HEFCE Request 00/20

Annual operating statements and financial forecasts 2000

Respond by 28 July 2000

April 2000

Executive summary

Purpose

1. This document asks higher education institutions (HEIs) to send us updated planning and operating information, including the financial forecasts for the period up to 2003-04.

   Key points

2. The information requested will:
   1. Summarise the institution’s mission, key objectives and targets, and performance against objectives in key areas.
   2. State the institution’s priorities for the next operating year.
   3. State the institution’s key assumptions about future trends.
   4. Provide a financial forecast for the period 1999-2000 to 2003-04.
   5. State the student number forecasts which underpin the plans and financial forecasts.
3. We will use this information:
   1. To identify trends across the sector, and so advise the Secretary of State for Education and Employment on the needs and development of the higher education sector.
   2. To monitor the financial prospects of HE institutions, both individually and collectively.
   3. As a basis for individual discussions with institutions about their progress in key areas, their priorities for strategic development, their financial position, and the support which the HEFCE may be able to give.
4. This document also explains the action we will take in cases where institutions have made insufficient progress towards meeting the objectives which they set for themselves under our strategic special funding initiatives.

   Action required

5. A list of the information required is given in paragraph 26. Institutions should send returns, and the completed disk containing their financial forecasts, to Andrew Taylor by Friday 28 July 2000, at:

   Institutions and Projects Directorate
   Higher Education Funding Council for England
   Northavon House
   Coldharbour Lane
   BRISTOL
   BS16 1QD

6. Institutions for which the Teacher Training Agency (TTA) has lead accounting officer responsibility, and those which offer initial teaching training, should also make returns to the TTA by 28 July 2000 (see paragraph 27).

   Background

7. In April 1999 we issued HEFCE 99/30, which requested institutions to provide an annual operating statement and financial forecasts in July 1999. We wish to adopt the same procedure this year, to embed our approach to corporate planning in higher education.
8. The main elements of that approach are:
   1. Institutions will continue to develop corporate plans, setting out their own mission, objectives and priorities for action. We will wish to see those plans on a three-year cycle, rather than annually as was the previous practice. We have agreed with each institution when, within that three-year cycle, it will provide its plan.
   2. HEFCE regional consultants will discuss the plans with each institution, looking particularly at their priorities for development and their approach to a limited number of sector-wide strategic issues.
   3. With the help of a panel of sector representatives, we have prepared guidance on the preparation of corporate plans, which we will make available shortly.

   Annual operating statement

9. It remains important for us to receive summary statements from HEIs which indicate their strategic direction and priorities for action, and their own assessment of progress against objectives. This gives us a broad understanding of institutions, to provide the context for discussions about specific HEFCE initiatives and funding programmes, and so that we can provide informed advice to the Secretary of State. It also gives the context within which we can assess an institution’s financial forecasts, to gauge consistency between the forecasts and the institution’s assessment of its strategic position.
10. We therefore need annual operating statements from all institutions. Where a full corporate plan looks forward five to 10 years or more and represents a fundamental review of the institution’s circumstances, aims and direction, the annual operating statement is more of a snapshot, summarising the current position and prospects. We therefore expect it to be a great deal shorter than the full corporate plan. For this purpose we have prepared the template at Annex A, as a guide to institutions in structuring their annual operating statement this year.
11. Institutions carry out corporate planning primarily for their own purposes, not the HEFCE’s. The template has not been developed to prescribe the way institutions should plan. Rather, it provides a structure to focus institutions’ responses on a small number of strategic issues on which we particularly need information. HEIs can either fill out the template directly, or use it as a set of headings against which to cross-refer to relevant sections of any annual operating statement which they have already prepared for their own purposes.
12. The template will enable us to operate a monitoring framework across the sector, since some consistency of coverage is necessary if we are to derive valid judgements about national trends and developments.
13. The template requests information on:
    1. The institution’s mission and strategic objectives.
    2. Planned activities and targets for 1999-2000, progress in undertaking those activities and achieving related targets, and planned activities and targets for the academic year 2000-01 in four key areas (see paragraph 15):
       • widening access and participation
       • learning and teaching – institutional funding
       • Higher Education Reach-out to Business and the Community
       • project capital.
    3. Progress in undertaking planned activities and achieving related targets, and planned activities and targets for the academic year 2000-01, in other priority areas for the institution. An indicative list of headings is given in paragraph 16. We expect institutions to provide information in this section only under the headings which are relevant to them: if they set no targets or have no progress to report under particular headings, they can be left blank.
14. In considering institutions’ annual operating statements in respect of the four strategic areas identified above, we distinguish between activities and targets. In many cases, institutions stated a set of activities that they would undertake with the special funding we are allocating, which they expected to enable them to achieve an outcome. But the relationship between activities and outcomes is often indirect. The outcomes of better teaching and learning, wider participation, more effective reach-out, and an estate which is fit for purpose are all affected by many different factors. So it is possible to undertake an activity with all due care and yet not secure the intended outcome, because some other factor intervenes. In the short term we therefore presume that, while all institutions should achieve the activities they set for themselves, failure to achieve the intended outcomes will not necessarily have a financial consequence. In the longer term, however, the focus will increasingly shift to outcomes, since a succession of activities which consistently fail to secure the intended impact will be taken as evidence that the activities are misconceived.
15. As explained in HEFCE 99/30, we are now using annual operating statements as the vehicle for tracking progress against the objectives each institution sets for itself in relation to those HEFCE special funding initiatives which apply to most or all HEIs. This is designed both to reduce the burden on institutions of monitoring activity for different programmes, and to encourage greater coherence between initiatives. We are interested particularly in monitoring progress against planned activities for the following initiatives:
    1. Widening access and participation. We allocated to all institutions, as part of the 1999-2000 grant round, a formula-based funding premium for widening participation and access activities. The same premium has also been included in the initial grant allocations for 2000-01 announced in March. HEFCE 99/33 asked all institutions to provide in return a statement of their strategy for widening participation, including activities and targets; it also notified institutions that we would be seeking information in subsequent annual operating statements about their progress in undertaking those activities and achieving related targets. This element only applies to the institutional funding premium: we are not looking for institutions to report through annual operating statements on progress with the collaborative projects on widening participation which are being undertaken by consortia of HEIs and funded under the special funding initiative for widening participation.
    2. Learning and teaching – institutional funding. Similarly, we have allocated to all institutions formula-based funding to support the development of learning and teaching. HEFCE 99/48 asked institutions to provide in return for that funding a strategy for raising the quality of their teaching and learning, with associated activities and targets. Progress in undertaking activities and achieving related targets should be reported in the annual operating statements.
    3. Higher Education Reach-out to Business and the Community fund. Allocations under the first round of this initiative were made in November 1999. There we notified institutions in HEFCE 99/40 that we would track progress through annual operating statements. Institutions which were successful in the November 1999 bidding round should report on progress in undertaking activities and achieving related targets identified in their bids.
    4. Project capital. HEFCE 99/52 announced allocations of capital funding for projects relating to teaching and learning and research; it asked institutions to tell us what projects they intended to undertake with the funding. Institutions are now asked to provide a summary of progress in delivering those projects. We are not requesting information here in relation to poor estates capital allocations or Joint Infrastructure Fund projects. Those are allocated much more selectively to institutions, and have their own monitoring arrangements.
16. Institutions will have other key targets, which will vary from case to case. But from our analysis of last year’s annual operating statements (reported in HEFCE 99/69), we identified the following areas as being generic to most statements, in addition to those in paragraph 13:
    • governance and management
    • student recruitment and retention
    • new academic developments
    • quality
    • finance
    • human resources
    • ICT and information strategies
    • regional activities
    • international activities.
17. We expect that most, if not all, institutions have targets in each of these areas. To secure a more consistent analysis and reporting of sector-wide developments, institutions are encouraged to use this as an indicative list of headings in reporting activities and targets they set for 1999-2000, their progress against those targets, and the targets they are setting themselves for 2000-01. There is no presumption that all institutions must set targets in each of these areas. If an institution set no targets, or has no progress to report under particular headings, those headings should be left blank.

