Report 2016-130 Recommendation 5 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 #5 To: University of California

To determine the amount of money that it can reallocate to campuses and to ensure that it publicly presents comprehensive and accurate budget information, by April 2018 the Office of the President should implement our recommended budget presentation shown in Figure 11 on page 40. Specifically, the Office of the President's budget presentation to the regents should include a comparison of its proposed budget to its actual expenditures for the previous year. It should also include all its expenditures and identify changes to the discretionary and restricted reserves. The Office of the President should combine both the disclosed and undisclosed budgets into one budget presentation.

Annual Follow-Up Agency Response From October 2022

The University of California prepares its consolidated annual budget each fall, and it is presented to the UC Regents in November. This total amount is inclusive of any amount that would be subsequently allocated to UCOP under a campus assessment for the operations of the Office of the President. The University's timeline is consistent and aligned with other California State agencies. This process allows ample time to inform the Governor's budget released in January.

The UCOP campus assessment is best established with knowledge of the level of support from the State of California. This approach allows the University to optimize allocations across the system's key priorities. Further, this timing allows the university to effectively leverage year-to-date actual expenditures used to guide develop of annual budgets at the Office of the President. The UCOP May Regents item provides a comprehensive and transparent presentation of expenditures for the forthcoming fiscal year which commences annually on July 1st.

Finally, UCOP has been incorporating the CSA Figure 11 format in its annual budget proposal for several years.

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

We assessed this recommendation as partially implemented because the Office of the President still has not changed the timing of its budget process to align with the timing of the state budget process. As we have previously noted, the failure to do so may hinder the Legislature, Governor, and Department of Finance when making decisions regarding the UC's portion of the state budget.

The timing of the Office of the President's budget presentation does not align with the budget processes other state agencies follow, including the process that UC follows when developing the budget for the system. Most state agencies begin developing their budgets in the summer and fall in preparation for the Governor's budget released in January.

Additionally, the information UC includes about the Office of the President in the consolidated annual budget it references does not provide budget information for the upcoming fiscal year and instead only includes information from the prior fiscal year which we continue to believe is insufficient. As we have stated before, we do not understand why UCOP cannot follow a similar process so that its budget information will be available earlier in the state budget process.

Annual Follow-Up Agency Response From October 2021

The University of California prepares its consolidated annual budget each fall, on a timeline consistent and aligned with other California State agencies. The total UC budget request is inclusive of funding for the Office of the President. This process meets the critical needs of the Governor, the Legislature and the Department of Finance to make informed decisions regarding UC's portion of the state budget. After considerable evaluation, UC recommends no change to the current timeline for the UCOP budget. Additionally, UCOP has adopted the CSA presentation and satisfied all the requirements of Recommendation 5, and seeks continuous improvement opportunities each year.

UCOP's current budget has a higher degree of accuracy and transparency resulting from this audit. The May Regents timeline enables the office to highly leverage actual expenditures and a mid-year forecast to improve overall budget quality. The now well-established Executive Budget Committee continues to review and make recommendations for programs, services and new priorities to set the plan for the forthcoming year. The FY21-22 UCOP budget was approved unanimously by the UC Regents in May with the support of the campuses. Notably this year, the Regent's approved the Office of the President's budget in May 2021, prior to the final State Budget Act, and with current processes in place, UCOP believes this will occur annually.

Across the UC system, there has been widespread support to return to the campus assessment funding stream model to fund UCOP's budget. Campus assessment enables the campuses and UCOP to optimize the budget as a system in a unified, collaborative manner. For FY21-22, UCOP has been restored to a campus assessment, and this model should be allowed to continue for the future limiting the risk of more disruption to the campuses, students and other key budget stakeholders.

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

We assessed this recommendation as partially implemented because the Office of the President still has not changed the timing of its budget process to align with the timing of the state budget process. As we have previously noted, the failure to do so may hinder the Legislature, Governor, and Department of Finance when making decisions regarding the UC's portion of the state budget.

The timing of the Office of the President's budget presentation does not align with the budget processes other state agencies follow, including the process that UC follows when developing the budget for the system. Most state agencies begin developing their budgets in the summer and fall in preparation for the Governor's budget released in January. Additionally, the information UC includes about the Office of the President in the consolidated annual budget it references does not provide budget information for the upcoming fiscal year and instead only includes information from the prior fiscal year which we believe is insufficient. As we have stated before, we do not understand why UCOP cannot follow a similar process so that its budget information will be available earlier in the state budget process.

