Results of the 2016 Audits of Tertiary Education Institutions
Letter sent on 28 November 2017 to Ms Sarah Dowie MP, Chairperson of the Education and Workforce Committee, House of
Representatives.
1. In this letter, we summarise the results of the tertiary education institution (TEI) audits for the year ended
31 December 2016. We provide a brief introduction to our audit work and an update on timeliness and completion of the
2016 audits. We also report on the types of audit opinions we issued, and note the main matters we identified from our
audits.
2. The Committee may find this information useful in its examination of the performance and accountability of
entities in the tertiary sector. We will also publish this letter on our website and copy it to TEIs, the Minister of
Education, the Tertiary Education Commission (TEC), and the Ministry of Education.
Introduction
3. Our office provides independent assurance that TEIs are properly accounting for the public money and assets they
use.
4. Our audit work supports effective governance and management of TEIs. We do this by providing assurance and
comment on the financial and service performance information reported by the TEIs. Each year, we give an opinion on
whether that information is a fair reflection of each TEI’s performance.
5. This letter includes our comments on both financial and service performance, as well as summarising other
matters we identified in our 2016 audits.
Timeliness and completion of the 2016 TEI audits
6. Public entities must give us financial statements within statutory time frames. Doing so enables us to complete
our audit work as soon as possible after the end of the TEI’s financial year. Public entities must publish those audited
financial statements. Prompt reporting is an important aspect of public accountability.
7. Recent amendments to the Education Act 1989 removed the requirement for us to audit TEI subsidiaries. However,
we continue to audit some subsidiaries on request or when required by a TEI’s constitution or deed.
8. With one exception, all of the TEI group audits for the year that ended on 31 December 2016 were completed
within the statutory time frame (by 30 April 2017).1
9. We have been unable to give an audit opinion for Tai Poutini Polytechnic for 2016. This is because the Council
of the Polytechnic cannot yet provide us with adequate audit evidence to explain why it considers the “going concern
assumption” is appropriate as a basis for its 2016 financial statements.2 We will also need to assess final reports,
when received, from investigations carried out by TEC and the Crown Manager into the Polytechnic’s operations. Also, the
Polytechnic needs to formally assess whether it is a going concern, and this will depend on a government decision on its
proposed business case.
The types of audit opinions we issued
10. We issued audit opinions for:
o each TEI (usually called “the parent”); and
o for the combined entities (the parent and its subsidiaries) that comprise the TEI group (usually called “the
group”).
11. We issued unmodified opinions for all 26 completed audits of TEI group accounts for the year that ended on 31
December 2016. When we issue an unmodified opinion, it means that, in our view, the financial statements and performance
information we audited:
o fairly reflected each TEI group’s financial position, the results of its operations, and cash flows; and
o fairly reflected each TEI’s actual service performance as measured against its performance targets.
12. In three cases, we included in our audit report an explanation of specific matters of importance that do not
affect our overall opinion.
13. For the University of Auckland, we drew attention to the accounting treatment used by the University for
“Partnerships for Excellence” funding.
14. For Toi Ohomai Institute of Technology, we drew attention to it being formally set up on 1 May 2016 as a result
of the merger of the Bay of Plenty Polytechnic and Waiariki Institute of Technology. We commented on aspects of the
merger occurring part-way through the financial year.
15. For the Western Institute of Technology in Taranaki, we drew attention to disclosures made by the Institute
about:
o its reliance on TEC funding;
o its need to amass enough cash reserves to meet future loan repayments to the Crown; and
o the way the Institute had applied the going concern assumption in preparing its financial statements.
16. We include further information about each of these matters in our audit reporting for these entities.
Matters we identified from our audits
17. We set out below the main matters identified in our TEI audits.
Financial viability
18. Financial viability remained a significant area of focus in our TEI audits. We found that conditions affecting
viability included rising operating costs and changes in (non-student) income. Sometimes, student numbers fell below the
targets set for enrolment. This puts pressure on the revenue generated, and can lead to a TEI having to make repayments
to the TEC. In some instances, the TEC may formally review the TEI.
