For the use of the Members of the Governing Body

							(For the use of the Members of the Governing Body)

KING’S COLLEGE CAMBRIDGE College Financial Planning The purpose of this paper is to set out for the Governing Body the latest figures showing the medium to longterm financial prospects for the College and to discuss the principles within which the College should run its financial affairs and evaluate major spending proposals. This paper has been prepared following discussions with the Finance Committee on 2 July and the Council on 3 July. The paper is conscious both of the College’s own aspirations towards improved governance and also the requirements of the Charities Commission which will be looking for both well-developed management procedures and well articulated college objectives. 1. Financial Prospects As can be seen from the analysis attached (see Appendix), based on a continuation of the status quo, the medium to long-term prospects for the College’s finances remain good: • • An accounting surplus of some £100k per annum; Cash of some £1.7m added to the endowment annually

Since 1 July 2005, we have already added some £4m to the endowment in cash and, without further spending decisions, we can realistically expect to have banked a total of £10m by 30 June 2012, ie in 5 years time. This optimistic picture comes with caveats, of course. In particular, the forecasts depend upon increases in costs, especially increases in wages, remaining close to inflation, ie only just positive in real terms. Furthermore, the plan keeps spending on Buildings at the level in the proposed 2007/08 budget, ie £1.2m in todays terms. However, in the opposite direction, the plan also keeps donations at the historic trend level of £1m pa, lower than the Development Director’s expectations for 2007/08. Members of the Governing Body will also wish to note that the financial picture includes the very strong cash inflow coming from the School as a result of the new classrooms to be built this coming year. Overall, the First Bursar believes that the figures shown are sufficiently reliable that the Governing Body needs to consider how the College should deploy its financial resources as a whole over the medium-term and to determine in the round how the total funds available should be used for the College (including the School). 2. Financial Procedures It is important to recognise that “how the College should deploy its financial resources” includes addressing not only the issue of what spending (and income) opportunities to pursue but also the issue of “with what behaviours should the College deploy its financial resources”. The accounting surpluses and cash inflows are not foregone conclusions. A surplus of £100k is just 0.6% of the College’s total turnover and could easily become a deficit. It is the First Bursar’s view endorsed by Council that delivery of the financial results that are forecast depends upon the College, led by Council and the Governing Body, following three particular principles:

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Tight control over financial commitments Keeping rigidly within budgetary limits Transparency in all areas

Council has already endorsed a system of delegated authority levels for concluding contracts, signing for invoices etc as well as procedures for entering into contracts on behalf of the College. However, Council and the Governing Body need to consider how to ensure that these are followed through. Is this a matter for the annual report of the Inspectors of Accounts, ie solely for the Governing Body? Does the Governing Body agree with Council that a termly report to Council by the Finance Committee is appropriate? Similarly, Council has previously endorsed the principle of Fellows heading departments (including the Headmaster) being accountable for staying within their budgeted limits. The evidence of the past two years is that certain departments have overspent without reference to any body within the College, ie the overspend has been unmonitored and therefore uncontrolled. It is appropriate, I suggest, for Council and the Governing Body to be explicit about how this is to be managed. Does the Governing Body wish to endorse the proposal from Council that the Finance Committee undertake budgetary review on a systematic basis to be handled by that body with reports, if necessary, to Council where action to deal with either over - or under-spends is needed? Members of the Governing Body will be aware that the College is now able to provide comprehensive financial information that is both timely and accessible to the lay reader. Further details can be (and are) supplied about specific areas on request. However, at the present time, it is only the Finance Committee and the Governing Body that receive regular reports. The First Bursar’s view is that other bodies, notably Council and the College Officers should be seeking further information on a regular basis about the financial performance of the College’s various departments, with an appropriate commentary, so that these bodies are as informed as possible about the College’s short-term financial issues and so that specific initiatives within the College can be reviewed in the fullest context whether or not they fit within the agreed annual budget. Council proposes therefore to receive reports about the College’s financial performance from the Finance Committee on a termly basis. Does the Governing Body wish more to be done? 3. Spending Opportunities In the light of the additional financial resources now available to the College, the First Bursar believes that Council and the Governing Body should have clear criteria about the basis upon which major spending proposals are evaluated. This is essential so that the Fellowship, as charitable trustees, can demonstrate to the Charity Commission that they have discharged their responsibility to use the charity’s resources prudently and entirely for charitable purposes and it is also desirable so that the College can assure donors that their gifts are being used directly for the College’s declared purposes. However, it is most important by far that the College have clear criteria so that the limited monies available to the College are used for the purposes that the College has itself decided, ie clear criteria upon which to make informed choices. Clearly the College has obligations imposed upon it by outside authorities, eg for the maintenance of listed buildings, for health and safety etc but the forecasts of the status quo should provide sufficient funds for these items to be addressed over time, particularly given the uplift in the Maintenance budget recommended for 2007/08 and therefore for future years. However, the College has already indicated an interest in building a new Sports Centre at the School and will shortly receive details of proposals for the refurbishment of Market Hostel. Other proposals can be expected over the coming months: from the Cafeteria Working Party, for the refurbishment of Gibbs Building, to name but two. The Finance Committee have suggested that, as proposed last year,

Council should put forward spending proposals for education, including bursaries, over the next 5 years. Does the Governing Body agree that criteria for evaluation of individual major spending proposals are required and to ask Council to propose such criteria during next year? 4. Summary As an overview, although the College’s medium to long-term financial prospects are favourable, clear financial procedures are needed to ensure that these prospects are realised and the clear criteria for making choices between different spending proposals are developed so that the College’s limited resources are deployed most effectively in meeting the College’s desired long-term aspirations. In this context, the Governing Body’s agreement is sought that: • • • The Finance Committee undertake the systematic regular monitoring of the operation of the financial procedures already agreed and report to Council thereon at least once a term; Council seek a report from the Finance Committee at least once a term about the performance of individual departments against budget; The principle of establishing criteria for evaluating spending proposals be endorsed by the Governing Body and that Council report during the Lent term with their views on the actual projects that should be actively pursued by the College over the next five years.

If agreed, the Vote will read Received: Agreed a paper from the First Bursar concerning the College’s financial planning that • • • The Finance Committee undertake the systematic regular monitoring of the operation of the financial procedures already agreed and report to Council thereon at least once a term; Council seek a report from the Finance Committee at least once a term about the performance of individual departments against budget; The principle of establishing criteria for evaluating spending proposals is endorsed and that Council report during the Lent term with their views on the actual projects that should be actively pursued by the College over the next five years.

Martin Reavley First Bursar July 2007