Introduction

The Commonwealth provides specific purpose payments under section 96 of the Australian Constitution.¹ The payments are a financial contribution to important areas of State and Territory responsibility which the Australian Government makes in pursuit of its policy objectives. Typically, the States and Territories must fulfil specified conditions to receive these payments, which cover most functional areas of State and Territory and local government activity, including education, health, social security, housing and transport.² In 2007–08, Australian Government specific purpose payments to the States and Territories are estimated to total $30.8 billion, an increase of $2.5 billion (9 per cent) from 2006–07.³

In December 2007, the Council of Australian Governments (COAG) agreed to begin changing the nature of Commonwealth—State funding arrangements by focussing more on outputs and outcomes, underpinned by a commitment from the Australian Government to provide incentive payments to drive reforms. This will include reform of specific purpose payments.

Specific purpose payments are mainly for education and health

In 2007–08, education and health will account for approximately 70 per cent of all specific purpose payments. In 2008–09, around $11 billion will be paid for education purposes. The Department of Education, Employment and Workplace Relations (the department)⁴ administers these payments which are for a range of programs including government schools, non-government schools, Skilling Australia's Workforce, the Indigenous Education Strategic Initiatives Program and Australian Technical Colleges.⁵

Specific purpose payments for these programs are provided as general recurrent grants, capital programs, targeted programs and Indigenous programs.

Authority for funding schools

The Australian Government funds schools under the Schools Assistance (Learning Together—Achievement Through Choice and Opportunity) Act 2004 (the Schools Assistance Act). The Schools Assistance Act provides the legislative basis for schools assistance programs administered by the department for the calendar years 2005 to 2008. The Schools Assistance Act also specifies the funds to be provided and the associated conditions set by the Australian Government for government schools, non-government schools and other eligible groups.⁶

Amount of funding for schools

Specific purpose payments for government schools are estimated to total nearly $3.5 billion for 2008–09. This funding is distributed between general recurrent grants, capital grants and targeted programs. In 2008–09, the Australian Government will pay around $2 billion in general recurrent grants to government schools. This is almost 10 per cent of the total public funding for government schools in Australia. The remaining 90 per cent of public funding for government schools is provided by the State or Territory. Some funding also comes from non-government sources such as parent contributions.

Non-government schools derive their income from fees and fundraising, including donations, and Australian Government and State and Territory Government grants. In 2008–09, the Australian Government will pay around $5.8 billion in general recurrent grants to non-government schools. This is around 90 per cent of the total public funding for non–government schools in Australia. The remaining 10 per cent of public funding is provided by the State or Territory.

An agreement is needed before payments can be made

In order to receive funding, each State and Territory is required to enter into an agreement with the Australian Government. The agreements specify the conditions attached to the funding provided by the Australian Government, and provide that the Minister for Education, Employment and Workplace Relations may withhold or delay payments where a State or Territory does not meet a condition of the agreement. The agreements are for four years, with the current agreement covering 2005 to 2008. The agreements apply to all funding programs covered by the Schools Assistance Act for government schools, including general recurrent grants, capital grants and targeted programs.

The agreements comprise ‘commitments', ‘educational accountabilities' and ‘further conditions'.⁷ Some requirements are both a commitment and an educational accountability. For example, the States and Territories are required to both commit to report to parents of students in Years 3, 5 and 7 on their children's achievements against the national literacy and numeracy benchmarks (commitment), and to report on these achievements (educational accountability). To meet their commitments, the States and Territories are required to demonstrate that best endeavours have been made, whereas, educational accountabilities and further conditions must be met.

