Part 2: Results of tertiary education institution audits for 2010

Education sector: Results of the 2010/11 audits.

In this Part, we briefly discuss the current operating environment for tertiary education institutions (TEIs), compare TEIs' financial information, and set out the results of our annual audits of TEIs for 2010.

The financial year for TEIs ends on 31 December, to align with their academic teaching year.

Recent changes to the operating environment

In December 2009, the Government released its Tertiary Education Strategy 2010–2015 (the Strategy).5 The Strategy states that the Government's continuing reform of the TEI sector is focused on making tertiary education more relevant and more efficient, so that it meets the needs of students, the labour market, and the economy.

The Strategy outlines the Government's priorities for the five-year period and how it will achieve them. It states that the global economic downturn and recession in New Zealand have influenced the Government's mid-term priorities for tertiary education. According to the Strategy, those priorities are:

  • increasing the number of young people (aged under 25) achieving qualifications at levels four and above, particularly degrees
  • increasing the number of Māori students enjoying success at higher levels
  • increasing the number of Pasifika students achieving at higher levels
  • increasing the number of young people moving successfully from school into tertiary education
  • improving literacy, language, and numeracy and skills outcomes from levels one to three study
  • improving the educational and financial performance of providers
  • strengthening research outcomes.

In the current environment, the Government has been moving funding in the tertiary education sector away from "low-quality qualifications" (such as those with low completion rates or poor educational or labour market outcomes) to fund growth in "high-quality qualifications" that "benefit New Zealanders" and contribute to economic growth.

To achieve the short-term priorities and long-term direction, the Government wants the tertiary education sector to:

  • target priority groups;
  • improve system performance; and
  • support high-quality research that helps to drive innovation.

Tertiary education providers are expected to manage costs, seek efficiency gains, ensure that the qualifications they offer best meet student and employer needs, and explore additional sources of revenue. A major driver to improve the efficiency of public investment in tertiary education is to improve course and qualification completion rates.

In March 2010, the Government announced that it would introduce performance-linked funding to the tertiary education system from 2011.

Also of note is that Tairawhiti Polytechnic has merged with the Eastern Institute of Technology, and Telford Rural Polytechnic with Lincoln University. The disestablishment of both Polytechnics was effective from 1 January 2011.

Tertiary education institutions' financial performance in 2010


TEIs receive funding from four sources:

  • Government tuition funding (called Student Achievement Component or SAC funding);
  • student tuition fees;
  • research income; and
  • other sources (such as interest, dividends, and sub-contracting income).

Total revenue in 2010 for the sector amounted to $4.4 billion (see Figure 1). Of this:

  • 42% ($1.883 billion) was from Government tuition funding (that is, SAC funding);
  • 27% ($1.196 billion) was from student tuition fees;
  • 18% ($740 million) was from research income; and
  • 13% ($598 million) was from other sources.

Total government funding amounted to 49.7% of total 2010 revenue. This included Performance-Based Research Fund or PBRF funding of $242 million and TEC-provided "off-plan funding" (that is, funding not received through an investment plan) of $62 million. International student fees made up 30% ($362 million) of all student fees earned during the year, while external research revenue accounted for 38% ($285 million) of total research revenue.

All data in the following figures are sourced from the Tertiary Education Commission (TEC) and are as at 31 December.

Figure 1
Total revenue for tertiary education institutions, 2008 to 2010

Universities 2,795 2,961 3,125
Institutes of technology and polytechnics 942 1,021 1,089
Wānanga 172 195 204
Total 3,910 4,177 4,417

Note: Figures do not add up exactly due to rounding.

Figure 2 sets out TEIs' revenue sources for 2010 from each source as a percentage of total revenue.

