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PRESENTATION TO THE
COMMISSION OF INQUIRY INTO
HIGHER EDCUATION & TRAINING
SET 3 HEARING
21 October 2016
INTERNAL BUDGETING PROCESS OF
TSHWANE UNIVERISTY
OF TECHNOLOGY
The Strategic Planning Process is the function of the:
Executive Management Committee (EMC) who set the
institutional priorities for the following year based on a review
of the previous year’s performance and a situational analysis.
The EMC identifies strategic priorities for the year and
performance targets as required by the Department of Higher
Education and Training Annual Performance Plan.
Executive Management Committee members translate the
strategic priorities and the performance targets into operational
plans for their respective portfolios.
BUDGET PROCESSAND OVERVIEW
The process for 2016 started off with the following deliberations:
Compilation of a Macro Budget between the Finance Department and Strategic
Management Support.
Establishment of a budget task team comprising of the CFO, Director: Financial
Control, Chief Information Officer & Executive Director: Quality, Planning and Risk
Management, Director: Strategic Management Support and a Representative of
the Office of the VC.
The basic budget allocation methodology for 2015 was continued for 2016 in terms
of overall income compilation and overall resource allocation according to internal
and external benchmarks.
The budget amounts for 2015, as well as the actual year-to-date results up to
August 2015 were provided as guidelines to the various budget managers.
BUDGET PROCESS AND
OVERVIEW (continue)
Budget managers were provided with a comparable budget allocation and were
afforded the possibility to move budgets between cost centres within a faculty or
directorate to obtain a maximum cost-benefit position per cost centre at the start
of the 2016 year.
Budget managers retained their privilege to move funds from one line-item to
another within their own cost centres to adjust to realities during the 2016 year.
The standard templates with regards to operational budgets and corporate
budgets will be completed by the line mangers for submission to the Finance
Department by the end of October 2015.
The Directorate: Financial Control compiled the draft budget for scrutiny by the
CFO to enable him to prepare a submission to the EMC, Finance Committee of
Council and Council.
BUDGET PROCESS AND
OVERVIEW (continue)
The guiding principle of the budget is that it should be income driven and not cost
driven. Therefore, a calculation is first made of the available revenue resources,
subtracting the earmarked portion and then allocating the distributable portion to the
various expenditure categories in a consultative manner.
The basic sources of income are listed below:
a) The DHET subsidy is calculated according to the Government Funding
Framework based on Programme Qualification Mix (PQM), teaching input units,
teaching output units, research output units, institutional factors and earmarked
grants.
b) Student fees are calculated according to a tuition fee income model based
on subject fees and subject levies.
c) General income is based on forecast of sale of goods and services, cost
recoveries and transfers from departmental funds.
ASSUMPTIONS USED IN COMPILING THE BUDGET
It is imperative that the income budget should grow continuously in order to meet the
internal and external inflationary needs and move towards the ideal DHET expenditure
benchmarks. A growth in income below consumer price index may lead to a deficit in the
budget.
Basic principles are that the budget should be a balanced budget without a deficit, with
a possible surplus and with some provision for unforeseen expenditure.
As is the case in general for the SA economy, and in particular with the Education
Sector, there is a growing demand to increase service delivery without an equivalent
increase in income. The challenge is therefore to allocate the distributable income in a
balanced way according to:
The expectations of the DHET to reach their benchmarks.
The service excellence required by students.
The expectations of organised labour.
The requests from academics and support staff for proper budget allocations to fund
business plans in order to reach performance targets.
The statutory demands from service providers.
ASSUMPTIONS USED IN COMPILING THE BUDGET (continue)
The main expenditure categories are listed below:
a. Personnel expenditure is based on a staff provision model, making use of Senior
Lecturer Equivalent’s (SLE’s).
b. Corporate accounts forms a separate expense category to the general benefit of
the central University. Activity Based Costing (ABC) and zero based budgeting
have been applied for the2016 budgeting process.
c. The provision for capital expenditure is based on the recommendations of the
Finance Committee and EMC.
d. The finance cost expenditure was computed by the Treasurer in conjunction with
the CFO, taking into account possible changes in the interest rate, but an increase
in transaction fees.
e. The provision for strategic funds was provided for by the Finance Committee and
EMC.
f. Once the above fixed, compulsory and strategic expenditures had been provided
for from the distributable income, the balance available is allocated for
operational costs.