General recurrent grants assist in achieving the Australian Government's priorities for schooling

In April 1999, the Ministerial Council on Education, Employment, Training and Youth Affairs (MCEETYA) endorsed a new set of National Goals for Schooling in the Twenty-First Century. The new goals were released as The Adelaide Declaration (1999) on National Goals for Schooling in the Twenty-First Century. They seek to establish a foundation for collaborative action to improve the quality of schooling nationally.⁸ Recently, in April 2008, MCEETYA agreed to the development of a new Declaration on the National Goals for Schooling in Australia to be released later in 2008.⁹

General recurrent grants assist government and non government schools with the recurrent costs of school education so that they can offer programs directed towards the achievement of the Australian Government's priorities for schooling. Those priorities include support for the principles of access, choice, equity and excellence in schooling by encouraging the provision of a strong, viable and diverse selection of government and non government schools from which parents can choose.¹⁰

Key findings by chapter

Payment process for general recurrent grants for government schools (Chapter 2)

The department has acted in a manner consistent with the requirements of the Financial Management and Accountability Regulations 1997 in regard to approvals to spend public moneys on general recurrent grants for government schools.

Of the 264 payments made to the States and Territories for the calendar years 2005, 2006 and 2007, all payments were for the correct amount as specified in the payment determinations. The department's funding determinations specify that general recurrent grants payments for government schools will be made on the 7th day of each month or as soon as practicable thereafter. ANAO analysis found that all 264 payments were made within 5 days of the due date.

All State and Territory education authorities met the requirement to submit a financial accountability certificate for the years examined by the ANAO—2005 and 2006, certifying that the funds were spent on meeting recurrent expenditure for government primary and secondary schools.

In addition to providing information through financial accountability certificates and compliance certificates, the States and Territories also submit enrolment data to the department. The department requests an outline of the auditing and verification procedures in each State and Territory to confirm that the enrolment figures are accurate. In 2005 (the commencement of the agreement), all States and Territories provided the department with enrolment data and information on their auditing and verification procedures. In subsequent years, the States and Territories have confirmed that these continue to be the procedures that are in place. The department also checks the enrolment data to ensure that it is consistent with the previous year's data and Australian Bureau of Statistics data, and follows-up any unexplained variations with the States and Territories.

Management of the 2005–08 agreements (Chapter 3)

Under the agreement, the Minister may withhold or suspend funds, in whole or in part, until the States and Territories meet their obligations under the agreement. The department informed the ANAO that payments to the States and Territories have never been withheld.

The department monitors States and Territory compliance with the requirements of the agreements through collecting information for the annual National Report on Schooling in Australia, annual certification by compliance certificates and the provision of data direct to the department.

For the requirements monitored through the annual National Report on Schooling in Australia, the States and Territories provide the required information which is then included in the report. The last complete National Report on Schooling in Australia was published in 2004—approximately 4 years ago. For 2005 and 2006, parts of the National Report on Schooling in Australia have been released as available.¹⁴ Consequently, the information available to the Parliament and other interested parties on progress towards the national goals for schooling, to inform debate and policy development is relatively incomplete and out dated.

The department has implemented compliance certificates for the States and Territories to report their adherence to certain performance requirements in the agreements. Most States and Territories submitted both compliance certificates in a timely manner in the year examined—2006.¹⁵ The certificates are essentially a self-assessment by the States and Territories that they have met the requirements of the legislation and agreement. The department has written to the States and Territories seeking advice on how they intend to monitor and ensure the accuracy of information in their compliance certificates. Although most States and Territories have described their methods for monitoring the adherence of their school systems and of individual schools to the agreements, the States and Territories have provided little information on how they verify the accuracy of schools' responses.

In this light, there would be benefit in the department consulting with the States and Territories on the consistency of their approaches and the level of assurance being provided through these certificates.

In most cases, the States and Territories reported that they are compliant with the ‘commitments', ‘educational accountabilities' and ‘further conditions' of the agreements.¹⁶ However, at the time of the audit, no State or Territory had complied with all of the ‘commitments', ‘educational accountabilities' and ‘further conditions' of the agreements monitored by compliance certificates in 2006. Consequently, under the agreements some jurisdictions have not fully met key obligations designed to achieve the national goals, such as:

• reporting to parents of students in Years 3, 5 and 7 on their children's achievement against the national literacy and numeracy benchmarks; and
• making school performance information publicly available.

