Results of the 2018 school audits

Results of the 2018 school audits.

27 November 2019

Iona Holsted
Secretary for Education
Ministry of Education

Tēnā koe Iona

REPORT ON THE RESULTS OF THE 2018 SCHOOL AUDITS

Please find enclosed our report on the results of the 2018 school audits. Overall, we continue to see improvements in school reporting, although fewer schools reported on time this year. It is also pleasing to see that the Ministry of Education (the Ministry) has made progress on many of the recommendations from our previous reports on the results of school audits. Thank you for your positive response to these recommendations.

We completed 82% of the 2018 school audits by the statutory deadline of 31 May. This is a disappointing result because we had begun to see an improvement in timeliness in the past few years. Also, the Ministry had provided all the information schools needed to complete their financial statements for audit on time, and earlier than previous years. The increase in late school audits was mainly due to the poor performance of a service provider that prepares financial statements for about 100 schools and resourcing problems experienced by some of our auditors.

There continues to be good collaboration between your staff and my staff. It is important that we continue to work together to improve the school audits process. The Ministry’s recent annual reporting workshops were a good opportunity for representatives of both the Ministry and my Office to speak with schools on the financial reporting and the audit process. However, some regions had better attendance at the workshops than others. We need to ensure that we are engaging with as many schools and service providers as possible and with the right people. The School Sector Working Group has identified that focusing on communication with the sector is important to help improve the school audit process.

For most schools we audit, we do not identify any significant issues. In our report, we set out details of those schools where we have reported on specific matters. We have shared details of those schools with your Directors of Education as we completed our audits during the year. In our report, we also comment on matters we have identified from our audits and make some recommendations for the Ministry. I have included these recommendations in an attachment to this letter.

Overall, we have seen less sensitive expenditure matters referred to us compared to previous years. However, we have reported on a small number in our audit reports. Where auditors have raised concerns with us in areas such as gifts, hospitality, and entertainment, we have seen a reduction in the amount of money spent.

Below, I comment on some important matters for your attention.

Many schools had not reported to their communities

At the time the auditors completed their 2018 audits, they identified 773 schools that had not published their 2017 annual reports online. Of the schools that had published their annual reports online, 457 published them late, usually once the auditor had reminded them. If schools do not report in a timely manner, information is less relevant and they are not properly accountable to their communities.

Our auditors have reminded all schools in their management letters this year that they must publish their annual reports online. I understand that schools are also prompted to do so when they submit their annual reports to the Ministry, and that your school finance advisors will check that schools are now complying.

Some schools have not met their accountability requirements

There are 170 school audits outstanding at 30 September 2019 (2018: 161), which is disappointing. The increase from the previous year is due to the increased number of current year audits outstanding for the reasons explained above. Also, the number of previous-year audits outstanding has increased. Where a school has outstanding audits, it is not properly accountable to its community.

We have made some progress on some of the older school audits but we still have 10 audits that are outstanding from 2015 or earlier. The oldest is a 2013 audit of a closed school.

As I reported last year, Kura Kaupapa Māori schools (kura) continue to have a disproportionately high number of outstanding audits. Of the 73 kura, 18 have audits outstanding, and 10 of those have at least two years of audits outstanding. We continue to recommend that the Ministry provides targeted support and guidance to kura. We understand that the Ministry has started discussions with Te Runanga Nui to better support kura. We would like to work with you and them to understand better what is preventing kura from completing the outstanding audits and facilitate their completion.

I would like to see agreed time frames for completing the outstanding audits put in place in the first half of next year, with a target date to bring the audits of these kura up to date (including the 2019 audits) by 31 December 2020.

Making the audits more timely means the kura are properly accountable to their communities. It also provides an opportunity for auditors to suggest improvements, where necessary, on a more timely basis to help the kura protect against error or fraud.

There are ongoing challenges with school payroll

As you will be aware, the delays in school reporting started with the implementation of the Novopay payroll system. I am pleased that the school payroll process has gone smoothly this year. The Ministry successfully delivered the payroll reports that schools need for their financial statements on time and earlier than in previous years. Having the oversight of a project manager worked well. With the project team incorporating lessons learned each year, the process should continue to improve.

However, we do raise some concerns in our report about school payroll. Each year we carry out extensive audit work on school payroll. Although we continue to see improvements in data quality with fewer errors reported on the payroll error reports that go to schools for reporting purposes, we also continue to identify weaknesses in the controls in the system.

Because the Novopay system has a lack of data entry controls, individual schools are responsible for checking for and detecting errors by reviewing fortnightly payroll reports. Our auditors find many schools are not having someone independent (that is, someone who does not have access to the payroll) reviewing these payroll reports. Segregation of duties is needed for this to be an effective control. Where schools are not properly reviewing their fortnightly payroll reports, there is a higher risk of fraud or error.

The new school payroll service EdPay is being rolled out to schools. We understand that this will allow more direct input of information by schools, with features being added as it is built and tested. Our concern is that this does not currently include more data entry controls for schools. With the continued development of EdPay this is an opportunity to improve the payroll control environment to help protect against instances of fraud and error. We have recommended that the Ministry consider building in appropriate controls where possible.

Concluding comments

As well as the recommendations to the Ministry, our report also has questions for school boards. I will be sending a copy of the report to all board chairpersons. I will also send a copy of our report to the Education and Workforce Committee and publish it on our website.

I was interested to learn of the outcome of the Tomorrow's Schools review. I acknowledge the significant work the Ministry has to do to establish the new Education Support Agency. We consider the reforms an opportunity to improve school performance reporting and accountability. We would appreciate being actively involved in helping to inform any changes that would affect the accountability of schools.

I am happy to meet with you to discuss the contents of this letter and the attached report.

I look forward to continuing the good collaboration between our staff to improve school accountability.

Nāku noa, nā

Signature - JR

John Ryan
Controller and Auditor-General