were unable to substantiate any of the savings or new revenue from the working smarter initiative.


Agency Response*

Within the context of continued growth in the number of students that the University enrolls, the number of patients that we serve, and demand for other UC services provided by UC, reducing employee costs below 2014-15 levels is not a realistic objective. However, the University will continue and expand a variety of efforts that began under the Working Smarter initiative to improve efficiencies and to achieve cost savings in multiple areas of the University's budget.

Through Working Smarter, the University implemented new ideas for cost savings, revenue generation, and efficiencies. Across its five-year program timeline, Working Smarter tracked significant savings from all fund sources, including core-funded programs. Much of this work continues to reap benefits—both savings and new revenue—which allow programs to meet their mandatory cost increases despite the lack of adequate funding available from the State or tuition sources. The Working Smarter initiative has more than achieved its goals and has completed its five-year time frame. Though many systemwide and campus-specific projects continue to contribute to efficiencies and savings within the University, more recently the University is refining its focus on a smaller group of higher yield administrative projects. The annual budget plan developed by UC as the basis for its request for State funding will build projections of savings, new revenue, or other positive fiscal impact into its estimates as a way of helping to meet its cost increases. Identifying opportunities to reduce costs, to increase productivity, or to identify new revenue is a continuous and ongoing effort. As a result, the implementation status of this recommendation is most accurately characterized as "Not Fully Implemented."

  • Response Type†: 60-Day
  • Estimated Completion Date: Ongoing
  • Response Date: May 2016

California State Auditor's Assessment of Status: No Action Taken

The university does not indicate in its response that it plans to conduct a systemwide assessment to identify ways to streamline and reduce its employee costs, therefore it has taken no action at this time to address our recommendation. Furthermore, as noted in our report, we were unable to substantiate any of the savings or new revenue from the working smarter initiative.


All Recommendations in 2015-107

†Response Type refers to the interval in which the auditee is providing the State Auditor with their status in implementing recommendations made in an audit report. Auditees must submit a response regarding their progress in implementing recommendations from our reports at three intervals from the release of the report: 60 days, six months, and one year or subsequent to one year.

*Agency responses received after June 2013 are posted verbatim.


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