Tertiary education institutions: Main findings from our 2020 audits

Our letter to the chairpersons and chief executives of Te Pūkenga and wānanga, and chancellors and vice-chancellors of universities, about the main findings of our 2020 audits of tertiary education institutions.

15 December 2021

Tēnā koutou


This letter sets out the main findings from our 2020 audits of tertiary education institutions (TEIs) and my general observations on the impact of Covid-19 on the tertiary education sector. Given the significant reform of vocational education, I have also included specific commentary about Te Pūkenga and the ongoing financial sustainability of its Crown entity subsidiaries.

It is self-evident that the current environment is challenging for TEIs. Covid-19 continues to impact the tertiary education sector in many ways and, for large parts of the sector, significant reforms are under way or planned. I acknowledge the particular impact Covid-19 has had on the financial position of several TEIs and on the well-being of learners and staff.

During the 2020 audits of TEIs, TEIs and our auditors were required to consider what implications Covid-19 had on their organisations. Nearly all TEIs disclosed the possible significant effects of Covid-19 in their financial statements, and our audit reports included emphasis of matter paragraphs drawing attention to those matters. Major impacts included a reduction in international students and a reduction in service income because many campus services were not operational for a part of 2020.

In 2020 and 2021, the number of international students reduced across the sector. Although the average reduction in international student numbers across all TEIs was about 10% between 2019 and 2020, the reduction across the Te Pūkenga network of Crown entity subsidiaries was closer to 15%.1

The strength and quality of TEIs is important in normal circumstances. It is even more important during a pandemic. The tertiary education sector is expected to play a vital role in New Zealand’s recovery and ongoing development. Ensuring that TEIs remain financially viable will be critical to this.

Ongoing implementation of the reforms of vocational education

The reform of vocational education currently under way is very significant. In our last report on the results of the TEI audits, I noted the work that had been done to date.2 This includes the establishment of Te Pūkenga and the subsequent creation of its Crown entity subsidiaries and the work under way by the Tertiary Education Commission and the Ministry of Education on the Unified Funding System.

Further work has progressed in 2021, including the establishment of the Workforce Development Councils and the integration of the “arranging training function” of three Transition Industry Training Organisations into Te Pūkenga. Te Pūkenga also completed its first annual report and had its first annual review before the Education and Workforce Select Committee.

Although good progress has been made in many of the establishment activities for Te Pūkenga, timely completion and implementation of Te Pūkenga’s detailed operating model is vital. The proposed operating model describes the future experience that learners, employers, staff, iwi, hapū, and Māori will have. It also describes how Te Pūkenga, as a network, will advance equity, especially for Māori, Pacific, and disabled learners. However, the proposed operating model does not confirm the new organisational design and structure or how governance arrangements will work.3 I understand this work is scheduled to take place between February and May 2022.

Establishing a clear detailed operating model and organisational design will allow Te Pūkenga to determine what capabilities it needs to develop, determine what structure it needs to operate, and provide a path to ensuring that its asset base and systems support this. It will also allow learners, staff, Parliament, and the wider community to better understand how it intends to deliver on the vision for the reform and how it can be held to account for this.

Over time, Te Pūkenga will develop the capability to support work-based, campus-based, and online learning as a unified system. It is therefore vital that the way in which Te Pūkenga measures progress toward this goal – through its performance and accountability framework – is clear. In 2020, in the absence of a performance framework, Te Pūkenga developed measures and targets from its transitional plan and reported against those. Additional measures for Student Achievement Component funding, international equivalent full-time students, and achievement by Māori students were also included.

Te Pūkenga will need to develop a performance framework, which should include appropriate performance measures that clearly show how it is delivering a unified, sustainable, and public network of regionally accessible vocational education. We will continue to monitor and provide comment to Te Pūkenga as it develops its performance framework. We will also consider how well placed the Tertiary Education Commission is to monitor Te Pūkenga’s performance against its goals.

Financial sustainability of the Crown entity subsidiaries of Te Pūkenga

As noted in our 2019 report, many institutes of technology and polytechnics (ITPs) have been experiencing increasing financial difficulty for several years before Covid-19.

In 2019, the overall net deficit for all ITPs was $48.5 million. In 2020, the overall net deficit was $27 million.

Figure 1: Institutes of technology and polytechnics’ combined surpluses and deficits from 2016 to 2020

Figure 1: Institutes of technology and polytechnics’ combined surpluses and deficits from 2016 to 2020 

Note: The numbers in each bar indicate the number of ITPs making up the combined net surpluses and deficits for those years.
Source: Tertiary Education Commission.

It is encouraging to see that the overall net deficit in 2020 has reduced compared to the previous year despite the reduction in international student numbers. However, we understand that this was because of the Government’s decision not to recover funding from tertiary education providers that under delivered in 2020 due to the effects of Covid-19. It will be important for Te Pūkenga to address the underlying issues that have contributed to the ongoing deficits within the tertiary education sector. A clear and detailed operating model will provide a base for Te Pūkenga to set out how it intends to do this.

In March 2022, I intend to publish a report on the TEI sector. This report will include further reflections and detailed analysis of the matters that I have raised in this letter, including the ongoing impact of a reduction in international student numbers and financial sustainability across the tertiary education sector.

Should you wish to discuss any of the matters in this letter please contact Joana Johnston, our Sector Manager for Tertiary Education, at joana.johnston@oag.parliament.nz. Because of the public interest in the tertiary education sector, I will also publish this letter on our website.

Nāku noa, nā

Signature - JR

John Ryan
Controller and Auditor-General

1: Figures calculated using TEIs’ 2020 annual reports, including Te Pūkenga.

2: Office of the Auditor-General (2020), Tertiary education institutions: 2019 audit results and what we saw in 2020 at oag.parliament.nz.

3: For Te Pūkenga proposed operating model summary, see tepūkenga.ac.nz.