18th October 2017
Inside the International Integrated Reporting Conference
I attended a conference last week. Nothing remarkable in that given that there are many more HE conference attendance opportunities than there are working days in the year, but this was different. For a start, I was one of only five delegates with a connection to universities, and it was in Amsterdam. It might as well have been in Slough or Swindon though, as I didn’t have chance to see the Rijksmuseum or the Oude Kerk, as we spent two full days in a conference centre talking and hearing about Integrated Reporting. The fact that I am pleased to see more attention being paid to narrative reporting is perhaps more remarkable, as I make no secret of disliking management clichés and waffle which often crowd out useful information in corporate publications. But I am convinced that at a time when everyone is talking about “value for money”, we need to separate “value” from the other two words.
This is where Integrated Reporting comes in. To coincide with the conference, the IIRC published a report on CFO Leadership in IR and it is worth a few minutes of your time to read the 20 pages. You might not agree with the bold claim that “[E]mbracing Integrated Reporting gives CFOs the opportunity to become what global accountancy body ACCA calls “changemakers” in their organizations – individuals who have succeeded in “balancing the ownership and lead of their business’s and taking a more entrepreneurial stance within the firm”, but that reaction is good – it is the basis for a debate about whether current reporting styles and requirements are right for today’s economy and today’s stakeholders. The LFHE will shortly announce which HEIs will be part of their project to examine the relevance of Integrated Reporting and Integrated Thinking in higher education and I understand the quality of applications to be involved was very high. This builds on the work that BUFDG started 18 months ago, and brings to the attention of a wider group of senior managers.
There were several very good sessions at the conference, including one by Professor Mervyn King, who spent the first few seconds of his speech explaining that he is not the former Governor of the Bank of England. This self-effacing South African shared some words of wisdom and in the CFO publication he says,
“Integrated thinking can act as an early warning system for businesses, as the management of strategic information becomes more cohesive and silos are reduced. This process will alert boards to significant risks earlier and trigger discussions that otherwise would not occur. By helping to strengthen the foundations of business decision-making, management and performance, integrated thinking is the bridge to a more financially stable and sustainable global economy. The era of isolated non-financial factors, disconnected from strategic risks, business performance and financial stability, is over.”
As we gird ourselves to read the DfE consultation on the OfS powers and activities, due out any day, maybe replacing the word “business” with “university” is not such a strange idea. Students are already taking a keener interest [than their predecessors] in what their university is doing for them and for the world they have inherited. Nicola Dandridge and Shakira Martin agree that students should play a part in the OfS and universities should be prepared with much more information about value. We have been warned!
Value for money? Or just good value?
In related news, Universities UK has published research this week showing that Universities directly and indirectly contributed £95bn to UK gross output in 2014/15, an increase of 15% in three years, and directly added £21.5bn to GDP. The research, undertaken on behalf of UUK by Oxford Economics, comes at an important time, with sector funding high on the political agenda. Other standout figures include the 940,000 jobs supported by universities’ economic activity, the £13.1billion earned in export receipts, and the £63bn increase to their graduates’ human capital, relative to their pre-degree value. There’s a summary article in the Times Higher.
As you can tell, the findings are heavily focused on the economic contribution, which may cut through politically, but drowns out other more subtle messages including the one Karel outlines above – that we may get further focusing on the value of universities, rather than the value for money.
Compare and contrast these two articles: John Morgan asks in the Times Higher “are graduates good value for money?”. Well it depends. What’s the rate of return? What’s the earnings variation between graduates of more or less prestigious universities? What can LEO data tell us about the ‘value added’ measure of salaries? All valid questions tackled in the article, and none of which answer the question.
Over in the Times, Alice Thomson’s article, following her discussions with a wide range of people in the sector that helped her change her mind on the topic, is simply titled “This country needs all the graduates it can get”. While graduates earn £9,500 a year more over their lifetimes, she notes “they are also healthier, thinner, more likely to vote, more likely to trust others, more likely to live longer, less likely to suffer from depression, more likely to volunteer, less likely to commit a crime, and more likely to take exercise than those who don’t go to university”. And, she continues, “they pass some of their advantages on to their children, who are more likely to do well at school”. International Students? “97 per cent… leave Britain after their studies, and while they are here they add to the economy and enrich student life. As long as their experiences are good, they may take home a lifelong attachment to this country; and British graduates may have acquired a link to another continent, and a more internationalist outlook”.
Are universities good value? Yes. And we've not even mentioned research yet.
Efficiency return reminder
And in case you missed the related news in last week's Digest, HEFCE has published its requirements for this year’s efficiency reporting for English HEIs, which confirms significant changes from last year.
Institutions will now no longer be required to submit full VfM reports (although HEFCE hopes that these will still be produced and used internally). Instead, HEIs will submit an efficiency return, listing the efficiencies delivered in the 16/17 academic year only that have released cash or resources, or resulted in productivity gains or capital receipts. A key feature is that institutions that submit procurement savings to the EMM survey do not need to duplicate these again via the efficiency return. The deadline for these submissions is Wednesday 31st January (so after the completion of the EMM).
The circular can be found on the HEFCE website, and this includes examples and notes on completion. The HEFCE site also has related guidance on VfM and efficiency. July’s long-form report on last year’s VfM submissions (which includes recommendations) may also prove useful background reading. If you have any questions, thoughts, or feedback, Matt Davey at HEFCE would love to hear from you.
