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Grants to non-government schools
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Contents

Executive Summary -  1. Introduction -  2. Grant Allocation - 3. Management of GrantsAppendices

 

  

Executive Summary

Non‑government schools educate 418,000 school children each year, representing 35 per cent of all students in NSW. The NSW Department of Education administers several grant schemes to support these schools, with the aim of improving student learning outcomes and supporting parent choice. To be eligible for NSW Government funding, non‑government schools must be registered with the NSW Education Standards Authority (NESA) and not operate 'for profit' as per section 83C of the NSW Education Act 1990 (the Act). Non‑government schools can either be registered as independent or part of a System Authority.

In 2017–18, non‑government schools in NSW will receive over $1.2 billion from the NSW Government, as well as $3.4 billion from the Australian Government. Recently, the Australian Government has changed the way it funds schools. The NSW Government is assessing how these changes will impact State funding for non‑government schools.

This audit assessed how effectively and efficiently NSW Government grants to non‑government schools are allocated and managed. This audit did not assess the use of NSW Government grants by individual non‑government schools or System Authorities because the Auditor‑General of New South Wales does not have the mandate to assess how government funds are spent by non‑government entities.

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.

 

1. Key findings

The Department allocates grants to eligible schools in accordance with its methodology

The Department of Education (Department) has adequate processes to accurately allocate grants to eligible schools in accordance with the approved methodology. We reviewed a sample of grants paid to non‑government schools under all major schemes. We checked that the level of funding aligned with the approved allocation and did not identify any significant discrepancies.

The Department advised that it has recently strengthened its approach to processing payments to non‑government schools. The Department has introduced a new payment process, and additional checklists, to provide greater confidence in the accuracy of future grant allocations.

The Department does not monitor schools' progress towards meeting all grant objectives

The Department does not monitor schools’ progress towards meeting objectives in a way that gives it clear oversight of the use of funds. The main objectives for the per‑student grant programs are to increase the rate of students completing Year 12 (or equivalent), and to improve education outcomes for students. Non‑government schools are required to 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 data from non‑government schools.

The Department has stronger practices to monitor progress towards the objectives of the Building Grants Assistance and Supervisor Subsidy schemes. The quarterly reports received from the funding recipients detail how grants have been used to support the schemes' objectives.

The Department does not directly verify the information it receives from schools

The Department does not directly verify the information it receives from non‑government schools to determine per capita funding or to acquit the use of grants. To determine the level of per capita funding, the Department requires schools to complete a student census. Schools are also required to acquit that they have used grants in line with five categories for acceptable use of per capita funding. Schools must have their census and acquittal certified by an external auditor registered with ASIC. The Department advised that it conducts an annual spot check of auditor registration, but this could be strengthened to ensure adequate coverage. The Department does not assess the independence of the auditors.

Conducting further checks of auditors, or verifying information directly, would provide the Department with increased confidence that enrolment data is accurate, and that grants are being used in accordance with the five categories. Any further processes should build on the work the Australian Government already does in this area to avoid duplication.

Clarifying guidance would help ensure funding is spent within accepted categories

The Department's acquittal procedures provide limited assurance that grants are being used only for intended purposes. In addition to abiding by the not‑for‑profit requirements detailed in the Act, schools are required to declare they spent per capita funding in line with the Department’s five broad categories of acceptable use. Further clarifying these categories by providing examples of acceptable expenses under each category would help to ensure grants are not used for unintended purposes.

There are gaps in oversight of System Authorities

The Department does not monitor how System Authorities (Systems) reallocate grant funding between their member schools. The Department does not require Systems to report on how much funding each school receives, or how much funding is retained by the System for administration. Systems submit a single certified declaration that the per capita funding was used in line with the Department's categories. This means the Department does not receive enough information to verify grants are used by each school as intended. Strengthening oversight of the use of funds and how Systems reallocate funding would increase accountability for public funding.

Increased focus on school governance is required

Given its importance to the appropriate use of government funding, NESA could increase its oversight of schools’ governance. NESA's approach to monitoring the compliance of non‑government schools with registration requirements prioritises student learning and wellbeing. Increased oversight could be achieved through expanding its program of random inspections to include the requirements for policies and procedures for proper governance of the school.

