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Results of the 2015 school audits

We reported on the results of the 2015 school audits to the Ministry of Education on 21 October 2016. This information, on the completion of the 2015 school audits and the types of opinions we issued, was included in our report to the Ministry of Education.

Part 1: Completion of the 2015 school audits

1.1
Of the 2456 audits that we expected to complete for 2015 (which includes schools and school subsidiaries), we only completed 1843 or 75% by the statutory deadline of 31 May 2016. This was a disappointing result, given 86% of the 2014 audits met the deadline. Our usual expectation is that 95% of school audits will be completed before the deadline.

1.2
The disappointing result was because many schools struggled with implementing the new PBE accounting standards. In addition, the Ministry of Education (the Ministry) made the Kiwi Park model financial statements compulsory for 2015 . However, the Ministry did not provide guidance on the new standards and the model financial statements to the sector until the end of October 2015. This did not give the sector enough time to complete the necessary changes before the year-end.

1.3
At the end of September, we would usually expect fewer than 1% of the previous year’s school audits to be outstanding. As at 21 October 2016, we had 101 audits outstanding (4%). We also had 28 audits outstanding from earlier years. The cause of the increase in the number of audits outstanding over what we would normally expect is the large numbers of audits missing the statutory deadline. Once the statutory deadline passes, auditors face pressures resourcing the remaining audits because they have other work planned. We list the outstanding audits as at 21 October 2016 in Appendix 1.

1.4
In Figure 1, we set out the number of audits in arrears at 30 September in the years 2011 to 2016. Although the total number of arrears has reduced after the significant disruptions to audits completed during 2013 and 2014 caused by the implementation of Novopay during 2012, the number of prior-year audits in arrears continues to increase.

Figure 1
Audits in arrears as at 30 September in the years 2011 to 2016

Figure 1, Audits in arrears as at 30 September in the years 2011 to 2016

Part 2: The types of audit opinions we issued

2.1
In most instances, we issued standard audit reports on the financial statements of schools. Non-standard audit reports can contain a modified audit opinion and/or draw attention to matters of importance to readers of the financial statements. We modify our opinion when we are unable to obtain sufficient evidence about an issue or we conclude there is a misstatement in the financial information. If we consider the matter is pervasive to the understanding of the financial information, we may issue an adverse opinion, or not give an opinion on the financial statements (a disclaimer of opinion.) Matters of importance include those where there is public interest, schools are in financial difficulty, or legislation about accountability has not been complied with.

Modified opinions

2.2
Of the audits completed for 2015, 22 school audit reports contained a modified audit opinion. We also issued a further three modified opinions during 2016 for prior-year audits in arrears. Reasons for the modified opinions were:

  • We could not get enough assurance about locally raised funds revenue in nine schools because of limited controls over this type of revenue.
  • We could not get reliable evidence to support the cyclical maintenance provision for seven schools. This provision is an estimate of the board’s obligation to maintain the Ministry’s buildings.
  • We could not get enough assurance over related-party disclosures for one school because of limited controls in this area. This was a 2014 audit.
  • We disagreed with the accounting treatment of a specific balance for three schools. Two schools did not prepare consolidated financial statements, including the transactions and balances for their subsidiaries. We disagreed with the other school’s calculation of the Use of Land & Buildings revenue and expenditure. This is an amount that represents the market rent the school would have to pay for the use of the land and buildings provided by the proprietor, and is calculated based on the valuation of those land and buildings.
  • We disclaimed our opinion on a school subsidiary because the trust did not use the appropriate accounting standards to prepare its financial statements.
  • Two schools did not include budgeted figures for the financial year in their financial statements, as required by the Education Act. These were both 2014 audits.
  • For two schools, because we issued a qualified opinion for the previous year, we could not provide assurance on the comparative figures in the 2015 financial statements.

2.3
Appendix 2 lists the schools that received modified opinions and the reasons the opinions were modified.

Matters of public interest

2.4
In certain circumstances, we include additional comments in our audit reports that emphasise a matter referred to in a school’s financial statements, or we note a matter not referred to in a school’s financial statements, because it is relevant to a reader’s understanding of the financial information. Such comments are not modifications of our opinion.  They draw attention to important information such as a breach of legislation or a matter of public interest.

