Appendix 2: Non-standard audit reports for 2017

Tai Poutini Polytechnic

In August 2018, we issued a non-standard audit report for Tai Poutini for both 2016 and 2017. We qualified our opinion on the financial statements because we considered the financial statements contained material errors. We also drew attention to disclosures in the annual report about Tai Poutini's ability to fund its activities in the future. Tai Poutini also breached the statutory reporting deadlines for 2016 and 2017.

We qualified our opinion because we disagreed with how Tai Poutini accounted for:

• funding it over-claimed from 2010 to 2015; and
• the TEC's debt forgiveness for under-delivering on student numbers projected in its investment plan in 2016.

Funding over-claimed

An investigation by the TEC in 2017 found that Tai Poutini had over-claimed its student achievement component funding in the years 2010 to 2015 by $18.5 million. Tai Poutini had included the amounts as revenue in the relevant financial years, and so for those years the revenue and the surpluses were overstated (or the deficits were understated).

To correct this overstatement, Tai Poutini should have retrospectively reduced the equity brought forward into its 2016 financial statements by $18.5 million, and also recorded that it owed the TEC $18.5 million. This would then have flowed on to the 2017 financial statements.

In 2018, the TEC decided not to seek recovery of any of the amount over-claimed. The effect of TEC's forgiveness of the debt was to restore Tai Poutini's results as though it had not over-claimed any SAC funding. Because Tai Poutini became aware of the decision before it completed its 2016 and 2017 financial statements, it decided not to adjust these financial statements to reflect the overstated revenue in previous years. However, because the TEC made this decision after the 2017 balance date, it should be accounted for in Tai Poutini's 2018 financial statements.

Fewer students than funded for in 2016

In 2018, the TEC also decided not to seek recovery of $3.1 million, which was repayable because of Tai Poutini having delivered courses to fewer students than it was funded for in 2016.

Tai Poutini decided to recognise the effect of the TEC's decision in its 2017 financial statements by including the $3.1 million as a capital injection. The correct action would have been for Tai Poutini to make this adjustment in its 2018 financial statements, the year when the TEC made the decision.

Serious financial difficulties

In our audit reports for Tai Poutini, we drew attention to disclosures in its financial statements about its ability to continue as a going concern. Tai Poutini's ability to continue as a going concern is dependent on it meeting all of the funding conditions set by the Crown to receive all of the capital injection. Tai Poutini has submitted a business case to the Minister of Education with options for its future governance and organisational structure. The Minister has deferred his decision pending the Government's decision on the future of the ITP sector.

Unitec Institute of Technology

Unitec's audit report included an explanatory paragraph to highlight the way it had applied the going concern assumption in preparing its financial statements. This paragraph drew attention to Unitec's explanation in its financial statements about uncertainties relating to achieving its financial forecasts and meeting any future cash flow shortfalls. Unitec reported a deficit of $31 million in 2017.