Part 3: Te Pūkenga

Tertiary education institutions: 2021 audit results and what we saw in 2022.

3.1
In this Part, we discuss whether concerns we have raised previously about Te Pūkenga6 have been addressed. We also discuss findings from recent external reviews of Te Pūkenga, its transformation programme, and the complexities of Crown entity monitoring.

Concerns raised in our previous report

Operating model

3.2
The Minister of Education wrote a Letter of Expectations to the chairperson of the Te Pūkenga Council in 2020. The letter refers to the long-term operating model of Te Pūkenga as a "cornerstone of the reform" to:

… create a sustainable, national network of regionally accessible vocational education and training, which is responsive to the needs of all regions of New Zealand, their learners, industries, employers and communities.

3.3
The Letter of Expectations did not specify a time frame for finalising the operating model. However, the letter did specify that the "aim is to create an integrated network of provision by the end of the transition period, December 2022".

3.4
Because of its central role in the reforms, Te Pūkenga needs to be clear about what its operating model does, how it does it, and what assets, infrastructure, finances, and capabilities it needs.7 This includes clarity about staff structure.

3.5
Te Pūkenga released its original proposed high-level operating model in October 2021. In July 2022, Te Pūkenga "reset" its priorities. The reset delayed the planned consultation on its new staff structure as it sought to prepare a simplified operating model, address financial sustainability concerns, and reduce any risks with transitioning the subsidiaries into Te Pūkenga.

3.6
On 15 August 2022, Te Pūkenga began a three-week engagement process with its staff seeking feedback on a proposed leadership structure and proposed business groups. In early October 2022, final decisions were made, and all but two newly established executive management positions were filled by the end of December 2022.

3.7
In June 2022, before the "reset" of Te Pūkenga, TEC noted in one of its monitoring reports that:

… overall, the recent changes have put the implementation of the operating model further behind schedule, although we consider the new transition plan is more sensible. However, there remains a considerable amount of work to undertake in a short period of time.

3.8
In mid-August 2022, the Tertiary Education Union also raised concerns that many staff will not have clarity about jobs until the end of 2023.

3.9
We understand that Te Pūkenga is prioritising work on its operating model, including finalising its leadership structure and business groups. However, we are concerned about when the operating model will be finalised and fully implemented.

3.10
The website for Te Pūkenga lists what it intends to deliver from 1 January 2023. This includes parts of its operating model that are related to its organisational structure, governance and corporate functions, leadership team, regional branches, and ako networks.8 The ako networks are formal networks of teams that come together to use their knowledge, skills, and competencies to support delivery of vocational and on-the-job learning, including for degree and post-graduate programmes.9

3.11
We understand that some activities were not achieved by 1 January 2023 because of the reset of Te Pūkenga in mid-2022.10

3.12
Te Pūkenga has completed some aspects of its operating model, including its leadership structure and unification of some of its qualifications and programmes.

3.13
Te Pūkenga intends to finalise the remainder of its operating model over two periods: January 2026 to January 2027 (Horizon 2) and 2027-2033 (Horizon 3).11

3.14
We note that between 2027-2033, the intention is that:

… the new organisation [will be] fully implemented. Delivery of programmes and services [will be] fully integrated. All programmes [will be] unified and relevant to the future needs of learners, whānau, communities, Māori, and employers, and the future of work.

3.15
Te Pūkenga is using a staged approach because the change required is significant, and it will take time to fully integrate the functions of the disparate organisations into one. However, there is also a need to provide certainty about the process, including the outcomes that will be delivered through the transformation and when the outcomes will be achieved.

3.16
Te Pūkenga needs to define the benefits that will be delivered at each Horizon. We expect to see performance measures associated with these benefits at each stage.

3.17
In our 2020 report on the business transformation of the Inland Revenue Department,12 we noted that Inland Revenue was well positioned to continue managing, measuring, and monitoring the transformation programme's intended benefits. This was because it placed a strong focus on benefits management from the beginning (which included generating reliable baseline data and supporting information) and demonstrated a commitment to learning and continuous improvement about benefits realisation and management.

3.18
We also noted that delivering outcomes depends on systematically monitoring and tracking benefits for a programme's duration. Establishing benefit targets at the beginning and measuring progress against them only at the end is unlikely to be effective.

3.19
The lack of a final operating model means Te Pūkenga still cannot describe with certainty what it does, what it will do, how it will do it, and what assets, infrastructure, finances, and capabilities it needs. Clear and meaningful performance information and reporting is also crucial for public accountability and to help improve effectiveness and efficiency.

