Request 99/14

1999 Mid-year financial return

Executive summary

Purpose

1. This document asks institutions to update their forecasts for the financial year 1998-99, originally submitted to the Council in July 1998, and for details of net liquidity and guarantees to third parties. Commentaries are also requested.

2. We need this information to monitor the financial health of institutions and their compliance with the requirements of the Financial Memorandum.

Key points

3. The format of the mid-year financial return is largely unchanged, except that this year the return does not include the requirement for details of annualised servicing costs of long-term borrowings or overseas fees. The title of Annex B has been changed from 'Short-term borrowing' to 'Net liquidity'.

4. Annex A should be prepared on the same basis as the 1998 financial forecasts, that is, ignoring Financial Reporting Standard 12: Provisions, Contingent Liabilities and Contingent Assets (FRS 12). An explanation should, however, be provided of the anticipated impact of the new standard on the 1998-99 financial statements.

5. Copies of this document and disks for completion and return to the Council, have been sent separately to Directors of Finance.

Action required

6. Completed returns should be sent to your Finance Adviser at the HEFCE by Friday 26 March 1999.

Outturn for 1998-99

7. In July 1998, institutions submitted five-year financial forecasts and student number projections in response to Circular 98/27 '1998 Planning return and financial forecasts'.

8. Institutions are now asked to provide the latest estimate of the actual outturn for the academic year 1998-99 in the format set out at Annex A, which is consistent with the format of Table 1 in Circular 98/27. The Income and Expenditure Account should be prepared on the same basis as Circular 98/27, ignoring FRS 12.

9. The latest estimate of the actual outturn should take account of any notified or forecast revisions to the 1998-99 grant allocation, as well as the impact of other known or forecast changes in income and expenditure. Examples of revisions include changes in: HEFCE grants, FEFC grants, TTA grants, holdback, MaSN penalty, non-formula funding, special initiatives and recruitment of overseas students.

Discretionary reserves

10. Institutions should state at Annex A the estimated level of discretionary reserves at 31 July 1999, taking account of the revised surpluses or deficits for the year. Discretionary reserves should include the balances on both the Income and Expenditure Account reserve and General Endowments.

11. The Income and Expenditure Account reserve should be prepared on the same basis as Circular 98/27, ignoring prior year adjustments arising from the application of FRS 12.

Net liquidity

12. Annex B should be completed by all institutions. The information is requested as part of the process of monitoring the financial health of institutions and to monitor compliance with paragraph 58 of the Financial Memorandum.

13. Institutions should give details of net cash, deposits and overdrafts (as defined in Financial Reporting Standard 1 (Revised 1996): Cash Flow Statements). This should include: the actual position at 31 July 1998; the forecast position as at 31 July 1999 as shown in the 1998 forecast; and the latest estimate of the actual outturn as at 31 July 1999.

14. If an institution had a negative net cash position sustained for one or more periods of seven consecutive days during the period 1 March 1998 to 28 February 1999, the highest level of negative net cash should be shown in the final column of Annex B.

15. A negative net cash position will generally arise because net liquidity includes overdrafts as well as cash.

Guarantees to third parties

16. Annex C requests information on all guarantees given to third parties as at 28 February 1999. ('Third parties' includes all parties not consolidated within the group's financial statements).

17. Returns should include guarantees given on behalf of subsidiary undertakings, and those guarantees where, because the possibility of loss is remote, disclosure is not required under SSAP 18 'Accounting for contingencies'.

Commentaries

18. Commentaries should be provided, as follows:

Income and expenditure account

19. Reasons should be provided for significant variances in income and expenditure compared with the July 1998 forecasts. There is no prescribed format for the commentary, although the note numbers in Annex A should be used for reference purposes. Explanations of the nature of exceptional items should be included. Where profits or losses on sale of assets or other significant costs (such as redundancy or provisions) are included in the Income and Expenditure Account, a note of the amounts and the heading under which they are included should also be given.

Overseas fees

20. An explanation of the impact on institutions of financial difficulties in any non-UK countries should be provided, where this is significant. If applicable, this should include countries in South East Asia - mainly Hong Kong, Indonesia, Malaysia, Singapore and Thailand.

Non-UK students on courses conducted outside the UK

21. Where an institution provides courses for non-UK students which take place outside the UK, a brief commentary describing the activity should be provided. The commentary should indicate: the type of activity; the number of students involved; the annual level of total income, total expenditure and surplus or deficit; assets and liabilities by category; and the level of risks attached, whether in terms of exchange exposure or otherwise. Such activities might be carried out, for example, by distance learning, through franchise arrangements, or through a branch or subsidiary company of the institution. FRS 12 and other financial standards

22. As FRS 12 will apply to financial statements for the year to 31 July 1999, an explanation should be provided of the anticipated impact on the income and expenditure account and balance sheet of the application of the new standard. If the application of any other new standards is likely to have a significant impact on the 1998-99 financial statements, an explanation should also be provided.

Net liquidity

23. An explanation should be provided if there is a significant variance between net liquidity at 31 July 1999, as shown in the 1998 forecast, and the latest estimate of the probable outturn.

Approval of return

24. The return should be approved and signed on Annex C by the Designated Officer of the institution.

Date of submission

25. The return should be submitted by Friday 26 March 1999.

Submission of return

26. The return should include:

• two hard copies of the tables and commentaries
• the completed disk (with files stored in either Lotus 123.WK1 format or Excel Version 5).

27. The return should be submitted to your Finance Adviser at:

Document and disk

28. Copies of this document and disks containing the tables have been sent separately to Directors of Finance. Annex A on the disk contains each institution's forecast data for 1998-99, extracted from the 1998 financial forecasts.

Questions

29. Any questions arising from this request should be addressed to your Finance Adviser:

Annexes

Annex A - Income and expenditure account 1998-1999

Annex B - Net liquidity

Annex C - Guarantees to third parties - as at 28 February 1999

These annexes are available as a Microsoft Excel spreadsheet.