In addition to NESA’s role, the Department assists the Non‑government Schools Not‑For‑Profit Advisory Committee to conduct a program of audits to detect breaches of the not‑for‑profit requirements. These audits are targeted to a small sample of higher‑risk schools identified by using information from past breaches and other risk factors. Formal information‑sharing arrangements would help the Department and NESA to routinely exchange information to target their monitoring to higher-risk schools.

 

2. Recommendations

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.
  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.
  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.
By December 2018, the NSW Education Standards Authority should: 
  1. Extend its inspection practices to increase coverage of the registration requirement for policies and procedures for the proper governance of schools.
  2. Establish formal information-sharing arrangements with the NSW Department of Education to more effectively monitor schools' continued compliance with the registration requirements.

  

 
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1. Introduction

1.1 Funding non-government schools

Education in Australia is delivered by government and non‑government schools. Non‑government schools operate under conditions set out by State and Territory Governments through their registration authorities and are funded through a mix of Australian Government and State grants, tuition fees and other private contributions.

In 2017–18 there are around 418,000 students attending 944 non‑government schools in NSW (35 per cent of students). The NSW Department of Education is responsible for allocating, distributing and managing State grants to non‑government schools. The Department administers several grant schemes, under the Education Act 1990, to support schooling choices by parents and improve student learning outcomes.

Australian Government and State Government grants apply

In 2017–18, non‑government schools in NSW will receive $4.6 billion in government funding. The Australian Government is the main public funding source for non‑government schools, allocating $3.4 billion or 74 per cent of total government funding. The NSW Government allocated $1.2 billion to non‑government schools, representing 26 per cent of total government funding.

The Department distributes and manages NSW Government grants programs to non‑government schools. The bulk of grants (85 per cent) are provided as per capita payments. Other grant programs are provided for specific purposes with greater limitations on how they can be used (Exhibit 1).

A table showing the types of grants programs offered by NSW Goverment to non-government schools between 2014 and 2017
Source: NSW Department of Education.

 

1.2 Determining per capita grants

Education Act outlines not‑for‑profit requirements

Section 83C of the Education Act 1990 (the Act) prohibits the Minister from providing financial assistance to a school that operates for‑profit. Under the Act, a school has operated for‑profit if:

  • school assets or income are used for any purpose other than for the operation of the school
  • a payment is made by the school for property, goods or services that is:
    • at more than reasonable market value, or
    • not required for the operation of the school, or
    • in any way unreasonable in the circumstances, or
  • a payment is made by the school to a person in connection with the person's activities as a member of the governing body of the school.

The Minister can declare a school as for‑profit or non‑compliant if the school breaches these requirements. The Department can suspend or reduce funding of, or impose additional conditions on, a school that has been declared for‑profit. A school may also have to repay funding received while it was operating for‑profit.

The Department and NESA share responsibility

Non‑government schools must be registered with the NSW Education Standards Authority (NESA) to receive funding from the NSW Government. NESA is the regulatory body which oversees school compliance with the registration requirements in the Education Act. Under the Act, NESA makes recommendations to its Minister on whether to approve, renew or withdraw a school's registration. There are fourteen registration requirements, that spread across six broad categories: corporate governance, teaching standards, student welfare, educational programs, boarding facilities and public reporting.

The Non‑government Schools Not‑For‑Profit Advisory Committee (the Advisory Committee) is established under the Act to provide advice to the Minister on schools' compliance with the not‑for‑profit requirements of the Act. The Department assists the Advisory Committee to conduct a program of school audits to monitor compliance. The Advisory Committee and NESA both inspect school policies and procedures that relate to school governance. These include the management of conflicts of interest and related party transactions. The Advisory Committee has advised schools that they should view the not‑for‑profit requirements as complementing the registration requirements relating to governance.

National funding arrangements are changing

The NSW Government supports the Australian Government's efforts to improve the quality of education across Australia and its commitment to needs‑based funding. The National Education Reform Agreement (NERA), effective from 1 January 2014, saw a combined effort between the Australian Government and the State to provide additional funding to schools below their Schooling Resource Standard (SRS). The SRS was introduced by the Australian Government after the Review of Funding for Schooling (the Gonski review) in 2011. It estimates how much public funding a school needs to meet the education needs of its students. The SRS is made up of a base amount for every student with six 'loadings' to provide extra funding for disadvantaged students.

