Funding and Financial Performance of Private Higher Education Institutions in Kuweit

Authors

Al-Atiqi, I.M. and M. El-Azma

Abstract

This paper presents an account of funding strategies and a financial analysis of private higher institutions in Kuwait. Generally speaking, the strategies adopted in this area have proven to be worthwhile the investment in them. In many cases the turnover of students and enrolment as measured by gross revenue, was better than expected. These findings should be approached with caution however since the leading institutions have not yet been challenged by notable local competition, and this is expected in the near future.

Assumptions

In the application of the finance performance model to private higher education institutions in Kuwait, five higher education institutions were granted licenses to provide degree-program educational services. These were:
Gulf University for Science and Technology (GUST)
The American University of Kuwait (AUK)
Australian College of Kuwait (ACK)
Kuwait-Maastricht Business School (KMBS)
Arab Open University (AOU)
Each institution was required to submit a detailed technical and economic feasibility study, in order to demonstrate the economic and financial viability of the project. The proposed plan for the institution is subjected to a careful analysis by PUC through its standing committees before being granted approval. The following observations were made about the strategies of the five private institutions now operating in Kuwait:

Based on recent market studies for higher education in Kuwait, it is noticeable that the gap between supply from existing institutions, public or private, and total demand by high school graduates justifies private institutions. The gap is widening over time due to demographic factors
Programs of study currently offered by private institution tend to be concentrated in the liberal arts, business administration, and computer science and technology areas
Quality assurance of degree programs offered by private institutions is assured through the requirement imposed by PUC for institutional accreditation within two years of the starting date. Some institutions have plan additional institutional accreditation from international accrediting agencies
Association with a reputed university in through a joint degree agreement, or operating as a branch of this university, represent a market strategy by private institutions to differentiate their product. Operating as a branch of a foreign internationally recognized university gives the private institution the advantage of granting their graduates internationally recognized qualifications, thus enhancing the demand for their services (notably the case of KMBS)
Analysis of the fee structure of private institutions indicates that the variation in pricing educational services is limited (tuition fees per credit hour is around KD 130-160 for undergraduate degree programs). This suggests that private institutions in Kuwait have not yet considered pricing as a strategic tool for attracting students
It is noticeable that private institutions, by concentrating on liberal arts and business studies programs may reflect the strategy of these institutions to avoid the need for investing and providing finances for establishing degrees in engineering and medical sciences and similar programs which require relatively high costs
Private universities and colleges in Kuwait are required by Law 34 and its executive by-laws to have their annual financial reports audited by an external auditor, and approved for release by the board of trustees of the institution. External auditing is conducted according to international auditing standards by professionally qualified auditors. The following observations detail the technicalities of financial reporting by private institutions:

Financial statements for the institution, are usually extracted from the financial records of the parent company or headquarters, and in some cases without having a separate set of accounting records in accordance with generally accepted accounting principles. This phenomenon diminished in later years after intervention from the PUC encouraging more autonomy in financial records
Inter-company transactions among the institution and its parent company tend to be priced on the basis of management estimates and internal transfer pricing, without full disclosure of these bases, and usually without reference to approval by the board of trustees. PUC is looking to resolve this situation in the near future
Although the by-laws and accountability rules set forth by PUC clearly establish the importance of the role of Board of trustees in planning and approving dividend policy by the institution (or the management of fund transfer in the case of non-profit institution such as AOU), financial reporting by institutions gives little in the way of disclosing these policies and the bases for transfer of funds among the institution and its headquarter. This reflects a light touch monitoring from the PUC side
Accruals (differences between cash flows and accrual basis) play a limited role in the case of educational institutions in general (with the exception of depreciation and amortization charges for institutions with relatively high investments in plant assets and intangibles). This suggests that management manipulation of earnings measured through accruals is at minimum in these institutions, and thus represents higher quality of earnings
Disclosure of information in financial reports, though it follows international accounting standards, does not cover areas of significant importance to analyzing financial statements of educational institutions. Most of data needed for this purpose is available from the internal information system of the institutio, as well as from budgetary planning and control system This suggests that PUC, as the regulatory and governing agency, may seek to reinforce its accountability and governance rules through additional disclosure requirements from private institutions.

Conclusions


The continued operation of governance actions by the Private Universities Council (PUC), should be considered crucial to the continued positive development of private higher education institutions in Kuwait
This accounting analysis show that disclosure procedures are still in an evolutionary phase though this is improving in transparency as governance activity is enforced. This should therefore be continued
The results of this financial assessment should be used as a basis for policy decisions taken by the Private Universities Council in Kuwait (PUC), which represents the regulatory body for these entities
The positive results obtained by these private universities should be approached with caution as they have not yet been challenged by significant local competition, as this is likely to happen in the near future continual monitoring is recommended

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