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.


  1. Our office provides independent assurance that TEIs are properly accounting for the public money and assets they use.
  2. 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.
  3. 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

  1. 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.
  2. 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.
  3. 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
  4. 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

  1. We issued audit opinions for:
    • each TEI (usually called “the parent”); and
    • for the combined entities (the parent and its subsidiaries) that comprise the TEI group (usually called “the group”).
  2. 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:
    • fairly reflected each TEI group’s financial position, the results of its operations, and cash flows; and
    • fairly reflected each TEI’s actual service performance as measured against its performance targets.
  3. In three cases, we included in our audit report an explanation of specific matters of importance that do not affect our overall opinion.
  4. For the University of Auckland, we drew attention to the accounting treatment used by the University for “Partnerships for Excellence” funding.
  5. 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.
  6. For the Western Institute of Technology in Taranaki, we drew attention to disclosures made by the Institute about:
    • its reliance on TEC funding;
    • its need to amass enough cash reserves to meet future loan repayments to the Crown; and
    • the way the Institute had applied the going concern assumption in preparing its financial statements.
  7. We include further information about each of these matters in our audit reporting for these entities.

Matters we identified from our audits

  1. We set out below the main matters identified in our TEI audits.

Financial viability

  1. 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.
  2. Of the TEIs with completed audits, 16 of the 26 achieved a financial result that exceeded either their target result or their 2015 result.
  3. Our audit work for all TEIs involved reviewing the going concern assumption.
  4. TEIs continue to look for new revenue sources and efficiencies. Some TEIs have carried out large change programmes, including:
    • reviewing how and where courses are delivered;
    • seeking more international students; and
    • carrying out activities overseas.

Valuation of land and buildings

  1. 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

  1. 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

  1. 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:
    • linking long-term objectives and what the TEI achieved in the year more clearly in investment plans;
    • providing more context; and
    • providing clearer explanations where there was variation between actual results and targets.

Procurement and contract management

  1. We noted some areas for improvement in procurement and contract management policy and practice in individual TEIs. These included;
    • maintaining appropriate documentation;
    • having clearer expectations for identifying and managing risk;
    • accounting correctly for research contracts; and
    • checking that procurement practice follows policy.
  2. 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

  1. We have analysed information from our auditors to identify fraud risk factors.
  2. 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.
  3. 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.
  4. 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.
  5. 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

  1. Auditors consider where risks arise in an audit, and plan their audit work to target those risks.
  2. The top four risks identified by our auditors were:
    • There are diverse contract management practices across TEIs despite there being largely the same level of inherent contracting risk.
    • 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).
    • Procurement was often devolved, and a lack of review and assurance limited our confidence that the systems were working effectively.
    • There were weaknesses in linking asset management planning to overall service and financial planning, strategic planning, and financial forecasting.
  3. We continue to report these findings to TEI governors and managers to support their improvement work on these risks.

Further information

  1. We look forward to working with the Education and Workforce Committee.
  2. 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

Yours sincerely

Signature - GS

Greg Schollum
Deputy Controller and Auditor-General

1: Because 30 April 2017 was a Sunday, the reporting deadline moved to 1 May 2017, under the provisions of the Interpretation Act 1999.

2: Going concern is a basic accounting assumption that the TEI will continue, and will be able to meet its obligations when they fall due. It is inherently linked to financial risks, although there are other conditions or events that can cast doubt on an entity’s ability to continue as a going concern.