Part 7: Administration and monitoring of the Māori Education Trust Scholarships

• Background
• Process followed by the Māori Education Trust
• Our findings and conclusions

Background

7.1
The Trust provides a range of scholarships funded from bequests, private sector donations and income generated from its investment portfolio (including 2 dairy farms). The Crown also provides further funding by way of a subsidy through Vote: Education.

7.2
The Crown contributes up to $664,000 each year to the Trust, for distribution through the Trust scholarships listed in Appendix 3 of the scholarships contract between the Ministry and the Trust. The Trust scholarships that can be funded from the subsidy are listed in Appendix 2 of this report (see page 43).

7.3
The level of Crown subsidy is calculated with reference to certain qualifying income generated by the Trust. The scholarships contract provides for a ‘dollar for dollar’ subsidy to be paid on “devises, bequests and other contributions and gifts to the Trust of money, land and other property.”

7.4
Any qualifying non-subsidy income in excess of $664,000 can be carried forward to a future period and then used to claim the subsidy.

Process followed by the Māori Education Trust

7.5
The Trust offers a number of its own scholarships. Only some of these are listed in Appendix 3 of the scholarships contract with the Ministry and are therefore eligible to be funded from the Crown subsidy. The Trust is required to seek Ministry approval to change the specific scholarships to which the Crown subsidy is applied.

7.6
The process for administering applications for the Trust’s own scholarships is the same as outlined in Part 4 for Māori and Polynesian Scholarships for Higher Education, with the exception that the Trust does not need to obtain approval from the Ministry to award its own scholarships to students.

Our findings and conclusions

Crown subsidy

7.7
The Ministry has considered, at various stages, whether particular income received by the Trust (and its predecessor, the Māori Education Foundation) should be eligible to attract the subsidy.

7.8
For example, in 1991 the Ministry did not allow the Māori Education Foundation to claim the subsidy in relation to Hillary Commission grants. The Ministry’s decision was based on the view that the Crown funded these grants, and that it would be inappropriate for that income to attract further Crown funding. Similarly, in 1992 the Ministry did not allow the subsidy to be claimed in relation to a GST refund received by one of the Foundation farms, or joint initiatives entered into where the Foundation was recovering part of its costs from a third party.

7.9
The Ministry’s practice, however, has not been consistent. In subsequent years, the Trust received significant funding from public entities (Lottery Grants Board and the Health Funding Authority). The subsidy was paid on these sources of income.

7.10
In 2001, a member of the Ministry’s finance team prepared a memorandum that queried whether the subsidy should be claimed on certain items, including share bonus issues and farm income. We were unable to find any documentation that the Ministry properly examined these queries, or that a decision was made.

7.11
In our view, the scholarships contract is poorly drafted and inconsistent in respect of the basis of the Trust’s entitlement to claim the subsidy. One part of the scholarships contract states that the Trust is entitled to claim a subsidy of up to $664,000 each year based on the Trust’s expenditure on certain scholarships in the previous financial year.

7.12
Another part of the scholarships contract refers to the Trust’s entitlement to claim a subsidy based on qualifying income (as described in paragraph 7.3 above). The latter reference is consistent with a Cabinet decision on a purchase agreement with the Trust following its establishment, and with the wording of the former Māori Education Foundation Act 1961.

7.13
Furthermore, the Ministry should define the type of income that qualifies for the subsidy. For example, based on the scholarships contract, the subsidy is not payable on the Trust’s income from its farms. However, in the Ministry’s view, it is less clear that the 1994 Cabinet paper excludes such income.

Matching and spending the subsidy income

7.14
Staff of the Commission had interpreted the scholarships contract as requiring the Trust to match the amount of subsidy income spent on the scholarships (listed in Appendix 3 to the scholarships contract) with an equivalent amount generated from non-subsidy income sources. However, an opinion prepared by the Ministry’s legal team on this matter concludes that the scholarships contract only requires the Trust to spend the subsidy income on named scholarships.

7.15
In our view, the scholarships contract requires the Trust to spend subsidy income on those scholarships listed in Appendix 3 of the contract. It does not require the Trust to match the subsidy income spent on scholarships with nonsubsidy income. Rather, it is the terms and conditions attached to bequests, gifts or similar contributions that govern how the Trust spends such ‘donated’ income (which triggers the subsidy).

7.16
We analysed the subsidy income received by the Trust, and expenditure against the scholarships listed in Appendix 3 to the contract, using information contained in the Trust’s annual financial statements. The 2003 figures were obtained from the Trust’s financial records (there are no audited financial statements for 2003 yet). Between 1994 and 2003, the Trust has met its obligations in respect of the subsidy by having awarded scholarships (in relation to schemes listed in Appendix 3 of the contract) to at least the value of the Crown subsidy.

7.17
The contract requires the Trust to provide the Ministry with a similar analysis. We found that this information had been submitted for only 5 of the years since 1994. In 3 of those years, payments were reported as being made against 3 scholarship schemes that did not appear on Appendix 3 of the contract. This is a breach of the scholarships contract.

7.18
The Trust’s reporting against the contract did not always address all of the reporting requirements, and, most particularly, its milestone reports did not clearly outline its use of the Crown subsidy.

GST on subsidy

7.19
The Trust had returned GST output tax on the subsidy income received from the Ministry. Given that the subsidy is appropriated as a Benefit and Other Unrequited Expense, and not for the production of an output, the GST should not have been returned.