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REPORT

Seventh Report of the Board of Scrutiny

The BOARD of SCRUTINY begs leave to report as follows:

1. The Board of Scrutiny has a statutory obligation 'to scrutinize on behalf of the Regent House', the governing body of the University:

It has 'the right of reporting to the University on any matters falling within the scope' of this scrutiny. The Board is exercising that right as follows. Rather than produce a Report on Reports, the Board believes that it is more useful to the governing body to consider the themes that emerge from these Reports and the Abstract of Accounts, track their development through the year, and draw the attention of the Regent House, as Wass envisaged, 'to any issues arising ... that merit … discussion or criticism'.¹ During this year, we believe, these are: the implementation of the CAPSA; the financial position and the financial management of the University, including the Resource Allocation Model (RAM); governance, decision-making, and notable decisions; and the Unified Administrative Service. As last year, a significant part of the Board's work was related to the CAPSA (now CUFS). The report on the implementation of CAPSA by Professors Shattock and Finkelstein, which the Board together with the Audit Committee had caused to be commissioned, was published on 2 November 2001. The Board published first a Notice (Reporter, 7 November 2001), and then an Interim Statement on 21 November 2001, and on 22 May 2002 the Board published its final Report, in the course of which it commented both on the current state of the accounting system and on the Council's reaction to the Shattock and Finkelstein report. As it has produced a separate Report on the CAPSA project, the Board proposes, where possible, to draw a line under these events. All of these remarks are made against a background of a successfully completed Research Assessment Exercise, in which the University demonstrated its ability to learn from its past administrative mistakes and which provided satisfac-tory confirmation of the Departments' and Faculties' excellence.

Section 1: finance and resources

The Financial Position and Financial Management of the University

2. Speculation about a hole in the University's finances has now been confirmed in this year's Allocations Report.² This Report warns that the projected deficit for the Chest for 2002-03 is £11.6 million and further deficits of £15.7 million, £18 million, and £20.5 million are projected for the next three years. Taken together with the revised estimated deficit of £5.7 million for 2001-02, this means that the Chest, according to the Council's calculations, will have drawn down £71.5 million from the Chest reserves over five years. If these were company accounts, such results would be called losses.

3. This year's deficit has been improved by a return of 'central reserves no longer required' of £3 million. The funds no longer required are, we assume, the 'Assistant Staff Discretionary Fund' (£600,000); the Proleptic Appointments Fund (£1.3 million), and the Pay Restructuring Fund (£1.15 million).³ We mention the details of this translation of a reserve (an amount previously set aside from surpluses) into income in order (a) to forestall any complacency over the apparently modest revision of the current year's deficit and (b) to bring out into the open other matters of policy which may affect the running of the University.

4. Next year's deficit of £11.6 million has been calculated after taking into account the effects of a deficit containment exercise. Thus the targeted deficit of £11.6 million is not the real deficit, but the deficit after significant deferrals of expenditure: there are cuts in the funding for minor works and maintenance (Allocations 2002, § 16); 'a large reduction in the amount available for equipment', and 'a freeze on vacancies' (§ 40). The Equipment and Furniture allocation has been cut from £6.7 million to £2.2 million (Table 1, line 22), while the maintenance budget has been cut, presumably to a level even further below that advised by the HEFCE⁴ than has been the case in earlier years. These cuts are taking place in a period in which additional backlog maintenance has been identified⁵ and compliance with fire, health, safety, and environmental legislation is increasingly subject to enforcement. There is in the University already a higher rate of accidents reportable to the Health and Safety Executive (HSE) involving students than there are at other universities.⁶ During the course of the year there have been HSE investigations into two serious accidents. Failure to comply with legislation can lead to prohibition notices, which could, in the worst case, lead to the termination of some research programmes. New legislation, with considerable cost implications, has been introduced, for example on the care of asbestos; and a disability audit of 160 of the University's 300 buildings has identified £33.5 million of work to be done (§ 9).

5. Escaping any such cuts, however, are the promotions to personal Professorships, Readerships, and University Senior Lectureships, which will again 'be primarily determined by the assessment of academic merit without budgetary restriction' (§ 38). We assume that this exception is aimed at achieving the retention and recruitment of academic staff; yet if academics are prepared to leave Cambridge, might not poor working conditions, ill-equipped laboratories, underpaid and disaffected assistant staff, worsening staff-student ratios, increasing workloads, and the erosion of our democratic structures be just as critical to that decision as the loss of status and a few extra pounds? We note that from 1 October 2001, there have been 64 promotions to Readerships and 31 promotions to Professorships (Reporter, 24 October 2001) at an estimated cost of £740,000 per year. The worsening of the deficit raises the question as to whether we can afford to promote ourselves without budgetary restriction.

6. Future years' projected results are predicated on the same assumptions as those used for 2002-03, with 'additional recurrent new needs and non-recurrent allocations … maintained at the same level' (§ 46). The forecast is similar to that for Oxford outlined in the Oxford Magazine, No. 204, for Eighth Week, Trinity Term 2002; yet Oxford starts from a better position - a deficit of £1.6 million compared with a much greater one in Cambridge, which raises the possibility that even these gloomy prognostications may be optimistic. It is not clear how we are going to afford even the expensive initiatives, such as the student record system (CAMSIS) and the offices of the Pro-Vice-Chancellors, that are already under way.

7. Just as worrying is the fact that once again these estimates are the result of the traditional methodology of forecasting that the University employs. Forecasting is limited to the funds over which the Central Bodies have oversight, that is the 46.6% of income and 47% of expenditure represented by the Chest. It is worth drawing attention to the inadequacy of this way of managing the University's finances: this extraordinary system of allocating resources is not budgeting. The Board believes that the failure to introduce budgeting systems is a contributory factor in the University's financial crisis. The allocations on which the University continues to report cover less than half of its income and less than half of its expenditure. The University describes the split thus:

Chest income consists of Funding Council grants, home and overseas fees, endowment income, research grant overheads, transfers from CUP and UCLES, and certain other operating income. Non-Chest income consists of income from trust funds, special funds, the direct cost element of research grants and contracts, self-supporting accounts, services rendered, and residences and catering. (Allocations 2002, § 2 note).

We surmise that this tradition has its origins in the belief that the income raised under these heads is for specific purposes, matched by expenditure, and therefore self-supporting. Yet even if income and expenditure were matched - and the results for 2000-01 provided proof, in the form of a £5.6 million deficit (Allocations 2002, § 5), that they are not - that is not the end of the story: some Trust Fund income, for instance, can be applied towards 'Chest' expenditure; the indirect costs of research may be greater than the contribution towards overheads; catering and residence activities do not inevitably break even or show a profit. The case for 'joined-up budgeting' is as strong as ever.

8. In its Allocations Report for 2001-02 (Allocations 2001), published in June 2001, the Council announced that it intended to move away from the current Allocations Report basis to the statutory accounts format used in the Abstract of Accounts for all reporting (§ 50). By November 2001, the Council appeared to have backtracked, merely stating that the 'PRC has given preliminary considerations to proposals for change in the way that budgets are prepared and presented'.⁷ The Allocations Report 2001 went on to say that this would be a fundamental change in the way that reserves were allocated and managed in the University, and would also require a change of Statute (§ 52). The Board is unclear why the provision of supplementary information would require a change of Statute and is disappointed to discover that once again the Council's consideration of the University's financial position has been confined to allocations from the Chest. The Board appreciates that there have been serious difficulties in the production of financial information, that work is in progress to modernize financial reporting, and that quarterly reports have been introduced.

