Report 2016-130 Recommendation 30 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 #30 To: University of California

To ensure that its spending aligns with the needs of its stakeholders, including campuses and students, by April 2019 the Office of the President should restructure budget and accounting systems to ensure that the costs of the Office of the President can be clearly tracked and reported annually. Specifically, the budget and accounting systems should be able to distinguish between systemwide initiatives, presidential initiatives, and administrative costs.

Annual Follow-Up Agency Response From April 2019

Last year, UCOP invested $350,000 in the Budget Development System (BDS) to make permanent enhancements that comply with this recommendation. These enhancements enable UCOP to systematically distinguish between programs, initiatives, and administrative costs. The BDS system now includes permanent functionality that generated the Regents approved financial schedules A, B, C, and D in the FY18-19 budget. Budget files produced by the current system were provided to the CSA and the assessment provides no indication that the current system is not compliant with the recommendation's requirements. Lastly, UCOP engaged Deloitte to undertake a controls assessment that included a review of UCOP's financial data and budget system. Deloitte found no issues related to the BDS system.

The CSA recommendation does not require UCOP to implement a new system and following a review of detailed budget data, the CSA affirmed no issues were identified as stated in their assessment of recommendation #3.

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

We are rating this recommendation as fully implemented in large part due to the additional assurance provided by Deloitte's independent assessment of the Office of the President's budget and reserve safeguards. The Office of the President's budget and accounting data clearly distinguishes systemwide initiatives, presidential initiatives, and administrative costs. However, at the time of our last assessment, we were concerned about the permanence of the enhancements the Office of the President made to its existing budget system, especially in light of its plans to migrate to a new system. Deloitte's findings that the safeguards they tested appeared to be operating effectively provided us additional assurance related to the enhancements made to the current system. For other safeguards that Deloitte determined were too new to test, it determined that the Office of the President designed the safeguards appropriately. We look forward to assessing any additional reviews performed by the Office of the President related to our recommendation due in April 2020, which requires the Office of the President to evaluate its budget process to ensure it has efficient and adequate safeguards.

Annual Follow-Up Agency Response From October 2018

The Office of the President implemented incremental improvements to the existing BDS system to improve tracking, reporting and alignment to budgets.

Enhancements to BDS have been made to ensure the costs of the Office of the President can be clearly tracked and reported annually.

As evidenced specifically by Schedules A, B, C and E in the FY2018-19 UCOP budget, all accounts in BDS are now mapped so that, as financial data are translated to reports in BDS, costs for systemwide programs and initiatives, presidential initiatives, and central/administrative can be distinguished.

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

Although we acknowledge that the enhancements that the Office of the President has made to its current budgeting system improve its tracking and reporting capabilities, the Office of the President stated it decided to replace its budgeting system by the end of fiscal year 2020. Because of this upcoming change, we assess this recommendation as pending until the new system is operational.

1-Year Agency Response

The Office of the President is working to implement incremental improvements to the existing BDS system to improve tracking, reporting and alignment to budgets. Plans for a new budget system have been initiated and a planning document has been submitted to the CSA along with this report.

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

We reviewed the documentation the Office of the President provided and it clearly lays out the challenges the Office of the President is facing with implementing a new budget system. Moving forward it will be important for the Office of the President to transparently share these challenges with its stakeholders and the impact that the need for a new system may have on its ability to complete our recommendations by their due dates.

6-Month Agency Response

Implementation of this recommendation will be dependent on actions taken in response to the April 2018 recommendations as well as dependencies that will be identified in the budget process workgroup.

UCOP has begun exploring system improvements. UCOP is working with UCLA as the campus identifies a new financial system that includes general ledger and planning tools. We continue to explore the use of systems to effectively capture systemwide and presidential initiatives. Key requirements will also include improved budgeting, tracking and reporting on these projects.

A key dependency for the timing of this item will include the UCLA or alternative campus system implementation, which has a 2- to 3-year timeline, independent of UCOP's control. Actual costs, dependent on commensurate accounting and financial system upgrades, are subject to the UCLA project timeline. UCOP has restructured its budget development system (BDS) to track and report budgeted costs to distinguish between those that are systemwide, presidential and administrative.

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, systemwide initiative, presidential initiative, and administrative cost recommendations due April 2018. The Office of the President's response implies that it will not be able to fully implement this recommendation on time because of difficulties in transferring to new systems. Upgrading the Office of the President's budget and accounting systems is very important because these systems affect its ability to present accurate and transparent data to the regents and the public. Because of the importance of this recommendation, the Office of the President needs to fully disclose the challenges it is facing and the impact that delays to system timelines will have on implementing this recommendation.

60-Day Agency Response

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

UCOP will review budget development tools in use at select campuses as part of the financial systems replacement project (driven by UCLA) with a goal of identifying and implementing a new budget tool. In establishing the UCOP requirements, we will explore greater use of systems to categorize Systemwide and Presidential initiatives. The requirements will also include improved budgeting, tracking and reporting on these projects to capture inception-to-date, annual and multi-year spending.

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, systemwide initiative, presidential initiative, and administrative cost recommendations due April 2018.

All Recommendations in 2016-130

Agency responses received are posted verbatim.