review of legislative, governance and oversight ... · tafe oversight ... 4.5. lessons and insights...

Review of legislative, governance and oversight arrangements between Skills Victoria and TAFEs

A report for Skills Victoria

15 September 2011

dandolopartners

Table of Contents

Executive Summary.......................................................................... iii 1. Introduction................................................................................. 1

1.1. Background ......................................................................................1 1.2. Context for this review .......................................................................2 1.3. The Task..........................................................................................3 1.4. Approach .........................................................................................4

2. Legislative framework .................................................................... 6 2.1. TAFEs .............................................................................................6

2.1.1. Legislative responsibilities .............................................................6 2.1.2. Areas of duplication and ambiguity ..................................................8

2.2. VSC .............................................................................................. 12 2.2.1. Legislative responsibilities ........................................................... 12 2.2.2. Areas of duplication and ambiguity ................................................ 13

3. Victorian Skills Commission.............................................................14 3.1. Current operational mechanisms ......................................................... 14 3.2. Strengths and weaknesses.................................................................. 15 3.3. Options ......................................................................................... 16

4. Mechanisms for TAFE engagement and oversight ..................................17 4.1. The system manager role................................................................... 17

4.1.1. Overview.................................................................................. 17 4.1.2. TAFE oversight .......................................................................... 18

4.2. The nature of engagement and oversight ............................................... 19 4.3. Map of interactions .......................................................................... 19 4.4. The spectrum of governance oversight approaches .................................. 20 4.5. Lessons and insights ......................................................................... 21

5. Strengths and weaknesses of oversight arrangements............................23 5.1. Issues............................................................................................ 23

5.1.1. Issues raised in previous reviews ................................................... 23 5.1.2. Issues raised in consultations ........................................................ 24

5.2. The ‘owner’ versus ‘purchaser’ tension ................................................ 27 5.3. TAFE owner oversight ....................................................................... 28

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5.4. System performance......................................................................... 29

5.5. Legislative framework for oversight ..................................................... 29 5.6. Support systems .............................................................................. 31

6. TAFE Governance .........................................................................33 6.1. What is governance .......................................................................... 33 6.2. The devolved authority model ............................................................ 34 6.3. The governance spectrum.................................................................. 35 6.4. The TAFE governance model............................................................... 37 6.5. Governance issues identified in previous dandolopartners reports ............... 38 6.6. Recent experience and emerging issues ................................................ 41 6.7. Key challenges ................................................................................ 43 6.8. Options ......................................................................................... 44

7. Recommendations ........................................................................47 8. Next Steps ..................................................................................50 Attachment 1: VSC delegations to SV .................................................51 Attachment 2: Map of Interactions ....................................................59 Attachment 3: Previous Report Recommendations ................................63

© dandolopartners, 2011

Review of TAFE oversight and governance

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Executive Summary

Snapshot of Findings and Recommendations

Context

This Report focuses on the oversight and governance of TAFEs by Skills Victoria.

The project involved an independent assessment of:

• The legislative framework under which Skills Victoria (SV) supports the Minister for Higher Education and Skills and the Victorian Skills Commission (VSC) to oversee the Victorian Vocational Education and Training (VET) system, particularly, but not exclusively, as it relates to the performance of TAFE Institutes

• Strengths and possible weaknesses in current mechanisms that facilitate the functions of the Victorian Skills Commission

• The formal and informal mechanisms by which Skills Victoria supports the Minister for Higher Education and Skills and the Victorian Skills Commission in engaging with and overseeing the performance of TAFE Institutes. Specifically, Skills Victoria sought assistance in assessing the current approach to oversighting TAFE Institutes in Victoria and evaluating: − Strengths and weaknesses of the current arrangements and considering options to

strengthen communication, accountability and transparency mechanisms − The capacity of the legislative framework to effectively support and enable Skills

Victoria (SV) to undertake its role as system manager of the Victorian VET system

Legislative Framework

and VSC

• Legislative Framework for TAFEs is complex but no major issues, gaps or ambiguities identified

• TAFEs are generally aware of their obligations • Role of VSC has changed significantly with recent

reforms to VET system • Legislation hasn’t been amended to fully reflect the new

operating arrangements between VSC and SV • While duplication and confusion about VSC / SV roles is

not currently evident, there is potential for issues to arise due to gap between original legislative intent and contemporary practice

1 • Amending ETRA to transfer responsibility to the Minister for the legislative roles of VSC that are currently delegated to SV (i.e. VSC plays no role)

Skills Victoria

• Victoria is well served by the devolved governance model that provides TAFEs with considerable autonomy and flexibility

• While oversight is generally effective, a number of refinements would strengthen arrangements

• The current legislative framework does not effectively support SV in its system manager role

TAFE Governance

• Two major problems exist: • Tension between the devolved management of TAFEs

and governance requirements that have changed in response to performance concerns

• One size fits all approach has come under increased pressure in move to demand driven funding

Major Findings Recommendations Focus

2 • Undertaking further work to determine the future need and relevance of the residual functions that VSC performs

3 • Consider whether the VSC is the right organisation to undertake desired functions – based on assessment of alternatives

4 • Consistent with 1, ETRA should be amended so the Minister has clear responsibility and accountability as system manager

5 • The Minster should have the legislative power (through SV) to establish a risk based oversight framework

6 • Revised oversight arrangements (consistent with 5) should be implemented by means of a Letter of Expectations and a Ministerial Direction

7 • SV should strengthen business processes, systems and communications

8 • Allow TAFEs the option of becoming Government Business Enterprises

9 • Retain most of the existing governance and oversight arrangements for non-GBE TAFEs (with some refinements)


• The effectiveness and viability of current governance structures for TAFE Institutes in the context of meeting both Government public policy and service delivery objectives in an increasingly competitive and commercial environment.

Approach

The methodology involved a review of TAFE oversight and governance:

• the legislative framework • the role of VSC • Skills Victoria’s roles and current practices • governance arrangements.

Consultations were held with a number of representative TAFEs, the VSC, Skills Victoria staff and representatives of the Victorian TAFE Association, Department of Treasury and Finance and Department of Premier and Cabinet.

Key Findings

Legislative framework

The legislative framework under which TAFEs operate is relatively complex. This could potentially lead to issues, gaps and ambiguities. However, no major problems were identified and overall, most TAFEs seem aware of their legislative obligations.

The role of the VSC has changed significantly, with demand based funding replacing the planning and purchasing model of resource allocation. While duplication and ambiguity were not evident in the legislative framework, there is scope for problems to arise because current roles are so different from past practice, as discussed further below.

Victorian Skills Commission

Recent reforms to the Vocational Education and Training (VET) system in Victoria have changed the primary role for the VSC. Although the VSC has recently tried to clarify its role and future priorities, a high level of ambiguity still remains within the sector about the VSC mission. While acknowledging the need for a body to oversee the training market, it is unclear that the VSC is currently placed to deliver this service.