9. As a result of this slowness in producing proper budgets, the Regent House has no idea, and presumably neither has the Council - or otherwise they would tell us - how the deficits in this year's Allocations Report will translate into out-turn on the statutory accounts, or whether the out-turn will be made better or worse from the activities of the non-Chest side, now the majority of the income and expenditure. The Board notes that the Chest's financial performance for 2000-01 had originally been estimated at a deficit of £2.2 million; it had been revised at the time of the Allocations Report for 2001-02 to a deficit of £4.4 million. In previous years, as the Allocations Report 2001 points out, 'planned deficits' turned into 'actual surpluses' (§ 50), due to the substantial differences between the format of the Allocations Report and the Abstract of Accounts. This had indeed been the case for the year 1999-2000, when the estimated deficit had been £1.4 million⁸ and the reported surplus £12.1 million. For the year ending 31 July 2001, however, the estimated deficit of £4.4 million grew into the out-turn recorded in the statutory accounts of a deficit of £9.8 million. We would do well to assume, therefore, that deficits predicted in the Allocations Report will turn into real statutory deficits.

10. A critical difference between the Allocations Report and the Abstract of Accounts is in their recognition of the capital costs of accounting for buildings. The Abstract of Accounts includes a depreciation charge. The Allocations Report instead allocates (or not) money for capital expenditure and maintenance.

As far as the public bodies, the Funding Councils, the terms of the Financial Memorandum,⁹ and the world external to Cambridge are concerned, it is the statutory accounts that matter: these are obliged to comply with accounting standards. In the past the depreciation charge has been nugatory, although it was recently increased through a change of policy that shortened the useful life of most buildings in order to avoid the need for impairment reviews. Over the next few years, however, the rate of building works, proceeding at an average cost to the University of £600,000 per day¹⁰ may come close to doubling this year's charge of £13.4 million. There is evidence to suggest (see below) that a significant proportion of this charge will neither be offset by the related transfer from the donations nor by the extra income created by the activities within these new buildings. If this is the case, then the deficit on a statutory basis will be even further increased.

11. The statutory accounts are significant because it is these by which the University's financial performance is judged. The HEFCE Financial Memorandum requires that:

12. How, then will these deficits be funded? Deficits on the Chest are usually charged to the Quinquennial Equalization Fund (QEF). The QEF, however, began the year in the red, to the amount of £1.1 million. The Allocations Report 2002 laconically states that 'It will be necessary to fund the excess deficit from other reserves.' (§ 45). The other reserves to which it presumably refers are the departmental and Other Reserves.

13. Speaking in the Discussion of 19 January 1999, the PricewaterhouseCoopers Professor of Financial Accounting, Professor Geoffrey Whittington, made the point that 'transfers to reserves ... for the most part, are what, in company accounts, would be regarded as retained profits'.¹¹ While this might be the case, it does not, however, follow that these reserves are therefore available. We are concerned that the Departmental Reserves and Other Reserves, which at the end of the financial year stood at an apparently healthy £70.1 million (Abstract of Accounts. Reporter, Special No. 10, 22 February 2002, p. 8), are to some extent spoken for. Appendix A of the Abstract, Note L (p. 32), lists £27.7 million of Funds and Reserves Held Centrally and £45.4 million of Departmental Reserves, with captions that suggest funding for specific purposes. How then will these reserves absorb even the deficits that will accrue while the Council works on a rescue plan? Already, these losses are affecting the way and the conditions in which we work. At some point, accounting deficits turn into cash uses; how long is it, therefore, before the University's £660.8 million (General: £140.6 million; Trust and Special Funds: £520.2 million) in endowments begins to erode?

14. The Board of Scrutiny has yet to be satisfied that the Council have sufficiently addressed the Board's past recommendations on the review of Trust Funds or the review of reserves, just as it has been slow to accept the case for 'joined-up budgeting'. In its First Report (1996), the Board recommended that 'action should be taken to enable surplus [Trust Fund] income to be put to good use (1.3)'. It then had occasion to ask in its Second Report (1997) that the review of Trust Funds referred to by the Council and the Treasurer be brought forward soon (§ 2 and § 8). In its Third Report (1998), the Board recommended that 'the General Board publish by the end of the Michaelmas Term 1998, a statement of their policy and monitoring procedures on unspent Departmental reserves' (Recommendation V). In its Sixth Report (2001), it recommended that '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' (Recommendation VIII). The Board has been, from its inception, uneasy at the instability of the reporting by the University of its financial performance, being concerned when large surpluses, for instance, have been reported as small surpluses¹² and these poor results linked to the need for cost-savings exercises. It has been just as concerned that the gap between the University's cost structure and its funding sources may be greater than stated due to the selection of one accounting policy rather than another.¹³ That there is a deficit is no longer in doubt: its size, causes, and the prognosis for cure are a matter for analysis and debate.

Actions to date

15. In June 2001, the Council, in its Allocations Report 2001, forecast a deficit of £5.1 million, which the Council felt 'acceptable for a further year'.¹⁴ Just four months later, in its Annual Report the Council informed the Regent House that 'over the next three to five years there is likely to be an increasing deficit on the Chest' (p. 268). Rather than being a single-year event, the deficit would continue.

16. The Council had already identified that deficits were continuing and increasing at its meeting on 14 May 2001 (Minute 172): it moved promptly and 'supported the recommendation of the Interim Director of Finance that an action plan was needed to eliminate these predicted recurring deficits and agreed to ask the Planning and Resources Committee to make proposals on how to take the matter forward'. By the time of the publication of its Allocations Report 2001 on 20 June 2001, the Council were able to report that they had 'asked their Planning and Resources Committee (PRC) to develop an action plan to eliminate the predicted recurring deficits', stating that 'This plan will need to be approved during the next academical year' (Allocations 2001, § 48). Nearly a year later, at its meeting of 1 May 2002,¹⁵ that Committee recommended that a working group be organized to review the University's financial position, with a report due in early 2003. Then, almost a year from the Council's first pronouncement, at its meeting of 13 May 2002, the Council agreed that such a working party should be set up. Not until a month later did the Financial Working Party meet (PRC Minute 19 June, 313). Surprisingly, it seems to have taken a year for the Council to agree with its own recommendation and a year from the date that it should have taken action (a delay which surely the University cannot afford) for the PRC to agree to do what it had been told.

17. The target that the Planning and Resources Committee set itself (20 March 2002) was that:

For 2002-03, the University should project a deficit no greater than £5m, and

The University should aim to balance income and expenditure in 2004-05 and return a surplus in 2006-07, with a target surplus of 1.5% of income.¹⁶

By the publication of the Allocations Report, the first target had been dropped (§ 47).

We welcome the steps, such as they are, that have now been taken to study the causes of the deficit and to make proposals to eliminate it. We are dismayed at the lack of urgency in tackling these problems and ask whether the PRC and its working party has the resolve, resource, time, and authority to produce the plan within sufficient time to alter course to prevent further erosion of the University's assets - its buildings and its funds - or further loss of staff.

Causes of the Deficit

18. Over the past decade, decisions have been taken or policies allowed to evolve that, with proper management accounts, forecasting, and analysis could have been predicted to have caused problems:

The newspapers are full of cautionary tales of over-acquisitive companies that take on too many projects, over-expand, underprice their services, skimp on maintenance, adopt policies (accounting and otherwise) that value form over substance, implement controversial senior executive salaries, and which operate with inadequate financial controls, management, and planning. The University, on the other hand, is a self-governing community of academics: we are not beholden to shareholders, but we have an obligation to conduct ourselves in ways which are above reproach. It does not appear that we are doing so.

Recommendation I:

The Board recommends

The Expanding Estate

19. A significant contribution, it seems, to the transformation of routine surpluses into persistent deficits is the impact of the additional costs created by new buildings, to which the Estate Plan drew attention, and the recognition of those costs within the financial statements.

The University's analysis in the recent Allocations Report of the reasons for the current financial plight emphasizes the diminution in the core funding and the unit of resource (Allocations 2002, § 12). The Allocations Report quotes the conclusions of the recent report by J M Consulting Ltd, that 'the income received by HEIs in respect of nearly all externally funded research is well below the full costs to the HEI of doing the work' (§ 8). Yet that same study also points out that 'there is no culture of foregoing current activity in order to invest in physical assets' (§ 15) and recommends that HEIs 'take full strategic and managerial responsibility for maintaining assets'. The more difficult the conditions in the Higher Education sector, the greater the responsibility of the executive to develop a strategy to ensure financial viability. Our deficits - past and projected - are not only the result of sector wide underfunding but are also the reasonably foreseeable consequence of recent policies.

