Study of Costs and Activity Based Appropriations at Greenland's

Home , Kujalleq, Nuuk, Qaqortoq, Sisimiut

Financed by the European Union

Study of costs and activity based appropriations at Greenland’s educational institutions

EUROPEAID/132633/C/SER/MULTI Framework contract Beneficiaries – Lot n°11 – Macro Economy, Statistics and Public Finance Management

Final Report

Letter of Contract N°2017/385622

European Commission, International Cooperation and Development, Overseas

Countries & Territories

ECORYS PFM Consortium

Implemented by:

Prepared by Frans HESSE and Kjeld ELKJAER

7 November 2017

ECORYS Nederland BV P.O. Box 4175 3006 AD Rotterdam Watermanweg 44 3067 GG Rotterdam The Netherlands

T +31 10 453 88 00

F +31 10 453 07 68

E [email protected]

W www.ecorys.nl

Registration no. 24316726

Martin van der Linde, Project Director Dept. of Marketing & Communication T +31 (0)10 453 88 31 F +31 (0)10 453 07 68

Initials Date Author(s) FH / KE 7/11/2017

Counter-reading IBF 8/11/2017

Lay-out / editing MA 10/11/2017

1 Executive summary 5

2 Introduction 7 2.1 Background 7 2.2 Objectives and outputs 7 2.3 Approach 7

3 Overview of the 12 education institutions 8

4 Assessment of budget appropriations and cost accounting 9 4.1 Chart of Accounts 9 4.2 Budget appropriations 9 4.3 Annual appropriations and cost per student 10 4.3.1 Vocational colleges 10 4.3.2 Colleges 12

5 Cost comparison of 12 institutions 13 5.1 Methodology 13 5.2 Expenditure categorization 13 5.2.1 Greenland University 14 5.2.2 Vocational colleges 14 5.2.3 Colleges 15

6 Taxameter 18 6.1 Purpose of taxameter 18 6.2 Taxameter in Denmark 19 6.3 Taxameter in Norway 19 6.4 Taxameter and incentive management 20 6.5 Greenland’s taxameter 21 6.5.1 Taxameter calculation and rates 21 6.5.2 Taxameter budgets and execution 22 6.5.3 College budgets and execution 22

7 Best practice 24 7.1 Greenland University 25

8 Findings 27 8.1 Education institutions’ characteristics 27 8.1.1 General features 27 8.1.2 Colleges 27 8.1.3 Vocational colleges 28 8.1.4 Greenland University 28 8.2 Detailed cost analysis 29 8.3 Budget and expenditure management 37 8.4 Management quality 38 8.5 The role of Boards 38 8.6 Audit and audit reports 39

9 Recommendations 42

Annex 1 List of People and Institutions contacted during the mission 46

Annex 2 Documents reviewed 47

Annex 3 Cost separation 48

Annex 4 ERP account structure 52

Annex 5 Diagram of activity recording of faculty time and cost 54

Annex 6 Questionnaire 55

Annex 7 Terms of Reference 56

1 Executive summary

The purpose of the report is to:  Document the system of annual appropriations to, and costs of 12 education institutions with focus on activity based appropriations.  Analyse and compare main expenditure categories such as salary, administration, purchases, and building maintenance.  Suggest recommendations on best practice regarding cost accounting and calculation of activity based appropriations.

Chapter 2 is the introduction outlining the objectives, outputs, and methodology of the assignment.

Chapter 3 gives an overview of the 12 institutions and their appropriation account codes.

Chapter 4 offers an assessment of budget appropriations to the institutions and the Government of Greenland (GOG) accounting system. It describes the Chart of Accounts, the structure and concludes that at best if used consistently and correctly it can assign cost per administrative unit. However, it cannot attribute costs by activity or by the four categories mentioned above.

The different types of appropriations to the four colleges, the seven vocational colleges and the University are outlined. For cost comparison reasons, it is unfortunate that the appropriations and account codes in two cases cover both traditional colleges and vocational colleges.

The annual appropriation per student and cost per student1 at vocational colleges and GUX colleges are calculated on different basis showing widely different results.

Chapter 5 Compares the costs of the 12 institutions and describes the challenges the accounting system presents. It explains the necessity to transcend the account problem by doing a detailed analysis of the composition of each institution’s operating cost in order to divide the operating costs into four categories: salaries, administration, purchases, and buildings. The chapter then presents these cost categories for by institution.

Chapter 6 describes various aspects and impacts of taxameter systems exemplified with the Danish and Norwegian systems both based on per student allocations. It continues to assess the taxameter in Greenland based on class weeks, and concludes it would be inappropriate to copy either system given the special situation in Greenland.

Chapter 7 provides an example close to best practice in terms of internal cost centres and academic pursuit. It highlights the potential benefits of internal accounting that not only categorises expenditure by activity, but also serves as a management tool to decentralise budget responsibility to institutes and divisions. Chapter 8 on findings is the main corpus of the report. It is primarily devoted to a detailed analysis of selected account codes and expenditure categories where errors and savings are most likely to be found based on experience.

It shows the percentage spend in each category across the institutions and offering explanations on variances.

1 Based on actual 2016 expenditure

The quality of the institutions’ management is found to be generally satisfactory in terms of competence and commitment and integrity. In view of the high degree of autonomy and economic latitude integrity should be complemented by adequate process control.

The chapter assesses the role of the Boards, how the institutions are audited and the information and details of audit reports.

In chapter 9 the report draws on the conclusions from the previous chapters and offers recommendations in the following areas:

 Accounting system  Taxameter system  Appropriations  Board responsibility  Goal formulation  Management  External audit  Internal audit  User panels  Customer satisfaction  Further studies  Purchase of goods and acquisition

2 Introduction

This chapter outlines the background of the assignment (Section 2.1), its objectives and outputs (Section 2.2), and the approach (Section 2.3).

2.1 Background

There is political consensus in Greenland that a crucial prerequisite for growth and sustainable welfare is to focus on education, skills and competence development in general accompanied by efficiency gains.

Over the past decade Greenland has spent massively on education equivalent to 15% of GDP in 2015. This compares to 7% of GDP in Denmark for the same year and 4.9% on average for the European Union (28 countries) in 2015.

Since 2007 the EU has contributed to the education sector in Greenland through two Partnership Agreements initially with € 25 million per year during 2007-13 and with approximately € 29million per year split into fixed and variable tranches during the current Partnership Agreement 2014-2020.

Given the significant funding for education it was decided by the GoG to undertake a study of the cost structures and the basis of appropriations for 12 selected educational institutions2. Moreover, the study should assess the functioning of Greenland’s education institutions in terms of cost transparency and efficiency to enable comparisons of cost categories across the education institutions.

2.2 Objectives and outputs

The global objective of this study is three-fold. First, to document the system of annual appropriations to, and costs of 12 education institutions with focus on activity based appropriations. Second, to analyse and compare main expenditure categories such as salary, administration, purchases, and building maintenance. Finally, to formulate recommendations on best practice regarding cost accounting and calculation of activity based appropriations.

2.3 Approach

The methodology used for the report encompasses:  Interviews with representatives of the 12 education institutions – six in Nuuk and six in the north and south of Greenland detailed in Annex 1  Discussions with representatives of the Department of Finance and Taxes and the Department of Education, Culture, Research and Church and the Central Accounting Office.  Interview with the audit company auditing the institutions.  Preparation of questionnaire sent to all the heads of the 12 institutions and subsequent data analysis.  Study taxameter systems in other countries and analyse the impact of the taxameter systems.  Access to the central accounting system XAL and account and expenditure analysis of each institution’s 2016 accounts.  Compilation and analysis of the institutions’ audited 2016 income and expenditure statements.  Field Mission – The in-country mission took place from August 1st to 22nd. The list of persons consulted is included as Annex 1.

2 10 education institutions’ income and expenditure statements are audited while two colleges report to the DoE

3 Overview of the 12 education institutions

The 12 education institutions are shown in the diagram below with their respective appropriation codes showing which institutions have individual appropriation codes and those institutions covered by one code. Interviews were conducted with all except with GUX Qaqortoq and GUX Sisimiut.

4 Assessment of budget appropriations and cost accounting

This chapter briefly explains the structure and international concordance of the Chart of Accounts in 4.1 and illustrates the accounting framework and its limitations in the context of the assignment. 4.2 describes the kind of budget appropriations the education institutions receive mentioned in the annual Finance Act. Section 4.3 shows the annual cost per student for the vocational colleges and the number of students registered.

4.1 Chart of Accounts

The GoG Chart of Accounts adheres to the international standard for Government Finance Statistics (GFS) which provides the framework for economic classification of transactions, and the Classification of Functions of Government (COFOG), which is the functional classification of transactions.

The first part of the Chart of Accounts - referred to as the Finance Act Chart of Accounts (Finanslovskontoplan) - consists of the activity, purpose and main codes (hovedkonto) with six digits.

Any adjustments at this level (or at the higher-level activity and purpose codes) require prior parliamentary approval.

The second part of the Chart of Accounts - referred to as the Object Chart of Accounts (Artskontoplan) - consists of the object and location codes with four digits used for internal budgeting and resource registration purposes. The Object Chart of Accounts is not part of the Finance Act.

The third part of the Chart of Accounts - referred to as the 'Internal Chart of Accounts' (Intern kontoplan) - consists of three levels with each two digits that can be used by the Central Department of Accountancy and the budgetary units to break down and further specify the object and location codes as well as the main codes for use in their internal budgeting and for resource registration purposes. The two-digit Spec. codes are used to subdivide the Object Chart of Accounts as needed and has limited options for spending units to add own spec. codes. The i1 and i2 (digit 16-17) are used to divide the Finance Act Chart of Accounts on administrative units. The problem is that the i1 and i2 are not used consistently by all institutions and that sample checks revealed registration errors of expenditures.

In conclusion, the Object Chart of Accounts does not attribute expenditures to categories such as salaries for teachers, administration included salaries, purchases and acquisitions and building maintenance as required by the Terms of reference (ToR).

4.2 Budget appropriations

Budget appropriations for education institutions fall into four categories:  Base appropriation  Operating appropriation  Activity based appropriation (Taxameter)  Specific appropriation

The Base appropriation is an amount based on past non-education related expenditures3. The Operating appropriation is the all-inclusive allocation for the University and the Colleges. The Activity based appropriation is used for vocational colleges only. Effectively, this appropriation is called the taxameter. It is an amount for any specific class week multiplied by the number of class weeks anticipated. The Specific appropriation is destined for special academic and professional courses typically of shorter duration. The budget appropriations for each institution are listed in the annual Finance Law.

Table 1 shows which type of appropriation each institution receives.

Table 1 Appropriations to the 12 education institutions

Institution Base Operating Activity based Specific appropriation appropriation appropriation appropriation (Grundbevilling) (Driftsbevilling) (Taxameter) (Skolespecifik bevilling) GUX Nuuk and GUX  Aasiaat

GUX Sisimiut and   GUX Qaqortoq Vocational colleges     (7) Nuuk University 

For budget planning purposes, the education institutions submit activity budgets to the DoE based on expected number of students enrolled and course weeks 18 months in advance.

The budget appropriations use the accounting codes shown in the diagram. In the two cases, Tech College and Campus Kujalleq the appropriations and accounting include more than one administrative unit. For instance, the Tech College appropriation comprises four different schools – three vocational colleges (one in Nuuk and two in Sisimiut) plus GUX in Sisimiut. It’s the same issue with Campus Kujalleq and GUX Qaqortoq sharing the appropriation and account code. This would not be a problem if Deloitte’s audits of the institutions were conducted on the administrative units and not just on the appropriation code which is the case at present.

It should be obvious that mixing vocational colleges with ordinary colleges does not give a relevant and true picture of the cost structures and elements, not least because the student population is very different between the two. Hence, the Consultant was obliged in two instances to separate the vocational colleges from the ordinary colleges, see diagram 2 below.

