‘“~, LONDON:The Stationey Ofice

Report by the

Comptroller and Auditor General

University of

Portsmouth

Ordered by the

House of Commons

to be printed 19 May 1997

HC4 Session 1997-9822 May1997

~NERSIN OF PORTSMO~H

This report has been prepared under Section 6 of the National Audit Act, 1983for presentation to the House of Commons in accordance with Section 9 of theAct.

John BournComptroUer and Auditor General

National Audit Office25 March 1997

The ComptroHer and Auditor General is the head of the National Audit Officeemploying some 750 staff. He, and the National Audit Office, are tota~yindependent of Government. He certifies the accounts of aUGovernmentdepartments and a wide range of other pnbhc sector bodies; and he has

statutory authority to report to Parhament on the economy, efficiency andeffectiveness with which departments and other bodies have used theirresources.

UNIVERSITY OF PORTSMOUTH

Contents

Part 1: Introduction and summary of conclusionsand recommendations

Part 2: The investigation of the V]ce-ChanceUor’s expenses

Part 3: The conduct of business by the Board of Governors

Appendices

1. Swmary chonolofl of events

2. The structure of responsibfities and accousrtabfities inhigher education

3. Terms of reference and summary of conclusions of theLever In@y Report

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Coverphotogaph: 0 TheUtiversi@ofPor&mouth

UNIVERSI~ OF PORTSMOUTH

Part 1: Introduction andsummary of conclusions andrecommendations

The National Au&t Office investigation

1.1 In early 1996, the ComptroUer and Auditor General received correspondence&om individuals, including the former Deputy Vice-ChanceUor at the Universi~of Portsmouth, making a range of a~egations focusing on the governance of theUniversity. These a~egations fo~owed earher correspondence to the Chairmanof the Committee of Pubhc Accounts from Members of Parhament which hadraised similar, but less specific, concerns.

1.2 With the fti agreement and co-operation of the Universi~ and the HigherEducation Funding Council for England (the Funding Council), the NationalAudit Officeused their inspection rights set out in the Further and HigherEducation Act 1992 to examine all the matters raised. These matters relate tothe previous governance of the institution mainly in the period hetieenMay 1990, when the post of executive head of the institution became vacant,and December 1994, when the former Vice-ChanceUor resigned. The NationalAudit Officehave investigated au the a~egations put to them. The National AuditOffice investigation included interviews with staff and governors at theUniversi@ and examination of documents at the University and at the FundingCouncil. Where evidence wae found to support the aUegations, these aredetailed further in tMs report at Parts 2 and 3.

1

1,3 The ComptroUer and Auditor General has reported on these matters, eventhough the University has akeady taken action, because there are generallessons to be learned and, as noted at paragraph 1.1, tiere was still disquietabout these matters in 1996. This report records the findings and theconclusions of the National Audit Office regarding the actions taken by thegoverning body and others at the University and the Funding Council both todeal with the events in question and to prevent the recurrence of such events inthe future. It also makes recommendations as to improvements which cotid bemade to the guidance available to other higher education institutions. Theremainder of this Part of the report

. outines the responsibi~ties and accountabihties of higher educationinstitutions;

. gives a brief background to the University of Portsmouth;

~~RSI~ OF PORTSMOUTH

● sets out a chronological description of the events in question. (A summarychronology is given at Appendix 1);

. records how the University estab~shed an independent inquiry byMr Jeremy Lever QCto examine the events leading up to the resignation ofthe Vice-ChanceUon

. outiines related concerns of the Committee of Pubhc Accounts and theCommittee on Standards in Pubhc Life; and

. finally, gives a summary of the National Audit O~ce conclusions andrecommendations.

1.4 The National Audit Office’sfindings, conclusions and recommendations on “Theinvestigation of the Vice-Chancellor’s expenses”, are set out in Part 2 and thoseon ‘rThe conduct of business by the Board of Governors” are set out in Part 3.

ResponsibiHties and accountabilities of highereducation institutions

1.5 In 1995-96, the 148 higher education institutions in England received totalpubhc funding of S5.6 bilhon, including S3.6 bi~lon in Funding Councti grant.The Secretary of State and the Department for Education and Employment (theDepartment) determine the poticy framework for higher education, includingaspects of the governance of institutions. The Funding Council distribute a grantfor recurrent and capital purposes to institutions within this pohcy frameworkand are required to ensure the proper use of these funds, as set out atAppendix 2, The governing body of each institution is responsible for ensuringthat the conditions of grant are met as set out in the Financial Memorandumbe~een each institution and the Funding Council. The governing bodydesignates a principal o~cer of the institution with responsibihty for ensuringthat there has been comphance with such conditions. The holder of this office,normally the Vice-Chancellor, as at Portsmouth, is accountable to the FundingCouncil and may be called to account before the Committee of Pubhc Accounts

forthefundspaidtohis institution.

1.6 The governors of institutions play a central and crucial role in ensuring soundfinancial control. The financial statements must be approved by them; planningand resource committees (or their equivalent) oversee the preparation ofbudgetary plans, and monitor progress against those plans; whilst auditcommittees are, amongst other things, responsible for the review of financialcontrols and processes. The governing body itsek is also expected to takereasonable steps to:

. ensure that funds are used in accordance with the Financial Memorandw

. eneure that there are appropriate financial and management controls inplace to safeguard pubhc funds and funds from other sources;

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UNIVERSIN OF PORTSMOUTH

. safeguard the assets of the institutions and prevent and detect fraud; and

. secure the economical, efficient and effective management of the institution’sresources and expenditure.

1.7 Higher education institutions are independent bodies responsible for managingtheir own financial affairs, The governing body of each institution is generallyresponsible for the appointment, suspension, dismissal, and determination ofthe pay and conditions of service of the head of the institution and other seniorstaff. The Department and the Funding Council have no specific powers tointervene directly in the affairs of particular institutions save in exceptionalcircumstance. The powers of the Department are Emited by statute whereasthe Funding Council’s specific powers are hmited to attaching conditions to tbegrant paid to institutions, It is not part of the role of the Department or of theFunding Council to seek to substitute their judgement for the institution’sjudgement in particular cases.

1.8 The main guidance on the governance of institutions was pub~shed inJune 1995. It was prepared, in consultation with the Department, by theCommittee of University Chairmen in their ‘Guide for Members of GoverningBodies of Universities and Colleges in England and Wales’ (the CUC Guide).Further details on the responsibihties and accountabihties in higher educationare given in Appendix 2.

Brief backqound to the University

1,9 The former Portsmouth Polytechnic became the Universi@ of Portsmouthin 1992 following the changes introduced by the Further and Higher EducationAct 1992. It has the legal status of an independent corporate institution and isresponsible for its own governance, It is governed in line with its Mlcles ofGovernment which were approved by the Privy Council in 1989 and isaccountable through a Board of Governors which is dtimately responsible forall aspects of the institution, including the appointment of the executive headand designated officer, the Vice-Chancelor. The Board of Governors at tbeUniversity of Portsmouth comprises 13 independent” governors, two teachergovernors nominated hy the Academic Council, nine co-opted’” governors, ofwhom tio are elected staff governors and one a student governor (ex-officio the

President of the Students’ Union), and the Vice-Chancellor. The Chairmanship of

the Board of Governors changed hands three times in the period covered by this

“ Independent governors are defined as persons appearins to the appointing authority to have experience of, and to have shorn

capacity in, hdustrial, commercial or employment matters or the practice of any profession, and who are not members of staff or

students of tbe institution or an elected member of a local authority. Up to 13 independent governors may be appointed.

‘“ Co-opted governors are defined as persons nominated hy members of the governing body who are not themselves co-opted members.The co-opted members sha~ number at least one and not more tian nine and may include members of smff, whether teachers or not,

and at least one of the co-opted members must have experience in the provision of education. Elected members of any local authori~

are excluded from membership of the Board of Governors, other than as co-opted members.

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report. Mr Victor Jenner was Chairman from 1988 until June 1991 when hewas replaced by Mr Stuart Waring, who in turn was succeeded byMrs Carohne WIUams in December 1995. References to the former Chairmanare to Mr Stuart Waring unless otherwise indicated.

1.10 The University now has some 12,000 fall-time e@valent students and anannual turnover in excess ofS75 mi~on. Notwithstanding the matters underreview, the University has developed successftiy during recent years. Forinstance, teaching quahty assessments in Geography, Sociology and ModernLanguages have recently confirmed the high quahty of its teaching programme,whilst in the area of research, the Universi~ has maintained a strong recordamongst the former polytechnics. InternationaUy, the University has been verysuccessful, particularly in attracting overseas students to the United ~gdom.

The events at the University of Portsmouth(May 1990-December 1994)

The appointment of a new PresidentW~ce-Chancellor

1.11 FoUowing the death in May 1990 of the President of the Polytechnic, the Boardof Governors estabhshed an Appointments Committee, chaired by the thenChairman of the Board (Mr Victor Jenner) to bring forward the name of asuccessor. FoHowing an open competition, the Committee decided in favrmr ofProfessor John Pickering, one of the existing Vice-Presidents. In August 1990,the then Chairman pubhcly announced the appointment subject to ratilcationby the Board of Governors and wrote to Professor Pickering in this vein.However, during the course of difficult contract negotiations the Cha@anhimse~ concluded in September 1990 that the trust and confidence essentialbetween Chairman and President had broken down. The Chairman thereforereconvened the Appointments Committee which in September 1990 supportedthis view and determined to rescind its original recommendation. InNovember 1990, Professor Pickering agreed to stand aside so that a new

appointment process could take place and accepted the post of Acting President,

1,12 TheBoardofGovernorsthereforeestablisheda newAppointmentsCommitteeand appointments process which resdted in the appointment, in Aprfl 1991, ofMr Neil Merritt as President of the Polytechnic. Mr Merritt took up post inSeptember 1991 and Professor Pickering was appointed to the new post ofDeputy President. When in 1992 the Polytechnic became a University therespective job titles changed to Vice-Chancellor and Deputy Vice-ChanceUor.

Concerns about the Vice-Chancellor’s expenses claims

1.13 The Vice-Chancellor’s agreed contract of employment included an entitlement tothe cost of club class air travel when on University business and thereimbmsement of such expenses as were properly incurred and dehayed.In 1992 he further agreed with the new Chairman that he cordd downgrade to

economy class and claim the cost of club class so as to a~ow hls wife to travelwith him, without cost to him or extra cost to the University.

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1.14

1.15

1.16

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In June 1992 Coopers& Lybrand, the University’s external auditors, raised tiththe Audit Committee some concerns about the appropriateness of some of theVice-ChanceUor’s actions including his expenses claims and more generaflyabout his management style. Dtig the same period, members of the AuditCommittee met privately with the Head of Finance who also expressedconcerns. The Audit Committee asked the external auditors to prepare a ftireport and this was considered by the Audit Committee. They accepted theVice-ChanceUor’s explanations but identified scope for improvement both in hismanagement style and in the systems and controls governing his expensesclaims. They agreed that in future the Chairman of the Board of Governorswotid authorise al expenses claims,

In the course of 1993, the Vice-ChanceUor’s secretary (who at this stage wishedher involvement to be anonymous) raised concerns about the Vice-ChanceUor’sexpenses claims with the Head of Finance and provided him with thedocumentary evidence which she had co~ected. The Head of Finance carriedout some prehminary investigations and found evidence to support thea~egations concerning two overseas tisits made by the Vice-Chancellor, to Egyptin October 1992 and to the Far East (Penang, Singapore and Kuala Lumpur) inSeptember 1993. He found the Vice-ChanceUor had claimed for club class airtravel when he had in fact downgraded to two economy class tickets in such away as to secure a financial benefit (later computed at El ,457) for the two trips,It was further a~eged that the arrangements made for the purchase of thedifferent tickets were such as to maximise the financial benefit, The Head ofFinance was also concerned that returns he had made to the Inland Revenue inrespect of benefits in kind had been incorrect since the Vice-Chancellor had notdisclosed the existence of such benefits.

[n September 1993, the Head of Finance reported the irregtiarities to his finemanager, the Deputy Vice-ChanceHor. They decided, in fine with the Universi@’sprocedures for handhng allegations of improprie~, to approach the Universi&’sinternal auditors, Ernst & Young, who stise~ently informed the Chairman ofthe Audit Committee. At a meeting (on 26 October) of the Chairman of the AudhCommittee, the internal auditor, the Deputy Vice-Chancellor and the Head of

Finance, it was decided that there was insufficient time to raise the matterforma~y at the 1 November meeting of tbe Audit Committee, given the need toseek clarification from the Chairman of the Board about what he had intendedin authorizing the down-grading of air tickets, with particular reference topossible surpluses on such transactions.

h initial investigation by governors of the Vice-Chancellor’sexpenses claims

Subse~ently the Chairman of the Audit Committee and the Chairman ofGovernors carried out an initial investigation by means of interviewing the

Vice-ChanceUor on two occasions in November 1993, with the Vice-Chairman ofthe Board of Governors also in attendance on the second occasion. Theyrecorded that in their view the Vice-ChanceUor had had authority to downgrade

his air tickets and that the Vice-Chancellor had:

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UNIVERSITY OF PORTSMOUTH

1.18

1.19

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1.21

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.

