Victoria’s financial watchdog, the Auditor-General, has released a report (the Report) that evidences hundreds of millions of dollars of education grants being given to non-government schools with no measures to track how the money is being spent.

The Report was published on 9 March 2016, detailing the findings of an audit to examine whether the Victorian Department of Education and Training (DET), non-government schools and their system administrators are effectively and efficiently managing and using state grants.

The audit revealed a lack of transparency and accountability in Victorian non-government schools for the use of state government funding. During the audit, the Auditor-General found that there is limited assurance that grants are used for their intended purpose or are achieving intended outcomes. Schools in Victoria must use government grants to meet the general recurrent costs of providing education programs and must not use the funds for capital expenditure. However, currently it is entirely up to the schools how the money is spent. As a result of these findings, the Auditor-General has recommended strengthened guidelines and funding agreements and associated accountability for the use of all grants to non-government schools – both at a school level and the DET.

The findings

The Auditor-General has found that, in general, non-government schools in Victoria do not have adequate procedures and systems in place to ensure that the Victorian Government can track how funding is spent. Although the DET has recently developed interim policies that assist non-government schools to understand and comply with their legal requirements relating to government funding, the Report found that there were clear problems with the manner in which schools were held accountable. The findings demonstrate clear problems with the way grants are currently administered, including that:

• the DET lacks clear, appropriate governance which has led to the poor administration of grants;
• non-government schools fail to retain evidence that grants have been used for the intended purpose; and
• non-government schools lack effective policies and procedures to ensure that their management of grants meet government standards.

The Report recommends that the DET develop a program of audits to ensure that grant recipients and non-governments schools use funds for the purposes for which they were allocated. In addition, the Report calls for greater clarity in the conditions and reporting requirements of system authorities.

Scrutiny of funding arrangements

School funding in Victoria has been under scrutiny by multiple sources, with former Premier, the Hon Steve Bracks AC, publishing his comprehensive review of school funding (the Review) earlier this week. Although this Review focused on government schools, some of the recommendations mirror those of the Report. The Review argues that the DET’s policies and procedures be more straightforward to improve compliance. The Review also recommended increased collaboration between schools to promote innovation and improve the efficiency of operational procedures, a recommendation that can be adopted by non-government schools.

Requirements for registration

Non-government schools already must prove that they comply with legal requirements when they go through registration with their State or Territory government. In order to meet registration requirements, schools should already have policies and procedures that address financial management and record keeping to enable the schools to clearly demonstrate compliance. The types of evidence that schools are expected to produce include:

• audited financial statements;
• a not-for-profit policy;
• a business policy; and
• a register of governing body members.

School’s funding cancelled for mismanagement

The consequences of a failure to comply with financial management requirements was clearly illustrated by the Federal Government’s decision to strip funding from a non-government school in NSW after it was found to be operating for profit. The loss of $19 million in funding will have a severe effect on the school’s ability to operate and is due to come into force on 8 April 2016. Although parents and students have protested the mismanagement of the school, this is unlikely to affect the consequences of the school’s peak body’s failure to put in place adequate governance procedures. The Australian reports that the decision to strip funding from the school will likely lead to its closure.

Financial management

Given the severity of the consequences, schools must ensure that their policies in relation to financial management are compliant with relevant laws and regulations and, most importantly, these policies are fully implemented within the school. The ability to produce a policy is not enough in this area to demonstrate that a school is meeting its requirements. A school must have the ability to consistently produce current documentary evidence that their school is managing its finances in order to maintain ongoing government funding.