Part 2: The types of audit reports we issued

Results of the 2017 school audits

We mostly issued standard audit reports on the financial statements of schools.

Non-standard audit reports can contain a modified audit opinion and/or draw attention to matters of importance to readers of the financial statements.

We issue a modified opinion on a school's financial statements when we cannot get enough evidence about a matter or we conclude that there is a misstatement in the financial information. If the matter is significant to readers' understanding of the financial information, we might issue an "adverse opinion" (disagreeing with the financial information) or a "disclaimer of opinion" (we do not have enough evidence to give an opinion). Adverse opinions and disclaimers of opinion are rare. They are also serious because there is a lack of accountability – we cannot confirm that the school's financial statements are a true reflection of its transactions and balances. We issued three disclaimers of opinion this year (see paragraphs 2.6 and 2.8 below).

We draw attention to matters of importance where the matter is of public interest, schools are in financial difficulty, or schools have not followed legislation about accountability. We might also draw attention to matters that would help the readers' understanding of the financial statements.

Modified opinions

Of the audits completed for 2017, 15 audit reports contained a modified audit opinion. We also issued a further 12 modified opinions for previous-year audits still outstanding.1

We were unable to express an opinion on the 2016 and 2017 financial statements of Al-Madinah School. There were limited controls and scrutiny over payments for these years. In particular, there was inadequate documentation to support some payments, and some payments seemed excessive for their stated purpose. Because of this, we were unable to get enough audit evidence to form an opinion. We also could not identify all related party transactions and whether these were at arms-length. (A related party is a person with close links to members of the board.)

We completed the 2015 audit for Al-Madinah School earlier in 2018. We issued an opinion for 2015, but it was limited because we did not have enough information on related party transactions to determine whether the school had disclosed all of these in its financial statements. We also drew attention to potential conflicts of interest with the proprietor of the school, and to disclosures about the Ministry appointing a Limited Statutory Manager for the school because of governance challenges. We issued the same audit report for the 2014 year, which we reported on last year.

We issued a disclaimer of opinion on the 2015 financial statements of Te Kura Kaupapa Māori o Takapau. We could not get enough evidence about the receipts and payments of the kura and related balances. This was because a staff member set up bank accounts outside the control of the kura. The kura also did not keep minutes for all matters discussed and decisions made by the board.

We disagreed with the board of William Colenso College not preparing consolidated financial statements that included the transactions and balances for the William Colenso College Charitable Trust. Accounting standards require the school to prepare consolidated financial statements because it "controls" the Trust. Without group financial statements, the school is not presenting its true financial position to its community. Apart from this matter the school's financial statements presented fairly the financial performance and position of the school. We have issued the same opinion on the school's financial statements since 2012.

The rest of our modified opinions were because we could not get enough evidence about one or more aspect of the financial statements. We refer to these as "limitations of scope" and set out details of them below.

Locally raised funds

We could not get enough assurance about the amounts raised locally in 12 schools because the schools had limited controls over collecting and recording receipts. Six of these opinions were for previous-year audits (Figure 2).

Figure 2
Schools without assurance for locally raised funds

2017 audits Previous-year audits
Ballance School Maketu School – 2015
Feilding Intermediate School Otorohanga College – 2015
Paeroa Central School St Joseph's School (Upper Hutt) – 2016
Taumarunui High School Community Trust Te Wharekura o Mauao – 2014
Waikouaiti School Te Wharekura o Te Rau Aroha – 2014
Waitara High School Whakatane High School – 2016

Because of the lack of supporting records, we were also unable to confirm whether the payroll expenses recorded in the financial statements of Feilding Intermediate School and Te Wharekura o Te Rau Aroha for 2014 were correct.


We issued modified opinions for four schools because we could not get enough assurance on the payments they made.

Of these four schools, two (Flag Swamp School and Mountainview High School) had modified opinions for their 2017 financial statements.

The modified opinion for Tangaroa College was for the 2016 financial statements and related to an issue that has been ongoing since 2013. This matter has now been resolved and the school received an unmodified opinion in 2017.

Te Kura Kaupapa Māori o Te Kura Kokiri has several outstanding audits. The kura's 2013 audit opinion has recently been issued. As with previous years, we could not get enough evidence about payments made by the kura, including reimbursement for payments made on its behalf from a personal account. Our opinion also refers to unusual spending, as explained below.

Cyclical maintenance

We could not get reliable evidence to support the cyclical maintenance provision for two schools – Golden Bay High School and Te Kura Kaupapa Māori o Taumarunui. This provision is an estimate of how much the board will need to pay in the future to keep the Ministry's buildings in good repair. The provision is usually for a school's exterior painting.

Appendix 2 provides more details of all the modified opinions we have issued.

