Government Details Main Wananga Issues

Cabinet Aide Memoire

Tertiary Education Issues

Two key tertiary education issues have gained prominence in the media in recent weeks. The most publicised has been matters relating to Te Wananga o Aotearoa. Against this backdrop, the overall value of spending in sub-degree tertiary education provision has also been questioned.

Today (Monday 28 February 2005) I intend to announce a package of initiatives to address these issues, both in terms of dealing with immediate concerns and in terms of addressing longer-term sustainability and value for money issues in sub-degree tertiary education generally.

The government acknowledges the significant gains that Te Wananga o Aotearoa (the wananga) has contributed to Maori education, in particular by engaging large numbers of learners who have previously been disenfranchised by the education system.

However a range of concerns relating to the wananga exist, including:

Huge growth in student enrolments may have had an adverse impact on the quality of educational provision;

There is evidence of ineffective governance, with particular concerns around the independence of the council from the chief executive;

There is a lack of transparency around transactions between the wananga and the Aotearoa institute, an independent charitable trust, and other entities associated with senior personnel at the wananga;

There has been evidence to suggest that internal control and audit systems within the wananga are weak and ineffective, and that taxpayer funding may have been used inappropriately;

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The wananga has demonstrated a lack of ability to stick to its own budgets, and a lack of ability to reforecast and adjust budgets as circumstances change; and

There is a lack of certainty about the short-term financial viability of the wananga.

All of the above concerns have led to decreasing public confidence in the wananga.

In summary, I intend to announce:

The appointment of a Crown Observer to the Council of the wananga, effective immediately;

My intention to appoint a new member to the vacant ministerial appointment position on the Council of the wananga;

That I have asked the Tertiary Education Commission to negotiate on my behalf changes to the Charter of the wananga in order to focus the institution on its core functions and strengthen governance;

That I intend to recommend that the Auditor General focus the first part of his investigations on the relationship between the wananga and the Aotearoa Institute and other entities, and on international travel by the wananga’s senior management over the past two years;

That I have asked the Secretary of Education to give notice of his intention to change the wananga’s current overdraft conditions by requiring the Council to delegate its financial powers to the Crown Observer who will then become the Crown Manager;

That should the wananga decline to comply with (e) above, the probability of the wananga becoming insolvent is significantly increased, and should insolvency become apparent, I will appoint a Commissioner to replace the Council of the wananga;

That as the wananga have not met the conditions to access the suspensory loan, I will not be recommending to Cabinet that the wananga be given access to the suspensory loan at this time;

That by this afternoon the Secretary of Education will identify a single point of contact for any staff, students or members of the public who wish to raise concerns or provide information about the wannaga; and

That with regard to value for money in sub-degree tertiary education provision I have commissioned work by the Ministry of Education, the Tertiary Education Commission and the New Zealand Qualifications Authority to address concerns with the quality, relevance and value-for-money of sub-degree courses funded through the student component.

Te Wânanga o Aotearoa (TWOA) - Intervention Options

Interventions always need to be carefully balanced. In this case I believe it is very important to keep the focus on the failure of governance and management. Failures of governance and management have clearly put the institution at risk in a financial sense and acted in such a way as to severely erode the public’s confidence in their ability to manage public funds effectively. Intervention is necessary to protect the wananga’s education functions for students.

The government wants a strong and successful institution, acknowledging what has been achieved, but focusing on student achievement and the quality of the programmes offered rather than on volume growth. This is consistent with the overall thrust of government tertiary policy and what it is expecting in the focus of the wânanga’s charter.

While the wânanga is in some short-term difficulty its prospects this year are strong under current policy settings. I have asked the TEC for a report on how it might limit expenditure on low-level EFTS to the agreed cap. Given the amount of cash that could be available therefore it is even more important for the Crown to be confident that it will be appropriately spent with appropriate safeguards with the direct intent of advancing student interests and Mâori education. Following this the interventions mentioned below are designed to facilitate the development of TWOA as an effective provider of high quality education within the tradition of wânanga and from a platform of financial strength.

There is no simple intervention that will suddenly change the culture of this organisation. Rather the focus and hence the main intervention options outlined below must provide multiple influencing points while establishing as quickly as possible a platform of financial probity that does not as yet appear possible from within the organisation.