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indicated that he had had no intention of evading his tax habih~;

explained that the surplus on the tickets had been used to fund hls expensesand he had consequently not submitted a full claim for expenses; and

stated that he had not been aware that club class tickets cotid have beenpurchased more cheaply than by the arrangement he had used

The Chairman of the Board of Governors wrote to tbe Vice-Chancellor inNovember 1993:

“We accept your explanation that you had no intention of avoiding P1ID[Inland Revenue] assessment or of making personal gain. However, webelieve the procedures you followed were unsatisfactory, in that they did notaccount properly for money received and spent, and in that they laid you andthe University open to suspicion. This letter, therefore, constitutes a formalreprimand for serious errors ofjudgement, and a warning that any similaroccurrence in the future will not be tolerated. ”

The Chairman also informed the Vice-Chancellor that in future he would not bepermitted to downgrade from club class, he would purchase al air faresthrough the Universi&’s travel agent and should develop a travel pohcy. Heasked the Vice-Chancellor to work with the University’s internal auditors toensure the correctness of the University’s tax returns and indicated that theinternal auditors would undertake a review of the Directorate’s expensesincluding those of the Vice-ChanceUor. On this basis, he stated that there wasno need to advise the Funding Council, but that the independent members ofthe University’s Audit Committee had been informed.

The internal audit review of the Directorate’s expensesincluding those of the Vice-ChancellorIn January 1994, the terms of reference for the internal audit review wereaWeed with the Deputy Vice-Chancellor and the Head of Finance. At this stage,the Head of Finance raised other concerns about the Vice-ChanceUor’s

expenses.Theseincludedconcernsabouta tripto Glasgowin May1993,thepossibifi~ that the Vice-Chancellor had claimed reimbmsement of expensesfrom other bodies when the costs were being met by the Universi~, and mattersrelating to the use of the Vice-Chancellor’s University car. The internal auditreport was completed in March 1994. Overall the internal audit reportconcluded that the findings of their investigation “do not indicate furthersignificant breaches of procedure or propriety” but found a number of instanceswhere poor documentation of the Vice-Chancelor’s expenses led to uncetiainty

about the purpose of expenditure.

In May 1994, the Audit Committee agreed to a course of action which confirmedthat the formal warning the Vice-Chancellor received in November 1993constituted a final written warning and accepted the internal auditors’recommendations for tightened procedures. Each independent member of theBoard of Governors was then informed, either by the Chairman of the

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1.22

1.23

1.24

1.25

Governing Body, or the Chairman of the Audit Committee, of the allegations andthe action taken. Staff and student governors were not included in this processand the matter was not considered at any meeting of the Board of Governors.Two of the three Pro-Vice-ChanceUors remained in ignorance, therefore, of theproblems relating to the Vice-Chanceffor’s expenses. The third had been toldinformally and had satisfied himself that the Board of Governors had takenaction.

Following receipt of the internal audit report, the Audit Committee abo decidedthat the investigation should be reported to the Funding Council on an informalbasis. In April 1994 the Chairman of the Audit Committee informed the FundingCouncil about the inquiry into the VLce-Chancellor’sexpenses and copied tothem the recommendations from the internal auditors’ report and some otherpapers. The Chairman of the Board wrote to the Chief Executive of the FundingCouncil in May 1994 explaining that there had been errors ofjudgement on thepart of the Vice-ChanceUor but that appropriate disciphnary action had beentaken and that the matter could now be regarded as closed. The Chief Executiverephed accepting this course of action,

The potential confict of interests of the Chairman of the Boardof Governors

During the period from 1992, the University had embarked on a major buildingprogramme of residential and academic accommodation, The then Chairman ofthe Board is the managing director of a leading local building firm and gavefreely of his expertise. Some members of the Board and staff were concernedthat the University were unable to use his firm, one of the most respectedbuilding contractors in the region. In August 1993, the then Chairman gavenotice of intention that his firm might wish to be in a position to tender, Duringthe last few months of 1993 and in early 1994, the Deputy Vice-ChanceHor, atthe request of the Board of Governors and with advice from the FundingCouncil, sought to estabhsh a regime which would allow hlm to do so with duepropriety. At no point during this period or thereafter were any concerns raisedformally within the University about the propriem of the Chairman’s conduct,In March 1994, the Chairman forma~y notified the Board that he had decidednot to tender for University building contracts in spite of the matter having beencleared by an internal audit inquiry.

The departure of the Deputy Vice-Chancellor

In April 1994, the Chairman of the Board had concerns about the effectivenessof the senior management structure of the Universi~ and asked theVice-ChanceUor to carry out a management review of the conse~ences for theUniversi~ if the Deputy Vice-ChanceUor left the University. This concluded thatthe post of Deputy Vice-Chancellor was no longer needed.

In May 1994, the Chairman received complaints from senior staff, includlng thethree Pro-Vice-Chancellors, about the Deputy Vice-Chancellor’s managementstyle. On 27 June, having consulted au of his fe~ow independent governorsabout the action he should take, the Chairman informed the Deputy

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Vice-ChanceUor of the a~eged misconduct and also of the management reviewwhich had deemed his post redundant. The Chairman offered the DeputyVice-Chancellor a choice between facing a special committee of the Board ofGovernors to consider the complaints, with the risk of possible dismissal on thegrounds either of redundancy or misconduct, or leaving the Universityvoluntarily on agreed terms.

1.26 The Deputy Vice-ChanceUor was advised by his professional advisers to leavethe University voluntarily on agreed terms. The Chairman agreed terms withthe Deputy Vice-Chancellor, having accepted the proposition put by thoseadvising the Deputy Vice-Chancellor that the reason for hls departure shodd begiven as redundancy. The Deputy Vice-ChanceUor’s severance package cost theUniversi~ some f200,000, comprising a redundancy payment of S82,400 andthe purchase of 7.5 years additional service for pension purposes. Athough theseverance agreement was signed on 1 July 1994, it was to be effective from30 September 1994 and kept confidential until 1 September 1994 at the requestof the Deputy Vice-ChanceUor.

The departure of the Vice-ChanceUor

1.27 In October 1994, details of the in@ry into the Vice-ChanceUor’s expensesunofficia~y became pub~c, leading to unrest among Universi@ staff andtitimately a vote of no confidence. In addition, the Vice-ChanceUor’s secretarybecame concerned about hls conduct when she was asked to witness cashtransactions relating to his personal business, which she considered to beevidence of his evading VAT.In November 1994, the Vice-ChanceDor’s secreta~raised her overall concerns with one of the three Pro-Vice-ChanceUors who, inturn, raised the matter with the Head of Finance. men it became clear to herthat the Vice-ChanceUor was not going to resign, the Vice-ChanceUor’s secretary,who had first drawn attention to the irregdarities in the Vice-ChanceUor’sexpenses, resigned her post. She claimed that the University had fafled to actover a series of dishonest conduct by the Vice-ChanceUor and that she cotid nolonger work for the Universi~. She subsequently succeeded in bringing a casefor unfair dismissal

1.28 InDecember1994,theBoardofGovernorsacceptedan offerofresi~ationfrom the Vice-Chancellor, subject to agreeing terms. The Universi~ was able tonegotiate a severance settlement of seven months’ salary in heu of notice off52,500 (without enhancement of pension benefits).

The independent inquiry by Mr Jeremy Lever QC

1.29 Prior to the resignation of the Vice-Chancellor in December 1994, the Boardof Governors agreed to estabhsh an independent inquiry to examine the eventswhich had taken place in the University. In order to ensure total independencethe University appointed sohcitors not previously used hy the Universi~ froma hst provided by the Law Society to serve the inquiry and appointedMr Jeremy Lever QCto run it. The choice of format of the inquiry was

determined by Mr Lever who invited representations on the format from auinterested parties. The specific terms of reference were as fo~ows:

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UNIVERSITY OF PORTSMOUTH

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1.31

“1. In relation to the Audit Committee investigation into the Vice-ChanceUor’sexpenses:

. to determine whether or not proper procedures were foUowed

. to advise whether or not the recommendations made by the AuditCommitiee were appropriate.

2. In relation to the departure of [the former Deputy Vice-ChanceUor]:

. to advise on the appropriateness of the processes that were followed

● to advise whether or not the outcome of the processes wasappropriate.

3. To advise whether or not there was a causal fink be~een the AuditCommittee investigation of the Vice-ChanceUor’s expenses and [the formerDeputy Vice-ChanceHor’s] departure from the Universe@.”

The Board of Governors resolved that a special meeting of the Board wodd beheld on completion of the Inquiry to consider its findings and take appropriateaction and that the conclusions of the report wodd be pubhshed tithln 14 daysof its dehvery. Mr Lever circulated a confidential provisional report to thoseinvolved in June 1995 for verification and comment. The provisional reportdiscussed and drew provisional conclusions on the appropriateness of theaction taken by governors fo~owing their initial investigation inNovember 1993, that is, their decision to reprimand the Vice-Chancellor.FoUoting representation by the former Vice-ChanceUor’s legal advisors,Mr Jeremy Lever determined that his terms of reference were worded in a waywhich precluded consideration of this initial investigation by the Governors. Hethus restricted the conclusions in hls final report (the Lever Inquiry Report) toevents subsequent to November 1993. This report was provided and circtiatedto the Board of Governors in September 1995. The conclusions in the LeverIn@ry Repoti which are relevant to this report are recorded in Part 2. Insummary, the Lever Inqtiry Report concluded that although the governors actedin good faith there were weaknesses in the procedures followed. The summaryof conclusions from the Lever Inquiry Report is reproduced in Appendix 3. Theprocedures during the Lever Inquiry were adopted after aUparties involved hadbeen consufted and given an opportuni~ to cha~enge the legitimacy of theprocess. Nonetheless, fo~owing its pubhcation, WO parties named in the report

continued to express the view that the procedures adopted were unfair to them.For example, no hearings were held and the written evidence submitted wasnot subject to cross-examination.

Once they had received the fd report, the Board of Governors also obtainedadvice from leadlng counsel that its unrestricted pubhcation could leave theUniversi~ exposed to the risk of an action for defamation of character. Facedtith that advice, the Universi@’s insurers were not tiRing to cover the risk ofsuch proceedings. The Board therefore decided to place the report in theUniversi@ Library with access available to al staff and students of the

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Universi~ - some 18,000 people - but thus preseming the legal protectionafforded by the quahfied privilege which attached to the Inquiry. The summaryof conclusions which contained his fti findings and which was independentlyprovided by Mr Lever, was pubhshed in the University Newsletter without anyamendment by the University, and pubhshed much more widely, includingdistribution to the local and national press and any others who requested acopy. The Board of Governors received the report and agreed that there were anumber of procedural lessons to be learnt.

1.32 A working party on governance, which was akeady estabhshed to retiew theworkings of governance in the University, was tasked with considering thelessons to be learnt in making its recommendations for the future operation ofthe Board. The working party repotied in June 1996 and made wide-rangingrecommendations for the future operation of the Board which are now beingimplemented, focusing on governor training, communication issues, the processof nomination to the Board and imitations on the terms of otice of Boardmembers. The Board have also aWeed new standing orders. The working partyreport has heen circulated to the Chairmen of the Boards/Councils of au otheruniversities on the basis that there may be lessons to be learnt from theUniversity’s experience,

Concerns of the Committee of Pubtic Accounts andthe Committee on Standards in Public Life

1.33 The National Audit Office repotied in February 1995 on the Vice-ChanceUor’sterms of departure, along with the severance package of the Vice-ChanceUor ofthe University of Huddersfield and severance packages across the educationsector more generally (’Severance Payments to Senior Staff in the PubhclyFunded Education Sector’, HC 202). The National Audit OffIcereport related theresults of a Funding Council survey of severance packages across the Engfishhigher education sector which included details of the settlements for both theVice-Chancellor and his Deputy.

1.34 This National Audit Office repoti was the subject of a bearing and subsequent

reportbytheCommitteeofPubhcAccounts(TwentyEighthReportofSession 1994-95). In their evidence to the Committee, the Fnndlng Councilexplained that they had sought legal advice which indicated that the severancesettlement could not be judged unreasonable and the Funding Council had,therefore, decided that no further action was appropriate. The Committee notedthat the severance payment to the former Vice-ChanceUor was the minimum theUniversity had to pay to secure his resignation and to avoid possible legalaction, but expressed concern that it should have cost so much to avoid legalaction given the circumstances of the Vice-ChanceUor’s deparwe. They alsoexpressed surprise at the Universi@’s decision to pay the formerVice-Chancellor a salary of S90,000 a year while aUowing hlm to continue withhis post as Chairman of the Hilhngdon Hospital NHS Trust (paragraph 3.13), inview of the notional time commitment attaching to that position.

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The Committee on Standards in Pubhc Life, chaired by Lord Nolan, tookevidence in Autumn 1995 on matters relating to the governance of localspending bodies, including higher education institutions. Their report‘Standards in Pnbhc Life: Local Pubhc Spending Bodice’, pubfished inMay 1996, concluded that the reported cases of problems of governance inhigher education institutions were isolated incidents and did not indicate adeep-seated trend. However, the Committee also noted that they had receivedconsiderable evidence from individuals about the difficulties and harassmentthey had faced when raising issues of concern. The report therefore gavesupport to stronger safeguards for whietle-blowers plus the establishment of anindependent review panel which should render whistle-blowing unnecessa~.

The University has estabhshed an independent review panel under thechairmanship of its Chancellor” to which issues in contention can be referred bya minimum of four governors - a significant figure given that this is the numberof staff governors on the Board. Independent appeal procedures for students areakeady in place. Mso, the Funding Council, together with the representativebodies of higher education, are actively working on the imp~cations of theNolan recommendations for higher education and how best to disseminate themessages within the report,

N the members of the Board of Governors who are referred to in thie reporthave now left the Board at the termination of their periods of office. A newVice-ChanceUor with no previous association with the University was appointedin June 1996 and took up post in January 1997.

Summary of conclusions

The National Audit Office found no eti”dence that any external governorwhose actions have been considered in this investigation acted at any timewith mahcious or improper intentions. However, errors of judgement weremade in the handting of the irre@arities (Part 2) and these and other aspectsof the governance of the Universi@ did not comply with accepted goodpractice (Part 3). Nso, the University has been subject to considerabledisruption and has incurred significant costs including some S140,000 for theLever Inquiry and subsequent legal costs. In addition, the handfing of thedeparture of Professor Pickering may have caused the costs to be greaterthan strictly necessary. This is covered f~y in Part 3,

The National Audit Ofice recognise that the combination of circumstances atthe Universi@ was unusual and that there is no evidence that the fti range ofproblems with which the University has had to contend are hkely to be foundelsewhere in the sector. However, many of the individual lessons may be

continued.,.

