Higher education (HE) institutions are accountable to us, and ultimately to the National Assembly for Wales, for the way they use our funds. We have a number of processes in place through which we ensure that the funds we allocate are used properly and that institutions' financial health is sound.
We have a Financial Memorandum: Circular W08/36HE with each HE institution, which sets out the terms and conditions for payment of HEFCW grant.
Each higher education institution must have robust systems for managing and controlling its finances, and must send its audited accounts to us annually. The accounts should be prepared in accordance with the Statement of Recommended Practice: Accounting for Further and Higher Education (SORP).
In addition, we issue an Annual Accounts Direction detailing any additional information we want institutions to disclose in their accounts.
We publish information on the financial position of the sector each year, as shown by the latest audited financial statements.
We monitor the financial health of HE institutions in order to ensure that public funds and publicly funded assets are not being put at risk. We do this in part through our review of the annual accounts, but we also require institutions to submit five-year financial forecasts to us. The detailed requirements are set out in our annual request for forecasts and Annual Monitoring statements 2014.
As part of out Strategic Engagement arrangements, we will be undertaking regular Institutional Risk Reviews of each HE institution in Wales. These combine financial health assessments with a range of other key risk areas.
The UK HE funding bodies have introduced arrangements to monitor and evaluate the sustainability of the UK research base. These measures are designed to provide assurance that the increasing level of investment in research is achieving the key objective of contributing to the sustainability of research institutions UK-wide.
In addition, there is a growing requirement for assurance on the wider financial sustainability of HE institutions, and a number of metrics and key performance indicators have been introduced in the past few years to monitor and evaluate the past performance and future sustainability of Welsh HE institutions.
The Transparent Approach to Costing and Pricing (TRAC) is the standard methodology introduced in 2000 for costing the main activities of higher education institutions. It fulfils a number of purposes, including supporting the accountability of institutions for the public funding they receive.
The TRAC project was developed by the Joint Costing and Pricing Steering Group (JCPSG) until 2005, when its remit was taken over by the British Universities Finance Directors Group (BUFDG) and the Costing and Pricing Group.
The development of the strategic, policy, cultural and technical issues around the use and development of TRAC is carried out by the Financial Sustainability Strategy Group (FSSG). In addition to the FSSG, there is a TRAC Development Group which oversees the more detailed development work of the TRAC project.
Updated indirect and estates cost rates have been announced for HE institutions to use when applying to the OSI Research Council for grants for research projects on full economic cost basis. These rates apply from April 2014 until the end of March 2015, and were set by representatives of DBIS (Department for Business, Innovation and Skills), the Research Councils and UK HE Funding bodies.
In June 2010 the Report ’Financial Sustainability in Full Economic Costing of Research in UK Higher Education’ (the Wakeham Report) was published, and made a series of practical recommendation to funding bodies, universities and colleges. These recommendations looked particularly at the future financial sustainability and efficiency of the sector.
In response to the Wakeham Report’s recommendations the Financial Sustainability Strategy Group (FSSG) and TRAC Development Group established a number of Management information reporting projects to address the key aspects of sustainability. The FSSG also commissioned the report ‘Assessing the Sustainability of Higher Education institutions’, published in June 2011, and a number of high level conferences have been held with institutions to reinforce the key sustainability messages. RCUK also responded to the Wakeham report in its document ‘Efficiency 2011-15: Ensuring Excellence with Impact’.
Also in June 2011 the FSSG issued the Management Information Portfolio, giving an overview of the response to the Sustainability Challenge and four detailed good practice guides on the areas of course costing, workload planning, resource allocation management and departmental sustainability.
The FSSG Annual Sustainability Assurance Project’, which sets out how institutions monitor how far their institutional plans are sustainable. The latest document issued is ‘The Annual Sustainability Assessment by Institutional Governing Bodies’ , dated 6 August 2014.
It is vital for the future evaluation of sustainability, particularly in research, that the TRAC process is applied correctly and in an appropriate way.
In 2006, the Research Councils began to fund research projects in HEIs on the basis of full economic costing (FEC), and at the same time Research Councils UK (RCUK) instituted the Quality Assurance and Validation process (QAV) to measure compliance on the allocation of resources to research and the accurate calculation of cost rates.RCUK Funding Assurance Strategy (December 2011)