Appendix 2: The school payroll and cyclical maintenance matters

School payroll

The processing of payroll transactions has moved progressively from Novopay Online to EdPay in recent years and in October 2021 EdPay fully replaced Novopay Online, which was decommissioned.

In October 2021, we found out that decommissioning Novopay Online meant that the Novopay Online transaction report would no longer be available. This was a report that many schools relied on to check the accuracy of payroll-related changes. Schools were not given any guidance about what they could do instead to check whether payroll changes had been correctly processed.

The absence of the Novopay Online transaction report meant we had to carry out additional and unplanned payroll testing for many of our school audits. Where possible, our auditors seek to rely on controls because this reduces the amount of other testing required. Because of the change to the payroll system, and particularly the absence of the Novopay Online transaction report, auditors were not able to rely on payroll controls for most schools.

Various EdPay transaction history reports are now available to schools so that the accuracy of payroll changes can be checked. However, because the transaction history reports were not all in place until the end of March 2022, we expect auditors will be unable to rely on payroll controls for the 2022 school audits. Controls need to be operating for the full year for an auditor to be able to rely on them. Therefore, additional payroll testing will again be required for many school audits for the 2022 year.

The additional payroll testing contributed to a noticeable delay in audits being completed.

Cyclical maintenance

Schools must maintain in a good state of repair the property that the Ministry (or proprietor, for state-integrated schools) provide for their use. Schools receive funding for this as part of their operational grant.

A cyclical maintenance provision is included in schools’ financial statements to account for their obligation to maintain the property. Schools need to plan and provide for future significant maintenance, such as painting the school buildings.

Auditing the cyclical maintenance provision has always been challenging, and we have reported on this aspect of the financial statements many times in the past. Many schools do not fully understand the cyclical maintenance provision and do not always have the necessary information to be able to calculate it accurately.

Schools’ 10-year property plans, which are now prepared by property consultants engaged directly by the Ministry,² should include maintenance plans that set out how schools should maintain their buildings for the next 10 years. Schools typically use the plans to calculate their cyclical maintenance provisions.

Where possible, auditors have relied on cyclical maintenance plans that are prepared as part of schools’ 10-year property plans, because these are prepared by a Ministry-approved property consultant. However, recent changes to an auditing standard mean that school auditors needed a greater understanding of the information underlying the cyclical maintenance provision than they did before.

This year, we gathered information from our auditors about whether schools had reliable cyclical maintenance plans to support the provisions recorded in their 2021 financial statements. About 21% of schools did not have reliable plans.³ This is a long-standing issue. In our report on the results of the 2020 school audits we repeated our earlier recommendation that the Ministry ensure that schools comply with their property planning requirements by having up-to-date cyclical maintenance plans.

We have shared the results of the information we gathered with some of your staff and will be following this up directly with your property team.

If a school does not have a maintenance plan it needs to source information to be able to calculate its cyclical maintenance provision. This is time-consuming for the school. This year our auditors found that some schools without a plan struggled to obtain information, such as painting quotes, to support their cyclical maintenance provision because of the scarcity of suppliers.

2: The Ministry has directly engaged property consultants to prepare school 10-year property plans since 1 July 2019. For any plans prepared before this, the school Board engaged the property planner directly from a list of Ministry-approved planners.

3: Of the 85% of schools that have completed 2021 audits.