Results of the 2020 school audits

3 December 2021

Iona Holsted
Secretary for Education
Ministry of Education

Tēnā koe Iona


Please find enclosed our report on the results of the 2020 school audits.

This year our school audits were again disrupted by Covid-19, with only 70% of the 2020 school audits completed by the 31 May deadline. While this was better than last year, border closures have created an auditor shortage and our auditors could not complete all their school audits on time. There were also more audits than normal carrying over from the previous year following last year’s disruptions.

This was particularly disappointing because the work done in recent years to improve the flow of information for audit resulted in a record 96% of draft financial statements received by 31 March. We appreciate all the hard work that schools and their financial service providers put in to achieve this. Getting the information as early as possible gives us the best chance of completing as many audits as possible on time.

We have made steady progress since May. As at 31 October, 92% of the 2020 school audits had been completed and auditors are working hard to complete as many as possible by the end of the school year.

Financial health of schools

Our expectation was that Covid-19 would not significantly affect most schools financially because schools were given additional support through 2020. However, the restrictions put in place as alert levels changed meant that many schools could not carry out their usual fund-raising activities. The border closures also meant there were fewer international students. As a result, we were concerned that more schools would find themselves in financial difficulty.

If we consider a school to be in financial difficulty, we ask whether the Ministry of Education (the Ministry) will provide a letter of support confirming its continued support of the school. We usually identify about 40 schools each year that need letters of support to underpin the going concern assumption adopted in their financial statements. For the 2020 audits, we identified only 17 schools that needed a letter of support. We also carried out some analysis of the schools’ financial information held by the Ministry. This showed an overall improvement in the financial position of schools at the end of 2020. 

Total funds that schools raised locally reduced for schools in all regions during 2020 and international student revenue also reduced, but only by about a quarter. However, additional government funding mitigated some of this loss in revenue. This included the Covid-19 support funding, including $20 million to support schools with international students, and funding for those decile 1 to 7 schools that opted into the donation scheme. While Covid-19 support has been available in 2021 during alert level changes, the levels of Covid-19 support has been less this year, so our 2021 audits might show a different picture. It is important that schools carefully consider the changed circumstances in which they are now operating and plan accordingly.

What we found during our audits

As is the case each year, we issue standard unmodified opinions for most of the schools we audit. This means that, in our opinion, those schools’ financial statements fairly reflect their transactions for the year and their financial position at the end of the year. In our attached report, we include details where we have reported on specific matters. These are opinions where we cannot get enough evidence about a matter, or we conclude there is an error in the financial statements. In addition, where we want to draw readers’ attention to a specific matter, we include an additional paragraph in our audit report. Since our last report we have issued more “modified” audit opinions than usual, but nearly half of them are for previous years’ audits.

We continue to have more previous years’ audits outstanding than normal at this time of year and some schools have multiple years in arrears. The ongoing auditor shortage has affected our ability to get these audits up to date. We are keen to get these up to date as soon as possible and appreciate the help of your regional Finance Advisors in doing so.

We have repeated two recommendations for the Ministry from our previous reports on school audits:

  • The first is to make sure that schools are properly planning for their future maintenance. This is an area that causes a lot of work for auditors and despite raising this matter regularly in our reports, it has not improved. We have issued more audit opinions than normal this year (23) where we could not get enough information about a school’s cyclical maintenance provision. We understand the Ministry is working on further guidance to schools about this. We will also be collecting information during our 2021 school audits to share with the Ministry to help resolve this long-running issue. 
  • The second is to make sure that changes to the school payroll result in schools having appropriate controls over all their payroll transactions. The audit of school payroll for the 2020 audits went smoothly, apart from a small delay in distributing the payroll reports to schools. However, our auditors have since made us aware of a change to the payroll system as it has moved to EdPay, which means that a key control schools rely on is no longer available. We have asked the Ministry to follow this up with Education Payroll Limited.

Future of school audits

School audits have become more complex over time because of increased financial reporting requirements and increasing professional requirements of auditors. At the same time the number of audit firms in New Zealand has been reducing, a trend worsened by the current shortage of auditors. This made the recent auditor appointment process for the next three years’ school audits challenging and has meant a substantial increase in audit fees for most schools. It is therefore an opportune time to consider the future of school audits so that schools can continue to be accountable, and that accountability can be efficient and cost-effective.

I appreciate the collaborative way your staff have worked with my staff to look for opportunities for efficiencies in the school audit process. I look forward to us working together in the future to identify further efficiencies and explore the future accountability of schools. The changes to the school planning and reporting framework and the operational redesign of the Ministry both provide opportunities to consider future reporting and assurance requirements for schools, and how they can be best supported in financial matters.

Concluding comments

While the borders remain closed and restrictions continue, we will face challenges in completing school audits, and we cannot rule out further delays for the 2021 school audits. To mitigate against this, we re-sized some audit portfolios during the recent appointment process to better reflect auditors’ capacity so that audits can be completed on time. However, the changes made to the school payroll this year could affect the amount of work auditors need to do at individual schools next year.

This year’s report shows an overall continued improvement in the school audit process, which is a testament to the good communication and collaboration between our staff. Thank you for your ongoing support.

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