Grants to Non-Government Schools

Tabled: 9 March 2016

Appendix B. Audit Act 1994 section 16—submissions and comments

Introduction

In accordance with section 16(3) of the Audit Act 1994, a copy of this report, or part of this report, was provided to:

  • 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.

The submissions and comments provided are not subject to audit nor the evidentiary standards required to reach an audit conclusion. Responsibility for the accuracy, fairness and balance of those comments rests solely with the agency head.

Responses were received as follows:

Further audit comment:

RESPONSE provided by the Acting Secretary, Department of Education & Training

RESPONSE provided by the Acting Secretary, Department of Education & Training page 1
RESPONSE provided by the Acting Secretary, Department of Education & Training page 2
RESPONSE provided by the Acting Secretary, Department of Education & Training page 3

RESPONSE provided by the Executive Director, Catholic Education Commission of Victoria Ltd

Response provided by the Executive Director, Catholic Education Commission of Victoria Ltd page 1
Response provided by the Executive Director, Catholic Education Commission of Victoria Ltd page 2
Response provided by the Executive Director, Catholic Education Commission of Victoria Ltd page 3
Response provided by the Executive Director, Catholic Education Commission of Victoria Ltd page 4
Response provided by the Executive Director, Catholic Education Commission of Victoria Ltd page 5
Response provided by the Executive Director, Catholic Education Commission of Victoria Ltd page 6
Further audit comment in response to the submission from the Executive Director, Catholic Education Commission Victoria

The Catholic Education Commission Victoria (CECV) has raised several significant issues and concerns in their responses that warrant my further comment.

CECV comment

Acting Auditor-General's comment

The CECV has from the outset of this audit maintained that its scope was too narrow, and that exclusions from the audit scope would undermine the quality and relevance of VAGO's findings and recommendations. In particular, the audit scope did not take into account:

  • Reporting and accountability requirements placed on non-government schools by the Australian Government (in school funding conditions)
  • Reporting and accountability requirements placed on non-government schools by the Victorian Registration and Qualifications Authority (VRQA) (for school registration)
  • Reporting and accountability requirements placed on government schools in Victoria.
  • While VAGO defended its limited scope as standard practice for grants management and administration, the above exclusions are untenable in the unique context of schooling.

Within Victoria, it is the VRQA and not the Department which has primary responsibility for regulating schooling. This structural separation of responsibilities is important because it reduces the conflict of interest that would occur were the Department to be responsible for regulating non- government schools while also providing a competitor product. Funding conditions placed on non-government schools by the Department must be assessed in this context: they are intended to complement school registration requirements imposed by the VRQA. This is unmistakable from the CECV's funding agreement with the Department, which specifies that each systemic school must be registered with the VRQA. Yet VAGO's report essentially denies that the VRQA's activities are relevant to the Department's oversight of grants to non-government schools.

VAGO's exclusions of these requirements mean its analysis is contrived. Moreover, had VAGO considered reporting and accountability requirements placed on government schools alongside those for non-government schools it would have gained some much-needed insight into standards of reporting and accounting in schooling. Altogether, VAGO's limited scope has led to a report which is incomplete and therefore misleading. With a broader, more appropriate scope many of the concerns and issues raised by VAGO would have been substantially addressed.

My office has previously responded to CECV on these issues noting that the argument the audit scope was 'too narrow' is not soundly based. The range of reporting and accountability requirements referenced by CECV are not directly related to the Department of Education & Training's (DET) funding agreements and their goals and, most importantly, not used by DET to acquit its role in monitoring the use of grants by non-government schools. CECV's comments also fail to recognise that the mandate of the Victorian Auditor-General does not extend to examining the activities of the Australian Government.

CECV's point about the VRQA is entirely problematic. My report does outline the role of the Victorian Registration and Qualifications Authority (VRQA) and the minimum standards that all schools must comply with for registration. It is also important to note that in the audit's scope it was clear that VRQA's role would be examined, but only in relation to how DET interacts with it where grants are involved. This approach was appropriate as only DET has a role in the administration, oversight and monitoring of grants.