Consultations did not identify differences of view between the VSC and SV about the split of current roles, and no significant duplication of activity is evident. However, our view is that there is scope for problems to arise because current roles are so different from past practice and what one would expect reading the legislation (i.e. arrangements prior to demand driven funding). It is not desirable to have such a gap between what the legislation originally intended and contemporary practice.

Given that the VSC relies heavily on SV to undertake analysis of the training market and for other support, the question remains what role it is best placed to provide?

While it may be considered desirable from a policy perspective to have an independent body overseeing the training market, further work needs to be undertaken to assess whether the VSC is best placed to effectively deliver this service compared to other delivery options.

It is recommended that consideration be given to:

1. Amending ETRA to transfer responsibility to the Minister for the legislative roles of VSC that are currently delegated to SV. In particular, VSC should play no role in TAFE governance matters

2. Undertaking further work to determine the future need and relevance of the residual functions that the VSC performs

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3. Consider whether the VSC is the optimal organisation to undertake desired functions. Other options should be identified and compared in detail against provision by the VSC.

Skills Victoria

While oversight is generally effective, a number of refinements have been identified to strengthen arrangements. It is our strong view that these should be consistent with the devolved authority model for TAFEs, which has served Victoria well.

In addition, the Report concludes that the current legislative framework does not effectively support and enable SV to undertake its role as system manager of the Victorian VET system. To address these matters under the existing governance arrangements, it is recommended that:

4. Consistent with recommendation 1, ETRA should be amended so the Minister has clear responsibility and accountability for the system manager role undertaken by SV.

5. The Minister should have legislative power to establish (through SV) a well-defined risk-based oversight framework specifying:

• Risk areas where oversight requires a particular focus • Thresholds and triggers for reporting/notification and follow-up with respect to

these risks areas (these would need to be commercially sensible) • Protocols for escalating attention • A range of effective and efficient intervention mechanisms short of using the

Minister’s Reserve power. Potential options for applying a graduated approach to intervention are outlined in the Report.

6. Revised oversight arrangements consistent with the risk-based oversight framework proposed in Recommendation 5 should be implemented by means of the Letter of Expectation and a Ministerial Direction. Devolved authority to TAFEs should not be inadvertently reduced in:

• The Public Provider Funding Agreement • New TAFE constitutions • New guidelines, under the Education and Training Reform Act 2006 (ETRA), on

the commercial powers and accountabilities of TAFEs. 7. SV should strengthen business processes, systems and communications as

follows:

• Continue the current practice of engaging at Deputy Secretary and General Manager level with each TAFE at least twice a year. This engagement should involve the CEO and the Chair if possible. A meeting with both the Chair and the CEO should occur at least once a year. If practical, the AGM for each TAFE should involve a suitably senior representative of the Minister. Each TAFE Chair and CEO should jointly meet with the Minister annually for a strategic discussion

• Strengthen the client manager approach for all dealings between SV and each TAFE. The client manager should be the coordinator of interactions, oversighting two-way communication flows between SV and a TAFE and escalating issues within SV consistent with the protocols described in Recommendation 5

• Develop and implement a range of process and system refinements to support its oversight role (elaborated on in this Report).

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TAFE governance

On TAFE governance, two major problems are now evident:

• Tension between the devolved management of TAFEs and concerns about performance/accountability are evident, and seem to be getting more problematic as TAFEs’ commercial activities develop in response to competitive market requirements. − There is an increasing mismatch between the aspiration of devolved management

(with appropriate accountability) and the reality of requirements imposed on TAFEs that limit their autonomy (e.g. the model draft constitution)

− The reaction to specific ‘performance issues’ seems to be geared towards introducing additional sector wide rules

• The one size fits all approach to governance and implementation is increasingly problematic.

We remain convinced that Victoria is best served by a devolved governance model that provides TAFEs with considerable autonomy and flexibility. This best enables TAFEs to effectively and efficiently provide services in ways that are innovative and responsive to market needs. Victoria has a robust and mature framework for Government Business Enterprises (GBEs), and we argue that the time has come to move at least the larger TAFEs to this model of governance and oversight.

We make two recommendations to ensure an effective and sustainable governance framework:

8. Allow TAFEs (perhaps above a specified threshold relating to size and financial strength) the option of becoming GBEs1:

• With similar operating capabilities (including the power to borrow) and accountabilities as other GBEs

• Preferably under Corporations Law, with consequent changes to Board size and structure (7 – 9 Directors appointed on the basis of skills and experience)

• With company constitutions that are consistent with the notion of devolved management authority, unless specified thresholds are reached for particular activities where Government approvals are required (e.g. property purchases or business acquisitions)

• With dual Ministerial oversight as per well established arrangements for GBEs − Oversight responsibility would lie with both SV and Treasury, and be more

‘hands-off’ on many operational issues than currently occurs (this would strengthen the ‘owner’ versus ‘purchaser’ distinction amongst other things)

− Establish and implement a risk assessment model for oversight of these TAFEs specifying: o Any risk areas where oversight requires a particular focus o Thresholds and triggers for reporting/notification and follow-up with

respect to these risks areas (these would need to be commercially sensible)

o Protocols for escalating attention. 9. Retain most of the existing governance and oversight arrangements for any other

TAFEs with the following refinements:

• Establish and implement a risk assessment model for oversight of these TAFEs (as per Recommendations 5 and 6 above)

1 Note: This is not consistent with Treasury’s preference for ‘one in all in’.


• Strengthen internal SV systems and processes for oversight (as per 7 above) • Establish new constitutions and commercial guidelines that are consistent

with the notion of devolved management authority, unless specified thresholds are reached

• Further reduce the size of TAFE Boards and make them non-representative • Develop and implement a road-map to enable financially constrained TAFEs to

build critical mass and increased financial capability • Stress test the system – identify how extreme events would be handled (e.g.

major fraud or corruption, insolvency etc.).

Implementation

Some guidance on next steps is provided. The initial focus outlined is based on consultation with TAFEs, the VTA and the VSC on this report.

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1. Introduction This Section explains the background and context of the Report and outlines the methodology.

1.1. Background Vocational education and training is critical as both an enabler of productivity across the Victorian economy and as a significant industry sector in its own right. Victoria, more than perhaps any other State in Australia, is dependent on the quality of its education and training outputs for future prosperity. Unlike other States with significant natural resources (WA, SA and Queensland), Victoria’s capacity to generate Gross State Product is primarily due to its effectiveness in generating demand for and facilitating the supply of highly skilled labour.

The Victorian training sector is recognised as the most advanced and devolved in Australia. Victoria pioneered decentralization of TAFE Institutes and has recently made significant steps towards contestability, creating new challenges and opportunities for providers. In coming years, the Vocational Education and Training (VET) system is likely to confront considerable reform pressures of the kind previously experienced in the higher education sector. Greater contestability, changing funding models, expectations of greater financial contributions from students and perhaps employers, as well as updated governance arrangements are all issues the sector is currently dealing with, or will need to consider in future. Some of these reforms will be structural in nature, including changes to governance and reporting.

