A Brief History of the Rise and Fall
of the California Institute on Human Services
Summary
The following pages present a brief history of business operations at the
California Institute on Human Services (CIHS). It questions how these operations
were separate from the University’s Division of Administration and Finance
wherein CIHS fiscal and personnel services were housed; it questions where the
fault lies in the current investigation into CIHS’s operation and why the
University took such drastic action in the first place. It suggests that getting
access to CIHS’s assets was a driving factor, as it has been in the management of
grants and contracts since their transition to A&F from the Foundation in 2000.
Sources are given parenthetically or within the text; many additional sources are
available from which a more detailed history could be developed.
History
The California Institute on Human Services (CIHS) was founded in 1979
by Tony Apolloni. He began with a team of seven, three grants, and a mission to
improve educational and related services for young children and adults with
disabilities. Twenty-five years later, CIHS had grown to 125 employees with an
annual budget of over $22 million dollars and over 100 active projects. In late
2005, Ruben Arminana wrote: “SSU is proud of CIHS because of the outstanding
quality of its work in the local community, across the state, and throughout the
nation. This large-scale effort epitomizes one important way that public higher
education contributes to the overall betterment of society” (CIHS Annual Report
04-05). On 12 February 2007, Tony Apolloni and George Triest, CIHS Managing
Director, were escorted off campus and accused by the administration of
mishandling funds. Six weeks later, SSU closed CIHS because although “the
work is quite noble,” according to Larry Furukawa-Schlereth, it did not make a
“strong contribution to curriculum”—it was not part of the mission (Press
Democrat: 15 February 2007; 5, 19 April 2007). Many are asking, How could this
happen? But perhaps it is more important to ask, What did actually happen? The
answer will take going back to the beginning.
For the first 20 years, CIHS operated under the umbrella of the Sonoma
State University Academic Foundation. At that time the Foundation housed the
grant and contract program. It arranged for financial accounting and reporting,
payroll, personnel, purchasing, contracting and receiving all grant and contract
programs. Academically, CIHS was attached to the School of Social Sciences
with Director Apolloni reporting to the Dean of the School.
Ruben Arminana arrived at SSU in 1992 and quickly made development a
top priority. In December 1995 the Foundation Board of Directors decided to
transition the contract/grant operations from the Foundation to either Sonoma
State Enterprises or the University itself in “an effort to focus the activities and
emphasis of the Foundation to that of a pure development, fundraising activity.”
The Board, under Dr. Arminana’s chairmanship, expressed concern that the
assets of the endowment could be “endangered” by the contract/grant operations
(SSUAF Board of Director’s Minutes, 19 December 1995).
In February 1997, Administration and Finance (A&F) circulated a “Grants
and Contracts Fiscal Transition Study” by Yolanda Nunez for comment. It
brought up two potential problems that have come to haunt SSU—cash flow and
employee benefits—but nevertheless recommended that grants and contracts be
moved to the University’s Special Projects Fund within A&F.
CIHS was a “self-support center,” meaning that it developed and
managed its projects and personnel in-house. This required administrative
staff—a director, accountants, office managers, and administrative assistants. As
personnel not assigned to specific projects, these individuals were paid out of the
indirect costs (IDC) developed by the Institute’s projects. The Foundation
returned 50 percent of CIHS’s IDC to the Institute for this purpose and kept the
remainder for the Foundation’s share of administrative costs. The IDC shareback
was distributed on a regular, predictable schedule.
