Introduction

Education and training contributes to Australia's economic growth by providing skilled, productive workers to enable Australian businesses to compete successfully in the global market.

Australian, State and Territory Governments have worked with industry to develop a national training system that provides the basis for high quality, industry developed and nationally recognised training. Through a national network of over 4000 public and private registered training providers, over 1.6 million Australians participate in vocational education and training each year.

Vocational education and training 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. Under the Australian Constitution, State and Territory governments have primary responsibility for vocational education and training. In addition, the Australian Government has a key role in vocational education and training including in developing policy, and in the provision of funding. The Australian Government contributes approximately $2.8 billion annually to vocational education and training, which constitutes around one third of total government funding for this sector.

A significant feature of Australia's vocational education and training system is Australian Apprenticeships, which is a cooperative arrangement between the Commonwealth and the States and Territories. Australian Apprenticeships include both apprenticeships and traineeships and participants represent approximately 25 per cent of the total numbers in vocational education and training.

The Australian Government has developed a significant role in the vocational education and training sector because of its responsibility for national economic development, through funding State and Territory governments, and through other direct funding.

Australian Apprenticeships

Australian Apprenticeships commenced on 1 July 2006, replacing the former New Apprenticeships, which in turn had replaced the Modern Australian Apprenticeship and Traineeship System.¹

Australian Apprenticeships is designed to combine practical work with structured training, providing an individual with a nationally-recognised qualification and the experience needed to get a job. In June 2006, there were over 400 000 people engaged in Australian Apprenticeships. Australian Apprenticeships are available in a variety of certificate levels in more than 500 occupations across Australia, in traditional trades², as well as in a diverse range of emerging careers in most sectors of business and industry. Training can be delivered on or off the job through a range of public or private providers at the choice of the employer. Training leads to a nationally recognised industry based qualification.

For 2007–08 the budget estimate for the Department of Education, Science and Training's (DEST) Australian Apprenticeships activities is $1030 million distributed as follows: $604.6 million for the Australian Apprenticeships Incentives Programme (the Incentives Programme); $231.6 million for Australian Apprenticeships Workforce Skills Development; $167.2 million for Australian Apprenticeships Centres (Centres); and $26.9 million for the Australian Apprenticeships Access Programme.

State and Territory responsibilities for vocational education and training (including Australian Apprenticeships) include: state level planning, regulation of training providers (registering training providers), allocation of funds to public and private providers, setting student fees and charges, managing the Technical and Further Education (TAFE) institutes and registering, monitoring and approving training contracts. The States and Territories are also responsible for: issuing qualifications and determining which qualifications are classified as Australian Apprenticeships; the registration of qualifications based on national training curricula; the accreditation of courses where training curricula have not yet been developed; and registering and auditing training providers that meet nationally agreed standards.

Figure 1 shows the national objectives for Australian Apprenticeships agreed between the Commonwealth, States and Territories, as well as the objectives of two components of Australian Apprenticeships administered by DEST.

Figure 1: Objectives developed for Australian Apprenticeships at the Commonwealth, State and Territory level and by DEST for Australian Apprenticeships administered activities

Source: DEST.

The Incentives Programme is designed to encourage employers to employ an apprentice or trainee, and includes standard incentives as well as additional and special incentives. The Incentives Programme also provides personal benefits to apprentices and trainees including, for example, the ‘Living Away From Home Allowance'. Incentives and personal benefits are paid subject to employers, and apprentices and trainees, satisfying eligibility criteria for the relevant payment.

The Centres are contracted by DEST to deliver Australian Apprenticeships Support Services including promoting, marketing and administering Australian Apprenticeships. The Centres also process employer claims for incentives payments. These Centres act as points of contact between DEST and employers, apprentices and trainees and State Training Authorities. DEST currently has 73 contracts with 29 organisations delivering Australian Apprenticeships Support Services in 22 regions across Australia. The Centres are paid on a fee for service basis, based on a unit price for each eligible apprentice or trainee.