4.3 Annual appropriations and cost per student

4.3.1 Vocational colleges

The Diagram 1 below shows the 2016 appropriation per student of the six vocational colleges with the number of students per college listed with the name of the school. The unit appropriations amounts are based on the appropriation codes shown on page 11 and thus include the two GUXs in the cases of Tech College and Campus Kujalleq

It is no surprise that specialised colleges with a smaller number of students account for the highest appropriation per student. The diagram does however not show the true picture for two reasons. First, because 2016

3 Purchase of goods, IT equipment, maintenance of buildings, administration, and management.

appropriations differ from actual expenditures. Secondly, because the account codes in the cases of Tech College and Campus Kujalleq also cover two traditional colleges.

Based on XAL accounts, audit reports and information from the two GUX the Consultant has calculated the actual cost per student in 2016 by separating the two GUX from the vocational colleges to get a more realistic picture of the actual cost per student for vocational colleges and traditional colleges This is shown in diagram 2 also showing the number of registered students that consequently is different from the number of students in diagram 1 due to the separation The separation was based on the calculations shown in Annex 3

It is noted that the annual cost per student is calculated as the institutions’ total costs divided by the number of registered students and differs from the Danish normative student year cost, because the normative student year (STÅ) is equivalent to 60 ECTS points and therefore differs from “registered student”.

Table 2 Appropriations to vocational colleges 2016 Vocational college Taxameter (1) Total (1)/(2) Number of (1)/(3) Annual Appropriation appropriation class weeks (3) students (4) per student (2) '000 (2/4) INUILI 66 16 562 19 730 84% 394 42 036 66 299 Health School 63 6 986 17 737 39% 162 43 123 63 282 Maritime School 66 12 653 17 098 74% 361 35 050 66 259 Tech College Greenland 411 53 943 87 271 62% 1 619 33 319 411 212 Business School Nuuk 145 21 723 26 623 82% 611 35 553 145 184 Campus Kujalleq 360 31 530 52 810 60% 929 33 940 360 147

In the two Diagrams below the number of registered students is shown next to the names of the vocational colleges.

Diagram 1 Appropriation per annual student (årselev) in DKK '000

299 282 259

212 184 147

INUILI 66 HEALTH SCHOOL MARITIME TECH COLLEGE BUSINESS CAMPUS 63 SCHOOL 66 GREENLAND 411 SCHOOL NUUK KUJALLEQ 360 145

Diagram 2

Annual cost per student (årselev) in DKK '000 417 384 374 371 349

178

Tech College INUILI 66 Health School Campus Kujalleq Maritime School Business Greenland 189 63 126 66 School Nuuk 145

Diagram 2 shows a more uniform cost pattern of the vocational colleges than diagram 1. The cost variance of the four middle vocational colleges is much smaller (35,000) than in diagram 1 where the variance of the four middle vocational colleges is (100,000). One reason is that diagram 2 does not include the two colleges. Thus diagram 2 gives a more reliable picture of the actual student cost per vocational college.

For instance, both the Tech College and Campus Kujalleq come out double costly per student in diagram 2 compared to diagram 1.

4.3.2 Colleges

The 2016 cost per college student is shown in Table 3 with the percentage of students in dorms.

Table 3 College features 2016 Colleges Number of Annual cost Students in students per student dorms GUX Nuuk 441 91 555 22% GUX Aasiaat 319 125 938 85% GUX Sisimiut 222 100 643 64% GUX Qaqortoq 234 144 939 68%

GUX Nuuk has the lowest per student cost due to the high number of students and the lowest percentage of dorm students. The 45% higher student cost at GUX Qaqortoq compared to GUX Sisimiut with almost the same number of student and dorm students seems odd and it likely caused by the wide difference in the numbers received from the GUX Qaqortoq and those from the XAL. Detailed examination is of the internal accounts is necessary.

The drop-out rates of the four colleges are identical - 24%, see Table 10.

5 Cost comparison of 12 institutions

5.1 Methodology

The comparative cost analysis of the institutions covers three sectors: the vocational colleges, the colleges and the university. The vocational college sector is complex, because it embraces a large number of diverse educations at colleges in different geographic locations.

Initially, the Consultant undertook to make a distinction between fixed and variable cost for each institution. This turned out to be unfeasible, because some accounting codes include expenditures of both a variable and fixed nature. Moreover, similar expenditure items were perceived differently by different schools - some would consider Services (1298) predominantly as fixed while others would consider them as variable costs.

Hence, the analysis started off with the 2016 financial expenditure statements extracted from the central accounting platform XAL that classifies expenditures as:

Type Code Salaries 1198 Services 1298 Goods 1398 Rents 1498 Acquisitions 1598 Maintenance 1698 Total = Operating costs 1999

To arrive at the annual operating costs of the institutions the amounts recorded on the codes 1198 to 1698 are added.

However, as the classification is defined by object (digit 7-10) it does not enable an activity oriented analysis of expenditures. For instance, Salaries (1198) are recorded as salaries for permanent teachers and hourly paid teachers. The hourly paid staff does not only include teachers but also non-teaching staff such as campus support staff, janitors and canteen staff without distinction and breakdown on individual educations and education activities. Another example is Services (1298), where there is no distinction between expenditures on education services and administrative services. In short, the expenditure statements do not enable an explicit analysis of activity costs per education without looking at the invoices which would require considerable time.

5.2 Expenditure categorization

To transcend the problem the Consultant decided to do a detailed analysis of the composition of the total operating cost (1999) of the 12 institutions and divide them into four categories4: salaries, administration, purchases and buildings. It is noted that buildings do not only include maintenance cost of buildings but also maintenance of equipment as the account entries do not enable a separation. The analysis is supplemented with data from the:  Purpose accounts (i1 and i2)  Internal cost distribution records done by some institutions  External audit reports

4 Required by the Terms of Reference.

 Data from the institutions  Estimates

The result of the exercise is shown in tables and diagrams below and with the following caveats: It is the best possible approximation given the structure of data available - with a margin of error of less than 5%, except in the case of Campus Kujalleq where the data reliability is dubious In cases where vocational colleges and ordinary colleges share the same main account code, there might be costs that are not divided correctly between the administrative units as some accounting entries of the spec. accounts i1 and i2 may not be fully reliable. Finally, all the analysis is based on a single year - the 2016 accounts. It should be kept in mind that some expenditures may vary considerably from one year to another as explained by the institutions e.g. IT and building maintenance costs.

5.2.1 Greenland University

Greenland University has four institutes5 with nine departments covering social economic, humaniora and health educations. The total number of registered students in 2016 was 676 plus 214 new students admitted in August.

Table 4 Greenland University 2016 Expenditure in DKK '000 % Salaries 48 544 58 Administration 13 371 16 Purchases 8 207 10 Buildings 13 540 16 Total 83 662 100

Costs

58 16

Salaries Administartion Purchases Buildings

The university has buildings of different age spread across Nuuk explaining the high cost (16%) for building maintenance.

5.2.2 Vocational colleges

In Tables 5.1 and 5.2 the two GUX are not included, see 4.3.1

5 Institute of Learning, Institute of Nursing and Health Science, Institute of Social Science, Economics and Journalism and Institute of Culture, Language and History.

Table 5.1 Vocational colleges – amounts Vocational colleges Salaries Administration Purchases Buildings Total 2016 DKK in '000 Greenland Business School 22 421 3 396 5 948 2 021 33 786 Maritime School 12 537 1 830 3 808 4 846 23 021 Tech College Greenland (3) 41 272 5 903 17 932 13 765 78 872 INUILI 14 333 2 024 4 621 4 154 25 132 Health School 15 869 2 462 3 549 1 656 23 536 Campus Kujalleq (1) 17 976 3 178 1 898 4 781 27 833 Note (3) Administrative units: Iron & Metal, Minerals, Construction. (1) Only the vocational college.

Table 5.1 Vocational colleges – percentages Vocational colleges Salaries Administration Purchases Buildings Total 2016 in percent Greenland Business School 66 10 18 6 100 Maritime School 54 8 17 21 100 Tech College Greenland (3) 52 7 23 17 100 INUILI 57 8 18 17 100 Health School 67 10 15 7 100 Campus Kujalleq (1) 65 11 7 17 100

Average 60 9 16 14 100

The salaries cost in percentage has a relative modest range of variation from 52% to 67% compared to wide variations of purchases and notably buildings partly explained by the equipment intensive nature of the Maritime School, Tech College Greenland and INUILI. The Tech College Greenland comprises five administrative units, see the diagram page 9.

Average cost pct. of vocational colleges

60 9

Salaries Administration Purchases Buildings

5.2.3 Colleges

Table 6.1 Colleges – amounts

Colleges Salaries Administration Purchases Buildings Total 2016 in '000 GUX Nuuk 28 945 4 056 4 961 5 016 42 978 GUX Aasiaat 27 857 3 931 3 344 9 690 44 822 GUX Qaqortoq 22 000 5 443 4 084 4 415 35 942 GUX Sisimiut 17 773 2 619 1 599 371 22 362

Table 6.2 Colleges – percentages

Colleges Salaries Administration Purchases Buildings Total 2016 in percent GUX Nuuk 67 9 12 12 100 GUX Aasiaat 62 9 7 22 100 GUX Qaqortoq 61 15 11 12 100 GUX Sisimiut 79 12 7 2 100

Average 68 11 9 12 100

Average cost category percentage of colleges

12 9

Salaries Administration Purchases Buildings

One reason the salary percentage is 8 points higher than for the vocational colleges is the relative importance of purchases at the vocational colleges which is almost double of colleges.

Diagram 3

GUX students and salary percentage of total costs 500 450 Nuuk 400 350 Aasiaat 300 250 Qaqortoq Sisimiut

Students 200 150 100 50 0 0 20 40 60 80 100 Salary pct.

The salary cost percentage appears to increase with the number of students in the case of Nuuk and Aasiaat where the costs are more reliable than in the case of Qaqortoq and Sisimiut. Explanations of the variations require further analysis.

There is no obvious explanation for the big percentage cost variations in purchases and building and especially in building equipment maintenance other than only year 2016 is considered. However, the rough climate conditions do cause extraordinary building damages from year to year.

6 Taxameter

During the past 20 years formula (activity based) funding of colleges and higher education using mathematical formula containing a number of variables has gained prominence in several countries accompanied by debate on whether it achieves specific political priorities. The OECD has looked at the pros and cons of formula funding both in general and by country6. One conclusion is that results from different countries are not directly comparable, because they reflect specific national policy environments and because the scope of the formula funding differs.

Given that taxameter funding is the single most important appropriation mechanism for the vocational colleges in Greenland, it is relevant to assess the purpose and design of taxameter funding in more detail.

6.1 Purpose of taxameter

The objective of a taxameter allocation system is to balance the demand for an effective allocation system with a system that renders fairness by rewarding productivity and efficiency in institutions. While the principle of economic efficiency is evident in the taxameter system it creates some challenges in terms of transparency, meaning a common understanding by stakeholders of allocation criteria and the way allocations are calculated. Moreover, since cost elements of education activities constitute the main components of taximeters, discussions tend to focus on achieving the right balance between quantity and quality, so that efficiency is achieved without compromising the quality of education.

The purpose of a taxameter system is to create:  Incentive to introduce result orientation since allocations are attached to the most visible objectives of the institution: production of graduates, including the quality of education;  Reallocation so funds are moved from areas experiencing drop in activity to areas of growth in activity to adjust education supply to demand;  Decentralization to support the independence of institutions by giving them the freedom to adjust to the market by scaling up and down the supply and earn (and keep) on supplying fee based services.  Stronger budget management to prevent over spending and increase flexibility during the financial year without political approval being necessary.  Fair and transparent that all institutions are allocated funds according to the same principles, i.e. activity determined allocations and that all institutions are allocated according to same cost for similar students;  Simplicity. Standardization makes a harmonized management of a complex area possible. Simplicity means that no individual top down management is required. The rates are not calculated in detail, but are politically determined so the rates reflect political prioritizations instead of administrative judgment. By this it is easier to demand production efficiency by reducing rates instead of deciding exactly where cuts are to be made, that is a decision made exclusively by the individual institution. Simplicity also promotes competition between similar institutions further promoting quality and quantity output;

The above indicators encourage the institutions to be more market oriented attracting more students and reducing drop-out rates and promote efficiency. By including the drop-outs as indicator for the taxameter, the institutions are encouraged to attract the best and nourish the ones admitted. At the same time, the system encourages the institutions to reduce the cost of students from admission to graduation, maintaining the quality of education to prevent drop-out. The quality and relevance are assured through a number of initiatives like censors, setting the bar high for admission, accrediting, inspection, result contracts, boards and end-user panels.