    Action in the event of insufficient progress

18. Except for the four areas mentioned in paragraph 15, each institution must judge whether it is making satisfactory progress towards its targets, and what action to take if not. But in relation to the four areas of widening participation, learning and teaching, the HE Reach-out to Business and the Community fund, and project capital, we are allocating additional funds to help institutions deliver specified objectives. We recognise that the particular activities and targets which institutions decided to pursue using the additional funding vary from case to case. Some are more challenging than others. And there may be many good reasons why particular activities or targets are not achieved, at least on the timescale or in the manner originally envisaged.
19. But the additional funding is provided for a purpose, as a form of investment partnership between us and the institution. If that purpose is not being achieved, questions need to be asked about the continuance or, in extremis, the recoupment of that funding.
20. We will take the following approach:
    1. We will use the annual operating statement to monitor this year whether the institution is undertaking the activities it proposed, and what progress it can demonstrate towards its targets.
    2. Where activities have not been undertaken, or progress made, we will ask the institution for a supplementary action plan showing how it will get back on track.
    3. In next year’s annual operating statement, we will again monitor progress. If by that stage the institution has still not undertaken the intended activities, we will provide no further funding under the relevant funding programme, and we reserve the right to recoup from the institution’s standard grant the additional funding allocations already paid. In subsequent years, we will continue to use annual operating statements to track both activities and targets. Institutions will be able to signal where, in the light of experience, they want to change their approach in relation to activities or targets. But we will increasingly expect to see evidence of progress towards targets, and to reduce or remove funding allocations if evidence is not forthcoming.
21. Because of the link to funding allocations from the widening participation premium and the other special funding initiatives, we will audit a sample of annual operating statements.

    Financial forecasts

22. Financial forecasts represent the institution’s strategic plan in financial terms and are integral to it. They should be institutions’ own forecasts, based on their assessment of the most realistic assumptions over the forecast period.
23. Our objectives in requesting financial forecasts are:
    1. To monitor the financial health of institutions, and identify which ones have, or may have, financial difficulties.
    2. To find out whether institutions’ strategic plans, estates plans and financial plans are integrated.
    3. To inform our advice to the Secretary of State for Education and Employment on the financial needs and prospects of the higher education sector.
24. To help us analyse the finance-related data, and report back to the sector, information should be provided in a consistent format, following the guidance in Annexes B to E.
    1. Annex B gives guidance on completing the financial forecast tables. The student number returns are consistent with the HESES99 tables, which institutions completed in autumn 1999, and with the TTA’s survey of recruitment to ITT.
    2. Annex C gives guidance on, and a template for, the commentary to the financial forecasts.
    3. Annex D gives further guidance on completing the financial forecast tables, including assumptions about future HEFCE and TTA funding which institutions may wish to take into account in preparing their forecasts.
    4. Annex E shows print-outs of the tables for the financial forecasts and student and staff numbers. These are for reference only. Institutions are asked to complete these tables on the disk provided to the director or head of finance.

    Queries

25. Institutions should address questions about completing the annual operating statement return to their HEFCE higher education adviser. Financial forecast questions should be addressed to their HEFCE finance adviser. (Full institutional contact details are available on the HEFCE web-site at http://www.hefce.ac.uk under ‘About us’.)

     

    Returns to the HEFCE

26. All institutions should send by 28 July 2000 three copies of the following documents to:

    Andrew Taylor
    Institutions and Projects Directorate
    Higher Education Funding Council for England
    Northavon House
    Coldharbour Lane
    BRISTOL
    BS16 1QD

    1. Their annual operating statement using the template at Annex A (see paragraphs 9 to 21). An electronic version of the template forms part of this document on our web-site at http://www.hefce.ac.uk under ‘Publications’.
    2. Their financial forecast data and commentary for the period to 2003-04 (see paragraphs 22 to 24). The data should also be returned on the disk which will be sent to the director or head of finance for each institution.
    3. Contact names in the institution for the financial forecasts and annual operating statement.
    4. All institutions that receive funding from the TTA should provide both the TTA and the HEFCE with the information about their recruitment to ITT courses set out in paragraph 28.

