Grants to Non-Government Schools

Tabled: 9 March 2016

Audit Summary

Non-government schools provide education to around 334 000 Victorian school children, which represents around 37 per cent of all Victorian students. These schools operate in two ways—through system authorities, that manage multiple schools, and as independent, non-systemic schools. They are diverse in nature, serving a range of different communities. They may provide religious or values-based education, or be based on educational philosophies or different interpretations of mainstream education.

There are four system authorities in Victoria. The largest of these is the Catholic Education Commission Victoria (CECV), which acts for 493 Catholic schools in the state. The other system authorities are the Lutheran system (overseeing 15 schools), the Ecumenical system (overseeing 15 schools, although this increased to 16 schools from January 2016) and the Seventh-day Adventist system (overseeing five schools). There are currently also 171 non-government schools that do not operate within one of the 'systems'. Other relevant bodies in the non-government school sector are Independent Schools Victoria, a membership-based organisation that receives and then distributes specific-purpose funding for targeted initiatives to non-government schools outside the Catholic system, and the Victorian Independent Schools Block Grants Authority which administers some grant programs.

Non-government schools receive funds from a range of sources, including the Australian and Victorian governments and student fees. The Victorian Government funds non-government schools through a range of non-competitive grants. In 2014, the state provided over $640 million in grants to the non-government school sector. Grants are provided for both general and specific purposes. The bulk of state government grants (over $624 million in 2014) are provided as state recurrent grants (SRG). This is a relatively minor share of government funding for non-government schools, since recurrent Australian Government grants are more than three times greater than state government grants.

Other Victorian Government grants to non-government schools—amounting to over $15 million in 2014—have specific purposes and limitations on how they may be used. These include grants to support students with disabilities, targeted or other special purpose grants, and facilitation and reward funding.

This audit examined whether the Department of Education & Training (DET), non-government schools and their system administrators are effectively and efficiently managing and using grants.

We examined DET's administration of state recurrent and other grants and examined compliance with funding agreements and the use of funds by grant recipients, including the four system authorities, and a selection of non-government schools. We did not examine other activities not related to state government grants, such as the use of Australian government grants to non-government schools or the activities of the Victorian Registration and Qualifications Authority.


There is limited assurance that grants to non-government schools are used for their intended purpose or are achieving intended outcomes. This is primarily due to weaknesses in funding agreements and DET's ineffective grants management, including limited oversight of grant recipients and their use of grants, and inadequate monitoring and reporting. While the funding agreements and associated guidelines set out the goals of the grants and conditions on the use of grant funds, there are no performance measures or targets, and limited reporting requirements for the non-government sector, beyond financial reporting.

It is encouraging that DET has recently developed interim memorandums of understanding, funding agreements and guidelines for the major state recurrent grant funding, which have strengthened reporting and accountability requirements. It is important that DET continues to work with the non-government sector to further improve accountability and transparency for the use of state government grants as it develops arrangements for 2017 and beyond. DET must also improve its oversight, monitoring and reporting of grant recipients.

There is significant variation in the management practices of the selection of non‑government schools tested as part of this audit—overall, they lacked policies and procedures to demonstrate the effective use of state government grants. With some exceptions, they cannot adequately track and demonstrate how grant funds have been spent.

We were able to reconcile state recurrent grant funds received by a sample of independent schools against DET's allocation. The recurrent grant funds to Catholic schools are reallocated to individual schools by the CECV using its own methodology. This results in a significantly different allocation to Catholic schools, compared to DET's allocation. However, we were able to reconcile SRG funds received by Catholic schools in the audit against allocation data provided by CECV.

Most schools that received targeted funding for students with disabilities (SWD) or grants under the support services program could not demonstrate that funds were used for their intended purpose.

There is a need to strengthen guidelines and funding agreements, and the associated accountability for the use of all grants to non-government schools. Both school-level accountability and controls, and DET's oversight and monitoring need strengthening.


Departmental oversight of grants

The absence of clear, appropriate governance by DET has led to poor grant administration, including inadequate monitoring and oversight of whether grants are used as intended.

The purpose and goals of the state recurrent grants are set out in the funding agreements between DET and grant recipients. The funding agreements have specific goals—however, there are no performance measures or monitoring and reporting requirements associated with these goals. Therefore DET is unable to determine if the grants are contributing to the achievement of its goals.

There are limited conditions within the funding agreements to adequately monitor the use of grants, and reporting requirements relate to financial information and some output data. Other controls that do exist are not actively used by DET to test or validate how grants are used by non-government schools. The limited reporting that does occur is not sufficiently used by DET to determine whether grants are being used as intended.

DET does not oversee or monitor the use of state recurrent grants beyond receiving financial acquittals, nor does it utilise other sources of performance information, to assure itself that the intended goals are being achieved. As monitoring and reporting are limited to financial acquittals, there has been a lack of accountability for achieving the government's goals through the use of state recurrent grant funding. The interim 2016 funding agreement includes some improved reporting requirements and performance measures, which will partially address these issues, provided DET improves its monitoring and oversight activities.

In some cases, DET relies on system authorities to administer and oversee grants made to schools. In effect, this means that the system authorities oversee themselves, because they receive the grant funding from DET, manage the allocation of grants to schools, and provide acquittals to DET on expenditure. DET has only assessed these acquittals from system authorities to ensure that expenditure matched the payments provided. DET does not oversee or monitor system authorities to assure itself that grants are used for their intended purpose or achieving the intended outcomes.

