Select Committee on Public Accounts Fortieth Report



ACCOUNTABILITY AND ARRANGEMENTS IN HIGHER EDUCATION

40. The Committee enquired about the accountability arrangements in the higher education sector. The Funding Council stated that they did not tell institutions what to do, and that they believed that high autonomy and high accountability went together.[44] They told us that autonomy was the best way of encouraging institutions to be independent, resourceful and enterprising, and that it was the job of the Funding Council to help them to express their accountability.[45] We questioned the Funding Council further on how accountable institutions were, how good the decisions being made within them were and about the Council's own role in relation to the performance of institutions. They told us that it was their job to help institutions improve their performance,[46] and that one of the ways in which they did this was to have a regular cycle of audit visits, through which they examined management practice. They were going to introduce a five year cycle of visits which was dedicated specifically to the estate management function. They also had an opportunity to assess the performance of institutions because the Funding Council handed out small amounts of capital money for specific projects, and they set standards of good practice.[47]

41. The Funding Council distribute funds to institutions in accordance with financial memoranda specifying the terms and conditions of funding.[48] We asked the Funding Council to describe their role further, and in particular what sanctions they had available where they did not think that an institution was carrying out its function properly. The Funding Council replied that they did not think that the sanction of withdrawing funding as a means of promoting a particular kind of behaviour was the right route, as the students would suffer. They maintained that the evidence suggested that institutions did take their advice, and that their methods of promoting the accountability of institutions did work. Advice followed by tough requirements, for example where an institution's financial health had given them concern, had so far been sufficient, and the Funding Council had not had to use the threat of withdrawing funding. Neither had the Funding Council had cause to be in dispute with the Department for Education and Employment over the Council's application of proper controls and the distribution of funds in accordance with the policy framework set by the Department.[49]

42. Since April 1996, revisions to the financial memorandum between the Funding Council and institutions have given institutions greater freedom to undertake projects and to seek loan finance without Funding Council approval.[50] We asked the Funding Council whether they thought that they exercised a satisfactory overall policing role to stop some of the things outlined in the National Audit Office's report happening in future. They told the Committee that they thought that the arrangements were satisfactory, and that the financial memorandum had been one way of encouraging better performance. To look at all building projects, and to try to follow them through in comprehensive detail, would in their view have been a mammoth task and almost certainly inefficient. They wanted to encourage institutions to be resourceful and innovative, although still with a requirement to undergo quite a rigorous analysis if they were going to exceed their borrowing limit or were coming to the Funding Council for funding for a particular project.[51]

43. The Committee asked the Funding Council whether they should not be setting down more stringent rules, and whether their hands-off approach was appropriate.[52] They replied that universities and colleges were independent bodies, which have internal and external auditors, and an Audit Committee.[53] The Funding Council said that they had a deliberate strategy of maximising the independence and effectiveness of institutions, which they would not describe as a hands-off approach. Setting standards through the promotion of good practice and good advice, following this up with audit, and working to provide data which allowed institutions to compare one with another, were a deliberate attempt to maximise the value delivered from the taxpayers' money.[54] Getting compliance through a series of rules and regulations would not, in the Funding Council's view, deliver the best value.[55]

44. The Funding Council subsequently told us that their Estates Service planned to conduct cyclical reviews of all institutions' estates departments, which would incorporate the dissemination of good practice and encouragement to adopt appropriate procedures. The Funding Council's Audit Service would produce guidance on building projects for institutions' internal auditors, drawing on both their own and the National Audit Office's work. This would be drawn to the attention of institutions' independent Audit Committees, so that they were in a position to confirm that their institution complied with good practice.[56]

45. We asked the Funding Council whether they accepted that the institutions could have obtained better value for money on some of the projects examined by the National Audit Office, and why their own audit team could not pick up these shortcomings. They said that the National Audit Office report was valuable in giving an indication of the way in which institutions could improve, and that it would be promoted and circulated to the sector, but that, if you went back and analysed any major project, you would find things that you wished you had done better.[57]

46. Finally, the Committee asked the Funding Council whether they thought that debate and discussion by institutions should take place within a framework. The Funding Council said that they believed that there should be a framework, but that it had to be one which was workable and which institutions would find helpful.[58] They added that it would be most effective if that framework was one which was accepted after discussion, and was one which therefore had the commitment of all involved, particularly the institutions themselves who were doing the work, and that they put a lot of effort into ensuring that their advice was the kind of advice which was going to be absorbed by institutions.[59]

Conclusions

47. We recognise that higher education institutions have a high degree of autonomy. However, they are funded with public money, and therefore need to operate within a framework of controls. Given the weaknesses in the way in which institutions handled their building projects, we are concerned that adequate arrangements are not currently in place to ensure that institutions follow best practice. The Committee note that the Funding Council distribute funds to institutions in accordance with financial memoranda specifying the terms and conditions of funding, and that they are required to monitor compliance with the memoranda. We recommend that the Funding Council revise the terms of the financial memoranda between them and the institutions to reflect the requirement for institutions to comply with the elements of best practice identified in the National Audit Office report.

48. We note that recent revisions to the financial memoranda allow institutions greater freedom to undertake building projects and to seek loan finance without Funding Council approval. We are concerned that these revisions have reduced the extent to which the Funding Council will routinely ensure that institutions are held accountable for their actions. We therefore recommend that as part of their overall monitoring role the Funding Council examine whether institutions are obtaining best value for money in carrying out building projects. The Funding Council's Estate Service and the internal auditors at institutions have an important part to play in ensuring the achievement of value for money. We note the Funding Council's intention to disseminate good practice, to encourage the adoption of appropriate procedures through cyclical reviews by their Estates Service, and to produce guidance on building projects for institutions' internal auditors.


44   Qs 17, 40 Back

45   Qs 41, 44 Back

46   Q31 Back

47   Q33 Back

48   C&AG's report (HC 452 of Session 1997-98), Appendix 1 Back

49   Qs 96, 99-102 Back

50   C&AG's report (HC 452 of Session 1997-98), para 2.3 Back

51   Qs 60, 62, 64  Back

52   Qs 51, 95 Back

53   Q52 Back

54   Q95 Back

55   Q61 Back

56   Evidence, Appendix 1, p16 Back

57  Qs 71-72 Back

58  Qs 106-107 Back

59  Qs 105, 110 Back


 
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