This culminated in the complete breakdown of the assessment system in September 1997. Adverse press ensued and TVU struggled to survive. If more effective governance structures had been in place, including improved control and direction from senior management, then these long-term effects may have been prevented.
To establish effective governance throughout the organisation there must be strong leadership to avoid difficulties experienced by institutions such as TVU. Often the head of the institutions “have only limited management experience… and formal training” (Davis, 2002) and lose the academic insight that they once held before becoming an ‘administrator’. This is now recognised by HEFCE who recommend that all senior management are subject to management training.
Who governs the governors?
HEIs are ultimately controlled and directed by the head of the institution, usually the vice-chancellor or Principal. The Board of Governors/Council is responsible for appointing the head of the institution and this appointment is usually for a specified period of time. In many HEIs the head of the institution is an experienced academic who has diversified into a senior administrative role.
Table 2 overleaf compares the governing structure of South Bank University, King’s College London University and Cambridge University. South Bank University, an ex-polytechnic monitors performance through the review of the corporate plan through consultation with Directorate and the Board of Governors and its committees (see appendix 6). The Audit Committee has
Table 2
responsibility for ensuring internal controls and the external audit functions are appropriate and effective (see appendix 7 for terms of reference).
The Council is the governing and executive body of King’s College London University. The Crown, through the ‘Charter’, appoints the Principal of the College. The Academic Board has a key function in advising the Council on the general management of the college. The Council is responsible for appointing and deciding the remuneration of the external auditor, who must be independent from the Council. The independent audit service “is responsible for conducting an independent appraisal of all the College’s activities, financial and otherwise”. It reports to the Principal and the Council and “to provide the required level of assurance…..will undertake a programme of work approved on an annual basis by the Council on the advice of the Audit Committee” (King’s website, 2002).
Cambridge University Council consists entirely of internally elected members and the University also has an ultimate legislative authority known as ‘Regent House’. When a decision is required, the matter is usually presented to Regent House in the form of a Grace (a motion for a decision) published by the Council. Cambridge University also employs a ‘Body of Scrutiny‘ (also consisting of internal members) whose function is to scrutinise the central administrative body and to monitor the Council’s Annual Report and University accounts. Professional accounting firms carry out both the internal and external auditing.
For governance to be effective it is vital that the structure of the decision making body incorporates elected and ‘independent’. The Board of Governors must consist of not less than 12 and not more than 24 appointed members. At least half of the total number must be ‘independent’ members, who are not employees or students of the institution or elected members of any local authority but are persons with experience in “industrial, commercial or employment matters or the practice of any profession” (Dearlove; 1998a, b).
The role of the audit committee
The HEFCE Audit Service has the responsibility of ensuring HEIs are making proper arrangements for financial management and accounting, and are using Funding Council funds in ways which are consistent with the purposes for which they have been allocated. They rely on the internal and external audit function of the HEI to provide for the day to day governance. It is a mandatory requirement of the HEFCE Code of Auditing Practice that HEIs follow the financial reporting regulations of this Code (see appendix 8 for model terms of reference for audit committees).
HEFCE audit service offers “information and guidance” on minimum standards and require clear, regular reporting from universities on areas such as annual accounts (including performance reviews), data audit, internal audit, and risk management.
The internal and external auditors of each HEI report through the Board of Governors/Council and the Audit Committee (see table 3). The composition of audit committees within HEIs varies. Many post 1992 universities have a majority of ‘independent’ members who are selected from the independent members of the Board of Governors. Within Cambridge University the majority of members on the audit committee are appointed from or by the Council whose remit is to govern the work of the Internal and External Auditors, reporting on these matters directly to the Council. In terms of governance, this makes the members less independent as there is no external accountability.
Guidance on the composition of audit committees in HEIs is provided for by the terms of reference produced by ICSA (for private and public sector organisations) (appendix 9). ICSA recommend that committees should be appointed by the Board and should be made up of non-executive members (at least two) and a Chairperson and the Committee “shall be independent of the management of the organisation (ICSA, 2002)”.
