Chapter 2 sets out the Joint Committee of Public Accounts and Audit (JCPAA) findings from its inquiry into Australian Government Funding, based on Audit Report No. 18 (2017-18) – Monitoring the Impact of Australian Government School Funding. The Department of Education and Training (Education) was the audited entity. The chapter comprises:
Committee conclusions and recommendations
Accounting for Australian Government school funding
Monitoring the implementation of, and progress against, policy objectives
Committee conclusions and recommendations
The Committee considers that, in the critical area of education, government funding should be administered in a way that is transparent, accountable and compliant with legislative requirements.
However, evidence presented to the Committee as part of its inquiry, at the public hearing and in related submissions, did not provide sufficient assurance that Education monitors the compliance of Australian Government school funding ‘in accordance with the legislative framework’.
The Committee was concerned by the confusion evident in Education’s response to questioning about why the department had not ensured it was fully compliant under the Australian Education Act 2013.
Evidence from the inquiry pointed to a level of uncertainty by the department as to its requirements under the Act and a focus on the reduction of regulatory burden. Given the department’s responses the Committee considers that amendments to the Australian Education Act 2013 may assist, including a specific legislative requirement that Education monitor compliance, and provide assurance that school funding is delivered in accordance with the Act.
The Committee recommends that the Australian Government amend the Australian Education Act 2013, and the accompanying Regulation as required, to include a specific legislative requirement that the Department of Education and Training:
monitor compliance and provide assurance that Australian Government school funding is delivered in accordance with the Act
monitor the use of Australian Government school funding in achieving the objectives of the Act
The Committee considers that effective administrative arrangements and monitoring of Australian Government school funding compliance are critical to meeting legislative requirements and providing transparency to the Parliament and the Australian public.
The Committee notes Education has taken steps to enhance its capacity to ensure compliance under the Australian Education Act 2013, but is concerned that Education had not undertaken a risk-based analysis of the obligations imposed under the Act.
To support the transparent monitoring of Government funding under the Act, the Committee maintains that Education should undertake a comprehensive review of all established compliance activities — with an emphasis on ensuring effective, verifiable and transparent administrative arrangements.
The Committee supports the view of the Auditor-General that appropriate compliance and accountability arrangements should be ‘robust’ and supported by risk-based analysis in order to provide sufficient assurance.
The Committee recommends that the Department of Education and Training conduct a risk-based analysis and review of existing compliance and accountability arrangements of Australian Government school funding under the requirements of the Australian Education Act 2013. Education should report back to the Committee on the outcomes of its review, including:
findings related to the assessment of established monitoring mechanisms, reporting processes, and compliance and administration arrangements
a detailed implementation plan for improvements to compliance and administration arrangements, including key milestones and delivery timeframes
The Committee considers effective administration arrangements as fundamental to monitoring the implementation of ongoing policy requirements. The Committee was concerned that a number of issues had been identified relating to Education’s administrative arrangements for compliance certificates, including a heavy reliance on self-reporting in the absence of targeted verification activity for both compliance certificates and acquittal certificates.
The Committee noted a lack of transparency and accountability as a result of inadequate administrative arrangements — specifically in relation to compliance monitoring, evaluation and reporting mechanisms.
Whilst it is noted that Education takes an ‘ongoing’ approach to the administrative arrangements for compliance certificates, the Committee maintains that Education should address the issues identified in the ANAO audit. Improvements should aim to strengthen Education’s approach to effectively monitoring and verifying the implementation of policy requirements. The Committee will be interested to monitor the actions of Education in improving these processes.
The Committee recommends that the Department of Education and Training implement improvements to its administrative arrangements for compliance certificates for Australian Government school funding and acquittal certificates under the Australian Education Act 2013. The department should report back to the Committee on the development and implementation of improvements to the administrative arrangements for compliance certificates and acquittal certificates, inclusive of timeframes.
The Committee regards the effective monitoring of funding arrangements as central to ensuring transparent compliance with legislative principles. The Committee was concerned by evidence that Education had not undertaken a comprehensive review of needs-based funding arrangements to ensure compliance with the funding principles of the Act.
