Results of 2018 Audits: Universities

Tabled: 30 May 2019

1 Audit context

Eight universities and their 47 controlled entities make up the Victorian public university sector. Their principal activities are providing higher education and conducting research. Figure 1A illustrates all main income sources, activities and key stakeholders for the sector.

Figure 1A
University sector 2018 income sources, activities and key stakeholders

Figure 1A illustrates all main income sources, activities and key stakeholders for the sector.

Note: HECS = Higher Education Contribution Scheme.
Source: VAGO.

As seen in Figure 1B, most of the sector's income comes from student fees and Commonwealth Government student funding, both of which are driven by student numbers. Publicly and privately funded research is the sector's next largest revenue source. The majority of the sector's assets consist of the property, plant and equipment that it needs to deliver its services. The sector also holds a significant amount of cash and investments.

Figure 1B
University sector financial snapshot for the year ended 31 December 2018

Figures shows total revenue was $10.4b, total expenditure $10b, totall assets $24b and total liabilities $5.9b

Note: *Provisions include the sector's estimated deferred superannuation contributions of $1.2 billion ($1.1 billion in 2017). An identical amount is included in receivables as the Commonwealth and state governments have agreed to meet this liability.
Note: Figures have been adjusted for the two universities with qualified audit opinions.
Source: VAGO.

Figure 1C shows each university's relative size, based on the number of effective full-time students enrolled, and the number of staff employed. The two largest universities, the University of Melbourne and Monash University, are also members of the Group of 8 (Go8), a company whose members comprise Australia's leading research-focused universities.

Figure 1C
Student and full-time equivalent staff numbers by university for the year ended 31 December 2018

Figure 1C shows each university's relative size, based on the number of effective full-time students enrolled, and the number of staff employed.

Key: Teal indicator= overseas students Blue indicator= domestic students.
Note: One equivalent full-time student load (EFTSL) represents the equivalent of a student who is studying on a full-time basis for a year. Overseas EFTSL includes both onshore and offshore student loads.
Source: VAGO.

1.1 Legislative and reporting framework

The universities and their controlled entities are subject to a range of complex accountability and financial reporting frameworks, with many reporting requirements.

In Victoria, public universities are established by their own respective enabling legislations. As a result, they fall within the definition of a public body under the Financial Management Act 1994 (FMA) and must comply with its requirements for the preparation of financial reports. However, since the universities are not controlled by the State of Victoria, their financial results are not consolidated into the state's annual financial report.

From the perspective of the Commonwealth, universities:

  • are registered with the Tertiary Education Quality and Standards Agency and are, therefore, subject to the regulation of the Tertiary Education Quality and Standards Agency Act 2011(TEQSA Act)
  • receive most of their grant funding from the Commonwealth Government and fall within the scope of any legislation associated with this funding, including the Higher Education Support Act 2003(HESA Act).

The TEQSA and HESA Acts, and many of the funding agreements that underpin the funding universities receive for research and other purposes, also impose other financial reporting requirements on the universities in addition to the requirements of the state-legislated FMA. The Commonwealth requires some of these reporting requirements to be included in universities' financial reports. As a result, universities' financial reports contain disclosures that are not usually found in general purpose financial reports.

Many universities and their controlled entities are registered charities with the Australian Charities and Not-for-profits Commission. This means they have further reporting obligations under the Australian Charities and Not-for-profits Commission Act 2012.

Entities controlled by the universities do not automatically fall within the scope of the FMA, but may be required by the respective enabling legislation of their parent university to produce financial reports in a form approved by the minister administering part 7 of the FMA.

1.2 Report structure

In this report, we provide information on the outcomes of our financial audits of the eight Victorian universities and their 47 controlled entities for the year ended 31 December 2018. The financial results of controlled entities are consolidated into those of their respective parent entities. We restrict our comments on the controlled entities to the extent that they are relevant and significant to the consolidated results of their respective groups.

We identify and report on the key matters arising from our audits and analyse the information included in the universities' financial reports. Figure 1D outlines the structure of this report.

Figure 1D
Report structure

Part

Description

2

Results of audits

Evaluates the audit opinion results from our financial audits of universities, and the timeliness, accuracy and quality of their reporting.

Assesses the strength of the internal controls designed, implemented and maintained by the universities.

3

Financial performance and sustainability

Reports on the sector's financial results and evaluates its propensity for long-term financial sustainability and growth.

4

Looking forward

Discusses the significant upcoming changes in accounting standards that will impact the university sector's financial reporting.

It includes our assessment of the preparedness of the universities in implementing the new accounting standards.

Source: VAGO.

Appendix B provides a list of all 55 entities included in this report and details the financial audit opinions issued for the year ended 31 December 2018.

We carried out the financial audits of these entities under section 8 of the Audit Act 1994 and Australian Auditing Standards. Each entity pays the cost of its audit.

The cost of preparing this report was $165 000, which is funded by Parliament.

1.3 Submissions and comments

We have consulted with the Department of Education and Training (DET) and the eight public universities in Victoria, and we considered their views when reaching our conclusions. As required by section 16(3) of the Audit Act 1994, we gave a draft copy of this report to those agencies and asked for their submissions or comments. We also provided a copy of the report to the Department of Premier and Cabinet.

The following is a summary of those responses. The full responses are included in Appendix A.

We received four submissions from the sector and a response from DET.

DET supports our recommendation.

The University of Melbourne and Deakin University do not agree with our interpretation of the nature of their revenue that resulted in our issue of qualified audit opinions on their financial reports, which is discussed further in Part 2. These two universities have also provided their perspectives on their readiness for the implementation of the new revenue accounting standards, which is discussed further in Part 4.

Victoria University has provided details on the corrected financial statement error discussed in Part 2.

La Trobe University has provided details on the timeliness of their audit, endorsed the use of the adjusted liquidity ratio and commented on their transition to the new accounting standards.

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