“ The ChanceUor is formaUy the lay head of the University. The role is largely ceremonial. For example, the ChanceUor presides over

and confers de~ees at de~ee congelations.

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pertinent elsewhere. Furthermore, in mating many of the decisions that theydid, the governors of the Universi& had at that time inadequate guidanceupon which they codd draw. The National Audit Officenote that thesubsequent CUCGuide (paragraph 1.8) has improved matters but cotid befurther strengthened. Therefore, ti presenting their findings in this report,the National Audit Office’sintention has been to identify what lessons thereare to be learnt and where these might useftiy he reflected in generalguidance for higher education institutions particdarly in the relationshipbetween governors and officers.

Recommendations

On matters of aHeged or proven improprietyfire@arity(Part 2)

The National Audit Office recommend that the Fundtig Councfl andDepartment consider whether there is scope for providing clearer or moreemphatic guidance on

. the role of the Audit Committee and the Board of Governors in relation tomatters of improprie@

. the types of problem which shodd be reported to the Funding Councilwithout delay, and the duty placed on institutions’ auditors to ensure thattfis occurs;

. the principles which shotid inform decisions by tistitntions on thehandhng of misconduct by senior staff;

● the procedures for undereating and repoting to the Audit Committee andBoard of Governors on special audit investigations of irregtiarities; and

. the procedures for handhg whistle-blowers in cases of aDeged financialmisconduct or maladministration ae eet out by the Committee of Standards

in Public Life in their report on Local Pubhc Spending Bodies.

The Funding Council have advised that the recommendations above wi~ beaddressed in future guidance to be produced for the sector. The NationalAudit Officewelcome ttis initiative.

On more general governance matters @art 3)

The National Audit OffIcerecommend that the Department, wortig with theCommittee of Universi~ Chairmen and other representative boties as

appropriate, strengthen the guidance for goverting bodies in highereducation to:

continued...

12

~~RSI~ OF PORTSMOUTH

. include a mote expficit statement of the duties and responsibiEties of the

Chairmen of governing bodies;

● advise on the extent to which it is appropriate for governors and partictiarlythe Chairman of the governing body to be a~owed to tender for Universi@contracts and the safeguards to be apphed in these circmnstances;

. encourage institutions, includlng the Univsrsi@ of Portsmouth, to develop aCode of Practice for governors which sets out clearly the &stinction betweenthe strate~c role and responsibihties of the Board of Governors and theexecutive role and responsihfities of the Vice-ChanceUor and other seniorofficers, and specifically excludes informal governor involvement in theprocmement process;

. advise against governors acting outside the committee structure or delegatedauthori~ and

. state expEcitly the expectation that governing bodies shotid make decisionsin a corporate manner,

UN~RSI~ OF PORTSMOUTH

Part 2: The investigation ofthe Vice-Chancellor’sexpenses

Introduction

2.1 The National Audit Officehave considered the appropriateness of the actiontaken by members of the Board of Governors concerning irre@arities in theformer Vice-Chancellor’s expenses claims and the lessons which can be learnedfrom what occurred. The Lever InquiW Repofi summarised the essential nameof the main irregularities, relating to the Vice-ChanceUor’s trips to Egypt inOctober 1992 and to the Far East in September 1993, as foUows:

“The facts in question indicated that on each of two separate occasions [theVice-Chancellor] had claimed reimbursement from the University forexpenditure on a full price club class air ticket when [the Vice-ChanceUor]had never had any intention of using the club class ticket and hadthroughout intended to travel, and had in fact traveled, with hls wife,economy class at a lower cost, for the two of them, than the cost of the tiprice club class ticket; [the Vice-ChanceUor] had then recovered the priceof the club class ticket from the airline and had retained for hlmset thebenefit of the difference, without disclosing that fact to the FinanceDepartment, with the further result that the benefit had not been disclosed tothe Inland Revenue, as it should have been in the returns made by theUniversity to the Inland Revenue in respect of [the Vice-ChanceUor’sl

remuneration by the University.”

2.2 Essentially these facts are not in doubt. The benefits accruing to theVice-Chancellor were a taxable benefit-in-kind in respect of his wife, and tbe

surplus accruing from the trading of air tickets amounted to S1,457 for the &ipsto Egypt and the Far East. On both occasions the Vice-ChanceUor pmchased theeconomy class tickets in advance of the club class tickets, and had purchasedtbe economy tickets from travel agents some weeks in advance of the joneysand the club class ticket from Heathrow Airport a few days before depar~e,

The Vice-Chancellor had obtained refunds of the club class tickets but had usedthese tickets to support his claims for reimbursement tiom the Universi~,rather than the economy class tickets actua~y used for the jouneys.

2.3 What is less clear is whether and why the Vice-ChanceUor beheved that he wasentitled to trade air tickets in this manner and to retain the swplus. Hisentitlement to expenses was set out in a letter of a~eement (signed by the thenChairman of the Board of Governors) attached to his contract of employment.The letter states that “the Polytechnic will pay the cost of first class rail travel

14

UNIVERSITY OF PORTSMOUTH

2.4

2.5

and club class air travel for any journeys which you undertake on Polytechnicbusiness”, He subsequently sought permission from the Chairman of the Boardof Governors to arrangements which wodd aUow his wife to accompany him onsuch journeys. This was recorded in a letter from the Vice-Chancellor to theChairman which states: “This letier confirms our conversation,.. to the effectthat I codd claim the cost of club class air travel for Polytechnic business and

aPPIYtiis sum for the purchase Ofmore than one ticket in order for my wife totravel with me”. A copy of this letter was passed to the Head of Finance,

The former Chairman has told the National Audit Office that he was not, at thetime of the events described in this report, aware that the cost of two economyclass tickets could be less than that of one clti class ticket. This is consistentwith his handling of the claim for an earfier visit to Duisburg where the cost oftwo economy class tickets exceeded the cost of a club class ticket and thereimbursement was made to the Vice-ChanceUor only up to the value of the clubclass ticket. The Finance Department were fully aware of these arrangements asthe economy class tickets for the former Vice-Chancellor and his wife werebooked through the University. This is also consistent with his (the Chairman’s)hand~ng of the claim for the visit to Egypt. On that occasion, theVice-Chancellor sought permission to trade his air ticket and the Chairmanagreed to authorise only the cost of the club class fare at a time when theVice-Chancellor had submitted what proved to be an incorrect claim fortwo economy tickets stating that their cost exceeded that of the club class fare,On the occasion of his visit to the Far East, the Vice-ChanceUor informed theChairman that he was trading down hls air tickets and taking his wife, but gaveno details of the costs of the tickets involved. He suppfied no written evidence toeither the Chairman or the Finance Department to support the arrangement, Infact there is evidence to suggest that his intentions in this respect weredehberately withheld from the Finance Department.

The National Audit Office’sfindings are set out under five headings:

.

.

.

.

.

the process for handfing the irregularities;

the appropriateness of the action taken by governors;

reporting to the Funding Council;

action taken by the Funding Council; and

the treatment of whistle-blowers.

15

~WERS1~ OF PORTSMOUTH

The process for handling Lhe irregdarities

The initial investigation

2.6 The framework within which allegations of irre@ari~ shotid he handled wasprotided by a University Circtiar issued in August 1993. The Circtiarresponded to the Audit Code of Practice which had recently been issued by theFunding Council. The relevant paragraphs are:

“(iv)Any possible irregularity should be notified to the Vice-ChanceUor orDeputy Vice-Chancellor or Head of Finance. The internal auditor wi~ then headvised. Where any of those normaUy having a role in the procedure are thesubject of a possible or actual inquiry, they will not have any involvement inthe procedure; and

(vii) Any irregularity of potentia~y more serious effect wiU be investigated bythe Internal Auditor who wi~ advise whether there is a prima facie case for afu~ investigation. Tbe Chairman of the Audit Committee, the Chairman of theBoard of Governors and the External Auditor wi~ be notiRed and, whererequired by its Financial Memorandum, so too wi~ the Higher EducationFunding Council.”

2.7 The Circular states that the restits of a fti inquiry shoufd be set out in a fflreport together with appropriate advice and recommendations, This reportshould be drawn to the attention of the Audit Committee which wi~ report tothe Board of Governors and if required, the Funding Council,

2.8 When the Head of Finance reported the irregularities to KIShe manager, theDeputy Vice-ChanceHor, they decided, in fine with the Circular, to approach theUniversity’s internal auditors, Ernst & Young, who subsequently informed theChairman of the Audit Committee. In consultation with internal audit, theChairman of the Audit Committee decided not to refer this matter forma~y tothe Audit Committee but to seek to clarify what the Chairman of Governors hadintended when he gave permission to trade air tickets with partictiar referenceto possible surpluses on such transactions (paragraph 1.16). The Chairmen held

tio meetings with the Vice-Chancellor, with the Vice-Chairman of the Board ofGovernors present on the second occasion, As indicated in paragraphs1.17-1.18 above, the Vice-Chancellor’s explanations were accepted and theChairman sent him a formal reprimand. At the same time, in order to giveassurance that there were no further matters of concern, the University’sinternal auditors were tasked with auditing the expenses of the Vice-ChanceUorand senior colleagues. (The expenses claims of senior staff other than theVice-Chancellor were in due course found to be in order).

2.9 As indicated in paragraph 1.30 above, following legal representation made bysohcitors acting for the former Vice-ChanceUor, Mr Jeremy Lever decided thathis terms of reference precluded consideration of the actions taken prior to theestab~shment of the internal audit inquiry. Thus the Lever Inquiry Report didnot conclude on the appropriateness of the original handhng of the

16

UN~RSI~ OF PORTSMOUTH

2.10

2.11

2.12

2,13

2.14

irregularities. The National Audit Office examined the appropriateness of theaction taken in November 1993 by governors, in terms of preventing anyrecurrence and the response to the irregdarities in question.

The National Audit Office conclude that the action taken by the Universi@ toprevent recurrence was satisfactory. In particdar, the Vice-ChanceHor was nolonger permitted to trade air tickets, was required to purchase aUair ticketsthrough the University’s travel agents, was required to provide appropriatedocumentary evidence of expenditure and was tasked to develop a travel pohcy.

The National Audit Office consider that it was unwise to delay a fti auditinquiry until after matters had been raised with the Vice-ChanceUor. It is we~

estah~shed practice that a~egations of irre@ari@ shotid be investigated beforethose involved have the opportunity to take action to destroy evidence, In thiscase, staff concerned have reported that the Vice-ChanceUor removed and laterreturned his expenses file prior to the internal auditors commencing theirinvestigation, Regardless .ofthe truth or significance of the suggestion, that theOPPOrtUUiwarose reflects poorly on the handHng and timing of the in@ry,

It was also unwise for the governors concerned to draw conclusions and takedlscipbary action on the evidence available before the internal auditors hadbeen instructed to carry out a fti investigation and without waiting until theyhad the results of this investigation. This action must have pre-empted to someextent the judgement of the Audit Committee once the internal auditors’findings were known. The governors might have drawn a connection with the1992 external audit inquiry which, though it focused primarily on hlsmanagement style, brought into question the Vice-Chancellor’s dihgence incomplying with internal procedures, However, the National Audit Office acceptthat the governors involved in the decisione taken in November 1993 acted inwhat they saw as the best interests of the Universi~.

The internal audit retiew

Mthough the initial investigation took place in November 1993, it was not untflthe early part of 1994 that the internal auditors’ investigation was undertakenwith the objective of ensuring that expenses reimbursed to tbe Vice-ChanceUorbetween April 1991 and 23 November 1993 were:

“a)

b)

c)

vahdly incurred in connection with the duties of the Vice-ChanceUor inftdRRing his role with the University;

in accordance with his contract of employment; and

were correctly disclosed on the P11 D submissions to the Inland Revenue, ”

The scope of the internal audit in- was agreed with the DeputyVice-ChanceUor and the Head of Finance in January 1994. At this stage, theHead of Finance raised other concerns (set out in paragraph 1.20 above). Theinternal auditors submitted their draft report to the Audit Committee inMarch 1994. ~ilst the conclusions section of the draft report dealt only with

UNNERSI~ OF PORTSMOUTH

2,15

2.16

2.17

2.18

new matters of significance, the detailed text of the report and theaccompanying covering letter, an integral part of the repofi, concluded on aumatters raised and investigated.

In the conclusions section of the report, the internal auditors stated that theyhad found “a number of instances where there is inade~ate documentation”.This conclusion referred to a number of other instances where there wasinadequate supporting evidence for expenses claims as weU as those referred toin paragraph 2.1 above, but they concluded that nothing that they foundrepresented a further significant breach of procedure or proprie@. Thisconclusion was supported by substantially more forthright comment in theactual report. For example, in connection with the puchase of tickets for thetip to Egypt in 1992, the auditors found that “the timing of the pwchase of WOsets of tickets and the subsequent encasement of the club class ticket wasclearly designed to provide evidence of a larger expenditme than incurred, forreimbursement purposes. Its effect was to conceal that the f507 differential hadbeen retained by [the Vice-ChanceUorl”.

mere a special investigation of this natuce has been undertaken, it is goodpractice for the conclusions section in the subsequent repoti to concludespecifically on each of the terms of reference. Had this been done in this case, itis Hkelythat the wording of the conclusions woufd have been more critical thanwas in fact the case. However, the internal auditors were more critical of tbeVice-Chancellor in the covering letter to their report.

