Appendix: Results of our 2020 annual audits for tertiary education institutions

Audit reports

We issued unmodified audit opinions for 25 of the 28 TEIs. An unmodified opinion means that we were satisfied that the information reported fairly reflected those 25 TEIs’ activities for the year and their financial position at the end of the year. We issued one TEI with a qualified audit opinion, and we are yet to issue our audit reports on two TEIs.

Qualified audit opinion

We issued Universal College of Learning with a qualified audit opinion because the scope of the audit was limited. This limitation arose because Universal College of Learning could not reliably estimate the required seismic remediation work and, therefore, did not recognise the effect on the value of its Manawatū and Whanganui Campus buildings. At the time we issued our audit report, the seismic assessment work was still ongoing.

The cost for seismic remediation work could be substantial, and we were unable to determine if the book value of buildings was materially different to their fair value.

Except for the above matter, we were satisfied that the information we audited fairly reflected Universal College of Learning’s activities and its financial position as at 31 December 2020.

Emphasis of matter: Impact of Covid-19

Covid-19 has continued to impact the sector. TEIs and auditors have had to consider what implications Covid-19 had on their entities. All but one TEI disclosed the possible significant effects of Covid-19 in their financial statements. Our audit reports included emphasis of matter paragraphs drawing attention to those matters.

Emphasis of matter: Te Pūkenga subsidiaries to exist until 31 December 2022

The Te Pūkenga subsidiary audit reports that our auditors issued included emphasis of matter paragraphs drawing attention to the entities continuing to exist until 31 December 2022, when they will be fully integrated into Te Pūkenga.

Other matters of public interest – Te Pūkenga

Te Pūkenga came into existence on 1 April 2020 during Alert Level 4 lockdown. The permanent senior management team was established between July and November 2020. However, responding to the impacts of Covid-19 meant that management time was limited for non-Covid-19 matters, including the time needed to plan and budget for future years.

A transition pathway was established, with nine workstreams covering a variety of areas, including Partnership and Equity, Development of the Operating Model, Network Collaboration, Transition of the Industry Training Organisations, Capital Asset Strategy, and Academic Delivery Innovation.

The effect of managing the impacts of Covid-19 and the length of time to establish the senior management team meant progress on the workstreams by 31 December 2020 was slower than planned.

Te Pūkenga did not have a Statement of Intent and Statement of Performance Expectations in place for 2020. These are important documents to establish the basis for year-end performance reporting.

In our view, the performance framework in the Statement of Intent and Statement of Performance Expectations for 2021 needs significant improvement. This is because there is a risk that Te Pūkenga might be unable to adequately report on its performance next year.

March 2020 ITP disestablishment audits

On 1 April 2020, the 16 ITPs became subsidiaries of Te Pūkenga. Disestablishment audits for the period 1 January 2020 to 31 March 2020 were required to be carried out by 31 July 2020.

Of the 16 ITPs, 14 have now reported on the three-month period ended 31 March 2020. Out of these, only six reported on time. Tai Poutini Polytechnic and Western Institute of Technology at Taranaki have yet to report. For Tai Poutini Polytechnic, the delay in completing its 2018 audit, client matters, and the sequencing of audit work have all affected the completion of its disestablishment audit. For Western Institute of Technology at Taranaki, the delay is due to resourcing constraints and auditor resourcing pressures.

Universal College of Learning’s audit opinion continued to be qualified, as outlined above.

Timeliness of reporting – 2020 financial year

Despite the continued operational disruptions caused by Covid-19, all eight universities, all three wānanga, 13 of the 16 ITPs, and Te Pūkenga reported by the statutory deadline of 30 April 2021.

Tai Poutini Polytechnic, Waikato Institute of Technology, and Western Institute of Technology at Taranaki did not meet their statutory reporting deadlines. Waikato Institute of Technology adopted its audited financial statements in September 2021.

