Part 2: What did our audit reports say?

Results of the 2018 school audits.

In this Part, we set out the results of the 2018 school audits and the results of any audits for previous years that were completed since our last report on the 2017 school audits.

We issued standard audit reports on the financial statements of most schools. This means that the financial statements fairly reflected the schools’ transactions and financial position for 2018.

Modified audit opinions

We issue modified audit opinions if we cannot get enough evidence about a matter or if we conclude that there is a material error in the financial information. Of the audits completed for 2018, 20 audit reports contained a modified audit opinion. We also issued a further 11 modified opinions for previous-year audits that were outstanding since our last report. We explain the types of modified opinions we issued below.

Disclaimers of opinion

We issue a disclaimer of opinion when we cannot get enough audit evidence to express an opinion. This is 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 a disclaimer of opinion on the financial statements of two schools.

Te Kaupapa Māori o Tamarongo (2015) – We could not get enough evidence about a significant number of transactions. The financial records had been intentionally destroyed to cover up a fraud the New Zealand Police was investigating. We also drew attention to breaches of legislation, including failure to keep appropriate accounting records and the failure to meet statutory deadlines.

Te Kura o Pakipaki (2014) – We could not get enough evidence about bank accounts, revenue and expenditure, and some assets and liabilities of the school. This was because there was a lack of controls over cash receipting and expenditure from a bank account under the control of the school, and a lack of supporting documents for some transactions. We also drew attention to the school’s financial difficulties and breaches of legislation because of the school’s failure to keep appropriate accounting records and meet statutory deadlines.


If a school’s financial statements have been prepared inconsistently with applicable accounting standards or we consider that they include a significant error, we will issue an opinion that sets out where we “disagree” with the school. We issued this type of opinion for two schools.

William Colenso College (2018) – For the seventh year, we disagreed with the college not preparing consolidated (or group) financial statements that included the transactions and balances for the William Colenso College Charitable Trust. We consider that group financial statements are required because the college “controls” the Trust for financial reporting purposes. Therefore, the college is not fairly presenting its true financial position to its community.

Tinui School (2018) – The school did not recognise the value of the tree-cutting rights Masterton District Council granted it as an asset in its financial statements. This was because the board could not reliably estimate the value of the forestry block. This is a departure from accounting standards and means the school is not fairly presenting its true financial position to its community.

Limitations of scope

We issue “limitations of scope” opinions when we cannot get enough evidence about one or more aspects of a school’s financial statements. The audit report explains which aspect of a school’s financial statements we could not corroborate. We explain the types of limitations of scope that we reported on this year.

Locally raised funds

If a school receives funds from its community, it is important that it has appropriate controls in place to ensure that all money received is correctly recorded. We could not get enough assurance about the amounts raised locally for the seven schools in Figure 3 because they had limited controls over collecting money and recording it. Three of these opinions were for previous-year audits.

Figure 3
Schools without assurance for locally raised funds

Four schools had insufficient controls for locally raised funds in 2018. Two schools had insufficient controls for locally raised funds in 2017, and one school had insufficient controls in 2016.

2018 audits Previous-year audits
Opihi College Stoke School (2017)
Tamatea School Te Kura Kaupapa Māori o Mangatuna (2016)
Taumarunui High School Community Trust Whakatane High School (2017)
Whakatane High School

For some schools, we could not get enough assurance over a certain aspect of locally raised funds. At Whakatane High School (for both 2017 and 2018), it was canteen revenue. At Opihi College, it was fundraising, raffles, and donations. At Tamatea School, it was its afterschool care/holiday programme.

Our concerns about the controls over cash receipts was resolved for Stoke School, and we were able to give a standard opinion on the school’s financial statements for 2018.

Cyclical maintenance

Schools receive funding for property maintenance as part of their operations grant. Certain types of maintenance are needed only periodically, such as painting the exterior of the school. Because schools are obligated to maintain the Ministry-owned buildings, they must recognise a provision for this cyclical maintenance in their financial statements. This helps schools to identify the funds needed to paint their buildings in the future.