    Returns to the TTA

27. The Chief Executive of the TTA has the lead accounting officer role for the following five colleges:
    • Bishop Grosseteste College
    • Homerton College, Cambridge
    • College of St Mark and St John
    • St Martin’s College
    • Newman College.

    These colleges should therefore also send a copy of all the information requested in paragraph 26 to:

    Frank Martin
    Principal Establishment and Finance Officer
    Teacher Training Agency
    Portland House
    Stag Place
    LONDON
    SW1E 5TT

28. All other institutions that receive funding from the TTA should provide both the TTA and the Council with specific details about their recent and planned recruitment to ITT courses, broken down by phase (primary or secondary), level (undergraduate or postgraduate), and between courses of different lengths. They should state whether changes in delivery affecting total ITT student numbers are already under way, and when they started. We will use this information to inform allocations for structural diversification.

    Late returns

29. Some institutions may have meetings of their governing body to approve the budgets and financial forecasts shortly after the return date of 28 July 2000. In such cases, we will consider submission of draft documents before 28 July, accompanied by a request for a limited extension to the deadline. Institutions should contact their HEFCE finance adviser as soon as possible, and write to us asking for a late submission, setting out the date of the meeting when the forecasts will be approved and the date on which we will receive the forecasts.

    Confidentiality

30. We will treat institution-specific information as strictly confidential. But, as in previous years, we will prepare a publication reporting a summary of the information provided.

Annex A

Template for 2000 annual operating statement

The following template provides a structure for institutions' annual operating statements. It can either be filled out directly*, or used as a set of headings against which to cross-refer to relevant sections of any annual operating statement that institutions have already prepared for their own purposes.

* Please use the electronic version of the template, which is available in Word as part of this document on the web-site, www.hefce.ac.uk under 'Publications'.

Annex B

Financial forecasts 2000: Guidance notes

Accounting conventions

1. The main tables of financial forecasts follow the format of the ‘Statement of Recommended Practice: Accounting in Higher Education Institutions’ (SORP), introduced from 1 August 1994. The forecasts should therefore comply with all Financial Reporting Standards effective as at 31 July 2000, and will incorporate `FRS 15 – Tangible Fixed Assets’ for the first time. Where more detailed information is required, the form of the ‘Finance Statistical Return 1998-99’ (FSR), published by HESA, has generally been adopted. In particular, institutions should apply the Definition of Terms in Part 2 of the SORP, paragraphs 8 to 21, when completing the return.
2. It is not necessary to restate data for 1998-99 to comply with Financial Reporting Standards that become effective after 31 July 1999. Where the effect is material to understanding the forecast it should be noted in the commentary.

   Consolidation

3. The financial forecasts should cover the institution and all its subsidiary undertakings. If an institution has subsidiary undertakings, the financial forecasts should be consolidated in accordance with ‘Financial Reporting Standard No 2: Accounting for Subsidiary Undertakings’ (FRS 2). Student unions should be consolidated where this is the agreed treatment for that institution.

   Tables to be completed

4. The forecasts cover a six-year period, starting with the last completed and audited year, then the current year and then the next four years. They comprise the following tables:

   Table 1	Income and expenditure account
   Table 2a	Analysis of income
   Table 2b	Analysis of separable activities
   Table 3	Balance sheet
   Table 4a	Cash flow statement
   Table 4b	Cash flow statement reconciliation
   Tables 5a and 5b	Major assumptions
   Tables 6a to 6f	Supporting data
   Table 7	Sensitivity analysis
   Tables 8a and 8b	Performance indicators (automatically calculated)
   Tables 9a to 9e	Student numbers

   Commentary

5. Institutions should provide a commentary on the financial forecasts using the template shown at Annex C. This is on the disk in Word version 6 and WordPerfect 5.1. Guidance on what to include under each heading is given in Annex C. The commentary should explain how the financial forecasts represent the institution’s strategic plan in terms of its financial policies and the strategies for achieving them, and provide supporting information on the financial forecasts. The commentary is an extremely important component of the return, allowing the opportunity to provide supporting information to fully explain the forecasts. It reduces the likelihood of us needing to follow up with specific questions.

    

   Guidance on tables

   Table 1: Income and expenditure account

   Heads 1 to 6

6. These are calculated automatically from Table 2a and do not require input.

   Head 7: Staff costs

7. Staff costs should cover all and only those full-time and part-time staff who hold contracts of employment with the institution. Payments to non-contracted staff or individuals should be included in 'Other operating expenses'.

   Head 8: Depreciation

8. Depreciation should cover all buildings and items of furniture and equipment that are capitalised and depreciated in accordance with the institution’s depreciation policy.

   Head 9: Other operating expenses

9. Other operating expenses should cover all other non-pay costs incurred, except for depreciation and interest payable which are shown separately, and should include:

   • payments to non-contracted staff or individuals

   • expenditure on equipment which has not been capitalised

   • restructuring costs

   • long-term maintenance expenditure.

   Head 12: Exceptional items

10. Exceptional items should be included only where they meet the definition of exceptional items set out in Financial Reporting Standard 3 paragraphs 5, 19, 20, 46 and 47. Further information on the nature of exceptional items should be provided in the commentary.

    Head 13: Surplus/(deficit) after depreciation of assets at valuation and before tax

11. This will be calculated automatically.

    Head 14: Taxation

12. This should be the estimated liability for taxation of the institution and its subsidiary undertakings.

    Head 15: Minority interest

13. This should be the proportion of the surplus or deficit attributable to the minority interests in subsidiary undertakings.

    Heads 16 and 17: Surplus/(deficit) after depreciation of assets at valuation and tax

14. This is calculated automatically.

    Head 18: Difference between a historical cost depreciation charge and the actual depreciation charge for the year calculated on the revalued amount

15. This will apply when depreciation is calculated on assets included on the balance sheet at valuation or revaluation, rather than historical cost.

