The Australian Government's funding of schools

1. In 2008–09, the Australian Government will contribute approximately $11 billion for a range of educational programs including for government schools, non-government schools, Indigenous education strategic initiatives, targeted programs, ‘Skilling Australia's Workforce', children's services, and Australian Technical Colleges.¹ Payments for these programs are administered by the Department of Education, Employment and Workplace Relations (the department or DEEWR). The payments are in the form of specific purpose payments (discussed below) and include:

• general recurrent grants;
• capital programs;
• targeted programs; and
• Indigenous programs.

2. The Government's general recurrent grants assist government and non government schools with the recurrent costs of school education. Specifically, general recurrent grants fund teaching and ancillary staff salaries, professional development of teachers, curriculum development, and maintenance and general operation provisions.² In receiving the grants, non government school systems and schools agree to support the achievement of the Educational Goals for Young Australians.³

Amount of funding for schools

3. Australia's Constitution gives the States and Territories regulatory and funding responsibility for government schooling. The States and Territories also provide supplementary assistance to non-government schools. The Australian Government is the primary source of public funding for non government schools and provides supplementary assistance to government schools.⁴

4. In 2008–09, the Australian Government will contribute approximately $2 billion in general recurrent grants to government schools. The National Report on Schooling in Australia 2006 notes that the Australian Government provides around 10 per cent of general recurrent grants public funding for government schools in Australia. The remaining 90 per cent of recurrent grants public funding for government schools is provided by the States and Territories. Some funding also comes from private sources such as parent contributions.⁵

5. In comparison in the same year, the Australian Government will contribute approximately $5.8 billion in general recurrent grants to non government schools. The National Report on Schooling in Australia 2006 notes that the Australian Government provides around 75 per cent of general recurrent grants public funding for non-government schools. The remaining 25 per cent of recurrent grants public funding for non-government schools is provided by the States and Territories.⁶ In 2006, non-government schools also received $5.2 billion in funding from private sources (primarily parent contributions). This amount constituted 43 per cent of the total funding for non-government schools in that year.

Specific purpose payments for education

6. The Council of Australian Governments' (COAG) comprises the Australian Government and State and Territory governments. At its meeting on 29 November 2008, COAG reaffirmed its commitment to cooperative working arrangements through a new Inter-governmental Agreement.⁷ The agreement provided the basis for a rationalisation of Australian Government specific purpose payments to the States and Territories, reducing the number of such payments from over 90 to five: healthcare, early childhood development and schools, vocational education and training, disabilities services, and affordable housing.⁸ Section 96 of the Australian Constitution provides the basis for the Australian Government to provide specific purpose payments to State and Territory governments for school level education.⁹

7. When the ANAO commenced this audit in 2008, the Australian Government funded non-government and government schools under the Schools Assistance (Learning Together—Achievement Through Choice and Opportunity) Act 2004. The ANAO audited the department's administration of the 2004 Act.

8. The 2004 Act was superseded by the Schools Assistance Act 2008 which commenced on 1 January 2009. At this time, new arrangements for 2009–12 came into effect for both non-government and government schools funding. The Australian Government funds government schools under the National Education Agreement which was negotiated with the States and Territories through COAG. The National Education Agreement includes the roles and responsibilities of the parties and performance reporting requirements.

9. Non-government schools are funded separately under the Schools Assistance Act 2008 which specifies the funds to be provided and the Government's associated conditions for non-government schools. The Schools Assistance Act 2008 aims to provide the same reporting requirements for non government schools as are required for government schools.

Structure of the non-government schools sector

10. In 2006, there were around 2600 non-government schools that educated over one million primary and secondary school students. There are three categories of non-government schools: Catholic systemic, Independent systemic (affiliated with a system other than a Catholic system), and Independent (not affiliated with a system).

11. A systemic school is a school that is included in an approved school system.¹⁰ Systemic schools are administered by Catholic, Anglican, Lutheran, Seventh Day Adventists and other Christian Schools education systems. In 2006, these schools accounted for 69 per cent of non-government schools and 64 per cent of non-government students.

12. A non-systemic school is a school that is not included in an approved school system. These schools are also referred to as Independent schools. In 2006, these schools accounted for 31 per cent of non-government schools and 36 per cent of non-government students.