At the same time as the market is being restructured, the focus on skills and labour market issues has never been greater. The education and employment participation agenda is presenting significant opportunities and challenges for the Victorian Government as an owner and regulator of the training sector. Ambitious educational engagement and attainment targets have been set both locally and abroad.

The VET sector is at the frontline of the participation agenda. VET plays a critical role in creating a workforce of lifelong learners that are equipped with the skills needed to work with new technologies in emerging careers. The sector provides workers with the foundation skills (such as literacy, numeracy and digital literacies) that are job pre-requisites in every field (for example, to understand OH&S obligations).

The training sector has been a major focus of recent reform, with the government seeking to simultaneously meet the demand for short-term labour while creating a training sector that is responsive to longer-term skills challenges. Devolved accountability of TAFEs has been a major plank of the government’s strategy to increase the capability of the sector. For the most part, the accountability arrangements for Victoria’s 14 TAFEs and four TAFE operations within universities have delivered good outcomes.

The Victorian Skills Commission (VSC) plays a central role, at least in the legislative framework. However, the role has recently changed, with demand based funding replacing the planning and purchasing model of resource allocation.

Skills Victoria (SV) is an office of the Department of Education and Early Childhood Development (DEECD) and acts as the system manager of the Victorian Vocational Education and Training (VET) system. SV has been the subject of a State Services Authority (SSA) review in 2009 and a review of TAFE governance arrangements was completed in 2009.

Victorian TAFE Institutes (and their boards) are established under the Education and Training Reform Act 2006 (ETRA). Each TAFE is governed by a board of directors, accountable to the Minister for Higher Education and Skills for setting the strategic directions

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of the entity, within the framework of government policy. In performing its functions and exercising its powers under the ETRA, the Board of a TAFE is accountable for:

• The effective and efficient governance of the Institute

• The discharge of the Institute’s statutory functions

• The educational and financial performance of the Institute.

This devolved governance model allows TAFEs to engage with industry and ensure their training delivery is the most appropriate and effective for employers, increasing local autonomy and flexibility, and enabling services to be innovative and responsive to community needs.

The move to a demand-driven system has the potential to generate tension between the appropriate autonomy needed in practice to compete with private providers and accountability for public expenditure.

1.2. Context for this review The Victorian VET system began a staged move to a market-driven model beginning with the roll-out of the Victorian Training Guarantee for eligible students in Diplomas and Advanced Diplomas in July 1 2009, with the Victorian Training Guarantee now rolled out to all eligible VET students from January 2011. In announcing the move to a market-driven model the Government identified the need to work with TAFE institutions on changes to governance arrangements to ensure they have the flexibility they need, while meeting the standards of financial and community responsibility required by Victorian public entities. Improvements to TAFE governance arrangements will help TAFEs to operate in the new market-driven environment, with a greater focus on demand-driven, learner-focused provision.

These reforms have changed the role of the Victorian Skills Commission. An evaluation of the gap between what the legislation originally intended and contemporary practice is needed. An assessment is also required of strengths and possible weaknesses in current mechanisms that facilitate the functions of the Victorian Skills Commission.

Skills Victoria also requires an independent assessment of the formal and informal mechanisms by which Skills Victoria supports the Minister for Higher Education and Skills and the Victorian Skills Commission in engaging with and overseeing the performance of TAFE Institutes. Specifically, Skills Victoria has sought assistance in assessing the current approach to oversighting TAFE Institutes in Victoria and identifying strengths and weaknesses of the current arrangements and considering options to strengthen communication, accountability and transparency mechanisms.

The move to a demand-driven system has the potential to generate tension between appropriate autonomy in practice to compete with private providers and accountability for public expenditure. Skills Victoria (SV) is currently exploring how TAFE Institutes are currently governed and options for addressing the current tensions in the system.

Despite general success, a number of issues have arisen in the training sector that demands a review of current governance arrangements. Some of these issues are compounded by the fact that TAFEs are now significant operating entities in their own right, and that governance arrangements are both formal and informal in nature. As the size of TAFEs has increased, so have the channels of communication between TAFE Institutes and the Victorian Government. As well as the formalised and well-recognised channels (including a range of reporting requirements), informal discussions between TAFEs and the government have also arisen. For the most part these interactions are productive and appropriate.

To ensure that these changes are managed appropriately, strong governance arrangements are required. These arrangements exist – and need to be tested - at a number of levels. These include the governance settings that are established under the Education and

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Training Reform Act 2006 (ETRA), where each TAFE is accountable to the Minister for Higher Education and Skills for setting the strategic directions of the entity, within the framework of government policy. But the governance review must also extend beyond the letter of legislation to the operation of governance arrangements in practice.

Skills Victoria recognises that an effective governance arrangement is underpinned by robust, formal communication of expectations and accountabilities. The effective governance of TAFEs should not need to rely on the existence of personal relationships or a deep understanding of informal processes.

1.3. The Task Skills Victoria sought the following from this review:

Legislative Framework

1. The identification and articulation of the legislated responsibilities (including those contained within reforms currently being undertaken in the VET sector) of the Victorian Skills Commission and the extent or limits of those responsibilities. The identification of areas of duplication or ambiguities arising from those responsibilities is also required

2. The identification and articulation of the legislated responsibilities (including those contained within reforms currently being undertaken in the VET sector) of TAFE Institutes and the extent or limits of those responsibilities. The identification of areas of duplication or ambiguities arising from those responsibilities is also required

Victorian Skills Commission

3. The identification of strengths and possible weaknesses in current mechanisms that facilitate the functions of the Victorian Skills Commission

Skills Victoria

4. A comprehensive description of the formal and informal mechanisms currently employed to ensure that TAFE Institutes operate within government policy and the Minister’s expectations and comply with frameworks around public financial management and probity

5. An assessment of the capacity of the legislative framework to effectively support and enable SV to undertake its role as system manager of the Victorian VET system

6. An analysis of the strengths and potential weaknesses of current engagement and oversight mechanisms, and supporting business processes and systems

7. Recommendations for:

• strengthening the legislative framework to improve the capacity of SV to undertake its broader responsibilities

• improving engagement with and oversight of TAFE Institutes, which take into account the reforms currently being undertaken in the VET sector

• enhancing internal Skills Victoria systems and communications processes to support these activities.

