The audit found President Janet Napolitano's office had stashed a secret $175 million dollar fund and took part in misleading budget practices and extravagant spending.
Auditors concluded Napolitano's office hid the money at the same time UC regents were voting to raise student tuition for the first time in six years.
RELATED: Read the entire UC Audit report here
One democratic assemblywoman is calling for Napolitano to resign.
UC regents are expected to hire a consultant to review the discoveries.
Budget holds universities' 'feet to the fire'
California Gov. Jerry Brown says he's withholding $50 million from the University of California's budget to "hold their feet to the fire."
#BREAKING #OnlyOn7 @UofCalifornia Pres. #JanetNapolitano on alleged audit interference: "There was no nefarious or inappropriate intent." pic.twitter.com/JxOviXDSLM
— Laura Anthony (@LauraAnthony7) May 11, 2017
He says his revised budget released Thursday withholds the money until the UC system accepts changes in a recent critical state audit.
Auditors found the system hid tens of millions of dollars in reserve accounts and overpaid administrators.
RELATED: UC president questioned about budget in Sacramento
Brown says he wants more transparency and financial reporting from the system. He also criticized administrators' salaries as being too high.
The state auditor was particularly critical of UC President Janet Napolitano, who has disputed auditors' findings.
Auditors say Napolitano's office altered campuses' responses that were critical of her office.
"Yeah, it looked like that but in the end, the issue was to make sure the answers were accurate, within the scope of the audit, and they reflected the views of campus leadership," said Napolitano.
.@GavinNewsom on allegation @UofCalifornia #JanetNapolitano staff interfered with audit: "That's inexcusable...no way you can spin that." pic.twitter.com/YFcXmiqK3y
— Laura Anthony (@LauraAnthony7) May 11, 2017
But Brown defended her, saying the governing Board of Regents and others generally think she is doing a good job.
"There's right and wrong. That was wrong. So if there's anything I want to hear, it's not just I'm sorry or it wasn't as bad as you thought," said Lieutenant Governor Gavin Newsom.
Newsom was among the regents who voted unanimously via statewide teleconference to hire an outside consultant to specifically investigate the tampering allegations.
#ONLYON7 @UofCalifornia Pres. #JanetNapolitano on audit tampering allegations: "I've regretted the way my office dealt with the surveys." pic.twitter.com/PEh3vW48va
— Laura Anthony (@LauraAnthony7) May 11, 2017
"We've got to do a better job governing this institution, to make sure the UC system thrives and not just survives," said Newsom.
The regents plan to select an independent investigator in the coming weeks, with a final report done by July.
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The Associated Press contributed to this report.