Recently, the Australian Government ended the NERA and introduced a new school funding model. The Australian Education Amendment Act 2017 brought in a requirement for the NSW Government to fund at least 20 per cent of the Schooling Resource Standard (SRS) for all non‑government schools in NSW by 2027. The Department is required to 'top up' schools per capita funding to ensure it fulfils its minimum funding requirements under the transitioning arrangements of the Act.

Currently, the Australian and State governments are negotiating a new national agreement for school funding, which may impact on NSW's funding of non‑government schools.

Mechanisms to fund System and non‑system schools

In NSW, non‑government schools are funded as either a System or a non‑system school. The Systems for funding purposes in NSW are the Catholic System and the Seventh Day Adventist Systems (see Exhibit 2). These schools account for 56 per cent of non‑government students in NSW. A non‑system school is a non‑government school that is not a member of an approved school System. These schools account for 44 per cent of non‑government students in NSW.

Exhibit 2: Structure of the non-government sector in 2016

The following is a pie chart of the structure of the non-government sector of schools in 2016. The Catholic schools make up half of the sector while non system schools make up the rest, with a small minority for Seventh Day Adventist schools
 

Source: NSW Education Data Hub 2018.

For Catholic and Seventh Day Adventist System schools, the Department provides per capita funding though System Authorities (Systems). The Systems can re‑allocate and distribute funds to their member schools according to their own methodology. Systems can reallocate funding from existing schools to support developing schools. For non‑system schools, the Department provides per capita funding directly to the school. The mechanisms for funding non‑government schools are shown in Exhibit 3. This audit only directly assesses the State grants paid by the Department of Education. Assessment of the subsequent distribution of grants by Systems is currently outside of jurisdiction of the Auditor‑General of NSW and so is outside the scope of this audit.

Exhibit 3: Funding mechanisms for per capita grants

The following diagram shows funding mechanisms for per capita grants. The funding goes to Catholic Schools NSW and this is then given to the diocese to give to the schools in their area. For Seventh Day Adventists (SDA) money is given directly to systemic SDA schools. For independent schools, money is given from NSW Department of Education
Source: Audit Office Analysis


 

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2. Grant Allocation

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:

  1. 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.
  2. 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:

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

2.1 Monitoring schools' compliance with eligibility requirements

The Department consistently assesses non‑government schools' eligibility for grants

The Department checks the registration status of non‑government schools to determine eligibility for grants. Non‑government schools must be registered with the NSW Education Standards Authority (NESA) to be eligible for any government funding. NESA annually updates a list of registered schools on its website, which the Department uses to check the registration status of non‑government schools.

Non‑government schools must not operate for‑profit, as detailed in the Education Act 1990 (the Act) to be eligible for government funding. The government established the Non‑government Schools Not‑For‑Profit Advisory Committee (the Advisory Committee) to monitor non‑government schools' compliance with these requirements (Exhibit 4).

Exhibit 4: Not For Profit Advisory Committee

In 2014, the Education Act 1990 was amended to tighten the not‑for‑profit requirements for non‑government schools. The amendments also established the Non‑government Schools Not‑For‑Profit Advisory Committee. This Committee advises the Minister for Education on the compliance of schools with the not‑for‑profit requirements.

The Advisory Committee has an independent chair and consists of senior representatives from the Department of Education, NESA, Catholic Schools NSW and the Association of Independent Schools of NSW.

The Advisory Committee oversees a risk‑based audit program that assesses non‑government schools' compliance with the not‑for‑profit requirements of the Act. If the Advisory Committee finds that a school has breached the not‑for‑profit requirements, it can advise the Minister to make a for‑profit declaration. If the Minister declares a school as for‑profit, the school will be ineligible for government funding.

Source: Department of Education

The Advisory Committee's monitoring of not‑for‑profit compliance is improving

The Advisory Committee targets audits to areas of highest risk by using common areas of concern identified during past audits. For example, audit selection for 2018 will focus on related party transactions and other compliance issues identified by the 2017 audit program. The Committee has engaged an external auditor to monitor compliance with the not‑for‑profit requirements through this risk‑based audit program.

A more systematic approach to monitor ongoing compliance after concerns have been identified at a school would strengthen the Advisory Committee’s ability to provide adequate coverage of the sector. In the four years of operation to date, the Advisory Committee has audited several schools twice. As the Advisory Committee oversees a finite number of audits, this lessens the coverage of the sector. The Department advised that the decision to re‑audit schools was based on new information received after the initial audits were completed.