    Head 19: Realisation of property revaluation gains of previous years

16. This will apply when a revalued asset is sold or is expected to be sold over the forecast period.

    Head 20: Historical costs surplus/(deficit) after tax

17. This is calculated automatically.

    Table 2a: Analysis of income

18. Table 2a provides analysis of the five main income headings in Table 1, with totals transferred automatically to Table 1.

    Head 1: UK HE funding body grants

    Sub-head 1ai: HEFCE teaching – Core funding

19. This heading should contain the total block grant for teaching, as stated in institutions' annual grant letter or additional grant letters from us. Do not include non-consolidated additions to core funds or reimbursement of inherited liabilities under this head: these should be under sub-heads 1c and 1e, respectively. Any increase in forecast teaching grant for future years should only reflect the impact of inflation, reductions in the unit of funding, and any migration strategies agreed with us; it should not include assumptions about growth in student numbers in future years.

    Sub-head 1aii: HEFCE teaching – Additional funding

20. Where institutions wish to incorporate assumptions about growth in student numbers from 2001-02 in the light of the Government’s announcement about additional places in further and higher education, these should be included under head 1a ii. Note that the assumptions about the institution’s share of any assumed growth in the HE sector should be realistic and that these should be priced at the average for the price groups.

    Sub-head 1b: HEFCE research

21. This should be the total block grant for research as shown in the annual grant letter or additional grant letters from us. It is not necessary to distinguish between the different components of research funding. Institutions should ignore the potential effects of the 2001 Research Assessment Exercise.

    Sub-head 1c: HEFCE special funding

22. This should include all elements of special funding as shown in the annual grant letter. Additional funding arising from special initiatives not shown in the annual grant letter should be under sub-head 1e.

    Sub-head 1d: HEFCE release of deferred capital grants

23. Amounts under this sub-head should relate to specific capital grant which has been used to purchase a capitalised asset. The release will be over the lives of the assets and will offset the depreciation charge on those assets.

    Sub-head 1e: HEFCE other grants

24. Amounts under this sub-head should be grants that have not been dealt with in any of the above sub-heads. They include:

    a. Reimbursement of inherited liabilities for staff, leases and interest on debts. (The capital element of reimbursed inherited debt should be credited directly to the revaluation reserve.)

    b. Special initiatives. Grants for special initiatives should be taken as income in the year in which they are awarded, unless specifically earmarked for use in future years.

    Sub-head 1f: FEFC recurrent grants

25. This should include all recurrent grants provided by the Further Education Funding Council (FEFC).

    Sub-head 1g: TTA mainstream ITT funding

26. This should contain the TTA formula funding to support initial teacher training, as shown in the annual funding allocations letter or additional grant letters from the TTA. It is not necessary to distinguish between recurrent and capital funding.

    Sub-head 1h: TTA INSET funding

27. This should include TTA funding provided to support the continuing professional development of existing schoolteachers with qualified teacher status (QTS).

    Sub-head 1i: TTA partnership funding

28. This should include any funding earmarked to support partnership arrangements with schools.

    Sub-head 1j: Other funding

29. This should include any other TTA earmarked funding.

    Head 2: Academic fees and support grants

30. This should contain all fee income from both public and private sources, including short courses and self-financing full-cost courses. It should include income from courses provided for other bodies where the institution charges either a block fee to cover a specified number of students or a fee per individual student. Income relating to teaching NHS personnel, such as nursing or midwifery courses, should be included.
31. Where fees are wholly or partly waived, the income due though not received should be included – that is, the income should be gross, not net. The costs of any waivers falling to institutions should be shown under 'Other operating expenses'. Payment from an outside fund to meet the cost of fees, for example from the Overseas Research Students Awards Scheme (ORSAS), should be shown as if it were fees income.
32. Credit-bearing continuing education (CE) courses should be treated as part-time or full-time credit-bearing courses, as appropriate.

    Sub-head 2a: Full-time UG home and EU students

33. This should cover only full-time and sandwich students for full-time undergraduate degree, diploma or similar award-bearing courses.
34. It should include all fees for UK domiciled students charged at the undergraduate mandatory home fee rates; and all fees for non-UK domiciled students, including EU students, charged at the undergraduate mandatory home fee rates. In both cases this is regardless of whether the fees are paid wholly or partly by the local education authorities, and includes PGCE students.

    Sub-head 2b: Full-time PG home and EU students

35. This should include all fees for full-time postgraduate students, whether from public or private sources.

    Sub-head 2c: Part-time fees

36. This should include fees for home and EU students who are charged part-time fees (but are not overseas students). It will encompass fees for degree, diploma or other HE credit-bearing courses, including postgraduate courses.

    Sub-head 2d: Overseas students

37. This should include all fees for students who are charged overseas fees for either full-time or part-time provision, including students from the Channel Islands and the Isle of Man.

    Sub-head 2e: Fees from NHS contracts

38. This should include income from the Department of Health, regional health authorities or NHS Trusts in respect of courses provided for NHS personnel. It includes fees paid in respect of nursing and midwifery training and other subjects and professions allied to medicine funded by the NHS.

    Sub-head 2f: Other fees and support grants

39. This should include:

    a. All fee income received from non-credit-bearing liberal adult education, continuing education or extra-mural courses.

    b. Fee income received for FE/non-advanced courses.

    c. Income received from other institutions as payment for teaching students who are principally registered at those institutions. This may arise, for example, under some ‘franchising’ arrangements, or where another institution ‘sub-contracts’ the teaching of part of a course.

    d. All grants made by Research Councils and other bodies to support the training of research students. It should include bench fees, Collaborative Awards in Science and Engineering (CASE), and other awards.

    e. Any registration, retaining, examination and re-examination fees that are separately charged to home and EU students.

    Head 3: Research grants and contracts

40. This should include all income from externally sponsored research carried out by the institution or its subsidiary undertakings.

