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by Prof. H. P. M. Gunasena

In recent years there has been an awareness in the lack of adequate financial management in the universities. Therefore efforts are being made to improve the financial framework, and introduce a planning and monitoring system by a process of decentralisation of financial disbursements to the faculty and department level with greater autonomy and accountability.

Sri Lankan higher education system is highly subsidized since Independence due to the free education policy of successive governments. There has been a massive investment on university education on the part of all governments to develop human resources required for different sectors of the economy.

Although costly, this investment has paid dividends as indicated by the high adult literacy rate of over 90% life expectancy has increased, for women over 73 years and men 70 years, infant mortality rate has decreased to less than 25 per 1000 live births and the per capita income is over 800 US dollars. The human development index based on the above criteria stands at 0.71, the highest among the countries of the Asian region. However, these indices does not reflect in the growth of the economy or employment.

The graduate unemployment presently stands at about 30,000. It is also reported that many of the graduates remain unemployed after graduation, particularly in the Arts stream about 68% are unemployed up to three years after graduation. This is highly wasteful of valuable human resources, which if put to proper use could help to alleviate poverty in this country.

The expansion of university education during the past several years has tended to lack an overall plan or consideration of economic or employment needs of the country. As a result of this the university education has been wasteful of financial resources. Although the universities have full autonomy to develop curricular and courses, they are not accountable for quality of degrees offered, cost effectiveness, graduate output or employment. The government is attempting to increase the employability of graduates, a major social obligation and justifying the high investment on higher education. As the Deputy Chairman of the University Grants Commission states, "funding of the universities are done on an ad hoc manner without considering the actual needs of the respective universities."

The budgetary requirements for the universities will continue to increase due to the expansion of the university system and the proliferation of the degree programmes. This is particularly true at present as the reforms envisaged will require the universities to develop new courses and degree programmes to meet the current needs of the society.

When there are budgetary restrictions in university system will have to face adverse consequence, firstly the quality of degrees will suffer and secondly the scope and relevance of the university education and their S & T activities will be badly affected. Long term financial constraints will be a disaster in terms of producing high quality human resources for any developing nation, burden to those who are aspiring to qualify at degree level for employment and to the society who pay for it equally well. The universities have been operating on a deficit budget for the past several decades.

In recent years there has been an awareness in the lack of adequate financial management in the universities. Therefore efforts are being made to improve the financial framework, and introduce a planning and monitoring system by a process of decentralisation of financial disbursements to the faculty and department level with greater autonomy and accountability.

Due to the lack of proper financial management, Audit and Management Committees have been appointed recently to each university as first step towards reforming the financial administration. However, these committees have not brought about any significant improvements in the financial administration system of the universities. Much has been discussed over the diversification of finances through cost recovery measures and to stream line the financial administration through the introduction of information management systems. Indeed there is a greater need now than ever before for cost recovery/cost sharing in university education as the government resources are getting more and more scarce. Therefore a new system of financial allocation and cost recovery should be developed, coupled with comprehensive monitoring mechanisms.

The expenditure on higher education during the past few years indicate that about 95% of the budget is funded by the government. The provision from the consolidated fund for years 2001 and 2002 for recurrent expenditure was Rs. 4695.3 million and Rs. 5671.1 million respectively. Similarly the capital expenditure in the same two years amounted to Rs.2124.6 and Rs. 3218 million respectively. The total annual commitment for university education is about Rs. 9 billion. In relation to the Gross Domestic Product this is about 0.4% . It should be noted that most of the expenditure is on administrative costs and salaries. There is not much funds left for maintenance of infrastructure and quality aspects of education. There is also little funds earmarked for research and development.

The government also subsidizes the living expenses of the students through Mahapola and government bursaries. The Mahapola scholarship award which was initiated by the late Minister Lalith Athulathmudali in 1982 was primarily meant to assist the needy students to continue their education in the fields of bio-science, physics, commerce and arts subjects. The number of recipients of this scholarship in early 1990s was about 4585 but the number has gradually increased over the years. In the academic year 2000/01, 1298 scholarships were awarded on merit and another 4977 ordinary scholarships, a total of 6275 awards.

