Guide 98/64November Audit by the HEFCEForewordUniversities and colleges have a central role in developing the knowledge-based economy, as highlighted in the Government's Green Paper 'The Learning Age'. To support teaching, learning and research in higher education, the Council will distribute some ú3.8 billion of public money in 1998-99. The main focus of our operation is to enhance the learning experience of students and the quality of research carried out. One of the ways we seek to deliver that objective is by working with the institutions we fund to promote good management, value for money and accountability. We are keen to ensure that institutions are aware of the good practice that has been identified. We also wish to strike the right balance between a healthy respect for the independence of universities and colleges, and the increasing expectations of the public and other stakeholders. Our approach incorporates:
These activities are described in more detail in various HEFCE publications, and on our web site (www.hefce.ac.uk). This document sets out the role and operation of the Council's Audit Service in furthering our objectives. Brian Fender CMG The need for audit in higher educationThe audit process is designed to ensure accountability for public money, and promote good management. However, there is a perception that there is too much audit in higher education, with a risk of duplication and an increasing administrative burden for universities and colleges. Essentially there are four main audit functions: an institution's own internal and external auditors, the National Audit Office (NAO), and the HEFCE. Funders of specific projects û such as charities, the European Union, the Research Councils, industrial sponsors and so on û also audit their own stream of income. Add to this the other forms of assessment and review in higher education, in relation to quality, health and safety, local authority regulations and so on, and it is easy to see the potential for confusion. In fact the HEFCE's auditors do not, as a rule, carry out many direct audits themselves. Our approach is one of partnership, where we seek to:
The HEFCE Audit ServiceThe service is a relatively small team of eight full-time permanent employees, engaged primarily in improving institutions' management systems and processes. It is useful to think of these systems under the following headings:
We expect the first heading to be covered by an institution's external auditors and the next two by its internal auditors. Our audit team routinely engage with institutions every three years in their cycle of visits (see below). They concentrate on ensuring that all universities and colleges have good internal and external audit arrangements, competently overseen by the institution's audit committee. Value for money will be promoted within institutions by a range of processes, but the institution's audit committee is expected to satisfy itself that these processes are robust. These basic arrangements are underpinned by a Financial Memorandum with the Council, and an Audit Code of Practice, both of which have been agreed with the sector. These documents spell out the formal responsibilities of each institution, and of its designated officer. Benefits of auditThe areas covered in a typical audit visit are set out in Annex 1. On average, each institution receives five days' audit input once every three years from the Council. As a result, institutions get the benefit of free consultancy from national experts in higher education management; taxpayers get a better return on their investment; and Parliament can be assured that public funds are soundly accounted for. There are further direct benefits from the work of the Audit Service. For example, our advice offered to institutions in the context of the Joint Research Equipment Initiative led to savings of over 2 million all of which flowed back to institutions. We have provided guidance to the sector on dealing with the year 2000 date change, and have helped individual institutions in, for example, selecting their internal auditors. Universities and colleges can also use the HEFCE's audit reports as evidence to external funders, such as banks, that they are well managed. We are now well into our second cycle of audit visits. As institutions' internal systems become stronger and more robust, we expect to be able to reduce even further our regulatory role for most of the universities and colleges we fund. We see our audit function increasingly as a catalyst for and facilitator of good practices which enhance the value of the taxpayers' investment in higher education. GovernanceMore recently the HEFCE audit team have put a greater emphasis on governance in higher education. Governors are responsible for ensuring that institutions abide by their Financial Memorandum with the Council. Good governance provides leadership and holds the executive accountable for its actions. Good governance is crucial to the short and long-term health of any organisation. Recognising this, the Stock Exchange requires listed companies to declare their compliance with the principles of corporate governance in the Hampel code. Similarly, the Government has used the Nolan reports to define minimum standards in public life and to drive improvement. The HEFCE audit team's involvement with governors inevitably involves discussions about the institution's strategic decision-making process, the quality of information available to the governing body, and the risks associated with particular governance sub-structures. A number of governors have commented on how helpful they find the independent advice offered by our auditors, particularly the opportunities to discuss what other institutions are doing. Our approach is to work with the sector to help define governance standards, using reports such as Nolan as benchmarks. Then, through our audit team, we can identify any shortfalls against these standards at individual institutions, and make recommendations for improvement. However, our emphasis is to offer comments on processes and information flows: it is not to interfere with or second guess the judgement of governors and senior managers. The Government and the Public Accounts Committee, through its watchdog the National Audit Office, closely monitor progress within the higher education sector. We seek to help the sector to meet the expectations of these key stakeholders, with the minimum of bureaucratic interference. Reducing the burden on institutionsThroughout, by working with universities and colleges and their representative bodies, we aim to reduce the administrative burden on institutions. This approach enables us to keep our routine audit involvement as low as five days every three years. For example, we have recently modified our capital payments system, in consultation with the sector, so that institutions no longer need to prepare substantial paper submissions to obtain grants. We have replaced these with agreed profiles and audit certificates, based wherever possible on work already carried out. Similarly, we take every opportunity to talk to other bodies that have an audit function, and to discuss how they can rely on the assurances that we have already obtained from institutions. Dealing with complaintsFrom time to time we receive allegations of misconduct at institutions. We are a funding body, not the regulatory body for higher education. As an organisation our focus is supporting the delivery of teaching and research. Our view is that institutions are independent bodies and we should not interfere in their operations unnecessarily. However, where allegations of impropriety, fraud, irregularity or waste are received, we must satisfy ourselves that the matter has been investigated, appropriate action taken, and the relevant people informed. We can play a valuable role in independent mediation, since there are often two sides to an allegation. But this is only effective if both sides trust us, so we do not carry out this work in the public domain. Nevertheless, we always encourage institutions to be as open as possible (even if they do feel aggrieved that others have misrepresented them). We will listen to any complaints, but before we investigate to any great extent we have to be satisfied that institutional procedures have been exhausted. Our first, and usually our only course of action will be to ensure that the institution has used reasonable endeavours to resolve the matter internally. We will not intervene in employment matters, since there are already appropriate legal remedies through industrial tribunals. Further informationIf you would like to know more about the work of the Audit Service then please contact John Rushforth (0117 931 7416) or visit the Council's web-site http://www.hefce.ac.uk/ Copies of the Audit Code of Practice (HEFCE 98/28) and the model Financial Memorandum (HEFCE 15/97) are available from the Council, and on the web site. Annex 1Main areas covered in a routine HEFCE audit visitGovernance
Strategic and administrative management
Financial control
Audit Committee
Internal audit
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