Figure 2
Funding sources, as a percentage of total revenue, for 2010

Tuition funding*
Student fees
Research income**
Auckland University of Technology 44.1 38.9 5.7 11.3
Lincoln University 21.5 19.7 34.4 24.3
Massey University 34.4 28.8 22.0 14.7
University of Auckland 30.5 22.8 32.9 13.8
University of Canterbury 36.7 33.6 16.6 13.1
University of Otago 35.4 22.6 24.5 17.4
University of Waikato 33.2 31.4 20.2 15.2
Victoria University of Wellington 37.1 32.4 17.3 13.2
Aoraki Polytechnic 73.5 10.3 0.0 16.2
Bay of Plenty Polytechnic 64.2 24.6 0.0 11.2
Christchurch Polytechnic Institute of Technology 54.1 32.8 0.8 12.3
Eastern Institute of Technology 60.3 27.7 1.3 10.8
Manukau Institute of Technology 56.5 32.6 0.3 10.5
Nelson Marlborough Institute of Technology 31.6 44.9 0.1 23.4
Northtec 77.5 17.0 0.2 5.4
Otago Polytechnic 55.9 29.7 1.2 13.2
Southern Institute of Technology 70.5 20.7 0.0 8.9
Tai Poutini Polytechnic 79.2 16.7 0.0 4.1
Tairawhiti Polytechnic 79.9 13.9 0.0 6.2
Telford Rural Polytechnic 78.0 7.0 0.0 15.0
The Open Polytechnic of New Zealand 71.9 25.1 0.4 2.6
Unitec Institute of Technology 54.3 35.7 2.3 7.7
Universal College of Learning 60.3 28.3 0.0 11.4
Waiariki Institute of Technology 61.7 30.3 0.0 8.0
Waikato Institute of Technology 54.9 29.9 0.7 14.4
Wellington Institute of Technology 63.0 25.2 0.0 11.8
Western Institute of Technology at Taranaki 69.9 21.8 0.0 8.3
Whitireia Community Polytechnic 47.6 44.5 0.3 7.6
Te Wānanga o Aotearoa 85.3 3.6 2.1 9.1
Te Wānanga o Raukawa 57.5 25.7 0.0 16.9
Te Whare Wānanga o Awanuiārangi 56.9 6.9 8.0 28.2

* Government tuition funding excludes PBRF funding and off-plan funding from the TEC.

** Includes PBRF funding.

Surplus income

A 3% surplus is one of the measures the TEC uses to assess the financial viability of a TEI. In arriving at these figures, the TEC has excluded certain expenses (such as restructuring expenses and expenses associated with the Canterbury earthquakes) that are not expected to recur.

Figure 3 sets out each TEI's surplus for 2010 compared with 2009.

Figure 3
Surplus, as a percentage of total revenue, for 2009 and 2010

Auckland University of Technology 7.2 3.1
Lincoln University -4.1 -5.2
Massey University 2.4 0.6
University of Auckland 3.1 3.4
University of Canterbury 4.0 3.2
University of Otago 5.9 5.6
University of Waikato 4.2 5.2
Victoria University of Wellington 4.8 4.1
Aoraki Polytechnic 7.1 15.8
Bay of Plenty Polytechnic 11.3 19.5
Christchurch Polytechnic Institute of Technology 11.1 10.8
Eastern Institute of Technology 8.2 5.1
Manukau Institute of Technology 3.0 4.6
Nelson Marlborough Institute of Technology 9.7 3.3
Northtec 7.5 4.9
Otago Polytechnic 4.0 1.4
Southern Institute of Technology 13.1 8.1
Tai Poutini Polytechnic 2.3 1.4
Tairawhiti Polytechnic 6.4 16.5
Telford Rural Polytechnic 8.0 6.8
The Open Polytechnic of New Zealand 10.8 5.2
Unitec Institute of Technology 6.4 6.4
Universal College of Learning 11.5 8.6
Waiariki Institute of Technology 16.0 10.3
Waikato Institute of Technology 8.6 2.3
Wellington Institute of Technology 6.7 9.2
Western Institute of Technology at Taranaki 11.7 7.2
Whitireia Community Polytechnic 6.1 3.0
Te Wānanga o Aotearoa 4.1 5.4
Te Wānanga o Raukawa 21.3 17.1
Te Whare Wānanga o Awanuiārangi 13.1 9.6

The average surplus for universities amounted to 4.0% (2009: 3%).

The average result for institutes of technology and polytechnics (ITPs) was 8%, which is an increase on the 6.9% for 2009. The number of ITPs below the 3% mark decreased from three in 2009 to one in 2010.