    Sub-head 3a: Research Councils

41. This should include income from research grants and contracts from the Research Councils and income from the Arts and Humanities Research Board (AHRB).

    Sub-head 3b: UK-based charities

42. This should include income from research grants and contracts from charitable foundations and charitable trusts that are based in the UK and registered with the Charities Commission, and from exempt charities.

    Sub-head 3c: Other research grants and contracts

43. This should include income from research grants and contracts from sources other than Research Councils, UK-based charities and exempt charities.

    Head 4: Other operating income

    Sub-head 4a: Other services rendered

44. This should show all income from services rendered to outside bodies, including the supply of goods and consultancy services. The Integrated Graduate Development Scheme, European Social Fund grants, and Teaching Company Schemes should be included under this head. It should also include validation fees for courses run by other institutions.

    Sub-head 4b: Residences and catering operations

45. This should include the gross income from residences and catering operations, including conference lettings.

    Sub-head 4c: Income from NHS contracts

46. This should include all income received from UK regional health authorities or NHS Trusts to fund employees of the institution (including academic teaching posts) funded under contracts for teaching NHS personnel, such as contracts for teaching nursing and midwifery. It should also include income received to provide premises or facilities in relation to such contracts. This sub-head should not include those elements of income relating to provision of a service (sub-head 4a) nor funding of NHS clinical posts in teaching hospitals (sub-head 4d).

    Sub-head 4d: Other operating income

47. This should show all operating income not specifically included elsewhere, such as:

    a. Grants from local authorities. These should be treated as revenue or capital according to the purpose for which the grant will be used; revenue grants and releases from any deferred capital grants should be shown here.

    b. A capital grant, from a source other than a UK HE funding body, towards financing the construction or acquisition of a fixed asset. Where it is not capitalised, the grant should be shown here in full. Where the asset is capitalised, the annual release from the deferred credit account should be shown here.

    c. All other grants from sources other than a UK HE funding body should be shown here, except for research activities or services rendered which should be included under sub-heads 3a/3b or 4a, respectively.

    d. All income received from intellectual property rights, such as licences and patents.

    e. Other operating income not covered above, including the Trans-European Mobility Programme for University Students (TEMPUS) and European Community Action Scheme for the Mobility of University Students (ERASMUS) grants.

    f. Income to fund NHS clinical posts in teaching hospitals which does not form part of a contractual arrangement (sub-head 4c) or provision of a service (sub-head 4a).

    Head 5: Total endowment income and interest receivable

48. This should include three elements:

    a. The amount of income from the investment of specific endowments that matches the expenditure incurred on the purpose for which the endowment was provided. Where endowment capital is used to meet the expenditure this should be included here.

    b. The full amount of income from investing general endowments, including interest, dividends, bank interest or rental income.

    c. Other investment income and interest receivable, including:

    i. Interest receivable on short-term investments, and the net surplus or deficit from realising or revaluing them.

    ii. The surplus or deficit on realising investments held as long-term funds.

    iii. All other interest received or receivable that are not included elsewhere.

    Head 6: Total income

49. This is the total of heads 1 to 5. It is calculated automatically and linked to Table 1.

    Table 2b: Analysis of separable activities

50. This table analyses the income and contribution to indirect costs generated from separable activities. The table should be completed for all activities that generate more than 5 per cent of the institution’s total income. Institutions should complete a sensitivity analysis in Table 7 for activities flagged in this table.
51. The income figures are imported automatically from Table 2a. These will generate a flag identifying those activities which require more information. Expenditure attributable to each activity should be input, showing all direct expenditure including staff costs and other operating expenses as well as attributable depreciation and interest.

    Table 3: Balance sheet

52. Access funds received and paid should not be included in the income and expenditure account, but any balance should be included in the balance sheet.

    Head 1: Fixed assets

53. This should include land, buildings and equipment which are expected to have a useful economic life of more than 12 months from the date of acquisition, and which meet institutions’ capitalisation thresholds. The assets should be stated at cost or valuation. Donated assets should be included at open market value at the time of acquisition. All institutions will need to comply with `FRS 15 – Tangible Fixed Assets’.

    Sub-head 1a: Tangible assets

54. This should include land, buildings and equipment in use in the institution or its subsidiary undertakings.

    Sub-head 1b: Investments

55. This should include investments made by the institution or its subsidiary undertakings out of funds other than endowment funds, and which are not intended to be realised within the next 12 months. Amounts as at 31 July 1999 should be stated at market value. Investments in subsidiary undertakings will be eliminated on consolidation.

    Head 2: Endowment asset investments

56. This should include investments made out of restricted or general endowment funds. Investments as at 31 July 1999 should be stated at market value. The total for each year should agree with the total endowment funds recorded at head 12.

    Head 3: Current assets

    Sub-head 3a: Stocks and stores in hand

57. Stocks and stores in hand should be recorded where practical to do so and where the amounts involved are material. They should be included either at cost or net realisable value, whichever is lower.

    Sub-head 3b: Debtors

58. This should include all amounts due to the institution as a whole, less any provisions for bad and doubtful debts. The current portion of any long-term loans should be included under this head. Pre-paid costs should be included to the extent that the cost relates to expenditure in the following academic year.

    Sub-head 3c: Investments

59. This should include investments and other liquid resources (excluding any short-term endowment asset investments) which the institution intends to realise within 12 months. Investments held as current assets should be shown at cost or net realisable value, whichever is lower.

    Sub-head 3d: Cash in hand and at bank

60. This should include all accounts held in the form of cash, including bank accounts, but excluding any cash relating to endowment assets. The definitions of cash should be as in Financial Reporting Standard 1 (Revised 1996); that is, it should only include cash and deposits which are repayable on demand or within 24 hours. Deposits which are recoverable after more than 24 hours should be included under head 3c. Bank overdrafts should not be netted off against positive balances but should be shown separately under current liabilities, head 4c.

