Initial application of revised accounting standards
Similar to the universities, the TAFEs also used the modified retrospective approach on initial adoption of the new accounting standards. Under the specific transition provisions in the standards, TAFEs did not restate their comparatives. Notes to the financial statements of each TAFE detail the impact of application from 1 January 2019.
Reporting of right of use assets and lease liabilities
Right of use assets and lease liabilities of TAFEs for 2019 were recognised under the new accounting standard, AASB 16 Leases. Examples of assets are State Fleet leased vehicles and Government Regional Officer Housing leased properties. This resulted in an increase in depreciation and amortisation expenses for right of use assets, and also in finance costs. There was a decrease in employee benefits expense and supplies and services, as lease payments are no longer expensed.
At 1 January 2019, as shown in the Notes to the financial statements, all TAFEs elected to apply the option to measure the right of use assets equal to the lease liability.
Revenue from contracts and income of not-for-profit entities
TAFEs now account for revenue from contracts with customers either over time or at a point in time, based on when the related performance obligations are satisfied. Any distinct goods or services are separately identified and the contract price, as well as any discounts or rebates, are allocated to the separate elements. An example is a training contract with an organisation to train its employees.
Enrolment records
The Department of Training and Workforce Development’s (DTWD) 2019 review of invalid enrolments indicated a potentially higher than normal error rate across the TAFE sector.
The TAFEs’ transition to their new Student Management System (SMS) was completed in January 2019. SMS is the key system for student applications, enrolments, fees and life cycle management as students progress through their studies. Data integrity is essential as TAFEs are funded based on Student Curriculum Hours submitted as part of the Delivery and Performance Agreement and forms the basis for any clawbacks of funding provided to the TAFEs in the previous year.
Invalid enrolments can have a significant impact on the funding provided to the TAFEs and the reported KPIs. In addition to TAFEs’ own testing of the data, we also performed additional testing to obtain reasonable assurance that the invalid enrolment error was within an acceptable threshold at each TAFE.
In addition to the as-yet unquantified impact of COVID-19 on the education sector, the Lower Fees, Local Skills policy announced by the Government in October 2019 is expected to impact TAFE enrolments in 2020. Under the policy, effective from 1 January 2020, course fees for targeted vocational qualifications reduce by 50%. TAFEs’ ability to accurately record the expected increase in student enrolments and maintain the integrity and security of SMS is paramount.
Selected significant financial transactions
Listed below are significant 2019 financial transactions we noted during our TAFE audits. Most of this information can be found in each TAFE’s annual report. By reporting these items, we are not implying that we have any residual concern with these transactions.
Assets
- South Metropolitan TAFE’s property, plant and equipment reduced by $21 million due to transfer of the Beaconsfield Campus to DTWD.
Liabilities
- South Metropolitan TAFE reported a $1.2 million increase in income received in advance, mainly due to early 2019 enrolments for 2020 courses. There were no early enrolments in 2018 for 2019 courses, due to the planned implementation of SMS in January 2019.
Revenue
- North Metropolitan TAFE reported a $1.1 million (4%) reduction in fee for service revenue, as international student enrolments fell in 2019 for the second consecutive year.
- South Metropolitan TAFE brought $1.2 million of discovered artwork to account during 2019.
TAFE financial results and liquidity
We have used each TAFE’s audited financial statement to present their financial results. In 2019, the 5 TAFEs again reported deficits, as shown in the following table.
| Deficit financial results ($000s) | 2018 | 2019 |
| Central Regional TAFE | (9,323) | (5,040) |
| North Metropolitan TAFE | (7,797) | (12,411) |
| North Regional TAFE | (3,141) | (5,216) |
| South Metropolitan TAFE | (3,982) | (7,061) |
| South Regional TAFE | (5,309) | (3,624) |
Table 14: Financial results of TAFEs Source: OAG from audited annual financial statements
Note: TAFEs are not funded for depreciation and amortisation which is reported in their Income Statements. The combined total was $39.1 million in 2019.
Although all TAFEs recorded deficits for the period, most had a favourable liquidity ratio at 31 December 2019.
The liquidity or current ratio is a traditional way of assessing an entity’s ability to meet its debts as and when they fall due. A ratio of more than 1 is generally accepted as low risk. Table 15 shows that on this basis, 4 TAFEs were low risk. However, care should be taken in concluding on the broader financial position of an entity solely on this indicator which compares current assets to current liabilities.
| Liquidity / current ratio at year end | 2017 | 2018 | 2019 |
| Central Regional TAFE | 1.8 | 1.3 | 0.8 |
| North Metropolitan TAFE | 1.8 | 1.6 | 1.3 |
| North Regional TAFE | 1.8 | 1.9 | 1.1 |
| South Metropolitan TAFE | 1.6 | 1.8 | 1.5 |
| South Regional TAFE | 1.5 | 1.8 | 1.4 |
Table 15: Liquidity / current ratios for TAFEs Source: OAG calculated from audited annual financial statements
TAFE student enrolments
Student curriculum hours (SCH) is the measure used to report the quantum of training delivered by the TAFEs. In 2019, a total of 21 million SCH of training was delivered by the 5 TAFEs through their Delivery and Performance Agreements (DPA) with DTWD. Overall this was a 2.1% decrease on the 2018 delivery.
Cost per Student Curriculum Hour
The cost per SCH is a key financial performance measure. It is calculated by dividing the total cost of services by the total number of SCH of training delivered, including both DPA and other training delivered.
Many factors influence this measure, so this data alone should not be used to compare TAFEs. However, it provides a high level indication of efficiency. Factors can include regional location and economic conditions, the relative cost of different courses offered and student demographics.
| Cost per SCH | 2017 | 2018 | 2019 |
| Central Regional TAFE | $30.30 | $30.42 | $28.77 |
| North Metropolitan TAFE | $15.30 | $17.68 | $18.01 |
| North Regional TAFE | $63.76 | $52.27 | $54.64 |
| South Metropolitan TAFE | $18.43 | $17.70 | $19.69 |
| South Regional TAFE | $22.79 | $22.70 | $22.75 |
Table 17: Cost per SCH Source: OAG from audited annual KPIs