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Action to clawback funding

Following the findings of its review into the payments made by a university to a former Principal, the Scottish Funding Council (SFC) has imposed a number of conditions on the institution including the clawback of funding and a requirement to undertake an externally-facilitated review of its governance. The case illustrates the importance of governing bodies being aware of, and ensuring, that the conditions attached to the receipt of public funding are fulfilled.

The Scottish Funding Council (SFC) has published a letter to the current Principal and Vice-Chancellor setting out its findings and actions, alongside its review of the “payment to the former Principal of the University of Aberdeen”.

The reasons for the review

The review by the SFC arose because “the Financial Statements did appear to accord with our understanding of the Principal’s retirement and we were not satisfied with the University’s response to our initial enquiries”.

The expectations placed on Scottish universities in receipt of public funding

In detailing its expectations of universities in receipt of public funding, the SFC highlights that institutions are expected to meet the terms and conditions of the funding, including, for example, those detailed in the Funding Memorandum (which includes compliance with the relevant Scottish Code of Good Higher Education Governance) and, at the time, the Accounts Direction for Scottish Universities 2017-18. Universities needed to be able to evidence, for example:

  • The best use of public funds
  • Value-for-money
  • The exercise of good governance.

In conducting its review the SFC “focused on the University and the way in which policies and procedures were followed, rather than on any particular individual”.

Sanctions available to the SFC

If a university in receipt of public funding is judged not to meet the conditions of funding then SFC has the power to clawback grant or reduce future funding.

The findings of SFC’s review

The SFC’s review identifies a number of short-comings to the policies and procedures followed by the University. These include:

  • The University incurred the cost of two Principals over the 2018-19 financial year.
  • Over the 2017-18 financial year, the Principal received his full salary while having fewer duties and responsibilities than those constituting the full role of Principal
  • The approval of a settlement agreement with the former Principal, without any documented assessment of the value-for-money, and an indication that alternative options could have improved value-for-money
  • Issues concerning the conduct of the Remuneration Committee
  • The University Court (the governing body) did not receive sufficient information to be assured that due process had been carried out
  • A failure to fully consider or meet the requirements of the SFC’s Financial Memorandum in relation to severance payments
  • The lack of proper procedures to authorise the payment of “outplacement support”, or to disclosure the payment in the 2017-18 financial statements.

The actions agreed by the Board of the SFC

Following the findings of the review the University is:

  • Notified that it breached the requirements of the Financial Memorandum
  • Required to undertake an externally-facilitated review of its governance procedures and cultures, and to provide assurance to the SFC about the actions and outcomes resulting from the review
  • Required to repay a grant of £119,000. This sum being determined by taking the total payments examined by the review (£349,000), multiplied by the proportion of total University income in 2017-18 represented by SFC funding (34%).

Conclusion

The findings of the review and the actions taken by the SFC highlight the importance of universities paying sufficient attention to the conditions of funding placed on them, and having in place, and following, appropriate policies and procedures.

Governors and governance professionals may wish to consider what policies and processes they would follow should a settlement agreement involving their head of institution be required.

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