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Notes for project managers: Frequently Asked Questions

Newsletter 4

These questions and answers help to clarify the requirements of the Transparency Review with regard to the role of internal audit and allocation of staff time.

FAQs about Internal Audit | FAQs about allocation of Staff Time

Role of Internal Audit and the Transparency Review

10 Frequently Asked Questions

Q1
I read in the Guidance Manual that we have to carry out an audit of the work we do for the Transparency Review. Should we build this work into our internal audit programme?
Yes. The audit check should normally be carried out by the internal auditor, who may be able to rely on any checks the institution has itself undertaken. The audit work, which will provide assurance on the approach, could be undertaken as part of the regular internal audit programme which will have been agreed by the Audit Committee. The work of the internal auditor should be reported to the Audit Committee, however, the Finance Committee may also want to see the report.

Q2
The Transparent Approach to costing is built on several key principles. What is meant by the principle of auditability’?
Institutions should be able to demonstrate the validity of their cost calculations by appropriate audit trails between summary reporting and base data. Audit for Transparency Review is to be carried out as part of the institution’s normal audit processes and will probably be included as part of the rolling internal audit programme.

Auditability means that the reported figures should be reconcilable to the institution’s externally audited annual accounts; traceable; supported (verified) by surveys; and supported by managers’ statements that they fairly reflect cost attribution.

Q3
We are a member of an internal audit consortium - should we ask them to include this in their annual programme?
Yes. The institution's internal audit consortium will be aware of the Transparency Review requirements and may already be arranging to cover compliance by its institutional members as part of their rolling programme. It is worthwhile checking with the audit consortium what they propose to do.

Q4
Several areas involve judgement and discretion; there can be no precise measurement in these areas. What approach should the audit take?
Audit does not require precise measurement in all areas. Several areas in costing involve judgement and discretion. Perhaps the most obvious of these is the allocation of staff effort, where even the most costly methods are not easily auditable in the sense of being externally verifiable.

Modern approaches to audit relate to a judgement based on risk, materiality, and the appropriateness of the methods used, in other words, a normal systems-based audit. This can be interpreted to imply that the costs produced by the Transparency Review should fairly reflect the full economic costs of the activity. The principles to be adopted here are:

• focusing particular effort on the most significant costs;
• ensuring that the method is defensible and is signed by the head of institution as showing results that are commensurate with the real cost of the activities reported.

By the end of a five-year period the audit review will need to reflect the five-year time cycle and the Transparency Review requirement to use robust methods by the end of this period.

Q5
Does our Audit Committee need to see the results of our tests for reasonableness?
Yes. Tests for reasonableness should be carried out on data collected through an annual retrospective time allocation method as well as more robust methods. A summary report on the results of these checks should be presented to the Audit Committee (and probably to the Finance Committee) to give assurance that the outcome is reasonable.

The audit report does not need to be very detailed, but we expect auditors to provide the Audit Committee with:

• key assumptions
• supporting evidence that cost drivers for larger items of cost reasonably represent the actual use or benefits from those resources
• any other checks on the time allocation and cost attribution figures in addition to the results of tests for reasonableness
• results of verification methods and the comparison with the annual time allocation method (if different).

See Section C2 page 31 of the Guidance Manual for examples of reasonableness tests.

Q6
We have used alternative methods from those suggested in the costing standards and discussed in the Guidance Manual. We know they are producing information that is at least as robust as that under the methods suggested. Who do we need to satisfy that this is the case?
Institutions are free to use alternative methods from those suggested in the Guidance Manual as long as they are robust enough. The Audit Committee, working on behalf of the governing body, must satisfy itself that this is the case.

Q7
Should we ask our internal audit unit to check the figures?
No. The internal audit unit need only confirm that the institution has complied with the set of process standards as set out in the Guidance Manual. They should carry out a systems-based audit, that is to say an audit of the process by which the data is produced, not the data itself.

The process standards include the following:

• costing based on full-institution analysis (partial reporting is not acceptable)
• cost data should be reconcilable to gross costs in audited annual consolidated accounts (subject only to the adjustments required under the Transparency Review).
• cost drivers in significant areas of cost that are based on proxies (such as student numbers) need to be tested and validated to demonstrate that they are sufficiently robust. A review of other cost drivers, which might better reflect usage, should be conducted within the five-year cycle. This should take into account the costs of collecting more detailed measurement information.
• time allocation data should be verified by a suitably robust method
• the costing method should follow the recommendations of the Guidance Manual and be applied consistently, and this compliance should be confirmed at appropriate intervals by the institution’s internal audit service
• institutions’ audit committees (on behalf of their governing bodies) should maintain an overview of these standards and should report on this at appropriate intervals.

See Section C6 page 3 of the Guidance Manual.

Q8
Who audits the figures then?
The audit process as described above will ensure that the figures reported are a fair reflection of the cost of activities. The head of institution will be responsible for signing off the final figures.

Q9
Should we inform our internal audit service now about their role?
Yes. You should involve your internal audit function and Audit Committee at an early stage. The institution may want a representative of internal audit or the Committee to attend some steering group meetings. Early involvement will ensure the internal audit team understands the particular costing methods chosen by the institution at an early stage in the project.

Q10
Should we ask our external auditors to look at what we have done?
No. It is not a requirement of the Transparency Review that external auditors scrutinise or audit the calculations or methods used.