Audit scope and objective

The audit objective was to assess the effectiveness of DEST's administration of its role in Australian Apprenticeships. To achieve this, the ANAO assessed DEST's performance to determine if DEST:

• monitored whether Australian Apprenticeships was achieving its objectives;
• effectively managed the Australian Apprenticeships Incentives Programme; and
• effectively managed its contracts with Australian Apprenticeships Centres.

The audit focussed on two of the three largest components of Australian Apprenticeships, being the Incentives Programme and the Centres.

Conclusion

Australian Apprenticeships is a mature, cooperative arrangement between the Commonwealth and the States and Territories. DEST works with a range of parties towards achieving the national objectives for Australian Apprenticeships. In 2006, there were 397 400 apprentices and trainees in training. This is an increase of over 200 000 since 1998.

The Ministerial Council for Vocational and Technical Education has overall responsibility for the National Training System, including for strategic policy, priority setting, planning and performance, and the achievement of the national objectives for Australian Apprenticeships.

The 2005–08 Commonwealth–State VET Funding Agreement known as Skilling Australia's Workforce identifies a national target for Australian Apprenticeships focussing on skills shortages in traditional trades.³ However, there are no performance measures and targets to assess the performance of the 60 per cent of apprenticeships and traineeships that are not in traditional trades. As well as this shortcoming in performance information, DEST does not aggregate and report financial information on Australian Apprenticeships activities administered by the Australian and State and Territory governments.

The absence of performance and financial information limits DEST's ability to support the Ministerial Council in managing and reporting performance against the national objectives for Australian Apprenticeships. Collecting this information and combining it with that already held, would enable DEST to undertake more comprehensive analysis of all data. This would assist the Government and the Ministerial Council with policy analysis and development, particularly in the current climate of skills shortages. Recognising DEST's national leadership role, there would be benefit in DEST consulting with the States and Territories to explore whether these gaps in performance and financial information on Australian Apprenticeships may be addressed. DEST could implement any agreed approach at the next available opportunity such as through the next Commonwealth–State VET Funding Agreement for the period 2009–2012.

The Incentives Programme administered by DEST has been the subject of review by interdepartmental committees (including DEST) on two occasions, in 2002 and 2004. These reviews have led to changes to the Incentives Programme including for example, a revised incentives payments structure and value, and additional (and special) incentives.

Our analysis shows that the Incentives Programme is well utilised by employers for apprentices and trainees in occupations in national demand; and the large majority of employers are not abusing the Incentives Programme by ‘churning' apprentices and trainees. Since 1999–2000 the percentage increase in employer incentives expenditure (63 per cent) has resulted in approximately the same percentage increase in the number of Australian Apprenticeships completions (64 per cent). This indicates that the cost-effectiveness of the programme has remained broadly the same as it was in 1999–2000. Australian Apprenticeships has a non-completion rate of approximately 40 per cent. In light of this, performing a sensitivity analysis of incentives payments to employers compared with Australian Apprenticeships completions, is likely to assist DEST to better understand the influence of any potential policy variations on the cost effectiveness of the Incentives Programme.

DEST contracts Australian Apprenticeships Centres to promote, market and administer Australian Apprenticeships. These Centres act as points of contact between DEST and employers, apprentices and State Training Authorities. DEST has sound processes and procedures for the day-to-day management of these contracts. DEST monitors the Centres' accuracy in assessing eligibility for employer incentives and the Centres' timeliness in processing incentives claims. Our analysis also shows that all employer incentives payments made between 2003–04 and 2005–06⁴ were for the amount specified in the Incentives Programme guidelines. No duplicate payments were detected.⁵

DEST's intention is that Centres will process, but not approve, employer claims for incentives payments. DEST's forms and processes for approving expenditure on employer claims for incentives payments should make DEST's role in approving claims clear. In response to matters raised during the course of the audit, DEST is consulting with the Department of Finance and Administration to improve the clarity of forms and processes for approving expenditure on employer claims for incentives payments. This will provide DEST and the Centres with a better understanding of their respective responsibilities.