Performance framework

3.20
Te Pūkenga needs a robust performance and accountability framework so that TEC, the Minister of Education, Parliament, and the public can see whether it is delivering on its outcomes. This framework needs to be transparent about:

  • what outcomes it is seeking;
  • how it will measure and report on progress towards those outcomes;
  • the degree to which Te Pūkenga has met its performance targets; and
  • how Te Pūkenga is planning to improve on its performance over time.

3.21
In August 2022, we raised concerns about the performance reporting of Te Pūkenga in a briefing to the Education and Workforce Committee. In response, the Committee noted in its final report that it would like to see Te Pūkenga implement the recommendations we have made, including to improve its performance framework. Effective performance reporting is essential to building and maintaining the trust and confidence of Parliament and the public in Te Pūkenga and the reforms.

3.22
Meaningful performance measures are important to assessing whether the reforms are achieving the Government's intended outcomes. To be effective with communities, it is important to understand what needs to be measured and how that is reported. To prepare effective measures and reporting systems at this level, stakeholder engagement is critical.

3.23
The Te Pūkenga Charter is focused on Te Pūkenga being publicly accountable. The Letter of Expectations from the Minister of Education also states that Te Pūkenga will be accountable to all its stakeholders through various mechanisms, such as the Statement of Intent, Statement of Performance Expectations, and the TEC Investment Plan.

3.24
Te Pūkenga did not have a Statement of Intent or Statement of Performance Expectations for 2020. These documents are important for establishing key areas of focus, priorities, and the basis for year-end performance reporting. In February 2021, Te Pūkenga produced a Transitional Statement of Intent that covers 2021-2024.

3.25
Our 2021 audit of Te Pūkenga concluded that its performance reporting met the basic standard required, given the transformation programme underway. We made recommendations to Te Pūkenga about how it could improve its performance reporting.

3.26
In 2022, the External Reporting Board brought into effect a new accounting standard for public benefit entities' service performance reporting (PBE FRS 48). The standard applies to Tier 1 and Tier 213 public benefit entities for reporting periods beginning on or after 1 January 2022. The standard sets out principles, requirements, and guidance that public organisations must comply with as part of their performance reporting.

3.27
The new standard presents an opportunity for public organisations, like Te Pūkenga, to improve their performance reporting within the context of current system settings and to report on how they are making a difference in a way that is meaningful to Parliament and the public.

3.28
We expect public organisations to improve their performance reporting so that it better reflects their performance. Public organisations will need to carefully consider how to apply the standard. They should read the good practice guidance on performance reporting that we prepared with the Treasury.14

3.29
In response to questions from the Education and Workforce Committee in August 2022, the Acting Chief Executive of Te Pūkenga noted that:

… the Te Pūkenga Outcomes and Performance measurement framework will be in place in time for informing performance and the data that Te Pūkenga will collect across the network from the start of 2023.

3.30
Although a commitment has been made to start reporting against an outcomes framework from 1 January 2023, we have yet to see the final outcomes framework and associated performance measures. We understand that in December 2022, Te Pūkenga finalised its Statement of Performance Expectations for 2023 and is in the process of publishing it on its website.

3.31
As well as a high-level outcomes framework, it is important that Te Pūkenga has performance measures and targets that show how it is making progress towards achieving its outcomes. This includes having specific time frames for outcomes to be delivered in.

3.32
Successfully achieving outcomes depends on systematically monitoring and tracking benefits over time. Outcomes will often change over time and therefore regular measurement and reassessment of results and approaches is critical to ensuring that benefits are being achieved.

3.33
The new accounting standard for public benefit entities' service performance reporting (PBE FRS 48) requires the Te Pūkenga Council to ensure that meaningful and comprehensive performance measures and targets are in place and regularly publicly reported. This should enable an informed assessment of the performance of Te Pūkenga.

Financial sustainability

3.34
We have previously noted our concerns about how Te Pūkenga lacks a detailed plan to address its underlying financial issues15 and the need for a sustainable financial plan.

3.35
In early 2021, TEC noted concerns in its monitoring reports about the lack of a financial sustainability plan. It remains unclear why the Te Pūkenga Council did not prioritise this work earlier. In its March 2021 monitoring report, TEC notes that:

… [t]he quarterly report shows that Te Pūkenga is very busy and there is significant activity occurring across all of its key work streams. However, it does not provide a coherent story on why these are the right activities to be doing, how they fit into a wider plan, and whether this will achieve the sought outcomes in the required timelines.

3.36
The Te Pūkenga "reset" in July 2022 meant that it was focused on the activities Te Pūkenga considered critical – including producing a financial sustainability plan.