Allocation of Staff Time
10 Frequently Asked Questions

Q1
What time allocation method should we use?
In the first year the istitution can start using a robust method (in-year time allocation) or annual retrospective time allocation. If the latter is used, an in-year method can be introduced in the second year across the institution. Alternatively it can be introduced across part of the institution (rolling forward the annual retrospective data that has already been gathered to cover the rest of the institution).

In-year methods could involve using periodic time allocation schedules (e.g. each term and vacation) or using diaries.

Because of the volume of data collected in diaries, statistical sampling is generally used. This needs some thought in design and then repeating in a second year to confirm data variability.

The institution must also decide which time allocation method provides sufficiently detailed data for the institution’s own use of the information.

See Section C2 of the Guidance Manual for the options available.

Q2
Who should complete the time allocation schedules?
Where an individual works wholly on one activity, their time should be directly allocated to that activity and they need not be involved in any other form of time allocation. All academic staff whose time cannot be directly allocated to a particular activity should be covered by the time allocation schedules. The schedules can be completed by the head of department, possibly after talking to staff, or by each individual staff member themselves.

In general, non academic staff will be directly allocated to one activity (e.g. Support, Research or Other), however, they could also be asked to complete time allocation schedules if the institution wishes to collect this information for their own purposes. This would greatly increase the amount of administrative work, and institutions wishing to widen the retrospective time allocation to encompass all staff may want to do so in year two or three of implementation.

Q3
We already use a workload model in the institution, can we use this as the data collection method?
Workload models are an alternative approach to in-year time allocation. Where an institution has a workload model or activity model that is both comprehensive (covers all activities) and reflects reality (describes what actually happens, rather than what was planned or standard’), this would be a robust method to use to collect Transparency Review data. Institutions interested in this method should satisfy themselves through testing (structured interviews and surveys) and through reasonableness checks that it meets these two criteria.

Q4
How do we ensure the information gives a true and fair reflection?
Costing does not require precise measurement in all areas. Some areas involve judgement and many areas are not auditable in the sense of being externally verifiable. However, the data should be checked for reasonableness before it is reported. This could include asking heads of department to comment on the results, and comparing the results from the verification method with those of the annual method, and comparing department totals with each other. Other tests may include benchmarking informally with another institution’s results, plotting results against numbers and income, identifying 'outlier’ figures and departments, and conducting a sensitivity analysis on key assumptions.

Reasonableness checks should be carried out on data collected through an annual retrospective time allocation method as well as more robust methods.

Q5
What do we do if a member of staff refuses to complete the form or if there are large numbers of leavers?
Any non-respondents need to be identified and followed up, as do poor quality returns. The institution needs to decide what action to take regarding individuals, including heads of department, who have not completed a time allocation schedule as requested. If there are several members of staff who have not completed the form, or if there are large numbers of leavers, returned forms can be used to extrapolate the data to represent the whole of the sample.

Q6
Should we ask for the information in hours or percentages?
The Transparency Review requires only percentages of time. Some institutions are collecting information on hours as a by-product of their time allocation method (they are using diaries) but there is a Human Resources risk, for example, related to the Working Time Regulations. Institutions may collect information in hours if they want to (and if the academic community agrees), as this information can be useful. However, they should involve their HR/Personnel department so that Human Resources and costing policies are co-ordinated. To avoid confusion about potentially different agendas (e.g. effectiveness, efficiency), information on hours could be collected and reported separately from information for the Transparency Review. To repeat, the Transparency Review requires only percentages of time to apportion relevant costs.

Q7
Should we get academics to complete the schedules anonymously?
This should be considered when individuals are to complete time allocation schedules (rather than heads of department). The time allocation schedules could be designed to meet confidentiality concerns by not asking for names but by numbering returns and using a restricted access computer system to match names with numbers.

If time information is to be collected for other purposes this should be made clear at the start. Care will be needed to prevent concerns about this threatening the Transparency Review.

Q8
What role should the head of department take?
Heads of department will play an important role. The Transparency Review gives the head of department responsibility for ensuring the retrospective time allocation data is collected in Year 1. The head of department can complete the retrospective time allocation schedules in the first year although it may be the case that individuals contribute to this process in some way. When in-year time allocation schedules are being completed, it will be inappropriate for the head of department to complete each individual record. An individual completing their own time allocation schedules avoids the problem of a lack of close knowledge by the head of department of an individual’s activities.

The head of department should be asked to comment on the results at a departmental level as a test for reasonableness.

Q9
Does the requirement for validation and verification mean that the data collected has to be checked or tested?
Validation and verification is not about checking or testing the data collected in the first year. The requirement of 'validation and verification’ is met by the introduction of in-year time allocation by individual staff members over much shorter and more recent periods than a year, across a sample of departments and covering the whole institution in a five-year cycle. As this more robust data is collected, it replaces the less robust (annual retrospective) data which was being rolled forward.

Q10
We intend to collect annual retrospective data in our first year of implementation. Can we roll forward this data or do we have to collect it again?
All departments should have provided the data for the first year, so it does not have to be collected again. This data will be rolled forward until it is replaced by new data collected through the in-year exercise. In-year data needs to be collected only once within the five-year cycle, unless there are material changes to a department in terms of student or staff numbers or nature of work undertaken.