Auditor-General's overview

Tertiary education institutions: What we saw in 2021.

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

Tertiary education is important to New Zealand's economic growth and social well-being. The strength and quality of our tertiary education institutions are always critical, but they are particularly important as we recover from the Covid-19 pandemic.

In December 2021, I published the main findings from our 2020 audits of tertiary education institutions. This report expands on those findings and provides my observations on the tertiary education sector in 2021. It focuses on two key areas – the ongoing vocational education reform programme and the impacts of the Covid-19 pandemic on the tertiary education sector.

The reforms aim to create a unified vocational education system that responds to the needs of learners and employers. They provide an opportunity for tertiary education institutions to deliver a new level of accountability to Parliament and the public, including information that better reflects the sector's underlying performance.

Although disruptive and challenging, the Covid-19 pandemic has led to changes in the way tertiary education institutions deliver tertiary education. The pandemic has also brought the sector's financial resilience into sharp focus. This will likely lead to new ways of operating that will help tertiary education institutions to be financially sustainable in the long term.

The vocational education reforms

The vocational education reforms are the most significant reforms in the tertiary education sector in 25 years.

I acknowledge the complexity and scale of the work that has been done to implement the vocational education reforms so far. I also appreciate that there is still much to be done for the reforms to succeed. As these changes are being implemented, tertiary education institutions continue to deliver tertiary education as usual.

Creating Te Pūkenga – New Zealand Institute of Skills and Technology (Te Pūkenga) on 1 April 2020 was central to the reforms. On that date, the 16 institutes of technology and polytechnics were disestablished and became Crown entity subsidiary companies (the subsidiary companies). The Education and Training Act 2020 states that the subsidiary companies will continue in existence until they become fully integrated with Te Pūkenga, which will be on 31 December 2022 at the latest.

Because of its central role in the reforms, Te Pūkenga needs to be clear about its operating model – that is, what it delivers, how it delivers it, and the assets, infrastructure, and capabilities it needs.

Te Pūkenga needs a robust performance and accountability framework for it, Parliament, and the public to understand how well the reforms are progressing. This framework needs to be transparent about whether Te Pūkenga has met its performance targets and show how Te Pūkenga will improve on its performance over time.

There is a real opportunity for Te Pūkenga to build a new and meaningful approach to engaging with the communities it serves. Part of that involves reporting on its performance to those communities. Not only does Te Pūkenga need to be accountable at a whole-of-system level but it also needs a high level of regional and local accountability.

Te Pūkenga was set up almost two years ago. I expected it to have a detailed operating model and performance and accountability framework by now. I also expected the model and framework to be well understood throughout the sector. I acknowledge the progress Te Pūkenga has made with this work, including the recent publication of the 2022 Statement of Performance Expectations, but neither the model nor the framework is ready to be implemented yet.

The Government has placed higher performance expectations on tertiary education institutions through the vocational education reforms. For example, the Tertiary Education Commission (the Commission) has advised that the new unified funding system means that it will have "significantly heightened" performance expectations of tertiary education institutions.

Sector leaders need to ensure that they have credible plans for meeting those expectations and robust performance measures that reflect them.

The Commission is responsible for leading the vocational reform programme, in collaboration with other agencies, including the Ministry of Education, New Zealand Qualifications Authority, and the Ministry of Business, Innovation and Employment. Part of the Commission's leadership includes ensuring that the reforms have clear performance measures. The Commission also needs to have the capacity and capability to monitor the reforms' progress and the performance of Te Pūkenga.

The vocational education reforms have a strong focus on meeting the needs of all students. This includes students that the tertiary education system has not served well historically – such as Māori, Pasifika, and disabled students.

According to the Commission's Annual report for the year ended 30 June 2021, the 2022 goals for Māori and Pasifika student achievement are unlikely to be achieved. It is important that sector leaders prioritise developing appropriate strategies, processes, and performance measures to allow Te Pūkenga to determine whether it is improving its performance for these students.

It is also important that Te Pūkenga focus on the subsidiary companies' underlying financial issues. I am concerned that there is not yet a detailed plan about how fully integrating the subsidiary companies and introducing the new Te Pūkenga operating model will address these issues. We understand that there is currently no reporting against actions to improve the subsidiary companies' financial sustainability.

Because of the reforms' significance and the improved outcomes that they aspire to, it is important that Parliament and the public are easily able to assess the progress Te Pūkenga is making. We will continue to report on the financial and performance information of Te Pūkenga as the reforms progress.

Ongoing impacts of the Covid-19 pandemic

The Covid-19 pandemic continues to impact the tertiary education sector. Border restrictions have significantly reduced the number of international student enrolments in Te Pūkenga and most universities.

This has affected several tertiary education institutions' financial results. Although increased domestic enrolments have replaced some of this lost revenue in the short term, parts of the sector are expecting a decrease in domestic enrolments in 2022.

The Covid-19 pandemic has changed the way that tertiary education is delivered. Mixed model or dual delivery (that is, both on-campus and online delivery) is now common practice. Although this allows tertiary education institutions to reach as many students as possible, it can be time consuming and difficult for teaching staff. It also creates added pressure for them.

Tertiary education institutions' financial robustness is critical to maintaining quality educational outcomes. Although tertiary education institutions may be able to absorb short-term revenue losses, it will be important for them to reconsider their medium- to long-term forecasts to take account of further uncertainty and disruptions. In 2020, many universities, wānanga, and subsidiary companies of Te Pūkenga reported deficits.

Given the many interdependencies the tertiary education sector has with other sectors, an integrated and strategic approach to the sector's recovery from the Covid-19 pandemic is needed. Labour market and immigration settings are directly relevant to tertiary education institutions' operations. Therefore, any changes made to these settings can have significant impacts on the tertiary education sector.

Sector leaders told us that they will need to rethink their international student strategies so that they are less vulnerable to any future border restrictions. They plan to focus on diversifying where and what they deliver, rather than readopt their previous approach to international learners.

The New Zealand International Education Strategy was released in 2018. It aims to create an environment where international education can thrive and provide economic, social, and cultural benefits for New Zealand.

In July 2020, the Government developed its long-term strategic recovery plan for international education. This plan is being revised so that it remains fit for purpose in bringing stability to the international tertiary education sector. I will watch the plan's implementation during 2022 and beyond with interest.

I would like to thank those in the tertiary education sector for their resilience through what has been a challenging last two years. I would also like to thank my staff and the private sector auditors who audit the public organisations in the tertiary education sector on my behalf.

Nāku noa, nā

John Ryan
Controller and Auditor-General

7 April 2022