School boards are responsible for calculating their cyclical maintenance provision based on the best information available. Schools often do not have evidence to show auditors that their cyclical maintenance provision is reasonable. We raised this matter with the Ministry in our previous reports on school audit results and discuss it further in Part 4. In 2018, more schools than in previous years were unable to provide enough evidence that the provision for cyclical maintenance in their financial statements is materially correct (see Figure 4).

Figure 4
Schools that were unable to provide assurance over their cyclical maintenance provision

For the 2018 audits, 13 schools were unable to provide evidence that the provision for cyclical maintenance in their financial statements is materially correct. For previous-year audits, two schools were unable to provide evidence that the provision for cyclical maintenance in their financial statements is materially correct.

2018 audits Previous-year audits
Christian Renewal School Matiere School (2017)
Golden Bay High School Saint Francis School (Thames) (2017)
Jireh Christian School
Mount Cook School (Wellington)
Saint Joseph’s Catholic School (Matata)
Saint Joseph’s Catholic School (Whakatane)
Te Kura Kaupapa Māori o Taumarunui
Te Kura Kaupapa Māori o Tuia Te Matangi
Te Kura Kaupapa o Waioweka
Te Waha o Rerekohu Combined Schools Board
Te Kura Mana Māori o Matahi
Te Wharekura o Te Kaokaoroa o Patetere
Wakanui School

If a school does not know what future maintenance its buildings need, it might not adequately plan so that funds are available to carry out that maintenance when it is due. We also identified Golden Bay High School and Saint Joseph’s Catholic School (Matata) as being in financial difficulty, which we discuss in the next section.

Other matters

Blue Mountain College (2018) – The college did not provide enough information to explain $52,200 of the $306,113 it spent on an overseas trip.

Hato Paora College (2017) – The governing body of the college was made up of representatives of both the school Board of Trustees and its proprietor. This is a breach of clause 4 of Schedule 6 and section 94 of the Education Act 1989. Because the college had not been managed by a properly constituted board, we could not establish whether decisions the governing body made were appropriate. We also drew attention to the college’s financial difficulties and its reliance on support from its proprietor.

Rangiora High School Education Trust (2015 and 2016) – We could not confirm whether trustees properly authorised payments from the trust to Rangiora High School for resources and scholarships. We referred to this limitation on the 2015 figures in our audit report on the trust’s 2016 financial statements.

Te Kura Kaupapa Māori o Tamarongo (2016) – Because we could not express an opinion on the 2015 financial statements, we had no assurance over the opening balances in the school’s 2016 financial statements. In 2015, records were intentionally destroyed to cover up a fraud (see paragraph 2.5).

Appendix 4 sets out the details of all the modified audit reports issued to schools, by region.

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 a school did not disclose. We do this because the information is relevant to readers’ understanding of the financial information.

These comments are not modifications of our opinion. We are satisfied that the financial information fairly reflects the performance and position of the school. Rather, we point out important information, such as a matter of public interest or a breach of legislation. This includes when we consider schools are experiencing financial difficulties, which we discuss in Part 3.

We issued 13 audit reports that referred to matters of public interest. Some of these reports were for previous years.

Potential conflicts between school Board of Trustees and proprietor

Sacred Heart College (Auckland) (2016) – For the seventh year, our audit report drew attention to the close relationship between the school, its proprietor, and the Sacred Heart Development Foundation (the foundation). The school, the foundation, and the proprietor all have trustees in common, and the Principal receives remuneration from the foundation. This gives rise to potential conflicts of interest.

As with the 2017 audit report, the 2018 audit report noted that the school should not pay for hospitality to further relationships between the foundation and former students of the school. Although the foundation is related to the school, it is a private entity that the board does not control. It is not clear whether the school would benefit from the expenditure.

The audit report also drew attention to the school’s failure to meet statutory deadlines. The 2017 and 2018 audits for the school are still outstanding.

