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Sixth Report of the Board of Scrutiny

The BOARD OF SCRUTINY begs leave to report to the University as follows:

1. During the course of the present academic year, the Board has met on twelve occasions, and has delegated detailed consideration of a number of matters to particular subgroups. Members of the Board have had meetings with, among others, the Registrary, the Acting Secretary General, the Treasurer, the Interim Director of Finance, the Director of Personnel, and the two external review consultants appointed to review the CAPSA project. We are very grateful to them and to others for the time and trouble that they have taken to respond helpfully to our enquiries. As in previous years the Board has gone to some lengths to ensure the factual accuracy of the Report. We are grateful to those we have consulted for their assistance.

2. The task of the Board of Scrutiny is to scrutinize the Annual Reports of the Council and the General Board together with the Abstract of Accounts and the Allocations Report, and to bring to the attention of the Regent House any matters of concern. Although the Board's task is essentially retrospective, looking at Reports concerning years which have already been completed, it strives to concentrate on issues of continuing relevance.

3. This year the Board has chosen to examine issues of resource allocation and re-allocation within the University and their relationship with the University's democratic system of governance. This has also taken it into the fields of pay differentials, the career development of academics, the accountability of the central administration, and the University's future growth.

4. The most important point the Board wishes to bring to the attention of the Regent House, having scrutinized the relevant reports and accounts relating to 1999-2000 is that the University of Cambridge finds great difficulty in re-allocating resources from established uses to new uses. It is, to say the least, odd that the one recent example of a successful re-allocation of resources, the freeing of money by early retirements to fund the creation of the grade of Senior Lecturer,1 was presented as an emergency one-off savings exercise, a mode of presentation which exposed the central authorities to the accusation that the need for the exercise only arose because they were incapable of re-allocating other resources, such as departmental reserves.2 The most important consequence of the perceived difficulty in re-allocating resources is that the central authorities put a high priority on growth, since growth seems an easier way to find new resources than re-allocation.

5. The University needs to decide whether it wants the present situation to continue. Growth at the pace now envisaged, twice the historical rate by some calculations and, according to the University's plans for North-West Cambridge, involving three new Colleges and perhaps 3,000 new jobs, has implications not only for the University's relationship with its environment, but also for its constitution. If the size of the Regent House grows commensurately with the growth of the University, that itself will give rise to a further need to consider the best ways to preserve the University's internal democracy. If growth takes place without a commensurate increase in the size of the Regent House, by the use of contract staff, for example,3 there will be different and perhaps even more challenging questions as the University moves to a system in which large numbers of academic staff are denied the franchise. But if growth is reined back, and the University is not to stagnate, there will be increasing pressures to find new resources by re-allocation of existing budgets.

Recommendation:

I. The Council should organize open debate within the University about what its policy should be about the rate of future growth and the implications of that policy for the governance of the University.

6. Before moving to these broader themes, however, there is one matter of more immediate concern to which the Board wishes to refer.

CAPSA

7. Much of the Board's work in the current year has related to CAPSA (now apparently named 'UFS', though, rather like Windscale and Sellafield, the change of name does not change the nature of the problem). The Board said in its Fifth Report:

In May 1999 the Council approved the installation of a system supplied by Oracle at a cost of £4.7m. A year later, the cost has risen to £8.0m, we are now within a few weeks of the intended start date, and many users are only just discovering that the system will not do what they had thought it would: the research grants module does not deal with salary costs; there are difficulties with running the software on operating systems other than Windows; and the requirement for a simple-to-use interface for casual users has been dropped for the time being. This final, and apparently last-minute, change has implications for the time needed for user training and has security implications which we can only presume have been fully addressed by the implementation team. Whether or not the system becomes fully operational on 1 August 2000, it will be important for the Council to report on the cost of the project so far, the expected further costs, and whether the implementation has been managed successfully.

8. The Board completed its Fifth Report on 8 June 2000, before the CAPSA implementation date. The Council, citing alleged factual inaccuracies, prevented the publication of the Board's Report to the Regent House until 4 October 2000, by which time the deficiencies of the system had become obvious to the whole University.

9. The Board has worked together with the Audit Committee to develop an independent review of CAPSA. The Audit Committee, with the agreement of the Council, has taken the lead in appointing outside experts to help conduct the review, but has involved the Board of Scrutiny at every stage. The Audit Committee will concentrate on the technical aspects of the review. The Board of Scrutiny will concentrate on the policy-formation aspects. It is recognized, however, that the two aspects are intertwined. The outside expertise covers both aspects.

10. The Board will make its detailed views of CAPSA known at the conclusion of the review. It remarks at this stage only that it was extremely regrettable that the Council prevented the presentation to the Regent House of the Board's warnings on CAPSA at a time when it was still possible to take preventative action. It also wishes to acknowledge the enormous efforts of University staff to try to make the system work in extremely difficult circumstances.