ASSUMPTIONS USED IN COMPILING THE BUDGET (continue)
Notes:
1. Excluding bursaries
2. ERC, SRC and registration
3. Institutes, Centers and Campus Businesses
TUT’S FUNDING RESOURCES
2012 2013 2014 2015 2016
GOVERNMENT SUBSIDY(1) 57% 56% 55% 53% 49%
BLOCK GRANTS 93% 90% 89% 88% 88%
EARMARKED GRANTS 7% 10% 11% 12% 12%
STUDENT FEES 36% 37% 38% 39% 42%
SUBJECT FEES 66% 64% 65% 65% 66%
SUBJECT LEVIES 10% 10% 10% 10% 10%
RESIDENCE FEES 16% 19% 19% 19% 16%
MISCELLANEOUS(2) 8% 7% 6% 6% 8%
OTHER INCOME 7% 7% 7% 8% 9%
RESEARCH 12% 12% 12% 12% 11%
DONATIONS 8% 8% 9% 9% 8%
INVESTMENT RETURN 30% 30% 29% 29% 27%
GOODS AND SERVICES(3) 50% 50% 50% 50% 54%
Expenditure CategoryDHET
Guidelines
Actual
2012
Actual
2013
Actual
2014
Budget
2015
Budget
2016
PERSONNEL
(include provision for employee
benefits)
55% - 62.5% 71.26% 71.29% 72.00% 70.53% 77.29%
GOODS & SERVICES
(include operational, corporate and
strategic projects expenditure)
35.5% - 29% 24.20% 23.85% 25.50% 26.35% 24.92%
FINANCE COST
(include Interest & Loan
Redemption)
2% - 3% 0.10% 0.14% 0.17% 0.30% 0.28%
CAPITAL EXPENDITURE
(Link to depreciation)6.5% - 4.5% 4.38% 4.32% 2.03% 1.90% 0.32%
SURPLUS 1.00% 0.06% 0.39% 0.30% 0.91% -2.81%
TOTAL 100% 100% 100% 100% 100% 100%
INSTITUTIONAL APPLICATION OF FUNDS
PROJECTED DEFICIT/SURPLUS: 2017– 21
Scenarios 2017 2018 2019 2020 2021
0% fee increase
scenario-149 969 393 -151 674 446 -344 038 504 -451 072 030 -584 063 507
6% fee increase
scenario-96 196 578 -130 621 337 -162 421 832 -214 023 941 -262 896 627
8% fee increase
scenario-78 272 306 -91 112 656 -107 106 157 -147 681 840 -170 517 976
• Reduction of distributable subsidy and increase in earmarked funding from DHET.
• Subsidy from DHET increases by average 5% per annum, which is below CPIX
(6,3%) and HEPI (8%).
• As a result of “Fees must fall campaign”, Universities no longer are in control of the
tuition fee increase implementation.
• Bad debts are increasing as a result of the #FeesMustFall campaign, hence the
TUT cash flow is decreasing.
• The University’s third-stream income is low and does not contribute to the
distributable income.
TUT’S FINANCIALCHALLENGES
• Personnel cost consumes 78% of distributable income.
• As a result only 22% of distributable income is available for corporate accounts,
operational budget accounts, capital expenditure and loan repayments.
• This results in back logs with maintenance and capital replacement.
• Inadequate NSFAS funding which will continue even with new student centred model
(national dilemma).
• Implementation of the new funding model will undoubtedly compound the problem as
the general NSFAS allocations is based on the FCS and not the TUT funding model.
• Students defrauding the NSFAS system with minimum verification (vetting) systems to
identify real needy students.
TUT’S FINANCIALCHALLENGES
Development of a revised HR&T strategy to achieve realignment and restructuring
of human capital in support of the academic project.
Reallocating the distributable income, specifically the Research Output Grant, to
ensure greater institutional cost recovery.
Amending institutional policies with regard to third stream income to ensure a
greater apportionment to the University.
Significantly reducing and, where possible, completely eliminating expenditure
relating to entertainment, catering, off-campus meetings and workshops, year-end
functions, travel and subsistence allowances.
The Green Campus Committee will undertake measures to reduce utility costs of
the University.
STEPS TAKEN TO ENSURE THE BALANCING OF THE BUDGET
The University is finalising its Financial Growth Strategy. These are aimed at
reducing personnel expenditure and growing multiple income streams.
The sustainability and efficiency measures recommended above must be in place
for the MTEF period starting 2016 i.e. for 3 years.
As part of its strategic priorities, TUT will focus on growing its revenue streams
such as increasing Short Learning Programmes and publication of research
papers by Faculties and the creation of a Business Development Unit.
STEPS TAKEN TO ENSURE THE
BALANCING OF THE BUDGET (continue)
Thank you