    Head 4: Creditors: Amounts falling due within one year

61. This should include all liabilities which are payable within 12 months. Provisions should not be included under this head, but disclosed separately under head 8.

    Sub-head 4a: Creditors

62. This should include all amounts due within the next 12 months, or income received in advance.

    Sub-head 4b: Current portion of long-term liabilities

63. This should include the portion of long-term liabilities, whether reimbursable by us or not, that is due to be repaid within the next 12 months.

    Sub-head 4c: Bank overdrafts

64. This should include all bank overdrafts, which should not be netted off against cash in hand and at bank.

    Head 5: Net current assets/(liabilities)

65. This is calculated automatically.

    Head 6: Total assets less current liabilities

66. This is calculated automatically.

    Head 7: Creditors: Amounts falling due after more than one year

67. This should include all amounts outstanding on external borrowings at each year-end and which are due for repayment more than 12 months from the balance sheet date. The portion due within 12 months should be included under sub-head 4b.

    Sub-head 7a: Reimbursable by the HEFCE

68. This should include outstanding debts with local education authorities which are expected to be reimbursed by the HEFCE through its funding for inherited liabilities.

    Sub-head 7b: External borrowings

69. This should include all other debts, such as finance leases.

    Sub-head 7c: Other long-term creditors

70. This should include all long-term creditors that are not regarded as borrowings, such as deferred payments for contractual obligations. Items included under this sub-head should be detailed under head B3 in the commentary. Finance leases and other forms of borrowing should not be included under this head.

    Head 8: Provisions for liabilities and charges

71. This is calculated automatically from the data in Table 6b.
72. Details of all provisions should be disclosed in the commentary. Only provisions that comply with ‘FRS 12 – Provisions and Contingencies’ should be made.

    Head 9: Total assets less liabilities

73. This is calculated automatically

    Head 10: Deferred capital grants

74. Capital grants received from us and other organisations in respect of assets which have been included within fixed assets should be shown under this head and released to the income and expenditure account over the estimated useful lives of the assets. The balance will represent the unreleased portions of the capital grants received.

    Head 11: Total net assets

75. This is calculated automatically.

    Head 12: Endowments

    Sub-head 12a: Specific endowments

76. This should include endowments where the donor has specified how the capital or income should be used. Income on the investment of such endowments should be included under this head, and released to the income and expenditure account as necessary to match the specific expenditure for which the endowment was provided.

    Sub-head 12b: General endowments

77. This should include endowments where the institution has the discretion as to how the capital or income is used. Income on the investment of such endowments should be included in the income and expenditure account in full.

    Head 13: Reserves

    Sub-head 13a: Revaluation reserve

78. Where fixed assets are included at valuation, or revaluation, the difference between the valued or revalued amounts and the historical cost of the assets should be shown here, as well as the capital element of the reimbursement of inherited liabilities.
79. The movements on the revaluation reserve should be detailed in the commentary.

    Sub-head 13b: Minority interest

80. This is the value of any minority interests in subsidiary undertakings.

    Sub-head 13c: Income and expenditure account

81. This is the total of all other reserves of the institution and its subsidiary undertakings, plus the annual surplus or deficit on the income and expenditure account before transfers. Details of reserves and reserve movements should be included in the commentary.

    Table 4a: Cash flow

82. This should be completed in accordance with ‘Financial Reporting Statement 1 (Revised 1996): Cash Flow Statements’. Items included in sub-heads 2e, 4h and 8d should be explained in the commentary.

     

    Table 4b: Reconciliation of surplus

83. This should provide a reconciliation between the operating surplus/(deficit) and the net cash flow.

    Tables 5a and 5b: Major assumptions

84. Table 5a asks for the main assumptions underpinning the financial forecast. Contribution rates should be calculated with reference to relevant expenditure.
85. The information on pay inflation (sub-head 1a), incremental drift (head 2) and staff numbers (head 3) contained in Table 5a should explain the year-on-year movements in total staff costs in Table 1. Table 5b is automatically generated and provides further detail on this comparison. Where there are other factors (highlighted in Table 5b as other movements) that affect the projected staff costs and year-on-year movements, these should be explained in the commentary. Similarly, if there are other elements of income or expenditure which are not explained by the factors included in Tables 5a and 5b, further information should be given in the commentary.

    Tables 6a to 6f: Supporting data

86. These tables provide further information to support the income and expenditure account and balance sheet.

    Table 6a: Maintenance expenditure

87. Maintenance expenditure reported in Table 6a should be the actual expenditure incurred in the year.

    Table 6b: Analysis of provisions

88. Provisions disclosed in Table 6b should comply with FRS 12.

    Table 6d: Long-term borrowing

89. Table 6d gives details on long-term borrowing. The percentage calculated in Table 6d is based on annualised servicing costs and total income arising in the same year. For Financial Memorandum purposes the calculation is based on the latest audited income or the estimated amount for the current year, if that is lower at the time of the financial commitment and not the time of draw-down. Annualised servicing costs should be calculated in accordance with guidance accompanying Annex B of the 1998-99 financial statements return.

    Table 6e: Long-term operating expense commitments

90. This should include Private Finance Initiative (PFI) contracts, long operating leases, and any inherited lease where reimbursement by HEFCE has been rolled into core funding. The information is split into those commitments which expire up to 2008-09 (section a) and those commitments which expire after 2008-09 (section b). For commitments expiring after 2008-09, the date when the commitment ends should also be stated.

    Table 6f: Analysis of PFI projects

91. Table 6f requires further analysis of PFI contracts, whether on or off balance sheet. A brief description of each project is required, giving details of the capital value of the project, the annual cost, and the start and end dates, and whether the contract is on the balance sheet or not. The annual cost should be that for 2000-01, unless the contract does not start until later in the forecast period, when the costs of the first full year should be used.
92. The return also requires institutions to specify the inflator used to adjust the contract payments year by year. A typical PFI contract will normally express such an inflator in relation to a generally accepted index such as RPI. For the purposes of this return, institutions should interpret the inflator in terms of the percentage which they are using in their own internal financial planning.

