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The financially-plagued University of the West Indies

Students gather outside the Mona Campus library of the University of the West Indies in Jamaica

There is clear evidence that the University of the West Indies is facing severe financial challenges.

This is one of the highlights in the report about the region’s premier university by the Sir Dennis Byron committee that was mandated to look into the affairs of the premier learning institution in the Caribbean.

The report that was obtained by THE NEW TODAY said “there is significant risk to the future sustainability of The UWI” and “it would appear that the University has had an overextension of commitment beyond its means”.

The committee said in its report: “While the observed deficits are directly related to challenges with the current funding model (how The UWI gets its income), it is also related to the effectiveness of the operations and financial management of the University (how The UWI spends its money)”.

It went on: “These two critical components need to be addressed holistically to ensure that The UWI can survive to deliver on its mandate of providing tertiary education to the people of the region for the foreseeable future”.

As a public service, THE NEW TODAY highlights some of the far-reaching observations made by Sir Dennis and his group:

Meetings
Currently, there are no specific times set for meetings of the Senate: they are called at the instance of the Vice-Chancellor or at the written request of not less than one third of the members, of whom at least one must be from each Campus.

If the Senate were revitalised and new functions assigned, as proposed, the Commission recommends that fixed dates should be set in the University’s calendar for at least two meetings of Senate in each year.

The meetings should be scheduled for a time between meetings of the Council taking into account the scheduled meetings of BUS, BGSR and the Academic Boards, so as to give these bodies time to assemble key issues for discussion in the Senate.

Set meeting times would provide a more structured context in which the Senate could exercise its residual powers and perform the new co-ordinating role which the Commission has proposed.

One or both meetings could be held virtually. The Commission noted with interest that in its 2006 Report (at p 40) the Chancellor’s Commission on Governance had recommended that meetings of the Senate should be held to deal with those matters that were not delegated, pointing out that the membership of the Senate had been significantly reduced and that with electronic meeting being expressly permitted, the meetings of Senate would not have significant cost implications.

Relationship between the Senate and the ECCs
In the proposed restructured arrangement, the statutory relationship between the proposed revitalised Senate and the Council would remain the same.

It is proposed that there should be close linkage between the Senate and the University ECC as well as the campus Academic Boards and Campus ECCs. The Senate should have clear statutory authority to engage with these bodies:

(a) to review financing of programmes and other ventures of strategic importance;

(b) to undertake academic programmatic changes needed to achieve reductions in expenditure to address the University’s fiscal crisis as well as other matters determined to be of common interest for sustainability and growth of the University.

Membership of Academic Boards
The powers of the Academic Boards are outlined in Statute 27, and its membership, meeting frequency and functions are set out in Ordinance 28.

In addition to the Vice-Chancellor (or his/her representative), the Board includes the Campus Principal (Chair) and Deputy Campus Principal, all Deans, all Directors of Schools, Heads of Departments, all Professors, Campus Librarian, Campus Coordinator of Graduate Studies and many others.

The University Audit Management Department pointed out that the membership of the Academic Board on one campus exceeded a hundred persons and that there was a very high degree of absenteeism.

The Commission recommends that there should be a thorough review of the membership of the Academic Boards which, while ensuring representation of key groups, should seek to limit the total number of members to no more than 30.

The Commission suggests that this review should be undertaken by a reconstituted Senate which would make recommendations to the Council with respect to the amendment of Ordinance 28.

Global Partnerships
The Commission looked with favour at efforts to expand and strengthen global partnerships with other universities and like bodies. It recognised that, while such partnerships have been beneficial for the University, there was the possibility that some could pose reputational, academic or financial risks.

In addition, there may be instances where some partnerships have outlived their value to the University and should be discontinued. It is on this basis that the Commission recommends that the framework for forming and monitoring major global partnerships be subject to review by the ECC, in collaboration with the Senate, and strengthened, if necessary.

The framework would require review and interrogation of plans to form such partnerships in order to assess value and potential risks prior to approval. In addition, there should be a system of on-going review and periodic reporting on these arrangements.

Meeting Logistics
A concern that may arise with respect to the number of “new committees” proposed and an expanded role for the Senate, is that there will be an increase in the requirement for cross-campus meetings and, as a consequence, an increase in the cost of travel and use of time for travel.

However, many such meetings can be held utilising the relatively robust UWI internet conferencing facilities which have been advanced even more during the COVID pandemic.