3.37
Based on data for the year to May 2022, Te Pūkenga had forecast an $89.6 million deficit for 2022. In August 2022, the acting Chief Executive of Te Pūkenga provided an updated year-end forecast deficit of $63.6 million. The final deficit for 2022 will not be known until the audit concludes. However, we do know that there has been a 17% reduction in enrolments at Te Pūkenga between August 2021 and August 2022. This will likely affect the deficit for the year and the year-end financial position of Te Pūkenga at 31 December 2022.

3.38
There are other challenges Te Pūkenga has to manage that will also affect its financial position, including:

  • the risk of a further decrease in domestic provider-based enrolments16 as unemployment remains low;
  • the risk of apprenticeship numbers decreasing as the Apprenticeship Boost policy finishes at the end of 2023; and
  • having to fund head office operations from 2023 as Crown funding comes to an end.

3.39
In the annual review of Te Pūkenga by the Education and Workforce Committee, the acting Chief Executive of Te Pūkenga noted that a "Finance Strategy will outline the plan to improve long term financial sustainability and will be in place by the end of Quarter 3, 2022". We understand that a financial strategy is being considered by the Te Pūkenga Council. It is critical that this strategy is finalised as soon as possible.

3.40
In 2021, Te Pūkenga began work on a Programme Business Case for the Government to consider. The Programme Business Case provided information about whether Te Pūkenga had sufficient capacity, capability, and funding to carry out its transformation programme. The Programme Business Case was sent to the Minister of Education on 31 October 2022 and was still under consideration at the time of writing this report.

External reviews of Te Pūkenga

3.41
Two external reviews of Te Pūkenga had been completed in the beginning of 2022. Through large and complex transformations, reviews of this nature can be useful for identifying key issues and risks and are considered good practice.

The governance review

3.42
At the end of 2021, the Te Pūkenga Council engaged Dame Karen Sewell and Belinda Clark to carry out an external review of its governance arrangements.17 The governance review focused on the Te Pūkenga Council's operational effectiveness, alignment with good practice, and whether its governance arrangements were fit for purpose.

3.43
The governance review noted that the Te Pūkenga Council:

  • was spending too much time on operational matters instead of strategic issues;
  • was operating with no road map to follow; and
  • required greater experience in the state sector and in governing a large organisation going through a transformation.

3.44
Recommendations were also made, including establishing a new sub-committee of the Te Pūkenga Council that focused on:

  • financial matters;
  • reviewing how often the Council meets;
  • improving the timeliness and quality of information provided to the Council;
  • ensuring that the Chief Executive provides a written report (instead of only a verbal report); and
  • increasing the amount of time the Council met in open session to enable public engagement.

3.45
A draft of the governance review report was provided to the Minister of Education in June 2022. We understand from TEC that Te Pūkenga has agreed to implement most of the recommendations.

The strategic review

3.46
In February 2022, the chairperson of the Te Pūkenga Council and the Chief Executive of TEC jointly commissioned a strategic review of Te Pūkenga.

3.47
Murray Jack (chairperson), Sir Brian Roche, and Belinda Clark carried out the strategic review. It was a high-level assessment of the current status, strategic risks, and issues in the Te Pūkenga Transformation Programme and its alignment with the expectations of the Minister of Education. Its purpose was to provide advice to the Te Pūkenga Council and TEC on any practical measures that could improve the success of the transformation programme.

3.48
The strategic review report concluded that the Te Pūkenga transformation programme, as currently configured, would not meet the Minister of Education's expectations for 1 January 2023 unless there was a clear intervention of additional resources with an appropriate mandate.

3.49
The full strategic review document, which has the six key issues raised and seven practical measures recommended, is on the TEC and Te Pūkenga websites.

3.50
After receiving the strategic review report, Te Pūkenga began responding to the practical recommendations. We understand that TEC closely monitored and commented on the implementation of these recommendations.

The Te Pūkenga transformation programme

Context and recent progress

3.51
Te Pūkenga is the largest tertiary education provider in the country. It brought together 16 institutes of technology and polytechnics and the arranging training function18 of nine industry training organisations.

3.52
It also brought together more than 10,000 staff across multiple delivery sites. A complex merger of this size also has the challenge of integrating multiple business systems, including management systems and finance, payroll, and human resource systems.

3.53
Te Pūkenga was also required to integrate three different business and delivery models across in-work (on the job), online, and on-campus face-to-face delivery. This was all occurring when the number of domestic enrolments in campus-based vocational education was decreasing, the number of international student enrolments had yet to recover from Covid-19 border restrictions, and many of the former institutes of technology and polytechnics were experiencing financial difficulty before they became a subsidiary of Te Pūkenga.

