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30th November 2021Thoughts from our HE Chair of Audit roundtable in November 2021

At our November HE Chair of Audit Committee roundtable, we were very lucky to be joined by Karel Thomas, Executive Director of the British Universities Finance Directors’ Group. We considered the current challenges in the higher education sector and what Audit Committee Chairs should be thinking about; the main areas discussed are set out below.

Augar – what will be in the HE white paper and when will it appear?

The prospect in the reduction in £9,250 fee is hugely worrying.  With the (still) impending response to the Augar review, many universities are currently constructing budgets and plans using the existing fee structure with quite a lot of doubt as to whether this will be the right figure. The current fee itself has been unchanged for many years and with costs going up, it has in effect been eroded.

There is a lot of speculation around variability of fees for different subjects. This different pricing model isn’t new for business, but it is for many in the university sector, so it’s something for finance directors to get to grips with; a different way of thinking, a new way of financial modeling and the impact on the strategy of the university. If fees for humanities, for example, are decreased will the fees for other subjects be increased or will the total pot decline?

Another prospect is student number controls; will universities have to go back to the old ways of numbers being fixed or using minimum entry requirements? Entry level requirements can cause difficulties in the context of widening participation and access to students who may not previously have considered higher education.

There could though be opportunities to work more closely with further education colleges, which is an area of education in which Government is investing.  With the fees for students to study at an FE College being lower, it could be an attractive opportunity for students to start at an FE College and then go onto do the final years of a degree at a university.

International students and partnerships

International students are so important to the business model of universities. Income from such students in effect subsidises research.  In teaching-led universities, it puts the ‘icing on the cake’ of the funding model to allow for things such as more pastoral support and better student to staff ratio.

Partnerships come with all sorts of problems though not least the tax implications; tax is really quite complex in many universities. So does tax appear on your university risk register and does your university have a tax strategy?

International tax has created new issues over the last 18 months; with students and staff not being in the UK as intended creating unintended tax consequences. Have these tax implications been thought through?

The changing nature of teaching and learning

This is a great unknown currently. The strategies that universities have been putting in place now maybe completely out of date when the infrastructure is sourced and embedded. With the increase in digital learning, staff used to updating lectures and using hard copy handouts are now considered to be in the dark ages for the students who have grown up using YouTube to learn.  How is your university adapting to this?  There is also consideration of the new lifelong learning entitlement announced in the government’s recent CSR?  How much is your university starting to plan for this new initiative?

Pensions

The pensions landscape in universities is very complex.  There are strikes at the moment over USS but this isn’t the full story and there are many other schemes and arrangements. Contributions keep going up and there are higher opt out rates which isn’t great from a responsible employer perspective. The unpredictability of the balance sheet figures adds a further layer of frustration.

Staff recruitment, retention and skills shortages

It is currently a real challenge to recruit good people; there is a considerable shortage with many people having returned to Europe post Brexit and universities are struggling to compete on salaries.  The difficulties in recruitment may result in a diminished student experience, which leads to issues with student retention.

In addition a wide variety of factors are impacting on people’s mental health within both the staff and student body. So counselling services need more support than ever before and this could be very important in retaining students and staff and ensuring that the student experience is at the highest possible level.

Systems integrity and cyber security

How many universities are asking questions around IT security?  A number of universities have been hit by attacks; do you know how many times JISC (the UK higher, further education and skills sectors’ not-for-profit organisation for digital services and solutions ) have been in touch with you to inform you of potential attacks or if you have been the subject of an attack, were you warned?  Universities should see JISC as part of their family and use them to help. This area should be high on risk registers given the potential damage to universities both financially and reputationally.

Environmental sustainability commitments

There was considerable university representation at COP26, including students. One area to consider aligned with this is where you stand on such matters in connection with your investment strategy. ESG (Environmental, Social and Governance) reporting is gathering pace and so thinking through what story you want to be able to tell is important together with what areas of reporting you are going to adopt and when, given much is not mandatory as yet although the whole area is fast moving.

The audit market

The audit market is very difficult at the moment. Some universities are finding they are not getting any responses from their tender process, not even from their incumbents and so there is a view that it’s good to have new entrants into the market.

A level inflation

How has the perceived recent A level inflation affected universities?  One view is that the true consequences won’t be seen for three years when students who didn’t expect to get into a higher tariff university, graduate. One idea mooted was whether we should have comprehensive universities?

The immediate problem is that many have lost out to higher tariff universities causing a chain reaction in terms of student recruitment.  The limit stops in theory with each university’s capacity to take in more students.  However, whilst some higher tariff universities have limited their numbers, others may see a business opportunity in not doing so.  The challenge is therefore for those who are less able to attract students, so what will happen?  Possible future mergers or join ups with other bodies?  This is when a student numbers controls or minimum entry requirements could help HEIs to plan. Those who over offered places and are now struggling to provide the basics such as accommodation may be paying the price in the years ahead in terms of reputation.

In addition, is A level inflation going to be detrimental to HEIs with increased drop outs?  Students with additional needs require more time and support and universities need to be geared up for this.

The learning from Covid

Hybrid working is high on the agenda for discussion at many universities and it clearly impacts on future strategies for space. For some, there is a lot more need for smaller, more tutorial space rather than large auditoriums as the same level of teaching is not being carried out onsite. Some are currently in the pause phase, and wondering how to come back and address this balance.

Others are moving towards a consolidation of campuses, having taken the decision now to reduce their space. The pandemic has helped take the decision to become more efficient and to save money.  Others have also saved money and reduced office leases.

The key is ensuring the right access to students continues to be there.

Some questions to ask

Finally the key thoughts that Audit Chairs should be considering from the discussion were:

  • How are you modelling future fee scenarios?
  • Is tax on the agenda? Do you have a tax strategy?
  • Staff recruitment – is this on the risk register and how is it being addressed?
  • Are you in contact with JISC around cyber security; have there been any pre-warnings of an impending attack? Is this high on the risk register?
  • Where are you on ESG reporting? What are your plans going forward to satisfy the students and major beneficiaries?
  • What is your future property strategy? Are there savings you could take advantage of now?
  • Do your pastoral services need a boost or are they fit for purpose?
  • How are you taking forward digital learning?

Our next Higher Education Chair of Audit Committee roundtable will be taking place at 9am on 22 February 2022 where we will be joined by Nolan Smith, Director of Resources, Finance & Transformation at the Office for Students.  Do contact Louise Hughes to reserve your place.

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