Personnel expenditure

Personnel account for a major portion of TEIs' expenditure. It is important to note that comparing what TEIs spend on personnel is difficult because the items included can vary. For example, some TEIs include the costs of contractors in their personnel expenditure while others disclose contractors as a separate item.

Figure 4 shows each TEI's personnel costs as a percentage of total expenditure and total revenue.

Figure 4
Personnel costs as a percentage of expenditure and revenue, for 2009 and 2010

Auckland University of Technology 62.5 63.9
Lincoln University 54.9 54.0
Massey University 59.1 59.0
University of Auckland 55.4 54.6
University of Canterbury 62.2 62.2
University of Otago 61.9 61.3
University of Waikato 60.4 59.8
Victoria University of Wellington 56.9 57.1
Aoraki Polytechnic 41.2 39.4
Bay of Plenty Polytechnic 63.7 60.9
Christchurch Polytechnic Institute of Technology 63.1 62.6
Eastern Institute of Technology 62.0 63.3
Manukau Institute of Technology 67.8 66.1
Nelson Marlborough Institute of Technology 31.8 33.7
Northtec 55.1 56.3
Otago Polytechnic 60.6 61.5
Southern Institute of Technology 42.6 42.3
Tai Poutini Polytechnic 63.2 58.4
Tairawhiti Polytechnic 49.4 56.7
Telford Rural Polytechnic 31.0 29.1
The Open Polytechnic of New Zealand 52.9 56.3
Unitec Institute of Technology 63.0 64.0
Universal College of Learning 57.7 57.9
Waiariki Institute of Technology 64.2 63.5
Waikato Institute of Technology 58.3 54.6
Wellington Institute of Technology 56.6 58.0
Western Institute of Technology at Taranaki 53.1 49.1
Whitireia Community Polytechnic 54.5 51.9
Te Wānanga o Aotearoa 54.6 52.5
Te Wānanga o Raukawa 56.2 57.9
Te Whare Wānanga o Awanuiārangi 45.0 47.6

Depreciation costs

With an asset base of more than $7 billion, the annual depreciation charge for TEIs is significant. This requires a substantial annual investment on the part of institutions from their operating income and other sources.

Figure 5 shows depreciation as a percentage of total expenditure for each TEI. Figure 6 shows the ratio of capital expenditure to the depreciation charge.

Figure 5
Depreciation costs as a percentage of total expenditure, for 2009 and 2010

Auckland University of Technology 10.9 10.4
Lincoln University 8.8 10.0
Massey University 10.0 9.3
University of Auckland 10.3 12.3
University of Canterbury 9.6 10.0
University of Otago 8.6 8.7
University of Waikato 7.6 8.0
Victoria University of Wellington 9.8 8.7
Aoraki Polytechnic 7.0 6.5
Bay of Plenty Polytechnic 9.4 8.7
Christchurch Polytechnic Institute of Technology 7.5 7.8
Eastern Institute of Technology 8.8 8.3
Manukau Institute of Technology 8.0 8.0
Nelson Marlborough Institute of Technology 5.9 5.6
Northtec 6.8 6.6
Otago Polytechnic 8.8 7.4
Southern Institute of Technology 6.3 6.6
Tai Poutini Polytechnic 6.8 6.5
Tairawhiti Polytechnic 4.8 4.8
Telford Rural Polytechnic 4.0 3.5
The Open Polytechnic of New Zealand 5.3 5.7
Unitec Institute of Technology 8.1 8.2
Universal College of Learning 9.8 8.4
Waiariki Institute of Technology 7.5 6.9
Waikato Institute of Technology 6.9 9.3
Wellington Institute of Technology 10.0 11.5
Western Institute of Technology at Taranaki 7.8 6.9
Whitireia Community Polytechnic 6.2 7.6
Te Wānanga o Aotearoa 4.4 5.0
Te Wānanga o Raukawa 7.7 7.2
Te Whare Wānanga o Awanuiārangi 4.4 3.1

