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Finance

Introduction

For several years, the financial context in which Erasmus University (EUR) operates has been characterised by increasing student numbers and necessary innovations in the areas of real estate and sustainability.

Also, further digitisation in education and research now requires significant investment from all disciplines. This is also the reason why financial pressures have increased in recent years. In the longer term, it is still a challenge to keep the workload in order, to keep EUR financially healthy, and at the same time to continue to meet all quality and sustainability requirements. On top of that, 2021 was another special year because of the COVID-19 pandemic and the resulting measures and challenges. The continuity paragraph discusses the longer-term challenges in more detail.

The 2021 financial statements show a substantial positive deviation from the budget and from the actuals in the previous year. This result has some incidental causes, such as the effects of COVID. In addition, this result is due to a number of structural features of the financial dynamics in higher education and especially in universities. Erasmus University, as a young university, has a unique position in this regard.

In recent decades, there have been several studies of university funding. The conclusions are similar each time. The allocation of budget is not based on the costs required to provide training or to conduct free and unbound research. As the number of students has grown rapidly, (only) the variable part of the funding has increased and the amount per student has decreased. Erasmus University, and in particular the other young universities (Maastricht and Tilburg), have a low fixed base. The reason is as yet unknown. It seems to make sense to correct this. In the current situation, for EUR, this means that the funding per student is demonstrably lower than that of the other universities. Combined with the growth in student numbers, this leads to an increase in workload and a decrease in time to conduct free and independent research.

That EUR nevertheless shows a positive result is mainly due to two features. First, the university sector is conservative when it comes to spending money. Action will be taken if it becomes clear that budget will actually become available. This in itself is a good attribute. However, when combined with the second attribute, it leads to the financial result as currently reported. For the university, the most important 'means of doing the job' is quality employees. These were already hard to find in academia, and this is even more true in the current market situation. Because it is difficult to recruit staff, temporary staff are hired. This leads to projects for which budget is reserved, generally starting later, resulting in an underspend. The vacancy is filled, but it can only solve a problem temporarily. Moreover, this can generally only be done without loss of quality in the support functions and not within the scientific staff. The workload is therefore increasing. Part of the budget is of an incidental nature. This deters faculties from appointing structural staff.

The financial result can be read as a signal that budget is not spent or not spent effectively. However, it is a result of structural underfunding. Financial prudence and a traditionally difficult labour market, which has only tightened in the current situation, lead to underspending. This can only be solved by bringing the sector's funding up to standard, as recognised in the current Coalition Agreement.

Financial position

Analysis of 2021 result

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.

table 6.1

Consolidated 2021 result -2,6
Additional resources NPO -3
Underspending HoKa -2,9
Housing investment delay -2,6
Delayed IT investments -3,3
Lower housing costs due to COVID -4,8
Lower other expenses due to COVID -5,52
Underspending strategic programmes -6,2
Allocation of vacation days -1,6
Adjusted 2021 result -32,5
Several smaller deviations among the faculties and services -1,8
Budgeted consolidated result -30,7

After deducting the above-mentioned non-recurring income and expenses, the normalised result amounts to € 32.5 million negative. The difference compared to the budget is € 1.8 million. This is mainly caused by an underspend on programme implementation (€ 6.2 million), partly due to staff shortages on the labour market. In the future, stricter monitoring of progress in the implementation of the programmes will be applied in order to prevent or detect this type of substantial underspending in a timely manner.

Comparison with 2021 budget

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.

EXPENSES compared with the budget

  • Personnel expenses are € 8.2 million higher than budgeted. This is due to an increase in non-salaried personnel. This item was € 8.4 million higher than estimated due to the difficulty of filling vacancies. Personnel expenses of payroll staff are € 0.2 million below budget.
  • Housing costs are € 4.8 million lower. The expectation that there would be fewer international students because of COVID-19 did not materialise. As a result, vacancy costs are lower than budgeted. In addition, cleaning and security costs were lower due to the closure of the campus during lockdowns.
  • Depreciation charges on fixed assets and digitisation are € 3.3 million lower. The main cause is postponement of projects. Due to delays in Campus in Development (CiO), depreciation expenses are € 1.6 million lower. Deferral of the data centre results in a € 1.0 million decrease of depreciation charges.

Total depreciation includes the depreciation expense of Erasmus MC.

