Education portfolio

The Education portfolio’s purpose is to contribute to Australia’s economic prosperity and social wellbeing by creating opportunities and driving better outcomes for people through education.

The Department of Education is the lead entity in the portfolio and is responsible for ensuring Australians can experience the social wellbeing and economic benefits that quality education provides. The department supports the provision of services, including early childhood education and care, schooling and high education. Further information is available from the department’s website at education.gov.au.

In addition to the department, there are five entities in the portfolio that have responsibility for working with state and territory governments, and other Australian Government entities and service providers, to provide policy advice and services to contribute to the quality of education.

On 1 July 2022 an Administrative Arrangements Order took effect which changed some of the responsibilities of the Education portfolio (formerly the Education, Skills and Employment portfolio). In the October 2022–23 Portfolio Budget Statements (PBS) for the Education portfolio, the aggregated budgeted expenses for 2022–23 total $54.7 billion. The October PBS contains budgets for those entities in the general government sector (GGS) that receive appropriation directly or indirectly through annual appropriation Acts.

The level of budgeted departmental  and administered   expenses, and the average staffing level for entities in the GGS within this portfolio are shown in Figure 1. The Department of Education represents the largest proportion of the portfolio’s expenses, and administered expenses of the portfolio are the most material component, representing 99 per cent of the entire portfolio’s expenses.

Figure 1: Education – total expenses and average staffing level by entity

In determining the 2022–23 audit work program, the ANAO considers prior-year audit and other review findings and what these indicate about portfolio risks and areas for improvement. The ANAO also considers emerging risks from new investments, reforms or changes to the operating environment.

The primary risks identified for the portfolio relate to managing the legislative changes to child care subsidy and ensuring the affordability of child care services.

Specific risks in the Education portfolio relate to governance, service delivery and financial management.

Governance

The department needs to effectively utilise data to undertake rigorous analysis that informs performance and policy development  so there can be transparent communication about the impact of the policy intentions and assurance that funding is achieving the agreed policy outcomes.

Service delivery

The department uses service delivery partners for various activities, including education policy related payment functions to service delivery entities. The use of service delivery partners does not reduce accountability and consequently the department needs to ensure that service and quality control expectations are agreed and maintained, and that its business is appropriately prioritised. These service delivery partner arrangements include:

• Services Australia for child care assessment eligibility and related payments;
• the Department of Finance’s Service Delivery Office for transactional processing of payroll, accounts payable, accounts receivable and travel; and
• the Australian Taxation Office for collecting compulsory repayment amounts of accumulated Higher Education Loan Program through the pay as you go (PAYG) system.

A high proportion of the IT systems supporting the department’s administered programs are customised. When legislative changes are passed relating to such programs, the systems require changes, often within compressed timeframes for implementation. It is important that the department has appropriate oversight of the changes to ensure the systems operate as intended.

Financial management

The department has specific risks in financial management relating to the valuation of assets and liabilities of the Higher Education Loan Program receivable, the Higher Education Superannuation Program liability, and the child care personal benefit accrual and receivable. These valuations all require a significant level of judgement to be applied in selecting appropriate underlying assumptions. This raises risks related to transparency, consistency and appropriateness of the valuations.

The financial sustainability of the higher education funding model, and its reliance on international students, continues to present risks to the sector as it adjusts to the impacts of the COVID-19 pandemic and the post-COVID-19 market for international students.

During 2021, there were several legislative changes to the Child Care Subsidy providing increased benefits. The affordability of the subsidy is measured by a cost model administered by the department. Accuracy of the cost model, combined with effective compliance measures is required to ensure the scheme is, and remains affordable.

Overview

On 1 July 2022 an Administrative Arrangements Order (AAO) took effect which included changes to the responsibilities of the Education portfolio (formerly the Education, Skills and Employment portfolio). Entities which are now part of this portfolio are shown in Table 1. The risk profile for each entity is based on the 2021–22 financial statements which were prepared prior to the AAO on 1 July 2022 taking effect.

Table 1: Education, Skills and Employment portfolio entities and risk profile

Department of Education

The Department of Education works with state and territory governments, other government entities and a range of stakeholders to ensure Australians can experience the social wellbeing and economic benefits that quality education provides.

On 1 July 2022 an Administrative Arrangements Order (AAO) took effect which included changes to the responsibilities of the Department of Education (formerly named the Department of Education, Skills and Employment). The department’s total budgeted expenses for 2022–23 are just under $53.8 billion, with grants and personal benefits representing 71 per cent and 20 per cent, respectively, as shown in Figure 2. Trade and other receivables represent 94 per cent of total budgeted assets.

Figure 2: Department of Education’s total budgeted financial statements by category ($’000)

Source: ANAO analysis of 25 October 2022–23 PBS.

Financial Statements Audit

There are four key risks for Department of Education, Skills and Employment’s 2021–22 financial statements that the ANAO has highlighted for specific audit coverage that are relevant to the new Department of Education, including three risks that the ANAO considers potential key audit matters (KAMs).

• The valuation of the Higher Education Loan Program (HELP) receivable balance, as the valuation involves significant and complex judgements about the timing and recoverability of HELP debts, discount factors, and future employment and salary rates, which contain a significant degree of uncertainty and are influenced by the economic environment. (KAM – Valuation of HELP receivable and related fair value losses).
• The valuation of the Higher Education Superannuation Program liability balance, due to the complexity of the actuarial estimation process. (KAM – Valuation of Higher Education Superannuation Program provision).
• The valuation of the child care personal benefit accrual and receivable balances, due to the complex estimates and assumptions supporting the balances, as well as the implementation of the new child care subsidy legislation. (KAM – Accuracy and completeness of child care personal benefits and valuation of child care receivable)
• The completeness and accuracy of financial statement balances, as a result of the complexity and range of IT systems that are used to maintain information and process payments.

As a result of the Administrative Arrangements Order which took effect on 1 July 2022 the ANAO’s 2022–23 financial statement audit will also focus on risks arising from Machinery of Government changes. These risks relate mainly to the completeness and accuracy of assets and liabilities transferred to the department from the former Department of Educations, Skills and Employment. This is due to the materiality of the assets and liabilities transferred to the department and resultant increase in complexity of the process for preparation of the financial statements.

Australian Research Council

The Australian Research Council’s (ARC’s) purpose is to grow knowledge and innovation for the benefit of the Australian community through funding the highest quality research, assessing the quality, engagement and impact of research, and providing advice on research matters.

The ARC’s total budgeted expenses for 2022–23 are $887.3 million, with 96 per cent of these expenses attributable to grants (Figure 1). Intangibles are $6.0 million, representing just under 20 per cent of total budgeted assets.

Figure 3: Australian Research Council’s total budgeted financial statements by category ($’000)

Source: ANAO analysis of 29 March 2022–23 PBS.

There are three key risks for the ARC’s 2021–22 financial statements that the ANAO has highlighted for specific audit coverage.

• The adequacy of the ARC’s internal control framework used to manage grant payments, as these expenses are material to the financial statements.
• The valuation of intangibles, primarily due to the systems managing and reporting significant grants.
• Transition and implementation of new financial management system, TechOne, from 1 July 2022.