a toolkit for new professionals (june 2014) - business-like but not a business
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BUSINESS‐LIKE BUT NOT A BUSINESS
The legal framework of higher education
Degree Awarding Powers
• Universities are autonomous, self‐governing institutions which operate within a regulated environment for higher education.
• The power to award degrees is regulated by law. • To be able to award a recognised higher education degree in
the UK an organisation must be authorised, either by Royal Charter or Act of Parliament – as recommended by the QAA.
Types of Degree Awarding Power
Foundation Degrees (England and Wales only)• Further education institutions offering higher education
provision in England or Wales.
Taught Degrees• HEIs with a proven track record of successful validated
provision.
Research Degrees• HEIs with existing taught degree awarding powers.
Understanding Higher Education: The One Day Nutshell
Some Relevant Legislation
• The Education Reform Act 1988makes it an offence to offer a ‘degree’, ‘bachelor’, ‘master’ or ‘doctor’ award unless offered by a degree‐awarding body as recognised by Secretary of State, Act of Parliament or Royal Charter.
• The Business Names Act 1985 states only bodies properly approved can use the name ‘university’.
• Under the Further and Higher Education Act 1992, the Privy Council was also responsible for approving the use of the word 'university' (including 'university college') in the title of a higher education institution.
Understanding Higher Education: The One Day Nutshell
What is a University?
An organisation wishing to apply for approval to use the title ‘university’ must:
• have been granted powers to award taught degrees• normally have at least 1,000 full time equivalent higher
education students, of whom at least 750 are registered on degree courses (including foundation degree programmes), and the number of full time equivalent higher education students must exceed 55% of the total number of full time equivalent students
• be able to demonstrate that it has regard to the principles of good governance as are relevant to its sector
What is a Business?Wikipedia
• A business, also known as an enterprise or a firm, is an organisation involved in the trade of goods, services, or both to consumers.
• Businesses are prevalent in capitalist economies, where most of them are privately owned and provide goods and services to customers in exchange of other goods, services, or money.
• Businesses may also be not‐for‐profit or state owned. • A business owned by multiple individuals may be referred to as a company.
Is a University a Business?
• A business, also known as an enterprise or a firm, is an organisation involved in the trade of goods, services, or both to consumers.
• Businesses are prevalent in capitalist economies, where most of them are privately owned and provide goods and services to customers in exchange of other goods, services, or money.
• Businesses may also be not‐for‐profit or state owned. • A business owned by multiple individuals may be referred to as a company.
• Universities straddle the public/private sector. They must try to operate like a business, such as having business processes , whilst remaining loyal to what a University actually is
• The word "university" is derived from the Latin universitas magistrorum et scholarium, which roughly means "community of teachers and scholars.“
What does business‐like mean to Universities?
What do you think the role of an academic is within a university?
• Teacher• Researcher• Consultant• Leader
• Senior Manager
What do you think the role of an academic is within a university?
What does business‐like mean to Universities?
• Universities are business‐like in that we need to produce a ‘surplus’ each year in order to remain sustainable.– HEFCE says so!– Recommends 4‐5% surplus– Surplus is turned into cash– Funds working capital and capital expenditure
What does business‐like mean to Universities?
• Universities have become much more business like in recent years, for example, adopting more commercial processes and techniques, including – P2P– O2C– Workflow systems
Business Like – changes in personnel• The sector has seen a move over the last few years to professional finance staff running the business rather than academics.– Director of Finance, rather than an academic bursar
• This leads to more clarity of what is required and allows the business like industry processes to be introduced.
• Better understanding of funding and cost control
How are Universities Funded?• HEFCE Funds
– Teaching/ QR/Other
• Tuition Fees– UG, PGT, PGR – Home and Overseas
• Research Income– Industry, RC’s, Europe, Other Overseas etc
• Other Income– Consultancy, Residences, etc.