The Mission Statement, the Resource Allocation Model, and Small Departments

11. The Board notes the discussion in the Council's 1999-2000 Annual Report of the proposed Resource Allocation Model (Reporter, pp. 243-8). It also notes that no further mention of the proposed model has been made in the Reporter since the 1999-2000 Annual Report. The Board understands that it is proving difficult to make progress with this project, although there is still an intention to make progress within the coming year. The Board also understands that much of the lack progress has come about because of understandable anxieties about the model's possible future uses and effects. The Board also notes that progress on the review of the University's Mission Statement has been extremely slow, although we understand that a new Notice on the Mission Statement is about to be published. The consultation on the review ended in December 1999, but no further mention of the review appeared in the Reporter until 26 February 2001, when the Council noted that it was due to receive during the Lent Term a report on the review from the Planning and Resource Committee.

12. The Notice on the Review of the Mission Statement begins with a set of questions which are clearly linked with the question of resource allocation - 'Is it realistic in resource terms to maintain the existing range of courses, breadth and balance of subject matter, and range of levels of study? There are past examples of the University taking conscious decisions to discontinue particular subjects. Is there a need to establish fresh University mechanisms to enable consideration of such matters?' The next set of questions - 'Are the existing University and College mechanisms adequate to protect key minority subjects which might be non-viable in student number terms? Should such subjects be concentrated in a small number of Colleges?' - are clearly designed to offset the somewhat alarming implications of the first set of questions for minority subjects by holding out the prospect that some of them might be considered 'key' and therefore preserved. But it would not be surprising if Departments providing minority subjects were to take a pessimistic view of what might be considered 'key', and see the review of the Mission Statement as a threat.

13. The Board believes that there might be a link between the lack of progress on these two projects. It also has formed the impression that a certain lack of trust is creeping into relationships between the central administration and Departments which see themselves as unlikely to benefit from either the resource allocation model project or the review of the Mission Statement. The use of disaggregation analysis in the savings exercise4 was the source of much suspicion, and this has carried over into the wider resource allocation project.

14. The Board therefore recommends that there should be a more open discussion about the future of 'small' Departments, especially those outside the physical sciences, before the University attempts to produce the new resource allocation model. If a policy is being developed which would mean a progressive reduction in the resources being made available to certain Departments (or even 'conscious decisions to discontinue particular subjects') with its obvious consequences for staff - increasing workloads as positions are not filled, if not more serious consequences - there are benefits in discussing the policy openly. Even a vague atmosphere of uncertainty will adversely affect the ability of all relevant Departments to recruit and retain staff, including new Departments, which might see themselves as vulnerable. A more transparent approach, perhaps involving specific guarantees of compensation or routes into other posts or even into other careers, would have many advantages.

15. It is possible, of course, that events have moved on since December 1999, so that the first set of questions in the Notice on the Review of the Mission Statement should no longer be taken to imply some kind of cull. It is certainly the case that not all the Notice reflects current thinking - for example the view expressed by the Notice 'that there appears to be no enthusiasm for a new College' is hardly consistent with the Estate Management and Building Service's subsequently expressed aspirations for the development of North West Cambridge, elaborating on paras. 17 and 18 of the Council's Report. If the Notice does not reflect current thinking it would be helpful from the point of view of making progress on related topics such as resource allocation that it be withdrawn promptly.

Recommendation:

II. If the concerns expressed in the Notice on the Review of the Mission Statement about minority subjects are still current, there should be an open discussion about the future of small Departments, especially those outside the physical sciences, before the University attempts to move to produce the new resource allocation model. The discussion should include the question of whether there is any policy of allowing some small Departments to wither on the vine, with consequent constant increases in workloads for the remaining staff, and the consequences of such a recommendation. If the concerns in the Notice are not current, it should be withdrawn.

Academic Careers and University Governance

16. In the Board's view, distrust of the central bodies by many members of the Regent House and its consequences for the University's in terms of inflexibility in re-allocating resources, is linked with the structure of academic careers, the governance structure of the University, and pay differentials. The General Board's Report (para. 38) indicates that the Board has a 'strategy for improving the University's position in recruiting, rewarding, and retaining the high-calibre staff on which its teaching and research depends'. The Board, and, we believe, the Regent House, would be interested to know more about this strategy. We hope, in particular, that its strategy takes into account these linkages.

17. In many disciplines, though by no means all, the choice to become an academic involves giving up all opportunities to develop transferable skills in favour of developing abilities, capacities, and skills which are extremely specific to academic life. This means, crudely, that many academics are vulnerable to exploitation, or to what is known in the euphemism used in the new institutional economics as 'strategic behaviour'. Once deeply embedded in an academic career many academics have nowhere else to go, so that if their pay declines in real terms or relative to the rest of the economy, their workloads rise or, at the furthest extreme, their jobs are threatened, there is very little they can do about it. Implicit assurances given at the beginning of an academic career that pay will keep pace with that which might have been achievable in professions requiring equivalent or less ability, or that workloads will remain reasonable, are very easily reneged upon.

