New laws put schools’ finances under the spotlight

A Bill to amend the Education and Training Reform Act 2006 (Vic) (Act) has been passed by the Victorian Parliament and will soon take effect.

The Education and Training Reform Amendment (Miscellaneous) Bill 2015 (Bill) will amend the Act to grant more power to the Victorian Registration and Qualifications Authority (VRQA). The VRQA is the statutory body responsible for the registration of Victorian non-government schools and it ensures that the schools comply with minimum standards for registration.

The new powers will allow the VRQA to monitor and assess non-government schools’ financial capabilities and to take action to protect students and parents if financial viability issues do arise.

While this is a new Bill introduced into Parliament in 2015, it is extremely similar to a 2014 Bill of the same name that was introduced but failed to pass both Houses of Parliament. Also, these specific VRQA powers are not entirely new – the VRQA already has these functions and powers with respect to vocational education and training (VET) providers. Due to the success of this initiative and, in part, the troubling increase in financially mismanaged non-government schools, the powers the VRQA have over VET providers will now be extended to include non-government schools.

School closures due to poor financial management affects students

In the Bill’s second reading speech, the Minister for Education James Merlino identified concerns regarding the VRQA’s ability to monitor the financial viability of non-government schools in light of the recent high-profile closure of several non-government schools and the scaling back of several others in recent years. Mr Merlino said that these closures have adversely affected the students at the schools and the wider school community.

Earlier this year School Governance reported on a Victorian Christian school that had been shut down due to allegations of financial mismanagement and financial losses for the previous two years, declining enrolments and potential corporations law offences. This left 150 students burdened with finding a new school for the year ahead.

In another recent case of closure, students preparing to sit their final leaving exams were forced to change schools at a moment’s notice due to the lack of transparency in the school’s finances and a closure notice from the VRQA.

Just last month, a Melbourne independent school was shut down by the VRQA for failing to comply with VRQA standards. The school was found to have poor financial management, inadequate financial reports and poor record keeping. Independent investigators found that:

• the school’s revenue accounting was grossly inaccurate and included future fee payments which significantly distorted the results;
• a loss of more than $416,000 was recorded in 2012, in part because the school had included $375,000 worth of fees in their budget projections that never materialised; and
• the school had higher than normal marketing costs and lower than average staffing costs compared to other schools, indicating poor financial management.

Despite the school currently appealing the VRQA’s decision, it remains closed, forcing 83 students who were completing their Victorian Certificate Education (VCE) studies to find a place at a different school just months before their final exams.

What will the VRQA have the power to do?

The amendments to the Act allow the VRQA to ‘protect the interests of students as consumers’ if financial viability issues arise.

In its development of the Bill, the Victorian Government identified deficiencies in the current legislative framework that resulted in students and parents not being informed of a school’s financial difficulties until insolvency is imminent and fees paid in advance were already lost.

The VRQA will now have the power to:

• at any time monitor, or conduct an assessment of, the financial capabilities of a non-government school;
• report to parents on the result of the assessment if a school is found to be financially unviable, or at risk of becoming financially unviable;
• review and evaluate a school’s compliance with a specific VRQA registration standard, at any time if the VRQA believes the school may be financially unviable;
• impose a condition of registration on a school to introduce a protection scheme for fees if it is found to be financially unviable or at risk of becoming financially unviable (this may include restrictions on accepting fees paid in advance, an ability for parents to pay fees in instalments, the refund of fees paid in advance or that the fees be paid into a separate trust account); and
• suspend or cancel a school’s registration if the VRQA is satisfied that the proprietor of the school is insolvent.

The amendments also allow the VRQA to produce new guidelines on how it will monitor and conduct assessments of the financial capabilities of non-government schools. These guidelines are expected to be released soon.

Other amendments to the Act

The Bill also makes minor amendments to clarify ambiguities in the Act. Teachers are now required to notify the Victorian Institute of Teaching (VIT) in writing of changes in employment (i.e. ceasing or commencing employment at a particular school). Also, section 79 of the Education and Training Reform Amendment (Registration of Early Childhood Teachers and Victorian Institute of Teaching) Act 2014 will be amended to clarify the offence when a teacher falsely represents their current registration status, and create a new offence where a teacher falsely represents their former registration status.

What this means for schools

It is important for schools to understand that these changes have been made into law by the Governor of Victoria and are due to commence next year. Once in effect, Victorian schools will be subject to a new condition of registration requiring compliance with any requirements or requests of the VRQA for the purposes of monitoring and assessing the school’s financial capabilities under the new section 4.3.1(6B) in the Act.

Schools should also take note of the amendment to the Act that allows the VRQA to investigate a school’s compliance with a specific prescribed minimum standard for registration (not just in relation to its financial management) if the VRQA reasonably believes that the school is financially unviable or may soon become financial unviable.

At present, all schools are subject to conditions of registration that pertain to financial management, including conditions of solvency and yearly financial audits. However, the VRQA will now be able to check schools’ compliance with these requirements at any time, rather than periodically or every five years for registration purposes.

Schools should understand that not only can the VRQA specifically monitor and assess financial viability at any time, but it can also notify parents directly of the result of assessment and impose conditions on the school’s registration that commence immediately after the VRQA’s determination.

In short, schools should ensure their financial management practices are sound and meet current Victorian standards to ensure a smooth transition to the new requirements.