The Committee regards public reporting of approved system authorities’ funding models as critical to supporting transparency requirements under the Act. As such, the Committee was disappointed that Education had not monitored whether approved system authorities’ funding models were publicly available and sufficiently transparent.
The Committee recommends that the Department of Education and Training report back on how it has improved current monitoring arrangements of funding models for Australian Government school funding, to enhance and enforce the public and transparent reporting of funding models as required under the Australian Education Act 2013.
The Committee considers monitoring key objectives of Government agreements, such as those within the National Education Reform Agreement (NERA), as fundamental to measuring progress against the achievement of reform directions.
Whilst Education utilises a number of mechanisms to support reporting against the intent of reform objectives, the Committee is concerned that the set of requirements in NERA were not met.
The Committee recommends that the Department of Education and Training improve its approach to measuring progress against the achievement of reform directions and objectives under the National Education Reform Agreement.
The Committee is concerned that the review into compliance needs-based funding arrangements by the National School Resourcing Board, due to take place in mid-2018, had been delayed and a revised timeline had not been scheduled.
The Committee considers the establishment and ongoing monitoring of compliant needs-based funding arrangements by approved authorities, fundamental to ensuring that funding is allocated according to the principles of the Australian Education Act 2013.
The Committee recommends that the Department of Education and Training continue to report back to the Committee on the progress and outcomes of the National School Resourcing Board review in six months. The Committee further recommend that Education report back to the Committee following the completion of the review.
In its submission to the Committee, Education provided an update on progress in implementing the ANAO’s recommendations, and the Committee notes the work undertaken by Education since the audit. However, the Committee finds that a follow-up audit of Education’s monitoring arrangements is warranted.
The Committee considers that the full implementation of both the ANAO’s and the Committee’s recommendations would improve Education’s monitoring arrangements. Improvements in compliance monitoring and accountability arrangements will enable Education to clearly demonstrate in the future that it is in full compliance with the Australian Education Act 2013.
The Committee recommends that the Auditor-General consider conducting a follow-up audit of the monitoring arrangements for Australian Government school funding by the Department of Education and Training. Such an audit might also focus on the implementation of recommendations made by the Committee in this report and Audit Report No. 18.
It became clear at the Committee’s first public hearing that Education was unable to sufficiently respond to some of the Committee’s questions relating to the period pertaining to the ANAO audit. As such, the Committee deemed it necessary to schedule a second public hearing in order to obtain the necessary evidence from the department.
As a guiding principle, the Committee emphasises that departments should ensure all witnesses giving evidence before the JCPAA are adequately briefed on matters relating to the Committee’s inquiry.
Review of evidence
Education represents the third largest budget expense for the Australian Government, with $16.1 billion and $17.5 billion in funding allocated to schools funding in 2016 and 2017 respectively, with over 60% provided to non-government schools.
As noted by the Auditor-General, the Australian Education Act 2013 sets out the needs-based funding model for school education and outlines the conditions that must be met by approved authorities to receive Commonwealth financial assistance. This includes the requirements to comply with intergovernmental agreements and to implement nationally agreed reform directions. As part of its responsibilities, the Department of Education and Training administers the Act and the intergovernmental agreements.
The ANAO report concluded that the arrangements established by Education to monitor the impact of Australian Government school funding ‘do not provide a sufficient level of assurance that funding had been used in accordance with the legislative framework.’
The Auditor-General noted that:
Addressing educational disadvantage through the application of a transparent and accountable needs-based funding model is a key element of the Australian Government’s education policy. The department had not monitored and reported on the manner in which funding had been allocated or subsequently redistributed by system authorities effectively. As a result, the department had limited assurance that the funding had been used in accordance with the legislative framework, in particular the requirement for funding to be distributed on the basis of need.
In its submission, Education stated that while the Australian Education Act 2013 and the Australian Education Regulation 2013 provide the legislative authority for the Department of Education and Training to administer Australian Government school funding and sets out the ‘legislative requirements for organisations that receive funding’, ‘it does not impose express legislative requirements on the department with respect to checking, investigating, or assurance of compliance’. Therefore, ‘any suggestion that the department has been in breach of the Act of Regulations is incorrect.’
