financial viability instructions for approved providers - Department of by yaofenji

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									    FINANCIAL VIABILITY INSTRUCTIONS FOR
    APPROVED PROVIDERS
    For Higher Education Providers of FEE-HELP
    and VET providers of VET-FEE HELP
Document publishing date (January 2013)




                                          Department of Industry, Innovation, Science, Research and Tertiary Education
                               Financial Viability Instructions for Approved Providers of FEE-HELP and VET FEE-HELP
1      Table of Contents
2 Overview                                                                                                                 2
    2.1 Purpose of the financial viability instructions                                                                    2
    2.2 Other relevant information                                                                                         2
    2.3 Assessing financial viability and levels of risk                                                                   2
    2.4 Submission of financial information                                                                                3
          2.4.1 Dual sector providers                                                                                      3
3 Financial information required                                                                                           4
    3.1 Specified kind of body VET provider                                                                                4
    3.2 Table C providers                                                                                                  4
    3.3 Approved HEPs and VET providers                                                                                    4
4 Supplementary Information that may be required                                                                           8
    4.1 Associated entities                                                                                                8
    4.2 Providers that do not meet the financial ratio thresholds                                                          8
    4.3 Student body profile                                                                                               8
    4.4 Independent expert review                                                                                          8
    4.5 Providers assessed by the department as medium or high risk                                                        8
5 Risk mitigation strategies that may be required                                                                         11
6 Further information                                                                                                     12
    6.1 HEP provider information                                                                                          12
    6.2 VET provider information                                                                                          12
    6.3 Legislation                                                                                                       12
7 Appendix 1                                                                                                              13
8 Appendix 2                                                                                                              15
9 Appendix 3                                                                                                              16
10 Appendix 4                                                                                                             17
11 Appendix 5                                                                                                             21
12 Appendix 6                                                                                                             22




                                           Department of Industry, Innovation, Science, Research and Tertiary Education
                                  Financial Viability Instructions for Approved Providers of FEE-HELP and VET FEE-HELP
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2       Overview
2.1 Purpose of the financial viability instructions
1   The Minister must be satisfied that providers remain financially viable as specified under section 19-5 of
    the Higher Education Support Act 2003 (the Act) for approved Higher Education Providers (HEPs), and
    clause 14 of Schedule 1A to the Act for approved VET providers.
2   The financial viability requirements are that a provider must be financially viable and must be likely to
    remain financially viable.
3   These Financial Viability Instructions for Approved Providers (FVIAP) are part of the approved form for
    approved HEPs (this includes a HEP that is not either a Table A or Table B provider, and Open
    Universities Australia) and VET providers. These FVIAP are designed to assist providers to prepare their
    annual financial information. These FVIAP inform providers of the sort of information that is required, the
    form in which it must be prepared and how financial viability will be assessed.
4   The provider is taken to have submitted the financial viability information only when all of the
    documentation listed is complete, correct and presented in the formats specified in the FVIAP.
5   As well as the providers, these FVIAP are intended for use by:
       the accountant who prepares the financial statements for the provider and

       the independent qualified auditor who audits the provider’s financial statements.

6   These FVIAP replace the VET FEE-HELP Financial Viability Instructions for Providers dated
    1 January 2012, as one of the approved forms of the Minister required under section 19-10 of the Act for
    a HEP and clause 15 of Schedule 1A to the Act for a VET provider.

2.2 Other relevant information
1   Information about the financial position of the provider, including information concerning its current and
    future financial viability is treated as ‘Commercial-In-Confidence’.
2   Deeds of Guarantee should be completed on the department’s Deed of Financial Guarantee – Financial
    Viability Template, one of the approved forms of the Minister required under section 19-10 of the Act for
    a HEP and clause 15 of Schedule 1A to the Act for a VET provider (refer to chapter 6 for the link to the
    template).

2.3 Assessing financial viability and levels of risk
1   When making an assessment of financial viability the department considers the level of risk that a
    provider presents. The department may consider:
       financial information provided

       failure to meet some or all of the financial ratios in the Financial Ratio Analysis Workbook for
        Approved Providers (refer to chapter 6 for the link to the workbook)

       type of organisational structure (associated entities/acquisitions/mergers)

       any changes to student body profile (domestic/international) or

       trends in financial performance of the provider.




                                            Department of Industry, Innovation, Science, Research and Tertiary Education
                                   Financial Viability Instructions for Approved Providers of FEE-HELP and VET FEE-HELP
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2   If the Minister is satisfied that a provider presents a low risk in terms of its financial viability based on the
    information provided in chapter 3, the information submitted under chapter 3 will usually be considered
    sufficient for meeting the financial viability requirements under the Act.
3   When a provider is assessed as not presenting a low level of financial viability risk, it is required to
    provide supplementary information (refer to chapter 4) and risk mitigation strategies (refer to chapter 5
    and Appendix 4).