However, at the time of the audit, the department had not followed up on these reported instances of non-compliance.¹⁷ Further, there is only limited public reporting on the achievements of the States and Territories in meeting their obligations under the agreements to assist in understanding progress towards the national goals.

Performance information (Chapter 4)

The achievement of the national goals for schooling is long-term in nature. The goals are based on developing the talents and capacities of all students, the educational curriculum, and the need for schooling to be socially just. In contrast, the requirements within the agreements are predominantly activity based, describing what the States and Territories are to do rather than describing outcomes to be achieved that are consistent with the national goals. Going forward, it would be beneficial to seek the agreement of the States and Territories to a structured approach that more clearly links the national goals with the various requirements of the agreements. This may be accomplished by identifying intermediate outcomes or targets to assist in assessing progress towards the desired medium term effects of the agreements. Currently, there are no intermediate outcomes or targets relative to the State or Territory's current achievements to assist in this task. The absence of intermediate outcomes or targets limits the department's ability to support the Ministerial Council in managing and reporting performance against the national goals.

The department's strategic plan identifies that the department provides national leadership in developing and implementing innovative policy solutions in the areas of learning, skills acquisition and building Australia's knowledge.¹⁸ Recognising this leadership role and the States and Territories' significant financial contribution, there would be benefit in the department consulting with the States and Territories on the use of intermediate outcomes or targets to assist in assessing progress towards the national goals. The degree to which any agreed intermediate outcomes are included in future agreements would be subject to Ministerial decisions, consistent with current practice.

An important aspect of the performance of an education system goes to issues of consistency and variance: that is, whether its results tend to be relatively uniform across the system, or vary widely by factors such as school or school type, geographic location, gender, socioeconomic background or other student characteristic. The international literature, including the literature surrounding the Organisation for Economic Cooperation and Development's Program for International Student Assessment (PISA), highlights the importance of this dimension of education performance measurement. A well-constructed set of distributional measures would provide valuable insights into key sources of performance variability across the schooling system, as well as areas in which performance can be improved.

The national goals include, among other things, that:

• ‘Schooling should develop fully the talents and capacities of all students'; and
• ‘Schooling should be socially just, so that students outcomes from schooling are free from the effects of negative forms of discrimination based on sex, language, culture and ethnicity, religion or disability; and of differences arising from students' socio-economic background or geographic location.'

Current performance information in the National Report on Schooling in Australia casts little light on performance variability across the schooling system, as well as areas in which performance can improve. Most published performance information takes the form of system wide aggregates or averages which provide no information on the dispersion of performance or results. The only relevant distributional measures published regularly at the national level relate to variations between the States and Territories. However, these are general measures only.²⁰

No information is currently available publicly (or to the Australian Government) on the performance of the government school system in its own right; on how performance varies within the government (and non-government) school systems; on the margin by which students do not meet the benchmark levels of performance²¹ (and how this margin varies across school systems and jurisdictions); or on the proportions of students achieving significantly higher than the benchmark levels of performance.²² There is scope to enhance current performance requirements to assist policy development and decision making on educational programs and the allocation of resources, to achieve the agreed national goals for schooling.

Audit scope and objective

The audit objective was to assess the effectiveness of the department's administration of general recurrent grants paid to the States and Territories for government schools. To achieve this, the ANAO assessed whether the department:

• paid the correct amount of general recurrent grants to the States and Territories;
• effectively managed the agreements with the States and Territories; and
• monitored progress towards achieving the National Goals for Schooling in the Twenty-First Century.

The audit focused on general recurrent grants for government schools as they are the largest specific purpose payments to them. The audit did not include examination of other specific purpose payments to government schools such as capital grants or targeted programs.

