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REPORT

Tenth Report of the Board of Scrutiny

The BOARD OF SCRUTINY begs leave to report as follows;

1. The Board of Scrutiny could be described the University's 'watchdog body'. It forms part of the official mechanism for ensuring that the University is run in a way that is transparent, and accountable to the governing body of the University, which is the Regent House. It comprises eight directly elected members who serve for a period of four years, and the Proctors and Pro-Proctors (who are nominated by the Colleges and elected by the Regent House). Of the members who are directly elected by the Regent House, four retire and four new members are elected every two years1.

2. The Board has a statutory obligation 'to scrutinize on behalf of the Regent House':

(i) the Annual Report of the Council
(ii) the Abstract of the Accounts of the University, and
(iii) any Report of the Council proposing allocations from the Chest.

It also has 'the right of reporting to the University on any matters falling within the scope' of this scrutiny, and has the power to inspect any documents that are relevant to an enquiry that it is empowered to make.

3. Since its inception, the Board's practice has been to publish a single Report exploring the themes that emerge from these official documents, rather than a series of separate Reports on Reports. This Tenth Report follows this tradition.

4. In carrying out these functions during the academical year 2004-05 the Board of Scrutiny met fortnightly during each Full Term, with four extra meetings during June and July to finalize its Annual Report. It held meetings with the Vice-Chancellor, Pro-Vice-Chancellors Cliff, Minson, and Pretty, the Director of Finance, the Director of Personnel, and the Secretary of the Board of Graduate Studies. From time to time it has requested papers from these and other persons concerned in running the University. To all of them we are grateful for the time and help they have given us.

5. The Board was provided with part-time administrative assistance this year by Ms Tessa Payne, whose help has been invaluable.

Financial matters

Facing up to the deficit

6. For the last few years, the University has been running a significant financial deficit. How large this is said to be depends, in part, on technical matters of accounting.2 More fundamentally, the size of the deficit depends on whether one is looking at what might be called the 'Little U', that is the University on its own (in which case there has been a deficit since 2000-01), or the 'Big U', that is the University including its subsidiaries such as UCLES (in which case there was a £3.5m surplus in 2002-03 but a £8.9m loss in 2003-04). The 'Little U' accounts have also been conventionally split into Chest and non-Chest,3 with the former running a deficit since 1998-99. But whatever the figures used, the deficit emerges as both real and worrying, and in recent years has been a major concern of the Board in its Reports. In our Seventh Report4 in 2002 we drew attention to it, with an analysis of what we believed to be its major causes. Large parts of our Eighth Report5 in 2003 and our Ninth Report6 in 2004 were devoted to evaluating the steps that the Council and the senior officers of the University were taking to reverse the situation and to make our books balance once again. In this Tenth Report, we attempt to describe and analyse in simple terms the further steps that have been taken since our last Report.

7. A major development that has taken place over the last year is that each of the Schools, plus the non-School institutions (i.e. the different organizations within the University that are not attached to a School, such as the University Library), have been required to produce a five-year plan. In formulating these plans, the Schools and non-School institutions have worked on the basis that they will receive the share of University income and expenditure calculated to be due to them according to the Resource Allocation Model, or RAM.

8. The RAM, in simple terms, is a set of mathematical formulae that attempts, albeit in a somewhat broad-brush manner,7 to allocate income and expenditure. The output of a mathematical model like the RAM depends crucially on the underlying assumptions, for example how office/laboratory/lecture space is charged to institutions, or whether the College transfer/fee is top-sliced or, say, charged to Schools on the basis of student numbers. Changes to the underlying assumptions can significantly change the output, that is the surplus or deficit attributed to an institution. In earlier Reports the Board criticized the modelling assumptions built into the initial form of the RAM. Since then, much effort has been expended into improving the model, and development is still continuing.8 Although it is unlikely that an ideal model can ever be produced, the Board believes the RAM is evolving into a useful tool for aiding decisions on income and expenditure. It was valuable in setting the savings targets in the last two years, and in aiding the planning round this year.

9. In principle, the Board warmly commends the attempt made this year to control spending by asking the various parts of the University to produce five-year plans. In previous Reports, the Board has stressed the need for the University to cope with its budgetary problems in the context of a costed general plan, and this is obviously an important step in that direction.

10. In the course of preparing this Report, the Board has seen (if not studied in detail) the plans prepared by both the School and non-School institutions. Overall, the Board's impression is favourable. The plans clearly represent a great deal of hard work, and those involved are to be commended. That said, there are also some issues for concern (which is not surprising given that this is the first time that the University has attempted such an exercise). For instance, at a purely technical level, it is not clear that some of the detailed assumptions underlying the plans (e.g. how staff are costed) are consistent. The Board also has the impression that some of the plans are more realistic than others. For instance, one School is proposing extensive cost cutting and rationalization while another, having made this year's savings target mainly by academic job losses in a single Department, hopes to balance its budget by possibly optimistic expansion plans. Further, in the case of certain non-School institutions, the expansion plans do not seem to fully recognize that the University is running a large operating deficit.

11. In its meetings with senior officers, the Board has been told that the issue of harmonization and consistency of approach will be addressed in this year's planning exercise. Other aims of this year's exercise include an assessment of the impact of the savings targets on academic quality (especially in the lead up to the Research Assessment Exercise (RAE)), and an attempt to 'benchmark' the cost of administration and services with reference to the level of services provided in other universities, and how much they cost there. The Board particularly welcomes the latter part of the exercise since it should help in determining the appropriate level of funding for academic services and other 'non-School' institutions, which could then be built into the RAM. Given the University's financial position it is essential that services be provided in a transparently cost efficient manner. However, in the Cambridge context, it is important that comparisons with other universities should take account of the services provided by Colleges where relevant.