Hence CECV's suggestion that my report 'denies that VRQA's activities are relevant to the department's oversight of grants to non-government schools' is erroneous and ignores this important aspect of the audit scope. CECV appears to have missed this important aspect of the audit scope.

My report, in a number of parts, also acknowledges the reporting requirements of the Australian Government. For example Section 2.3.1 refers to reporting for the Australian Curriculum, Assessment and Reporting Authority (ACARA) and the Australian Government Financial Questionnaire. However, as these requirements do not apply directly to the use of state government grants, and are beyond the remit of the Victorian Auditor-General, they were not examined.

For these reasons, I emphatically reject any suggestion that my analysis is 'contrived'. This assertion is baseless and reflects a serious misunderstanding of the context of my audit and mandate.

At the outset of this audit – before any substantive work had commenced – the former Auditor-General stated in the media, in relation to grants to non-government schools, that 'there is quite limited accountability coming back the other way as to what the money was used for, how it was used, and whether it was effective'. VAGO has now produced a report to endorse these comments. It is hard not to conclude that the scope was intentionally designed to serve this purpose, given that a broader scope would have challenged many of VAGO's findings.

See Auditor-General's comments on Page vii of this report.

The former Auditor-General exercised no substantive influence over the audit conduct of this audit or the development of this report.

It is important to note that my audits are conducted in accordance with the Audit Act 1994 and the Australian Auditing and Assurance Standards, which require audit findings and conclusions to be based on sufficient and appropriate evidence.

In section 3.4.2, VAGO's report casts ambiguity over whether the Department permits the CECV to reallocate state recurrent grants between systemic schools, and implies that the CECV is not accountable or transparent over how it allocates grants.

Moreover, if VAGO had considered requirements placed on school systems by the Australian Government, VAGO would have concluded the CECV is subject to a range of transparency and accountability measures on how it allocates grants.

This statement does not accurately represent the content of my report.

Section 3.4.2 of my report clearly acknowledges that a system authority can choose to reallocate the quantum of funding provided by DET to its member schools. Nevertheless, as my report highlights, some aspects of the agreement and the guidelines suggest an underlying assumption that each school will receive funding in accordance with its allocation made by DET using its Financial Assistance Model.

As my report notes, although DET has access to information on the final allocations to schools through data reported nationally, DET is not aware of the methodology used by CECV to reallocate state recurrent grants or of the revised allocations to Catholic schools. In this context, Australian Government requirements are irrelevant, as DET is responsible for all aspects of managing grants to non-government schools in Victoria.

A further problem with section 3.4.2 is its simplistic focus on the reallocations of state recurrent grants that result under the CECV funding models. VAGO has neglected the considerable, overarching benefit that permitting the CECV to reallocate government recurrent grants provides to governments and the community. This enables the CECV to guarantee school viability, meaning that there are no unplanned closures of Catholic schools in Victoria. This eliminates one of the biggest risks to the community of non-government schooling. VAGO is aware of this, having cited in its audit specification that disruption to students and schools caused by unplanned closures of non-government schools was a key reason for the audit. It is therefore surprising that VAGO can cite this risk as a reason for the audit, but fail to note in the audit report that the risk does not apply to Catholic schools because the CECV is able to reallocate state recurrent grants.

Section 3.4.2 simply shows the outcome of CECV's allocation compared to the allocation made by DET using its Financial Assistance Model.

CECV repeatedly failed to provide sufficient and appropriate evidence to support its assertions during the audit that grants guarantee school viability.

CECV's references to VAGO's audit specification are factually incorrect and misleading. The audit specification did not include references to the closure of private schools—this was included in VAGO's 2015–16 Annual Plan. The rationale for the audit included in the audit plan is as follows:

'Non-government schools provide education for more than one-third of Victorian school children. Grants to non-government schools total more than $640 million annually. Given the amount of funding to non-government schools, it is important to determine if these grants are administered appropriately and are being used to maximise the intended outcomes.'