Insert table 3
Discussion
Comparisons can be made between the reporting requirements of private and public sector organisations however, such comparisons are limited because each sector has differing incentives for effective governance. Private sector organisations are more concerned with the maximisation of wealth, whilst indeterminate ‘benchmarks’ such as value for money (accountability), integrity and transparency are important considerations for stakeholders in universities (see appendix 10 for principles of good governance and standards of public life). This discussion enriches the most important governance areas identified within the report including academic involvement in governance, academic regulations, the dissemination of governance, and leadership
Academic
HEIs aim to promote effective teaching and research in an environment of academic development, support and freedom. Institutions are legally bound to comply with certain statutes and mandatory requirements. However, in the current environment of accountability and transparency, there is controversy over the requirements and recommendations for rigid and exigent monitoring and control within universities. Boden (2000) believes that the absence of academic involvement in governance, combined with inflexible and stringent reporting threatens the integrity of any institution intent on achieving this aim. Few ‘practising’ academics represent the organisation on the Board and generally the influence of the ‘academic’ board as part of the decision-making structure of the HEI has weakened.
This creates discord between the senior management and the academics who feel that decisions are not made in the best interests of the university and its stake-holders (Dearlove, 1998 a, b). In the current system the role of the academics in decision-making is unclear in some institutions.
Is it therefore debatable whether academics should be HEI decision-makers (as at Cambridge University) or whether ‘independent’, ‘representative’ people (as in post 1992 universities) should execute decision-making. Employees will have a vested interest in the governance of the organisation and the protection of the rights of the university stakeholders. However, often such structural systems are vague, often impeding and blocking decisions (Baty, 2002; Dearlove, 1998a, b; Reponen, 1999). Conversely, external appointees to the Board of Governors may not be truly independent and representative of students and academics if they work in the private sector and have private sector goals and values, such as profit, not service maximisation.
Regulations
This report examines the plethora of legal requirements, guidance, and recommendations for internal and external regulations and reporting for HEIs. Currently it is largely dependent on the HEI to select the process for appropriate governance and there is often a lack of distinction between mandatory requirements and internal recommendations for effective governance.
This lack of clarity is perhaps better for the HEI as the organisation would keep its autonomy by establishing control and direction to meet the needs of the particular organisation. It helps in keeping control local. However, this may lead to inappropriate and unrealistic decision-making if there is a lack of clarity about minimum levels of governance to meet reporting requirements (as at TVU).
To assist the senior management and to raise awareness of governance throughout universities, there needs to be greater clarity about reporting requirements and associated documentation. Information regarding governance should be drawn together, perhaps in one website, with information about legal, mandatory reporting and governance that is advisable but not compulsory. There also needs to be recognition by fund-holders that academics are not necessarily experienced or born managers and that they need management training at the beginning of, and during their senior management career.
Dissemination of governance and leadership
It is particularly important within HEIs that governance is established and understood at all levels within the organisation. This is due to the influence that stakeholders have in the ‘well-being’ of the institution. Governance affects the organisation at different levels, not just at corporate level, but also at operational level.
Conclusion
A turbulent and uncertain environment can influence what is considered good or bad governance by fund providers. For example, many of the problems experienced at TVU were caused by the implementation of institution changes to meet the needs of the increasingly competitive environment. An organisation may not be aware of poor governance practices until it is too late (i.e. each case of bad governance may be unique). However, whilst important for the governance of an organisation, sound procedures, policies, and legislation may not always ensure good governance. Good governance should be inherent in everything stewards of public funds do. It is crucial that all university managers understand the meaning of ‘good governance’.
References
Baty P. (2002). When the dons awake…….. The Times Higher. August 30 2002 pp 7
Better Regulation Taskforce. (2002). Higher Education: Easing the Burden. Available at: http://www.cabinet-office.gov.uk/regulation/taskforce.
