Grants to Non-Government Schools

Tabled: 9 March 2016

3 Use of grants by non-government schools

At a glance

Background

The Department of Education & Training (DET) provides grants to non-government schools directly or through system bodies. The funding agreements set out the types or purpose of expenditure for which the funds may be used.

Conclusion

There is significant variation in the management practices of different schools and overall they lack 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.

Findings

  • The recurrent grant funds to Catholic schools are reallocated to individual schools by the Catholic Education Commission Victoria.
  • Schools examined in this audit had an auditor's report stating state recurrent grant funds were expended for the purposes for which it was provided, but no school was able to demonstrate to VAGO that state recurrent grant funds were spent as required.
  • Schools examined in this audit were mostly unable to adequately demonstrate that grants had been used as allowed under the funding agreements.

Recommendation

That DET clarifies any conditions and reporting requirements for system authorities when their distribution of the state recurrent grants varies from DET's allocation to individual schools.

3.1 Introduction

The Department of Education and Training (DET) provides grant funds to non‑government schools either directly or through system authorities, who manage multiple schools. The funding agreements set out the types or purpose of expenditure for which the funds may be used.

This Part examines grant recipients and non-government schools use of state government grants.

3.2 Conclusion

There is significant variation in the management practices of different schools and overall they lack 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 (SRG) funds received by a sample of independent schools against DET's allocation. The SRG funds to Catholic schools are reallocated to individual schools by the Catholic Education Commission Victoria (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 (SSP) could not demonstrate that funds were used for their intended purpose.

3.3 Sample of schools included in this audit

As part of the audit we tested a sample of 22 non-government schools. Our sample consisted of a mix of:

  • Catholic, Ecumenical, Lutheran, Seventh-day Adventist and independent, non-systemic schools, as shown in Figure 3A.
  • Primary, secondary and combined primary and secondary schools, as shown in Figure 3B.

Figure 3A
Number of schools in sample by type

Type of school

Number of schools in sample

Catholic

6

Ecumenical

3

Lutheran

3

Seventh-day Adventist

3

Independent, non-systemic

7

Total

22

Source: Victorian Auditor-General's Office.

Figure 3B
Number of schools in sample by year levels

Year level

Number of schools in sample

Primary

4

Secondary

5

Combined primary and secondary

13

Total

22

Source: Victorian Auditor-General's Office.

3.4 Distribution of state recurrent grants

3.4.1 Lutheran, Ecumenical, Seventh-day Adventist and independent, non-systemic schools

The Lutheran, Ecumenical and Seventh-day Adventist system authorities pass on in full the SRG to schools as allocated by DET, while non-systemic independent schools receive their allocations direct from DET. The tests undertaken in this audit sought to verify the amount of SRG received by each school in our sample against their allocations from information provided by either system authorities or DET. The amounts received for all schools were fully reconciled, with schools receiving what DET intended when it determined allocations using its Financial Assistance Model (FAM).

3.4.2 Catholic Education Commission Victoria

CECV reallocates the SRG to Catholic schools using its own methodology. While the funding agreement imposes an obligation on CECV to distribute funding to systemic schools it does not directly address the manner in which those funds should be distributed to those schools. The guidelines expressly recognise that a system authority may choose to reallocate the quantum of funding provided by DET to its member schools, rather than pass on the entitlement calculated by DET. Nevertheless some aspects of the agreement and the guidelines suggest an underlying assumption that each school will receive funding in accordance with its FAM allocation.

The overall effect of the CECV distribution methodology is that, in relation to SRG's, 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 that make up the DET funding model, the overall effect of the CECV methodology is to reduce the importance of that element in providing SRG funds to individual schools. The Student Family Occupation (SFO) measure is based on the parental occupation category information and the SFO Density Score, which calculates the proportion of parents at the school in each occupation category, with each occupation category being weighted for relative education need. Figure 3C shows the occupation categories and related SFO weightings.

Figure 3C
Occupation category weightings

Occupation category

Weighting

Senior management and qualified professionals

0.0

Other business managers and associate professionals

0.25

Tradespeople, clerks and skilled office, sales and service staff

0.5

Machine operators, hospitality staff, assistants, labourers and related workers

0.75

Not in paid work in the last 12 months

1.0

Not stated or unknown

0.0

Source: Independent Schools Victoria, Guide to Australian and Victorian Government Funding 2015.

As Figure 3D shows, CECV reallocates SRG funding away from the lower socio-economic status schools to schools with a higher socio-economic status. Overall, the highest socio-economic status schools, with an SFO index below 0.1, gained an additional 75.14 per cent in student funding while the lowest socio-economic status schools, with an SFO index of greater than 0.4, lost between 11.35 per cent and 63.33 per cent of their funding.