Key Findings by Chapter

Performance reporting (Chapter 2)

The national objectives for the Modern Australian Apprenticeship and Traineeship System were agreed in 1996 by the Australian National Training Authority Ministerial Council.⁶ The 2005–08 Commonwealth–State VET Funding Agreement identifies a national target for Australian Apprenticeships focussing on skills shortages in traditional trades.⁷ However, there are no performance measures and targets to assess the performance of the 60 per cent of apprenticeships and traineeships that are not in traditional trades. This limits DEST's ability to support the Ministerial Council for Vocational and Technical Education in managing and reporting performance against the national objectives for Australian Apprenticeships.

DEST's Annual Report 2005–06 includes information on employment rates for graduates from Technical and Further Education (TAFE) institutes, the number of Australian Apprenticeships completions and the level of employer satisfaction with the Centres. DEST also produced the Annual National Report of the Australian Vocational and Technical Education System 2005. This report contained, among other things, information on the performance of the national vocational and technical education system in 2005, the achievements and outcomes against the annual national priorities for 2005, and is underpinned by examples and achievements of the State, Territory and Australian governments.

However, neither DEST's Annual Report 2005–06 or DEST's Annual National Report of the Australian Vocational and Technical Education System 2005 contain sufficient performance information to assist interested parties in understanding progress made in achieving the national objectives for Australian Apprenticeships. Nor is this information reported elsewhere. As a consequence there is incomplete reporting to inform analysis and understanding of whether the national objectives for Australian Apprenticeships are being met.

The ANAO considers that it would assist interested parties in understanding progress made in achieving the national objectives for Australian Apprenticeships, if DEST reported sufficient performance information in its Portfolio Budget Statements and Annual Report on the national objectives for Australian Apprenticeships.

The National Centre for Vocational Education Research (NCVER) reports financial information annually on Australia's public vocational education and training system. In its publication Australian vocational education and training statistics: Financial information 2005, the NCVER reported that for the calendar year 2005, operating revenues provided by the Australian Government were $1.1 billion⁸ while the State and Territory governments⁹ provided $2.8 billion.

Participants in Australian Apprenticeships constitute approximately 25 per cent of the vocational education and training system. However, the above-mentioned report did not include financial information on Australian Apprenticeships activities administered by the Australian and State and Territory governments. For example, DEST's Portfolio Budget Statements showed estimated actual expenditure for 2005–06 and 2006–07 of $752.1 million and $798.8 million respectively for Australian Apprenticeships activities but these revenues were not included in the NCVER report. Further, DEST does not aggregate and report financial information on Australian Apprenticeships activities administered by the Australian and State and Territory governments. Such information would assist those advising the Government and the Ministerial Council for Vocational and Technical Education with policy analysis and development, particularly in the current climate of skills shortages.

Incentives payments to employers (Chapter 3)

The Incentives Programme administered by DEST has a Budget estimate for
2007–08 of $604.6 million. In 2004 05, approximately 97 per cent of the incentives paid under the programme were for employers of apprentices and trainees. The remaining three per cent of incentives was paid as personal benefits to apprentices and trainees. Payments made under the programme are grants and are not designed to directly defray employer costs.
The Incentives Programme has been the subject of review by interdepartmental committees (including DEST) on two occasions, in 2002 and 2004. These reviews have led to changes to the Incentives Programme including for example, a revised incentives payments structure and value, and additional (and special) incentives.

