6. Finance

The consolidated net result, i.e. the result after deduction of the 'share of third parties in the result’ [1] of € 16.0 million, amounts to € - 2.6 million. This result is €28.1 million higher than budgeted.

The result is largely due to the following non-recurring income and expenses.

[1] Refers to the result achieved from the E&R activities of Erasmus MC. In accordance with the accounting rules, only the income and expenses of the E&R activities are consolidated in EUR financial statements. The result realised from the E&R activities is earmarked for the EMC, hence this amount is ultimately deducted from the total result in the operating account.

INCOME relative to the budget

• An increase in the state contribution by almost € 25 million is due in part to a compensation for the increase in student numbers, the wage and price level from OCW (the Ministry of Education, Culture and Science), additional NPO funds of € 15.8 million, and a € 9.4 million OCW compensation for halving the tuition fees.
• Tuition fees are €8.1 million lower than estimated. This is due to the cabinet's decision to halve tuition for first-year students.
• Income from 'Work commissioned by third parties' is € 4.7 million higher. This is mainly due to more funds for projects from Ministries and municipal authorities than budgeted.
• Other income is € 1.4 million lower.

EUR result increased € 40.4 million to € 13.4 million in 2021 (2020: € - 27.0 million). The increase in the result is caused by an increase in the State contribution of € 43.4 million. Additionally, the income items 'Work commissioned by third parties' and 'Other income' showed a € 26.1 million increase. This is offset by higher total expenses of € 29.6 million.

INCOME relative to the 2020 actuals

• The state contribution increased by € 43.4 million in 2021 due to an increase in NPO funds of € 28.8 million. Also, the € 9.4 million compensation for halving the tuition fees is accounted for under the 2021 State contribution.
• In 2021, the negative COVID-19 effect for other income did not materialise. Some projects that were started or implemented in 2021 were postponed or deferred projects.

EXPENSES relative to the 2020 actuals

• Personnel costs payroll staff increased by € 26.5 million to € 492.8 million in 2021 (2020: € 466.3 million). The increase is partly caused by the new CLA (collective labour agreement). This leads to a structural wage increase of 1.65% from 1 July 2021. In addition, staff have been assigned to some projects in 2021 for specification.

The result 'Share of third parties' concerns the result of the E&R activities of Erasmus MC. This result shows a significant improvement from € 22.6 million to € 16.0 million (2020: € -6.6 million).

The balance sheet increased by € 11.3 million to € 417.4 million in 2021 (2020: € 406.1 million).

ASSETS relative to the 2020 actuals

• The tangible fixed assets increased due to higher investments on campus.
• These investments also have an impact on EUR's cash and cash equivalents. As a result, cash and cash equivalents is expected to decrease in the coming years. The liquidity position of EUR remains positive.

LIABILITIES in relation to the 2020 actuals

• Consolidated equity in 2021 is € 2.7 million lower than in 2020. Compared to 2020, there is a shift within the reserves. The appropriated reserve decreased by € 73.3 million. This difference is explained by the release of the portion that arose from the transfer of the premises from the Ministry of OCW. The budgets are embedded in the budget, so the BoT has decided to release the earmarked reserve for this part. This release has been added to the general reserve.
• Current liabilities increased by € 12.5 million in 2021. € 4.5 million of the as yet unspent NPO funds are included under current liabilities. € 0.7 million is explained by the as yet unspent subsidies for 'extra hands in the classroom' and 'corona jobs'. In addition, there is an increase in accounts payable (€ 2.8 million) and holiday allowance and holiday time (€ 2.5 million). For the distribution to Universities based on the honoured spending proposals commissioned by the Foundation Platform Digital Infrastructure SSH, € 2.8 million was distributed.

Solvency (equity plus provisions divided by total assets) comes to 58.1% (2020: 60.0%) and comfortably meets the standard imposed by the Education Inspectorate (≥30%).

