Results of 2018 Audits: Technical and Further Education Institutes

Tabled: 30 May 2019

3 Financial sustainability

To be sustainable, TAFEs need to efficiently manage their resources to respond to future changes and foreseeable risks without compromising the quality of services, and avoid large fluctuations in expenditures and fees.

3.1 Conclusion

We have assessed that the sector is financially sustainable in the short term. Figure 3A shows the overview of financial results.

Figure 3A
Overview of financial results

Figure 3A displays an overview of financial results

Source: VAGO.

3.2 Financial results

In 2018, the sector generated a net surplus of $67.7 million for the year. This is $9.8 million less than last year, which was a $77.5 million surplus.

Of the 12 TAFEs, 11 generated a net surplus in 2018, compared to 12 in 2017. Goulburn Ovens Institute of TAFE recorded a small deficit this year ($173 000), due to a drop in student enrolments and fee-for-service revenue.

Sector revenue increased by $73.1 million (6 per cent) for 2018 to $1 218 million; however, sector expenditure increased by $85.8 million (8 per cent) to $1 153 million.

The increase in expenditure was mainly due to a $47.5 million (7 per cent) increase in employee benefits expenses. More staff are being employed across the sector to meet higher service demand in relation to fee-for-service revenue, and there was a new teaching Enterprise Bargaining Agreement (EBA) and general EBA pay increases.

The 12 TAFEs received $340.7 million in contestable funding in 2018, $18.9 million less than in 2017, because of lower student contact hours and lower enrolments compared to the prior year.

The 2018 Victorian State Budget included $172 million for Free TAFE, an initiative to subsidise the costs of 50 TAFE courses and
pre-apprenticeships in areas deemed high priorities for future growth.

Under the Free TAFE initiative, the government will pay course tuition costs.

We noted the state government's announcement in May 2018 that it would introduce a number of 'Free TAFE' courses, commencing from 1 January 2019. The decline in enrolments across 2018 can partly be attributed to the impending commencement of Free TAFE. This decline in contestable funding was offset by increases in operating funding provided by DET to the sector and increases in fee-for-service generated revenue.

Fee-for-service revenue generated by TAFEs increased by $55.1 million (18 per cent) during 2018. The sector continues to increase its fee-for-service revenue from several streams, including government, international onshore and offshore sources. Fee-for-service revenue has steadily increased between 2014 and 2018, and surpassed contestable funding in 2018 for the first time. TAFEs have been diversifying their revenue streams and relying less on state government funding. This may help TAFEs mitigate funding risks that might occur from changes in funding models or declining government subsidised student enrolments.

Figure 3B shows the trend in contestable funding against fee-for-service revenues over the past five years.

Figure 3B
Contestable funding and fee-for-service revenue for the years ended 31 December 2014–18

Figure 3B shows the trend in contestable funding against fee-for-service revenues over the past five years.

Source: VAGO.

Fee-for-service government revenue showed the largest improvement, increasing by $33.4 million, or 38 per cent, between 2017 and 2018. This was achieved through:

  • a greater number of government agencies upskilling their staff
  • large government training contracts entered into in 2018.

3.3 Student enrolments

Figure 3C shows the trend in total government-funded enrolments across the 12 TAFEs over the past five years.

Figure 3C
Total government-funded enrolments and annual growth rates across the 12 TAFEs for years ended 31 December 2014–18

Figure 3C shows the trend in total government-funded enrolments across the 12 TAFEs over the past five years.

Source: VAGO.

New enrolments

Figure 3D shows the trend in new government-funded enrolments for the TAFE sector over the past five years.

Figure 3D
New government-funded enrolments across the 12 TAFEs for the years ended 31 December 2014–18

Figure 3D shows the trend in new government-funded enrolments for the TAFE sector over the past five years.

Source: VAGO.

From 2014 to 2015, new government-funded enrolments declined significantly as TAFEs competed for students against private training providers. In 2016 and 2017, new enrolments increased marginally; however, they declined again in 2018. Preliminary information collected by TAFEs indicates that the decline in enrolments may be partly due to students deferring enrolment in order to access the Free TAFE initiative, which commenced in 2019.