18. It is this problem of specific investment and its accompanying threat of the exploitation of the vulnerability of those locked into academic careers which provides the underlying economic justification for the institutions of academic tenure and internal academic democracy. Academic tenure is not enough in itself, since it cannot provide guarantees on levels of pay or workloads, and in any case has been severely restricted by Statute. Much of the institutional pressure therefore comes to bear on internal democracy, on the governance structure. The University's governance structure is exactly as one would expect in an organization in which members are threatened by exploitation of their 'locked-in' position. It is internally democratic and it gives veto power to the body of people who are most vulnerable to that exploitation.

19. It would be a grave mistake for the central authorities to propose to undermine the University's internal democracy, for without such a governance structure, many academics would be far less willing to make the extremely specific investments in their own capacities on which the University's excellence depends. The inflexibility which internal democracy builds in to decision-making, the fact that the University cannot be 'managed' from the top down and the consequent difficulty of making unpopular resource re-allocations, is a consequence and a cause of the University's academic success. It might be possible, however, to change the perception of the Regent House as to the frequency with which it should threaten to use its veto power by finding other ways of reducing the threat of exploitation. Such measures would also have the over-all function of building confidence and of making academic careers more attractive prospectively.

20. It is not the Board's task to propose specific measures, but it is the Board's belief that a fruitful approach would be to consider contractual guarantees which might reduce the threat of being left in mid-career with no options apart from enduring whatever deterioration in pay and conditions happens to required by government or by University policy. In particular, it might be useful, especially in disciplines which do not develop the transferable skills of their practitioners, to offer guarantees that if a University officer should become dissatisfied with an academic career the University would pay the full costs, including full salary, of retraining the officer for any appropriate alternative career.

Recommendation:

III. The University should consider new methods, for example career change guarantees, to attract people into academic careers in an era in which there is a reasonable belief that academic pay and conditions will deteriorate markedly in the medium to long term.

Inequalities of Pay

21. The Board notes the table on page 16 of the Abstract of Accounts headed 'Remuneration of Higher Paid Staff, excluding employer's pension contributions'. That table shows that there has been a 75% increase in the number of (non-clinical) staff paid between £50,000 and £60,000, a four-fold increase in the number of (non-clinical) staff paid between £60,000 and £70,000, and a doubling of the number of (non-clinical) staff paid more than £70,000. In contrast in the same period, the salaries of University Lecturers rose, roughly, in line with the rate of inflation. The introduction of the Senior Lecturer grade was intended to alleviate this problem, but it is doubtful whether the pay of the median lecturer will have increased much as a result.5

22. A contributory factor here has been the Supplementary Payments for Professors Exercise, which as we write is taking place for a second time. The Board was grateful for the scrupulous way in which the General Board included in its announcement of the results of the first Exercise (Reporter, 1999-2000, p. 391) all the promised additional information. At the same time, that announcement must have startled members of the Regent House by the scale of the distribution of the Payments. Over £1.1m was disbursed in this first exercise alone and, more important, this generosity scarcely fulfilled the General Board's earlier expectation that 'only a small number of awards would be made, especially at the higher levels' (Reporter, 1997-98, p. 808 §29; repeated in Reporter, 1998-99, p. 55 §9). In fact a total of 110 awards were made to the 129 who applied, giving the remarkable success rate of over 85%. Those applying in turn comprised less than 59% of those eligible, with a marked imbalance in the rate of application between male and female Professors and, nearly as strongly, between those in Sciences and the Humanities. It is not self-evident that the stated aim of the operation, 'to maintain the academic vitality of the University', has been furthered by such means.

23. It is also a distinct possibility that the Exercise is creating unequal pay between men and women. In our Fifth Report we remarked, rather mildly, that we hoped that 'the recent establishment of a Personnel Committee will facilitate progress' on equalities issues, and we are pleased that the General Board was able to report that 'an audit has been undertaken which will help determine the next stage of the agenda for equal opportunity' within the University.6 We would, however, be dismayed if new policies of the University on pay were having the effect of undermining equal opportunities before the agenda for equal opportunity has progressed little beyond discussion of the audit.

24. The Board also notes the Report of the Council on the Unified Administrative Service of 21 March 2001 in which the Council remarks:

The stipends of the officers concerned will need to take account, inter alia, of market forces in professional areas of high demand and the Council intend to make proposals for the terms and conditions on which each office should be established.

Although the detailed changes which have produced growing inequalities have received the approval of the Regent House in the form, for example, of the approval of Allocations Reports, the Board doubts whether the Regent House has been appropriately invited to consider their combined effect or the underlying change in strategic direction which they imply. Two aspects of the growing inequalities particularly require wider debate: the balance between the development of home-grown talent and the buying in of outside talent; and the differentials between academic and administrative salaries.

