Performance Audit in the Educational Institution
We are all aware that business performance can be measured by several criteria:
1. Profit
2. Return on Investment
3. Brand equity
4. Market Share
5. Customer Satisfaction
6. Employee Retention, etc
When it comes to service sectors and business of intangible services, the same criteria can't be applied. Similarly, for education, some of these criteria become redundant. At the same time, to make these institutions viable & sustainable, proper MIS & performance appraisal reporting are required. Moreover, many of these get some form of direct/indirect financial support from government.
As we have seen over the years, many institutions in these sectors have been set up with much fanfare and have been serving the society. However, with passage of time, they lose the qualities which made them stand apart from other peers. Often, this is because inertia sets in. This can happen with businesses as well, but the management keeps checking the pulse of the organization as outlined above and keeps changing with the times as also keeps on deploying additional resources (monetary/non monetary) to take the business to not only sustain, but take it to the next level.
Everybody understands that Education should not be run purely as businesses and need to maintain their dignity as noble professions. At the same time, our experience has shown that we need to nurture and sustain these institutions. In spite of many competitors coming up, IIMs & IITs have retained their premier positions. To continue doing so for next 50 years, will need faculty, infrastructure, new curriculum, control over costs & sustained goodwill. To keep them on track, Performance Reporting relevant for them needs to be devised.
These can't be captured on financial reporting formats of a business as we all know, financial reports, such as Balance Sheet and P & L A/c do not tell the complete story of a business.
The governing authorities of education institutions are often eminent persons from various strata of society and government nominees. Often they do not have domain expertise. However, they have entrepreneurial & administrative skills. Given the right reporting support, they can discharge their duties more effectively.
Institutions in these sectors are often not competitors to each other, but serve a certain pocket of population. Hence sharing of performance parameters can help to achieve the best through benchmarking.
Many of these get direct government funding. Rather than just get a fund utilization report, it is better to get Performance Report for the benefits derived from deployment of these funds. Often it happens that there is need to put more funds to get the desired benefit, which may not be visible in financial/ conventional reporting.
Certain subsidies are extended to these institutions. Reporting of the benefits derived there from and justification for the same needs different form of reporting. There are cases where tax benefits end up benefiting the people who can afford to pay higher price. Hence, this angle needs to be brought out.
By collating reports of all organization, the apex body can often spot gaps in the service for the area. It may happen that there is no Management Educational Institution in a district, which can't be brought out by conventional reporting. Similarly, to direct future capex and infrastructure buildup, paradigm shift in reporting is required.
In addition to the above, it is also necessary to apply Cost Accounting tools to ascertain the following & include in the Performance Appraisal:
1. "Product/Service wise" costs & revenues: To identify "segmental" profit/loss and identify "cross-subsidiasation".
2. Fixed & variable cost analysis: For proper pricing of services and identification of "need" to subsidise Capital / Operational costs
3. Optimum utilisation of assets – by increasing utilisation, cost per unit impact can be reduced
4. Ideal ways to recover the above
5. How proper pricing can meet twin objectives of meeting costs and sustaining operations
6. "Industry norms" for benchmarking
7. Fair return to all stakeholders
Need for Assurance:
While it is good to get Performance Report from institutions, audit thereof is equally important. While there may be initial resistance to the same, this need to be formalized for the following:
1. Major Improvements in Governance have in most cases come only with force of law
2. Any system improving governance is a huge VALUE ADD for the Society i.e. you and me
3. Authentic Past Cost Data helps in preparation of reliable Budget/forecast
4. Ensure proper end-use of funds
5. Identification of visible & invisible losses/waste
6. This is suggestive in nature and not punitive & provides timely signals for corrective actions
7. Can be a good tool for "price" determination
8. The benefits of performance far outweigh costs thereof
Under the above backdrop, I suggest that being Management Teachers Consortium, MTC Global should put up a proposal to the Institute of Cost Accountants of India (ICAI) for preparing a Guidance note on Performance Audit Format for economic viability and sustainability of the Institution in the future days to come.
CMA Chittaranjan Chattopadhyay
Former Chairman, EIRC of ICAI (Formerly ICWAI)
Founder Trustee of Society for Human Aptitude Knowledge Training & Implementation (SHAKTI)
*"They alone live who live for others, rests are more dead than alive."- Swami Vivekananda. *
The views expressed are individual and not necessarily MTC Global also share the same views.
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