  • Other expenses were lower by a total of € 18.4 million. Due to the pandemic, material costs were reduced. Among other things, this decrease is visible in travel and lodging expenses at various organisational units.
  • The result 'Share of third parties' is € 16.0 million, which is € 14 million higher than budgeted. This concerns the result of Erasmus MC's education and research activities, € 16 million. The additional funds from NPO and NWO have a positive effect of € 3.0 million on the result. € 2.0 million is explained by higher royalty revenues. Higher project revenues contributed € 2.0 million to the improvement in earnings. The sale of part of the shares in Harbour Biomed is recognised in the income statement at € 5.8 million.

Comparison with 2020 actuals

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).

table 6.2 Comparison 2020 and 2021 benefits

Key figures in M€ Account 2020 Account 2021 Difference
State contribution 325,80 369,20 43,40
Other government contributions and grants 0,00 0,00 0,00
Tuition fees 66,70 63,06 -3,64
Income from work commissioned by third parties 190,35 205,90 15,55
Other income 103,30 113,84 10,54
Total income 686,15 752,00 65,85

Balance sheet and cash flows

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 development

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 development

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.

Key figures as at 31 December 2021

For the purpose of financial supervision, the Education Inspectorate has been using different key figures for some time. Signalling values have been determined for these key figures. These signalling values are indications of potentially weakened financial positions. As part of EUR’s financial control framework, these key figures are monitored periodically.

New key figures and signalling values have been defined by the Education Inspectorate for the assessment of the 2021 financial statements.

The outcomes in 2021 applying the external ratios are as follows:

table 6.3

    Signalling value lvhO Actuals 2021
Property ratio* (Property expenses + depreciation of buildings and land)/total expenses x 100% > 15% 9,2%
Profitability (1-year)* Result year t / total income t x 100% < - 10% -0,3%
Profitability (2-year) (retrospective)* Σ (Result year t-1; result year t)/Σ (total income year t-1; total income year t) x 100% < -5% -1,6%
Profitability (2-year) (prospective)* Σ (Result year t: result year t+1)/Σ (total income year t: total income year t+1) x 100% < -5% -1,0%
Profitability (3-year) (retrospective)* Σ (Result year t-2; result year t-1); result year t) / Σ (total income year t-2; total income year t-1; total income year t) x 100% < 0% -2,4%
Profitability (3-year) (prospective)* Σ (Result year t: result year t+1; result t+2) / Σ (total income year t: total income t+1; total income year t+2)x 100% < 0% -0,7%
Solvency II (Equity + provisions)/total equity x 100% < 30% 58,1%
Resilience Equity / total income x 100% < 5% 29,1%
Liquidity (Receivables + cash) / current liabilities < 0,75 0,85
Absolute amount of cash and cash equivalents Balance sheet position at the closing date of 2021 < € 2 million 110,5 million

The scores on the key figures in 2021 meet the set targets and standards, with the exception of the three-year profitability (both prospective and retrospective). This is caused by deliberately spending more on various investment programmes aimed at further improving the quality of education. These (financial) deficits are covered from the available reserves within the equity.

Signalling value of potentially excessive public equity

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.

Continuity paragraph

The purpose of the continuity paragraph is to provide insight into the way in which EUR deals with the (financial) consequences of the policy pursued and to be pursued. This includes future developments, operating results, investments and asset development.

EUR's financial and economic policy ensures the continuity of its business processes in a financial sense. A balanced distribution of resources, structurally balanced budgets and healthy liquidity and solvency rates (higher than the signalling limits of OCW) are the key starting points. Deficits are always planned and temporary in nature. Until 2022, EUR has deliberately managed towards a negative budget. The funds were used for research, education and operations. The level of reserves is monitored. Starting in 2023, EUR will manage for a financially healthy university.

However, please note that two recent developments have not yet been taken into account in the preparation of the 2022-2025 multi-year budget. This concerns the impact of the war in Ukraine and the additional resources committed on the basis of the coalition accord.

Economic climate

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.

Political climate - coalition agreement

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.

Major investments

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.

Campus in Development (CiO)

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.

Volume of investment in property

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.

Developments key figures

Estimated student numbers

table 6.4

In 2021, the number of students increased to 31,351 (2020:30,388). The number of students is expected to continue to increase in the coming years. This is in line with the OCW estimate. Causes include the increase in the number of international students. In the coming period, enrolment from higher professional education will continue to increase.