The ANAO conducted analyses of DEST's Incentives Programme data. Figure 2 shows that from 1999–2000 to 2005–06, the total amount of employer incentives paid increased by 63 per cent while the number of Australian Apprenticeships completions increased by 64 per cent. That is, the percentage increase in employer incentives expenditure has resulted in approximately the same percentage increase in the number of Australian Apprenticeships completions. This indicates that the
cost-effectiveness of the programme has remained broadly the same as it was in 1999–2000. Australian Apprenticeships has a non-completion rate of approximately 40 per cent. In light of this, performing a sensitivity analysis of incentives payments to employers compared with Australian Apprenticeships completions, is likely to assist DEST to better understand the influence of any potential policy variations on the cost effectiveness of the Incentives Programme.

Figure 2: Percentage change in total employer incentives expenditure compared with the percentage change in the total number of Australian Apprenticeships completions

Source: ANAO analysis of NCVER statistics and DEST Australian Apprenticeships Incentives Programme estimates model.

Notes: Percentage change in programme expenditure for each financial year was calculated in constant dollars (2005-06) using the Consumer Price Index.

There was a low frequency of commencement incentives payments made to eligible employers that also had a high turnover of apprentices and trainees. Specifically, in 2004–05 and 2005–06 the number of eligible employers receiving commencement incentives payments, that also had a high turnover of apprentices and trainees, was relatively small and had declined from 2004–05 to 2005–06. This suggests the large majority of employers are not abusing the Incentives Programme by ‘churning' apprentices and trainees.

ANAO analysis shows the Incentives Programme is well utilised by employers for apprentices and trainees in occupations in national demand. The percentage of employers accessing the Incentives Programme varies across States and Territories. DEST could monitor and analyse these variations to assist in optimising the programme's national impact.

DEST monitors the Centres' accuracy in assessing eligibility for employer incentives and the Centres' timeliness in processing incentives claims. Of the 529 540 incentives payments made between 2003–06, all payments (excluding some special claims¹⁰) were for the amount specified in the programme guidelines. Additionally, no duplicate payments were detected. The ANAO's analysis did not include an examination of employers' eligibility for incentives payments.

Financial management of the Incentives Programme (Chapter 4)

DEST's intention is that Centres will process, but not approve, employer claims for incentives payments. DEST's forms and processes for approving expenditure on employer claims for incentives payments should make DEST's role in approving claims clear.

In response to matters raised during the course of the audit, DEST consulted with Finance on the incentive payment process. Overall, Finance's initial views were that, based on the information provided by DEST, the latter appeared to have processes that met the requirements of the Financial Management and Accountability Act and Regulations 1997. However, Finance considered that DEST could improve the clarity of its approval processes for employer claims for incentives payments. DEST is consulting with Finance to resolve these matters which will provide DEST and the Centres with a better understanding of their respective responsibilities. Finance also advised that it is developing advice to agencies on expenditure approval related matters.

Contract management (Chapter 5)

On 1 July 2006, new contracts were established for Support Services for the period 1 July 2006 to 30 June 2009. Under these arrangements, DEST manages 73 contracts with 29 organisations to deliver Australian Apprenticeships Support Services in 22 regions across Australia. The value of the 73 contracts is approximately $507.3 million over three years.

DEST has contracted, on three previous occasions, Australian Apprenticeships Centres to provide support services. This experience has resulted in DEST having comprehensive contracts in place with the Centres for 2006–09. DEST also has sound processes and procedures in place for managing contracts, including contract risk management. DEST's State Contract Managers are well supported in their role by the National Office.

State Contract Managers have the delegation to approve both special claims and eligibility waivers regarding fees for service payments to Centres and incentives payments to employers. Although the guidance material available to the State Contract Managers provides details about the relevant processes, there are no documented instructions on how special claims and eligibility waivers should be assessed or the criteria to be applied in such circumstances. This gap in guidance could lead to inconsistency in the assessment of special claims and eligibility waivers across States because each State Office has its own forms and interpretation of the guidelines. The provision of instructions and criteria for the assessment and approval of special claims and eligibility waivers would assist State Contract Managers with their decision-making when processing such claims.