TAFEs

8. Relevant lessons from governance arrangements from other comparators

9. A comprehensive analysis of the effectiveness and viability of current governance structures for TAFE Institutes in the context of meeting both Government public

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policy and service delivery objectives in an increasingly competitive and commercial environment

10. Recommendations about the governance options for TAFE Institutes which take into account each TAFE Institute’s varying capacities to engage in competitive and commercial activities

1.4. Approach The elements listed above were dealt with in several sub-projects, as follows:

Legislative framework sub-project: • Analysing the legislative framework and documenting key interactions • Analysing the legislation underpinning the VSC in terms of oversight responsibilities

using desktop research and identifying any areas of duplication and ambiguities (with input from SV, VSC and some TAFEs)

• Analysing the legislation underpinning TAFEs in terms of oversight responsibilities using desktop research and identifying any areas of duplication and ambiguities (with input from SV and some TAFEs).

VSC sub-project:

This focused on:

• An assessment of strengths and weaknesses in current mechanisms that facilitate the functions of the Victorian Skills Commission.

SV Oversight sub-project

This focused on investigating and documenting how oversight interactions occur:

• Identifying what Skill Victoria’s system manager role is • Working with SV, the VSC and some TAFEs to identify how they interact, both

formally and informally (at all levels) in terms of compliance matters (i.e. engagement and oversight mechanisms)

• Producing a catalogue or ‘map’ of where the main interactions occur, as well as a description of ‘how’ they occur

• Ascertaining what powers SV needs to undertake its role effectively and efficiently, and where it lacks powers under existing legislative arrangements

• Identifying options for legislative mechanisms to close gaps • Identifying relevant business processes and systems supporting oversight with

assistance from SV and then undertaking a high level assessment of them in terms of suitability and capability

• Proposing practical options to improve oversight arrangements.

TAFE Governance sub-project

This involved:

• Building on our previous work to identify where governance arrangements limit the capacity of TAFEs to meet both Government policy goals and operate effectively in a competitive, commercial environment

• Identifying and prioritising contemporary issues and developing options to address them

• Establishing what is done in comparable situations elsewhere and what lessons might be learnt

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• Testing the validity of our previous recommendations in light of: − Subsequent legislative changes − The current and emerging operating environment − Recent operational experience − Any new policy goals

• Proposing practical options to improve governance arrangements.

Consultations were held with a number of representative TAFEs, the VSC, Skills Victoria staff and representatives of the Victorian TAFE Association, Department of Treasury and Finance and Department of Premier and Cabinet.

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2. Legislative framework This Section documents the legislative framework and assesses whether there are:

• Any problems around the legislated roles and boundaries of responsibility for TAFEs and for the VSC

• Any areas of duplication or ambiguities around role clarity and boundaries of responsibility.

2.1. TAFEs The legislative framework under which TAFEs operate is relatively complex. This could potentially lead to issues, duplication, gaps and ambiguities. However, no major problems were identified and overall, most TAFEs seem aware of their legislative obligations.

2.1.1. Legislative responsibilities

There are a number of instruments that govern the establishment, governance and operational requirements of Victorian TAFE Institutes. Figure 1 below broadly categorises this framework under the following headings:

• Legislation • Subordinate Instruments • Whole-of-government Guidelines • Performance and funding frameworks

Figure 1: TAFE legislative framework

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Legislation

The primary piece of legislation that deals with the establishment and governance of TAFEs is the Education and Training Reform Act 2006 (ETRA) which:

• Creates powers to establish, abolish or amalgamate a TAFE by the Minister (after consulting the Board) and defines Board objectives, functions and powers

• Requires TAFEs to develop a Constitution • Provides Reserve Powers for the Minister to act if the Board is not fulfilling its

obligations.

As Victorian public authorities, TAFEs are also required to comply with the general laws and policy directions of the State Government that apply to their operations and conduct. The additional Acts of Parliament that apply to their administration are:

• The Public Administration Act 2004 • The Borrowing and Investment Powers Act 1987 • The Financial Management Act 1994 • The Land Act 1958 • The Crown Land (Reserves) Act 1978 • The Charter of Human Rights and Responsibilities Act 2006 • Audit Act 1994 • Ombudsman Act 1973 • A New Tax System (Goods and Services Tax) Act 1999 • Banking Act 1959 • Building Act 1993 • Disability Discrimination Act 1992 • Freedom of Information Act 1982 • Information Privacy Act 2000.

Subordinate Instruments

The legislation also gives effect to a number of subordinate instruments that relate to the governance and operational requirements of TAFEs. These include:

• Ministerial Directions and Guidelines • Orders in Council to establish a TAFE Constitution • Applicable Codes such as the Public Sector Code of Conduct • Ministerial Financial Standing Directions • Regulations.

Whole-of-government guidelines and frameworks

TAFEs are also required to adopt some whole-of-government guidelines and frameworks including:

• Victorian Government Purchasing Board Guidelines • Whole-of-government guidelines (VGPB) • Master Agency Media Service (MAMS) • Good practice guides • Governance Charters and frameworks.

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d o ers andol partn 8

Below these instruments and guidelines sit a suite of performance and funding frameworks that stipulate the operational and accountability requirements between TAFEs and their relevant oversight bodies. The main agreements are:

• Public Provider Funding Agreement (PPFA) between the VSC and each TAFE Board − Sets out the terms and conditions under which, pursuant to the Skills for Victoria

program the Commission will make available, and the Board will accept, the Funds to assist the Board to maintain assets and infrastructure and provide ancillary services in order to support the Board's primary function of providing training services

• Service Agreement between the VSC and each TAFE − Governs the rights and obligations of the VSC and the TAFE in relation to training

delivery funding (similar agreements are made with RTOs that receive VSC funding).

2.1.2. Areas of duplication and ambiguity

While there are numerous Acts that apply to TAFEs, and some sections cover similar subject matter (e.g. Boards, codes of conduct) there does not appear to be any major inconsistency between the Acts and instruments themselves. It is evident, however, that a range of legislative and subordinate instruments are used to address TAFE governance obligations (e.g. the PPFA).

During consultations, TAFEs all felt confident they were aware of their legislative obligations and their adoption of inferred powers. Despite this, there is potential for SV to strengthen TAFEs’ understanding of their legislative obligations, primarily by listing the relevant Acts through the Model Constitution. It should also be noted that the Constitutions for TAFEs may need to vary according to whether they have GBE status. Those with GBE status will have much clearer direction about what powers should and should not be contained within the Constitution (in accordance with Corporations Law).

Table 1 below lists the legislative and subordinate instruments of Victorian TAFE Institutes with the aim of:

• Defining the instrument’s objectives • Describing the major requirements/powers of the instrument at a high level • Identifying issues.


Table 1: Legislative and subordinate instruments of Victorian TAFE Institutes

Act / Instrument Objectives and requirements Skills Victoria Reported Issues, Gaps & Ambiguities

1. Education and Training Reform Act 2006 (ETRA)

Objectives

In relation to TAFEs the Act:

• Creates powers to establish, abolish or amalgamate a TAFE by the Minister (after consulting the Board)

• Defines Board objectives, functions and powers which include: − Acquiring, holding, dealing with or disposing of property for the purpose of

performing its functions and exercising its powers; and − Doing and suffering anything that a body corporate may by law do and suffer and

that is necessary or expedient for performing its functions and exercising its powers.

