Report on the results of the 2019 school audits

November 2020

Iona Holsted
Secretary for Education
Ministry of Education

Tēnā koe Iona


Please find enclosed our report on the results of the 2019 school audits.

This year our school audits were significantly disrupted by Covid-19. Although this affected the timeliness of reporting, we continue to see improvements in school financial reporting and the Ministry of Education (the Ministry) has continued to make progress on the recommendations we raised in earlier reports.

The effects of Covid-19 on school reporting

With the March lockdown, schools and auditors had to switch to working remotely. The ability of schools, accounting service providers, and auditors to work remotely varied. Schools also had to prioritise delivering education remotely, and keeping students safe when they were able to return to school. As a result of these factors, many audits could not be progressed as planned.

We completed 59% of the 2019 school audits by the statutory deadline Although this is significantly lower than previous years, where we have completed more than 80% by the deadline, this was a great achievement in the circumstances. We appreciate the hard work from everyone involved to complete as many audits as possible in such challenging circumstances.

We have made steady progress since then. As at 31 October, 88% of the 2019 school audits had been completed. The delays, the additional audit work required because of Covid-19, and the second lockdown in Auckland put many of our audit providers and schools under pressure. It is less than ideal that nearly 300 school audits remained outstanding at the end of October but we were clear at the start of the Covid-19 outbreak that the quality of reporting by schools, and the quality of our audits, were more important than timeliness. Our auditors have plans in place to complete the remaining school audits.

All schools were asked to provide disclosures in their financial statements about how they had been affected by Covid-19. We drew attention to these disclosures in our audit reports. The financial impact of Covid-19 for most schools was not significant in the short term because they continued to receive operational funding and support while they were closed. However, schools that rely heavily on locally raised funds and/or fees from international students are likely to have been more affected. We talk about this later in this letter.

What we found from our audits

We have not identified any significant issues for most of the schools we audit. In our report, we include details where we have reported on specific matters. We have issued 16 “modified” opinions since our last report. These are opinions where we cannot get enough evidence about a matter, or conclude there is an error in the financial statements. We issued a number of audit opinions where we could not get enough evidence about the amounts recorded in school financial statements for locally raised funds, expenditure, inventory, or the cyclical maintenance provision. We have already written to you about our concerns about the validity of a significant payment made by the Combined Board of Middle School West Auckland and South Auckland Middle School for services provided by a related entity, and understand that you are working through this matter with the board.

Auditors still raise concerns with schools in their management letters about gifts, hospitality, and travel. Most concerns raised this year related to principals’ expenses not being approved, particularly for spending using credit or debit cards. For the 2019 audits we did not raise any sensitive expenditure matters in schools’ audit reports. Those matters we refer to in the report all relate to previous year audits completed this year.

We also comment in the report on matters we have identified from our audits. We have not made any new recommendations this year but have repeated some recommendations that have not been fully addressed. We consider it important that these recommendations are addressed.

Kura Kaupapa Māori schools

As I have reported in the past few years, following several years of poor timeliness for school audits generally Kura Kaupapa Māori schools (kura) have had a disproportionately high number of audits outstanding, some for several years. This year we have been working with your staff and Te Rūnanga Nui o Ngā Kura Kaupapa Māori o Aotearoa (Te Runanga Nui) to understand better what is preventing kura from completing the outstanding audits and to facilitate their completion.

We have made good progress. As at 31 October 2020, 17 of the 39 audits of kura we reported as being outstanding last year have been completed. This leaves 22 audits outstanding, dating from 2015 to 2018. Fourteen of these audits are for four kura. As with all our audits, progress on these audits has been affected by Covid-19, in some cases because of a lack of capacity of the auditor.

We also acknowledge the steps the Ministry has taken to work with Te Runanga Nui to provide more targeted guidance to kura in response to our recommendations over the last few years. We look forward to continuing to work with your staff and Te Runanga Nui to support these initiatives and bring all audits up to date.

Financial health of schools

When we consider whether a school is a “going concern”, we consider whether it can continue to meet its financial obligations for the 12 months from the date of our audit report. This means that, as well as considering the school’s financial position at balance date, we also consider the impact of any significant events after balance date, such as the Covid-19 outbreak.

If we consider a school to be in financial difficulty we ask whether the Ministry will provide a letter of support confirming its continued support to the school. We usually identify about 40 schools each year that need letters of support. For 2019, we identified 38 schools that were in financial difficulty, so did not see a large increase due to the impact of Covid-19. However, it is important to note that at the time of reporting we have fewer audits complete than in a normal year.

Based on the financial information collected by the Ministry by mid-October, schools received $499 million of locally raised funds in 2019, and 511 schools received $153 million of revenue from international students. Of those schools, we identified that the revenue for 46 schools was equivalent to more than 20% of their expenditure (excluding teachers’ salaries and notional rents that are funded directly by the Ministry), with the highest being 49%.

Schools might find that they are not able to rely on the funding sources that they have in the past. How well schools manage a steep reduction in revenue will depend on the strength of their financial position and good governance. The analysis in our report identified that many schools have sound cash and investment balances, although some of those funds might be being held for a particular purpose. It is important that schools budget carefully in the coming years and take action to reduce spending if they need to.

Update on school payroll

Matters we have raised previously about payroll reporting for school financial statements have now been resolved. We also continue to see improvements in data quality with fewer payroll errors reported.

Individual schools are responsible for detecting errors by reviewing their fortnightly payroll reports. These reports are difficult to understand and review and we identify a number of schools each year that are not adequately reviewing them. This increases the risk of fraud or error. Although we have been told that the new school payroll service, EdPay, will include some validation checks to reduce errors, we see an opportunity to build in additional controls to ensure that payroll transactions are accurate and appropriately authorised to reduce dependence on the review of these payroll reports.

Concluding comments

There continues to be strong collaboration between your staff and my staff to improve the school audits process. Thank you for this and your ongoing support for the work of the Office.

I am happy to meet with you to discuss the contents of this letter and the attached report.

Nāku noa, nā

Signature - JR

John Ryan
Controller and Auditor-General