In recent years, the number of students has grown. Along with this growth, the student-staff ratio has deteriorated in recent years. The (unbalanced) increase in students and the pressure or finances (partly due to the low fixed base) leads internally to even more pressure on teaching and research quality and lecturer workload.Furthermore, as a relatively young university, EUR receives a lower fixed base than other (general) universities. And, as a result, lower funding per student.

Expected staffing

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.

table 6.5

  2021 2022 2023 2024 2025
fte academic staff 2.254 2.195 2.137 2.140 2.126
fte PhD 822 794 775 759 738
fte student assistant 127 128 127 126 126
fte support and management staff 2.623 2.718 2.701 2.712 2.715
fte executive board 3 3 3 3 3
Total 5.829 5.838 5.743 5.740 5.708

Staffing increased slightly in 2021. The increase is visible in both academic staff and support and management staff. Furthermore, the number of FTE is expected to increase in 2022 due to the use of NPO funds. This concerns temporary workers. The table shows that after 2022, the number of FTE is set to decrease. This is partly explained by recruiting temporary staff to be able to carry out the plans from the NPO funds. Another factor is that the budget takes into account contracts that are expiring.

This is mostly associated with staff working on projects funded by budget from second and third funding flows. In practice, new projects are often recruited and the budgeted decrease does not occur in practice. When preparing the budget for the coming years, this system will be reassessed with the aim of showing a more fair and true view of the development of the number of FTEs in the budget.

Multi-year budget

Balance Sheet

Consolidated balance sheet

table 6.6

Balance in M€ Account 2020 Account 2021 Budget 2021 Budget 2022 Planning 2023 Planning 2024 Planning 2025
Assets              
Current assets              
Intangible fixed assets 6,3 4,6 2,1 2,1 2,1 2,1 2,1
Tangible fixed assets 255,1 270,6 240,7 280,4 293,1 297,5 271,2
Financial fixed assets 0,5 0,4 1,3 1,3 1,3 1,3 1,3
Total fixed assets 261,9 275,6 244,1 283,8 296,5 300,9 274,6
               
Inventories 0,0 0,0 0,1 0,1 0,1 0,1 0,1
Receivables from tuition fees 1,1 0,9 1,5 1,1 1,6 1,7 1,8
Other receivables 27,9 30,4 38,1 40,3 40,8 41,2 41,5
Cash and cash equivalents 115,1 110,5 46,0 15,0 15,0 15,0 15,0
Total current assets 144,2 141,8 85,7 56,6 57,6 58,0 58,4
Total assets 406,1 417,4 329,8 340,4 354,1 358,9 333,0
Liabilities              
Equity 221,8 219,1 199,9 186,4 186,8 189,4 193,2
w.v. - of which General reserve 78,3 139,6 90,9 63,6 63,1 65,7 68,1
Earmarked Reserves Public 108,8 35,5 70,7 88,7 88,3 86,2 84,8
Earmarked Reserves Private 33,5 42,7 36,7 32,4 33,5 35,3 37,9
Earmarked Private Fund 0,4 0,2 0,5 0,5 0,5 0,5 0,5
Statutory Reserve 0,9 1,2 1,2 1,1 1,4 1,7 2,0
Provisions 21,7 23,6 19,6 15,5 15,0 14,0 13,6
Non-current debt 8,2 7,8 7,7 45,2 43,0 41,9 13,1
Current debt 154,4 166,9 102,5 93,4 109,2 113,6 113,2
Total liabilities 406,1 417,4 329,8 340,4 354,1 358,9 333,0

Notes to Consolidated Balance Sheet:

  • EUR consolidated multi-year balance sheet shows an increase in non-current assets. This is due to the ambitions to continue investing in education, research and operations. To this end, the campus will be expanded by facilitating, in particular, housing and digitisation projects and programmes.
  • Due to the extensive investments in housing and digitisation projects, it is expected that cash and cash equivalents will continue to decline in the coming years. Borrowing may be necessary. This is why the debts increase.

As previously indicated, the liquidity ratio remains above the signalling value in 2021. Based on the figures in the multi-year budget, liquid assets drop sharply in 2022 and the liquidity ratio falls below the (increased) signalling value of the Education Inspectorate. The liquidity ratio is still expected to meet EUR's internal signalling value of 0.5 in the coming years.