• Stipulates that Boards must comply with government policies • Requires TAFEs to develop a Constitution • Requires that the Constitution of each Board provide that chairperson of each Board

is to be appointed by the Governor in Council. • Stipulates terms and conditions regarding appointment and Office of Directors

(Schedule 2) • Provides new functions and powers conferred by the Skills Act on TAFE Institute

Boards. Which in future, will include that TAFE Institute Boards must: − Develop and keep up to date a strategic plan for their respective Institutes − Submit each year to the Minister a statement of corporate intent, setting out their

operational plans for the coming year; and − Hold an annual meeting, which is open to the public and stakeholders, where

each Board must present its report on operations and financial statements for the past year, and consult on plans for the coming year

• Provides Reserve Powers for the Minister to act if the Board is not fulfilling its obligations by: − Issuing written directions for Boards to act or comply − Censuring or dismissing Board members − Appointing an administrator

• Despite the general requirements of the PAA it can

be difficult to require appropriate external due diligence be undertaken in relation to significant proposals by the Board outside of 'normal' education and training activities - the ETRA is silent on this issue.

• Most TAFEs will be regulated by ASQA post 1 July 2011. There may be a disparity in regulation between ETRA regulated TAFEs and ASQA regulated ones because of the differing content of the regulation.

• Penalties for non-compliance involve, in the most part, invoking of Minister's reserve powers which are rarely (never to date) used in practice - may not be particularly effective incentive for compliance if there is a "rogue" TAFE.

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2. TAFE Constitutions (Orders made under ETRA)

Objectives

Through an Order in Council, ETRA also establishes the requirement of a TAFE constitution. The current Constitutions of TAFE Institute Boards are contained in Orders in Council made under the former Vocational Education and Training Act 1990 in 1994-95, with amendments by later Orders under that Act and under the Education and Training Reform Act 2006.

The Constitution:

• Establishes a Board and specifies composition and numbers of the Board • Establish governance rules for the Institute and its Board. • Subject to ETRA, sets out the objectives, functions and duties of the Board • Subject to ETRA (Sch. 2), Stipulates terms and conditions regarding appointment

and Office of directors • Identifies powers and duties around financial management

The Constitutions are currently under review so the following issues may be addressed in the remaking and review process in 2011:

• Board director conflicts of interest – no specific power to permit the Chair to record an interest that they believe should be disclosed by a director or the power to require that director to be absent during a vote on the matter

• Compliance with Government policies (e.g. competitive neutrality and directions under the FMA, Ministerial directions/orders and GIC orders) – the Constitutions do not specifically require the TAFE Boards to comply with these

• CEOs – the Constitutions do not specify how the Board should give proper direction to, exercise proper control over and monitor the activities of the CEO

3. Ministerial Directions and Guidelines (under ETRA)

• Provides specific detail on how a TAFE is to deal with or address a particular issue (e.g. fees)

• There are currently 24 Ministerial Directions that cover a range of areas which include fees, charges, staff remuneration and TAFE purchasing

• Post 1 July 2011 there is some doubt over whether ASQA regulated TAFEs will need to comply with a Ministerial Direction or Guideline (pending anticipated changes to the NVR Act by the Commonwealth)

4. The Public Administration Act 2004 (PPA)

• Sets out duties for Institute and Board members • Requires Board to comply with Public Administration Code of Conduct • Requires accountability to the Minister

• Problems with enforcing provisions of the PAA relating to Institutes. While this legislation is legally binding on TAFE Institutes there is possible uncertainty as to whether all Boards are aware of these obligations.

• Model Constitution amendments propose inserting a reference to this Act

AFE oversight and governance

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5. Codes of Conduct under Public Administration Act

• Set out legally binding standards of conduct for Board directors and Institute staff • Possible uncertainty as to whether all Board members are fully aware of the their Code obligations

• Model Constitution amendments propose inserting a reference to this

6. The Financial Management Act 1994

• Financial and performance reporting requirements • Required to have accounts audited by VAGO • Rules around borrowing and investment

• As with the PAA, there appears to be some uncertainty as to whether Boards are aware of obligations under this legislation or the extent for the need for compliance particularly with Directions issued by the Minister for Finance

• Model Constitution amendments propose inserting a reference to this Act

7. Standing Directions under Financial Management Act 1994

• Sets out legally binding directions for conduct of Institute's financial management.

8. The Borrowing and Investment Powers Act 1987

• Schedule 2 General Provisions of ETRA states that an authority has any of the investment powers that are conferred on it by the Borrowing and Investment Powers Act 1987

• Note orders currently made under BIPA conferring borrowing and investment powers on TAFE Institutes

• Model Constitution proposes inserting reference to this Act

• There are no powers currently conferred by BIPA to allow TAFEs to borrow funds

9. The Charter of Human Rights and Responsibilities Act 2006

• The Charter Act aims to ensure human rights are valued and protected within government and the community.

Review of T


2.2. VSC The role of the VSC has changed significantly, with demand based funding replacing the planning and purchasing model of resource allocation. There is scope for problems to arise because current roles vary significantly from past practice - and what one would expect reading the legislation. It is not desirable to have such a gap between what the legislation originally intended and contemporary practice.

2.2.1. Legislative responsibilities

The Education and Training Reform Act 2006 outlines the functions of the VSC. Section 3.1 of the Act states that:

(1) The functions of the Commission are—

(a) to advise the Minister about—

(i) the development and implementation of policy for post-compulsory education and training;

(ii) state wide planning for post-compulsory education and training including emerging requirements of Government, industry, the community and individuals;

(iii) vocational education and training strategies to complement State and national economic and social development;

(iv) the effective spending of money made available for vocational education and training;

(v) the provision of adult, community and further education in TAFE Institutes;

(vi) any other matter that the Minister refers to the Commission;

(b) to provide for the delivery of vocational education and training in Victoria by registered education and training organisations and the provision of further education in TAFE Institutes;

(d) to promote research in relation to post-compulsory education and training;

(e) to monitor the outcomes of post-compulsory education and training;

(f) to act as the State Training Authority under the Skilling Australia's Workforce Act 2005 of the Commonwealth;

(g) to carry out any other function that is conferred on the Commission by this or any other Act.

(2) The Commission, in carrying out its functions must—

(aa) have regard to the functions conferred on the boards of TAFE Institutes by or under this Act; and

(a) establish systems to achieve co-operation between the Commission and the Adult, Community and Further Education Board and to ensure that the Commission's actions are consistent with arrangements for the provision of adult, community and further education in Victoria; and

(b) liaise, as it considers appropriate, with the Authority and the Victorian Curriculum and Assessment Authority; and

(c) consult, as it considers appropriate, with Government, industry and the community.

