Has Reading milked its dairy trust?

Back in December, I made an offer via Twitter to look over the accounts of any universities where academics and/or students had any concerns about what was happening.

A member of staff at Reading approached me. A quick look at the latest financial statement (for 2017/18) flagged up a few issues. The main one was contained in Note 19 “Creditors: Amounts falling due within one year”.

It looked as if the University was committed to paying £120m to the trusts for which it acts as sole trustee.

That seemed unlikely. It was not as if the University was in a position to produce such sums and anyway the figure included for 2017 indicated that a slightly smaller sum had been in the same category in the previous financial year.

The accounts offered no explanation. I would have expected to see something either in this Note or in that devoted to “Related Party Transactions”. This prompted me to look back through Reading’s previous financial statements.  I had to go all the way back to 2014/15 to see the first clue:

“Included in other creditors is an amount of £40.9m owing to the University’s endowment trusts (2014: £13.2m). This total increased significantly in the year due to land disposals by the trusts.”

In subsequent years, the amount owed to the trusts increased rapidly, climbing to £87m and then the £107m of the 2016/17 accounts. What I now know is that this reflects the manner in which the proceeds arrived from the sale of land at Shinfield belonging to the National Institute for Dairying Research Trust: £20m in 2014, £50m in 2015 and a further £50m in instalments over the next 3 years.

The University spent these sums and noted that it owed NIRDT the £120m. In a statement issued on Saturday in response to our Guardian story the University argues that the sales were fully documented in its accounts.

“The University is confident that it has responded appropriately to the issues relating to the sale of land that formed part of the assets of the National Institute for Research in Dairying trust. The details have already been set out in the University’s published financial statements.” (9 February 2018)

I don’t disagree. But what is missing from all recent financial statements is any account of the loans, which the University says were made to itself by the Trust. The University has nowhere disclosed the terms of the loan and, although it told me interest was payable, it was not able to say what interest was due and indeed whether any had been paid.  The terms of the loans should have been published in the accounts and declared in the notes devoted to “related party transactions”.

There are prima facie conflicts of interest when a trustee is also the beneficiary of a trust. In this case, Reading appears to have accepted that it should have acted differently …

“The appropriate governance arrangements are now in place relating to the university’s management of the trust …” (my emphasis)

but is still being less than clear regarding how the matter is going to be resolved. I was told that two independent panels with legal representation have been convened: one to represent the interests of the trust, the other, the university. And that the university has also informed the regulators of what Office for Students called “a reportable event”. OfS said it had received this notification “recently”, but would not give any more specific timeframe.

There is obviously a broader question about what this means for the university’s finances and whether such a loan should be thought of as a “real debt”. I take that to be part of what needs to be resolved. Since the trust is designed to fund research at Reading, it is never going to be in trust’s interests to precipitate a brutal reckoning, but it seems clear that the loan is on generous terms (rolled over and increased each year) and isn’t being used solely for agricultural research. This indicates two sets of questions: was the conflict of interest properly managed? should the loan have been approved and extended annually?

Setting those questions aside, and returning to the finances: it is clear that the university has used proceeds from the sales to cover over problems in the last few years (deficits from ordinary activities of c. £20m in each of the last accounting periods).* It is not all clear what additional pressure may be put on the university’s position when the matter is fully resolved. (If anyone knows more about trust law and potential precedents, feel free to comment below).

More broadly, there is a question regarding how appropriate it is to “consolidate” the accounts of related trusts into university statements. NIRDT accounts do not appear to be published. Since it is a trust connected to an “exempt charity” , its accounts do not appear on the Charity Commission website; since it is not a company, there is nothing at Companies House. Reading does produce an annual statement regarding the investments held by another of its trusts, the Research Endowment Trust, but does nothing similar for NIRDT. Does anything prevent OfS from requiring universities to also publish the accounts of such trusts? (Again, if anyone with more knowledge in this area wants to comment, please do so below).

Judging from my inbox, this story has wider pertinence. My offer is still there. Please email if you want me to have a look at something.

*update: while over £110m was spent on acquiring fixed assets.