20. In the 1998 Comprehensive Spending Review, the Government announced Joint Infrastructure Funding (JIF) of £700 million, to be jointly administered by the Wellcome Trust and the five Research Councils, with the last year of funding being 2001-02.¹⁹ The University won £90 million of funding, some of which went for new build, some refurbishment. This was followed in July 2000, by the Government's announcement of a Science Research Investment Fund (SRIF), of £1,000 million (£775 million from the Government and £225 million from the Wellcome Trust) for improving scientific infrastructure by providing new buildings or major refurbishments between 2002-04. £600 million of the Government's money was allocated formulaically, of which the University's share was £41.9 million but on condition that '25% of the overall cost of a project' (General Board 2001, § 15), was contributed from other sources. The result was approval of sixteen of the University's projects for a total value of £88.7 million. An additional £6 million was allocated to the University from the Wellcome Trust's fund. In addition, Marconi pledged £40 million to fund a new Communications Research Centre and Research Programme,²⁰ though we assume that Marconi is no longer interested. By the end of the academic year, there were apparently '£500m's worth of construction projects … underway', 'substantially more construction than ever before in the history of the University'.

Clearly the JIF funding used to support essential refurbishments such as that in Chemistry was very welcome and relieved pressure on other resources. There is growing evidence that not all elements of the building programme form part of an explicit strategic plan and that the consequences of such growth have not been fully thought through. Last year the Board brought the matter to the attention of the Regent House and asked that 'the Council should organize open debate within the University about what its policy should be about the rate of future growth' (Reporter, 20 June 2001, § 5). No such debate has taken place and a further £120 million of projects will have been completed by the end of this year. It would have been better that such debate had occurred before rather than after the University was irretrievably committed to an implied policy of expansion.

Some of the projects within the building programme have yet to be built and so have not contributed (other than through the cost of feasibility and preliminary design work) to the University's deficit as reported to date. Over the years in which the Board has been required to scrutinize the Accounts there appears to have been over £250 million in capital expenditure, encompassing both upgrades and new buildings. How much has been funded from general resources and how much from donations is difficult to establish by merely reading the accounts. Of the £149 million of 'tangible assets financed from general funds from 1 August 1988' a considerable amount has been built over the last three years. Of the £177.4 million of capital expenditure reported during that time, only about £87.1 million appears to have been covered by donations received to date.

21. The University appears to apply the principle of matching funds beyond the context of SRIF awards, which seems curious as a strategy at a time when there is, as the Council correctly identifies, a 'reduction in resources available to maintain the present estate' and does not sit easy with the statement in Allocations 2001 that 'Most of the capital works referred to [in the paragraph on Major capital works] have been achieved with very limited use of Chest funds' (§ 38, p. 869). At the end of the Financial Year 2001-02, the Funds for Land stood at £15.3 million and that for Buildings (which the Allocations Report 1996 describes as the 'only central fund available to support new building projects' (p. 779)) at a negative £2.2 million (Abstract of Accounts, p. 31), with only about a third of the Building Programme completed. We assume, therefore, (i) that there are other funds, (ii) that the relevant amounts have already been transferred to other categories of the balance sheet, or (iii) that there are considerable deferred or committed donations. If this is not the case, then from where will the money come?

22. Since the preparation of the Abstract of Accounts following the financial year end, further projects have been announced requiring contributions from central funds or loans from central resources against future income streams. These are:

There is still more in the pipeline: the £11 million CR-UK multi-storey car park due to start in January 2003, required as part of the Cancer Research UK development at Addenbrooke's Hospital is a project 'for which philanthropic funding is not expected'.²¹

It is not obvious from the published material on what basis the Finance Committee (Statutes and Ordinances, p. 897, Regulation 3(b)) could advise the Council that 'funds both for the estimated capital cost and for the recurrent costs of maintenance and use' were available for these buildings. Is the Council satisfied that in light of their comments in the Allocations Report and the financial position recorded in the Abstract of Accounts, that these projects will not put us further into deficit?

Recommendation II:

The Board recommends that when putting a Report on major building projects before the Regent House, the Council includes

Stewardship of the Estate

23. In our Sixth Report, we pointed out that the University's way of accounting for its buildings, although now in accordance with Accounting Standards, makes it difficult to assess issues of stewardship. The Board, therefore, recommended that the Finance Committee reconsidered its policy on depreciation. Rather than engaging with our concerns, the Council in their Notice responded by reciting accounting theory. We respectfully point out that Financial Reporting Standard 18, Accounting Policies states that

We were concerned at the time that the depreciation charge was not a very meaningful number, as it was calculated from a mish-mash of different values: everything in existence at 31 July 1994 at valuation at that date and everything later at cost. The resulting expense in the Income and Expenditure Account was £10.643 million, of which £3.592 million were covered by donations (note 14, p. 18); this year, it is £13.425 million. If the depreciation figure were, for example, understated, then the deficit would also be understated.

On reflection, perhaps we asked the wrong question of the wrong committee. We were concerned that the true costs of the buildings in terms of financial planning not only the depreciation, but also the costs of repair, utilities, insurance, and cleaning had not been fully assessed. We were concerned that future liabilities were building up and that we were living beyond our means, which made the reported results hopeful at best. In this respect, we welcome Estate Management and Building Service's introduction, first announced in the Council's Report for 1998-99 (§ 27), of 'whole-life' cost analysis in the procedure for authorizing new buildings. We understand, however, that it was only introduced at the beginning of 2001.

Maintaining the Estate

24. The maintenance of the Estate consists of: (i) the renewal of buildings due to wear and tear and obsolescence, and (ii) reactive and planned preventive maintenance. In the view of the Estate Plan,²³ the depreciation charge in the Accounts covers the former. Until the financial year ending 31 July 1999, the University did not provide for depreciation on operational buildings on the grounds that these were 'fully maintained'. In its Third Report, therefore, the Board had asked for 'a justification of the rationale behind the policy of non-depreciation of the University's buildings, with specific explanation of the provision for full maintenance' (Recommendation III). The University's response was to introduce a depreciation policy but not to explain the provision for full maintenance, nor presumably to abandon its policy of full maintenance: in practice it has done so.

25. As early as 1996, the present Treasurer in her first Report struck a warning note, stating that though the 'University is committed to funding [maintenance] expenditure, so as to avoid another build-up of backlog maintenance' to do so 'provides a continuing challenge ... as other important items compete for finite resources'.²⁴ By 1997, full maintenance, based on a five-year major maintenance programme, was the explicit basis of the policy of non-depreciation. Yet in 1999, the introduction of the depreciation policy led to a charge of £1.2 million, representing a shortfall in the provision versus the actual expenditure for that year (Abstract of Accounts, 1998-99, Note 15, p. 15).

26. Clearly the stewardship of building assets is an area in which professional guidance is relevant. The HEFCE, following the RICS guidelines, recommend a minimum of 1.5% of the estate's insured value (presumably replacement cost) on 'routine steady state maintenance'²⁵ with further allowances for listed and highly-serviced laboratories. Going further, J M Consulting states that institutions should invest '4% of their insured asset value on an annual basis to allow for necessary renewal and replacement of buildings and equipment' (Executive Summary: § 14). Some of this spend will be treated as a capital investment, some as an expense.

In the past, the Council has seen as desirable an allocation of 1.5% per annum of insurance value (in line, it says, with the HEFCE's requirements). Given the nature of the buildings, 8 Grade 1 Listed and 48 Grade 2 Listed, and numerous highly serviced laboratories it seems doubtful if this policy will lead to sufficient investment even if implemented.