2.4 Submission of financial information
1   Providers are required to assemble the required financial viability documentation and information.
    Note: To assist, a financial viability checklist is available at Appendix 6. Providers are not required to
    send the checklist to the department.
2   Approved HEPs must send an email with all required financial viability documentation and information
    included as attachments to TSEnquiries@innovation.gov.au marked to the attention of the Financial
    Viability Team.
3   VET providers must upload all required financial viability documentation and information onto the
    department’s VET FEE-HELP Information Technology System (VITS).
4   VET providers must also submit an email to TSEnquiries@innovation.gov.au confirming that all financial
    viability documentation and information has been uploaded into VITS. The email is to be marked to the
    attention of the Financial Viability Team.

2.4.1 Dual sector providers
1   Dual sector providers are required to submit only one set of financial viability documentation and
    information in accordance with these FVIAP.
2   Dual sector providers must upload all required financial viability documentation and information onto
    VITS.
3   Dual sector providers must also submit an email to TSEnquiries@innovation.gov.au confirming that all
    financial viability documentation and information has been uploaded into VITS, marked to the attention of
    the Financial Viability Team.




                                             Department of Industry, Innovation, Science, Research and Tertiary Education
                                    Financial Viability Instructions for Approved Providers of FEE-HELP and VET FEE-HELP
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3         Financial information required
    Providers must supply information on an annual basis that the department considers sufficient for it to be
    able to assess the financial viability of the provider.

3.1 Specified kind of body VET provider
1   A provider that is a specified kind of body (such as a TAFE) will be required to submit a financial
    guarantee in the form of a letter of comfort from its state or territory government owners in accordance
    with sub-paragraph 4.2.1 of the VET Guidelines.
2   Where there has been a change of Government or change of Minister of the body’s state or territory
    government, they will be required to submit a renewed financial guarantee in the form of a letter of
    comfort to the department.
3   A provider that is a specified kind of body will also be required to submit actual student enrolments for
    the most recently completed financial reporting period.

3.2 Table C providers
1   A provider that is a Table C provider will be required to submit financial information for its Australian
    subsidiary as follows:
    i)    current audited annual financial statements - a copy of the most recently audited annual financial
          statements by an independent qualified auditor and prepared in accordance with Appendix 2
    ii)   Financial Ratio Analysis Workbook for Approved Providers - a completed current version of the
          Financial Ratio Analysis Workbook for Approved Providers (refer to chapter 6 for the link to the
          workbook). The workbook must include data for the most recently completed two annual financial
          reporting periods.
2   The Table C provider will also be required to submit to the department financial statements of the
    consolidated body for the most recently completed financial reporting period.

3.3 Approved HEPs and VET providers
1   All approved HEPs and VET providers will need to submit financial information which must include, but is
    not limited to:
    i)    current audited annual financial statements - a copy of the most recently audited annual financial
          statements by an independent qualified auditor and prepared in accordance with Appendix 2
    ii)   auditor’s independence declaration - the qualified auditor’s independence declaration as required
          under section 307C of the Corporations Act 2001
    iii) independent auditor’s report - an independent auditor’s report must accompany the statements
    iv) certificate of the auditor - a copy of the Certificate of Public Practice or Public Practice Certificate
        held by the person who conducted the audit of the financial statements




    v) Financial Ratio Analysis Workbook for Approved Providers - a completed current version of the
       Financial Ratio Analysis Workbook for Approved Providers (refer to chapter 6 for the link to the
       workbook). The workbook must include data for the most recently completed two annual financial
       reporting periods.



                                             Department of Industry, Innovation, Science, Research and Tertiary Education
                                    Financial Viability Instructions for Approved Providers of FEE-HELP and VET FEE-HELP
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    vi) declaration of statutory obligations - a declaration by the accountant or auditor that the provider has,
        as at the date of the declaration, complied with all statutory obligations relating to the lodgement and
        payment of:
          a) company tax
          b) goods and services tax
          c) pay-as-you-go withholding tax
          d) payroll tax
          e) superannuation guarantee for employees and
          f)   other withholding tax (if applicable)
    vii) written confirmation of undertakings - written confirmation that all undertakings continue to be met.
         In cases where any of these undertakings have not been met, an explanation is required including
         any risk mitigation strategies the provider has in place to address any shortcomings.
2   In addition, the following financial information must be provided if applicable:
    i)    statement of independence - where the provider’s accountant and auditor both work for the same
          firm, a statement from the auditor explaining how independence has been maintained throughout the
          audit process
    ii)   details of major projects - details of any major projects, assets purchases/sales, changes to business
          ownership or other event(s) that the provider plans to undertake within the next three years that are
          likely to have a material effect on its finances
          Note: Where details of major projects are provided, the provider will also be required to submit
          supplementary information of student enrolment projections (refer to sub-paragraph 4.5(1)(vi)) and
          budget forecasts (refer to sub-paragraph 4.5(1)(vii))
    iii) evidence supporting capital injections and/or guarantees - where the provider has provided evidence
         of an agreed capital injection or has a Deed of Guarantee in place (and/or Deed of Cross Guarantee)
         evidence that the person/entity or guarantor has sufficient assets to honour these agreements must
         also be provided. The evidence must include, but is not limited to:
          a) for guarantees and agreements provided by companies – the most recently completed annual
             financial statements. In addition, if the statements are more than six months old, interim
             management reports including standard balance sheet and detailed profit and loss statement
             attested to by a director of the company that they present a true and fair view of the guarantor’s
             financial position and
          b) for guarantees or agreements provided by individuals – statement of assets & liabilities
             (excluding the principal residence) attested to by an accountant that it presents a true and fair
             view of the individuals financial position
    iv) details of payment plan(s) - where the provider has entered into any payment plan(s) in relation to
        any of the statutory obligations referred to in sub-paragraph 3.3(1)(vi), details of the payment plan(s)
    v) auditor correspondence - where the independent qualified auditor has communicated to the provider
       either orally or in writing about significant matters, details of the communication including how the
       significant matters impact on the ongoing financial viability of the business. These matters include,
       but are not limited to:
          a) matters that give rise to significant risk
          b) concerns the audited financial information could be materially misstated