Boden R. (2001). Governance and Managerialism. Paper presented at Symposia “Critical Perspective on Accounting”, University of South Australia, Adelaide, 18th July 2001
British Universities Finance Directors Group (2002). Corporate Governance in Higher Education.
Charity Commission. (2000). Operational Guidance. Exempt Charities. Higher Education Corporations OG 57 C2 - 01 March 2000
Committee on Standards in Public Life. (1996). Local Public Spending Bodies, Cm 3270-1. London: HMSO
Committee of University Chairmen. (2000a). Guide for Members of Governing Bodies of Universities and Colleges in England, Wales and Northern Ireland, 01/20. Bristol: HEFCE
Committee of University Chairmen. (2000b). Review of University Governance 1997-2000. December 2000
Committee of University Chairmen (2000c). Progress Report of the Working Party on the Effectiveness of University Governing Bodies.
Davis C. (2002). The Future Masters of the Univers(ity). The Times Higher. November 15th 2002 pp 20-21
Dearlove J. (1998a). The Deadly Dull Issue of University “Administration”? Good Governance, Managerialism and Organising Academic Work. Higher Education Policy, 11 pp 59-79
Dearlove J. (1998b). Fundamental changes in institutional governance structures: the United Kingdom. Higher Education Policy, 11:111-120
Department for Further and Higher Education. (2002). Government Aims for Higher Education.
Department for Education and Welsh Office (1992). Further and Higher Education Act 1992. HMSO: 1992
Higher Education Funding Council for Wales. (1997). Guide for Clerks to Governors of Higher Education Corporations. W97/75HE. HEFCE
Higher Education Funding Council for Wales. (1997). Framework for Training Governors. W97/71HE. HEFCE
Higher Education Funding Council for England. (2000). Strategic Planning in Higher Education: A guide for head of institutions, senior managers and members of governing bodies. 00/24. HEFCE: Bristol
Higher Education Funding Council for England. (2002) Audit Code of Practice. 2002/26. Bristol: HEFCE
Higher Education Funding Council for England. (1998). Effective Financial Management in Higher Education: A guide for governors, heads of institutions and senior managers. 98/29. HEFCE: Bristol
Higher Education Statistical Agency (1999). HESA Finance Record1998-1999 English HEIs
Higher Education Quality Council (1995). Academic Quality Audit of Thames Valley University (carried out in 1994)
Institute of Chartered Secretaries and Administrators. (2002). ICSA Guidance Notes: Terms of References – Audit Committee. Reference 020319
King’s College London University (1978). The Charter and Statutes for King’s College London University
King’s College London University. (2002). Internal Auditors [Online]. Available at (accessed 8th December 2002
National Committee of Inquiry into Higher Education
(.
Reponen T. (1999). Is Leadership Possible at Loosely Coupled Organizations such as Universities. Higher Education Policy 12:3 pp 237-244
South Bank University. (2002). SBU Governance: University Decision-Making Structure [Online]. Available at (accessed 11 December 2002)
Quality Assurance Agency for Higher Education (1998). Thames Valley university. Quality Audit report 1998
Appendix 1
Definitions
Oxford New English Dictionary “the action or manner of governing” or “controlling, directing, regulating influence; control, sway or mastery” or “the manner in which something is governed or regulated; method of management, systems of regulations”.
Chambers Dictionary “government; control; direction; behaviour”.
Cadbury report “corporate governance is to do with the processes by which a corporate entity is directed and controlled” or “corporate governance is the system by which companies are directed and controlled”.
Institute of Internal Auditors “Governance processes – the procedures utilised by the representatives of the organisations stakeholders (e.g. shareholders etc) to provide oversight of risk and control processes administered by management”.
Appendix 2. Responsibilities of the Governing Body of pre-1992 HEIs (from Guide for Members of Governing Bodies of Universities and Colleges in England, Wales and Northern Ireland, CUC, 2000).
Vice-Chancellor
Chief academic and administrative officer
- Responsible for the executive management and the day-to-day direction of the organisation
- Responsible for ensuring that the institution complies with the terms and conditions specified by the funding Council for the use of Funding Council funds, and may be called to give evidence before the Public Accounts Committee.