25. As to the first, it is one possible explanation of growing inequalities that the University is moving to a strategy of maintaining its reputation by buying in people of great talent and ability from outside the University (in football terms, a 'Chelsea' strategy), as opposed to its previous strategy of combining the occasional big buy with carefully nurturing its own staff (the 'Manchester United' strategy). Such a change would itself create more inequality simply because people are usually reluctant to uproot themselves, which tends to raise the price of outside talent above that of internal talent.

26. The Board believes that if a change of strategy is underway, a wider discussion of its implications should take place. Even if such a change is thought by the Regent House to be a wise response to, for example, government policy or international competition, there should be further consideration of the implications of the new policy for appointments at the Assistant Lecturer and Lecturer level and decisions to re-appoint to the retiring age. The practices, for example, of leading US institutions in junior appointment and tenure decisions differ sharply from those current in Cambridge, and it would be useful to discuss these differences openly, rather than either to drift into them unthinkingly or to leave ourselves with an incoherent hybrid system.

27. The Board is also concerned about the linkages between the procedures the University uses to decide on pay differentials and governance issues. Where there is a large discretionary element in pay, and large pay differentials, there are opportunities for the creation of dependency relationships and patron-client relationships which are incompatible with internal democracy. If large pay differentials are to become a permanent part of the Cambridge scene, the system by which pay is determined needs to be reviewed.

28. The Board notes that all mention of job evaluation seems to have disappeared from the Reports of the Council and the General Board (see the Board's Fifth Report). The Board understands, however, that discussions are still underway about issues such as moving away from age-related scales for academic salaries. The Board understands the motives for discussing such changes, especially in terms of recruitment, but the Board urges those involved in such discussions to take into account the constitutional position of members of the Regent House, that they are not solely employees but are more in the nature of partners, and to understand the underlying economic rationale of that position.

29. As to the relationship between academic and administrative pay, the Board notes the Council's concerns about the need to take into account market forces and fully accepts the need for the University to be able to attract suitable candidates for administrative posts. Indeed the Board is concerned by the apparent high turnover of staff in the University's central administration. High turnover is usually a sign of dissatisfaction. But the Board urges the Council to recognize that there would be less resentment among academics about administrative salaries if academic salaries themselves had not been the subject of 'strategic behaviour'.

Recommendation:

IV. The Council should facilitate open discussion about growing inequalities in pay and about the implications of moving to reliance on buying in outside talent.

Performance Indicators

30. The Board notes that the Committee on Governance, mentioned in both the Council's Report and the General Board's Report has still not reported. The Board also notes that, according to the Statement on Corporate Governance which appears on page 5 of the Abstract of Accounts, the Audit Committee is responsible for 'establish[ing] appropriate performance measures' for the University. The Board is not aware that any such performance measures have yet been devised, although it notes the encouraging reference to performance indicators in the Report on the Unified Administrative Service (Reporter, 21 March 2001, at para. 13). The Board wishes to suggest that think-ing creatively about performance measures (or performance indicators) might facilitate progress on governance issues. If appropriate indicators of the performance of the central bodies can be found, members of the Regent House could be re-assured about their performance without the need for increased day-to-day scrutiny.

31. The lack of performance indicators which measure the performance of the central bodies is a serious deficiency from the point of view of the accountability of the central bodies to the Regent House. Performance indicators can be overdone, and the attempt to quantify the inherently unquantifiable can have undesirable effects. But resistance to performance indicators can be motivated by a desire to escape from accountability rather than from any principled objection. Such a motive for resisting the development of performance indicators would not be appropriate in the relationship between the central bodies and the Regent House.

32. The question of what precisely these perfor-mance indicators should be lies beyond the Board's retrospective scope, but given the nature of the University's constitution it would suggest that indicators should include those which would be useful to voters in a democracy, as opposed to those useful to mere consumers or servants. Although the central authorities need to respond to the requirements of a large number of interests - central and local government, staff, students, funding bodies, and so on - the Regent House as the governing body of the University is itself ultimately responsible for the balance the University strikes between those interests.

33. One of the characteristics of a democracy is the importance of the median voter.7 On any particular issue, the side which successfully appeals to the median voter has, by definition, a majority. Concern for the median member's view is a characteristic of a democratic organization as opposed to one which operates according to hierarchical or market principles.

34. One of the challenges faced by the Committee on Governance is how to maintain the University's democratic character without undermining its ability to make decisions. To take the crudest example, constant ballots on all topics would make the University ungovernable. But reducing further the right to call or vote in a ballot would be to undermine, perhaps fatally, the confidence those most vulnerable to 'strategic behaviour'. Again, there is a need for confidence-building measures. One of these would be for the University to develop performance indicators which described the University's performance, and in particular the central bodies' performance, from the point of view of the median member of Regent House, and attempting to capture not just financial performance but also workloads and important aspects of academic life such as autonomy in research and teaching. Such performance indicators would provide constant pressure, without the need for equally constant monitoring by the Regent House, in the direction of democratically acceptable policies. They would also form the basis of informed discussion about performance, in the light of available resources, and help to create transparency and accountability.

