The audit objective was to form an opinion on the effectiveness of DEST's planning, assessment, and Funding Agreements management for the Australian Technical Colleges programme. At the time of the audit fieldwork (prior to the 2007–08 Budget) the Government had announced the establishment of 21 of the then target of 25 colleges. After fieldwork was completed the Government announced its intention to fund an additional three colleges in three new regions.

The criteria for this audit were designed to test whether DEST's management of the programme complied with its plans, procedures and guidelines, with the Act, and better practices for grants administration. For these purposes, the ANAO focused on DEST's:

  • planning for the implementation of the programme;
  • assessment of proposals to establish and operate the colleges; and
  • management of the Funding Agreements.

Summary

Introduction

Australian Technical Colleges

The Australian Technical Colleges programme was an Australian Government election commitment in October 2004. The programme involved the establishment of 24 colleges in 24 regions across Australia. Specific details of the programme were announced after the election, with the Government expecting some of the colleges to accept students in 2006, and all of the colleges to be opened by 2008. Five colleges opened in 2006.

In July 2005 the Government decided to establish an additional Australian Technical College. The decision to establish an additional college in the Adelaide region was determined on the basis that two suitable proposals were received for different areas within Adelaide, the region's size and population, and the distance between the major industrial areas. Also, in the 2007–08 Budget, the Government decided to establish three more colleges, one in the Western Corridor of Southern Brisbane, one in Greater Penrith and one in Northern Perth, including the City of Swan. This will take the number of colleges to 28. Of the 28 colleges 19 will be in regional areas.

The Australian Technical Colleges programme is part of a broader Australian Government strategy to address skill needs in regional and metropolitan areas. The Government's policy is aimed at promoting pride and excellence in the teaching and acquisition of trade skills at the secondary school level. It also aims to ensure that Vocational Education and Training (VET),1 including commencing an Australian School–based Apprenticeship (ASbA),2 is a valued and well-recognised choice available to young people.

Parliament assented to the Australian Technical Colleges (Flexibility in Achieving Australia's Skills Needs) Act 2005 (the Act) on 19 October 2005, providing the legal basis for financial assistance to colleges.

The approach to funding Australian Technical Colleges is different to the Government's traditional approach to funding of education and training, whereby funds are provided to the States and Territories for distribution to education providers. The new approach involves the Government directly funding new schools for education and skills training, in partnership with industry, training and community organisations. Consequently, the Department of Education, Science and Training (DEST) has a more prominent role with these new secondary colleges than it does with most other schools that are funded by the Australian Government.

DEST's 2006–07 Portfolio Budget Statements stated that the Australian Technical Colleges are:

a partnership between education, training, industry and community organisations in the region and cater for students in Years 11 and 12. Students enter into a School–Based New Apprenticeship3 in a trade at Certificate III level, which leads to a nationally recognised qualification, in areas of identified skills needs across regional and metropolitan Australia in industries such as metal and engineering, automotive, building and construction, electrotechnology and commercial cookery. They study academic subjects, leading to a Year 12 Certificate and also gain IT, employability and business skills enabling them to be competitive in the world of business.4

Australian Technical Colleges' model

The Australian Technical Colleges are consortia, established as not-for-profit organisations, which have entered into Funding Agreements with the Commonwealth to establish and operate colleges, for a term of up to five years from 2005 to 2009. The consortia are mostly companies, but they also include the State of Victoria, and Trustees of the Roman Catholic Church.

The colleges will be registered schools in the State or Territory in which they operate, providing tuition at the Years 11 and 12 levels. Students in the colleges will also commence an ASbA at the Certificate III level.5 It is the responsibility of the college and the students to identify ASbA opportunities.

Each college is required under the Funding Agreement to have a governing body, which is chaired by a local business representative and includes representation from local business, community, and education groups. The governing body's membership must reflect the trades and industries in which the college will train students, and it should include persons with experience and expertise in financial and operational management and in education and training. The governing body is responsible for and sets the college's priorities and performance measures, in accordance with the key performance indicators set by DEST in the Funding Agreement with each college.