EUR's solvency is decreasing due to the significant increase in current liabilities in relation to the change in shareholders' equity. The increase in current liabilities is largely related to NPO funds that have not yet been spent at the closing date of 2021.

Liquidity decreased in 2021 from 1.03 to 0.85, but nevertheless meets the (new) standard imposed by the inspection (0.75). The decrease in liquidity is mainly due to the increase in current liabilities in relation to the change in receivables. The absolute level of cash and cash equivalents shows a favourable position at € 110.5 million.

On the other hand, partly as a result of the (planned) negative result in 2022 and the planned substantial investments, the multi-year perspective (see continuity paragraph) shows that EUR is expected to end up below the adjusted signal value of 0.75 in the coming years. Internally, EUR uses a signalling value of 0.5. The existing policies that EUR applies in the financial area are demonstrably appropriate, consistent and reliable, something that is endorsed by its external stakeholders, including the Education Inspectorate. Therefore, EUR chooses to continue its current policy and applies the old signalling limit of 0.50. This means that EUR refrains from taking measures to bring the ratio to a level in the direction of the new signalling limit of 0.75 , such as increasing the result or attracting additional bank financing. This choice was made in part because such measures come at the expense of available funds for the primary process. In addition, higher equity is neither economically nor socially desirable and not in line with the policy of the Ministry of Education, Culture and Science with regard to the development of universities' equity.

The Education Inspectorate did not substantively disclose the reason for the increase in the liquidity ratio. In the context of Universities of the Netherlands, based on the same substantive argumentation used by EUR, a request was submitted to the Inspectorate to create a ‘Very Large’ category that would apply to all UNL Universities, in which the liquidity ratio is restored to 0.5. The Inspectorate is considering this suggestion.

The actual equity (public portion of the equity) of EUR at the closing date of the reporting year 2021 is €175 million. The normative equity for EUR at the closing date of 2021 is € 301 million. The public equity therefore does not exceed the signalling value for potentially excessive public equity of educational institutions.

The war in Ukraine and government-imposed sanctions against Russia will have a negative impact on the European economy. The increase in energy costs will indirectly lead to higher levels of inflation. Also, partly due to the war, some raw materials are scarce.

For EUR, the worsening economic environment, high energy prices, increases in construction costs, increases in inflation and tight labour markets lead to higher costs for both personnel and purchases of goods and services.

The impact of government-imposed sanctions against Russia and Belarus is also expected to impact the volume of Russian student enrolment. Given the limited number of students from Russia, the financial impact on EUR is expected to be limited.

Developments surrounding the inflow of students from Ukraine are difficult to assess due to the war and the large inflow of refugees. From a historical perspective, the inflow of Ukrainian students is limited.

An emergency fund has been established from the Erasmus Trust Fund for those students who are experiencing financial difficulties due to the war in Ukraine. The university and the Erasmus Trust Fund each contributed € 25,000 to the emergency fund. The amount of this emergency fund is otherwise dependent on donations.

The coalition accord of the newly appointed cabinet aims to strengthen higher education by increasing the predictability of state funding, removing the incentive in funding for higher student enrolment, revising and increasing the fixed base in state funding, improving the balance between first and second flow funding, and creating more room to reduce workload.

Funding is increased by an additional € 700 million in structural funding for education and research, and the creation of a € 5 billion research fund spread over ten years.

In addition to these additional funds, government-funded student grants will be reinstated in 2023/2024, investments in the tuition advance will remain unaffected, and cuts due to interest rate and DUO problems will not be reapplied.

The impact of the coalition agreement is still uncertain. However, it is now clear that additional (structural) resources will be made available. The amounts to be allocated to higher education and research and their distribution are as yet unknown.

In the coming years, EUR will continue to invest heavily in property and digitisation. An annual amount of € 5 million is available for digitisation initiatives. In the coming years, the vision document ‘Digitisation Statement' will be the guiding principle for furthering the developments related to digitisation.