Key features of the non-government schools funding arrangements

13. Since 2001, the Socio-economic status (SES) of school communities has been used as the basis for funding non-government schools. Under the SES funding arrangements, the Australian Government general recurrent grant entitlement for a non-government school is broadly determined by its SES score and the number of students enrolled at the school. A school's SES score is a measure of the socio-economic status of a non-government school's community relative to other non-government schools. The score determines the percentage of Average Government School Recurrent Costs (AGSRC) that is payable, per student, as a general recurrent grant. A feature of the SES funding arrangements has been the ‘no losers' policy. Under this policy, non-government schools that would have been worse off if the department calculated their entitlement to grants based on their SES scores, have had their general recurrent grants either ‘maintained' or ‘guaranteed'.

The funding maintained provisions

14. A major change introduced in the Schools Assistance (Learning Together—Achievement Through Choice and Opportunity) Act 2004¹¹ was that all non-government schools, including Catholic systemic schools, would be covered by the SES funding arrangements, which were introduced in 2001.¹²

15. At the beginning of the 2005–08 quadrennium, SES scores were calculated for all non government schools. The majority of Catholic systemic schools (about 61 per cent or 970 schools) received SES scores that would have led to reduced funding. All of these schools were covered by the funding maintained provisions and had their funding maintained at their 2004 level with indexation. All other non-government schools that were previously funding maintained continued to have funding maintained at their 2000 funding levels with indexation if their re-calculated SES scores would have led to reduced funding.¹³ Australian Government general recurrent grants for Catholic systemic schools continued to be paid to Catholic Education Offices, which are required to distribute these funds based on need.

The funding guarantee provisions

16. The re-calculation of SES scores for the 2005–08 quadrennium for schools other than Catholic systemic schools meant that some schools had different SES scores from the 2001–04 quadrennium. In cases where a school's SES score had decreased, it was entitled to receive increased funding in the 2005–08 quadrennium. The reverse would also have been the case (that is, a higher SES score would result in less funding). However, as mentioned earlier, the Government maintained a ‘no losers' policy. It introduced new provisions that provided a ‘funding guarantee' for those SES funded schools that were entitled to less Australian Government funding in 2005–08.

17. The funding guarantee provisions that were introduced under the SES system preserved the amount of Australian Government funding that a school received. However, it is not the same as funding maintenance because there is no indexation to account for cost inflation. Under the funding guarantee, schools receive the same dollar amount (per student) each year until this is surpassed by their (indexed) entitlement under the SES funding arrangements, where upon they are funded under the SES arrangements.¹⁴

18. The 2008 Act continues the funding arrangements for general recurrent grants for non-government schools that were previously in place under the 2004 Act. Consequently, the findings and conclusions of this audit of the implementation of the 2004 Act are also relevant to the department's administration of the 2008 Act.

Audit objectives and scope

19. The audit objective was to assess the effectiveness of the department's administration of general recurrent grants for non-government schools. The audit examined key processes in the department's administration of general recurrent grants for non-government schools for 2005–08 in accordance with the Schools Assistance (Learning Together—Achievement Through Choice and Opportunity) Act 2004.

20. The audit did not cover other specific purpose payments to non-government schools such as capital grants or targeted programs.

Audit criteria

21. To form its conclusion, the ANAO assessed whether the department:

• effectively manages the data used for the calculation of general recurrent grants for non-government schools (including assuring the accuracy of non-government schools enrolment numbers); 
• properly approves, pays and acquits the correct amounts of general recurrent grants; and
• monitors and reports on whether the funding model is achieving its objectives.

Overall conclusion

22. General recurrent grants provide financial assistance to government and non-government schools for recurrent expenditure for the delivery of primary and secondary education and related purposes. A condition of funding is that non-government school systems and schools support the achievement of the Educational Goals for Young Australians and the COAG outcomes for schooling, and comply with certain performance reporting requirements.

23. In 2008–09, the Australian Government will pay around $5.8 billion in general recurrent grants to non-government schools. These grants are distributed under the Socio-economic status (SES) funding arrangements which calculate schools funding based on need using the socio-economic status funding formula. The formula generates an SES score for each school. Some adjustments are made to school funding levels where schools would be worse off if funded according to their SES scores. In 2006, 53 per cent of non government schools were funded on the basis of their SES scores. The remaining non-government schools were either funded under the funding maintained or funding guarantee provisions.

24. The department effectively administers general recurrent grants in terms of managing the accuracy of data used for the calculation of these grants, and through properly approving, paying and acquitting the grants. However, the department can improve its administration of these grants by: strengthening its program controls and quality assurance checks designed to manage the risk of errors when executing agreements; making better use of the available data to detect overpayments including fraud; and monitoring and reporting on the SES funding arrangements.