By January 2000 only a few contracts/grants remained within the
Foundation and all employees had been moved stateside. The Director of CIHS
was now reporting to the Provost. Pre-award activities remained in the Office of
Sponsored Programs, but post-award came under the domain of A&F. SSU
formally established a grants and contracts policy in December 2003 that states:
“The Associate Vice President for Administration and Finance has been
delegated responsibility for post-award activities by the Vice President for
Administration and Finance and Chief Financial Officer under the authority of
CSU Executive Order 890” (SSU Policy #2003-2, online). In spite of this authority
and responsibility, A&F failed to develop a set of written policies and procedures
required for effective post-award practice. Under Apolloni’s leadership, the
Office of Research and Sponsored Programs (ORSP) developed the full range of
pre-award policies required by the Chancellor, and in the period 2000 to 2007,
Apolloni presented at least a half dozen elaborate plans for equitably allocating
IDC across all units administering grants and contracts, each of which called for
A&F to (in the words of SSU’s current draft strategic plan), “develop a sound
organizational and cost structure” to make this a strong grants program. (for
example, “Post-Awards Management of Grants and Sponsored Programs at
Sonoma State University: Rationale and Recommended Approach for a Unitary
System,” 28 January 2000). Each of these plans was dismissed by the CFO.
With the transition to A&F came a host of new costs: Common
Management Systems (CMS), technology reimbursement, facility
reimbursement, utilities reimbursement, Foundation fee (to manage
endowment), and an ever-increasing number of designated employees within
A&F. In addition the grants and contract “working capital reserve
(approximately $600,000)” had been spent “for other high priority items within
Academic Affairs during the prior fiscal periods,” so it was also necessary to
fund cash flow. These new charges put the grant and contract program in deficit
from the beginning (projected to be $80,000 in FY 2000-2001) (Handout from A&F
for meeting in the Fall of 2000).
Developing a larger volume of projects with higher IDC seemed to be a
way to alleviate the deficit. So Apolloni, as the new VP for Research and
Sponsored Programs, made this a priority. Between FY00-01 and FY04-05, grant
and contracts total volume grew by 45 percent (from $23 to $33 million); and
because the IDC rate also went up, the total IDC coming to SSU rose by 79
percent (from $1.9 to $3.4 million) (Special Projects Summary June 2005). Costs
within A&F, however, outpaced the growth of IDC and there was still not
enough IDC to cover the new assessments.
Once accounts were moved stateside from the Foundation, A&F began
exercising oversight and direction of CIHS business practices, including review
of supporting documentation for labor cost distribution and subcontracting. In a
memo dated 2 February 2005, the SSU Controller stated that A&F “is establishing
the following common business practice for all Special Project Funds.” One of the
practices is that “Billings will be prepared by cost centers (such as CIHS) in the
financial billing module and supporting documentation will be reviewed by
grant accounting (in A&F). Upon grant accounting approval, cost centers may
print and mail invoices. Collection will be a coordinated effort.”
A&F stopped the shareback practice of the Foundation and set up a new
formula by which costs reimbursed to A&F took precedence over those
distributed to CIHS. In other words , costs for A&F staff, working capital (paid to
the Foundation), CMS, technology, facilities, utilities, space rental, and allocation
to the President ($75,000 in 05-06), came before the costs for administration
within CIHS. If there were insufficient funds to cover the former, the latter
would not be distributed.
In February 2006, it became clear that despite the projected $3.2 million in
IDC, the grant and contract IDC cost recovery budget would be short over
$500,000, due to charges developed in and benefiting A&F (FY 05-06 Projected
Expenditure Plan).
In April 2006, Apolloni distributed a position paper titled “ORSP
Perspective on the Allocation of IDC at Sonoma State University.” It warned that
“the current allocation distributes a disproportionate share of IDC revenue to
university-wide costs while failing to recognize the essential pre- and post-award
functions” performed elsewhere. It called for SSU to support the full range of
pre- and post-award needed to effectively administer grants and contracts in
compliance with SSU, CSU, and funder requirements. “Not doing so puts the
University at risk of non-compliance,” he wrote. The paper made a case that at
least 50 percent of the IDC budget should be returned to units outside of A&F, to
the units that produce and administer grants. The paper ended with
recommendations including: “If SSU cannot provide appropriate support to
CIHS it should consider transitioning it to another IHE if one can be found that is
interested. Given the financial challenges facing SSU and the fact that CIHS is
considered by the CFO to need a cross-subsidy to survive, it may no longer be in
the University’s and CIHS’ best interest for CIHS to be located at SSU. There may
be other IHEs or state-sponsored organizations that would be willing to
incorporate CIHS. Now may be the time to develop and implement an 18 to 36
month plan for transitioning CIHS out of SSU.”