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With the introduction of demand-driven funding the role of the VSC has changed significantly. That is, the VSC’s role in informing government training purchasing priorities is materially impacted by the new market structure. However, the legislation has yet to be modified to fully reflect these changes.

2.2.2. Areas of duplication and ambiguity

The statutory functions of VSC specified in ETRA are dated – reflecting arrangements relevant to the previous planning and purchasing model for resource allocation, not the demand based funding model that now applies to VET in Victoria. There is potential for this to cause confusion, even if there are no compelling statutory imperatives to adjust powers.

In relation to the interpretation of its functions in the new operating environment, VSC has now defined its future role (detailed in Section 3). It is readily evident that the contemporary functions of VSC represent a significant diminution of the previous role (before demand-driven funding).

The VSC has delegated significant legislative functions to SV. For example, Section 3.1.2, sub-section 1(a)(iv) of ETRA states that the VSC is required ‘to advise the Minister about the effective spending of money made available for vocational education and training’. However, the VSC has delegated this function to SV.

Even where VSC does undertake its legislative functions, such as overseeing SV's business processes for contracting and making payments and controls, it relies on a half yearly attestation by the Deputy Secretary and half yearly reporting on SV contract compliance audits of RTOs receiving government money for training.

While consultations did not identify differences of view between the VSC and SV about the split of current roles, and no significant duplication of activity is evident, there is scope for problems to arise because current roles are so different from past practice and what would be expected on reading the legislation. While there is no evidence of functions being undertaken without legislative support, it is not desirable to have such a gap between what the legislation originally intended and contemporary practice.

More particularly, there are some areas where the legislative charter of VSC is either no longer relevant or does not appear to match contemporary requirements. This results in overlap and some ambiguity surrounding the roles and responsibilities of the VSC, SV and the Minister, even if there is legislative clarity about operating roles.

We are not in a position to assess whether the instruments of delegation that are in place are effective. However, with SV undertaking many roles on behalf of the VSC, if a legal problem arises it may be unclear who is ultimately responsible for what.

Another result is that VSC may be required to be involved in matters where it is not in an effective position to undertake that legislatively intended role. For example, if the Minister or SV wishes to pursue any issues with TAFE Boards, VSC involvement is required, yet the VSC will not be well placed operationally to play such a role.

We return to this issue in Sections 3 and 5.

With regard to the role of the VSC and TAFEs, the consultations undertaken in this review did not indicate areas where there appeared to be overlap or ambiguity.

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3. Victorian Skills Commission This Section documents an assessment of strengths and possible weaknesses of current mechanisms that facilitate the functions of the Victorian Skills Commission. It should be noted in doing this, the review was not asked to consult with RTOs or industry on the role of the VSC.

3.1. Current operational mechanisms

VSC’s primary intended function has largely disappeared with the reforms to the Vocational Education and Training (VET) system in Victoria over the last couple of years. The VSC’s role is now primarily about connection to industry and oversight of performance of the system as a whole.

The Education and Training Reform Act 2006 (ETRA) clearly outlines the functions of the VSC. With the introduction of demand-driven funding the role of the VSC changed significantly. As discussed above, many of VSC’s roles have been delegated to SV.

However, the legislation has yet to be modified to fully reflect the new operating arrangements.

In relation to its legislative responsibilities, VSC has defined its current role as:

• Overview − The VSC is the fund holder for the Victorian training system. It is the government's

peak industry skills advisory body and a source of industry intelligence − The VSC monitors the training market and uses its industry intelligence and other

evidence to identify potential critical market failures or other sub-optimal training market performance, and to promote good practice within the training market

− The VSC recommends actions on strategic opportunities to improve training market responsiveness to industry needs. Actions can be for the VSC itself, such as research or taskforces on strategic industry sectors or skill issues, or for other bodies that have a role in the training market

− As fund-holder for government training funds, the VSC oversees SV’s business processes for contracting and making payments, and controls and authorises the release of funds accordingly

− The VSC has legislative responsibility for regulating the apprenticeship and traineeship system in Victoria

− SV, not the VSC, supports the Minister (as owner) in oversighting public provider governance and financial accountabilities. The VSC focuses on overall performance of the training market

• Market oversight − In a demand-driven training market the VSC does not allocate funds. Its

independent market oversight role allows it to provide frank advice to government on the responsiveness of the training market in meeting industry needs

− The Act requires the VSC to advise the Minister about 'the effective spending of money made available for vocational education and training'. The VSC discharges this obligation by advising on the effectiveness of the training market in meeting industry and community needs, and on potential interventions to improve market

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effectiveness. The VSC will use the VSC skills market effectiveness report as the key means of advising the Minister.2

Section 3.1.2, sub-section 1(a)(iv) of ETRA states that the VSC is required to advise the Minister about ‘the effective spending of money made available for vocational education and training’. The VSC has delegated this obligation to SV.

ETRA also requires the VSC ‘to provide for the delivery of vocational education and training in Victoria by registered education and training organisations and the provision of further education in TAFE institutions’ (section 3.1.2, sub-section 1(b)). The VSC has stated it does not directly facilitate the training market, but identifies critical current or potential market failures or sub-optimal performance of the training market, advises government, the department or other bodies where action is required, and monitors responses to that advice.

The appropriateness of regulatory functions being exercised by the VSC is being considered in a strategic review of apprenticeship regulation being undertaken by the regulatory reform team of the Department of Business and Innovation, on behalf of SV.

The Allen Consulting Group is also currently reviewing the ‘Future Roles of Skills Victoria and the Victorian Skills Commission’.

3.2. Strengths and weaknesses

There are several areas affecting the facilitation of the VSC function: • A review of the legislation, internal VSC documents and external agreements, shows

a high level of inconsistency about the interpretation of VSC’s role and associated responsibilities

• A large number of VSC’s key functions have been delegated to SV and some functions can only be undertaken using SV’s support (We are not in a position to verify that effective instruments of delegation are in place)

• From a legislative perspective, VSC’s statutory functions under ETRA are now out-dated. ETRA still reflects arrangements relevant to the planning and purchasing model for resource allocation that is now inconsistent with the demand-based funding model that applies to VET in Victoria. There is potential for this to cause confusion, even if there are no compelling statutory imperatives to adjust powers

• There may be a perceived conflict of interest created about the VSC’s responsibility for market oversight and its responsibility as fund holder

• Many of the governance, operational and performance instruments used between TAFEs and the government are still technically made through the VSC. This effectively means that if the Minister is required to take action in relation to TAFE performance, VSC involvement is required. This is not an appropriate or workable arrangement on an ongoing basis

• VSC has legal responsibility for functions carried out under delegation by SV but appears to lack the independent capability to oversee this activity. From a governance point of view this is unsatisfactory – either VSC needs this capability or, more practically, there should be legislative changes to place the role and responsibility directly with the Minister.

