Auditor-General's overview

E ngā mana, e ngā reo, e ngā karangarangatanga maha o te motu, tēnā koutou.

Tertiary education is important to many New Zealanders’ personal development and to the country’s future 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 our tertiary education institutions (TEIs).

In a Covid-19 world, the strength and quality of TEIs will be even more critical. They will play a crucial role in our success as a nation in recovering from the consequences of the pandemic and in positioning the country for future success.

This report summarises the main findings of our 2019 audits of the 27 public TEIs. These consist of eight universities, three wānanga, and 16 institutes of technology and polytechnics. We also comment on the tertiary education sector’s operating environment in 2020, including the effects of the reforms of vocational education and Covid-19, and what this might mean for the sector in 2021.

Reform of vocational education

On 1 April 2020, the 16 institutes of technology and polytechnics became Crown entity subsidiary companies of Te Pūkenga – New Zealand Institute of Skills and Technology. This is part of an overall programme of reforms that is far from finished.

The subsidiary companies will be in place until 31 December 2022, when they will merge with Te Pūkenga to form one organisation. This is a longer transition period than the Government originally consulted on.

In my submission on the reforms during that consultation, I raised concerns about the risks of merging the institutes of technology and polytechnics into Te Pūkenga in the original time frame. The extended time frame has mitigated some, but not all, of these risks.

Early certainty about what is changing and what is not changing will help staff and students manage the almost three-year transition period.

In early November 2020, Te Pūkenga announced that it had appointed consultants to co-design the way it will deliver tertiary education. Te Pūkenga expects to have completed the design stage by the end of 2021, but some aspects of the plan will take longer to carry out. Work on a new unified funding system for vocational education is also still under way.

In my submission on the reforms, I said that the design and funding of vocational education would be integral to the future success of Te Pūkenga. In the coming years, I intend to look at whether Te Pūkenga is meeting the aspirations set out in the reform proposals, including building a financially sustainable network of vocational education.

Financial challenges for tertiary education institutions

Many institutes of technology and polytechnics had been experiencing increased financial difficulty for several years before Covid-19. This is because domestic student enrolments had declined from the levels they had been at after the global financial crisis in 2008.

By 2019, only four out of 16 institutes of technology and polytechnics (Ara Institute of Canterbury, Eastern Institute of Technology, Southern Institute of Technology, and the Open Polytechnic) finished the year in surplus and in a sound cash position. There are indicators that most, if not all, financial measures of performance for what are now the Te Pūkenga subsidiaries will have worsened in 2020.

Universities generally ended 2019 in a better financial position than 2018. However, Covid-19 has brought significant financial challenges for universities. In 2020, universities have had lower revenue from international students, research, commercial operations, and charitable donations.

Although they are still uncertain, the immediate effects of Covid-19 on wānanga are less obvious than those for ITPs or universities. The border closure did not affect their revenue in 2020 because wānanga do not have many, or any, international students. However, other economic factors related to Covid-19 might affect enrolments at wānanga in the future.

Initial responses to Covid-19

In their initial response to Covid-19, TEIs appear to have provided good levels of support for the well-being of students. The Government has announced further investment in mental health services for all domestic students studying at TEIs for 2021.

TEIs worked to adjust the nature, timing, and frequency of student assessments, and they published policies about how they would adjust assessment grades to take account of Covid-19.

Students were most concerned about the change from face-to-face teaching to online teaching. Many TEIs were reasonably well prepared for providing courses online. For others, moving to online courses was an emergency response, and this was more stressful for staff and students.

Recovery goals for the sector

The response phase to Covid-19 was, and continues to be, important. However, Covid-19 has fundamentally reset TEIs’ operating environment for the foreseeable future. Even before Covid-19, the changing expectations of employers and students put pressure on traditional operating models and financial sustainability.

In my view, many TEIs are still in a “get-through” phase. They are focusing on short-term measures to address immediate issues, such as revenue shortfalls. As part of its recovery strategy, the Government intends further actions to achieve its policies of strengthening the sector and transforming to a more sustainable future state.

Te Pūkenga has an opportunity to align its operating model and its role in international education with proposed changes to the funding system for vocational education.

My view is that, for the university sector, there is a long way to go in building a strong consensus for recovery and a sustainable operating environment for higher education. Without this consensus, there is a risk that tactical response decisions being made now might be detrimental to successful outcomes in the long term.

Sensitive expenditure

This report includes findings from reviews we carried out into sensitive expenditure by two TEIs. Poorly managed sensitive expenditure undermines the public’s trust and confidence in public organisations. This is no different in the TEI sector than it is for any other publicly funded organisation.

Although TEIs have more autonomy, they are subject to the same expectations about spending public money as other public organisations. I expect all TEIs to have robust sensitive expenditure policies. Those policies must be supported by a strong “tone from the top” on what is and what is not appropriate when spending public money.

To assist organisations, I have recently published updated guidance on sensitive expenditure. I recommend that all public organisations carefully consider how well their policies and practices align with this guidance.

In closing ...

I want to thank the staff and governors of TEIs, who worked hard to meet their accountability requirements in what has been an extremely challenging environment for them and their auditors.

Nāku noa, nā

John Ryan
Controller and Auditor-General

3 December 2020