Part 5: Other matters

Results of the 2021 school audits.

In this Part, we discuss:

Future of school financial reporting

School audits have become more complex because of increased financial reporting requirements and increasing professional requirements on auditors. The number of audit firms has also reduced because some smaller firms have decided to no longer provide auditing services.

This has made appointing auditors for the more than 2400 schools challenging.10 The resourcing pressures the auditing profession is currently experiencing have added to these difficulties.

Because of this, we started discussions with the Ministry of Education about the future of financial reporting for schools and opportunities for making improvements to the audit process. We have recently worked with the Ministry to prepare a “terms of reference” where the Ministry commits to developing a work programme on the future of financial reporting.

The work programme will consider the needs of the different users of the financial information of schools. It will also consider the nature of assurance required over financial reports and how that assurance can be carried out in a cost-effective and timely manner.

Schools’ financial statements are more detailed than many other public organisations’ financial statements. The Ministry of Education is one of the main users of this information, and we understand that the Ministry uses this financial information for several purposes.

A small cross-sector working group carried out some work to simplify the 2021 Kiwi Park model financial statements.11 Further simplifications were made for 2022. However, we encourage the Ministry of Education to consider whether the current level of disclosure is necessary, particularly for information that it already holds. We will support the Ministry to progress these initiatives and identify other opportunities for improvement as the future of financial reporting for schools work programme is carried out.

In terms of improving information flows, one of our audit service providers carried out a pilot project for a group of schools that used a large financial service provider of school financial services. The pilot project focused on better information flows between the Ministry of Education, the financial service provider, schools, and auditors. Many efficiencies were gained during this pilot project including:

  • improvements in upfront audit planning;
  • a reduction in the duplication of audit questions; and
  • forming stronger relationships with the financial service provider, which facilitated a more collaborative engagement.

We hope that the efficiencies and findings gained through this pilot project will benefit other schools and financial service providers.

A new planning and reporting framework came into effect on 1 January 2023. The Ministry of Education is currently developing regulations and support for schools to be available by mid-2023. The proposed start date for the first plans under the new framework is 1 January 2024.

Te Mahau (previously called the Education Service Agency) was established within the Ministry of Education after the review of Tomorrows’ Schools. The aim of Te Mahau is to work more regionally and provide more locally responsive, accessible, and integrated services to schools and the education sector. The Ministry sees the role of Te Mahau as improving sector capability in curriculum, leadership, culture, and relationships in communities.

These two significant developments provide opportunities for the Ministry of Education to consider the accountability arrangements for schools and how they can be supported in financial matters.

Recommendation 3
We recommend that the Ministry of Education continue to simplify the level of financial reporting required in the Kiwi Park model financial statements – in particular, reconsidering what information the Ministry of Education specifically requires in addition to what is required by financial reporting standards.

Reporting on compliance with employment policies

Section 597 of the Education and Training Act requires school boards (as employers in the education service) to have an employment policy that complies with the principle of being a good employer. Boards must also make their policy available to employees, ensure that they comply with the policy, and report on the extent of that compliance in their annual report.

We are aware that most boards have not been reporting on their employment policies in their annual reports. The Education Review Office has raised this matter with some schools. The Ministry of Education has recently produced some guidance on this.12

When a school has not complied with this requirement, our auditors will raise this matter with the board in the management letter. This letter is sent when the audit is completed.

Integrity in the public sector

Our work continues to focus on ethics and integrity in the public sector. A matter that is important to schools is conflicts of interest.

The risk of conflicts of interest in small communities, which many schools operate in, is high. There is a particular risk of conflicts of interest occurring during decision-making processes for appointing new employees and contractors and purchasing goods and services. This is because a school board might have limited options in a small community.

Having a conflict of interest does not mean a person has done anything wrong. However, it is important that schools properly manage conflicts and do it transparently.

Although we did not identify conflicts of interest in our 2021 audits, we have previously identified schools that had board members who did not comply with the conflicts of interest rules in the Education and Training Act. The main provisions of the Act that school boards need to be aware of are that:

  • an individual is not capable of being a board member if they are concerned or interested in contracts with their board where the total payments in a financial year are more than $25,000 (including goods and services tax), unless the Secretary for Education approves the contract(s); and
  • a permanently appointed member of board staff cannot be elected (or appointed or co-opted) to the board of trustees unless they are the elected staff representative.13

School boards are unique in that the principal is also charged with governance. All boards have a staff representative and sometimes a student representative. Integrated boards also include representatives of their proprietor.

Boards need to properly manage decisions that they make on matters that members have an interest in. A board member should be excluded from any meeting while it discusses or decides a matter that a member has an interest in. However, the member can attend the meeting to give evidence, make submissions, or answer questions.14

A good way of ensuring that there is awareness of all potential conflicts is to maintain an interests register and a formal process for declaring any interests at the start of board meetings.

We have good practice guidance on our website, including Managing conflicts of interest: A guide for the public sector and an interactive quiz that covers a range of scenarios where a conflict of interest might occur.

We have also recently published new guidance on integrity, Putting integrity at the core of how public organisations operate. This includes an integrity framework that aims to help organisations achieve the culture of integrity in the workplace.

Other resources in the good practice section of our website that may be of interest to school boards include guides on:

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

11: These are model financial statements that the Ministry of Education produces every year to show schools how to prepare their financial statements so they comply with accounting standards.

12: See the Ministry of Education’s annual reporting guidelines at

13: Sections 9 and 10 of the Education and Training Act – previously, section 103 of the Education Act.

14: Section 15(1) to 15(4) of the Education (School Boards) Regulations 2020.