HEFCE Funding 2012/13
Teaching
Research
HEIF
Other
£mTeaching 3,231Research 1,558HEIF 156Other 442
HEFCE Funding 2014/15
Teaching
Research
Knowledge Exchange
Other
£mTeaching 1,582Research 1,558Knowledge Exch 160Other 583
HEFCE Teaching Funding
• HEFCE’s Teaching funding allocation methodology₋ Student numbers in subject
groupings₋ Various rates of grant by subject ₋ Scaling factors to keep within budget₋ ‘old regime’ and ‘new regime’
categories
HEFCE Research Funding (QR)• HEFCE’s Mainstream QR income based on:
– Quality profile of each Unit of Assessment (UoA) in last RAEWeightings:
4* (world leading) 73* (internationally excellent) 32* (recognised internationally) 11* (recognised nationally) 0
– Volume of research activity• Category A generally funded staff FTE in last RAE
– Unit funding in each UoA (variable)
HEFCE Research Funding (QR)
• Charities funding– Unweighted for quality– Based on HESA returns– Normally averaged over 2 years
• Business Research Element (BRE) – introduced in 2007‐08– Unweighted for quality– Based on HESA returns– 2014‐15 allocations based on average of 2011‐12 and 2012‐13
Research Income from UK industry, commerce and public corporations
• Research Degree Programme student supervision funding– Home/EU students in years 1‐3 only– Returned annually in RAS
• The major costs of any university are the pay costs (that is the cost of staffing)– These are often the hardest costs to manage!
• Non Pay– Difficult to forecast
• Deprecation– Cost of investing in equipment and buildings
• Interest and Charges
The costs of running a University
• Cost Control is different from Cost Cutting!– Ongoing process– Strategic focus– Long term efficiency– Investment in the future
• Decisions made now affect future cash and operating results
Cost Control is vital to the running of any institution!
Planning and reporting cycle
Budget
Mid YearForecast
MonthlyResults
Five YearForecast
Full YearResults
FuturePresent
PastFinancialStatements
(Annual Report)
Managementaccounts
Accounting policies• Normally set by Finance Director and approved by Board of Governors
• Comply with UK Generally Accepted Accounting Practice (GAAP)
• True and Fair view• UoM uses ‘Historical cost convention’• Institution should judge the appropriateness of accounting policies to its particular circumstances against the objectives of:– Relevance– Reliability– Comparability– Understandability
Accounting ConceptsGoing Concern
Accountants assume, unless there is evidence to the contrary, that a company is not going broke. This has important implications for the valuation of assets and liabilities.
Consistency Transactions and valuation methods are treated the same way from year to year, or period to period. Users of accounts can, therefore, make more meaningful comparisons of financial performance from year to year. Where accounting policies are changed, companies are required to disclose this fact and explain the impact of any change.
Prudence Profits are not recognised until a sale has been completed. In addition, a cautious view is taken for future problems and costs of the business (the are "provided for" in the accounts" as soon as their is a reasonable chance that such costs will be incurred in the future.
Matching (or "Accruals")
Income should be properly "matched" with the expenses of a given accounting period.
Financial statements
• Income and expenditure account– Results of operations for year ending 31 July
• Balance sheet– Financial position as at 31 July– Shows assets and liabilities of institution– ‘Snapshot’
• Cashflow statement– Movements in cash during year ending 31 July
Differences between financial statementsand management accounts
Financial Statements• Used for external reporting
• Reporting to External stakeholders and Board of
• Formats strictly controlled by law, accounting requirements (Statement of Recommended Practice – SORP)
• Prepared at institutional level –include items which are only considered at that level, egpension liabilities
• Used for internal reporting and decision‐making
• Reporting to Heads of School, Deans, Senior Management Team, Finance Committee
• Formats more flexible and management led
• Prepared at school/faculty level
Management Accounts
Business‐like Financial Processes
• Government Funding cuts increase pressure to understand finances
• Prepare Financial Statements but follow sector specific guidance
• Better Management Accounting information• Understand the academic roles
Social Value!
• Not everything that is profitable is of social value and not everything of social value is profitable
• HE’s are important to the UK Economy, working in Research, SME engagement etc.