2.5
During 2016, we issued eight audit reports where we referred to matters of public interest. Some of these reports related to earlier years.

  • Riverslea School (2014 and 2015) – The school paid invoices totalling $14,402 in 2013 and $10,147 in 2014 to a related party of the school, even though the school had not received the services. We also highlighted that the school failed to comply with legislation for not keeping minutes of their meetings as a record of all matters discussed and decisions made.
  • Upper Hutt College (2014) – We drew attention to corrections made to the schools' financial statements, to account for losses the school suffered as a result of fraud and accounting misclassifications. We also mentioned the resulting serious financial difficulties of the school.
  • Hauturu School (2015) – The school incurred expenditure of $24,796 sending 14 students and five adults on a trip to Australia’s Gold Coast and only received contributions of $2,020. The school did not keep complete records of expenditure and revenue for this trip, and the educational outcomes for the trip were unclear.
  • Sacred Heart College (Auckland) (2014) – For the fifth year the audit report drew attention to the close relationship between the School, Proprietor, and the Sacred Heart Development Foundation (a related but not controlled entity), and potential conflicts of interest between these entities. For the second year, we also drew attention to expenditure on hospitality, which we considered relatively high for a school and because it is unclear whether the expenditure relates to the School or related organisations.
  • Te Kura Kaupapa Māori O Te Rawhiti Roa (2014) – The opinion for this school was qualified because we could not confirm the completeness of the related-party disclosures. We also drew attention to some unusual transactions, which may indicate a lack of probity. These include an employee being paid for 3 months after they had left the school, staff members being given leave without pay to attend the Edinburgh Military Tattoo, and a staff member employed to provide the same services that a related party provides to the school. This school was also considered to be in serious financial difficulty.
  • Te Kura Kaupapa Māori O Ruamata (2015) – The kura funded a trip to Hawaii for all 139 students, 21 teachers, and 73 caregivers. The cost of the trip was $695,511 and the kura received only $37,667 of contributions from those attending. The purpose of the trip was to achieve educational outcomes connected with the founding purpose of "Te Aho Matua". However, we consider it unusual for a school to spend this amount of money on a trip of this nature. We also identified that the kura had lent $311,000 to a Trust (of which the Principal is a trustee) in breach of section 73 of the Education Act 1989.
  • Nelson College (2015) – The school made additional payments to staff without obtaining concurrence from the Ministry. This included an additional payment to the Principal on top of his remuneration, for duties at the Nelson College Preparatory School and for commercial activities carried out at the school. The Ministry may only give concurrence for an additional payment or benefit up to a specified limit, being a percentage of a principal’s base salary. The total additional remuneration paid to the Principal in the 2015 year is above this limit.

2.6
Although not common practice across most schools, our auditors continue to identify schools that are using Crown funding to pay to send students overseas. Our auditors consider whether trips of this nature; have a clear business case with educational outcomes, have Board approval, and the Board has received a report on those outcomes. However, it is difficult for us as auditors to judge whether the outcomes are educational. Guidance in Ministry circular 2009/08 was that schools should not use Crown funds to send students overseas, but this circular has been withdrawn. We have recommended to the Ministry that they provide clear guidance to schools about whether it is acceptable for public money to be used to fund overseas trips for students.

2.7
If an auditor does not consider a matter significant enough to include in a school’s audit report, the auditor will raise the matter in the school’s management letter. Matters of probity that auditors have raised in school management letters include:

  • Gifts to staff that the Board of Trustees had not approved or were not consistent with the school’s gift policy.
  • Teachers and Principals receiving additional benefits, such as payments for rent, gym membership, Christmas bonuses, and a weekend away, without seeking concurrence from the Ministry.
  • The Board of Trustees not approving the Principal’s credit card expenditure, in keeping with the one-up principle.
  • Overseas trips for professional development, where in some cases the school also paid for the individual’s spouse.