6 OECD: Education Working Papers Series EDU/WKP 2012 OECD: Funding Systems and their Effects on Higher Education Systems, 2006

The following is based on studies7 of international taxameter systems with emphasis on Denmark and Norway to draw any possible lessons that might be useful for direction of the Greenland taxameter system.

6.2 Taxameter in Denmark

The taxameter arrangement was introduced in Denmark in 1994 and has been subject to many adjustments over time8.

The allocations to education consist of base allocation (adjusted to geographical and institutional size considerations), targeted (political goals) allocations, elite education (globalization), and research funds (university).

In Denmark three ministries are responsible for allocation of funds for education, Ministry of Science, Ministry of Education and Ministry of Culture, where Ministry of Culture gives one allocation to their educational institutions based on a comprehensive assessment of a number of factors (non-taxameter). It is not clear how the original rates were established and there are quite significant differences in the rates and differences in the development of these rates. Common for the rates are, generally, that they do not match the development in inflation.

Apart from the education taxameter rate, there is also a rate against common expenditure, building rates, constituting a part of the total rate system, showing significant, but not explainable differences.

Table 7 Danish taxameter system at a glance Ministry of Education Ministry of Science Ministry of Culture Taxameter  STÅ9  STÅ Budget allocation  Common expenditure  Graduation bonus  Building taxameter  Graduation taxameter  Elite taxameter Other  Allocation to specific purposes  Allocation to exchange students Earmarked contributions like internationalization and  Basic funds for research practice  Research exposed to competition  Basic allocation to cover basic allocation cost of the institution  Funds for research based services  Purpose specific allocations to authorities

6.3 Taxameter in Norway

Up to 2006 the financing system for colleges and universities differed, but has now been unified, meaning using the same parameters for allocation.

The institutions have identified overarching goals for their institution and the meeting of benchmarks is based on annual consultations with Kunnskabsdepartementet in relation to fulfillment of goals and results which will apply to the entire framework allocation, meaning basic and result oriented allocations. Goal and result structure is in other words an overall framework in relation to the strategic development, administration, coordination and planning, a framework within which the institution has quite a high degree of room to maneuver.

7 Dansk Erhvervsakademi (DEA):Taxameterersystemet under lup, 2011 DAMVAD: Taxameter og kvalitet i danske universitetsuddannelser, 2009 Børne- og Undervisningsudvalget: Teknisk gennemgang af taxametersystemet, 2012 8 Børne-og Undervisningsudvalget: Teknisk gennemgang af taxametersystemet, 2012 9 Equivalent to one normative year of study and exams = 60 ECTS points (STÅ in Danish)

The financing system is basically based on three components: 1. Basis; 2. Education and 3. Research. The purpose of the basis component is to secure stability based on historical allocations and is allocated regardless of results. It is based on a mixture of political priorities and actual expenditure. It constitutes on average 60% of institutions’ budget while in Denmark it constitutes around 49%10.

The intention of the education component is to stimulate the institutions to promote efficiency in the education. This component constitutes on average 25% of the budget while in Denmark it constitutes 41%.

Research allocation consists of two components: a strategic allocation and a results-based component, intention being to increase research activity and reallocate resources to research environments that can document good results. The strategic allocation is primarily earmarked for positions, equipment and other strategic goals. The results based component depends on achievements related to a number of indicators like number of doctorates, other external allocations and quality of publications.

The indicator for the education component has one for study points units (equivalent to STÅ) and one for exchange students. Study points assume that a high flow of students is a sign of high quality education. The educations are divided into six categories reflecting different cost levels of educations.

6.4 Taxameter and incentive management

From studies of the taxameter system in Denmark11, it appears that the taxameter system does influence the behavioral pattern of the institutions to a high or moderate degree. They do try to increase the intake of students. It encourages improvement of facilities and seeks to minimize drop-outs after the introduction of the different, related, bonuses, as reward for intake, time to finalize studies and completion.

An example is that 77% of university respondents (teachers/management) in a survey say that they have taken initiatives to reduce STÅ cost and 83% of these say that it is due to the structure of the taxameter system. Another example is that 91% of respondents say that they have taken initiatives to reduce drop outs and 68% ascribe this to the taxameter system. In the same way studies show that there is a growing tendency to have auditoria education on the cost of class education, that the number of students in each class has increased, increasing use of teachers who have no research obligation (cheaper). On the other hand, there seems to be limited evidence that the taxameter system has had the effect that the quality of education has been lowered or that the bar at examination has been lowered to allow more students to pass.

The institutions indicate that there has been an increase in focus on the quality of the education rendered by teachers and that internal quality assurance has been subject to increased scrutiny. The connection between this trend and the taxameter system is more inferred than evidenced. One area where the taxameter system seems to work contrary to its intention is the relationship between research and education. The taxameter system does not encourage research based and innovative education12, since this parameter is not included in the taxameter. One negative impact of the taxameter system across institutions is the tendency of increasing the size of classes and increased use of auditorium education and external faculty.

10 10 Dansk Erhvervsakademi (DEA):Taxameterersystemet under lup, 2011 DAMVAD: Taxameter og kvalitet i danske universitetsuddannelser, 2009 Børne- og Undervisningsudvalget: Teknisk gennemgang af taxametersystemet, 2012 11 DEA, Oktober 2009 Mini-analyserapport Taxameter og kvalitet i danske universitetsuddannelser & Taxameterersystemet under lup, 2011 12 ”DEA, Oktober 2009 Mini-analyserapport Taxameter og kvalitet i danske universitetsuddannelser & Taxameterersystemet under lup, 2011”, says that the teachers with these qualifications are very expensive per hour in confrontation education. Therefore, the report says, there is evidence that education generally is transferred to lower categories of lecturers to save.

Conclusion Denmark and Norway have chosen quite different approaches to the taxameter system. Norway with a simple taxameter and Denmark with a rather complex taxameter system where some parameters have mushroomed overtime to embrace socio-economic and geographical aspects of student populations to achieve a system that incorporates as many desired outcomes as possible.

The rationale behind, and purpose of the taxameter system in Denmark and Norway deviate fundamentally from the situation in Greenland: size of student population, availability of parallel educations and social and scholastic challenges.

Copying either the Norwegian or the Danish type of systems would not make sense since the authorities are trying to address quite different situations. In Denmark and Norway, the allocating authorities intend to increase competition between the institutions and use the taxameter as behavioral regulation, while Greenland is in a different situation without the same potential for competition among several similar institutions. This does not mean that there is no scope for increased efficiency among the education institutions in Greenland.

However, it is claimed by some that too much focus on efficiency in Denmark13 has proved to be challenging teaching quality, as it has affected relationships traditionally connecting with quality: teaching intensity, confrontation time, team size, teacher skills, research-based education or for university colleges and business academies’ practice-oriented teaching.

Ultimately, the merit of a taxameter system depends on the varied opinions of rectors, faculty, students and politicians, notwithstanding how it is designed.

6.5 Greenland’s taxameter

6.5.1 Taxameter calculation and rates

The taxameter was introduced in Greenland in 2011 for vocational colleges and is based on number of class weeks and differs from the Danish and Norwegian taxameter systems that are based on number of students.

The calculation of the Greenland taxameter system was apparently based on 2010 expenditures recorded by each vocational college and divided in two categories. One for costs directly linked to teaching included education materials. The other category comprised all other costs of which 30% was attributed to administration. The two amounts were then divided by the number of class weeks which produced the taxameter rate per class week. In this sense, the class week taxameter is specific for each vocational school, as it is based on the individual schools’ cost data. There is no taxameter element for graduation.

The class week taxameter rate, hereafter just the taxameter, ranges from DKK 20,000 to DKK 57,000 and covers 56 different kinds of class weeks in 2016 taught by the vocational colleges.

Though a few educations (class weeks) have moved from one taxameter to another over time, the taxameter rates remain unadjusted since inception. The unadjusted rates erode the purpose of the taxameter system: incentives to promote efficiency, education priorities and behavioural regulation.

The advantage of taxameter based on class weeks rather than number of students is that the former is insensitive to drop-outs and make it economically feasible for classes of few students to be taught – factors that are important in Greenland. Interestingly, the Association of College Teachers in Denmark has for the past years

13 DAMVAD: Taxameter og kvalitet i danske universitetsuddannelser, 2009

advocated for a class based taxameter to replace the student taxameter asserting that schools with extra many potential drop-out students are given the opportunity to make extra efforts to maintain and elevate these students14.

6.5.2 Taxameter budgets and execution

The taxameter based on class weeks is the single largest budget appropriation for the vocational colleges except for the Health School explained by a historically more important base appropriation, see Table 2.

The colleges’ taxameter budgets are submitted 18 months prior to the respective finance act in conjunction with negotiations of the schools’ performance contracts. The colleges can request for more taxameter allocations in case the circumstances warrant a higher number of class weeks than initially budgeted. There is not found any rationale for limiting this possibility to adjust the number of actually held classes. Such a limitation would constrain the schools’ flexibility in accommodating demand. It is understood that the DoE accommodates the requests effortlessly obliged by law. This may explain why the principals do generally not face economic constraints in running the colleges, see also 8.4.

By year end the vocational colleges report the number of class weeks conducted to the DoE. It is also understood the DoE does not verify the number of reported class weeks and rely entirely on what is reported.

Table 8 shows the vocational colleges’ taxameter percentage of total 2016 expenditure.

Table 8 Taxameter spend in pct. of total expenditure 201615

Vocational College Taxameter spend in % of 2016 expenditure Business School, Nuuk 64 Maritime School 55 Tech College 53 INUILI 65 Campus Kujalleq 50 Health School 30

6.5.3 College budgets and execution

Two of the four colleges were visited in Nuuk and Aasiaat. Both colleges report directly to the DoE. Their annual budgets are prepared 18 months in advance as for the vocational colleges and the appropriation is an operating lump sum.

Table 9 College budgets

College GUX 2016 in Budget Additional Expenditure (3) Result (1)+(2)-(3) DKK ‘000 appropriation (1) appropriation (2) Aasiaat 37 228 3 000 40 174 54 Nuuk 37 727 1 100 40 375 -1 548

The cost overruns are explained by high cost for teachers pædagogikum and dorm and canteen operations.

14 Association of College Teachers, www.gl.org > Taxameter 15 The reason the percentages in Table 2 and Table 8 differ somewhat is that the former is calculated on appropriation and the latter on expenditure.

Representatives from DoE visit the colleges in October to appraise spending versus budget. It is at this point the colleges request additional appropriations if needed while explaining the reasons behind. Rectors inform that the meetings are relaxed and conducted in an amicable atmosphere upon which the requested amounts are usually allocated.

As the two colleges are under the tutelage of the DoE there is no external audit apart from the general annual audit of the GoG accounts. The colleges have no internal audit function whereas internal audit is undertaken by the Central Internal Audit Unit under the Economy and Personnel Department. The Rector in Aasiaat informed he had not been visited by the Central Internal Audit Unit during his two-and-half years tenure.

7 Best practice

Some may consider a financial classification system as merely an instrument to categorize and register expenditure information supplemented by supporting documentation so expenditures can be reported in an orderly way and be audited annually.

A financial classification system can also be structured by activity and programme by migrating from classical input-output to input-outcome budgeting and accounting. This means that if management wants to follow expenditure by activity to assess what impact funding has in a given area and if set goals are achieved then input- outcome budgeting and monitoring is ideal. If set up in this manner, it serves the institutions as a planning and management tool enabling management to monitor income and expenditure by activity and for instance determine which courses cost how much. By matching activities and expenditures, one can compare expenditure with actual result against anticipated outcome, provided relevant indicators are in place.