    Table 7: Sensitivity analysis

93. The purpose of the sensitivity analysis is to indicate the financial effects of a number of scenarios on the overall forecast financial results of institutions. Details for scenarios 1 to 8 are automatically updated from the information contained in preceding tables. Scenarios 9 to 13 will require manual input.
94. Scenarios 1 to 4 cover the cumulative impact of annual changes which would compound over the forecast period if no action were taken; scenarios 5 to 7 cover the cumulative impact of step changes in 2000-01 if no action were taken in that or subsequent years.
95. Scenarios 9 to 13 only need to be completed where income from that source represents more than 5 per cent of the institution’s total income. This will be indicated in the table itself based on the information contained in Table 2a.
96. Details should be provided in the financial commentary on the key risks and sensitivities faced during the planning period.

    Tables 8a and 8b: Performance indicators

97. These are calculated automatically.

    Tables 9a to 9e: Student numbers

98. The tables are designed to be consistent with the HESES99 survey, which institutions completed in December 1999, and to keep the data requested to a minimum. For definitions of price groups, mode of study and level of study please refer to that survey (HEFCE 99/57). None of the student number data will be used for funding purposes.

    a. For each year, it is necessary to complete only two columns: ‘Home and EC’ (both fundable and non-fundable) and ‘Island and overseas’.

    b. Tables 9a and 9b ask for the total number of full-time and sandwich, and part-time undergraduate and postgraduate students in price groups A, B, C and D and psychology; all students on initial teacher training (ITT) courses which lead to qualified teacher status (QTS); and all students holding QTS who are on an in-service education of teachers (INSET) course. This includes all years of programme of study. Numbers of franchised out and NHS students included within the totals should also be separately identified together with the number of FE students at the institution.

    c. Tables 9c and 9d ask for forecasts of ITT (QTS) student numbers, broken down according to phase (primary or secondary) and 14 secondary subject groups. Primary registrations should not be split into subject areas. Within the 14 secondary subject groups:

    • Mathematics includes statistics
    • English does not include drama
    • Science includes physics, chemistry, biology, integrated science and other sciences
    • Design and Technology includes home economics
    • Business Studies includes commerce
    • Physical Education includes movement studies, outdoor studies and dance
    • Other includes classics, economics, drama, other social sciences and other subjects.

    d. Table 9e asks for forecasts of full-time and sandwich medical and dental student numbers. Table 9e is a subset of Table 9a; numbers included in this table should also be included in Table 9a.

    Students to be counted

99. Institutions should, in the first instance, refer to Annexes C and D of HEFCE 99/57 for details of which students are to be included in this return. They should include HE students at associate colleges and those who are franchised out.
100. Consistent with HESES99, this return counts all years of programme of study for students studying towards qualifications and not full-time equivalents. The data should include those students who do not complete their year of program of study, equivalent to columns 1 plus 2 of the HESES return.
101. NHS students should only be those for which income is received from the Department of Health, regional health authorities or NHS Trusts in respect of courses provided for NHS personnel. Students receiving nursing and midwifery training should be included.
102. Institutions should enter details of ITT (QTS) student numbers on Tables 9c and 9d only. ITT (QTS) student numbers on Tables 9a and 9b do not require input, as these will be calculated automatically from the data recorded on the separate ITT (QTS) tables.
103. Medical and dental students should be only those on programmes of study that would normally lead to a first registrable medical or dental qualification.

Annex C

Financial forecasts 2000: Financial commentary guidance notes

The financial commentary is essential for a full understanding of the forecasts and helps reduce the extent of follow-up queries. It should set out the context of the institution’s corporate plan and financial strategy, and provide details of key assumptions and risks. The commentary should cover the following areas.

A. Strategic context and associated risks

1. Strategic context and financial strategy

This section should indicate how the forecasts link with and derive from the corporate plan and overall financial strategy. It should provide details of the key strategic issues and objectives which have been taken into consideration, and set out specific financial policies and targets. Financial policies and targets will include levels of surpluses, cash balances, borrowings and reserves.

2. Specific actions taken to ensure continued financial viability

Institutions should set out the actions that they have taken or expect to take to ensure expenditure does not exceed income, taking one year with another as required in the Financial Memorandum with the HEFCE. This may include steps that will be taken as a consequence of reductions of funding in real terms.

This explanation should indicate not only the financial consequences of the actions but also the impact on staff, the student experience, provision of teaching and research, and the institution’s estate.

3. Other significant changes

Institutions should include in this section details of any key assumptions not identified above or under Table 5 assumptions. This should include:

• assumptions underpinning student number forecasts
• correlation of student numbers with fee income
• assumptions regarding holdback and achievement of migration strategies.

4. Key risks and sensitivities

The commentary should include an analysis of the key risks and sensitivities faced during the planning period. Table 7, sensitivity analysis, may help to identify some key risks. An assessment of the potential financial impact of each risk should be provided, together with the compensatory actions the institution would expect to take.

Details should be provided on any material bids, such as poor estates, Joint Infrastructure Fund or additional student numbers, assumed in the forecasts for which decisions are not known at the time of preparing the forecasts. Details should include expenditure assumptions associated with the bid, as well as whether failure to secure funding would affect the decision to go ahead with the proposal.

B. Supporting notes to the forecasts

1. Exceptional and unusual items

Where exceptional items have been included in Table 1 head 12 in any year of the forecasts, details should be provided. If material unusual transactions have been included in other items of income or expenditure, they should be disclosed here. This applies particularly to breakdown of profits and losses arising on the sale of property, redundancy and other restructuring costs, systems development costs and details of the effects of compliance with Financial Reporting Standards with effective dates after 31 July 1999 (such as ‘FRS 15 – Tangible Fixed Assets’).

2. Analysis of reserves and reserve movements

Any movements on the income and expenditure account reserve as shown on the balance sheet, that do not relate to the surplus/(deficit) for the year, or transfers from the revaluation reserve, should be described in detail in the commentary.