The Commission recommends that in the restructured arrangement, as a matter of course, at least one of the meetings of the Council, University ECC, the proposed Advisory Committees , BUS, BGSR and Appointments Committee of the Council should be conducted by video conferencing with face‐to-face meetings held once per year if deemed appropriate – currently a practice of some regional organisations.

Financial Sustainability
Current Financial Model and Position

The current funding model for UWI is a cost‐sharing model in which the economic costs of teaching are shared between students (20%) and regional governments (80%) (Council Minutes, April 2014).

Further, the 1982 Report of the Sub-Committee of the Committee of Council on UWI Restructuring made clear that the “teaching cost would be recovered on the basis of the economic cost per student in the particular faculty on the campus.”

In some instances, the governments also cover the 20% student portion through various grant and other programmes. To supplement this funding, the three larger physical campuses (Mona, St. Augustine, Cave Hill) have initiated commercial activities and projects to earn additional revenues.

UWI currently gets income from the following main sources:

(a) Government contributions including 80% of the economic cost of UGC-approved programmes, and support provided for capital projects and special initiatives

(b) Tuition fees – 20% of the economic cost of UGC-approved programmes, and 100% of the cost of other programmes.

(c) Commercial activities

(d) Special Project income

(e) Income from Other projects

(f) Miscellaneous income

Summary Financial Position
For the FY 2018/19, revenues were BDS$925.8 million and expenditure was BDS$1017.3 million, resulting in an overall operating deficit of BDS$91.5 million. This is the latest iteration of structural deficits which have been recurring annually since 2015.

(Prior to 2015, the financial position fluctuated between deficit and surplus). As a result of these deficits, there is erosion in the equity position, which stood at BDS$284.8 Million at July 2019, reflecting a decline of 28% from July 2018.

Financial Challenges

The challenges of financial sustainability faced by The UWI are outlined below:

(a) The continued inability of the key contributors – regional governments – to honour their obligations under the current 80:20 funding model has created a build‐up in receivables and significant liquidity risk for the institution.

As at November 30, 2019, the receivables from the governments stood at BD$133.9M. Due to fiscal constraints in the various contributing countries, some Governments are now adopting ‘block funding’, where they contribute set amounts, which are lower than the calculated 80%.

To date, the shortfall from funding via commitments vs the 80:20 model is US$367M (BD$734M).

(b) Impairment charges on receivables has negatively impacted the operating results and balance sheets of The UWI over the years. In FY 2018, the impairment expense was BD$113M, due primarily to the write-off of BD$102M of the receivables from the Government of Barbados under their debt restructuring programme. In FY 2019 the impairment charge was BD$17.7M.

(c) Increasing student receivables negatively impacting cash flow and impairment expenses

(d) Operating Expenses continue to outpace revenues, resulting in a structural deficit that needs to be addressed.

(e) UWI has a growing deficit related to the unfunded Employee benefit obligation (including pension liability). This deficit, which stood at BD$452 Million as at July 2019, can have a significant impact on solvency and therefore needs to be resolved.

The UWI has been in discussion with the governments of the contributing countries regarding alternative strategies to resolve this issue.

Specifically, consideration has been given to the establishment of a Working Group, in conjunction with WIGUT (Jamaica) and the Government of Jamaica (GOJ) to review all aspects of the pension supplementation liability which is the major component of the UWI’s Employee benefits obligation.

The Working Group is to determine the most effective method to meet The UWI Mona Campus’ pension supplementation obligation. In addition, measures are under consideration to reduce the liability, such as changing the formula and increasing retirement age.

Reduction in benefits, however, is always challenging as this will require the support of employees.

(f) The target financial metrics for financial health of a University are not being met. A Composite Financial Index (CFI) score of positive 3 is considered the minimum benchmark point, which is indicative of a financially healthy university.

The ATTAIN Report (2015) highlighted the downward trend in The UWI’s CFI, a negative trend which has progressed through to 2019 to a negative value, well below the target score.

The CFI is determined through four critical ratios (primary reserve ratio, net operating revenues ratio, return on net assets ratio, and viability ratio).

The index reflects high level financial decisions for management of the university’s financial position directly related to its (i) sufficiency and flexibility, (ii) ability to live within its means, (iii) sufficient return on net assets, and (iv) strategic management of debt.

