HUMANE
Heads of University Management & Administration
Network in Europe
Seminar
“Finance and Funding”
Università degli Studi di Firenze
24-25 March
2000
Participants received a warm welcome from Professor Blasi, Rector of the University. Referring to the previous year’s Bologna Declaration, he noted a movement towards common activity throughout Europe in both teaching and research, and saw immense benefit in bringing together administrators to consider both the differences and the similarities between national systems. HUMANE was thus very important in fostering reciprocal knowledge and exchanges.
Roddy
Begg thanked Professor Blasi on behalf of the network. This, he calculated, was its twenty-first
meeting and it had not only come of age but had also returned to the land of
its birth, since the first Round Table meeting was held in Milan!
Gaetano
Serafino, the local host, added his own words of welcome. Pointing out that the University had been
founded as early as 1321 before being banished to Pisa in 1472 as a result of
troublesome students, he noted present-day aims to move to a more horizontal
structure, using a customer satisfaction model. He felt that the learning
society relied on exchanges such as those offered by HUMANE.
Resource Allocation and Accountability
Peter’s
talk set the notion of accountability in the context of social and governmental
concerns, using the University of Lund as an example of how one university had
come to terms with the requirements of financial accountability. The University had some 32,000 undergraduate
students and 5,800 staff, and with an annual budget of 500 million euros it was
the largest in Sweden and probably in all the Nordic countries.
Peter suggested several
factors to justify the claim that accountability was now a key concept:
·
Increasing competition between
universities
·
Political mistrust of
universities’ ability to prioritise in the context of change
·
More financial
dependence on external funding
The
demand was now for more (and better qualified) graduates, and at the same time
for more research and more outputs generally.
Government, industry, students, and public opinion were all interested
in more accountable behaviour. The
external image of universities was now vitally important. It was better for
universities to take the lead than to allow government or the press to set the
agenda. Moreover, it was not always
clear that governments knew what they really wanted - although the State
provided 60% of funding for HE it was not clear that ministers understood the
true situation or needs. In Peter’s view the pressure to find non-governmental
funds led to success by the most entrepreneurial staff, who were not always the
best researchers. And above all, there
was the issue of quality versus quantity: universities wanted and tried
to raise quality, while government agencies tended to put the emphasis on
quantity.
Having thus dealt with government allocation of
resources he turned to the internal allocation. He posed various
questions. To whom were universities
accountable in this area (Government? Collegiate pressures? Students? Public
opinion? University Leadership?) Should
allocation of resources be based on results?
If so, which results? The
government tended to aim for minimum staandards or number, with a certain level
of funding for each student. The
University had to decide whether to bring in qualitative measures, and if so,
how.
Peter answers based on experience in Lund. For example, the university had put money
into a process of internal audit. With regard to the advantages and disadvantages
of using indicators as a base he showed how each Faculty had target number of
fte students, and a productivity target based on study goals. Generally Lund had adopted a goal-oriented
system rather than a rule-based system. But within all these decisions there
was the need for balancing the distribution of responsibilities within the
University (Vice-chancellor - Faculties – Departments). Lund is very decentralised, and
Faculties have a major role in decisions.
Budget-setting is therefore based on a political process, and the
challenge is to organise a budget-setting process in which individuals accept
responsibility rather than passing it to “the system”. Lund had therefore put
less emphasis on the actual budget for the year, and more on the follow-up
process of analysing the results of the previous year. This was a formalised task for each Faculty,
with detailed reports on activity relative to plans. Quality reviews could lead
to further questions, and steps to be taken by the Faculty. This sort of follow-up was vital in
demonstrating accountability.
The annual process of resource allocation at Lund University could be summed up as follows – the aim was to achieve full accountability by means of an integrated process:
|
October |
Budget
discussions |
|
November |
Budget
decision |
|
February
– March |
Analysing
results |
|
April |
Formal
task to Faculties for further analysis of results |
|
September |
Follow-up
to half-year report |
|
October |
Budget
discussions |
|
November |
Budget
decision |
Peter
concluded by noting that universities had traditionally been famous for the
ability to discuss things; now they had to act, and show that they could
adapt to external pressures.
