Portfolio overview

The Education, Skills and Employment portfolio is responsible for creating an inclusive and prosperous Australia by maximising opportunity through education, skills (including training policy and regulation) and employment policy.

The Department of Education, Skills and Employment (DESE) is the lead entity in the portfolio and is responsible for ensuring Australians can experience the social wellbeing and economic benefits that quality education, skills and employment provide. Further information is available from the department’s website.

In May 2019, a machinery-of-government change transferred the skills and training functions from the Department of Education to the Department of Employment, Skills, Small and Family Business, and transferred the industrial relations functions from the Department of Employment, Skills, Small and Family Business to the Attorney-General’s Department.

Effective 1 February 2020, a further machinery-of-government change consolidated the Department of Employment, Skills, Small and Family Business with the Department of Education, forming the Department of Education, Skills and Employment.

The main impacts of the COVID-19 pandemic on the operations of DESE include stimulus funding of $1.3 billion to support small business to retain their apprentices and trainees, and measures to reduce the financial pressures facing the early childhood sector.

In addition to DESE, there are six entities in the portfolio that have responsibility for working with state and territory governments, other Australian Government entities and service providers to provide policy advice and services to benefit Australians.

In the 2019–20 Portfolio Budget Statements (PBS) for the Education, Skills and Employment portfolio, after accounting for Portfolio Additional Estimates Statements (PAES), where applicable, the aggregated budget expenses for 2019–20 total just under $45.2 billion. The PBS contain budgets for those entities in the general government sector (GGS) that receive appropriations directly or indirectly through the annual appropriations 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. DESE represents the largest proportion of the portfolio’s expenses, and administered expenses are the most material component, representing 97.8 per cent of the entire portfolio’s expenses.

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

Source: ANAO analysis of 2019–20 PBS and 2019–20 PAES.

Audit focus

In determining the 2020–21 audit work program, ANAO considers prior-year audit and other review findings and what these indicate about portfolio risks and areas for improvement, and emerging risks from new investments, reforms or changes to the operating environment. A key area of risk for the public sector, including the Education, Skills and Employment portfolio, is the impact of the COVID19 pandemic, both on entity operations but also through the rapid development and implementation of government policy responses, including in coordination with state and territory governments. Portfolio risks in this environment include access to reliable evidence, stakeholder management, performance and impact measurement, and policy coordination. Appropriate governance controls in emergency conditions are also important considerations, as are the associated impacts on business-as-usual functions. 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 and the ability to provide assurance that funding is achieving the agreed policy outcomes.

Risk management, records management and quality control is critical to consider in periods of rapid response to develop and implement new policy measures. If risk tolerances change during an emergency response period, these changes need to be documented, implemented consistently, and the broader impacts considered.

Building on the lessons learned from its administration of the VET Student Loans program, the department’s focus on governance arrangements needs to continue, including in the administration of other large personal benefit programs (primarily child care related).

The ANAO has observed during financial statement 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 payment functions, to service delivery entities, such as Services Australia for child care assessment eligibility and related payments, employment services payments made on behalf of the department, and to assess eligibility of participants for employment support from the program; 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 (HELP) and vocational loan scheme debt through the pay as you go (PAYG) system. Outsourcing service delivery and use of IT systems to another agency does not reduce accountability. The department 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.

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 with inflexible timeframes for implementation. It is important that the department has appropriate oversight of the changes to ensure the systems operate as intended.

Regulation

The portfolio carries regulatory responsibilities for the vocational education and training sector through the Australian Skills Quality Authority (ASQA), and for the higher education sector through the Tertiary Education Quality and Standards Agency (TEQSA). The ANAO identified TESQA’s effectiveness in regulating the higher education sector was mixed, especially in relation to the timeliness and the effectiveness of compliance activities. ASQA will be examined in the 2020–21 program of audits.

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 transparency, consistency and appropriateness of the valuations.

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

Financial statements and other audit engagements

Overview

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

Table 1: Education, Skills and Employment 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, Skills and Employment

Non-corporate

Moderate

5

2

Australian Research Council

Non-corporate

Low

0

2

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

Australian Skills Quality Authority

Non-corporate

Low

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, Skills and Employment

The Department of Education, Skills and Employment (DESE) 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, skills and employment provide.

DESE’s total budgeted expenses for 2019–20 are $44.26 billion, with 71 per cent of these expenses attributable to grant payments, as shown in Figure 2.

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

 

Source: ANAO analysis of 2019–20 PAES.

The seven key risks for DESE’s 2019–20 financial statements that the ANAO has highlighted for specific audit coverage in 2019–20, including those that the ANAO considers potential key audit matters (KAMs), 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);
  • effectiveness of the design and implementation of the significant ‘jobactive’ compliance program to reduce invalid claims, and the outsourced arrangements for data collection over many locations (KAM – Accuracy and completeness of administered expenses);
  • 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;
  • the valuation of Vocational Education and Training (VET) Student Loan receivables, as a result of key assumptions in the estimation of the receivable that factor in large amounts not expected to be recovered due to the activity of a number of VET providers, and judgements, including discount rates; and
  • the valuation of Trade Support Loan receivable, due to judgements in the valuation, including future incomes, recovery rates and discount rates.

In addition, as result of the COVID-19 pandemic, the financial statements audit will focus on how DESE has managed and accounted for significant stimulus funding to support small businesses to retain their apprentices and trainees, and for measures to reduce the financial pressures facing the early childhood sector. The audit will also focus on how the department obtains assurance that the stimulus payments are accurate and are paid to the right recipients.

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 2019–20 are just under $822 million, with 97 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)

 

Note: an amount for Other expenses of '475' is too small to display.

Source: ANAO analysis of 2019–20 PAES.

The two key risks for the ARC’s 2019–19 financial statements that the ANAO has highlighted for specific audit coverage in 2020–21 are the:

  • adequacy of the ARC’s internal control framework used to manage grant payments, as these expenses are material to the financial statements; and
  • valuation of intangibles, primarily due to the systems managing and reporting significant grants.

Potential audits

Potential Performance audit: 2020-21
Activity
Potential Performance audit: 2020-21
Potential Performance audit: 2020-21