Reversing the deficit: where are we now?

12. In May 2005, the annual Allocations Report9 gave details of the estimated deficit for 2005-06 and projections for 2006-07, 2007-08, and 2008-09. The Report forecast that the Chest deficit for 2005-06 would be smaller than was predicted last year (£9.8m instead of £12m), although the combined Chest and non-Chest, that is 'Little U', deficit (before transfers from reserves) is predicted to increase from £12m to £15.5m. The projections for future years are more encouraging, with both a Chest and a 'Little U' surplus (of £6.6m and £2.1m respectively) projected for 2007-08, and a cessation of the need to dip into the University's reserves for 2008-09. The Board welcomes the projected turnaround in the University's finances by 2008-09. However, this welcome is a qualified one, for reasons that are set out in paragraphs 13-21 below.

13. First, even when our books balance once again, it will be necessary to run a healthy surplus for a number of years if the deficit accumulated over the past few years is to be made good. It is not easy to say precisely how large the accumulated deficit has become. Depending on how one interprets the accumulated deficit on the Quinquennial Equalization Fund and transfers to and from reserves, it could be said that approximately £50m from reserves will have been spent keeping the University afloat since the turn of the Millennium. Indeed, departmental reserves are being used to maintain levels of activity whilst reducing Chest expenditure, these reserves being projected to decline by £5.7m in 2005-06, £6.0m in 2006-07, and £4.5m in 2007-08. This reduction in departmental reserves is additional to the drawdown of central reserves that is predicted to be close to £40m by the end of 2005-06. The Board fully accepts the use of reserves to buy the time to make the necessary financial and operating adjustments, providing the adjustments are in fact made.

14. Secondly, while the Board believes that the picture the Allocations Report paints of the University's finances is a fair one, we feel there is a danger that those who read it casually may come away with a slightly rosy picture. For instance, as a precursor to the implementation of 'Full Economic Costing' (FEC) of research, the Research Councils have provided an unanticipated £9m 'transitional funding' for 2005-06, while an extra £1.5m general income from donations has also been included in the budget. Partially offsetting this increase in income is a £6.2m unanticipated increase in expenditure. In a budget of around £250m per year (or £550m, taking both the Chest and non-Chest budgets together) fluctuations of this size are not uncommon. It could thus be that the predicted reduction in Chest deficit from £12m to £9.8m is, to some extent, fortuitous.10

15. When reading the Allocations Report, it is also important to note the caveats that are set out in §§62-68 of the Report. The Regent House should also bear in mind that these, and other uncertainties, could throw the projections in the Allocations Report awry.

16. For instance, as noted in §65 of the Allocations Report, two new income streams which the government, HEFCE, and the Research Councils have announced, namely FEC and the Charities Partnership Initiative (CPI)11 could play an important role in improving the University's finances. However, the future value of these new income streams is difficult to quantify at present.12 The government's stated aim in making this income available is to improve the sustainability of the finances of higher education institutions in the longer term. To meet this objective, it may be necessary to spend some of this extra income on additional infrastructure and equipment support. This is commented upon in the Allocations Report, where it is stated that 'it would be prudent to suppose that, with the advent of FEC, other funding streams in support of research, notably SRIF,13 will in due course be reduced and that it may therefore be necessary to increase Chest expenditure on core infrastructure'; however, no such allowance is yet made in the projections. The Board also wonders to what extent the projections are based on the School and non-School institutions' forward plans, particularly those that take a possibly over-optimistic view of income and expenditure.

17. Another area of uncertainty is HEFCE's future actions. The projections are based on funding for teaching increasing in line with inflation, and research (QR) funding increasing at 5% a year. However, almost every year HEFCE changes one of the formulae by which it funds universities. This affects Cambridge directly, and also indirectly through the way in which HEFCE money is shared between the University and the Colleges. Since the internal formula that currently determines the transfer from the University to Colleges mirrors to some extent the HEFCE formulae, in 2005-06 the University finds itself paying an unexpected £3m extra to the Colleges as a result of adjustments to the QR funding formula. The effect of this is that while the amount received by the University from HEFCE increased by 4.9%, after the College transfer the University's effective increase was only 2.9%.14

18. Capital projects also continue to require investment, and some may require more in future. CamSIS (a project which, happily, appears to be progressing smoothly in technological terms) has recently had an uplift of about £2.35m in planned expenditure over the next four years. This is understood to be the result of the inclusion now, for the first time, of the costs of Phase 2 of the project. It is not clear to the Board why these costs were not included in the original projections. The Board hopes that the same fate will not befall CHRIS.15

19. The Board believes that the other most important areas of risk are pension contributions and pay costs. Like many other pension schemes USS has seen a reduction in the proportion of accrued benefits covered by the actuarial value of the assets (that is the degree to which liabilities are funded by available assets). While the Trustees see no immediate need to increase contribution rates, this must be a real possibility for the future. To put this in context, in the case of the CPS,16 even after an exceptional contribution of £9.5m in 2003-04 and a recurrent increase of employers' contributions budgeted at £6.3m in 2004-05, a further extra recurrent contribution of £1.2m has had to be introduced in 2005-06 (resulting in a total recurrent increase of over £7.5m a year).