Figure 6
Ratio of capital expenditure to depreciation, for 2010

Auckland University of Technology 0.92
Lincoln University 0.81
Massey University 0.86
University of Auckland 1.89
University of Canterbury 1.36
University of Otago 1.50
University of Waikato 1.76
Victoria University of Wellington 1.64
Aoraki Polytechnic 0.95
Bay of Plenty Polytechnic 2.52
Christchurch Polytechnic Institute of Technology 1.08
Eastern Institute of Technology 2.06
Manukau Institute of Technology 1.10
Nelson Marlborough Institute of Technology 3.41
Northtec 0.76
Otago Polytechnic 1.03
Southern Institute of Technology 2.85
Tai Poutini Polytechnic 2.45
Tairawhiti Polytechnic 1.66
Telford Rural Polytechnic 1.24
The Open Polytechnic of New Zealand 1.79
Unitec Institute of Technology 1.43
Universal College of Learning 0.91
Waiariki Institute of Technology 1.08
Waikato Institute of Technology 4.50
Wellington Institute of Technology 0.78
Western Institute of Technology at Taranaki 0.71
Whitireia Community Polytechnic 0.79
Te Wānanga o Aotearoa 1.91
Te Wānanga o Raukawa 1.97
Te Whare Wānanga o Awanuiārangi 3.39

For most TEIs, the level of capital expenditure exceeded the depreciation charge for the year (that is, the ratio was greater than 1). This shows that the level of investment continues to be high. In interpreting these ratios, it is important to note that some TEIs might have recently completed a large capital development programme, giving rise to higher expenditure that might not be repeated in later years.

We also note that, in 2009, the average ratios of capital expenditure to depreciation exceeded 1 for all three groups of TEIs.

Student-to-staff ratios

Student-to-staff ratios can be indicative of efficiencies at a TEI. However, these ratios will vary depending on the courses that a TEI offers. TEIs that offer skills training would be expected to have a higher student-to-staff ratio than research-focused TEIs.

Figure 7 provides the ratios during 2010 for total staff and academic staff.

Figure 7
Student-to-staff and student-to-academic staff ratios, for 2010

Number of students* for every:

staff member academic staff member
Auckland University of Technology 9.8 19.7
Lincoln University 4.6 13.8
Massey University 6.6 17.5
University of Auckland 6.9 16.0
University of Canterbury 7.8 20.4
University of Otago 5.3 16.3
University of Waikato 6.8 18.1
Victoria University of Wellington 9.2 20.1
Aoraki Polytechnic 15.6 37.2
Bay of Plenty Polytechnic 9.0 18.4
Christchurch Polytechnic Institute of Technology 8.3 15.6
Eastern Institute of Technology 8.4 16.0
Manukau Institute of Technology 9.0 17.0
Nelson Marlborough Institute of Technology 13.2 24.8
Northtec 10.2 17.3
Otago Polytechnic 8.2 19.2
Southern Institute of Technology 15.5 30.1
Tai Poutini Polytechnic 12.3 19.1
Tairawhiti Polytechnic 9.3 16.3
Telford Rural Polytechnic 10.7 13.4
The Open Polytechnic of New Zealand 15.9 56.1
Unitec Institute of Technology 9.4 17.7
Universal College of Learning 9.2 18.7
Waiariki Institute of Technology 11.4 21.9
Waikato Institute of Technology 10.5 18.8
Wellington Institute of Technology 11.0 21.5
Western Institute of Technology at Taranaki 12.1 23.5
Whitireia Community Polytechnic 10.3 18.3
Te Wānanga o Aotearoa 20.5 46
Te Wānanga o Raukawa 7.2 19
Te Whare Wānanga o Awanuiārangi 21.2 45

* Equivalent full-time students.

Working capital (current) ratios and "quick ratios"

Two measures are used to determine the ability of an organisation to meet its short-term commitments: working capital ratios and "quick ratios". The working capital ratio measures assets available to settle any current liabilities. A ratio of $2 of current assets for every $1 of current liabilities is considered acceptable in general financial management terms.

Figure 8 sets out TEIs' working capital ratios at the end of 2009 and 2010.

Of the 31 TEIs, 20 were unable to attain a 2:1 ratio and 10 had less than $1 of current assets available for every dollar of current liabilities.

