11 Virtual Brochure – February 2024 A) Financial Sustainability Financial sustainability remains a significant strategic risk, featuring on almost every risk register. Generating sufficient surplus to invest in strategic initiatives remains the key issue, with concerns about the impact of inflation on pay and operating costs, and the real terms decrease in the value of tuition fees featuring more prominently than in 2022. Most institutions also highlight concerns about their pension liabilities. There is a consistent pattern of mitigation approaches, which institutions have a substantial degree of confidence in. Mitigation activities include: - more emphasis on longer-term integrated financial forecasting and use of scenarios and stress testing - strengthening and refinement of continuous planning and review activity - income diversification, particularly international postgraduate recruitment - efficiency programmes and tighter controls on operating costs, particularly people and energy costs - a renewed focus on fraud assurance. 1 https://www.officeforstudents.org.uk/publications/financial-sustainabilityof-higher-education-providers-in-england-2023-update/ Risk commentary In their latest report1 the OfS notes that institutions have acted rapidly “to manage risks to their financial performance from the pandemic and subsequent increases in the cost of living”, but that “the financial environment and outlook is increasingly challenging” and there is significant variation in the financial position of providers. Almost all of the institutions in our sample reported that the status of this risk was “stable”. We observe that risks in the area tend to be well defined, with detailed mitigation strategies set out. Compared to 2022, we note a more pragmatic approach to scoring residual risks. One area of concern is some institutions making assumptions that the likelihood of fraud is very low. Evidence from our audit work and broader sector engagement suggests that the likelihood of fraud is due to the expansion in online systems, growth in identity theft, money muling, and wider economic conditions. We encourage audit committees and boards to challenge risk ratings, particularly low likelihood scores, and to ensure fraud policies / procedures are reviewed and awareness raising activities undertaken.
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