Education further stated that:
When administering any Government program, including those based within a legislative framework, public officials have duties under the Public Governance, Performance and Accountability Act 3013, and the broader framework of the APS Values and APS Code of Conduct as set out in the Public Service Act 1999. It is within this general framework that there is an expectation that the department has in place a reasonable and proportionate approach to ensuring that requirements on funding provided under the Act and the Regulation are being met.
Accounting for Australian Government school funding
Monitoring needs-based arrangements and compliance
There was interest at the public hearing as to what action Education had taken in response to the ANAO finding that:
The department has not effectively monitored the requirement for system authorities to have in place needs-based funding arrangements and, therefore, is not well positioned to determine whether the basis on which authorities are distributing Australian Government [School] funding is in accordance with legislative requirements.
Education was unable to explain why accountability provisions for needs-based funding arrangements by approved system authorities had not been enforced or complied with under the Australian Education Act. Education reaffirmed that it accepted the recommendations of the ANAO report and acknowledged it needed to improve monitoring and compliance arrangements under the Act.
Education also advised the Committee that in early 2018 it sought advice from all approved system authorities on ‘their needs based funding arrangements – both the nature of those arrangements and the issue of transparency’ and had spent the middle part of 2018 following up with the authorities that were identified as needing to improve the level of transparency surrounding needs based funding provision.
Education informed the Committee that it had implemented a range of activities aimed at improving transparency and increasing its ability to monitor compliance under the Act. Education advised that these activities ranged across policy, compliance and assurance, and data analytic capability.
Activities undertaken by Education in this capacity included:
a compliance framework for approved authorities (published online)
an annual financial questionnaire to approved authorities
a letter to all approved authorities for schools, outlining obligations under the Act
an acquittal certificate, which is required of all approved authorities
a block allocation report, which is required of those authorities that operate more than one school
In addition, Education stated that the establishment of the National School Resourcing Board, was ‘central to addressing the [ANAO] report recommendations’ and will provide greater independent oversight over the allocation and use of Australian Government school funding.
At the second public hearing, Education advised that the National School Resourcing Board’s review into approved system authorities compliance with needs-based funding arrangements, due to take place in mid-2018, had been delayed and was ‘likely to happen sometime next year’.
Administrative arrangements for compliance certificates
The ANAO identified ‘weaknesses’ associated with the administrative arrangements of annual compliance certificates, which are prepared by authorities to monitor the implementation of ongoing policy requirements for school funding under the Act.
At the public hearing, Education was asked about its response to the following ANAO finding:
To monitor compliance with these policy requirements, the department uses compliance certificates that all authorities are expected to complete annually. However, weaknesses in administrative arrangements for these certificates limit the usefulness of the certificate process.
The Acting General Manager of Schools Funding and Assurance from Education explained that ‘the compliance certificates are reviewed in an ongoing way to ensure that they continue to meet [Education’s] needs and assist us in ensuring compliance.’
The Auditor-General commented that an example of a ‘weakness’ in administrative arrangements for compliance certificates was the delivery of the acquittal certificates as a ‘self-reporting processes without independent verification.’
Education noted that it was undertaking discussions with approved authorities and state and territory governments to review and improve the administration arrangements of compliance certificates. Education outlined that potential considerations included provisions that acquittal certificates be ‘acquitted and signed off by a qualified external party’. Education was unable to provide the Committee with a timeframe for when an improved approach to compliance certificates, inclusive of acquittal certificates, would be delivered.
At the second public hearing, Education stated that, in response the ANAO finding, it had ‘introduced a verification process’ where a ‘sample number of schools’ are required to ‘provide documented evidence’ that they are meeting the stipulated policy requirements. Education also advised that in ‘instances of self-reporting non-compliance’ the department follows up with the approved authority until it is ‘satisfied that there is compliance’ or ‘a legitimate or acceptable reason’ as to why the authority is not compliant.
The ANAO found the most common reason for non-compliance related to the implementation of the Australian Teacher Performance Development Framework.
In response to this finding, Education stated that this was ‘no longer a requirement going forward’, as feedback from the approved authorities indicated it was ‘unclear how to implement the standards’ and ‘what the expectation’ was.
