University real estate
Part 1: Financial supervision of the sector
Public real estate is paid for from the public purse, represents public capital and should serve the public interest. The Court of Audit’s real estate audit theme aims to improve accountability for real estate by central government and arm’s length institutions such as care and education institutions. In this part of the audit theme we report on the first phase of our audit of university real estate. We focus on the roles played by the Minister of Education, Culture and Science and by the Education Inspectorate.
Conclusions
On the basis of our audit, we agree with the picture presented by the Education Inspectorate that the universities’ annual reports and their business continuity sections provide only limited insight into the real estate risks facing individual universities and that there is a risk that the Education Inspectorate will not detect risks at individual universities in time.
The financial position of the 13 universities we audited was on the whole healthy but the overall picture says little about the potential real estate risks that individual universities are exposed to.
Furthermore, real estate risks and abuses should be detected and corrected promptly. Given the financial importance of real estate and its significance to the quality of education and research, good real estate management and effective checks and balances are vital. An internal audit department, controller and finance director are of primary importance for the checks and balances and then the external auditor. The supervisory board is a key aspect of the internal checks and balances. It must be able to satisfy itself that the basic principles of good real estate management are fulfilled and intervene if they are not.
Recommendations
Recommendation to the minister: improve the comparability and information value of the business continuity sections in the universities’ annual reports by setting further requirements.
In our opinion, extending the horizon of the business continuity section to five years, as proposed by the Education Inspectorate and the Association of Universities in the Netherlands (VSNU), is insufficient. A longer time horizon is necessary to form meaningful opinions on the risks associated with investments in real estate.
Recommendation to the Education Inspectorate: prepare detailed risk profiles of each university in order to detect risks in time.
The unexpected surprises associated with real estate that have occurred in other education sectors (such as the financial problems at the Leiden Regional Training Centre) must be avoided. This is possible only if the universities’ own real estate management, including strict internal supervision, is in good order, and if external supervision by the Education Inspectorate identifies risks at individual institutions in good time. Working with detailed risk profiles can help in this.
Recommendation to the Education Inspectorate: continue to monitor audits of business continuity sections closely.
In view of the importance of good business continuity sections and the role the auditor should play in providing assurance on the accuracy of the information they contain, the Education Inspectorate should continue to closely monitor the auditors’ performance of their work in this area in accordance with the recommendation we made in our Accounting for Central Government 2015 report. The supervisory board engages the auditor and has primary responsibility for supervising the auditor’s work.
Response of the Minister
The Minister of Education, Culture and Science, like the Court of Audit, finds that universities themselves have primary responsibility for their own real estate but she is responsible for the sector as a whole and must exercise that responsibility correctly. The minister agrees in broad lines with the Court of Audit’s conclusions and recommendations regarding the risks in the universities’ real estate management and financial supervision. She also accepts the recommendation that the universities’ risk profiles should consider the size and certainty of the benefits gained from real estate. In response to the recommendation to recognise risks when intervention is still possible, the minister wrote that she would intervene only in extreme cases, when there were substantial risks to the quality of education and the financial position of a university. The minister noted that she did not want to encroach on the powers of the supervisory boards. She did not agree with the recommendation to include a time horizon of more than five years for the multiyear figures in the business continuity section.