Closer collaboration is a key aim of the assembly government
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Universities in Wales are being urged to work more collaboratively.
Jeremy Colman, by the auditor general for Wales, said working closer could yield savings, widen teaching provision and increase research capacity.
In a report published on Wednesday, Mr Colman said barriers to collaboration, like competition between universities, needed to be removed.
Higher Education Wales (HEW) said the country had seen more collaborative projects than any other part of the UK.
Collaboration between universities in Wales is a key aim of the assembly government.
But the report concludes that although universities in Wales are working successfully together on a number of projects, the full potential for collaboration in higher education had not yet been achieved.
By March 2008, the assembly government had provided over £38m from its reconfiguration and collaboration fund to support 25 higher education projects - 12 involving mergers and 13 involving other collaborations.
Three substantial mergers have taken place including one between Cardiff university and the University of Wales College of Medicine in 2004.
But Mr Colman's report found there was a lack of understanding in some areas of how the assembly government's fund operates and the characteristics of successful candidates.
"While some universities are working together well, the sector as a whole is still off the mark in terms of realising all the potential benefits," said Mr Colman.
"The current economic climate is likely to strengthen the case for effective collaboration, and the assembly government and the Higher Education Funding Council for Wales need to explore all avenues of encouragement and support and to overcome the barriers to collaboration that still exist."
Greg Walker, the acting director of HEW said there had been 20 collaborative projects over the course of five years among Welsh universities.
"There are more such projects in the pipeline in Wales as this is an agenda that is gathering pace.
"These collaborative efforts are not limited to Wales - our universities have many fruitful research partnerships with universities across the UK and around the globe."
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