Annual Follow-Up Agency Response From April 2020

Consistent with other State agencies, the University of California prepares its consolidated financial plan and budget in the fall, presents it to the Regents, and then provides it to the Department of Finance in time for the preparation of the Governor's January budget. The UCOP budget represents less than 2.5% of total University expenditures, and UCOP's direct appropriation is less than 1%.

The University's budget includes assumptions that form the basis for developing the budgets for each campus and UCOP. Each location's budget process progresses through the spring in parallel with the State's deliberations and takes into consideration any changes to the financial outlook from the State or the University. Campus budgets are finalized in May and are adjusted if needed once the University's appropriations are finalized in June.

As directed by the Regents, UCOP presents its budget to the Regents at the May meeting. Current year Q3 forecasts and fund balances are included in the presentation which provide greater accuracy and transparency.

The CSA recommended the State directly appropriate UCOP's budget, and it has done so, holding the appropriation flat at the FY16-17 level for four years including FY20-21. During that time UCOP has managed the flat appropriation by reducing costs and utilizing fund balances. As reported in November 2019, UCOP has reallocated $166.3M to the campuses over the past three years, and eliminated all unrestricted fund balances. The FY19-20 budget included 55 pages of information and 12 different, detailed schedules, reflecting significant and genuine efforts over the past three years to meet all of the CSA's budget, accounting and staffing policy recommendations and provide greater transparency and accountability.

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

We assessed this recommendation as partially implemented because, after three years, the Office of the President still has not changed the timing of its budget process to align with the timing of the state budget process. As we have previously noted, the failure to do so may hinder the Legislature, Governor, and Department of Finance when making decisions regarding the UC's portion of the state budget. This is a critical recommendation that, if successfully implemented, will significantly improve stakeholders' ability to hold the Office of the President accountable. Not completing the budget recommendation on time remains a significant deficiency in the Office of the President's response to the audit.

Unlike UC campuses, the Legislature funds the Office of the President via a direct appropriation; therefore, it is important for its budget information to be available for consideration during the state budget process. However, for the second year in a row, the Regent's will approve the Office of the President's budget after the Governor has signed the State's budget. The Budget Acts of 2017, 2018, and 2019 stated that it is the intent of the Legislature that providing state funding directly to the Office of the President will provide more legislative oversight of the office. Nonetheless, last year budget information was not available in time for an Assembly budget subcommittee hearing on May 1, 2019 that included a discussion of the Office of the President's budget. Additionally, the Regents did not pass the Office of the President's fiscal year 2019-20 budget until three weeks after the Governor signed the state budget. Because the Office of the President presents its budget so close to the start of the new fiscal year, it gives decision makers limited time to consider the efficacy of the request and to assess that request against other state or university priorities.

The timing of the Office of the President's budget presentation does not align with the budget processes other state agencies follow, including the process that UC follows when developing the budget for the system. Most state agencies begin developing their budgets in the summer and fall in preparation for the Governor's budget released in January. As we have stated before, we do not understand why UCOP cannot follow a similar process so that its budget information will be available earlier in the state budget process.

We recommended that the Legislature directly appropriate the Office of the President's budget until it has completed our three-year plan and that the Legislature evaluate the necessity of a continued direct appropriation after assessing the strength of the Office of the President's new budget, accounting, and staffing policies, as well as is demonstrated commitment to ongoing transparency. We recognize the Office of the President's resource investment and progress made thus far in implementing our recommendations by improving its fiscal, staffing, and systemwide initiative processes. However, the Office of the President still needs to fully implement key recommendations to successfully address the concerns we identified in our report.

Annual Follow-Up Agency Response From November 2019

Per the CSA's assessment, the FY19-20 budget included further improvements such as the CSA's recommended Figure 11.

The University agrees with the CSA that, as with most State agencies, the University begins developing its budget in the fall in preparation for the Governor's January budget. The Regents approve the University budget in the fall, which includes critical budget assumptions that govern the entirety of the University's budget. These assumptions form the basis for developing UC location budgets, including each campus and UCOP. Each location's budget process progresses through the spring in parallel with the State's deliberations. All budgets are adjusted as needed once the University's has been finalized.

The timing and preparation of the UCOP budget is similar to the budget process of the University's campuses and other locations. UCOP did attempt to address the concerns of the CSA by submitting Budget Change Proposals to the Department of Finance in advance of the April deadline. However, the proposals submitted were not approved.

