Audit committee meets to discuss business practices, comprehensive review

Financial accountability concerns dominated discussion when the
University of California Board of Regents audit committee met last
week at UCLA.

New committee chairman Alfredo Terrazas called the meeting a
“brainstorming session” ““ committee members
looked for ways to preserve honesty and efficiency in the
UC’s internal and external audit policies. They also
discussed the recent state audit and comprehensive review, the
UC’s new admissions policy.

Current upheavals in the accounting world gave regents much to
talk about, though the meeting was not scheduled in response to
specific problems.

“It’s fortuitous that the meeting came about in
today’s climate,” said Terrazas.

Discussions on the internal audit hinged on procedure.

Regent Ward Connerly wanted to make sure university auditors
were primarily responsible to the regents, not the UC
administration.

Under the dual reporting system, campus auditors report to
chancellors and the UC auditor, who is responsible to the audit
committee and the Sr. V.P. of business and finance.

UC Auditor Patrick Reed defended dual reporting but agreed that
auditors should answer to the regents.

“I’m open to anything to further that perception
with the auditors,” he said.

Edwin Pierce, director of audit and advisory services at UCLA,
said dual reporting aids efficiency.

“The dual reporting relationship gives us enormous
flexibility to deal with issues at the local level,” he
said.

Regent Judith Hopkinson said she had several questions on the
internal audit, and suggested the committee hire a consultant to
evaluate the procedure.

In addition to procedure, the committee should also address
ethics, she said.

Discussion on the external audit was haunted by recent
accounting scandals in corporate America.

To prevent conflicts of interest, Regent Haim Saban proposed the
UC not allow outside auditors to give advice on any area of
university business.

Regent John Moores voiced agreement with Saban’s idea,
which the committee called a “firewall,” though he
wondered if it was practical.

“I think Haim’s suggestion … is very desirable,
but I question whether in today’s world if it’s
doable,” he said.

If accounting firms continue to collapse, there may not be
enough companies left to maintain a firewall, he said.

Moores is not isolated from what he called the “absolute
chaos” in the accounting world. He has been named in some of
several shareholders lawsuits filed against Peregrine Systems, a
company chaired by Moores from 1990 to 2000. Moores returned as
chair last May ““ one month after the firm fired Arthur
Anderson and new auditors KPMG discovered accounting problems that
may total as much as $100 million.

The committee held brief talks on the recent state audit that
found administrative costs outpaced academic costs during the first
two years of the university’s partnership agreement with Gov.
Gray Davis.

The UC believes the audit shows more successes than problems,
but plans to make changes based on the report.

University administration has asked each campus to report
management expansions during the period audited, said Larry
Hershman, VP of budget, who participated via telephone.

The university plans budget cuts at both the Office of the
President and at the campus levels, he said.

The committee also discussed comprehensive review, a new
admissions policy that considers personal challenges and life
experiences alongside academic achievement.

A high degree of subjectivity, coupled with a lack of
transparency, could pose a problem for admissions, Moores said.

He suggested that an audit could improve the policy.

“Comprehensive review’s going to be around as long
as we are, I just want to know which parts of it work well,”
he said.

With more questions than answers arising at the meeting, the
committee decided to meet again Friday, Sept. 19, one day after the
next scheduled regents meeting.

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