Schools in financial difficulties

2.8
Where a school is showing signs of being in financial difficulties, we seek confirmation from the Ministry that it will continue to support the school. If the Ministry confirms that it will continue to support the school, we can conclude that it is appropriate for the school to complete its financial statements on the basis that it is a going concern. However, if the financial difficulty is significant, we draw attention to it in the school’s audit report. We drew attention to financial difficulties in the audit reports of 25 schools for the 2015 year, and a further 4 audit reports issued for prior years. Appendix 3 lists the schools whose audit reports draw attention to financial difficulties.

2.9
We drew attention to potential financial difficulties in Kia Aroha College’s audit report. Although it is currently not in financial difficulty, the significant deficits over a number of years and poor controls over discretionary spending at the school are not financially sustainable. For this school we have issued a similar audit report for three of the last four years.

Compliance with legislation

2.10
As part of the annual audits of schools, we consider whether schools have complied with particular legislative requirements related to financial reporting. The main Acts that influence the accountability and financial management of schools are the Education Act 1989 and the Crown Entities Act 2004. We advise auditors of the legislative requirements they should consider.

2.11
During the 2015 audits, we identified the following breaches of the Education Act 1989 and Crown Entities Act 2004. Breaches were either disclosed in the school’s financial statements or reported by our auditors in their audit reports:

  • 33 schools borrowed more than they were allowed (section 67)1;
  • 31 schools did not use the Ministry’s payroll service to pay teachers, which they are required to use (section 89(2));
  • 18 schools made loans to staff, which they are not allowed to do (section 73);
  • 9 schools invested money in organisations without the Ministry’s approval (section 73);
  • 4 schools had conflicts of interest (section 103A and/or clause 8(8) of Schedule 6);
  • 3 schools did not comply with the banking arrangements set out in section 158 of the Crown Entities Act (2004); and
  • 10 schools breached legislation for other reasons.

2.12
Appendix 4 sets out the schools where breaches of the Education Act 1989 and Crown Entities Act 2004 were identified.

Appendix 1: School audits not completed as at 21 October 2016

2015 school audits (bolded schools have prior year audits outstanding)

Al Madinah School Rangiuru School
Albany Junior High School Raukokore School
Ashgrove School Roncalli College
Ballance School Sacred Heart College (Auckland
Cambridge High School Educational Trust Saint Joseph's Catholic School (Te Aroha)
Cashmere High School Foundation Saint Patrick's School (Invercargill)
College House Hostel Trust Saint Peter's College (Epsom)
Fairhaven School (Te Puke) Saint Thomas More Catholic School
Feilding High School Southland Boys' High School
Geraldine High/Carew Peel Forest - Combined BOT St Peter's College Foundation Trust
Gilberthorpe School Stratford Group Mowing Scheme Joint Venture
Hagley Community College Preschool Trust Taikura Rudolf Steiner School
Hamilton's Fraser High School Tangaroa College
Hastings Boys' High School Taupo Intermediate
Hastings Intermediate Taupo Nui-A-Tia College
Hato Petera College Tauranga Boys' College
Havelock North Intermediate Te Aute College
Heretaunga College Te Awamutu College
Izard Rodney College Trust Te Awamutu College Charitable Trust
Kapiti College Te Kura Kaupapa Māori O Ngati Kahungunu Ki Heretaunga
Katikati College Te Kura Kaupapa Māori O Kaikohe
Kimi Ora Community School Te Kura Kaupapa Māori O Takapau
Kimi Ora School Te Kura Kaupapa Māori O Tamaki Nui A Rua
Kotemaori School Te Kura Kaupapa Māori O Tamarongo
Maketu School Te Kura Kaupapa Māori O Te Kotuku
Mana Tamariki Te Kura Kaupapa Māori o Te Kura Kokiri
Mangaorapa School Te Kura Kaupapa Māori O Te Rawhiti Roa
Marcellin College Te Kura Kaupapa Māori O Te Rito
Marlborough Boys' College Te Kura Kaupapa Māori o Waiuku
Massey High School Te Kura Kaupapa O Te Puaha O Waikato
Mataura School Te Kura Mana Māori Maraenui
Matauri Bay School Te Kura Maori o Nga Tapuwae
Mayfield School (Blenheim) Te Kura o Pakipaki
Miramar Central School Te Kura O Te Whakarewarewa
Mohaka School Te Kura O Waikaremoana
Morrinsville College Te Waka Unua School
Morrinsville College Educational Trust Te Wharekura o Mauao
Morven School Te Wharekura o Te Rau Aroha
Mulberry Grove School Timaru Boys' High School
Nayland College Timaru Boys' High School Development Trust
New Life Christian School Tokoroa High School Trust
Ngataki School Turakina Māori Girls' College
Otorohanga College Waerenga School
Panama Road School Waimahia Intermediate School
Parkvale School Waimairi School
Peterhead School Waitoa School
Porangahau School Wellington Activity Centre
Pukehina School Western Springs College
Pukemiro School Willowbank School
Rangiora High School Education Trust Woodford House
Rangitikei College  

