Down The Drain: Financial Mismanagement at Sydney University

Financial mismanagement, shady contracts, and executive salaries led to the purging of academic staff, reports Madeleine King.

When 100 academic staff were offered controversial redundancies earlier this year, we were told it was a financial necessity. International student enrolments were down, says the Final Change Plan, and subsequent blow-outs to the budget meant change had to come.

True though that may have been, it was only a contributing factor to the university’s monetary woes. Mismanagement, poor planning, alleged corruption, and general underfunding have combined to tip the ledger into the red and force the ultimate sacrifice: teachers.

Now, we find ourselves at an impasse. The university argues that there is legitimate financial need for the cuts to teaching and general staff. But the path that has led it there has been more contentious. The university’s hands haven’t always been tied to a painful fiscal squeeze. But during the good times, it hadn’t been using its finances effectively.

A former Director of Finance at the university spoke to Honi Soit for this article, on condition of anonymity. Oscar* says there is still money coming in, but we just aren’t using it effectively.

“They’ve overcooked their revenue figures,” he says.

“They’ve got to find $40 million worth of yearly interest [from the NAB loan] they’ve never had before.” It is an interest repayment, Oscar adds, that is unprecedented in the university’s history: difficult at a time of huge construction projects, ongoing maintenance problems, and declining revenue from traditionally reliable sources.

Sometimes we need a reminder: the University of Sydney is first and foremost a business. It is easily forgettable thanks to the beauty of HECS, but this staid institution is a merchant of education, not a free utopia of knowledge and learning but part of the greater neoliberal trend of tertiary schooling.

As they say, it is money that makes the world go ‘round, and it is just as true here as anywhere else.

But the money we have is leaking from the university’s vast hold.

The 2011 NSW Audit Office’s Report notes that at the end of 2010, the university could not provide information about the number of contractors it had hired, or the period of time for which they were employed.

“This may result in additional costs for the university”, the report continued, without the proper alert system to signal when a contractor’s service had been extended or a certain payment threshold had been reached.

For a number of years up until 2010, this lack of oversight saw Todd Demiralay in the university’s IT department allegedly secure hundreds of thousands of dollars worth of services for an IT company, Sucurro. Mr Demiralay’s wife worked as secretary and director of the company in which the couple jointly held 50 per cent of shares in trust until the time of his dismissal.

As Assisting Counsel Jeremy Morris noted in legal proceedings, because there was no formal contract between Succuro and the university, “nobody could pick up on extraordinary growth in use of Succuro in dollar terms or Mr Demiralay’s connection with the company.”

The case is the subject of the ongoing Independent Commission Against Corruption (ICAC) enquiry, ‘Operation Citrus’, with the final report yet to be handed down.

It comes on top of another ICAC enquiry in 2010, ‘Operation Kanda’, into a similar misuse of cleaning services. Together the two have cost the university $1.8 million, according to the 2012 NSW Audit Office’s Report.

The amount is but a drop in the ocean of the university’s financial income and expenditures.

Of course, there is significant logistical and financial difficulty in keeping track of the 30,000 suppliers the university uses, and their external affiliations.

But Chief Financial Officer (CFO) of the university, Mark Easson, acknowledges the finance department has been remiss.

“We are looking at quite a number of procedural improvements to see if we can get this right,” he says. This including recommendations from ICAC.

When the cuts started, the big expenditures were the first in the firing line. That means staff.

Staff costs are the university’s single biggest cost item, taking up 65 per cent of total revenue. “It’s the obvious one they attack first,” Oscar, says.

But does he think there would be enough money to keep the staff had there been better financial management?

“Oh, without a doubt.”

“The big reasons behind the staff cuts are poor budgeting,” he says.

It’s not the easiest pill to swallow for students and staff directly affected by the university’s axe.  Easson, however, stands by the decision as a necessary one.

“Not everyone agrees with every decision we make,” he says.

“But there’s a balance that has to be reached, because there’s not quite enough money as we’d like to run the university, so there have to be some compromises.”

To what extent, though, are those compromises necessary? Students, the university’s financial shareholders, of a kind, deserve information about its financial operations.

Easson believes the university is “financially healthy”, with $3.8 billion worth of assets and, according to NSW Audit Office’s Report for 2012, a surplus of $88.5 million. They took a hit during the GFC but have remained, on the surface, stable – only experiencing short-term losses and not enough, seemingly, to warrant dramatic reductions in staff.

This blow is softened, some might say, by a host of financial imperatives: construction, maintenance, services bills, wages, and loan repayments.

“We try to do [as best] as we possibly can, but the issue is always that staff costs are 65 per cent of our cost structure,” Easson says.

“Any sort of significant change in our cost structure does mean that you have to consider staff,” he says. “It’s a difficult process.”

Easson cites the “competitive pressures” of declining international student numbers coupled with domestic students dropping down to part-time loads and taking less units of study than predicted. The result has been a massive gap between budgeted revenue income in the 2011-2015 Strategic Plan and actual revenue collected to date.

According to Easson, a range of other issues have added their weight to the budgetary black hole. For better or worse, the university – through its Senate, Finance and Audit Committee, Senior Executive Group, and various associated boards – decided that improved infrastructure enhances the educational experience:

“We think better facilities will make the quality of learning much better all over the campus, if the facilities are designed for collaboration,” says Easson.