20. The Board is similarly concerned that pay costs may have been underestimated, given that they continue to rise faster than can be accounted for through staff numbers and annual inflationary adjustments. Further, as noted in its contribution to the Discussion of the Second Report on pay and grading17 the Board believes that the costs of implementing the new pay and grading structure may have been very significantly underestimated. The Board could envisage the cost being nearer £12m a year than the current £6m a year projection.

21. In 2004-05 Chest income was bolstered by £8.1m from UCLES, and the projections in the Allocations Report are based on future transfers of £4m a year. These projections could be adversely affected if UCLES encounters unfavourable market conditions. This is not out of the question as a consequence of recent and impending government changes to the circumstances and speed under which student visas are granted (a matter that might also adversely affect the assumed volume growth figures for overseas students).

22. In the light of the above, our general verdict on the efforts that have been made to reverse the deficit is that much has been done - but there still remains a great deal to do. Although improved, the University's financial health still remains precarious, and further efforts are needed to ensure that the improvement continues.

23. The University should not just aim to balance the books but - as used to be the case - to return a surplus. The Board firmly endorses the view, expressed by PVC Minson at the Discussion of this year's Allocations Report, that the University must plan to move to a position where surpluses, say of the order of £30m a year, are generated in order to give the University the freedom to plan proactively for the future. Much work remains to be done before this looks likely to be achievable.

Future actions

24. The Board believes that the attention of the wider University should be drawn to the efforts of some Schools to rationalize their operations. For example, the School of Biological Sciences had undertaken a root-and-branch review of its support services that is resulting in a significant reorganization and some savings in expenditure. On this basis the Board believes that there may be the potential for other savings, for example through consolidation of certain staff and student services such as dentistry, the Counselling Service, the Accommodation Service, the Careers Service, and the Disability Resource Centre. Some improvements in efficiency have already been achieved by creating a central pool of finance staff who are available 'for hire' by institutions and sections which need such services on a less than full-time basis. There is probably scope for further savings on this front. For example, after initial problems with the implementation of CUFS, the University recruited and placed a number of finance officers out in Departments and Faculties, as well as in some non-School institutions. Now that CUFS has reached a relatively 'steady state', it might be more cost-effective in some cases to make greater use of the central pool of finance staff. Of course the costs and benefits of centralizing versus decentralizing support staff must be carefully assessed, and such rationalizations must justify themselves on the basis that they really do provide better value for money.

25. Last year, the Board noted the disproportionate increase in academic-related and administrative staff, and wished to be reassured that the increase could be justified on grounds of efficiency and cost-effectiveness. The Council's reply was qualitative and based on historical under-resourcing and the need to improve services. The Council drew attention to the fact that the Unified Administrative Service was under the same constraints as other institutions in the University and had been required to cut its expenditure during the current year by 1%.18 The Board notes that this year, while there has been a reduction of more than 2% in the number of academic, clerical, research, and technical staff, there has been another increase in the number of academic-related and other administrative staff.19 The Board re-iterates that it would like to be reassured that the increase in academic-related and administrative staff can be justified on grounds of efficiency and cost-effectiveness. The Council's answer to the Board when it raised this point last year did not really address the main point that concerns us. The Board does not object to an increase in the size of the University's support staff as such. Its concern is to see that the University's money is well spent. It hopes that the benchmarking exercise referred to in §11 above may provide some justification. However, the Board emphasizes once again that comparisons with non-Collegiate universities should take account of the services provided by Colleges here in Cambridge.

26. The Board welcomes the efforts by the purchasing office to help the University obtain value for money in its purchases, such as through the computer bulk purchase scheme (which, while it had teething troubles and it might benefit from wider consultation, was on the whole a success.) However, as well as pursuing specific issues, which in some sense is a top-down approach, there is also a need for a bottom-up approach whereby a value-for-money mentality becomes an automatic reflex throughout the University and Colleges whenever expenditure is planned.

27. The Board also believes that the University's catering services should be comprehensively reviewed. According to the University Centre's plan for 2005-06 it will receive a £1.26m subsidy from the Chest, yet still make a loss of £0.2m (with the result that its total reserves will stand at -£1.3m). There is an obvious question here as to whether support of £1.46m a year is a wise investment of the University's limited funds. The Board understands that a decision has been taken to undertake a review of these operations, and it welcomes this review. Indeed, as the graduate student population in most Colleges has grown considerably over the past few years, the Colleges have increasingly accepted the need to provide dedicated facilities for them. There is now much greater provision of accommodation and social space for graduate students in the Colleges. Moreover, the Senior Tutors' Committee is currently finalizing, after considerable consultation, a document detailing what facilities and services all Colleges undertake to provide for their graduate students. Thus, in many respects, the original role foreseen by the Bridges Report 40 years ago for the University Centre is reduced, and the time may be coming for a radical review of the purpose of that institution. However, any review should take account of the needs of the many post-doctoral researchers and other academic-related staff who do not have any College affiliation.

