UC Berkeley--one of the top universities in the nation, home to some of the finest professors, graduating some of the brightest students--can’t figure out how to save money. No joke. UC Berkeley spent $3 million plus expenses to hire an out-of-state auditing firm to help them find ways to reduce spending.
According to the Contra Costa Times, October 10, 2009, “When UC Berkeley Chancellor Robert Birgeneau ($500,000 salary) was confronted with the $150 million challenge, he gave the matter deep thought, turned his focus eastward to the Boston-based consulting firm Bain & Co. and agreed to pay a $3 million budget (actual cost $7.2 million and growing) over the next two years for someone else to solve the problem.
“We [the Times] never attended business school, but we’re pretty sure that one of the definitions of financial crisis is spending $3 million on consultants to tell you how to get by with $150 million less than you thought you had.”
The rationale for hiring the consulting firm given by Vice Chancellor Frank Yeary: “I understand at one level, … if you don’t have enough money, why are you spending money on external consultants? Most people who are closer to it say it’s more sophisticated than that.
“If we spend $1.5 million this year and $1.5 million out of savings next year and we’re successful in delivering tens of millions of dollars in savings every year, I think that’s the goal against which we should be judged.”
Incredible! Millions of dollars could have been saved just by using the expertise on UC campuses. The system has, for example, multiple senior administrators with Ph.D.s who are getting nice paychecks for their expertise, the Budget Office staff gets paid to solve budget problems, and the renowned Haas School of Business has a world class lineup of business experts and graduate programs in financial engineering, global management, accounting, financing, and operations management.
Moreover, the funds used to pay the high cost of hiring outside consultants could have been used to make up for state budget cuts, student fee increases, furloughs and layoffs.
But, according to Vice Chancellor Frank Yeary, “The reason for not relying on internal experts is that self-diagnosis is not always impartial.”
If this is the reasoning by UC Berkeley decision makers, it is no wonder they are in a fiscal crisis. If the university system can’t trust its internal audits, maybe it is time for outside auditors to make all the university’s financial decisions. Those decisions might be based on more practical thinking than those made by the current university leadership.