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Technical and Further Education Institutes: Institutes: Education and Further Technical Victorian Auditor-General’S Report Victorian Auditor-General’S

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Technical and Further Education Institutes: Institutes: Education and Further Technical Victorian Auditor-General’S Report Victorian Auditor-General’S Technical and Further Audit Education Snapshot Institutes: 2014 Technical and Further Education Institutes: 2014 Audit Snapshot May 2015 Victorian Auditor-General’s Report May 2015 2014–15:31 2014–15:31 Level 24 Telephone 61 3 8601 7000 35 Collins Street Facsimile 61 3 8601 7010 Melbourne Vic. 3000 www.audit.vic.gov.au 89058 TAFE cover.pdf | Page 1 of 1 89058 TAFE cover.pdf | Page 1 of 1 V I C T O R I A Victorian Auditor-General Technical and Further Education Institutes: 2014 Audit Snapshot Ordered to be published VICTORIAN GOVERNMENT PRINTER May 2015 PP No 35, Session 2014–15 This report is printed on Monza Recycled paper. Monza Recycled is certified Carbon Neutral by The Carbon Reduction Institute (CRI) in accordance with the global Greenhouse Gas Protocol and ISO 14040 framework. The Lifecycle Analysis (LCA) for Monza Recycled is cradle to grave including Scopes 1, 2 and 3. It has FSC Mix Certification combined with 55% recycled content. ISBN 978 1 925226 22 5 The Hon. Bruce Atkinson MLC The Hon.Telmo Languiller MP President Speaker Legislative Council Legislative Assembly Parliament House Parliament House Melbourne Melbourne Dear Presiding Officers Under the provisions of section 16AB of the Audit Act 1994, I transmit my report Technical and Further Education Institutes: 2014 Audit Snapshot. This report comments on the outcomes of the 2014 financial audits of the 12 technical and further education (TAFE) institutes and their controlled entities. The report makes comment on the results, trends and risks. It also comments on performance reporting and risk management at the TAFEs, being two key areas of governance within TAFEs. The report demonstrates that the financial performance of the TAFE sector is in decline with combined net deficits for the 2014 and 2013 financial years. Our indicators of financial sustainability risks show short-term challenges at six TAFEs, and longer-term risks emerging for nine TAFEs as spending on asset replacement and renewal is decreasing. Yours faithfully John Doyle Auditor-General 28 May 2015 Victorian Auditor-General’s Report Technical and Further Education Institutes: 2014 Audit Snapshot iii Contents Auditor-General's comments .................................................................... vii Audit summary .......................................................................................... ix Conclusions ..............................................................................................................x Findings ....................................................................................................................x Recommendations .................................................................................................. xii Submissions and comments received ................................................................... xiii 1. Context................................................................................................. 1 1.1 Introduction ..................................................................................................... 1 1.2 Audits for the year ending 31 December 2014 ................................................ 2 1.3 TAFE revenue and funding .............................................................................. 4 1.4 TAFE expenditure ............................................................................................ 8 2. Financial outcomes ............................................................................... 9 2.1 Introduction ................................................................................................... 10 2.2 Conclusion .................................................................................................... 10 2.3 Financial overview of the sector .................................................................... 10 2.4 Financial sustainability risks .......................................................................... 15 2.5 Responding to funding changes .................................................................... 17 3. Performance reporting......................................................................... 21 3.1 Introduction ................................................................................................... 22 3.2 Conclusion .................................................................................................... 22 3.3 Framework for reporting and progress to date .............................................. 23 3.4 Performance statements ............................................................................... 23 4. Risk management ............................................................................... 27 4.1 Introduction ................................................................................................... 28 4.2 Conclusion .................................................................................................... 28 4.3 Risk management framework ....................................................................... 28 4.4 Financial sustainability risks .......................................................................... 30 Victorian Auditor-General’s Report Technical and Further Education Institutes: 2014 Audit Snapshot v Contents Appendix A. Audit status ......................................................................... 33 Appendix B. Management letter risk ratings.............................................. 37 Appendix C. Financial sustainability ...........................................................39 Appendix D. Risk management framework ............................................... 45 Appendix E. Glossary .............................................................................. 47 Appendix F. Audit Act 1994 section 16—submissions and comments ....... 51 vi Technical and Further Education Institutes: 2014 Audit Snapshot Victorian Auditor-General’s Report Auditor-General’s comments Victoria's technical and further education (TAFE) institutes have undergone a period of structural change since 2012 when the then government altered its funding model. The agility of TAFEs to respond to these changes and associated challenges has varied, and not all have responded in a timely and/or financially sustainable way. Consequently, I am reporting a further deterioration in the financial performance of the sector for 2014. The 10 TAFEs whose financial reports are finalised and commented on in this report had a combined net deficit of $84.3 million for 2014. This result follows a combined net deficit of $15.1 million generated by the sector in 2013 and was characterised by revenue decreasing at a faster rate than expenditure. John Doyle The declining financial performance of TAFEs has been reflected in the results of our analysis where six TAFEs have been assessed as having high financial Auditor-General sustainability risks with short-term challenges that need to be addressed. Further, nine TAFEs have been assessed as having longer-term financial sustainability risks in terms of the funding of asset renewal and replacement. I note that while the level of spending on new assets and asset renewal has been decreasing year on year, an additional net $56.8 million in capital funding was provided for the period to 2016–17 in the recently announced State Budget. This should reduce the risk that TAFE assets may eventually cease to be fit for purpose if they are not renewed or replaced as required. Audit team While some steps have been taken by the sector to respond to the structural Simone Bohan changes, bigger steps are needed by TAFE boards and the Department of Engagement Leader Education & Training to turn around the financial decline within the sector. Helen Grube Shortly after this report is tabled in Parliament an interim report will be presented to Team Leader government arising from a review into funding of the sector. This is an important piece of work that I hope will provide a way forward for cost efficient and Matthew Graver competitive TAFEs, and a financially sound TAFE sector. Audit Senior TAFEs wrote down the carrying value of the Student Management System (SMS) Ryan Ackland by $43.2 million during 2014. These write downs directly contributed to the poor Auditor financial outcomes of the sector. Although the state had spent $94.9 million building the SMS, it had written off $21.1 million prior to transferring it to the Engagement Quality TAFEs. I question whether the TAFEs received the value purported to have been Control Reviewer provided as capital, and whether the state received value for money as the SMS is Roberta Skliros now valued at 32.2 per cent of the original cost only one year after it was put into service. Victorian Auditor-General’s Report Technical and Further Education Institutes: 2014 Audit Snapshot vii Auditor-General’s comments It is also of concern that our audits found that there is a clear need to improve risk management practices and performance reporting to enhance the management and oversight of TAFEs. It is particularly concerning that financial sustainability risks and other risks arising from the changing operating and funding environment at TAFEs are not well-articulated or comprehensively covered in TAFE risk registers, and that two TAFEs did not have a functioning risk register at the time of our audits. John Doyle Auditor-General May 2015 viii Technical and Further Education Institutes: 2014 Audit Snapshot Victorian Auditor-General’s Report Audit summary At 31 December 2014, there were 12 publicly-owned
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