                                               Department of Industry, Innovation, Science, Research and Tertiary Education
                                      Financial Viability Instructions for Approved Providers of FEE-HELP and VET FEE-HELP
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    c) circumstances that cause the auditor significant difficulty in applying necessary audit procedures
       and
    d) findings that could result in a modification to the auditor’s report
vi) details of changes to reporting period - details of any plans the provider may have to change its
    financial reporting period.
vii) for approved HEPs receiving Commonwealth Grant Scheme funding:
    a) Commonwealth Grant Scheme acquittals in the format below:
                                                          Most recently               Previous
                                                           completed                 completed
         Commonwealth Grants Scheme
                                                       financial reporting            financial
                 funding
                                                             period               reporting period
                                                              $’000                     $’000
     Financial assistance received in cash
     during the period
     Net accrual adjustments
     Revenue for the period
     Surplus/(deficit) from the previous year
     Total revenue including accrued revenue
     Less expenses including accrued
     expenses
     Surplus/(deficit) for reporting period

        Note: in accordance with AASB 1004, for not-for-profit entities the revenue for the period should
        equal cash received. However, due to timing differences it would not be expected that funding
        will match spending, and may result in a surplus or deficit for the reporting period
    b) a declaration in the directors’ report to the financial statements for the most recently completed
       financial reporting period declaring the following:
            The amount of Australian Government financial assistance expended during the reporting
            period was for the purpose(s) for which it was intended and [name of HEP] has complied
            with applicable legislation, contracts, agreements and program guidelines in making
            expenditure
viii) for approved HEPs charging a student services and amenities fee:
    a) where an approved HEP charges eligible students a student services and amenities fee (SSAF),
       the Chief Executive Officer or equivalent of that provider is required to certify that the SSAF
       revenue was collected and expended in accordance with requirements under the Act. The
       approved HEP must submit a copy of the certification to the department. The required
       certification is:
            [HEP] charged Student Services and Amenities Fees strictly in accordance with the Higher
            Education Support Act 2003 and the Administration Guidelines made under the Act.
            Revenue from the fee was spent strictly in accordance with the Act and only spent on, or
            provided to third parties for the provision of, the services and amenities specified in
            subsection 19-38(4) of the Act.
    b) providers must also provide evidence of SSAF revenue sources and expenditure in the format
       below:
                           Student services and amenities fee                     Most


                                        Department of Industry, Innovation, Science, Research and Tertiary Education
                               Financial Viability Instructions for Approved Providers of FEE-HELP and VET FEE-HELP
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                                                                   recently       Previous
                                                                 completed       completed
                                                                  financial       financial
                                                                  reporting       reporting
                                                                    period          period
                                                                    $’000           $’000
A         Unspent/(overspent) revenue from previous
          period
B         SA-HELP revenue earned
C         Student services fees direct from students
D=A+B+C   Total revenue expendable in period
E         Student services expenses during period
F=E-D     Unspent/(overspent) student services
          revenue




                          Department of Industry, Innovation, Science, Research and Tertiary Education
                 Financial Viability Instructions for Approved Providers of FEE-HELP and VET FEE-HELP
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4         Supplementary Information that may be required
4.1 Associated entities
1   Providers that have organisational ties with other associated entities are required to provide information
    about these relationships.
2   Where a provider is, or becomes, a wholly owned subsidiary of another organisation, the provider is
    required to submit to the department financial statements of the consolidated body for the most recently
    completed financial reporting period on an annual basis.

4.2 Providers that do not meet the financial ratio thresholds
1   In cases where a provider fails to meet some or all of the financial ratio thresholds (refer to Appendix 3),
    a provider will be required to provide supplementary information in the form of risk mitigation strategies
    (refer to chapter 5 for examples of such strategies and Appendix 5 for the ‘Risk mitigation road map’).
2   The extent and type of financial supplementary information required will be dependent on the individual
    circumstances of the provider.

