‘Red flags’ in higher education finances

The US tax authorities, the Internal Revenue Service (IRS), recently conducted a survey of higher education institutions in order to ascertain how well their finances are being managed. The conclusion was, on the whole, positive, and the IRS found that the institutions were prudent and responsible with the resources at their disposal. But the report does identify some ‘red flags’: chiefly these were concerned with the remuneration of management officials and some top academics, as well as the benefits made available to athletics coaches; but another concern was related to ‘risky investments’ in some colleges.

The institutions surveyed also delivered the data to Ernest & Young in order to get their own assessment of the information, and the resulting report was published last week. One of the findings was, at least to an Irish reader, remarkable: that the average salary of an athletics coach was over twice that of a college president. Although I believe sports to be a very important part of what a university should promote, I cannot help feeling that in some American institutions this has got out of all proportion.

From the perspective of the institutions surveyed, the results in general are encouraging. The report is positive about the administration of finances and the existence of policies that help to secure good practice, including policies on conflicts of interest. But with the climate we now have, the question of whether salaries are proportionate to the role being carried out and appropriate in terms of comparability will need to be addressed.

Here in Ireland salaries are much more tightly regulated, but a more general assessment of financial management may come out of the ‘forensic audit’ that the Minister for Education has entrusted to the Comptroller and Auditor General. Although I have been wary of the context in which this audit was requested, it may be that it will help to build confidence in the ability of the Irish universities and colleges to manage their financial affairs, and such confidence is vital if the institutions are to be encouraged to be innovative and reform-minded. The US survey by the IRS may provide some useful comparative material.

Going for broke

A week or so ago a British government official, the Director General for Science and Research Adrian Smith, was reported as saying that a number of UK universities were ‘facing bankruptcy’. He was basing this warning on the government’s delay in lifting the cap on ‘top up’ fees, currently standing at £3,000. In other words, he was saying that unless the universities could charge fees above that amount their income would not be sufficient to avoid insolvency.

That should perhaps be put in perspective. Let us take an average size mid-ranking British university: let us take Lancaster University, which as it happens has roughly the same number of students as my own institution, Dublin City University. For the academic year 2007-08 Lancaster received from the English funding council a recurrent grant of £43,653,000; this translates into €49,391,000 at today’s exchange rate. The recurrent grant awarded to DCU during the same year was €35,540,000. In addition Lancaster was able to charge a top-up fee up to the permitted maximum of £3,000 per student; deducting from this the Irish student registration charge would still mean that Lancaster, in addition to the €14m or so that it received in its recurrent grant over and above what DCU received, also could charge some €20m in fees above the level paid under free fees to DCU. In other words, in that academic year Lancaster was roughly €34m better off than DCU. And in this state it is considered at risk of bankruptcy.

The comparison with Lancaster is arbitrary, but is nonetheless typical for the UK.

It is worth mentioning this because the Minister for Education and Science, Mr Batt O’Keeffe TD, in announcing his ‘forensic audit’ of third level finances implied that the Irish universities might not be providing value for money. While we should of course be open to any such audit, and while recognising that the taxpayer has a right to know that money invested in higher education is well spent, it is nevertheless remarkable how the Irish university sector has been able to stay afloat in the context of such wholly inadequate resourcing. Nor should it be surprising to see that most Irish universities have been sliding into deficit, in some cases a very substantial deficit.

It has been my policy in DCU to run a balanced budget, and we have been able to do so, in increasingly adverse circumstances. But this isn’t necessarily just good news. The resources needed to run a higher education institute offering degree programmes of high quality and world class research are far above those allocated to us here, so that if we have to work within the budgets available to us we must lose the battle to compete on quality and excellence with universities in other countries. Nor is this an agenda that we can think about, assess and analyse for a while until we get to some answer.

As readers of this blog will know, I have been arguing the case for tuition fees – introduced forthwith – as an answer to this problem. But let us put that aside for a moment and say that any solution is a good solution if it allows us to pursue quality and excellence in a sustainable financial environment that is secure from occasional government decisions to withdraw funds or restrain their growth below inflation. If that’s on offer, we should take it. But what we cannot do any longer is to pretend that we can muddle through with a declining income from our main funder and still seek to be in the upper reaches of the global rankings. That cannot be done.

Some universities in this country may soon be technically insolvent. Some are facing accumulated deficits in relation to which there is no realistic prospect that they can be clawed back any time soon through a running surplus. This system is in crisis, and we need to move from discussion and analysis to solution. And soon.