16 August 2017 
Andrew Beazer, Assurance Consultant
HEFCE published a revised MAA on the 26th of July which became effective from the 01st of August. The main changes are as follows:
Subscription to Jisc
The current mandatory requirement for higher education institutions (HEIs) to subscribe to Jisc expires on 31 July 2017. Following HEFCE’s discussions with Jisc, Universities UK, and other stakeholders, the mandatory subscription to Jisc will be extended for a further year to 31 July 2018, to cover the period of HEFCE’s closure and the creation of the Office for Students. This requirement is restricted to the core network package offered by Jisc, rather than mandating HEIs to purchase all of Jisc’s services.
Financial commitment threshold for HEFCE approval and definition
The MAA sets out a requirement for an HEI to seek approval from HEFCE before entering into financial commitments that would exceed a particular threshold. The purpose of this is to provide HEFCE with assurance that the HEI is not entering into financial commitments that might put unmanageable pressure on its future financial sustainability.
From 1 August 2017, the adjusted net operating cash flow (ANOC) measure, developed in conjunction with the British Universities Finance Directors Group, will be used as the basis for calculating institutions’ financial commitment thresholds. The threshold will be set at six times the average ANOC taken from the financial forecasts submitted by HEIs to HEFCE on 31 July 2017. Where an HEI’s existing financial commitments exceed the revised threshold at 1 August 2017, a higher limit to accommodate these commitments will be approved without the HEI needing to submit an application to HEFCE.
The MAA sets out how the ANOC threshold is calculated and the types of financial instruments that are included in, and excluded from, the calculation of financial commitments for the purposes of HEFCE’s approval processes. Service concession arrangements are now included in the financial commitments calculation and interest rate hedges (such as swaps) are now excluded.
Related undertakings
Following consultation, HEFCE has amended its definition of ‘connected undertaking’ in the current HEFCE-funded sector. The development of more diverse corporate forms in the sector and the area reviews of further education which have recommended a number of mergers with higher education providers have led to a revised definition of ‘related undertaking’. This definition allows two providers within the same group structure to be treated as separate providers for HEFCE funding, and for data and regulatory purposes.
While the definition needs to change to be more flexible and fit for purpose, it also needs to prevent ‘gaming’ of the system, such as providers establishing multiple institutions to avoid regulation, maximise funding or manipulate metrics. We have therefore also added a principle to this effect in the definition.
Other changes
The Agreement on Institutional Designation ensures accountability for public funds. It effectively extends the terms and conditions of HEFCE grant (as set out in the MAA) to the tuition fees paid to institutions on students’ behalf by the Student Loans Company. The original agreement was effective until 31 July 2017. This has been extended to ensure that the accountability for public funds continues until the new Office for Students’ regulatory framework is implemented in full. This is expected to be from 1 August 2019.
‘Discretionary reserves’ were formerly defined in the MAA as income and expenditure reserves plus general endowments. Under Financial Reporting Standard 102 (FRS102), this accounting practice has changed: endowments are now classified as either permanent or expendable and all endowments are disclosed as restricted reserves. The concept of ‘general endowments’ therefore no longer exists. Consequently, we have replaced ‘discretionary reserves’ with ‘unrestricted reserves’ as a measure of an institution’s balance sheet strength and thus its ability to absorb deficits. This consists of the income and expenditure reserve plus the revaluation reserve.
For more information, contact Andy Beazer, Regulation and Assurance, on 0117 931 7223, or a.beazer@hefce.ac.uk.