3.54
In July 2022, Te Pūkenga reset its transition and transformation work programme. This included focusing on appointing a new executive leadership team, dissolving its subsidiaries, and beginning 2023 as a single organisation.

3.55
We understand that a key focus for Te Pūkenga in 2023 will be providing their ākonga (learners) the choice to learn anywhere, anytime, and in any way using its knowledge, skills, and partnerships. Te Pūkenga will do this by integrating on-the-job, on-campus (face-to-face), and online delivery across the regions.

3.56
Integrating delivery will require Te Pūkenga to do considerable work to redefine roles across its workforce, including the roles of tutors, workplace advisors, workplace accessors, and those who support ākonga success. This will be critical to developing a learner-centred model that is flexible and dynamic.

Work-based learning

3.57
A 2020 Summary of Change Decisions document for the reforms notes that how we work is changing significantly, and vocational education needs to adapt to stay ahead of these changes.19

3.58
Work-integrated learning will become an increasingly important part of the vocational education system. It gives people the opportunity to earn while they learn and get an education that is more directly relevant to the changing needs of employers. To support this move towards work-integrated learning, the Government notes that there needs to be appropriate support available to learners, employers, and educators, a reliable high-quality assessment process, and delivery that is cost-effective.

3.59
Te Pūkenga is now responsible for most industry training in New Zealand. This is based on the fact that nine of the 11 Transitional Industry Training Organisations chose to move their arranging training functions to Te Pūkenga (the alternatives were private training establishments or a wānanga).

3.60
By 31 December 2021, four Transitional Industry Training Organisations had transferred their arranging training functions to Te Pūkenga. By 1 October 2022, a further five Transitional Industry Training Organisations completed the transition.20

3.61
At the end of 2021, the total number of EFTS enrolled at Te Pūkenga was 87,766. This included 21,352 learners who were transferred to Te Pūkenga from the four Transitional Industry Training Organisations in 2021.21 Total enrolments in the previous institutes of technology and polytechnics from 2017 to 2021 can be seen in the tertiary education institutions' financial summaries at the beginning of this report.

Leadership and monitoring

3.62
As previously mentioned, TEC is responsible for leading the reforms in collaboration with other agencies.

3.63
Section 405 of the Education and Training Act 2020 sets out TEC's obligations in relation to its monitoring function:

… the Chief Executive of TEC must, on an ongoing basis, monitor institutions that receive funding in order to assess whether the operation or long-term viability of any of those institutions is at risk; and may report to the Minister on the outcomes of that monitoring.

3.64
In relation to Te Pūkenga, Section 406 of the Education and Training Act 2020 states that:

(1 ) The chief executive of TEC may, by written notice to Te Pūkenga—New Zealand Institute of Skills and Technology's council, require it to provide any information that the chief executive considers is reasonably required in relation to the operation of Te Pūkenga—New Zealand Institute of Skills and Technology or any related entity of Te Pūkenga—New Zealand Institute of Skills and Technology for the purpose of determining whether there is a risk to, or arising from,—
(a) the governance, management, or financial position of Te Pūkenga— New Zealand Institute of Skills and Technology or a related entity of Te Pūkenga—New Zealand Institute of Skills and Technology; or
(b) the education and training performance of students enrolled at Te Pūkenga—New Zealand Institute of Skills and Technology or a related entity of Te Pūkenga—New Zealand Institute of Skills and Technology.
(2) If Te Pūkenga—New Zealand Institute of Skills and Technology's council receives a notice under subsection (1), it must provide the chief executive of TEC with the required information within the period specified in the notice.
The chief executive of TEC may revoke or amend a notice given under subsection (1).

3.65
Sections 330 to 334 of the Education and Training Act 2020 also outline the powers of the Minister of Education to intervene if they consider Te Pūkenga to be at risk.

3.66
TEC has been publishing monitoring reports of Te Pūkenga on its website since April 2021.22 As noted by TEC in its June 2022 monitoring report:

… the overall failure of Te Pūkenga to progress key areas of work over the past two years means it will still be some time before the main benefits sought from the establishment of Te Pūkenga will be realised.

3.67
TEC's monitoring reports show that it was engaging with Te Pūkenga and reporting its concerns to the Minister of Education. From as early as April 2021, TEC had expressed concerns in the reports about the lack of progress Te Pūkenga was making.

The complexities of Crown monitoring

3.68
The Education and Training Act 2020 provides levers that allow the Minister of Education to intervene if they have reasonable grounds to believe a TEI is at risk.