27. The University states that it used the HEFCE guideline as the basis for its allocation in 2000-01, but for 2001-02, the PRC recommended a reduction of £2 million, resulting in a budget of 1.33%. That budget, although excluding £140,000 of maintenance at Department level, curiously included £400,000 for garden maintenance, an item not included in the 1.5% recommendation.²⁶ Those responsible for allocating and prioritizing resources presumably take the view that you cannot spend what you do not have. The Board believes that that the maintenance of our buildings has improved over the last ten years and proceeds according to a systematic plan. However the obligations of stewardship are not met by investing money from discretionary funds in new buildings where old buildings deteriorate for want of repair.²⁷

28. Just as there is some question as to the definition of the maintenance that the 1.5% is to cover, so there is some question at least in our minds as to the sum from which this 1.5% is derived. If these guidelines are to be useful as a measure of the resources it is necessary to allocate, then it is imperative that the total cost of replacement is sufficiently accurate (whether the calculations are on a depreciated basis or whether or not the amount includes fees, and VAT) and that the items covered by the annual allocation are on a like-for-like basis. In the Estate Plan 2000-01, we read that

The Estate currently comprises around 300 buildings ranging from Grade 1 Listed buildings to agricultural type buildings; the gross area of these buildings is 500,000 sq.m. approximately. The current estimated replacement value of the Estate is £764M. (1.1, p. 40).

The valuation of £764 million given in the Estate Plan (now about £915 million) is difficult to reconcile with a Building Programme of £550 million, even allowing for that number to be on a different basis (in terms of VAT and fees) than the insurance value and even if some of the amount has now transferred into the insurance calculation. It would be helpful to know how much of the programme covers refurbishment and how much is new building. Without such information, one could conclude that the University is growing in size by half as much again or that its existing buildings are just not worth very much.

Presumably those making the decisions to allocate amounts based on percentages of other amounts do so in the full knowledge of the consequences of their calculations on fabric and facilities, especially in the light of

All of the above leads us to note that the University is not in fact compliant with the spirit and terms of the Financial Memorandum, which requires that

We are concerned that those guiding our finances take the view that maintenance is optional and that in periods of hardship the maintenance budget is an easy target for cutbacks. If at the same time new buildings are being put up, then the effects of such a policy will be magnified, storing up considerable trouble for the future.

29. Rather than speculating further on the financial impact of the building programme and the cutbacks in the maintenance budget by putting together pieces of the puzzle from the published sources, the Board invites the Council to report to the University on its Estates Strategy. None of these comments is meant to imply that there is anything hole and corner about the operations of the EMBS. There is the evidence of our own eyes as we survey the skyline of Cambridge, where cranes mix with the dreaming spires, to point to its many achievements. Tours are routinely organized, full project updates and post-completion reports are provided; there is an exemplary website, and an Estate Plan has been produced and will shortly be updated.

30. But EMBS is a service and what appears to be missing, as seems all too often to have been the case, is evidence that there is one committee, other than the Council, or a procedure in which the work of the several divisions in this case EMBS and Finance come together, where the potential impact on each other can be assessed before the consequences take the form of dilapidated premises, outdated laboratories, and under-occupied buildings on the one hand, and an empty piggy bank on the other.²⁸

Recommendation III:

The Board recommends that

The Presentation, Preparation, and Content of the Accounts

31. Once again, the University's practice of recording its transfers to and from reserves on the face of the Income and Expenditure Account led to confusion among members of the Regent House as to the out-turn. This practice, which has been criticized both in Discussion (January 1999) and in our last Report, would have been easy to change. We understand that the Director of Finance will recommend that the University follows the accepted standard.

32. We welcome the Audit Committee's more vigorous approach post-CAPSA to its duties, in particular the decision to review the appointment of the University's auditors. While we accept that there may be instances when it will be more efficient for the auditors to take on other fee-paying assignments for the University, we urge the Audit Committee to be scrupulous in the analysis and avoidance of any conflict of interest that might occur if the University's auditors are given other University assignments.²⁹

33. We urge the Audit Committee, the new Director of Finance, and the new auditors to consider ab initio some of the accounting policies that the Board has believed depart from the Statement of Recommended Practice and Accounting Standards. Specifically, these are the consolidation of UCLES and the Press; the co-terminous reporting period of UCLES and the Press; and the recognition of investment income.

Other Financial Matters of Significance

34. The Board welcomes the work that the Audit Committee and the Director of Finance have put in hand on a risk management strategy. The Board recommends that, as part of the risk assessment, a thorough analysis is undertaken of the risks of a single manager acting as Fund Manager for an endowment securities portfolio of £560.4 million.

Resource Allocation Model

35. In its previous Report, the Board of Scrutiny noted that the then on-going Review of the Mission Statement had led to concerns about the future of minority subjects in the University. The Board had recommended that, if such concerns were still current, there should be an open discussion about the future of small Departments before the University produced a new Resource Allocation Model (RAM). In its response the Council noted that there was no particularly pressing 'concern' about small institutions and therefore an open discussion of the issue was not the most appropriate strategy. The Council also noted that 'the early implementation of a RAM would assist, rather than hinder, a proper understanding of the costs involved [of small Departments], which might then be a matter for further discussion'.

Subsequently, in its Annual Report, the General Board noted that it had 'given the highest priority to the development of a Resource Allocation Model (RAM) to inform the allocation of resources to academic, academic-related, and service institutions within the University'.

36. A consultation paper on the RAM was issued on 18 January 2002, together with a helpful frequently-asked-questions website. The covering letter argued that 'for reasons of accountability, transparency and fairness, the adoption of a rational mechanism for the distribution of the University's resources ... must be a high priority', and claimed that the proposals met those requirements. One of the aims of the RAM was that it should provide 'a mechanism for the resourcing of new academic developments, and provide a financial incentive to institutions to undertake such developments where they are academically desirable', and that it should 'be based on fair and objective criteria' and 'should not distort behaviour in unacceptable ways'. The formula used to attribute income and expenditure was claimed, inter alia, to reflect 'the level of income generated' by earning institutions.

37. The Board would applaud a RAM that met all of the above aims particularly, given the ongoing deficits, if it was based on objective criteria and gave a transparent understanding of the income and costs of Departments. However, it is not clear that such a RAM exists, and the Board has a number of concerns with the current proposal.

Income and Costs

38. The references quoted stating that the RAM should provide 'a proper understanding of ... costs', and that it should reflect 'the level of income generated' by earning institutions, suggest to the Board that the RAM should accurately model income and costs. This view seems to be supported in the recent Report on the new building for the Faculty of English where it is argued that certain additional recurrent costs 'will be a charge against the Faculty under the RAM'. However, in a June 2002 letter, the Board was informed by the Academic Division that 'the RAM is not an income and cost attribution model' (our emphasis), but that instead the 'RAM is trying to answer the question 'how much resource should the University give to each of its constituent parts''.

It is true that the latter view is not inconsistent with the Principles of Resource Allocation listed in the consultation paper (in which income and costs are not explicitly mentioned). However, if the RAM is not an income and cost attribution model then it should not be portrayed as one elsewhere (albeit sometimes implicitly); further, the question arises as to why the RAM should not be an income and cost attribution model.

The RAM and the DA

39. The University already has over ten years experience of a formula driven assessment of income and expenditure, namely the Disaggregation Analysis (DA). Since an argument can be made that the DA is an income and cost attribution model, why does the University need a RAM? The answer seems to be that the figures produced by the DA are less 'acceptable' than those produced by the proposed RAM, for example one school is about £4.5 million in deficit according to the DA, but breaks even according to the RAM.

40. Which set of figures is correct, or more appropriate? The consultation paper seems to suggest implicitly that any error lies in the DA. However, if so, this would be rather alarming since the DA has been used as a retrospective analysis of income and expenditure in order to help guide resource allocation for the last ten years; as such the University should be relieved that the DA has not been applied rigidly. But rigid application is what has been proposed for the RAM, which will be 'used to determine the income from certain sources attributable to each school'. Given the differences between the DA and the RAM how can the University be confident that the RAM is 'correct', or at least more 'correct' than the DA? The suspicion arises that the RAM has been tuned to give politically acceptable answers (although this is not necessarily unacceptable as long as sound financial criteria have been applied, see below).

41. The differences between the DA and the proposed RAM also highlight the well-known fact that such models depend sensitively on the formulae employed. The Board is of the opinion that the consultation paper does not make this point sufficiently clear, and find it surprising that a sensitivity analysis of the proposed formula has not already been carried out (although one is promised before implementation).

