PRESENTATION TO THE

COMMISSION OF INQUIRY INTO

HIGHER EDCUATION & TRAINING

SET 3 HEARING

21 October 2016

INTERNAL BUDGETING PROCESS OF

TSHWANE UNIVERISTY

OF TECHNOLOGY

The Strategic Planning Process is the function of the:

Executive Management Committee (EMC) who set the

institutional priorities for the following year based on a review

of the previous year’s performance and a situational analysis.

The EMC identifies strategic priorities for the year and

performance targets as required by the Department of Higher

Education and Training Annual Performance Plan.

Executive Management Committee members translate the

strategic priorities and the performance targets into operational

plans for their respective portfolios.

BUDGET PROCESSAND OVERVIEW

The process for 2016 started off with the following deliberations:

Compilation of a Macro Budget between the Finance Department and Strategic

Management Support.

Establishment of a budget task team comprising of the CFO, Director: Financial

Control, Chief Information Officer & Executive Director: Quality, Planning and Risk

Management, Director: Strategic Management Support and a Representative of

the Office of the VC.

The basic budget allocation methodology for 2015 was continued for 2016 in terms

of overall income compilation and overall resource allocation according to internal

and external benchmarks.

The budget amounts for 2015, as well as the actual year-to-date results up to

August 2015 were provided as guidelines to the various budget managers.

BUDGET PROCESS AND

OVERVIEW (continue)

Budget managers were provided with a comparable budget allocation and were

afforded the possibility to move budgets between cost centres within a faculty or

directorate to obtain a maximum cost-benefit position per cost centre at the start

of the 2016 year.

Budget managers retained their privilege to move funds from one line-item to

another within their own cost centres to adjust to realities during the 2016 year.

The standard templates with regards to operational budgets and corporate

budgets will be completed by the line mangers for submission to the Finance

Department by the end of October 2015.

The Directorate: Financial Control compiled the draft budget for scrutiny by the

CFO to enable him to prepare a submission to the EMC, Finance Committee of

Council and Council.

BUDGET PROCESS AND

OVERVIEW (continue)

The guiding principle of the budget is that it should be income driven and not cost

driven. Therefore, a calculation is first made of the available revenue resources,

subtracting the earmarked portion and then allocating the distributable portion to the

various expenditure categories in a consultative manner.

The basic sources of income are listed below:

a) The DHET subsidy is calculated according to the Government Funding

Framework based on Programme Qualification Mix (PQM), teaching input units,

teaching output units, research output units, institutional factors and earmarked

grants.

b) Student fees are calculated according to a tuition fee income model based

on subject fees and subject levies.

c) General income is based on forecast of sale of goods and services, cost

recoveries and transfers from departmental funds.

ASSUMPTIONS USED IN COMPILING THE BUDGET

It is imperative that the income budget should grow continuously in order to meet the

internal and external inflationary needs and move towards the ideal DHET expenditure

benchmarks. A growth in income below consumer price index may lead to a deficit in the

budget.

Basic principles are that the budget should be a balanced budget without a deficit, with

a possible surplus and with some provision for unforeseen expenditure.

As is the case in general for the SA economy, and in particular with the Education

Sector, there is a growing demand to increase service delivery without an equivalent

increase in income. The challenge is therefore to allocate the distributable income in a

balanced way according to:

The expectations of the DHET to reach their benchmarks.

The service excellence required by students.

The expectations of organised labour.

The requests from academics and support staff for proper budget allocations to fund

business plans in order to reach performance targets.

The statutory demands from service providers.

ASSUMPTIONS USED IN COMPILING THE BUDGET (continue)

The main expenditure categories are listed below:

a. Personnel expenditure is based on a staff provision model, making use of Senior

Lecturer Equivalent’s (SLE’s).

b. Corporate accounts forms a separate expense category to the general benefit of

the central University. Activity Based Costing (ABC) and zero based budgeting

have been applied for the2016 budgeting process.

c. The provision for capital expenditure is based on the recommendations of the

Finance Committee and EMC.

d. The finance cost expenditure was computed by the Treasurer in conjunction with

the CFO, taking into account possible changes in the interest rate, but an increase

in transaction fees.

e. The provision for strategic funds was provided for by the Finance Committee and

EMC.

f. Once the above fixed, compulsory and strategic expenditures had been provided

for from the distributable income, the balance available is allocated for

operational costs.