The second ratio is known as the "quick ratio", which is the amount of cash available to settle current liabilities. A ratio of $1 of cash for every $1 of current liabilities is considered acceptable in general financial management terms.

Using only cash resources (which includes short-term investments), the "quick ratios" for the TEIs as at the end of 2010, as calculated by the TEC,6 are set out in Figure 9. This calculation is not the conventional ratio used by accountants. We are interested in any debate on the usefulness or otherwise of this "quick ratio" in the tertiary education sector.

Figure 8
Current assets for every $1 of current liabilities, for 2009 and 2010

Auckland University of Technology 0.35 0.18
Lincoln University 1.48 1.62
Massey University 1.42 1.18
University of Auckland 0.63 0.86
University of Canterbury 2.12 2.06
University of Otago 0.96 0.89
University of Waikato 0.79 0.71
Victoria University of Wellington 0.98 1.02
Aoraki Polytechnic 9.13 10.61
Bay of Plenty Polytechnic 0.98 1.01
Christchurch Polytechnic Institute of Technology 1.85 1.73
Eastern Institute of Technology 1.95 1.77
Manukau Institute of Technology 2.45 2.45
Nelson Marlborough Institute of Technology 1.47 1.35
Northtec 2.58 1.64
Otago Polytechnic 0.19 0.36
Southern Institute of Technology 5.24 4.64
Tai Poutini Polytechnic 1.80 2.19
Tairawhiti Polytechnic 0.48 1.04
Telford Rural Polytechnic 8.18 7.43
The Open Polytechnic of New Zealand 1.94 1.87
Unitec Institute of Technology 0.24 0.27
Universal College of Learning 1.05 0.83
Waiariki Institute of Technology 2.93 2.27
Waikato Institute of Technology 0.47 0.63
Wellington Institute of Technology 1.46 1.48
Western Institute of Technology at Taranaki 2.02 1.01
Whitireia Community Polytechnic 1.33 1.08
Te Wānanga o Aotearoa 2.63 2.32
Te Wānanga o Raukawa 24.34 18.63
Te Whare Wānanga o Awanuiārangi 9.09 2.56

Figure 9
"Quick ratio" of cash available for every $1 of current liabilities, for 2009 and 2010

Auckland University of Technology 0.91 0.36
Lincoln University 3.26 3.80
Massey University 4.57 3.58
University of Auckland 0.68 0.91
University of Canterbury 4.63 6.32
University of Otago 2.59 2.43
University of Waikato 3.05 3.12
Victoria University of Wellington 1.33 1.38
Aoraki Polytechnic 18.16 14.42
Bay of Plenty Polytechnic 3.50 2.48
Christchurch Polytechnic Institute of Technology 3.47 3.42
Eastern Institute of Technology 4.87 4.02
Manukau Institute of Technology 4.73 4.55
Nelson Marlborough Institute of Technology 5.74 6.39
Northtec 4.10 3.06
Otago Polytechnic 0.28 0.54
Southern Institute of Technology 45.82 72.92
Tai Poutini Polytechnic 2.30 3.40
Tairawhiti Polytechnic 0.57 0.91
Telford Rural Polytechnic 9.06 8.31
The Open Polytechnic of New Zealand 7.93 9.10
Unitec Institute of Technology 0.38 0.41
Universal College of Learning 2.61 1.80
Waiariki Institute of Technology 13.72 5.56
Waikato Institute of Technology 0.57 0.72
Wellington Institute of Technology 4.13 4.67
Western Institute of Technology at Taranaki 3.23 1.79
Whitireia Community Polytechnic 7.18 5.43
Te Wānanga o Aotearoa 4.39 3.98
Te Wānanga o Raukawa 50.83 32.96
Te Whare Wānanga o Awanuiārangi 21.36 14.26

Six of the 31 TEIs had less cash resources available than total current liabilities, which would have required them to liquidate long-term investments to settle current obligations. However, the "quick ratio" is based on the year-end statement of financial position. TEIs receive additional cash flows at the start of a new academic year (or would have a borrowing facility in place to provide additional cash resources).