- Is accountable to the Council.
Council
Financial and investment decisions
Management of university estates and buildings
Makes contracts, enters into loans and mortgage agreements on behalf of university
Conduct of all the affairs of the university.
Membership: specified in the statutes by class of appointment and will typically include officers of the university, both lay and academic, members appointed by the court, members appoint by the senate, co-opted members, local authority representatives, elected staff members and student representatives. The council will have a lay majority. The Council normally meets between three and six times a year.
Registrar
Most senior member of administrative staff
Designated in statues as secretary or clerk to the council and the senate
Responsible to Vice-chancellor for administrative responsibilities
Appendix 3.
Responsibilities of the Governing Body of post-1992 HEIs (from Guide for Members of Governing Bodies of Universities and Colleges in England, Wales and Northern Ireland, CUC, 2000).
Post-1992 universities operate under articles of government which have been approved by the Privy Council.
Board of Governors
Responsibilities include;
- The appointment of external auditors,
- The determination of the educational character and mission of the institution and for oversight of its activities,
- The effective and efficient uses of its resources, the solvency of the institution and safeguarding its assets,
- Approving annual estimates of income and expenditure,
- The appointment, grading, suspension, dismissal and determination of the pay and conditions of service of the head of the institution, the clerk of the board of governors and such other senior post-holders as the board of governors may determine
- Setting a framework for the pay and conditions of service of all other staff
Membership: should consist of not fewer than 12 and not more than 24 members (plus the head of the institution unless he/she chooses otherwise). This includes;
- 13 independent members. Namely people appearing to the appointing authority to have experience of, and to have shown capacity in, industrial, commercial or employment matters or the practice of any profession, and who are not members of staff or students of the institution or an elected member of the local authority.
- 2 teachers of the institution, nominated by the academic board
- 2 students of the institution, nominated by the students
- at least 1 and not more than 9 co-opted members, nominated by the members of the board of governors who are not co-opted members
The board should meet between three and six times a year.
Appendix 4
HEFCE and Associated governance and regulation documents
Local Public Spending Bodies, Cm 3270-1. London: HMSO. Committee on Standards in Public Life. (1996).
Guide for Members of Governing Bodies of Universities and Colleges in England, Wales and Northern Ireland, 01/20. Bristol: HEFCE. Committee of University Chairmen. (2000a).
Review of University Governance 1997-2000. December 2000. Committee of University Chairmen. (2000b).
Progress Report of the Working Party on the Effectiveness of University Governing Bodies. Committee of University Chairmen (2000c).
Guide for Clerks to Governors of Higher Education Corporations. W97/75HE. HEFCE. Higher Education Funding Council for Wales. (1997).
Framework for Training Governors. W97/71HE. HEFCE. Higher Education Funding Council for Wales. (1997).
Strategic Planning in Higher Education: A guide for head of institutions, senior managers and members of governing bodies. 00/24. HEFCE: Bristol. Higher Education Funding Council for England. (2000).
Audit Code of Practice. 2002/26. Bristol: HEFCE. Higher Education Funding Council for England. (2002)
Effective Financial Management in Higher Education: A guide for governors, heads of institutions and senior managers. 98/29. HEFCE: Bristol. Higher Education Funding Council for England. (1998).
Higher Education: Easing the Burden. 2002. Better Regulation Taskforce.
Corporate Governance in Higher Education. (2002) British Universities Finance Directors Group
Appendix 5
Stakeholder diagram taken from Better Regulation Taskforce report called “Higher Education: Easing the Burden” (2002).
Appendix 6 – South Bank Decision Making Structure
Appendix 7
Committees of the Board of Governors South Bank University
AUDIT COMMITTEE
TERMS OF REFERENCE
1. To advise the governing body on the appropriateness and effectiveness of the institution's internal control system; this will include but not be limited to overseeing the development and implementation of policies and procedures.