So we’ve seen the proliferation of new ‘learning hubs’, informal learning spaces, and computer labs – all from a capital works budget totalling $384 million.

It’s an impressive amount, and with an added $500 million loan from the National Australia Bank expected at the end of the year, one wonders whether a small portion of this could have been used to alleviate the need for cuts to staff.

Unfortunately, once allocated to long-term projects like the Charles Perkins Centre (estimated cost: $384 million), the Sydney Student System (a new IT system – estimated cost: $56.5million), and backlogged maintenance (estimated cost: $370 million)**, the money – accumulated from surplus, loans and philanthropic or government grants – cannot be diverted.

While the university can receive up to $500 million from the federal government annually (in 2011, close to $700 million**), Easson says that is on condition of operating efficiently. With its financial hands tied by the lack of surplus profits from an annual $1.6 billion revenue, the university won’t meet its mandates as a capital-generating business without trimming somewhere.

Yet behind the operational efficiency lies a vast network of committees, departments, boards, and executives through which decisions must be passed.

The Vice-Chancellor retains the authority to approve university financial and infrastructure policy, but decisions such as approving budgets, allocating money, and approving capital expenditure go through the Senate or its Finance and Audit Committee (FAC)***.

Bogged down by the political machinations of each institution and consultation requirements, the process becomes much slower. “It makes it harder for you to react and to drive policies,” says Oscar.

This lack of strong mandate from the centre has allowed other problems to crop up such as the accrual of excessive amounts of leave for staff. It has forced the university to keep cordoning off funds into emergency accounts in case it has to make a large number of leave payments at one given time. Rather than having a ‘pay as you go’ system, the current ‘fully-funded’ style means money sits in waiting, tied up until staff either take their leave or end employment.

Behemoths of capital works like the Charles Perkins Centre and the Sydney Student System are also soaking up money, blowing out beyond their planned budgets.

Easson says the Student System is correctly budgeted now, but it’s been a while coming. It wasn’t until last year that they were able to update the forecast from $49 million to $56.5 million, with the realisation that much more would have to be spent in actually training the staff in the system’s back end.

Oscar, however, says that in the early stages of budgeting, the cost could have been as low as $10 million.

Easson admits the $500 million loan for the Charles Perkins Centre will accrue a massive $25 million in yearly interest repayments. While short of the figure Oscar cited, it is nevertheless a significant portion to be claimed from annual surpluses. The loan may need to be dipped into as early as this year, when funds from government grants run out.

Staff wages make up 65 per cent of total expenditure, but this includes the largest wages of all: that of Dr Michael Spence and other executives. In the Vice-Chancellor’s case, $911,575 in 2011, including a performance bonus of $167,432 (the second highest vice-chancellor salary in the country).

Easson was coy when questioned directly about whether cuts to executive salaries were considered in lieu of staff cuts, saying it was a matter for the HR department. He did note, however, that executives have generously agreed not to take pay rises this year as a ‘contribution’, something he says the Vice-Chancellor “was a strong advocate for once it was thought of as an idea”.

Ultimately Easson believes the staff cuts needed to be made because the university is now in the best position to predict the future. “We’re probably more sophisticated than we’ve ever been in terms of forecasting where we’re heading, and part of the decisions being made this year is because we know exactly what the effect will be in two years time,” he says.

“It’s about being proactive and planning so that there’s no surprises.”

“Staff wages make up 65 per cent of total expenditure: in the Vice-Chancellor’s case, $911,575 in 2011,
including a performance bonus of $167,432.”

Yet it was the lack of foresight three years ago that saw the university’s finance team underestimate the revenue they would gain from students by $35.8 million, forcing them to make dramatic decisions that would pull the budget back into the black. This included enforcing the proposed 7.5 per cent reduction in overall staff costs in the 2011-2015 Strategic Plan.

Students and teachers alike have deplored the criteria imposed on staff to determine their academic viability and candidacy for redundancy.

There is an argument that pragmatism and reason won out in the end: if staff hadn’t met the ‘three publications in three years’ standard, submissions could be made to demonstrate significant ongoing work, research awaiting publication, higher teaching loads, or other factors that may have impacted on their ability to meet the required output. Extensive consultation processes were also provided for the affected staff in their faculties.

This standard is justified, according to Simon McCoy, from the university’s human resources department, by staff contracts. Academics are paid to spend 40 per cent (or the equivalent of 19 weeks of full-time employment) on research, and the University of Sydney is “research-intensive,” he says.

McCoy stresses that they haven’t wielded the axe indiscriminately. “The university has not imposed a retrospective contractual obligation, but has used research output as the primary basis for determining which positions could be made redundant.” Moreover, teaching contributions were also taken into account, allowing for 64 staff to be offered teaching-focused roles.

And those skyscraper executive salaries? Contractually a no-go zone, according to McCoy, for all staff, no matter what their level.

While the white flag remains furled for the same time being, we’ve reached a point where we cannot ignore the fact the university is running out of money. We have to find it somewhere.

At the same time, there is undeniably a lot of unhappiness among staff and students about the decisions that have been made. Whatever the university says, it’s contentious whether the cuts did not, as some say, detrimentally affect the quality of teaching and learning. Ultimately, for all education’s increasingly neoliberal leanings, it remains low on the list of attractive investments – for both private and government entities. It will be some time – if ever – before the two competing forces of universal education and free market capitalism find an easy common ground.