Author – Colette Pretorius Associate Director – Audit and Assurance, Moore Stephens
The NSW State Government provided more than a billion dollars in funding to Non-Government schools in 2014-2015. To give the community confidence that government funding is not provided to non-government schools operating for profit, the NSW Government strengthened the current not-for-profit school requirements under Section 21A of the Education Act 1990, by introducing a new bill. The new bill, the NSW Education Amendment (Not-for-Profit Non-Government Funding) Bill 2014 (the new Act) was introduced and passed in the NSW Parliament in October 2014.
Section 21 of the Education Act 1990, will now be renumbered and transferred to Section 83 in the new Act.
Section 83C makes clear that the Minister must not provide any financial assistance to a for profit school.
“Section 83C (2) indicates that a school operates for profit (without limiting the circumstances in which it does so) if the Minister is satisfied that:
(a) any part of its proprietor’s assets (in so far as they relate to the school) or its proprietor’s income (in so far as it arises from the operation of the school) is used for any purpose other than for the operation of the school, or
(b) any payment is made by the school to a related entity or other person or body:
(i) for property, goods or services at more than reasonable market value, or
(ii) for property, goods or services that are not required for the operation of the school, or
(iii) for property, goods or services that is in any other way unreasonable in the circumstances having regard to the fact that financial assistance is provided to or for the benefit of the school by the Minister, or
(c) any 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 unless it is in reimbursement for a payment made by the person in connection with the operation of the school.”
The key changes are as follows:
Section 83C (3) allows for the formulation of regulations at a later stage to provide further guidance on uses of school assets or income, financial practices or legal structures that could be considered for profit.
One of the key changes is the establishment of a Not-for-Profit Advisory Committee. The Advisory Committee will consist of:
The Advisory Committee will review issues identified with possible non-compliance to the not-for-profit provisions of the Act and will make recommendations to the Minister if a school is considered non-compliant or operating for profit. The Advisory Committee will also assist the Minister in developing guidelines to assist schools to better understand their responsibilities under Section 83.
Section 21A only had one possible outcome for any breach even if minor, and that was to cease funding to the school. Under Sections 83C (3) and 83E (3) the Minister can now apply graduated responses to less serious breaches or minor breaches such as an oversight or error. The graduated responses can include:
The new Act also now provides for two categories of non-compliances as follows:
A school declared as operating for profit is for serious breaches of the Act only and will lead to funding being withdrawn. For non-compliant schools the Minister will have the option to impose any of the graduated response as noted above.
Under the new Act the Minister can give directions to schools, these could include:
As a starting point to ensure compliance with the new Act schools should review the following key points.
Governments and the community are requiring far more open and transparent reporting and accountability for funding provided to organisations and this is no different for schools. In addition looking at some of the requirements within the new Act, such as reasonability of expenses, schools would need to manage not only the evidence based substantiation of expenses, but also the community views of acceptable use of funds.
Moore Stephens recommends that all schools review their policies and procedure frameworks as well as overarching Governance structures to ensure full compliance with the requirements of the new Act. This review should be followed by a training program for all school employees as well as key employees within interrelated organisations such as the church.
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The contents of this article are generic in nature and do not represent advice that can be relied upon. You should seek professional advice based on your own personal circumstances. The author and any other parties involved in the preparation or distribution of this article expressly disclaim any form of liability to any person in respect of this article and any consequences arising from its use by any person in reliance in whole or any part of the contents of this article.