Many TAFEs have yet to respond effectively to changes to the funding model and contestability arrangements, resulting in a significant decline in the financial sustainability of the sector, according to this audit.
This report covers the results of the 2013 financial audits of 27 entities, comprising 14 technical and further education (TAFE) institutes and the 13 entities they control.
Clear audit opinions were issued on the financial reports of all entities. An emphasis of matter paragraph was included in the financial report of Northern Melbourne Institute of TAFE, drawing attention to a material uncertainty in its ability to continue as a going concern.
Clear audit opinions were issued on all 19 performance reports for 2013. However, the TAFE sector did not have a framework that mandated relevant and appropriate key performance indicators, nor was it provided with sufficient guidance in establishing suitable targets and analysing performance. Accordingly, the sector's performance reporting was underdeveloped and inconsistent, lacked clear direction and did not facilitate comparability across the sector. From 2014, TAFEs are to implement a strategic planning framework requiring them to set key performance indicators clearly linked to their key strategies. While an improvement, the framework does not establish a core suite of indicators against which TAFEs are to report. Without the ability to compare performance across the sector and between entities, the value of performance reporting is diminished.
The 14 TAFEs generated a net deficit of $16.2 million, a decrease of $74.8 million from 2012. These results suggest that many TAFEs have yet to respond effectively to changes to the funding model and contestability arrangements. The changes were designed to improve the sector's financial sustainability and have increased TAFEs' reliance on student fee revenue in a contestable environment. While a majority of TAFEs reduced their expenditure during the year, the cost reductions and increases in student fee revenue were not sufficient to offset the reduction in funds from government of $116.3 million.
Consequently there has been a significant decline in the financial sustainability of the sector. We assessed the financial sustainability of five of the TAFEs as being high risk in 2013. This means that there are immediate or short term financial challenges at these TAFEs that need to be addressed.
Northern Melbourne Institute of Technology (NMIT) reported a net operating deficit of $31.7 million, and in the absence of any remedial action projected substantial cash-flow deficits for the next two years. As a result, the Department of Education and Early Childhood Development has agreed to support NMIT in securing a two-year interest-free government bridging loan of $16 million to assist with proposed restructuring arrangements. Following changes to the board and executive team, NMIT has identified and commenced the implementation of various operational initiatives to improve its cash flows for 2014. NMIT has been flagged as an overall high financial sustainability risk in this report.
Against the trend, Chisholm, Goulburn Ovens, Kangan and Sunraysia TAFEs reported improved financial results. Some of the effective initiatives at these TAFES have included implementing service provision through third parties (Goulburn Ovens and Sunraysia), changed course offerings, staff redundancies and reduced operating costs. Early adoption of these initiatives has made these TAFEs more financially viable, and they are to be commended.