Teaching Income

42. One of the major differences between the DA and the proposed RAM is the way in which the HEFCE Teaching (T) grant is allocated. Indeed, the consultation paper makes the point that if the RAM were to allocate the HEFCE T grant in the same way as does the DA then Departments with low HEFCE subject weightings would end up incurring a deficit for each student taught. In these subjects, the core allocation of funds per student, made up of the weighted HEFCE T grant, composition fee (the new tuition fee), and a share of University discretionary income, would be less than the charges allocated to the Department in respect of each student in the form of University overhead and College fee. The consultation paper argues that this would open up the possibility for certain Departments being able 'to reduce their deficits by reducing student numbers'. This is an important point, but the Board is concerned that the proposed RAM might distort behaviour in other unacceptable ways. Indeed the trouble may not be with the DA, but with the fact that the 'University is losing money on all its students'.³⁰ The Board believes that the University needs to face up to this fact, and to understand the consequences.

43. The extent to which the University is losing money on teaching is unclear. It is even more debatable as to what is the loss on different types of student, since that depends both on how the College fee is attributed and on the interpretation of the HEFCE T grant.³¹ The following example states the position in its starkest form. Suppose that (as is assumed in the DA) the College fee is the same for all subjects (cf. the old LEA College fee). The College fee then averages out at approximately £2,725 per undergraduate student in 2001-02. Compare this with the 2001-02 HEFCE 'standard resource' for a Cambridge undergraduate student in the lowest subject-weighting band (i.e. Band D) of £3,348. On a raw analysis this suggests that in 2001-02 the University, in the form of the Faculties, Departments, and central bodies, had just over £600 to lecture, examine, and provide central services for a Band D student.³² Similar calculations for subjects in other Bands suggest that after payment of the College fee, the HEFCE T and composition fee income is unrealistically small to cover expenditure. As a consequence the University is 'spending £16m per year of discretionary income' supporting students.³³ An important consequence of this is that it is unlikely that the University could reduce its deficit by an expansion in student numbers (a route that has proved successful for other universities).

The Proposed RAM

44. Given the inadequate teaching income, the proposed RAM attempts to square the circle without 'distorting behaviour in unacceptable ways' by the use of a 'local formula' for distribution of teaching and discretionary income by top-slicing the College fee, allocating the composition fee directly to Schools, and then distributing the remaining funds between Schools using a formula which incorporates the HEFCE subject weightings. As indicated above the consultation paper justifies this formula on the basis that the HEFCE weightings are 'objective'.³⁴ This argument does not stand up to inspection. By both top-slicing the College fee and allocating the composition fee directly to schools, the RAM essentially redistributes standard resource from those subjects with a high HEFCE weighting to those with low HEFCE weightings. The result is that Departments do not receive the same proportion of the T grant as they would in other universities that use the HEFCE weightings. The Board is of the opinion that this model fails to reflect the level of income generated by earning institutions, and is neither objective nor transparent.

45. Further, by providing an incentive to Schools with large numbers of lower band students, to try and increase their numbers of students (e.g. by lobbying at College level), the University is also seemingly providing an incentive to increase its deficit; for an increase in the number of lower band students would probably be at the expense of higher band students (so reducing University income). Further, even if the University obtained permission from the HEFCE to expand the number of lowest band students, it is unlikely that the extra £600 income per student per annum would cover the necessary increased expenditure.

A Revised RAM and an Income and Expenditure Model

46. The Board concludes that the proposed RAM is unsatisfactory in that it is neither objective nor transparent. Nor does it provide a proper understanding of the costs, and moreover could end up distorting the University's priorities. The Board urges that there be a consultation with the aim that the composition fee and the HEFCE T grant should be distributed in a way that more accurately reflects the relative contributions of the University and Colleges to teaching in each subject (e.g. the difference in costs that Colleges incur in educating students in different subjects might be taken into account). This would have the advantage of improving the accountability that the University must demonstrate in the allocation of its HEFCE T grant. The University's discretionary income should then be used to support the teaching in the University and Colleges that the University judges academically desirable but which has a low HEFCE rating, while recognizing that an expansion in student numbers would spread this discretionary income more thinly.

Recommendation IV:

For the above reasons, the Board is now of the opinion that before the University attempts to move to produce a RAM, there should be an open discussion about all aspects of funding, especially the difficulties facing small Departments and subjects with low HEFCE ratings. An open acceptance of the probable need to support such Departments and subjects disproportionately from discretionary income seems to be a necessary prerequisite before a transparent RAM with a proper understanding of costs can be decided.

The Cambridge-MIT Institute (CMI)

47. The Board wishes to be reassured that the University has thought through clearly the consequences of setting up the CMI programmes in terms of demand on future resources. If, for instance, the M.Phil. programmes and the undergraduate exchange programmes are to continue, Faculties and Departments will have to devote their own financial and administrative resources to them. Is it clear that those Faculties and Departments that are participating in the programmes at the moment are fully aware of the resource demands that will follow if they wish to maintain what they have put in place from 2005? Continuing the M.Phil. programmes after 2005 is predicated on the introduction of 'premium' fee levels and a fee income stream being available to the relevant institutions (Education Committee, 23 January 2002, 374.11). This may be an optimistic assumption since the University has taken no decision on the general issue of 'premium' fees for M.Phils. Since the evidence suggests that MIT is very serious about maintaining the link after 2005, the University should make a strategic decision about CMI's future as soon as possible. If Faculties and Departments and the University are to devote resources after 2005, it should be because they have decided to do so for rational reasons, not because in 2005 it seems the least bad way of dealing with a crisis. The possibility of such a decision being made is not helped by the existing position of CMI in the University. While the General Board has responsibility for the University's academic programme (§ 6), CMI is an independent entity. The continuing uncertainty and incoherence in how CMI reports to the University is particularly unconstructive.

Recommendation V:

The Council should clarify as soon as possible the question of to whom CMI reports. The University should make a decision about CMI's future after 2005 so that there can be sensible discussions about the future allocation of resources to CMI programmes.

Section 2: Governance

Proposals on Governance

48. In its Sixth Report last year, the Board commented on the fact that the report of the Committee on Governance, originally promised for 'early in 1999-2000', had not yet appeared. The Board was therefore pleased when the Governance Committee brought forward a set of provisional proposals in the Lent Term 2002. Since then, things have been moving quickly. The Council invited comment on the proposals and initiated a programme of consultation in the form of a series of 'road shows'. In June 2002 the Council reported to the University with a number of proposals to amend the Statutes. These proposals were discussed on 9 July 2002; the proposals will be discussed again on 8 October 2002.

49. In March 2002 the Board prepared and submitted a response of around 4,000 words, with 24 Propositions, in which it welcomed certain aspects of the proposals and criticized others.³⁵ As this response is publicly available, the Board will not repeat its contents here. However, there are three points which the Board believes it is necessary to stress again.

50. The first concerns the consultation process. The Board welcomed the key features of the consultation process, for example the 'road shows' and the possibility of submitting views electronically. However, a number of the questions in the electronic questionnaire were ambiguous to an extent that compromised the results. The Board drew the Council's attention to this in its response. The Board notes that the Council's Report of 17 June 2002 did not address this concern.

51. Secondly, in its response the Board highlighted the need for any proposals for a change in the governance of the University to be thoroughly debated, and not rushed through before their implications had been properly thought out. In particular the Board noted that after a delay of over two years in producing their Report, the Council seemed to be proceeding with undue haste. The Board believes that this is still the case and sees further signs of hurry on the face of the Council's Report of 17 June 2002 and its proposed amendments to the Statutes. For example, on page 952 it proposed (presumably as a result of a typographical error) that the non-Regent-House members of Council in class (f) will be both elected by themselves, and appointed by the Regent House by Grace. Similarly, the proposed definition of persons qualified to be the new external members, while explicitly excluding most of those who are part of the University, inexplicably omits to mention students.

