The aim of this paper is to revise the reporting requirements by the Vietnam ’s Ministry of Finance (MoF) to require state-funded universities to disclose financial inform[r]
(1)THE ALLOCATION OF CENTRAL SUPPORT SERVICES TO ACADEMIC
DEPARTMENT BUDGET AT PUBLICLY FUNDED UNIVERSITIES ■
EVIDENCE FROM VIETNAM
Đặng Đức Sơn, Asso Prof.
University o f Economics and Business - VNU Hanoi, Vietnam
Abstract
In common with many publicly funded organizations, the original purpose of accounting systems in universities is to satisfy the needs of stewardship and financial reporting, and any management accounting information that often tends to be simply a by - product of the financial reporting process (Pendledary & Algaber (1997), Christiaens &Wielemakers (2 0 )) This situation was particularly evident in the case of universities in Western countries Many universities perform accounting process merely to satisfy the need o f the Government, but not attempt to address the need for relevant financial information for internal decision making and control, specially for providing information o f the allocation of central support services to the budget determination in the university management This issue is continuing to be a “hot topic" in the discussion of management accounting by universities and is not irrelevant to state- owned universities in the transitional economies of China and Vietnam
The aim of this paper is to revise the reporting requirements by the Vietnam ’s Ministry of Finance (MoF) to require state-funded universities to disclose financial information and the allocation of central support service costs incurred at central support services, including library, computing, training, finance, and personal departm ent to the academic department therefore increase the awareness of budget determination factors in management process
The results of the investigation reveal that very few universities adopted the bases fo r the allocation of central support service costs to management accounting process Consistence was not found in the use of allocation bases and the universities tended to use top-slicing method in preparing budgets for central support services
Keywords:.university management, cost allocation, accounting, Vietnam
1 INTRODUCTION
ABC approaches the problem of allocating central costs (for example the library) by focusing on the activities that take place (for example processing loans) and their relationship to 'driver' variables (for example number o f graduate students) While ABC is theoretically attractive, and in some practical circumstances has proved to be beneficial, particularly in manufacturing organizations, certain difficulties arise in its implementation in a university (Mitchell, 1996)
The original purpose of accounting systems in universities is to satisfy the needs of stewardship and financial reporting, and any management accounting information that often tends to be simply a by - product o f the financial reporting process (Pendledary & Algaber (1997)
(2)One of the main uses o f ABC in university financial control is to improve the efficiency of management process by developing overhead allocations to faculty and departments (Goddard and Ooi, 1998) Pendledary & Algaber (1997) used 120 questionnaires to explore the charging o f the costs of central services, namely library, computing, registry, finance, marketing and personnel to academic and other departments in the UK universities The study found that about 50% of the respondents did not charge the costs and there was a variance in using methods of charging (Table 2)
Table
C harging th e Coats o f C entral Services a n d Allocation Basts
Mríkữ Iii 4fCJrđ*ẬỈiig
S ir v ĩt* ĩ n ttm ữ ỉ
Gtữtođi
Đo
Cíurgt
JlfC4Ĩ
Mdffat
Sềtnùcti Ckargt OuX Aiĩoiuttd A&ềếitutit* Comraitĩ
Utuptqfuf-M , % m , Ĩ4 Hữ, % * Jỉữ , M , V ** JWfc % +
Lib rary SB 4S.+ 39 50.6 30 7SL9 15.4 D Q.o 7.7
Com puting 38 49.4 39 50.5 31 79.5 I B D a.a 7.7
Registry 39 50.6 sft »1 SL.5 10.5 D O.Q s 7.9
K a a n c e ? a s a ữ l D OJO a a I M a rk e tin g 38 52.0 35 48.0 2S 8Z.B fl-6 D o.a B.e
Pteraanrwl » 49.4 39 5 6 53 B4.S 7.7 0.0 a 7.7
•iniirrp* P p n H lp H arw & A lơ a h p r Í1 Q Q }
A deeper analysis on the Pendledary & Algaber's survey has also shown that number of students and number of staffs were the main allocation bases of the charging the costs of central services to the academic and other departments
Á l ỉ m i m Baits jViiUiimnr
ư ỉìn * ỉiữiỉiSỉìiđiiư
CV.vJraf ••f/i'.K itJM n Sth'rf/xJ a w ! Staff
ẲVnvVtỉ Rãỉis JiUJ&Wn SJaJfJ^iiiuUrs Jtfumbiti O ih tf ĩiãsừ
Hũ *A jVff 14 jV* % Jtfl %
LiW iity M 30,(1 i a.ĩ r 2,1.3 13 43, i
C úinpiì ùtìy 31 19.4 3.2 s 2Ỉ.IÌ 1(5 i l f i
ReiịÌMív SI tit Í L S t 1) <1,0 1) 29.0
F jn iu ici i t 22.6 3.2 10.1 1« M U
M ufkctiny 2!) 10 « I J I J 12 W
P m o a iiíl 3!i 1' J2.1 1+ 4 U •i 9,1 r j JS.'I
r
- - J I - J _ „A
1—, L _ / -\ n m \Goddard and Ooi (1998) reveals that there was a significant difference in the allocations by ABC and other less sophisticated allocating systems and the application of ABC would potentially increase the efficiency of m anagement process since ABC more accurately reflect the opportunity costs
2 ACCOUNTING BY VIETNAMESE UNIVERSITIES
Vietnam is located in the South East region o f Asia with a population o f more than 80 million The country has been known as in a transitional process to a market economy in recent years The reform, known as Doi Moi (renovation) emphasizes gradual transition from a centrally planned economy to a market economy with econom ic restructuring to come before privatization (Montes, 2001)
(3)Decree NO.43/2006/NĐ-CP has been issued to provide more power and control o f the sta te Universities’ budget to the Management Board of Universities The claimed benefits of Decree N
0.43