Figure 3D
CECV reallocation of state recurrent grants by student family occupation

SFO index

Number of schools

Number of students

FAM allocation ($)

FAM per student ($)

CECV final allocation ($)

CECV per student ($)

Reallocation ($)

Change (per cent)

<0.1

9

2 420

2 386 032

985.96

4 178 882

1 726.81

1 792 850

75.14

>=0.1<0.2

63

24 368

31 260 221

1 282.84

43 281 230

1 776.15

12 021 009

38.45

>=0.2<0.3

128

60 655

101 299 066

1 670.09

119 427 005

1 968.96

18 127 939

17.90

>=0.3<0.4

142

65 914

136 844 550

2 076.11

138 720 604

2 104.57

1 876 054

1.37

>=0.4<0.5

77

24 714

58 723 568

2 376.13

52 058 922

2 106.45

–6 664 646

–11.35

>=0.5<0.6

38

13 117

42 502 438

3 249.26

28 789 713

2 194.84

–13 712 725

–32.26

>=0.6<0.7

12

3 747

15 706 470

4 191.75

7 779 396

2 076.17

–7 927 074

–50.47

>=0.7<0.8

5

1 737

8 053 541

4 636.47

4 422 115

2545.83

–3 631 426

–45.09

>=0.8<0.9

3

505

2 772 708

5 490.51

1 016 714

2 013.30

–1 755 994

–63.33

<=0.9

2

412

1 536 389

3 729.10

1 156 408

2 806.82

–379 981

–24.73

Note: These figures exclude grants for SWD within FAM as this funding must be allocated to SWD and is separately acquitted. These figures also exclude grants provided to CECV for two non-systemic, special Catholic schools as this funding is paid directly to those schools so is not subject to reallocation by the CECV. The five highest socio-economic status combined secondary schools whose funding is not subject to the CECV's reallocation formula are also excluded. With these exclusions, the data covers $400.8 million in FAM grants for all other Catholic schools in Victoria in 2014.

Source: Victorian Auditor-General's Office based on data from the Catholic Education Commission Victoria.

Figure 3E shows that schools in the Ballarat and Sandhurst dioceses have reductions in their total funding allocations of 1.37 per cent and 6.38 per cent, respectively by CECV's reallocation methodology.

Figure 3E
CECV reallocation of grants by diocese

Diocese

FAM allocation ($)

FAM allocation per student ($)

CECV allocation ($)

CECV Allocation per student ($)

Reallocation ($)

Change (per cent)

Ballarat

40 886 059

2 244.39

40 327 070

2 213.71

–558 989

–1.37

Melbourne

282 531 833

1 969.45

284 997 793

1 986.64

2 465 960

0.87

Sale

35 601 255

2 052.66

36 438 833

2 100.95

837 578

2.35

Sandhurst

42 497 502

2 320.75

39 784 426

2 172.59

–2 713 076

–6.38

Source: Victorian Auditor-General's Office based on data from the Catholic Education Commission Victoria.

While the reallocation at the diocese level may not appear pronounced, at the school level, CECV's reallocation can have significant differences compared to DET's FAM allocation. For example:

  • The highest amount reallocated to a school was $966 724 which was to a Melbourne metropolitan secondary school. Fifteen schools had more than $500 000 reallocated to them above the FAM allocations.
  • The highest amount reallocated away from a school was $1.74 million which was also from a Melbourne metropolitan secondary school. Eight Melbourne metropolitan schools had more than $1 million allocated away from them, and 16 schools had between $1 million and $500 000 reallocated away from them, compared to the FAM allocations.

CECV's position is that its reallocation of FAM grants is required because FAM does not accurately estimate the need for government grants in Catholic schools. As noted in Section 2.6.1, DET plans to undertake a comprehensive review of the allocation methodology of FAM in 2016. CECV's view is:

  • There is a disproportionate share of funding allocated to equity/needs based factors. Equity/needs funding comprises 59.4 per cent of total funding in the FAM, but it makes up only 15 per cent of funding in the Student Resource Package model used by the Victorian Government for government schools, or 20.3 per cent of funding in the Schooling Resource Standard model used by the Australian Government and applied to Catholic schools in Victoria. This requires the Catholic system to reallocate some FAM equity/needs funding toward meeting base/core school operating costs elsewhere in the Catholic system.
  • If grants were allocated to Catholic schools strictly based on FAM, it would lead to a number of outcomes that run counter to the goals of CECV's funding agreement with DET. It would mean that some Catholic schools would not be viable, while others would not be able to provide a quality education to all of their students, and it would also be more difficult to open new Catholic schools. CECV did not provide any evidence to support this view.
  • CECV's allocation of FAM grants to Catholic schools is similar to the allocation of government grants that is anticipated in the Australian Government's Schooling Resource Standard model.
  • It is misleading for CECV's allocation of Victorian Government SRGs to schools to be considered in isolation of its allocation of Australian Government recurrent grants. The CECV allocates Victorian SRGs to schools in conjunction with Australian Government recurrent grants, and schools rely on grants from both governments to fund their operations. Australian Government grants are more than three-times greater than Victorian Government grants, and any analysis of the funding allocated to schools by the CECV based solely on grants sourced from the Victorian Government presents an incomplete and misleading picture of how the CECV allocates government grants and of the funding impacts on schools.
DET visibility of CECV allocation

DET is aware that CECV reallocates the grant amounts according to its own methodology. Although it has access to information on the final allocations to schools through data reported nationally, DET advised that it is not aware of the methodology used by CECV to reallocate SRG or the revised allocations provided to Catholic schools. CECV complies with the requirements of the funding agreement which require it to provide DET with acquittals on SRG at an aggregate level and not for individual schools, therefore, DET cannot have any understanding of the outcome of this process, or its implications for achieving the government's objectives of providing grants. DET should clarify any conditions and reporting requirements associated with the reallocation of the state recurrent grant.

Reconciliation of CECV allocations of the state recurrent grant to Catholic schools

We tested the SRG amounts received by six Catholic schools against allocations from CECV, and were able to reconcile these amounts.

3.5 Students with disabilities funding

SWD funding must be used to support SWDs, although the funding does not need to be linked or allocated to individual students. Funding is allocated by DET to CECV and Independent Schools Victoria (ISV) based on the proportion of students with disabilities in each sector.

For Catholic schools, the SWD funds provided to each school depend on the number of eligible students at the school and their categories of need. The guidelines for SWD funding are provided to Catholic schools and schools apply to CECV for funding. Applications are assessed, and eligible students are appraised to determine their functional needs and are allocated into one of three categories of need.

ISV distributes funds to independent schools, and prior to 2015 it used the Australian Government process for distributing the funds based on the number of students with a disability and the severity of their conditions, using Australian Government data to arrive at a notional allocation of funds to schools.

ISV has now introduced a new process. The Australian Government program for which the data was collected has ended and therefore there is no up-to-date data on the severity of students' conditions. ISV has used the August school census to find the number of students with a disability. ISV then assumed that the distribution of severity in 2015 was the same as it was in 2014. Given this assumption and the number of students with a disability, ISV could arrive at a notional allocation of SWD funds to schools. In the future ISV anticipates there will be a 'nationally consistent collection of data on school students with a disability'. This work will cover all sectors and all jurisdictions, and ISV hopes that it will provide the data that ISV needs to determine a notional allocation of SWD funds to schools. While ISV has concerns over the current reliability of this data they hope its reliability will improve over time.

3.5.1 Reconciliation of student with disability grant allocations

We tested financial records for SWD grants received in 2014 from ISV for all non‑Catholic schools, and Catholic schools who receive funding through CECV. There was no variance found for any schools we tested.

3.6 Use of grants by non-government schools

3.6.1 Grants administration in the sampled schools

This audit examined whether the 22 schools in the sample:

  • had policies and/or procedures in place for managing state grants
  • had systems and processes in place to ensure grants are spent for their intended purpose
  • could track and demonstrate how grant funds had been spent
  • could demonstrate that grants had been used for their intended purpose
  • had sufficient and appropriate evidence to verify expenditure of grant funds.

Our tests were not designed to assess compliance with the relevant funding agreements, but to determine whether there were controls and processes in place at schools that could provide assurance that grants were being used as intended. Figure 3F shows the results of our testing.

Figure 3F
Results of non-government school testing – state government grants

 

Met

Partially met

Not met

Schools have policies and procedures around accountability and the use of grants

0

5

17

Schools have systems and processes to ensure grants are used for their intended purpose

0

5

17

Schools have budgets to ensure grants are spent or committed in the relevant financial year

21

0

1

Schools have a general ledger of expenses showing how grant money was spent

0

13

9

Schools have supporting documentation (e.g. invoices) showing how grant money was spent

0

9

13

Schools can demonstrate that state RGFs were not used for capital purposes

0

0

22

Schools can demonstrate that SWD funds were spent on their intended purpose

4

3

13

Schools can demonstrate that SSP funds were spent on their intended purpose

2

4

7

Schools provided a signed acquittal from an approved auditor

21

1

0

Schools provided a school financial report or completed a financial questionnaire

20

0

2

Note: Not all schools received SWD or SSP grants.