3.69
Any decisions to intervene in the governance and leadership of Te Pūkenga based on delays to its transformation programme would need to consider the risk of confusing accountability, undermining confidence in the transformation programme, and undermining the relationships it had developed with key stakeholders.

3.70
The strategic review of Te Pūkenga mentioned earlier noted that:

Te Pūkenga and TEC hold different views of what will be delivered on 1 January 2023 and have done so for some time. This is a significant cause of tension between the two organisations.

3.71
Given the scale and complexity of the reforms, it is not surprising that there might have been tensions. We understand that after the strategic review, there was agreement about what would be delivered from 1 January 2023. The specifics of what will be delivered from this date can be found in the "Minimum viable product" table on the Te Pūkenga website.23 We also acknowledge that natural tensions might arise given TEC's role in the successful implementation of the reforms alongside objective monitoring of Te Pūkenga.

Our recent work on Crown entity monitoring

3.72
Crown monitoring is complex, and we have seen this complexity in parts of the reforms in the last year.

3.73
In June 2022, we published our report Improving value through better Crown entity monitoring. Although our report focused on Crown entity monitoring specifically, we consider that the principles that underpin our findings apply to all public entity monitoring arrangements.

3.74
In our report, we noted that the network of roles, responsibilities, and relationships between Ministers, monitoring departments, Crown entity governing boards, and Crown entities is complex.24 There are inherent tensions in the Crown entity monitoring system. For example:

  • Monitoring departments and Crown entities need to work closely to develop monitoring frameworks and common expectations. However, a monitoring department must retain enough independence to take an objective view of Crown entity performance.
  • The board has primary oversight and accountability for the Crown entity's performance. However, monitoring departments are expected to form a judgement on the performance of a Crown entity and might need to challenge its board.
  • To carry out their role effectively, monitoring departments must provide good information, analysis, and advice to Ministers about the effectiveness, efficiency, and performance of any Crown entities that they monitor. At the same time, monitoring departments must respect the arm's-length relationship between the responsible Minister and the Crown entity and the monitoring, governance, and oversight responsibilities of the Crown entity's board.

3.75
These tensions are not always easy to manage. Monitoring arrangements work best when responsible Ministers, Crown entities, and monitoring departments are clear about their respective roles and responsibilities. There also needs to be effective communication, engagement, and up-front agreement about the Crown entity's measures and targets and a shared understanding between all of the parties about what good performance looks like.

3.76
Given the important role of Te Pūkenga as part of the reforms, strong and effective monitoring of its performance is essential. We encourage continued focus by relevant sector agencies in this area.

6: Office of the Auditor-General (2022), Tertiary education institutions: What we saw in 2021, at oag.parliament.nz.

7: Office of the Auditor-General (2022), Tertiary education institutions: What we saw in 2021, at oag.parliament.nz.

8: See "Minimum viable product for 1 January 2023", at tepūkenga.ac.nz.

9: See "Operating Model FAQS", at tepūkenga.ac.nz.

10: See written question "45629 (2022). Penny Simmonds to the Minister of Education", at parliament.nz.

11: See "Ko tāu e kite ai – What you can expect", at tepūkenga.ac.nz.

12: Office of the Auditor-General (2020), Inland Revenue Department: Benefits management for the Business Transformation programme, at oag.parliament.nz.

13: See xrb.govt.nz.

14: See "Good practice in reporting about performance", at oag.parliament.nz.

15: Office of the Auditor-General (2021), Tertiary education institutions: Main findings from our 2020 audits, at oag.parliament.nz.

16: Provider-based enrolments are enrolments in campus-based learning.

17: Clark, Belinda and Sewell, Karen (2022), Governance Review of Te Pūkenga, at tepūkenga.ac.nz.

18: This means working with industry and learners to develop training programmes that satisfy industry needs, signing employees up to work-based training, and providing support throughout the trainee journey.

19: Kōrero Mātauranga (2019), Summary of Change Decisions: Reform of Vocational Education, at conversation.education.govt.nz.

20: The full list of Transitional Industry Training Organisation transitions is available from TEC. One of the Industry Training Organisations – The Skills Organisation – transferred only part of its arranging training function to Te Pūkenga.

21: Te Pūkenga (2021), 2021: Te Pūrongo ā-Tau Annual Report, page 27, at tepūkenga.ac.nz.

22: The monitoring reports are in the Information Releases section of the Tertiary Education Commission website.

23: See "Minimum viable product for 1 January 2023", at tepūkenga.ac.nz.

24: Office of the Auditor-General (2022), Improving value through better Crown entity monitoring, at oag.parliament.nz.