has been stated as providing better m easurement o f costs and revenues, greater focus on outputs, more efficient and effective use of resources, improved accountability, better financial management and greater com parability of managerial performance by Vietnamese Universities However, little has been known about the process o f managing the budget in running the universities, especially the charging of overheads The preparation of the budget follows specific guidelines imposed by the Ministry of Finance that apply to all public organizations like universities, academy, hospitals and other public organizations These guidelines mostly refer to the allowed percentage increase of various categories of expenses, compared to the actual figures of the previous year, irrespective of forecast changes in output (number of students, number o f class hours, etc.)Venieris and Cohen (2004) found in similar environment that the adoption of change is difficult Non-profit organizations, like universities, have looser corporate ideology that is due to their social role which cannot be easily quantified, in comparison to the private sector, where there exists a clear set of objectives such as profit maximization As a consequence, it is more difficult to enforce a decision Also, power is more dispersed and conflict can arise more clearly (see, F ig u re 1)
Figure - Organizational structure o f Vietnamese university managem ent
ị
Management Board
(4)3 THE ALLOCATION OF CENTRAL SUPOPRT SERVICES IN VIETNAMESE
UNIVERSITIES
Government's Decree NO.43/2006/NĐ-CP has a great impact on the financial system o f Vietnamese Universities However, little has been known about how the universies’ management cost system change after the Government’s new policy
Although new approach (ABC) does not itself focuse on the cost classifications, the determination of cost allocations is based on the assessments of the relationships between the costs and the costs objects (academic programs or departments) The main classifications of overhead costs are as follows:
Direct costs
Teaching Research Practicing
Other direct costs
Indirect costs
Teaching supporting costs Library
Educational equipment Management Fees Admin expenses
Other services to students Public relations
Depreciations Other costs
The observation o f the costing model by Vietnamese universities has revealed that the use of allocation bases and the universities tended to use top-slicing method in preparing budgets for central support services Therefore, the cost allocation model is based on the transfer o f total cost o f training and other services to training activities As a consequence, management board has very little information on the cost of training programs, students or even of academic departments, (see, Figure 2)
Figure Cost Allocation model by Vietnamese universities Academ ic training and other support services
Training activities
(5)It is common to determine the average cost o f a product by identifying any 'direct' costs, and then allocating the remaining overhead' costs on simple basis linked to the product, fo r example by a percentage applied to direct costs W hen overhead costs are significant, this can lead to serious distortions in the product cost
While most o f training/education expenses are direct costs and allocated to trainina proarams or departments, most other indirect costs cannot be done in the same way ABC tends to allocate these costs The process can be performed by the following steps:
1 Determination of activities
2 Recording overhead costs associated with a specific activity Determination of cost allocation basis
4 Allocating overheads to cost objects
The most important thing in allocating overheads to the cost objects is the selection of allocation basis The determination of the allocation bases is based on the relationship between cost pools, activities and costs incurred (see, T able 1)
Table Relationship between cost pools, activities & allocation bases
Cost pools Activities Allocation basis (drivers)
Training Training by majors
Compulsory Course A Course B Non-compulsory Out-door activities
Time per courses Rate of tutors/lecturers or Direct costs
Research Research Management
Research Support Training researchers
Number of students or Direct costs
Library Library
Common used library Public services Public Relations
Marketing Other costs
Number of students
Finance Accounting and Finance
Financial Support
Number of students or time
Personel Personel and Admin Number of staff/tutors
Computing Premise & electronic equipment Equipment value or m2 used
(6)Among those cost centres (cost pools), the most important centres representing the main functions of the universities’ services are library, computing, finance, personel and training As stated, the allocation bases should be used to provide more relevant cost information fo r m anagement in making decisions However, the most common issues were the determination of cost drivers or allocation basis As stated by Mitchel (1996), the underlying difficulty seemed to be establishing a compromise between the desired accuracy of the process (with more analysis and more drivers), and the desired sim plicity (so as to limit the time and cost of the exercise, and so as to produce an easily understandable result) The most frequendy quoted benefit was that of improved awareness, knowledge and nderstanding o f costs; in the comments made, one could often detect a sense o f relief by finance officers that general cost issues were now being taken more seriously as a consequence o f the allocation exercises In addition, the awareness of management board of universities is also important to the success of the application
REFERENCES
1 Goddard, A., and Ooi, K (1998), "Activity- based costing and centre overhead cost allocation in universities: a case study ", Public Money and Management July-September
2 Mitchell (1996) Activity-Based Costing in UK Universities, Public Money and Management, Vol Jan- Mar 1996, pp.51-57
3 Pendlebury, M & Algaber, N (1997), Accounting for the cost of central support services in UK universities - A note, Financial Accountability and Management, Vol 13(3), pp.281-288
4 Venieris, G., and Cohen,