4.3 Student body profile
1   Providers that offer:
    i)    a narrow range of courses
    ii)   that rely heavily on the recruitment of international students and/or
    iii) that rely heavily on the recruitment of international students from a limited number of overseas
         markets
    may present a greater risk in terms of their ongoing financial viability. These providers will be required to
    provide risk mitigation strategies to address this increased level of risk

4.4 Independent expert review
1   Providers may submit information prepared by an independent qualified auditor to support their financial
    position covering issues such as:
    i)    organisation history
    ii)   organisation legal and capital structure
    iii) organisation financial and other commitments
    iv) organisation financial viability (financial ratio analysis)
    v) organisation financial benchmarking
    vi) organisation student body profile or
    vii) organisation other assessment.
    Note: for further details relating to these refer to Appendix 4.

4.5 Providers assessed by the department as medium or high
    risk
1   The department will assess the provider’s level of risk in accordance with paragraph 2.3 of these FVIAP.
    Providers assessed by the department as representing a financial viability risk level greater than low will

                                             Department of Industry, Innovation, Science, Research and Tertiary Education
                                    Financial Viability Instructions for Approved Providers of FEE-HELP and VET FEE-HELP
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be requested to provide additional information as a part of their annual financial viability assessment.
This information may include, but is not limited to:
i)    interim management reports - interim management reports covering the period from the end of the
      last completed annual financial reporting period until the end of the month preceding the annual
      submission date. These reports are to be attested to by a director that they present a true and fair
      view of the financial position of the provider and do not need to be audited
ii)   bank statements - statements for all current bank accounts held by the provider
iii) current payable and receivable reports - current aged payable and aged receivable reports
iv) copies of loan agreement(s) - copies of any loan agreement(s) the provider has in place with
    persons or entities to provide the provider with funding
v) business/strategic plan - an updated business/strategic plan for the next three years, consistent with
   the provider’s financial reporting period, including but not limited to:
      a) the age and history of the organisation and
      b) analysis of possible risks that may affect financial viability and related risk mitigation strategies
vi) student enrolments - detailed historical and projected student enrolments, consistent with the
    provider’s financial reporting period including:
      a) projected student enrolments vs actual student enrolments for the most recently completed
         financial reporting period
      b) explanation of variances of ten per cent or more between projected student enrolments and
         actual student enrolments
      c) projected student enrolments for the next three financial reporting periods
      d) explanation of underlying assumptions and details of determining factors affecting projected
         student enrolments and
      e) where international students comprise more than 50 per cent of its student population:
          (aa) a country by country breakdown of current student enrolments and the proportion of
              students enrolled in broad subject categories such as business, hospitality, finance etc and
          (bb) projections for international student enrolments broken down by country and broad subject
              categories
vii) budget forecasts - detailed budget forecasts including:
      a) projected income and expenses vs actual income and expenses for the most recently completed
         financial reporting period
      b) projected income and expenses vs actual income and expenses from the end of the last
         reporting period until the end of the month preceding the annual submission date
      c) projected income and expenses for the current financial reporting period
      d) projected income and expenses for the next financial reporting period and
      e) explanation of variances of ten per cent or more between projected income and expenses and
         actual income and expenses
      Note: the information provided should allow the department to fully understand all underlying
      assumptions and determining factors affecting all future revenue and expense estimates for the
      provider.




                                          Department of Industry, Innovation, Science, Research and Tertiary Education
                                 Financial Viability Instructions for Approved Providers of FEE-HELP and VET FEE-HELP
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viii) supplementary information - any supplementary information (including risk mitigation strategies
      where necessary) that is relevant or that may assist the department to assess the ongoing financial
      viability of the provider.




                                       Department of Industry, Innovation, Science, Research and Tertiary Education
                              Financial Viability Instructions for Approved Providers of FEE-HELP and VET FEE-HELP
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5         Risk mitigation strategies that may be required
1   Evidence of effective risk mitigation strategies is often a very important part of the financial information
    supplied by providers. Where a provider does not provide evidence of risk mitigation strategies as part of
    its annual submission, and/or on request by the department during its assessment to determine whether
    the financial viability requirements are met, this may increase the time needed to complete the
    assessment of the annual submission.
2   If a provider appears to present a medium to high risk level, the risk mitigation strategies outlined below
    and in Appendix 5, may be considered by the department:
    i)    close monitoring of financial performance such as requesting half-yearly or quarterly submission of
          financial information and student data
    ii)   further information such as why ratio thresholds have not been met, whether any internal risk
          mitigation strategies exist, what strategies are in place to remedy financial performance,
          explanations regarding other issues identified during assessment and forecast assumptions and
    iii) strengthening financial position, such as:
          a) establishment of a line of credit from banking institutions
          b) obtaining a cash injection from a related party or a third party to improve the current ratio
          c) increasing equity to 50 per cent of projected annual expenditure
          d) providing a Deed of Guarantee from:
               (aa) an independent and unrelated: entity (ie bank) or a person (ie investor) or
               (bb) a related: entity (eg other companies in the provider’s corporate group) or a person (eg an
                   existing shareholder or director)
          e) providing a Deed of Guarantee that guarantees loans made to the provider will not be recalled if
             such recall threatens the financial viability of the provider or
          f)   a director or other party providing a loan to the provider, to be converted into equity under a debt
               for equity swap.
3   The establishment of a risk management plan prepared in accordance with the AS/NZS 4360:2004
    Australian/New Zealand Standard on Risk Management may be required for any of the risk mitigation
    strategies. The Risk Management Institution of Australasia can assist in identifying professional risk
    managers to assist providers. Further information is available from their website at
    http://www.rmia.org.au.




