The report 'analyses the results of our audits of financial statements of the ten NSW universities and their controlled entities for the year ended 31 December 2017'. The executive summary comments -
1. Financial reporting and performance
The financial statements of all ten NSW universities and 66 out of 69 of their controlled entities received unmodified audit opinions. The number of uncorrected misstatements continues to decrease. Two universities improved the readability and understandability of their financial statements by simplifying their disclosures. Six universities finalised their financial statements earlier than in previous years. Eight universities are yet to quantify the impact of new accounting standards applicable in future years. An accounting issue was identified relating to the recognition and measurement of payroll tax liabilities on employees' defined benefit superannuation contributions payable to the superannuation funds.
Recommendation: NSW universities should clarify the recognition and measurement of their liability for payroll tax on their defined benefit superannuation obligations before 31 December 2018.
Sources of revenue from operations
Government grants as a proportion of total revenue decreased over the past five years by 6.4 per cent.
Revenue from overseas student course fees increased by 23 per cent in the last year and contributed $2.8 billion to the NSW university sector in 2017. Revenue from overseas students from four countries comprised 37 per cent of total student revenues for all NSW universities.
Recommendation: NSW universities should assess their student market concentration risk where they rely heavily on students from a single country of origin. This increases their sensitivity to economic or political changes in that country.
The research income of NSW universities was $1.1 billion in 2016 and has grown by 9.8 per cent between 2012 and 2016.
Total philanthropic revenue increased by 1.0 per cent from 2016 to $151 million in 2017. Average investment returns fell from 7.0 per cent in 2013 to 5.8 per cent in 2017, while total investments grew to $5.4 billion in 2017 from $3.5 billion in 2013. Low interest rates have made investment in fixed income assets less attractive for universities. Over the last five years universities have increased their investment in non-fixed income (or market based) assets by 67.1 per cent. Most NSW universities have established investment governance frameworks.
Financial sustainability indicators
Operating expenditure per equivalent full-time student load (EFTSL) increased by 3.0 per cent in 2017. For six universities, the growth in operating expenditure has exceeded the growth in operating revenue, reducing operating margins. The risk associated with narrowing margins is compounded where universities have a high reliance on student revenues from a single source. Sudden changes in demand can challenge the ability of those universities to adjust their cost structures. Eight universities have current ratios greater than one in 2017.
Sixteen of the universities' 58 controlled entities that operate business activities reported losses in 2017 (15 in 2016). Overall, the financial performance of controlled entities operating business activities was positive, but results in 2017 were lower than in 2016.
2. Teaching and research
Achieving Australian Government target
NSW universities met the Australian Government target of having 40 per cent of 25 to 34 year-olds with bachelor degrees ten years earlier than the original target date of 2025. The proportion of 25 to 34 year-olds in NSW holding a bachelor degree increased to 43.4 per cent in 2017.
Graduate employment rates
Seven universities exceeded the national average for full-time employment rates of their undergraduates. Four universities exceeded the national average for full-time employment rates of their postgraduates.
Student enrolments by field of education
NSW universities have increased enrolments in fields of study that align with known skills shortages in NSW identified by the Australian Government for 2016 and 2017.
Achieving diversity outcomes
NSW universities agreed to targets set by the Australian Government for enrolments of students from low socio-economic status (SES) and Aboriginal or Torres Strait Islander backgrounds.
Low SES students
Three universities exceeded the target of 20 per cent of low SES student enrolments in 2017. At the current rate, it is unlikely most universities will reach the agreed target by 2020.
Six universities met their targets in 2017. The target is having a growth rate in the enrolment of Indigenous students that is more than 50 per cent higher than the growth rate of non-Indigenous student enrolments.
3. Financial controls and governance
Internal control findings
Eighty-three internal control deficiencies were identified during our audits, of which 40 related to Information Technology (IT).
High risk We identified a high risk finding in relation to storage of unencrypted username and password information on a database without appropriate access restrictions. We performed additional audit procedures to conclude that the control deficiency did not present a risk of material misstatement in the university's financial statements.
Moderate risk Forty-three moderate risk control deficiencies were identified, of which 22 related to IT and 21 related to governance and financial reporting. Twenty-four findings were repeat internal control deficiencies, of which 18 related to IT.
Recommendation: NSW universities should ensure controls, including information technology controls, are properly designed and operate effectively to protect intellectual property, staff and student data, and assets. Universities should rectify identified deficiencies in a timely manner.
Cyber security Our audits identified opportunities to improve cyber security controls and processes to reduce risks, including risks relating to financial loss, reputational damage and breaches of privacy laws.
Recommendation: NSW universities should strengthen their cyber security frameworks to manage cyber security risks. This includes developing:
• procedures, protocols and supporting systems to effectively identify, report and respond to cyber security threats and incidents
• staff awareness training and programs, including programs tailored for a range of audiences.
Use of credit card and work-related travel
All NSW universities had appropriate published policies on the use of credit cards and have internal controls and processes to implement those policies. The risk of unauthorised use can be mitigated by regularly monitoring use, and reporting instances of abuse and non-compliance for investigation and disciplinary action.