28. The Board believes that there is considerable scope for the University to exploit synergies and create cost savings in partnership with the Colleges and that this should be actively encouraged. Whilst there have been notable successes in reducing costs through co-ordinated action such as in IT and energy purchasing, the Board is disappointed to learn that other initiatives such as the use of College lecture theatres and teaching space by the University do not appear to be progressing. At a time when many Colleges, as well as the University, are facing financial difficulties, there appears to be insufficient interest and enthusiasm in maximizing the use of facilities available across the Colleges and the University. For instance, if the number of University lecture theatres could be reduced by use of College facilities then some of the cost savings could, and should, be shared with the Colleges. However, such initiatives are impaired at present since, as far as the Board can tell, there is no coherent model among the Colleges for charging the University for the use of lecture theatres that recognizes the symbiotic relationship between Colleges and the University. Positive attitudes to co-operation in our mutually dependent community need to be encouraged, and as such the Board notes that some Colleges freely share their teaching space with University Departments, and that there is widespread use of University space for supervisions.

29. In 1998 an important change took place in the way that HEFCE teaching funds for Cambridge are calculated. In essence, Cambridge has lost its privileged fee status in respect of College fees, and after a transitional period, due to end in three years' time, the University and Colleges will be funded according to the same formula as other universities (with some special allowances for our older buildings, etc.). Similarly, the Research Councils now fund graduate students at Oxbridge using the same formula as at other universities (i.e. there is no longer an additional sum in respect of Colleges). This means that in the future, the premium services the University and Colleges provide for its students and staff will have to be funded out of endowments or other non-government funds. If this extra income does not rise at least at the same rate as student and staff numbers then it will be difficult to maintain the premium services that the University and Colleges provide (and which are essential to preserve the character of Cambridge); indeed, the failure of these extra sources of income to rise fast enough over the past decade may be one of the reasons for the current operating deficit.

30. For all these reasons, it is obviously important that the University's 800th Anniversary Campaign should be a success, and this will require effort from many within the University; although, obviously, we must guard against seeing the 800th Campaign as a 'magic bullet' that will bring all our financial problems to an end.

The need for 'joined up budgeting' and 'joined up accounting'

31. The Board has consistently advocated the consolidation of the University's accounts to include subsidiary undertakings (like UCLES, CUP, and certain trusts). The Board is happy to note progress. In the last year the University's annual Abstract of Accounts20 included UCLES for the first time. We understand that the next set of accounts should also include CUP and that the central bodies are committed to completing the process. One major advantage of these moves is that our auditors should again be able to certify our accounts as 'true and fair';21 we will also be able to satisfy HEFCE and other external observers that our accounts conform to recommended practice standards.

32. We have also repeatedly called for an approach to financial planning which fully integrates the income and expenditure of the core University activities (Chest and non-Chest). Again positive moves have been made in this direction. The new School and non-School financial plans (see §10) cover both sources of income and expenditure. This year's Allocations Report also includes more information about non-Chest activities than hitherto. The Board looks forward to further integration of the budgeting process which will more accurately reflect the true financial forecast for the University's core activities ('Little U').

33. The University's financial accounting system, now called CUFS, has also been a source of comment from the Board since its problematical introduction five years ago. The system now seems to be delivering many of the improvements that it was designed to bring about. It is unlikely that the RAM or the five-year plans could have been implemented otherwise. Likewise the substantial improvements in financial management of the University's cash balances and reduction in outstanding amounts owed to us by debtors. The Board understands that this year's software upgrade proceeded so smoothly it was scarcely noticed. All these are good things and need saying. (It remains true, of course, that the system ought to have delivered these benefits without much of the trouble which initially marred it and the present rewards in no way reduce the need to ensure that future projects are managed better.)

Investments

34. The Board made a number of recommendations in its Ninth Report suggesting changes to the management of the University's investments.22 Thus, we welcome the adoption of a total return policy for the Amalgamated Fund.23 We also understand that further changes in the management of our investments are under consideration by the central bodies and look forward to a Report in due course.

Recommendations

1. The University should continue with its present strategy to contain and reverse the deficit.
2. The central bodies should develop a mechanism for costing the central provision of academic services and other 'non-School' institutions that ensures value for money.
3. The central bodies should explore the possibility of saving money by consolidating certain support services.
4. The University and the Colleges should work together to evolve a scheme for sharing facilities in the interest of economy in Cambridge as a whole.
5. The University should complete the move to budgeting that consolidates Chest and non-Chest incomes and expenditures and towards producing accounts that consolidate CUP as well as UCLES.

Pay and grading

35. The Board has kept under close review the continuing process of developing a new pay and grading structure for University staff. The Board submitted written comments on the consultative First Report which are available on our website.24 At the time of writing, the Second Joint Report has been published25 and was recently the subject of a Discussion.26 The Board is pleased to note that it addresses a number of the issues raised at the Discussion of its predecessor. The Board made a statement at the Discussion of the Second Report about six matters27 which we believe need to be addressed before the Report is submitted for the approval of Regent House. At the time of writing the central bodies are considering their response to the comments made at the Discussion and as this is still 'work in progress' the Board offers only some brief general comments in this Tenth Report.

36. While it welcomes the decision to embark on this development, and recognizes with gratitude the work and effort put into it by many people (including the Director and staff of the Personnel Division, and PVC Cliff), the Board remains concerned about a number of issues relating to the way the project has been handled. The new pay and grading structure cuts across the traditional distinction between University officers and assistant staff; this is a fundamental matter which requires radical and open revision of Statutes and Ordinances. It vitally affects all members of the University community; the exceptionally high attendance at the briefing meetings held early in the Easter Term by the Personnel Division has demonstrated widespread interest and concern. The cost in damaged morale of implementing a structure which was regarded as flawed or unfair by any significant part of the University staff could be great. Where the stakes are high, it is important that proposals are put together competently and presented to the University in a way that inspires confidence. In the Board's view, this was not the case here - at any rate, in the early stages.