Questions concerned the problems of extreme size when one was
trying to achieve rapid change. Peter
felt that universities tended to exaggerate problems – they were having to
change, but the outside world was changing even faster. Outside observers were not always
impressed! While he himself had been
very impressed with the radical nature of some of the internal debates (for
example, on the possible loss of departments) it was still not clear that
action had been rapid enough. A similar view was expressed that over the period
in which European universities had had to change from academic dominance to the
accountability of a market-driven situation there had been more difficulties
and stress, but also greater opportunities for managing an institution. The traditional system had in some ways been
designed to stop change, but there were now possibilities for taking advantage
of change. Peter agreed that it was much more “fun” running a market-led
institution than one based on rigid rules.
There
was further discussion of the problems of devolved Faculties relative to
central strategy, and the risk of creating several mini-universities. This led to a question about what happened
if a Faculty did not respond to a particular challenge or goal. Peter admitted
that this was a weak point in the system, in that while it was theoretically
possible to (re)move a Dean it would in practice be very hard to remove someone
who had been elected. This in turn led
to discussion of participants’ experience with elected as opposed to appointed
Deans. One the one hand some had found
elected Deans to be insufficiently managerial; but at the other extreme was the
example of appointed Deans being offered performance-related pay to make cuts,
with the result that they were so zealous that it was left to the central
administration to intervene to save academic quality and mission.
Managing
change in Financial and Management Accounting: A Case Study
Fiorenzo
gave a sketch of the Catholic University, founded in 1921 as a non-profit organisation and currently
based on a five-branch structure, with Faculties and offices in Milan,
Piacenza, Brescia, Cremona and Rome, where there was also a University teaching
hospital, or Policlinico. The level of State funding was about 25%. In contrast to Lund, the Faculties had
little autonomy, but depended on the centre for funds.
In
the early 1990s, the General Board of the University decided, for eminently
practical reasons, to change the accounting system from a cash basis (a
system of book-keeping that records only a single entry for every transaction –
typical of the Italian public accountancy system) to an accrual (double
entry) method.[1] The
University wanted to strengthen its internal organisation and to improve its
administrative procedures. What was needed was, above all, an accurate
calculation and control of costs and commitments, which would enable better
planning of the University’s future development.
This
project took about eight years, and had gone through two phases.
Phase
1 involved the sketching-out and
implementing of a plan of action. This plan stated the major needs of the
University and the actions required to respond to these, including changes in
processes, information technology systems, people, organisational structure and
staff training. It had been necessary to change financial regulations and
categories. External consultants had
been employed.
Phase
2 implemented an accrual method of
accounting. This involved a book-keeping system which includes the records both
of entries relevant to financial statements (in accordance with generally
accepted accounting principles) and of entries relevant to management accounting.
The records, therefore, present all income and expenditure both by function and
by natural classification.
A
new phase had started in 1996, a phase which could be described as the
transition from the implementing of management accounting to a real culture
of management accounting. This implies above all a change in the whole
organisational culture. One example was the distinction now drawn between
service centres (which use resources) and income centres (which use those
services). He agreed with an observation
that some departments can represent both types, and explained that earned
income could lower the cost of the service.
In
reply to further questions he noted that the Policlinico had different systems
from the main university. He noted that the budget-setting process was a battle
every year, as attempts were made to persuade staff to forget the previous year
and to redefine need. The greatest
change and advantage in the new system was that commitments were known. Overall
he was satisfied that the overall project had been successful – some of the
major factors were the problem-solving approach encouraged by cross-functional
teams, and the sense of allowing people to get on with their proper tasks. The
devolution of financial responsibility to the relevant manager was also a big
step forward.
Peter
Honeth returned to his earlier theme of the size and specific nature of some
universities to note that, having bought a large commercial system from a major
software supplier, he found that despite experience with multi-national
companies the supplier had never had to cope with such a large number of cost
units or managers – in his case about 450 cost units. The university culture is quite special. The session ended with
some useful debate about the difference between State-funded and private
universities in Italy, and the likelihood of being able to introduce such
systems in the former category.
