Part 2: What did our audit reports say?

Results of the 2019 school audits.

In this Part, we set out the results of the 2019 school audits2 and the results of any audits for previous years that were completed since we reported on the 2018 school audits.

Impact of Covid-19

As part of our audit procedures, we consider any events that might have happened since the school’s balance date (31 December) but before the audit report is issued, and whether these might affect the school’s financial statements. These are referred to as “subsequent events”. Covid-19 and the closure of the schools during Alert Levels 3 and 4 was a significant subsequent event. Because it did not affect the school’s financial position as at 31 December, no adjustments needed to be made to the school financial statements. However, schools were asked to explain the impact Covid-19 had on the school in their financial statements.

Because the Ministry continued to fund schools through their operations grants while they were closed, and additional resources were provided to help the transition to remote learning, the impact on most school finances was not significant in the short term. However, schools that are heavily reliant on locally raised funds, and in particular international student revenue, could have a significant loss of revenue. We discuss the implications of this on the financial position of schools in Part 3 of this report.

The audit reports of all schools for the 2019 financial year draw readers’ attention to the disclosures in financial statements about the impact of Covid-19.

Modified audit opinions

We issue modified audit opinions if we cannot get enough evidence about a matter or if we conclude that there is an error in the financial information, and when that uncertainty or error is significant enough to change a reader’s view of the financial statements. We issued unmodified audit reports on the financial statements of most schools.

Of the audits completed for 2019, nine audit reports contained a modified audit opinion. We also issued a further seven modified opinions for previous-year audits that were outstanding since our last report. We explain the types of modified opinions we issued below.3


If a school has prepared its financial statements inconsistently with applicable accounting standards, or we consider that they include a significant error, we issue an opinion that sets out where we “disagree” with the school. We issued this type of opinion for one school.

For the eighth year, we disagreed with William Colenso College for not preparing consolidated (or group) financial statements that included the transactions and financial position 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. The college disagrees with our assessment. As a result, the college is not reflecting all of its transactions and financial position to its community.

Additionally, the auditor reissued the audit report for William Colenso College’s 2018 financial statements on 16 June 2020 because the school reissued its financial statements. The previous 2018 financial statements referred in error to a breach of the borrowing limit. The updated audit report still referred to the disagreement noted above (and reported on last year) and also explained that the school’s financial statements were replaced.

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.


We could not get enough assurance over some aspects of spending for the Combined Board of Middle School West Auckland and South Auckland Middle School for 2018, and Te Kura Kaupapa Māori o Te Kura Kokiri for both 2014 and 2015.

Middle School West Auckland and South Auckland Middle School previously operated as charter (or partnership) schools. The contract for the charter schools was terminated in December 2018 and the schools were established as designated character schools. The schools opened as state schools in January 2019. The combined board of trustees appointed to set up the newly established state schools were also members of the Villa Education Trust (VET) board, the previous sponsor of the charter schools.

In August 2020, we completed our audit of the combined board’s initial financial statements for the period from August to 31 December 2018. In our audit report, we explained that we could not obtain sufficient evidence to confirm the validity of a payment of about $467,000 for a management fee the combined board paid to VET. We also found no evidence that the conflicts of interest, which resulted from having members in common on both boards, were appropriately managed. This is a matter of some concern to the Auditor-General and we asked the Ministry to investigate. The Office will decide on subsequent action after the Ministry has reported back to us.

In our audit report on the 2014 and 2015 financial statements of Te Kura Kaupapa Māori o Te Kura Kokiri, we explained that we could not get enough evidence to support all expenditure under the direct control of the board of about $426,000 and $435,000, respectively, because there was inadequate documentation for payments. We also referred in our audit report to some unusual spending (see paragraph 2.37). We have issued similar opinions every year since 2010.