The downward trend in new enrolments results in less contestable funding for the sector. If this trend continues over the long term, TAFEs will face increased sustainability risks unless they can increase other revenue streams. However, it is forecasted that the commencement of Free TAFE will have a positive impact on commencements.

Sustainability

To be sustainable, TAFEs need to efficiently manage their resources to respond to future changes and foreseeable risks. TAFEs should achieve this without compromising the quality of their services and avoid large fluctuations in expenditures and fees.

The short-term health of the TAFE sector can be judged by evaluating its:

  • annual financial results
  • financial position at the end of the year
  • patterns and trends in financial results over time.

We have assessed the sector's financial sustainability against two key indicators over the past five financial years:

  • Net result ratio—a positive net result ratio indicates a surplus. The larger the surplus, the stronger the result. A negative result indicates a deficit. Operating deficits cannot be sustained in the long term.
  • Liquidity ratio—a ratio of one or more means there are more cash and liquid assets than short-term liabilities.

Figure 3E shows the combined sector average net result ratio over the past five years. Figure 3F shows the combined sector liquidity ratio over the past five years.

Figure 3E
Combined TAFE sector average net result ratio for the years ended 31 December 2014–18

Figure 3E shows the combined sector average net result ratio over the past five years. Figure 3F shows the combined sector liquidity ratio over the past five years.

Source: VAGO.

Figure 3F
Combined sector average liquidity ratio for the years ended 31 December 2014–18

Figure 3F shows the combined sector average liquidity ratio for the years ended 31 December 2014–18

Source: VAGO.

The improvement in the average net result and liquidity ratio of the sector over the last five years has been achieved through:

  • increased funding provided to the sector over 2014–18
  • TAFEs continuing to increase fee-for-service revenue.

The liquidity ratio of the sector continues to remain well above 1.0, which means that there are no immediate concerns about the sector meeting its short-term financial obligations as they become due.

Appendix E details our financial sustainability risk indicators for each TAFE.

Efficiency and effectiveness of operations

TAFEs measure and report on their efficiency and effectiveness through two KPIs included in their audited performance report:

  • employment costs as a percentage of training revenue
  • training revenue per full-time equivalent teaching member.

Each TAFE board sets its own targets for these measures before the start of the financial year.

Most TAFEs did not achieve their set targets for these two measures in 2018, so were not operating as efficiently or effectively as originally planned. This was partly caused by the new teaching EBA and more staff being employed across the sector.

Figure 3G provides a summary of results of these two measures against the targets for each TAFE.

Figure 3G
Target and actual 2018 efficiency and effectiveness indicator results by TAFE

 

Employment costs as a proportion of training revenue

Training revenue per teaching FTE

Target

Actual

Target

Actual

Bendigo Kangan Institute

72.7%

84.1%

$277 108

$244 153

Box Hill Institute

89.0%

85.5%

$200,000

$198,100

Chisholm Institute

73.0%

72.1%

$206,000

$226,639

Federation Training

94.0%

100.0%

$203,000

$179,628

Gordon Institute of TAFE

107.0%

107.1%

$141,963

$140,177

Goulburn Ovens Institute of TAFE

117.4%

134.6%

$136,475

$103,394

Holmesglen Institute

80.0%

81.0%

>$203,000

$194,824

Melbourne Polytechnic

95.0%

97.5%

$200,000

$199,000

South West Institute of TAFE

117.0%

130.5%

$135,000

$133,492

Sunraysia Institute of TAFE

125.0%

144.1%

$121,518

$116,126

William Angliss Institute of TAFE

<79%

81.5%

$231,500

$206,858

Wodonga Institute of TAFE

95.0%

85.2%

$141,855

$156,597

Note: Green actual results mean the target was achieved. Red actual results mean the target was not achieved.

Note: FTE = full-time equivalent

Source: VAGO.

 

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