City College of San Francisco paid Phil Day a huge salary but refused to fund an auditor who may have stopped the illegal diversion of public funds
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Outgoing City College of San Francisco chancellor Phil Day presided over major institutional changes during his decade-long tenure, although he leaves under a cloud of financial scandals involving the misuse of public funds. Now a Guardian review of public records shows the decision to reward Day handsomely and neglect recommended internal auditing controls set the scene for the problems to come.
Day's high-end compensation and accompanying expense account allowed him to live well. His total compensation last year eclipsed that of the heads of 18 other two-year colleges across California surveyed by The Chronicle of Higher Education, which included community colleges for the first time in its 2007 analysis.
Day's earnings totaled $403,441 for the fiscal year ending in 2007 and included $25,448 in retirement pay plus $31,975 in deferred compensation. He received $12,000 to cover housing expenses one of only two chancellors who were awarded the benefit and the state paid $7,200 more for a car.
No one else surveyed from California came close. The runner-up, at Rancho Santiago Community College, made $80,000 less than Day and received nothing for a home or a car. Chui L. Tsang, head of a two-year college in Santa Monica, where the median home value is higher than in San Francisco, received about $30,000 toward housing and automobile expenses but earned a whopping $140,000 less than Day in total compensation.
Darroch Young, former chancellor of the community college district in Los Angeles, which has more students than any other in the country, earned almost $100,000 less than Day, who first joined City College in 1998. Day even made more money than the chancellors at six University of California campuses, including San Diego, Irvine, Davis, and Santa Cruz.
"Raw politics" was how trustee Julio Ramos described it to the Guardian. "The chancellor has had the majority on the Board of Trustees at City College," Ramos said. "Like with any majority, he can dictate the terms of his compensation package."
Trustee Milton Marks, who along with Ramos represents a frequently critical minority on the school's independently elected board, added that the terms of Day's contract were crafted before Marks and others ran for open seats on a reform slate.
As long as the board extended Day's contract each year, it was difficult to slow his salary increases without convincing a majority to start from scratch and reevaluate his performance to determine if his compensation was reasonable. But it's too late for that now. Day is leaving the school March 1 for a new job on the East Coast, but Marks wants the next chancellor to receive increases "that are not so rigidly tied to a formula."
Day's compensation is a small fraction of the school's $375 million budget. But it reflects the district's priorities, and a recently unveiled 232-page internal probe of campaign law violations at the college stemming from a 2005 bond election offers a telling look at how the school has been operated under Day's leadership.
To conduct the investigation, the school hired Steven Churchwell of the multinational law firm DLA Piper, the same group that examined steroids in major-league baseball for former senator George Mitchell. One of first things Churchwell did when he arrived at the school was to search for City College's internal auditor. He soon discovered, however, that the college doesn't have an internal auditor or an audit committee.
"It's very common to have an internal auditor at an entity of this size," Churchwell told the school at a Jan. 24 meeting.
Outside auditors inspect the school's books annually as required by law to make sure it's following the rules of basic money management, a limited review compared to what an internal auditor, working full-time for the district, might check.
The Guardian reviewed the school's annual outside audits going back several years and discovered that each of the reports between 1998 and 2003 advised the school to hire someone to do the job year-round internally.
"Regular internal audits enable timely detection of accounting inconsistencies and deviations from established policies and procedures," the reports state year after year. But each year the inspectors found anew that their recommendations were "not implemented."
Regarding the headline-grabbing mess that began when two school bureaucrats in separate instances illegally diverted public funds to a campaign committee, Churchwell said its causes were mistakes due more to ignorance than knowing attempts to break the law.
"It's almost like lightning striking twice," Churchwell told the school.
But now it appears the storm might have been averted if Day and others in his administration had listened to the school's outside auditors 10 years ago. Churchwell concluded that an internal auditor might have immediately caught election law violations but without one "no one person has a firm grasp on all the accounts that are open, what they are used for, or who can deposit checks into them," leading to a "glaring lack of oversight of the college's involvement in fundraising from college contractors."
Day didn't respond to requests for comment, nor did trustees Lawrence Wong or Anita Grier. But vice chancellor Peter Goldstein argued that the school would set the agenda for an internal auditor, so such a person might focus on how the district reports student attendance or manages financial aid, not necessarily on accounts receivable.
"My response would be that this is a very large and complicated institution from several different perspectives, including the financial one," Goldstein told the Guardian. "While no single person may have a complete understanding of every single account, I believe that we have enough professional staff at the right level with the right background over all the accounts."
It could be that like many bureaucrats, Day is threatened by the possibility of an efficiency expert roaming the school's halls and compromising the administration's control over its bank accounts. But Day complained at the Jan. 24 meeting that City College just didn't have the resources to hire an internal auditor, even though auditors often find enough ways to reduce wasteful spending that they cover their own expense and much more.
Not to mention that if Day had earned as much in compensation as his equivalent in Los Angeles, City College would have had about $100,000 left over for an internal auditor. A district report from 2000 even concluded that an internal auditor at that time would have cost about $105,000.
Two vice chancellors implicated in the election law violations, James Blomquist and Stephen Herman, earned about $200,000 and $170,000 respectively during the 2007 calendar year, compensation figures obtained by the Guardian through a records request.
