The University of California Office of the President misled the public about its budgets and spending, paid employees significantly more than other state workers doing the same jobs and "failed to satisfactorily justify its spending on systemwide initiatives," according to a report released by California State Auditor Elaine Howle on Tuesday.

The report criticized the UC president's office, saying that as a result of the office's actions, "significant change is necessary to strengthen the public's trust in the University of California." Howle also wrote that the UCOP interfered with her office's investigation of its practices.

UCOP responded to the state auditor's report with a six-page letter by UC President Janet Napolitano, saying that "the report fundamentally and unfairly mischaracterizes UCOP's budget processes and practices in a way that does not accurately capture our current operations nor our efforts and plans for continued improvement."

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Spending without oversight

According to Howle's 177-page report, the Office of the President did not disclose $175 million in reserve funds to the UC Board of Regents or the state Legislature. In addition, it asked for increases to its funding after spending significantly less than budgeted for and keeping the leftover money.

UCOP also created an "undisclosed budget" to allocate those reserve funds, spending as much as $114 million without oversight from the Regents or the state Legislature. Those funds included $32 million sourced directly from a fee paid from the campuses, which the state auditor said "could have [been] spent on students."

Napolitano countered the report's assertion regarding the UCOP having $175 million in reserve funds. "[The] $175 million figure mischaracterizes the true amount of UCOP's available and uncommitted reserve, which is $38 million, a modest amount for an organization our size."

According to Napolitano's letter, the UCOP has $87 million in unrestricted funds, $49 million of which are allocated towards "academic programs, systemwide initiatives, and multi-year campus commitments." This leaves $38 million in unrestricted funds.

The state auditor also found that the UC Office of the President misled the Board of Regents that oversees it by claiming that it does not receive state funds, even though the 10 UC campuses used state funds to pay about $106 million to the president's office in the 2015-16 fiscal year.

Recommendations from Howle included "eliminating [the UCOP's] undisclosed budget and using its actual expenditures as a basis to establish its future budgets."

In her letter to State Auditor Howle, Napolitano called the recommendations "

helpful," adding that the UCOP "[welcomes] this constructive input, which align with our proactive efforts to continually improve UCOP's operations, and UCOP intends to implement the recommendations."

UCOP was unable to provide the state auditor a list of all the systemwide initiatives it manages or how much they cost. The office spends $434 million on these initiatives annually, with the UCOP's internal budget for these initiatives exceeding the budget it presented to the Regents for approval.

Employee compensation above state standards

The state auditor also found that the UCOP paid its employees significantly more than other state employees receive for similar work and provided benefits that other state employees don't receive. For 10 administrative roles — not executive roles, like the president — the total compensation was about $2.5 million more per year than other state employees in the same roles.

UCOP said that higher pay is necessary in a competitive higher education environment, but the state auditor argued that this argument should not apply to administrative roles like financial analysis that are virtually the same regardless of location.

Additionally, the office does not follow typical practices to limit some employee benefits, such as restrictions on the cost of hotels that traveling employees can be reimbursed for. It also paid more than $2 million over five years on business meetings and entertainment expenses, reimbursements that other state employees don't receive.

Interference with the State Auditor’s investigation

In the report, Howle also said that the Office of the President interfered with its investigation into the office's spending, including "inappropriately" reviewing correspondence between individual UC campuses and the auditor. Comparing that correspondence before and after review from the president's office, the state auditor found that "campus statements that were initially critical … had been removed or significantly revised."

Napolitano and the UCOP "will seize this opportunity to further enhance [the UCOP's] value to students, campuses, Regents, the Legislature, and the citizens of California."

Reach Senior News Editor James Tyner here, or follow him on Twitter.

Reach Deputy News Editor Noorhan Maamoon here, or follow her on Twitter.