52. The third point the Board wishes to make in this context is the obscurity as to the place where executive power and decision making in the University would in future lie. The proposed changes to the Statutes would make the Vice-Chancellor 'responsible for the executive management of the University and its finances'. This involves a major overlap with the position of the Council under Statute A, IV, 1(a), which makes the Council 'the principal executive [our italics] and policy-making body of the University'. The Board in its response in March pointed out that this would lead to a governance structure with a lack of clarity on a fundamental point, as did other respondents. This point was discussed by the Council in its Report of 17 June, but the Board believes that the Council's observations do not answer the objection, and its proposed amendments to the Statutes do not properly address it.

53. The Board believes that this issue is a fundamental one, and the failure to address it could have serious consequences for the University. Where two bodies have overlapping powers and there is no clear order of precedence, there is an obvious risk of conflict and of impasse. In the comparatively undemocratic world of business, the chief executive who loses the support of the Board is sacked, but there is no way in which the Council could sack the Vice-Chancellor, should the equivalent situation arise in the supposedly democratic University of Cambridge. Under the arrangements proposed, the Vice-Chancellor would enjoy a seven-year reign - and, while in power, could only be deposed by the Chancellor under the tortuous procedures set out in Statute U.

54. That said, the Board is sensitive to the need for the responsibility for the implementation of policy decisions to be placed more singly. In its Response, the Board commended Oxford's Statute Vi 3 (1), which provides the opportunity for Oxford's Council to delegate to a person as well as to a body. The Board repeats this suggestion.

Recommendation VI:

The Board recommends that the proposed amendment to Statute D, III, 3 should be withdrawn. The Board also recommends that the Council consider introducing an amendment to the Statutes to allow for delegation to a person.

Discussions

55. In the past, Discussions have been the traditional means by which members of the Regent House and other senior members of the University have been able to express their views, both on routine business and on topics of special concern. They have thus formed an important part of our system of government and can provide a uniquely valuable forum for lively and measured debate, as the well-attended Discussions on CAPSA show. In recent years, however, they have been in some minds seriously discredited by a few speakers indulging in attacks against named individuals and irrelevant asides of a personal nature. The Board therefore agrees with the recommendation that Professor Shattock made in his CAPSA report, which was that the University should establish standing orders for Discussions designed to 'encourage the discussion of issues and processes but protect individual University officers from abuse.' Despite this, however, the Board believes that the Council was unwise to attempt to deal with the problem without consultation and by means of the Notice and Grace published in the Reporter of 15 May 2002. The intention of the Notice was to announce to the University that the person presiding at a Discussion had authority to rule out of order all remarks made and that such remarks would not then be published. The Grace did not, as such, empower the person presiding to make such a ruling, but required the Registrary to implement such rulings when reporting Discussions. The Board believes that any power to rule comments out of order at Discussions is one that should be prescribed and limited by Ordinances. The Board also notes that, under current arrangements, the persons presiding at Discussions are frequently those who have been involved in making the proposals or decisions which are being discussed.³⁶ The risk of a conflict of interest in such a case is obvious.

56. On the subject of Discussions, the Board wishes to draw the attention of the University to the Discussion of 9 July 2002 on the Report of the Council on the construction of a new building for the Faculty of English (Reporter, p. 902). Whatever the technical contractual position may have been, by the time the Discussion took place the contractors who believed that they were going to erect the building were already present on the site. In reality, therefore, the Regent House was not being asked to give advance approval to the project, but to give retrospective approval for a project that had been agreed on and partly implemented. The Board does not understand why, if the approval of Regent House was required, it was not sought earlier - nor why, if it was impossible to seek approval earlier, the reality of the situation was not made plain in the Report.

The Conduct of Business by the Central Bodies

57. In the Board's Report on CAPSA, the Board noted that if the academics who serve on University bodies are to exercise proper supervision and control, they need better support from the higher levels of the University civil service. Ms D. Lowther, who is a member of the Finance Committee, observed in last December's Discussion of the Shattock and Finkelstein reports that this body

has an important job to do, but its papers largely consist of an unmanageable quantity of the undigested minutes of other committees' meetings. The Finance Committee would be considerably more effective, and certainly more efficient, if the Finance Division had enough staff in place to produce a clear analysis of the matters about which decisions need to be taken, and reduce the number of papers which need to be read before the meeting to a realistic level.

She went on to observe that a more efficient allocation of resources could be achieved by paying for the professional staff necessary to service the Committee properly. A similar view has been expressed at the Governance Committee, namely that there should be 'greater use of well prepared policy papers and less reliance on commentary on committee minutes'. The Board supports this suggestion.

Recommendation VII:

The Board considers that as a matter of urgency steps should be taken to ensure that the key committees receive the level of support they need from the Unified Administrative Service in order that these committees can function efficiently.

Altering the Mechanism of Government

58. Finally, the Board wishes to draw the attention of the University to what it believes has become in recent years an undesirable habit of implementing changes in the way that things are run first, and bringing the Statutes and Ordinances into line with the changes afterwards. This is what happened with the first Directors, who were appointed before the Ordinances relating to the Unified Administrative Service were amended. It happened again with the roles of the Secretary General and Treasurer, whose responsibilities and position in the hierarchy of University government appear to have been changed de facto, with moves to amend the Statutes and Ordinances afterwards. A similar process appears to be taking place in relation to the statutory Finance Committee, which appears to be increasingly sidelined by the non-statutory Planning and Resources Committee and Resources Management Committee. In its Fourth Report two years ago, the Board had occasion to point out that the General Board had changed its schedule of meetings in breach of the Statutes. The Board is not opposed to change as such, but firmly believes that, in principle, the proper order for implementing changes is to decide them after public discussion, amend where necessary the Statutes and Ordinances, and only then to implement them. Too often in the recent history of the University, the reverse order seems to have been followed.

Section 3: Administration

Unified Administrative Service

59. The Unified Administrative Service (UAS), conceived by Grave and partially implemented by Wass, has now become established and over the past few years the structure of the administration has undergone reform. In its Fifth Report the Board expressed concern at the way in which aspects of this reform appeared to be taking place by stealth, for example by the creation of unestablished posts for Directors. The Reports (Reporter, 21 March 2001, 3 October 2001) of the Council on the Unified Administrative Service have to a certain extent clarified matters (e.g. by establishing the Directors): however the revised roles of the Treasurer and Secretary General are still not finalized. The Board consider this position to be unsatisfactory, noting that there has as yet been no response to the important issues raised by Professor Edwards in the Discussion of 30 April 2002.

Recommendation VIII:

The Board urge the Council to regularize the roles of the Treasurer and Secretary General expediently.

60. In its Annual Report, the Council justifies the aforementioned reform of the UAS on the grounds that

The main purpose of the proposals put forward were to provide for more effective service delivery from the Unified Administrative Service and to separate more clearly the management of the administration and the management of the University.

The Board welcomes this statement since effective service delivery was one of the concerns of its Sixth Report, for example the Board highlighted the need for performance indicators. In its reply to that Report, the Council said that it would consider the development of internal indicators, and proposed that discussions be held with the Board of Scrutiny on how this might be achieved. As regards the first part of this response, during the year the Board has sought to determine how the Council's considerations have progressed (e.g. see the Board's remarks below concerning the Research Services Division). As regards the second part of the response, the Board notes that it is not clear that it is its duty, or business, as a non-executive body to develop such indicators.

61. As part of the Board's continuing interest in the efficiency and effectiveness of the UAS, the Board has been keen to ascertain whether the eight Divisions (formally established on 1 January 2002) are now delivering measurable benefits to the University. To this end members of the Board have held one or more meetings with the Registrary, the Treasurer, the Academic Secretary, and the Directors of Research Services, Finance, Personnel, Estate Management and Building Service, and Health and Safety. All these officers gave freely of their time to explain their strategies and modus operandii and answer questions from the Board. In addition, members of the Board consulted individually a number of departmental administrators and more junior staff in the UAS to try to determine how relationships with the rest of the University and within the Divisions were progressing.

