Targeted redundancies at Victoria University: How the Vice-Chancellor abused due process

Dr James Doughney, elected academic representative on Victoria University Council and Resources Committee

22 October 2008

1. Introduction

The first point to note is that the redundancy plan (table 1) derives from a secret process. The accounting firm Ernst and Young worked with tight group of senior managers. Excluded from the process were most senior managers (Pro-Vice Chancellor and above) and all Deans and Heads of School.
Similarly, the Resources Committee of University Council was not informed until Friday morning 17 October 2008 that the process was (a) under way and had been for some time or (b) of its magnitude (section 2).
Moreover neither VC Elizabeth Harman nor DVC John Hickman explained that they had brought to account unapproved capital-spending to conjure a cash-position crisis (section 5). This raises serious concerns about contravention of Victoria University policy (POP070803000 Capital Works Projects).
Indicative budgets might model the effects of provisional and investigative projects. However, it is quite a serious breach of process to bring such projects to account for immediate action – i.e. to justify issuing redundancy notices as early as mid November. Note also:

1.    Resources Committee did not vote on any budget proposal or the redundancy plan at its meeting of 17 October
2.    Resources Committee will not vote on budgets until 28 November
3.    Council will not vote on budgets until 8 December

The redundancy plan pre-empts official University decision-making processes. The decision immediately to target an underlying surplus of five per cent of revenue pre-empts official decision-making processes. The official position remains that University officers are obliged to implement the existing budget, namely the Victoria University 2008 Budget.

Table 1
Category    Net job losses    Notional ‘savings’ in 2010
HE academic staff     150    $16.5 million
General staff    100    $8.5
TAFE    20 now
20 in 2010    $2-$4.0 million
Total    290    $27.0 to $29.0 million

2. Magnitude: largest ever job cuts by an Australian university

For the dollar estimates to correspond to the net job losses, the losses must be full-time equivalent (FTE) jobs. Hence, in percentage terms the losses proposed are:

Table 2
    Total 2007 (DEEWR)    Total job losses    Per cent job losses
HE academic staff    579    150    25.9
General staff    579    100    17.3
Sub total    1,158    250    21.6
TAFE teaching staff    377    40    10.6
Total    2,693    540    20.1

3. Note the term ‘net’ job losses: actual job cuts will be greater

In a document given to VU Resources Committee on 17 October, ‘2008 plan for a sustainable VU’ (see University intranet), the following statement appears:

Net salary savings in HE in the order of $16.5 million through a well designed program of redundancies that is aligned to a focus on courses and units that have market appeal. New staff will be recruited to support courses with strong market appeal and research, and hence savings must reflect a net amount. (p. 5)

4. Summary of VU indicative budgets

As presented to Resources Committee 17 October 2008, the indicative 2009 budgets for discussion may be summarised as below (tables 3 and 4).

Table 3
actual    2008
forecast    2009    2010    2011    2012    2013
Revenue    348,104    372,601    382,433    392,888    416,250    426,329    449,649
Employee benefits    215,761    238,801    252,291    262,383    267,532    277,922    289,039
Leave (accrual)    679    1,400    1,456    1,500    1,545    1,591    1,639
Buildings and grounds (capital     accrual)    33,213    29,642    32,195    37,577    45,012    45,511    46,027
Other    79,134    88,553    93,292    95,370    98,231    101,178    104,213
Total expenses    328,787    358,396    379,234    396,830    412,320    426,202    440,918
Net operating result    19,317    14,205    3,199    -3,942    3,930    127    8,731
Less capital income        18,738    14,142    18,000    20,000    7,000    7,000
Recurrent position        -4,533    -10,943    -21,942    -16,070    -6,873    1,731

The VC and DVC (Capital and Management) state that this ‘indicative budget’ is ‘unworkable’. Their reasons were:

1.    General sustainability (a point that the NTEU has been making for some time)
2.    Specifically to create surpluses (VU internal funds) to spend on infrastructure
3.    Above budget’s impact on cash (related to 2)

Table 4
Current assets                            
Cash and cash equivalents    91,379    98,527    31,539    -42,470    -58,751    -37,414    -7,472
Other    25,568    23,181    18,836    19,229    19,632    20,042    20,461
Total current assets    116,947    121,708    50,375    -23,241    -39,119    -17,372    12,989
Non current assets                            
Financial assets    1,867    2,017    2,017    2,017    2,017    2,017    2,017
Property, plant and equipment    567,332    576,542    653,106    724,700    746,482    726,801    707,259
Other    93,055    93,055    93,055    93,075    93,095    93,115    93,136
Total non-current assets    662,254    671,614    748,178    819,792    841,594    821,933    802,412
Total assets    779,201    793,322    798,553    796,551    802,475    804,561    815,401
Current liabilities                            
Provisions    43,278    43,278    43,278    43,278    43,278    43,278    43,278
Other    22,223    20,745    21,326    21,772    22,227    22,691    23,165
Total current liabilities    65,501    64,023    64,604    65,050    65,505    65,969    66,443
Non-current liabilities                            
Provisions    97,682    99,082    100,538    102,038    103,582    105,173    106,812
Other    70    64    58    52    46    40    34
Total non-current liabilities    97,752    99,146    100,596    102,090    103,628    105,213    106,846
Total liabilities    163,253    163,169    165,200    167,140    169,133    171,182    173,289
Net assets    615,948    630,153    633,353    629,411    633,342    633,379    642,112
Change in net assets (operating result)        14,205    3,200    -3,942    3,931    37    8,733

