The ÖйúAƬ Funding Council for England has said that a government requirement that it cut its administrative costs will threaten the council's strategic objectives.

The warning is made in a Hefce report, and relates to a 5 per cent cut that has been demanded from next year by the Department for Innovation, Universities and Skills.

The Hefce report says: "The Comprehensive Spending Review restated the intention that administrative budgets across central and local Government should be reduced by 5 per cent, year on year, in real terms.

"Our view remains that reductions at this level would prevent the council from delivering its strategic objectives," it says.

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The funding council outlined its strategic aims in a five-year plan, which was updated last year.

The aims include: "enabling excellence"; sustaining a high-quality ÖйúAƬ sector; widening participation and fair access; boosting excellence in learning and teaching; enhancing excellence in research; and increasing the contribution of ÖйúAƬ to the economy and to wider society.

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However, the Hefce report also identifies a number of strategic risks, including the danger that the council would not secure sufficient public funds to be able to fully deliver its aims.

In a bid to ensure that the required cost-cutting is as painless as possible, the funding council has set up a resourcing advisory group headed by Ed Smith, chairman of Hefce's leadership, governance and management committee.

The report says that an analysis of the funding council's activities has already been carried out to identify potential savings, and its performance is being compared with other sectors.

The group is due to make another report to the Hefce board this month.

The budget cuts are set against a backdrop of a ?1.5 billion annual "value for money" saving that is being sought across the innovation, universities and skills sector by 2010-11.

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As reported by Times ÖйúAƬ last week, the DIUS is yet to release details of where ?700 million of the mandated ?1.5 billion savings will be found.

The situation has prompted David Willetts, the Shadow Universities Secretary, to claim that the department "does not have the faintest idea" how it will achieve these budgetary aims.

- Hefce has also revealed financial worries of its own making, with a newly published report revealing that two "internal control weaknesses" were identified in 2007.

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The audit committee's report of 3 October, released online this week, says: "The head of finance responded quickly to two internal control weaknesses ... and has asked for an internal audit review."

Despite the obvious potential for embarrassment for a body charged with ensuring that universities spend their public money carefully, the funding council insists that no funds were lost as a result of the problems, which Hefce said had since been fully addressed.

A Hefce spokesman explained: "We found certain weaknesses in financial controls that resulted in errors in a small number of payments.

"These did not result in any loss of funds to the council. Prompt action was taken, and the controls have subsequently been strengthened."

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john.gill@tsleducation.com.