10 Dec 2020

Auditor-General warns of potential $53m loss for polytechnics

3:54 pm on 10 December 2020

The Auditor-General has warned that the national polytechnic could lose $53 million this year and double that amount next year.

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Photo: 123rf

In his report on this year's audits of public tertiary institutions' finances, John Ryan said the pandemic had "fundamentally reset" the operating environment for tertiary institutions for the foreseeable future.

The report said some organisations found adapting to the pandemic challenging, but many were still focused on "getting through" and they needed to start thinking about longer-term strategies.

It said enrolments in the first half of this year were down 1.3 percent at universities and 6.2 percent at polytechnics, probably due to the pandemic. However, there was no big loss of students, with students who did commence their studies largely not dropping out.

In addition, universities and polytechnics reported an increase in enrolments for courses starting in the second-half of the year, 4.3 percent at universities and 6.8 percent at polytechnics.

The report said tertiary institutions' response Covid-19 was variable.

"Some TEIs found responding in a timely way to the human, practical, and financial consequences of Covid-19 challenging. Many staff found making alternative teaching arrangements stressful," it said.

The report said universities estimated that about two-thirds of their foreign students (more than 5000) who did not make it to New Zealand were still enrolled and had begun their studies remotely.

It said about half of those students would need to enter New Zealand to complete their studies.

The report said senior managers' plans for recovery focused on international students and online courses.

"The Covid response phase was, and continues to be, important. However, Covid-19 has fundamentally reset TEIs' operating environment for the foreseeable future. Even before Covid-19, disruptive technology and the changing expectations of employers and students were putting pressure on traditional operating models," the report said.

It warned that polytechnics, which were now subsidiaries of the national polytechnic Te Pūkenga, were facing a collective deficit this year for the fourth consecutive year, and a repeat was likely next year.

"In July 2020, Te Pūkenga's subsidiary companies were forecasting a combined $53 million deficit in 2020. This might double in 2021 if international students cannot enter the country in the first quarter of 2021. Because Te Pūkenga is continually reforecasting based on the latest information on domestic student enrolments, these projections will change," the report said.

It said universities estimated their income would fall by $200m in 2020 and by $400m in 2021.

"These forecasts include not only a reduction in revenue from international students but also reductions in other activity, including research, commercial activities, and philanthropy. We estimate that, as at November 2020, revenue from international tuition fees was down by about $60-$70 million," the report said.

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Weltec School of Construction in Wellington. Photo: RNZ / Dom Thomas

Audits of 2019 financial statements

The report said the Wellington region polytechnics, Weltec and Whitireia, had not provided a final set of 2019 financial statements for audit, and only provided 2018 statements in March this year, almost 11 months late.

It said West Coast's Tai Poutini Polytechnic was in significant financial distress and had not produced financial statements for audit since 2017. It needed a capital injection in late 2019, but its position was forecast to deteriorate in 2021.

"We are concerned that the reporting delays in these three ITPs [Institutes of Technology and Polytechnics], compounded by staff turnover in the finance teams, presents an unacceptable accountability risk," the report said.

The report said tertiary institutions reported three "significant internal fraud events": an employee misused a purchase card by exploiting a weakness in the accounting software and spent more than $100,000 on personal items; a contractor's employee who had a significant criminal history, which the TEI was unaware of, stole physical equipment; and a senior IT manager overrode management controls, set up a false company with his partner, and stole $220,000 through false invoicing.

"These internal frauds were reported to the Police. Staff in TEIs were also victims of several external scams. These included fraudsters getting TEI staff to change the bank account details of vendors or employees to divert payments," the report said.

"In the instances we are aware of, the TEIs' control systems identified these matters. However, this was at varying times after the frauds had already been committed."

The report said all universities had strong balance sheets and ended 2019 in improved financial position compared to 2018.

It said wānanga had strong balance sheets, and had no indicators of financial stress at the end of 2019, although Te Wānanga o Aotearoa was "significantly behind" in terms of the number of students it had been funded for in 2020.

The reports said eight polytechnics, including Otago, Whitireia, and Wintec in Hamilton, had less money available in cash and cash equivalents than their short-term liabilities.

Otago Polytechnic criticised for Japan trip

The report criticised Otago Polytechnic for sending 21 staff on a trip to Japan in April 2019 to renew a memorandum of understanding with the International College of Technology Kanazawa.

The Otago Polytechnic will postpone tomorrow's graduation ceremonies.

Otago Polytechnic was criticised for sending 21 of its staff on a trip to Japan. Photo: Google Street View

The polytechnic had said the trip helped staff gain better cultural understanding of their international students.

"We questioned the size of the party (21 people) that travelled to Japan. Many of these people worked in support roles, such as administration and finance. In our view, the formal business case for the trip lacked a robust reason for including so many staff. When we reviewed the itinerary for the trip, we found that most of the activities were similar to sightseeing and cultural experience tours," the report said.

It said the polytechnic paid at least $2000 per person and some staff also used polytechnic funding for staff training.

"Staff contributed only once the costs were more than the polytechnic's contribution and their professional development allocation. On average, staff paid for about half of the costs. However, a small number of staff were deemed to be working full time on the trip and did not pay for any of the costs," the report said.

"In our view, if there was a clear business justification, the Polytechnic could have sent a small number of staff and asked those staff to provide cultural training when they returned. This would be a more usual way to use learning and development funds."

The report said the polytechnic had previously run similar trips under similar arrangements, but confirmed that with a change in chief executive, a new board, and a review of policies, such a trip would not occur again.

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