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Governance Under Pressure: Financial transparency

by Richard Millward | Nov 30, 2021 | Governance & Policy

The trustee who presents the finances at university board meetings is unavailable at short notice. The chair asks you to stand in their place to lead the discussion on finance.

  • How would you encourage lay trustees, academics and student representatives to ask questions?
  • Could you judge whether all of the board have a good appreciation of the finances of the university?

Financial numbers are a key part of governance, to assist trustees to make fully informed decisions on strategy and specific policies. They need to be presented in a way that everyone can understand them, to support good decision making.

There is a politeness with regard to financial data, that is not applied to long-winded tortuous prose. How often are papers prepared with only a limited section on financial implications, where numbers stated are not directly linked to the main business proposal? They may be at the back of the paper, or there may be too many numbers.

Reviewing numbers is the same as reading a book – start at the top and work your way down the columns; if you reach an impasse, move round it and get to the bottom to see the end result. It may help to explain the complexity further up the column.

Areas that illustrate the need for challenge and explanation:

  • The interaction between Income and Cash Flow. Trustees need to be keenly aware of the impact of policies and expenditure in the year-end cash balance, just as much as income surpluses.
  • The way universities have to report ‘Movement on USS pension provision’ can create large distortions in the total of operational costs. In 2020, it flattered institutions’ cost bases and represented 50% or more of their Surplus for the year.
  • Reporting ‘Restricted’ and ‘Unrestricted Income’. They can be separated easily enough, but do the costs divide so easily? If an academic chair is part-sponsored, are the costs similarly allocated.
  • Liquidity. Major corporates focus intensively on this and have large bank facilities which they keep unutilised, available for emergencies. Trustees should judge the level of any external facilities against their existing reserves and predictability of their income.

There is really no question in finance that is too simple to ask; simple answers are far more challenging to formulate.

Richard Millward is a Consulting Fellow for Halpin, the home of experts in higher education governance.