Hot on the heels of Victoria's reforms to non-government schools, New South Wales has followed with reforms to funding rules for non-government schools. The changes, which have been introduced but not yet passed by the NSW Parliament, are aimed squarely at ensuring that schools which receive government funding remain not-for-profit.

Background

As with many reforms, these changes are in reaction to an incident which has provoked a change. In 2012 Malek Fahd, a non-government school in Greenacre, was found to be operating for profit. In NSW non-government schools must operate on a not-for-profit basis in order to receive government funding.  The Sydney Morning Herald reported that the school was ordered to repay $9 million of funding as it was allegedly found to have transferred an amount of money to a related organisation, the Australian Federation of Islamic Councils. The allegation made against the school was that the funds were being transferred through 'management fees' and backdated rent.  The decision is reportedly under appeal to the NSW Supreme Court.

These reforms also come amid updates being made to the NSW non-government school registration requirements, which we previously reported on. The new registration requirements include obligations for school administrators to declare conflicts of interest, and requirements to manage transactions between related parties of school administrators.

The reforms

The reforms being pushed through Parliament affect the decisions to provide public funding to non-government schools. First, the Education Amendment (Not-for-profit Non-Government School Funding) Bill 2014 (NSW) (the Bill) establishes a 'Non-Government Schools Not-for-profit Advisory Committee', composed of:

• an independent chairperson;
• a person from the Association of Independent Schools;
• a person from the Catholic Education Commission;
• a person from BOSTES, the NSW Board of Studies;
• a person from the Department of Education; and
• any other persons appointed by the Minister.

The Advisory Committee will make recommendations to the Minister about whether the Minister should make declarations that a school is operating for profit (and therefore ineligible for funding) or is non-compliant with certain conditions.

The second key change is that the Bill will prohibit the Minister from providing financial assistance 'to or for the benefit of a school that operates for profit'. The criterion for a school that operates 'for profit' is whether the Minister is satisfied that:

• any part of the school proprietor's assets or income is used for any purpose other than for the operation of the school;
• any payment of the school is made to a 'related entity' that is not at a reasonable market value, not required for the operation of the school, or in some other way is unreasonable; or
• a payment is made by the school to a person that is not in connection with reimbursement for a payment made by that person in connection with the operation of the school.

Significantly, this means that directors and other members of the governing bodies of schools cannot be remunerated for their expertise.

Third, the Minister may, on recommendation of the Advisory Committee, make a declaration that a school is operating for profit. This declaration has the consequence that a school becomes ineligible for government funding.

Fourth, financial assistance to schools may be suspended, reduced, or made subject to conditions if a school is non-compliant with the directions of the Minister. This includes situations where a school fails to render reasonable assistance in a relevant investigation, or fails to comply with a direction of the Minister. Such a declaration is also made on advice of the Advisory Committee.

Finally, these powers are supported by ancillary powers including the power to issue directions, to recover money paid to schools and to investigate schools.

According to the Minister's second reading speech in Parliament, 'the community expects that public funding going to non-government schools be used only for the purpose of enhancing student outcomes'. He also said that the Bill clarifies what being 'not-for-profit' means. Non-government schools are allowed to make a surplus, but that surplus must only be used for the operation of the school.

What should your school do?

The Bill is yet to be passed by the Parliament however all non-government schools should revisit governance arrangements in light of the proposed laws, and the new registration requirements to ensure that they will not be in breach once the new laws are in effect.