MORE $$$ AND SENSE IN INTERNATIONAL EDUCATION

Transcription

1 Welcome to MORE $$$ AND SENSE IN INTERNATIONAL EDUCATION

2 Dr David Back FCA School of Business & Government University of Canberra Director International Education Solutions Pty Ltd 2

3 The story so far: Dollars & Sense in International Education dealt with: Pricing onshore tuition fees Accounting for international offices Accounting for offshore courses 3

4 More $$ and sense in international education concentrates on accounting for and financial management of transnational education. It explains a financial model which can be used to measure financial performance and illustrates this model through a hypothetical case study 4

5 Our earlier research revealed that: Before commencing any offshore teaching programs 45% of the institutions project cash flows, revenues & expenses and assets & liabilities 32% of the institutions project cash flows and revenues & expenses but not assets & liabilities 14% of the institutions project revenues & expenses and assets and liabilities but not cash flows 9% of the institutions make no accurate projections 5

6 Our earlier research revealed that: Before commencing any offshore teaching programs 4% of institutions project ten years ahead 25% of institutions project five years ahead 12% of institutions project four years ahead 38%of institutions project three years ahead 4% of institutions project two years ahead 8% of institutions project one year ahead 9% of institutions make no accurate projection 6

7 Our earlier research revealed that: Before commencing any offshore teaching programs 9% examine no scenario 41% examine one scenario 17% examine two scenarios 33% examine three scenarios 7

8 Our earlier research revealed that: In measuring the financial performance of offshore courses all of the institutions interviewed measure cash flows at least once a year. 8

9 Our earlier research revealed that: In measuring the financial performance of offshore courses: 23% do not measure revenues and expenses 18% do measure revenues and expenses but not accurately 59% do measure revenue and expenses 9

10 Anecdotal comments on transnational education from our earlier research Many of our offshore programs are run for charity Our programs in China are loss leaders None of our programs are making money 10

11 Transnational education What should be measured Cashflows Revenues and direct expenses When they are material: Assets and liabilities 11

12 Transnational cashflows Need to be measured Are a measure of liquidity Are not a measure of financial contribution Can normally be funded by Australian institutions without having a major impact on overall liquidity 12

13 The key to measuring financial performance Is the contribution the project makes to institution overheads. Contribution is measured by taking the revenue of the project for the period and deducting the matching direct expenses. 13

14 In the long term net cash flows equals total contributions In the short term they can be very different. If only cashflows are measured in the short term then a very inaccurate assessment of the success of the project can be obtained 14

15 To measure financial contribution Revenue needs to be measured in the period it is earned, not received. Direct expenses, including internal direct expenses, need to be matched against this revenue Expenditure incurred before revenue needs to capitalised and treated as an asset then written off as a direct expense over the life of the project Expenditure incurred after the revenue is earned needs to be included as an expense in the period in which the revenue is earned Future losses need to be brought account as a direct expense when recognised, not in future years. 15

16 Charges imposed by units within the Australian institution: are frequently and incorrectly treated as direct expenses. Unless, they represent costs which can be directly identified and attributed to the project they are internal transfers and not direct costs 16

17 XYZ Institution Statement of Cashflows for the project for the year ended 31 December 20X0 Cash received by Australian institution Less Cash disbursements Teaching & assessment salaries & oncosts Examination costs Travel & accommodation costs Legal costs Other salaries & oncosts Promotion costs Freight costs Communication costs DEST levy Graduation costs Taxation costs Other costs Net cashflows 17

18 XYZ Institution Statement of Revenue & Direct Expenses for the year ended 31 December 20X0 18 Share of revenue Less Direct expenses Teaching & assessment salaries & oncosts Examination expenses Travel & accommodation Legal expenses Course coordination salaries & oncosts Other salaries & oncosts Promotion Freight Communications DEST levy Graduations Taxation Other expenses Amortisation of establishment costs Share of future losses Contribution to overheads

19 Endeavour University Melbourne based Master of Information Technology: Twelve subjects Three semesters over 18 months Progression rules allow students two attempts for each subject 19