How an activity based budget and accounting system is technically designed depends on the availability of relevant activity and resource data and the capacity to implement it.

There are clear indications that activity based accounting will be gradually introduced in Greenland, a move that is in line with newest developments world-wide. It would, accordingly, be interesting to establish to what degree the new classification system will advance such activity based management, budgeting and accounting.

Ideally, institutions set their goals for a given period and plan and budget accordingly based on assumptions and complemented by indicators to measure results and outcomes. In this context, it is important for management to be able to monitor that

1. Each accounting unit is budgeting in line with the overall plan/goal for the period; 2. The reporting system reflects activities; 3. Management can monitor the expenditure against each activity and can react in cases of over/under performance financially of each activity; 4. There is a system in place whereby one can measure outcomes in accordance with goals; 5. There are indicators to measure quality against pre-defined quality goals: 6. Achieved outcomes feed into the institutions’ recurrent planning and budget preparation.

Apart from serving as a management tool, it can also serve as documentation to be presented to decision makers justifying whether present appropriations to the institutions are adequate to meet the cost of the goals set by the institutions.

The present financial classification system is not ideal to provide cost details that can be used to do comparative cost analysis of the institutions’ cost pattern and cost categories to adjust taxameter rates based on the true cost of e.g. students per class, etc. This makes it difficult for management to address central management issues and undertake measures to address cases of deficits, either by corrective measures or taking the case to the appropriating authorities and justify adjustment.

The structure of the new Chart of Accounts that will be used in connection with the introduction of the ERP in January 2018 is shown in Annex 4. The novelty is that Divisions (Afdelinger) have been added capturing the existing 6-digit finance act codes and i1 and by subdividing Divisions into organizational units (using the organigramme of the Self-Rule) and attributing individual account codes to each unit. However, the structure of

the Chart of Accounts used by the organizational units will resemble the existing structure like salaries, services, goods, etc. Thus, the ERP Chart of Accounts will not be able to account cost by activity. This will be for the schools to do, see chapter 9 Recommendation. The advantage of the new Chart is that individual units will have specific codes eliminating the use of 1e that has been problematic in the past.

Given that salaries constitute some two-thirds of the schools’ annual cost it is desirable to have a better cost management system in place. If all the education LECTIO16 the teachers’ time would be recorded by activity and if linked to the central salary database, then time costed activities could be generated. The problem is that the linkage would have to be created and automated requiring an IT solution. The Consultant asked MaCom, the company that created and maintains LECTIO if it had developed software to link LECTIO with a salary system or were aware of the existence of such software. The answer to either question was negative. Instead the schools could calculate average salaries and norm times for different types of teachers’ employment contracts to arrive at a unit cost per time unit and by multiplying it with the time unit from LECTIO would provide costs per activity. The Diagram in Annex 5 shows the “ideal” solution and part of the ERP setup towards best practice.

Deloitte has proposed a Chart of Account structure as an example of best practice17 defining five resource accounts with subdivisions to enable administrative and budget analysis and cross institutional comparisons.

7.1 Greenland University

Greenland University is chosen as an example of an institution that has moved close to best practise. It has introduced decentralised accounting whereby costs are attributed to individual units under each institute as cost centres. The system enables the University to manage expenditures by units and monitor budget performance in detail throughout the system. This prepares for the introduction of activity based budgeting and eventually to establish the cost of students by specific studies. Other institutions, like the Business School and the Maritime School, are on their way to develop similar systems.

The University has an internal accounting practice that is close to best practice.

In three interviews, it was established that not only is management highly knowledgeable about the economy of individual activities, but also of the individual transactions and the rationale behind. According to the audit report 2016, the University takes the accounting to a level where the appropriation and the accounts are divided into 1. Total; 2. Common expenditure; 3-6 expenditure per Institute, and further down to units. In this way, it is possible to establish the cost of the courses per student. The budget is divided into income, personnel and other external expenditure split into different categories. Then the accounts are broken down by area (1-6 above) enabling management to monitor each area closely and establish if one of the areas surpass the budget. This is done by adding additional digits to the main account codes. This makes it possible to know e.g. the variable or direct cost per course and by dividing this number by the number of students, one can have a reliable figure that can be used for a taxameter.

The rationale behind the internal accounting seems more intended to maintain budget discipline than to assess value for money. It does, however, provide a unique opportunity for the university and the authorities to carry out value for money assessments.

Management meetings are held bi-annually and among others consider the budget situation that may lead to reallocation of the budget between institutes depending on the circumstances.

16 LECTIO is an IT platform used by Danish schools, teachers, and students for course planning information to students, and teachers’ time registration. 17 Standardkontoplan for selvstyret og kommunerne, 2015.

The internal categorisation of the budget and accounts based on purpose and activity makes the University a role model. Other institutions, like the Business School Nuuk, and the Maritime School, are in the process of taking a similar approach.

8 Findings

8.1 Education institutions’ characteristics

No other island country in the world with a population similar to that of Greenland has as diverse secondary and tertiary education structure as found in Greenland18. This obviously comes at a cost that explains why almost 20% of public expenditure is prioritised on the education sector.

The unique circumstances and conditions of Greenland in terms of small scattered populations, logistic challenges and arctic climate define the basic conditions under which the education sector functions. The fact that a large portion of students coming from across the country must be accommodated in dorms is but one example. Hence, to make direct comparisons between Greenland and e.g. Scandinavia in terms of student cost per year would be incompatible.

Six of the 12 education institutions covered by this study are located outside Nuuk as a deliberate policy to sustain regional cohesion and socioeconomic development.

8.1.1 General features

The education sector in Greenland faces many challenges that other countries do not have. One challenge is to recruit and retain teachers from abroad and the associated settling-in costs and benefits means that the combined cost of teacher salary and services is significant. Occasional teachers for special courses and censors from abroad is another cost element combined with vocational college students that must sit for exams in Denmark.

Building maintenance cost are high with 16% of 2016 spend for the University and an average of 14 % for the vocational colleges and 12% for the colleges due to the arctic climate and variations of the age of buildings, see chapter 4.

8.1.2 Colleges

Three of the four GUX colleges are located outside Nuuk. Those in Aasiaat, Sisimiut and Qaqortoq face special challenges with the majority of students accommodated in dorms like 85% of the 365 students in Aasiaat. With the typical entry age of the students at 15 years, boarding school living requires support personnel like social pedagogues, janitors and canteen staff.

The average number of students per class ranges 17.5 to 21 for the four colleges.

Table 10 College features

GUX 2017 Aasiaat Sisimiut Qaqortoq Nuuk Number of Students 356 230 229 458 Percent of students in 85 48 71 22 dorms Average percent drop- 24 24 24 25 out 2014-16

Challenges according to college rectors pertaining to the student populations:

18 Those that come closest in terms of tertiary education structures and diversity are Madagascar and Barbados though with much larger populations

 Generally, lack of study preparedness.  Danish language deficiency – in primary school most classes are taught in Greenlandic, whereas in college classes are taught in Danish except classes in Greenlandic language.  College as a completely new world and a quantum leap in teaching and discipline.  Homesickness and personal problems  Unfavourable social background

It should be considered to include a completion bonus in the taxameter and extend it to the GUXs in Nuuk and Aasiaat. This might give the colleges an incentive to devote efforts to potential drop-outs, see taxameter adjustments in Recommendations.

8.1.3 Vocational colleges

The seven vocational colleges span a large number of commercial, technical and social educations. The number of students per class varies with the degree of specialisation. As an example, the three divisions of Greenland Tech College offer 13 educations with 4.5 students per class for ship engineer to 9 per class for carpenter with an average of 6.5 per class.

The Tech College could absorb more applicants were it not for lack of apprenticeship agreements that are a condition for admission.

Greenland Tech College 2016

Table 11 Greenland Tech College Divisions Students Class size Iron & Metal, Nuuk 95 7.5 Construction, Sisimiut 59 7.1 Minerals, Sisimiut 26 5.9

The School of Health Education in Nuuk offers seven educations in social, health and dental care attended by some 70 students mostly women. The students come from all over the country and 80-90% live in dorms and flats, many with small children which may explain the high drop-out rate of approximately 40% on average over 2014-16.

Greenland Business School in Nuuk with a student population of 184 in 2016 offers 58 different courses leading to four bachelor degrees in finance & resource management, international commerce and marketing, international transport & logistic and IT & technology for which class sizes vary from 8 to 18. In addition, the School offers a number of basic educations on commerce and administration with 20 to 25 students per class. Some of the challenges pertaining to colleges are also prevalent at the vocational colleges notably lack of study preparedness.

8.1.4 Greenland University

With 890 registered students in 2016 and a staff of 98 full-time equivalents of which approximately one-third counts as administration the teacher student ratio is 13.7. In reality, the ratio is lower as not all registered students are full-time students.

8.2 Detailed cost analysis

The analysis shows the cost relation between use of staff and external consultants, staff travels and cost related to purchase of goods. Furthermore, the analysis highlights the use of accounting categories where it is difficult to establish the exact nature of the cost, in other words accounting codes that potentially pose a temptation to “hide” dubious expenditures.

The following are the categories taken out for analysis:  Overtime (staff)  Salaries compared to external consultants  Purchase of goods  External consultants’ cost  Travels for own staff  Other (category where it is difficult to establish nature of cost)

University of Greenland Category Definition Cost 2016 (DKK) Comments Overtime This is cost for all categories 3,472,231 Overtime constitutes 7.2% of staff, both permanent and of the total salary cost temporary staff Salary versus cost of Salary is taken as the total 48,540,601 Salary expenditure in total is external consultants cost in 1198. 66, 055,649. External consultants is taken 17,515,048 This means that the as 1298 minus cost that can permanent and temporary directly be attributed to staff cost is 73.5% and either student cost or staff consultant cost is 26.5% of cost, e.g. official travels the total salary cost. Purchase of goods and The Consultant has merged 8,549,721 This is constituting 10% of acquisition the accounts 1398 and 1598 the total budget of the to give a total picture of total university goods both for consumption and goods to be entered into the list of inventories. Own staff travels and This is staff travels for 4,993,866 This expenditure constitutes courses expenditure, per business or courses while 5.9% of the total budget of diem and lodging cost free (holidays) and travels to the University join the work place are not included. Others 1240, 1290, 1311, 1410 are 4,121,298 This is 4.8% of the total cost accounts where one cannot of the University. deem from the accounts’ text what type of expenditure it is covering.

KTI (Tech College Greenland), 3 administrative units Category Definition Cost 2016 Comments Overtime This is cost for all categories 5,620,668 Overtime constitutes 9.9% of staff, both permanent and of the total expenditure on temporary staff salary to staff Salary versus cost of Salary is taken as the total 56,942,215 Salaries to permanent and external consultants cost in 1198. temporary staff constitutes External consultants are 93% of total salary while taken as 1298 minus cost consultants constitute 6.7% that can directly be attributed to either student cost or staff 4,120,888 cost, e.g. official travels Purchase of goods and The Consultant is in this 13,906,437 Purchase of goods and acquisition connection merging the acquisition is constituting accounts 1398 and 1598 to 14.4% of the KTI total cost give a total picture of total goods both for consumption and goods to be entered into the list of inventories. Own staff travels and This is staff travels for 3,390,814 This expenditure constitutes courses expenditure, per business or courses while 3.5% of the total cost of KTI diem and lodging cost free (holidays) and travels to join the work place are not included. Others Parts of 1240 (85), 1290 3,539,778 This is 3.7% of the total cost (85), 1311 (96), 1410 (93) of KTI are accounts where one cannot deem from the accounts’ text what type of expenditure it is covering.