Tai Poutini Polytechnic and Western Institute of Technology at Taranaki have yet to report. The delay is due to the resourcing constraints in the finance teams of each entity and auditor resourcing pressures. Waikato Institute of Technology and Western Institute of Technology at Taranaki are currently sharing a chief financial officer (CFO) because Western Institute of Technology at Taranaki’s previous CFO left in October 2020.

It is important that public organisations continue to produce timely and accurate reporting to ensure that audits can be completed on time and results reported publicly. The challenges of Covid-19 and resource constraints for some ITPs and auditors have not made this possible in the current year.

Although end-of-year reporting describes events that have already happened, it provides the foundation for public accountability and is also an important input into future planning. High-quality, reliable, and independently assured information is important to maintaining the trust and confidence of Parliament and the public.

Preparation for audit

Even though a high proportion of TEIs meet their statutory reporting deadlines every year, doing so can involve hidden costs. We approved six requests from auditors to charge additional costs to TEIs because of delays and rework in auditing the 2020 financial statements and performance information.

TEIs can help the audit process to run smoothly. Having robust governance frameworks and internal controls are important for good stewardship of organisations and maintaining public trust and confidence. When they operate effectively, these frameworks and controls can reduce the amount of work auditors need to do.

Some common issues auditors had when auditing TEIs’ financial statements and performance information included:

• auditors receiving multiple versions of the financial statements;
• TEIs not having all the required information available at the start of the process, and not providing additional support in a timely manner during the audit process;
• auditors being unable to rely on organisations’ internal controls across a range of areas;
• a lack of internal quality review of the annual report by TEIs (including the financial statements and statements of service performance);
• accounting standards being inappropriately applied; and
• the impact of Covid-19 on the audit process and resources.

Given the accounting judgements and challenges that can arise from Covid-19, the importance of preparing for the audit process has never been more apparent.

Sensitive expenditure

Sensitive expenditure is any spending by a public organisation that could be seen to be giving private benefit to a staff member, their family, or friends. Spending that is inappropriate or that lacks a legitimate business reason risks harming a public organisation’s reputation and the public sector more generally.

Therefore, public organisations need to manage sensitive expenditure deliberately and diligently. As with all spending, it needs to be able to withstand public scrutiny.

Part of the Auditor-General’s wider mandate is to monitor how public organisations spend public money, including whether the spending provides, or might be seen to provide, some private benefit.

We inquired into the purchase of a house in Auckland for the University of Auckland Vice-Chancellor. The purchase gained significant public attention and was investigated for sensitive expenditure reasons. We published the report on our inquiry in November 2020.⁴

During our 2020 audits of TEIs, we noted various instances of non-compliance with the sensitive expenditure policies of several organisations. Issues concerning sensitive expenditure arise regardless of how much money is spent. Even a small amount can raise concerns if it appears to be improper.

TEIs should ensure that their policies include adequate guidance regarding handling sensitive expenditure and that these policies are consistent with good practice for public organisations. To assist organisations, we have published our good practice guides on our website.⁵

Audit recommendations

In 2020, we were pleased to note that no instances of fraud in TEIs were reported to us.

The top five types of recommendations our auditors made were for TEIs to improve:

• controls over expenditure and payroll systems;
• how TEIs applied their accounting policies;
• effectiveness and application of other policies, including those for spending on travel;
• their processes for valuing property, plant, and equipment, including maintaining the fixed-asset register; and
• their technical knowledge of, for example, accounting standards and how to present financial statements.

These types of recommendations are consistent with those we have made in previous years. TEIs implemented about 100 of our audit recommendations during 2020. However, at the end of 2020, there were still many recommendations across the sector that were still to be addressed. We expect TEIs to maintain a focus on making the improvements that have been identified and encourage audit and risk committees to regularly monitor progress against them.

4: See Office of the Auditor-General (2020), Inquiry into the University of Auckland’s decision to purchase a house in Parnell at oag.parliament.nz.

5: See Office of the Auditor-General (2020), Controlling sensitive expenditure: Guide for public organisations, at oag.parliament.nz.