The CSA recommended the State directly appropriate UCOP's budget for three years, and it has done so, holding the appropriation flat to FY16-17 levels. UCOP has managed the flat appropriation by reducing costs and utilizing fund balances while also reallocating funds to the campuses. UCOP staff have invested thousands of hours implementing the CSA's recommendations and actively engaged the Regents, Chancellors and Executive Budget Committee in setting UCOP's priorities within the context of the University's. Sjoberg Evashenk has independently monitored and reported on the audit recommendations.

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

We assessed this recommendation as partially implemented because, although the Office of the President has improved its budget presentation, it did not develop its budget by April 2019. As we have previously noted, the failure to do so may hinder the Legislature, Governor, and Department of Finance when making decisions regarding the UC's portion of the state budget. This is a critical recommendation that, if successfully implemented, will significantly improve stakeholders' ability to hold the Office of the President accountable. Not completing the budget recommendation on time remains a significant deficiency in the Office of the President's response to the audit.

The Regents did not approve the Office of the President's fiscal year 2019-20 budget until July 2019, two months after the May Revise and three weeks after the Governor signed the state budget. Unlike the campuses, since the Legislature funds the Office of the President via a direct appropriation, it is important for its budget information to be available for consideration during the state budget process. Moreover, the timing of the Office of the President's budget presentation does not align with the budget processes other state agencies follow, including the process that UC follows when developing the budget for the system. Most state agencies begin developing their budgets in the summer and fall in preparation for the Governor's budget released in January. We do not understand why UCOP cannot follow a similar process so that its budget information will be available earlier in the state budget process.

Finally, we did not recommend the Legislature directly appropriate UCOP's budget for three years, but rather that the Legislature directly appropriate UCOP's budget until it has completed our three-year plan. Then we recommended that the Legislature evaluate the necessity of a continued direct appropriation after assessing the strength of the Office of the President's new budget, accounting, and staffing policies, as well as its demonstrated commitment to ongoing transparency.

Annual Follow-Up Agency Response From April 2019

In May 2018, UCOP presented a detailed FY18-19 budget to the UC Regents which significantly surpassed the level of detail required in the CSA's Figure 11 and was approved unanimously by the Board in May 2018. The item is available at: http://regents.universityofcalifornia.edu/aar/mayb.pdf.

In response to feedback from the CSA, UCOP replicated, adapted and included a representation of Figure 11 in the March 2019 Regents presentation of the UCOP FY18-19 Mid-Year Budget and Second Quarter Forecast. UCOP is also including Figure 11 in the Executive Summary of the FY19-20 and subsequent budget items.

In response to the concerns that fund balance and reserves data was contained in the narrative rather than the schedules, UCOP discussed with the CSA in December 2018 the inclusion of a new schedule for the FY19-20 budget presentation. New schedules for fund balances and reserves have been drafted and will be presented in the FY19-20 budget.

UCOP will continue to present the budget to the UC Regents in May to align with the scheduled cadence of meetings so that the full board is available to review and take action. This also allows appropriate time to complete second and third quarter forecasts, incorporate critical external budget factors including the Governor's January budget, and review the budget internally and with the President, Executive Budget Committee, and Chancellors.

The UC Regents, Executive Budget Committee, third party monitor Sjoberg|Evashenk and other key stakeholders support presenting the UCOP budget at the May Regents meeting. What UCOP has done differently this year is to provide the Department of Finance with Budget Change Proposals for each UCOP budget-related line item (general OP budget, UC Path, and ANR). These proposals were presented to DOF on April 8th.

Agenda items for the May Regents meetings will be publicly available on the Regents' website in the first week of May, shortly after the CSA's April 25th deadline.

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

We assessed this recommendation as partially implemented because, although the Office of the President made improvements to its budget presentation as we discuss in recommendation 22, for the second year in a row the Office of the President did not implement the State Auditor's recommendation for developing its budget by April. The failure to do so may hinder the Legislature, Governor, and Department of Finance when making decisions regarding the UC's portion of the fiscal year 2019-20 state budget. This is a critical recommendation that, if successfully implemented, will significantly improve stakeholders' ability to hold the Office of the President accountable. Not completing the budget recommendation on time is a significant deficiency in the Office of the President's response to the audit.

The Office of the President publishing and seeking approval for its budget in May does not provide state policy makers adequate time to assess its operations and funding requests. For example, the Office of the President's budget was not available for the California Assembly Budget Subcommittee #2 on Education Finance (assembly budget subcommittee) hearing on May 1, 2019, which included a discussion of the Office of the President's budget. Additionally, the Office of the President posted its budget online on May 6, 2019, and the Regents will not approve the budget until May 16, 2019. This did not give the Governor adequate time to review the Office of the President's budget and make any necessary adjustments to the May Revise which the Governor released on May 9, 2019. Because UCOP presents its budget so close to the start of the new fiscal year, the Office of the President gives decision makers limited time to consider the efficacy of the request and assess that request against other state or university priorities.

