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We provided clear audit opinions on financial reports across the university sector. Parliament and the community can use these reports with confidence.
Financial reports are reliable
Number of clear audit opinions
A ‘clear’ or ‘unmodified’ audit opinion means that we have reviewed an entity’s financial report and believe it is reliable, accurate and complies with relevant reporting requirements.
We provided 38 clear audit opinions on financial reports across the university sector, including for all 8 universities and 30 of the 40 controlled entities (listed in Appendix E).
An entity over which another party has the power to govern decision making in relation to financial and operating policies.
FIGURE 1A: Audit opinions delivered for the 2021 period
Note: Audit opinions for 10 controlled entities are outstanding (see below).
Audits still in progress
As at 30 June 2022, our audits of the following 10 controlled entities are still in progress:
|Entity with audit in progress
|Entity with audit in progress
|Australian Music Examinations Board (Vic)
|UM Commercialisation Pty Ltd
|Goulburn Valley Equine Hospital Pty Ltd
|UM Commercialisation Trust
|La Trobe Ltd
|UoM Commercial Ltd
|Melbourne Teaching Health Clinics Ltd
|UoM International Holdings Limited
|Monash University Indonesia Limited
|World Mosquito Program
Reporting timeliness: universities
Under the Financial Management Act 1994, universities need to provide certified financial reports to VAGO within 8 weeks of balance date. The Audit Act 1994 then requires us to provide each university with an audit opinion within 4 weeks of receiving their certified financial report.
In 2021, 7 of the 8 universities met this statutory timeframe.
The University of Melbourne did not meet this statutory timeframe. This is because management needed more time to assess the financial impact of underpayments to casual academic and professional employees before providing this information for us to audit. We comment on this further in Part 3.
Reporting timeliness: controlled entities
Under the universities' respective enabling legislations, their controlled entities need to provide us with their certified financial reports within 12 weeks of balance date. The Audit Act 1994 then requires us to provide each entity with an audit opinion within 4 weeks of receiving their certified financial report.
In 2021, 30 of the 40 controlled entities met this timeline. As at 30 June 2022, it has taken a median of 17 weeks to finalise the controlled entities’ audited financial reports. This is up from 14.5 weeks last financial year.
In part, this longer time is because parent universities—and the relevant auditors—have had to divert resources to focus on complex issues arising from our audits.
Errors in financial reporting
The nature, number and size of errors in financial reports submitted for auditing are direct measures of their quality. Entities must correct material errors before we can issue a clear audit opinion.
This year we found 13 errors during the audit process, an increase from 10 in 2020.
Of these errors ...
The affected universities/entities ...
2 were material, relating to Federation University Australia’s:
adjusted these errors before finalising the financial report and we issued a clear opinion. The net effect of these errors on the university's net result and net assets was nil.
11 were not material, with most errors relating to incomplete or inaccurate financial report disclosures for related parties, financial risk management, commitments and contingencies
voluntarily adjusted half of these errors before finalising their financial reports.
Material uncertainty highlighted
We highlighted a material uncertainty related to the going concern of RMIT University Indonesia Pty Ltd as at 31 December 2021.
While the entity’s directors passed a resolution to deregister the company in 2021, there is uncertainty over how long it will take to complete the deregistration process in Indonesia and then in Australia.
As this uncertainty was adequately described in the financial report, we issued a clear opinion.
The term material uncertainty is used in the Australian Accounting Standards in discussing uncertainties related to events or conditions which may cast significant doubt on an entity’s ability to continue as a going concern.
Despite the ongoing impact of COVID-19 on the sector's financial performance in 2021, most universities recorded an improvement on 2020. Balance sheets remained relatively strong.
International student enrolment numbers continued to decline in 2021—a trend which began from the start of the pandemic. Longer-term financial risks will emerge should the trend not improve.
The sector's net result improved due to 3 factors: financial strategies implemented to maintain resilience, an increase in grants from the federal government, and gains made on financial investments.
In 2021 universities collectively generated a net surplus result of $1.2 billion, an increase of $0.9 billion on the $0.3 billion net surplus in 2020. This financial performance was the result of both increased revenue and decreased expenses.
The sector reported ...
$11.5b in revenue
a 7 per cent increase
$10.7b in 2020
$10.2b in expenses
a one per cent decrease
$10.4b in 2020.
The sector’s net result margin improved significantly
The university sector's net result margin improved significantly in 2021, increasing to 10.9 per cent, compared to 2.9 per cent in 2020.
The net result margin measures an entity’s ability to generate a surplus from its ordinary course of business. A higher percentage indicates a stronger result.