In their covering letter to the Chairman of the Audit Committee, the internalauditors came to the overati view that “..[The Vice-ChanceUorl has inte~retedthe roles and the understanding he had with governors hbera~y and to hisadvantage, often without proper concern for the best interests of the Universi@or the requirements for the Universi@ to transparently demonstrateaccountability for au its expenditure”. Nonetheless, they concluded that “ausignificant areas have been addressed and the requirements of the[Irregularities] Circular met in substance if not precisely the re@red form”.Since the internal audit review had been restricted to an examination ofdocumentary evidence, the covering letter pointed out that the only way to gainmore information wotid be by discussion with members of staff or third patiles

but this would cause the circumstances of the investigation to become widelyknown and could be of detriment to the office of Vice-ChanceUor and theUniversity. The internal auditors stressed that “it is of the utmost importancethat we are able to demonstrate that au matters have been addressed in someway and that we are able to lay this matter to rest”. Before fmahsing their draftreport they, therefore, suggested that the Chairman of the Audit Committeemeet with the Deputy Vice-Chancellor and possibly the Head of Finance toexplain that matters had been brought to a satisfactory conclusion and toanswer any queries that might arise.

The National Audit Officenote that the internal auditors’ report raised anumber of concerns which went beyond those akeady apparent to thegovernors concerned in November 1993:

18

UNIVSRSI~ OF PORTSMOWH

2,19

2,20

.

.

.

.

the evidence available to the internal auditors was not such as to support theVice-ChanceUor’s explanation in November 1993 that the surplus on tradingtickets had been used to fund some of his expenses for which he had notclaimed. The internal auditors indicated that the Vice-ChanceUor beheved hehad authority from the then Chairman to retain the surplus an authori~which the then Chairman is on record as saying he did not give. The NationalAudit Office have found no evidence of such an authority having been given.The National Audit Office note that if the Vice-ChanceUor beheved that hehad authori~ to retain any surplus, this wodd not explain: why hepurchased and subsequently traded in club class tickets after he badpurchased economy class tickets; why he submitted a claim for his trip to theFar East which did not refer to the trading down of tickets; or why he did notoffer this as his original explanation in November 1993;

the internal auditors fmther drew a distinction between air tickets purchasedin 1992 and those purchased in 1993 fo~owing completion of the draftExpenses Manual. The Vice-ChanceHor had been involved in approving thedraft and shodd have been ftiy aware of its contents inchrdlng thestatement that “in no circumstances til reimbursements antior paymentsof expenses be made in excess of the actual expenditure incurred”. Theauditors concluded ccThisclearly conficts with the agreement between [theChairman of the Board of Governors ] and [the Vice-Chancellor] and webeheve that [the Vice-Chancellor] was aware of the content of this manualprior to hls visit to the Far East.”;

they noted that the original expenses claim form on file was for an estimatedtotal expenditure of El ,332 for the tickets to Egypt, which was tilce theE666 which the Vice-ChanceUor paid for the two economy tickets, and also

exceeded the cost of the club class fare;

they described a series of events whereby the Vice-Chancellor trave~ed toEdinburgh on a Sunday for a brief meeti~g with the Vice-Principal of theGlasgow Caledonian University in Glasgow the following day, flying back atmidday on Monday with the explanation that fights to Edinburgh were moreconvenient than to Glasgow,

The National Audit Office note that whereas the basic facts about theVice-Chancelor’s expenses claims set down in paragraph 2.1 were akeady

apparent in November 1993, the matters raised in the internal autiltors’ reportshotid have increased governors’ concerns about the integrity of theVice-Chancellor and highlighted the need to obtain evidence in support of hlsexplanations.

The Audit Committee’s conclusionsHaving received the internal audit report, the Audit Committee concluded inMay 1994 that the Vice-ChanceUor had been guilty of errors of judgement.They, therefore, decided to inform the Vice-ChanceUor that the formalreprimand issued in November 1993 shodd be viewed as a final writtenwarning. It would seem that the Audit Committee’s judgement was influenced

19

~~RSIW OF PORTSMOUTH

2.21

2.22

2.23

by the decision already taken in November 1993, and their judgement that theinternal auditors’ report added Etie to the case against the Vice-ChanceUor.The National Audit Office consider that this itiustrates why the original decisionto take disciphnary action before receiving the internal auditors’ report wasunwise, as the Audit Committee cotid not subse~ently properly consider thefacts presented to them on their merits.

The National Audit Office note that despite the internal auditors’ advice to thecontrary, the Deputy Vice-ChanceUor and the Head of Finance did not see andhence have an opportunity to comment on the internal auditors’ report beforethe Audit Committee had considered and acted upon it. This represented aweakness given their wider responsibihties for pubfic money and the fact thatthey were in a unique position to comment on the adequacy of the investigation.In the event, when the Deputy Vice-ChanceUor and the Head of Finance wereshown the internal audit recommendations in May 1994 and had an

opportwiv to discuss these with the auditors, the Head of Finance providedfurther information. In partictiar, he was able to provide a copy of the originalhotel bill for the visit to Edinburgh (paragraph 2.18 above) which d~ered fromthat submitted with the Vice-Chancellor’s expenses claim. The original bi~showed substantial entertainment expenses, which the Vice-ChanceUor dld notclaim, but cast doubt on his explanation that an overnight stay in Edinburghbad been the most convenient of arrangements for a meeting in Glasgow.

Wllst independent governors were informed oraly of the Audit Committee’sdecision, the Board of Governors were not told forma~y and governors whowere not on the Audit Committee did not see the internal auditors’ report. TheLever Inquiry Report cites three reasons why the decision of the AuditCommittee not to refer the internal auditors’ report to the Board of Governorswas inappropriate:

U] the character and judgement of the person holding the office ofVice-Chancellor were of fundamental importance to the Universi~

(ii) tbe issues covered by the report were serious; and

Li) theinvestigationhad involvedtheUniversivin significantexpense.

Tbe decision denied the Governing Body the opportnni~ to discuss tieadequacy of the action taken in response to the internal auditors’ fidings.Governors involved in the decision told the National Audit O~ce that they tookthis decision because they felt the position of the Vice-ChanceUor wodd havebeen untenable should details of his actions come into the pubhc domain.However, the National Audit Office consider that if tils were so, his positionwas, in any case, akeady untenable.

20

IJNIVERSI~ OF PORTSMOUTH

2.24

2.25

2.26

Appropriateness of the action taken by governors

The Lever In@ry Report did not conclude on the appropriateness of thedecision taken in November 1993 and ratied by the Audit Committee inMay 1994 to Emit dlscipfina~ action against the Vice-ChanceUor to a finalwarning. In terms of the appropriateness of the action taken, an insight into thegovernors’ thinking is offered by a statement the Chairman of the AuditCommittee made to the Board of Governors in December 1994, foUowing theVice-ChanceUor’s resignation:

“The Audit Committee accepted the finternal audit] report’s conclusion thatthe Vice-ChanceUor had acted with a “lack of clarity and openness” and with“inadequate documentation”. Tbe Committee criticised the Vice-ChanceUor’shand~ng of his air fares and vieits to Cairo and Kuala Lurnpu. In partictiar,it was most unhappy with the way he had achieved a surplus by tradingdown. The Committee concluded there were serious errors ofjudgementbordering on something worse.

Much thought was given to the appropriate sanction in the circumstances. Ifthere had been evidence of theft, we wodd have recommended dismissal,but there was no such evidence. We felt he had broken the spirit of hlscontractual arrangements but not the letter. As far as we cotid te~, thefights and visits had not cost the Universi~ any more than if theVice-ChanceUor had gone on his own and flown club class. As far as wecould teU, no Universi& funds were missing.

In the circumstances, we felt dismissal was not justified. We ako think ithkely that dismissal wodd have led to a successfd claim for unfair dismissalwhich would certainly not have been in the interests of the University.

We, therefore, rejected the dtimate sanction of dismissal and recommendedthe next most severe sanction of a final written warning.”

It was clear at the outset of the Audit Committee’s consideration of thesematters that the claims sfimitted by the Vice-ChanceUor were false and that hisdocumentation of his expenses was inappropriate. FoUowing the Chairman’sagreement to trade down air tickete the Vice-ChanceUor shodd have submittedclaims for the tickets actually used. The Audit Committee’s judgement that thematter was not sufficiently serious to justify dismissal and that the Universitymight have been vuherable to a successfti claim for unfair dismissal was notbased on legal advice.

In view of the etidence which was available at the time, the National AuditOffice conclude that the Audit Committee’s judgement on the seriousness of theallegations was questionable. On two separate occasions the Vice-ChanceUorsubmitted claims for expenses which did not accord with the expenses actua~yincurred with the strong imphcation that these were intended to give a faleeimpression. The internal auditors’ report also discussed other matters whichbrought the Vice-Chancellor’s integrity into question. The University did not take

21

2.27

2.28

2.29

2.30

22

legal advice or consider referring the matter to the appropriate authorities. Inthe evidence which the Funding Couucil presented to the Lever In@ry theystated that, had the matter been reported to them at the outset, they wotid haveadvised the Universi~ to discuss the matter with the pohce,

The Funding Council have told the National Audit O~ce that they asked theChairman of the Audit Committee why the University failed to seek recoveryfrom the Vice-Chancellor of benefits he had gained. The Chairman of the AuditCommittee had advised the Funding Council that the Vice-Chancellor had askedwhether it would help if he were to offer to repay tie amounts gained. But theChairman of the Audit Committee had told the Vice-ChanceUor that this actionwould not help on the grounds that it could be construed as an admission ofWilt, that is, fraudulent activity, Legal advice was not taken before reaching Wlsview.

Reporting to the Funding Council

The reference in the University Circular on the handhng of irre~arities topossible reporting of matters to the Funding Comcil (paragraph 2.7) reflects are@rement in the Funding Couci~s Audit Code of Practice which advises thatthey would normally expect to be informed tithout delay of serious weaknessesor significant frauds. The Code defines a serious weakness as “one that mayresult in a significant fraud or irregularity, Significant fraud is usua~y whereone or more of the following factors are involved:

a)

b)

c)

The sums of money are in excess of E1O,OOO,

The particulars of the fraud are novel, musual or complex.

There is hkely to be great pubfic interest because of the natwe of the fraudor the people involved”,

[t is often, as in this case, not clear whether irre@arities are actna~yfraudulent, in that for them to be so, fraudnfent intent needs to be demonshated

in a court of law. The Funding Council need to be made aware not only of

significant frauds but also of significant cases of irre~arities in expendl~ewhich could lead to suspicions of fraud or which could have seriousimplications for the management or reputation of the institution concerned.The Audit Code might be made more helpfd if definitions of irregdarities andfraud were given tith i~ustrative examples provided.

[n the event, in November 1993, the Chairmen of the Board of Governors andAudit Committee decided against referring the matter to the Finding Conncil onthe basis that the matters were not sufficiently serious, that they had acceptedthat the Vice-Chancellor had no intention of avoiding tax or making personalgain, and that remedial action was being taken. The internal auditors noted intheir report that the matter had not been referred to the Finding Council. Theyhave told the National Audit Office that they had sought to ensue that thematter was reported without delay.

UNIVERSIm OF PORTSMOUTH

2.31 men the Audit Committee considered the internal auditors’ report at theirmeeting in March 1994, the Committee Chairman stated the view that it had notrevealed a “serious weakness” for the purpose of advising the Funding Council,Other members of the Audit Committee, whilst agreeing with this, thought itmight be appropriate for the Universi@ to advise the Funding Councilinformaffy. FoUowing consdtation, the Chairman of the Audit Committee cameto agree with thie view and subsequently fomarded to the Funding Councilnotes of the key meetings described in the preceding paragraphs and therecommendations for improvement made by the Committee. These notesincluded the recommendations arising from the internal audit report but theFunding Council were not sent, and did not request, the full report.

2.32 The National Audit Office conclude that the decision taken not to notify theFunding Council in November 1993 was wrong. The Funding Council couldhave assisted the governors in their decision making and could have offeredadvice on the seriousness of the matters discovered. They would also have beenbetter placed, from their wider experience, to take a view on the seriousness ofthe findings in the internal auditors’ report. The Funding Council have a clearresponsibihty for pubhc funds and for ensuring that the systems and controlstithin institutions are adequate to protect pubhc money. Mthough the FundingCouncil do not approve the appointment of individual designated officers,particular responsibilities were vested in tbe Wee-Chancellor as the designatedoffice holder for the University (paragraph 1.5) and the Funding Council shouldhave been made aware of matters which reflected on his suitabiti@ for thoseresponsibilities.

Action taken by the Futing Council

2.33 In April 1994, the Funding Council received the summary of tbe internalauditors’ recommendations. They were able to assess from therecommendations alone that the situation was serious. However, they took theview that this was a matter for the governors to determine and that the FundingCounci~s role was to ensure thati the matter had been investigated fully; thoseresponsible were in possession of the facts; governors bad taken action in thefight of those facts; there was no loss of pubhc funds; and any weaknesses badbeen rectified. The Funding Council received written assurances from the

Chairman of tbe Governors that this was in fact the case and, therefore, refiedon such assurances in the absence of any evidence to the contra~. InMay 1994, the Chief Executive of the Funding Council wrote to the Universityagreeing to its view that the matter could be closed. This statement wasreported to the independent governors when they were told about tbe internalauditors’ inquiry.