20 Contract with the Chinese University of Information Technology (CUIT) To offer the MIT in Beijing in 20X1 Endeavours share of revenue is $A870 per subject per student Each subject is taught by both institutions CUIT 2/3 rd Endeavour 1/3 rd Minimum of three intakes after which each party may terminate the contract If the contract is terminated the subjects are required to be taught out Syllabus is identical to Melbourne 20

21 Further details After three intakes CUIT terminates the contract It takes until First Semester 20X4 to teach out the program Senior lecturer spends 30% and HEW 6 spends 10% of their time on the CUIT project in 20X0 In the next two years these change to 20% and 25% and for the rest of the project to 10% and 20% respectively 21

22 Student numbers, subjects & fees 1/20X1 2/20X1 1/20X2 2/20X2 1/20X3 2/20X3 1/20X4 Intake nd Semester rd Semester Total students # of subjects Tuition fees $121,800 $229,680 $285,360 $156,600 $76,560 $23,490 $1,740 22

23 Endeavour University Statement of Cashflows for the CUIT project for the years ended 31 December 20X0 to 20X4 20X0 20X1 20X2 20X3 20X4 Total Cash receipts 121, , ,160 25, ,230 Less Cash payments Teaching salaries & oncosts 78, ,040 72,020 13, ,840 Examinations 8,200 12,400 7, ,200 Travel & accommodation 13,100 67,800 99,800 Legal 10,500 10,500 Promotional costs 5,100 2,000 2,100 2, ,600 Freight 1,200 1,800 2,300 1, ,850 Communications 1, ,300 DEST levy 17,574 22,098 5, ,762 Graduations 2,300 2,600 3,200 8,100 Taxation 11,200 24, ,521 Other 1, ,300 1, ,700 Total payments 32, , , ,996 41, ,673 Net cashflows (32,500) (56,498) 229,902 56,164 (16,511) 180,557 23

24 Endeavour University Statement of Revenues and Direct Expenses for the CUIT projects for the years ended 31December 20X1and 20X2 20X1 20X2 Revenue 351, ,960 Less Expenses Teaching & assessment 78, ,040 Examinations 8,200 12,400 Travel & accommodation 67,800 99,800 Course coordination 20,352 21,500 Other salaries 15,545 16,320 Promotion 2,000 2,100 Freight 1,800 2,300 Communications DEST levy 17,574 22,098 Graduations 2,400 3,400 Taxation 11,200 24,321 Other expenses 1,600 1,300 Amortisation of establishment costs 33,745 33,745 Future losses 70,820 70,819 Total expenses 332, , Contributions to overheads $19,120 $217

25 Net cashflows less other direct salaries Contribution before amortising establishment costs & future losses Correct contribution 20X0 (67,490) (67,490) 0 20X1 (92,395) 123,685 19,120 20X2 192, , X3 30,719 (77,570) 0 20X4 (43,579) (64,069) 0 Total $19,337 $19,337 $19,337 25

26 Cumulative Net cashflows less other direct salaries Contribution before amortising establishment costs & future losses Correct contribution 20X0 (67,490) (67,490) 0 20X1 (159,885) 56,195 19,120 20X2 32, ,976 19,337 20X3 62,916 83,406 19,337 20X4 19,337 19,337 19,337 26

27 Recommendations in relation to transnational education projects 1. In addition to due diligence and other risk management activities institutions should project: a. Cashflows b. Revenues and direct expenses c. If they are material, assets & liabilities 2. These figures should be projected at least until the first cohort has graduated 3. At least three scenarios should be projected expected, pessimistic and optimistic 4. A financial model should be used 27

28 Whichever model is used : Revenue needs to be measured in the period it is earned, not received. Direct expenses, including internal direct expenses, need to be matched against this revenue Expenditure incurred before revenue needs to capitalised and treated as an asset then written off as a direct expense over the life of the project Expenditure incurred after the revenue is earned needs to be included as an expense in the period in which the revenue is earned Future losses need to be brought account as a direct expense when recognised, not in future years 28