Moreover, the timing of the Office of the President's budget presentation does not align with the budget processes other state agencies follow, including the process that UC follows when developing the budget for the system. Most state agencies begin developing their budgets in the summer and fall in preparation for the Governor's budget released in January. For example, unlike UCOP, the UC system passed its fiscal year 2019-20 budget for current operations—the budget for the entire system—in November 2018. As such, we do not understand why UCOP cannot follow a similar process so that its budget information will be available earlier in the state budget process.

Annual Follow-Up Agency Response From October 2018

UCOP engaged in a project to simplify, clarify, and present a transparent annual operating budget to the Regents. UCOP revised the FY2018-19 budget presentation format in compliance with:

-GFOA and NACUBO budgeting best practices

-State systemwide budget presentations, formats and trends in higher education, and professional presentations

-Feedback from the Executive Budget Committee, Sjoberg/Evashenk and the Regents

-The CSA's recommended budget format in Figure 11 of the audit report

-Outcomes from other related workstreams

The proposed prototype was reviewed with the Regents in March 2018 and is available here: http://regents.universityofcalifornia.edu/regmeet/mar18/f11.pdf . Per Attachment 4, the format was updated to include:

-A single item format

-Operating and one-time expenses in one comprehensive budget

-A "Sources and Uses" schedule

-Fee-For-Service and Pass-Through reporting

-Budgets based on projected actuals

-Fund restrictions designations and fund balance reporting

-Cause of Change analysis

-Strategic Priorities Fund budget that reflects commitments and an uncommitted allocation

Per the agreed upon timeframe of the UC Board of Regents, UCOP presented the FY18-19 budget to the full board for their review and approval on May 24th. The best-practice budget passed without any dissent. The item is available at: http://regents.universityofcalifornia.edu/aar/mayb.pdf

The UCOP Budget Manual was also provided to the CSA and documents the policies, guidelines, procedures, and analyses associated with the annual budget process. This manual is not intended to be a static document and will continue to be updated as additional improvements are identified and made.

UCOP submitted several supporting documents to the CSA in response to their intiial review and subsequently held discussions with the CSA on September 13th and 17th.

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

We rate this recommendation as partially implemented because although the Office of the President's fiscal year 2018-19 budget largely incorporated certain elements of our recommended budget presentation, it continues to lack sufficient transparency that would allow the Governor and the Legislature to understand what fund balance awards are available to reallocate to campuses. Specifically, it did not include summary lines in its financial schedules that displayed the total restricted and discretionary reserves and fund balances, which, as we described in the status summary on the home page of our website, totaled $321 million. Instead, the Office of the President included summary information as part of graphics in an earlier, narrative portion of the budget document. According to the Office of the President, it originally considered including fund balances in Schedule A—the part of its budget that depicts our recommended budget presentation. However, the Office of the President believed that the column structure did not work well for communicating the different commitments, reserves, and fund balances by fund type.

To meet the intent of our recommendation—which is to clearly display the amount of surplus funds it has at the end of each fiscal year available for reallocation to the campuses in the following budget year—the Office of the President should present its restricted fund balances, unrestricted fund balances, and program-specific reserves at the end of Schedule A. These amounts should result logically from the difference between its annual revenues, expenditures, and beginning fund balances. The Office of the President should also present the central operating reserve on a separate line because it is not supported by fund balances. In addition, the Office of the President should ensure that it lists its prior year fund balances as a carryover in the following year. These changes to its budget presentation would meet the intent of our recommendation and the concepts underlying Figure 11 on page 40 of our report.

In addition, the Office of the President confirmed to us that it plans to release its fiscal year 2019-20 budget in May 2019 as opposed to April 2019. As we indicated in our one-year assessment for this recommendation, by releasing its budget in May as opposed to April, the Office of the President may hinder the Department of Finance, the Legislature, and the Governor as they make decisions regarding the UC's portion of the state budget.

We also performed a high-level review of budget, actual, and fund balance data to ensure that the budget presentation was accurate. Additionally, we assessed the reasonableness of the budget system's vacancy data and verified the supporting documentation for the strategic priorities fund. We did not identify any issues in these areas.