Improvement on last year
As shown in Figure 2A in 2021 all but one university improved their net result margin to varying degrees.
Victoria University's net result margin remained positive but fell from 1.28 per cent to 0.28 per cent in 2021. This was because the savings it made by managing expenditure did not cover the revenue it lost from having fewer international students.
FIGURE 2A: Net result margin indicators for 2020 and 2021
La Trobe, RMIT and Swinburne
In 2020, La Trobe University, RMIT University and Swinburne University of Technology produced negative net result margins, meaning they generated a net loss.
Although La Trobe University improved its net result margin in 2021, it is the only university that continued to make a loss.
In 2021, revenue generated by …
Including from …
While expenditure …
Meaning it made …
RMIT University increased by 7 per cent
decreased by 5 per cent
a $0.12b net profit
Swinburne University of Technology increased by one per cent
decreased by 12 per cent
a $0.04b net profit
La Trobe University decreased by 6 per cent
decreased by 10 per cent
a $0.02b net loss.
*La Trobe University received a lower return on its cash and financial investments than the other 2 universities made on their investments.
Victoria’s Group of Eight (Go8) universities—Monash University and The University of Melbourne—generated a combined surplus of $994.6 million (compared with $445.4 million in 2020). This accounted for 80 per cent of the sector's net result in 2021.
Along with constrained expenditure growth in 2021, these 2 universities also benefitted from additional income due to their status as research-leading universities:
Australian government education research grants to …
And investment income …
Due to …
Monash University increased by $110.4m (62 per cent)
increased by $142.4m
The University of Melbourne increased by $118.2m (58 per cent)
increased by $255.4m
The Group of Eight (Go8) refers to Australia’s leading research-intensive universities—the University of Melbourne, the Australian National University, the University of Sydney, the University of Queensland, the University of Western Australia, the University of Adelaide, Monash University and UNSW Sydney.
The Go8 is focussed on, and is a leader in, influencing the development and delivery of long-term sustainable national higher education and research policy, and in developing elite international alliances and research partnerships.
Revenue and expenses in 2021
Figure 2B shows that, in 2021, revenue exceeded expenses for the sector giving an overall net surplus of $1.2 billion.
FIGURE 2B: Financial performance snapshot for 2021
Changes in revenue
Even though student course fees and charges continued to decline because of the pandemic, the universities' total revenue increased during 2021. This was due to increases in government funding and higher income from investments.
In 2021, revenue from …
student course fees and charges totalled $3.6b
a decline of $0.4b from $4.0b in 2020
mainly to the continued drop in international student enrolments resulting from the border closures in place for most of 2021
government research, capital and other grants totalled $1.9b
an increase of $0.4b from $1.5b in 2020
mostly to additional Australian government grants including:
investment income totalled $1.0b
an increase of $0.6b from $0.3b in 2020
to global markets experiencing a strong rebound in 2021.
Student enrolment numbers continued to decline
In 2021, total student enrolment numbers at the universities continued to decline, recording a 1.5 per cent drop in equivalent full-time student load (EFTSL) for the year. As shown in Figure 2C, universities reported a total EFTSL of 298,949 in 2021 compared with 303,628 in 2020. Whilst domestic student enrolments grew from 187,174 EFTSL in 2020 to 193,307 EFTSL in 2021, this growth was outstripped by the overall decline in international student enrolments from 116,453 EFTSL in 2020 to 105,643 EFTSL in 2021.
FIGURE 2C: Domestic and international equivalent full-time student load (EFTSL)
Note: One equivalent full-time student load (EFTSL) is the equivalent of a student studying on a full-time basis for a year.
Domestic student enrolments grew 3 per cent in 2021. All universities increased their domestic enrolments except for Swinburne University of Technology, where enrolments fell by 0.6 per cent.
International student enrolments fell 9 per cent across the sector during 2021, a total decline of 19 per cent since the beginning of the pandemic in 2020. This was due mainly to continuing impacts of border closures for most of the year. Only 2 universities increased their international enrolments.
International enrolments at …
Increased by …
Primarily because in 2021 …
The University of Melbourne
2 per cent
students took on more subjects
0.5 per cent
more international students studied with RMIT from offshore locations.
Total expenditure for universities fell slightly
Movement in expenses
The university sector's total expenditure fell for the first time in 5 years—a 1.3 per cent decrease from $10.3 billion in 2020 to $10.2 billion in 2021.
