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Audit of executive compensation finds policy and process violations 

BY CYNTHIA LEE
UCLA Today Staff Writer

The UC Board of Regents received the results of a 10-year audit April 24 that shows certain benefits promised or paid to many UC executives since 1996 were not approved by the regents, as required by their policies.

The $1.5-million audit, by PricewaterhouseCoopers, was the first of three sweeping reports commissioned to examine UC’s compensation practices. In the first report, commissioned by the regents, auditors looked at 32 top senior manager positions and then listed the total compensation for the 63 people who held or currently hold these positions from Jan. 1, 1996 through Dec. 31, 2005. Also included in the audit was former Vice Chancellor Celeste Rose of UC Davis whose compensation has been the focus of recent news reports.

The auditors found that UC managers generally sought the regents’ approval of an employee’s base salary as well as any additional salary and bonuses. But they did not bring to the regents other forms of compensation, such as severance payments for senior managers, relocation and temporary housing allowances, car allowances or auto leases, participation in home loan or mortgage programs, Sabbatical benefits and post-separation, among others.

“It is clear – very clear – that there has been a total lack of compliance with policies that the regents put in place in 1993,” said board chairman Gerald L. Parsky. But he stressed that the audit in no way suggested any wrongdoing on the part of any of the 64 employees named in it.

“In many cases, these individuals may be learning for the first time that there were failures to comply with policies in regard to their compensation,” Parsky said. The audit’s focus is UC’s failure to fully disclose all compensation and comply with regental policies, he pointed out.

UC President Robert C. Dynes said that the fact that the full scope of his own compensation was not disclosed to the regents when he was appointed president in 2003 illustrates a longterm “systemic breakdown” of the rules.

“The real tragedy in all of this … is that similar events occurred in the early 1990s, and 15 years later, we are facing the same issues,” Dynes said. “Policies were put in place, principles were put in place, but there was no system implemented to make the policies effective. And so they were forgotten.”

The auditors also found that certain benefits were promised or paid to 43 of the 64 employees covered in the report as exceptions to UC policies or standard practices. The benefits were approved by the president or his designee but not by the regents, auditors found.

Among the exceptions listed in the report were these:

• After then-Chancellor Dynes of UC San Diego was appointed president in 2003 and moved north to live in the President’s house, provided by UC, his wife, also a physics professor, continued to live in the chancellor’s house that UC also provided. It was later explained that she was waiting for her new lab to be finished at UC Berkeley.
• FormerUC President Richard Atkinson received leave with pay for three months while he was on call as former head of the UC system.
• Chancellor Emeritus Charles E. Young was granted a home loan while he was also receiving a temporary housing allowance. He and his family could not live in the Chancellor’s Residence because at that time it was in dire disrepair.

The report also found that certain compensation items were not disclosed to the public, as required by regental policies.

Dynes said that he and the regents will review the findings of all the audits and take “appropriate action to address legal responsibilities on a case-by-case basis.”

Some regents said it was too early to place blame.

“What we’re talking about here is a process and systems, things that have evolved over the years,” said Regent Norman Pattiz during the discussion that followed the audit’s presentation. “Unless somebody is telling me something I haven’t heard, this isn’t about people committing fraud. This isn’t about somebody benefiting from setting up a sweetheart deal, taking a kickback or doing something that would constitute fraudulent behavior.”

A second audit, by the Bureau of State Audits, covering a wider group of UC employees, will be released May 2. By the time the regents meet in May, the University Auditor is expected to be finished with an internal audit that will cover the remaining members of the Senior Management Group not already included in the first audit.

To see the PricewaterhouseCoopers report, go to: www.universityofcalifornia.edu/news/compensation/audits.html.