INUILI, Food College Greenland Category Definition Cost 2016 Comments Overtime This is cost for all categories 1,041,744 Overtime constitutes 7.3% of staff, both permanent and of the total expenditure on temporary staff salary to staff Salary versus cost of Salary is taken as the total 14,307,360 Salaries to permanent and external consultants cost in 1198. temporary staff constitutes External consultants is taken 92.3% of total salary while as 1298 minus cost that can consultants constitute 7.7% directly be attributed to either student cost or staff cost, e.g. official travels 1,195,963 Purchase of goods and The Consultant is in this 4,611,963 Purchase of goods and acquisition connection merging the acquisition is constituting accounts 1398 and 1598 to 18.8% of the INUILI total give a total picture of total cost goods both for consumption

Category Definition Cost 2016 Comments and goods to be entered into the list of inventories. Own staff travels and This is staff travels for 762,296 This expenditure constitutes courses expenditure, per business or courses while 3.1% of the total cost of diem and lodging cost free (holidays) and travels to INUILI join the work place are not included. Others Parts of 1240 (85), 1290 2,459,488 This is 10 % of the total cost (85), 1311 (96), 1410 (93) of INUILI. In the case of are accounts where one INUILI, it is clear what the cannot deem from the bulk (2,251,012) of this accounts’ text what type of amount is spent on: food for expenditure it is covering. production

INUILI prepares an internal annual account. The internal account details expenditures for education and common expenditure such as admin, buildings, campus, cafeteria, and agriculture. Education shows a surplus of 3,791,000 while the common side shows a minus of 3,344,000 equals a surplus of 447,000.

To “neutralize” the deficit on the common side the school maintains a large number of classes to balance the budget. Despite a decreasing number of students, the school has a higher number of classes as illustrated in below table.

Table 12 INUILI ordinary education

Ordinary education Item Budgeted Actual Difference Class weeks 421 434 15 Student years 72 67 -5

Table 12 shows that INUILI has a higher number of class weeks but a lower number of student years, resulting in a higher taxameter allocation. It is not to say that the School has a deliberate strategy to reduce the number of students and to increase the number of classes. However, the system does not encourage the schools to concentrate classes and increase the number of students in the classes.

Table 13 INUILI Income generating activities

Income generating activities Budgeted Actual Difference Class weeks 21 30 9 Student weeks 198 423 225 Average size of classes 9.4 14.1 4.7

The issue is demonstrated in the internal accounts where INUILI comments: “As a difference between the taxameter education where number of students has no impact on allocation, the number of students has impact on result of income generating activities, because the customers in a number of the courses pay a course fee per participant. In other words: the more students the better for the economy (in income generating activities).” In other words, the school is very much aware of the differences in the economy in taxameter courses and income generating courses.

From a purely economic viewpoint it could be argued that a lower limit (number of students per class) could be introduced. At the same time the institutions should be given the opportunity to argue for a dispensation from such a lower limit.

INUILI internal accounts show that the school has developed from a deficit in 2012 to a surplus in the following years. The base allocation peaked in 2014 and has declined with 1 million in annual allocation since then, or approximately 25%. The taxameter allocation has doubled since 2012 while the income generating activities have dropped from 3,6 million to 1,5 million and the number of course weeks in this area has dropped from 1,111 in 2012 to 423 in 2016. This evolution could be a sign that schools have little incentive to carry out income generating as the taxameter serves as an economic buffer and cushion.

The turnaround of teachers at INUILI is fairly high. The school has 10 permanent teachers employed.

Table 14 INUILI Teachers hired and lost (dismissed or resigned)

2012 2013 2014 2015 2016 Hired 3 6 4 3 4 Lost 4 5 5 3 3

The cost items below comprising overtime, salaries, purchase of goods and acquisition, staff travel and others have been chosen to illustrate different aspects of the cost patterns of the institutions. The variations can be due to deliberate policies of the institutions or deriving from the very nature of the education taking place in the institutions, or the fact that only one year is considered. It could also be an indication of economic levity given a high degree of budgetary flexibility.

Campus Kujalleq (2 administrative units)

Category Definition Cost 2016 Comments Overtime This cost is for all categories 5.991.046 Overtime constitutes 15.2% of staff, both permanent and of the total expenditure on temporary staff salary to staff Salary versus cost of Salary is taken as the total 39,476,058 Salaries to permanent and external consultants cost in 1198. temporary staff constitutes External consultants is taken 94.3% of total salary while as 1298 minus cost that can consultants constitute 5.7% directly be attributed to either student cost or staff cost, e.g. official travels 2,398,719 Purchase of goods and The Consultant is in this Purchas of goods and acquisition connection merging the acquisition is constituting accounts 1398 and 1598 to 12.8% of the Kujalleq total give a total picture of total cost goods both for consumption and goods to be entered into the list of inventories. 7,402,387 Own staff travels and This is staff travels for 2,459.443 This expenditure constitutes courses expenditure, per business or courses while 4.4% of the total cost of diem and lodging cost free (holidays) and travels to Kujalleq join the work place are not included.

Category Definition Cost 2016 Comments Others Parts of 1240 (85), 1290 2,165,304 This is 3.7% of the total cost (85), 1311 (96), 1410 (93) of Kujalleq are accounts where one cannot deem from the accounts’ text what type of expenditure it is covering.

Maritime school

Category Definition Cost 2016 Comments Overtime This is cost for all categories 37,093 Overtime constitutes 0.3% of staff, both permanent and of the total expenditure on temporary staff salary to staff Salary versus cost of Salary is taken as the total 10,666,042 Salaries to permanent and external consultants cost in 1198. temporary staff constitutes External consultants are 89.5% of total salary while taken as 1298 minus cost consultants constitute 10.5% that can directly be attributed to either student cost or staff cost, e.g. official travels 1,248,496 Purchase of goods and The Consultant is in this 4,438,139 Purchas of goods and acquisition connection merging the acquisition is constituting accounts 1398 and 1598 to 21% of the Maritime School give a total picture of total total cost goods both for consumption and goods to be entered into the list of inventories. Own staff travels and This is staff travels for 1,094,363 This expenditure constitutes courses expenditure, per business or courses while 5.2% of the total cost of diem and lodging cost free (holidays) and travels to Maritime School join the work place are not included. Others Parts of 1240 (85), 1290 1,169,465 This is 5.5% of the total cost (85), 1311 (96), 1410 (93) of the Maritime School are accounts where one cannot deem from the accounts’ text what type of expenditure it is covering.

Nuuk Business School

Category Definition Cost 2016 Comments Overtime This is cost for all categories 2,961,442 Overtime constitutes 18.6% of staff, both permanent and of the total expenditure on temporary staff salary to staff Salary versus cost of Salary is taken as the total 15,883,519 Salaries to permanent and external consultants cost in 1198. temporary staff constitutes External consultants is taken 77.3% of total salary while as 1298 minus cost that can consultants constitute 22.7% directly be attributed to

Category Definition Cost 2016 Comments either student cost or staff cost, e.g. official travels 4,655,134 Purchase of goods and The Consultant is in this 5,948,135 Purchase of goods and acquisition connection merging the acquisition is constituting accounts 1398 and 1598 to 18.1% of the Business give a total picture of total School’s total cost goods both for consumption and goods to be entered into the list of inventories. Own staff travels and This is staff travels for 464,044 This expenditure constitutes courses expenditure, per business or courses while 1.4% of the total cost of the diem and lodging cost free (holidays) and travels to Business School join the work place are not included. Others Parts of 1240 (85), 1290 4,608,106 This is 14% of the total cost (85), 1311 (96), 1410 (93) of the Business School are accounts where one cannot deem from the accounts’ text what type of expenditure it is covering.

Nuuk Health School

Category Definition Cost 2016 Comments Overtime This is cost for all categories 232,294 Overtime constitutes 2.4% of staff, both permanent and of the total expenditure on temporary staff salary to staff Salary versus cost of Salary is taken as the total 9,674,905 Salaries to permanent and external consultants cost in 1198. temporary staff constitutes External consultants are 62.9% of total salary while taken as 1298 minus cost consultants constitute 37.1% that can directly be attributed to either student cost or staff cost, e.g. official travels 5,705,424 Purchase of goods and The Consultant is in this 3,526,457 Purchase of goods and acquisition connection merging the acquisition is constituting accounts 1398 and 1598 to 15% of the Health School’s give a total picture of total total cost goods both for consumption and goods to be entered into the list of inventories. Own staff travels and This is staff travels for 640,968 This expenditure constitutes courses expenditure, per business or courses while 2.7% of the total cost of the diem and lodging cost free (holidays) and travels to Health School join the work place are not included. Others Parts of 1240 (85), 1290 1,054,118 This is 4.5% of the total cost (85), 1311 (96), 1410 (93) of the Health School

Category Definition Cost 2016 Comments are accounts where one cannot deem from the accounts’ text what type of expenditure it is covering.

Summary of cost percentages

Category University KTI Inuli Kujalleq Maritime Business Health school school, School Nuuk Overtime 7.2% 9.9% 7.3% 15.2% 0.3% 18.6% 2.4% Salary versus 73.5/26.5% 93.3/6.7% 92.3/7.7% 94.3/5.7% 89.5/10.5% 77.3/22.7% 62.9/37.1% cost of external consultants Purchase of 10% 14.4% 18.8% 12.8% 21% 18.1% 15% goods and acquisition Own staff 5.9% 3.5% 3.1% 4.4% 5.2% 1.4% 2.7% travels and courses expenditure, per diem and lodging cost Others 4.8% 3.7% 10 % 3.7% 5.5% 14% 4.5%

Overtime Campus Kujalleq and the Business School have a relatively high spend on overtime of 15% and 19% respectively compared to the others. Kujalleq has a deliberate policy claiming it is more economic to pay overtime than hiring in external consultants.

Nuuk Business School has 58 distinct classes over a year and only 19 permanent teachers. This involves a high work load on the permanent teachers, and the School faces the dual issue of many specialized courses and lack of accommodation for teachers from abroad. The high number of different classes necessitates a higher recourse to external consultants since the expertise is not available in Greenland.

The Maritime School has little overtime. The reasons are the School uses a high number of external teachers mainly from Greenland, and that it has a sufficient number of permanent teachers.

The Health School boasts the second lowest ratio of overtime due to the large proportion of external consultants.

Salary versus cost of external consultants The University and the Business School use a comparatively high percentage of external consultants. The University cannot get domestic teachers for a number of specialized education courses. In certain cases, there is a need for highly renowned teachers in line with the University’s ambition of being an internationally leading university.

The same holds for the Business School with a high number of specialized classes requiring external teachers.

The Health School is the institution where the proportion of external consultants is the highest with 37% due to the degree of specialization.

Purchase of goods and acquisition The three highest percentages of goods and acquisition are INUILI with 18,8%, the Maritime school with 21% and the Business School with 18.1%. INUILI and the Maritime school do need substantial equipment for education, and the high percentage seems justified given the nature of the schools. The Business School was asked if there was a specific reason for the relative high percentage purchase of goods and acquisition. The Business School explains that under code 1398 (goods) is all purchase of consumables (food, etc.), including the purchases for income generating activities. This means that what is purchased for income generating activities is billed the paying clients afterwards. Code 1598 (acquisitions) includes purchase of inventory (furniture, etc.) for the entire school and purchase of lap tops for students. Since many of the students cannot afford laptops the Business School purchases them and makes them available to the students – an important cost item.

Own staff travels and courses expenditure, per diem and lodging cost. Even though the average percentage of the institutions’ total cost for these cost items seems low, it is a dual cost in the sense that it represents a direct cost for travelling and associated cost, like lodging and per diem, and constitutes absence of teachers. Taking the high degree of flexibility of expenditure management for the individual institutions, this area may warrant closer scrutiny, though there can be some justified reasons like mandatory courses for teachers, enhancement of skills and exposing teachers to new research. Still, there is a significant expenditure variance between the lowest, 1.4% for the Business School and the University as the highest at 5.9%. Such expenditure items should be scrutinized individually in terms of value-for-money.

Opaque account codes The account codes 1240 (85), 1290 (85), 1311 (96), 1410 (93) labeled “Others” cover great many items that the Accounting Manual permits; including food stuff 1311 (96). Hence, it is not possible to determine the individual nature of expenditures without extracting the invoices – which is beyond the scope of the report.