19. Of the TEIs with completed audits, 16 of the 26 achieved a financial result that exceeded either their target
result or their 2015 result.
20. Our audit work for all TEIs involved reviewing the going concern assumption.
21. TEIs continue to look for new revenue sources and efficiencies. Some TEIs have carried out large change
programmes, including:
o reviewing how and where courses are delivered;
o seeking more international students; and
o carrying out activities overseas.
Valuation of land and buildings
22. We regularly focus our audit on the fair value of land and buildings. In 2016, many TEIs revalued their assets.
We had to do a lot of work to get sufficient assurance on these revaluations. Sometimes, the valuations increased
significantly, arising from increased building costs and major property redevelopment.
Capital expenditure
23. During 2016, a number of TEIs had major campus development projects under way or planned. We saw a substantial
level of capital spending in the sector as TEIs implemented plans to maintain and develop their campuses.
Performance reporting
24. We reviewed the TEIs’ performance information systems and reporting. Generally, the performance reporting gave a
clear picture of each TEI’s performance. We made several suggestions to individual TEI councils and managers to further
improve their performance reporting. These suggestions included:
o linking long-term objectives and what the TEI achieved in the year more clearly in investment plans;
o providing more context; and
o providing clearer explanations where there was variation between actual results and targets.
Procurement and contract management
25. We noted some areas for improvement in procurement and contract management policy and practice in individual
TEIs. These included;
o maintaining appropriate documentation;
o having clearer expectations for identifying and managing risk;
o accounting correctly for research contracts; and
o checking that procurement practice follows policy.
26. Each year, we carry out audit work based on a theme for the year. For 2018/19, our proposed theme is Procurement
and contract management. We are currently identifying the specific areas of focus for our work under this theme.
Fraud risk
27. We have analysed information from our auditors to identify fraud risk factors.
28. Paying fees and other course-related costs in cash often represents a significant sum and presents an attractive
target for theft by an employee. We encourage TEIs to collect fees electronically rather than in cash
29. We have also seen a steady number of procurement-related thefts, mainly using false invoices. This risk can
increase where TEIs are involved in significant building and construction projects. Sometimes, the existing internal
controls have not been designed or updated to cope with the increased volume or complexity of expenditure, and
weaknesses emerge.
30. We found a few incidents where fraudsters sent public entities legitimate-looking emails or documents, claiming
to be from an established supplier, telling them of a change in bank account details. In a couple of instances, the TEI
made the account change without first confirming it by phoning or separately contacting the supplier, and then paid the
fraudster.
31. Compliance with adequate policies and procedures is a strong defence against fraud, as is proactive and engaged
supervision. One of the best tools to prevent fraud is employee awareness, where there is a fraud policy used as the
basis for training and regular reinforcement of the message that fraud is unacceptable.
Broader audit risk
32. Auditors consider where risks arise in an audit, and plan their audit work to target those risks.
33. The top four risks identified by our auditors were:
o There are diverse contract management practices across TEIs despite there being largely the same level of
inherent contracting risk.
o All aspects of contract management practice had weaknesses compared to our good practice expectations (although
the level of weakness was similar to that in the wider public sector).
o Procurement was often devolved, and a lack of review and assurance limited our confidence that the systems were
working effectively.
o There were weaknesses in linking asset management planning to overall service and financial planning, strategic
planning, and financial forecasting.
34. We continue to report these findings to TEI governors and managers to support their improvement work on these
risks.
Further information
35. We look forward to working with the Education and Workforce Committee.
36. If you have any questions, or need any further information on the matters raised in this letter, please contact
Patricia Johnson on 021 222 6257 or at Patricia.Johnson@oag.govt.nz.
Yours sincerely
Greg Schollum
Deputy Controller and Auditor-General