There are gaps in NESA's oversight of school governance

NESA takes a risk based approach to monitoring compliance with registration requirements. This approach prioritises student learning and welfare over the requirement for policies and procedures for the proper governance of a school. ‘Proper governance’ requirements and NESA’s risk based approach to monitoring compliance are detailed in Appendix two. The relatively recent introduction of these proper governance requirements in 2015 creates a risk that some schools may not be complying. It is important that schools have compliant policies and procedures to provide confidence that public funds are used appropriately.

In 2017, 70 per cent of schools that were re‑registered were not assessed against the proper governance requirement. Schools are typically re‑registered every five years. NESA's risk factor assessment tool is weighted towards student learning and welfare rather than the management of the school, which may result in poor governance going undetected. Since 2015, NESA has placed seventeen non‑government schools under monitoring arrangements due to areas for improvement or concerns about compliance with these requirements.

NESA's program of random audits could be used more effectively to encourage compliance with all registration requirements, particularly within schools classed as lower‑risk of non‑compliance with the registration requirements.

NESA's program of random inspections has not focused on governance requirements

The requirement for policies and procedures for the proper governance of a school has never been assessed as part of the random program. NESA’s program of random inspections involves eight non‑government schools each year. The random inspections assess only a subset of registration requirements. NESA also conducts 'with‑cause' inspections where it suspects non‑compliance. In 2017, it conducted five of these inspections.

The number of random audits of non‑government schools has not increased in recent years. An independent review into the activities of NESA (formerly Board of Studies, Teaching and Educational Standards NSW) in 2016 recommended it ‘increase the number of random and risk‑based audits in non‑government schools’. In 2017, NESA expanded its random inspections to cover the government school sector for the first time, conducting 18 random inspections of government schools.

Systems monitor their schools’ compliance with the registration requirements

System Authorities (Systems) of non‑government schools monitor their schools' compliance with registration requirements. Systems agree on a five‑year plan with NESA that details the System's monitoring procedures to be observed over the next five years. The plan identifies the registration requirements that will be inspected at the schools each year. NESA inspectors monitor the System's processes over a five‑year cycle against this plan.

Maintaining discretion over the selection of schools, and providing less notice of inspections, would strengthen NESA’s monitoring of Systems. NESA attends an inspection conducted by each System, each year, to observe the System's monitoring of school compliance with the registration requirements. NESA typically selects the school, in liaison with the System, one year in advance. As NESA selects schools in advance, the System can work with the schools selected for inspection to ensure that they are compliant prior to NESA's attendance. NESA informed us that, since 2014, no System had identified concerns over any of their schools which required them to extend, or cancel, registration.

Expanding the random inspection program would provide NESA with greater confidence that Systems are adequately monitoring compliance with all registration requirements, including proper governance.

There is no formal information sharing arrangement between the Department and NESA

Formal information‑sharing arrangements would help the Department and NESA to routinely exchange information to target their monitoring to higher‑risk schools. Information sharing is important given the overlap in the remit of both agencies. That is, both agencies will consider how a school is governed or managed as part of their inspection or audit. We observed that while the Department and NESA often share information, arrangements are not detailed in a formal information sharing agreement.

 

2.2 Collecting data from schools

The Department clearly explains its information needs to schools

The Department issues guidance to assist schools to provide accurate information in their census. The Department conducts a census of non‑system non‑government schools, and Systems, to collect student enrolment data twice per year. The Department uses the information collected to calculate the per capita funding each school receives. The Australian Government also conducts a separate census to calculate its grants to non‑government schools. The Department's guidance also specifies differences in data definitions between the two censuses.

The Department requires schools to provide reasons for any significant changes in student numbers since their last submission. This is used to detect a potentially inaccurate submission. The Department has no formal procedures to verify the reasons provided by schools to explain the variance in student numbers.

The Department does not directly validate the enrolment data it receives from schools

Validating the enrolment information in a sample of schools would provide greater confidence in the accuracy of the information used to determine the allocation of funding. The Department does not directly validate the information provided by schools via the census process. The Department relies on the requirement for schools to engage an independent external auditor, registered with ASIC, to verify their enrolment figures. The Department advised that it conducts an annual spot check of auditor registration, but this could be strengthened to ensure adequate coverage.

