by JAMES GUTHRIE

Uni Adelaide’s 2020 annual report was released this week. The following is a brief snapshot of the situation, based on it, plus the annual report and the charities commission report for 2019.

In May, in a University of Adelaide press release, it was announced that the university statutory net operating surplus for 2020 was $40.8m (compared with a surplus of $42.9m in 2019).  The university press release did not use consolidated figures and this is a practice I will follow in this note. Also, the 2020 statutory net operating result includes $10m in donations and bequests and $20m of research funding. This leads them to report an accounting calculative practice of an underlying net operating result of $9.3m (down from $12 million in 2019).

However, the financial situation for 2020 appears to be highly favourable, with the operating surplus only down $2m, being reported as $40.8m for 2020 (compared to a surplus of $42.9m in 2019). These numbers are all accrual with their inbuilt distortions, such as amortisation and depreciation. However, the Statement of Cash Flows for 2020 is +$145m (2019+ $90m) from operating activities. Also, the Statement of Comprehensive Income for  2020, +53m (2019 +$40m), shows a net operating result (this encompasses non-core revenues, including investment income of approximately 2020 $26m, 2019 $52m).  This has been produced from a  total cash flow from continuing operations of nearly $1bn.

The university stated that it recorded a relatively steady financial performance for 2020 compared with 2019 due to strategies including staff purchased leave, voluntary separation of 157 staff, and a pause on infrastructure projects, staff hiring and other expenditure (total savings: $90m). The university spent $23m on redundancies ($7m 2019); therefore, 2020 has a better result than 2019.

It also benefited from better-than-expected enrolments (total international student revenue: $254 million in 2020, the same as 2019). Interestingly, the staff purchased leave was compulsorily imposed on most staff and resulted in a loss of two weeks salary for most.

It was disclosed recently that the University of Adelaide proposes shedding more staff, cutting courses, merging faculties and moving to year-round teaching to deal with a gap between revenue and expenditure, which is said to be growing as international onshore student numbers fall.

The issue here becomes what business model the university is following in terms of its priorities and expenditures. Will it continue its infrastructure developments, which must now be self-funded and financial investment activities in which the income is ring-fenced against operations expenditure?

Up to 2013, the concept operating result was revenue minus expenditure derived via the audited income statement. Then in 2014, Uni Adelaide introduced an underlying net operating result via a non-audited statement. The university explains this accounting concept of the underlying net operating result as representing the university’s total net operating result after deducting revenues received directed to specific purposes that are not available to be utilised at the university’s discretion. In 2019, the underlying net operating result was $11.1m (consolidated $9.5m).

The method adopted is consistent with that adopted by Group of Eight universities in their annual reports since 2014. Therefore, I have several accounting issues with this statement and the choices made to generate these accounting numbers which are usually significantly less than the total university’s net operating result of $42.0 million (consolidated $40.5 million), as reported in the audited financial statements, which derived through the application of relevant accounting standards.

For Uni Adelaide, at the end of 2020 there was $438m (2019 $438m) other financial assets. At the beginning of  2010 the figure was $148m. Much of this is in investments in equity shares, and a review of this growth would indicate most was not from external donations and bequests but from internally generated funds, which the senior executive has ring-fenced from operating activities.

Turning to the asset, property and land. At the beginning of 2010, this was $639m, most held in trust and with little acquisition costs as gifted by the state. The valuation of property and land in 2020 is $1.5bn (2019 $1.6bn), with a reported cost of about $338m. Employing accrual accounting, the university charges an expense called depreciation, which reduces the operating surplus significantly.

In the meantime, Vice Chancellor Professor Høj proposes new savings (CMM July 9), merging five faculties into three, instigating another 130 professional staff position reduction, and reviewing courses and academic numbers for minimum allowable economic enrolment sizes. This follows 157 voluntary redundancies last year (CMM February 18) and no disclosure of how many casuals lost their work in 2020. The latter is not ascertainable until the university submits its charities report, which is now late. However, casualisation at this university is one of the highest in Australia, being 52.52 per cent in 2019.

Table 1 The University of Adelaide charities report 2019

Full-time employees	2554
Part-time employees	868
Casual Employees actual	3818
Headcount	7240
Full-time equivalent staff	3452

Turning to vice-chancellors and senior executive remuneration. Professor Høj took over from the interim vice-chancellor Mike Brooks in Feb. 2021, who had acted since Peter Rathjen went on leave in May ’20., Therefore, we have a timing issue for 2020 in calculating remuneration because they will not disclose an entire pay period for a VC.

Turning to international students, Uni Adelaide had an aggressive policy of attracting fee-paying students in its Adelaide and Melbourne campuses. In 2019, 30.7 per cent of enrolments were international students. That is total students 28,303 and international students 8,682, which is then 30.7 per cent.

The total income from fee-paying onshore overseas students from continuing operations during the year ending 31 December 2019 was about 25.5 per cent.

A WA Auditor General’s report on universities (2020) contained a “diversity of revenue” performance indicator. Universities interpreted this to mean diversifying their revenue sources by encouraging overseas students to study their courses. However, the general view is that universities should not be overly dependent on this source of income. In its 2020 benchmarking, the Department of Education, Skills and Employment considered universities with 15 per cent or less operating revenue from fee-paying overseas students as low risk and between 15 per cent and 25 per cent as medium risk. Based on these criteria, Uni Adelaide was in the very high-risk rating for 2019 (25.5 per cent).

In conclusion, based on available public accounting data, the University of Adelaide’s finances and financial position in 2020 was strong. However, it predicted reduced international student fees ging forward. The VC is predicting a fund’s shortfall of $22m in 2022 and an annual shortfall of $47m by 2023 because of the fall in international students’ fees. Remember, these are only based on some budgeted Core Operating Cash Flow calculations where funds are the KING, and as we can see from the above, Adelaide university is funds rich.

The VC’s choice is to either reduce his human capital (many with the expertise and long loyal dedication to the university) and courses (which impact local student experiences) or reduce infrastructure expenditures, salaries to senior executives, and use the university investments funds to build a sustainable public university for staff and students.

This so-called crisis is almost exclusively referenced by university senior management in accountingized and financial terms. However, it has a human cost within and outside the university, impacting all staff, operations, and students, with significant implications for present and future communities and society at large in terms of what activities and issues can be addressed and delivered, what level and types of research can be developed.

Distinguished Professor James Guthrie AM, Macquarie U Business School

References

University of Adelaide charities commission report 2019,

University of Adelaide annual report 2019, 2020

University of Adelaide annual report 2014 Part 1

University of Adelaide annual report 2010 Part 1 and 2

University of Adelaide Enterprise Agreement 2017-2021 The University of Adelaide

(AG2020/2487)

Carnegie, G.D., Guthrie, J. and Martin-Sardesai, A. (2021), “Public universities and impacts of COVID-19 in Australia: risk disclosures and organisational change”, Accounting, Auditing and Accountability Journal   (ahead of print).