ASSUMPTIONS USED IN COMPILING THE BUDGET (continue)

Notes:

1. Excluding bursaries

2. ERC, SRC and registration

3. Institutes, Centers and Campus Businesses

TUT’S FUNDING RESOURCES

2012 2013 2014 2015 2016

GOVERNMENT SUBSIDY(1) 57% 56% 55% 53% 49%

BLOCK GRANTS 93% 90% 89% 88% 88%

EARMARKED GRANTS 7% 10% 11% 12% 12%

STUDENT FEES 36% 37% 38% 39% 42%

SUBJECT FEES 66% 64% 65% 65% 66%

SUBJECT LEVIES 10% 10% 10% 10% 10%

RESIDENCE FEES 16% 19% 19% 19% 16%

MISCELLANEOUS(2) 8% 7% 6% 6% 8%

OTHER INCOME 7% 7% 7% 8% 9%

RESEARCH 12% 12% 12% 12% 11%

DONATIONS 8% 8% 9% 9% 8%

INVESTMENT RETURN 30% 30% 29% 29% 27%

GOODS AND SERVICES(3) 50% 50% 50% 50% 54%

Expenditure CategoryDHET

Guidelines

Actual

2012

Actual

2013

Actual

2014

Budget

2015

Budget

2016

PERSONNEL

(include provision for employee

benefits)

55% - 62.5% 71.26% 71.29% 72.00% 70.53% 77.29%

GOODS & SERVICES

(include operational, corporate and

strategic projects expenditure)

35.5% - 29% 24.20% 23.85% 25.50% 26.35% 24.92%

FINANCE COST

(include Interest & Loan

Redemption)

2% - 3% 0.10% 0.14% 0.17% 0.30% 0.28%

CAPITAL EXPENDITURE

(Link to depreciation)6.5% - 4.5% 4.38% 4.32% 2.03% 1.90% 0.32%

SURPLUS 1.00% 0.06% 0.39% 0.30% 0.91% -2.81%

TOTAL 100% 100% 100% 100% 100% 100%

INSTITUTIONAL APPLICATION OF FUNDS

PROJECTED DEFICIT/SURPLUS: 2017– 21

Scenarios 2017 2018 2019 2020 2021

0% fee increase

scenario-149 969 393 -151 674 446 -344 038 504 -451 072 030 -584 063 507

6% fee increase

scenario-96 196 578 -130 621 337 -162 421 832 -214 023 941 -262 896 627

8% fee increase

scenario-78 272 306 -91 112 656 -107 106 157 -147 681 840 -170 517 976

• Reduction of distributable subsidy and increase in earmarked funding from DHET.

• Subsidy from DHET increases by average 5% per annum, which is below CPIX

(6,3%) and HEPI (8%).

• As a result of “Fees must fall campaign”, Universities no longer are in control of the

tuition fee increase implementation.

• Bad debts are increasing as a result of the #FeesMustFall campaign, hence the

TUT cash flow is decreasing.

• The University’s third-stream income is low and does not contribute to the

distributable income.

TUT’S FINANCIALCHALLENGES

• Personnel cost consumes 78% of distributable income.

• As a result only 22% of distributable income is available for corporate accounts,

operational budget accounts, capital expenditure and loan repayments.

• This results in back logs with maintenance and capital replacement.

• Inadequate NSFAS funding which will continue even with new student centred model

(national dilemma).

• Implementation of the new funding model will undoubtedly compound the problem as

the general NSFAS allocations is based on the FCS and not the TUT funding model.

• Students defrauding the NSFAS system with minimum verification (vetting) systems to

identify real needy students.

TUT’S FINANCIALCHALLENGES

Development of a revised HR&T strategy to achieve realignment and restructuring

of human capital in support of the academic project.

Reallocating the distributable income, specifically the Research Output Grant, to

ensure greater institutional cost recovery.

Amending institutional policies with regard to third stream income to ensure a

greater apportionment to the University.

Significantly reducing and, where possible, completely eliminating expenditure

relating to entertainment, catering, off-campus meetings and workshops, year-end

functions, travel and subsistence allowances.

The Green Campus Committee will undertake measures to reduce utility costs of

the University.

STEPS TAKEN TO ENSURE THE BALANCING OF THE BUDGET

The University is finalising its Financial Growth Strategy. These are aimed at

reducing personnel expenditure and growing multiple income streams.

The sustainability and efficiency measures recommended above must be in place

for the MTEF period starting 2016 i.e. for 3 years.

As part of its strategic priorities, TUT will focus on growing its revenue streams

such as increasing Short Learning Programmes and publication of research

papers by Faculties and the creation of a Business Development Unit.

STEPS TAKEN TO ENSURE THE

BALANCING OF THE BUDGET (continue)

Thank you