In this year 52% of the total admitted (12,020) has received Mahapola scholarships. In the academic year 2001/2002, 6996 awarded, 723 on merit and 6273 on district basis. The highest number of awards were in the Arts Stream (2755) followed by Commerce (1674), Physical Science (12920 and Bio-stream (1275). The monthly payment of Mahapola was increased recently from Rs. 1000 to Rs. 1450, averaging Rs. 90 million per year.

The government has also supports student accommodation in all the universities. In 1994 37% of the students were accommodated in university hostels, this number was increased to 53% in 2001 and plans are ahead to increase it to 70% by the year 2004. The hotel accommodation per student costs only Rs. 320 per year. As there is hardly any cost recovery, universities are finding more and more difficult to maintain the hostels which are also over crowded.

Under the present higher education system, assumption is that university education is free and the state is bound to supply all needs for free education. However it has to be noted that for each student entering the university the public pays a large sums of money at the expense of some other priority need including social amenities. It is becoming more and more clear that the government is not able to shoulder the cost of higher education, although it expansion is highly relevant in the context of the knowledge society. Therefore policies will have to be developed to encourage cost recovery in various ways, cost sharing from the beneficiaries, people's participation and mobilisation of available resources.

Undergraduate education

The unit cost for providing undergraduate education in the local universities are also too high. The unit cost for different courses of study in universities have been calculated by the UGC based on direct expenditure and indirect costs. The direct cost is the recurrent expenditure while the indirect cost will cover the services such as the library, medical services, hostel accommodation, scholarships etc.

The unit costs may be high due to excess staff in all grades, high ratios of teachers to students and teaching load below university norms, mismanagement of finances, sub optimal use of facilities among many other factors. As indicated earlier in comparison with the other regional universities, the local unit costs are extremely high. For instance, in the university of Tribhuvan, Nepal, the unit costs are extremely low and are in the region of Rs. 10,000 - 12,000. The universities, since their establishment have never been subjected to any internal or external review.

They have been operating without any monitoring mechanisms, with the main function as the production of graduates of varying quality depending on the university. They have been investing on unproductive options without even outsourcing marginal academic functions such as transport, security services, photocopying etc. until recently. Hence reasons for high unit costs in the local universities should be analysed to find solutions to achieve cost effectiveness. The universities of the developed countries are subjected to periodic review and steps are taken to improve the quality of education and optimizing use of facilities.

These reviews also keep the universities alive to the global changes taking place in higher education and providing opportunities to make necessary changes. On the basis of the reviews the universities are also rated which is considered for funding, student applications to the universities also depend on their ratings. Therefore periodic reviews are useful mechanisms to improve university education in terms of quality, relevance and cost effectiveness.

There is no reliable information on cost recovery in the local universities. In some Asian universities the rates vary from 15 - 60%. In fee levying universities to recoveries are higher. Presently the students pay registration fees amounting to about Rs. 150 per year, Rs. 50 for medical expenses, refundable science deposits and few other expenses depending on the faculties where programmes are conducted. The tuition fees are not charged, hence cost recovery is insignificant.

There are several ways to recover the costs in university education. One of the easiest is through the increase of tuition fees. Since free education has been existence for a long time increasing of fees becomes a very sensitive issue. It has also political ramifications as some of the political parties are completely against increases in student fees. Some even prefer low quality education if given free. However, low quality education is a poor investment as graduates become unemployable as they do not possess the necessary knowledge and skills.

The rationale for cost sharing in higher education is sound. However it is poorly understood by the society in general and the students in particular. The students do not like to be deprived of the privileges they were receiving and that stands to good reason. The local universities have not made any serious attempts to recover costs incurred in higher education. This may be due to two reasons; firstly to the age old misconcept of free education because its not free but someone pays for it. It is a politically sensitive issue particularly at the undergraduate level. If attempts are made to increase fees, students agitate with the backing of some political elements who try to fish in muddy waters.

It has been taken for granted that all aspects of higher education such as tuition, examinations, accommodation etc. are provided free by the government. Secondly as the government provides regular budget, the universities are not concerned to generate additional income from other sources. If for any reason the funds become insufficient a further request could be made to the authorities for a supplementary grant. The cost recovery at the undergraduate level is therefore insignificant in comparison to the investment.

