by JAMES GUTHRIE
It’s the season for New South Wales public universities annual reports to be tabled in state parliament.
Last year, in Campus Morning Mail, we explored the seven gaps between university management rhetoric and financial reality for the 2020 fiscal year for Australian public sector universities.[ii]
Our analysis revealed that staff and students took a big hit in 2020. While the universities filled their buckets with cash, staff were subject to redundancies and restricted research funds, while students had courses cut and mainly delivered on-line.[iii]
Earlier this year, we used the annual reports of 37 universities in the Australian Higher Education sector to show that collectively their projected revenue for 2020 was only $1.8bn less than in 2019 ‒ which was way off the mark, with university cash and investments $24.6bn, increasing by 9.8 per cent since 2019.[iv]
So, it is not surprising that the NSW Parliamentary tabled annual reports show us some interesting data for 2021. The headlines are that New South Wales universities in 2021 had buckets of money, with significantly positive results.[v]
To demonstrate, we use the example of the University of Sydney, with excerpts (our italics) from an email the Vice Chancellor wrote to staff.
Late last year in a message to staff I discussed the university’s expected financial position for 2021 and outlined our stronger than anticipated student enrolments. Today the University’s annual results for 2021 were tabled in the New South Wales Parliament. I am pleased to share these details with you now.
The University recorded an operating result of $454 million in 2021. This result is a consequence of significantly better than predicted student recruitment and retention along with savings in delayed repairs and maintenance, hiring and travel associated with the COVID-19 disruptions experienced in 2021.
Here the Vice Chancellor fails to mention that $59m in reducing expenses came from cuts related to employee expenses. This accounts for more than the reduction in total expenses from continuing operations.
The 2021 financial result also includes a series of one-time returns, including property sales of $100m and a strong investment yield of $466 million, which is tied up in endowment income that can only be spent as stipulated by donors.
Here the vice chancellor fails to mention that the endowment income is significant for income from investments and cash equivalents. He also neglects to point out that property write-downs matched the property sales. The term used one-time returns where the University of Sydney has previously booked many property and investment returns like this.
The combination of these success factors mean that these results are unlikely to be repeated and represent a once-in-a-generation opportunity to invest in our collective Future. I take this responsibility to our students, staff and the communities we serve very seriously.
Here the Vice Chancellor has forgotten to mention that the University could have access to what we call in accounting “a hollow log” in cash and cash equivalents. The university’s Statement of Financial Position has been dissected to understand the significant restrictions that are in place for many of the funds held. He states that 54.1 per cent of the university’s wealth, represented by its net assets, represents the value that cannot be applied to support its operations. Segregating the Statement of Financial Position demonstrates that much of the university’s cash balances and most of its financial investments are restricted or unrestricted in their use. Also, the Statement of Cash Flows indicates a positive increase in cash, about $.75 billion for the year.
In the table below, please note that the Vice Chancellor has set aside the following 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) and non-current superannuation investments ($1.5 billion). Furthermore, to shield the University against unforeseen circumstances and to form the core of a discretionary endowment.
The Future and other funds are presented in the annual report as follows:
|Summary Balance Sheet as at 31 December 2021|
|Discretionary University Funds||Tied University Funds||Endowment Funds||Future||Total|
|Cash and cash equivalents||458.7||429.8||38.9||454.4||1,381.8|
|Receivables and contract assets||55.0||0.3||6.9||135.0||197.2|
|Other financial assets||167.7||‒||1,385.5||649.6||2,202.8|
|Other non-financial assets||47.2||‒||‒||‒||47.2|
|Superannuation fund receivables||1,448.4||‒||‒||‒||1,448.4|
|Total non-property assets||2,340.1||430.1||1,431.3||1,239.0||5,440.5|
The University has discretionary funds of $2.3 billion and an account called Superannuation fund receivables of $1,448.4m. This account is not explained but appears to be material as it represents a significant amount of discretionary funds earmarked for possible super payments. No textbook or accounting standard identifies an asset called “Superannuation fund receivables.”
Of particular interest is that the University of Sydney is registered as a charity (Annual Information Statement 2021 has not yet been lodged with the Charities Commission) and is allowed to establish these enormous endowment funds which have $1.4 billion. Endowment funds are restricted purpose funds that cannot be utilised except for the specific purpose intended by the donors of the funds. Dividends and capital gains can be contributed to a specific programme or activity as per the specific purpose stipulated. However, it is a mystery how the university accounts for endowment funds in terms of operating statements, revenue and expenses. Are these funds and their expenditures kept out of the operating activities of the University or included?
The Vice Chancellor stated that the university’s strategy going forward is to prioritise investing these funds to safeguard our institution against future pressures and invest in our community, including the recruitment of more continuing academic and professional staff.
He concludes that he will keep staff and students informed and intends to invest our available operating funds in the Future of the institution, which means investing in our people, students, and community.
Decoding of this message might read that the University of Sydney has buckets of cash, and it is a strategic choice to invest it in buildings and a so-called future fund and discretionary. It suggests that universities are following a business model that places the Australian higher education system in crisis. A model in which the consequences for university workers are dire.
I call on universities to move to strategic planning and university budgeting for the public good, in which the core mission of the university is paramount. Universities communities must engage and push for change that builds a more inclusive and equitable budgeting and funding process to achieve this.
Built into any university budget must be a respect for intellectual integrity, freedom of inquiry, and democratic space for discussion; promotion of equity and justice, recognition of the diversity of the university community, collegial governance that involves all parts of the community and a system of fiscal responsibility and accountability that allows for all the university community to be engaged in the debate and the setting of priorities.
Universities much support quality teaching and fully funded research. Otherwise ‒ what is a university for?
Emeritus Professor James Guthrie AM, Professor of Accounting, Macquarie Business School
[i] James Guthrie (2021), Universities must plan and budget for the public good, , Campus Morning Mail,6 July
[iv] James Guthrie (2021), Staff and students take the hit from NSW uni cuts: Negative 2020 net operating results in many unis were due to staff redundancy programmes, , Campus Morning Mail, June 20, HERE
[v] James Guthrie (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 HERE
[vi] Sent to all-staff list, 23 May 2022 The Sydney University