As a result of the COVID-19 pandemic, buildings are being used differently. The relevant property analysis will further conducted in the coming period. Another evaluation is conducted on the new teaching methods relating to the use of spaces and technology.

Through 2030, an average of € 20 million will be invested annually in property renovation and new construction.

At the end of 2010 EUR decided to develop Woudestein campus into a campus of international allure with high study and job satisfaction. The overall programme is divided into three phases. We are currently in Phase III. This currently focuses on the start of the new multi-purpose education building (MFO II) and the Sports Building. After the contractors developed the design by the end of 2020, implementation began quickly. Despite the shortage of raw materials and manpower in the market, implementation is proceeding according to plan. In 2021, steps were taken in preparing for new student housing and repositioning the tender for the renovation of building Tinbergen was considered. The Tinbergen building closed in 2021, which resulted in accelerated depreciation. The ISS building also needs to be renovated. For the projected completion through 2026, the investment estimate of € 230 million is insufficient due to construction price developments.

A key measure is ‘Re-evaluating real estate strategy’. As part of this measure, a guideline for the use of space in the office environment at Woudestein Campus has been prepared. The recalibration of the educational environment is delayed due to the uncertainties regarding the place that digital education will occupy in the future in proportion to the physical form of education on campus.

In addition to Woudestein, Hoboken also has an ambitious investment programme. In 2027, renovation of the faculty building is high on the agenda. Reservations have been made for years through the provision for capital expenses received in advance.

Due to the investments in the property related to CiO III programme, EUR anticipates that the terms of the Woudestein property costs will vary within a range between € 45 million and € 47 million per year over the term to 2026. Agreements on maximum property costs relative to income are closely monitored and supervised.

Investment decisions are calculated on an integral basis, including maintenance costs and structural expenses. Several go/no-go moments are integrated in all projects. In addition, a governance structure is in place. A steering committee, chaired by a member of the BoT, monitors operational and financial progress. As part of the CiO programme governance, an updated risk management review for CiO III took place in the fall of 2017. In general, EUR sees the combination of the overheated construction market and the high demands of users, i.e. sustainability, as an area requiring attention. In 2021, work began on a space use guideline for the Campus office environment.

Estimated student numbers

The table below shows the expected development of FTE numbers with an appointment at EUR. The classification is consistent with the system used within EUR.

Balance Sheet

Risk management and control system

EUR endorses the Code of Good Governance of Universities of the Netherlands (UNL), the Dutch Code of Conduct for Scientific Practice, the UNL Code of Conduct for the Use of Private Data in Scientific Research, and the Code of Transparency in Animal Testing. During the year under review, the roles of the Board of Trustees and the Supervisory Board in the area of internal governance complied with the legal frameworks set out in the Higher Education and Research Act (WHOO).

The purpose of risk management is to manage risks, realise opportunities and match these to the strategy for the realisation of organisational goals. Risk management is a continuous process. EUR considers its external environment in addition to its own organisation.

Through integral risk management, EUR opts for a broad interpretation of risk management. This involves following the (legal) frameworks and broadly raising the awareness of risks, opportunities and uncertainties with each employee. This creates a sound and responsible balance between risk taking and risk management.

EUR’s Risk Management Policy is the basis for embedding risk management at all levels of the organisation and provides the framework for implementing risk management.

EUR has a dedicated risk management function in the second line. The risk function ensures that risk management in the broad sense of the word is embedded in the organisation. The risk function is also responsible for monitoring, evaluating, advising and reporting on the management of risks.

Regular risk management is invested in the line. Deans and directors of the various organisational units (faculties, departments, institutes, staff departments, and programmes) are responsible for implementing risk management in regular business operations and preparing mitigating measures.

Risk management is a recurring agenda item in periodic bilateral meetings between the BoT and the organisational units, and periodic administrative meetings between the BoT and the Deans jointly. In addition, risk management is a regular component in the budget.