35. Clearly it would be impossible to construct a 'median voter' indicator for each issue which might arise. It would be easier simply to hold a ballot. But it would at least be useful to consider as a proxy measure the impact of policy, for example, on the median member of the Regent House as ranked by salary. We do not claim, of course, that views on all issues are related in any simple way to salary, but we would suggest that the issues on which this Report concentrates, resource allocation and pay inequality, for example, are sufficiently linked with salary that one could at least claim that the information would be useful to sufficient members of the Regent House to make its collection worthwhile.

Recommendation:

V.  The University should develop performance indicators which measure the success of the institution for its members. Consideration should be given to developing indicators which describe the institution from the perspective of the median member of the Regent House.

The Committee on Governance

36. The continued non-appearance of any substantive report from the Committee on Governance is a matter of disquiet in itself. We now understand the Committee will report before the end of Easter Term 2001, but we are not aware of the contents of its report. The Board is concerned that discussion on fundamental questions of governance should not be diverted solely into detailed consideration of such matters as the way in which the General Board relates to the Council and the arrangements for Discussions, important as those matters are in themselves. In particular the Board would like to encourage the Council and the General Board to widen the basis of the discussion of the University's system of governance so that it thinks about how it compares with organizations beyond other universities (ancient or modern), government departments, or large industrial corporations. That would mean consideration of the ways in which democratically-based organizations make successes of themselves in other spheres. For example, large professional partnerships in law and accountancy might have something to teach as, as might, in a different way, the John Lewis Partnership, and we are pleased to hear that there has been some consultation in that direction. Instead of looking to the less democratic models of less successful universities, we should be looking to im-prove the very successful model we have evolved in the light of the practice of other successful democratic organizations in other fields of activity.

Recommendation:

VI. In considering the report of the Committee on Governance, the Council should commission research on successful democratically-based organisations in the private sector to inform its deliberations.

Financial Matters

Accounting

37. If the University is to be governed effectively, its governors must plainly be supplied with accurate financial information. The Board therefore inevitably finds itself addressing issues of accounting practice in its Reports. One that has been a recurring theme over the last few years has been the compliance (or non-compliance) of the accounts of the University and its subsidiary undertakings with the Statement of Recommended Practice (SORP) laid down by the Accounting Standards Board. Thus our Third Report noted that the University's accounts did not at that time provide for depreciation of buildings, contrary to what the SORP required; our Fourth Report queried the Treasurer's statement that the University's 'bottom line' had been a surplus of £0.9m in a year when calculated according to the SORP it had been £10.7m; and our Fifth Report pointed out that the University's failure to show its investment dividends in the income and expenditure account in full is a straightforward breach of the SORP. It is perhaps worth taking a little space to dwell in more detail on this last matter. In its response to our Report, the Council did not, as we had (perhaps naively) imagined they would, simply grant that the accounts do not in this respect conform with the SORP and promise to regularize matters the following year. Nor, though, did they assert in propria persona that the treatment of investment income does conform with the SORP: that would have been hard, given how explicit the SORP is on this point. Instead they appealed to authority. 'The University's auditors,' we were told, 'are satisfied that this complies with the SORP.' It did not seem appropriate to us to let the matter rest there, so we wrote to the Vice-Chancellor quoting once more the relevant sentence from the SORP. What we received in response was now an appeal to the authority of the previous authority. The Finance Committee, we were now told, 'is satisfied with the advice given by the University's external auditors which indicates that the accounts comply with the SORP.' It was only when we went to see the interim Director of Finance a few weeks ago that we received the ready admission we had been seeking that of course the treatment of investment income in the University's accounts does not conform with the SORP. We are very grateful to him for his helpfulness on this point (as on others), but we are sorry that it took so long. We trust that the Council will now move swiftly to rectify the matter.

38. Readers not versed in the arcana of accounting practice may well be wondering by now whether it matters very much that the accounts do not conform with the SORP, especially since it can be argued that, nevertheless, the accounts still give a 'true and fair view'. We think that it does, for three reasons, two of them obvious, one less so. The obvious reasons are that the University should not say that the accounts conform when they do not, and that as it continues to receive substantial amounts of public funds, it ought to publish its financial information in a form that aids comparison with other universities in the UK.

39. The less obvious reason is that the University's current treatment of investment income betrays a misunderstanding of the distinction between accounting for the past and budgeting for the future. Even if the University's endowment capital were fixed, which it is not, the dividend income received on it would vary from year to year, down as well as up, as economic circumstances change. It is therefore entirely correct when budgeting to recognize that the income we predict for next year cannot be unthinkingly projected from what we received last year. A healthy surplus one year is not itself a guarantee of surpluses to come, which is why budgeting is such a soft science. But budgeting is not accounting: the income reserve fund which the Investment Committee uses to smooth the University's investment income from year to year represents the importation into the latter of a method appropriate only to the former.