Matters of importance that we have drawn readers' attention to

In certain circumstances we include comments in our audit reports to either highlight a matter referred to in a school's financial statements or note a significant matter the school does not refer to. We do this because the information is relevant to readers' understanding of the financial information. Such comments are not modifications of our opinion, which is that the financial information fairly reflects the performance and position of the school. Rather, they point out important information such as a matter of public interest or a breach of legislation.

Matters of public interest

We issued 11 audit reports that referred to matters of public interest. Some of these reports related to previous years.

Potential conflicts between school Board of Trustees and proprietor

Sacred Heart College (Auckland) (2015) – For the sixth year, our audit report drew attention to the close relationship between the school, the proprietor, and the Sacred Heart Development Foundation, and potential conflicts of interest between these entities. The school, the Foundation, and the proprietor all have trustees in common.

The audit report also said that the school should not pay for hospitality to further relationships between the Sacred Heart Development Foundation and former students of the school. The Foundation receives the benefits from these activities, not the school. Although the Foundation is related to the school, it is a private entity and not controlled by the board. It is not appropriate for a school to pay for activities that raise funds for a private entity.

Overseas travel

Te Kura Kaupapa Māori o Nga Uri a Maui (2017) – The kura spent $32,401 on accommodation, food, venue, and vehicle hire for six days for a four-day school planning meeting in the Gold Coast, Australia. The school expected the teachers to pay their own airfares. The school collected only $10,013 from the teachers, leaving $1,737 uncollected.

Blockhouse Bay Intermediate School (2017) – For the second year, we drew attention to expenditure on a student trip to South Korea. The school spent $23,000 of school funds to send 21 students and three teachers to South Korea on a cultural exchange. The students covered $56,000 of the costs of the trip. The Ministry's guidance at the time was that schools should fundraise specifically for overseas travel for students.

Te Whata Tau o Putauaki (2017) – The school spent $47,639 of school funds to send five students, four teachers, and one caregiver to attend the World Indigenous Peoples Conference on Education in Canada. The total cost of the trip was $100,858, with the students raising funds of $53,219 to cover the other costs.

Our auditors also raised concerns in school management letters about other overseas travel. We did not consider these concerns to be significant enough to include in the audit report. These included:

  • Boards not formally approving overseas travel or boards approving travel without consideration of a proper business case and budget.
  • Schools funding the travel costs of parents and caregivers, even though it was not clear that the school needed those adults to supervise students.
  • Boards funding significant shortfalls on overseas trips that the board had approved on the basis that it would be fully funded by those attending.
  • Spending on travel and promotion for international students that did not result in an increase in international students attending the school.
  • Schools paying for staff's personal travel as part of a school trip, where the school has not kept suitable records to ensure that all personal travel costs have been refunded to the school.

The Ministry updated its guidance on overseas travel in early 2018. The guidance states that schools can pay for staff and students to travel overseas as long as there is an educational purpose for the travel. The Ministry has asked that schools complete a checklist to document their decisions on overseas travel and include disclosures in their financial statements. As well as considering educational outcomes, the board also needs to consider whether the proposed travel is the best use of the funds available.

As part of our 2018 audits, our auditors will check whether boards have completed the checklist before approving any overseas travel. Schools still need to ensure that any spending on overseas travel is appropriate and consistent with their policies. Schools should ensure that staff provide suitable receipts or other documentation to support their spending.

Expenditure not clearly supported for school purposes

Te Kura Kaupapa Māori o Te Kura Kokiri (2013) – We modified our opinion on the kura's financial statements because it had limited controls over payments. We issued similar opinions for 2010, 2011 and 2012. We also drew attention to:

  • unusually high levels of fuel expenses, food and groceries, and koha payments;
  • repairs and maintenance paid on cars not owned by the kura;
  • payments for a trip to Hawaii;
  • tertiary fees paid for staff; and
  • other general expenses not supported by suitable documentation.

The audit reports for 2014, 2015, 2016, and 2017 are still outstanding for this kura. The kura and auditor have plans in place to complete the outstanding audits this year, so it can meet the statutory deadline for the 2018 audit.

Hastings Intermediate School (2015 and 2016) – We could not verify some of the school's expenditure for both years because there was a lack of supporting records. The amounts were about $20,000 for 2015 and $40,000 for 2016. We also drew attention to the school being in financial difficulties and that it had breached the borrowing limit for 2016. The school has resolved these matters and received a standard audit opinion for 2017.

Other matters

Mana Tamariki (2016) – The school decided not to seek recovery of an overpayment to an employee of about $21,000, even though the school was in financial difficulty. The school had a working capital deficit of $173,258 as at 31 December 2016 and needed a letter of support from the Ministry to ensure that it was a going concern. The Ministry has agreed to a long-term repayment plan for the $202,052 the school owes for over-staffing. This has allowed the school to return to a working capital surplus in 2017.