- to review from time to time, financial regulations for the supervision and control of financial procedures, accounts, income and expenditure of the University together with such related matters as is considered necessary and desirable.
- to ensure compliance with regulatory and legal (HEFCE Financial Memorandum and University Financial Regulations) policies and procedures.
- on the prevention, detection and investigation of suspected or known fraud and irregularity including any subsequent remedial actions and recourse
2. to advise the governing body on the criteria for selection and appointment of an internal audit service (and head of internal audit, if applicable);
3. to consider and advise the governing body on the long term strategy for an internal audit service and the annual internal audit plan. This will include ensuring that risk analysis is properly addressed as part of the process of setting the annual internal audit plan;
4. to consider and advise the governing body on internal audit reports;
5. to monitor the operational efficiency, economy and effectiveness of the University's management systems and the effectiveness of the external and internal audit service;
6. to advise the governing body on the appointment and remuneration of external auditors and the scope of their work;
7. to consider and advise the governing body on external audit reports; the annual financial statements and management letters;
8. to monitor annually or more frequently if necessary the implementation of approved recommendations relating both to internal audit reports and external audit reports and management letters;
9. to receive any relevant reports from the National Audit Office or the HEFCE.
MEMBERSHIP
3 - 5 Lay Governors plus, if considered
necessary, one member co-opted from outside the University with particular experience.
To exclude Chairman & Vice-Chairman of Board
To exclude Members of Human Resource Committee
To exclude Members of Policy and Resources Committee
To exclude Members of Committee for Student Affairs
Quorum is 3 Lay Governors as laid down in HEFCE Audit Code of Practice
Appendix 8
HEFCE Model terms of reference
Constitution
1. The governing body has established a committee of the governing body known as the audit committee.
Membership
2. The committee and its chairman shall be appointed by the governing body, from among its own members, and must consist of members with no executive responsibility for the management of the institution. There shall be no fewer than three members; a quorum shall be two members. The chairman of the governing body will not normally be a member of the committee. The chairman of the committee will normally be a member of the governing body. Members should not have significant interests in the institution.
3. (Updated 16 September 2002.) At least one member should have a background in finance, accounting or auditing. The committee may, if it considers it necessary or desirable, co-opt members with particular expertise. No member of the committee may also be a member of the finance committee (or equivalent), unless specifically authorised by the Higher Education Funding Council for England (HEFCE) under the terms of paragraph 48 of the Code.
Attendance at meetings
4. The head of finance (or equivalent), the head of internal audit, and a representative of the external auditors shall normally attend meetings where business relevant to them is to be discussed. However, at least once a year the committee should meet with the external and internal auditors without any officers present.
Frequency of meetings
5. Meetings shall normally be held at least twice each financial year. The external auditors or head of internal audit may request a meeting if they consider it necessary.
Authority
6. The committee is authorised by the governing body to investigate any activity within its terms of reference. It is authorised to seek any information it requires from any employee, and all employees are directed to co-operate with any request made by the committee.
7. The committee is authorised by the governing body to obtain outside legal or other independent professional advice and to secure the attendance of non-members with relevant experience and expertise if it considers this necessary, normally in consultation with the designated officer and/or chairman of the governing body. However, it may not incur direct expenditure in this respect in excess of £xx, without the prior approval of the governing body.
8. The audit committee may review the draft annual financial statements. Where reviewed, the committee should consider the external audit opinion, the statement of members’ responsibilities, the corporate governance statement and any relevant issue raised in the external auditor’s management letter. The committee should, where appropriate, confirm with the internal and external auditors that the effectiveness of the internal control system has been reviewed, and comment on this in its annual report to the governing body.