62. One of the themes to emerge from these meetings was a need for a clear strategy and/or business plan, as well as performance indicators, for each Division. The Estate Plan and the Human Resources Strategy³⁷ are welcome steps forward in this respect. However the Board found it somewhat surprising that such plans/measurements did not already exist for all Divisions, since it expected that they would have been drawn up as part of the reform of the UAS into eight Divisions. Indeed, the published strategy of the University as a whole seems somewhat lacking. The Board looks forward to the publication of the University's Strategic Plan, and hopes that it will have a clear vision underpinned by rigorous argument and realistic financial projections. The latter is clearly important if the financial position of the University is to improve.

63. It is well known that the UAS has expanded in recent years. A prime example of this expansion is the Research Services Division (RSD). As far as we have been able to ascertain, ten years ago there were many fewer people in the University involved in the administration of research grants and contracts and in technology transfer; RSD now employs approximately 50 staff. Of course the volume of work that RSD performs has significantly increased over the same period, but the Board doubts that it has increased in proportion to the increase in staff.

The Board believes that this significant extra expenditure must be seen to be cost effective for the University, for example by improved service delivery that meets performance targets and by increased income from technology transfer. The Board is therefore pleased to note that, as a step in this direction, RSD has recently published a set of service standards.³⁸

64. In emphasizing the need for value for money, the Board is not announcing its opposition to the expansion of the UAS as such. Indeed, in its earliest Reports the Board suggested that there was under-investment in the administration of the University, a view endorsed in the last year by Professors Shattock and Finkelstein who recommended that the University:

needs to consider a substantial further investment in administrative support in the centre and in departments ... and … should take steps to improve the effectiveness of the recruitment and retention of senior administrative staff.

However, the Board notes that in its First Report it recommended that the provision of proper management accounting procedures be treated as a matter of urgency, and what it got was CAPSA/CUFS. The Board wishes to be reassured that its earlier support for investment in the administration of the University does not turn out similarly, particularly when there has been an additional recurrent allocation of £1m to the UAS at the same time as there is a freeze on vacancies.

65. The Board also recalls that the Wass Report in 1989 recommended the housing of all sections of the central administration on a single site in order to improve efficiency and contact between administrative officers in different sections. While some progress has been made on this front, the administration is still scattered across Cambridge, sometimes in unsuitable buildings. The Board endorses the idea that the administration should be located on a small number of sites. However, the Board wishes to be reassured that the re-housing of the administration that has taken, or soon will take place is cost-effective, and that it is part of a long-term plan.

66. After a somewhat uncertain start, with the resignation of the first two Directors soon after CAPSA/CUFS go-live, the Board is glad to note that the reformed UAS appears to be achieving some welcome stability. The Board believes that after a further period in which to prove itself, there should be a review of the UAS in order to demonstrate that the reforms have led to an improved administration.

Recommendation IX:

Strategic plans and service standards should be drawn up for each of the new Divisions that, inter alia, demonstrate that the new administrative structure and continuing expansion of the UAS is cost-effective. The Board also believes that there should be regular reviews of the structure of the UAS in order to ensure that the reforms are working.

67. The expansion of the UAS has meant that there have been a significant number of appointments new to the University. Given that the democratic and academically led culture of the University and its Colleges is in a number of respects unique, there has been, of necessity, a period of acclimatization for some of the new appointees. Indeed, the Director of Personnel acknowledged to the Board the need for improved induction of University staff coming from outside Cambridge, particularly at management level. In this respect, the Board wonders whether the term 'Director' was the most appropriate for the head of a Division, since a key aspect of the job of a head of Division is to advise and guide, rather than direct, academically led committees and the rest of the University.

Hence, while the Board believes that progress has been made towards creating a more proactive, professional central administration, in a number of cases new initiatives do not appear to have been properly tested and 'sold' before being put into action. In particular there seems to be an apparent reluctance to use the mechanisms available within the current structures of governance of the University to achieve greater acceptance and understanding. The Board is concerned that the system of Notices, Reports, and Discussions is sometimes viewed as an inconvenience, or possibly even an irrelevance.

Recommendation X:

The Board recommends that there be improved induction procedures for staff, in particular as regards the democratic and academically led culture of the University, including Colleges. The Board recommends that the current democratic structures of governance of the University be fully exploited.

There is of course a reciprocal responsibility for the academics leading the University to take professional advice seriously. In particular, when it comes to statutory obligations, whether University, HEFCE, governmental, or other (e.g. over health and safety matters), the University's committees, Departments, and Faculties need firm, possibly insistent, advice from their administrators.

Recommendation XI:

In cases where the University is in danger of not satisfying its legal obligations, the administration needs the power to require its advice to be followed.

Equality of Opportunity

68. The Equality Audit in 2000 (the subsequent Schneider~Ross report and Action Plan) was a welcome first step to addressing issues of equality in the University. In this connection, however, the Board would like to draw the attention of the University to the following facts and figures. At present, 47.73% of Cambridge undergraduates and 44.19% of Cambridge postgraduates are women, whereas this is true of only 6.25% of our Professors (a figure that has risen from 2.5% in 1985). Meanwhile, in the year in which the Vice-Chancellor reaffirmed his commitment to equality reform, stating that the Audit had offered 'Pointers to the way in which the University's character has changed, and must change further', all the members of the University Committee on Child Care are women, whereas all the members of the Governance Committee are men.

The Press Office

69. The Press Office, which is currently part of the Vice-Chancellor's Office, has done much to raise the profile of the University positively: in particular, the contribution to National Science Week and prompt response to press enquiries. For this excellent work the Board commends it.

70. However the Board, whilst appreciating that the University must do what it can to present an acceptable face when dealing with the outside world, feels that the Press Office sometimes goes too far in attempting to play down awkward matters.

71. The Board was deeply concerned when, on trying to issue its initial statement on the CAPSA report through the Press Office, the Press Office first tried to censor the statement and then to suppress it. The Board was also disturbed, when, on 5 November 2001, the Press Office published a statement about the current state of CAPSA which the Board believed to be misleading, and in its interim statement on the implementation of CAPSA on 21 November the Board criticized it for doing this. The June/July 2002 issue of the Newsletter quotes a footnote to the Board's Report on CAPSA, but without dealing with the main thrust of the Report.

72. The Board welcomes the current consultation on a possible new University newspaper. However, it believes that if the Press Office is to be responsible for this, its role and responsibilities need to be clarified and debated within the University first. The primary task of the University is to seek and disseminate the truth, whether palatable or otherwise, and the work of the Press Office should reflect this spirit.

Summary of Recommendations

I. The Board recommends

(i) a root and branch review of costs and sources of funding, taking into account all of the University's resources, identifying Trust and Special Funds that can be used to support Chest activities, and reallocating unspent reserves where possible;

(ii) proper forecasts and budgets, based on that review, and prepared inter alia in the form of the principal statements of the statutory accounts; and

(iii) that the results of this exercise are published by the end of the first half of the University's financial year, that is 31 January 2003.

II. The Board recommends that when putting a Report on major building projects before the Regent House, the Council includes

(i) the balance on the relevant University fund after giving effect to the allocated amount,

(ii) a statement as to whether the donations have been received, and if not, whether they are legally committed, and

(iii) a statement on the consequences on cash flow of any deferred external funding.

III. The Board recommends that

(i) the Council publishes a detailed Report on its Estates Strategy, including: an assessment of the financial implications of its Building Programme; its policy on, and plans for the maintenance of existing and future buildings including information on actual and target spend on maintenance expressed in terms of £ per square metre; and its compliance with the Estates Management requirements of the Financial Memorandum,

(ii) the Council allocates specific amounts against a fully costed plan for compliance with Health and Safety and Disability and Environmental legislation as it affects buildings and equipment,

(iii) the Council considers the remits, the membership, the resourcing, and the interrelationship of their committees, and their sub-committees, the Planning and Resources Committee, the Resource Management Committee, and the Finance Committee to ensure that decisions are taken at the right level by the right people on the basis of full information; and publishes the results of their deliberations by the end of the Michaelmas Term 2002, and

(iv) rather than projects being presented piecemeal, the Capital Programme is presented as a whole with supporting analyses, so that there is an opportunity to assess projects against a strategic plan rather than to prioritize projects on the basis of first-come, first-served.

