implementation of full costing in sweden john fürstenbach eua workshop may 13 2011 warszawa from...
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Implementation of full costing in
Sweden
John Fürstenbach
EUA Workshop May 13 2011
Warszawa
From contributions to administrationto
to full cost accounting
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The Swedish scene
• 1960’s10 higher education and research institutions
≈ 5 major national external funding bodies
A few public research institutes affiliated to universities
• 201038 public higher education institutions, whereof≈13 universities≈ 5 HEI’s do postgraduate teaching
Competitive funding is national, European and international has increased significantly (4x?)
Almost no independent research institutes
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External funding in Sweden
• Basic doctrine:Government funded research should be done at universities- NOT in research institutes independent from universities
• Funding for research comes as
• Government allocations to institutions
• European grants and contracts (ERC; FP7 etc)
• National research council grants
• National research foundation contracts
• Private corporation contracts
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Swedish funding• Before 1975
Line budgets per faculty
• 1975Lump sum budgets per faculty split between research and undergraduate teaching (excluding costs for space, facilities and equipment)
• 1993Lump sum budgets per institution split between research and undergraduate teaching (excluding costs for space and facilities)
• 1994Space and facilities included in lump sum budgets
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The problem of “external” funding
• External funding = money not allocated directly by Government
• The full costs are always covered- the only question is: By whom?
• Less than full cost compensation on external funding is in fact a subsidy from Government funded activities towards externally funded activities, e.g. research projects
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To Recover Costs
• The 1960’s
• 2 % of grant to contribute to admin (personnel and payments) costs
• The 1970’s
• 3 % of grant to contribute to these admin costs
• 1982 Full cost recovery with exceptions:Research councils 3%Government agencies 5%Space only if added area was necessary
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Full cost recovery 1986 • Memo to the Ministry of Education and
ScienceWhy? What for? How much?
• Why?Comparison to a consultancy firm!
• What for?The institutional infrastructure (management, expert support, library, quality control, equipment and marketing)
Admin support etc in the academic department
Admin support on central levels
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How much?• Analysed by function (to overcome differences in
organisation) in 10 universities (excl. space)
• Relevance to research? (Study counselling etc left out)
% of total budget Max Min Average
Central Admin 5.6 2.9 3.6
Central services 2.3 4.4 3.1
Indirect personnel 1.5 4.3 2.5
Library 1.7 4.3 2.5
Total per university
17.5 9.7 11.8
+ in departments 15.0 5.0 ?
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Space and facilities
• 1994 Government decisions
• Space and facilities are included in lump-sum allocations
• This should be reflected in increased indirect cost compensation from external funding.
• Refusal from foundations (and other Ministries!!)
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Co - funding projects
Direct
Indirect
Not externally
funded
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Continued Conflict
• A two-front war for University managers
Funding bodies
University Management
Researchers
• The conflict had two components:1. Why pay for resources already there?2. We do not know how much that is!
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Conflict resolution?
• The Association of Swedish Higher Education (former Swedish Rector’s Conference) and
• some Research funders
• set up a joint working group
• Result 35 per cent indirect cost rate
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Almost accepted.....
• Riksbankens Jubileumsfond (funding humanities and social science projects) questioned and refused to accept the level (but eventually the principle)
• Auditors criticised how external funding was accounted for
• Created a need for new budgeting and accounting standards
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New (old) accounting principles• Principles used in manufacturing industry since the
1940’s
• Basically three dimensions:
• TYPE OF COSTWHAT kind of cost? E.g. Salaries, material, depreciation(also structure of the published accounts)
• COST CENTREWHERE is the cost incurred?
• COST UNITWHO (what product) is to bear the cost?
• The fourth dimension (a Swedish speciality since 1975)
• 1st and 2nd cycle teaching or research / 3rd cycle teaching
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10
15
15
15
15
10
30
Dpt 7: 40
5
10
5
5
55
5Salaries:15
Depreciation: 30
Expenses: 30
Dpt 5: 35
Course A: 5
Course C: 5
Course E: 35Course F: 5
Course D: 10
Course B: 15
Where
What
Who
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Cost allocation• Direct costs
are allocated directly to activities/projects (cost units)
• Indirect Costs
• The relevance of functions/costs to research and teaching respectively are observed
• Central university costs are allocated to faculties
• Faculty costs (incl. its part of central costs) are allocated to departments (cost centres)
• Department costs are allocated to activities/projects
• Total project cost= direct + proportion of indirect (Central + faculty + dept.) costs
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Implementation
• Model developed by a group of finance officers after the auditors reports in 2005
• Supported by the The Association of Swedish Higher Education, recommendation to be used in 2007
• National information material and workshops for institutional project leaders
• Peer-to-peer learning and development
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Full cost accounting
• Prescribed by government and audited
• Allocation base is direct salaries or direct costs
• Indirect costs are identified in prescribed cost centres(which doesn’t necessarily imply a uniform organisation)
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Full cost budgeting
• Higher precision in budgeting for indirect costs
• Which also implies more precise decisions on the internal distribution of government allocations
• Charged indirect cost rates are based on latest available data
• Eventually a ”normal year” may be defined
• Discrepancies will be analysed in terms of- variation from budget volume- variation from budget cost
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The end of the beginning?