                                              Department of Industry, Innovation, Science, Research and Tertiary Education
                                     Financial Viability Instructions for Approved Providers of FEE-HELP and VET FEE-HELP
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6         Further information
6.1 HEP provider information
         Deed of Financial Guarantee – Financial Viability Template

         Financial Ratio Analysis Workbook for Approved Providers

These documents are available at:
http://www.innovation.gov.au/HigherEducation/Quality/PrivateHigherEducationProviders/Pages/default.a
spx

The HEP Administrative Information for Providers is available at:
http://www.innovation.gov.au/HigherEducation/ResourcesAndPublications/Resources/Pages/default.aspx.


6.2 VET provider information
         Deed of Financial Guarantee – Financial Viability Template

         Financial Ratio Analysis Workbook for Approved Providers

         VET Administrative Information for Providers

         VITS Electronic Information Guide – Approved Providers

These documents are available at:
http://www.innovation.gov.au/Skills/SkillsTrainingAndWorkforceDevelopment/VETFeeHelp/ApprovedVETPro
viders/Pages/UsefulPublicationsApprovedProviders.aspx.

The VET FEE-HELP IT System (VITS) is available at:
https://extranet.deewr.gov.au/vetfeehelp/App/Login.aspx.


6.3 Legislation
         Higher Education Support Act 2003

         Corporations Act 2001

         Higher Education Provider Guidelines

         VET Guidelines

These documents are available at: http://www.comlaw.gov.au/Home.




                                            Department of Industry, Innovation, Science, Research and Tertiary Education
                                   Financial Viability Instructions for Approved Providers of FEE-HELP and VET FEE-HELP
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7       Appendix 1 - Definitions
   approved HEP refers to a higher education provider and includes:

    o   a higher education provider that is not a listed provider, being either a Table A or Table B provider
        that is approved by the Minister under sub-division 16-C of the Higher Education Support Act 2003 to
        offer FEE-HELP assistance to eligible students; and

    o   Open Universities Australia.

   associated entity has the same meaning as section 50AAA of the Corporations Act 2001.

   Commonwealth Grant Scheme means a form of Commonwealth assistance provided by the Australian
    Government to higher education providers under part 2-2 of the Higher Education Support Act 2003 for
    the benefit of students.

   dual sector provider refers a provider that has been approved as both an approved HEP for FEE-HELP
    assistance and a VET provider for VET FEE-HELP assistance.

   FEE-HELP assistance has the same meaning as in the Higher Education Support Act 2003.

   general purpose financial statements has the same meaning as in the Glossary of defined terms of
    the Australian Accounting Standards Board.

   higher education provider (HEP) has the same meaning as in the Higher Education Support Act 2003.

   listed provider, being either Table A or Table B providers means either a Table A or Table B
    provider as listed at sections 16-15 and 16-20 of the Higher Education Support Act 2003.

   public accountant means the holder of a practising certificate recognised under regulation 2M.4.01A to
    the Corporations Regulations 2001

   qualified auditor means:

    o   the Auditor General of a State, of the Australian Capital Territory or of the Northern Territory

    o   a person registered as a company auditor or a public accountant under a law in force in a State, the
        Australian Capital Territory or the Northern Territory

    o   a member of the Institute of Chartered Accountants in Australia, or of the Australian Society of
        Certified Practicing Accountants or

    o   a person approved by the Minister in writing as a qualified auditor for the purposes of the Higher
        Education Support Act 2003.

    Note: for the purposes of the Higher Education Support Act 2003 and these FVIAP, a qualified auditor
    will be considered to be independent from the entity it is auditing if the qualified auditor meets the
    independence requirements specified in Part 2M.4, Division 3 of the Corporations Act 2001 and is
    independent to the entity which prepared the financial statements of the provider.

   reporting entity has the same meaning as in the Glossary of defined terms of the Australian Accounting
    Standards Board.

   Table C provider has the same meaning as in the Higher Education Support Act 2003.



                                            Department of Industry, Innovation, Science, Research and Tertiary Education
                                   Financial Viability Instructions for Approved Providers of FEE-HELP and VET FEE-HELP
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   special purpose financial statements has the same meaning as in the Glossary of defined terms of
    the Australian Accounting Standards Board.

   specified kind of body means a body of the kind specified in chapter 2 of the VET Guidelines.

   student services and amenities fee has the same meaning as in the Higher Education Support Act
    2003.

   supplementary information means any documentation pertaining to the financial viability of a provider,
    or of its guarantor(s) (if any) that is submitted to the department by an approved provider, beyond the
    financial information referred to in chapter 3 of these FVIAP.

