Auditor-General’s overview

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

Tertiary education is important to many New Zealanders' personal development and the country's economic well-being. Young people, their whānau, adults looking to retrain or learn a new skill, and employers rely on the quality and stability of tertiary education institutions (TEIs).

This report summarises the main findings from our 2021 audits of TEIs. We also comment on the progress of the vocational education reforms.

The Covid-19 pandemic continues to affect the tertiary education sector. In particular, the border closures have fundamentally changed the pattern of domestic and international enrolments. This has affected TEIs' service delivery models and, consequently, their financial results and forecasts.

The educational quality and financial strength of TEIs is critical because they will play an important role in New Zealand's recovery from the impacts of the Covid-19 pandemic, and in positioning the country for future success.

In late 2020, the total number of learners enrolled in tertiary and vocational education increased due in part to the Government's Covid-19 response initiatives. This included fees-free training schemes such as the Targeted Training and Apprenticeship Fund. The increase in enrolments continued in 2021. However, as at August 2022, the total number of equivalent full-time students (EFTS) across all TEIs had decreased by almost 10% compared with the previous year. This will likely affect the financial performance of some TEIs in 2022 and in future years.

The financial resilience of TEIs is critical to maintaining high-quality educational outcomes. Although TEIs might be able to absorb short-term revenue reductions, it is important that their medium- to long-term forecasts take account of further uncertainty and disruptions to the learning environment. TEIs are progressively consolidating and rationalising functions in an effort to create structures that more closely align with the needs of learners and communities and ensure that they are better placed to deal with financial, and other, challenges.

The vocational education reforms

In 2018, the Government spoke with learners, trainees, industry representatives, Māori, iwi, Pasifika, and disabled people about building the "world's best education system for all our children and young people". One of the outcomes from these conversations was to reform vocational education.

The reforms of vocational education and training are intended to create a unified and sustainable system that is fit for the future of work and delivers the skills that learners and employers need.

The Government stated that a unified vocational education system needs to:

• take account of the unique needs of all learners, including those who have been traditionally under-served, such as Māori, Pasifika, and disabled learners;
• be relevant to employers' changing needs;
• be collaborative, innovative, and sustainable for all regions; and
• uphold and improve Māori-Crown partnerships.

The Minister of Education set clear medium-term expectations for those responsible for leading, governing, and implementing the most significant reforms of the education system in almost three decades. These expectations included creating a sustainable, national network of regionally accessible vocational education and training that is responsive to the needs of New Zealanders. An important part of the reforms was the creation of Te Pūkenga, which began operating on 1 April 2020.

I acknowledge the significance and complexity of the vocational education reforms and the considerable amount of work that has been completed so far to implement them. This includes establishing the Workforce Development Councils and Regional Skills Leadership Groups, transitioning the arranging training functions of all 11 Transitional Industry Training Organisations to Te Pūkenga or private training establishments, and developing and implementing a new funding system for vocational training (the Unified Funding System).

However, I am concerned that critical parts of the Te Pūkenga transformation programme have not progressed as far as they should have.

In my April 2022 report on the tertiary education sector, I noted my concerns about the lack of progress Te Pūkenga had made on finalising its operating model, preparing a credible plan for financial sustainability, and developing a robust performance and accountability framework.

Te Pūkenga has now made decisions on its leadership structure, which is an important milestone. However, it needs to do considerable work to complete its operating model. The operating model needs to clearly set out what it does, how it does it, and what assets, infrastructure, and capabilities it needs. Current plans suggest that the operating model will not be fully implemented until sometime between 2027 and 2033. Although I acknowledge the scale and complexity of change required, I remain concerned by the time frame for this work. It is easy to lose sight of the benefits of reforms if the process takes too long or is not clear.

Te Pūkenga also needs a clear and achievable plan for it to be financially sustainable. I understand this plan has yet to be finalised.

In order to deliver its purpose, Te Pūkenga needs to deliver on its current commitments and provide services that contribute to improved outcomes, while maintaining the trust and confidence of the public. Financial sustainability is critical to this.

By now, I expected Te Pūkenga to be clear on the outcomes it was looking to achieve and by when. I also expected the measures it uses to assess progress against those outcomes to be in place and publicly reported on. This work is still incomplete, so it is difficult to objectively gauge what progress Te Pūkenga has made.

The ability of Te Pūkenga to measure and report on its progress is essential to public trust and confidence in the organisation and the vocational education reforms.

New Zealanders rightly expect large and costly reform programmes to achieve their intended outcomes. For the vocational education reforms, the outcome is a unified and sustainable system that is fit for the future of work and delivers the skills that learners and employers need.

Te Pūkenga sits within a broader system where other public organisations, most notably the Ministry of Education and the Tertiary Education Commission, also have responsibilities for implementing the reforms.

The scale and complexity of the reforms have led to tensions during the change process. I have seen reference to this in an independent review of the Te Pūkenga transformation programme carried out in early 2022.

In my view, there are inherent tensions in the Crown entity monitoring system. These tensions are not always easy to manage. Monitoring arrangements work best when responsible Ministers, monitoring departments, and Crown entities are clear about their respective roles and responsibilities and there is a willingness to openly share information. There also needs to be effective communication, engagement, and a shared understanding between all parties about what good performance looks like.

The vocational education reforms are a significant transformation of the tertiary education sector. I acknowledge the work that has been done so far. However, there is much still to do, and it will require an ongoing focus from all public organisations involved.

I will continue to monitor the implementation of the vocational education reforms, including progress made by Te Pūkenga.

I thank those in the tertiary education sector who assisted in the preparation of this report and the auditors who continue to deliver quality work in a challenging environment.

Nāku noa, nā

John Ryan
Controller and Auditor-General | Tumuaki o te Mana Arotake

20 March 2023