Cal State may be mixing public and private funds in nonprofit foundations

Here is a reminder from the past that citizens must be vigilant regarding the finances of even the most apparently benign organizations.

Cal State may be mixing public and private funds in nonprofit foundations
A faculty group says university officials have failed to correct the problems despite warnings.
By Carla Rivera
Los Angeles Times
August 25, 2010

A faculty group said it has found evidence that California State University officials are improperly depositing public funds into the accounts of nonprofit campus foundations and have failed to correct the problem despite warnings from auditors.

The California Faculty Assn. said its findings come from publicly available minutes of meetings of the university's chief administrators and business officers, and raise concerns about possible fiscal mismanagement at more than 90 foundations and auxiliaries associated with the university's 23 campuses.

The documents are included in a report by the group that is scheduled to be released Wednesday.

The nonprofit organizations are separate enterprises that raise private funds for scholarships and other education activities and frequently run campus food services, bookstores and student housing.

Mingling taxpayer dollars and private funds in foundation accounts may be illegal because the organizations are exempt from the state's open records laws, the faculty group says.

"They are admitting to comingling money, taxpayer money and private donations when for all this time, they have stood firm that this is not going on," said Lillian Taiz, president of the faculty organization. "There needs to be some probing and digging into what is going on at these campuses."

The minutes of the discussions by Cal State executives, which are on the university's website, do not cite specific foundations or instances of mismanagement. But they appear to indicate concern about the handling of foundation funds.

On May 18, according to the minutes, Cal State Chief Financial Officer Benjamin Quillian stated: "There continue to be findings from the internal auditors that some campuses have monies held inappropriately by auxiliary organizations....Developing a policy related to this has been more difficult than anticipated."

In an interview, Quillian said he became aware of the findings by the university's auditors about six months ago and has been working with campus groups to insure that funds are transferred to the correct accounts. He said he plans to issue new guidelines in coming weeks.

But he said that the practice was not widespread, did not involve general fund money or student fees and was inadvertent. "To the best of my knowledge, none of the campuses are intentionally sheltering state funds," he said.

Quillian said that Cal State Chancellor Charles Reed has already initiated an examination of campus foundations and auxiliaries to ensure they are being used properly.

This spring, California Atty. Gen. Jerry Brown launched a review of Cal State foundations, including one at Cal State Stanislaus, which came under scrutiny after it refused to disclose documents about a June fundraising appearance by former Alaska Gov. Sarah Palin. Brown recently concluded that the Stanislaus foundation violated no state laws in managing its funds but found that its accounting procedures were inadequate.

State Sen. Leland Yee (D- San Francisco), who also sought the Palin documents, is sponsoring legislation that would require university foundations and auxiliaries to adhere to state open records laws. The bill has been passed by the Legislature and awaits the governor's signature.

Responding to the report by the faculty association, Yee said he would call for an audit of Cal State finances.

"When you have lobbyists from CSU coming before a state Assembly committee saying that they aren't doing things that they are in fact doing, that's an affront to the Legislature," he said.