37. HEFCE has imposed a completion date of 1 August 2006, but a disproportionate amount of time was taken up with the early stages and in consequence the time-scale is now tight. Detailed negotiations with the local trade unions should, we believe, have been commenced much earlier. It is unfortunate that general briefings were not held at an earlier stage, as this might have allayed some of the concerns felt by staff. An early strategic decision to observe the national agreements, in particular the Memorandum of Understanding which settled the UCEA-AUT dispute, would have speeded up the process. Similarly, much time and worry could have been saved by an early strategic decision that the academic staff would not in reality be put through the regrading exercise, but would instead be assigned grades under the new scheme automatically. Statistical advice was needed and should have been sought at the earliest opportunity; instead it was sought late, and then not followed when obtained (although, regrettably, the Second Report suggests otherwise28). This is a matter for serious concern - not least because it undermines the quality of the predictions of how much the regrading exercise will eventually cost. When trial evaluation exercises were carried out, there was inadequate feedback to those who participated in them, which created needless uncertainty, not to mention frustration to those involved.

38. The decision to publish a consultative First Report is to be applauded. But there were such obvious flaws in the draft grade structure that this distracted attention from other important issues in the Report; the effective way in which those flaws were then addressed suggests that they could and should have been picked up beforehand, and that the First Report should not have been published in the form it was. That this happened raises concerns about under-preparation, and the control that subordinate committees supposedly exercise over the preparation of Reports. It is essential that these committees be given the time to properly scrutinize draft Reports, and the information with which to do so. There are reasons to believe that, in this case, the Personnel Committee were not given full, detailed information as early as they should have been, and that last minute changes were rushed through. The whole development of the pay and grading proposals also raises issues about the relationship between PVCs and their relevant UAS divisions. Although we hesitate to mention CAPSA again, we note that there are some parallels, including the high turnover of key staff at crucial points in the implementation.

39. The Board recommends that:

6. Subordinate committees must be given the time and data to perform their role of scrutinizing draft Reports effectively.

40. It is at present not known whether a ballot will be called on these proposals; such a ballot cannot take place before October 2005; the scheme proposed (many details of which have not yet been worked out or made known to those most directly concerned) is due to be implemented with effect from January 2006. The Board considers that this is unrealistic and runs a serious risk of giving rise to ill-considered decisions and long-lasting damage to staff morale. The deadline set by HEFCE for implementation is not January, but August 2006 (see §37 above). We acknowledge the external pressure for implementation but consider that a rational approach would be to make full use of the time available.

Governance matters

41. At present the formal constitutional arrangement in the University of Cambridge is that it is a self-governing body of scholars. By Statute, the 'governing body' of the University is the Regent House.29 And by Statute A, III, 4, 'Whenever it is provided that an act or thing shall or may be done or determined by the University, it shall be done or determined by a Grace of the Regent House unless it is expressly stated that it is to be done or determined otherwise; provided that the Regent House may delegate to the Council or to another body authority to act on its behalf in such matters as it may from time to time determine.'

42. By Statute A, IV, 1, the Council is 'the principal executive and policy-making body of the University.' The Vice-Chancellor chairs the Council (unless, exceptionally, the Chancellor should be present and wishes to preside), and has a range of other specific duties, but the Statutes do not expressly give her or him any general executive authority.

43. In 2002-03, the Council launched a move to reform the constitution of the University. After much discussion the proposals were voted on by the Regent House, when significant parts of them (including a scheme for an 'executive Vice-Chancellor') were rejected, but some significant parts were approved, notably the creation of a larger group of Pro-Vice-Chancellors, and the addition of external members to the Council.

44. At that point, major constitutional reform went off the University agenda for a while, with a general feeling that it would be wise to see how the changes that have been made work out in practice before any others are proposed. However, there are now signs that interest in governance reform is rekindling.

45. The first, and (we understand) very preliminary move in this direction has been initiated by the Vice-Chancellor, who has created a small working group to advise on governance matters. We understand that it is chaired by Lord Wilson of Dinton (Master of Emmanuel College), and its other members are Lord Simon of Highbury (external member of Council), Professor Badger (Master of Clare College) and Professor Bell (Law Faculty).

46. The second move has come from the Audit Committee, which held an extraordinary meeting on 14 April 2005 to discuss governance: at the request, we understand, of the Council. Having identified 'governance' as 'among the top ten risks facing the University', the Audit Committee discussed inter alia the extent to which the constitution of the University of Cambridge matches the prescriptions contained in a 'Governance Code of Practice' issued by the Committee of University Chairmen, or CUC.30 It concluded by making a series of recommendations to the Council as to ways in which the constitution of the University of Cambridge ought to be reformed, which were as follows:

'(i) The role and position of the Council and its relationship to the Regent House should be clarified.
(ii) The strategy for the University should be restated and include a clear definition of its governance.
(iii) There should be a non-executive Chairman of the Council.
(iv) The number of external members of the Council should be gradually increased to between four and six.
(v) The University should not adopt the new Oxford model.'

47. At the Audit Committee's next regular meeting on 12 May, 'it was agreed that the first recommendation ... should be strengthened to encourage the Council to make full use of its powers. The Committee reaffirmed its views that the recent changes and current discussions about governance were leading the University in the right direction, and that it was appropriate to take a cautious, but firm approach in these matters.'