Figure 3D in the VAGO report presents data on how the CECV reallocates state recurrent grants by school Student Family Occupation (SFO) density. There is a reallocation away from high-SFO schools to low-SFO schools. This is entirely a product of the structure of the Financial Assistance Model (FAM), which allocates a relatively high share of funding to loadings in general, and disadvantaged student family background (SFB) in particular.

The structure of the FAM means that in allocating state recurrent grants the CECV must reduce the share of funding allocated based on SFB. This inevitably requires funding to be reallocated from high-SFO schools to low-SFO schools. There is nothing exceptional about this reallocation. The same reallocation would be required in government schools if the Victoria Government received school funding through the FAM but allocated it using the SRP. The same reallocation would also be required if the CECV allocated state recurrent grants based on the outputs of the SRS model used by the Australian Government to calculate CECV funding. It is the nature of the FAM that requires the CECV to reallocate state recurrent grants in the way it does. The CECV believes these basic observations should have been made by VAGO and included in the report to provide proper context.

The information presented in Figure 3D is factually correct and CECV has not disputed this.

CECV's reallocation of state recurrent grants to Catholic schools is not a product of DET's Financial Assistance Model. It is solely a result of CECV's own reallocation methodology.

In its report VAGO concludes that 'non-government schools do not have systems and processes to ensure grants are used for their intended purpose' (which excludes capital purposes). At the core of this finding is VAGO's insistence that this can only be demonstrated if schools separately record their expenditures of state recurrent grants (distinct from expenditures funded by other income sources).

This disregards established standards of financial reporting in schooling throughout Australia, including in government schools.

VAGO's finding therefore rests on an unreasonable and unrealistic standard of financial reporting. This standard is vastly different from what governments have previously asked non-government schools to do, and which they wisely do not require of government schools. The CECV believes VAGO should have made these facts clear in its finding on this issue.

However, this finding then appears to underpin VAGO's recommendation that the Department 'develops a program of audits of grant recipients and non-government schools to provide assurance grants are being used as intended. It is not clear how these audits would interact with those already undertaken by the Australian Government (which validates data entered into the FQ) and the VRQA (which audits schools to assure financial viability). Nevertheless, if the Department is to seek this assurance, the best party to provide it is the independent auditors who audit school financial statements each year. There is no need for the Department to implement its own audit program. Altogether, the CECV considers this recommendation is poorly conceived and specified.

These statements contain factual errors and misrepresent the content of my report.

My office has never insisted that schools should separately record their expenditures of state recurrent grants, and this is not at the core of my findings that non-government schools do not have systems and processes to ensure grants are used for their intended purpose.

Section 3.6.1 of my report clearly sets out what the audit examined and the tests undertaken to determine whether there were controls and processes in place at schools that could provide assurance that grants were being used as intended.

My recommendation that DET develops a program of audits of grant recipients and non-government schools to provide assurance that grants are being used as intended is based on the totality of the report's findings, including separate findings relating to the allocation and use of different state government grants. I note that the focus of this recommendation, which DET has accepted, applies to both grants recipients including CECV, and individual non-government schools.

I also note that while all individual schools we tested had an auditor's report stating that state recurrent grant funds were expended for the purposes for which they were provided, no school was able to demonstrate to VAGO that these funds were indeed spent in full accordance with DET's funding agreement.

VAGO's report states that in the funding agreements between the Department and non-government schools 'there are no performance measures or targets and limited reporting requirements, beyond financial reporting', and therefore finds the Department 'is unable to determine if grants are contributing to the achievement of its goals'. Again, these findings do not take into account requirements set at the national level or as part of school registration processes.

Section 2.3.1 of my report outlines the goals of the funding agreement and establishes that there are no performance measures or monitoring and reporting requirements associated with these goals. This section also notes DET agrees that there is limited assurance that funds are used for intended purposes.

Section 2.3.3 of my report notes that DET does not oversee or monitor the use of state recurrent grants beyond receiving financial acquittals. Nor does it use other sources of performance information to assure itself that the intended goals are being achieved.

RESPONSE provided by the Chief Executive, Independent Schools Victoria

RESPONSE provided by the Chief Executive, Independent Schools Victoria p. 1
RESPONSE provided by the Chief Executive, Independent Schools Victoria p.2

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