Prior year school audits

School nameAudit outstanding
Al-Madinah School 2014
Albany Junior High School 2014
Cambridge High School Educational Trust 2012, 2013 and 2014
Crownthorpe School 2014 (This school closed on 4 May 2014)
Murupara School 2012 (This school closed on 27 January 2013)
Phillipstown School 2014 (This school merged with Woolston School on 28 January 2015, to form Te Waka Unua School)
Putaruru Education Services Trust 2014 (This trust is in the process of being wound up)
Rangitahi College 2012 (This school closed on 27 January 2013)
Taikura Rudolf Steiner School 2014
Tangaroa College 2013 and 2014
Tareha School 2014 (This school closed on 4 May 2014)
Te Aute College 2013 and 2014
Te Kura Kaupapa Māori O Tamarongo 2014
Te Kura Kaupapa Māori o Te Kura Kokiri 2012, 2013 and 2014
Te Kura o Pakipaki 2014
Te Wharekura o Mauao 2013 and 2014
Te Wharekura o Te Rau Aroha - 2014
Timaru Boys' High School 2014
Timaru Boys' High School Development Trust 2014
Waipaoa Station School 2013 (This school closed on 5 May 2013)
Waiterimu School 2014 (This school closed on 27 January 2015)

Appendix 2: Modified opinions

SchoolReason for the modified opinion
Arowhenua Maori School We could not get enough assurance about locally raised funds because the Trustees had limited controls over that revenue.
David Henry School We qualified our opinion in 2014 because we could not get enough evidence to support the provision for cyclical maintenance. This amount is included in the comparative year in the 2015 financial statements.
Elmgrove School We could not get enough assurance about Network fundraising revenues because the Trustees had limited controls over those revenues.
Flag Swamp School We could not get enough assurance about Auction revenue, included as Fundraising revenue. The Trustees had limited controls over that revenue.
Glenham School We could not get enough assurance about fundraising revenue because the Trustees had limited controls over that revenue.
Grey Lynn School We could not get enough assurance about fundraising revenues because the Trustees had limited controls over those revenues.
Kakanui School We could not get enough evidence to support the provision for cyclical maintenance.
Kuranui College We could not get enough audit evidence over the opening balances because we qualified our opinion on the 2014 financial statements.
Morven School Community Bus Trust We disclaimed our opinion because the Trust did not prepare its financial statements using the new PBE accounting standards.
Combined Board of Ngataki School and Te Hapua School (31 December 2014) The Board of Trustees failed to comply with the Education Act 1989 by not providing budgeted figures in the financial statements.
Ngati Haua School We could not get enough evidence to support the provision for cyclical maintenance for both the 2014 and 2015 years.
Opawa School We could not get enough evidence to support the provision for cyclical maintenance.
Pinehill School We could not get enough evidence to support the provision for cyclical maintenance.
Saint Joseph's (Upper Hutt) School We could not confirm whether After School Care revenue in locally raised funds was complete. During 2015, the school asked parents to donate fees for after school care to a separate entity set up by parents to fundraise the school, contributing to the school's operating deficit.
The school breached the law by not depositing the fees paid by the parents for After School Care directly into the School's bank account.
Saint Joseph's School (Taihape) We disagreed with the Use of Land and Buildings revenue and expense recognised by the Board, which is a proxy for the rent the school would have to pay on the land and buildings provided by the Proprietor. The amount recognised in the financial statements related only to the Proprietor’s buildings, but this school also uses buildings provided by the Ministry, not recognised in its financial statements.
