Issues for Consideration by Governing Bodies and Executive Boards | Lessons Learnt from the University of Dundee (Part Three) 

Lessons Learnt from the University of Dundee (Part Three)

This is part three of a four-part series which presents some of the key learning points arising from the report by Professor Pamela Gillies into financial oversight and decision-making at the University of Dundee and raises a number of questions for discussion by HE governors and leaders.

You can read the other blogs in the series here:

• Part one – Overview
• Part two – Accountability, risk and governance operations 
• Part four – Culture, challenge and openness

Financial management

The Gillies report sets out, at considerable length, the financial management failings of the University of Dundee during the period in question.

Some of the key failings included:

• The university failed to act following a big decline in international Postgraduate Taught (PGT) student recruitment in September 2023 and January 2024. There was also a drop in undergraduate numbers, but the university nevertheless determined it would continue with its investment plans.
• The University did not act to control expenditure until Q3 FY25 when a recruitment freeze was introduced. During this period staff numbers, and operational expenditure continued to grow. No re-evaluation of plans or cost reductions were introduced despite the obvious consequences of reduced student fee income.
• Throughout FY24 and Q1 of FY25 the university did not have effective internal systems and controls over financial management. Internal audit did not pick this up.
• In March 2024 there were strong indications of financial distress from the data presented to the University Executive Group (UEG), but this was not reported to anyone. The report states that the principal either was aware or should have been aware at this point and should have taken appropriate action, which would have included advising the Finance and Planning Committee (FPC), the Audit and Risk Committee (ARC), and court
• Known external factors and the under-recruitment of students were not addressed in budgets. Savings aspirations were only vaguely expressed and never properly introduced. The failure to make savings in FY24 meant the budgets for FY25 were already too high.
• Cash flow was not managed prudently due to issues with poor governance, the ownership of cash management and reporting and transparency. The lack of visibility of cash movements meant that the University was not controlling cash at all and ended up breaching its covenants.
• The covenant breach was not reported to court until 12 November 2024, although senior staff must have been aware of it for a period before that date and there were opportunities to raise the issue at both FPC and ARC at their October meetings, but this did not happen.
• There was very poor reporting on finances to both UEG and court. For example, the finance team did not prepare the P7 accounts in FY2024 because it was prioritising financial forecasts. This should have been a red flag, as should the fact that the P9, P10 and P11 management accounts (April, May and June 2024) were produced in draft but never finalised into papers that reached UEG.
• Notwithstanding the poor financial reporting there were opportunities for individuals at various meetings to challenge the financial information in front of them, including the lack of specificity around savings targets for example, but this did not happen.

Financial controls as primary responsibilities

The Committee of University Chairs (CUC) Code includes the following points in its list of primary governing body responsibilities:

5. To ensure the establishment and monitoring of systems of control and accountability, including financial and operational controls, risk assessment, value for money arrangements and procedures for handling internal grievances and managing conflicts of interest.  

12. To be the principal financial and business authority of the institution, to ensure that proper books of account are kept, to approve the annual budget and financial statements, and to have overall accountability for the institution’s assets, property and estate.

The Scottish Code includes the additional stipulation that:

The governing body must ensure that the institution has appropriate arrangements for financial management.

And

8. The institution’s financial regulations must specify the financial responsibilities and authority of the governing body, its committees and staff. Financial procedures should specify processes to be followed in day-to-day financial transactions. There should be clear policies on a range of systems, including (but not limited to) treasury management, investment management, risk management, debt management, grants and contracts, and delegated authority. These should be monitored to enable continuous improvement.

This really could not be much clearer. And the gap between this expectation and the findings set out in the Gillies report is substantial.

Financial management oversight

Among the recommendations made by Gillies for general consideration are two helpfully direct proposals for university executives to take on board:

1.  The UEG, or equivalent, should actively consider and challenge the management accounts of the institution from a position of understanding of the totality of operations. There needs to be:

• An integrated income & expenditure, cashflow and balance sheet.
• Transparent cash reporting and cash management i.e. budgeted and allocated cash, unallocated operational cash.
• Control and reporting of capital projects in a way that is not separate to or segregated from the whole university financial reporting; and
• Transparent treasury management (especially if RCFs [revolving credit facilities] or loan finance is being used or is available).

4. Where there are loan or RCF covenants, depending on headroom these should be reported to UEG on a monthly or quarterly basis (in real time and based on the prior month’s management accounts);

Discussion points for governing bodies and executive boards

• Is the governing body confident about the systems of financial control and operations which are in place?
• Do the institution’s financial regulations specify the responsibilities of relevant committees and staff?
• Are the arrangements for financial reporting to the executive and to the governing body and its committees sufficient to enable each to execute its responsibilities?
• Are the policies relating to the various financial systems clear, comprehensive, up-to-date and effective?
• Are the governing body and the executive fully sighted on and regularly updated on the status of loans or credit facility covenants?
• Are there sufficient levels of financial literacy among members of the governing body and executives? Is further training or updating required?

How can we help?

You can read the other blogs in the series here:

• Part one – Overview 

• Part two – Accountability, risk and governance operations 

• Part four – Culture, challenge and openness

If you would like any further information or support in relation to higher education governance issues, then please do get in touch with our expert education team.