40. The existence of the income reserve fund is of course licensed by Statute F, III, 6, but as this Statute is permissive rather than stipulative it cannot in itself be used to override the SORP. As we remarked last year, however, the role of the income reserve as a smoothing device is independent of the more important long-term question of the proportion of the investment fund it is prudent to spend each year. This might better be decided, at least in the case of unencumbered funds and arguably in other cases too, on the basis of projected investment returns rather than merely of income received. The Treasurer has referred to this issue in her report on the financial statements. We look forward to its resolution.

Recommendation:

VII. The Council should now move swiftly to bring the University's accounts into line with the SORP.

Reserves

41. This distinction between accounting and budgeting also lies at the heart of the Board's standing interest in the University's policy on reserves. It plainly lies within the scope of accounts to make provision now for future expenditure to which one is irrevocably committed, since that is money which is already as good as spent. Transfers to reserves, on the other hand, are not yet committed expenditure at all, but a budgetary device to strip away special factors and expose an underlying position that can (it is hoped) more safely be extrapolated into the future. If the University allocated money to a Department, for example, it has not yet spent it and could, if it had the will, redirect the money to another purpose. The historical record shows, it is true, that the University very rarely does have the will, but that is another matter: it is the job of accounts to record failures of action, not failures of will. This tendency to treat money as spent when in truth it has only been allocated may go some way to explain the range and size of the reserves that are strewn through the accounts of the University and its subsidiaries. We mentioned last year that the Board of Continuing Education had a reserve of £6.4m; this has now grown to £6.8m. Other Departments had £9.1m last year; now they have £10.4m. Reserves for Land and Buildings (which now, after a welcome change in accounting practice, show only free money allocated but not committed) are £39.2m. Even this, however, is dwarfed by the reserves of CUP and UCLES, which are £125.3m and £115.6m respectively. It is natural to speculate that the way the University manages its accounting and budgeting procedures results in the accumulation within its divisions and subsidiaries of larger reserves than are, taken in the round, either necessary or prudent.

Recommendation:

VIII. The University should review its accounting and budgeting procedures so that allocations can be compared against out-turn, and should review its reserves policies with a view to eliminating multiple reserves and contingencies.

The overall financial position

42. This year, for the first time, the Abstract of Accounts contained a sheet summarizing the accounts of the University and its subsidiaries on one page. We welcome this statement as it highlights the importance of these subsidiaries to any assessment of the University's overall financial position: the core activities of the University generated income during its financial year of £372.2m, while the trading subsidiaries generated £219.9m during theirs. However, this summary sheet highlights equally the oddity of the University's practice of having different financial year ends for its subsidiaries. Moreover, the Council, in its responses to the Board's Reports, continues to obscure rather than clarify the relationship between the University and its subsidiaries. Most recently, for instance, it wishes to insist 'that UCLES and the Press are not subsidiaries but charitable enterprises within the University'. We have no idea what distinction the Council is grasping for here. Since we last reported, the Syndics of the Press have decided to undertake various subsidies of University activities (Reporter, No. 5839, p. 502). It would no doubt be churlish to complain about this largesse, but the point of such internal subsidies remains unclear and must not be allowed to obscure the far more important issue of how any surpluses the Press may generate should be used to advance (in the words of the Statute governing it) 'education, religion, learning, and research'. This, after all, is what matters. Our earlier suggestion that the accounts of CUP should be consolidated with those of the University met intransigent opposition in some quarters, but it is hard to believe that this opposition had much to do with the debate over what a 'true and fair view' of the University's accounts demands. (As we remarked last year, it is far from obvious that the operations of CUP differ any more markedly from those of the University than do those of various academic Departments from one another.) Rather the opposition was intended to obscure the fact that the University controls the Press.

College accounts

43. The Colleges, unlike CUP and UCLES, are not for accounting purposes subsidiaries of the University: it does not have the requisite degree of control over their affairs. Nevertheless, the University's Statutes do give it considerable powers to regulate its constituent Colleges. In particular, every College is required to submit its accounts annually to the Treasurer in a form prescribed in a schedule 'or such modified form as the University may from time to time direct on the recommendation of the Finance Committee of the Council' (Statute G, III, 2). This year, as last, we wait for the Colleges to propose the form of accounts they wish to adopt. Some will no doubt hint that the delay demonstrates the complexity of the issues involved. It seems to us at least as likely that it demonstrates the difficulty of getting all the Colleges to agree on anything. We think it important to remind the Regent House that the form of the Colleges' accounts is ultimately a matter for it as much as for them. If the Colleges do not voluntarily conform with the appropriate externally ratified accounting standards, it will be necessary for the Regent House to impose them.

Presentation of accounts

44. As accounting standards and the expectations of users of accounts evolve, we suggest that the time has come for the Council to consider its presentation of the University's accounts. The University publishes its accounts in a Special issue of the Reporter (Special No. 8) as an 'Abstract of Accounts' of some 89 pages in length. The HEFCE and legal requirement is for the information provided in the first 23 pages. The audience for the document as published in the Reporter consists principally of members of the Regent House and acts as a source book of useful, detailed information, and we are glad that it is now available in full. We, nevertheless, suspect that in this context 'more' provides 'less' for other audiences and perhaps the time has come for a review of the various forms in which financial information is provided.