   VET FEE-HELP assistance has the same meaning as in the Higher Education Support Act 2003.

   VET provider has the same meaning as in the Higher Education Support Act 2003.

   VITS means the VET FEE-HELP Information Technology System of the department, which is used by
    applicants, VET providers and the department to send and receive necessary information in a secure
    electronic form.




                                          Department of Industry, Innovation, Science, Research and Tertiary Education
                                 Financial Viability Instructions for Approved Providers of FEE-HELP and VET FEE-HELP
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8         Appendix 2 - Financial statement requirements for
          approved providers
1   A provider is required to provide audited financial statements for the most recently completed financial
    reporting period, as set out in chapter 3, in the relevant form prescribed in either sub-paragraphs 8.1(1)(i)
    or 8.1(1)(ii) below:
    i)    general purpose financial statements prepared in accordance with all the current standards set by
          the Australian Accounting Standards Board should be provided by a provider which:
          a) is a reporting entity or
          b) is a large proprietary company, if two of the following apply:
               (a) the consolidated revenue for the financial year of the company and the entities it controls (if
                   any) is $25 million or more
               (b) the value of the consolidated gross assets at the end of the financial year of the company
                   and the entities it controls (if any) is $12.5 million or more
               (c) the company and the entities it controls (if any) have 50 or more employees at the end of the
                   financial year or
          c) has financial statements that are, or held out to be, general purpose financial statements.
    ii)   special purpose financial statements prepared in accordance with the following current standards set
          by the Australian Accounting Standards Board may be provided by small proprietary companies that
          are not reporting entities:
          a) AASB 101
          b) AASB 107
          c) AASB 108
          d) AASB 1031
          e) AASB 1048 and
          f)   AASB 1053.




                                              Department of Industry, Innovation, Science, Research and Tertiary Education
                                     Financial Viability Instructions for Approved Providers of FEE-HELP and VET FEE-HELP
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9       Appendix 3 - Financial ratios calculated by the
        Financial Ratio Analysis Workbook for Approved
        Providers
Ratio                    Formula                                                         Average performance
                                                                                         threshold

Current ratio            current assets / current liabilities                            between 0.5* and 1.5*
Net tangible assets
                         tangible assets / total liabilities                             between 0.4* and 0.7
ratio
Debt to equity ratio     total liabilities / total equity                                between 1.5 and 2.5*
Net profit ratio         operating profit after tax / total revenue                      between 0* and 0.07
Return on total assets   operating profit before tax / total assets                      between 0* and 0.1
                         operating profit before interest and tax / interest
Interest coverage                                                                        between 1* and 2
                         expense
                         (average creditors / (total expenses less salary
Creditor days                                                                            between 30 and 60*
                         costs, borrowing costs and non-cash items)) x 365
Staff costs (including   staff costs (including contractors and consultants) /
                                                                                         between 0.50 and 0.65*
Contractors) margin      total revenue
* means inclusive of this number.

Note: calculation of the above ratios and comparison with relevant thresholds is to be carried out using the
Financial Ratio Analysis Workbook for Approved Providers (refer to chapter 6 for the link to the workbook).




                                             Department of Industry, Innovation, Science, Research and Tertiary Education
                                    Financial Viability Instructions for Approved Providers of FEE-HELP and VET FEE-HELP
                                                                                                                            16
10 Appendix 4 - Indicators of risk
Item   Assessment      Considerations
No.    Item


1      Organisation    Life and stability of provider -
       history
                           A provider that has been operating for more than two years could be considered a
                           lower risk.
                           A provider that has had a recent change to core business lines could be
                           considered a higher risk.
                           A provider that has had high turnover of directors and/or senior management
                           could be considered a higher risk.
                       Past success of provider -
                          A provider that has successfully delivered other government funded programs
                          could be considered a lower risk.
                       Industry experience of provider -
                           A provider that is new to the industry could be considered a higher risk.
                           A provider that is considered to be a market leader and with a strong reputation
                           could be a lower risk.

2      Organisation    Ownership and control of provider-
       legal and
       capital             In assessing risk, the appropriateness of the corporate structure to the nature of
       structure           the business should be considered.
                           A provider with a simple corporate structure could be considered a lower risk.
                           A provider that does not have clear ownership could be considered a higher risk.
                       Loans to provider -
                          A provider that has a low level of borrowings could be considered a lower risk.
                           A provider that has a high level of loan repayments could be considered a higher
                           risk.
                       Legal agreements with provider -
                          A provider that has agreements that may constrain its operations could be
                          considered a higher risk.