A typical Funding Agreement:

  • provides funding by way of grants based on the application of the individual college, not by the use of a formula based on student numbers;
  • permits the college to purchase assets subject to those assets having either been specified in the Funding Agreement or otherwise approved by DEST. The college owns the assets;
  • states that assets acquired by the college are only for the purposes of the Funding Agreement; and
  • contains provisions for the college to repay to DEST the undepreciated value of assets purchased with the grant when, for example, the agreement ends or is terminated.

DEST's role in implementing and administering the programme consists of:

  • managing the development of the programme; and
  • overseeing its delivery through:
    • working closely with each college;
    • making grant payments;
    • monitoring funding agreement terms and conditions for each college;
    • engaging with other governments;
    • reviewing and reporting on the programme's impact; and
    • advising on government policy.

Australian Technical Colleges' regions

The 24 regions for the Australian Technical Colleges were announced in the Government's October 2004 election commitment. Government selected the regions for the Australian Technical Colleges having regard to skills shortages, high rates of youth unemployment and a significant industry base. Three additional regions were announced by Government in the 2007–08 Budget. Table 1 lists the Australian Technical College regions as at May 2007.

Table 1: Australian Technical Colleges' regions

 Source: Dest.7

Vocational education and training

The role of Australian Technical Colleges fits within the broader context of VET. VET provides Australians with the skills needed to enter the workforce for the first time, to re-enter the workforce, to retrain for a new job and to improve skills for an existing job. State and Territory governments have primary responsibility for VET. In 2007–08, the Commonwealth will allocate approximately
$2.8 million for the VET sector which is estimated to have 1.7 million students in 2007.8

State and Territory governments are, in the main, responsible for education and training through providing and administering schools, Technical and Further Education institutions (TAFEs), and training services. Funding for VET is shared between the Commonwealth and State and Territory governments.9

VET is offered by a range of organisations including TAFEs and other Registered Training Organisations. TAFEs are the largest providers of government funded VET in Australia.10

Implementation of the programme

In November 2004, DEST advertised the programme in the press and invited expressions of interest. In March 2005 DEST sought submissions to establish and operate the new colleges, receiving 73 proposals. A majority of the applicants proposed the establishment of new entities.

DEST conducted a two stage process in selecting the colleges:

  • from May to June 2005 DEST assessed the 73 proposals it received against pre-determined selection criteria, in order to advise Government of suitable applicants. The Government, on the recommendation of the Minister, selected successful applicants. On 15 July 2005, the Minister announced the first 12 successful applicants to establish colleges; and
  • DEST and the successful applicants then negotiated the details of the Funding Agreements, including the business plans, before the Minister signed Funding Agreements.

The first four colleges opened about six months after the announcement of the successful applicants in July 2005. DEST had limited time to plan and implement the programme in order to have the first Australian Technical Colleges accepting students in 2006. Achieving this schedule required the introduction and passage of the legislation, as well as adoption of a process to engage groups, with industry support, to establish each college. DEST advised the ANAO that it generally takes three to four years to establish a new school, while these colleges were established within six to 18 months.

By February 2007:

  • the Government had announced 24 of the first 25 colleges (three government and 21 non-government);11
  • 21 Funding Agreements and three Interim Funding Agreements were signed, with estimated individual college budgets varying from $8.4 million to $24.8 million for the period to 2009;
  • 20 colleges had opened with another to open later in 2007; and
  • the enrolment target for 2007 is 2000 students.

Audit approach

The audit objective was to form an opinion on the effectiveness of DEST's planning, assessment, and Funding Agreements management for the Australian Technical Colleges programme. At the time of the audit fieldwork (prior to the 2007–08 Budget) the Government had announced the establishment of 21 of the then target of 25 colleges. After fieldwork was completed the Government announced its intention to fund an additional three colleges in three new regions.

The criteria for this audit were designed to test whether DEST's management of the programme complied with its plans, procedures and guidelines, with the Act, and better practices for grants administration. For these purposes, the ANAO focused on DEST's:

  • planning for the implementation of the programme;
  • assessment of proposals to establish and operate the colleges; and
  • management of the Funding Agreements.