1-Year Agency Response

UCOP engaged in a project to simplify, clarify, and present a transparent annual operating budget to the Regents. UCOP revised the FY2018-19 budget presentation format by:

- Reviewing GFOA and NACUBO budgeting best practices

- Surveying state systemwide budget presentations, formats and trends in higher education, and professional presentations

- Gathering feedback from the Executive Budget Committee, Sjoberg/Evashenk and the Regents

- Incorporating the CSA's recommended budget format in Figure 11 of the audit report

- Incorporating outcomes from other workstreams

The proposed prototype was reviewed with the Regents in March 2018 and is available here: http://regents.universityofcalifornia.edu/regmeet/mar18/f11.pdf. Per Attachment 4, the format was updated to include:

- A single item format

- Operating and one-time expenses in one budget

- A "Sources and Uses" schedule

- Fee-For-Service and Pass-Through reporting

- Budgets based on projected actuals

- Fund restrictions designations

- Cause of Change analysis

- Strategic Priorities Fund budget that reflects commitments and an uncommitted allocation

A UCOP Budget Manual has been drafted and is being provided to the CSA that documents the policies, guidelines, procedures, and analyses associated with the annual budget process. The manual will be updated as improvements are made.

UCOP is finalizing the FY18-19 budget for the May Regents meeting using the revised format. The April 25th CSA deadline precedes the submission of the budget to the Regents. UCOP has provided the CSA with documented budget formats, enhancements, supporting policies and guidelines, and will send CSA the item when it becomes available to the Regents.

UCOP is making all feasible changes this year and planning improvements over the next two years as recommended by the CSA, including updates to BDS as a gap measure until a new financial and planning system is implemented. A roadmap for BDS replacement has been provided to the CSA.

In reference to the CSA comment at 6 months about the $12M change to the temporary budget from the November item, this was an error that was corrected in the March budget to actual item which reconfirmed that the FY2017-18 approved budget was $39 million and that actuals to date were below the budget.

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

We assessed this recommendation as pending because the Office of the President did not implement the State Auditor's recommendation for developing its budget by April 2018. The failure to do so may hinder the Department of Finance, the Legislature, and the Governor when making decisions regarding the UC's portion of the fiscal year 2018-19 state budget. This is a critical recommendation that, if successfully implemented, will significantly improve stakeholders' ability to hold the Office of the President accountable. Not completing the budget recommendation on-time is an important deficiency in the Office of the President's response to the audit.

Moreover, the Office of the President was not forthcoming about its decision to delay providing us with its budget information. Specifically, beginning with its 60-day response to our audit in June 2017, and again with its 6-month response in October 2017, the Office of the President indicated that it would implement this recommendation by April 2018. In addition, at a meeting with us in February 2018, the Office of the President committed to providing us with the budget information that is necessary for us to assess the Office of the President's progress in implementing this recommendation. However, the Office of the President informed us on April 11—two weeks before the deadline—that it would not provide us with the budget information until May 2018 because it was still in the process of finalizing the budget and therefore it would be premature to provide the materials we requested until the president, Chair of the Regents, and others had reviewed it.

Additionally, the supporting documentation and data would have allowed us to review the accuracy and completeness of its draft budget. For example, we could have verified that the draft budget contained all expenditures—an expectation that is outlined in our recommendation—through a review of the Office of the President's supporting data. Reviewing the Office of the President's budget not only would have allowed us to gain some assurance that the presentation was complete and accurate, but also may have helped the Office of the President improve its budget presentation by addressing any errors or areas needing clarification that we identified in our review. However, all the Office of the President has provided to us is a prototype budget with no actual numbers.

Finally, although we recognize that the Office of the President has made progress by formalizing its budget policies and procedures in a single manual and by seeking feedback from the Regents on its budget prototype, it ultimately failed to develop its budget in a timely manner that would allow it to be assessed as part of the state budget process.

6-Month Agency Response

The budget presentation work group has met regularly to address the California State Auditor's budget format as detailed in figure 11, page 40, of CSA's audit report. The final FY2017-18 budget presentation in July 2017 incorporated CSA audit format and the team is focused on additional improvements to further enhance the nuances and clarity of the UCOP budget.

The work group completed its charter and stakeholder analysis review with COO Nava. The Executive Budget Committee (EBC) has reconvened and meets monthly. The October-through-December EBC meetings will include reviews of UCOP FY2017-18 budgets, including activities and associated costs.

