by JAMES GUTHRIE
The NSW Auditor-General’s report Universities 2021 was released and tabled in state parliament on 27 June 2022. Each year, the AG provides an audit opinion on universities’ results. As always, the report makes for interesting reading, as the combined figures for the ten public universities in NSW provide a combined snapshot of the NSW public sector higher education system in financial terms.
In 2021, the ten public universities in NSW employed 16 957 academic staff (FTE), a reduction of 4.8 per cent from 2020 and 22 201 (FTE) general staff, a reduction of 6.1 per cent from 2020. These staff numbers are provided by universities and are not audited. From experience, equivalent full-time staff is not a good measure of headcount; it would be more beneficial to know how many actual people lost employment in 2021.
The Auditor-General only reports net results (net results from continuing operations). This does not help us see how universities construct their accounts, especially from all revenue and expenses in their operations.
|Reported net result 2021
|Adjusted net result 2021 without EAL*transaction|
|Charles Sturt University||143.7||60.7|
|Southern Cross University||10.6||10.6|
|University of New England||102.6||19.3|
|University of New South Wales||305.8||222.8|
|University of Newcastle||185.3||102.3|
|University of Sydney||1,049.7||1,016.4|
|University of Technology Sydney||109.1||25.7|
|University of Wollongong||8.3||(24.7)|
|Western Sydney University||143.2||143.2|
Source: Universities’ consolidated financial statements (audited). AG NSW (2022), p. 4.
Note: * Education Australia Limited, a company owned by 38 Australian universities, promotes the Australian university sector and its internationalisation.
The table shows that all universities reported positive net results in 2021 and these improved from 2020. The adjustment in the second column accounts for an investment change in Education Australia Limited (EAL). This adjustment is smoke and mirrors. Each university’s total compensation income reflects the transaction’s net impacts. This is a profit on the restructuring of the original investment. Therefore, most university earned approximately $33 million from this one-off financial transaction but still holds investment shares in the new structure.
The combined revenue of all NSW public universities totalled $12 billion in 2021, representing an increase of $1.1bn. Breaking this down, government grants for teaching and research were $4.1bn, fees (students’ loans and international student fees) $5.8b, investment income $700m and other revenue $1.3bn.
The source of revenue from student course fees in 2021 consists of $3.1bn from overseas students (53 per cent) and $2.5bn from domestic students (44 per cent). In the past two years, enrolments by overseas students have fallen by 12.5 per cent from a peak in 2019. However, the notable exception is that the enrolments of students from China increased in 2021 and 2020. Students from China now represent over half of all overseas students enrolled in NSW public universities. Seven universities now record China as the leading source of overseas student revenues. The AG points out that reliance on this income source creates a significant risk for each university and the university sector as a whole.
This is hardly breaking news ‒ we have been pointing this out for years.(4] The business model of universities ‒ one readily accepted by vice chancellors ‒ relies upon onshore fee-paying international students and the casualisation of employment on campus for teaching research and administration.
The report does not draw attention to the Statement of the Financial Position for the entire sector. However, I have noticed several issues in reviewing the 2021 NSW public universities’ annual reports. In my analysis, I have had to rely upon the Australian Government financial position 2020 material for NSW, as 2021 data is not due until early next year.
Here I focus on three specific issues not covered in the NSWAG report.
First, the ten universities’ cash equivalents and other non-current financial assets equal $20.5bn. There is plenty of money in the system. For instance, at Uni Sydney, the vice chancellor has set aside so-called future funds ($1.2bn) for the specific purpose of providing a backstop for the university’s borrowing programme (currently $481m), to protect staff entitlements (current $365m), to shield the university against unforeseen circumstances and to form the core of a discretionary endowment.
Second, the ten universities have non-current borrowings and liabilities of $9.4bn in total. Last year we highlighted the high debt levels of several NSW universities. As seen above, investment income is about $740m. The aggressive practice of borrowing, investing and earning investment income started in about 2010. This has not changed, as illustrated by Macquarie University in its 2021 annual report. One may question, is this activity consistent with the core mission of a university?