25. ANAO analysis shows that all agreements with non-government school systems for the 2005–08 quadrennium were properly executed. However, ANAO sampling revealed that around 10 per cent of agreements with non-systemic schools were not properly executed. Although the administrative impact of most of these errors may be low, for the two agreements that were not signed by the Australian Government, the department did not meet the requirements of the relevant legislation before paying the grants to schools. The department advised that the errors identified by the ANAO during the audit were addressed subsequently.

26. The department checks a sample of non-government schools' enrolment data annually. However, it makes limited use of other data sources that would assist with targeting its compliance activities. The department advised that it is consulting with the States, Territories and school system authorities on data sharing arrangements to assist in identifying potential grants overpayments, including fraud in the program. Extending its consultation and negotiations on data sharing to include the school systems, would also improve the department's targeting of checks on the accuracy of non-government schools census data.

27. In 2006, 36 per cent of non-government schools were not part of an approved school system. These schools received general recurrent grants in line with their individual entitlement under the SES funding arrangements. The remaining 64 per cent of non-government schools were affiliated with school systems. Under the SES funding arrangements, school systems receive general recurrent grants equal to the aggregate entitlement of their affiliated schools. In 2006, systemic schools received a total of $3.3 billion in general recurrent grants via school systems. This amount represented 69 per cent of the total amount of Australian Government's general recurrent grants for non-government schools in that year.

28. In 1999, when announcing the Australian Government's new funding arrangements, the then Minister affirmed that ‘the Commonwealth expects that within systems, recurrent funds will be distributed differentially according to need'.¹⁵ This expectation is reflected in the Commonwealth Programs for Schools—Quadrennial Administrative Guidelines, 2005-2008, approved by the then Minister. However, the department did not have information on the funding formulae that non-government school systems use to distribute funds to their affiliated schools, including whether and how these formulae account for need. ANAO analysis found that systemic schools with low SES scores (that is, schools servicing low socio-economic communities) receive less Australian Government general recurrent grants per student from their school systems than if they were directly funded under the SES arrangements (as are non-systemic schools). To better inform program management and broader policy advice, the department should take steps to identify whether school systems distribute general recurrent grants funding in a manner consistent with the needs-based funding principles underpinning the SES funding arrangements.

29. Further, the department can improve its annual reporting of the program by including information on general recurrent grants paid to the non-government schools sector, the performance targets that were set for administering the $5.8 billion in grants and the results achieved against these targets.

30. While reaffirming the funding model that was introduced in 1999, the current Government has announced that it is ‘committed to an open, transparent review of whether the SES model is the best one to take us beyond the 2009–12 funding period'. The current Minister anticipates that the review will involve extensive consultation and conclude in 2011.¹⁶ The ANAO has made five recommendations directed at improving the department's administration and its capacity to advise and inform this review.

Key findings by chapter

Managing data accuracy (Chapter 2)

31. The provision of accurate school census data and student residential address data by non-government schools is essential for the accurate calculation of general recurrent grants funding entitlements. The provision of inaccurate data for this purpose may result in the department under or over paying non-government schools relative to their entitlements.

32. The department has taken adequate steps to provide clear guidance to non-government schools on the provision of their data. These data assist the department with the accurate calculation of general recurrent grants for these schools.

33. The department performs a number of checks to verify the accuracy of non-government schools' data received electronically. These checks provide the department with useful quality assurance mechanisms to assist in managing the risk of non-government schools providing inaccurate data for the calculation of general recurrent grants funding.

34. The department completed a risk assessment for the general recurrent grants program for non-government schools for 2005–08. However, the timeliness of such assessments could be improved, given that the assessment was not completed until the last year of the 2005–08 funding quadrennium.

35. Subsequent to an internal audit, the department completed a fraud risk assessment for the program focussing on fraud risks associated with the management of assets, leave and attendance, and credit card use. There would be benefit in the department extending this coverage to include general recurrent grants payments paid in the 2009–12 quadrennium.

Payment of general recurrent grants (Chapter 3)

36. In order to meet its responsibilities to pay $5.8 billion in general recurrent grants to non-government schools, the department takes steps to verify the accuracy of schools' data, confirm its calculations, and execute agreements with schools.

37. ANAO sampling showed that all agreements with non-government school systems were properly executed, while around 90 per cent of agreements with non-systemic schools were properly executed. Although the administrative impact of most of the errors in the remaining 10 per cent may be low, in respect of the agreements that were not signed by the Australian Government (three per cent), the department did not meet the requirements of the legislation before making payments. Subsequently, the department advised that it had addressed the errors identified by the ANAO. In the light of this experience, the department would benefit from examining the effectiveness of program controls and quality assurance checks designed to manage the risk of errors when executing these agreements.