45. One of the duties of the Board of Scrutiny is to scrutinize the proposed allocations from the Chest, being the unrestricted sources of revenue amounting to 50.3% of the budget. While the Allocations Report provides us with a detailed breakdown of both Chest and Non-Chest Income and Expenditure, readers of the Report are none the wiser as to the procedure whereby non-Chest expenditure is approved and budgeted and how, if at all, access to these sources affects the allocation of Chest resources. Two questions suggest themselves: are Departments encouraged to fund permissible expenditure from restricted sources before applying for central funds? Is the University able to charge overheads on all restricted sources or are some, for example, donations, exempt. The Board acknowledges the extensiveness of the disclosure in the Allocations Report but rather suspects that only half the picture is provided.

46. Similarly, the Board is not sure what it is looking at when provided with tables of comparison of Estimates to Out-turn. 'Table 1: Income and Expenditure Account' provides a five-year estimate and includes the revision of the Original Estimate. The Abstract of Accounts, at p. 40, provides the result for the year and compares it with the estimate. Yet this analysis is separate from and unreconciled to the accounts and appears to be a mixture of revenue and capital items. How, for instance, does the deficit of £2,820,000 noted on p. 40 compare with the surplus of £12.1m on p. 8, the 'bottom line' figure according to the SORP. In our Fourth Report, we complained that the emphasis was incorrectly placed on the 'Surplus Transferred to Quinquennial Equalization Fund', a transfer between jam-jars which we found misleading. The typography in this year's Consolidated Income and Expenditure Account continues to imply that the 'Deficit Transferred to Quinquennial Equalisation Fund' is, in the mind of those responsible for the management of the University's finances, the result for the year - namely, a deficit of £2.3m. Members of the Regent House should not be under that illusion: the outturn for the year was a surplus of £12.1m, not a deficit of £2.3m (p. 2 and p. 8), nor a deficit of £2.8m (p. 40), nor a surplus of £2.3m (p. 40), nor for that matter a deficit of £1.6m as forecast at the time of the Allocations Report. These points reinforce our reasons for Recommendation VIII (above).

Stewardship of the assets

47. Meaningful values prove equally elusive when it comes to the University's account of its assets, principally its operational buildings. A value of £448.5m is assigned to the Group's Tangible Assets on the Balance Sheet (p. 9). The reader is then referred to Note 10 where Land and Buildings totalling £363,926,000 are declared, helpfully broken down into those buildings included at Valuation - £271,562,000 - and those included at cost - £184,670,000. These figures are explained by the accounting policy described in Note 1(f), which states that 'the University is taking advantage of the transitional arrangements under Financial Reporting Standard 15 - Tangible Fixed Assets (FRS 15) and the 1994 valuation has not been updated' (p. 12). That Accounting Standard permits the valuation to be treated as historical cost and uses this as the basis of depreciation.

48. Although this treatment is permitted under the SORP and accounting standards, we nevertheless contend that it is potentially misleading, turning the accounts into a mere numerical exercise. Under this system, for instance, the University appears within the last six years to have increased its stock of buildings by over two-thirds. Further both sets of assets have estimated lives of 20 years for laboratory buildings, 15 years for commercial buildings held for commercial use, and 60 years for all other buildings and yet the calculation of the depreciation charge is derived from two different bases of valuation. We are not sure of the significance of the resulting depreciation figure of £10,643,000 as a measure of the economic benefits of the asset consumed within the period. Set against a valuation for insurance purposes of the replacement cost of the buildings of £850m (see note 42 of the Allocations Report), this charge suggests that the average anticipated estimated life of all buildings is almost 80 years. Compared with the regular spend, identified on p. 40 in Appendix A, on the maintenance of the premises of some £25m - presumably some capitalized, some expensed - the figure seems inadequate.

Recommendation:

IX. The Finance Committee should reconsider the University's policy on its depreciation of buildings and ensure that any future policy takes into account the actual state of the buildings and satisfies users of the accounts and members of the University that both expenditure on the buildings and the rate of depreciation is adequate to ensure that the preservation of the buildings stock is not compromised.

Progress on Previous Year's Reports

49. The Board is satisfied that there has been much progress on several of its recommendations from previous years. Since the Council's Notice of 29 January 2001 (published in the Reporter of 31 January 2001), there has been further progress on Recommendation IX of 2000 (establishment of Directorships) and Recommendation X of 2000 (publication of classing conventions). We have had to return to some of the other recommendations, however, in the main body of the Sixth Report (above).