2.34 The Funding Council would have been more fully informed if they had asked tosee the ful internal auditors’ report once they became aware of its existence.However, the benefit of such information to the Funding Council was hmitedbecause the University had akeady decided on its course of action. Since thattime, the Committee of University Chairmen has issued guidance on governanceto institutions; and the Funding Council have revised their Financial

23

~WERS1~ OF PORTSMO~H

2.35

2.36

2.37

2.38

Memorandum with institutions and have more clearly set out theresponsibilities of institutions’ designated ofRcers. As a result of theseimprovements, the Funding Council now have greater scope to take action andtheir practice now is, wherever practical, to ask for ftdl audit reports.

men the story broke in the press in November 1994, the Funding Councildecided that they needed to see the full audit report. Some points emergedwhich were new to the Funding Council. For example, they had not appreciatedthat the Vice-Chancellor had retained a sum of money as tie resdt of theexchange of air tickets, nor the degree of intent which cmdd be deduced fromhis actions. On 29 November 1994, the Funding Cmsnci~s Chairman and ChiefExecutive met with the University’s Chairman of the Board of Governors andChairman of the Audit Committee. The main concern of the Funding Council :$

was the position of the Vice-Chancellor as the designated oficer for theUniversity accountable to Parhament for ensuring propriety and re~ari~ inthe use of pubhc funds. The Universi@ at that stage were considering the needfor an independent inquiry.

In December 1994, the Funding Council sent the relevant papers, includ~g thefuR internal audit report to their legal adviser for adtice on the Universi~’sseverance settlement with the Vice-ChanceUor and were told in January 1995,that the settlement could not be judged unreasonable. Mso in January 1995, theFunding Council received a tisit from the Hampshire Constabulary FraudSquad. The visit was prompted by a complaint from a member of the pubhcabout the way in which the Universi~ had dealt with matters relating to theVice-Chancellor’s expenses. The Hampshire Constabtdary wrote to the FundingCouncil on 20 January 1995 that the appropriate bodies had conducted a weUdocumented investigation into the affairs of the Universi& and there wereinstilcient grounds to justify further inquiry by the pofice.

The Committee of Pubhc Accounts, at their hearing on 20 February 1995 onSeverance Payments to Senior Staff in the Pubhcly Funded Education Sector,enquired about the circumstances surrounding the Vice-ChanceUor’s depa-e.The Funding Council confirmed that the Vice-Chancellor had needed to retirebecause of the adverse pubhcity caused by the investigation into hls expenses

claims,Follo~ngthe investigation,theUniversi~’sAuditCommitteehadrecommended that the Vice-Chancellor be given a severe reprimand. TheFunding Council told the Committee of Pubhc Accounts that they had beenassured that there had been no evidence of anything criminal such as theft. Inproviding evidence to the subsequent Lever Inquiry, the Funding Council saidthat they would have advised the Universi~ to discuss the matter with thepohce if it had been reported to them at the outset (paragraph 2.26).

In the October 1995 Treasury Minute response (Cm 3013) to theTwenty Eighth Report 1994-95 of the Committee of Pubhc Accounts, theFunding Council advised that action to be taken on the University of Portsmouthwould he determined by the outcome of tbe Lever Inquiry and any obsemationsmade as part of tbe Inquiry that would assist other institutions in minimizingthe risk of incurring such costs would be disseminated across the sector(paragraph 1.34). However, since the Committee on Standards in Pubhc Life

24

UNIVSRS1~ OF PORTSMOUTH

2.39

2.40

2.41

‘

2.42

was taking evidence at the time the Lever Report was produced, the FundingCouncil decided to await the outcome of these more wide ranging deliberations(paragraphs 1.35-1 .36). The Funding Council are now working actively with theCommittee of Universi& Chairmen and the Committee of Vice-Chancellors andPrincipals to address the recommendations in the “Nolan” Report, In addition,in order to be able to produce detailed guidance for the sector, the FundingCounci~s Audit Service is carrying out a study at a sample of institutions of theirprocesses for cleating with fraud and irregularity.

The treatment of wfistle-blowers

In their review of Local Pubhc Spending Bodies (Cm 3270-1), the Committee onStandards in Pnbhc Life recommended that such bodies, which includeUniversities, should institute codes of practice on whistle-blowing. These woddinclude a clear statement that malpractice is taken seriously in the organisationand provide an indication of the sorts of matters regarded as malpractice. Theywodd enable concerns to be raised confidentially inside and, if necessa~,outside the organisation. The National Audit Office have examined the way inwhich those who raised the allegations against the Vice-ChanceUor weresubsequently handled. In November 1993, when the allegations were firstraised formally, the Chairman of the Board of Governors and the Chairman ofthe Audit Committee recorded their view that those who raised the mattersshould not be accused of disloyalty. The National Audit OffIcehave seen noevidence that any of those involved in challenging the Vice-Chancellor’sexpenses - his secretary, the Head of Finance or the former DeputyVice-Chancellor - were penalised or persecuted in any way.

The Vice-Chancellor’s secretary resigned her post in November 1994, claimingthat the Universi@ had failed to act over a series of dishonest conduct by theVice-ChanceUor and she coufd no longer work for the University. She succeededin bringing a case for unfair dismissal by way of “constructive” dismissal withinthe meaning of Section 55(2) (c) of the Employment Protection (Consohdation)

Act 1978. The Tribunal found she had resigned following “a fundamentalbreakdown of the trust and confidence between employer and employee”. TheTribunal recommended that the parties consider an appropriate remedy. Theoutcome was that she received E1O,OOOin compensation from the Universi@.

Following the departure of the Deputy Vice-ChanceUor, the Head of Financereported directly to the Vice-ChanceUor, who assumed tine managementresponsibility for finance. The Audit Committee had not informed the Head ofFinance of the outcome of the investigation into the Vice-Chancellor’s expenees.This must have made for a strained relationship, on both sides, but the Head ofFinance remained in post and in 1995 was promoted to Director of Finance.

The former Deputy Vice-Chancellor and others have told the National AuditOfice that they befieve that the Deputy Vice-Chancellor’s employment with theUniversi~ was terminated as a direct conse~ence of his role in reporting theirregtiarities in the Vice-Chancellor’s expenses claims. Others, who have spokento the National Audit Office, are convinced that the breakdown in working

25

~~RSIH OF PORTSMOUTH

2.43

2.44

2.45

relationships within the senior management team of the Universi~, and theconsequences of this for the running of the University, was the crucial factorwhich led to his departure from the University. The Lever Inquiry Reportconcluded that “The answer to the Third Question of the Terms of Reference isdeceptively simple: there was a causal link between the Audit Committeeinvestigation into the Vice-ChanceUor’s expenses and [the DeputyVice-Chancellor’s] departure from the University. Nthough it was not a primary,simple or major cause, the investigation was not an insignificant factor in thechain of events leading up to [the Deputy Vice-Chancellor’s] departure.However, it must be remembered that [the Deputy Vice-ChanceHor] chose toleave under the terms of a Compromise Agreement, when he cotid have stayed,

The Lever Inquiry Report concluded that although the process which led to thedeparture of the Deputy Vice-Chancellor was not vitiated hy had faith on thepart of the Chairman of the Board of Governors but that he was imprudent notto have obtained Board approval in advance. Moreover, the timing and mannerof the departure of tie Deputy Vice-Chancellor, following so soon from theinvestigation into the Vice-Chancellor’s expenses which he prompted, cotiddeter others from raising concerns in similar circumstances. The National AuditOffice acknowledge that the circumstances surrounding the departure of theformer Deputy Vice-Chancellor were complex. However, as set out in Part 3, theUniversity could have acted more sensitively in the manner of his departure inorder to avoid the perception that someone who very recently had raisedlegitimate concerns shout the activities of the former Vice-Chancellor had beenpenahsed.

Subsequent actions by the University

The Universi~ has improved its procedures for claiming expenses andimplemented other actions recommended by the March 1994 internal auditors’report. Since 1994, the University has prompfly referred to the Funding Councilthree audit reports which disclose suspected impropriety by staff, regardless ofthe significance of the sums involved.

Subsequent actions by the Funding Councfl

The Funding Council’s Audit Service are currently undertaking a study on Fraudand Irre@arity. The Funding Council are also working with the Committee ofUniversi~ Chairmen and the Committee of Vice-ChanceUors and Principals toaddress the recommendations in the report of the Committee on Standards in I

PubHc Life and how best to disseminate these messages to the sector(paragraph 1.36).

26

UNIVERSI~ OF PORTSMOUTH

Conclusions

2.46 The National Audit Office conclude that some aspects of the handfing of the

irre@arities in the Vice-ChanceUor’s expenses by the parties involved wereinappropriate. However, they found no reason to suppose that the motivationof any of those involved in handkg the allegations was improper. Thegovernors hwolved gave careti consideration to their course of action andfurthermore, were operating in stressfd circumstances. As the Lever InquiryReport concluded “I am satisfied that [the Audit Committee] conscientiouslysought to do their best, with the interests of the University exclusively inmind, in one of the most dlfflctit and troublesome situations that persons intheir situation could have encountered. The Universi~ has since takenmeasures to tighten up procedures, for example, as a result of its widespreadreview of the process of governance and, on a more practical level, theimplementation of its expenses manual, With Klndsight it is possible toidentify ways in which the guidance available to the Universi~ codd havebeen more helpful, as indicated below. This is not a criticism of the FundingCouncil or the Department as they cannot reasonably he expected to provideguidance which meets every eventuahty, but does suggest ways in which thesector can learn from these events.

2.47 In smnmary, the National Audit Officeconclude that it was inappropriate that

.

.

.

the irregularities were initia~y investigated by a smaU group of seuiorgoveruors who decided to issue a formal reprimand before the matterwas ftiy investigated by internaf autit and referred to the AnditCommittee. This process, not least the unoficial nature of the group ofgovernors concerned, pre-empted the conclusions of the internal auditors’investigations and any decision of the Audit Committee;

the time taken hy the University to rtie matters with theVice-ChanceUor and to agree the internal autitors’ terms of refereucedelayed the start of the fti an~t inq~. The Funding Counci~s AuditCode does not set out the processes by which special audit investigationsshotid be undertaken, including the need for speedy actiom

the interual auditors tid not act immediately to take possession of therelevant docmneutary etidence aud their report did uot conclude ftiyagainst their terms of refereuce. The Funding Council’s Audit Code doesnot refer to the proper conduct of and reporting on special auditinvestigations;

the Audit Committee did not copy a draft of the internal auditors’report to the Deputy Vice-ChanceUor and the Head of Finauce forcommeut, despite their respousibfities for the matters covered andtheir knowledge of the original aUegatious. The Funding Counci~s AuditCode does not exphcitly re~re that appropriate people are asked tocomment on the outcomes of audit investigations, although this might beconsidered to he impficit

continued...

27

~~RSITV OFPORTSMOWH

● the fti Board of Governors was not properly informed about theoutcome of the internaf auditors’ investigation and did not see theinternal auditors’ report. The Audit Code does not cover there~irements for reporting by tie Audit Committee to the fti Board ofGovernors, nor does the CUC Guide address this matteu

. the Audit Committee misjudged the seriousness of what theVice-ChanceUor had done on the basis that it did not involve theft orthe loss of University funds. The fact that those concerned felt unable toa~ow these matters to become pubhc indicates that they recognised thatwhat he had done was sufficient to undermine his authori~. It wotid bed~lcdt to imagine any sectoral guidance that could be specflc to everyinstance of misdemeanor by a chief executive but there might be merit insome general principles that emphasised that the integri~ of this person’should be beyond reproach and that he shodd do nothing which, if madepubhc, cotid bring the institution into disrepute;

. the University did not seek independent legaf advice on the scope fordismissing the Vice-ChanceUor ou the basis of the fmownirregularities. There is no sectoral guidance on taking legal adtice specticto this case, but higher education institutions should be aware of the needto take advice on matters of employment law;

. the University did not seek recovery of funds from the Vice-ChauceUor.Best practice in the pubhc sector re~es that overpayments be recovered,but there may be scope for reminding institutions of this;

. the University did not alert the Funding Councfl about the case at theoutset, despite the gravity of the matters md the special responsibilityof the individud concerned, and did not ensure that the matter waspromptly or fdy reported to the Fnntig Councfl. The FundingCounci~s Audit Code could be made more helpfd by de~g irregufari@and fraud and providing i~ustrative examples;

. if the Funding CouncU had asked to see the fti iuternd autitors’

report, once they were aware of its edstence, they wodd have beenmore fdy informed. However, as the University had akeady decided onits course of action, the Funding Counci~s scope for action was Mlted; and

. the University did not take care to avoid the perception that those whomade the Wegations had been treated insensitively. Guidance on thetreatment of individuals in similar circumstances has now becomeavailable with the pubhcation of the Second Report of the Committee ofStandards in Pubhc me. (See paragraph 2.45 above).

2s

UNIVSRSITV OF PORTSMOUTH

Recommendations

2.48 me W circumstances surrounding the handkg of irregdarities in the

Vice-ChanceUor’s expenses are unusual and unfikely to recur, and theNational Audit Officewotid not expect to see detailed @dance issued to thesector aimed at preventing a precise recurrence of these events. However,the National Audit Office consider that cases cmdd easily arise whichexhibited some of the characteristics of this case and, in tiew of theconclusions above, recommend that the Funding Council and Departmentconeider whether there is scope for providing clearer or more emphaticguidance on the fo~owing

● the role of the Audit Committee and the Board of Governors in relation tomatters of improprie~

. the types of problem which shotid be reported to the Finding Comcilwithout delay, and the duty placed on inetititions’ auditors to ensnre thatthis OCCWS;

● the principles which shotid inform decisions by institutions on thehandting of misconduct by senior staff;

. the procedwes for undertatig and reporting to the Audit Committee andBoard of Governors on special audit tivestigations of irregrdarities; and

. the procedures for handhg whistle-blowers set out by the Committee onStandards in Pnbhc Klfein their report on Local Spending Bodlee.

2.49 The Funding Councfl have advised that the recommendations atparagraph 2,48 above ti be addressed in future guidance to be producedfor the sector. The National Audit OffIcewelcome this initiative.

29

UNWERSI~OFPORTSMOUTH

3.1

3.2

3.3

3.4

Part 3: The conduct ofbusiness by the Board ofGovernors

Introduction

This part of the report considers issues relating to the conduct of the Board ofGovernors at the Universi& of Portsmouth arising from the National AuditOffice’sexamination. These relate to the corporate decision making process andthe avoidance of conflicts of interest. The findings are set in the context of the@dance since provided by the CUCGtidc (paraWaph 1,8 above), whilstrecoguising that this was not available to the Board of Governors at the time.

