Alexander Knott

An Investigation into UWA’s Finances

aLexander knoTT

Think back to the start of the pandemic - that’s when you started hearing about UWA’s financial problems and started wondering what was going on.

If you were curious enough, you may have checked UWA’s financial statements and scrunched your face in confusion. A positive $120 million net result doesn’t sound like a deficit (even for the golden triangle) it sounds great! Prompting the question: what the hell is the problem? Fortunately, I’ve spent more time than I’d like to admit scouring the last several years of UWA’s financial statements for an answer. Unfortunately, it wasn’t what I was hoping to find.

Below is a summary of a report I wrote for the UWA Academic Staff Association. A full copy can be found here: https:// alexanderknott.com/2021/08/assessinguwas-financial-performance/

Problem 2: Fig.1

Problem 1: Income growth has slowly been outpaced by growth in total expenditure Problem 2: Ability to generate cash from ‘day-to-day’ operations has deteriorated

UWA basically performs “Teaching”, “Research”, or “Other” functions. Using UWA’s annual statements, we can see how much income UWA generates from each function.

On average, from 2014 to 2020, UWA received 47% of income from “Teaching”, 30% from “Research”, and 23% from “Other” sources. In that period, “Teaching” income increased $8 million (0.3% p.a. growth), “Research” income increased $7 million (0.4% p.a. growth), “Other” income decreased $5 million (-0.4% p.a. growth), and total expenditure increased about $43 million (0.8% p.a. growth).

Meaning, over the last seven years, income growth has been stagnant and outpaced by growth in expenditure (you don’t need a degree to know why this is important).

[See Fig.1 on Page 44]

It is important to examine UWA’s cash flows to assess its ability to financially sustain its ‘day-to-day’ operations. To do this, Figure 4 plots UWA’s:

• Net cash from ‘day-to-day’ operations; and

• Net cash from borrowings and the investment portfolio.

Critically, cash from ‘day-to-day’ operations has trended downward whereas cash from borrowings and investments has trended upward. Further, a significant cash deficit in ‘day-to-day’ operations is observed over 2018 and 2019.

This suggests UWA has become increasingly reliant on borrowing cash or ‘cashing in’ investments to fund the deficit in ‘day-today’ operations. This likely represents the “structural deficit” or “cash deficit” referenced by Vice-Chancellor, Professor Chakma.

UWA’S FINANCIAL PERFORMANCE HAS BEEN DETERIORATING, BUT A LACK OF FINANCIAL TRANSPARENCY HAS MADE ITS SEVERITY DIFFICULT TO SEE AND VERIFY.

Problem 3: ‘Underlying’ performance has deteriorated since 2014

UWA’s net result may not reflect its ‘true’ performance. For example, in 2019, of UWA’s $120 million net income, $128 million was from investments. Given UWA is a university and not a hedge fund (believe me, it’s debatable) it can be misleading to conclude UWA’s did well in 2019.

Instead, ‘underlying’ measures are used to evaluate UWA’s ‘true’ performance through removing misleading items (like investments). There are three main ‘underlying’ measures used today:

1. UWA’s newly implemented ‘Underlying

EBITDA’ measure; 2. Australian Group of Eight universities

‘Underlying Result’ measure; and 3. A simple ‘Net Income Less Total

Investment Income’ measure.

Although differing in calculation, all three measures have deteriorated since 2014. Suggesting UWA’s ‘underlying’ or ‘true’ performance has been deteriorating for quite some time!

Problem 4: Transparency

UWA’s financial performance has been deteriorating, but a lack of financial transparency has made its severity difficult to see and verify. This has left students and staff second-guessing and confused as to the true state of the university.

For example, only $60 million of the $70 million structural deficit is verifiable with public information. Further, while it is possible to see, with fantastic detail, how much UWA makes from “Teaching”, “Research”, and “Other” functions, how much it spends on them is not publicly disclosed.

The key point is that without more transparency, it is difficult to verify the extent of UWA’s financial problems, and if these problems are difficult to verify, it is difficult to believe the extreme actions taken to address them are necessary.

Read the full article at https://pelicanmagazine.com.au/2021/08/14/analysis-aninvestigation-into-uwas-finances/