Third, the combined property plant and equipment, including construction in progress and concessional assets in 2020, was valued at about $17bn. In 2021 depreciation and amortisation accounting costs increased to about 10 per cent of total costs at about $1bn. This is not a cash expense but an accrual cost that significantly decreases the disclosed net results. The depreciation of buildings was a sizeable accrual cost for NSW public universities. However, the budgets of faculties, schools or departments, and other organisational units do not include charges for depreciating expenses as they are not included in administrative units’ accounts of cash inflows and cash outflows, modified for accrual employee expenses.
NSW universities only had $170m as assets classified for sale. It is difficult to determine how much was sold during the period. The mix of property would include some freehold owned but this would be immaterial considering that universities are mainly on Crown land, and up to 2012, governments provided most capital for infrastructure (buildings and groundworks). All the property (land and buildings) are valued at so-called fair value. We cannot judge how this is done from the accounts ‒ however, Crown lands were gifted by the state and most buildings were built with government funds or student fees.”
Also, NSW public sector universities prepare their annual financial statements according to accrual accounting, and these are the numbers used by the AG. However, internally, universities use a modified cash budget and internal expenditure controls. Accordingly, accrual accounting is not used to drive the day-to-day management of a university’s operations. Furthermore, governments fund public universities utilising cash, and students pay their higher education contribution (HECS) using cash. This suggests that the universities’ accounting numbers are artificial constructs which can use either accrual or modified cash accounting (which should be used for public sector university entities).
Further, the government does not fund universities to meet their depreciation expenses. Business accrual accounting and associated accounting standards dictate university building depreciation, property valuation and investments valuations. However, if the universities cannot or are unable to legally find an alternative use for land and buildings (e.g., sell), then why depreciate?
The above suggests limitations to the value of the AG’s report. First, it provides little new information. Second, NSW public sector universities’ annual reports are generally not made public promptly. Third, there is a systematic risk to the NSW public sector university system from over-reliance on fee-paying Chinese students. Fourth, full disclosure of employment data should not be in FTE, and the cost of executive salaries should have been explored. Fifth, the reporting of university funding allocations and budgets based on cash flow should be publicly available and in a format that the public can understand. The annual accrual financial statements do nothing for transparency when expressed in net operating results, and other revenues and expenditures are separated. Finally, costs such as depreciation are accounting constructs and distort the tangible results of the ten public universities.
Ultimately, transparent disclosure is in the public interest. That universities’ reporting is not done in such a way as to act in the public interest raises the question of why university management, as information gatekeepers, fails to meet a satisfactory level of public accountability and governance.
Distinguished Professor James Guthrie AM, Macquarie U Business School
 Auditor-General for New South Wales, (2020) Universities 2021, 27 June 2022
 Smith, T. and Guthrie, J. (2021), Universities should report real staff numbers not accounting abstractions, Campus Morning Mail, January 27 2021
 Guthrie, J. (2021), The seven gaps between uni managements’ rhetoric and financial reality, Campus Morning Mail, November 7 2021.
 Carnegie, G.D., Martin-Sardesai, A. and Guthrie, J. (2021), “Public universities and impacts of COVID-19 in Australia: Risk disclosures and organisational change”, Accounting, Auditing & Accountability, Vol. 35 No. 1, pp. 61-73.
 Guthrie, J. (2022), Rhetoric and reality of public sector university finances: decisions made by a few elite people behind closed doors significantly impact staff and students, Campus Morning Mail, April 28 2022.
 Guthrie, J. (2022), Uni Sydney’s annual report reveals a big bucket of money: Universities communities must engage and push for change that builds a more inclusive and equitable budgeting and funding process, Campus Morning Mail, May 27 022.
 Guthrie, J. (2021), NSW unis debt strategies (have they forgotten Lehman Brothers?), Campus Morning Mail, August 23 2021
 Guthrie, J. (2022), Macquarie U finances: a lack of cash and reliance on debt: What the 2021 annual report reveals, Campus Morning Mail, May 27 2022.
 Guthrie, J. and Lucas, A., (2022), How we got here: Australian public sector universities and finance, accounting and the audit society, Social Alternatives, 41(1).