48. The Board of Scrutiny finds this second development distinctly odd. There are many things in Statutes and Ordinances that are vague and in need of clarification,31 but the relationship between the Council and the Regent House is quite clearly defined in our Statutes and Ordinances. It may be unsatisfactory, and if it is, it may need reforming, but 'clarification' is not what is required.

49. Furthermore, 'governance' is not something which, in a proper use of language, can correctly be called a 'risk'.32 'Governance' means the arrangements by which an institution is governed, and a 'risk' is the possibility that something bad will happen. Of course a defective system of governance may give rise to risks. But if the arrangements by which the University of Cambridge is governed are defective, and do create risks, these are the concern of the Audit Committee only insofar as they are risks of inadequate financial control, which, by University Ordinances, is the issue with which the Audit Committee is properly concerned.33 The Board does not think that the Audit Committee's perceptions of institutional risk should be the principal driver of the process of constitutional reform.

50. While it is no business of the Board to comment on the intrinsic merits of the CUC 'Code of Practice', it appears inappropriate to use as a benchmark for assessing the effectiveness of our University constitution ideas that have been evolved in systems of government quite different from our own. Even before the Dearing Report in 1997, the constitution of most pre-1992 universities in Britain, with their tripartite system of Court, Council, and Senate was conceived very differently from the Oxbridge concept of a 'self-governing community of scholars'. Post-Dearing, with the Courts (large bodies designed to give representation to different 'stakeholders') reduced to a principally consultative function and the Councils (relatively small bodies that are recommended to contain a majority of lay members34 who are often co-opted, not elected, and which are usually chaired by a lay-member) endowed with unfettered power, the useful parallels are even less clear.35 It should also be noted that such systems of government have not had to encompass the autonomous functions of Colleges as in the Oxbridge model.

51. The reform of the University's constitutional arrangements is a most important matter and could itself be said to present a serious risk to the wellbeing of the institution if it is not done correctly. In this context the Board notes with interest recent events in Oxford. If reform is to take place, it needs to be conducted with due care and proper consultation, and the initial steps, we believe, should be taken by a dedicated statutory body that represents a wide spectrum of interests, appropriate experience, and views, and not as part of the routine business of any existing committee. In its Eighth Report in 2003 the Board of Scrutiny said that the proper mechanism would be to create a special governance reform syndicate. To this view it still adheres.

52. The Council is not currently proposing changes in the University's constitution, nor has it given any indication of the sort of changes it would like to see, and the Board does not wish to be alarmist by giving the impression that it is.

53. But behind the comments of the Audit Committee there seems a clear suggestion that the powers of the Council should be increased, and those of the Regent House correspondingly reduced. And this approach is usually put forward in the context of a 'top down' philosophy of university government which assumes that Cambridge needs 'strong government', where the main aim is for decisions to be made quickly and firmly, and for decisions so made to be put rapidly into effect. On this view, our current constitutional arrangements, under which significant changes need the consent of the Regent House and can be voted down, are seen as an impediment to the efficient conduct of business and a reason why in Cambridge reform sometimes takes a very long time to achieve. The conclusion drawn from this is that the power of the Regent House in these matters ought be reduced, or preferably abolished. This, we believe, was in part the philosophy behind the proposal for an 'executive Vice-Chancellor', and other parts of the 2002-03 reform package which the Regent House refused to accept.

54. The Board of Scrutiny (at least as presently constituted) is opposed to any change in the constitution of the University that would seriously reduce the role of the Regent House.

55. The Board accepts that in Cambridge some necessary changes sometimes seem to take an extraordinary length of time to bring about. The new pay and grading scheme, for example, has been the subject of lengthy discussion and several Reports by the Council and has still not been agreed. But the Board has never seen any shred of evidence that it is the ultimate control of the Regent House that is the real cause of delays of this sort. The Board believes that the real problem is the cumbrous and often opaque structure of committees through which proposals have to work their way before the final stage is reached: and it is to this aspect of our constitutional arrangements that attention should be given.

56. Far from being a cause of damaging delay, the Board believes that the need for the consent of the Regent House imposes an important quality control. In recent years and months, this University has been in the process of making major changes in two matters of great importance, namely ownership of intellectual property rights, and pay and grading. Each of these were marked by initial Reports from the central bodies which were widely thought to be deficient, and which, thanks to the University's democratic process, cumbersome as it may be, have now been very much improved. Under a system of 'top down' government, we seriously doubt that these improvements would have happened.

57. It may indeed be that the present constitution of the University of Cambridge does not match all the requirements that the Governance Code of Practice of the CUC considers to be wise. But before we decide to amend our constitution to make it fit what is thought elsewhere to be required, we should pause to reflect that, compared with most other universities in this country - and indeed in the world - the University of Cambridge is in academic terms a huge success. It may be that the fact that we are still a self-governing body of scholars has something to do with this. And it is at least possible that, in matters of governance reform, other universities could learn from us.

58. For the rest of this section of its Report, the Board proposes briefly to return to three governance-related matters that were raised at greater length in previous Reports.

59. In its previous two annual Reports, the Board of Scrutiny has commented on the gap that seems to be growing up between what is set out in Statutes and Ordinances, and the way that the University is actually run. Apart from the high-profile attempts at governance reform in 2002, the management and governance of the University has been evolving in a number of less publicized but scarcely less important ways. New committees have come into being, the most important of which is the Planning and Resources Committee, and greater responsibilities have been devolved to the Schools, and the Chairs of Schools.

