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18 August 2005 HEFCE logo
To  Heads of HEFCE-funded higher education institutions
Heads of universities in Northern Ireland
Direct Line 0117 931 7300
Direct Fax 0117 931 7203

Circular letter number 24/2005

For further information contact at HEFCE:
Ian Lewis, tel 0117 931 7336, e-mail i.lewis@hefce.ac.uk
or Heather Williams, tel 0117 931 7113, e-mail h.williams@hefce.ac.uk
or at the Research Councils:
Ann Durniat tel 01793 442159, e-mail ann.durniat@pparc.ac.uk

Dear Vice-Chancellor or Principal

Quality assurance for implementing the Transparent Approach to Costing: final report

1.    This letter sets out key findings from the final report on the quality assurance (QA) of implementation by institutions of the Transparent Approach to Costing (TRAC). This is the second of two reports submitted by the QA team. It covers the findings from the visits undertaken by the team, and the benchmarking exercises to provide an overview of the sector's compliance with the TRAC guidance (volumes I and II), and to assess its readiness to meet the requirements for applying full economic costing (fEC) at project level. The full report is available for download from the HEFCE web-site.

Background

2.    The QA process was set up to provide assurance to the UK funding councils and Research Councils that the initial TRAC guidance has been implemented successfully and robustly, and that there is a solid foundation for extending the TRAC methodology for forecasting fEC at project level. It was felt that other stakeholders and funders would also wish to take advantage of the assurances provided, for their own accountability needs.

3.    The report summarises the findings from the 166 visits to higher education institutions (HEIs) undertaken by the QA team between May 2004 and February 2005, and the three benchmarking exercises.

4.    All HEIs received a confidential report following their QA visit, identifying areas for development or where action was required. Where significant issues were raised in the report, HEIs needed to resolve these and to provide evidence from their internal auditor to the QA team by 31 July 2005, in order to use their own fEC (indirect cost rates, estate cost rates and principal investigator costs) for applications to the Research Councils from 1 September 2005.

Key findings

5.    These findings relate to the time of the QA visits. In most cases the issues have now been addressed. Consequently the progress reported below will be understated.

6.    HEIs consistently demonstrated good practice in the following areas:

  1. Compliance with TRAC guidance, volumes I and II. In many cases institutions have complied with the requirements of volumes I and II. However in 40 institutions, largely the less research intensive institutions, some further work is required on time allocation and indirect costs.
  2. Senior management commitment. The senior management teams within most institutions have bought into TRAC and TRAC fEC.
  3. TRAC fEC project groups. All but 26 institutions have established project groups to oversee the implementation of TRAC fEC.
  4. Implementation plans. In all 125 out of 164 institutions (four institutions merged into two during the QA process) have implementation and project plans to promote the achievement of the fEC requirements and timescales.
  5. Completion of the self-assessment checklists. The visits confirmed that institutions embraced the checklist in the spirit intended and in most cases provided a fair representation of their position.
  6. Internal audit review of TRAC. The internal auditors within all but one research intensive institution, and 19 other institutions, have reviewed the TRAC processes at least once to date.
  7. Implementation of TRAC and fEC by institutions eligible for dispensations. A large number of institutions that are eligible to claim dispensation from the TRAC and TRAC fEC requirements are actually pursuing their full implementation to aid decision making.

7.    The QA team found that a large proportion of HEIs are compliant with the requirements of TRAC volumes I and II, but that some further work was required by some institutions to confirm the robustness of their time allocation data. The common issues identified relating to TRAC volumes I and II were:

  1. Robustness of the academic staff time allocation data. Forty institutions (25 per cent) had further work to undertake to confirm the robustness of the time allocation data.
  2. Statistical review of sampling methods. Twelve institutions (7 per cent) visited had not involved a statistician in verifying the validity of the sampling approach adopted for the collection of academic staff time.
  3. Allocation of indirect costs to Teaching, Research and Other. Thirteen (8 per cent) of institutions visited had allocated indirect costs to T, R & O solely on the basis of the academic staff time data.

8.    Given the amount of work required by institutions to introduce TRAC, these findings were generally very positive for the sector.

9.    The QA visits also considered HEIs' preparedness for implementing TRAC fEC at project level. Given that the TRAC fEC requirements were only published in February 2004, the development issues reported below were not unexpected. Indeed the deadline for achieving full implementation of TRAC fEC has been extended to August 2009.

10.    The common issues identified were:

  1. Estates data. At the time the reviews were undertaken, almost all institutions had significant work to complete to refine their estates data in order to fulfil the requirements of fEC.
  2. Cost definitions. Forty-seven per cent of institutions needed to align their definitions of estates and indirect costs with the fEC requirements.
  3. Indirect costs. Institutions needed to refine their cost driver model for indirect costs to increase the robustness of the indirect cost rates. Work was also required to refine the allocation of indirect costs to the TRAC categories.
  4. Full-time equivalent count. Many institutions needed to refine their process for calculating the full-time equivalent count for research.

11.    At the time of their visits (May 2004 to July 2004), the more research intensive institutions visited all acknowledged that further work was required to introduce fEC, so that they could use their own indirect cost rate and include estates and principal investigator costs in Research Council projects from 1 September 2005. But all were confident that they could complete the work by 31 July 2005.

12.    The QA team will prepare a summary of the outcomes following HEIs' responses to issues raised in their individual reports. The UK funding councils intend to provide a summary of the conclusions from this final stage of the QA process in autumn 2005.

13.    The TRAC QA process has operated well and the programme of HEI visits was completed ahead of schedule. It was well received by institutions and is assisting with the development of TRAC and fEC within HEIs.

Future quality assurance and validation arrangements

14.    The UK funding councils, Research Councils and the Office of Science and Technology (OST) are developing a strategy and arrangements for quality assurance and validation of TRAC and TRAC fEC. The aim is that their recommendations should meet the needs of all key stakeholders and provide an acceptable level of assurance to research sponsors that research projects are being costed robustly, taking account of the new research funding arrangements. Robson Rhodes has been appointed to undertake this review and is due to report later in the year.

15.    The funding councils and Research Councils will shortly announce details of transitional arrangements to cover the period from August 2005 until the new QA arrangements are implemented, and arrangements for benchmarking to inform re-setting the default cost rates in February 2006.

6.    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

  

Yours sincerely

Howard Newby
Chief Executive