At the postgraduate level fees are charged, but the cost recovery often does not exceed 20%. A proper costing has not been undertaken and those in practice over 25 years old. In recent years some universities, graduate faculties and postgraduate institutes have become cost conscious and the fee structures have been revised. The full cost recovery also depends on the type of courses offered by any institute. The fees charged by a particular institute will depend on the demand for the degree courses it offers.

If the courses have high demand then even if high fees are charged the demand continues. The Postgraduate Institute of Management is the only one that has instituted policies for full. As proposed by the Presidential Task Force and at the Paris Development Forum, 2000, direct funding of universities on normal budgeting procedure will not be any more applicable in the current context. It is most urgent to evolve funding formula taking into consideration several criteria such as student admission to a faculty or department, student output or pass out rate during the minimum period, quality assurance and accreditation of programmes, cost effectiveness, research quality and volume and other factors that are specific to a university. In regard to formula based funding, the University Grants Commission is presently studying a report prepared by a British consultant.

This report proposes that the recurrent grant should be based on the volume of teaching and research that a university will undertake based on the premise that these are the two pillars on which the universities operate. The UGC hopes to introduce formula based funding from the year 2004.

In developing an acceptable funding formula for the universities several factors have to be considered. The Sri Lankan universities are at various stages of development. Those universities established before 1980s are fairly well established both in terms of infrastructure and other facilities while the recently established ones will require additional support. Also, teaching of some courses having clinical subjects and extensive field practicals as in fields such as agriculture and veterinary science will require additional funding. These courses will require expensive laboratory equipment and chemicals and maintaining farms etc,.

A further concern will be the number of students in any department, for some will have large numbers, there are also departments with few students and for specific reasons that level should be maintained. Some universities like Peradeniya and Colombo also have massive infrastructure to maintain. Therefore, it will be necessary to have provisions for these variables and a "special factor funding" may have to be introduced to the funding formula proposed. The special factor funding could also be used as an incentive to encourage universities to develop good management strategies, enhance the capacity to offer better academic programmes and to develop dialogue with stakeholders.

Other recovery measures

The unit cost could also be reduced with internal arrangements such as optimal use of the existing facilities to increase admission of students. According to some reports the resource utilization rates in the universities range between 50 - 80%. The universities also work on 8 hour shift. There are hardly any formal arrangements for sharing laboratories or classrooms. The recent change over to the course unit system of instruction too has not brought about any significant change in regard to optimizing of resources.

If the existing resources are shared, the unit costs could be drastically reduced. The procedures stated above indicates cost effectiveness as the determining criteria for reducing unit cost which the universities have not adhered to any significant extent. If budgeting is based on performance, it will provide incentives for the universities / faculties to be cost conscious and invest the funds on the best options.

In today's context the universities have to become entrepreneurial for their survival as in the case of the private institutions. In this regard there are ample opportunities that could be effectively utilized. Most of the foreign universities make the best use of their own resources to improve the basic facilities to offer quality degree programmes of attractive outreach activities. All universities in the world are blessed with one major resource which no other institution has and that is the presence of a well qualified and experienced staff.

The Sri Lankan universities also have well qualified staff, majority with foreign qualifications. The Development Forum 2000 Paris also states that the universities should undertake services for the private sector industry and the Government and international clients including consulting, research, laboratory tests, agricultural piloting, industrial production projects, feasibility studies etc.

The UGC has set out detailed procedures for consultancy and teaching services of university staff. In general university staff undertake consultancy assignments for national or international clients. These more often involve a few individuals in a university or sometimes a department/ institute. Some universities have established Centres such as the Business Development Centre and the Centre for Environmental Studies as in the case of the Peradeniya university to undertake consultancies on formal basis.

The Engineering Faculties of the Moratuwa and Peradeniya Universities have more organized consultancy services. The Moratuwa University has also developed procedures for the disbursements of funds earned from the consultancies. Generally, the university get about 10% of the total fees and the rest is distributed among those involved in the consultancy in fixed proportions.

In some of the foreign universities there are separate consultancy arms with separate staff and fully equipped offices. Their main function is to search for consultancies world over and generate revenue for the university. The university engaging in consultancy services is an accepted norm, hence the local universities should formalize the consultancy services to generate revenue for their activities.

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