60. These new arrangements, desirable as they may be, have not always been incorporated into the Statutes and Ordinances. This the Board believes to be regrettable. As it said last year, it believes that the rules by which the University's affairs are governed should be clearly set out in a document to which all members of the University have ready access. As the Board also mentioned in its Ninth Report last year, the updating of Ordinances does not always fully reflect the Graces that have been approved. With this in mind, it has repeatedly recommended that the University should embark on a complete revision of the Statutes and Ordinances. In its initial response to our last Report, the Council said that it would consider this idea. We look forward to hearing its further views on the subject.

61. In our Eighth Report in 2003,36 the Board expressed its view - reiterating a recommendation made by Shattock and Finkelstein into the problems encountered with CAPSA37 - that it would be helpful if the Council could draw up and publish a hierarchy of committees. Part of the purpose of this was to ensure that there was no confusion as to which body, or who, has to decide a matter, and when and where responsibility lies for the execution of a policy decision. The Board also thought that a clear 'wiring diagram' would help to reduce the churn of issues between committees, and make the running of the University both quicker and more transparent. The Council's response to this was that 'the matter will arise in connection with any review of governance'38 - with the apparent implication that it was neither necessary nor appropriate to act on the recommendation until such a review had taken place. The Board is not convinced by this, and thinks that a statement of this sort would serve a useful purpose here and now.

62. In our Ninth Report in 2004, the Board suggested that it would increase efficiency, accountability, and transparency in the administration of the University if Statute K, 9 were amended to allow the Council, and other University bodies, to delegate functions not only to Committees (as the Statute in its current form provides) but also to individuals.39 This recommendation did find favour with the Council.40 However, no move has yet been made to implement it. The Board hopes that its suggestion will not be forgotten.

Recommendations

7. Any proposals for substantial change in the governance of the University should be developed by a body independent of Council, preferably an Occasional Syndicate under Statute A.
8. The University should embark on a thorough revision of the Statutes and Ordinances, ensuring that Ordinances fully reflect Graces that have been approved.
9. The Council should draw up and publish a clearer hierarchy of Committees.
10. Statute K, 9 should be amended to permit the Council and other bodies to delegate functions to individuals.

Summary of Recommendations

Finance

1.The University should continue with its present strategy to contain and reverse the deficit.
2.The central bodies should develop a mechanism for costing the central provision of academic services and other 'non-School' institutions that ensures value for money.
3.The central bodies should explore the possibility of saving money by consolidating certain support services.
4.The University and the Colleges should work together to evolve a scheme for sharing facilities in the interest of economy in Cambridge as a whole.
5.The University should complete the move to budgeting that consolidates Chest and non-Chest incomes and expenditures and towards producing accounts that consolidate CUP as well as UCLES.

Pay and grading

6.Subordinate committees must be given the time and data to perform their role of scrutinizing draft Reports effectively.

Governance

7.Any proposals for substantial change in the governance of the University should be developed by a body independent of Council, preferably an Occasional Syndicate under Statute A.
8.The University should embark on a thorough revision of the Statutes and Ordinances, ensuring that Ordinances fully reflect Graces that have been approved.
9.The Council should draw up and publish a clearer hierarchy of Committees.
10.Statute K, 9 should be amended to permit the Council and other bodies to delegate functions to individuals.

18 July 2005 JOHN SPENCER (Chairman)NICHOLAS HOLMESDAVID PHILLIPSON
 STEPHEN COWLEYJOHN LITTLENICK PYPER
 NICHOLAS DOWNERTIMOTHY MILNERJENNIFER RIGBY
 MARGARET GLENDENNINGSASKIA MURK-JANSENHELEN THOMPSON

Annex A: Glossary of terms

Allocations Report:An annual Report published in the Easter Term that gives details of the University's budget for Chest income and expenditure, together with an outline of the non-Chest budget.
Amalgamated Fund:The main endowment fund of the University.
CamSIS:Cambridge Student Information System.
CAPSA:Not an acronym but the Latin word for a book storage box, adopted as a name for the project to introduce the University's computerized commitment accounting system. This system developed into CUFS; Cambridge University's Financial Systems.
Chest:An income stream consisting of funding council grants, Home and Overseas fees, endowment income, a share of research grant overheads, transfers from CUP and UCLES, and certain other operating income.
CHRIS:Cambridge Human Resources Information System
CPI:Charity Partnership Initiative
CPS:Cambridge University Assistants' Contributory Pension Scheme
CUFS:Cambridge University Financial Systems
CUP, or the Press:Cambridge University Press
FEC:Full economic costing.
HEFCE:Higher Education Funding Council for England
HEPPI:Higher Education Purchasing and Prices Index
HERA:Higher Education Role Analysis
PVC:Pro-Vice-Chancellor
QR:A component of the HEFCE grant reflecting assessed research quality in a subject, the value of which is the product of a per capita sum reflecting quality and the number of staff entered into the assessment.
RAE:Research Assessment Exercise
RAM:Resource Allocation Model [for the University]
SORP:Statement of Recommended [accountancy] Practice
SRIF:Science Research Investment Fund [managed by HEFCE]
UAS:Unified Administrative Service [of the University]
UCEA:Universities and Colleges Employers Association
UCLES:University of Cambridge Local Examinations Syndicate

1 The Board is pleased to note that in the election in May 2005 five candidates stood for the four vacancies, and in the resulting poll 1,071 votes were cast.