3      Organisation    Financing commitments -
       financial and
       other               A provider that has a low level of capital commitments could be considered a
       commitments         lower risk.
                           A provider that already has significant non-cancellable commitments could be
                           considered a higher risk.
                       Insurance cover -
                           A provider that has adequate insurance to cover professional indemnity, public
                           liability etc could be considered a lower risk.
                           A provider that does not have insurance to cover the value of the anticipated level
                           of FEE-HELP assistance or VET FEE-HELP assistance payments, as a minimum,



                                          Department of Industry, Innovation, Science, Research and Tertiary Education
                                 Financial Viability Instructions for Approved Providers of FEE-HELP and VET FEE-HELP
                                                                                                                         17
Item   Assessment         Considerations
No.    Item


                              could be considered a higher risk.
                          Contingent liabilities -
                             A provider that is currently involved in significant litigation could be considered a
                             higher risk.

4      Organisation       Comparing the financial performance of each financial indicator of a provider can
       financial          provide significant insight into a provider’s performance. In addition, financial period
       viability          comparisons between the financial performance indicators of a provider can indicate
       (financial ratio   fluctuations in performance. It is important to exercise care in the interpretation of
       analysis)          performance indicators as fluctuations could arise from variations in the underlying
                          assumptions or changes in the environment that a provider operates within.

                          Financial ratio analysis using the Financial Ratio Analysis Workbook for Approved
                          Providers (refer to chapter 6 for the link to the workbook):

                          Net equity -
                              A provider that has high levels of net equity, working capital, reserves and
                              revenue could be considered a lower risk.
                              A provider that does not provide independently audited financial statements could
                              be considered a higher risk.
                              A provider that cannot provide financial statements for the previous four years
                              could be considered a higher risk.
                              A provider that has received audit qualifications in the past, depending on the
                              nature of the qualifications, could be considered a higher risk.
                          Debt levels -
                             A provider that has low debt levels could be considered a lower risk.
                              A provider that has a poor credit rating could be considered a higher risk.
                              A provider that has high debt levels could be considered a higher risk.
                          Operation levels -
                             Consideration should be given to revenue streams in conjunction with the nature
                             of the business and its history and structure.
                              An organisation that has multiple sources of revenue could be considered a lower
                              risk.
                              Providers that rely on one project, customer, operation or source (eg the FEE
                              HELP assistance or VET FEE-HELP assistance scheme) could be considered a
                              higher risk.
                          Profit levels -
                              Consideration should be given to the relationship between sales volume and
                              margin to ensure sound business/strategic planning is evident.
                              A provider that has a high profit to net sales could be considered a lower risk.
                              A provider that has high operating expenses to sales could be considered a higher
                              risk.
                          Return on assets (RoA) -


                                            Department of Industry, Innovation, Science, Research and Tertiary Education
                                   Financial Viability Instructions for Approved Providers of FEE-HELP and VET FEE-HELP
                                                                                                                           18
Item   Assessment     Considerations
No.    Item


                          Consideration should be given to the relationship between the ability of the
                          company to generate profit from its assets. This indicator demonstrates how
                          efficient the provider is at using its assets to generate earnings. This indicator may
                          not be relevant for a company that is established as a not-for-profit.
                          A provider that has a high RoA (ie higher than 1) could be considered a lower risk.
                          A provider that has a low RoA (ie closer to 0) could be considered a higher risk.
                      Interest coverage -
                          Consideration should be given to the relationship between the gross revenue
                          generated by a company and the amount of interest expense it incurs on its debts.
                          This indicator can demonstrate how well a company is managing its debt levels.
                          A provider that has high interest coverage (ie higher than 1.5) could be considered
                          a lower risk.
                          A provider that has a low interest coverage (ie lower than 1.5) could be
                          considered a higher risk.
                      Days in creditor -
                         Consideration should be given to the average length of time it takes a company to
                         repay its creditors. This indicator can aid in identifying a company that may have
                         trouble in meeting its debts and liabilities as and when they fall due.
                          A provider that has a high average repayment time (ie greater than 30 days) could
                          be considered higher risk.
                          A provider that has a low average repayment time (ie less than 30 days) could be
                          considered lower risk.
                      Staff costs -
                          This ratio can be used by the department to better understand changes that may
                          be occurring in a company’s business structure or model. Staffing costs are often
                          the most significant expense incurred by educational institutions. Effectively
                          managing the level of salaries paid out as a percentage of revenue can have
                          implications for a company’s financial viability.

5      Organisation   Internal -
       Financial
       Benchmarking       A provider that has negative trends when comparing current financial information
                          with prior periods may indicate a higher risk.
                      External -
                          A provider that has positive comparisons of financial information when compared
                          with other approved HEPs or VET providers with a similar organisation, profile,
                          scope and history, may indicate a lower risk.

6      Organisation   Course structure -
       student body
       profile            A provider that has a narrow range of courses could be considered a higher risk.
                          Student body -
                          A provider that relies heavily on the recruitment of international students could be


                                            Department of Industry, Innovation, Science, Research and Tertiary Education
                                   Financial Viability Instructions for Approved Providers of FEE-HELP and VET FEE-HELP
                                                                                                                           19
Item   Assessment     Considerations
No.    Item


                          considered a higher risk.
                          A provider that relies heavily on the recruitment of international students from a
                          limited number of overseas markets could be considered a higher risk.

