The Auditor-General of Queensland has released a scathing report about poor audit practices between non-government schools and Queensland Education agencies. This has lead to the adoption of all recommendations in the report by the Non-State Schools Accreditation Board (the Schools Board), and the Department of Education, Training and Employment (the Education Department).

As a result, Queensland schools will need to evaluate their governance arrangements and processes for their School Survey Data obligations, in order to ensure that they don't fall foul of the coming new requirements.

Context

The 'Oversight of Recurrent Grants to Non-state Schools' report (the Report), recently released by the Queensland Audit Office of Queensland (the QAO) acknowledges a recent large-scale case of fraud in Queensland schools. In this case, which we wrote about in our article 'Ex-principal pleads guilty to fraud', approximately $8.5 million in over-payments were procured by the now-convicted ex-principal. The object of the Report was to 'establish whether this incident was a one-off circumstance or whether it pointed to systemic weaknesses in controls' established by the Schools Board and the Education Department.

The flaws in the funding process

The underlying system is simple. Schools receive funding from the Schools Board based on a formula that is calculated by number of students, compounded by loadings based on need. Crucially, these numbers determine both State and Commonwealth funding.

These numbers are calculated based on the 'School Survey Data', which each non-state school is required to produce yearly by theEducation (Accreditation of Non-State Schools) Regulation 2001 (Qld). The Schools Board provides guidance on how to complete this survey, but as the Report notes:

This can therefore lead to inconsistency in reporting.

Auditors not up to scratch

The unreliability of these numbers is further compounded by the fact that the Schools Board engages contractors to 'verify' the enrolment data and the Schools Board, in the QAO's view, is not appropriately qualified for the task. The Report criticised this process, saying, among other things:

• the sample rate used of 10% has no clear rationale; and
• the Schools Board is not able to fully assess the risks that it uses to choose this sample.

Furthermore, the Report criticised the contract auditors that were used for this process. The Report noted that even though the Education (Accreditation of Non-State Schools) Act 2001 (Qld) requires that auditors appointed to schools:

• 'have the necessary expertise or experience'; and
• are suitable persons to perform auditing functions;

such persons can have attributes that 'are significantly less than those required of an auditor for the purposes of corporations law'.

The Report also found that the procedures of the contracted auditors 'do not compare favourably' with the requirements under the Australian Auditing and Assurance Standards.

$1.5 million in overpayments estimated

Based on the QAO's own audit, the Report found that although the contracted auditors detected an error rate of between 0.10%-0.93%, the QAO found that some of the schools it audited over-counted by between 5%-22%. This meant that one particular school was over-allocated $195,651 in funding. It argued that these results validated its risk-based auditing approach.

The Report extrapolated these numbers and arrived at an estimated figure of $1.5 million in overpayments to schools in 2014.

Fraud

Coming back to the purpose of the Report, to examine the possible systematic weaknesses for fraud, the Report stated that the previous approach did not examine surveys from previous years. This meant that there was no consequence for schools that over-counted their students and 'there is no systemic approach to the investigation of suspected fraud'. It went on to say that 'fraud is discouraged when the perception of detection is present and potential perpetrators recognise that they will be punished when caught'.

Three recommendations were made as a result, all of which the Schools Board and the Education Department have said that they will adopt.

The recommendations are that the:

Schools Board provide better guidance to schools on the student census

The Schools Board will now give better guidance to schools on how to fill out their annual school surveys. By incorporating practical examples, schools will now receive better guidance to determine if a student is taken to have attended, for the purposes of school survey data.

Schools Board implement a more robust, risk-based audit framework

The Schools Board will improve its risk-based approach to auditing schools, in light of the QAO's report. It will make the approach 'more systematic and better codified'. The Schools Board will also determine other sources of information to determine high-risk schools as part of its auditing process.

The Education Department establish appropriate assurance mechanisms

Noting that there were no formal agreements for providing funding to schools, the Education Department intends to develop a 'financial policy position' to better manage grants that are given to schools.

The march of school reforms is towards more accountability and transparency. With recent reforms to the way schools are funded, such as in NSW, non-government are facing higher and higher standards of probity and accountability.