Expenses and Discretionary Accounts: Changes explained

The review of the Policy was driven by two factors. First, in February 2015 KPMG, our Internal Auditors, reviewed the operation of the expenses policy. They made a number of recommendations, one of which was that the policy should be reviewed to reflect current best practice. Second, the merger with the IOE meant that we had two sets of expenses policies, which we needed to harmonise.

As part of the review we looked at the policies for the University of Oxford, University of Cambridge, Imperial College London, King's College London, LSE, the NHS and HEFCE. While there was some variation, all of the policies were remarkably similar in relation to limits, authorisation processes, and the definitions of what can be claimed. This is not particularly surprising, as we are all operating within the same tax laws and HMRC guidelines.

The review was presented to the UCL Senior Management Team to decide on implementation. In the event, only a small number of amendments to the current policy were made. These focused on bringing the IOE policy into line and on making some changes to the wording of the policy to clarify the position on professional subscriptions and on staff entertaining and staff social functions, where the old wording was somewhat contradictory.

While the UCL policy has not changed substantially, reissuing it has clearly raised a number of questions from staff, and based on feedback, we will now be revising the wording to reflect the expectation that those authorising expense claims should take the limits seriously but should also exercise sensible discretion.

There was never any intention that the policy should prescribe absolute limits in all cases, and we will amend the introductory sections of the policy to make that clear. One other point which remained unchanged from the old policy, but which we will update on re-issue, is the time limit before refreshments can be provided at meetings, which is clearly not appropriate.

Discretionary Accounts

I have also received some questions about the use of discretionary funds.

To provide further context to the enquiries that have been raised - prior to 2009, UCL's primary financial objective was to break even. Historically, HEFCE had provided periodic capital grants to universities as well as annual revenue grants, and UCL had not, in general, sought to supplement those by generating funds of its own. Capital grants of this nature were then phased out, leaving UCL with significant challenges in bringing the UCL estate up to an acceptable standard. In response to the change in funding environment, UCL adopted a surplus target of 2%, which was delivered in 2009/10.

It quickly became apparent that this was insufficient, in view of the need for capital investment, and the virtual cessation of capital grants by this point, and so we adopted the current financial strategy, with the target of reaching a 5% surplus over four years. You can read more about this process in the Provost's View on university finances.

While 5% is an achievable target, it is a significant change for UCL, and especially in a context where margins are tight. Achieving progress has required budget holders to look very carefully at both income and expenditure. This has meant that regimes of monitoring and control that were previously relatively relaxed have had to be tightened up. This has had an impact on all areas of activity, including on discretionary accounts. As the scale of discretionary accounts varies significantly across UCL, so does the impact of this change, with the effects being felt most in the UCL School of Life & Medical Sciences, where the current balances in this type of account total around £59 million.

Most, if not all, UK universities have arrangements for discretionary accounts. These accounts enable staff to give earnings gained from consultancy, private patient work, prizes and donations to UCL, as well as other income that is deemed to be outside the contract of employment. The income is exempt from tax, and it is used to support the activities of the member of staff and members of their group.

Examples of these activities include paying for conference attendance, providing bridging funds for research staff in a group who are paid from grants to avoid redundancy and tide them over between one grant and another and supporting PhD students. These are clearly useful and appropriate purposes and it is in the interests of UCL as well as the individual staff that they should put funds into these accounts. In order to incentivise this behaviour there is an understanding that, while the funds belong to UCL, they will be ring-fenced for the use of the member of staff.

The way in which these funds are managed varies across UCL. For example, in the IOE there is a pooled fund at departmental level with established mechanisms for budgeting spend. This process works well.

Historically UCL has had a relaxed approach to discretionary funds, and neither income nor spending has been budgeted for. This has had to change. Setting aside the surplus target outlined above, we currently have discretionary accounts overdrawn to the tune of £4.5 million in the UCL School of Life & Medical Sciences, so the case for greater control is absolutely clear. What has now changed is that in order to achieve their surplus targets, faculties can now refuse to allow spending from discretionary accounts in a given year in some cases.

I should emphasise that we have not frozen discretionary accounts, nor do we have any plans to do so. I understand of course that even the relatively light touch of extra control that we need is not welcome news. We are probably at the most challenging point of the process, where we are facing year-on-year increases in the target surplus, without yet seeing much of the benefit that will flow from investment in the estate.

The process of moving to a 5% surplus is being phased in over four years, and we are only in the second year. I would hope that once we have achieved the target for sustainability, the pressure to control spending may ease, although we will still require budgeting for spend from discretionary accounts.

SMT discussed the issue at its meeting on Wednesday. We are fully committed to achieving the surplus target and the actions required to do so. It was agreed, however, that we need to redouble efforts to ensure that a clear explanation of what is happening and why is communicated more widely throughout UCL, and as part of that process the Provost asked me to provide this note for staff.

Rex Knight

Vice-Provost (Operations)

January 2016