More than $2 million was misspent by a Sonoma State social service training program, according to audit results released by the university.
Meanwhile, the state university system is launching its own investigation of the California Institute of Human Services, an academic department at Sonoma State.
The top two officials of the institute were placed on paid leave in February, and Sonoma State has announced plans to shut down the program.
SSU officials said they will have to come up with $2.1 million from the campus budget to cover improper expenditures identified in the audit.
"There will be an impact, but we will try to make it as limited as possible," said Larry Furukawa-Schlereth, the campus vice president for finance and administration.
The issues involve expenditures that cannot be billed to federal agencies that made grants to the institute, and payroll and expenses for which there were no identifiable sources of funding.
Furukawa-Schlereth said the CSU investigation will try to determine what went wrong and who is to blame.
Tony Apollini of Santa Rosa and George Triest of Sebastopol, the institute's top two officials, didn't return calls seeking comment.
Other managers for the 27-year-old institute said they never had an inkling of problems and were stunned by the university's decision to close the program.
"We are accustomed to audits happening all the time," said Linda Blong, a project manager. "Our understanding is the audits had been very positive. Our understanding is the CIHS had had a clean audit record."
The project managers also said they feared the reports of problems with some programs was tarnishing the good work they were doing.
"Over time, we can point to thousands of teachers being trained," said Anne Kuschner, a project manager. "We are the largest employer of students on campus, we do volunteer work in the community, we are adjunct faculty, many of our projects are directly tied to education."
Sonoma State officials say they plan to keep a few of the institute's programs, but they will be transferred to other departments.
Last year, the institute had $20 million in state and federal grants and 125 employees at offices at SSU, in Rohnert Park and at CSU's Channel Islands and San Marcos campuses.
SSU has told managers that most of their programs will be discontinued and issued layoff notices to most of the workers.
That has left them scrambling to find new homes outside the campus to keep their programs going.
"The sponsor would not expect any less from us. The people expect us to keep the work going for them," said Blong, whose state Department of Education-funded program deals with special education.
The audit was launched in February after internal oversight of the institute turned up what might be questionable practices in three federal grant programs, which have $8 million in funding, Furukawa-Schlereth said.
In that audit, it was determined that $1.1 million in costs would be disallowed by the federal government, and $520,000 in payroll and $200,000 in expenses, such as supplies and travel, had no identifiable source of funding.
Other accounting issues, including the need to borrow money to cover some unfunded costs, brought the total to $2.1 million.
To make up the loss, Furukawa-Schlereth said the university, which has an annual budget of $145 million, will have to borrow from pots of money the university uses for such things as housing and parking, or from the CSU system.