Internal
Audit as an Aid to Management
Christine Challis, Secretary, London School of Economics and Political
Science (LSE)
Malcolm Winton, Registrar, University of Salford
This double presentation offered views of two UK institutions against a current background in which an emphasis on accountability partly reflects the insatiable demand for audit in our society. All aspects of University activity are the subject of different kinds of audit. The presentation focused on the development of internal audit as an essential aid to managers, both in exercising their responsibility for internal control systems and risk management, and in assisting the management of change to improve the effectiveness of the organisation.
All
institutions in the UK are required by the funding council[2]
to have an internal audit function which can be exercised in a number of ways:
by employing an outside firm of auditors; by employing internal auditors, or by
sharing an audit service in cooperation with other universities. The LSE
employs its own internal auditors, while Salford is part of a consortium.
The
presentation compared and contrasted the procedures at LSE and Salford for the
operation of internal audit and demonstrated through mini case studies how
internal audit can help management exercise its responsibility for financial
control, implementing change and improving effectiveness, and securing
value for money services.
First,
Christine Challis sketched the background of the LSE - a university
institution specialising in the social sciences with an international student
composition. The School has 7,000 students
(a high proportion of whom are postgraduates),
18 academic departments, 5 Institutes, 25 research centres, and a
national library (the British Library of Economic and Political Science).
Annual income and expenditure is 143 million euros.
The
School has its own small internal audit service comprising two staff members,
who draw on external expertise when required. Audit covers all organisational
units and therefore all functions, although at the outset it had started as a
relatively low-level financial operation. Christine described the approach and
procedures for establishing the audit plan, the conduct of audits and management responses, and the essential
assistance given to management. Risk
analysis had been a major feature of the process – for example, a study of
departmental compliance with policies on health and safety – and here “risk”
was seen in the context of strategic aims, thus taking in not just mechanical
components but also large-scale effects on the School’s reputation.
The
major practical difficulties had been a lack of willingness to respond, and
attempts by several staff to ignore the exercise by giving deliberately general
or vague replies. Action had been taken to overcome this, notably by having
heads of unit sign up to agreed action.
Christine’s examples of the process were both illuminating and
entertaining, and showed how the LSE had been able to improve various functions
by means of better targeting of resources and the avoidance of duplicated work.
Malcolm
Winton then described the situation at Salford, a broadly based university
located in the Greater Manchester conurbation.
It has 20,000 students, in a range of disciplines: health, sciences,
engineering, business, media, design, and humanities. Annual income and expenditure is 180 million euros.
Salford
has joined with six other universities in the North of England (all located
within 70kms of each other) to form an Internal Audit Consortium. This consortium employs 17 staff and is
governed by a Management Board composed of representatives from each of the
member institutions. This approach
offers an extremely cost effective internal audit service to members. They can draw on a wider range of expertise
than any single institution could afford, and yet all Consortium staff have
extensive experience in higher education.
The
emphasis in internal audit is on acting as a partner to line management rather
than as a ‘policeman’. This approach is
reflected in the conduct of audits, the preparation of reports and management
responses, and in their subsequent monitoring by both senior management and the
University's Audit Committee. Salford’s
procedures in these areas were based rather more on using software to analyse
surveys and reports. These methods were
compared and contrasted with those at the LSE, but here too case studies
demonstrate how internal audit can support management in implementing change,
in securing value-for-money services and in spreading best practice across
member universities.
Other
members with experience of internal audit were also impressed with results, and
it was clear that those who had not seen it in operation were extremely
interested in the possibilities. It was recognised that there was a large
difference between compulsory audits and those which one chose to put in place
to help one’s own operation. One final comment was that it was important not to
have the internal auditors reporting to the Finance Director, although
Christine noted that the LSE had used retired Finance Directors as internal
auditors and had found that their understanding of systems made them ideal
choices.
[For this seminar the record relied on tape recordings. A technical difficulty meant that at this point some recordings were lost, and the record is therefore incomplete.]
Risk Assessment and Management - Financial and other
Implications (Case Study)
Mary C. Dooley,
National University of Ireland Galway.
