Tertiary education institutions: Briefing on the results of the 2018 audits

26 November 2019

Dr Parmjeet Parmar MP
Chairperson
Education and Workforce Committee
Parliament Buildings
Wellington 6011

Tēnā koe Dr Parmar

Tertiary education institutions: Briefing on the results of the 2018 audits

The attached briefing sets out our observations from our audits of the 27 public tertiary education institutions (TEIs), made up of eight universities, 16 institutes of technology and polytechnics (ITPs), and three wānanga.

Tertiary education is important to New Zealanders' personal development and economic well-being. Young people, their whānau, adults looking to retrain or learn a new skill, and employers rely on the quality and stability of tertiary education providers. Tertiary education is also important to New Zealand's economy and is a significant area of public expenditure. Vote Tertiary Education is just under $3.5 billion for 2019/20.

Institutes of technology and polytechnics

In our report on the 2017 audit results, we focused mainly on the financial sustainability of ITPs. We recommended that ITP councils pay closer attention to financial forecasting to guard against optimism bias (a belief that they are less likely than others to experience a negative event) and to increase their oversight of budget performance.

ITPs have increased their oversight of financial performance, and the Tertiary Education Commission has also increased its monitoring. However, in many cases, ITPs face further declines in student enrolments. For these ITPs, their deficit is increasing even though they are achieving their cost saving plans.

In 2017, nine of the 16 ITPs were in deficit. By 2018, another was in deficit. Higher deficits, combined with lower surpluses, saw the aggregate overall deficit in the ITP sector rise by $15.5 million to $71.5 million in 2018.

Since our last report, the Government has set out its reform agenda, and the Education (Vocational Education Reform) Amendment Bill (the Bill) is progressing through Parliament. These reforms, which include creating a New Zealand Institute of Skills and Technology with 16 Crown entity subsidiary limited companies, is intended to address underlying issues in the ITP sector.

We are providing support, consistent with our audit role, to the establishment (transition) board that is preparing for the creation of the New Zealand Institute of Skill and Technology. We can help mitigate some of the risks by sharing what we have learnt from similar transitions and by answering any audit questions as they arise.

University financial sustainability

In our 2017 report on the TEI audit results, we prioritised reporting on ITPs because of the sharp decrease in their financial sustainability since 2016. This year, we looked at the results of universities in more detail. We were interested in understanding whether the operating environment that had led to difficulties in ITPs was likely to have a similar effect on university performance.

I am aware that universities are concerned about how their position on various international ranking assessments may affect their ability to attract academic talent and international students to New Zealand in the future.

For now, almost every university is in good financial standing, with low debt and strong equity. Although future international student enrolment patterns may be more volatile than in the past, we consider that universities should have enough resources in the medium term to manage any period of adjustment.

Lincoln University’s financial position improved in 2018, largely because it received an earthquake-related final insurance pay out. However, Lincoln’s small size, its mix of education programmes, and the condition of its physical campus present significant challenges. On 23 November 2019, the Government approved $80 million over five years to help Lincoln University rebuild its earthquake-damaged science facilities. The investment will take place alongside a modernisation programme covering teaching, research, and partnerships with other agencies.

Acting on auditor recommendations

In this briefing, we note that there are several outstanding audit recommendations for all types of TEI. In the ITP sector, we strongly encourage the establishment board to understand the nature of the outstanding recommendations, so that the new arrangements can start from a solid base. I see a risk that the recommendations might not be addressed during the transition period. This could cause problems in creating a strong foundation for the new institute.

As with the Wintec example in this report, I am often asked to look into things that have already gone wrong. However, my auditors also look at the policies that TEIs have in place to manage “sensitive expenditure”, such as gifts, hospitality, and travel, and frequently make recommendations for improvement. Most TEIs need to improve their written policies and their compliance with those policies.

How an organisation deals with audit recommendations can show how committed it is to behaving with integrity. This in turn increases public trust. I would like TEI councils to encourage their managers to view recommendations positively and for councils to pay closer attention to how recommendations are addressed. These recommendations present opportunities to improve the safeguarding of public money and the reputation of the public sector.

Pat Johnson, my Education Sector Manager, is available to discuss this briefing in more detail and to answer any questions you may have. I hope the timing of this report will assist the Committee in its upcoming annual review programme and its work on the Bill.

Nāku noa, nā

John Ryan
Controller and Auditor-General

Photo acknowledgement: Office of the Clerk of the House of Representatives