Monitoring distribution of funding to schools
At the public hearing, Education was asked about its response to the following ANAO finding:
The department has advised that, in a commitment to reduce regulatory burden, it has not undertaken a comprehensive review of needs-based funding arrangements to ensure compliance with the funding principles of the Act.
Whilst Education agreed that it did not consider legislation a regulatory burden, the department was unable to explain why a comprehensive review of needs-based funding arrangements was not undertaken to ensure compliance with the Act.
There was also interest at the public hearing relating to the ANAO finding that:
In the interest of reducing the regulatory burden on the sector, the department has not monitored whether approved system authorities’ funding models are publicly available and transparent as required. The ANAO’s analysis revealed only nine of 33 authorities had included their arrangements on their websites.
Asked about this finding, the Acting General Manager of Schools Funding and Assurance from Education responded that:
I can’t comment on the extent of transparency, in the past, on the part of approved authorities. Nor can I give you detail as to the work program we had in place to encourage them to achieve a higher level of compliance than the figures you quoted.
On the matter of departmental accountability, corporate responsibility and the transparent delivery of funding and compliance with the legislation, Education conceded that it ‘could have had better compliance frameworks in place’, noting it was now a focus of the department.
The Auditor-General provided information on what would be considered appropriate compliance and accountability arrangements, emphasising the need for such mechanisms to be ‘robust’ and supported by risk-based analysis in order to provide sufficient assurance:
What we would look for—a general rule is that when an organisation is setting up a compliance framework, whether that be to comply with regulation, legislation, a funding agreement or whatever it is, there is a thoughtful risk based approach to what level of compliance activities are necessary in order to ensure that the desired outcome of the policy, legislation or agreement is achieved.
The Auditor-General observed that such an approach had not been adopted by Education.
Education was unable to provide confirmation that a risk-based analysis of the obligations imposed under the Act was undertaken, but at the second public hearing stated that:
The department has a long standing assurance and compliance program… [which] includes a number of components that pre-date the current Australian education Act and its predecessor legislation, the Schools Assistance Act.
The department routinely reviews these arrangements to ensure they are fit for purpose…
Education noted that, following the department commissioned review of the financial questionnaire process in 2015, it had introduced a requirement for all non-government approved authorities to ‘provide a complete set of audited financial statements when submitting their financial questionnaire’, and had introduced a range of additional questions ‘relating to rental and external management fees’, as historically there had been ‘a high incidence of risk or error in the financial questionnaire’. This requirement came into effect in the 2017 reporting period (for 2016 data).
Students First Support Fund monitoring arrangements
Another matter of interest at the public hearing were the potential risks associated with reducing reporting and compliance requirements – in particular, the lack of performance measures and ‘minimal’ monitoring arrangements of the Students First Support Fund.
The ANAO highlighted that the Students First Support Fund provided $165 million over 2014-17 to 16 non-government representative bodies under the Act, of which seven bodies failed to report their funding allocations or budgets for at least one year between 2014-16. The total funding not accounted for totalled $46,935,825, representing 29 percent of total funding received by all non-government representative bodies (NGRBs) during that period.
Education noted it had since established a number of measures to ‘ensure public funds were spent appropriately’. Measures included requirements that NGRBs:
provide a work plan to outline the reforms that will take place
provide annual reports outlining performance against the work plan
provide an acquittal certificate certifying that all funds provided to each non-government representative bodies had been spent for the purpose of supporting school education
Education advised that in December 2016 it engaged a consultant to review and assess whether the Students First Support Fund had achieved value for money and facilitated the implementation of Government priorities.
Education further advised that the findings of the review ‘were consistent with the findings and recommendations’ made by the ANAO, and had been responded to through the establishment of the Non-government Reform Support Fund. In particular, Education stated that:
One of the issues raised by the ANAO was that there wasn’t an overarching, consistent framework that articulated how we respond to the different mechanisms that we have in place. We have since developed and published the Compliance Framework for Approved Authorities, which was specifically to provide that overview and to show how those different elements relate…that’s being published this year following consultation with the sector and the development of a comprehensive articulation of the different elements of our compliance and assurance processes.
