The Department effectively consults with industry, training providers and government departments to identify skill needs, and targets subsidies to meet those needs. However, the Department does not have a robust, data driven process to remove subsidies from qualifications which are no longer a priority. There is a risk that some qualifications are being subsidised which do not reflect the skill needs of New South Wales. 
The Department needs to better use the data it has, and collect additional data, to support its analysis of priority skill needs in New South Wales, and direct funding accordingly.

In addition to subsidising priority qualifications, the Department promotes engagement in skills training by:

• funding scholarships and support for disadvantaged students
• funding training in regional and remote areas
• providing additional support to deliver some qualifications that the market is not providing.

The Department needs to evaluate these funding strategies to ensure they are achieving their goals. It should also explore why training providers are not delivering some priority qualifications through Smart and Skilled.

Training providers compete for funding allocations based on their capacity to deliver. The Department successfully manages the budget by capping funding allocated to each Smart and Skilled training provider. However, training providers have only one year of funding certainty at present. Training providers that are performing well are not rewarded with greater certainty.

The Department needs to improve its communication with prospective students to ensure they can make informed decisions in the VET market.

The Department also needs to communicate more transparently to training providers about its funding allocations and decisions about changes to the NSW Skills List. 

The Department relies on stakeholder proposals to update the NSW Skills List. Stakeholders include industry, training providers and government departments. These stakeholders, particularly industry, are likely to be aware of skill needs, and have a strong incentive to propose qualifications that address these needs. The Department’s process of collecting stakeholder proposals helps to ensure that it can identify qualifications needed to address material skill needs. 

It is also important that the Department ensures the NSW Skills List only includes priority qualifications that need to be subsidised by government. The Department does not have robust processes in place to remove qualifications from the NSW Skills List. As a result, there is a risk that the list may include lower priority skill areas. Since the NSW Skills List was first created, new additions to the list have outnumbered those removed by five to one.

The Department does not always validate information gathered from stakeholder proposals, even when it has data to do so. Further, its decision making about what to include on, or delete from, the NSW Skills List is not transparent because the rationale for decisions is not adequately documented. 

The Department is undertaking projects to better use data to support its decisions about what should be on the NSW Skills List. Some of these projects should deliver useful data soon, but some can only provide useful information when sufficient trend data is available. 

Recommendation

The Department should: 

• by June 2019, increase transparency of decisions about proposed changes to the NSW Skills List and improve record-keeping of deliberations regarding these changes
• by December 2019, use data more effectively and consistently to ensure that the NSW Skills List only includes high priority qualifications

Only qualifications on the NSW Skills List are eligible for subsidies under Smart and Skilled. As the Department does not have a robust process for removing low priority qualifications from the NSW Skills list, some low priority qualifications may be subsidised. 

The Department allocates the Smart and Skilled budget through contracts with Smart and Skilled training providers. Training providers that meet contractual obligations and perform well in terms of enrolments and completion rates are rewarded with renewed contracts and more funding for increased enrolments, but these decisions are not based on student outcomes. The Department reduces or removes funding from training providers that do not meet quality standards, breach contract conditions or that are unable to spend their allocated funding effectively. Contracts are for only one year, offering training providers little funding certainty. 

Smart and Skilled provides additional funding for scholarships and for training providers in locations where the cost of delivery is high or to those that cater to students with disabilities. The Department has not yet evaluated whether this additional funding is achieving its intended outcomes. 

Eight per cent of the qualifications that have been on the NSW Skills List since 2015 are not delivered under Smart and Skilled anywhere in New South Wales. A further 14 per cent of the qualifications that are offered by training providers have had no student commencements. The Department is yet to identify the reasons that these high priority qualifications are either not offered or not taken up by students.

Recommendation

The Department should:

• by June 2019, investigate why training providers do not offer, and prospective students do not enrol in, some Smart and Skilled subsidised qualifications 
• by December 2019, evaluate the effectiveness of Smart and Skilled funding which supplements standard subsidies for qualifications on the NSW Skills List, to determine whether it is achieving its objectives
• by December 2019, provide longer term funding certainty to high performing training providers, while retaining incentives for them to continue to perform well.

In a contestable market, it is important for consumers to have sufficient information to make informed decisions. The Department does not provide some key information to prospective VET students to support their decisions, such as measures of provider quality and examples of employment and further education outcomes of students completing particular courses. Existing information is spread across numerous channels and is not presented in a user friendly manner. This is a potential barrier to participation in VET for those less engaged with the system or less ICT literate.