Introduction to TRAC - 29th November
Due to high demand we have released another Introduction to TRAC course. This course takes place on Wednesday 29th November at Friends House, London. This full day course will provide a comprehensive introduction to the TRAC process and requirements including:
- The aims, principles, operation and benefits of TRAC;
- The annual TRAC reporting process and requirements;
- TRAC for teaching;
- Full economic costing;
- Approaches to staff time allocation;
- Calculating the TRAC costs rates;
- Accounting for research facilities; and
- Sources of further guidance and support
University Council members could be personally liable for new VAT evasion measures
Hot on the heels of the introduction of the Criminal Finances Act 2017, the second Finance Bill of 2017 includes the expected measures to target businesses dealing with other businesses involved in VAT fraud. The bill introduces the following measures to penalise taxpayers who knew or should have known that the other party to a transaction was involved in VAT evasion in relation to that transaction (often referred to as 'the knowledge principle'):
- A new fixed 30% penalty which cannot be mitigated by HMRC;
- The possibility for HMRC to transfer liability for all or part of that penalty to trustees or company officers personally;
- The potential to be named and shamed by HMRC.
Consequently this will introduce the possibility of university council (or equivalent) members or subsidiary company officers being personally liable for a penalty relating to VAT evaded by a third party, as well as the university/company itself. More information can be found in our full article here.
Country-by-Country reporting enquiry mailbox
HMRC has set up a new mailbox for any queries on Country-by-Country reporting ('CbCr') which should be used for all such queries. Everything related to CbCr should be sent to this mailbox except annual notifications which should be sent here instead.
New Knowledge Exchange Framework (KEF)
Eager to add to the growing list of sector TLAs, Jo Johnson announced the introduction of the Knowledge Exchange Framework (KEF) this week, which “brings together a comprehensive range of measures of impact from collaboration and knowledge exchange”, with the ambition that it “will become an important public indicator of how good a job universities are doing at discharging their third mission, just as the REF rewards excellence in research and the TEF rewards excellence in teaching and student outcomes.” The measure was included in an R&D-themed speech at the HEFCE conference but, as is to be expected, details of the new system are currently thin on the ground.
Wonkhe’s coverage of the speech noted that “the tone was positively conciliatory, with Johnson talking about taking “great care, involving the sector at every point, so not to inadvertently skew behaviours”, which is good news if it continues. Wonkhe also believes it likely that KEF participation will be necessary in future for access to HEIF funding. The story is also covered in the Times Higher.
V-Cs pay and the perception challenge
John Rushforth, Executive Secretary for the CUC has written an excellent blog in a personal capacity on the AHUA website about V-Cs salaries, and whether they are worth it. It’s a well-measured view, and although the answer is “it depends on what you’re comparing them to”, the challenge is one of perception. He writes:
“I think there is more work to be done to set out how we have arrived at the decisions we have made and we need to make that information accessible. As an example, CUC has recently carried out an examination of information on senior pay on institutional websites – the quality is variable and in most cases difficult to locate. If you want to test this ask a student what they can find out from your website.” He continues: “the clear majority of Remcos work diligently and carefully and have nothing to worry about if they set out why they have done what they have done – a proper transparency statement, easily accessible also gives an opportunity to demonstrate both the complexity of and the value delivered by our highly complex and important institutions.” Sounds like a job for <IR>.
The CUC is working with others in the sector to develop practical and helpful guidance in this area. If you have any thoughts or ideas to contribute, let Karel know, and she’ll make sure these are coordinated and passed on.
Revised definition of EBITDA for HEIs
In case you missed it in last week’s FRG newsletter, the Financial Reporting Group has updated the definition of EBITDA for HEIs to address the impact of FRS 102 more fully. BUFDG previously issued a definition of EBITDA in May 2016 which took account of FRS 102 and the withdrawal of FRS3 and FRS17, but this updated definition takes account of further nuances as a result of the adoption of FRS 102.
Remember that HEFCE has now adopted the adjusted net cashflow metric (ANOC), jointly developed by the BUFDG Metrics group, which establishes a revised approach to measuring the financial commitment threshold. Because there is currently no historical track record with the new metric, with BUFDG’s agreement, HEFCE have decided to continue to collect EBITDA alongside the new metric for the time being. Some HEIs also use EBITDA for their own internal purposes and some may have banking covenants based on EBITDA. The updated definition can be viewed here.
Opportunities for Public Procurement Post Brexit
A new discussion paper from the Centre for Local Economic Strategies (CLES) explains why it thinks the current Directive restricts effective procurement strategies or areas such as engaging SMEs and the inclusion of wider social and economic goals. It explains the "12 valuable lessons" learned and then highlights a number of ways in which central government and places can progress procurement policy and practice in a post-Brexit environment. The report is focussed on work with local government, however the theme is relevant for HE and makes for interesting reading.
Don’t forget you can now start a discussion on any articles published on the HEPA website by simply clicking the start new topic button below the article.
Job of the Week
Our Job of the Week is for a Finance Director at Northumbria University. Northumbria hopes the appointee will “provide outstanding commercial and financial leadership across the institution”, as it undertakes “ambitious plans and an exciting programme of major projects”. These include “plans to spend £52 million over a 2 year period on the ongoing transformation of the university campus, major investment in new systems and IT infrastructure and the exploration of new commercial ventures and partnerships”. The deadline for applications is 7th November.
As usual, there are lots of other finance vacancies listed on the BUFDG jobs page.