Audit Conclusion

DEST was tasked in November 2004 with the establishment of a new educational system with
24 technical colleges, now 28 colleges, to train secondary school students in selected trades. Total funding for the programme from all sources, from 2005 to 2009, is estimated to be in excess of $585 million, with 8400 students to be enrolled when all schools are fully operational.

The policy provided DEST with little time to plan for the establishment of the colleges. The new schools had to be established in far less time than is usual for new schools, which can take three to four years of preparation before acceptance of their first students. This limited time made more difficult DEST's tasks of selecting the best educational and financial models to achieve the programme's objectives.

The ANAO conducted the audit in the early stages of DEST's implementation of the programme. The processes for administering the programme are evolving, and DEST has managed several tasks simultaneously, including planning, assessment and negotiation.

The ANAO concluded that DEST adequately planned the implementation of the programme. In addition, DEST consistently assessed the proposals to establish and operate the colleges to achieve the programme's objectives. The department advised the Minister on the ratings of proposals for each region.

In administering the programme, experience has shown some of the risks associated with managing grants may have been higher than originally envisaged. Some of the consortia selected by Government to establish a college had limited experience working with DEST and in managing Commonwealth grant funding. Considering this programme's new features, DEST would have benefited from development of a strategy to identify and work closely with those colleges most at risk of implementing their financial and educational models. That said, DEST managed the programme's implementation within a demanding timetable as was shown by four colleges opening at the beginning of 2006, approximately six months after the Government approved their funding, a further college opened later in that year, and 15 additional colleges opened by May 2007. As with all new programmes, close monitoring of risks to the achievement of the programme's objectives will be required. In this context, DEST has indicated that it has measures in place to guide the colleges and to monitor progress towards achieving the programme's objectives.

Key findings

DEST's planning for implementing the programme (Chapter 2)

DEST's planning for implementing the programme was structured and included the development of an Implementation Plan, risk assessments, procedures and guidelines, performance information, and assessment documentation. DEST also formed a Steering Committee, comprising senior personnel from across the department, to oversee the implementation and management of the programme.

DEST's risk assessments for the programme were detailed and contained many risks and controls focussing on the implementation and management of the programme. However, the ANAO identified that the risk assessments contained few risks and controls focussing on DEST's financial management and administration of the programme, including consideration of the colleges' ability to administer funding for capital projects. While it may not have been possible to identify all of these issues when the programme commenced, DEST would benefit from a more focussed identification and review of risks relating to colleges' governance including financial management. Also, the risk assessments gave little attention to the response of State and Territory governments to the new colleges. In one region, the programme had to address significant issues because of the coexistence of a new college with existing State government secondary schools. In May 2007, DEST was negotiating this matter with the relevant State government authority.

The ANAO identified some parts of DEST's planning that could have been improved. For example, the development of:

  • a strategy to address the interests of State and Territory governments, and to assist the department in its relations with those governments;
  • an approach for the colleges to share better practice and approaches to training; and
  • more specific internal and external performance indicators to recognise and report on the Commonwealth's significant outlays on the programme.

DEST's assessment of proposals (Chapter 3)

To implement the programme nationally, DEST requested proposals to establish and operate the Australian Technical Colleges. DEST received 73 proposals, from which the ANAO reviewed DEST's assessment of 18 proposals from seven regions.

Based on DEST's assessment of those proposals, the ANAO found that DEST had a sound basis for considering proposals. DEST has largely followed the assessment process as outlined in its Assessment and Probity Plan and DEST assessed the proposals in the sample consistently. However, DEST could improve future assessments for this or other new programmes: for instance, through presenting the criteria in a descending order of importance. Also, DEST could have documented and defined the assessment rating scale, providing assessors with a common source of information for rating proposals.

DEST engaged a consultant to assist in assessing applicants' proposed business plans. The consultant indicated that a majority of initial business plans and proposed budgets required further work. DEST informed the Government that although the first successful applicants could be announced in 2005, more work would be required on all proposals before DEST could finalise Funding Agreements. Also, in November 2006, DEST engaged a consultant to assist in assessing the costs of capital works in the new colleges.