DEST's processes for making payments to Centres are clearly specified. DEST's monitoring of payments reduces the risk of it making incorrect payments. ANAO sampling of these payments did not identify an incorrect amount.

DEST has established a performance measurement system that includes five areas where the Centres' performance is monitored against the contract. Each performance area has one or more related performance measures. The use of a performance measure (or measures) to assess quality aspects of the Centres performance relating to retention and completion rates would enhance DEST's ability to measure performance against key services in the contract, in particular ‘providing ongoing support to employers and Australian Apprentices to encourage the retention and successful completion of Australian Apprenticeships'. This service requires Centres to engage in a number of activities designed to support employers and apprentices and trainees throughout their apprenticeship or traineeship.¹¹ The ANAO considers that by measuring these quality aspects, DEST will be able to better assess Centres' performance in contributing to the successful retention and completion of Australian Apprenticeships.

Summary of agency responses

Australian Apprenticeships are a mature co-operative arrangement between the Australian Government and States and Territories and a significant feature of Australia's vocational and education training system.

DEST welcomes the examination of two major Australian Government programmes supporting Australian Apprenticeships: employer incentives paid under the Australian Apprenticeships Incentives Programme and the contract management of Australian Apprenticeships Centres. Pleasingly the audit found that the incentives programme is well utilised by employers of Australian Apprentices in occupations in demand and increased expenditure has been consistent with increases in completion outcomes. DEST was found to have sound processes and procedures in place for managing contracts with Australian Apprenticeships Centres, including contract risk assessment.

DEST agrees to both recommendations. The first recommendation will be progressed during 2008 through discussions with State and Territory officials in the context of negotiations for the next Commonwealth-State Funding Agreement relating to Vocational Education and Training. The second recommendation has been timely for the on-going development of the programme and has already been actioned by the Department.

Recommendations

The ANAO has made two recommendations to assist DEST improve its administration of Australian Apprenticeships. DEST has agreed to both recommendations.

Footnotes

1 In 1998, the Australian National Training Authority Ministerial Council agreed to the commencement of New Apprenticeships as a replacement for the Modern Australian Apprenticeship and Traineeship System.

2 Examples of traditional trades include: Baker, Bricklayer, Carpenter, Drainer, Fitter, Hairdresser, Panel Beater, Motor Mechanic, Tool Maker and Welder. There are approximately 40 traditional trades listed as part of the Migration Occupations in Demand List.

3 Specifically, the agreement specifies 10 000 additional places for Australian Apprenticeships commencements in skills shortages in traditional trade areas (Australian Quality Framework Certificate Level III and IV).

4 The ANAO did not examine special claims where a DEST programme officer manually makes the payment based on documented evidence.

5 The ANAO's analysis did not include an examination of employers' eligibility for incentives payments.

6 The Council was formerly the peak national decision-making body for vocational education and training. It consisted of Ministers from each State and Territory and the Commonwealth responsible for vocational and technical education, and it was chaired by the Commonwealth. In November 2005, the Ministerial Council for Vocational and Technical Education replaced the Australian National Training Authority Ministerial Council.

7 Specifically, the agreement specifies 10 000 additional places for Australian Apprenticeships commencements in skills shortages in traditional trade areas (Australian Quality Framework Certificate Level III and IV).

8 These are entirely Skilling Australia's Workforce Act 2005 revenues from DEST of a recurrent nature. They include components for base recurrent, additional recurrent and recurrent funds for vocational education and training in schools.

9 State and Territory government includes appropriated State/Territory operating revenue, assumption of liabilities and resources received free of charge.

10 DEST advised that special claims are those where a DEST programme officer manually makes the payment based on documented evidence.

11 These activities include making ongoing contact with employers and apprentices and trainees throughout the duration of the apprenticeship or traineeship, ensuring employers and apprentices and trainees are aware of their rights and responsibilities and reporting any issues arising throughout an apprenticeship to the relevant State Training Authority.