Further supporting these findings is the feedback provided by TAFEs and other stakeholders which has included:

• VSC is encountering difficulties with the transition to a new role, and establishing the right membership of independent people with appropriate industry expertise

2 Victorian Skills Commission, VSC Draft Role and 20011-12 Priorities, July 2011.


• VSC is still the ‘fund’ holder, which may cause a perceived conflict of interest because technically they also have an ‘oversight’ function

• VSC has not effectively engaged or communicated with the sector as a whole on its new role

• VSC’s new role is regarded as unclear by a number of TAFEs • Some TAFEs perceive VSC to be out of touch with the TAFE sector as a whole

(including its understanding of private providers) • There is a level of concern about VSC’s capability to effectively evaluate how the

sector is functioning (e.g. in a relatively recent meeting with TAFEs it presented data on the demand for training that some TAFEs believe was in error)

• There is a perception that Industry Training Advisory Bodies already provide a mechanism for industry engagement and market intelligence, which diminishes the need for VSC to also do this

• Some stakeholders question the ongoing role for VSC.

While it may be important to have an independent body responsible for the oversight of the training market, further work needs to be undertaken to assess whether the VSC is best placed to effectively deliver this service compared to other delivery options.

3.3. Options

Due to reforms to the Vocational Education and Training (VET) system in Victoria over the last couple of years, the primary intended function of VSC has largely diminished. Although VSC has recently tried to clarify its role and future priorities, a high level of ambiguity still remains within the sector. While acknowledging the need for a body to oversee the training market, it is unclear that the VSC is best placed to deliver this service.

Given that the VSC relies heavily on SV to undertake analysis of the training market and for other support, the question that needs to be asked is what value-add does it provide?

It is therefore recommended that consideration be given to:

• Amending ETRA to transfer responsibility to the Minister for the legislative roles of VSC that are currently delegated to SV. In particular, VSC should play no role on TAFE governance matters. Responsibility should rest clearly and solely with the Minister

• Undertaking further work to determine the future need and relevance of the residual functions that the VSC performs

• If there are valuable functions that should be performed, consideration should be given to whether the VSC is the optimal organisation to undertake it. Other options for delivery of these functions should be identified and compared against provision by the VSC.

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4. Mechanisms for TAFE engagement and oversight This Section provides an overview of:

• The system manager role • SV engagement and oversight with TAFEs.

It also provides and overview of some lessons and insights from approaches used elsewhere.

4.1. The system manager role

4.1.1. Overview

The Victorian VET system manager role is a sub-set of the current functional descriptors for the Office of Higher Education and Skills3:

• Training Market Operations − Contract and fund VET, quality assure publicly funded VET and maintain IT

systems to support the funded training market • Market Facilitation and Information

− Research/disseminate information on skill needs and performance of the training and higher education market to inform choice and optimise labour market participation, mobility and productivity

− Work with training market stakeholders to address barriers to market responsiveness, access and innovation to fuel regional economic development, drive Victoria’s continued economic competitiveness and growth and support workers and businesses to adapt to changing business conditions

• Policy and Strategic Projects − Advise on policy settings to support the efficient and effective operation of the

publicly funded training market and empower education and training providers to develop seamless pathways and partnerships

− By looking over the horizon to the challenges and opportunities of the coming years, high level strategic advice will support the government in future-proofing these policy settings

• Tertiary Education Governance and Development − Oversight of public provider financial, educational and commercial performance and

advice on public provider governance − Support to TAFE, AEI and University Boards, including co-ordination of board

appointments − Support development of TAFE and ACFE service and asset strategies as input to

departmental infrastructure • Youth Pathways and Participation − Undertake strategic projects and develops policy and programs to:

o Strengthen transitions from schooling to employment, including through vocational, higher education applied learning and workplace learning pathways

3 These descriptions apply from July 22, 2011 only.


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o Ensure VET qualifications, programs and assessment practices provide the basis for employment, career progression, lifelong learning and workplace productivity

o Strengthen participation in VET and employment outcomes of disengaged and hard to reach learners

− Activities encompass innovative programs and partnerships, pedagogy and assessment, workforce development, career development, funding and accountability and infrastructure investment. On youth pathways the Division works collaboratively with the Office for Schools and the Office for Regional Support

• Adult, Community and Further Education − Policy advice in relation to the Learn Local sector, including governance − Supports the ACFE Board to build provider capacity and administer Board grant

programs.

The two Divisions most relevant to the VET system manager role, and therefore to this review are Training Market Operations (TMO) and, particularly, Tertiary Education Governance and Development (TEG&D).

SV’s system manager role is derived from, and facilitated by, the Education and Training Reform Act 2006 (ETRA). In a number of its activities, SV effectively acts as an agent for the VSC. The roles SV undertakes under ‘delegation’ from VSC are documented in Attachment 1. As can be seen there, the delegations are extensive.

4.1.2. TAFE oversight

The SSA defines the general roles of a Minister and the Department in oversighting entities as follows4:

The Minister

“The roles and responsibilities of Ministers include exercising powers to:

• Make or recommend the appointment and removal of directors; • Give directions and request information (subject to applicable legislation); and • Initiate review of the public entities’ management systems, structures or processes.”

The Department

“Departments exist to assist Ministers to perform their portfolio responsibilities and are a means by which Government policy is implemented. A Department is the Minister’s principal source of advice on the performance of public entities and on emerging risks within his or her portfolio. Departments assist with liaison between the public entity and the Minister and between the public entity and central agencies (DPC and DTF). Departments advise Ministers on Board appointments, monitor entities’ performance, alert Ministers to significant developments, including emerging risks, and provide advice on remediation.”

SV has “oversight responsibilities for the performance of, and governance arrangements for TAFEs – including their financial accountability, transparency in operations and responsiveness to government policies.”

As the ‘owner’s representative’, SV oversees:

• Governance of TAFEs • Adherence to / alignment with government policy

4 Legal Form and Governance Arrangements for Public Entities Guidelines, October 2010. Available at: http://www.ssa.vic.gov.au/products/view-products/legal-form-and-governance-arrangements-for-public-entities.html


• Compliance with relevant legislation • Strategy • Financial management of government assets and funds • Major policy decisions including negotiation of Enterprise Bargaining Agreements.

4.2. The nature of engagement and oversight TAFE Institutes have several relationships with Government:

• As Government owned entities operating effectively as statutory authorities • As training service providers funded by the VSC under the Victorian Training

Guarantee (under a Service Agreement (SA) between the VSC and each TAFE) • As training service providers funded by Government to maintain assets and

infrastructure and to provide full services where competitive provision does not meet Government training requirements (under a Public Provider Funding Agreement (PPFA) between the VSC and each TAFE).

