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| The Committee of Public Accounts has agreed to the following report:
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| GOVERNANCE AND THE MANAGEMENT OF OVERSEAS COURSES AT THE SWANSEA INSTITUTE OF HIGHER EDUCATION
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| INTRODUCTION AND SUMMARY OF CONCLUSIONS AND RECOMMENDATIONS
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| C&AG's Report, (HC 222 of Session 1996-97), para 2
| 1. The Secretary of State for Wales determines the policy framework within statutory limits for higher education in Wales, and has a mainly advisory role in relation to the governance of the sector's 13 institutions (plus the University of Wales Registry). Within this policy framework the Higher Education Funding Council for Wales (the Funding Council) distribute funds to institutions (£243 million in 1995-96) under conditions set out and provided for in the Further and Higher Education Act 1992. The Funding Council are required to ensure the proper use of these funds.
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C&AG's Report, para 5
C&AG's Report, para 12
| 2. In recent years, many higher education institutions in Great Britain have developed the provision of courses in overseas countries. Swansea Institute of Higher Education commenced such provision in 1986. By 1996 they were providing courses in Malaysia, China, Indonesia, Kenya, Finland and Spain, generating annual income in excess of £400,000. In June 1996, a Member of the Committee of Public Accounts briefed the National Audit Office on concerns which had been raised with him about the management of overseas courses and the governance of Swansea Institute. The National Audit Office raised these with the Funding Council, who acted promptly to bring forward a planned cyclical audit review in which they arranged for the National Audit Office to participate.
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| C&AG's Report
| 3. On the basis of a Report by the Comptroller and Auditor General on Governance and the Management of Overseas Courses at the Swansea Institute of Higher Education, our predecessors examined the Welsh Office and the Funding Council on the overseas activities and governance issues at Swansea Institute, and wider issues for the higher education sector.
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| 4. Our main conclusions and recommendations are as follows:
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| On the overseas operations of Swansea Institute
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| (i) We consider that Swansea Institute's arrangements for the monitoring and control of overseas courses were seriously flawed. We are concerned, in particular, that there was inadequate control over examination certificates in Malaysia which could undermine confidence in the Institute's qualifications (paragraph 16).
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| (ii) We note that all but three of the 500 certificates known to have been printed in Malaysia have now been accounted for. However, we are most concerned that the Funding Council were unable to provide assurance that additional certificates had not been printed. The extent of possible fraud remains unknown (paragraph 16).
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| (iii) We are concerned that, as a result of the many deficiencies in the Institute's financial controls relating to their overseas activities, the Institute may have received less income and incurred more expenditure than they should have done. We agree with the Funding Council that the former Principal's trips to Kenya were ill-judged. We look to higher education institutions to apply the same high standards of management and control to overseas activities as they do to their other activities (paragraph 17).
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| (iv) We note that the provision of higher education courses overseas is not a proper use of Funding Council grants. We are therefore concerned that, where there are inadequate procedures for costing and pricing overseas courses, as was the case at Swansea Institute, there is a risk that the Funding Council may inadvertently be financing such provision (paragraph 18).
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| (v) We recommend that the Funding Council use their Audit Service to confirm that institutions have adequate systems for costing and pricing such activities. We look to the Funding Councils in England and Scotland to take similar action in their audit of English and Scottish higher education institutions (paragraph 18).
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| (vi) We note that the problems in the overseas activities of Swansea Institute had been of long standing, and are concerned that they were not challenged earlier by the Institute's Director of Finance or auditors. We note also that the Funding Council consider that the quality of internal audit in particular was not initially as high as might have been hoped for, but that it was improving. We look to the Funding Council to ensure that this improvement is maintained (paragraph 19).
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| (vii) We are also concerned that the Funding Council did not recognise the seriousness of the problems in the governance and management of Swansea Institute at an earlier stage. We acknowledge, however, that the Funding Council acted promptly after the Comptroller and Audit General received allegations from a Member of Parliament (paragraph 20).
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| (viii) We welcome the effective way in which the Funding Council and National Audit Office worked together on this issue, and the Funding Council's intention to circulate guidance on the management of overseas activities on the basis of what has emerged from the report. We look to the Funding Council's counterparts in England and Scotland to take similar action (paragraph 20).
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| On governance issues at Swansea Institute
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| (ix) We note that the Funding Council consider that the problems at Swansea Institute arose from a combination of factors, including that the Principal and Vice-Principal had been in post some 18 to 20 years and had become possessive about affairs at the Institute; and that there was a desire to use independence to expand the Institute's activities, including those overseas, at a pace which was beyond due care (paragraph 29).
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| (x) We consider that the appointment of the Institute's Vice-Principal as Clerk to the Governors was inappropriate in that he had insufficient detachment from the day-to-day management of the Institute to be able to give the Governing Body independent advice, and that this may have been a key factor in the problems at the Institute (paragraph 30).
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| (xi) We look to the Funding Council to ensure that institutions are aware of the importance of a properly constituted governing body and note that, in conjunction with the Welsh Office, they have issued guidance on the role of clerks to governors of higher education corporations along the lines of guidance already existing for further education (paragraph 30).
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| (xii) We are concerned that the Institute had agreed a contract with the former Principal which entitled him to three years' notice of termination of his contract and the enhancement of his pension upon termination by either party, and that this could have cost the Institute around £314,000, had the Principal not resigned voluntarily. We agree with the Funding Council that such terms were unsatisfactory and that the maximum period of notice should not exceed one year (paragraph 31).
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| (xiii) We note that, although the problems found at the Institute were ultimately his responsibility, the former Principal received a settlement valued at £118,921 in accordance with his contract. We are concerned that the Institute took advice on the need to honour this contract from the same solicitors who had drafted the original unsatisfactory contract. We recognise that the alternative to honouring the contract could have been costly. Nevertheless we are concerned that, once again, the Committee of Public Accounts has been presented with a case where an individual responsible for serious mis-management receives a generous settlement (paragraph 32).
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| (xiv) We are also concerned that the Vice-Principal was still on full pay eight months after being suspended, and that the proceedings in this case had taken so long. We note that an application for unfair dismissal has been lodged at the Industrial Tribunal and urge the Institute to seek speedy resolution of this case (paragraph 33).
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| (xv) We are concerned that the Funding Council's survey of institutions disclosed cases at two other institutions of inappropriate severance terms in the contracts of senior staff, and we are surprised that institutions have not learned the lessons arising from the Comptroller and Auditor General's previous examination of severance payments in the higher education sector (paragraph 34).
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| (xvi) We recognise, however, that the Funding Council have persuaded the two institutions concerned to amend the contracts involved, and note that the Funding Council have now circulated guidance on such matters. We recommend that the Funding Council consider promulgating model terms of contract which would make it easier to dismiss those who have misused public money (paragraph 34).
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| On wider issues for the higher education sector
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| (xvii) We are concerned that problems such as those at Swansea Institute may damage the reputation of courses provided overseas by other institutions in Great Britain. We recognise that a new Quality Assurance Agency for higher education is being established and stress that the Funding Council should encourage this new agency to introduce some form of `kite mark' for courses which meet the high standards expected of British higher education (paragraph 41).
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| (xviii) We recognise that higher education institutions are independent bodies, but that the Funding Council can intervene where there is evidence of public money being misused or of a risk to financial health. We note that it is the view of the Welsh Office that giving the Secretary of State statutory powers to intervene in the affairs of institutions may not be the best way to address the sort of issues this case has raised. We note also that the Committee of Vice-Chancellors and Principals are considering a system of independent, external arbitration. We will be interested to see how this proposal develops (paragraph 42).
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