Results of the 2017 school audits

5 December 2018

Iona Holsted
Secretary for Education
Ministry of Education 
PO Box 1666
Wellington 6140

Tēnā koe Iona


Please find enclosed our report on the results of the 2017 school audits. There have been many positive developments in the school audit area since our last report. Thank you for helping to lead this work.

By the statutory deadline of 31 May 2018, 86% of the 2017 school audits were completed. This was an improvement on the 81% completed by 31 May the year before. The improvement can be attributed to good collaboration between your staff and my staff, enhanced guidance for schools from the Ministry of Education (the Ministry), and our joint focus on improving the school audit process.

I am also pleased with the Ministry’s proactive approach to improving school financial management practices. This includes the Finance 101 Workshops for School Boards run by the School Finance Advisors, and the Ministry’s sector working group, which has improved the guidance available to schools on financial matters. We raise some recommendations in our report about areas where added guidance or training would be helpful. I have included these recommendations in the Attachment to this letter.

For most schools we audit, we do not identify any significant issues. In our report, we set out details of those schools where we have reported on specific matters. We have shared details of those schools with your Directors of Education as these matters were identified.

Below, I comment on some important matters for your attention.

Continuing to work together to improve timely reporting

Auditors need to get good quality financial statements for audit as early as possible, if we are to improve the percentage of schools reporting on time. This is important because, as time passes, the effect and relevance of financial reporting lessens.

Late reporting on school payroll has been one of the barriers to school audits being completed on time. The extra payroll information needed by schools since Novopay started, and the extra audit work we need to carry out, has delayed schools completing and presenting their draft financial statements for audit.

For the 2017 audits, we worked with the Ministry to ensure that schools received payroll information earlier than had occurred in previous years. This improved the flow of draft financial statements to auditors. However, auditors are still receiving most draft financial statements close to the March deadline, which puts pressure on everyone involved to complete audits by 31 May.

Unfortunately, payroll data analytic testing (part of our central assurance work over school payroll) and the associated follow-up which requires the Ministry and its auditor to work closely together, was completed later than planned. This caused some delays and extra work for school auditors.

We are pleased that you have a project manager to oversee the school financial reporting process for the 2018 audits, including the payroll work. This should help ensure that schools and auditors get the resources necessary to complete audits in a timely manner.

Some schools have not met their accountability requirements

There are 126 school audits in arrears as at 12 November 2018 (2017: 162), which is disappointing. Two schools have four years of audits outstanding, and the arrears includes an audit for 2013 of a closed school.

Audit arrears include a disproportionally high number of Kura Kaupapa Māori schools (kura). Of the 73 kura, 20 have audits in arrears, with 10 having at least two years of audits in arrears. Work we carried out in 2010 identified poor financial policies and practices in 20% of kura. We have not seen a significant improvement since then, and we continue to recommend that the Ministry provide targeted support and guidance to kura.

Some schools do not understand their reporting responsibilities

Although the Ministry provides guidance and support on financial reporting on its website, in circulars and in the School Bulletin, we find that schools are not always aware of their responsibilities for financial reporting. Schools often do not give auditors all the information required for the school’s annual report, and many are not aware of the new requirement to publish their annual reports online, which is important for accountability.

Some schools are not properly planning for the maintenance of school buildings

The occupancy agreement between the Ministry and a school board requires the board to prepare and submit a 10-year property plan, including a plan setting out the school’s long term maintenance needs. We find that some schools are either not preparing maintenance plans or are not properly reflecting the school’s maintenance needs in those plans. We understand that the Ministry’s approval of the 10-year property plan does not include reviewing the school’s maintenance plans for reasonableness.

If a board does not properly plan for its property maintenance needs, there is a risk that it may spend the funding provided for maintenance on other items. This can result in a decline in the condition of school property. There is also an effect on financial reporting, as the school’s financial statements may not reflect its obligations for maintenance and therefore the school’s true financial position.

Concluding comments

I will send a copy of our report to the Education and Workforce Committee and publish it on our website. I am happy to meet with you to discuss the contents of this letter and the attached report.

I look forward to the continuing good collaboration between our staff, to improve school accountability.

Ngā mihi

John Ryan
Controller and Auditor-General