The Auditor-General is warning that hundreds-of-millions of dollars of school income is at risk because of the pandemic and schools must budget carefully to avoid financial problems.
In his report on this year’s audits of schools’ 2019 finances, John Ryan, said some high-decile schools were more reliant than others on foreign students and fundraising than other schools.
“We reported last year on the risks of relying heavily on revenue from international students. Those concerns have been realised in 2020 with the closure of New Zealand’s borders,” the report said.
“For most schools with international students, the revenue from those students was equivalent to less than 10 percent of the school’s total expenditure (excluding teachers’ salaries and notional rents, which are funded directly by the Ministry).”
“However, we identified that for 2019 the revenue for 42 schools was equivalent to more than 20 percent of the school’s total expenditure (excluding teachers’ salaries and notional rents). The school that recorded the highest percentage had international student revenue representing 49 percent of its total expenditure.”
It said schools collectively earned $153 million from foreign students last year, with a surplus of $81 million and the loss of foreign students could have a significant effect if schools were unable to reduce their spending.
It said the pandemic was also likely to reduce schools’ income from locally-raised funds, which provided $499 million in 2019.
Nearly all schools in deciles 1-7 joined the government’s donations scheme this year, but schools in deciles 8-10 were ineligible and last year their locally-raised funds totalled more than $230 million.
“Because of school closures and uncertainties about holding large gatherings, many fundraising events have been cancelled or put on hold. The economic impact of Covid-19 and the associated uncertainties could also mean that parents and communities may be less willing or able to contribute towards school activities and events, as they may have been in the past,” the report said.
“Whether schools that have relied heavily on locally raised funds, including international student revenue, will get into financial difficulty will depend on the strength of their financial position – that is, whether they have cash reserves they can use, and whether they can put plans in place to reduce spending.”
Schools in financial trouble
The report said the pandemic delayed this year’s audits and by the end of October only 88 percent had been completed with a similar number of problems identified as in previous years.
It said 31 schools had borrowed more than they were allowed, two schools did not use the ministry’s payroll service to pay teachers, three lent money to staff, and five invested money in organisations without the ministry’s approval.
The report said schools finished 2019 with an average cash balance of $287,700, a similar figure to 2018.
However, individual schools’ cash balances ranged from owing $65,800 to having cash of $6.8 million. In terms of long-term deposits, one school had investments worth $10.6 million, and almost a third of schools had no investments.
It said 38 schools needed letters of support from the ministry to confirm that they were a “going concern” and 18 of those schools were in serious financial difficulty.
One integrated school, Te Ra School, received a letter of support from its proprietor.
The report indicated that some schools were spending too much on extra staff.
“More than two-thirds of the schools we identified as being in financial difficulty for 2019 use the equivalent of more than 70 percent of their operations grant to pay staff (overall, an average of 89 percent). This was higher than the average for all schools that use the equivalent of 68 percent of their operations grant to pay staff,” the report said.
The report said auditors noted fewer matters about sensitive payments than in previous years.
They included gifts to staff that were either without board approval or inconsistent with the school’s gift policy; hospitality and entertainment expenses that seemed excessive; and travel, both domestic and international, where the boards had not followed a clear process of approval before the trip was booked.
“Our auditors also identified payments for items that could be seen to bestow a personal benefit, such as gym and Koru Club memberships for principals,” the report said.
It said almost half of the concerns raised about sensitive payments related to poor controls over the approval of principals’ expenses, including cases where principals approved their own expenses.
The report said auditors had asked the Education Ministry to investigate a payment two former charter schools, the South Auckland Middle Schools and Middle School West Auckland, made to their owner, the Villa Education Trust.
It said the boards of the two schools merged in 2018 ahead of the schools becoming integrated schools in 2019.
“In August 2020, we completed our audit of the combined board’s initial financial statements for the period from August to 31 December 2018. In our audit report, we explained that we could not obtain sufficient evidence to confirm the validity of a payment of about $467,000 for a management fee the combined board paid to VET,” the report said.
“We also found no evidence that the conflicts of interest, which resulted from having members in common on both boards, were appropriately managed. This is a matter of some concern to the Auditor-General and we asked the Ministry to investigate. The Office will decide on subsequent action after the Ministry has reported back to us.”
The Villa Education Trust told RNZ that it did not see how conflicts of interest were a problem because the Education Minister had appointed the members of the combined schools’ board.