Steps are taken to further integrate risk management into the organisation. Risk management is already integrated as a fixed component in the planning and control products.

In addition to strengthening risk management within EUR, the internal audit and review function is an integral part of EUR's control system. Performing audits and reviews in the area of precondition processes for the quality of education and research should strengthen the organisation’s learning capacity.

In 2021 the Audit Charter was revised with the aim of strengthening the independent position of the Audit & Review function. Also, the process related to conducting the audits was set out in a document.

In 2021 a multi-year audit and review agenda were established for the first time. This includes a number of topics on which audits and reviews will be conducted. The topics were selected based on input from risk management, internal and external supervisors and as a result of new policies or developments.

The audit and review agenda is set by the Board of Trustees and discussed in the Audit Committee (AC) of the Supervisory Board. During the audit and reviews, we evaluate strengths, any weaknesses and room for improvement, and review how processes are designed and embedded. External knowledge and expertise are involved where necessary. The implementation of the recommendations from the audits are monitored by the internal Audit & Review Function and reported to the BoT and AC.

Starting in 2022, a multi-year Audit & Review Agenda will be established based on four themes. The agenda is flexible, ensuring there is room to add ad hoc audits to the agenda in the course of the year. As part of the Audit & Review Agenda, EUR conducts a fraud risk analysis. Detected risks include consideration of internal control measures to mitigate the risks. A probability and impact analysis was used to determine whether further internal control measures were necessary. These risks included financial risks, but also risks related to education and scientific integrity. The fraud risk analysis was shared by the BoT and discussed with the SB.

Management Framework

Within EUR, policies are jointly created and those policies are based on EUR-wide strategy. This is done in interaction between the BoT, Deans, directors of support services, and education and research directors. This strategy is based on taking joint responsibility for the substantive focus concerning the common EUR interest and for the benefit of mutual cooperation with external partners.

The interactive management philosophy is reflected in a decentralised management culture and integrated management of decentralised managers. Integrated management means that an organisational unit is fully responsible and competent for its own tasks, objectives, work process, employees and resources within the set frameworks. The organisational unit is also responsible for interfaces with other organisational units. The Board of Trustees monitors the overall and integral result and sets the frameworks within which freedom can be exercised. The Board of Trustees has various management instruments at its disposal for this purpose. In addition to the strategic framework, the internal control system consists of regulations and procedures aimed at providing reasonable assurance. This ensures that the organisation’s main risks are identified and the objectives from the Strategy 2024 Plan are achieved within the framework of the applicable laws and regulations.

The main (non-exhaustive) components of internal control are:

• Strategy24, which sets out the long-term strategic goals and objectives and their translation into underlying covenants with the management units;
• the administrative and management regulations, regulating the powers of the management officers appointed by the BoT;
• a master plan 'Digital Security and Privacy' that translates the major challenges in the field of information provision caused by the strong increase in digitisation into activities in the context of both innovation and management;
• the 'Regulation on Reporting Alleged Wrongdoing in EUR', better known as the Whistleblower regulation;
• the 'Regulation on Ancillary Employment' on the disclosure of potential conflicts of interest of researchers and other employees;
• the Code of Integrity, focusing on trust, respect for people, transparency and inspiring collaboration;
• a budget cycle consisting of a framework, budget plans and an institutional budget. The BoT approves the budget plans of faculties and other organisational units if they fit within EUR’s financial framework. They form the basis for the institution's budget, which is approved by the SB;
• the multi-year cash flow projections, based on earnings forecasts and a multi-year investment agenda. These forecasts are adjusted several times a year based on the latest financial insights;
• a bottom-up system of reporting to the BoT three times a year on financial and non-financial facts, with a copy to the BoT and the participation bodies. Such reports concern updates on actuals and include a year-end forecast;
• a system of periodic bilateral consultations between the BoT and the organisational units, as well as periodic joint administrative consultations between the BoT and the Deans;
• spend analyses and a procurement and tendering calendar to ensure legitimate procurement, supplemented by the duties and responsibilities of the Tender Board;
• a finance/legal/administrative/tax (FLAT) test for large and/or long-term projects and contracts that exceed certain limits (above € 206,000 excluding VAT, or with a lead time of more than four years);
• a Treasury statute that complies with the ‘Regulations investment and lending'; EUR makes use of treasury banking, whereby excess liquidity is held at the Ministry of Finance;
• the annual step-by-step 'Letter of Representation', in which managers and submanagers declare that they vouch for the completeness and accuracy of the information regarding relevant financial management matters within their mandate area;
• The Audit Committee, as a subcommittee of the SB, meets four times a year and pays extra attention to the financial and economic ins and outs of the university in a broad sense and reports to the SB.
• The Risk Management Policy 2024, in which risk awareness is promoted organisation-wide through integrated risk management. 
• The risk & control framework (RCF) of the department Monitoring & Reporting (M&R) for ensuring reliable financial reporting and records. The financial processes are mapped out for each process, and these are audited. The framework describes the risks in the field of finance and financial reporting that EUR recognises and the internal control measures that have been defined to address them. M&R developed the work programmes for a number of processes. The control measures set out in the RCF are assessed to determine that they have actually been implemented. M&R periodically identifies and reports on the implementation of internal control measures. From the 2020 management letter, the advisory points on identifying the key controls have been followed up and the inconsistencies in the risk classification have been removed. In this way, EUR ensures that reliable financial reporting and records are in place.

Risks and uncertainties

In the past two years, the education sector faced major challenges. The scale and pace of change and the challenges universities face as a result of COVID-19 are enormous. Progress, innovation and ambition cannot exist without risk. Based on the risk analysis performed, we recognise a number of significant risks. These are shown in the picture below and further explained below. The identification of these risks is the result of a strategic dialogue with the Board of Trustees and the Deans.

The Audit Committee (AC) met four times during the year under review. The main topics discussed in the AC and then in the SB were:

Financial statements and auditor's report 2021

In 2021, the EUR Annual Report and the management letter of the external auditor on the EUR annual financial statements were discussed. The external auditor appointed by the Board gave further explanations. Following the financial statements, the fraud risk analysis was also discussed in the AC.

Financial progress reports

Periodically, the AC and the SB are informed in writing of the complete financial progress for the reporting year and of the financial progress of large-scale investment programmes such as Campus in Development.

EUR Framework Note 2022-2025 (Erasmus Perspective) and EUR Budget 2022-2025

The Erasmus Perspective 2022-2025 provides the financial framework for EUR’s Budget for 2022-2025. Based on the allocated budgets set out in the Perspective, faculties and support services can prepare their budgets. EUR Budget was adopted by the SB after being discussed in the AC. The process to arrive at a recalibration of the budget was also discussed in the AC. The purpose of this recalibration is to make the link between content (implementation of policies and projects) and finances more visible.

Campus in Development (CiO)

In 2017, the second phase of CiO was completed and the third started. The COVID-19 outbreak instigated a movement to recalibrate strategic real estate policies. Also, the Tinbergen Building on Campus is scheduled for renovation. Pilots of hybrid working and teaching and the use of office spaces are part of a reorientation of office, teaching and study spaces. The AC is periodically informed of the results of (partial) reports.

IT cybersecurity

Cybersecurity has been discussed several times during committee meetings, partly in relation to government guidelines regarding Open Access of research data. Insight into the various risks was provided by the Chief Information Security Officer appointed in 2021. Measures to further improve security were explained and discussed.

Convergence EUR - Erasmus MC - TU Delft

In the reporting year 2021, the discussions between the Boards of EUR, Erasmus MC and TU Delft about far-reaching forms of cooperation have intensified. The AC has been informed about the financing needs and the fundability of this convergence project.

