2.1 Financial report audit opinions
Independent audit opinions add credibility to financial reports by providing reasonable assurance that the information reported is reliable and accurate. A clear audit opinion confirms that the financial report presents fairly the transactions and balances for the reporting period, in line with relevant accounting standards and applicable legislation. We carried out our financial audits of the technical and further education (TAFE) sector entities in accordance with the Australian Auditing Standards.
We issued 27 clear audit opinions for the financial year ended 31 December 2016 to 11 TAFEs and their 16 controlled entities. This year we did not need to include any emphasis of matter paragraphs in these opinions to draw attention to matters disclosed in the financial reports. We had included such a paragraph in some of our 2014 and 2015 audit opinions—Sunraysia in 2014 and 2015 and Melbourne Polytechnic in 2014—to highlight disclosures about their status as a going concern.
Each year, as part of our audit, we assess each TAFE's ability to meet its financial obligations. Although there were some TAFEs where this was considered a risk, these TAFEs provided adequate disclosure of their risks in the notes to their accounts, and received support from the Department of Education and Training (DET). As a result, we have not needed to mention any going-concern issues in our audit opinions in 2016.
These positive outcomes mean the financial reports of the sector are materially correct and reliable, with the exception of Federation Training.
2.1.1 Federation Training
We issued our audit opinion on Federation Training's 2014 financial report on 29 July 2016. We disclaimed our opinion on this financial report, which means we gave no assurance that the numbers were materially correct, because we could not obtain enough appropriate evidence to support them.
As explained in our opinion, Federation Training encountered a number of issues that adversely affected the preparation of its 2014 financial report:
- difficulties combining the financial records of Advance TAFE and Central Gippsland TAFE, which had merged to form Federation Training
- its inability to substantiate the records of Advance TAFE at 30 April 2014, the date of the merger
- issues with the implementation of a new student management system
- non-performance of key internal control activities
- the departure of senior staff.
As a result of these issues, we were unable to obtain enough appropriate evidence to substantiate the completeness, accuracy and validity of:
- underlying transactions and balances
- adjustments made to correct numbers coming from the student management system
- the classification of 2014 numbers and the reclassification of some of the 2013 numbers.
As the impact of these factors was material, and affected the whole financial report, we determined that we could not provide an audit opinion.
In our disclaimed opinion we also drew attention to the following matters:
- references in the notes to the financial report that some information was unaudited, which could be incorrectly interpreted as information outside the scope of the audit
- events that occurred after the balance date of 31 December, which should have been disclosed but were not
- a breach of the Financial Management Act 1994(FMA) because bank reconciliations were not performed each month
- discrepancies and inconsistencies between the main statements and the notes to the financial report.
Management at Federation Training have been working to address all of the issues we raised with them in the 2014 audit process. They have resolved many of these issues and improved their financial reporting. We have therefore been able to complete the audit of the 2015 financial report of Federation Training. We issued a qualified audit opinion on 9 May 2017.
We moved from a disclaimed financial report to a qualified financial report for 2015. We were unable to issue a clear opinion because not all issues relating to recording and recognition of revenue balances had been resolved in time to ensure the completeness and accuracy of information derived from the student management system. We were therefore unable to form an opinion on the transactions and balances drawn from this system for both 2014 and 2015. Those transactions and balances include sale of goods and services revenue, accounts receivable, revenue received in advance and the provision for doubtful debtors.
Due to the work done by management, we were able to go back and conduct audit testing that verified the 2014 transactions and balances that were not drawn from the student management system. As a result, we did not qualify these numbers in our 2015 audit opinion.
We have started our audit of the 2016 financial report of Federation Training. We expect to finish that audit in 2017. In future years, we expect that Federation Training will be able to report in line with the FMA time frames.
2.2 Performance report audit opinions
The Education and Training Reform Act 2006 requires TAFEs to submit an annual statement of corporate intent (SOCI) to the Minister for Training and Skills (the minister), for the minister's agreement for each calendar year.
The SOCI includes compulsory key performance indicators (KPI) set by the minister, as well as performance indicators developed by the particular TAFE, and approved by its board.
TAFEs must establish a target for each KPI and report the actual result achieved against the target in their annual performance statement. We also audit these performance statements and they are published in each TAFE's annual report.
We issued clear audit opinions on 11 TAFE performance reports for the financial year ended 31 December 2016. We have not yet begun to audit Federation Training's 2016 performance report. A clear audit opinion confirms that the actual results are fairly presented. We do not form an opinion on whether the KPIs are relevant or appropriate as a measure of the performance of the TAFE.
A summary of the targets and actual results for each TAFE against the four mandatory KPIs is provided in Appendix E of this report. We provide some analysis and commentary of each TAFE's performance against the KPIs that measure efficiency and effectiveness in Part 4 of this report.
In our Technical and Further Education Institutes: 2015 Audit Snapshot, we commented that there was an opportunity for performance reporting to be enhanced if TAFEs linked performance indicators to strategic objectives in the performance report, and provided more comprehensive explanations of the variation between the target and the actual result for each KPI. These opportunities for improvement remain.
Assessment of a TAFE's performance needs to take into account what the TAFE was planning to achieve in the year. The performance indicators should measure whether and how well the TAFE achieved these objectives set out in the SOCI.
Our review of the 11 performance statements found that only Gordon TAFE demonstrated the link between its strategic objectives and performance indicators. Without this link, it is difficult for the public to determine if a TAFE is delivering as intended, and in all areas of strategic importance.
Explanations of variations between targets and results would be more useful if they included information about the underlying reason for the difference between a performance result and the target. The explanations provided often don't reveal the root cause or how a target was estimated. The absence of such information reduces understanding of how a TAFE has actually performed.
2.2.1 Performance reporting framework
DET implemented a performance reporting framework for the vocational education sector in March 2016 for the December 2015 year end.
The framework contains 29 indicators that measure performance on training delivery, outcomes, operating effectiveness, sustainability and compliance. DET has developed and implemented a web-based performance reporting tool to collect data for these indicators.
DET collects the underlying data from the sector at specific intervals:
- monthly collection of data on training delivery
- quarterly collection of data on sustainability
- annual collection of data on student satisfaction, operational effectiveness, compliance and outcomes.
The tool captures all of the performance data for the sector and can be accessed by all TAFEs, enabling them to benchmark their performance against a group of similar providers or the sector as a whole.
The tool can also be used by TAFE chief executive officers, chief finance officers, some chief operating officers, and relevant DET employees, who use it to monitor activities of the sector.
Of the 29 indicators recorded in the tool:
- 12 form a dashboard overview for each TAFE
- 16 are updated quarterly, with the remainder updated every year
- four are mandatory and are reported annually in the performance statement of each TAFE's audited and published performance report.
DET has a long-term plan to publicly report the outcome survey results for all Registered Training Organisations in the market. We support this plan as it will provide transparency on the sector's performance for students and the community.
DET is considering including additional mandatory indicators as part of this plan. Until then, the published performance statement will not include any measures of outcomes, so that TAFEs are not disadvantaged by reporting what could be commercial data.