38. ANAO analysis indicated that, in 2006, the department's calculations (based on data provided by non-government schools) and payments of around $1.6 billion in grants to non-systemic schools were accurate. Although in 2006, eight non-systemic schools (around one per cent of non-systemic schools) were paid more general recurrent grants than they were entitled, none of these overpayments was owing to errors in the department's payment processes. Instead, the overpayments were a result of a suspected fraudulent overstatement of enrolments, inadvertent overstatements of enrolments subsequently rectified by schools, and overstatements of enrolments detected later by the department. The total value of overpayments of general recurrent grants to non-systemic schools in 2006 was around $566 000—representing 0.04 per cent of the total value of general recurrent grants payments tonon-systemic schools in that year.

39. Testing of a sample of payments revealed that the department had paid grants to non-government schools consistent with the schedules in the department's guidelines, and that these payments were properly authorised in accordance with the legislation.

40. Although the department performs a number of checks on the accuracy of census data provided by non-government schools, scope exists for the department to make more effective use of data matching to verify the accuracy of the census data. The department advised that under the 2009–12 agreements, there was greater flexibility to share with the States and Territories and non-government school peak bodies, the data collected via the census and financial questionnaire. The department considers that the sharing of enrolment data in particular will provide further assurances, and will also enable the Australian and State and Territory governments to better target their checks of the accuracy of census data. Notwithstanding, there is no requirement under the agreements for the States and Territories and non-government school peak bodies to reciprocate in terms of data sharing.

41. The department advised that it is consulting with a number of States to develop reciprocal information-sharing agreements and is seeking agreements of this nature with all States and Territories. Extending its consultation and negotiations on data sharing to include the school systems, would also improve the department's targeting of checks on the accuracy of non-government schools census data.

42. ANAO analysis confirmed that in 2006, all Approved Authorities for non-government schools that had been paid grants, had provided a Financial Accountability Certificate confirming their receipt and use of these grants.

Performance reporting and policy analysis and advice (Chapter 4)

43. The department's annual report for 2007–08 provided limited insights into its performance in administering general recurrent grants for non-government schools, including on the efficiency of its administration. The department can improve its annual reporting of the program by including information on general recurrent grants paid to the non-government schools sector, the performance targets that were set for administering the $5.8 billion in grants and the results achieved against these targets.

44. In May 1999, the then Minister for Education, Training and Youth Affairs announced new funding arrangements for non-government schools for 2001–04. In the statement, the then Minister announced that:

These arrangements will give low income families even greater access to the schools of their choice, encourage greater private investment in education and provide higher levels of funding for the neediest school communities.¹⁷

45. An examination of publicly available documents and departmental records reveals that there is limited information available to the Parliament and to the Government on whether the purposes of the SES funding arrangements (including the funding maintained and funding guarantee provisions) and underpinning principles are being met. The department monitors and reports expenditure on non-government schools under the legislation. However, the department conducts little analysis of a range of data to assist in measuring and reporting on whether the purposes and principles of the funding arrangements are being met. Analysing such data would also assist the department to improve program performance and inform broader policy advice.

46. ANAO analysis shows that, the proportion of students attending non-government schools rises with the SES scores of communities—in 2006 around one fifth of students living in communities with low SES scores of 85 or less accessed non-government schools compared to almost two thirds of students living in communities with high SES scores of 130 or more. In 2006, the percentage of Indigenous students (for ABS Census Collection Districts with low, average and high SES scores) was less than the percentage of non-Indigenous students attending non-government schools. Extending these analyses to include the years leading up to and since the commencement of the SES funding arrangements would assist the department to better understand the impact of those arrangements on the accessibility of non-government schools.

47. The department had not analysed whether the SES funding arrangements had adversely affected private investment in non-government schools. ANAO analysis shows that the total (per student) funding in non-systemic non-government schools tends to rise with schools' SES scores—with the falls in per student general recurrent grants funding being more than offset by increased per student private funding. In contrast, there was little difference in per student private income (predominantly parent contributions) for systemic schools with SES scores greater than 100. That is, private investment in systemic schools did not greatly increase as SES scores increased. This could be partly related to school systems' tuition fees policies.

48. The department did not have information on the funding formulae that non-government school systems use to distribute funds to their affiliated schools, including whether and how these formulae account for need. Figure 1 (over page) shows that Australian Government general recurrent grants funding (shaded light blue) for non-systemic schools falls as the schools SES scores rise. This reflects the fact that non-systemic schools are directly funded by the Australian Government, with around three quarters of these schools being funded based on their SES score.