The decrease in the liquidity ratio is mainly caused by the decrease in the absolute amount of cash and cash equivalents, which is budgeted at € 15 million for the period 2022 through 2025. This still amounts to € 110.5 million at the closing date of 2021, where € 46 million was budgeted in the (approved) 2021-2025 Budget Plan. The absolute amount of cash and cash equivalents shows a decrease of € 95.5 million between 2021 and 2022. This is due to the fact that as of 2022, the budgeted amount of cash and cash equivalents is recognised. This does not take into account the realised amount of cash and cash equivalents in 2021, which are € 64.5 million above the 2021 budget.

  • Equity is expected to continue to decline in 2022 due to the budgeted negative result. The expectation is that starting in 2023, we will be working toward a financially healthy University.

Income and Expenses

table 6.7

in M€ Account 2020 Account 2021 Budget 2021 Budget 2022 Planning 2023 Planning 2024 Planning 2025
State contribution 311,1 353,2 344,2 406,5 389,2 397,9 404,9
Performance Funding 14,7 16,1 0,0 0,0 0,0 0,0 0,0
Tuition fees 66,7 63,1 71,1 54,3 78,7 81,5 84,5
Income from work commissioned by third parties 190,4 205,9 201,2 221,1 225,2 229,1 231,6
Other income 103,2 113,8 115,3 124,5 126,0 128,6 129,9
Total income 686,1 752,1 731,8 806,4 819,0 837,1 850,8
Personnel expenses payroll personnel 466,3 491,3 493,0 534,0 527,0 533,1 534,8
Personnel not on payroll 30,3 31,3 22,9 27,2 26,2 25,8 29,3
Depreciation 40,9 39,2 42,4 42,7 45,4 45,7 49,6
Property costs 36,1 29,0 33,8 33,9 35,6 36,4 37,0
Other expenditure 139,2 150,0 168,5 179,6 176,4 185,2 189,2
Total expenses 712,9 740,8 760,5 817,5 810,5 826,1 839,9
Balance -26,8 11,3 -28,7 -11,1 8,5 11,0 10,9
Financial income and expenses -0,4 4,0 0,0 -0,8 -0,7 -0,8 -0,9
Result -27,2 15,3 -28,7 -11,9 7,9 10,1 10,0
Share of third parties in result -6,6 16,0 2,0 1,6 7,5 7,5 6,2
Net result -20,6 -0,6 -30,7 -13,5 0,4 2,6 3,8
               
  • The increase in the state contribution in 2021 is mostly explained by the contribution from NPO funds. These funds were made available to mitigate the impact of the COVID-19 pandemic on education and research. These funds were granted as a temporary measure and will not be made available as from 2023.
  • The 2021 result also includes incidental effects. For example, the sale of Harbour Biomed (Erasmus MC) resulted in a result improvement of € 5.8 million.

Other reporting

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.

Description of key risks and uncertainties

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.

Cybersecurity and information security

Cybersecurity and information security are key focal areas. Remote working, hybrid education and recent attacks on educational institutions put the issue at the top of the strategic risk agenda. EUR is further identifying this risk and taking appropriate measures to ensure that the impact on EUR's operations remains limited. All organisational units have a responsibility to make their staff aware of this issue. The IT department, CIO office and the Documentary Information Management department were merged into Erasmus Digitalisation & Information Services (EDIS) for integration and assurance of policy and frameworks on information management and innovation and renewal projects for EUR. EDIS is also responsible for the security of information facilities.

Student numbers

With the higher intake of students, the question is how to ensure the accessibility of our education to all audiences. Due to anticipated increases in student numbers, it is necessary for EUR to examine a number of factors more closely. Including staff capacity, housing and property, effects on the quality of education and the student experience - and wellbeing of staff and students.

EUR is aware that there are limits to growth. The next step is to examine the boundaries, or the desired situation and what strategy EUR will follow. It is an important issue during the strategic dialogue between the Board and the faculties. It addresses the positioning of EUR in the future with respect to dealing with volatility and continued growth in student numbers. Due to the growth in the number of students and the low fixed base that EUR receives as a (relatively) young university, the fee that EUR receives per student is decreasing.

