“Ratings were changed, there’s language that was deleted. That’s where we reached the conclusion that there was interference,” Howle said.

Lawmakers like Assemblyman Miguel Santiago (D-Los Angeles) questioned whether there should be more investigations.

"When I look at this I think, 'Holy cow manure! I can't believe this is happening,' " he said.

When it came time for lawmakers to ask Napolitano questions, she admitted her office made a big mistake.

“It is clear in retrospect that we could have handled this better,” Napolitano said. “I am sorry that we did it this way because it has created the wrong impression and detracted from the important fact that we accept the recommendation from the audit report.”

Napolitano said there was nothing nefarious about her office's intentions, and that her office interfered because campus leaders didn’t understand the purpose of the audit.

As for the $175 million set aside, Napolitano said it's intended for important UC initiatives like developing a new medical school, among other things. Napolitano said $38 million of the $175 million in the spotlight is a reserve.

Even so, lawmakers are now considering whether they should manage the state funding flowing into the UC’s president’s office, a move that would completely change the way UC operates.

The UC Board of Regents in January voted to increase in-state tuition and fees by $336 next academic year. Some lawmakers called for a reversal of the tuition hike in the wake of the audit.

"They are not putting California students and families first, particularly with their budget," said Assemblywoman Catharine Baker, a Republican from Dublin in Alameda County.

"This is unbelievable for an institution that has in its hands the education of California students and hundreds of millions of dollars in taxpayer money and student fees," she said.

This post includes reporting from The Associated Press.