Audit focus

In determining the 2019–20 audit work program, the ANAO considers prior-year audit and other review findings and what these indicate about portfolio risks and areas for improvement, as well as emerging risks from new investments, reforms or operating environment changes. In the Education portfolio, considerations predominantly relate to governance to ensure that appropriate data is used to inform policy and program design and implementation, risks are identified and actively managed, and performance is transparent. There are also service delivery risks in the portfolio that need to be managed to ensure that services delivered are timely and compliant.

Governance

The department needs to effectively utilise data to undertake rigorous analysis to inform performance and policy development. Not fully utilising available data risks undermining both the transparency of policy impact and the quality of future design processes, as well as the ability to provide Parliament with assurance that funding is achieving the agreed policy outcomes.

Informed by lessons learned from its administration of the former vocational education and training loans scheme, the department has established appropriate oversight and risk management for the VET Student Loans program. This focus on governance arrangements needs to continue, including in the administration of other large personal benefit programs (primarily related to child care).

The ANAO has observed during financial statements audits that the estimated payment error rates in child care (under the previous scheme) reduced over recent years as a result of the department’s focus on improving compliance activities. Similar risks around embedding compliance activities exist for the new child care subsidy arrangements introduced in July 2018.

Service delivery

The department outsources a number of activities, including education policy–related payments functions, to service delivery entities such as Services Australia, and IT infrastructure services to the Department of Finance and the Department of Employment, Skills, Small and Family Business. Outsourcing service delivery and use of IT systems to another agency does not reduce accountability. The Department of Education needs to ensure that service and quality control expectations are agreed and maintained, and that its business is appropriately prioritised, to provide assurance that policy objectives are being met, as it would do with internal delivery.

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 the selection of appropriate underlying assumptions. This raises risks related to the transparency, consistency and appropriateness of the valuations.

Portfolio overview

The Education portfolio is responsible for assisting the Australian Government to undertake a national leadership role in early childhood education and child care, preschool education, schooling, higher education and research, and international education.

The Department of Education is the lead entity in the portfolio and is responsible for national policies and programs that help Australians access quality and affordable early child care and childhood education, school education higher education, and international education and research.

Further information is available from the department’s website at www.education.gov.au.

In addition to the Department of Education, there are five entities within the portfolio that have responsibility for improving the quality and consistency of education and research within Australia’s schools, education institutions and universities.

In the 2019–20 Portfolio Budget Statements (PBS) for the Education portfolio, the aggregated budgeted expenses for 2019–20 total $43.61 billion. The PBS contain budgets for those entities in the general government sector (GGS) that receive appropriations directly or indirectly through the 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 are the most material component, representing 98.7 per cent of the entire portfolio’s expenses.

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

Source: ANAO analysis of PBS 2019–20 Budget related papers pre–machinery-of-government changes announced on 29 May 2019.

Financial statements and other audit engagements

Overview

Entities within the Education portfolio, and the risk profile of each entity, are shown in Table 1.

Table 1: Education portfolio entities and risk profile

 

Type of entity

Risk of material misstatement

Number of higher risks

Number of moderate risks

Material entities 

Department of Education

Non-corporate

Moderate

3

1

Australian Research Council

Non-corporate

Low

0

1

Non-material entities 

Australian Curriculum, Assessment and Reporting Authority

Corporate

Low

 

 

Australian Institute for Teaching and School Leadership Limited

Company

Low

Australian National University

Corporate

Moderate

Tertiary Education Quality and Standards Agency

Non-corporate

Low

Other audit engagements (including Auditor-General Act 1997 section 20 engagements)

Australian Children’s Education and Care Quality Authority

         

Material entities

Department of Education

The Department of Education works with state and territory governments, other government entities and a range of stakeholders to deliver education and training–related policy, advice and services.

The department’s total budgeted expenses for 2019–20 are just over $42.7 billion, with 73 per cent of these expenses attributable to grant payments, as shown in Figure 2.

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

Source: ANAO analysis of PBS 2019–20 Budget related papers pre–machinery-of-government changes announced on 29 May 2019.

The four key risks for the Department of Education’s 2018–19 financial statements that the ANAO has highlighted for specific audit coverage in 2019–20, including those that the ANAO considers potential Key Audit Matters (KAM) by the ANAO, are the:

  • valuation of the Higher Education Loan Program (HELP) receivable balance, as the valuation is supported by judgements such as discount factors, trends and payment information (KAM – Valuation of HELP receivable and related fair value losses);
  • 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);
  • 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); and
  • 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.

Australian Research Council

The purpose of the Australian Research Council (ARC) 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 2019–20 are just over $822 million, with 98 per cent of these expenses attributable to grant payments and supplier expenses, as shown in Figure 3.

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

Source: ANAO analysis of PBS 2019–20 Budget related papers pre–machinery-of-government changes announced on 29 May 2019.

The ARC’s key risk for its financial statements is the adequacy of the ARC’s internal control framework used to manage grant payments, as these expenses are material to the financial statements.