3. Other long-term creditors

Table 3 head 7c gives the total of long-term creditors that are not regarded as borrowings. Details of these balances should be provided.

4. Cash flow statements

Details of other items, at heads 2, 4 and 8 of Table 4a, should be provided as set out in the template.

5. Commentary approval

The commentary should be signed and dated by the institution’s director or head of finance.

Commentary template

A. Strategic context and associated risks

1. Strategic context and financial strategy

1. Link of forecasts to corporate plan and overall financial strategy.
2. Key strategic issues and objectives taken into consideration.
3. Financial strategy (targets, such as surpluses, cash balances, borrowings and reserves).

2. Specific actions taken to ensure continued financial viability

Actions taken or expected to be taken.

3. Other significant changes

4. Key risks and sensitivities

1. Identification of key risks/sensitivities.
2. Details on bidding initiatives (/uncertain income).
3. Compensation action that could be taken.

B. Supporting notes to the forecasts

1. Exceptional and unusual items

Items included in Table 1 head 12 are:

2. Analysis of reserves and reserve movements

3. Other long-term creditors

4. Cash flow statements

The items included as Other items on Table 4a heads 2, 4 and 8 are:

5. Commentary approval

Signature .......................................................

[Name]

[Title]

[xx] July 2000

Annex D

Financial forecasts 2000: funding guidance

1. This annex gives guidance on funding which institutions may wish to take into account in preparing their financial forecasts; and the latest forecasts of changes in the Gross Domestic Product (GDP) deflator. The assumptions on funding are not statements of HEFCE or TTA policy, but are provided solely to help institutions prepare their forecasts.

GDP deflator

2. Changes in GDP deflator:

Assumptions about HEFCE funding

Baseline funding levels for teaching and research

3. In November 1999 the DfEE announced the funding to be provided for higher education for the financial year 2000-01 and indicative funding for 2001-02. We have announced funding for the academic year 2000-01. For subsequent years institutions should assume reductions in real terms of unit funding of up to 1 per cent for core teaching and research: that is, in resource terms (grant and fees combined). Within this overall assumption the £1,050 tuition fee should be maintained in real terms. This implies HEFCE grants reduce by more than 1 per cent each year.

Funding for teaching

4. Recurrent grant Table B, issued on 29 February 2000 (or as subsequently revised), sets out institutions’ recurrent funding for teaching for 2000-01 and their percentage difference from standard resource. Institutions should reflect any agreed migration strategies in their assumptions about funding for teaching, student numbers and fee income. In general, institutions’ entitlement to additional funding for migration is fixed at the point at which the funding method was first applied. They should therefore assume that such additional funding will be limited to the commitments already made, and will cease as soon as their percentage difference from standard resource reaches minus 5 per cent. Institutions below the tolerance band, that embarked on a three-year migration in 1998-99, should not expect further migration adjustments after 2000-01 unless these have been agreed separately.

5. Only full-time postgraduate research students in year 1 and part-time postgraduate research students in years 1 and 2 are funded through the funding method for teaching. As for 2000-01 funding, full-time postgraduate research students in years 2 and 3 and part-time research students in years 3 to 6 in departments rated below 3b in the 1996 Research Assessment Exercise will not be counted in the teaching model. Baseline teaching funds associated with such students from the 1999-2000 teaching allocations will be subject to the rules of migration.

6. Institutions should include funding for additional student numbers for 2000-01. The Government has announced an additional 45,000 places for higher education in 2001-02. Institutions should make a realistic assumption about their own share of those higher education numbers, taking account of the DfEE’s guidance that a significant proportion of these will be part-time, at sub-degree level and located in FE colleges. Additional student numbers should be priced at the average for the price groups.

Funding for research

8. Institutions should assume, for the purposes of preparing the forecasts only, that:

Special funding

9. Allocations which have been announced for 2000-01 or subsequent years should be included.

10. Joint Information Systems Committee (JISC) allocations should only be included if institutions have been told that they will receive them.

Inherited liabilities

11. For the purposes of the forecasts only, institutions should assume that we will continue to reimburse:

Capital projects

12. Specific capital grants should only be included where we have already agreed the funding. Earmarked capital funding set out in HEFCE 99/52 should be included.

Assumptions about TTA funding

ITT

13. The TTA has already announced funding for ITT in 2000-01. Gains and losses resulting from the introduction of the revised price tariffs from 2000-01 will be capped at 2 per cent per year.

14. Intake targets for primary ITT are planned to remain at 13,100 from 2000-01 to 2002-03. Intake targets for secondary ITT are planned to be 16,615 between 2000-01 and 2002-03. Institutions should give details in the financial forecast commentary of any assumptions made for changes in intakes to primary and secondary ITT.

15. The transfer of resources to partner schools associated with the shift to schools-based training of teachers should be included, and disclosed separately in the commentary to the forecasts.

INSET

16. The TTA has already announced INSET funding allocations for 2000-01 under its competitive bidding mechanism. This funding may consist of one or more of the following four elements:

1. Guaranteed funding. Institutions who were funded in 1997/98 will receive in 2000-01 25 per cent of the funding they received in 1997-98.
2. Bid related funding from the main bidding round. The TTA announced funding allocations to providers arising from the main round on 19 February 1998.
3. Bid related funding from the first interim bidding round. The TTA announced funding allocations to providers arising from the first interim round on 22 February 1999.
4. Bid related funding from the second interim bidding round. The TTA announced funding allocations to providers arising from the second interim round on 8 February 2000.

17. Holdback arrangements will apply to all allocations. Institutions should reflect any allocations for future years that have already been announced. They should also disclose separately in the commentary any assumptions made about the outcomes of future bidding rounds from 2001-02 onwards.

Capital funding

18. Capital funding for both ITT and INSET is subsumed in the TTA’s ITT and INSET budgets; its distribution reflects the pattern of ITT and INSET allocations for 1999-2000.

Annex E

Financial forecasts 2000 Tables 1 to 9

These tables are not included in the web version of this document.