In September 2006, SSU received a bill from the Chancellor’s Office (CO)
for post-retirement health care benefits related to Special Project accounts, which
is where the grants and contracts program is housed. Because SSU had moved all
of its grants and contracts out of the Foundation (in contrast to other CSUs that
didn’t) and because of the large volume of recent activity, the amount assessed to
SSU was second only to San Francisco State (letter from George V. Ashkar, Office
of the Chancellor, 14 September 2006). (The methodology to determine the figure
is currently being questioned by the CO and it is expected that the final cost will
go down.)
Larry Furukawa-Schlereth sent out an email on “Grants and Contracts
Direction” on 16 November 2006. He directed that “Pro-Rata Post-Retirement
Health Care benefits for CIHS should be charged to the CIHS fund balance. This
will cause CIHS’s fund balance net of resources needed to finance CIHS contracts
that are not signed, to fall to a negative $368,443.” He further stated that the IDC
shareback to CIHS for 05-06 and 06-07 would not be distributed, essentially
bankrupting the Institute. At this time, CIHS had received no shareback to fund
the program’s administration since July 2005.
Shortly thereafter, Apolloni announced to the President, Provost, and
CFO, among others, that he would be retiring within a year and that given the
circumstances on campus it would be best for CIHS project managers to find
other homes for their projects. Everyone agreed and Apolloni actively worked
with the project managers to accomplish the move.
Still with no IDC to pay for his position, Apolloni informed the Provost on
2 February 2007 that he would be retiring on June 30, if not sooner, but would
work as a volunteer to help transition CIHS projects to other funders. This
information was relayed to the Dean’s Council on February 6 and to
management in A&F on February 8. On February 12, Apolloni and Triest, who
had also announced his plans to retire, were placed on administrative leave.
Shortly thereafter CIHS was closed
So why would the SSU administration make such a bold and dangerous
move? Was there something so wrong within CIHS that it couldn’t have been
remedied in-house? Did careers need to be ruined, jobs lost, and SSU
embarrassed? Hopefully, time will tell. But in the meantime, one has to consider
the following:
 CIHS did not receive its shareback for 20 months. Over $2 million in
shareback was owed to CIHS for the period July 2005 to March 2007
(Special Projects Summary, June 2005 and December 2006). A&F did,
in fact, distribute $467,562 in shareback to CIHS in March 2007 after
A&F took it over (CMS Journal Entry).
 Now the campus is being presented a bill for $2,120,000 by A&F for
funds allegedly misspent within CIHS before the audit results have
actually identified a single disallowance. This sum includes costs to
perform the audit and to fund cash flow because A&F has been unable
to keep up with invoicing CIHS’s clients (SSU President’s Advisory
Committee, 17 April 2007).

And there are already instructions to find an additional $1,000,000 for
other associated costs (SSU President’s Advisory Committee, 17 April
2007). As always, the “costs” aren’t substantiated.
A&F would appear to be reaping $5 million from a program that was on
the brink of leaving the campus and thereby embarrassing the administration.
The CFO says that he did not know Apolloni was paid by IDC. The Provost says
he did not know that CIHS was in financial trouble. The record shows them both
to have selective memories. Why are they engaging in this deception? If it was
simply a matter of CIHS mishandling funds, we question if the administration
would be providing misinformation or hiding behind phrases such as, “given the
ongoing investigations that are underway related to CIHS, I am afraid I cannot
comment on these matters at this time.” How high the investigation will go and
who is ultimately found responsible remain to be seen. Whether mismanagment
occurred at the highest levels of the University’s administration or whether for
whatever reason A&F managers set out to destroy one of the most reputable
grant-funded human service operations in the state cannot be determined at this
juncture. But , most certainly, there is much to be found that is very troubling in
the handling of this matter by SSU.