Conclusion

A key priority for the government is ‘ensuring our schools focus on achieving higher standards, greater accountability and better results'.¹¹ In 2008–09, the Australian Government will contribute around $3.5 billion in specific purpose payments to the States and Territories for government schools. Of this amount, general recurrent grants for government schools will total around
$2 billion. The department administers these grants through agreements under the Schools Assistance Act.

The department has met its responsibilities in administering general recurrent grants paid to the States and Territories for government schools. Specifically, the department has made arrangements to: make payments under the agreements, to capture and report performance information on progress towards the national goals for schooling, and advise the Minister on State and Territory compliance with the agreements.

In administering the agreements, the department has paid the correct amount of general recurrent grants to the States and Territories in a timely manner, for the three calendar years examined by the ANAO—2005, 2006 and 2007. The department has implemented financial accountability certificates whereby the States and Territories certify that grants received were spent on meeting recurrent expenditure for government primary and secondary schools.

The department has also implemented compliance certificates for the States and Territories to report their adherence to certain performance requirements in the agreements. Currently, the department does not have information on the completeness and accuracy of the information that the States and Territories use to prepare their compliance certificates. Therefore, the department would benefit by consulting with the States and Territories on the consistency of their approaches and the level of assurance being provided through these certificates.

The achievement of the national goals for schooling is long-term in nature. The goals are based on developing the talents and capacities of all students, the educational curriculum, and the need for schooling to be socially just. In contrast, the requirements within the agreements are predominantly activity based, describing what the States and Territories are to do rather than describing outcomes to be achieved that are consistent with the national goals.¹² Going forward, it would be beneficial to seek the agreement of the States and Territories to a structured approach that more clearly links the national goals with the various requirements of the agreements. This may be accomplished by identifying intermediate outcomes or targets to assist in assessing progress towards the desired medium term effects of the agreements. Currently, there are no intermediate outcomes or targets relative to the States or Territories' current achievements to assist in this task. The absence of intermediate outcomes or targets limits the department's ability to support the Ministerial Council in managing and reporting performance against the national goals.

The department's strategic plan identifies that the department provides national leadership in developing and implementing innovative policy solutions in the areas of learning, skills acquisition and building Australia's knowledge.¹³ Recognising this leadership role and the States and Territories' significant financial contribution, there would be benefit in the department consulting with the States and Territories on the use of intermediate outcomes or targets to assist in assessing progress towards the national goals. The degree to which any agreed intermediate outcomes are included in future agreements would be subject to Ministerial decisions, consistent with current practice.

Similarly, current performance requirements could be enhanced in future agreements to measure and report on performance within the various State and Territory school systems, including for example, at regional level. This would assist policy development and decision making on educational programs and the allocation of resources to achieve the agreed national goals for schooling.

Summary of agency response

The Department welcomes the examination of Specific Purpose Payments – General Recurrent Grants for Government Schools. These grants assist with the recurrent costs of government school education.

The audit conducted by the ANAO found that the Department has acted in accordance with the requirements of the Financial Management and Accountability Regulations 1997 in approving public moneys for government schools. The audit concluded that the Department has met its responsibilities in administering general recurrent grants paid to the States and Territories for government schools.

The Department agrees with the three recommendations made in the audit report and will progress them in negotiations with State and Territory governments in the context of the current Council of Australian Governments agenda. The Council of Australian Governments has agreed to implement a new framework for federal financial relations that focuses on reducing Commonwealth prescriptions on service delivery by the States and Territories. The new framework will mean significant rationalisation of payments for specific purposes, a clearer specification of the roles and responsibilities of each level of government and an improved focus on outcomes based public accountability.

Recommendations

The ANAO has made 3 recommendations to assist the department to improve its administration of Specific Purpose Payments — General Recurrent Grants for Government Schools. The department has agreed to all 3 recommendations.