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 Saint Pius X Catholic School (Melville), Te Kura Kaupapa Māori o Mangatuna, Tinui School, and Taumarunui High School Community Trust. This was because these schools had limited controls over collecting money and recording it. We issued a similar opinion for Te Kura Kaupapa Māori o Mangatuna for 2018 since we reported last.

We reported on insufficient controls over revenues for both Te Kura Kaupapa Māori o Mangatuna for the 2016 year and Taumarunui High School Community Trust for the 2018 year in our report last year. We have not completed the 2019 audits of the other three schools that we reported on in this category last year.

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 required 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 for periodic maintenance.

School boards are responsible for calculating their cyclical maintenance provision based on the best information available. Historically we have found that some schools do not have evidence to show auditors that their cyclical maintenance provision is reasonable. Last year we reported that more schools than in previous years (15 in total) could not provide enough evidence that the provision for cyclical maintenance in their financial statements was reasonable. Since our last report we have issued only two opinions referring to a lack of evidence for a schools cyclical maintenance provision. These were for Golden Bay High School and Te Kura Kaupapa Māori o Tuia Te Matangi. Both of these were 2019 audits.

Both schools had similar audit reports for 2018. Of the other 13 schools we reported on last year, two are still to complete their audits. For the other schools, the auditor could get enough evidence for 2019 and we could issue standard audit reports.

Other matters

Vanguard Military School (2018) – This school was newly established as a designated character school after the closure of the previous charter school. We could not get enough evidence about the value of inventory the school included in its financial statements. Because the auditors were appointed in 2019 after the state schools were established, the auditors could not attend the year-end inventory count and verify the inventory held at 31 December 2018.

Blue Mountain College, Pekerau School, and Mountainview High School (2018) – In the previous year for each of these schools, we could not get enough assurance about some of the spending of the Board. For Pekerau School we were also unable to get enough assurance about the completeness of the locally raised funds revenue in the previous year. As a result, in this year’s audit report we have referred to a limitation on the comparative information in the financial statements. For the year being audited, we could get the necessary evidence we needed.

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 statements.

These comments are not modifications of our opinion. We are satisfied that the financial statements fairly reflect the schools’ transactions and financial position. 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 difficulty, which we discuss in Part 3.

As explained in paragraph 2.4, we drew readers’ attention to the impact of Covid-19 on school financial statements in all our audit reports. Below we set out other matters we have drawn attention to in our audit reports this year.

Matters of public interest

We issued 22 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) (2017) – For the eighth 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.

Consistent with earlier audit reports, the 2017 audit report also notes 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 2018 and 2019 audits for the school are still outstanding.

Overseas travel

Taumarunui High School (2017) – The school spent $60,475 on two trips during 2017. The principal travelled to Europe to market the school to overseas students, and to the United States to learn about Big Picture learning. Both of these trips were consistent with the school’s strategy. However, the school was unable to provide sufficient evidence for $10,904 of the expenditure incurred by the principal. The amounts spent were also significantly higher than was formally approved by the board.

Te Kura Kaupapa Māori o Mangatuna (2017) – The kura spent $36,200 on overseas travel. $18,077 was spent on a professional development trip to Calgary for three staff members and $18,133 on further travel through the United States, which included visiting Disneyland and other resorts. The board should not use school funds for travel that does not have a clear educational purpose.

We discuss overseas travel further in Part 4.

Other matters

Westlake Boys’ High School (2018) – During 2018, the trustees wound up the Westlake Boys High School Foundation and transferred the remaining assets ($349,000) to a new trust, the Westlake Boys’ Community Foundation. Because the Westlake Boys’ High School Foundation had been assessed as being under the “control” of the school board for financial reporting purposes, the school had reported as a Group (a combination of the school’s and foundation’s financial information). The Westlake Boys’ Community Foundation is a new legal entity and has not been assessed as a public entity, so the school will not include the financial information for this new foundation in its financial statements.

As a public entity, the Westlake Boys High School Foundation was audited by the Auditor-General. In paragraph 2.39 we refer to our 2018 audit of the foundation.