Sir Keith Park School We could not get enough evidence to support the provision for cyclical maintenance.
St Joseph's Oamaru School We could not get enough evidence to support the provision for cyclical maintenance.
Taumarunui High School & Community Trust We could not get enough assurance about revenues because the Trustees had limited controls over those revenues.
Te Hapua School (Statements to 7 July 2014) The Board of Trustees failed to comply with the Education Act 1989 by not providing budgeted figures in the financial statements.
Te Kura Kaupapa Māori O Te Rawhiti Roa (31 December 2014) We could not confirm the completeness of the related party transactions disclosed in the financial statements. We also drew attention to matters of probity, serious financial difficulties and a breach of law because of staff being paid outside Novopay.
Tokoroa North School We could not get enough evidence to support the provision for cyclical maintenance.
Waikouaiti School We could not get enough assurance about fundraising revenues because the Trustees had limited controls over those revenues.
Weber School We could not get enough assurance about fundraising revenues because the Trustees had limited controls over those revenues.
Whanganui City College We disagreed with the Board of Trustees not preparing group financial statements to consolidate the financial statements of its subsidiary, the College House Hostel Trust.
William Colenso College We disagreed with the Board of Trustees not preparing group financial statements to consolidate the financial statements of its subsidiary, the William Colenso College Charitable Trust.

Appendix 3: Schools whose 2015 audit reports draw attention to financial difficulties

Avondale Intermediate Melville Intermediate
Bainesse School Ngapuke School
Bayfield High School Ngaruawahia High School
Cambridge East School Northland College
Herekino School Omanaia School
Kaihu Valley School Opotiki College
Kaikohe Intermediate Tahuna Normal Intermediate
Kaikorai Valley College Te Kura o Otangarei
Kelston Intermediate Te Rangi Aniwaniwa
Kia Aroha College Upper Hutt College
Kopane School Wairarapa College
Logan Park High School Waitara Central School
Mangamuka School  

We also made reference to the financial difficulties of the following schools in audit reports issued during 2016 for audits in arrears:

  • Heretaunga College (2014)
  • Te Kura Kaupapa Māori o Nga Maungarongo (2013)
  • Te Kura Kaupapa Māori o Te Rawhiti Roa (2014)
  • Upper Hutt College (2014)

Appendix 4: Compliance with legislation

We ask our auditors to consider whether schools are complying with particular requirements of the Education Act 1989 and Crown Entities Act 2004, which relate to financial reporting. This appendix sets out those schools where auditors identified breaches of these legislative requirements.

2015 school audits

Borrowing (Section 67 Education Act 1989)

Avondale Intermediate Papanui Junction School
Balclutha School Russell School (Bay Of Islands)
Bayfield High School Saint Anne’s School (Wanganui)
Dannevirke High School Saint  Matthews Primary School
Dannevirke South School Tahuna Normal Intermediate
Golden Bay High School Taipa Area School
Hato Paora College Te Kura Kaupapa Māori O Ngati Rangi
Kaikohe Intermediate Te Kura Kaupapa Māori O Rangiawhia
Kaikorai Valley College Te Kura Kaupapa Māori o Whatatutu
Kelston Intermediate Te Kura o Otangarei
Levin School Te Mahoe School
Mangamuka School Te Puna School
Moerewa School Tinopai School
Northland College Tuturumuri School
Ohau School Waitara Central School
Orere School Wanganui Collegiate School
Pakotai School  

Payments outside the Education Service Payroll (Section 89(2) Education Act 1989)