Term debt levels

Term debt levels at TEIs are conservative. About one-third of TEIs carry long-term debt on their statements of financial position and, for each, it totals less than 10% of the TEI's asset base. Figure 10 shows debt as a percentage of total assets.7

Figure 10
Term debt as a percentage of total assets, for 2009 and 2010

Auckland University of Technology 6.46 9.94
Lincoln University - -
Massey University 2.22 2.28
University of Auckland 1.36 1.37
University of Canterbury 5.76 5.93
University of Otago - -
University of Waikato - 0.02
Victoria University of Wellington 5.82 5.29
Aoraki Polytechnic - -
Bay of Plenty Polytechnic 0.06 1.15
Christchurch Polytechnic Institute of Technology 1.87 3.43
Eastern Institute of Technology - -
Manukau Institute of Technology - -
Nelson Marlborough Institute of Technology - -
Northtec - -
Otago Polytechnic 0.11 3.68
Southern Institute of Technology - -
Tai Poutini Polytechnic 0.33 -
Tairawhiti Polytechnic - -
Telford Rural Polytechnic - -
The Open Polytechnic of New Zealand - -
Unitec Institute of Technology 0.53 4.43
Universal College of Learning 2.48 3.81
Waiariki Institute of Technology - -
Waikato Institute of Technology 7.67 2.66
Wellington Institute of Technology - -
Western Institute of Technology at Taranaki 8.80 9.32
Whitireia Community Polytechnic - -
Te Wānanga o Aotearoa - -
Te Wānanga o Raukawa - -
Te Whare Wānanga o Awanuiārangi - -

Audit results for 2010

We issue audit opinions for each TEI (usually referred to as "the parent accounts"), for each TEI subsidiary that is also a public entity, and for the combined entities (of the "parent" and its subsidiaries) that represent the TEI group (usually referred to as "the group accounts").

We issued unmodified audit opinions for all 31 TEI group accounts in 2010. This means that the financial statements that we audited complied with generally accepted accounting practice and fairly reflected each TEI group's financial position and the results of their operations and cash flows for the year ended 31 December 2010.

These audit opinions also mean that the performance information reported by the TEIs fairly reflects their service performance achievements, as measured against the performance targets adopted for the year ended 31 December 2010.

The unmodified audit opinions of three TEIs (University of Auckland, Tairawhiti Polytechnic, and Telford Rural Polytechnic) contained explanatory paragraphs.

We provide more detail about each of these "non-standard" audit reports in Part 4.

Audit timeliness

An important aspect of the performance of public entities is for them to issue audited financial statements within statutory time frames. We want those interested in the accountability of public entities to receive our audit assurance as soon as possible after the end of the financial year.

For the 2010 TEI audits, the statutory deadline (that is, when audit reports must be provided) was 2 May 2011. Audits of all but two of the 31 TEI group accounts were completed by this deadline.

In the main, it is the timeliness of TEI subsidiary audits that affects the audit arrears figures for TEIs. We asked auditors to work closely with TEIs during the 2010 audits to bring any public entity subsidiary audit arrears up to date and to ensure the timely completion of all TEI audits.

The Canterbury earthquakes caused delays to some audits in the TEI sector. Part 2 of our report, Central government: Results of the 2010/11 audits (Volume 1) outlines the effect of the earthquakes on audit work in the Canterbury region.

Focus in 2010 audits

Each year, we identify particular aspects to focus on during the audit. We discuss some of these below.

Reporting service performance from 2011

TEIs' statements of service performance (SSPs) report on their performance compared with the proposed outcomes described in their investment plans. The SSP requirement is set out in section 220(2B) of the Education Act 1989. Our audit work on the 2010 SSPs focused on:

  • determining whether the SSP fairly reflects performance against the performance measures and targets outlined in the investment plan at the start of the year; and
  • checking the reported levels of achievement for significant performance measures.

The TEC has introduced educational performance indicators (EPIs) for all TEIs to report against in 2011. In our 2010 annual audit work, we determined the readiness of TEIs to be able to report fairly against EPIs in 2011. Generally, we found that TEIs were adequately positioned to report against the EPIs in 2011.

