Background

In 2011, the University Grants Committee (UGC) established the Financial Affairs Working Group (FAWG) in response to HK universities 2008/09 adverse financial results. In 2015, FAWG issued two documents including:

• Statement of Recommended Practice for UGC funded institutions (SORP), and

• Cost Allocation Guidelines for UGC-funded and non-UGC funded activities (CAG)

SORP covered new financial reporting guidelines and was implemented in 2016/17.

 

CAG requires all Hong Kong universities to implement segment reporting to clearly identify costs associated with UGC or non-UGC activities. The purpose of this requirement is “to ensure there is no cross-subsidization of UGC resources to non-UGC-funded activities” (Cost Allocation Guidelines (September 2015), University Grants Committee: Paragraph 1.2(1)). If costs cannot be “Directly Attributed” to either of those categories, costs are classified as “Shared” and are allocated to UGC or non-UGC categories based on cost allocation by activities.

 

UGC requires implementation of these requirements by 1 July 2018 (Financial Year 2018/19). As this is a substantial change to current practice, HKUST has decided to implement in phases starting 1 July 2017 (Financial Year 2017/18) to enable HKUST to review of the impact of these changes and refine implementation.

 

CAG has been implemented in two phases. Phase 1 was implemented from 1 July 2017 and covers the introduction of new fund codes, and the change of existing overhead recovery practices. Phase 2 was implemented from January 2018 and covered the launch of a new cost allocation process to trial run the FAWG CAG segment results for 2017/18. The implementation solution has been closely reviewed and refined before full implementation in the 2018/19 financial year.

 

The purpose of this document is to provide background to the changes due to FAWG CAG implementation and to communicate with the rest of HKUST about CAG.

 

Definition of UGC and Non-UGC Activities

UGC activities (aka UGC fundable activities) include all activities associated with teaching and activities, research and institutional support that are allowable and funded by UGC. Non-UGC activities are generally associated with self-financing activities, non-UGC research activities and specific activities such as Student Hostels, Conference Lodge and activities funded by donation.

 

What is Directly Attributable (DA) or Shared?

“Directly Attributable” or DA means that costs can be directly associated with UGC or non-UGC activities. If they cannot be attributed 100% to either of those categories, they are classified as “Shared” and costs are allocated according to appropriate cost drivers.

 

Users are required to identify all staff costs and operating expenses at transaction level whether the activities are UGC DA, Non-UGC DA or Shared costs according to the nature of expenditure.

 

Overview of Cost Allocation Process

The purpose of CAG is to clearly identify the costs of UGC funded activities and non-UGC funded activities. From 1 July 2017 all costs will be classified at source as UGC DA, non-UGC DA or Shared by use of new fund codes. Defaults are used to help users code transactions correctly. All departments/offices are categorized as either DA or Shared. All staff salary costs are categorized as either DA or Shared. Users can overwrite defaults but will get a warning message.

 

Costs are then grouped into the following cost pools: academic salaries, non-academic salaries, facility costs, other operating expenses. If costs are DA, they are allocated directly to the correct segment. If they are not DA, they are classed as Shared and are split between UGC DA and non-UGC DA segments by use of cost drivers. Each segment will take up a portion of the shared costs after cost allocation, as well as the directly attributed cost of the respective segment.

 

Last Update Date: Oct 2023