Conflicts of interest

The CUCGuide says “it is essential to the proper conduct of ptihc husiuess thatchairmen and members of governing bodies shoufd act and be perceived to actimpartially and not be influenced in their role as governors by social or businessrelationships. ” At Portsmouth the regulatory framework tithin which membersof the Governing Body ensure that they manage potential conficts of interest isprovided by the University’s Standing Orders and the Articles of Government.

The Universi~’s Standing Orders require governors to make an annualdeclaration of interests and the University (as Portsmouth Polytechnic) was oneof the first institutions in the higher education sector to estahhsh such arequirement. The Articles of Government state:

“Members of the Board of Governors having pecuniary, family or other

personalinterestin anymattersunderdiscussionsha~declareit, leavethemeeting during the period the matter is under discussion and take no part inthe consideration of the matter.

Except with the prior approval of the Board of Governors, no member of theCorporation shall take or hold any interest in any property held or used forthe purpose of the Polytechnic, or receive any remuneration for his or hersewices as a member of the Board of Governors or any of its committees, orbe interested in the supply of work or goods to or for the purposes of thePolytechnic.”

The former Chairman of the Governing Body, Mr Stuart Waring, is the chairmanand managing director of a holding company which in turn owns a largebuilding company. Upon joining the Governing Body in 1988, he decided

30

UNIVERSITY OF PORTSMOUTH

initia~y that it wodd not be appropriate for hls firm to tender for work from theUniversity. FeUow governors and members of staff have reported to the NationalAudit Officethat this represented something of a loss to the Universi@ sincethey were denied the services of the largest local building firm and one whichhas an excellent reputation. Furthermore, the University’s external projectmanagers recommended that the firm should be included in the tender list, Itmay also have caused the Chairman some personal difficulty in terms of hisresponsibihty to his own workforce since the Universi~’s building contractsrepresented a significant proportion of local building projects,

3.5 In 1992, the former Chairman decided to explore the possibihty of his firmtendering for btiding contracts in connection with the University’s plannedacademic building developments and was advised by senior officials to seekguidance from the Funding Council. The Vice-Chancellor did this on his behalfin October 1992. The Chairman of the Funding Council wrote advising on theaction the Chairman should take to ensure there were no conflicts of interests.This included withdrawing from the key discussions and Board meetings atwhich building contracts would be discussed. The Chairman has told theNational Audit Office that he also discussed his position with a number of othergovernors as well as people external to the Universi~ and received confectingadvice. The minutes of the Estate Committee (of which he was an ex-officiomember) show that he continued to attend meetings of the Committee at whichbuilding projects were discussed for a further nine months, that is, untilAugust 1993 when he advised the Board of Governors in writing that he mightwish to tender for work.

3.6 Senior officers, including the Deputy Vice-Chancellor, and governors thenprepared a paper for the Governing Body setting out a procedure which couldbe fo~owed which would enable the Chairman to bid for work. These includedthe requirement that he withdraw from aU discussions surrounding thecontracts, and for decisions on the project to be handled by a selectioncommittee with an independent advisor. On Funding Council advice, theGoverning Body also authorised an internal audit inquiry to examine whetherthe Chairman had akeady received an unfair advantage which shodd prohibithlm tendering for work. The provisional report of the inquiry concluded that theChairman had not received material privileged information or influenced theprojects to the advantage of his company. Mthough it raised the issue of publicperceptions it nonetheless stated that it shmdd be possible for the Company totender for the construction contract for University buildings. However, prior tothe Board’s consideration of the internal audit report the Chairman decided notto tender for University contracts so long as he held that post. He had concludedthat the position of Chairman was different from that of other members of theBoard. Mthough by then the Chairman’s company had responded to apre-quah~ing notice as the first essential stage in tendering for contractscovered by the European Directives, they have not, to date, tendered for anycontracts with the Universi@.

3.7 The National Audit Office recognise that higher education institutions canbenefit considerably from having governors who are experienced in a widerange of fields, Inevitably this will lead to occasional potential conficts of

31

UNWERS1~OFPORTSMOUTH

3.8

3.9

3.10

interest. In most cases this can be managed by excluding the governor fromrelevant aspects of the decision making process. However, the position of theChairman is different. They have a particular responsibihty for the overa~direction of the institution and it may be difficdt to ftill tils responsibihty ifexternal interests exclude them from participation in key meetings.

At Portsmouth, the Chairman recognised the potential for a cotict of interestsat an early stage in his relationship with the University. Once a potential confictarose the University took appropriate action to manage the situation andrecognised the importance of being seen to act fairly. However, if the Chairmanhad decided to tender, it is difficult to see how he cotid have retained oversightof the institution and yet be excluded from decisions on large btiding contracts.It would also have raised questions about the nine month period betieen thereceipt of Funding Council advice concerning the need for the Chairman towithdraw from the discussion of estates matters and his withdrawal from theEstate Committee. The National Audit Office conclude that the Chairman madethe right decision not to allow hls firm to bid for Universi~ work, but areconcerned fiat there is no written guidance to the sector on the extent to whichchairmen and members of governing bodies shmdd be aUowed to tender forwork from institutions with which they are involved.

Corporate decision maHng

The CUCGuide describes the way in which governing bodies shotid operateincluding the requirement that they meet re~arly, for supporting papers to becirculated in advance and for decisions to be minuted. The Guide specfies theneed for Standing Orders which regulate governing body business, for properprocedures for registering interests, and for a formal framework for thedelegation of governing body powers. The Guide emphasises the key role of theChairman of the governing body in relation to the business of the institution andhigh~ghts his key responsibihty for the leadership of the governing body.

Since 1990, there have been a number of cases where governors have exceededtheir authority by acting independently of the fti Board of Governors:

● the announcement of the appointment of the President of PortsmouthPolytechnic;

. the variations in the former Vice-Chancellor’s conditions of remuneration

. the handhng of the allegations against the former Vice-ChanceUoc

. the selection of constitants: and

. the departme of the former Deputy Vice-ChanceUor

32

UNIVERSI~OFPORTSMOUTH

The announcement of the appointment of thePresident of Portsmouth Pol~echnic

3.11 As indicated iu paragraph 1.11 above, the then Chairman of the Board ofGovernors pubhcly announced the appointment of Professor Pickering asPresident of Portsmouth Polytechnic, subject to ratification by the Board ofGovernors. He had no authori~ to announce that an appointment had beenmade, regardless of the caveat attached. The correct course wotid have been torecommend the appointment to the Board of Governors, leaving them to make

appropriate announcements. Before tbe Board of Governors met to ratify thedecision, the Chairman and other members of the Appointments Committeedecided that they had erred in their choice and that they would not recommendratification of the appointment. Professor Pickering subsequently agreed tostand aside and a new appointment process commenced. However, thepremature announcement had put the Polytechnic and Professor Pickering in adifficult position subsequently.

The Vice-Chancellor’s conditions of remuneration

3.12 The Articles of Government (agreed before the Polytechnic achieved Universi~status) specify that the Board of Governors or a Sub-Committee thereof sha~keep under periodic review the emoluments and benefits attaching to the postof President. The National Audit Office found that the Chairman of the Board ofGovernors acted independently in authorizing the departure from standardUniversi@ practice in granting the Vice-ChanceUor permission to trade down hisair tickets. The Universi~ told the National Audit OffIcethat the Chairman didconsult with members of the Board, who in turn consulted MPs and a numberof companies. He was advised incorrectly that it was a relatively commonpractice in both the civil service and government and accordingly gave hispermission.

3.13 In 1991, the then Chairman discussed with the newly appointed Vice-ChanceUorsome detailed aspects of hls contract including his continuing role as Chairmanof the HilEngdon Hospital NHS Trust. The Chairman, having gained the supportof each member of the Appointments Committee, agreed with Mr Merritt thathe should rehnquish the role of Chairman when the remaining eighteen monthsof his contract had ended. Such positions are remunerated and have a notionaltime commitment of 3.25 days per week. Mr Merritt assured the Chairman thatthe work at the Trust, with the exception of periodic Board meetings could bedone primarily by telephone rather than demanding his physical presence.Mthough members of the Appointments Committee were kept fully informed ofthe arrangements relating to the Vice-ChanceUor’s Chairmanship of theHiMngdon Hospital NHS Trust, the Board of Governors more generally was notinformed. However, some of the governors, who were members of NHS Trusts,wotid have been aware of the arrangements and the remuneration andnotional time commitment entailed. In this context, it should be noted that the

33

UNNERS1m OF PORTSMOWH

Deputy Vice-Chancellor was allowed to take up to 42 days a year paid leave ofabsence for paid work as a member of the Mrmopohes and MergersCommission.

3.14 The new Chairman (Mr Waring) was not aware that NHS Trust posts wereremunerated, thinking that the Chairmanship was an appointment fahng intothe same category as his own as Chairman of the Board of the University, thatis, non-remunerated, At no time did he ever beheve that the Chairmanship ofthe Trust was adversely affecting the Vice-Chancellor’s performance since noone had suggested that the Vice-Chancellor was not fuKllhng his Universityduties.

3.15 More generally, the University’s Board of Governors have had a RemunerationCommittee since December 1991 we~ in advance of such committees becomingestabhshed good practice in the sector. This is commendable, but the mattersreferred to above were not referred to the Committee.

The handling of the allegations against the formerVice-Chancellor

3.16 As indicated in Part 2, the initial a~egations against the Vice-ChanceUor werehandled without reference to the formal committee structure, A sma~ group ofsenior governors, abeit in an extremely sensitive situation, decided the courseof action which should be taken and only subsequently referred the matter tothe Audit Committee, Similarly the Audit Committee subsequently exceeded itspowers in deciding not to refer the internal auditors’ report on theVice-ChanceUor’s expenses to the full Board of Governors,

Selection of consultants

3.17 The former Chairman of the Board of Governors was an ex-officio member ofthe Estate Committee between April 1992 and August 1993, when theUniversity was undertaking a major programme of building development.

Becauseofthenatwe ofMsow profession,he tookan interestin the letting bythe Universi& of professional consultancy contracts. The National Audit Officeexamined a number of projects and related contracts let at that time and foundno evidence that the Chairman of the Board had acted in any way improperly.

3.18 In one case, the Chairman gave advice on the appointment of a cost consrdtantfor a S4. 5 milhon ha~ of residence project. The reason for the contract, to thevalue of S20,000, being finaUy awarded to the highest priced bid of three, atahost twice the cost of the lowest bid, was not ade~ately documented by theUniversity. In this case, the Universi~ has stated that, in at least one instance,the presentation to a selection panel by the prospective consdtant had beengrossly inadequate and the selection of a first class cost constitant had provedto he particularly important because, towards completion of the project, thedevelopment contractor had encountered financial problems.

34

UNIVERS1~ OF PORTSMOUTH

3.19

3.20

3.21

3.22

The National Audit Office found two other examples where documentation ofthe competitive process was similarly lacking. In the absence of a fu~examination of the value for money achieved by the University’s buildingprogramme, the National Audit Office codd not conclude that any of these caseshad unduly affected the University. They noted, however, that the availableguidance in the Universi@ cotid be strengthened in fine with the observation ofthe Committee of PubEc Accounts in their Report on the Proper Conduct ofPnbUc Business: “Full and open competition should be apphed in au save themost exceptional circumstances in order to secure the best the market canprovide at the most competitive price”. The Financial Memorandum from theFunding Council does not refer specifically to tendering arrangements and theCUCGuide states simply that “guidance on procurement, quotations andtenders shotid be included in the institution’s internal manual of financial rulesand procedures”.

The Chairman and the Universi@ have told the National Audit Office that, onoccasion, as in the case at paragraph 3.18 above, the Chairman had givenadvice informally to University staff on the selection of constitants but be hadnot been involved in executive decisions other than as a ex-officio member ofthe Estate Committee. Given the Chairman’s known position in the localbuilding industry, he was perhaps unwise to offer advice on the selection ofconstitants outside of the formal committee structure whose decisions areformally documented and where other governors can apply a check on what isproposed. His giving of advice in this way meant there was a risk that theeffectiveness of the Estate Committee might be reduced and his involvement,such as it was, might be open to misinterpretation. Perceptions concerning thisinvolvement wodd not have been improved by the Universi~’s failure always tofoUow a fuUytransparent and competitive process in making certain consultant

appointments. However, the National Audit Office found no evidence that theformer Chairman of the Governing Body had gained any improper advantage.He clearly brought considerable expertise to bear and his suggestions onoccasions resulted in the University achieving improved value for money.

Furthermore, as a result of the events described in Paragraph 3.6 above, theUniversi~ in November 1993 instituted a procedure designed to ensure that theChairman would secure no competitive advantage should his company wish totender for University projects. This included inviting an independent aesessor,

appointed from a hst provided by the Institute of Arbitrators, to sit on the groupassessing tenders. The Universi~ has found this arrangement beneficial andhas decided to continue with it even once the Chairman decided that hiscompany wodd not tender for University contracts.

The departure of the Deputy Vice-ChanceHor

The process by which Professor Pickering left the Universi@ is set out inparagraphs 1.24-1.26. The National Audit Office note that the decision to enterinto an agreement relating to the departure of a senior member of staff as analternative to disciphnary proceedings runs contrary to the recommendations ofthe Committee of Pubhc Accounts in their January 1994 Report on the Proper

35

UNWERSI~OFPORTSMOUTH

Conduct of Pubhc Business, which have been accepted by the Government. Intheir Report, the Committee of PubEc Accounts object to ex gratia paymentsmade without authori~ on termination of employment, particrdarly wheredisciphnary action might be more appropriate. This Report was considered bythe University’s Audit Committee on 9 May 1994, shortly after being circtiatedby the Funding Council, and the Audit Committee minutes were received by thefu~ Board on 29 June 1994.

