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Association of College and University Auditors

Remarks by Dr. Timothy P. White
Chancellor, California State University
Association of College and University Auditors
Los Angeles, CA
September 16, 2014

Thank you, Sandy and Doug. Be sure to visit the Santa Monica pier if you need a local to provide documentation that there was a business purpose… so you pass audit muster.

Gene is a good friend and colleague. I was privileged to serve with him in the University of California system, and I am glad to have the opportunity to join him again in this session. On the red carpet to boot!

In many ways, the issues facing a system and a campus are similar. The CSU is a comprehensive university.

  • Our 23 campuses make up a 1000 mile university, from San Diego to Humboldt.
  • We offers bachelor’s, master’s and applied doctorates – in addition to applied research.
  • Over half of the state’s teaching credentials come through CSU programs.

In total, we have nearly 3 million alumni – adding at the rate of more than 100,000 degrees per year. One out of every ten people employed in California is a CSU graduate.

CSU students represent the fabric of California’s society. More than half are first generation; and more than half are Pell eligible, therefore considered low-income.

A little less than 50 percent of the bachelor’s degrees earned by African Americans in California – and a little more than 60 percent of bachelor’s earned by Hispanics or Latinos – are from the CSU.

We have nearly 450,000 students and 50,000 students. In an organization this large there are many opportunities for mischief.

For the California State University, primary auditing responsibility rests at the system level.
As chancellor of UC Riverside, and now as chancellor of the CSU, I work side-by-side with a chief auditor.

So, there is some continuity in this for me, but there are differences. Those differences present opportunities and challenges for me and for Larry Mandel – who is vice chancellor and chief audit officer for the CSU.

Advisory Services

I’ll start with a bit of the challenge: An “outsider” label comes with being part of a system office.

This outsider label has provided much fodder for humor, including a mention in Augustine’s Laws, which isa public administration variation of Murphy’s Laws.

Former Under Secretary of the Army Norman Augustine proposed these tongue and cheek laws in 1984.

Perhaps most famous was his assertion that defense budgets increase linearly while the unit price of fighter jets increase exponentially.

By this reasoning, the entire defense budget sometime after 2050 would be used to buy just one jet, to be shared by the Air Force and Navy… with the Marines getting to fly on leap year.

Augustine less famously stated another law more relevant for today.

Law 47: “Two-thirds of the Earth's surface is covered with water. The other third is covered with auditors from headquarters.”

He went on to write that “the only thing most audits fix is the blame.”

The strength of the internal audit function is its objectivity and independence. By design, audits circumvent the normal flow of information through the management chain. This is critical to identifying risks and facilitating controls.

Yet, we know that this independence is also a source of suspicion and resistance by those who, like Augustine, see the function of auditing as an intrusion on their decision-making.
There are ways to mitigate this suspicion when auditors are able to build close relationships on campus, through both formal and informal contacts with their peers in academics and operations.

Yet, when the internal audit comes from an offsite headquarters, auditors can be seen as the other; an invading force.

Individuals on campus complain of audit exhaustion, and of findings that do not fully account for their realities.

Larry has gone above and beyond to help alleviate some of this concern.
The CSU took a major step this year, when the Office of the University Auditor was renamed Office of Audit and Advisory Services.

Larry and his team are now invited by campus leadership to come in as strategic consultants.
This makes a lot of sense for the institution. Folks on campus are often aware of their weak spots, and eager to strengthen them.

However, no one wants to be punished or criticized for trying to address problems proactively.

This is where advisory services come in.

CSU auditors are able to provide a confidential review of a specific campus area or practice. This review comes with recommendations on best practices, model policies and policy implementation strategies.

One benefit of being a 23 campus system with 90 auxiliary organizations is that the best practice often comes from within CSU. Through advisory services, Larry’s advisory team serves as a catalyst for the transfer of process improvements systemwide.

The confidentiality of these advisory services is key to building trust between the audit team and campus leadership.

Reporting to the Trustees

Now, let’s talk about some of the opportunity of auditing as a system function. Unlike advisory services, auditing is done in the full view of the public. The visibility is similar to being a Football coach at UCLA. Though fortunately there is no Sunday paper audit section.

This is where the rubber meets the road in ensuring that the university is operating as lawmakers, trustees and system leadership intend.

I spoke earlier about the importance of independence.

Larry and I both have the same boss, the California State University Board of Trustees. Larry’s audit reporting is done in public, through the trustees’ Committee on Audit.

This independence and public accountability is good. Sunlight is disinfecting, as the saying goes.

Sunlight is also motivating. The gallows in a fortnight focus the mind.

I noticed a pattern after a few Board of Trustees meetings. The agenda would go out with several incomplete audit recommendations.

Within the ten days between the agenda going out and the board meeting, a flurry of activity would occur. By the time Larry actually made his report to the board, just a few of the recommendations remained incomplete.

If we were to have a flurry of activity, it seemed to me that it would probably be better if it happened before the agenda came out.

So far, that seems to be working.

Regardless of when the flurry of activity takes place, the fact it takes place tells me that the institution is responsive to public accountability.

And, that responsiveness is present at multiple points throughout the university, both at the system and campus level.

