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Investigation Into Abuse Of Government Funding

28 March 2002

Investigation Into Abuse Of Government Funding Of Tertiary Education Continues

Initial investigations into the Practical Education Training Centre (PETC) and its enrolled students have confirmed misuse of government funding, says Associate Minister of Education (Tertiary Education) Steve Maharey.

An investigation, launched in December 2001, into the New Plymouth based PETC and its distance travel students has revealed the scale of possible misuse of education funding, as a result of the offering of inducements like computers, is wider than expected.

PETC had offered computers to students as part of its distance travel courses. The offer encouraged a number of people to enrol as students to obtain a computer as part of student fees, many of which were paid for with student loans. A number of these computers have since been on-sold to second hand dealers. In addition, a number of students have used funding of their course related costs claims for other than educational purposes.

¡§A check of all 30 private providers of extra mural education has revealed some cases of similar patterns of low completion rates and the provision of inducements. Investigation on of these cases is ongoing. Funding to PETC¡¦s distance courses remains suspended. This includes access to the Student Loan Scheme. The suspension will continue until I am satisfied the money is being used for education.

¡§An initial report from the Ministry of Social Development, which is responsible for administering the Student Loan Scheme, shows there was misuse by students enrolling at PETC though it is difficult to prove the intention of students not to undertake study. I have asked the MSD to expand its investigation to look at the records of all PETC distance travel students enrolled during 2001.

¡§MSD will initially be writing to just over 400 students asking them to provide evidence that they have at least undertook some study. Those unable to do so will face either having debts established immediately against them by MSD or face police prosecution, depending on the circumstances.

¡§In addition, the Ministry of Education and the New Zealand Qualifications Authority are in discussion with PETC over an independent investigator¡¦s report.
. . / 2
¡§PETC will have the usual rights under law to comment and those comments will naturally be taken into consideration before a final decision is made on action and the report released.

¡§While I had hoped the investigation might have been completed by now, I am determined to ensure that the investigation into both students and the provider is as thorough as possible and due process is followed. Education, jobs and a business are dependent on the outcome of the investigation so it is important the Government agencies get it right.

¡§To this end we have implemented a comprehensive interagency risk management framework. I have been assured that this system will identify and monitor closely any suspicious enrolment activity in the future and minimise any further occurrences. In addition, we will insist that in the future all education providers demonstrate that tools and other extras offered as part of a course are absolutely necessary for that area of study.

¡§Second chance education is a priority for this Government. I am confident that the new provisions will prevent incidents of this kind happening again. However, I do not intend to let this incident constrain our delivery of education or put barriers in the way of any student who has a legitimate right to education," concluded Steve Maharey.

Questions and Answers

When will the investigation be complete?

Since it started I have been adamant that this investigation be painstaking and thorough. The draft report from the Ministry of Education and the New Zealand Qualifications Authority on the actions of Practical Education Training Centre is complete and will now be discussed with them. As I intend to release both reports at the same time, the widening of the MSD investigation points to a release date around June 2001.

If the investigation of PETC has been completed why won't you release it?

First, there are two separate issues here. I have received the draft report on the actions of the New Plymouth based Private Education Training Centre (PETC). At this time PETC has not has an opportunity to read the report and comment on it, both in terms of accuracy and also the investigators conclusions. Their right to do so, before it is made public, is a matter of justice and fairness.

The second investigation is the Ministry of Social Development¡¦s investigation into individual students. MSD are currently investigating possible suspicious activity by PETC distance option travel students within the loan scheme. An initial investigation over the summer identified that further investigations were required.

Has the investigation taken longer than you had wanted?

Given the complexities and difficulties the government agencies involved have been working carefully and thoroughly through the issues to ensure that students and the provider are treated fairly and properly.

I think that it would be fair to say that none of the government agencies involved had systems fully in place to deal with problems of this size at PETC. We are dealing with a provider with over 4,000 students, the largest PTE in the country.

There were naturally difficulties with getting information over the Christmas break and PETC needed to be given time to prepare and respond to the investigations.

How many students are under suspicion?

At this stage MSD cannot confirm how many PETC travel students may be subject to further investigation. However, we still believe the majority of students studying at PETC are doing so without abusing the system. Every effort is being made to ensure that the interests are protected for those students at PETC who are legitimately getting on with the business of gaining an education, and who are submitting and completing unit standards to NZQA.

What penalties do PETC and students face?

If found guilty of student loan fraud or a breach of the student loan contract, a student would face the prospect of having to immediately repay their debt and possibly, depending on the circumstances, prosecution.