For the first 24 regions, six regions had one proposal each and five regions had two proposals each. Estimated funding for these 11 regions is $185 million. Each of the other 13 regions received at least three or more proposals.

For the 11 regions that received one or two proposals, DEST recommended a successful applicant. In these regions, DEST had limited choice between educational and financial management models. Given more time, an option for DEST would have been to return to the market to develop more industry and community interest in the new programme.

As at 28 February 2007, one successful applicant from the assessment process was unsuccessful in negotiations with the department. In other words, 20 of the first 21 proposals that were nominated as successful applicants from the assessment process were successful in negotiations with DEST and subsequently signed Funding Agreements with the Commonwealth.

Managing funding agreements (Chapter 4)

Funding, from all sources, for the programme, from 2005 to 2009, is estimated to be in excess of $585 million for 8400 secondary students. This includes budgeted departmental funding of approximately $20 million to manage the programme.

DEST developed comprehensive Funding Agreements for the programme. Funding Agreements were detailed, creating specific requirements for DEST and the colleges. The ANAO identified some areas of DEST's management of the Funding Agreements that could be improved. For example:

  • subsequent development of Purposes Agreements12 to protect funded assets where an Australian Technical College spends grant money on, for example, capital improvements to a building owned by a third party;
  • development of operational funding guidelines to assist the colleges to separate operational from capital expenditure;
  • documenting actions when addressing actual and potential conflicts of interest in colleges; and
  • identifying those colleges most at risk of having difficulty with their financial and educational models and which may affect the achievement of the programme's objectives.

DEST has increased its monitoring of the colleges' compliance with the Funding Agreements. For instance, DEST is commissioning probity audits into some companies that operate colleges, and it is employing a firm to strengthen compliance monitoring.

Recommendations

ANAO has made three recommendations to assist DEST improve its administration of the Australian Technical Colleges and other grant programmes. DEST agreed with these recommendations.

DEST's response

DEST is appreciative of the ANAO's audit perspective of the administration of the Australian Technical Colleges Programme, and its advice has been timely for the on-going development and implementation of the programme.

The Australian Government is funding 28 Australian Technical Colleges in 27 regions across Australia in areas where there are skills needs, a high youth population and a strong industry base. These Colleges are dedicated technical schools, providing choice and specialisation to students with vocational skills in Years 11 and 12. They are designed with industry input to properly prepare young people for a career in the trades.

The Australian Technical Colleges Programme was an election commitment in October 2004, and the Australian Technical Colleges (Flexibility in Achieving Australia's Skills Needs) Act 2005 received assent in October 2005. It was the Government's objective to open the Colleges as quickly as possible. As the ANAO observes, DEST adequately planned for the implementation of the programme and consistently assessed the proposals to establish and operate the colleges to achieve the programme's objectives.

DEST managed the programme's implementation within a demanding timetable, and five Colleges opened in 2006, within four months of the legislation's assent. This demonstrated an extraordinary effort on the part of the Boards and staff of the initial five Colleges, industry and community representatives in the regions servicing the Colleges, and DEST staff. The ANAO's opinion that DEST established the Colleges in far less time than is usual for new schools is an acknowledgement of the efforts of the Department to achieve the Government's objectives. This outcome was achieved within seven months for the first four Colleges. In comparison, new schools take on average three to four years to establish.

In the ANAO's view, DEST's planning and implementation also included undertaking detailed risks assessments, developing a sound basis for assessing proposals, and developing comprehensive Funding Agreements. It was always the intention of the Australian Technical College Programme to support a diverse range of educational delivery models which would provide alternative training paths which meet the needs of local communities. Some of these models are quite innovative, and DEST has worked closely with the colleges to develop capacity both within the College and partnering organisations throughout the implementation stages. As the Programme has evolved over the past two years, DEST has continuously improved its administrative processes.

DEST has implemented or will implement the ANAO's Recommendations.

