An escalating controversy involving a university foundation that hired Sarah Palin to give a speech has shed light on legal loopholes that allow such auxiliary organizations to operate with little public oversight.
The state attorney general's office announced Tuesday it would investigate California State University, Stanislaus and its foundation for their handling of a contract related to the speech scheduled in June by Palin.
The investigation has sparked a new round of calls for greater transparency and financial accountability in organizations embedded within California's public universities, particularly given the size of their assets.
"Prudent financial stewardship is crucial at a time in which universities face vastly decreased state funding and increased student fees," Attorney General Jerry Brown said while announcing his investigation.
Students said they found part of the contract with Palin in a university trash bin after a state lawmaker had formally requested records related to Palin's appearance.
The university told state Sen. Leland Yee, D-San Francisco, it did not have any documents related to the speech and said it had referred the matter to Matt Swanson, board president of the California State University, Stanislaus Foundation.
Swanson sent letters to Yee and The Associated Press stating that Palin's contract had a nondisclosure clause. He also said university foundations and other auxiliary organizations were not subject to the same public records requirements as the university itself.
Swanson has not responded to requests for comment on the investigation. He has said the Palin event would be funded entirely by private donations.
Geoff O'Neill, the University of California vice president for institutional advancement, called the investigation at CSU Stanislaus and related allegations regrettable.
"It's unfortunate if these types of activities result in a lack of confidence in university or college foundations," he said. "Here at UC, they really are instrumental in helping us raise significant sums of private support."
Foundations at each of the 10 University of California campuses control assets totaling nearly $4 billion, according to an independent audit commissioned by the university. By comparison, UC received $2.6 billion in state general funds this year, the state budget office says.
The 93 auxiliary bodies and foundations at California State University campuses control $1.34 billion, according to the CSU chancellor's office.
In 2009, CSU spent 40 percent of the money raised by its auxiliary organizations — or $570 million — on instruction, research and academic support, according to Lori Redfearn, CSU's assistant vice chancellor for advancement services. The rest was used to fund other campus services, including $41 million for scholarships, she said.
"Our auxiliaries play a vital role in making sure we can provide the best educational experience possible for our students," Redfearn said. "We hope a particular incident doesn't overshadow all the vital work these organizations are doing."
The nonprofit university foundations, which raise money to supplement student fees and state funds, are subject to university oversight and provide regular financial reports to campus leadership.
The UC Committee on Investments reviews foundation finances on a quarterly basis, while CSU auxiliary organizations present their budgets annually to the president's office at their respective campuses.
One court ruling said foundations were not bound by the same public disclosure requirements as universities.
In the 2001 case involving Fresno State University, a state appeals court ruled that auxiliary associations were not subject to the California Public Records Act because the act offers only a limited definition of what constitutes a public body.
Lawmakers and the union representing college professors have criticized the loophole, saying it has allowed foundations to escape proper scrutiny.
Last July, the California Faculty Association sent a letter to Brown asking him to investigate allegations of mismanaged donations. Those included more than $9.6 million in loans made by a Sonoma State University foundation to a former board member — the first payment coming two days after he resigned in 1995.
In October, Brown's office informed the foundation it was conducting an audit.
"There has been an explosion of these very private — one could almost say secretive — foundations," California Faculty Association president Lillian Taiz said Wednesday. "I don't know that there are problems at all of them, but incidents seem to crop up almost monthly."
Brown, a candidate for governor, said he would seek to determine whether the CSU Stanislaus Foundation, which has assets of more than $20 million, is spending its money to benefit the university. Brown said the investigation has nothing to do with Palin herself.
Under terms of the contract, Palin will be provided a deluxe hotel suite and two other rooms, first-class air travel from Alaska, and bendable straws to accompany water bottles placed at her lectern.
Brown said he was primarily concerned with ensuring that no foundation money is wasted or misspent.
Yee has sponsored legislation that would require campus foundations and auxiliary organizations to adhere to public records requirements. The measure passed the Senate in January and awaits an Assembly hearing.
Yee has argued that there is often significant overlap between universities and their foundation arms, and that both should be subject to the same disclosure requirements.
In the case of CSU Stanislaus, all but one member of the foundation's staff and several officers from its board are university employees, and the foundation conducts its board meetings and day-to-day operations on the main university campus.
"There is not a fine line or even a blurry line between the foundation and the public university; there is absolutely no line," Yee said.
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