Intervention one: Crown Observer/Charter etc

I have advised the Council of TWOA of my wish to appoint a Crown
Observer pursuant to Section 195C of the Education Act and invited their comments. They have accepted the proposal and I will now confirm the appointment of Mr Brian Roche. He will by the end of March:

advise whether there are appropriate, achievable financial plans in place for 2005;

on the basis of those plans and other information, advise whether the proposed Crown loan will be used appropriately to support the wânanga’s core education function. In this regard I will want assurances that it will not be used for payments to third parties other than as needed for core functions and is not simply to be used to offset poor or unjustifiably weak financial performance; and

advise whether the institution is likely to face serious financial issues in 2005.”

In addition to this appointment, I intend to bring to APH and Cabinet a proposal to appoint a strong council member with sound governance skills and experience, strong mana which might impact on the Council and no significant connection with the CEO. I will make a proposal as soon as possible. My aim is to have four ministerial appointees in place who understand the Crown’s concerns.

I also propose to ask that the Charter be renegotiated with a particular view to including:

a strategic focus related to the definition of a wânanga in the Education Act. This will mean a prime focus on Mâori needs and Mâori education – at present less than 50% of the students are Mâori and the charter authorises it to be NZ’s leading provider of foundation education;

some compulsory clauses around governance, the definition of the entity; the responsibilities of management and governance and dealings with related entities all of which are absent from the current charter.

This will provide a strategic framework within which TEC will then have to negotiate the next profile.

Intervention two = Inquiry

This could run in parallel with almost all interventions. I did refer draft terms of reference to the wananga for a voluntary independent review. The wananga in reply has suggested a Commission of Inquiry into issues. This has a number of complications. Officials advise that the wananga does feel that it has not been treated fairly by the Crown in a range of ways and it is likely therefore that the Council would use the Commission to advance such concerns in ways that would be counter-productive to the effective progress of the inquiry.

A Commission of Inquiry is also likely to prove both expensive and time consuming for both the wananga and the government. The wananga have indicated that they would prefer not to have multiple inquiries looking into the same issues.

It is preferable to extend the scope of the Auditor-General’s assignment to pick up all of the probity and related issues. This is the “normal” and authoritative way of resolving such issues. The Auditor-General has offered to bring forward some components of his review. It would seem prudent to do this and ask him to focus in the first part of his work on:

dealings with and relationship between the wânanga Council and CEO and Aotearoa Institute which is an apparently separate trust. Currently the CEO and Interim CFO are members of the trust.

the effectiveness of the management of relationships between the wânanga and separate companies/entities, in particular those owned by members of Mr Wetere’s family and/or where there have been transactions to acquire courses and intellectual property; and

international travel and associated funding for travel by senior management over the last two years.

I have also asked officials for advice on how we can ensure that Aotearoa Insitute’s dealings with wânanga and senior staff meet the standards appropriate for a TEI.

Intervention three = Crown Manager

This intervention involves the Council delegating the totality of its financial powers to a Crown Manager. The advantage of this intervention is that financial control is removed from the Council and financial delegations can be reviewed and immediately changed. I see this step as being in the longer term interests of the viability and credibility of the institution. It is the only option which might allow the council to avoid being disestablished and a Commissioner appointed if the institutions financial position continues to worsen. The arrangement has been used in Northland, Wanganui and Taranaki reasonably successfully. Unless the senior management and Council are cooperative it does however have high transaction costs at the operating level.

I have asked the Secretary of Education to approach TWOA giving notice of his intention to change the current overdraft conditions to accommodate the current public concerns by requiring the Council to delegate its financial powers to the existing Crown Observer who will become then the Crown Manager. Without agreement the borrowing approval will lapse. The BNZ, the wânanga’s bank, can be expected to put some pressure on the Council once informed of the change.

The Tertiary Education Commission is the prime funder of TWOA and I understand that the Commission will now review the situation and seek advice from the Tertiary Advisory Monitoring Unit on viability issues. The Ministry of Education and the Commission will investigate whether and under what authority a crown manager or similar function could or should be imposed in order to ensure that the funding is used effectively to achieve outcomes for students in line with the purpose of the student component.

Should the Council refuse the Secretary’s request then the institution faces a high chance of insolvency. This would add further support to the appointment of a Commissioner which would lead to the dissolution of the Council.

Suspensory Loan

On 9 July last year TWOA requested payment of the $20 million suspensory loan provided for in the Waitangi Tribunal settlement. The settlement agreement sets out conditions to be met for the payment of the suspensory loan. There was no report on achievement by established criteria and no proposal for future KPIs which are required to be used for considering converting the loan into equity. On 22 July the Ministry of Education reminded the wânanga of the need for an agreed performance agreement. The request came at a time when there was no obvious pressure on liquidity.