Tahatai Coast School (2017) – The school made a trading loss of $71,438 during 2017, which included writing off more than $26,000 of uniform inventory. The school bought uniform in bulk for several years without considering low-selling items. The school's decision to change the school uniform from 2020 meant it was necessary to write off certain uniform items because it cannot sell them.

Tauranga Boys College (2017) – We drew attention to an unusual arrangement between the college and a related entity. The school borrowed $10,000 in 2008 from the Tauranga Boys College Titan Sports Council Trust (the Titan Trust) at an interest rate of 20% each year. The Titan Trust is an independent private organisation and charged the school interest at a rate higher than a bank would charge. The school made no repayments of the loan before it repaid the loan in full on 22 May 2018.

Waiau School (2017) – We drew attention to disclosures in the financial statements, which we considered important to readers' understanding of the school's financial statements. These outlined that funds raised to replace the school's swimming pool, damaged by the 2016 Kaikōura earthquake, will be transferred to Hurunui District Council. The Council will build a new pool on the school grounds that it will own. The major funders of the project have agreed to the change in arrangements and continue to support building the pool.

Schools in financial difficulties

If a school is showing signs of being in financial difficulty, we seek confirmation from the Ministry that it will continue to support the school. If the Ministry confirms that it will continue to support the school, the school can complete its financial statements as a going concern. If the financial difficulty is serious, we draw attention to it in the school's audit report.

There were 44 schools that needed letters of support from the Ministry (or in two instances, from their proprietor) to confirm that they were a going concern. For 2016, the number of schools was 59. The schools that needed letters of support for 2017 are shown in Figure 3 below.

Figure 3
Schools that needed letters of support for 2017

Albany Junior High School Pouto School
Avondale Intermediate School* Pukehina School*
Bainesse School* Pukepoto School*
Ballance School Puni School
Bay of Islands College Rawene School
Cambridge East School* Saint Brigid's School (Dunedin)*
Cannons Creek School Saint Joseph's School (Grey Lynn)*
Castlecliff School* Saint Joseph's School (Temuka)
George Street Normal School Saint Mary's School (Dunedin)*
Golden Bay High School* Saint Patrick's College (Silverstream)*
Heretaunga College Solway School*
Howick College Southland Girls' High School
Kadimah School* Tai Tapu School
Kaihu Valley School Te Kura Kaupapa Māori o Nga Maungarongo
Mangere Bridge School Te Kura o Otangarei*
Melville Intermediate School* Te Kura o Ratana*
Motumaoho School Thames South School
Nga Tawa Diocesan School View Road School*
Northland College* Waikowhai Intermediate School*
Omanaia School* Waipahihi School*
Owhata School Waitaki Boys' High School
Parklands School Waitara Central School*

Note: The asterisk indicates those schools that were also in financial difficulties in the previous year.

We also referred to the financial difficulties of the Hagley Community College Preschool Trust for 2017, and in audit reports of the following schools for prior year audits that were outstanding: Hastings Intermediate School (2015 and 2016), Mana Tamariki (2016), Northland College (2016), and Taikura Rudolf Steiner School (2016).

Breaches of laws and regulations

As part of the annual audits of schools, we consider whether schools have complied with particular laws and regulations about financial reporting. The main Acts that influence the accountability and financial management of schools are the Education Act 1989 and the Crown Entities Act 2004.

Usually schools disclose breaches of the Education Act and the Crown Entities Act in their financial statements. In other instances, we may report on breaches in a school's audit report. During the 2017 audits, we identified that:

  • 49 schools (2016: 41) borrowed more than they were allowed (clause 29 of Schedule 6);2
  • six schools (2016: 21) did not use the Ministry's payroll service to pay teachers, which they must use for all teaching staff (section 89(2));
  • four schools (2016: 15) lent money to staff, which they are not allowed to do (clause 28 of Schedule 6);
  • four schools (2016: 3) invested money in organisations without the Ministry's approval (clause 28 of Schedule 6);
  • two schools (2016: 12) had conflicts of interest (section 103 and clause 40(8)-(10) of Schedule 6);
  • two schools (2016: 2) did not comply with the banking arrangements (section 158); and
  • two schools (2016: 4) breached legislation for other reasons.

Appendix 3 sets out the schools that breached the Education Act and the Crown Entities Act.

There has been a decrease in the total number of breaches of legislation reported. It is encouraging to see a decrease in the number of conflicts of interest reported.

We continue to see an increase in the number of schools borrowing more than the borrowing limit. As the nature of education changes and there is more demand for digital devices, schools are entering into more equipment leases. As many equipment leases, including most copier contracts, are "finance leases" and therefore classed as borrowing, more schools are coming close to, or breaching, the allowable borrowing limit.

1: Audit reports issued for prior year audits since our report on the results of the 2016 school audits.

2: References are to the Education Act 1989 unless stated.