In addition, the Department does not have a process to verify the independence of the auditor. The Department could strengthen its controls over the declarations by requiring the auditor to record their ASIC registration number and sign‑off their independence, according to the standards set in code of ethics for professional accountants.

Some other jurisdictions conduct additional procedures to obtain increased confidence in the accuracy of the census figures. For example, the Queensland Non-State Schools Accreditation Board conducts enrolment verifications in around 15 per cent of non‑government schools. These procedures are performed in addition to obtaining certification of enrolment figures and checking the data for ‘reasonableness’ against the previous year’s census and any known changes to the size of the school.

The Department advised that as the minority funder of non‑government schools, it relies on the Australian Government to validate enrolment information. The Australian Government conducts a nationwide census of non‑government schools in August to determine funding.

 

2.3 Determining and allocating rights

Method to assess the amount of per capita funding was not publicly available

Up to 2017, there was no publicly available information detailing the method for allocating per capita funding. The per capita scheme makes up the bulk of the Department's funding to non‑government schools (85 per cent, or $960.7 million in 2016). Up to 2017, per capita funding was calculated based on the Education Resource Index (ERI). The ERI is a needs‑based model that allocates schools across 12 categories based on the schools’ ability to generate income through fees and charges.

Under the previous method, the Department applied a common ERI for all Catholic System schools of ten. This classification represented high needs funding, regardless of the school's ability to self‑fund. The Department advised that this was a historical arrangement based on overall or average System level needs.

Under the previous arrangements, the Department also did not regularly reassess the ERI of each non‑system school. The ERI was determined at the opening of the school, and was re‑evaluated after three and six years of operation. After six years, the ERI was not re‑evaluated. Since 2014, the Department has allocated additional funding to non‑government schools that received less funding than the School Resourcing Standard to move them closer to that Standard over time. This was done to fulfil the obligations of the National Education Reform Agreement.

From 2018, the Department is using a new method to determine per capita funding. This method is more closely aligned to the model used by the Australian Department of Education and Training, and is made available on its website. A new national schools reform agreement is being negotiated with the Australian Government, which may influence the State's funding arrangements for non‑government schools.

The Department allocates grants to eligible schools in accordance with its methodology

The Department accurately allocates grants to eligible schools in accordance with the approved methodology. We reviewed a sample of grants paid to non‑government schools under all major schemes. We checked that the level of funding aligned with the approved allocation and did not identify any discrepancies. The Department is responsible for assessing the eligibility of schools, and calculating the level of funding to be provided to the school. This calculation is approved by the Minister prior to payments being made to the non‑government school.

The Department advised that it has strengthened its approach to processing payments to non‑government schools. This was in response to an administrative error, in 2016, where a small number of funding recipients received incorrect payments. The Department advised that it has implemented an improved bulk payment process, and additional checklists, to minimise the likelihood of a similar error occurring in the future.

The Department has improved guidance for assessing Building Grants Assistance Scheme applications

In 2017 the Department strengthened its guidelines for determining funding to assist non‑government schools to finance capital projects. The changes provide increased confidence in the consistent assessment of projects in line with the objectives of the scheme (Exhibit 5).

Exhibit 5: Building Grants Assistance Scheme

The Building Grant Assistance Scheme is administered by two Block Grant Authorities; the Catholic Block Grant Authority and the NSW Association of Independent Schools Block Grant Authority. The Block Grant Authorities assess applications against defined criteria, and provide the Department with details of supported applications. The Department forwards the applications to the Minister for approval.

Objectives

Under the Building Grants Assistance Scheme:

  • capital projects must be for providing education and learning spaces
  • funding is to be directed towards areas of greatest need
  • priority should be given to new schools and new capital developments to provide educational facilities for increased student enrolments
  • new projects should encourage joint planning for growth, and opportunities for shared procurement and community use of facilities.

Source: Department of Education, 2017.

 
 

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3. Management of grants

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.
  1. 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.

 

3.1 Communicating appropriate grant use

The NSW Government has defined the overall purpose for funding

The NSW Government (the Government) funds non‑government schools as part of its responsibility to provide sufficient teaching spaces for NSW students. The Education Act 1990 (the Act) requires the Department to ensure that there are sufficient schooling opportunities to cater for all NSW students. The Department fulfils this obligation through operating government schools and providing funds to subsidise the cost of non‑government schooling.

