Dr James Doughney, elected academic representative on Victoria University Council and Resources Committee
22 October 2008
1. Introduction
The first point to note is that the redundancy plan (table 1) derives from a secret process. The accounting firm Ernst and Young worked with tight group of senior managers. Excluded from the process were most senior managers (Pro-Vice Chancellor and above) and all Deans and Heads of School.
Similarly, the Resources Committee of University Council was not informed until Friday morning 17 October 2008 that the process was (a) under way and had been for some time or (b) of its magnitude (section 2).
Moreover neither VC Elizabeth Harman nor DVC John Hickman explained that they had brought to account unapproved capital-spending to conjure a cash-position crisis (section 5). This raises serious concerns about contravention of Victoria University policy (POP070803000 Capital Works Projects).
Indicative budgets might model the effects of provisional and investigative projects. However, it is quite a serious breach of process to bring such projects to account for immediate action – i.e. to justify issuing redundancy notices as early as mid November. Note also:
1. Resources Committee did not vote on any budget proposal or the redundancy plan at its meeting of 17 October
2. Resources Committee will not vote on budgets until 28 November
3. Council will not vote on budgets until 8 December
The redundancy plan pre-empts official University decision-making processes. The decision immediately to target an underlying surplus of five per cent of revenue pre-empts official decision-making processes. The official position remains that University officers are obliged to implement the existing budget, namely the Victoria University 2008 Budget.
Table 1
Category Net job losses Notional ‘savings’ in 2010
HE academic staff 150 $16.5 million
General staff 100 $8.5
TAFE 20 now
20 in 2010 $2-$4.0 million
Total 290 $27.0 to $29.0 million
2. Magnitude: largest ever job cuts by an Australian university
For the dollar estimates to correspond to the net job losses, the losses must be full-time equivalent (FTE) jobs. Hence, in percentage terms the losses proposed are:
Table 2
Total 2007 (DEEWR) Total job losses Per cent job losses
HE academic staff 579 150 25.9
General staff 579 100 17.3
Sub total 1,158 250 21.6
TAFE teaching staff 377 40 10.6
Total 2,693 540 20.1
3. Note the term ‘net’ job losses: actual job cuts will be greater
In a document given to VU Resources Committee on 17 October, ‘2008 plan for a sustainable VU’ (see University intranet), the following statement appears:
Net salary savings in HE in the order of $16.5 million through a well designed program of redundancies that is aligned to a focus on courses and units that have market appeal. New staff will be recruited to support courses with strong market appeal and research, and hence savings must reflect a net amount. (p. 5)
4. Summary of VU indicative budgets
As presented to Resources Committee 17 October 2008, the indicative 2009 budgets for discussion may be summarised as below (tables 3 and 4).
Table 3
2007
actual 2008
forecast 2009 2010 2011 2012 2013
Revenue 348,104 372,601 382,433 392,888 416,250 426,329 449,649
Expenses
Employee benefits 215,761 238,801 252,291 262,383 267,532 277,922 289,039
Leave (accrual) 679 1,400 1,456 1,500 1,545 1,591 1,639
Buildings and grounds (capital accrual) 33,213 29,642 32,195 37,577 45,012 45,511 46,027
Other 79,134 88,553 93,292 95,370 98,231 101,178 104,213
Total expenses 328,787 358,396 379,234 396,830 412,320 426,202 440,918
Net operating result 19,317 14,205 3,199 -3,942 3,930 127 8,731
Less capital income 18,738 14,142 18,000 20,000 7,000 7,000
Recurrent position -4,533 -10,943 -21,942 -16,070 -6,873 1,731
The VC and DVC (Capital and Management) state that this ‘indicative budget’ is ‘unworkable’. Their reasons were:
1. General sustainability (a point that the NTEU has been making for some time)
2. Specifically to create surpluses (VU internal funds) to spend on infrastructure
3. Above budget’s impact on cash (related to 2)
Table 4
Current assets
Cash and cash equivalents 91,379 98,527 31,539 -42,470 -58,751 -37,414 -7,472
Other 25,568 23,181 18,836 19,229 19,632 20,042 20,461
Total current assets 116,947 121,708 50,375 -23,241 -39,119 -17,372 12,989
Non current assets
Financial assets 1,867 2,017 2,017 2,017 2,017 2,017 2,017
Property, plant and equipment 567,332 576,542 653,106 724,700 746,482 726,801 707,259
Other 93,055 93,055 93,055 93,075 93,095 93,115 93,136
Total non-current assets 662,254 671,614 748,178 819,792 841,594 821,933 802,412
Total assets 779,201 793,322 798,553 796,551 802,475 804,561 815,401
Current liabilities
Provisions 43,278 43,278 43,278 43,278 43,278 43,278 43,278
Other 22,223 20,745 21,326 21,772 22,227 22,691 23,165
Total current liabilities 65,501 64,023 64,604 65,050 65,505 65,969 66,443
Non-current liabilities
Provisions 97,682 99,082 100,538 102,038 103,582 105,173 106,812
Other 70 64 58 52 46 40 34
Total non-current liabilities 97,752 99,146 100,596 102,090 103,628 105,213 106,846
Total liabilities 163,253 163,169 165,200 167,140 169,133 171,182 173,289
Net assets 615,948 630,153 633,353 629,411 633,342 633,379 642,112
Change in net assets (operating result) 14,205 3,200 -3,942 3,931 37 8,733
The emphasis was and remains on items 2 and 3. This is what presumably explains the urgency and, until 17 October, the secrecy. The VC’s email to staff confirms this view:
While the University has been consistently returning a surplus each year, we need to rebalance our budget to find an additional $30m or thereabouts in 2009 if we are going to have the means to invest in new facilities, infrastructure and services to meet the growth demands of the western region of Melbourne. (Harman, 17 October 2008)
5. VU capital budget and infrastructure plans
By not explaining that they had included unapproved capital projects in their calculations, the VC and DVC misled Resources Committee on 17 October. Data in the fine print of the indicative budget, however, exposes the pea and thimble trick in two ways. The indicative budget:
1. Brings into the accounts capital spending projects that have not been through the approval process that University Council stipulates
2. Brings forward to 2009 capital expenditures that had been approved for later years
The effect is to manufacture a ‘cash-position crisis’. The following table makes this clear. Note that the shaded cell (approximately $28.5 million) is close to the amount of savings via redundancy proposed for 2010 (see table 1 above).