Overseas travel

Clendon Park School (2018) – The school spent $153,580 on a trip for 26 students (including three who do not attend the school), 17 parents/caregivers, and seven staff to Hawaii as part of its Urban Hapuu Initiative. The students and families contributed $100,209, and the school contributed $53,371. The school’s contribution is significant considering the small number of students and families involved. It was also inappropriate for the school to fund travel for students from other schools.

Te Kura Kaupapa Māori o Te Koutu (2017) – The kura spent more than the board approved on an educational trip to Mexico for students to learn the Spanish language and Mexican culture. The kura funded this from locally raised funds and $105,425 of other funds controlled by the school board.

We discuss overseas travel further in Part 4.

Other matters

Brookby School (2018) – The school donated $53,329 to a church trust. The trust used the donation to renovate a church building. The school has a long-standing relationship with the trust (which is independent from the school and is not a public entity), but there was no agreement guaranteeing the school’s use of the church building. The school raised the funds from the school community and the school’s Parent Teacher Association.

Kings High School (2018) – The school made payments to cover the costs of contracted fundraising activities for an independent entity, the Kings High School Charitable Trust, which is not a public entity. It was not appropriate for the school to use public money to pay the costs of contracted fundraising activities to raise funds for a private entity when the school might not receive the benefit of that spending.

Waiau School (2018) – In the school’s 2017 audit report, we reported about the proposed transfer of funds raised to Hurunui District Council. The Council will use the funds to build a new swimming pool, which it will own, on the school grounds. The previous swimming pool was damaged by the 2016 Kaikōura earthquake. This transfer was made in June 2018 and was referred to in this year’s audit report.

We also drew attention to the fact that three schools could not estimate their cyclical maintenance provisions accurately. The three schools were uncertain about whether they would need to maintain their buildings in the near future. The schools were Lawrence Area School and Maniototo Area School, which are part of the Christchurch Schools Rebuild Programme, and Taihape Area School, which has significant infrastructure issues that it must resolve before it can reasonably estimate its future maintenance obligations.

When a school closes, or is due to close, its financial statements are prepared on a disestablishment basis. This is because the school is no longer a “going concern”, and its assets will be distributed after it has closed. We issued audit reports for four closed schools – Hillcrest School (Pahiatua) and Riverslea School for 2018, and Avondale School (Christchurch) and Saint Joseph’s School (Picton) for 2017.

Reporting on whether schools followed laws and regulations

As part of our 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 and the Crown Entities Act 2004.

Usually, schools disclose breaches of the Education Act and the Crown Entities Act in their financial statements. Sometimes, we report on breaches in a school’s audit report. During the 2018 audits, we identified that:

  • 42 schools (2017: 49) borrowed more than they were allowed to (clause 29 of Schedule 6);3
  • one school (2017: 6) did not use the Ministry’s payroll service to pay teachers, which they must use for all teaching staff (section 89(2));
  • 10 schools (2017: 4) lent money to staff, which they are not allowed to do (clause 28 of Schedule 6);
  • five schools (2017: 4) invested money in organisations without the Ministry’s approval (clause 28 of Schedule 6);
  • four schools (2017: 2) had trustees that did not comply with rules about conflicts of interest (section 103);
  • two schools (2017: 2) did not comply with the banking arrangements set out in section 158 of the Crown Entities Act; and
  • two schools (2017: 2) breached legislation for other reasons.

Appendix 4 sets out the details of schools that reported breaches of the Education Act and the Crown Entities Act, by region.

Only a small number of schools breach legislation every year. However, the number of schools that have breached the statutory borrowing limit has increased in the past few years.


As demand for digital devices in education increases, schools are entering into more equipment leases. Many equipment leases, including most copier contracts, are “finance leases”, so they are classed as borrowing. Because of this, we have seen more schools coming close to, or breaching, the statutory borrowing limit. We discuss this further in Part 4.

Publishing annual reports online

Our auditors checked whether schools had published their 2017 annual reports on their website. This is a requirement of section 87AB of the Education Act. At the time of completing their 2018 audits, 773 schools had not published their 2017 annual report. Of the others, many schools only published their annual reports when our auditors reminded them to. We discuss this further in Part 4.

3: References are to the Education Act unless stated.