The Government has broad overall purposes for funding non‑government schools. Funding is provided to support schooling choices by parents and to improve student learning outcomes.

The Department does not monitor schools' progress towards meeting objectives

The Department does not monitor schools progress towards meeting the objectives of the per capita grant scheme. The Department, through the NERA, has identified objectives for the per capita payments made to non‑government schools. The Department provides per capita payments in the aim of:

  • increasing student completion of Year 12 (or equivalent)
  • halving the gap for Aboriginal and Torres Strait Islander students in Year 12 (or equivalent) attainment rates by 2020
  • halving the gap for Aboriginal and Torres Strait Islander students in reading, writing and numeracy by 2018.

Tracking the progress made towards these objectives at a school level would allow the Department to better plan and monitor activities to improve student learning outcomes. Across Australia, all schools are required to publicly report on student performance measures through the MySchool website. However, these measures do not cover all objectives of the per capita grants scheme.

The Department has stronger practices to monitor schools' progress towards meeting the objectives of the Building Grants Assistance Scheme. The Building Grants Assistance Scheme aims to assist schools to provide new, or refurbished, facilities to schools with the highest needs in areas of sustainable growth. The Department, through the Block Grant Authorities, use these objectives to assess applications for capital funding. In addition, the Department receives regular reports which demonstrate how funding has been used to provide additional teaching spaces.

The Supervisor Subsidy Scheme exists to partially fund the salary of supervisors or teachers of children with moderate to severe intellectual disabilities, including children with autism. The Department approves payments under this scheme based on the number of hours that skilled staff spend providing services to eligible children.

Guidance on appropriate use of funding is too broad

The Department requires schools to use per capita grants for education purposes under five broad categories (Exhibit 6). Per capita grants must not be used for capital expenses. Further clarification of these five categories, by providing examples of acceptable expenses under each category, would assist in preventing grants being used for unintended purposes. For example, under the per capita grant guidelines some schools may classify improvements on facilities as maintenance, whereas other schools may classify similar works as renovations, therefore requiring capital funding. Further clarification would help schools avoid unintentionally using the grants for capital purposes.

There are minor differences in the acceptable usage of State and Australian Government grants as shown in Exhibit 6. The differences in guidance for the appropriate usage of grants makes it difficult for the Department to be assured that State grants are not being used to purchase capital equipment. Non‑government schools receive most of their total funding from the Australian Government (74 per cent of total government funding) and pool this together with State Government funding. Unlike State grants, Australian Government grants can be used for purchasing capital equipment for the school beyond what is categorised as 'general operating expenses'.

Exhibit 6: Guidance on acceptable usage of recurrent funding 2017

The following is a table showing what funds provided by NSW Government and Australian Government can be used for.  State government funds can only be used for staff salaries, professional development, curriculum development, maintenance and general operations.
Source: Audit Office analysis

3.2 Overseeing use of grants

Procedural gaps weaken oversight on how funding is spent

The Department's reporting requirements for per capita funding are minimal. Grant recipients, either individual schools or Systems, must declare they spent per capita funding in line with the Department's five broad categories of acceptable spending. There is no requirement to detail how much of the grant was spent in each of these categories.

The Department relies on the schools to engage an independent external auditor registered with ASIC to certify the declaration. The Department advised that it conducts spot checks on whether auditors are registered, but this could be strengthened to ensure adequate coverage. Requiring auditors to record their registration number, and checking a sample of auditors' registration with ASIC, would provide the Department with increased confidence of the quality of certification. The Department could also adapt its controls to verify the independence of the external auditor. Requiring external auditors to sign‑off their independence, according to the standards set in code of ethics for professional accountants, in any certification will provide further confidence of the objectivity of the auditor.

Increased oversight of the Supervisor Subsidy Scheme would provide greater confidence that funding is being used to assist in providing educational opportunities for students with disability. The Department requires information contained in all submissions for funding to be signed off by the school principal (see Exhibit 7). However, a recent internal review highlighted that the Department has no mechanism to verify the accuracy of the school's submission detailing the hours staff spent providing services to eligible children with disability. This leads to a risk that schools could be receiving funding for services that were not provided.