Lumsden School (2017) – The board transferred $31,730 of maintenance funding provided to maintain the school buildings to a trust without the approval from the Ministry of Education. We also drew attention to a conflict of interest because the principal is also a trustee of the trust.

Whangamarino School (2017) – We could not verify about $22,000 of the school’s expenditure because there was inadequate documentation. As a result, we could not conclude on whether the expenditure related to the school.

Te Kura Kaupapa Māori o Te Tonga o Hokianga (2016 and 2017) – The kura was subject to a significant fraud over several years. Our audit report referred to the disclosures in the financial statements about the losses from this fraud. The kura’s audits were delayed while the alleged fraud was investigated and eventually prosecuted. Our audit report also referred to the fact that this meant the kura had missed the statutory deadlines for reporting.

Te Kura Kaupapa Māori O Te Kura Kokiri (2014 and 2015) – As well as modifying our opinions because of limited controls over payments, we also outlined that the school spent unusually large amounts on: fuel, repairs, and maintenance for cars not owned by the school; marae rentals; and other general expenses. The audit reports for 2016 to 2019 are still outstanding.

We drew attention to five schools that could not reasonably estimate their cyclical maintenance provisions: Arthur Street School, Hagley Community College, Maniototo Area School, Oxford Area School, and Russley School. These schools were uncertain about whether they would need to maintain their buildings in the near future due to significant future building works. The uncertainties for some of these schools arise because they are part of the Christchurch Schools Rebuild Programme.

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 the closed schools (Figure 4), which refer to the fact the financial statements are prepared on a disestablishment basis.

Figure 4
Schools with financial statements prepared on a disestablishment basis

We referred to the fact that the financial statements of seven schools were prepared on a disestablishment basis. These schools were either closed or due to close.

2019 audits Previous-year audits
Homai Early Childhood Centre Avondale School (Christchurch) (2016)
Te Kura o Hata Maria (Pawarenga) Mapiu School (2018)
Tuturumuri School Sunnydene Special School (2016)
Westlake Boys’ High School Foundation (2018)

Source: Office of the Auditor-General.

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 primarily about financial reporting. The main Acts that influence the accountability and financial management of schools are the Education and Training Act 2020 (this replaced the Education Act 1989 on 1 August 2020) and the Crown Entities Act 2004.

Usually, schools disclose breaches of the Education and Training Act4 and the Crown Entities Act in their financial statements. Sometimes we report on breaches in a school’s audit report. From our audits this year we identified that:

  • 31 schools (2018: 42) borrowed more than they were allowed to (Regulation 12 of the Crown Entities (Financial powers) Regulations 2005);
  • two schools (2018: 1) did not use the Ministry’s payroll service to pay teachers, which they must use for all teaching staff (section 578 – previously section 89(2) of the Education Act);
  • three schools (2018: 10) lent money to staff, which they are not allowed to do (section 154 – previously clause 28 of Schedule 6 of the Education Act);
  • five schools (2018: 5) invested money in organisations without the Ministry’s approval (section 154 – previously clause 28 of Schedule 6 of the Education Act);
  • six schools (2018: 4) had trustees that did not comply with rules about conflicts of interest (sections 9 and 10 – previously section 103 of the Education Act);
  • two schools (2018: 2) did not comply with the banking arrangements set out in section 158 of the Crown Entities Act; and
  • two schools (2018: 2) breached legislation for other reasons.

We have provided details of all the non-standard audit reports issued to schools and breaches of legislation reported, as at 31 October 2020 on our website. The data is also provided as an interactive map.

2: Including the audits of entities related to schools.

3: These audit reports are for the 2019 year unless noted otherwise.

4: References are to the Education and Training Act unless otherwise stated. The Education Act 1989 would still have applied when most of the audits were completed (the Education and Training Act 2020 came into force on 1 August 2020), so we have also included the previous reference in the Education Act 1989.