50. There are two other matters outstanding from the Fifth Report.

51. In the Fifth Report, the Board recommended the 'publication on suitable websites, for access from all cam.ac.uk web addresses, of the agenda and minutes of unreserved business at the Council, the General Board, and Faculty Boards, and committees of these bodies'. The Council responded that 'The Council and the General Board have previously agreed with the principle of making unreserved items on their agendas and minutes more widely available. It will be implemented as soon as practicable in the light of available resources.' (Notice of 29 January 2001). The implementation has not happened. The Board is unclear about which part of the process of converting the text into HTML and transferring it to a website requires significant resources and finds it difficult to believe that the small amount of work involved is beyond the capacity of the central administration. The Board repeats its recommendation.

Recommendation:

X. The Board recommends the publication on suitable websites, for access from all cam.ac.uk web addresses, of the agenda and minutes of unreserved business at the Council, the General Board, and Faculty Boards, and committees of these bodies.

52. In addition, the Board noted in its Fifth Report at paragraph 37:

In their Report the General Board make the eye-catching statement that they 'have felt able, notwithstanding the statutory requirement for them to meet fortnightly, to implement a monthly cycle of meetings'. We take no view on whether this change in the pattern of its meetings is a good thing, but we are concerned by the attitude to the University's Statutes thus evinced. Since no-one is suggesting that there has been insufficient business for fortnightly meetings, the failure of the General Board to meet fortnightly is a straightforward breach of Statute C, I, 9, as its members are no doubt aware.

No response has been forthcoming on this matter, and so we repeat our view, this time in the form of a recommendation:

Recommendation:

XI. The General Board's practice of meeting on a monthly cycle rather than fortnightly is contrary to the Statutes and the position should be regularized as quickly as possible.

Summary of Recommendations

I. The Council should organize open debate within the University about what its policy should be about the rate of future growth and the implications of that policy for the governance of the University.

II. If the concerns expressed in the Notice on the Review of the Mission Statement about minority subjects are still current, there should be an open discussion about the future of small Departments, especially those outside the physical sciences, before the University attempts to move to produce the new resource allocation model. The discussion should include the question of whether there is any policy of allowing some small Departments to wither on the vine, with consequent constant increases in workloads for the remaining staff, and the consequences of such a recommendation. If the concerns in the Notice are not current, it should be withdrawn.

III. The University should consider new methods, for example career change guarantees, to attract people into academic careers in an era in which there is a reasonable belief that academic pay and conditions will deteriorate markedly in the medium to long term.

IV. The Council should facilitate open discussion about growing inequalities in pay and about the implications of moving to reliance on buying in outside talent.

V. The University should develop performance indicators which measure the success of the institution for its members. Consideration should be given to developing indicators which describe the institution from the perspective of the median member of the Regent House.

VI. In considering the report of the Committee on Governance, the Council should commission research on successful democratically-based organizations in the private sector to inform its deliberations.

VII. The Council should now move swiftly to bring the University's accounts into line with the SORP.

VIII. The University should review its accounting and budgeting procedures so that allocations can be compared against out-turn, and should review its reserves policies with a view to eliminating multiple reserves and contingencies.

IX. The Finance Committee should reconsider the University's policy on its depreciation of buildings and ensure that any future policy takes into account the actual state of the buildings and satisfies users of the accounts and members of the University that both expenditure on the buildings and the rate of depreciation is adequate to ensure that the preservation of the buildings stock is not compromised.

X. The Board recommends the publication on suitable websites, for access from all cam.ac.uk web addresses, of the agenda and minutes of unreserved business at the Council, the General Board, and Faculty Boards, and committees of these bodies.

XI. The General Board's practice of meeting on a monthly cycle rather than fortnightly is contrary to the Statutes and the position should be regularized as quickly as possible.

 

4 June 2001 DAVID HOWARTH (Chairman) SUSAN LINTOTT DAVID SMITH
  DAVID J. CHIVERS M. D. POTTER ANTHONY SNODGRASS
  VEDIA IZZET OLIVER RACKHAM RICHARD STIBBS
      FRANK H. KING

1 General Board Report para. 38 (Reporter, pp. 249-254). We make no comment here on the success of the creation of the Senior Lecturer grade itself. That is for a future report. Our remark concerns only the funding of the creation of the grade.

2 See the remarks of Prof. Whittington in the Discussion reported in the Reporter of 3 February 1999, and the Council's reply (Notice of 15 March 1999).

3 See the Table on p. 38 of the Abstract of Accounts (Special No. 8) for an indication of the kind of change which might continue in the future. Between 1998-99 and 1999-2000, the total unestablished staff employed by the University rose by 6% in a year in which the total staff employed rose by only 0.4% and the number of established academic posts fell by 66 (i.e. 5%).

4 See the Council's Notice of 15 March 1999.

5 We cannot make a definitive statement yet because we still await the publication of the results of the first Senior Lecturer promotion exercise in the Reporter.

6 Followed by the welcome publication of the Schneider-Ross Report - See the Notice of 29 January 2001, published in Reporter, 31 January 2001.

7 The median voter is the person whose views are such that there is an equal number of voters with views more extreme than his or her views in both directions.


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Cambridge University Reporter, 20 Month 2001
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