Cost savings from staff reductions in 2020 were realised during the year, with employee expenses falling by $0.26 billion:
In 2021, the sector …
Compared to …
A decrease of …
spent $5.8b on total employee expenses
$6.0b in 2020
had an employee base of 36,319 full time equivalent (FTE) positions by year’s end
36,817 FTE positions in 2020
498 FTE positions (compared to 2020’s decrease of 4,036)
spent $0.091b on termination payments
$0.256b in 2020
Other expenditure increased marginally by $0.06 billion (1.8 per cent) to $3.4 billion in 2021.
The sector’s financial position remained strong in 2021, partly because the value of financial investments increased
Financial position snapshot
In 2021, the university sector's net assets increased to $22.3 billion, up from $20.2 billion in 2020. This was because:
- total assets increased by 7.9 per cent, from $29.1 billion to $31.4 billion
- total liabilities increased by 2.6 per cent, from $8.9 billion to $9.1 billion.
FIGURE 2D: Sector financial position snapshot as of 31 December 2021
Note: *Provisions include the sector’s estimated deferred superannuation contributions of $1.15 billion ($1.25 billion in 2020). An identical amount is included in receivables as the Australian and Victorian governments have agreed to meet this liability.
Increased asset values
In 2021, the value of total assets increased by $2.3 billion, driven mostly by a $1.8 billion growth in both cash and financial investments.
As mentioned earlier, the 2 Go8 institutions (University of Melbourne and Monash University) accounted for 68 per cent of the sector's cash and financial investments.
The value of all ...
Grew by ...
Due to ...
the universities’ cash balances
20.9 per cent ($0.4b)
$2.4b by year end
increased Australian government grants
decreased expenses resulting from cost saving measures
the universities’ investment portfolios
25.7 per cent ($1.4b)
$6.8b by year end
the strong rebound of global markets during 2021 and the scale of the Go8 universities’ investments, which contributed $1.1b of this growth.
Decreased reliance on debt
In 2020, some universities borrowed more money to manage short-term cash flow needs caused by the loss of international student revenue.
Despite the COVID-19 pandemic continuing in 2021, the sector's borrowings fell by 18.8 per cent ($0.4 billion). Universities were able to better self-manage short-term cash flow needs.
Adjusted liquidity ratio
When assessing the adjusted liquidity ratio for the university sector, we include non-current financial investments. This is because universities can convert these to cash or cash equivalents at short notice to pay debts if needed.
As shown in Figure 2E, at 31 December 2021 all universities had an adjusted liquidity ratio of above 1.0. This means they held enough liquid assets to meet their short-term liabilities.
Adjusted liquidity ratio measures whether an entity is likely to be able to service its debt obligations in the immediate future using cash and liquid assets.
FIGURE 2E: Adjusted liquidity ratio by university (2020 and 2021)
Risks to the sector's financial sustainability continue but there are also opportunities
The pandemic continued to negatively affect revenue from international students in 2021.
International enrolment numbers will be slow to rebuild, and there is a risk they may never return to pre-pandemic levels. Visa delays and increasing competition from other countries offering attractive course delivery models create challenges for the sector in securing and retaining student enrolments.
Despite the financial outcomes improving, universities continue to rely on federal government funding and financial investment returns to support operational expenditure. Longer-term financial risks will emerge should this trend be prolonged.
Australia's skill shortage, worsened by the pandemic, has been an area of continued focus for the Australian government and the education sector. This presents an opportunity for the sector to consider how it can contribute to addressing Australia's existing skills gap and future workforce participation. Further to this, there are also opportunities for universities to increase their revenue via the commercialisation of their research outcomes and discoveries.
Universities' internal controls are adequate to prepare reliable financial reports, but their information technology controls require improvement.
The Financial Management Act 1994 requires universities to develop effective internal control systems to maintain proper accounts and records. We assess if these internal controls, which include people, systems and processes, are adequate for preparing reliable financial reports.
We report significant internal control issues to the entity’s management and its audit committee, as required under the Australian Auditing Standards.
Overall, universities' internal controls remain adequate for reliable financial reporting. However, as in prior years, there are areas for improvement.
Raising internal control issues
As required by the Australian Auditing Standards, when we find any internal control issue while auditing a university and/or controlled entity, we advise its management and audit committee. This advice includes:
- raising new issues
- giving updates on issues we raised in a prior period that remain unresolved.
We found more internal control issues across the sector in 2021
Trends in control issues
As shown in Figure 3A, we found more new issues in 2021 than in the prior period while the number of unresolved issues has fluctuated over the last 5 years.
FIGURE 3A: Number of internal control issues (new and unresolved from prior period)
Note: We have excluded low-risk issues as these are considered minor issues or opportunities to improve.