Use of data to ensure compliance
The ANAO found that, whilst Education had ‘a large amount of evidence data on the system’, the department had not utilised or analysed the information to ensure compliance with the Act.
Education acknowledged that it could ‘absolutely improve’ its data analysis capabilities, and advised that it was currently focused on the establishment of a National Education Evidence Base under the Government’s Data Integration Partnership of Australia. In addition, Education advised that it was currently ‘scoping the introduction of business-to-business data transfer capability using financial software that would assist schools with automated data transfers to the department.’
Education stated that The National Education Evidence Base will:
improve the department’s ability to identify what works best to improve student and life outcomes and inform future policy initiatives and decisions
optimise government’s ability to ensure financial resources are targeted to initiatives that deliver efficient and effective outcomes, and
assist in assessing the impact of ongoing initiatives in education.
Monitoring the implementation of, and progress against, policy objectives
Monitoring agreed reform directions under NERA
The ANAO report made several findings in regard to Education’s approach to the monitoring of the National Education Reform Agreement (NERA), including that:
‘… the arrangements established by the department have not delivered the level of transparency and accountability envisaged under the Act …’
‘The department has not established robust arrangements to monitor the implementation plans that are required to be developed … in the National Education Reform Agreement’
‘… monitoring was not undertaken in an effort to reduce the regulatory burden for the education sector’
In its submission, Education outlined that, under the Australian Education Act 2013, in effect from 1 January 2014 to 31 December 2017, approved authorities for more than one school that were considered to be ‘participating’ were required to have an implementation plan.
Participating states were those that were signatory to NERA and had an agreed bilateral implementation plan. Only three states were considered to be ‘participating’ under the Act: New South Wales, South Australia and Australian Capital Territory.
The implementation plans were designed to support reform activities under the National Plan for School Improvement, with each plan established for a six-year period, with a review to occur at the end of this period.
Education advised that, in 2014, the department held ‘consultations with education authorities from the government and non-government sectors’. The feedback from the consultation was that ‘implementation plans were a significant burden on schools.’
Education further noted that:
Consistent with the Government’s deregulation agenda and in an effort to reduce regulatory burden on schools, the Government committed to amending the Act to remove the requirements for approved authorities to have implementation plans. The existence of implementation plans was therefore not monitored by the department.
The amended Act came into effect in January 2018 and no longer requires approved authorities for more than one school to have implementation plans in place.
At the second public hearing, Education clarified that, prior to the amendment of the Act, the department had ‘sought assurances of compliance’, but did not monitor or collate the implementation plans.
Monitoring progress of NERA
The ANAO report recommended that Education ‘enforce legislative provisions that enable it to measure progress against the achievement of reform directions’ established under the Act. Asked to explain how it was monitoring progress towards the key objectives of NERA (which was in place until December 2017), Education responded that the Measurement Framework for Schooling in Australia 2015 provided the basis for national reporting on the performance of schooling in Australia, as agreed by Education ministers.
Education outlined the framework incorporating measures arising from the Melbourne Declaration on Educational Goals for Young Australians and measures reflecting the Council of Australian Governments targets and performance indicators drawn from the revised National Education Agreement and NERA.
Education further stated that:
…under these agreements and the national measurement framework we have the participation by jurisdictions in the national assessment plan, which involves international testing as well as local national testing, National Assessment Program – Literacy and Numeracy. We also have the work that is done in terms of reporting against attendance, against year 12 completion, against a variety of different pieces of information, which is used by ministers through the Education Council to report against and measure those benchmarks.
Education agreed that ‘the set of requirements in the National [Education] Reform Agreement weren’t met’. However, the department indicated it utilised alternative mechanisms to support reporting against the intent of the provisions.
The Auditor-General stated that ‘stronger monitoring would have enabled the department to better understand the impact of Australian Government school funding in achieving reform directions, and would have informed the development and further refinement of education policy’.
Distribution of disadvantage loadings
Under the Act, school funding is determined on the basis of six loadings aimed at addressing student and school needs, including: students with disability; Indigenous; low socioeconomic status; low English proficiency; location; and size.
The ANAO report assessed variances between the funding amounts under the six loadings defined under the Act as determined by Education and as distributed to schools by non-government system authorities.