Based on the trending of the CFI score, The UWI appears to be heading towards financial exigency, which calls for rigorous restructuring in all segments of the institution to reduce operating costs, while pursuing feasible means of increasing revenues.

The trending suggests that institutional reengineering, substantive programmatic adjustments, and a structured cash conservation programme, in combination, are now probably all due.

Contextual Conclusions
In summary, based on the UWI’s consolidated accounts, and trends in structural deficits, there is significant risk to the future sustainability of The UWI. Also, based on the downward trend of the CFI score between the years 2015 to 2019, and the Commission’s understanding of new programmes, projects, and human capital increases in which the University has engaged over this said period, it would appear that the University has had an overextension of commitment beyond its means.

While the observed deficits are directly related to challenges with the current funding model (how The UWI gets its income), it is also related to the effectiveness of the operations and financial management of the University (how The UWI spends its money).

These two critical components need to be addressed holistically to ensure that The UWI can survive to deliver on its mandate of providing tertiary education to the people of the region for the foreseeable future.

The Commission therefore recommends with urgency:

(a) A revision of financial management oversight and processes to ensure visible, transparent and effective use of resources and accountability

(b) Improved analysis and utilisation of data and trending to mitigate reporting risk, and to clearly identify risks and opportunities to be addressed so as to inform decision‐making of all academic and administrative cost centres at the Vice Chancellery and at campus levels

(c) Developing and implementing a more sustainable funding model.

Towards A New Financial Operating Environment
If institutions don’t continuously assess their portfolio of business processes, identify duplicative activities or inefficiencies, or ensure each business function supports the institution’s broader strategy, they could find themselves unable to deliver on their academic mission.

How business processes are designed and executed drives resource allocation, staffing, and management oversight. If processes are inadequate, the institution may experience financial strain in an environment already facing revenue declines, increased operating costs, and shrinking budgets. Colleges and universities should balance revenue with operating costs, including faculty, staff, utilities, and facilities.

Visible, Transparent, and Effective use of resources for Educational Gains
The Commission recognises the imperative need for tangible and visible measurements of gains to be traceable across all areas to which the University’s scarce resources are allocated. In this regard, it will be critical to enhance the quality of the University’s financial reporting to maximise performance and accountability within all areas of its established mandate, namely, teaching and learning, research and innovation, and public service.

Further, the Commission is well aware of the impact that The UWI’s graduates have had in advancing the Caribbean economies. However, given the economic environment in which all sectors compete for funding, governments and individuals will want best value for money.

In this regard, the way in which the University allocates and expends financial resources to achieve desired goals must be subject to sound governance processes. These processes must be built within a robust system of reviews, controls reporting, sanctions and incentives that will ensure optimal use of the University’s resources.

Current Governance Gaps – Financial Management
“The governing body ensures institutional sustainability by working with the Executive to set the institutional mission and strategy. In addition, it needs to be assured that appropriate steps are being taken to deliver them and that there are effective systems of control and risk management.”

The challenges with various aspects of the University’s corporate governance system that appear to undermine the proper execution of governance responsibilities generally are outlined in Section 6. Outlined below are specific governance gaps that relate to financial management, which exacerbate the weak financial health of The UWI:

(a) The University’s Strategic Plan is a critical tool to drive its mission. The Commission has noted that the 2017-2022 Strategic Plan appears to push for expansion beyond the means of the University, despite its declining financial health. The continuing deterioration of the University’s financial health does not appear to have influenced adjustments to the ongoing Strategic Plan. Strategy needs robust coherent goals with adequate resources, follow-up and corrective actions and Council’s oversight role is critical here. The gaps in the existing governance structure (infrequency of Council meetings, ill‐structured meeting agendas, inadequate scrutiny and discussion of issues, inadequate reporting, and insufficient independent oversight) do not allow the Council to effectively oversee Executive leadership and hold them accountable for performance and sustainability of the strategic plan.

(b) Delay in responding effectively to deteriorating financial metrics in a proactive manner, particularly on the expense management side, over the last few years. The University has now sought to manage this by several measures such as freeze on salary increases and hiring, and across-the-board budget cuts.

However, there has been reluctance to execute larger impact cost-cutting measures, such as head-count reduction and eliminating under-subscribed courses/programmes. Significant recommendations were made in the ATTAIN report for cost-reduction. Yet, five years later, most of the efficiency improvement measures have not been implemented. (Note that the tension on cost-reduction has increased significantly since the onset of the Covid-19 Pandemic).

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