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Circular letter number 05/2004
For further information contact Ian Lewis, 0117 931 7336, e-mail i.lewis@hefce.ac.uk; Heather Williams, 0117 931 7113, e-mail h.williams@hefce.ac.uk; or Andrew Beazer, 0117 931 7223, e-mail a.beazer@hefce.ac.uk
Dear Vice-Chancellor or Principal
Quality assurance of TRAC implementation
Overview
1. This letter is to inform you of the upcoming quality assurance (QA) processes we will undertake to ensure that the implementation of the Transparent approach to costing (TRAC) methodology in higher education institutions (HEIs) is sufficiently robust.
2. TRAC is becoming increasingly important since a substantial amount of public funding (several billion pounds) is dependent on the reliability of TRAC information. Furthermore, the Research Councils will use TRAC principles to allocate project funding and government departments have been asked to fund non-competitive cost-based contracts based on full economic costs defined by TRAC Note 1. Although the case for providing assurance on the reliability of TRAC implementation in HEIs is therefore compelling, we have sought to minimise the burden associated with this activity.
Background
3. The Transparent approach to costing (TRAC) methodology was developed in 1999-2000 to meet the Government's requirements for improved accountability, at institutional level, for the use of public funds following the 1998 Spending Review. The UK HE sector was required to implement the TRAC methodology for reporting on academic year data for 1999-2000, with improvements to the robustness being implemented over a five-year period, leading to fully robust implementation for reporting on academic year 2003-04.
4. An independent review of the principles and conceptual basis for the TRAC methodology was undertaken by the Financial Reporting and Activity Costing Group (FRACG). This concluded that the TRAC methodology was fit-for-purpose as a mechanism for demonstrating accountability for public funds, and that there was a sound conceptual basis for the methodology and the economic adjustments. It also concluded that there was a need to provide further assurance to Government and sponsors that the implementation of TRAC within HEIs is robust Note 2, in particularly because the Government is making significant additional investments in the HE sector on the basis of the TRAC methodology.
5. The UK funding bodies and the Research Councils have therefore established a review process which is capable of providing an independent assurance to a range of stakeholders (including Funding Councils, Research Councils, HM Treasury and other government departments) on the robustness of the embedding of the original TRAC implementation within HEIs.
6. JM Consulting has designed the assurance process, and KPMG staff, on secondment to HEFCE, will undertake the Quality Assurance reviews. The process is light-touch and developmental to help HEIs in achieving a robust implementation of TRAC at institution level and provides a sound foundation for extending the TRAC methodology for forecasting full economic costs at project level. The process is sensitive to the need to minimise burden by using the results of HEIs' own internal review processes, and recognises that HEIs are not yet at the end of the five-year implementation period. The process will focus on the most significant areas within HEIs' cost structures and on the areas where HEIs have requested guidance. It also uses the benchmarking tool which HEIs used at earlier stages in the TRAC implementation process. The specification for the quality assurance process is summarised at Annex A.
7. Those HEIs that are able to provide assurance of a robust system will be eligible to apply their own estates charges and indirect cost rates for non-competitive cost-based contracts with other government departments. This assurance will also be a requirement for Research Council project applications from September 2005.
8. A full description of the process, the self-assessment checklist, and the template for benchmarking of data will be sent to your institution's Director/ Head of Finance by the QA team shortly. Electronic versions of these documents for return to the Quality Assurance team will be available for download from the HEFCE web-site.
9. All institutions should complete the self-assessment checklist and the benchmarking template and return it to the quality assurance team by Monday 31 May 2004.
10. There will also be two further rounds of benchmarking in December 2004 (on 2002-03 data) and March 2005 (on 2003-04 data) to assist with calculation of indirect cost rates on the new basis to meet the requirements for applying full economic costing at project level (refer to Transparent Approach to Costing, Volume III Full economic costs of projects, Section B1.6, published February 2004), and to establish the default rates for the sector.
Timetable for quality assurance team visits
11. The timetable for quality assurance team visits will focus on those institutions with the largest volumes of publicly-funded research in the first phase with visits taking place between April and July 2004. A list of the 50 HEIs with the largest volumes of publicly-funded research based on 2002-03 is at Annex B. These HEIs will be covered in the first round of visits.
12. For all other institutions, the aim is for visits to take place between July and December 2004. However, some visits may take place between January and July 2005. The proposed schedule of visits for these institutions will be determined by the quality assurance team, informed by the team's initial review of the HEI's self-assessment and benchmarking return, and in discussion with the HEI. Therefore HEIs outside the most research-intensive group will have a choice on the timing of their QA visit. If an institution chooses to have an assurance visit later in the schedule however, it will have less time to address any issues that may arise. This may affect its ability to bid for Research Council projects from September 2005, or the costs that can be recovered from Research Councils and other government departments. This is because until the quality assurance review has taken place and confirms that the HEI's TRAC implementation is sufficiently robust the lower default rates for indirect costs will be applicable.
13. A confidential report will be provided to each HEI on areas for development or where action is required. Material areas of weakness identified by the QA team need to be addressed by August 2005, or a lower cost recovery from Research Councils and other government departments will result. Either a lower default indirect cost rate would have to be applied, or estates charges or principal investigator costs could not be applied, until all material action points identified during the QA visit have been addressed by the institution.
14. In addition to the confidential, individual reports to HEIs, KPMG will be responsible for producing summary reports on findings across the sector in August 2004 and January 2005 for reporting to stakeholders and to the sector. The QA team will also provide feedback to HEIs on benchmarking (on an anonymised basis).
15. KPMG will write to all HEIs shortly providing further information about the QA process and to make arrangements for the visits. For further information about the visits, contact the Quality Assurance Team, details below.
| Stephen Clark, Senior Manager | 0121 232 3932 | stephen.clark@KPMG.co.uk |
| Andrew Bush, Manager | 07885 317494 | andrew.bush@KPMG.co.uk |
16. For further information about this letter and the overall approach to the joint quality assurance process, contact Heather Williams, 0117 931 7113, e-mail h.williams@hefce.ac.uk or Andrew Beazer, 0117 931 7223, e-mail a.beazer@hefce.ac.uk.
Yours sincerely
Sir Howard Newby
Chief Executive
1. Letter from HM Treasury, 'University research: costs to government departments' 13 February 2004, circulated to HEIs under cover of EP 04/2004
2. HEFCE Circular letter 26/2003 'Review of financial reporting and activity costing'
Download
Annex A
The original Annex A has been replaced by an extended version available on the Transparency review web page.
Annex B
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