Summer Special: Audit Office releases report on the VET FEE HELP mess

The VET student loans catastrophe will cost taxpayers $2.2bn

plus expert analyst Mark Warburton’s explains the report and points to surprises

Dimensions of disaster

The taxpayer will lose $2.2 bn in the failed VET FEE HELP student loan system, much of which may not need been lost if officials had acted on concerns with the rapid growth in the loan programme raised in June 2014. The Memorandum of Understanding between the Department of Education and Training and the Australian Skills Quality Authority proposed then was only put in place two years later.

According to the Australian National Audit Office released yesterday, the VFH scheme,

“was not effectively designed or administered. Poor design and a lack of monitoring and control led to costs blowing out even though participation forecasts were not achieved and insufficient protection was provided to vulnerable students from some unscrupulous private training organisations.”

The ANAO quotes the Australian Government Actuary  in June as estimating that $1.2bn “issued inappropriately” by VFH providers would not be recovered. A further $1bn will not be repaid due to loan recipients not making the repayment threshold.

The ANAO attributes multiple failings to the Department of Education and Training.

“As the responsible department, Education did not establish processes to ensure that all objectives, risks and consequences were managed in implementing the expanded scheme.

“The department’s focus on increasing participation overrode integrity and accountability considerations that would have been expected given the inherent risks.

“The department inadequately considered the implications of the changed incentives facing providers and students in the expanded scheme and its role in ensuring effective regulation in conjunction with other regulators—principally the Australian Skills Quality Authority and the Australian Competition and Consumer Commission.

“There was also a lack of data analytics capability in Education and little internal management reporting or analysis of the VFH scheme to identify emerging problems.

“The department did not develop measures to assess broader objectives of the scheme (beyond growth) including those related to value and quality in the VET sector.

“As the responsible department, Education did not establish processes to ensure that all objectives, risks and consequences were managed in implementing the expanded scheme.

There’s more, but you get the idea. So does the Department of Education and Training which thanks the ANAO for the report and points to improvements in administration since 2015.

Yesterday Education and Training Minister Simon Birmingham, welcomed the report, blaming the mess described on the last Labor Government, which created the scheme. However Senator Birmingham makes no mention of the way the crisis continued under the coalition. The government only began to adequately address the crisis when he became junior training minister in December 2014. He intensified efforts to create a solution when he became portfolio minister the following September.

Senator Birmingham also said yesterday that the Audit Office report was ‘the final word’ on the scheme. CMM hopes not –there are $2.2bn reasons why DET needs to account for its performance.

ANAO’s ‘Christmas present’ for the Education Department

by Mark Warburton

The ANAO’s audit report on The Administration of the VET FEE-HELP Scheme was tabled in Parliament yesterday. Many of its conclusions are expected, but the report is not without surprises.

The expected

No one interested in tertiary education will be surprised to read “The VFH scheme was not effectively designed or administered”; there was “a lack of monitoring and control” and “insufficient protection was provided to vulnerable students”.

The ANAO is clear that the education department, rather than ASQA, the ATO or the ACCC, had prime responsibility for the VET FEE-HELP scheme. It is also abundantly clear that despite some deficiencies in relevant laws and regulations, the “administration of the VFH scheme did not safeguard its operation, and did not support the achievement of objectives relating to integrity, quality, value and sustainability. … there were weaknesses in Education’s administrative processes for: approving VFH providers; developing and undertaking risk, fraud and compliance activities; controlling payments to providers; making information readily available to students about their rights and obligations under the VFH scheme; and managing and resolving student complaints.

The ANAO correctly pinpoints that the education department knew many of the risks, but did little to manage them until into 2015. It finds that the Department had little involvement with students or their applications for VET FEE-HELP; was slow to act to protect vulnerable students even after receiving advice to act urgently and its handling of complaints was inadequate.

It was equally damning on the department’s past approach to regulation and compliance. In 2012, it “did not promptly clarify the roles and regulatory powers of the Department and other regulators, to ensure a sound regulatory framework for VFH”. Of particularly significance, the ANAO found “that elements of the VFH operating environment were conducive to designing an effective compliance strategy”. The Department could have readily identified the small number of providers at greater risk of non-compliance and done something about it.

The surprises

The biggest surprise in the ANAO report is the absence of any recommendations, despite its findings having application to both the new VET Student Loans scheme and similar higher education schemes. The ANAO notes that VFH is to cease shortly and has simply provided ‘lessons learned’. These lessons are important, but they are hardly new. In terms of policy development and program implementation, they are the equivalent of basic literacy and numeracy.

The inclusion of recommendations about the extent of involvement that the Department should have with students applying for an income contingent loan, about the respective responsibilities of the Department and sector regulators and about the Department’s administration of student entitlements, in my view, would have provided a valuable contribution to ensuring that the VET FEE‑HELP debacle does not recur with any of the various income contingent loan schemes operating in the Tertiary education sector.

There were other surprises. We are told:

The report of the Australian Government Actuary to Education, 18 August 2016, estimated that $1.2 billion relating to loans issued inappropriately by VFH providers in 2014 and 2015 would not be recovered.

This could be an estimate of the level of payments made to providers where there was no student entitlement or where there was potentially fraudulent activity. It is surprising that we do not get any more information about this statement – no clarification about what is meant by ‘issued inappropriately’ and no recommendation on what might be done about these inappropriately issued loans.

We are also told that the Education Department commissioned surveys of students of ‘VFH providers at the higher end of inappropriate business practices’ and found that 25 per cent of enrolments ‘were for students who were unaware they had been enrolled in a course, or had entered into a loan arrangement’. The ANAO report doesn’t examine the question ‘How could such students have lodged an application for VET FEE-HELP without knowing?’ or the question ‘How could these students be bona fide enrolments with an entitlement to VET FEE-HELP?’.

Also surprising is the way the ANAO report deals with the ATO providing Tax File Numbers (TFNs) to VFH providers for students who had not done so themselves. Provisions in the Higher Education Support Act 2003 allow this to occur. The ANAO states that the ATO estimated it “has responded to thousands of requests from VFH providers for student TFNs, with some requests listing up to 200 students’. It then tells us that Education has advised that the practice has now been terminated. We are not given any hint as to whether the practice materially contributed to people being inappropriately issued with a loan.

The outstanding question for Government

In discussing the Education Department’s auditing of 28 providers, the ANAO has suggested the draft reports ‘appear to provide a basis … for withholding and potential reduction of payments to a number of providers’. This is a position for which I have strongly argued.

That doesn’t appear to be the Education Department’s view as we are told “through court cases currently underway, education is testing whether … there is a legal requirement for the department to pay money based on a record of enrolment, rather than proof that the student is actually studying

The ANAO report is damning of the Education Departments administration of VET FEE-HELP. It hasn’t made recommendations for action but has added weight to the view that the result of this debacle is that there are many individuals with large debts inappropriately recorded against their names.

We are no closer to knowing if the Government is going to do anything about it. It should!

Mark Warburton, Honorary Senior Fellow. LH Martin Institute

 

 

 

Know something the world needs to know? Anonymity guaranteed but lots of questions asked, stephen4@hotkey.net.au