The Department conveys relevant information about the program to training providers through its websites and its regional offices. However, it could better communicate some specific information directly to individual Smart and Skilled training providers, such as reasons their proposals to include new qualifications on the NSW Skills List are accepted or rejected. 

While the Department is implementing a communication strategy for VET in New South Wales, it does not have a specific communications strategy for Smart and Skilled which comprehensively identifies the needs of different stakeholders and how these can be addressed. 

Recommendation

By December 2019, the Department should develop and implement a specific communications strategy for Smart and Skilled to:

• support prospective student engagement and informed decision making
• meet the information needs of training providers 

Conclusion

The Department of Education effectively and efficiently allocates grants to non‑government schools. Clarifying the objectives of grants, monitoring progress towards these objectives, and improving oversight, would strengthen accountability for the use of public funds by non‑government schools.

We tested a sample of grants provided to non‑government schools under all major schemes, and found that the Department of Education consistently allocates and distributes grants in line with its methodology. The Department has clear processes and procedures to efficiently collect data from schools, calculate the level of funding each school or System should receive, obtain appropriate approvals, and make payments.

We identified three areas where the Department could strengthen its management of grants to provide greater accountability for the use of public funds. First, the Department’s objectives for providing grants to non‑government schools are covered by legislation, intergovernmental agreements and grant guidelines. The Department could consolidate these objectives to allow for more consistent monitoring. Second, the Department relies on schools or System Authorities to engage a registered auditor to certify the accuracy of information on their enrolments and usage of grants. Greater scrutiny of the registration and independence of the auditors would increase confidence in the accuracy of this information. Third, the Department does not monitor how System Authorities reallocate grant funding to their member schools. Further oversight in this area would increase accountability for the use of public funds.

The Department effectively and efficiently allocates grants to non‑government schools. Strengthening its processes would provide greater assurance that the information it collects is accurate.

The Department provides clear guidelines to assist schools to provide the necessary census information to calculate per capita grants. Schools must get an independent external auditor, registered with ASIC, to certify their enrolment figures. The Department checks a sample of the auditors to ensure that they are registered with ASIC. Some other jurisdictions perform additional procedures to increase confidence in the accuracy of the census (for example, independently checking a sample of schools’ census data).

The Department accurately calculates and distributes per capita grants in accordance with its methodology. The previous methodology, used prior to 2018, was not updated frequently enough to reflect changes in schools' circumstances. Over 2014 to 2017, the Department provided additional grants to non‑government schools under the National Education Reform Agreement (NERA), to bring funding more closely in line with the Australian Department of Education and Training's Schooling Resource Standard (SRS). From 2018, the Department has changed the way it calculates per capita grants to more closely align with the Australian Department of Education and Training's approach.

The Department determines eligibility for grants by checking a school's registration status with NESA. However, NESA's approach to monitoring compliance with the registration requirements prioritises student learning and wellbeing requirements over the requirement for policies and procedures for proper governance. Given their importance to the appropriate use of government funding, NESA could increase its monitoring of policies and procedures for proper governance through its program of random inspections. Further, the Department and NESA should enter into a formal agreement to share information to more accurately determine the level of risk of non‑compliance at each school. This may help both agencies more effectively target their monitoring to higher‑risk schools.

By December 2018, the NSW Department of Education should:

2. Strengthen its processes to provide greater assurance that the enrolment and expenditure information it collects from non‑government schools is accurate. This should build on the work the Australian Government already does in this area.
3. Establish formal information‑sharing arrangements with the NSW Education Standards Authority to more effectively monitor schools' eligibility to receive funding.
    

By December 2018, the NSW Education Standards Authority should:

5. Extend its inspection practices to increase coverage of the registration requirement for policies and procedures for the proper governance of schools.
6. Establish formal information‑sharing arrangements with the NSW Department of Education to more effectively monitor schools' continued compliance with the registration requirements.

The Department’s current approach to managing grants to non‑government schools could be improved to provide greater confidence that funds are being spent in line with the objectives of the grant schemes.

The NSW Government provides funding to non‑government schools to improve student learning outcomes, and to support schooling choices by parents, but does not monitor whether these grants are achieving this. In addition, each grant program has specific objectives. The main objectives for the per capita grant program is to increase the rate of students completing Year 12 (or equivalent), and to improve education outcomes for students. While non‑government schools publicly report on some educational measures via the MySchool website, these measures do not address all the objectives. Strengthened monitoring and reporting of progress towards objectives, at a school level, would increase accountability for public funding. This may require the Department to formalise its access to student level information.