Source: Victorian Auditor-General's Office.

Policies and procedures

Policies and procedures are used by schools to ensure their staff administer grants in accordance with the terms of the relevant funding agreements. For example, they contain business rules for staff on how grant monies can be spent and how to record the expenditure against the grant amounts.

No schools in our sample had adequately documented policies and procedures in place to support sound administration of the state government grants. Five schools had appropriate documentation of staff responsibilities but no school had clearly documented business rules for grants administration. Six schools relied on what they described as 'verbal' policies, which by their nature cannot be considered policies.

Systems and processes

Systems and processes can be established to ensure that grants are used for their intended purpose. These systems could relate to managing risks associated with incorrect use of grants, assessment and approvals processes for proposals to use grant money, and regular acquittals or self-audits that grants have been spent on their intended purpose.

None of the schools in our sample provided evidence that all such systems were in place. One school had a series of controls for approval of expenditure. Four schools relied on 'verbal' processes.

3.6.2 Ability to demonstrate use of grant funds

Schools were asked to provide evidence of how grant money was accounted for in the school's financial system. The ability to trace expenditure to the source of funds is important as all Victorian Government grants to non-government schools include conditions on the types of expenditure for which they can and cannot be used.

Nearly all schools (21 of 22) had budgets in place to ensure that grants were spent or committed in the relevant year.

While the majority of schools were able to demonstrate that grant money was spent or committed in the financial year for which it was received, they were unable to provide sufficient supporting evidence, through detailed general ledgers and invoices that grant funds had been spent as budgeted.

State recurrent grants

The guidelines state that SRG must be used to meet the recurrent costs of providing education programs consistent with Victoria's education policies and goals, and is not to be used for capital purposes. Otherwise, funding through SRG remains 'untagged', with the exception of funding for SWD.

It was therefore common for schools to add SRG funds to a general account, together with other income, such as Australian Government grants. Schools considered inappropriate use of SRG to be a low risk as the funding received was far less than their employee wages and recurrent operational expenses. Nevertheless, we sought evidence from schools to demonstrate that SRG funds were not used for capital purposes. 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. CECV and ISV's view is that schools are not required to record which of their recurrent expenditures (including commitments to spend) were paid using SRG funds. This relates to their interpretation of clause 21 of the funding agreement which is discussed in Section 2.3.2.

DET's 2016 funding agreement includes strengthened reporting requirements that specify how funding is to be spent, with a requirement for a certificate to be issued by the school head and an independent auditor. However, without separately identifying expenditure of SRG funding, it is not clear how a school and, consequently, DET can be assured that funds are spent in accordance with the agreement. Therefore, the specific record keeping and reporting requirements relating to expenditure of SRG funds need to be made clearer.

Students with disabilities grants

The guidelines state that all SWD funding allocated to schools must be used by schools to provide programs for students assessed as qualifying for such funding.

Of the 20 schools that received SWD funding, only four (20 per cent) were able to provide sufficient evidence that SWD funds were spent on their intended purpose. These schools were able to provide evidence linking their SWD funds to:

  • salaries associated with the provision of targeted professional support services for students with assessed special learning needs
  • budgets for special needs, which is updated when expenses have been approved and allocated to this budget, and shows the use of SWD funds for speech pathology, professional development and resources
  • teacher's aide salaries with evidence of details of student need by grant type, days and hours per week, as well as a summary aide costing
  • salaries for staff that support students with disabilities.

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

The guidelines state that the SSP provides targeted funds to assist students attending non-government schools who have special learning needs. The funding is available to deliver a range of professional support services, including visiting teacher services (physical or health impaired, hearing impaired), psychology services and speech pathology services. Individual schools apply directly to ISV or CECV for this funding.

Of the 13 schools that received SSP grants, only two schools (15.4 per cent) provided sufficient evidence that SSP funds were spent on their intended purpose. Evidence provided by the two schools that met this test were:

  • a general ledger and supporting invoices for professional services (occupational therapist and speech pathologist) provided to the school
  • a general ledger showing expenditure of 'languages grant'.

Four schools were able to provide a sufficiently detailed general ledger, but were not able to provide documentation to verify the expenditure. The remaining seven schools could not demonstrate that SSP funds were spent on their intended purpose.

Recommendation

  1. That the Department of Education & Training 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.

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