In
mid-1998 the National University of Ireland Galway extended its systems of
Corporate Governance by the expansion of its Internal Audit Service and the
establishment of an independent Audit Committee. The scope of the Internal
Audit function includes Value for Money (VFM) reviews of all University
activities and has recently evolved to include general Risk Assessment and
Management. Whereas earlier schemes in the mid-1990s had been limited to
standard questions of whether projects were on time, within budget, and so on,
with general regard for the “three E’s” of efficiency, effectiveness and economy,
the new review was designed to go further.
In
late 1999 a VFM Review of Project Management Services for building projects was
undertaken. On the basis of the extended definitions, the review not only
highlighted a number of VFM issues which needed to be addressed – in
particular, cost and time overruns,[3]
together with procedural and reporting issues – but more importantly, it drew
attention to the very real impact of these issues on the core academic
operations of the University. Facilities were not available when required at
the start of term, resulting in postponement, cancellation and/or relocation of
lectures, laboratory sessions, etc. The
resulting deterioration in the quality of service provided to students was
regrettable and significant. The risk to the University's reputation was
considerable, both among students but also (therefore) among potential students
and indeed government agencies. This Internal Audit Study was of most benefit
to the University in that it raised the issue of "reputational risk"
for the first time. Traditionally such difficulties, although the subject of complaints at operational level, were seldom given a formal and structured
airing[4]
at corporate level.
The
complex nature of the individual project, with three buildings and three sets
of architects, was stressed, and the role of the project manager was
discussed. It was pointed out that
although the excess over budget had been very small (only 1%) the impact of
delay in time had been much more far-reaching. This had been one of the biggest
lessons to emerge. Post-project reviews had not been fully completed in the
past as a result of other pressures, and this again was seen as a way in which
there was a risk of not learning from experience.
In
an increasingly competitive environment it is important that Risk Assessment
and Management are brought centre stage and contribute fully to the process of
Corporate Governance. The large-scale
financial implications of ignoring the requirement for general risk assessment and
management are significant.
New Trends in the Financing of HE in Spain
Alfonso de Alfonso: Universidad Pompeu Fabra, Barcelona
Luciano Galan: Universidad Autonoma de Madrid
As
a result of the re-distribution of responsibilities on university financing
which took place in Spain in the 1980s, the regional authorities (autonomous
communities) now determine the financial model (both for current funds and
future investment), instead of the Ministry of Education, as used to be the
case. This had led to the creation of different forms and experiments, under
general parameters which operate in common (especially in staff wages and
salaries) and the launching of what one might call a “laboratory of ideas” in
order to ascertain the most suitable model.
This presentation illustrated some of those ideas.
The
most attractive financing models are as follows: the so-called
Agreement-programme between the Administration and the university (applied
mainly in Catalonia) and the financing system on the basis of “registered
credits” and “students eligible for financing” (applied in the region of
Valencia).
The
first one implies a special agreement, on a case-by-case basis, and the
determination of future financing according to the goals actually achieved,
established according to a conventional pattern by the university and the
regional educational authority. The
second, more complex one involves looking for an objective element to be
financed (both for current expenditure and for investments), within guiding
parameters (meeting the objective demand, the experimental nature of the
degrees offered, etc.), with also a small allowance for percentage increases on
the basis of results achieved. Here the model has not been determined on a
case-by-case basis, but by consensus and collectively for all the Valencian
universities, together with its autonomous administration.
The
presentation set out to illustrate and answer questions as to how these models
affect or improve the efficiency of the public university system? To what
extent do these systems help to create additional financing based on objective
parameters? How permanent is the financing obtained? To what extent does it
contribute to achieve the goals established by university management? To what
extent do these models help to (pre-)determine the internal distribution within
the university of the financing obtained?
[1] Those wishing more technical detail may wish to visit a very relevant webpage on this topic (cash/accrual methods) at http://www.toolkit.cch/text/PO6_1340.asp. A much shorter explanation is given at http://sbiz.findlaw.com/text/PO6_4116.stm
[2] The webpage of the English Funding Council (http://www.hefce.ac.uk) has very clear links to further HEFCE pages on finance and to the Council’s code of practice on audit.
[3] (That is) targets for schedules or budget were not met.
[4] To give something an airing is to bring it out into the open - clothes, maybe, or (as here) views/opinions.