IV. For the above reasons, the Board is now of the opinion that before the University attempts to move to produce a RAM, there should be an open discussion about all aspects of funding, especially the difficulties facing small Departments and subjects with low HEFCE ratings. An open acceptance of the probable need to support such Departments and subjects disproportionately from discretionary income seems to be a necessary prerequisite before a transparent RAM with a proper understanding of costs can be decided.

V. The Council should clarify as soon as possible the question of to whom CMI reports. The University should make a decision about CMI's future after 2005 so that there can be sensible discussions about the future allocation of resources to CMI programmes.

VI. The Board recommends that the proposed amendment to Statute D, III, 3 should be withdrawn. The Board also recommends that the Council consider introducing an amendment to the Statutes to allow for delegation to a person.

VII. The Board considers that as a matter of urgency steps should be taken to ensure that the key committees receive the level of support they need from the Unified Administrative Service in order that these committees can function efficiently.

VIII. The Board urge the Council to regularize the roles of the Treasurer and Secretary General expediently.

IX. Strategic plans and service standards should be drawn up for each of the new Divisions that, inter alia, demonstrate that the new administrative structure and continuing expansion of the UAS is cost-effective. The Board also believes that there should be regular reviews of the structure of the UAS in order to ensure that the reforms are working.

X. The Board recommends that there should be improved induction procedures for staff, in particular as regards the democratic and academically led culture of the University, including Colleges. The Board recommends that the current democratic structures of governance of the University be fully exploited.

XI. In cases where the University is in danger of not satisfying its legal obligations, the administration needs the power to require its advice to be followed.

¹ Report of the Syndicate appointed to consider the government of the University, 'The Wass Report', Reporter, 19 May 1989, 5.2.1, p. 622.

² Report of the Council on the financial position of the Chest, recommending allocations for 2002-03, Reporter, 19 June 2002, pp. 921-31 ('Allocations 2002').

³ Planning and Resources Committee PRC 306; Approved Estimates of Expenditure for the Year 1 August 2001 to 31 July 2002, p. 36.

⁴ Basing their recommendations on those of the Royal Institute of Chartered Surveyors (RICS), HEFCE recommend a minimum level of maintenance of 1.5% of the Estate's insured value (See Planning and Resources Committee 1 May 2002, PRC 320, 1.a.) plus further allowances for listed and highly serviced laboratories.

⁵ Planning and Resources Committee 1 May 2002, PRC 320 identifies an additional backlog of £0.6 million).

⁶ Annual Report on Safety, 2001. www.admin.cam.ac.uk/offices/safety/annual_s_reports/2001/index.html. Section 5, Student Accidents.

⁷ Annual Report of the Council for 2000-01, § 9 (Reporter, 16 November 2001, p. 268).

⁸ Allocations Report 2000 (Reporter, 14 June 2000, § 2).

⁹ The Model Financial Memorandum between the HEFCE and Institutions 2000, www.hefce.ac.uk/pubs/hefce/2000/00_25.htm.

¹⁰ Estate Management and Building Services Service Level Agreement, p. 5.

¹¹ Reporter, 3 February 1999.

¹² Fourth Report of the Board of Scrutiny, paragraph 10; the point was also made by Professor Whittington, the PricewaterhouseCoopers Professor of Financial Accounting, in a Discussion (Reporter, 3 February 1999).

¹³ Fourth Report of the Board of Scrutiny, paragraph 15.

¹⁴ Allocations Report for 2001-02, § 6 (Reporter, 2000-01, 20 June 2001).

¹⁵ Minute 308.

¹⁶ Planning and Resource Committee Minutes 20 March 2002, Minute 294.

¹⁷ Approved Estimates of Expenditure for the year 1 August 2001 - 31 July 2002, Head No. 3, No. 173(f), p. 33.

¹⁸ Allocations 2002, § 13.

¹⁹ Annual Report of the General Board to the Council for 2000-01, (General Board 2001), § 15. Reporter, p. 274.

²⁰ Annual Report of the Council for 1999-2000, § 59, Reporter, 24 November 2000.

²¹ PRC, 19 June 2002, Minute No. 317.

²² Financial Reporting Standard 18, Accounting Policies, Accounting Standards Board, 2000.

²³ Estate Plan 2000-01, Annex F, 'Long-Term Maintenance Plan' (Estate Plan).

²⁴ Abstract of Accounts for the year ended 31 July 1996, p. 7.

²⁵ Quoted in Planning and Resources Committee Paper PRC 320.

²⁶ PRC Paper PRC 320.

²⁷ Building Repairs and Maintenance Study in the Higher Education Sector: National Report.

The HEFCE Report 98/30, June 1998, states that 'Surveys conducted by the Royal Institution of Chartered Surveyors suggest as a 'rule of thumb' that at least 1.5 per cent of the estate's insurance value should be set aside to keep it in good condition. However, HE institutions must bear in mind that the above percentage is only a general guide, and that in some years a budget provision made on that basis may not be sufficient. Accordingly, requests for funding building maintenance work should always be supported by costed maintenance plans as part of the institution's resource allocation process. The institution should ensure that building maintenance plans are always kept up to date, following condition surveys and other inspections, and that they are co-ordinated with capital plans as and when changes are made.' It goes on to say that the 'Building Research Establishment have established not only that maintenance saves time and money, but also that neglecting appropriate building maintenance can increase heating costs alone by up to 10 per cent.'

²⁸ We note with surprise that the recently published list of those who attend the Planning and Resources Committee fails to mention that the Treasurer and Director of Finance attend, although we understand they do; and that the equivalent list for the Resource Management Committee similarly fails to mention the attendance of the Treasurer.

²⁹ Compare 'Auditors' remuneration for Audit' (£58,000 in 2002; £57,000 in 2001) with remuneration for 'Other Services' (£1.296m in 2002; £1,787m in 2001) (Accounts 2001, Note 8, p. 15).

³⁰ Letter to the Board from the Academic Division, 24 June 2002.

³¹ The difficulty in interpretation arises because the HEFCE gives the University a historically determined block grant (referred to as the 'actual' resource) that is not based on student numbers. However, the HEFCE also publishes a formula (the 'standard' resource) by which it judges whether, averaged out across the University as a whole, the level of that block grant is overly generous or parsimonious compared to that given to other institutions. This standard resource is based, inter alia, on student numbers. In particular if the University fails to recruit sufficient students so that the standard resource does not remain within a 5% tolerance band of the actual resource, then the T grant will almost certainty be reduced. The HEFCE standard resource thus gives an indication of the income to the University of certain types of student, if only in the sense of the sum that the University would stand to lose if sufficient students were not recruited.

³² It has been put to the Board that this argument is misleading since the University has discretion as to how to spend the HEFCE T grant, i.e. it is incorrect to attribute the HEFCE 'standard resource' to a subject. In response the Board notes that in the consultation paper on the RAM it is stated that the HEFCE weightings used to calculate the standard resource are 'objective' (and indeed are used in the University's proposed RAM). In addition the Board believes that an argument based on the fact that if student numbers fell too low then the University would most probably lose an amount equal to the standard resource is persuasive.

³³ Letter to the Board from the Academic Division, 24 June 2002.

³⁴ There is a subtlety here in the HEFCE applies the weightings to the combined T grant and composition fee, while in the proposed RAM they are applied to the T grant and discretionary income.

³⁵ Reporter, 26 June 2002, pp. 987-99. Also http://www.scrutiny.cam.ac.uk/governance/response.pdf.

³⁶ For example, the Registrary chaired the initial Discussion in October 2000 about the failure of CAPSA, and the chairman of the Governance Committee chaired the Discussion in July 2002 on the Report of the Governance Committee.

³⁷ Joint Report of the Council and the General Board on a Human Resources Strategy for the University, Reporter, 15 May 2002.

³⁸ http://www.admin.cam.ac.uk/offices/research/service.html.

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Cambridge University Reporter, 7 August 2002
Copyright © 2002 The Chancellor, Masters and Scholars of the University of Cambridge.