Table 5
2008 2009 2010 2011
Total projects brought into indicative budget 1 25,038 91,966 97,658 43,850
Total approved projects (A-list) 2 22,338 64,198 54,203 2,250
Total unapproved/brought forward projects added into the accounts (P- and I-list) 1-2
3 2,700 27,768 43,455 41,600
Specific government funding of unapproved projects 4 300 7,900 15,000 20,000
Internal VU funding of unapproved projects 3-4
5 2,400 19,868 28,455 21,600
Note also that, if we take the unapproved capital projects out of the indicative budget, we arrive at a similar 2010 cash position to that suggested by management in its power point presentations re the redundancies (table 6).
Table 6
$000
Cash reserves in indicative budget for 2010 -42,470
Unapproved capital spending projects 28,455
Cash reserves in indicative budget for 2010 without unapproved capital spending projects -14,015
$m
Salary savings from redundancy proposed in management documents 27.0
Indicative budget cash position 2010 -42.5
Revised budget cash position 2010 -15.5
It is important to emphasise that only A-list projects have ‘approved’ status. I-list projects are merely under investigation. P-list projects have provisional approval. However, provisional approval has a very specific meaning. It is contained in the following policy statement:
From time to time, but at least annually, management will present to Council, through the Resources Committee a draft List P for endorsement. In most cases, these submissions to Resources Committee and Council will include a request for funding approval sufficient to undertake a detailed feasibility study which will test the project business case and provide accurate cost estimates. The feasibility study will provide the information necessary to support a future List A submission. (POP070803000 Capital Works Projects, 6.2)
In plain English P-list projects have not passed the ‘feasibility study’, ‘project business case’ and ‘accurate cost estimate’ requirements Resources Committee and Council insists upon. They are not approved projects but are merely provisional.
In the light of this University’s notorious fraud cases, such rigorous procedures are essential.
Meanwhile, it is reasonable to conclude that management have conceived the redundancies to fund an immediate (2010) but manufactured cash ‘crisis’. Beyond 2009-10 they will fund ongoing capital programmes through internal VU cash contributions. This is the meaning of management’s proposal that the University immediately generate a five per cent underlying surplus.
6. Accountability
It is important for accountability, my own included, to note the following extract that will be included in the minutes of the 17 October Resources Committee meeting:
Dr J Doughney noted that the proposed staff cuts constitute the largest in the sector in Australian history, and advised that the University should institute an immediate employment freeze and halt progress of hubbing and campus change plans. Dr Doughney expressed the view that Council, Resources Committee and senior management should take responsibility for the magnitude of the financial situation and that the executive management of the University should resign.
Having now had more time to analyse the indicative budget discussed at the 17 October meeting, I must add to this view the following points:
1. I feel that I have been misled in discharging my duties on Resources Committee (i.e. regarding accounting for unapproved capital projects)
2. I believe that the capital-spending plans of the University need urgent review
3. I have no confidence in any internal review, and hence I urge review by an independent external authority.
7. Conclusion
Item 3 immediately above must be seen in a much more worrying context. The University’s proposed hubbing and campus planning changes are not yet in the accounts. Roughly speaking, these project additional building costs for the University to 2016 of:
• $427 million if our current student load does not increase to 2016
• $830 million with a ‘modest’ increase in load
• $1.25 billion with a ‘medium’ load increase
Campus planning decisions (e.g. closing Sunbury and Melton) arise contingently (but not necessarily) from hubbing. ‘Hubbing’ is the term for bringing like courses and activities together in key locations. Hubbing arises contingently from Making VU plans (e.g. clusters etc.). The full implications of decisions about Making VU, hubbing and campus planning are unknown (at least, with satisfactory rigour).
What we do know is that hubbing, closing campuses and relocating load creates additional costs (e.g. the need for more buildings). Regardless of the merits or otherwise of concentrating our efforts, it is obvious that costs such as those above would require:
1. Impossibly large expenditures for VU alone
2. Massive federal and state funding
3. Federal and state funding plus injections of VU surpluses and debt
Given the likelihood that 3 is the most probable scenario – though we still have no commitments from government at all – it is reasonable to conclude that management is playing a high-cost, high-risk game with the future of the University.
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