In keeping with our interest in improving non-financial performance reporting in the public sector, we will apply our revised auditing standard to audits of TEIs' service reporting for periods starting on or after 1 January 2012. We discuss the implications of this in Part 3.

TEI group governance practices

During our 2010 audit, appointed auditors enquired about and documented the level of oversight that a TEI, both at governance and senior management level, had over its subsidiary entities in the TEI group. They also documented the processes that each TEI uses to satisfy itself as to the business need and viability of each TEI subsidiary. Appointed auditors identified the nature, frequency, and quality of any "upwards" reporting by TEI subsidiaries.

In our view, many TEIs need to improve their assessment of the business need for their subsidiaries, and their reporting about those subsidiaries. This would help to reduce costs for the sector.

Capital asset management

Capital asset management (CAM) is the process of achieving optimal whole-of-life effectiveness from assets at minimal cost. Where asset management is, or should be, a significant part of an entity's activities, the asset management process should be an important part of the entity's decision-making and management control environment.

TEIs own and manage a substantial portfolio of assets, mostly land and buildings. Total assets in the TEI sector in 2010 totalled $7.728 billion (2009: $7.538 billion).

Asset management continues to be a priority for central government entities, including TEIs. In line with the Treasury's work on a CAM framework for the state sector, the TEC has been working collaboratively with TEIs on a number of initiatives to encourage stronger capital asset management planning practices and to seek better information on TEIs' assets. As part of this, the TEC has been developing a standard for CAM practices across the tertiary education sector. A review of polytechnics was completed during 2010. Similar work will soon be carried out with wānanga and universities.

During the 2010 audit, our auditors mostly followed up on CAM issues raised in previous years. However, many audit teams identified CAM as a risk for the entity they were auditing. There is work under way in many TEIs to update their CAM policies and plans, but there is still more to be done for TEIs' CAM practices to meet standards of good public sector practice as defined by the Treasury. As such, and given the extent of capital investment taking place, capital asset management remains a significant area of our audit focus. We are mindful of the need to align our work in this area with that of other agencies.

Investment planning and future funding

Our auditors considered the validity or otherwise of the going-concern assumption given funding changes for TEIs. Our auditors noted that the broadening of revenue streams, generation of surpluses, and cost reductions were at the forefront of TEI management thinking. Although these areas remain major challenges for TEIs, our auditors were satisfied about the validity of the going-concern assumption for TEIs. We will continue to focus on this in future audits.

Summary and focus in 2011 audits

Our auditors will continue to consider the areas outlined above as part of our standard audit plan and process.

Ongoing policy changes in the tertiary education sector may further affect some TEIs' planning and future funding. Our auditors will continue to improve their understanding of the actions TEIs have taken, or plan to take, to respond to these changes, and to satisfy themselves of the validity of the going-concern assumption. Subsidiary entities can create additional compliance costs for the parent entity, and can place greater pressure on the parent entity to properly govern the group. We remain interested in seeing improvements in how TEI subsidiaries assess their business needs and report to their parent entities.

Non-financial performance reporting will be a particular focus for the 2011 annual audit of TEIs. This is because the Auditor-General's revised auditing standard will apply to audits of TEIs' service reporting from 1 January 2012 (see Part 3).

We are focusing on effective non-financial performance reporting because it should not only drive, and be driven by, effective performance management (that is, internal effectiveness and efficiency), but also influence how TEIs' services and outcomes are externally perceived and valued. Our work with TEIs is aimed at encouraging TEIs to adopt a positive, business improvement attitude to non-financial performance information and reporting. We see this as adding important value from the annual audit process. Our attention to non-financial performance information and reporting for TEIs also fits with the broader drive for cost effectiveness in the public sector.8

5: Ministry of Education, Tertiary Education Strategy 2010–2015, Wellington.

6: The TEC excludes some account balances from its calculation of the "quick ratio": current assets—prepayments, inventory, and other; current liabilities—employee entitlements, fees in advance, other funding in advance, trust current liabilities, and other.

7: The TEC calculates the debt equity ratio based on total debt to total debt plus equity.

8: Our views on the importance and the quality of performance information and reporting are set out in our June 2008 discussion paper, The Auditor-General's observations on the quality of performance reporting, which is available at

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