7      Organisation   Other financial considerations -
       other
       assessment         A provider that has several years of independently audited financial statements
                          that are unqualified could be considered a lower risk.
                          A provider that has a history of unaudited financial statements or non-lodgement
                          of financial statements could be considered a higher risk.
                      Necessary infrastructure -
                         A provider that has the necessary technology, equipment and materials to deliver
                         the proposed courses could be considered a lower risk.
                          A provider that relies on another party for the availability of infrastructure could be
                          considered a higher risk.
                      Industry experience -
                          A provider that has management with relevant qualifications and/or experience
                          could be considered a lower risk.
                          A provider that has high levels of director and management turnover could be
                          considered a higher risk.
                      Size and scope -
                          A provider with a sufficient stable equity base and varied scope could be
                          considered a lower risk.
                          A provider with limited equity base and scope could be considered a higher risk.




                                        Department of Industry, Innovation, Science, Research and Tertiary Education
                               Financial Viability Instructions for Approved Providers of FEE-HELP and VET FEE-HELP
                                                                                                                       20
11 Appendix 5 - Risk mitigation road map
Possible departmental action
                          No additional risk mitigation strategies required at this stage.
                          Provider required to submit financial information as detailed in
     Low Risk             chapters 3 and 4.


                                                            Provide is required to provide half-
                                                            yearly or quarterly submission of
                         Closely monitor                    financial information and student data
                            financial                       accompanied by directors’
                          performance.                      declaration.

                                                           Provider is questioned regarding:
                                                           - ratios not meeting thresholds
                         Department                        - internal risk mitigation strategy
   Medium Risk         requests further                    - strategy to remedy financial
                         information                         performance
                                                           - issues identified during assessment
                                                             or
                                                           - forecast assumptions.

                                                            Provider is required to:
                                                            - establish a line of credit and/or
                                                              capital injection from parent entity,
                         Strengthening                        a director or shareholder
                       financial position                   - increase equity to 50 per cent of
                                                              projected annual expenditure and
                                                            - provide a Deed of Guarantee or
                                                              bank guarantee of support from
                                                              parent entity, a director or
                                                              shareholder.


                           Department                      Provider is questioned (onsite)
    High Risk            requests further                  regarding:
                           information                     - ratios not meeting thresholds
                                                           - internal risk mitigation strategy
                                                           - strategy to remedy financial
                                                             performance
                                                           - issues identified during assessment
                                                             or
                                                           - forecast assumptions.




                              Department of Industry, Innovation, Science, Research and Tertiary Education
                     Financial Viability Instructions for Approved Providers of FEE-HELP and VET FEE-HELP
                                                                                                             21
12 Appendix 6 - Financial viability checklist for Providers
Information as required from providers under the Financial Viability Instructions for                                   Not
                                                                                                             Yes
Approved Providers (FVIAP)                                                                                           Applicable
Financial information to be provided:
1 from specified kind of bodies in accordance with paragraph 3.1 of the FVIAP:
    i)    updated financial guarantee
    ii)   student enrolments
2   from Table C providers in accordance with paragraph 3.2 of the FVIAP:
    i)    current audited annual financial statements of the Australian arm of the business
          prepared in accordance with Appendix 2 of the FVIAP
    ii)   completed Financial Ratio Analysis Workbook for Approved Providers
    iii) most recently completed financial statements of the consolidated body
3   from approved HEPs and VET providers in accordance with paragraph 3.3(1) of the
    FVIAP:
    i)    current audited annual financial statements prepared in accordance with Appendix
          2 of the FVIAP
    ii)   auditor’s independence declaration
    iii) independent auditor’s report
    iv) certificate of the auditor
    v) completed Financial Ratio Analysis Workbook for Approved Providers
    vi) declaration of statutory obligations
    vii) written confirmation of undertakings
4   from approved HEPs and VET providers in accordance with paragraph 3.3(2) of the
    FVIAP:
    i)    statement of independence
    ii)   details of major projects
    iii) evidence supporting capital injections and/or guarantees
    iv) details of payment plan(s)
    v) auditor correspondence
    vi) details of changes to reporting period
    vii) Commonwealth Grant Scheme acquittals and declaration in directors’ report
    viii) certification and evidence of student services and amenities fee
5   from providers, supplementary information in accordance with chapter 4 of the FVIAP:
    i)    associated entities in accordance with paragraph 4.1 of the FVIAP
    ii)   independent expert review in accordance with paragraph 4.4 of the FVIAP and
6   from providers, risk mitigation strategies in accordance with paragraph 4.5 and chapter
    5 of the FVIAP.




                                               Department of Industry, Innovation, Science, Research and Tertiary Education
                                      Financial Viability Instructions for Approved Providers of FEE-HELP and VET FEE-HELP
                                                                                                                              22

								
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