Footnotes

^{1 Commonwealth of Australia Constitution Act (the Constitution), <http://www.austlii.edu.au/au/legis/cth/consol_act/coaca430/>.}

^{2 Australian Government, 2007–08 Budget Paper No.3 – Australian Financial Relations 2007–08, 8 May 2007, p. 5, <http://www.budget.gov.au>. &nbsp;}

^{3 Australian Government, Budget 2007–08, Budget Paper No. 3, <http://www.budget.gov.au/2007-08/bp3/html/bp3_main-04.htm>. &nbsp;}

^{4 On 3 December 2007, new Administrative Arrangements Orders were released and the education and training functions of the Department of Education, Science and Training were moved to the new Department of Education, Employment and Workplace Relations. The ANAO's field work for this audit was conducted in the then Department of Education, Science and Training.}

^{5 Australian Government, 2007–08 Budget Paper No.3 – Australian Financial Relations 2007–08, 8 May 2007,
p. 51–52, <http://www.budget.gov.au>. &nbsp;}

^{6 For example, groups of non-government schools or non-government rural student hostels (or both).}

^{7 These terms are not defined in the Schools Assistance Act.}  

^{8 See <http://www.dest.gov.au/sectors/school_education/policy_initiatives_revi…;.}

^{9 <http://mediacentre.dewr.gov.au/NR/rdonlyres/85499B3A-E77F-4A55-9735-F8C…>.} 

^{10 DEST, Schools Assistance (Learning Together—Achievement Through Choice and Opportunity) Act 2004, Report of financial assistance granted to each State in respect of 2005, p.vi.}

^{11 The Prime Minister's website, <http://www.pm.gov.au/topics/education.cfm&gt;.}

^{12 An example is the requirement that the States and Territories commit to achieving national literacy and numeracy targets at Years 3, 5 and 7, as contained in the Schools Assistance Act and Regulations.}

^{13 Department of Education, Science and Training, Annual Report 2006–07, p. 3.}

^{14 The literacy and numeracy benchmark data is currently available for 2006.}

^{15 One State has not lodged its Compliance Certificate 2 for 2006. The department advised that it is in contact with the State on this matter.}

^{16 Educational accountabilities and further conditions must be met by the States and Territories whereas, for commitments, the States and Territories are required to demonstrate that best endeavours have been made.}

^{17 The department advised that it is proposing to follow-up with those States and Territories that were not compliant in 2006 with those agreement requirements (covered by both certificates) considered to be of continuing high priority. These requirements include for example, offering standardised assessments, reporting to parents against benchmarks, providing plain English student reports and publishing school performance information.}

^{18 Department of Education, Science and Training, Annual Report 2006–07, p. 3.}

^{19 PISA is a triennial survey of the knowledge and skills of 15-year-olds. It is the product of collaboration between participating countries and economies through the Organisation for Economic Co-operation and Development (OECD), and draws on leading international expertise to develop valid comparisons across countries and cultures. More than 400 000 students from 57 countries making up close to 90 per cent of the world economy took part in PISA 2006. The focus was on science but the assessment also included reading and mathematics and collected data on student, family and institutional factors that could help to explain differences in performance.}

^{20 For example, comparative data by state is published for: literacy and numeracy benchmark outcomes, by student sex, Indigenous status, language background and geo-location; the National Assessment Program sample surveys (science, civics and ICT) and for PISA, by student sex (as well as at the national level for other characteristics); and for data on the participation of young people, by age and Indigenous status (insofar as the data collection process permits).}

^{21 The benchmarks are a set of indicators or descriptors that represent nationally agreed minimum acceptable standards for literacy and numeracy at a particular year level. 'Minimum acceptable standard' means a critical level of literacy and numeracy without which a student will have difficulty making sufficient progress at school. Benchmarks represent only the essential elements of literacy and numeracy and not the full range of the curriculum at a particular year level.}

^{22 The department advised that, from 2007, variations between the States and Territories for student attendance, by school sector, year level, student sex and Indigenous status will also be published.}