BILL REQ. #:  H-3313.1 

Read first time 01/15/14.   Referred to Committee on Higher Education.

     AN ACT Relating to the audit of the state universities; creating new sections; and providing an expiration date.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION.  Sec. 1   The legislature recognizes the historical financial hardship being placed on students and the chilling effect high tuition places on prospective students. The legislature finds that in order to evaluate and appropriate public resources in a manner that best supports and promotes equity of access to higher education, it needs complete information regarding the financial situation and circumstances of Washington state's public research universities, the University of Washington and Washington State University. Therefore, the legislature intends to direct a comprehensive audit of the public research universities to identify sources that contribute funding to undergraduate instruction, the uses made of tuition and fees required of undergraduate students, and the universities' expenditures on undergraduate instruction and direct support for undergraduate instruction.

NEW SECTION.  Sec. 2   (1) The state auditor shall conduct a comprehensive financial audit of Washington's state universities. The purpose of the audit is to identify cost and profit centers within, and in partnership with, the state universities. The audit must focus on public funds; student fees, in particular tuition; and auxiliary enterprises, which for the purposes of the audit at the University of Washington includes University of Washington medical center, the internal lending program, the W fund, and the center for commercialization. The audit at each university must achieve the following:
     (a) Identify the major sources of funding over the most recent five years, including public funding and funding from the federal government;
     (b) Review and evaluate the policies and practices that the university uses to track and allocate public funding;
     (c) Determine how the university spent its state appropriations, student fees, federal grant funding, and any inflationary increases in federal grant funding;
     (d) Review and evaluate the procedures and practices used by the university to track and adjust nonsalary expenditure categories such as travel, consultants, entertainment, and general supplies;
     (e) Identify how the university defines restricted funds and determine for each type of public funding the amount that is restricted to specific purposes by the funding source;
     (f) Assess the university's policies and practices for tracking per-student expenditures for instruction and identify the average amount per student that the university has spent on instruction for undergraduate students in each of the past five fiscal years;
     (g) Obtain the university's definition of auxiliary enterprises and determine the number of auxiliary enterprises, including the University of Washington medical center, the University of Washington internal lending program, the W fund, and the center for commercialization, that exist in the university system, the methods the university uses to track revenues and expenditures of auxiliary enterprises, and the policies and practices the university has in place to ensure that state funding is not used to supplement or guarantee projects or programs authorized by auxiliary enterprises;
     (h) Identify how much money is being spent per student on undergraduate education and to what extent undergraduate education is subsidizing graduate education. In determining the per student costs of undergraduate education, the state auditor shall use the December 15, 2007, methodology for the cost of undergraduate education at a research university, devised by professor Charles Schwartz; and
     (i) Determine how tuition funds and fees required of undergraduate students are being used and to what extent they are being used to fund the University of Washington medical center, the University of Washington internal lending program, research and research administration, the W fund, and the center for commercialization and to back bonds authorized by the university.
     (2) Any work performed by the state auditor's office shall not duplicate existing audits, and where applicable, shall make maximum use of existing audit records, accreditation reviews, and performance measures required by the office of financial management and nationally or regionally recognized accreditation organizations including accreditation of hospitals licensed under chapter 70.41 RCW and ambulatory care facilities.
     (3) By January 1, 2015, the state auditor shall deliver the comprehensive financial audit of the state universities to the governor and relevant committees of the legislature. The state auditor shall recommend whether follow-up audits are necessary to ensure the effective use of public funds, student fees, and auxiliary enterprises.
     (4) This section expires July 1, 2015.

NEW SECTION.  Sec. 3   By December 1, 2014, the University of Washington shall provide the legislature with the following:
     (1) Verifiable and accurate documentation to support the state, federal, and private funds spent by the center for commercialization between July 1, 2008, and June 30, 2014, and provide an accounting of the impact of those expenditures in terms of the date of first commercial sale or use of new products based on intellectual property licensed from the university, whether any such products are manufactured in Washington state, new jobs directly created in Washington state, and income received from intellectual property licensed during the reporting period in this subsection, with an accounting of costs incurred by the center for commercialization in the management of intellectual property during the reporting period in this subsection;
     (2) The capitalization history of the University of Washington internal lending program;
     (3) For the W fund, the allocation of state funds to private, for-profit companies, including W Fund Management, LLC and the W Fund LP;
     (4) An accounting of the use of income received by the University of Washington from the Washington research foundation between July 1, 2008, and June 30, 2014, as the University of Washington's share of the royalties on the inventions known as the Hall patents; and
     (5) An accounting of the use of funding provided for renovation and remodeling of Fluke Hall.