Tertiary Education Institutions Results of the 2018 Audits
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Tertiary education institutions Results of the 2018 audits Briefing for the Education and Workforce Committee November 2019 1 Tertiary education institutions – briefing on the 2018 audit results For further explanation of this briefing, please contact Pat Johnson, Sector Manager, Parliamentary Group on 04 917 1500 or email [email protected] 2 Tertiary education institutions – briefing on the 2018 audit results Key issues in this briefing (Ctrl + click to navigate, or page up/page down) Headlines from the audits ............................................................................. 4 Audit opinions ........................................................................................... 4 Additional assurance work at Wintec ....................................................... 4 Timeliness of reporting ............................................................................. 5 Preparation for audit ................................................................................. 5 Our assessment of the effectiveness of systems and controls ................. 6 Financial sustainability of the institutes of technology and polytechnics .... 8 Medium-term financial stability of universities .......................................... 13 3 Tertiary education institutions – briefing on the 2018 audit results WelTec was in a stronger position, but it was potentially Headlines from the audits exposed if Whitireia could not make loan repayments or realise its share of cost savings. Audit opinions 1.6 As at 25 November 2019, the Government had not confirmed 1.1 We issued 24 unmodified audit opinions, which means that extra funding for WelTec or Whitireia. the financial statements are a fair reflection of the position for 1.7 Although we issued unmodified audit opinions, we included an those 24 tertiary education institutions (TEIs) at year-end and “emphasis of matter” paragraph in the audit reports of the 13 of their activities during the year. institutes of technology and polytechnics (ITPs) that reported. 1.2 We did not issue audit opinions (or audit reports) for Tai These paragraphs drew attention to the disclosures in the Poutini Polytechnic, Wellington Institute of Technology financial statements about the uncertainty arising from the (WelTec), and Whitireia Community Polytechnic. This was Government’s proposed reforms of vocational education. We because Tai Poutini’s Crown Manager, and WelTec and discuss those reforms on pages 11-12. Whitireia’s Crown Commissioner, could not sign a statement of responsibility for the financial statements, which had been Additional assurance work at Wintec prepared on a “going concern” basis. Both were awaiting the 1.8 The Chairman of Waikato Institute of Technology (Wintec) outcome of a decision by the Government on whether to asked us to carry out additional assurance work about certain provide additional funding. international travel expenses incurred by the Chief Executive, 1.3 An organisation that is a going concern is assumed to have and past and present members of the executive team. We enough money to pay its bills as they fall due for the also reviewed all redundancy and severance payments made “foreseeable future”. As a guideline, this will be for at least a to former Wintec employees from 2013 to 2017. year after the date of the audit opinion. 1.9 A public organisation must be able to show what it is spending 1.4 In Tai Poutini’s case, it could not produce cash flow forecasts money on and that any expenditure is justified, reasonable, far enough into the future. After the financial year-end, the and appropriate in the circumstances. Sensitive expenditure, Government provided extra funding of $2.25 million for Tai where there is a perceived potential for private benefit, should Poutini to meet its obligations until 1 April 2020. be conservative and moderate. There also needs to be transparent and robust processes for approving expenditure. 1.5 Although they are separate institutions, WelTec and Whitireia have shared management and governance roles. Their cash 1.10 In both areas we tested, we identified incomplete and flow forecasts did not support using the going concern basis. inaccurate records of the expenditure, and numerous instances where the expenditure had not been properly 4 Tertiary education institutions – briefing on the 2018 audit results approved. As a result, in many cases, Wintec was unable to • auditors not being able to rely on the internal controls, provide an account of how it had spent public money. This is and the TEIs not having all the required information unacceptable for a public organisation charged with the available at the start of the process; stewardship of public resources. • lack of internal quality review of the annual report 1.11 We were particularly concerned about the processes, patterns (including the financial statements and statements of of behaviour, and level of documentation that we saw in our service performance), relying on the auditors to find work on international travel expenditure. Some of these errors; practices do not meet standards acceptable in the public • auditors receiving multiple iterations of the financial sector and provide an increased opportunity for the misuse of statements; and public money. You can read our full report here. • TEIs not including enough disclosures in their reporting Timeliness of reporting to explain certain figures. 1.12 All 24 TEIs that reported met their statutory reporting 1.16 This year, we approved 11 requests from auditors wanting to deadline. charge additional costs to TEIs because of delays and rework caused by the TEIs (and two other requests relating to Preparation for audit subsidiary company audits). 1.13 Although a high proportion of TEIs meet their statutory 1.17 In 2019 and 2020, we intend to work more closely with the reporting deadlines, there can be hidden costs in meeting the senior managers, and Audit and Risk Committees, of some deadlines. These costs are not just financial – they can TEIs to help them understand how their oversight can include extra stress on TEI staff and on the audit teams. contribute to an improved audit process. 1.14 TEIs can do much to ensure that the audit process runs smoothly. Robust governance frameworks and internal controls are vital to good stewardship of organisations and in maintaining public trust and confidence. When they are operating effectively, these frameworks and controls can reduce the amount of work auditors need to carry out. 1.15 Preparation for the audit process is also important. Some common issues faced by our auditors this year included: 5 Tertiary education institutions – briefing on the 2018 audit results journal transactions independently reviewed. Auckland Our assessment of the effectiveness of systems University of Technology, Massey University, Ara Institute of and controls Canterbury, the Eastern Institute of Technology (EIT), and Otago Polytechnic had one outstanding urgent 1.18 We have already highlighted the importance of effective recommendation each. systems of control and good governance. Our auditors add value to the organisations they audit and strengthen public Figure 1: Open recommendations at 30 April 2019, by relative urgency accountability by pointing out improvements to increase the for action. effective operation of those frameworks and controls. 1.19 Our auditors made 126 new recommendations for improvement resulting from their work on the 2018 audits of TEIs. 1.20 TEIs addressed 115 recommendations from previous years, but 165 remained open – making a total of 291 open recommendations. Source: Auditors’ reports to the councils of TEIs. 1.21 Figure 1 shows the status of all open recommendations at 30 April 2019. When making recommendations, our auditors 1.23 The top four categories of recommendation our auditors made indicate the seriousness of the matter by indicating how in 2018 were for TEIs to improve: quickly TEIs should act. We expect TEIs to have cleared all of • controls related to expenditure, including payroll the recommendations by the time of the next audit, but some systems; recommendations will need an urgent response. • how they applied accounting policies, or adhered with 1.22 Of the 11 “take action immediately” recommendations in the TEI’s own policy framework (such as spending on Figure 1, 10 were from previous years.1 The University of travel); Otago had five of these recommendations, including • how well the TEI’s annual report tells interested reinstating an internal audit function (in-house or outsourced), audiences about how it is performing; and managing conflicts of interest in procurement, and having all 1 We know some TEIs have acted on some of these recommendations, but we will assess that progress in the 2019 audit. 6 Tertiary education institutions – briefing on the 2018 audit results • information technology systems and controls (such as security and preventing over-rides of rules). 1.24 In 2020, we intend to engage more frequently with the Audit and Risk Committees of those TEIs with the highest number of outstanding recommendations. In our view, those Audit and Risk Committees should be more rigorous in following up on progress in addressing our recommendations. 7 Tertiary education institutions – briefing on the 2018 audit results Financial sustainability of the institutes of technology and polytechnics Aggregated surpluses and deficits Figure 2: Aggregated surpluses and deficits, 2009 to 2018 2.1 In our report on the results of the 2017 audits, we focused