Exhibit 7: Supervisor Subsidy Scheme

The Supervisor Subsidy Scheme partially funds the cost of teachers and supervisors in non‑government special schools catering for students with moderate to severe intellectual disabilities, including children with autism. As payments are made to subsidise costs of teachers and supervisors, the school must provide the Department with information detailing the number of students with an eligible disability enrolled in the school, and a log of all hours worked by each teacher or supervisor.

Source: Department of Education

Strengthened oversight would provide greater assurance that grants are being used for their intended purposes. The Department requires schools to have an auditor's certification that funds have been spent in line with the Departments requirements. Other States have additional practices to increase confidence that grants have been spent accordingly. The Victorian Department of Education and Training has recently clarified the standards of evidence that schools are required to meet to demonstrate that grants have been used for their intended purposes (see Exhibit 8).

Exhibit 8: Victorian Department of Education and Training's guidance on appropriate use of funds

A review on grants to non‑government schools was recently completed in Victoria, The Victorian Department of Education and Training has a similar system to NSW whereby schools are required to have an annual certification that they have used their funding in accordance with the guidelines. Despite having a signed certification, most sample schools were unable to demonstrate that they had spent their funding in accordance with the requirements. To increase accountability, the Department of Education and Training Victoria strengthened its guidance to non‑government schools to require them to keep a higher standard of evidence to acquit their usage of grants.

Source: Victorian Department of Education and Training.

The Department has taken steps to improve its monitoring of the Building Grants Assistance Scheme. Previously, the Department only received yearly high‑level summaries of capital projects from each Block Grant Authority (BGA). The reports provided high‑level status updates of projects, but did not specifically detail the works the capital grant was contributing to. Since then, the Department has strengthened its reporting requirements. BGAs are now required to provide more regular, detailed progress reports to the Department.

There are gaps in oversight of System Authorities reallocation of State grants

The Department has limited oversight of how Systems reallocate recurrent funds to their member schools. It is important for the Department to know how funding is reallocated to ensure adequate accountability of the use of public funds. The Department provides Systems with the total amount of per capita grants for each of their member schools. The Systems can reallocate funding to their member schools according to their own methodology. The Department does not require Systems to report on how much funding each school receives, or how much funding is retained by the System for administrative costs.

The Department can access this data from the Australian Department of Education and Training on request, but has not used this data to monitor the redistribution of State grants among Systems. The Australian Department of Education and Training requires System Authorities to have a publicly available needs‑based funding model to redistribute Australian Government funding. Systems are also required to report yearly on the redistribution of Australian Government funding. Some other States have formal arrangements to receive the information from the Australian Department of Education and Training automatically.

Current arrangements limit the Department’s ability to monitor grant usage

The Department's practices for monitoring grant usage provide limited assurance that the grant funding is achieving intended benefits for schools and for the State. Currently, non‑government schools do not have agreements with the Department for the funding they receive. Funding agreements can provide greater transparency of, and accountability for, the use of public funds, and are currently used in four other states/territories. Formalising funding conditions would strengthen the Department’s monitoring of grant usage by non‑government schools.

The Department could establish conditions on funding that require non‑government 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 of Education with access to existing student level data to inform policy development and analysis.

 

3.3 Recouping grant funds

Processes have identified and corrected grant overpayments

The Department has processes to correct overpayments of grants due to inaccurate information. In a selection of grants we examined most errors reported by schools were due to differences in the eligibility requirements between the Australian Government and State censuses, or from students transferring schools close to the census date. If the school reports the error prior to the funding being provided, the Department can modify the calculation. If the Department is not notified until after the funds have been distributed, it will modify future funding to compensate for any difference.

The Department recovers funds if a school is found to be operating for‑profit

State funding can be reclaimed from schools deemed to have operated for‑profit. According to the Act, schools must not operate for‑profit to be eligible for government funding. The Non‑government Schools Not‑For‑Profit Advisory Committee monitors the compliance of non‑government schools with the not‑for‑profit requirements through an annual audit program. If the Advisory Committee has sufficient evidence that a school has breached the not‑for‑profit requirements, it can recommend the Minister make a for‑profit declaration against the school. The Department can then act to reclaim any funding provided during the period that the school was operating for‑profit. This action has only been taken against two schools since the Advisory Committee commenced its audit program in 2014.

 

 

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Appendices

Appendix one: Response from agencies

Appendix two – NESA's risk-based compliance monitoring

Appendix three: About the audit

Appendix four: Performance auditing

 

 

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