1. DEST has implemented a strategy concomitantly with the ANAO's audit to create networks between the Colleges to ensure the delivery of a high quality, integrated curriculum. DEST is also ensuring that the Colleges access relevant knowledge and expertise of the schooling sector.

2. DEST has developed a balanced set of performance indicators for the Australian Technical Colleges and included them in the 2007–08 Portfolio Budget Statement. Also, the Australian Technical Colleges Programme will be evaluated in 2008 in accordance with existing Department of Finance and Administration Review Guidelines.

3. DEST considers it timely to develop a compliance monitoring framework for the Programme as part of the normal programme management activities in the second year of the initiative. The strategy, which is being implemented, will assist DEST in its responsibility for monitoring the Colleges' contractual compliance and financial viability, and will provide valuable feedback for Colleges, particularly in relation to risk management, governance and management of potential and actual conflict of interest.

The ANAO has estimated the total ‘other' sources of funding available to Australian Technical Colleges over the period 2005–09 (Table 4.1). DEST notes that these data are based on early estimates provided by Colleges in their business plans and cannot be validated at such an early stage of implementation. The data presented in the report could be misconstrued to represent new or additional funding, however if students were not attending the colleges most would be at other schools which would attract similar levels of funding via state and Commonwealth recurrent grants and student fees.

The data in Table 4.1 are also used to derive the 'estimated total funding from all sources' in Table 4.2, thus both tables have potential to misrepresent the funding situation. Furthermore, the current appropriation provides significant amounts of funding for capital and other establishment costs which will decrease in future years. It should be noted that per capita funding comparisons with established schools cannot be made during this establishment phase.

Footnotes

1 VET is post-compulsory education and training, excluding degree and higher level programmes offered by higher education institutions, which provide occupational or work–related knowledge and skills. National Centre for Vocational Education Research, A glossary of Australian Vocational Educational and Training terms, 2000, available at www.ncver.edu.au/research/core/cp9812.pdf.

2 Australian School–based Apprenticeships enable school students to commence a vocational and technical qualification while completing their school studies. <www.australianapprenticeships.gov.au/student/school-based.asp>.

3 School–based New Apprenticeships became Australian School–based Apprenticeships on July 1, 2006. <www.dest.gov.au/Ministers/Media/Hardgrave/2006/06/H001190606.asp>.

4 Portfolio Budget Statements 2006–07, Department of Education, Science and Training, Budget Related Paper No. 1.5, Canberra, 2006, p. 42.

5 With a Certificate III qualification, employment can be as an electrician, motor mechanic, plumber, metal fabricator or commercial chef.

6 Department of Education, Science and Training, Australian Technical Colleges: A Discussion Paper, Canberra, 2005, p. 1.

7 Department of Education, Science and Training, Annual Report 2004–05, p. 31, available at <www.dest.gov.au> and Education, Science and Training, 2007, Portfolio Budget Statements 2007–08, Budget Related Paper No. 1.5, Canberra, available at
<www.dest.gov.au/portfolio_department/dest_information/publications_resou....

8 Education, Science and Training, 2007, Portfolio Budget Statements 2007–08, Budget Related Paper No. 1.5, Canberra, available at <www.dest.gov.au/portfolio_department/dest_information/publications_resources/resources/budget_information/>.

9 National Centre for Vocational Education Research, Students and Courses 2005 Summary, July 2006, available at <www.ncver.edu.au/statistics/vet/ann05/sum05/sum05.pdf>.

10 Australian Education International, Country Education Profiles Australia 2006, p. 55, available at <aei.dest.gov.au>.

11 The remaining college has not yet been selected. These figures exclude the three additional colleges announced in the 2007–08 Budget.

12 A Purposes Agreement is additional to the Funding Agreement. A Purposes Agreement, for example, is where the Commonwealth's grant funding is provided to a college for the purpose of constructing a building where the land is owned by a third party. Under a Purposes Agreement, DEST has a continuing interest in the building constructed with Commonwealth moneys.

13 ANAO comment: The data in Tables 4.1.and 4.2 should be read in the context of the information presented in Chapter 4.