'The directors of LUE cannot demonstrate that effective control is being operated over the company'
Luton University failed to act on repeated warnings from its auditors about the mismanagement of its subsidiary company, Luton University Enterprises (LUE).
A series of audit reports seen by The THES shows that the university's internal auditors warned in 1997 that the subsidiary "has no formal management, no budget and no management accounts, which we consider to be a wholly unacceptable position". Annual audit reports since then have shown that a number of issues were never properly dealt with and, in 2002, auditors said there was no evidence that the directors of LUE, including Luton vice-chancellor Dai John, were in "effective" control of the company.
The company was set up as Putteridge Bury, for "the provision of short courses, the letting of conference facilities, and applied research and consultancy". But audits confirm that the company has been "used almost exclusively as a vehicle for the recovery of VAT on the non-teaching activities of the university".
The 1997 audit report from Robson Rhodes, which warns of the "wholly unacceptable" lack of management, says that despite warnings in 1996, income and expenditure coded through the company "remains arbitrary, being at the discretion of the academic staff who have no formal guidance". In 1999, the auditors' report says that a 1998 review of the company's activities "concluded that the allocation of income streams between the university and the company was haphazard, inconsistent and did not guarantee the expected tax advantage... this issue has not yet been fully resolved". A year later they say: "There have been no significant improvements."
New auditors KPMG say in the 2002 report: "The university does not have a robust system or policies in place for deciding which projects will be run by the university and which projects will be run by LUE... the directors cannot demonstrate that effective control is being operated over the company."
Luton has propped up the company despite its poor performance. In 1998, governors of the university agreed not to call in a £100,000 debt, allowing LUE to continue as a going concern.
This week, Catherine Wall, Luton's solicitor and company secretary at LUE, declined to discuss the management of the subsidiary. She said: "Your account of its affairs reveals a prejudiced and selective approach.
Although the auditors' Management Letters do contain constructive comments, the auditors have always signed off the accounts (and) the company has never received a qualified audit report."
What constitutes a "clean bill of health" when Luton University is discussing its accountability for public money?
When questioned in 2001 about the accuracy of Luton's student numbers - its Higher Education Student Early Statistics (Heses) returns - pro vice-chancellor Tim Boatswain said: "We've just had the Heses auditors in and as far as we're concerned we've had a clean bill of health."
Last month, The THES obtained a copy of the Heses auditors' report, which warns that the auditors "could not provide reassurance" over the reliability of Luton's returns, used to determine teaching funds. Luton "misreported" two cohorts of students, and included almost 500 students who should not have been listed in its returns.
When challenged that this appeared to be far from "a clean bill of health", Luton said that Professor Boatswain was not referring to the Heses student numbers report, but to a separate audit by the funding council's audit service that took place at the same time.
This week, The THES obtained a copy of this audit. It says: "Our conclusion is that management control arrangements were only partially effective during the period under review. In particular, there were fundamental problems with billing, recording and collecting student debt." The report also says that Luton broke the terms of its financial memorandum - its public funding contract - with the funding council, because it "exceeded its borrowing permission in cash-book terms".
Asked if this could be described as "a clean bill of health", Professor Boatswain said: "The university is no longer prepared to take part in a public debate over your allegations. If theHigher Education Funding Council for England has any particular concerns relating to the issues you have raised, they will no doubt contact the university directly."
Want to blow the whistle? Contact Phil Baty on 020 7782 3298 or email him at firstname.lastname@example.org