Part 1: Completing school audits

1.1
In this Part, we report on how many audits have been completed in the year since our last report. Most of the audits we discuss were for the 2022 year, but others were audits from previous years that we have now completed. Our school audits include the audits of other public organisations related to those schools.

1.2
It was another challenging year for school audits.¹ We completed 1360 (55%) of the 2022 audits by the statutory deadline of 31 May 2023. This was slightly less than the 57% of 2021 audits completed by the statutory deadline last year, and less than the 70% completed by the statutory deadline in 2020. Although Covid-19 had little direct effect on the 2022 audits, the indirect effects have continued.

1.3
All school audits are carried out by auditor service providers on the Auditor-General’s behalf. A global shortage of auditors and the pandemic’s effects on staffing levels affected our ability to complete the 2021 school audits on time. To resolve this, many audit service providers had prepared for additional auditors to join their firms from overseas once the borders opened in 2022, but it took longer than expected for people to arrive in New Zealand.

1.4
School auditors usually perform their audit planning and interim procedures in October or November each year. However, for some firms, new staff arrived at the end of 2022 and they were not able to perform audit planning and interim procedures until 2023. There was also a significant backlog of 2021 audits to complete before auditors could start on 2022 audits (581 of the audits for 2021 were completed in the six months between July 2022 and December 2022).

1.5
For these reasons and despite the efforts of schools (90% provided draft financial statements for audit by the statutory deadline of 31 March), auditors could not complete all the 2022 audits on time. Auditors have made steady progress in completing school audits since 31 May 2023. As at 31 October 2023, we had completed 82% of the 2022 schools audits.

1.6
Before Covid-19, about 100 (4%) of the previous year’s audits would be unfinished by 31 October. Because of the delays experienced this year, 453 (18%) of the 2022 audits were not completed by 31 October 2023. Figure 1 shows the number of unfinished school audits as at 31 October 2023, compared to 31 October 2022 and 31 October 2021.

Figure 1
Unfinished audits as at 31 October, 2021 to 2023

1.7
There were 134 previous-year audits unfinished as at 31 October 2023. Figure 1 shows the years to which these audits relate. Some schools have many years of audits that remain unfinished. Of the 23 school audits unfinished for 2019 and earlier, eight are audits of schools that have closed. A closed school must prepare financial statements to the date of closure and a liquidation statement that must be audited. This is a Ministry of Education requirement. However, information can be difficult to access once a school has closed. We discuss this further in Part 3.

1.8
We are supporting our audit service providers including liaising with the Ministry of Education so that its School Financial Advisors can provide any necessary support directly to schools, to ensure that the unfinished audits are completed as soon as possible.

1.9
We have re-allocated 85 audits to alternative audit service providers for the audits of the 2023 financial year to better match the resourcing available. We will provide direct support and training to our auditors where required, and work with the Ministry of Education to ensure that all auditors receive the resources they need to carry out their audits in a timely manner.

1.10
We will also continue to work with the Ministry of Education on opportunities to make the financial reporting process more efficient for both schools and auditors. This is an integral part of the future of school financial reporting work programme, which we discuss below.

Future of school financial reporting

1.11
School audits have become more complex over time, mainly due to increased financial reporting requirements. At the same time, the number of audit firms has reduced. As a result, appointing auditors for the more than 2400 schools has become more challenging.² The current resourcing pressures that intensified as a result of the Covid-19 pandemic have added to these difficulties, and resulted in the significant delays in completing audits for some schools in the past two years. Auditors, like other professions, are experiencing significant cost pressures, which in turn put pressure on audit fees and the willingness of audit firms to take on less profitable audits.

1.12
Given these challenges and the importance of schools’ accountability for spending public money, we have committed to supporting the Ministry of Education with a project on the future of school financial reporting and auditing. We urge the Ministry to implement a project plan and commit resources to complete this project.

1.13
The project will consider the needs of the different users of the financial information of schools. The Ministry of Education is one of the main users of this information, and uses it for several purposes. It is also important that schools are accountable to the communities they serve. The project will also consider what form of assurance is needed over a school’s financial information and how that assurance can be carried out in a cost-effective and timely manner.

1: When we refer to schools we mean all state and state-integrated schools and kura.

2: Auditors are appointed for a three-year contract period. The latest period is for the 2021 to 2023 school audits.