A failure to introduce suitable budgeting systems at Cambridge University has led to an anticipated deficit of �20m within three years, its watchdog warned.

In its annual report, the university's board of scrutiny calls for a "root and branch" review of costs and funding and "proper forecasts and budgets".

The warning comes after a computerised accounting system introduced at Cambridge cost more than �9m - almost twice the original budget - and was declared an "unmitigated" failure.

The failure to introduce budgeting systems is a contributory factor in the university's financial crisis

Board of Scrutiny, Cambridge University

The university said it was determined to address the shortcomings that were highlighted in a review carried out last year by two academics from outside the university.

Now the board of scrutiny warns that the method of forecasting used by the university to manage its finance is woefully inadequate.

"It is worth drawing attention to the inadequacy of this way of managing the university's finances - this extraordinary system of allocating resources is not budgeting," the board's report says.

"The board believes that the failure to introduce budgeting systems is a contributory factor in the university's financial crisis.

Deficit

"The projected deficit for the chest for 2002-03 is �11.6m and further deficits of �15.7m, �18m, and �20.5m are projected for the next three years.

"Taken together with the revised estimated deficit of �5.7m for 2001-02, this means that the chest, according to the council's calculations, will have drawn down �71.5m from the chest reserves over five years.

"If these were company accounts, such results would be called losses," the report says.

The board report notes that staff promotions at the university have not been cutback, costing the university �740,000 a year.

"We assume that this exception is aimed at achieving the retention and recruitment of academic staff," says the board.

Health and safety

The board urges the university council to carry out a detailed report on its estates strategy, including an assessment of the financial implications of its building programme.

It says that cutbacks to maintenance, equipment and furniture budgets have come at a time when fire, health and safety and environmental legislation was "increasingly subject to enforcement".

All UK universities are facing financial difficulties because government funding is insufficient to match universities increasing costs

Cambride University spokeswoman

"There is in the university already a higher rate of accidents reportable to the Health and Safety Executive involving students than there are at other universities," the board's report says.

"During the course of the year there have been HSE investigations into two serious accidents.

"Failure to comply with legislation can lead to prohibition notices, which could, in the worst case, lead to the termination of some research programmes.

"New legislation, with considerable cost implications, has been introduced, for example on the care of asbestos and a disability audit of 160 of the university's 300 buildings has identified �33.5m of work to be done."

Growing costs

Cambridge University said the increasing costs of keeping laboratories, libraries, museums, information technology and equipment up-to-date, together with expanding research activities had taken their toll on its coffers.

"All UK universities are facing financial difficulties because government funding is insufficient to match universities increasing costs - Cambridge is no exception," said a university spokeswoman.

Grants from the funding council had not kept pace with costs, the spokeswoman said.

"Staff of all categories are the lifeblood of the university. Successive pay settlements have not been fully funded by the government and are still below what staff deserve," she said.

"With student numbers and research activity constantly expanding, the university must look at ways to ensure that it raises the maximum amount of income for current and future needs and spends and invests as effectively as possible."