CIPFA response to consultation on changes to the funding agreement between HEFCE and institutions

Appendix B Consultation questions on the Financial Memorandum

Response from CIPFA

This is the electronic version of the response form for ‘Revisions to Financial Memorandum: Consultation on changes to the funding agreement between HEFCE and institutions’ (HEFCE 2009/46), which can be downloaded from the HEFCE web-site, www.hefce.ac.uk, under Publications. Text boxes may be expanded to the required length and ‘Yes/No’ should be deleted appropriately. Please e-mail the completed form as an attachment to fmcodeconsultation@hefce.ac.uk by Friday 5 March 2010.

Consultation question 1: Do you agree that the term ‘accountable officer’ should replace that of designated officer, and with the arrangements being proposed for the approval of accountable officers?

No

Comments

We support the use of the title ‘accountable officer’. This is a term used and understood throughout the public services.

We are unclear about whether the proposals regarding the accountable officer and the institution’s responsibilities to HEFCE would prove workable in practice. In particular, paragraph 21 notes that “ the accountable officer is personally responsible for ensuring the terms of the financial memorandum are complied with….” In our view, this is incompatible with the governing body’s ultimate responsibility for all the affairs of the institution.

Consultation question 2: Do you agree that the FM should consider the responsibilities and duties of governing bodies and their members more fully?

No

Comments

CIPFA is concerned about the apparent confusion in the proposed changes in two key areas.

Firstly, between the non-executive and executive roles within institutions. This is apparent in the proposal to write to the chair of each governing body on appointment setting out their own and their governing body’s responsibilities under the financial memorandum. This would suggest that the chair of a governing body has some direct powers to fulfil those responsibilities. Although a governing body can, and in some circumstances must, take direct action (for example to suspend or dismiss the vice-chancellor or principal), in practice the chairperson can only work through influencing colleagues on the governing body and the vice-chancellor or principal of the institution. Writing a letter to the chair of a governing body also establishes a direct accountability relationship between HEFCE and the chair of the governing body. Whilst CIPFA accepts that the governing body, through the chair, needs to relate to HEFCE as the sector regulator, it is not appropriate for HEFCE to communicate directly and exclusively with the chair in anything other than extreme circumstances.

Secondly, we believe that there is confusion between HEFCE’s role as a regulator as distinct from its role as a funder. CIPFA is concerned that HEFCE is proposing to use the financial memorandum as a tool for capturing all aspects of its relationship with institutions. For example, its relationship with the chair of the governing body, as outlined above; the more broadly defined responsibilities of governing bodies and the proposal to introduce academic standards into the financial memorandum. A key part of HEFCE’s role as regulator under the charities act is in safeguarding the public perception and reputation of the higher education sector. Linking this role with the funding arrangements for higher education institutions, whilst the simplest mechanism in the short term, presents some longer term risks. In our view the issue of perception is an important consideration here. Where institutions receive a minority of their overall funding from HEFCE they may not have the same regard to it as an institution that receives a high proportion of its resources from the funding body. If, in the future, some institutions opt out of public funding the higher education sector could move into dual regulation. The financial memorandum, and therefore the regulatory requirements, would cease to apply to those institutions. In our view, it may be more appropriate to have a separate document expressing its expectations of institutions and governing bodies in relation to governance rather than encompassing all powers within the financial memorandum.

Annex I provides a useful summary of the responsibilities of members of governing bodies cross referenced to legislation and guidance such as that provided by the CUC as appropriate.

Consultation question 3: Do you agree that the subject of academic standards should be introduced into the FM?

No

Comments

We are unclear why HEFCE has proposed that the subject of academic standards needs to be covered in the financial memorandum and we are also unclear about how this proposal would work in practice. Will institutions be expected to report on the process they have gone through to ensure that confidence can be reasonably placed on the institution’s present and likely future management of the academic standards? How does HEFCE intend to identify institutions that are not fulfilling these duties? What steps would HEFCE then take? It would be helpful for more information to be provided here. Evidence of the fulfilment of this requirement will involve other agencies and data sources, for example the QAA and National Student Survey. In our view it would be helpful for this requirement to be defined and explored in more detail through a further consultation process.

Consultation question 4: Do you accept our proposal for a new long-term borrowing framework?

No

Comments

Although CIPFA welcomes HEFCE’s attempt to move away from the ASC ratio, in our view this area needs further thought if the proposals are to prove workable across the sector as they are currently overly complicated. We believe that it would be helpful for HEFCE to work with the relevant representative group at BUFDG to develop an improved methodology.

Consultation question 5: Are there any other aspects of the new FM that you would like to comment upon?

Yes

Comments

In CIPFA’s view, HEFCE should also look at the tone and language used in the proposed amendments to the financial memorandum. In particular, the tone in paragraph 15 is inappropriate and gives the impression that higher education institutions are not to be trusted. It could sound quite threatening to prospective governing body members.

We believe that audit committee members should not also be members of an institution’s finance committee or equivalent. In our view, therefore, the final sentence in paragraph 46 on page 26 is not required.