Regents disclose meeting with auditors

Monday, February 10, 1997

FINANCES:

Administrators admit to violating Open Meeting Act in order to
settle accounting errorsBy Tiffany Lauter

Daily Bruin Contributor

University administrators released late last week the 22-page
transcript of an illegal closed meeting held by UC Regents on Nov.
14, 1996, nearly three months after Student Regent Jess Bravin blew
the whistle on the meeting.

In the secret session, regents and representatives from the
auditing firm Deloitte & Touche met to discuss millions of
dollars in accounting errors that may have distorted the financial
livelihood of some UC medical centers.

According to university officials, the meeting violated the
Bagley-Keene Open Meeting Act by discussing information which could
have affected the vote on the UC San Francisco-Stanford medical
school merger in private.

No criminal wrongdoing was alleged after the university admitted
to the mistake. UC administrators said that the errors were settled
before closing the books for 1996.

But questions on the management of funds at the university’s
medical schools still linger.

Rich Fineberg, one of the auditors, said he feels there are very
serious concerns about the accounting and financial controls at the
University of California.

"These concerns arise principally from the $100 million of
adjustments that were made to the financial statement, major
processes like physician billings that just don’t work well, and an
(inefficient) organizational structure at the university," Fineberg
said.

The largest bookkeeping error was $70 million due to overstating
physician billings to insurance companies.

Auditors also found a $7.5 million error in the calculation of
interest on a lease, and an unbooked charge of approximately $13
million.

The bulk of the closed meeting focused on these adjustments, and
more specifically on the question of whether or not the medical
centers’ reserve funds were created intentionally to underreport
their profits.

According to Ken Weixel, an auditor with Deloitte & Touche,
three of the five medical centers had general reserves mostly in
the area of Medicare reimbursement.

"Our concern is not that these reserves exist, but rather the
attitude that management demonstrated when it came to defending the
reserves," Weixel said.

"(The) management needs to be more disciplined about monitoring
the level of these reserves, and more importantly, about not
building them up just to avoid reporting larger bottom lines in
these medical centers."

Many of the adjustments made could not be adequately justified
by the medical centers’ management, Weixel said. Some adjustments
"…really just made no sense and were not appropriate," he
added.

"The process was very inefficient and was clearly motivated by a
strong desire on the part of management to not impact the
previously reported bottom line," Weixel continued.

Critics of the merger between the UC San Francisco and Stanford
University medical centers have accused the UC Regents of
concealing this budgetary information to secure the vote which
finalized the deal.

Such critics assert that withholding such information allowed
the Regents to present the UC San Francisco Medical Center as one
in poor financial health, in need of the merger to secure its
survival.

According to Bravin, 10 minutes into the secret session he
quietly voiced his concern to Deputy General Council Lundberg that
the meeting violated state open-meeting laws.

Lundberg did not take any action. Ten minutes later Bravin went
back to Lundberg with the same complaint, but still no action was
taken.

Later in the session, Bravin wrote a note to President Richard
Atkinson about his concerns. Atkinson then passed the note to
Lundberg, who finally intervened on the grounds that the meeting
was straying from its intended subject of "matters related to
personnel."

"It was not just ‘a little bit away,’ it was on a different
continent," Bravin said.

According to the Bagley-Keene Act, public boards can hold
sessions closed to the public if the meeting’s purpose is to
discuss appointments, employment, performance or other
employee-related business.

UC spokesman Terry Colvin said Bravin’s claim was correct, and
the closed meeting was deemed an illegal violation of the
Bagley-Keene Act, as determined by UC General Counsel James
Holst.

Holst, who typically polices closed sessions, called the meeting
"an honest mistake and misunderstanding." Lundberg attended in
Holst’s illness-related absence.

Holst was unavailable for comment.

If the act is breached, the criminal statute is a misdemeanor
and a punishment of one year in jail and a fine. But more
importantly, the penalty is in the spirit of keeping public
information public, which Bravin felt was violated by the closed
session.

"Realistically, I hope the board takes these laws seriously,"
Bravin said. "It didn’t occur to anyone else in that room that it
should have been a public meeting."