by GARRY CARNEGIE and JAMES GUTHRIE
The audited financial results of the eight public universities in Victoria for the year to December 31 2019 were publicly reported on 30 June 2020 by the Victorian Auditor-General’s Office (VAGO), in Results of 2019 Audits: Universities.
The eight public universities in Victoria control a further 48 entities. Therefore, VAGO conducts the financial audits of these 56 entities.
The financial snapshot of the Victorian public university sector for the year ended December 31 2019 showed total revenue of $11.3 billion (up 8.5 per cent from 2018) and total expenditure of 10.3 billion (up 3.3 per cenrt from 2018). This provides an overall excess of revenue over the expenditure of $1 billion.
From the perspective of the audited statements of financial positions, total assets in the Victorian sector as at December 31 2019 amounted to $26.9 billion (up 12.4 per cent from 2018), while total liabilities were $7.5 billion (up 27.2 per cent from 2018). The main factor increasing total liabilities overall in 2019 is due to universities recognising “$1.5 billion in contract liabilities under the new revenue [accounting] standards that they would previously have recorded as revenue”.
The VAGO report considered the matter of “post balance date events”, given that the COVID-19 health crisis which impacted in early 2000. Hence, the 2019 financial results were primarily completed by 31 December 2019, but not the complete annual reports.
Concerning these events, the report states: “While COVID‐19 was detected overseas in December 2019, it did not affect Australia until 2020. Universities assessed this subsequent event as material to their operations and were required to disclose its impact in the notes within their financial reports. Due to the significant uncertainty surrounding the pandemic, the universities were not able to reliably estimate its financial effect at the time they reported”.
Further, VAGO stated: “The evolving nature of the pandemic meant that universities continually revised and often expanded the level of disclosure in their financial reports, up to the date of signing them. We concluded that their disclosures were adequate before issuing our audit opinions”.
Overall, the annual financial reports of the eight universities were prepared on a going concern basis and VAGO “agreed with this basis of preparation”. In making these decisions, VAGO relied upon the forecasts of each university, which “showed there were enough cash and investment reserves for operations to continue and for universities to meet financial obligations over the next 12 months”.
Informing this opinion given the ongoing dynamics of COVID- 19, VAGO considered universities’ scenario modelling at the end of March 2020, which sought to estimate and evaluate the financial impact over the next 12 months taking into account the following factors, as determined at that time (as quoted directly from the VAGO report):
- loss of international students—for all of 2020 (worst case scenario), the first semester of 2020 and no loss of international students due to learning and teaching continuing through online means (best case scenario)
- loss of domestic students—for students who did not want to transition to online learning
- a decline in investment values due to the global market downturn
- potential campus closures of all activities including teaching
- higher costs incurred transitioning to online learning
- mitigation strategies to reduce operating expenditure and discretionary spending such as travel, training and conferences, freezing recruitment and deferring pay increases
- delaying nonessential capital projects.
This modelling showed overall “financial impacts ranging from $14 million to $900 million” in respectively the best-case and worst‐case scenarios.
In concluding, VAGO stated “the sector continued to be financially sound during 2019. Risks to international student enrolments, in part due to COVID‐19 and changes to government funding caps for domestic students, will need to be actively managed”.
Several commentators may consider this a potential understatement, especially as three of the eight universities were shown in the report “to have a greater reliance on international students with a higher proportion of revenue from this source than from domestic students in 2019”.
Importantly, the sector in Victoria will undoubtedly struggle in the current impoverished circumstances, with international students comprising 41 per cent of higher education student load in the state, combined with little sympathy being shown, or appearing on the horizon, from the Federal government.
Emeritus Professor Garry Carnegie, FCPA, RMIT University and Distinguished Professor James Guthrie, FCPA, Macquarie University