Part I - Overview

Section A: General Overview

Annual TRAC - public accountability at institution level

15. The first TRAC process was introduced after the Government’s 1998 Spending Review as a means to improve accountability for public funding. The Transparency Review report in 1999 recommended the costing methods to be used to meet the Government requirement. Implementation began from autumn 1999. It was a major project for the HE sector. Pilot universities were involved in testing the new methods, and there was a phased implementation. The whole sector reported for the first time in July 2001, and then annually from January 2002.
16. The main features of TRAC, recommended in the Transparency Review, and with implementation complete by 2005, were:
    • use of Activity-Based Costing and analysis of all institutional costs (as reported in the financial statements) at the level of academic department;
    • accounting for use of academic staff time (through either a diary sampling method or in-year time allocation schedules);
    • use of robust cost drivers to attribute library and space costs and all other support or indirect costs to activities;
    • representation of the costs of investment and risk through the TRAC cost adjustments for infrastructure and the cost of capital employed;
    • calculation of indirect cost rates for Teaching, Research and Other; and calculation of charge-out rates for Research in the areas of estates, major research facilities and laboratory technicians.
17. The TRAC guidance describes the main costing standards to be achieved by each institution. Underpinning all these is the principle of materiality and a ‘fair and reasonable’ view of costs – this is not an audit approach and institutions are not staffed to undertake heavy administrative processes. TRAC aims to avoid undue precision (or ‘spurious accuracy’ given the nature of academic processes), and to minimise the burden on institutions while achieving necessary accountability. Robustness is important and there are both internal and external Quality Assurance processes within TRAC that are described below.
18. The implementation of annual TRAC was significantly complete by 2005. Institutions have expended significant effort and cost in implementation, and, as well as meeting the Government accountability requirements, many institutions are now using TRAC data internally for costing, pricing, and financial management. For some, this has been as much a culture change as an accounting development – it is part of a trend in many institutions to accept that they are ‘business-like’ organisations with a mixed portfolio of finances and activities, and a need for better costing tools.
19. During 2003, an independent review of TRAC was carried out by the Financial Reporting and Activity Costing Group (FRACG).^vi This concluded that the TRAC methodology was robust and fit for purpose at an institutional level. FRACG also recommended some improvements to the overall accountability mechanism associated with TRAC which have been implemented.