Part 1: Completing school audits
1.1
In this Part, we:
- describe why we consider it important that the Ministry of Education reconsider aspects of schools’ financial reporting; and
- report how many audits have been completed in the year since we last reported. Most of the audits we discuss relate to 2023, but some were audits completed from previous years. Our discussion includes the audits of organisations that are financially connected to schools.
Consider the future of schools’ financial reporting
1.2
School audits have become more complex, mainly due to increased financial reporting and auditing requirements. The number of audit firms has reduced. As a result, appointing auditors for more than 2400 schools has become increasingly difficult.
1.3
The resourcing pressures that intensified during and after the Covid-19 pandemic have added to the challenges and resulted in the delays in completing some school audits.
1.4
Auditors, like other professions, are experiencing significant cost pressures, which puts pressure on audit fees. It also means audit firms are less willing to do audits that are difficult or less profitable.
1.5
Given these challenges and the importance of schools’ accountability for spending public money, we noted in 2021 the need to consider the future of school audits. Schools need to remain accountable but that accountability could be more efficient and cost-effective. We agreed to support the Ministry of Education with a project on the future of schools’ financial reporting and auditing.
1.6
The Ministry has continued to confirm its commitment to carrying out the project but has not yet allocated resources to the project.
1.7
The project would consider the needs of the different users of schools’ financial information (mainly the Ministry of Education and the communities to which schools are accountable). The project would also consider what form of assurance is needed over a school’s financial information and how that assurance could be carried out in a more cost-effective and timely manner.
| Recommendation 1 |
| We recommend that the Ministry of Education prioritise carrying out its project on the future of schools’ financial reporting. |
Progress in completing school audits
1.8
About 93% of schools provided draft financial statements for audit by the statutory deadline of 31 March 2024.
1.9
We completed 1423 (58%) of the 2023 audits by the statutory deadline of 31 May 2024. This was more than the 55% of 2022 and more than the 57% completed by the statutory deadline in 2021.
1.10
All school audits are carried out by auditor service providers on the Auditor- General’s behalf. The ongoing shortage of auditors described above has resulted in auditors not being available at the time they are needed to complete school audits.
1.11
Auditors have made steady progress in completing school audits since 31 May 2024. As at 31 October 2024, they had completed 2166 audits (88%). This too was better than the 82% of 2022 schools audits completed at 31 October 2023.
1.12
Before Covid-19, about 100 (4%) of the previous year’s audits would be unfinished by 31 October. For the 2023 school audits, 302 (12%) were not completed by 31 October 2024. Figure 1 shows the number of unfinished school audits as at 31 October for the last three years.
1.13
There were 190 previous-year audits (for 120 schools) unfinished as at 31 October 2024. Figure 1 also shows the years to which these audits relate – most were for 2022, but some audits have been unfinished since before 2018.
Figure 1
Unfinished audits as at 31 October, 2022 to 2024
| Financial year | As at 31 October 2022 | As at 31 October 2023 | As at 31 October 2024 | |||
|---|---|---|---|---|---|---|
| Number | % | Number | % | Number | % | |
| 2023 | - | - | - | - | 302 | 61.4 |
| 2022 | - | - | 453 | 77.2 | 110 | 22.4 |
| 2021 | 392 | 79.8 | 83 | 14.1 | 50 | 10.2 |
| 2020 | 51 | 10.4 | 28 | 4.8 | 13 | 2.6 |
| 2019 | 23 | 4.7 | 8 | 1.4 | 5 | 1.0 |
| 2018 | 10 | 2.0 | 6 | 1.0 | 5 | 1.0 |
| Before 2018 | 15 | 3.1 | 9 | 1.5 | 7 | 1.4 |
| Total | 491 | 100 | 587 | 100 | 492 | 100 |
Note: Some schools have several years of unfinished audits – the 492 unfinished audits are for 314 schools. Of the 23 audits unfinished for 2019 and earlier, seven are audits of schools that have closed. A closed school must prepare financial statements to the date of closure and a liquidation statement, and the Ministry of Education requires both to be audited. However, information can be difficult to access once a school has closed (see Part 3).
1.14
Some schools have many years of audits that remain unfinished - 11 schools have 54 unfinished audits. For many of these schools, the auditor was last able to complete an audit four years ago. One school, Te Kura Kaupapa Māori o Te Kotuku, has not been audited for nine years.
1.15
We liaise with the Ministry of Education about schools that need its support to complete previous-year financial statements, and we support auditors to complete the previous-year audits once all the relevant information is available.
1.16
We have talked with the Ministry about it funding the significant audit fee increases needed for the 2024 to 2026 school audits. To help improve timeliness, the Ministry will provide increased funding to each school only after the audit has been completed and the audit report issued.
1.17
We will provide training and support to auditors 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.
1.18
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 project on the future of schools’ financial reporting.