2 For instance, the University accounts have been 'restated' twice in the last few years in order to conform more closely to the HEFCE Statement of Recommended Practice ('SORP').

3 Chest income consists of funding council grants, Home and Overseas fees, endowment income, a share of 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, and departmental share of overheads, self-supporting accounts, services rendered, and residences and catering.

4 Reporter, 2001-02, p. 1306 (7 August 2002).

5 Reporter, 2002-03, p. 1274 (6 August 2003).

6 Reporter, 2003-04, p. 1082 (11 August 2004).

7 For further details see the discussion of the RAM in §§24-31 of the Board's Ninth Report.

8 For example, a suitable model needs to be devised to determine the level of funding for academic services and other 'non-School' institutions.

9 The Allocations Report (Reporter, 25 May 2005, p. 699) gives details of the University's budget for Chest income and expenditure, together with an outline of the non-Chest budget. The Chest and non-Chest budgets together make up the 'Little U' budget.

10 In the Allocations Report it is claimed that the reduction in deficit 'has largely been achieved through continuing control of costs and slightly improved contribution to indirect costs in the initial stage of transition to the new FEC regime for pricing Research Council grants'. The Board's view is that the deficit reduction has largely been achieved by a £9m contribution from the FEC transitory funding, and by a smaller contribution of about £1-2m from the savings targets and the continuing control of costs.

11 The Charities Partnership Initiative, see HEFCE 15/2005.

12 Indeed, in one of the School's plans it was suggested in December 2004 that the 'University's estimate is very likely to be substantially over-optimistic'.

13 Science Research Investment Fund, a capital funding stream for research, administered by HEFCE.

14 The HEPPI (Higher Education Purchasing and Prices Index) for the 12 months to January 2005 suggests that costs have risen by 5.9%.

15 CHRIS, the Cambridge Human Resources Information System, is a new major database project.

16 The Cambridge University Assistants' Contributory Pension Scheme.

17 Reporter, 6 July 2005, p. 942.

18 Reporter, 2 February 2005, p. 411.

19 As was the case last year, the data published in the Allocations Report make it difficult to arrive at a precise figure for this increase, but the Board estimates it to be in the range 5-8%.

20 Reporter, 15 December 2004, p. 315

21 When an organization undergoes an external audit, the hope and expectation is that the auditors will formally state that the accounts 'give a true and fair view of the state of affairs' of its financial position. Deloitte and Touche, who have been the University's auditors since 2002-03, have not felt able to do this. See the Board's Eighth Report, Reporter, 6 August 2003, §§35-36.

22 Recommendations IX-XII, Reporter, 11 August 2004, p. 1090.

23 Grace 2, Reporter, 9 February 2005, p. 449.

24 http://www.scrutiny.cam.ac.uk/response/payandgrading.htm

25 Reporter, 2 June 2005, p. 745.

26 Reporter, 6 July 2005, p. 940.

27 1. The base salaries of all offices held by single individuals should continue to be published in Ordinances. 2. The grades of all staff should be publicly available. 3. The University should decide whether to limit the value of market supplements. 4. All market supplements above 10% base pay should be approved by a statutory body, and details of all market supplements and additional payments should be published. 5. All HERA point boundaries should be viewed as provisional until further statistical data is collected and analysed. 6. All HERA points ranges should be approved by Grace.

28 Second Report, §3.8: 'The group considered the outcomes of HERA evaluations undertaken to date and the point spread of discernible clusters of jobs in order to plot new grades on the single spine. They were assisted in their work by the Statistical Laboratory which provided advice on acceptable sample sizes and confidence levels.'

29 Statute A, III, 1.

30 According to the mission-statement on the CUC website, 'The Committee of University Chairmen (CUC) provides a forum for discussion for university chairs. Its primary purpose is to enable chairs to contribute their distinctive experience, knowledge and perspective as laypersons and to consider matters which concern all universities.' Membership is defined thus: 'Membership of the Committee is open to the lay chairs of the governing bodies of all universities in England, Scotland, Wales and Northern Ireland. Over 100 UK universities are currently members of CUC.' This information and the CUC Governance Code of Practice can be seen at http://www.shef.ac.uk/cuc/

31 To name but one, the relationship between the PVCs and the parts of the Unified Administrative Service for whose areas of work they are responsible.

32 But it is recognized that regulatory bodies, including HEFCE and the Charities Commission, include 'governance' in the scope of risk management policies.

33 Statutes and Ordinances, 2004, p. 900.

34 'Effective governing bodies will have a majority of lay members.' Dearing Report, 1997, Section 15.45.

35 As indeed the Audit Committee has recognized. The minute of its Extraordinary Meeting of 14 April records, inter alia, that '... the CUC Guide could not, and had not been intended to, apply to any one University in its entirety.'

36 Reporter, 6 August 2003, p. 1274, §83.

37 Reporter, 2 November 2001, p. 202, Recommendation 16.

38 Reporter, 26 November 2003, p. 235.

39 Reporter, 11 August 2004, p. 1089.

40 Reporter, 2 February 2005, p. 410.


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Cambridge University Reporter 10 August 2005
Copyright © 2005 The Chancellor, Masters and Scholars of the University of Cambridge.