The Department has listed five broad categories of acceptable use for per capita grants, however, provides no further guidance on what expenditure would fit into these categories. Clarifying the appropriate use of grants would increase confidence that funding is being used as intended. Schools must engage an independent auditor, registered with ASIC, to certify that the funding has been spent. The Department could strengthen this approach by improving its processes to check the registration of the auditor, and to verify their independence.

The Department has limited oversight of funding provided to System Authorities (Systems). The Department provides grants to Systems for all their member schools. The Systems can distribute the grants to their schools according to their own methodology. Systems are not required to report to the Department how much of their grant was retained for administrative or centralised expenses. Increased oversight over how the Systems distribute this grant could provide increased transparency for the use of public funds by systems.

By December 2018, the NSW Department of Education should:

1. Establish and communicate funding conditions that require funded schools to:
   • adhere to conditions of funding, such as the acceptable use of grants, and accounting requirements to demonstrate compliance
   • report their progress towards the objectives of the scheme or wider Government initiatives
   • allow the Department to conduct investigations to verify enrolment and expenditure of funds
   • provide the Department with access to existing student level data to inform policy development and analysis.

4. Increase its oversight of System Authorities by requiring them to:
   • re‑allocate funds across their system on a needs basis, and report to the Department on this
   • provide a yearly submission with enough detail to demonstrate that each System school has spent their State funding in line with the Department's requirements.

All four agencies examined in the audit are taking steps to strengthen their risk culture. In these agencies, senior management communicates the importance of managing risk to their staff. They have risk management policies and funded central functions to oversee risk management. We also found many examples of risk management being integrated into daily activities.

That said, three of the four case study agencies could do more to understand their existing risk culture. As good practice, agencies should monitor their employees’ attitude to risk. Without a clear understanding of how employees identify and engage with risk, it is difficult to tell whether the 'tone' set by the executive and management is aligned with employee behaviours.

Our survey of risk culture found that three agencies could strengthen a culture of open communication, so that all employees feel comfortable speaking openly about risks. To support innovation, senior management could also do better at communicating to their staff the levels of risk they are willing to accept.

Some agencies are performing better than others in building their risk capabilities. Three case study agencies have reviewed the risk-related skills and knowledge of their workforce, but only one agency has addressed the gaps the review identified. In three agencies, staff also need more practical guidance on how to manage risks that are relevant to their day-to-day responsibilities.

NSW Treasury provides agencies with direction and guidance on risk management through policy and guidelines. Its principles-based approach to risk management is consistent with better practice. Nevertheless, there is scope for NSW Treasury to develop additional practical guidance and tools to support a better risk culture in the NSW public sector. NSW Treasury should encourage agency heads to form a view on the current risk culture in their agencies, identify desirable changes to that risk culture, and take steps to address those changes. 

In assessing an agency’s risk culture, we focused on four key areas:

Executive sponsorship (tone at the top)

In the four agencies we reviewed, senior management is communicating the importance of managing risk. They have endorsed risk management frameworks and funded central functions tasked with overseeing risk management within their agencies.

That said, we found that three case study agencies do not measure their existing risk culture. Without clear measures of how employees identify and engage with risk, it is difficult for agencies to tell whether employee's behaviours are aligned with the 'tone' set by the executive and management.

For example, in some agencies we examined we found a disconnect between risk tolerances espoused by senior management and how these concepts were understood by staff.

Employee perceptions of risk management

Our survey of staff indicated that while senior leaders have communicated the importance of managing risk, more could be done to strengthen a culture of open communication so that all employees feel comfortable speaking openly about risks. We found that senior management could better communicate to their staff the levels of risk they should be willing to accept.

Integration of risk management into daily activities and links to decision-making

We found examples of risk management being integrated into daily activities. On the other hand, we also identified areas where risk management deviated from good practice. For example, we found that corporate risk registers are not consistently used as a tool to support decision-making.

Support and guidance to help staff manage risks

Most case study agencies are monitoring risk-related skills and knowledge of their workforce, but only one agency has addressed the gaps it identified. While agencies are providing risk management training, surveyed staff in three case study agencies reported that risk management training is not adequate.

NSW Treasury provides agencies with direction and guidance on risk management through policy and guidelines. In line with better practice, NSW Treasury's principles-based policy acknowledges that individual agencies are in a better position to understand their own risks and design risk management frameworks that address those risks. Nevertheless, there is scope for NSW Treasury to refine its guidance material to support a better risk culture in the NSW public sector.

Recommendation

By May 2019, NSW Treasury should:

• Review the scope of its risk management guidance, and identify additional guidance, training or activities to improve risk culture across the NSW public sector. This should focus on encouraging agency heads to form a view on the current risk culture in their agencies, identify desirable changes to that risk culture, and take steps to address those changes.