DET has acknowledged there is a need for improvement in this area and has advised that it is introducing performance measures and other improvements. In addition to commissioning the recent review of reporting and accountability arrangements, DET has developed interim funding agreements, memorandums of understanding and guidelines for 2016, which strengthen performance outcome measures and reporting requirements.

Allocation of grants to non-government schools

State recurrent grants

The Lutheran, Ecumenical and Seventh-day Adventist system authorities pass on in full the SRGs to schools allocated by DET, and independent, non-systemic schools receive their SRGs directly from DET. We verified SRG funding received by each school in our sample against their allocations from information provided by either system authorities or DET and the amounts received for all schools were fully reconciled.

CECV reallocates the SRG to Catholic schools using its own methodology. The overall effect of the CECV distribution methodology is that some Catholic schools receive substantially more than they would receive under DET's allocation and some substantially less. While student-family background is only one of a number of elements in the model DET use to determine grant allocations, the overall effect of the CECV methodology is to reduce the importance of that element in providing funds to individual schools. CECV's position is that its reallocation of SRGs is required because DET's Financial Assistance Model—used by the department to determine grant allocations—does not accurately estimate the need for government grants in Catholic schools, with a disproportionate share of funding being allocated on an equity/needs basis.

As part of this audit, we tested the SRG amounts received by six Catholic schools against allocations from CECV, and were able to reconcile these amounts.

Students with disabilities grants

We tested the financial records for SWD grants received in 2014, and were able to reconcile all allocations for all the schools we tested.

Use of grants by non-government schools

Non-government schools do not have adequate procedures and systems in place to ensure that Victorian Government grants are used for their intended purpose. A sample of 22 non-government schools were generally unable to provide evidence that grants had been used as allowed under the funding agreements.

Policies and procedures

None of the sampled schools had adequately documented policies and procedures in place to support the sound administration of SRGs. Five schools had appropriate documentation of staff responsibilities, but no schools had clearly documented business rules for grants administration. Six schools relied on what they described as 'verbal' policies.

Systems and processes

None of the sampled schools provided evidence that adequate systems and processes were in place to ensure that grants were used for their intended purpose. One school had a series of controls for the approval of expenditure. Four schools relied on 'verbal' processes.

Ability to demonstrate use of grant funds
State recurrent grants

Nearly all of the sampled schools (21 of 22) had budgets in place to ensure grants were spent or committed in the relevant year. While the majority of sampled schools were able to demonstrate that grant money was spent or committed in the financial year for which they were received, they were unable to provide sufficient supporting evidence, through detailed general ledgers and invoices, that grant money had been spent as budgeted. While all individual schools we tested had an auditor's report stating SRG funds were expended for the purposes for which they were provided, no school was able to demonstrate to VAGO that SRG funds were spent in full accordance with the agreement

DET's 2016 funding agreement includes reporting requirements that specify how funding is to be spent, with a requirement for a strengthened acquittal certificate to be issued by the school head and an independent auditor. This includes assurance that funds have not been used for capital purposes. However, without schools separately identifying expenditure of SRG funding it is not clear how a school, and consequently DET, can be assured that grant recipients and non-government schools are using funds as intended.

Students with disabilities grants

Of the 20 schools in the sample that received SWD funding, only four schools (20 per cent) were able to provide sufficient evidence that SWD funds were used for their intended purpose. A further three schools were able to provide some evidence of expenditure, but were unable to either link the expenditure to the source of funds or substantiate the expenditure shown in the general ledger. Thirteen schools could not demonstrate that their SWD grants were used for the intended purpose.

Support Services Program

Of the 13 schools that received support services program grants, only two schools (15.4 per cent) provided sufficient evidence that grant funds were spent on their intended purpose. Four schools were able to provide a sufficiently detailed general ledger, but were not able to provide documentation to verify the expenditure.


That the Department of Education & Training:

  1. continues to improve the state recurrent grant funding agreement so that all relevant Education State targets for non-government schools are explicit and supported by relevant and appropriate performance measures and reporting requirements that enable the department to monitor the achievement of intended outcomes
  2. in conjunction with the non-government schools sector, clarifies and strengthens record keeping and reporting requirements for the expenditure of all state government grants so that requirements are explicit and well understood by grant recipients and all non-government schools
  3. improves special purpose grant funding agreements to ensure they have explicit and measurable outcomes, supported by relevant and appropriate performance measures and reporting requirements, that enable the department to monitor the achievement of intended outcomes
  4. develops a program of audits of grant recipients and non-government schools to provide assurance grants are used as intended
  5. clarifies any conditions and reporting requirements for system authorities when their distribution of state recurrent grants varies from the department's allocation to individual schools.

Submissions and comments received

Throughout the course of the audit, we have professionally engaged with:

  • the Department of Education & Training
  • Adventist Schools Victoria
  • Catholic Education Commission of Victoria Ltd
  • Independent Schools Victoria
  • Lutheran Education Vic, NSW & Tas
  • Victorian Ecumenical System of Schools.

In accordance with section 16(3) of the Audit Act 1994 we provided a copy of this report to those agencies and requested their submissions or comments. We have considered those views in reaching our audit conclusions and have represented them to the extent relevant and warranted. Their full section 16(3) submissions and comments are included in Appendix B.

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