Education was asked to explain the variances relating to the allocation and distribution of funding for students with disabilities, as detailed in Figure 2.3 of Audit Report No.18. Figure 2.3 indicated that, whilst $500 million dollars was allocated to approved system authorities for students with disability, only $300 million of the funding was distributed for that purpose.
In response, Education explained that approved system authorities are able to distribute Commonwealth funding between member schools based on the system authority’s own needs-based funding arrangements that meet the requirements of the Act. This enables system authorities to target funding based on the detailed information available about student needs and the most appropriate way to deliver services for those students. Education stated that there is no requirement for approved system authorities to spend specific amounts of money on loading areas. Education did not provide comment as to whether this assessment was an indicator of funding not being used to improve education outcomes for students within the areas of the six loadings.
Education also noted that it was ‘not aware of approved authorities reducing funding on any particular loading’. Education elaborated that ‘loadings are set as a way of estimating the requirement in relation to those loading targets’ and it is at the discretion of approved authorities to determine how, in their overall student funding, they will apply such loadings.
The ANAO noted that Education was in the position to advise the Government as to whether the allocations were consistent with the expectations of the agreement, as it did have access to the required information.
In its submission to the inquiry, the Multicultural Youth Advocacy Network (MYAN Australia) pointed to the need for the implementation of ‘nationally consistent accountability mechanisms’ to ensure that schools allocate ‘adequate funding’ to vulnerable and disadvantaged students.
In addition, MYAN Australia stated that it agreed with the finding of the Joint Standing Committee on Migration (2017) that:
Schools should be required to submit annual reports showing the allocation of funding to ensure that funding is specifically being used to enhance the learning of English as an Additional Language (EAL) students.
Administrative costs and centralised expenditure
The ANAO report identified considerable variation in the distribution of schools funding in block allocation reports, specifically in relation to administrative and centralised costs reported by non-government system authorities.
The block allocation report was established by Education to enable approved authorities to meet their requirements under the Australian Education Regulation 2013 by reporting on how funding was distributed to each school. The block allocation report includes information on funding retained by approved system authorities for administrative costs and centralised expenditure on behalf of their schools.
At the public hearing, Education was asked to explain the use by some non-government system authorities of high proportions of government funding for administration, as identified in Figure 2.4 of Audit Report No. 18. Education responded that the Act and the Regulation allow approved system authorities to determine the funding arrangements that best meet the needs of their schools in the delivery of education to their students, provided they meet the requirements for needs-based funding arrangements as set out in the Act.
There was interest in the following entry in Figure 2.4 of Audit Report No. 18, where an approved system authority had combined administrative costs and centralised expenditure that accounted for 18.9 per cent of their use of funding.
In its submission, Education stated that this system authority had historically allocated Commonwealth funding through this method, with 1.9 per cent of its funding being allocated to administrative costs and 16.9 per cent to centralised expenditure. In this case, the allocation of funding for the system authority to administrative costs was ‘consistent with previous years’ and ‘did not require any action’ by Education.
Monitoring implementation of ongoing policy requirements
The ANAO report found that, in conjunction with ‘weaknesses in administrative arrangements for compliance certificates’ for monitoring implementation of ongoing policy requirements for Australian Government school funding, there was ‘inconsistent follow-up of reported non-compliance’ and a ‘heavy reliance on self-reporting in the absence of targeted verification activity’.
In its submission, Education stated it had ‘strengthened’ monitoring of approved authorities’ compliance with legislated policy requirements through an annual policy compliance questionnaire.
Education further noted it had received advice on a ‘statistically appropriate sampling of school compliance’, with information from the random sample verified through follow-up mechanisms, engagement with the approved authority and collection of supportive documentation.
Education stated that it viewed issues of non-compliance as never ‘black and white’, advising that processes had been established to obtain further information, specifically to determine continued risk of non-compliance with the Act.
Education also observed that approved authorities’ level of understanding of compliance requirements was mixed —with larger authorities often demonstrating a better understanding of responsibilities. Education described its efforts to ensure approved authorities understand their obligations under the Act as ‘ongoing’ within the sector.