There were intensive discussions with the wânanga in November/December which really got into impasse around the issue of the proportion of students who were and would be Mâori (currently under 50%). It was also clear that the issues both of achievement and of future KPIs did not have any strong basis in Council approved strategy. The Tertiary Advisory Monitoring Unit believes that there has been no substantive engagement by the Council on this issue.

The Ministry has told the wânanga Council in face to face meetings and followed up by letter that

the process regarding the suspensory loan requires both the Secretary to agree that the performance has at least substantially met the criteria established at the time of the agreement and for TWOA and the Ministry to agree on forward KPIs which may then be used to judge whether the suspensory loan will be converted into equity;

there is no completed case submitted from TWOA. The letter of 9 July from TWOA simply asserted that all the criteria had been met. What we have therefore is a request and then various bits of information;

the deed of settlement was reached in the context of education for Maori. The major variance in performance and the major issue for the forward KPIs is therefore the issue of the percentage of Maori students. The KPIs, it was suggested, needed to reflect the Council’s strategy and be able to be related clearly to the original settlement’s objectives;

we would normally expect some engagement with the Council around these issues and certainly the Council needs to agree to the set of indicators.

The wânanga has increased pressure on the Crown to make this loan and retained Chen and Palmer to assist. I have made it clear that there can be no question of the loan proceeding until due process has been completed, the case established and the Crown given confidence that the funds will be properly used. Short term financial cashflow issues can and should be dealt with through overdraft facilities.

We will be engaging with the wânanga on this issue. The establishment of performance indicators will need to link clearly to the wânanga's ability to provide confidence of its conformity with government policies, its charter, financial probity and the direction and control of its council. This will not be easy and in reality there will be strong links to the other steps.

Wananga conclusion

Overall therefore attaching conditions to the overdraft, the TEC funding and the Suspensory loan is a reasoned and responsible approach to protect and build education quality and return the TEI to financial strength.

Value for money work on sub-degree tertiary education provision

With regard to the questions around value for money in sub-degree tertiary education provision I have commissioned work by the Ministry of Education, the Tertiary Education Commission and the New Zealand Qualifications Authority to address concerns with the quality, relevance and value-for-money of sub-degree courses funded through the student component.

Much of Te Wananga Aotearoa’s current provision is in the categories of courses that will be investigated in this work.

This work programme is to be completed by the end of May 2005, to enable me to report to the Cabinet Policy Committee in June with options for ensuring the quality of sub-degree tertiary education spending. I will be discussing this work programme with the Minister of Finance at our budget bilateral meeting on Wednesday 2 March.

This work follows up on Cabinet Policy Committee’s concerns in October 2004 that there may be a need to consider extra measures to improve the quality of course provision in the tertiary sector [POL Min (04) 24/3&5 refer].

The work will focus on options that can impact in 2006 – both by tightening up the application of current policy settings and options for policy change. The focus is on courses that:

have large EFTS volumes and/or have experienced rapid growth;

have limited assessment content;

have limited connection to labour market needs, or are largely formalising learning that was previously happening in an informal and unfunded setting;

appear to be subsidised at a level that well exceeds the cost of provision.

This work builds reviews already underway and on education agencies’ “core business”. It includes:

Expanding the scope of the TEC’s reviews of funding category A1/J1 courses (80% of sub-degree EFTS) – to scrutinise courses with rapid growth, high levels of self-directed learning and limited assessment, low or zero fees, or low relevance to their apparent purpose (eg vocational programmes’ relevance to labour market needs).

Note that Te Wananga Aotearoa courses make up 49% ($164.7m - 28,000 EFTS) of funding category A1; and 10% ($13.8m for 2,300 EFTS) of funding category J1 expenditure forecast for 2005.

NZQA reviewing the credit value of sub degree courses (credit values determine EFTS values and therefore the amount of money institutions receive);

Tighter monitoring of powers delegated by NZQA: an audit of delegations to the sector quality assurance bodies (ITPQ and CEAC), and monitoring and audit of delegations to academic boards (eg – to approve content and credit value of local courses);

Identifying options for short-run and longer-term changes that may be necessary in tertiary resourcing, regulation and quality assurance policy settings;

Bringing forward advice on moving funding category 5.1 funding into the ACE funding pool or other capped pools.

Ways that this work will be given effect include:

TEC profile approval decisions – including not to fund or to limit the size of courses;

NZQA’s powers to decline, impose conditions on or issue compliance notices regarding providers’ registration, course approval and accreditation, and the deregistration of PTEs;

Tightening A1/J1 “local” course approval processes at Polytechnics and Wananga;

Tightening processes for assignment of EFTS values and credit values; and

Policy changes recommended to Cabinet.

Trevor Mallard
Minister of Education

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