Blomquist worked as a regular consultant to the school before earning $175,000 his first full year as a City College administrator in 2005. His firm, Blomquist Consultancy, made $401,074 from the college between April 2002 and May 2004, records show.
As for Day, his largest pay increase came after the 2005 bond election, when he was given an 18 percent raise for the 2006 calendar year. He received a 17 percent raise during the year of the 2001 bond election, when the school asked voters for $195 million.
The Chronicle of Higher Ed points out that compensation for community college presidents lags behind what the heads of four-year institutions tend to earn, despite their growing responsibilities, like courting major donors and lobbying legislators. The extreme exception, however, is Day, who last year ranked third nationally in earnings among 68 other community college heads.
"Do I feel guilty at all about being one of the highest-paid college presidents in the country?" Day asked the education rag's surveyors in November 2007. "Absolutely not."
His supporters argue that Day has attracted millions of new dollars from Sacramento to the district, and along with the school's trustees, he helped promote a February ballot initiative designed to ensure that a greater portion of the state's General Fund go toward community colleges. The current formula used by the state for financing two-year schools hinges on how much money is set aside for California's K12 system.
Day also took over a school with crumbling buildings, some constructed in the early 20th century. When Day inherited the more than 90-year-old John Adams Campus in the Haight, its bricks were "falling off the side of the building," he said in a glossy 12-page advertorial the college ran in the San Francisco Chronicle on Dec. 19, 2007.
The school floated two bond measures totaling about $458 million in 2001 and 2005 to complete projects citywide, but the latter was badly rushed. Poor planning and rising construction costs have forced the school to cancel projects promised to voters.
Diana Muñoz-Villanueva, a student representative on the Board of Trustees, said she lives on about $600 per month, "so I know there are ways to survive on less" than what the chancellor makes. But based on his duties, she said, "I think it's fair. I hope to make that much money someday."
Day could nonetheless be taking a substantial pay cut for his new job in Washington DC, at the National Association of Student Financial Aid Administrators. According to its tax forms, the organization's last president, Dallas Martin, who led the nonprofit for more than 30 years, earned about $250,000 during 2006 in pay and benefits.
DAY FLIPS FROM THE FRYING PAN TO THE FIRE
Chancellor Phil Day's departure from City College of San Francisco is not an indication that he's easing into retirement. Instead, he's crossing the country to join a controversy potentially hotter than anything he faced in politically rancorous San Francisco.
Day announced at the end of 2007 that he will be leaving the college in early March to accept the top job at the National Association of Student Financial Aid Administrators, one of the nation's most powerful lobbying groups on issues related to higher education.
But the Washington DC nonprofit has spent the past year mired in a nationwide scandal over how student loan administrators at individual colleges promote certain bank lenders to students in exchange for kickbacks.
Six student loan administrators were fired or resigned and dozens of schools ceased entering into revenue-sharing agreements with lenders following an extensive investigation by New York attorney general Andrew Cuomo.
Several schools agreed to reimburse borrowers i.e., college students millions of dollars as part of a series of settlements with Cuomo's office, which is still investigating how major lenders market their products to needy students.
The organization Day is poised to take over has been suffering embarrassing waves of unwanted attention as a result. Officials from Cuomo's office physically monitored the group's annual convention last July to ensure that corporate sponsors from banking institutions didn't ply student loan administrators with lobster dinners, iPods, DVD players, nighttime parties, or trips to vacation resorts, all types of incentives offered to attendees in the past.
In other cases, school employees in charge of handling student loans simultaneously held thousands of shares of stock in lending companies, earned tens of thousands of dollars in consulting fees from them, and served on their advisory boards.
The Chronicle of Higher Education has followed the investigations closely and quoted a lobbyist in mid-January describing the NASFAA as "radioactive" on Capitol Hill due to the widening tumult. A congressional inquiry led by Sen. Ted Kennedy (D-Mass.) revealed last September that a University of Southern California official accepted Rose Bowl tickets from Citibank, a major national player in student lending.
Aid officials at the University of Texas "were treated to ice cream, lasagna, barbecue, candy bars, popcorn, happy hours, birthday cakes, cookies, and other personal benefits," according to the report.
A spokesperson for the NASFAA refused to comment beyond a statement released following Day's appointment. But Day told the group's members in a recent e-mail that national headlines regarding the kickbacks "have diminished the significance of our contributions," and he hopes to ease the criticism by holding "listening sessions" around the country.
"We need to develop a public relations/marketing and communications offensive that paints a more complete and compelling picture of the difference we can make in students' lives," Day wrote.
The scandal erupted around what are known as preferred lenders lists, which colleges and universities distribute to students struggling to navigate the complex world of school loans, where private banks compete aggressively with direct lending offered by the federal government.
Most students rely on their school's list of preferred lenders to make a decision, so banking institutions do whatever it takes to get their name on those lists (or their logos on school paraphernalia), from showering student-loan bureaucrats with lucrative gifts to exclusively sponsoring athletic departments and alumni associations.
Schools and lenders have promised to abide by a new list of ethics rules, drafted by Cuomo's office in addition to other settlement terms, to regulate their conduct, and to restore faith in financial aid administrators.