The work group reviewed financial system functionality with partner UC campuses. UCOP awaits additional information from partner campuses before making a recommendation. New system solutions are expected to mitigate existing gaps between current capabilities and best practices, and include specific requirements to further adhere to the format presented in figure 11 of the CSA's report.

California State Auditor's Assessment of 6-Month Status: Pending

We have concerns regarding the Office of the President's 2017-18 budget. On the Office of the President's website, it states that it has partially implemented this recommendation. However, we disagree based on a review of the Office of the President's data and its supporting documentation. Our concerns are regarding the budget's accuracy and the fact that the Office of the President did not seek the regents' approval for $12 million in additional budget expenditures. Overall, although the Office of the President used our recommended budget format, we found that it could not adequately substantiate the amounts it used in the presentation.

Because the Office of the President expedited its budget process by two months, it developed its budget "offline" using questionable methods. For example, for expenditures from what we called the undisclosed budget— which the Office of the President presented to the regents as the strategic priority reserve in May of 2017—it used estimates from staff as opposed to financial data. Moreover, even though its 2016-17 vacancy rate was 15 percent, the Office of the President also built $25.4 million in one-time salary savings back into the 2017-18 budget. In response to our audit, the Office of the President stated that its reserves stem from vacancies and other unexpected events that create one-time savings and that these are not permanent savings and cannot be used to support permanent expenditures. The Office of the President has consistently budgeted many more positions than it has actually filled. Since fiscal year 2013-14 the Office of the President's vacancy rate has been between 10 and 15 percent. While a small vacancy rate is reasonable, we have concerns because the Office of the President's high vacancy rates translate into recurring one-time savings that help to build its reserve. Our workforce planning recommendation should help the Office of the President better align its staff and lower its vacancy rate. The budget director stated that although the budget office made its best projections in the time available, it would not use the 2017-18 budget methods for future budgets.

In November 2017, the Office of the President also failed to receive the regents' approval for a $12 million increase in multi-year commitments paid for from its reserves and did not adequately describe its planned use of these funds. When asked by the regents, the budget director confirmed that the $12 million increase in multi-year commitments was the result of increased costs for a number of projects that were originally added as placeholders in the Office of the President's May budget proposal. This was despite the Office of the President's claim in its May budget proposal that projects from the reserve undergo a rigorous review prior to consideration for final approval and funding by the President. Moreover, based on our review of the Office of the President's documents, a significant amount of these increased costs relate to information technology projects including updating its financial and budgeting systems. The director of budget and finance stated this increase was presented as an informational item—meaning the regents did not vote on the increase—because of time constraints related to other high priority items for the regents to consider at the November meeting. The chief operations officer stated the Office of the President did not seek approval for this spending because the numbers were still very preliminary. However, we believe the regents should approve the $12 million increase and that the Office of the President should transparently present changes in funding for review by the Legislature, the regents, and the public.

Because of our concerns with the accuracy and budget process that the Office of the President used, we have rated this recommendation as pending. For its 2018-19 budget, we expect the Office of the President to be able to better justify the numbers in its budget and the process it used to develop its budget. We also recommend that the Office of the President seek the regents' approval on the $12 million increase in planned spending for multi-year commitments at the January 2018 regents meeting.

60-Day Agency Response

The budget presentation work group has been formed and meets regularly to incorporate the State Auditor budget format as detailed in Figure 11, page 40 of the State Auditor's audit report. Included in the FY17-18 Regents budget presentation were the following elements: (1) Incorporation of the FY16-17 forecasted actual expenditures compared with budget, (2) Detail of all expenditures including projections of fund balances, and (3) A combined comprehensive view of Permanent and One-Time spend including systemwide programs and initiatives. All of the above elements are included in the work plan.

The work group has already begun development of improved reporting, and will provide budget to actuals on a quarterly basis to the regents. Reporting improvements are also expected to provide visibility to all expenditures and reserves. The work group has initiated a project to evaluate current financial systems including the Budget Development System to identify gaps and evaluate improved systems with robust functionality, including reporting.

California State Auditor's Assessment of 60-Day Status: Pending

The status of this recommendation is pending.The Office of the President presented the regents with more robust budgets during the last two regents' meetings that included forecasted actual expenditures and fund balances. However, as discussed during the regents' meetings, further improvements to the budget presentation are necessary to ensure transparency and clarity of the Office of the President's expenditures. The Office of the President plans to present its new budget presentation to the regents in May of 2018. In addition, we will conduct an analysis of the Office of the President's budget system to verify the amounts presented to the regents.

All Recommendations in 2016-130

Agency responses received are posted verbatim.