Duties
9. The duties of the committee shall be:
a. To advise the governing body on the appointment of the external auditors, the audit fee, the provision of any non-audit services by the external auditors and any questions of resignation or dismissal of the external auditors.
b. To discuss if necessary with the external auditors, before the audit begins, the nature and scope of the audit.
c. To discuss with the external auditors problems and reservations arising from the interim and final audits, including a review of the management letter incorporating management responses, and any other matters the external auditors may wish to discuss (in the absence of management where necessary).
d. To consider and advise the governing body on the appointment and terms of engagement of the internal audit service (and the head of internal audit, if applicable), the audit fee, the provision of any non-audit services by the internal auditors and any questions of resignation or dismissal of the internal auditors.
e. To review the internal auditors’ audit needs assessment and the audit plan; to consider major findings of internal audit investigations and management's response; and promote co-ordination between the internal and external auditors. The committee will ensure that the resources made available for internal audit are sufficient to meet the institution’s needs (or make a recommendation to the governing body as appropriate).
- To keep under review the effectiveness of internal control and risk management systems, and in particular to review the external auditors’ management letter, the internal auditors' annual report, and management responses.
g. To monitor the implementation of agreed audit-based recommendations, from whatever source.
h. To ensure that all significant losses have been properly investigated and that the internal and external auditors, and where appropriate the HEFCE Accounting Officer, have been informed.
i. To oversee the institution’s policy on fraud and irregularity, including being notified of any action taken under that policy.
j. To satisfy itself that satisfactory arrangements are in place to promote economy, efficiency and effectiveness.
k. To receive any relevant reports from the National Audit Office, the HEFCE and other organisations.
l. To monitor annually the performance and effectiveness of external and internal auditors, and to make recommendations to the governing body concerning their reappointment, where appropriate.
m. To consider elements of the annual financial statements in the presence of the external auditor, including the auditor’s formal opinion, the statement of members’ responsibilities and any corporate governance statement. This responsibility should be extended to include consideration of internal control and risk management statements. This is in line with the 2000 Accounts Direction, which includes a phased timetable leading to the adoption of internal control and risk management statements from 2002-03.
Reporting procedures
10. The minutes (or a report) of meetings of the committee will be circulated to all members of the governing body.
11. The committee will prepare an annual report for the institution’s financial year. The report will be addressed to the governing body and designated officer, summarising the activity for the year. It will give the committee’s opinion on the extent to which the governing body may rely on the internal control and risk management system and the arrangements for securing economy, efficiency and effectiveness. (This opinion should be based upon the information presented to the committee). The audit committee annual report should normally be submitted to the governing body before the members’ responsibility statement in the annual financial statements is signed.
Clerking arrangements
12. The clerk to the audit committee will be the clerk to the governing body (or other appropriate independent individual) (HEFCE, 2002).
Appendix 9
ICSA Terms of reference – Audit Committees
Appendix 10 Committee on standards in Public Life have drawn up seven principles of public life:
- Selflessness, Holders of public office should take decisions solely in terms of the public interest. They should not do so in order to gain financial or other material benefits for themselves, their families or their friends.
- Integrity, Holders of public office should not place themselves under any financial or other obligation to outside individuals of organisations that might influence them in the performance of their official duties.
- Objectivity, In carrying out public business, including making public appointments, awarding contracts or recommending individual for rewards and benefits, holders of public office should make choices on merit.
- Accountability, Holders of public office are accountable for their decisions and actions to the public and must submit themselves to whatever scrutiny is appropriate to their office.
- Openness, Holders of public office should be as open as possible about all the decisions and actions that they take. They should give reasons for their decisions and restrict information only when the wider public interest clearly demands.
- Honesty, Holders of public office have a duty to declare any private interests relating to their public duties and to take steps to resolve any conflicts arising in a way that protects the public interest.
- Leadership, Holders of public office should promote and support these principles by leadership and example.
Chambers identifies 10 principles of good corporate governance:
- Stakeholder control of the business
- Maximum and reliable public reporting
- Avoidance of excessive power at the top of the business
- A balances board composition
- A strong, involved board of directors
- A strong, independent element on the board
- Effective monitoring of management by the board
- Competence and commitment
- Risk assessment and control
- A strong audit process
Table 2. Governing structure of three HEIs