49. In contrast, Figure 2 (over page) shows that schools systems appear to give less weight to individual school SES scores when distributing Australian Government general recurrent grants to affiliated schools. As, noted above, under the program guidelines school systems are required to distribute these grants differentially according to need. By identifying the methods used by school systems to distribute general recurrent grants, the department would be better placed to assess whether school systems are distributing these grants consistent with Australian Government policy guidelines and with their contractual arrangements.

Figure 1 Non-Systemic School Funding Sources, by School SES Scores, 2006

Source: ANAO analysis of non-government schools Financial Questionnaire data.

Figure 2 Systemic School Funding Sources, by School SES Scores, 2006

Source: ANAO analysis of non-government schools Financial Questionnaire data.

Summary of agency?s response

50. The Department of Education, Employment and Workplace Relations (DEEWR) appreciates the opportunity to participate in the performance audit of funding for non-government schools. DEEWR welcomes the ANAO's findings. DEEWR broadly accepts the ANAO's recommendations and is of the view that these will strengthen the processes in relation to the funding of non -government schools. DEEWR has agreed with four of the recommendations in the report and has agreed one with qualifications.

51. The department's formal response is at Appendix 1.

Footnotes

¹ Budget Paper No. 3, Australia's Federal Relations 2008–09,—Part 3: Payments for Specific Purposes, available from <http://www.budget.gov.au/2008-09/content/bp3/html/bp3_spp.htm> [accessed 28 May 2009].

² DEEWR, Commonwealth Programs for Schools Quadrennial Administrative Guidelines 2005-2008, 2008 Update, p. 45. Available from <http://www.dest.gov.au/sectors/school_education/programmes_funding/general_funding/operating_grants/general_recurrent_grants/default.htm> [accessed 28 May 2009].

³ On 5 December 2008, State, Territory and Commonwealth Ministers of Education, meeting as the Ministerial Council on Education, Employment, Training and Youth Affairs, announced The Melbourne Declaration on Educational Goals for Young Australians which sets the direction for Australian schooling for the next 10 years. The Melbourne Declaration supersedes The Adelaide Declaration that was announced in 1999.

⁴ MCEETYA, National Report on Schooling in Australia 2006, Chapter 2, available from <http://cms.curriculum.edu.au/anr2006/ch2_background.htm> [accessed on 7 May 2009].

⁵ ibid.

⁶ ibid.

⁷ The Intergovernmental Agreement on Federal Financial Relations is aimed at improving the quality and effectiveness of government services by reducing Commonwealth prescriptions on service delivery by the States, providing them with increased flexibility in the way they deliver services to the Australian people.

⁸ Budget Paper No. 3, Australia's Federal Relations 2008–09, —Part 3: Payments for Specific Purposes, available from <http://www.budget.gov.au/2008-09/content/bp3/html/bp3_spp.htm> [accessed 28 May 2009].

⁹ Commonwealth of Australia Constitution Act (the Constitution), available from <http://www.austlii.edu.au/au/legis/cth/consol_act/coaca430/> [accessed 29 May 2009].

¹⁰ Section 129 of the Schools Assistance Act 2008 provides that: (1) The Minister may, by determination: (a) approve a body as an approved school system for the purposes of this Act; and (b) approve an approved school (or schools) as a member (or members) of the system for the purposes of this Act.

¹¹ Schools Assistance (Learning Together—Achievement Through Choice and Opportunity) Act 2004, Part 6, Division 2.

¹² MCEETYA, The National Report on Schooling in Australia 2006, Chapter 2, available from <http://cms.curriculum.edu.au/anr2006/ch2_background.htm> [accessed 4 June 2009].

¹³ Indexation is based on movement in the AGSRC.

¹⁴ Department of Education, Science and Training, A History of State Aid to Non-Government Schools in Australia, 2007, p. 169-170.

¹⁵ Choice and Equity: Funding Arrangements for non-government Schools 2001—2004, Statement by the Honourable Dr David Kemp, Minister for Education, Training and Youth Affairs, 11 May 1999, p.6.

¹⁶ The Hon Julia Gillard MP, 27 March, 2009, National Public Education Forum Speech, Public Education Forum, 27 March 2009, Canberra. Available from <http://www.deewr.gov.au/Ministers/Gillard/Media/Speeches/Pages/Article_090327_173128.aspx > [accessed 2 June 2008].

¹⁷ Choice and Equity: Funding Arrangements for non-government Schools 2001—2004, Statement by the Honourable Dr David Kemp, Minister for Education, Training and Youth Affairs, 11 May 1999.