The emphasis was and remains on items 2 and 3. This is what presumably explains the urgency and, until 17 October, the secrecy. The VC’s email to staff confirms this view:

While the University has been consistently returning a surplus each year, we need to rebalance our budget to find an additional $30m or thereabouts in 2009 if we are going to have the means to invest in new facilities, infrastructure and services to meet the growth demands of the western region of Melbourne. (Harman, 17 October 2008)

5. VU capital budget and infrastructure plans

By not explaining that they had included unapproved capital projects in their calculations, the VC and DVC misled Resources Committee on 17 October. Data in the fine print of the indicative budget, however, exposes the pea and thimble trick in two ways. The indicative budget:

1.    Brings into the accounts capital spending projects that have not been through the approval process that University Council stipulates
2.    Brings forward to 2009 capital expenditures that had been approved for later years

The effect is to manufacture a ‘cash-position crisis’. The following table makes this clear. Note that the shaded cell (approximately $28.5 million) is close to the amount of savings via redundancy proposed for 2010 (see table 1 above).

Table 5
        2008    2009    2010    2011
Total projects brought into indicative budget    1    25,038    91,966    97,658    43,850
Total approved projects (A-list)    2    22,338    64,198    54,203    2,250
Total unapproved/brought forward projects added into the accounts (P- and I-list)    1-2
3    2,700    27,768    43,455    41,600
Specific government funding of unapproved projects    4    300    7,900    15,000    20,000
Internal VU funding of unapproved projects    3-4
5    2,400    19,868    28,455    21,600

Note also that, if we take the unapproved capital projects out of the indicative budget, we arrive at a similar 2010 cash position to that suggested by management in its power point presentations re the redundancies (table 6).

Table 6
Cash reserves in indicative budget for 2010    -42,470
Unapproved capital spending projects    28,455
Cash reserves in indicative budget for 2010 without unapproved capital spending projects    -14,015
Salary savings from redundancy proposed in management documents    27.0
Indicative budget cash position 2010    -42.5
Revised budget cash position 2010    -15.5

It is important to emphasise that only A-list projects have ‘approved’ status. I-list projects are merely under investigation. P-list projects have provisional approval. However, provisional approval has a very specific meaning. It is contained in the following policy statement:

From time to time, but at least annually, management will present to Council, through the Resources Committee a draft List P for endorsement. In most cases, these submissions to Resources Committee and Council will include a request for funding approval sufficient to undertake a detailed feasibility study which will test the project business case and provide accurate cost estimates. The feasibility study will provide the information necessary to support a future List A submission. (POP070803000 Capital Works Projects, 6.2)

    In plain English P-list projects have not passed the ‘feasibility study’, ‘project business case’ and ‘accurate cost estimate’ requirements Resources Committee and Council insists upon. They are not approved projects but are merely provisional.
In the light of this University’s notorious fraud cases, such rigorous procedures are essential.
Meanwhile, it is reasonable to conclude that management have conceived the redundancies to fund an immediate (2010) but manufactured cash ‘crisis’. Beyond 2009-10 they will fund ongoing capital programmes through internal VU cash contributions. This is the meaning of management’s proposal that the University immediately generate a five per cent underlying surplus.

6. Accountability

It is important for accountability, my own included, to note the following extract that will be included in the minutes of the 17 October Resources Committee meeting:

Dr J Doughney noted that the proposed staff cuts constitute the largest in the sector in Australian history, and advised that the University should institute an immediate employment freeze and halt progress of hubbing and campus change plans.  Dr Doughney expressed the view that Council, Resources Committee and senior management should take responsibility for the magnitude of the financial situation and that the executive management of the University should resign.

    Having now had more time to analyse the indicative budget discussed at the 17 October meeting, I must add to this view the following points:

1.    I feel that I have been misled in discharging my duties on Resources Committee (i.e. regarding accounting for unapproved capital projects)
2.    I believe that the capital-spending plans of the University need urgent review
3.    I have no confidence in any internal review, and hence I urge review by an independent external authority.

7. Conclusion

Item 3 immediately above must be seen in a much more worrying context. The University’s proposed hubbing and campus planning changes are not yet in the accounts. Roughly speaking, these project additional building costs for the University to 2016 of:

•    $427 million if our current student load does not increase to 2016
•    $830 million with a ‘modest’ increase in load
•    $1.25 billion with a ‘medium’ load increase

Campus planning decisions (e.g. closing Sunbury and Melton) arise contingently (but not necessarily) from hubbing. ‘Hubbing’ is the term for bringing like courses and activities together in key locations. Hubbing arises contingently from Making VU plans (e.g. clusters etc.). The full implications of decisions about Making VU, hubbing and campus planning are unknown (at least, with satisfactory rigour).
    What we do know is that hubbing, closing campuses and relocating load creates additional costs (e.g. the need for more buildings). Regardless of the merits or otherwise of concentrating our efforts, it is obvious that costs such as those above would require:

1.    Impossibly large expenditures for VU alone
2.    Massive federal and state funding
3.    Federal and state funding plus injections of VU surpluses and debt

Given the likelihood that 3 is the most probable scenario – though we still have no commitments from government at all – it is reasonable to conclude that management is playing a high-cost, high-risk game with the future of the University.

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