Personnel and wellbeing

The tight labour market makes it increasingly difficult to attract and retain quality (academic and support) staff. Vacancies are difficult and recruitment is time consuming. EUR will therefore ensure that it is and remains attractive as an employer by offering positive employee benefits, career opportunities and working conditions and a safe working environment.

Staff wellbeing is a challenge for all organisational units. They are faced with the task of reducing workloads and increasing staff wellbeing. EUR invests in its employees and their skills to realise ambitions and innovations. By initiating strategic workforce planning, EUR is bringing future workforce challenges into focus.

Quality of basic services in professional services

The increase in the number of students combined with the provision of hybrid education creates challenges for maintaining the quality of basic support services. The increasing demand for those services and the complexity of the requests are increasing, resulting in pressure on the basic level of support services. In addition, outdated systems and work practices affect the quality of service. EUR is faced with the task of reassessing, prioritising and potentially adjusting the delivery of services.

Real Estate & Facilities

The increase in students, online education and hybrid working led to a changed need for properties. EUR is in the process of identifying these issues in more detail. In the coming year, the Housing Department will complete this, so that adequate measures can be taken.

Interdisciplinary potential

Optimal use of our interdisciplinary potential is the common thread in our strategic ambitions and activities. It is also a prerequisite for solving complex societal challenges and creating impact. Changing stakeholder expectations in both the design and delivery of education and research are influencing the way we work in the future. Increased collaboration in education among faculties leads to new opportunities, but also to uncertainties. Insufficient ecosystem-based perspective, mindset and actions potentially lead to ineffectiveness in our strategic partnerships (focus/attraction). In addition, there is increased competition from other universities, both nationally and internationally. This is true in the areas of research funding (grants and projects) and for talent and resources. This results in a risk that the interdisciplinary agenda and thus the ambitions will not be achieved. To reduce the probability of this risk occurring, EUR is bringing more focus to the desired partnerships based on a EUR-wide vision. In addition, consultation will ensure better alignment of initiatives. It also leads to a clearer impact profile. Collaboration between faculties and sharing information and relations with relevant stakeholders will be further developed.

Innovation in education

The current policies, structures and systems at EUR pose the risk that the university is insufficiently able to implement innovations in education (interdisciplinary/impact driven). EUR recognises the required basic conditions, such as infrastructure for innovation in education (not just digitisation). Additionally, barriers that may inhibit collateral innovation (annual planning, procedures, systems, funding) are broken down.

Planning and control EUR

The above risks are part of the integral picture of the risk profile. EUR recognises the importance for the continuity of the university. The next step is to focus more on management and control of these risks, with the aim of being in control concerning the realisation of EUR's strategic ambitions.

Faculties and professional services report on the key risks in their budgets. The goal is to move risk management forward by 2023. In addition to continuously conducting the risk dialogue with the units at the tactical level and with the Board at the strategic level, the aim is to also further professionalise the monitoring of progress in planning & control as from 2023. Progress on risks and measures is reported in the periodic reports. 

Supervisory body reporting

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.

Remuneration of directors

The remuneration of the individual members of the Board of Trustees and the Supervisory Board is accounted for in EUR's financial statements, and is in line with the accountability requirement pursuant to the Annual Reporting on Education Regulations.

Accounting for expense claims of Board members 2021

The letter from the State Secretary of OCW of 25 November 2011 sets out agreements regarding the transparency of Board members’ expense claims. The Board members' 2021 expense claims are presented below.

The financial statements show the amounts claimed by the Trustees, in accordance with the format required by the Secretary of State. Expense claims are defined by the Secretary of State as reimbursements for costs incurred or services rendered, which have been self-declared to EUR by the individual Trustees. The table below specifies the expense claims for each Board member.

table 6.8

  prof.dr.F.A. van der Duijn Schouten prof. dr. H. Brinksma dr. E.M.A. van Schoten RA prof. dr. A.L. Bredenoord
Expense allowance € 4.872 € 24.496 € 6.496 € 1.624
Representation allowance - - - -
Travel costs Netherlands - € 6.798 € 5.693 € 1.635
Travel costs abroad - - - -
Other costs € 23 € 198 € 124 € 23
Total € 4.895 € 31.492 € 12.313 € 3.282

Transparency Memorandum

The 2003 memorandum 'Clarity in the Funding of Higher Education' and the 2004 supplementary memorandum on the subject are intended to provide clarity to funded universities and Universities of Applied Sciences on the interpretation and application of the existing funding rules for the counts of the funding parameters from 1 October 2003 and subsequent years. These notes cover the following topics:

1. Outsourcing education;

2. Investing public funds in private activities;

3. Granting exemptions;

4. Funding for foreign students;

5. Tuition not paid by student;

6. Students take modules of courses;

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

8. Funding for customised curriculums;

9. Funding for arts education;

10. Number of students to be counted for funding purposes.

The following is an explanation of the themes, focusing on the situation at EUR at the closing date of 2021.