These codes combined show that INUILI at 10% and the Business School at 14% are significantly higher than the other institutions, though the 2.5 million for INUILI on food stuff is self-explanatory.

The Business School’s higher expenditure is explained as consultant services which cannot be ascribed directly to consultancy services itemized under 1240. As examples: crisis psychologist, consultant to improve financial management at the school, some consultancy services that later have been moved to other account codes. Additionally, expenditure on leadership academy has been placed under 1240.

Conclusion The expenditures attributed to the account codes above were specifically targeted in the detailed cost analysis, because they represent areas that, by experience, invite “dumping” of expenditures that do not fit elsewhere. Hence, it is among these cost categories errors and potential cost savings are most likely to be found.

The Consultant has found that the institutions spend substantial amounts on purchasing goods and acquisitions like:  IT software, hardware and services  Food  Travel and accommodation  Furniture and equipment  Teaching materials and stationary  Special services

Admittedly, some expenditure is unique due to the special circumstances in Greenland. Factors like boarding, shortage of domestic teachers and specialists, regular and costly long-distance travels for personnel, substantial need for overtime due to recruitment constraints, lack of accommodation for new personnel, etc.

When requested management of the institutions have readily responded concerning deviations from the average expenditure under these selected budget lines. Nevertheless, safeguards concerning the use of “travels” should be introduced to counter any queries concerning the prudent use (value for money) under this budget line.

It is also noted that purchase and acquisitions are not included in managements’ reporting to the boards. This and disposal of costlier items, like laptops, should be an integrate part of the reporting to boards. Further, good asset management also prescribes that inventory lists of movable assets are made and updated regularly. This is apparently not generally done – another area where savings can accrue.

8.3 Budget and expenditure management

Regarding the detailed cost analysis above, it is difficult to point at any single cost item which gives cause for concern taking into account the limited time spent at the institutions. Interviews, on the contrary, leave the impression that the majority of institutions visited demonstrate an in-depth knowledge about the budget and measures taken to address expenditure issues. Management generally can explain in detail the background for the institutions’ financial position and give good explanations for their dispositions. The Deloitte audit of the institutions’ financial statements generally supports this view. Hence the issue raised in the ToR: Due to small administrative capacities, the involved institutions have been using different accounting practices.” – is primarily not a skills issue, but caused by the fact that no manual exist19 on how to do purpose accounting using i1 and i2 properly. Thus, accounting staff have been left to decide if and how to do purpose accounting leading to inconsistent accounting and reliability.

During the interviews with the institutions the following key challenges in respect of financial management were mentioned but without documentation  The accounting codes and cost classification system,  The base appropriation for institutions does not reflect the fixed operating cost of the institution,  Taxameter rates do not reflect actual direct or variable education cost per student and do not promote efficiency,  Limitations on annual surplus carryover do not encourage income generating activities;

It has already been mentioned that the institutions have a high degree of economic autonomy and flexibility and apparently face no hard budget constraints which is illustrated below. The Table shows that most of the institutions run a surplus in the order of 2% to 10% of total income part of which can be carried over to the following fiscal year.

Table 15 Total income and expenditures 2016 in DKK '000 Appropriations Other income Total income (1) Expemditure (1)-(2) Basic Operating Activity based Specific Maritime School 6 758 13 860 5 924 26 542 23 022 3 520 Nuuk Business School 7 364 21 723 750 6 659 36 496 32 724 3 772 Tech College Greenland (5) 29 628 53 943 3 700 13 895 101 166 98 856 2 310 Health School 5 981 6 986 4 770 6 715 25 015 23 541 1 474 INUILI 3 545 15 005 5 848 24 398 25 344 - 946 Campus Kujalleq (2) 21280 R 31 530 53 621 61 790 -8 169 Greenland University 90 857 90 857 83 662 7 195

19 On purpose accounting (formålskontering).

8.4 Management quality

While good management and leadership is a mixture of acquired skills and experience and the ability to transform it into results, equally important is the integrity, discipline and ethics of management and the ability to instil it throughout the institution. This is called “setting the tone at the top” or “leading by example”.

The financial and academic performance of the institutions highly depends on the performance of the leadership, especially in an environment where the budgetary freedom is as wide as at the educational institutions. The Consultant is with one exception impressed with the quality of either aspect of management encountered at the education institutions, not least with the managers of the vocational colleges and the university. Interviews with managers (principals and rectors) revealed apart from managerial competence, a high degree of commitment to the institutions’ objectives and general welfare. Coupled with a Scandinavian mindset and values embracing good governance and integrity leaves little to be desired regarding management quality and professionalism.

The education institutions have a high degree of managerial autonomy though subordinated either to the boards or the DoE. The managers informed with one exception they faced no economic constraints in general. Given the economic latitude, it is important that integrity is complemented by adequate processes and control to limit potential misuse of resources. To cite an accountant’s adage: trust is good but evidence is better.

8.5 The role of Boards

The vocational colleges and the university are autonomous institutions. Management reports to the board, and the board holds management accountable and elaborate strategy and policy. Above all the board should be a sparring partner and source of inspiration to management.

According to managers the quality of boards and board members differ20. Some boards are allegedly quite close to management and shy away from acting when the situation calls for it, like giving warnings to and dismissing managers. Discomfort about taking unpleasant actions may be explained by proximity and culture, but is no excuse for diluting board responsibilities that can have negative economic and reputational consequences, even to the point where things get out of control.

The role of the board as a proactive supervisor conducting quarterly meetings is important. Anecdotal material raises concern that the boards do not always play a critical role when presented with quarterly results and issues.

Minutes of board meetings reviewed from the Business School and Campus Kujalleq indicate that some areas need attention. This may probably apply to other college boards as well, please see details in 8.7

The minutes of board meetings reviewed are very brief and seem mainly for internal consumption. One must be familiar with the situation and terms to understand the details of the minutes and what was discussed and decided. If the minutes were distributed to external stakeholders emphasis should be put on elaborating the minutes with more details to be easier to read for persons not familiar with the institutions’ business environment.

Although critical economic issues appear on the financial statements in the case of Campus Kujalleq followed by management response to the audit report, the management response and explanations are approved by the board without any real inquiries into causes of the financial situation and possible remedies.

20 The statements in the report are based on the example of the board of Business school/Kujalleq. The university gave similar descriptions saying that the board is not very proactive or scrutinising. At no point in our research have we found examples of the board going actively into a dialogue on management of the institution. In the case of Kujalleq we have minutes from the board meetings 2016/17 where Kujalleq is tabling problematic result without any noticeable reaction from the board.

8.6 Audit and audit reports

With the exception of GUX Nuuk and GUX Aasiaat21 the education institutions are audited annually by Deloitte according to law no.10 of 19 May 2010.

The Consultant obtained the 2016 audit reports for the entities audited. These are financial audits of the institutions’ income and expenditure statements accompanied by comments on the statements and any pertinent information. The audits include random checks of the relevant source documents and examine the correctness of accounting entries. The audits appear to apply ISA 400 on Risk Assessments and Internal Control, but do not express an opinion on the effectiveness of the institutions’ internal controls or value for money.

The typical audit conclusions are: “The audit does not give rise to any comments “and “In our opinion the operating account for the financial year X is materially prepared in accordance with the law”.

The audits are conducted according to the appropriation codes, which means some institutions are audited as one entity although it consists of more than one administrative unit, see 4.2. This is not ideal, because the risk and control environments in the administrative units are likely different. A more fundamental issue is financial statements that cover widely different areas like traditional colleges versus vocational colleges. The informative and analytical value of this clustering is rather dubious.

The audit reports do not systematically list annual expenditures by the same categories as the appropriation categories which if done, could give an indication of an institution’s budget and expenditure management discipline or the opposite.

The following recounts some salient audit comments and observations.

University The audit report points at some weaknesses in the accounting and other minor deficiencies, even though the overall assessment is that the bookkeeping in all material areas is functioning satisfactory.

Campus Kujalleq The 2016 audit report concludes that “the administration and the material received are inadequate compared to the previous year.”

The accounts show a deficit of 6.2 million including a surplus of 2 million transferred from 2015 This means the campus had a deficit of 8.2 million equivalent to 14% of total expenditure raising doubt about the management and board.

For instance, expenses for income generating activities have not been charged against the activities. Consequently, neither the result of the income generating activities nor overall result is correct.

The auditor was obliged to assist Campus Kujalleq to prepare the 2016 income and expenditure statement and endeavored to establish the correct result for income generating activities, and arrives at a surplus of 781,000.

In 2017 Campus Kujalleq hired an accounting consultant to assist developing the accounts and finding probable causes for the substantial 2016 deficit. It seems fair to conclude that the reasons are lower taxameter allocations for the GUX Qaqortoq than other GUX and unwillingness of the DoE to provide additional appropriations which

21 The two colleges are audited by the Central Internal Audit unit under the Department Personnel and Economy.

represents a change from previous years. The merger of Kujalleq with the GUX Qaqortoq that took place in 2014 might also have had a negative economic impact.

Table 16 Campus Kujalleq 2014-17

Year 2014 2015 2016 2017 Budget Income 56,599 57,456 53,621 58,841 Expenditure 50,940 56,703 61,719 58,800 Result 5,695 753 -8,098 41

The result in 2016 is markedly different from the previous years in the negative. On the income hand, the income from boarding is with 366,000 from 2015 and income generating income with 2,782,000 – the accounting consultant cannot explain this, but says it should be seen in the context of the auditor’s remarks concerning the reliability of income generating result.

On the expenditure side salaries have risen with 4,314,000 and services with 2,122,00. As regards services a large part was covered by the DoE in 2015, but not in 2016. It is implied that the bulk of the rise in these expenditures are at the GUX college that requires deeper analysis. It does, however, show that purpose accounting (i1 and i2) is not used systematically.

The same document suggests some possible causes for the tight financial situation: 1. That the teachers in colleges are younger and stay shorter. 2. Increased cost on “pædagogikum” and that teachers are less inclined to take overtime. 3. The DoE was less generous with appropriations in 2016 than in 2015.

The above statements derive from CAK itself and its external accounts’ consultant, minutes from board meetings and auditor’s comments to the accounts. The auditor has not stated the reason for the overrun of budget. The only significant change that could be observed was change in leadership in 2016.Therefore it would be natural to look into the management’s handling of the budget.

It is estimated Campus Kujalleq in 2017 will save some 2 million by closing the cafeteria, reducing cost of cleaning and cutting some support staff for college boarding.

Business School, Nuuk The accounts for 2016 have been audited showing a surplus of 4.4 million, including a transferred surplus of 943,000 from 2015. In accordance with the finance law 1.5 million can be transferred to next financial year.

In the 2015 audit report of the accounts for income generating activities the auditor recommends better management arrangements for the income generating activities. These recommendations have been implemented in the financial year 2016 resulting in adequate documentation of income generating courses, including documentation of educational hours spent, number of participants, and coverage of proportional cost of common expenditure, resulting in a surplus of 3 million in 2016.

The Consultant has been given a copy of the accounts’ explanation to the Board at the end of first quarter 2017. From the result of first quarter it appears that the school is on target (23-25%) for first quarter except income generating activities where only 15% has been achieved, resulting in a deficit of 40,455 for the first quarter compared to the proportion of the budget (25%). This is partly explained by management as 269,000 income in 2016 that correctly accrued to 2017. All in all, the school points at factors which do not appear in the accounts and which rightly should result in a surplus of 177,795 on income generating activities.

In the report to the Board on the 2016 accounts and the 2017 budget the Business School gives particular attention to drop-outs and the current situation of accommodation for students and teachers. As regards the drop-

outs the school has lost 19 students in the fall of 2016 and 32 in spring 2017, which gives a graduation percentage of 77.

