UGC Funding to Institutions

UGC funding for the UGC-funded institutions is composed of recurrent grants and capital grants.

Recurrent grants support institutions’ academic work and related administrative activities; and capital grants are used to finance major works projects and minor campus improvement works.　

The recurrent funding for the 2009/10 to 2011/12 triennium was approved by the Finance Committee of the Legislative Council in January 2009. The total approved recurrent funding for the UGC-funded sector in the triennium amounts to $33,992 million, covering both block grants and earmarked grants.

The bulk of the recurrent grants are disbursed to institutions normally on a triennial basis to tie in with the academic planning cycle, and in the form of a block grant to provide institutions with maximum flexibility in internal deployment. Once allocations are approved, institutions have a high degree of freedom in deciding on how the resources available are put to best use. Determination of the grants to institutions is largely based on an established formula. The amount of block grants comprises three elements:

Chart 1: Relative Cost Weightings by Price Groups of Academic Programme Categories

Research (about 23%)
The Research element is primarily related to the research performance of academic staff, and the cost of research in respective fields. The number of active research staff in each cost centre is identified in the context of a Research Assessment Exercise which assesses the research performance of different cost centres within institutions.　

Professional Activity (about 2%)
The Professional Activity element is associated with professional activities expected to be undertaken by all members of academic staff. These include, for example, community service undertaken and advice rendered on societal or professional issues. It is calculated based on the number of academic staff.　

The funding formula is the key parameter used to assess institutions’ needs. But in finalising its funding recommendations, the UGC also takes into account the special needs of individual institutions and other factors not captured by the formula and will introduce extraformulaic adjustments where required. 

Earmarked grants for specific purposes are allocations outside the block grant system. Examples are the earmarked research grants, grants for knowledge transfer activities, and grants for areas of excellence scheme. Once determined, recurrent funding for a triennium will not be adjusted during the period except for adjustments to take into account changes in the indicative tuition fee levels, new initiatives from the Government and civil service pay adjustments. 

Following the civil service 2009 pay cut and 2010 pay rise which took effect from 1 January 2010 and 1 April 2010 respectively, the subvention for 2010/11 was reduced by approximately $220 million.

The UGC-funded institutions are autonomous statutory bodies governed by their respective Ordinances. They enjoy institutional autonomy in such areas as curriculum design, selection and recruitment of staff and students, and internal allocation of finances. While respecting the institutional autonomy of our funded institutions in allocating and managing their internal finances, the UGC adopts an accountable and transparent approach in ensuring the public money entrusted to the institutions are applied meaningfully and provide value for money.  

To provide institutions with substantial financial freedom, the bulk of the subvention to institutions are in the form of the block grant, which provides for a “one-line” allocation of resources for a funding period (usually a triennium) without prescription attached as to how it should be spent. The major requirement is that such grant must be used within the ambit of “UGC-fundable activities” while adhering to approved student number targets. The precise amount of the block grant has to be approved by the Finance Committee of the Legislative Council before the start of every triennial funding period, after which the responsibility falls squarely upon the institutions to apply those funds appropriately.

• Institutions are accountable for any unspent balances of the public funds
While being entitled to maintain a general reserve of up to 20% of the institution’s total approved recurrent grants (excluding any earmarked grants) in a triennium for future and new development needs, any excess of that level has to be returned to the UGC. The use of the general reserve is subject to the same rules and regulations governing the use of recurrent grants. For grants earmarked for specific purposes, any amount unspent after the close of financial year or approved funding period must be returned.

• Institutions provide regular reports on their finances to the UGC
We require institutions to submit for each financial year an annual return on the use of all UGC funds. We also require Heads of Institutions to provide a Certificate of Accountability to the UGC annually to confirm that the public funds allocated via the UGC have been spent in accordance with the rules and guidelines as agreed with the UGC.

• No cross-subsidisation of UGC resources to non-UGC-funded activities
Recurrent grants are provided to the UGC-funded institutions to support their academic and related activities based on approved UGC-funded activities. As such, there should be no cross-subsidisation of UGC resources to non-UGC-funded activities (including, but not limited to, self-financing activities). To avoid hidden subsidy to non-UGC-funded activities, the institutions should levy overhead charges on such activities, including projects funded by other Government departments/agencies and projects/programmes conducted by their selffinancing
subsidiaries or associates.

• Institutional finances are subject to professional accounting standards and external audit processes
Institutions are required to keep proper accounting records in accordance with the Hong Kong Financial Reporting Standards and the house guidelines on recommended accounting practice adopted by the UGC where appropriate. Institutions also arrange their own external annual audits on their financial statements and the annual return, in accordance with prevalent assurance engagement standards adopted by the audit profession. For the purpose of efficient use of public funds, institutions are also subject to examination by the Director of Audit.

• Financial affairs working Group
From time to time, the UGC may express interest in the financial well-being of UGC-funded institutions and enquire on specific financial issues concerning the UGC sector. To strengthen the financial monitoring effort, the UGC established a new Financial Affairs Working Group in January 2011 with professional expertise to work with institutions to help ensure their continuing good financial governance and sound financial planning.

The UGC supports capital works projects of institutions for UGC-approved activities by capital grants sought from the Government on an annual basis under the Capital Programme, and the Alterations, Additions, Repairs and Improvements Programme. Details of the two capital grants programmes are illustrated in the flowcharts below:

In 2010-11, there are 26 ongoing capital works projects under the Capital Programme with a total estimated project cost of some $12 billion. The expenditure on these projects in 2010-11 was about $1.8 billion. With the commencement of superstructure works of most projects, the spending in 2011-12 is anticipated to increase to some $3.6 billion.

In 2010-11, the UGC supported a total of 32 new Alterations, Additions, Repairs and Improvements projects submitted by institutions with a total estimated cost (to be spread over up to three years) of some $530 million. To meet the expenditure of the ongoing and newly approved projects in 2010-11, a total of $270 million was allocated to institutions. The allocation will be increased to some $440 million in 2011-12 as institutions carry out major spatial reorganization works to prepare for the new four-year academic structure.　

The capital grants are charged to the Capital Works Reserve Fund and are part of the Capital Works Programme of the Government. Institutions’ projects under capital subvention follow the procedures for creating and managing a capital works project under the Capital Works Programme. Institutions assume full responsibility and accountability for their projects under capital subvention. They ensure that works expenditure stays strictly within the approved project estimate in accordance with the approved project scope i.e. the scope approved by the Legislative Council for capital works projects exceeding $21 million, and the scope approved by the UGC for Alterations, Additions, Repairs and Improvements projects up to $21 million.

Institutions have in place an appropriate system of cost control and monitoring mechanism for overseeing the spending of public money having regard to economy, efficiency and effectiveness in the delivery of their projects. In particular, institutions ensure proper procurement procedures are in place, taking reference from Government’s latest rules and regulations applicable to public capital works.

Approved funds for the projects are released to the institutions on a monthly basis. Institutions are required to submit a monthly statement on the financial position and a quarterly report on the progress of their projects. Upon completion of a project, the institution should submit a statement of final accounts to the UGC and return any unspent balance or unapproved expenditure to the Government.

Last year, the UGC embarked on a thorough exercise to critically review the Notes on Procedures – a long established document setting out the functions and responsibilities, regulatory matters, and the interplay among the Government, the UGC and all the funded institutions – and eliminated unnecessary administrative procedures on a wide range of major areas, among which is the streamlining of procedures for capital grants, and removing the requirement of seeking UGC’s approval on major equipment purchases. We believe such revisions will considerably reduce the administrative burden of institutions and the UGC, while enhancing the clarity of the ambit of each party’s responsibilities.