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Resource Allocation Policy

Category Finance
Type Policy
Approved by University Council, January 1995
Date Policy Took Effect 1 January 1995
Last Approved Revision 13 December 2016
Sponsor Chief Financial Officer
Responsible Officer Senior Management Accountant
Review Date 31 August 2013

Purpose

The purpose of this policy is to establish a link between the outputs in the University's strategic plan and the provision of resources; to establish a link between the EFTS based revenue generated by a cost centre and the resources allocated; and to allocate funds in the form of budgets for all operating and capital expenditure to every Cost Centre.

Policy Content

Overview of Resource Allocation

The resource allocation system comprises:

  • A budget round for Service Divisions, Central Committees and contestable funds
  • A funding model to allocate funds to Academic Divisions
  • A capital works budget 

Service Divisions, Central Committees and Contestable Funds

Cost Centres within Service Divisions and Central Committees prepare budgets using a zero-based approach. Budgets should take into account the outputs of the University approved by Council and any objectives and performance targets set by the Vice Chancellor. Cost Centres which operate under a full-cost recovery model (Business Units) are required to set prices such that revenue equals operating expenditure (operating costs including depreciation but excluding capital expenditure).

Budget submissions will be prepared in a standard format provided by Financial Services and will be debated by the Special Budget Committee prior to being approved by the Vice-Chancellor. 

Academic Divisions

Allocations to Academic Divisions will be calculated by running the Funding Model as shown below:

Income:
Vote Education Actual income based on forecast EFTS
Vote Health Actual income based on forecast EFTS
Domestic Tuition Fees Actual income based on forecast EFTS
International Tuition Fees Actual income based on forecast EFTS
Less deductions from income and central charges:
Service Division costs Allocated per approved cost driver list
Corporate costs

Allocated per approved cost driver list

(i.e. ACC Refunds/Penalties, Legal, Financing Costs)

Central Committee costs Allocated per approved cost driver list
Central Funds Allocated per approved cost driver list
= Divisional Allocation before Adjustment
Less adjustment required to meet University fiscal objectives Per fiscal objectives set by University Council
= Final Allocation  

The Divisional EFTS forecasts are provided by the Divisions, however, the University will exercise some control over Divisional forecasts.

The funding allocation and completion of operating and capital budgets for academic cost centres is the responsibility of the Divisions, although the Vice-Chancellor's Advisory Group will, from time to time, review the Divisional model used by each of the Academic Divisions to ensure that the budget process is fair and proper consultation occurs.

The corporate funding model will not be used as the sole basis of allocating funding to Academic Cost Centres. The unique teaching and research characteristics of each will be considered in the allocation process. Academic Cost Centre budgets must take into consideration the University's objectives and those of the Division.

 

Capital Expenditure

Capital expenditure budgets will be prepared as follows:

Equipment (including furniture and motor vehicles):

Service Divisions will include capital expenditure in the budget submissions.

Academic Divisions will receive an allocation from the Equipment Committee for equipment in the $2,000 to $250,000 range. Divisions may supplement this budget from the allocation.

The Equipment Committee will receive a budget for major items of equipment costing in excess of $250,000. The budget is contestable and projects selected on the basis of contribution to University objectives.

Library Books and Periodicals

The budget will be prepared by the Library and included in its submission.

Capital Works (Land and Buildings)

The budget will be prepared by Property Services and approved by the Capital Development Committee prior to being presented to the Vice-Chancellor.

Academic Divisions and Service Divisions cannot budget for land or building purchases unless approved by the Vice-Chancellor.

Capital expenditure includes assets acquired using finance leases.

Relating Budgets to Income Earned

In order to establish a link between the funding an Academic Cost Centre receives and the income it earns, each Cost Centre will be classified according to funding status once actual year end results are known. The classifications are:

Over-funded where the budget is greater than115% of income earned

Neutral where the budget is between 85% and 115% of income earned

Under-funded where the budget is less than 85% of income earned

While there is no requirement that funding allocations will be adjusted according to the classification of each Cost Centre, it is expected that divisions will adjust budgets where possible to move Cost Centres to a neutral classification.

Fiscal Constraints

The budget will at all times be subject to the fiscal strategy approved by University Council and included in the annual Statement of Objectives provided to the Ministry of Education subsequent to the requirements of the Education Act and the Public Finance Act.

Timing

The budget is prepared from July to October for the following year with a budget review in April/May of the budget year.

The objectives of the budget review are:

  • Review the Service Division and Central Committee budgets
  • Review the funding allocations to Academic Divisions
  • Recalculate University income based on actual EFTS enrolments at 31 March plus an estimate of second semester enrolments;
  • Correct major errors or omissions
  • Adjust for major timing differences
  • Review for any new or discontinued initiatives

Budget Approval

The Budget and the Budget Review will be approved by Finance & Budget Committee and Council.

Contact for Further Information

For further information, contact the Senior Management Accountant, extn 8222 or email michael.mcalpine@otago.ac.nz