Issues found in 2021
As in prior years, common issues we found across the sector relate to IT control weaknesses.
In 2021, we identified …
Which we …
13 new issues, with:
rated as medium risk
prioritising and addressing internal control issues we raise more promptly
their audit committees monitor the timely resolution of these issues.
5 prior-period IT-related issues that we first reported in 2020
rated as medium risk
Universities can strengthen their internal control environments and financial reporting by promptly resolving these issues.
IT controls are a key area of improvement for the sector
Increased reliance on IT controls
The pandemic has made universities even more reliant on IT controls to ensure the security of their systems. This is largely because some manual processing cannot be done remotely.
This reliance has also grown with the move to remote course delivery, a trend we expect will continue as universities revisit their delivery models to increase market reach.
Effective IT controls are important because they reduce the risk of unauthorised access and changes to systems, including cyber-attacks. They are essential for the smooth day-to-day operations of entities and reliable financial reporting.
Increase in IT control weaknesses
As shown in Figure 3B, this year, we found an increase in both the number and the types of IT control weakness across the universities, with 12 new issues compared to 10 in 2020.
FIGURE 3B: Number of IT control weaknesses by type
Policy and procedure weaknesses
For an entity’s internal controls system to work effectively, it needs comprehensive, up-todate policies and procedures that document the supporting control activities. Entities also need to review their IT policies regularly to ensure they remain relevant.
We found policies and procedures that were not well established, relating to third party service providers, logs of access to administration/privileged user accounts, business continuity, and disaster recovery.
An entity is more at risk of unauthorised access to systems, cyber security attacks, and manipulation or loss of data if it has inadequate policies and procedures, as its employees may be uncertain about what procedures they should be following to process transactions or make changes to data, or what levels of access should be restricted for key systems.
Effective business continuity planning—or disaster recovery planning—helps an entity respond quickly to a crisis and minimise disruption to their operations. We found that 2 universities need to enhance their testing of business continuity and disaster recovery plans, in order to be able to respond or adapt to unexpected disruptive events and minimise negative impacts.
User access weaknesses
Proper controls over privileged and user access management reduce the risk of unauthorised access to systems and underlying data. Unauthorised access can increase the risk of cyber security attacks and the loss of essential and confidential data (student or employee data). This in turn puts a university at increased risk of financial loss and may lead to time lost on restoring key systems/data.
Consistent with the prior year, we continue to find a high number of deficiencies in this area.
Audit logging and monitoring controls record who is accessing and making changes in IT systems. Coupled with effective user-access management and authentication controls, they reduce the risk of fraud, errors and data loss.
We are encouraged to see fewer weaknesses relating to audit logging and monitoring. This indicates that universities have proper processes in place to identify unauthorised changes and investigate them in a timely manner.
Of the 5 prior-year issues in this category, 4 are now either partly or fully resolved.
Underpayment of casual wages and impact on timeliness of financial statements
In late 2020 the university sector across Australia uncovered issues with wage underpayments, mainly in relation to casual academic and professional staff.
During 2021, most Victorian universities assessed whether underpayments had occurred and began making back payments to affected staff, in some cases dating back 7 years.
This issue significantly affected the timing of the University of Melbourne’s financial report preparation and subsequent audit. During 2021, university management undertook an extensive exercise with the assistance of external specialists to assess the extent of the issue.
As a result of this exercise, the university became aware it had wage underpayments caused by a misinterpretation of conditions in their Enterprise Agreements. This meant casual academic and professional staff had been preparing and lodging timesheets for hours less than their minimum entitlement hours.
At the time of our audit, university management had undertaken work to estimate a provision for the underpayments to affected staff. When we assessed the completeness and accuracy of this estimated provision, sufficient records to support the estimate for our audit assessment were not immediately available. The collation of evidence by management was a significant process and contributed to significant additional time to prepare and finalise the 2021 financial report, and for us to audit this information.
There will be further work undertaken by the university in 2022 to finalise the calculation of specific amounts owed to individual staff, and for payments to be made.
To all universities
We recommend that all universities, prioritise and respond more promptly to address the internal control issues we raise with them and that their audit committees monitor the timely resolution of these issues.
Click the link below to download a PDF copy of Appendix A. Submissions and comments.
Click the link below to download a PDF copy of Appendix C. Our audit approach.
Click the link below to download a PDF copy of Appendix D. Acronyms and abbreviations.
Click the link below to download a PDF copy of Appendix F. Control issues risk ratings.
Click the link below to download a PDF copy of Appendix G. Financial and non-financial sustainability indicators.