No-one knows exactly how universities spend their money. But questions are asked about how universities have financed huge growth in the amount of research produced over the past 15 years – and a new report by the Grattan Institute could have the answer.

It finds that, in 2012, universities spent at least $2 billion on research that was meant for teaching. This means that around one dollar in every five was spent on research rather than tuition.

Universities are not doing anything improper in spending money this way.

The current legislation pays universities on student numbers, but is silent on how exactly the money should be used.

But the absence of specific teaching funding makes it hard to ensure that any extra money intended to benefit students is actually spent on students.

So why are universities so focused on funding research? And is there a need to be more transparent about how universities spend their money?

How research is funded in universities

Government research programs finance only around half of university research spending in universities.

Some of the other half comes from non-government sources, including corporate sponsorship and donations.

By examining all revenue sources not specifically for teaching or research, such as investment earnings and profits on commercial operations, we were able to estimate the financial contribution teaching makes to research.

What our report shows is that at least $2bn must have come from teaching, as there were no other sources large enough to account for the nearly $10bn universities spent on research in 2012.

But exactly how much teaching surpluses contribute to research cannot be answered precisely.

Unlike countries such as the UK, Australia does not require universities to report spending on teaching and research.

Time for more transparency?

Universities face powerful internal pressures to spend more money on research.

The academics who say they would like more research time outnumber by more than four to one those who say they would like more teaching time.

An obsession with university leagues tables – which are largely based on research performance – further adds to the pressure to produce more research.

Universities are more likely to move up the league tables if they produce more quality research. This can also make their institution more attractive to students, both domestic and international, which then helps generate income via tuition fees.

Because of these research pressures, there is no guarantee that additional investment in universities aimed at students would be spent on teaching and student services.

The campaign for fee deregulation failed in part because too few people believed that students would benefit.

But public funding has the same issue. The money could be spent on research rather than teaching.

This may not matter if research improves teaching. Universities hope that it does, pointing to the idea of a teaching-research nexus, mutually beneficial links between the two activities.

Unfortunately, empirical studies find that research performance does not reliably predict teaching performance. Some good researchers are good teachers too, but typically they are no better than colleagues with weaker research records. A policy to improve teaching should target teaching directly, not via research.

In England, the government has plans to link each university’s performance on various teaching indicators to their right to increase fees. Whether this is feasible remains to be seen.

Teaching needs its share of money

We can start more modestly, by improving university financial information.

New Education Minister Simon Birmingham hinted at this in a speech last week. This means requiring universities to report on how much they spend on teaching, research and other university functions.

This information would give us more precise estimates of the financial relationship between teaching and research.

It could also be used to monitor how universities spend any future increases in funding, whether from student fees or the government.

This does not rule out financing research on a per student basis, but we need to be clear about what we are funding.

Teaching and research are both vital university activities, but with tensions as well as synergies.

The priority of research within universities means that teaching does not always get its share of time and money.

Any new funding system must ensure that money intended for teaching is spent on teaching.

Author Bio: Andrew Norton is Program Director, Higher Education, Grattan Institute