3.23 Mr Jeremy Lever QC considered this matter and decided that if the Universityhad proceeded with disciplinary action, “Disciphnary proceedings, including the ~legal proceedings, that would very probably have ensued if the disciphnaryproceedings had gone against [the Deputy Vice-Chancellor] wmdd Eke aUcontentious procedures, have been uncertain as to their eventual outcome anddisruptive and expensive in the meanwhile”, He therefore concluded that “On j

the assumption that there were, as [the Chairman] beheved, irreconcilable I

personahty conflicts, and a deep-rooted “management problem”, then if [theDeputy Vice-Chancellor] was to leave the Universi@, it seems to me to beentirely desirable that he should do so on agreed terms that recognised his pastservices to the institution and the fact that the rights and wrongs of [the DeputyVito-Chancellor’s] case were complex and contentious”.

3.24

3.25

The decision to make the post redundant shotid have been taken by the Boardof Governors. In practice by the time they ratified it, in October 1994, theDeputy Vice-ChanceUor had aheady left. The Lever Inquiry Report concludedthat the processes followed in relation to the Deputy Vice-ChanceUor’s departurewere not appropriate “because they raised, and ultimately involved rehance on,redundancy of the post of Deputy Vice-ChanceUor and restructuring of theDirectorate without the Board of Governors’ prior approval of the relevantissues of principle”. However, the Report concluded that the severanceagreement itself was not irregtiar because it was signed by the Vice-ChanceHorwho had authority to bind the University contractually.

The Lever Inquiry Report found that the Chairman took the action he didbecause he beheved that there were irreconcilable personal differences withiithe Universi@’s Directorate and that he did not act in bad faith, However, given

theDeputyVice-ChancellorhadinstigatedtheinvestigationoftheVice-Chancellor’s expenses, the Report concluded that the Chairman wasunwise to act in relation to the Deputy Vice-Chancellor’s employment with theUniversi@ without securing in advance tie fuR backing of the Board, The LeverInquiry Report concluded that the Chairman’s failure to secure the backing ofthe Board “was liable, if and when all the facts became known, to strengthenthe suspicion that, albeit in the belief that what he was doing was in theinterests of the University, he may, without objective cause, and relying nndtiyon [the Vice-Chancellor], have inflated certain possible causes of dissatisfactionwith [the Deputy Vice-ChanceUor] into matters that could be advanced aspotential grounds for [the Deputy Vice-ChanceUor’s] dismissal in order toencourage [the Deputy Vice-ChanceUor] to leave the Universi~ by agreement”,The Chairman has, however, told the National Audit Office that he had thesupport of every independent governor, that is, the majority of the Board.

36

UNIVEMI~OFPORTSMOUTH

P

3.26 The Nation&l Audit OIOceuule llml lhe Vitie-ChaI1tieUurmay nut have hadauthority to authorise the enhancements to pension in the DeputyVice-ChanceUor’s severance package. The “Deciding Authority” for the purposesof authorisation of payment by the Teachers Pension Agency of “TeachersPrematare Retirement Benefits” was the Board of Governors of the Universi~.The apphcation on behak of the Deputy Vice-Chancellor and the necessarycertificate from the University were filed with the Teachers Pension Agency on17 August 1994, two months before the Board of Governors discussed, andretrospectively approved, the redmdancy, The National Audit Office concludethat, had proper procedures been folowed, the University might have been in astronger position to be able to negotiate a reduced severance payment for theformer Deputy Vice-ChanceUor.

3.27 Mthough the Deputy Vice-ChanceUor’s severance agreement was concluded on1 July 1994, he wanted hls forthcoming departure kept confidential util1 September 1994. The University’s sohcitor advised against including aconfidentiahty clause relating to one pafilcdar matter because of the difficultyof setting out the hmits to confidential areas and those not stiject to restriction.The agreement, therefore, included an a~-embracing confidentiality clausewhich prohibited either party disclosing the terms of the agreement or anyother matters concerning the Deputy Vice-ChanceUor’s employment or itstermination, except in the terms of a statement for pubhcation to be agreed andannounced on 1 September 1994. It was not the normal practice of theUniversi@ to include confidentiahty clauses in severance agreements. TheVice-ChanceHor’s severance agreement did not have one.

Conclusions

3.28 The failme ‘on a nmnber of occasions of governors to act through theestabhshed corporate decision making process was a significant weakness.The Universi~ has acted commendably to strengthen its arrangements forgovernance (paragraph 1.32), but several of the matters referred to abovearose horn etisting procedures betig ignored rather than the inade~acy ofthose procedmes. This provides a lesson for the University and the sector ingeneral. Mllst these events occnrred before the pfihcation of the CUCGuide, the circmnstances and events at the Universi~ are not ade~atelycovered by the new CUCGuide. Experience at the Universi@ thus serves totiustrate some ftiher areas where gtidance might useftiy be strengthened.The spec~lc areas of concern and a description of the @dance available areas fo~ows:

. There remains instificient sectoral gtidance ontheextent towhlchfimsin which governors, and Chairmen of governing bodies, have an interestshodd be allowed to tender for University contracts. The absence of suchgnidance may have the effect that such people become increasinglyreluctant to take on these pubfic roles if they or their employees are to be

37

~~ERS1~ OF PORTSMOUTH

penahsed financiatiy. Some guidance on bestpractice is@venbytbeCommittee on Standards in Pubhc Life in their report on Local SpendMgBodies,

. The Chairman and other governors failed unimportant occasions to actwith the approval of and wittin the Emits of authority delegated by theBoard of Governors, The CUCGuide addresses this in general terms butcotid be strengthened by more specific @dance,

. The informal advice given by the former Chairman of the Board ofGovernors in the selection of consultants highhghts the importance oftransparent and competitive processes for appointing constitants; also theneed to document such processes fu~y, especially in cases where thelowest fee ~ote or tender has not been accepted; and for governorexpertise to be channe~ed through the formal committee structure,particularly where there may be perceptions of conflicts of interest. TheCUCGuide recommends that higher education institutions draw up a codeof practice for governors but there is no specific guidance on these points.

Recommendations

3.29 The National Audit Office recommend that the Department, working with the

Committee of Universi@ Chairmen and other representative bodies as

appropriate, strengthen the guidance for governing bodies in highereducation to:

. include a more exphcit statement of the duties and responsibfities of theChairmen of governing bodies;

. advise on the extent to which it is appropriate for governors andparticdarly the Chairman of the governing body to be aUowed to tenderfor Universi@ contracts and the safeguards to be apphed in thesecircumstances:

● encourageinstitutions, including the University of Portsmouth, to developa Code of Practice for governors which sets out clearly the distinctionbetween the strategic role and responsibihties of the Board of Governorsand the executive role and responsib~lties of the Vice-ChanceUor and othersenior officers, and specifica~y excludes informal governor involvement inthe procurement process;

● advise against governors acting outside the committee structure ordelegated authori~ and

. state exphcitiy the expectation that governing bodies shotid makedecisions in a corporate manner.

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UNIVERSI~ OF PORTSMOUTH

3.30 The National Audit Office also recommend that the eector’s atiention needs to

be drawn to the importance of transparency and competition in the

appointment of contractors,forMstance by commending the approach setout in the report ‘Selecting the Consultants for the Team: Balancing Quahty

and Price’ pubhshed in 1996 by the Construction Industry Board. Reference

is made to that report in the current draft ‘Procurement Gnidehnes for Higher

Education Building and Engineering Contracts’ which was issued to the

sector in January 1997. These guidehnes have been produced as a

co~aborative effort between the Association of University Directors of Estates,

the Committee of Vice-ChanceUors and Principals, the Standing Conference of

Principals and the Funding Council,

39

Appendix 1: Summary chronolo~ ofevents

May 1990

Ass@st 1990

Septetier 1990

Apfi 1991

June 1992

October1992

Au~st 1993

September 1993

October 1993

November 1993

The position of President of Portsmouth Polytechnic became vacant upon thedeath of the iucumbent.

Professor Pickering was offered the post and hls appointment was pub~clyannounced.

The Chairman of the Board of Governors decided that he cotid not propose thatthe appointment be ratified by the Board of Governors. Subsequently, theAppointments Committee supported this view and rescinded the originalrecommendation.

Mr Neil Merritt was appointed President of Portsmouth Polytechnic and took uppost in September 1991.

Coopers & Lybrand, the University’s external auditors, raised concerns with theAudit Committee about the authorisation process for the Vice-ChanceUor’sexpenses and revised procedures were agreed whereby the Chairman of theBoard of Governors would personally authorise all claims.

The Vice-Chancellor wrote to the Chairman of the Funding Council for advtce onthe Chairman’s abihty to tender for building contracts from the University. Animmediate reply was received which set out the procedures to be fo~owedshould the Chairman wish to tender.

The Chairman decided that he might wish to tender for building contracts andwrote to all governors seeking their views.

The Vice-Chancellor’s secretary formally reported ber concerns about the

apparent irregdarities in the Vice-Chancellor’s expenses claims to the Head ofFinance who raised the matter with the Deputy Vice-Chancelor.

The Head of Finance and Deputy Vice-Chancellor met with the University’sinternal auditors. Subsequently, the same group met the Chairman of the AuditCommittee. They agreed to seek clarification from the Chairman of the Board ofGovernors about his intentions wbeu authorizing the trading down of air tickets.

Tbe Chairman of the Board of Governors and the Chairman of the AuditCommittee had two meetings with the Vice-ChanceUor and put the allegations tohim. Following the first meeting the Chairman of the Audit Committee wrote tothe two other independent members of that Committee summarizing the events,hls conclusions and his proposed course of action with which the other twomembers subsequently confirmed that they concurred. At the second meeting

40

UNIVSRSI~ OF PORTSMOUTH

with the Vice-ChanceUor, the Vice-Chairman of the Board of Governors waspresent. This meeting concluded tith the Governors present accepting theVice-ChanceUor’s explanation and issuing a formal reprimand. Theseconclusions were also sent in writing to the Vice-ChanceUor fo~owing themeeting and an internal audit investigation of expenses was commissioned.

December 1993 The Deputy Vice-ChanceUor, the Chairman of the Audit Committee and thePro-Vice-Chancellor (Resources) were tasked to produce a paper for the Boardof Governors setting out procedures to be fo~owed should the Chairman decideto tender for building contracts. The Board agreed the recommendationsincluding the need to commission internal audit to produce a report on whetherthe Chairman had akeady gained unfair advantage in any such tenders becauseof his involvement in estates matters and shonfd be debarred from bidding.

March 1994 The internal auditors submitted a draft report to the Chairman of the AuditCommittee which reviewed the Directorate’s expenses including those of theVice-Chancellor. At a private meeting the Chairman of the Audit Committee wasurged to notify the Funding Council informa~y.

March 1994 The Chairman of the Board of Governors forma~y notified the Board that hehad decided not to tender for University building contracts.

Aprfl 1994 The Chairman of the Audit Committee notiled the Funding Council of theoutcome of the internal auditors’ investigation into the Vice-Chancellor’sexpenses.

3 May 1994 The Vice-Chancellor completed a management review on the conse~ences forthe Universi@ of the Deputy Vice-Chancellor leaving the Universi&.

9 May 1994 The Audit Committee at a private meeting decided to accept the iriternal auditreport and endorse the recommendations. They confirmed that the formalreprimand the Vice-ChanceUor received in November 1994 should be seen asfinal written warning.

9 June 1994

27 June 1994

1 Jdy 1994

The Vice-Chancellor read a prepared statement to the Deputy Vice-Chancefforreferring to criticisms of him and his state of health and directed him to taketwo weeks leave.

The Chairman and Vice-Chairman of the Board of Governors met with theDeputy Vice-ChanceUor and advised him of the intention to setup a specialcommittee to investigate various complaints. Alternatively he could choose toleave the Universi@ on agreed terms.

On advice from his advisers the Deputy Vice-Chancellor signed the CompromiseAgreement which contained provisions recording that he did not accept theallegations made about him and also confidentiahty provisions which werebinding on both parties.

1 September The Deputy Vice-ChanceUor’s redundancy was announced with effect from1994 30 September 1994.

41

14 October 1994

October1994

2 November 1994

Week ending 4November 1994

7 November 1994

November 1994

7 December 1994

September 1995

October1995

January 1996

June 1996

Jme 1996

The Vice-Chancellor’s secretary raised concerns about the Vice-ChanceUor’spersonal conduct in relation to a possible evasion of VAT.

Rumour and press comment prompted discussion and speculation about theinternal audit review of tbe Vice-Chancellor’s expenses claims.

The LTniversity’sJoint Trades Unions Committee held a public meeting todiscuss the Vice-Chancellor’s expenses and passed a vote of no confidence,

Documentary evidence relating to the Vice-Chancellor’s expenses claims wassubmitted anonymously to one of the Pro-Vice-Chancellors,

The Vice-Chancellor’s secretary resigned.

The Funding Council requested and received a copy of the internal audit reportinto the Vice-Chancellor’s expenses claims.

Following continuing rumours about the internal audit inquiry theVice-Chancellor’s resignation was accepted and the Board of Governorsestabhshed the Lever Inquiry. The senior Pro-Vice-Chancellor was appointed asActing Vice-Chancellor.

The University and others (including the Funding Council and the NationalAudit Office)received the Lever Report. The Board of Governors discussed theReport and referred some matters to their Working Party on Governance.

The Vice-Chancellor’s Secretary’s claim for unfair dismissal was upheld atindustrial tribunal.

Professor Pickering made the allegations to the National Audit O~ce which ledto this Report.

Tbe Board of Governors appointed a new Vice-ChanceUor to take up post from1 January 1997.