The school gives a grim picture of the housing problem for students where the procedures changed in the spring 2016 so that students had to apply for accommodation themselves, whereas previously the schools had applied. According to the School this caused considerable confusion and ended up in a situation where the School had to interfere and apply for lodging on behalf of the students. This resulted in significant drop-out, because students cannot join the school until they have lodging. The School has now notified the authorities how many rooms they need for students in August and it is hoped that there will be between 20 and 40 extra lodgings for students.

Lodging for teachers is also problematic. There is a limited number of lodgings available for teachers joining the school, making the recruitment situation quite difficult.

The Business School in collaboration with Deloitte has introduced activity based accounting using Lectio as input which may serve as an example for other vocational colleges.

Conclusion The audit partner was interviewed on telephone on the extent of the audit and the auditor’s general impression of the quality of the accounting of the institutions. The quality was described as varying, but the mistakes were generally ascribed to frequent change of bookkeeping staff and occasional lacking control by senior accounting staff. The auditor is generally of the opinion that accounting mistakes are caused by lack of training and states that no examples of fraud had been detected. The auditor emphasizes that the present audit is purely financial and not conducted in terms of internal control or value for money.

It would be desirable that the audits reports were in a consistent format and provided more details on income and expenditure categories.

9 Recommendations

Area Sub-area Recommendations Accounting system Best practices The new ERP Chart of Account is not structured to register activity and resource data. It is therefore recommended that a uniform internal registration system is designed to capture cost activities. The system should be used by all schools to enable cost management, planning and inter-school comparisons, etc. LECTIO can supply input data as regards teachers’ time spent. To accomplish this, it is recommended that representatives from the education institutions, Deloitte, Central Accounting Division, and DoE form a working group and flesh out the details to implement it in a uniform way and develop a user manual and bookkeeping instruction complemented by training of the personnel concerned.

Example The internal account developed by University’s Accounts Manager can serve as an example on how to attribute cost activities to cost centres and thus enhancing budget discipline. The Accounts Manager could present the methodology to colleagues of the other institutions for adoption.

Accounting/bookkeeping staff should be trained to apply the new Chart Training of Accounts based on a detailed accounting manual (to be prepared).

Test New accounting/bookkeeping staff’s proficiency on the relevant ERP access level should be tested by Deloitte. Taxameter system Based on class weeks A taxameter based on the number of students as in other countries is unsuitable for Greenland. The taxameter based on class weeks should be maintained, but with the following modifications:

Extension The taxameter should be extended to all colleges and the University. Regarding the University the taxameter would encourage the University to increase the intake of students and thereby competing for students with Danish universities.

Adjustments The unchanged taxameter since 2011 should be adjusted reflecting the direct or variable cost per student category. This will be possible once the new accounting is operational. This will also enable annual adjustments of taxameter rates.

The taxameter rates should include an element of completion – an amount per student for a degree completed - also to be applied to the four colleges. This would give the institutions an extra incentive to reduce drop-out.

Documentation and The conducted class weeks reported by schools should be control documented and verified - which is not the case today.

Area Sub-area Recommendations Class weeks Some of the educations offered by Tech College require Larger class weeks apprenticeships which sometimes are difficult to obtain by the applicants. Instead of offering such educations annually, they could be offered every second year to give applicants time to secure an apprenticeship. An additional benefit would be larger classes and better economy. Appropriations Account codes Each administrative unit should have its own account code against which appropriations must be made to avoid the current clustered situation. Base appropriations The base appropriations to the institutions should be revised and cover what is considered the fixed annual cost. Board responsibility More proactive Boards It is recommended that the boards are required to:

Elaborate minutes that are sufficiently detailed and clear to be of value to external stakeholders; Take the necessary actions that situations require; in particular concerning issues on financial and expenditure management and school management in general; Ensure fast follow-up on not-resolved issues and calling for extraordinary board meetings in such cases. The interaction between the DoE, boards and management might need revisiting, so early warning systems can be established. Goal formulation The institutions should formulate goals to be achieved in the short and medium term backed by baselines and SMART indicators22. Progress on goal achievement should be part of the institutions’ annual reports – if not already the case. In the annual performance contract negotiations with the schools the Self-Rule could, in line with the practice in Norway, include taxameter adjustments reflecting these goals. Management Process control Given the institutions’ high degree of economic independence and the fact that they have no internal audit in-house, it is important that adequate and functioning process controls are in place to mitigate against misuse and waste of resources.

Performance Management performance might be enhanced if the institutions were management allowed to carry over a certain percentage of the annual surplus say 70% instead of nominal amounts that differ by institutions. External audit Details The financial audits should comprise audit of both the appropriations and the expenditures and with more detail on expenditure categories.

Performance audits It would be highly desirable to have value for money audits done. Internal audit Central internal audit The institutions visited have no internal audit functions. It is understood that internal audit is carried out by the central internal audit unit and that entities are audited with 2 to 3 years frequency.

Risk assessment It is recommended that either the DoE or the institutions request the Asset management internal auditors to conduct risk based internal audits.

22 Specific, Measurable, Assignable, Realistic, Time-bound

Area Sub-area Recommendations

Value for money Inventory lists of movable assets to be made annually. Disposal of equipment to be reported to the boards The internal auditors might also conduct value for money audits provided they have the necessary competence. User panels Employers Apart from the colleges, it should be mandatory for the institutions to have user panels to acquire feedback from employers on how the graduates fare and how useful they are for the “market”. Customer Student surveys To improve the education services and general welfare of students it is satisfaction. recommended to carry out surveys among the students in areas such as quality of teaching, guidance, mentoring, accommodation, social and study environment, facilities, etc. The students could also be asked about their aspirations and how they assess future employment opportunities.

Outcome During interviews, a number of managers stressed that early drop-outs constitute a problem. Feedback from surveys (rectors, faculty and students) could provide important information to counter early drop- outs or at least map the reasons for drop out and how these students overcame challenges.

The argument for this recommendation is that financial management is not an end to itself. It reflects priorities of management (planning and budget). If management’s goal is to achieve quality education with minimal drop out it seems like an appropriate action to do an assessment of present activities and whether they achieve desired goals. If not, then it is appropriate to introduce measures to address unwarranted affects. Ideal financial management offers management a way of measuring where money has been spent, what outputs have been achieved and what is the measurable impact (a combination of accounting and monitoring) compared to desired outcome. This recommendation is very much in line with the thinking of combining the present financial freedom of the institutions with central oversight, transparency and providing an active management tool. Further studies Many college graduates are admitted to Danish universities for studies that either are not offered in Greenland or are indeed offered by Greenland University. This represents a substantial human and financial investment for the country. It might be relevant to investigate if these graduates would choose a study at Greenland University if the study was offered or why they chose Denmark when then same study is offered in Greenland.

The cost implication of either study place would be laid clear. Another issue to highlight is how many graduates return to Greenland after graduation in Denmark. Purchase of goods Possible bulk The institutions spend substantial amounts on purchasing goods and and acquisition procurement and common acquisitions. It is recommended that a separate study is carried out service agreements focusing on how the institutions could save money by consolidating purchase of

Area Sub-area Recommendations IT software, hardware and services Food stuff Travel and accommodation Furniture and equipment Teaching materials and stationary Special services

Annex 1 List of People and Institutions contacted during the mission

FIRST & FAMILY NAME POSITION INSTITUTION E-MAIL 1 Martin Hasforth Harms Chief Consultant Department of Finance & Taxes [email protected] 2 Suzanne Møller Rector & Pro-rector Greenland University [email protected] 3 Nivikka Brandt Principal Maritime School [email protected] 4 Christel Lund Bøjler Principal Nuuk Business School [email protected] 5 Bo Colbe Partner Deloitte [email protected] 6 Brian K. Fencker Economy Consultant Department of Education, [email protected] Culture, Research and Church 7 Lotte Kjær College Inspector Department of Education, [email protected] Culture, Research and Church 8 Sigvard Fleischer Education Inspector Department of Education, [email protected] Culture, Research and Church 9 Mikael Enggaard Rector GUX Nuuk [email protected] 10 Otto Mikaelsen Accounts Manager Greenland University [email protected] 11 Mette Barslund University Director Greenland University [email protected] 12 Lisa Ezekiassen Principal Health School [email protected] 13 Ole Jørgen Pedersen Principal Iron- and Metal School, Nuuk [email protected] 14 Otto Simonsen Rector GUX Aasiaat [email protected] 15 Jokum Møller Principal Greenland Tech College, Sisimiut [email protected] 16 Finn Ommestrup Associate Principal Greenland Tech College, Sisimiut [email protected] 17 NajánguaK` Lundblad Accounts Manager Greenland Tech College, Sisimiut [email protected] 18 Thomas Dam Head of Accounting Central Accounting Department [email protected] 19 Samo Jacob Nielsen Economic Planning Education, Culture, Research [email protected] Officer and Church 20 Henrik Ebbe Nielsen Principal GUX, Qaqortoq [email protected] Campus Kujalleq 21 Inger R. Sperling Head of Office Inuli Food College [email protected] 22 Anna M. Knudsen Head of Education Inuli Food College [email protected]

Annex 2 Documents reviewed

 OECD: Education Working Papers Series EDU/WKP 2012  OECD: Funding Systems and their Effects on Higher Education Systems, 2006  DAMVAD: Taxameter og kvalitet i danske universitetsuddannelser, 2009  Børne- og Undervisningsudvalget: Teknisk gennemgang af taxametersystemet, 2012  DEA: Taxameterersystemet under lup, 2011  Deloitte: Omkostningsanalyse af de videregående uddannelser, 2015  Deloitte: Standardkontoplan for Selvstyret og kommunerne, 2015  GoG: Fremgang gennem uddannelse og kompetenceudvikling  GoG: Uddannelsesplan II, 2016  Deloitte 2016 audit reports of the institutions  XAL account statements

Annex 3 Cost separation

KTI (4) 2016

Code % Total sum % sum Amount %

SALARIES 1.198 0,80 57.055.000 45.644.000 54.480.268 54% 1.298 0,85 10.395.609 8.836.268

ADMINISTRATION 1.198 0,12 57.055.000 6.846.600 8.405.941 8% 1.298 0,15 10.395.609 1.559.341 PURCHASES 1398 1598 1,00 24.094.791 24% BUILDINGS - 1,00 14.185.000 14.185.000 14% 101.166.000 101.166.000 100%

GUX Sisimiut

Code % Total sum % sum Amount %

SALARIES 1.198 0,80 17.952.939 14.362.351 16.378.208 73% 1.298 0,85 2.371.596 2.015.857

ADMINISTRATION 1.198 0,20 17.952.939 3.590.588 3.946.327 18% 1.298 0,15 2.371.596 355.739

PURCHASES 1398 1598 1,00 1.598.500 1.598.500 1.598.500 7% BUILDINGS 1.498 1,00 419.733 419.733 2% 22.342.768 100%

Årselev

omkost per årselev 22.342.768 226 98.862 korrigeret 16.09 tal fra Lundblad korrogeret igen 21.09 tal fra Lundblad

KTI6 minus GUX Sisimiut Code % Total sum % sum Amount %

SALARIES 36.707.220 47%

ADMINISTRATION 5.903.154 7%

PURCHASES 22.496.291 29% BUILDINGS 13.765.267 17% 78.871.932 100%

taxameter in '000 taxameter i pct af holduger årselever omk per årselev

udgift 53.943 53% 1.619 453 212.338

Holduger Årselever Elever per hold Afdeling Jern& metal 508 95 7,5 Bygge & anlæg 334 59 7,1 Råstof 176 26 5,9 GUX 594 232 15,6 1612 412

Campus Kujalleq

Qaqortoq GUX (i2) 2016 Nye tal fra Johanne 22.09 Code % Total sum % sum Amount % SALARIES 1.198 0,88 10.311.671 9.074.270 21.500.000 63% 1.298 0,85 2.665.761 2.265.897 ADMINISTRATION 1.198 0,12 10.311.671 1.237.401 4.000.000 12% 1.298 0,15 2.665.761 399.864 PURCHASES 1398 1598 1,00 1.775.499 1.775.499 4.000.000 12% BUILDINGS 1.498 1,00 273.751 273.751 4.415.700 13% 33.915.700 100%