The Management Team

The other major benefit of having the Chief Audit Officer at the system level is that Larry is a key member of my leadership team. He is able to provide his extensive expertise to advise system management decisions.

He is a partner and collaborator with me and his fellow vice chancellors. Larry helps us identify needs for training and policy clarification as new opportunities and challenges arise.

Larry identifies gaps in particular policy areas. He advises of risks that may arise from particular policy changes.

This all contributes to the CSU’s ability to deal with emerging issues.

Through a mix of independence and collegiality, Larry and his team of auditors ensure the proactive accountability of the California State University.

Walking on a red carpet, I would rather fix the bumps ahead than trip.

Auditing and Accountability

Accountability is the end goal, achieved through many means including audit.

I am speaking of accountability to the CSU mission. Internal auditing is a cornerstone of achieving the public good with which we are charged.

This builds on the historic role of auditing that focused on accounting practices. 

In 2004, when the congressional watchdog agency changed its name from the General Accounting Office to the Government Accountability Office, former Comptroller General David M. Walker declared that “the days of accountants in green eyeshades are long gone.”

Walker went on to say that his agency’s reports “go beyond the question of whether federal funds are being spent appropriately to ask whether federal programs and policies are meeting their objectives and the needs of society.” Less transactional; more substantive.

As public universities, we have the same obligation to show that we are meeting our objectives and the needs of society.

Lawmakers are increasingly demanding this accountability. Budgets are being tied to performance measures.

State and Federal financial aid dollars can be withheld from organizations that fall short.

The cry for accountability in the public sphere is loud and growing louder. Public reactions to accountability failures are growing more swift and severe.

The CSU welcomes accountability, because we believe we have an amazing story to tell.

Auditing is part of that story. Auditing protects the reputation of the institution by:

  • getting ahead of issues,
  • proactively identifying potential for failure before the failure occurs,
  • and ensuring awareness of changes in the environment in which we operate.

The auditing function must continue to take on a larger role as a strategic tool for management. This expanded auditing function is an imperative for universities as we confront issues of resource scarcity and institutional complexity.

Transparency and Privacy

Within the public sphere, accountability and transparency are mutually reinforcing values. Indeed, the public increasingly demands both from its institutions.

In California, the right of the public to “access to information concerning the conduct of the people's business” is enshrined in the constitution and expanded in law.

Trustee policy discussions and decisions are public. Individuals or organizations can, and often do, receive thousands of pages of CSU documents, including internal memos, emails, contracts and expense claims through Public Record Act requests.

The CSU’s internal processes have to be strong to survive this kind of scrutiny. Auditing provides a proactive response to the risk of accountability or process failures.
Audit yields a scalpel, where public scandal brings a broad sword.

The flip side of transparency is the CSU’s obligation to protect the privacy rights of our students, faculty and staff.

Unfortunately, protecting privacy is increasingly difficult in a digital age. Recent high profile security breaches at Home Depot, Target and Apple demonstrate this point.

Here again, auditing plays an important role in recommending policies and practices that protect private information.

As public universities, we have an obligation to provide both transparency and privacy. This type of delicate balance lends itself to the expertise and objectivity of internal auditors.
But change requires trust.

Here to Help

Every large organization likely has a version of the story I am about to tell. Since I spoke about jets earlier in this speech, I’ll tell the Air Force version.

A plane carrying the Inspector General landed on the tarmac of a U.S. Air Force base to much fanfare. With a military band playing in the background, the color guard and a line of senior officers stood ready.

The Inspector General descended the stairs from the door of the aircraft to the ground and was met by the Base Commander.

Within moments of their meeting two lies were told.

The first lie came from the Inspector General, saying “I’m here to help.”

The second lie came from the Base Commander, replying “We’re glad to have you.”

This joke, as with Augustine’s Law, holds to an old confrontation model of auditing.
Together, we define a different relationship. Still grounded in the independence and objectivity of the audit function, but directed at a common mission.

We all serve the public good. We all serve our students and the future that they will make possible. And we are all accountable.

In the final analysis, this different relationship will rest in our ability to do the following:

  • measure what we value,
  • not value something simply because it can be measured,
  • align our goals in audit and management to our core mission,
  • and allow flexibility without compromising accountability.

Introduction of Larry Mandel

With that, Gene and I have asked the chief auditors from our respective institutions to join us at the podium to take your questions.

I’ll begin by formally introducing Larry Mandel.

As mentioned earlier, Larry is the vice chancellor and chief audit officer for the 23-campus California State University system.

He provides leadership in the design, analysis and implementation of a comprehensive audit and advisory services program for the CSU system and its auxiliary organizations, whose combined budget is approximately $5 billion.

Additionally, he responds to external audit inquiries.

He represents the CSU in all matters concerning audits and audit resolution with the State Auditor, the State Department of Finance, the State Controller’s Office, and other state and federal agencies.

Larry assumed his current position in March 1997. He has been with the California State University system for 46 years – since April 15, 1968.

I quickly learned after arriving at the CSU that Larry is our unofficial historian, in addition to his formal responsibilities.

Larry has a wealth of knowledge. And he has a passion for the CSU mission… which is appropriate, given his roots in this system as a Cal State Long Beach alumnus.