TheWorkingPartyonGovernancereportwasacceptedbytheBoardofGovernors.

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UNIVERSI~ OF PORTSMOUTH

Appendix 2: The structure ofresponsibilities and accountabilities inhigher education

The funding arrangements

1 Higher education institutions receive significant pubfic funding, Funds voted by Parhament for highereducation in England are transferred from the Department for Education and Employment (theDepartment) to the Higher Education Funding Council for England (the Funding Council) and then toindividual institutions.

The role and responsibilities of the Secretary of State forEducation and Employment and the Higher Education FundingCouncil for England

2 The role and responsibihties of the Secretary of State for Education and Employment and the FundingCouncil are set out in the Further and Higher Education Act 1992, The Secretary of State determines thepolicy framework for higher education, including aspects of governance. The Funding Council distributefunds to institutions in Ene with the pohcy framework set out by the Secretary of State, Tbe FundingCounci~s responsibilities for institutions include the following

. control of recurrent and capital payments to institutions;

. ensuring that institutions have appropriate arrangements for financial management and accounting,and that the uses towhich the Funding Counci~s payments are put are consistent with the purposesfor which they have been given;

● promoting good value for money through grants paid to institutions and associated guidance;

. monitoring tbe financial health of the institutions;

. safeguarding the puhfic investment in institutions by monitoring and control of institutional borrowingas seems necessary to protect the pubhc investment in institutions;

. specifying accounting requirements in consultation with the Department and requiring institutions toprovide audited accounts; and

. drawing up a Code or Codes of Practice governing institutions’ internal and external audit.

3 Financial Memoranda govern the financial relationships between tbe Department and the FundingCouncil and between the Funding Council and individual institutions. The Financial Memoranda specifythe terms and conditions on which pubhc money is provided.

43

~WERSl~ OF PORTSMOUTH

Accountability arrangements

4 The Secretary of State is accountable to Parhament for the issue of the grant to the Funding Cmmcfl andfor monitoring their activi~. The Funding Council are accountable to Parhament for the issue of grants toinstitutions and for the responsibihties set out at para~aph 2 above. Individual institutions areaccountable to Parhament for the use they make of pubic funds and their governing bodies are re@redto appoint a designated officer, normally, as at the University of Portsmouth, the Vice-ChanceUor, to carrythis specific responsihihty.

Guidance on governance

5 The Department have not issued specific guidance on governance in higher education but haveencouraged sector-wide bodies to take responsibihty for promulgating good practice. The main guidanceon governance has been prepared and issued by the Committee of Universi~ Chairmen in their Guide forMembers of Governing Bodies of Universities and Colleges in England and Wales (the CUCGuide). Thiswas pubhshed in June 1995.

Responsibilities of governing bodies in higher educationinstitutions

6 Under the terms of the Articles of Government, a higher education institution’s governing body isresponsfile for the strate~c direction of the University and for ensuring its financial future. The CUCGuide further defines their responsibihties with regard to the financial arrangements in place, as fo~ows:“governing bodies are entrusted with pubhc funds and therefore have a particdar duty to observe thehighest standards of corporate governance at all times and ensure that they are discharging their dutieswith due regard for the proper conduct of pubhc business. ” It also sets out the specific responsibihties ofthe Board of Governors. Those relevant to this report are:

. the effective and eficient use of resources, the solvency of the institution and safeguarding its assets;

● approving annual estimates of income and expenditure;

. the appointment, grading, suspension, dismissal and determination of the pay and conditions of

semice of holders of senior posts; and

● setting a framework for the pay and conditions of service of au other staff.

Responsibilities of Vice-Chancellors and Principals

7 The Vice-ChanceUor or Principal, as executive head of a higher education institution, has responsibihtyfor the overa~ financial management of the institution and for its day to day direction. He is accountableto the Board of Governors and as principal o~cer of the institution has responsibihty for ensuring thatthe institution comphes with the terms and conditions specified by the Funding Council for the use ofpubhc funds and maybe ca~ed to give evidence before the Committee of Pubhc Accounts. The CUCGuidestates that the executive head’s specific responsibihties include:

44

UNIVERSITY OF PORTSMOUTH

. implementing the decisions of the Board of Governors;

. the organisation, direction and management of the institution and leadership of the staff; and

. the appointment, assignment, grading, appraisal, suspension, dismissal, and determination withinthe bamework set by the Board of Governors - of the pay and conditions of service of staff other thanthe holders of senior posts.

45

~~ERSI~ OF PORTSMOOTH

Appendix 3: Terms of reference andsummary of conclusions of the LeverInquiry Report

Terms of reference

1.1 The Terms of Reference of the Inquiry were estahhshed hy a Resolution of the Board of Governorsof the University of 7 December 1994 as varied by a Resolution of 22 February 1995. The Termsof Reference raised the following questions:

1. In relation to the Audit Committee investigation into the Vice-Chancellor’s expenses:

- to determine whether or not proper procedures were followed

- to advise whether or not the recommendations made by the Audit Committee wereappropriate.

2. In relation to the departure of Professor Pickering:

- to advise on tbe appropriateness of the processes that were fo~owed

- to advise whether or not the outcome of the processes was appropriate

3. To advise whether or not there was a causal hnk between the Audit Committee investigationinto the Vice-ChanceRor’s expenses and Professor Pickering’s departure from the Universi@.

Summary of conclusions

2.1 Myconclusionsare setoutin the followingsectionsofthisReport.Theyare summarisedin thissection for ease of reference only.

2.2 Three Questions were asked in my Terms of Reference and my conclusions are set out below inthe same order.

Mr Lever at this point included a chronology which has not been reproduced since the salientpoints for the purposes of the National Audit Office Report are in Appendix 1.

Question 1 (first part)

2.3 The first part of the First Question of the Terms of Reference of the Inquiry asked me, in relation tothe Audit Committee’s investigation into the Vice-Chancellor’s expenses, to determine whether ornot proper procedures were followed.

46

UNIVERSI~ OF PORTSMOUTH

2,4

2.5

2.6

2,7

2.8

2.9

My Terms of Reference precluded me from considering that ~estion in relation to events prior to23 November 1993, though those events remained relevant to the factual background againstwhich I assessed the events of 23 November 1993 and thereafter. My Terms of Reference had theeffect, which was apparently unintended by the Universi@, because the investigation prior to thatdate was not carried out by the Audit Committee acting in its capacity as such. Rather, it wasconducted by the Chairman (Mr.Waring) and the Deputy Chairman (Mr. Jonas) of the Board ofGovernors, who were not members of tbe Audit Committee, and the Chairman of the AuditCommittee (Mr. Brims), though Mr. Brims obtained the concurrence of the tio other members ofthe Audit Committee, Sir Charles Tidbury and Mr. MacMilan.

My conclusion is that from 23 November 1993, although the Audit Committee’s investigation intothe Vice-Chancellor’s expenses was considered by the members of that Committee acting in goodfaith to be a fu~ and proper investigation, involving both the Internal and External Auditors, therewere a number of aspects which rendered the investigation incomplete and unsatisfactory.

First, the Report from the University’s Internal Auditors, Ernst & Young, contained material thatmade it inappropriate for the Audit Committee, with the concurrence of the Chairman and DeputyChairman of the Board of Governors, to have closed the matter at that point as it did withoutmaking further investigation. Although Ernst & Young’s Report said enough to indicate continuingareas of concern, it did not say enough about those areas.

Secondly, by failing to fo~ow fully the procedures that the same Audit Committee had laid downfor this type of investigation in the Universi~’s Circufar Investigation of Mleged Financial andOther Irregdarities (see Annex II of this Report), two of the officers of the University mostconcerned with operating audit controls in practice, Professor Pickering and Mr. Hunt, weredenied the opportunity of examining the report produced by Ernst & Young. Although this did notrender the investigation inva~d, it did have the consequence that a potentially important safeguardwas forgone. I cannot prejudge what the outcome of further investigation would have been.However, on the material before me, I cannot say that the matters for further investigation wouldhave proved not to be of any significance,

Thirdly, the Audit Committee should have reported the completed investigation to the Board ofGovernors. The informal communication to all the external Governors of what had occurred wasnot an adequate substitute for formal consideration by the Board and that remains so even thoughall the external Governors, when informally notified of what had occurred, concurred in theoutcome. Had the matter been placed formally before the Board, with the necessary supportingpapers, the need for further investigation might well have been recognised either when the papersfor the Board were prepared or by the Board in its discussions.

Finally, the HEFCE should have been acquainted with the facts of the matters under investigationat the earliest stage possible in the investigation, probably at a time which predates the date uponwhich my Terms of Reference ask me to report, and it is unsatisfactory that contact with theHEFCE was made so late in the day.

Question 1 (second part)

2.10 In response to the second part of the First Question, the recommendations made by the AuditCommittee were made in good faith and in the behef thal they were appropriate. However, therewas a failure to appreciate that certain questions remained unanswered. Had those questions

47

~~RS1~ OF PORTSMOWH

been asked, the outcome of the Audit Committee’s dehberations might, though not necessarilywmdd, have been different. The failure to ask those questions may well have arisen from thefailure fuRyto fo~ow the procedures referred to in paragraph 2.6-2.9 above.

Question 2 (first part)

2.11 My conclusions on the Second Question in my Terms of Reference are:

C) the processes that were followed in relation to the departure of Professor Pickering werenot appropriate within the meaning of the Second Question in tbe In~s Terms ofReference because they raised, and ultimately involved rehance on, redundancy of thepost of Deputy Vice-Chancellor and restructuring of the Directorate without the Board ofGovernor’s prior approval of the relevant issues of principle:

~) the process leading to Professor Pickering’s departure from the University was notinappropriate by reason of the fact that it avoided use of the Special Committeeprocedure and a subsequent resolution of the Board of Governors under Article 10 ofthe University’s Mlcles of Government;

Wl) I have found no ground for holding that the procedure that was adopted in relation to theCompromise Agreement was deficient on account of any failure to obseme relevantformal or procedural requirements;

(iv) the process whereby the Compromise Agreement was signed was not vitiated by badfaith on Mr. Waring’s pati however it was imprudent of Mr. Waring not to haveobtained, even in relation to the “conduct” issues, Board approval in advance for thecourse that he was proposing to follow;

(v) it is not usefd to compare the treatment of Mr. Merritt, on the one hand, and that ofProfessor Pickering, on the other, and to criticise the latter on the ground of lack ofeven-handedness;

(vi) the processes leading up to the signing of the Compromise Agreement were not vitiatedby dmess such as to mdhfy Professor Pickering’s consent

Question 2 (second part)

(vii) in considering the outcome of the processes the Terms of Reference of the Inquiry do notrequire me to form a view and I cannot be expected to form a tiew as to whether theUniversity (or Professor Pickering) was on balance advantaged or disadvantaged by theCompromise Agreement and by Professor Pickering’s departure from the Universi~

(viii) the outcome of the processes was inappropriate within the meaning of the SecondQuestion of the Terms of Reference in so far as it resulted in the presentation to theBoard of Governors as a fait accomp~ of the de facto abohtion of tie post of DeputyVice-ChanceUor and restructuring of the Directorate without the relevant issues ofprinciple having been debated by the Board and the subject of a decision by the Board

(this is corollary of (i) above);

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UNIWRSITV OF PORTSMOUTH

(k)

(x)

(xi)

on the other hand, notwithstanding legitimate concerns about whether ade~ateconsideration was given to either Professor Pickering’s state of health in mid-1994 orthe implications of the affair of the Vice-ChanceUor’s expenses claims in a considerationof the breakdown in relations between Mr. Metitt and Professor Pickering, the outcomeof the processes was not inappropriate by reasons of tbe fact that it resulted in thedepartnre of Professor Pickering from the Universi@ on agreed terms; in particdar,there was nothing objectionable about the fact that Mr. Waring and Professor Pickeringagreed to resolve an undoubtedly unhappy situation, which was unsatisfactory in termsof the administration of the University, on the terms agreed under the CompromiseAgreement;

the Compromise Agreement did not make a substantively improper useof ptihC funds;

since the making of the Compromise Agreement the P~hc Accounts Committee of theHouse of Commons has criticised the inclusion in severance settlements of clauses, suchas that contained in the Compromise Agreement, reqohing the preservation ofconfidence about the severance settlements themselves; on the other hand, I cannotcriticise, on the facts of this case, the parties’ agreement to preserve confidentiahty inrelation to the ontested allegations that constituted what Mr. Waring regarded as primafacie gromds on which it might be appropriate for the Board to dismiss ProfessorPickering.

Question 3

2.12 The answer to the Third Question of the Terms of Reference is deceptively simple: there was acausal fink between the Audit Committee investigation into the Vice-ChanceUor’s expenses andProfessor Pickering’s departwe from the Universi~. Mthough it was not a primary, simple ormajor cause, the investigation was not an insignificant factor in the chain of events leading up toProfessor Pickering’s departue, However, it must be remembered that Professor Pickering choseto leave under the terms of a Compromise Agreement, when he could have stayed.

Further observation

2,13 There is one further observation arising out of my responses to the Westions posed by my Termsof Reference. The events that I have been asked to investigate, had they occorred in anycomparable organisation, wotid have placed considerable strain upon the direction andmanagement of the organisation. In such circmnstances, it is important that there should beclearly defined and robust management procedures to deal with the most serious of problems, Tothe extent that procedmes etisted within the Universi&, they were not fo~owed to the full, Inparticular, I have been concerned by the way in which highly significant matters were dealt withon an ad hoc basis, without fd involvement of the Board of Governors by way of priorauthorisation or subsequent report, I am aware that the change of status from Polytechnic toUniversity has required huge change throughout the administration of the Universi@ in arelatively short time, and it is to be hoped that the experience gained from the matters covered inthis Report will prove useful in the continuing review of the Universi~’s direction andmanagement.

49