Campus Kujalleq main Deloitte Code % Total sum % sum Amount %

SALARIES 1.198 0,88 39.476.059 34.738.932 39.476.000 0,71 1.298 0,85 7.178.183 6.101.456

ADMINISTRATION 1.198 0,12 39.476.059 4.737.127 7.177.855 0,10 1.298 0,15 7.178.183 1.076.727

PURCHASES 1398 1598 1,00 7.402.387 7.402.387 5.898.000 0,13 BUILDINGS 1.498 1,00 3.695.877 9.197.000 0,06 61.748.855 1,00

Campus Kujalleq main minus Qaqortoq GUX Deloitte less (i2) Code Amount % SALARIES 1.198 17.976.000 65% 1.298 ADMINISTRATION 1.198 3.177.855 11% 1.298 PURCHASES 1398 1598 1.898.000 7%

Code Amount % BUILDINGS 1.498 4.781.300 17% 27.833.155 100%

Annex 4 ERP account structure

Annex 5 Diagram of activity recording of faculty time and cost

Annex 6 Questionnaire

Spørgeskema Spørgsmål Svar Bemærkning 0. Timetal på uddannelsen (undervisningsaktiviteter) 1. Holdstørrelser 2. Obligatorisk praktik på uddannelsen 3. Andel af prøver med censur 4. Fordeling af lokaletyper på uddannelsen 5. Anvendelsen af særligt udstyr i undervisningen 6. Andel af timelønnede undervisere på uddannelsen 7. Særlige omkostningsforhold på uddannelsen 8. Overtids-og merarbejdsbetaling 9. Årselever og optag 10. Timelærere (antal) 11. Rejser for ansatte 12. Sygefravær og omkostninger 13. Aktivitetstal for elever 14. Antal test, beståede eksamener 15. Karakterniveau 16. Hvor mange holduger blev leveret i 2016 17. Hvor store var holdstørrelserne i 2016 for de enkelte uddannelser (nævnes) Ver10.08.17

Annex 7 Terms of Reference

Ref. Ares(2017)1988459 - 18/04/2017

SPECIFIC TERMS OF REFERENCE Study of costs and activity based appropriations at Greenland’s educational institutions FWC BENEFICIARIES 2013 Lot 11: Macro economy, Statistics and Public finance management EuropeAid/132633/C/SER/multi

1) BACKGROUND

In recent years a major priority for the Government of Greenland (GoG) has been to improve the educational level of Greenland’s population. Challenges however still persist. Therefore, in November 2016 it was decided to make a thorough study of the functioning of Greenland’s educational institutions. This initiative also aligns with the increasing focus of the GoG to ensure improved efficiency of the public sector of Greenland and the service it delivers to its population.

The assignment starts out with an investigation of the education institutions’ basic practices of accounting and calculation of costs and revenues. Due to small administrative capacities, the involved institutions have been using different accounting practices. As a consequence, data have not been comparable between different institutions.

Hence, the first step towards fulfilling the government overall objective is to harmonize accounting of costs and calculation of revenues, the latter being to a large extent calculated as activity based appropriations per class week. The harmonization of practices should follow the best practices developed by some of the educational institutions for higher learning in Greenland, cf. elaboration below.

The second step will be to map the cost structures of the educational institutions and assess the education costs by key factors such as salary, administration, building, and purchases. At the end of this stage, best practices of the educational institutions shall be identified in order to be applied to the rest of the institutions.

2) DESCRIPTION OF THE ASSIGNMENT

 Global objective

The global objective of this assignment is triple: 1. To document practices of i) registration and ii) calculation of activity based appropriations and costs at 12 educational institutions in Greenland1. 2. To formulate recommendations for best practices regarding i) registration of costs and ii) calculation of activity based appropriations. 3. To map out the cost of education at the institutions and point out best practices in the elements of the costs such as salary, administration, building, and purchases. For example, best practices could be in use of technology in the administration, in the handling of purchases, in scaling the internal as opposed to external cleaning, in replacing oral examinations by written examination and thereby saving travel expenses and so forth.

 Specific objective(s)

The specific objectives of the assignment encompass the following points:

1. To register how activity based appropriations by class weeks are calculated at the institutions. This must include descriptions and recommendations regarding the possible introduction of activity based appropriations based on, instead of class weeks (Danish: Holdugetaxameter), the number of: a. Active students (Danish: Hovedtaxameter) b. Completions (Danish: Fuldførelsestaxameter) 2. To make recommendations for improvements regarding accounting and calculation practices. In this connection it should be clarified if the appropriations allotted are in good accordance with the actual expenditures. 3. To calculate the education costs for all educations at the 12 institutions. 4. This will follow a jointly agreed scheme which, in part, will be influenced by a pilot project at two or three institutions carried out in advance by the ministry. This involves : a. Calculation of cost base and allocation of common costs b. Analyzing education costs as a function of the following four species accounts (Danish: Artskonti): salary, administration, buildings, and purchases c. Plotting results in diagrams and derive conclusions 5. Point out best practices and indicate possibilities for improvements, cf. above.

The study shall take into account the following elements: - Documentation of the current method of accounting costs and calculating “class weeks” in activity based appropriations for all educations and institutions - Recommendations that do not increase the overall expenditure

1 List of the educational institutions is as follows:

- The analyses must be carried out for 12 educational institutions

 Requested services

The assignment will be implemented in close cooperation with a senior advisor with the Greenlandic Ministry of Finance and Taxes. The Ministry will help to provide necessary data including accounting data, salary data and activity data. The Ministry will provide observations on the draft final report, which shall be duly taken into account.

The experts shall prepare a report on the results of the study that must contain conclusions in the areas mentioned above. Based on the evaluation of current practices, the report should identify best practices for registration and cost structures at the involved institutions and give recommendations for the future. Possible problems with the implementation of the proposed recommendations should be addressed in advance.

 Required outputs

The required outputs of this assignment are: i) a comprehensive study meeting the global and specific objectives described in this section 2. ii) a presentation of the conclusions of the study shall be prepared and presented to the Ministry of Education and the Ministry of Finance and Taxes at a date to be specified. The presentation will be followed by discussion of the conclusions, where Expert 1 shall be present.

 Language of the Specific Contract

The language of the contract is English. All documents shall be produced in English. The final presentation should be in Danish.

 Subcontracting

No subcontracting is foreseen.

3) EXPERTS PROFILE or EXPERTISE REQUIRED

Two experts are required for the assignment for a total of 70 working days which are divided into 45 working days for a senior expert (category II) and 25 working days for a junior expert (category III).

The experts should possess the following competences:

Expert 1 (category II) • A university degree in accounting, at least Master Degree or, in its absence, equivalent professional experience of at least 5 years in the field of accounting in public sector. • Experience with the education sector will be considered as a major advantage. • In-depth knowledge on activity based appropriations, while experience with activity based appropriations in the education sector will be an added advantage. • Work experience of at least 6 years with analytical work in the field of accounting. • Have a proven record as a project manager of comparable assignments

Expert 2 (category III) • A university degree in accounting, at least 3 years or, in its absence, equivalent professional experience of at least 3 years in the field of accounting. • In-depth knowledge on activity based appropriations, while experience with activity based appropriations in the education sector will be an added advantage. • Work experience of at least 3 years with analytical work in the field of accounting.

Expert 1 must be fluent in both oral and written Danish. Both experts have to be fluent in English.

It will be considered an advantage if at least one member of the team has knowledge of Greenlandic education and accounting conditions.

4) LOCATION AND DURATION

 The assignment should commence indicatively in June 2017.  The maximum duration of the assignment is four months  Two missions for the team leader and one mission for the second expert are foreseen. The first mission of both experts will allow collecting data and information necessary for the assignment. The second mission of the team leader will subsequently serve to present the final conclusions and recommendations to the ministries.  Processing of data and preparation of reports are home-based. The preliminary activity schedule for the assignment is foreseen as follows:

Indicative Activity Description – Expert 1 Activity Description – Expert 2 time schedule (numberDays 1- 3of Desk Study (home base) (3 working days), Done by Expert 1, no activity required. working submission of work plan and methodology Mission in Nuuk, Qaqortoq, Sisimiut and Mission in Nuuk, Qaqortoq, Sisimiut and Narsaq, days) Narsaq, Greenland (15 working days) Greenland (15 working days) Briefing in the Ministry of Finance and Taxes Briefing in the Ministry of Finance and Taxes Visit at the Food College in Narsaq; Campus Visit at the Food College in Narsaq; Campus Kujalleq in Qaqortoq; Greenland Tech Kujalleq in Qaqortoq; Greenland Tech College Day 4- 18 College and GUX in Sisimiut; GUX in and GUX in Sisimiut; GUX in Aasiaat, and in Aasiaat, and in Nuuk: the Greenland Tech Nuuk: the Greenland Tech College branch of College branch of Nuuk, the Centre for Nuuk, the Centre for Maritime Studies, School of Maritime Studies, School of Health Health Education, GUX, the Business School and Education, GUX, the Business School and the the University. University. Data collection Preparation of the draft final reports and Preparation of the draft final reports and Interviews with stakeholders Day 19-57 submission to the stakeholders for submission to the stakeholders for Preliminary conclusions comments/approval (18 working days) comments/approval (10 working days) Three weeks for Submission of written comments from the Ministry of Finance and Taxes, the Ministry of Education and the European Commission Incorporation of comments of the Done by Expert 1, no activity required. Day 58-67 stakeholders and submission of final report to the stakeholders. (7 working days) Mission to Greenland for the team leader, to Done by Expert 1, no activity required. present the results of the study to the Ministry Day 68-70 of Education and to the schools at the Annual Joint Meeting for Vocational Colleges. (3 working days) Total working 45 working days 25 working days days 5) REPORTING

 Content

The report must contain an executive summary of no more than 3 pages. A PowerPoint presentation in Danish should be presented to the Ministry of Finance and Taxes and the Ministry of Education, Culture, Research and Church at a date to be specified.

 Language

All reports must be available in English and presentations must be made available in both Danish and English.

 Submission/comments timing

All reports are to be prepared according to a schedule proposed by the review team and agreed upon by the review team, the Ministry of Finance and Taxes and the European Commission. Three weeks after the first mission at the latest the draft final reports should be submitted for comments. The two ministries and the European Commission will have 3 weeks to comment upon the final draft reports. The consultants will have two weeks to incorporate the comments and submit the final report.

 Number of report(s) copies

All reports are to be produced and distributed in electronic format. In addition, two paper copies of the reports and presentations are to be submitted to the contracting authority (European Commission, DG DEVCO/G2) together with the request for final payment. The report shall be made available to the two ministries and to the European Commission.

6) BUDGET

Authorised items to be included as incidental expenditures are:  Three International travels from home base to Greenland – two for the expert 1 and 1 for the expert 2  Local travels within Greenland for both experts during the first mission. A part from Nuuk, travelling within Greenland will be a necessary part of the project and will include visits to several or all of the following towns: Sisimiut, Ilulissat, Qaqortoq and Narsaq.  Per diems in Greenland. Please note that the applicable per diem rate for Greenland is EUR 201. 7) MONITORING AND EVALUATION

The following indicators will serve to monitor and evaluate the services:

 Compliance with timeline: # days left before deadline are reached, when sending file to Greenland and Commission services.  Quality of the report and the recommendations: # of comments from reviewers.

Appendix: List of educational institutions

High schools

 GUX, Sisimiut

 GUX, Aasiaat

 GUX, Nuuk

 GUX, Qaqortoq

Vocational schools

 Food College Inuili, Narsaq

 Campus Kujalleq, Qaqortoq

 Greenland Tech College, Sisimiut

 Greenland Tech College, Nuuk

 Centre for Maritime Studies, Nuuk

 School of Health Education, Nuuk

 Greenland Business School, Nuuk

University

 Greenland University, Nuuk

The contents of this publication are the sole responsibility of ECORYS Consortium and can in no way be taken to reflect the views of the European Union.