Ahipara School Pamapuria School
Bay of Islands International Academy Paparore School
Herekino School Pukepoto School
Kaeo School Rawene School
Kaikohe Intermediate Russell School (Bay Of Islands)
Kaingaroa Forest School Solway College
Kaitaia Abundant Life School Te Kura Kaupapa Māori O Rangiawhia
Kaitaia Intermediate Te Kura Kaupapa Māori o Te Tonga o Hokianga
Kawakawa Primary School Taipa Area School
KingsView Christian School Te Kao School
Kohukohu School Te Kura O Waikare
Matihetihe School Te Rangi Aniwaniwa
Motatau School Tinopai Schol
Opononi Area School Waima School
Oturu School Whangaroa College
Paihia School  

We also drew attention to payments to staff outside Novopay in the 2014 audit report of Te Kura Kaupapa Māori o Te Rawhiti Roa which was issued during the year.

Loans to staff (Section 73 Education Act 1989)

Gisborne Boys' High School Te Kao School
Kaikohe Intermediate Te Kura Kaupapa Māori o Ngaringaomatariki
Kaingaroa Forest School Te Kura Kaupapa Māori O Rangiawhia
Kaitaia Abundant Life School Te Kura Kaupapa Māori O Tapere Nui A Whatonga
Kaitaia Intermediate Te Kura Kaupapa Māori O Taumarere
Maunu School Te Kura Kaupapa Māori o Te Tonga o Hokianga
Opawa School Te Kura O Te Teko
Opononi Area School Waima School
Oturu School Whangaroa College

Investments (Section 73 Education Act 1989)

Christchurch Boys' High School Ohaeawai School
Elstow - Waihou Combined School Solway College
Hamilton Junior High School Waihi Central School
Mackenzie College Western Heights School (Auckland)
Northland College  

We also drew attention to Timaru Boys’ High School’s investment in Oxford Street Holdings (TU) Limited without the approval of the Ministers of Education and Finance, in the school’s 2013 audit report issued during the year.

Conflict of interest (section 103(A) and clause 8(8) of Schedule 6, Education Act 1989)

Cornerstone Christian School Wanganui Collegiate School
Saint Joseph's School (Hawera) Waverley Primary School

Banking arrangements (Section 158 Crown Entities Act 2004)

Saint Joseph's School (Upper Hutt) Wanganui Collegiate School
Te Kura Kaupapa Māori O Nga Uri A Maui  

Other breaches of legislation

SchoolType of breach
Bainesse School Section 103(3) - permanent staff member appointed to the Board who was not the staff representative.
Kaingaroa Forest School Section 103(3) - permanent staff member appointed to the Board who was not the staff representative.
Kawakawa Primary School Breach of Income Tax Act 2007 - no income tax paid on wages paid outside payroll.
Mount Biggs School Section 103(3) - permanent staff member appointed to the Board who was not the staff representative.
Morrinsville School Section 87(3AA) – financial statements not prepared in the format prescribed by the Ministry of Education.
Pahiatua School Section 103(3) - permanent staff member appointed to the Board who was not the staff representative.
Saint Columba's Catholic School (Frankton) Section 75 State Sector Act - lack of concurrence for payment to Principal.
Saint John's College (Hastings) Section 4 - enrolling international students without the Board's consent.
Section 4B - not charging tuition fees for two international students.
Section 238E - school was not signatory to Code of Paractice for International Students.
Te Kura O Waharoa Section 70B - school is leasing grazing land without Ministry approval.
Wairau Valley School (Blenheim) School was operating an ECE programme without the approval of the Ministry.

We also issued audit reports in 2016 drawing attention to:

  • Riverslea School’s (2013 and 2014) breach of Sections 46A(1) and 51 of the Local Government Official Information and Meetings Act 1987, for failing to keep minutes of its meetings; and
  • Timaru Boys High School (2013) breached section 69 of the Education Act, because a controlled entity of the Board, Oxford Street Holdings (TU) Limited purchased two dwellings in 1997.

1: References are to the Education Act 1989 unless stated.

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