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.

Progress on implementation of public-private policy rules

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).

Strategie24

With the mission 'Creating positive social impact’, EUR puts its ambition into practice: to determine solutions to complex social issues based on our responsibility and unique profile of disciplines. The launch of Strategy24 in September 2019 marked the start of a new phase, that of strategy implementation. The first implementation year in 2020 focused on getting the initiatives up and running and on organising the programme organisation. In 2021, the first visible results followed, many of which were completed in co-creation and collaboration with the EUR Community.

Many steps have been taken within the six project portfolios of Fostering Societal Impact, Excellent Academic Research, Sustainable Development, Being an Erasmian and Stepping up Professional Services.

Examples of results within the impact portfolio include the decision to establish Erasmus Enterprise as a separate entity, with the aim of building a EUR-wide ecosystem for entrepreneurship. In addition, setting up and launching the Design Impact Transition platform served as a basis for interdisciplinary collaboration for research and education among faculties in the fields of design, transition and sustainability. Moreover, an important precondition for accommodating impact at EUR has been fulfilled by the creation of the EUR-wide vision for Recognition and Appreciation, which was written after intensive collaboration among the faculties.

In the context of the goals on excellent academic research, the Open and Responsible Science programme has been highlighted by appointing a new academic lead. In addition, major steps have been taken in the context of the partnership with Erasmus MC and TU Delft. Interdisciplinary cooperation is becoming possible within the themes Resilient Delta, Health & Technology, Al, Data & Digitisation and the programmes Healthy Start and Pandemic and Disaster Preparedness Centre.

An academic lead has also been appointed for Erasmian values, with the task of embedding the values in the organisation.

The importance of the sustainability portfolio did not wane in the EUR community in 2021. It resulted in additional funds for the top 11 most urgent measures within the sustainability programme.

EUR was also active within Stepping Up Professional Services. With two Open Calls in 2021, this programme managed to generate a lot of attention and project proposals for the further development of its own services.

In addition to substantive progress, the programme concentrated important preconditions, such as developing and streamlining communication and building a solid community. Among other things, this resulted in the EUR Community Day for all employees of strategic initiatives. At the management level, the organisation of the Top Management Days, both live and digital, continued unabated, combined with a strong focus on leadership development to realise the strategy.

Strategic initiatives were also hampered by the COVID-19 pandemic in 2021. In 2020, there were some cautiously optimistic requests for budget rollovers. In 2021, the final conclusion was that the underspending would not be spent retroactively. This underspending is not due to any specific project or portfolio. It can be explained primarily by delays in recruitment and not having incurred costs budgeted for events and meetings. The sustainability portfolio is an exception. With the publication of the 'Feasibility Analysis Sustainability' in the second quarter, the BoT has made a commitment for this portfolio to realise the additional ambitions in this area. Due to scope change within projects and the BoT’s increasing ambitions in some strategic portfolios, such as sustainability and Open and Responsible Science, funds are expected to be fully spent in the coming years.

Spending strategy and strategic reserve 2021-2024

table 6.9

  Budget 2021 Actuals 2021 Budget 2022 Budget 2023 Budget 2024 Budget 2025
Strategic Budget 17.096 8.785 18.704 18.177 17.871 16.801
To be reallocated -2.096   -1.704 -1.177 -871 199
Grand total 15.000 8.785 17.000 17.000 17.000 17.000

Over the next few years, more was intentionally budgeted for expenditure on strategy implementation than is available based on the internal allocation model. Indeed, past experience shows that underspending is often an issue on individual programmes/projects/subprojects. Nevertheless, the internal agreement is to limit spending to € 17 million. This is also monitored by Programme Control.

Next chapter: 7. Quality Agreements

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