Audit & Review Agenda 2022-2024 and Internal Audits 2021

An Audit & Review agenda is set annually and discussed in the AC. In 2021, a new audit charter was adopted to ensure an even more independent position of the audit function. An audit plan has also been prepared based on consensus with the various departments. The follow-up on recommendations from the various internal audits will be added to the bilateral consultations between the Board of Trustees and the units (faculties and departments), driving the conversation about implementing policies and projects. Audit monitoring is a regular item on the AC agenda.

Roadmap Procurement 2021-2024

The Procurement Policy 2021-2024 aims to ensure legitimate and sustainable EUR-wide procurement. It has been translated into a roadmap focusing on cooperation and supporting EUR’s lead buyers. Both the policy and the roadmap have been discussed in the AC.

EUR 2021 reserve policy

Advice on further development of the reserve policy was provided by both the external controller and internal parties, such as the directors of operations and Deans, after which stricter specification was discussed in the AC.

1. Outsourcing of education

There are no outsourced courses to non-funded institutions.

2. Investing public funds in private activities

No public funds were used for private activities outside the primary mission. EUR provides funds for some student facilities, including sports activities. However, this involves sources other than public funds.

3. Granting of exemptions

EUR does not grant exemptions to students purely for the purpose of attracting students and thereby increasing the State contribution, unless based on a reasonable and fair form of effort. That effort must be established by the Examination Board.

4. Funding for foreign students

Only students whose name and address details are known to EUR count towards funding.

5. Tuition not paid by student and profiling fund

EUR does not pay tuition fees for students. The regulations of the Profiling Fund provide for financial compensation for study delays due to personal circumstances, board scholarships and fee waivers. See also Chapter 2 Education (Quality and Student Success > Profiling Fund and Scholarships).

6. Students follow modules of courses

It is possible to take modules or parts of courses as a non-student. This is called contract education (ad-hoc study). One or more separate courses may be taken, with the participant registering not as a student but simply as attending a single course.

7. The student is taking a course other than the one enrolled

Does not apply. Students take the courses in which they enrolled at EUR.

8. Funding of customised curriculums

Regarding initial education, no customised curriculums were concluded with companies and other organisations.

9. Funding of arts education

Together with Codarts Rotterdam, EUR has set up a Double Degree RrASL programme (Rotterdam Arts and Sciences Lab). The students are enrolled at both institutions, but are funded at Codarts and not at EUR.

10. Number of students to be counted for funding purposes

EUR registers a student who meets all enrolment requirements, meeting all funding requirements as a funded student in BRONHO. A successfully passed exam is also registered as funded in BRONHO if all funding requirements are met.

EUR currently grapples with a number of issues that touch on the discussion of private activities and public resources.  In addition to a governance issue relating to control of related parties, there is also an internal issue of consistency in the application of cost recharges based on transfer pricing between the university and the entities containing most of the private activities. Also, in 2021, theme 2 of the Clarity in Education memorandum will be replaced by the 'Policy Rule on Investing Public Funds in Private Activities’. At EUR, the new policy rule may have an impact on various topics and organisational units, as well as on the relevant accountability. This is a reason to review the management measures concerning public/private. Meanwhile, an action plan has been prepared and the first steps have been taken to work towards implementation of these new policies.

According to OCW, the new policy rule does not lead to a change in the rules. However, there is the necessary lack of clarity within the sector about the interpretation. In order to prevent major differences in interpretation between the universities and to be able to jointly conduct the discussion with OCW, Inspectorate and auditors, the UNL requested that a separate work group be created to come up with proposals on how to deal with the new rules. In addition, discussions are underway with other umbrella organisations and auditors to continue the round table discussions. The ultimate goal is to arrive at a uniform working method and/or uniform interpretation of the policy rules that is workable for all parties (also in terms of the administrative burden).