The Ministry of Education will be in active negotiations with PETC regarding government tuition subsidies paid to the provider for students who failed to undertake any of the academic requirements towards the qualification.

If the Centre is found to have known about or suspected fraud or misappropriation on a considerable scale, the Ministry will demand that tuition subsidies paid to PETC for students who didn¡¦t study be repaid. PETC also faces possible termination of access to further government funding. Following NZQA investigation, PETC registration as a PTE could be cancelled. That action would automatically cease PETC¡¦s access to government assistance.

Will any prosecutions be brought as a result of the investigations?

Before the investigation is complete it is not appropriate to comment on the likelihood of prosecution. However, I am determined to make it clear that this sort of behaviour is completely unacceptable. If the reports demonstrate evidence of criminal activity I will take whatever steps are necessary.

Exactly how much money has gone into PETC?

In 2001 PETC has received:
„h $17 million in student loan money for tuition fees;
„h $4.4 million in tuition subsidies

Is the money recoverable?

If it is found that students have abused or defrauded the loan scheme, MSD would not transfer their loan to IRD for collection in the future, but would likely take immediate action to recover this debt from the student.

If PETC is found not to be entitled to any of the funding it has already received from MoE, the amount overpaid will be recovered from PETC.

What about students who are currently enrolled and have legitimately studied?

Students who have enrolled at PETC, been undertaking work and achieving unit standards can continue with their studies. Unit standards completed by students will be recorded with NZQA. As students enrolled in these qualifications are not in receipt of student allowances or the living cost component of the Student Loan Scheme they will not be too adversely affected during the investigation.

We are working as quickly as possible to protect the interests of existing students.

How widespread is this type of activity?

Investigations at other providers have confirmed the Government¡¦s view that the behaviour at PETC was not widespread. PETC was the fastest growing, in terms of student numbers, private provider in the country. Only 30 PTEs in receipt of Ministry funding offer distance provision. PETC is the only provider to experience this level of growth in distance provision.

Following Ministry of Education investigations, two other providers were found to be involved in similar course structures to PETC, offering computers with distance education with very poor completion rates. Both institutions were very co-operative, have only claimed genuine students for funding, and the courses are now no longer taking new enrolments. NZQA and the Ministry of Education are monitoring closely the academic achievement within distance qualifications at PTEs.

What we know is that some institutions offer incentives/inducements to students to enrol eg: computers, overseas travel, dive equipment. In some cases, these will be quite appropriate and relevant to the course. However, there are some instances where we are not convinced of this. The Government¡¦s new package of initiatives, announced in November 2001, is designed to sort this out.

Who are these two providers and how many students were involved?

I am not prepared to name the other two providers. The number of students involved were far less than at PETC, and the Ministry is confident that provider complicity in misuse of the student loan scheme was not involved. In one instance it was the provider who drew to the attention of the Ministry possible misuse and both providers have been very co-operative and the problem has been resolved.

Can you guarantee that this sort of thing won¡¦t happen again?

Obviously we always have to balance access to education against abuse of the system. I am fiercely protective of the right of all New Zealanders to have easy access to education and will do everything I can to ensure it. One of the positive things to come out of this affair is the way in which a number of Government agencies are now working together to prevent its recurrence.

I am confident that the implementation of a comprehensive interagency risk management framework will protect us in the future. This framework will be used to identify providers that might be at risk, prior to the ¡¥failure¡¦ occuring, including financial failure, mismanagement, and failure to deliver educational outcomes. The framework is still under development.

How many students have graduated from the two PETC travel courses?

Since January 2000 56 students have graduated from PETC in the National Certificate in Travel ¡V Level 3 by distance. That is about a 9% of the 2000 student intake. Just over 650 students had enrolled in the 50-week programme by December 2000, and would therefore have been expected to complete the qualification, by, say, the end of 2001.

What is NZQA doing to make sure that courses being provided are of a good quality?

NZQA audits private providers annually and is entitled to conduct additional special audits whenever there is an indication of potential problems. NZQA is working more closely with MOE and other agencies to develop indicators that will provide earlier signals of potential problems.

Why is government funding of PTEs apparently so easy to abuse?

In the past funding policies has been as open as possible in order to encourage participation. We don¡¦t want to lose the benefits of that system, which has resulted in large increases in participation in tertiary education and training. The key is to ensure that there are systems in place to identify the people who want to get access to tertiary education, as opposed to those who are out to exploit possible loopholes in the provision of government funding.


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