Budgetary Control

A budget is a financial representation of planned activity for a given period. The basic principle is to compare the cost of the planned activity to the expected income the activity will generate and establish whether there will be a surplus (income exceeds cost) or deficit (cost exceeds income) at the end of the period. A surplus will mean that related reserves have increased, and a deficit leads to reduction in related reserves.

The University is a not-for-profit organisation. However, we need to ensure that activity is financially sustainable such that total income and total expenditure are broadly in line with each other.

The prime reason why the University sets budgets is to ensure that it is operating sustainably. In this context sustainability means that in the medium term total planned expenditure by the University should not exceed its expected income, and that a sustainable financial surplus is generated to re-invest in the academic mission of the University.

This is a formal requirement placed on the University by the Office for Students (OfS).

This requirement explicitly allows the University to run deficits (that is, expenditure is more than income) on some activities or in some years, provided these deficits are counterbalanced by surpluses (expenditure is less than income) on other activities or over other years.

Setting budgets also facilitates the equitable and transparent sharing of financial resources or funds between activities and individual institutions. At a strategic level setting budgets ensures that available resources are used to fund current activities and to invest in new areas of activity.

At an operational level a budget tells you how much money is available, for example a Chest budget for staff or non-staff expenditure for a year, or what an external research sponsor has agreed to fund within a research programme.

Finally, setting budgets provides one method for monitoring actual versus planned activity. As a budget is a financial representation of planned activity, regular comparison of actual income to planned income, and actual expenditure to planned expenditure, will provide a measure to assess the financial sustainability of activities.

Budgetary control is financial jargon for managing income and expenditure. In practice it means regularly comparing actual income or expenditure to planned income or expenditure to identify whether corrective action is required.

For example, most University institutions are given annual Chest allocation budgets for certain staff costs. By regularly comparing actual expenditure on this budget to planned expenditure an institution will be aware of what staffing plans are affordable within their Chest allocation. If the account is in deficit an institution will need to identify an alternative source of funds to support planned expenditure. This process of monitoring expenditure and taking appropriate action is known as budgetary control.

The University operates an annual Planning Round, one aspect of which is to collate financial forecasts from institutions (usually around December each year) covering all funding streams.  For Chest activity the financial forecast relating to the subsequent financial year, together with prior year actual financial results also form the basis for determining the Chest allocation and budget.

Finance Business Partners and Institution heads of finance are generally responsible for collating and submitting institutional financial forecasts. For some this process operates top-down (with a forecast prepared for a group of institutions as a whole), for others the approach is bottom-up (institutional level forecasts prepared that then need to be consolidated). Your Finance Business Partner or Institution head of finance can advise which approach is adopted for your institution.

Finance Business Partners and Institution heads of finance are also responsible for providing the details for the Chest allocations budget by institution, subject to approval by the relevant body (e.g. School Council), which are subsequently consolidated by a central finance team and published in a collected budget document. The Institution head of finance’s involvement in budgetary control includes general oversight by reviewing financial reports at least monthly for their areas of responsibility and raising issues with the local institutions as appropriate.

Finance Business Partners and Institution heads of finance can advise on producing budgets for non-Chest sources of funding, such as research and trading activity. Research Operations Office (ROO) deal with Research grants and contracts, and monitoring against individual research project budgets. Finance Business Partners’ and Institution heads of finance involvement in budgetary control for non-Chest activity will vary depending on the policies adopted by institutions. The monthly review of financial reports means these roles monitor non-Chest activity regularly.

The amount of input required from an institution for Chest budgetary planning and control can vary by institution and whether the budget is devolved fully. It is important that institutions understand what they have responsibility for within their Chest allocation budgets.  It is sensible to liaise with your School or UAS Finance Business Partner or Institution head of finance to clarify these responsibilities. Traditionally all Chest budgets for non-staff costs are fully devolved. This means that all institutions are responsible for controlling this activity within budget.

Where a bottom-up approach to planning is adopted, institutions will be more involved in the planning process and Institution administrators will add value to the planning exercise in several areas including the following:

• checking the accuracy of information on Chest-funded posts including ratifying any year-on-year changes. Budgets are built up on a post-by-post basis and it is crucial that this information is correct
• communicating the institution’s plan for any changes in staff profile
• communicating the institution’s plan for making any required savings
• communicating changes in student numbers, new courses being introduced, or Surplus Improvement Fund projects (your Finance Business Partner or Institution head of finance will know if these are relevant)
• input to the research forecasts. By providing valuable insights into trends in volume growth; impact of large grants ending, and replacement funding applied for; and/or changes in sponsor mix and hence, the forecast of Chest overhead/non direct cost recovery, which again impacts on Chest-related income sources received by the institution

Dependent on the level of devolvement to institution level, the RMC and/or School office may need to approve the filling of certain posts and use of temporary staff where vacancies exist.

Department administrators and heads of finance are responsible for ensuring that the Chest non-staff cost budget is not exceeded. Monitoring should be done monthly, and deficits should not be allowed to accumulate all year before being cleared at year end as this creates problems at University level when forecasting the likely year end position. Other Chest budgets that should be monitored may include (but are not limited to) unpaid leave of absence, vacation study grants and the annual equipment grant (see checklist).

All institutions have a responsibility for budgetary planning and control over non-Chest areas of activity, no matter how large or small that activity is. This includes reviewing financial resources as a whole and, when needed, identifying areas which generate surpluses that can support or subsidise areas in deficit.

For research grants and contracts, it is likely that individual PIs will be responsible for monitoring expenditure on their grants, but the Department Administrator or Accounts section may then be responsible for sending the PIs the appropriate reports.