SV interacts with each TAFE in all three areas:

• As ‘owner’s representative’ with respect to the first relationship, with SV primarily interacting on strategy, requirements such as government policy objectives and the extent to which TAFEs perform according to requirements in the LOE, KPIs etc.,

• As ‘purchasing agent’ for the VSC with respect to the second relationship (through a SA)

• As ‘funder agent ’, on behalf of the VSC with respect to the third relationship (through a PPFA).

The focus of this assignment is primarily on how SV ensures that TAFEs operate within government policy and the Minister’s expectations and comply with frameworks around public financial management and probity. It supports the Minister with respect to 3.1.15 (2) of ETRA:

The board of a TAFE Institute is accountable to the Minister for the effective and efficient governance of the Institute including the discharge of its statutory functions and for the educational and financial performance of the Institute.

Section 4.3 documents interactions between SV and TAFEs with respect to all three relationships. Sections 4.4, 4.5 and Section 5 focus primarily on the first relationship, and the third relationship to the extent that it is also related to the ‘owner representative’ role.

4.3. Map of interactions SV was asked to provide information to map the formal and informal communication occurring between each business unit and TAFEs. SV also provided this exercise to TAFE regional managers to gain their feedback. The results of the detailed mapping exercise are documented in Attachment 2.

From the responses received and interviews conducted it was found that:

• The main communication mechanisms being used are phone calls, emails, meetings and letters. However, there are no clear protocols around the use of these mechanisms in relation to material or high-risk issues

• The interaction between SV and TAFEs occurs across all levels of staff and it is unclear whether staff are always aware when issues need to be formalised or escalated. Further supporting this, is the concern that some TAFEs request information and then may inappropriately interpret this as formal advice

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• It was reported that below the Executive level, SV staff rely largely on informal communication channels to disseminate information. This creates the risk that critical or timely information sharing about TAFEs may not be disseminated appropriately or applied consistently.

The main areas that TAFEs seek advice or request decisions from SV relate to:

• Asset management, capital works and Budget and Expenditure Review Committee (BERC) activities

• Training delivery data • Performance data • Budgeting, cashflow and quarterly reporting.

There were varying levels of detail received from each Division during this exercise, therefore the volume and frequency of the informal and formal interactions could not be accurately determined.

4.4. The spectrum of governance oversight approaches Oversight arrangements for service delivery entities that are publically owned vary, depending to a large extent on the legal nature of the entity. The extent and nature of Government control over an entity ultimately depends on its establishing legislation.

Two approaches set the bounds:

• The government owned company model: − Company has broad powers and functions established in its Constitution − Owners (usually two Ministers) set broad expectations in writing annually − Entity advises the owner of its corporate intent annually (opportunity for interaction

between the owners and the company on this, but owner approval not required – responsibility ultimately lies with the Company)

− Oversight operates via company reporting o Continual disclosure of material matters o Periodic reporting against plan (e.g. Six monthly) o Annual report at an AGM

− ‘Owners’ are assisted by Departmental representatives in monitoring and analysing company reports

• The Departmental agency approach: − Services are provided by an entity which is legally and administratively part of a

Department.

There are many variants between the bounds. The statutory authority model (which currently applies to TAFEs) is one, being closer to the former than the latter in many regards:

• The authority has defined powers and functions established in legislation • Normal operation of the authority requires some Ministerial interaction (e.g. for

approvals on some financial and operating matters) • Strong Ministerial oversight is assisted by a Department that has extensive, regular

interaction with the authority

In Victoria, the State Services Authority has published guidelines for selecting the most appropriate legal form and governance arrangements when establishing a public entity.5

5 Op. cit.


4.5. Lessons and insights Victoria has experience with the full gamut of governance and oversight arrangements:

• Entities that operate legally and administratively as a part of a Department • Statutory authorities established by legislation to provide:

− Service delivery − Stewardship of public assets − Integrity functions − Regulatory functions − Quasi-judicial functions, and in some cases − Independent advice

• State business corporations: a statutory corporation, including a State body, may be declared as a State business corporation under the State Owned Enterprises Act

• State owned companies: a Corporations Act company declared as a State owned company under the State Owned Enterprises Act.

We have not undertaken a comparative analysis of experiences across the spectrum of entities providing services in Victoria, but make the following comments about some options.

Victoria has a robust and mature framework for Government Business Enterprises (GBEs). This involves the ‘two shareholders’ model (a ‘portfolio’ Minister and a ‘shareholder’ Minister (The Treasurer):

• GBEs are primarily accountable to their portfolio Minister and the Parliament for their performance

• They are also accountable to the Treasurer where the Treasurer has a legislated role to receive corporate planning or other financial documents.

This approach has been used with entities such as:

• Barwon Region Water Corporation • City West Water Ltd • Goulburn-Murray Rural Water

Corporation • Melbourne Water Corporation • Port of Melbourne Corporation • South East Water Ltd • Yarra Valley Water Ltd • Central Highlands Region Water

Corporation • Coliban Region Water Corporation

• Central Gippsland Region Water Corporation

• Federation Square Management Ltd • Goulburn Valley Region Water

Corporation • Grampians Wimmera Mallee Water

Corporation • Lower Murray Urban and Rural

Water Corporation • Wannon Region Water Corporation • Western Region Water Corporation • VicUrban

Performance issues arise with GBEs from time to time, sometimes due to economic circumstances and sometimes due to the performance of the Board and CEO. However, the model itself has proved robust and successful.

An advantage of this approach is that the oversight arrangements are mature and are well understood. There is clarity about who does what, with specified thresholds for obtaining approvals for capital expenditure and for continuous disclosure requirements.

Another approach would be to apply an ‘earned autonomy model’, within the current governance arrangements. This would involve:

• Specifying certain approval and oversight requirements (e.g. in the LOE, Ministerial Directions or the PPFA). These could be associated with the size of property

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purchases or other decision areas where approval from the Minister or discussion with SV is currently required

• Relaxing these on the basis of demonstrated performance.

This has the superficially attractive feature of rewarding ‘good performance’ while retaining closer oversight where this is deemed necessary. However, the model fundamentally conflicts with the notion of delegated autonomy being the expected situation. It really means that delegated autonomy is something that has to be earned, and presumably can be taken away if performance issues arise. It provides an incentive for good performance, but doesn’t address the question of what governance arrangement best fosters good performance.

For this reason we believe that the GBE model of governance is superior for commercially oriented organisations of sufficient size. The definition of sufficient is not precise of course, but a number of tests should be applied to determine whether the GBE model is appropriate for particular institutions.

Critical observation: the governance model should promote and facilitate strong performance and meet business requirements (i.e. give the autonomy and flexibility needed to perform in a competitive environment, enabling services to be innovative and responsive to market needs). Autonomy should be a fundamental feature of the governance model, not something that is variable. If performance is poor, the solution should not be to reduce autonomy, but rather to appropriately deal with the people responsible for performance – the Board and the CEO. In an extreme case this may require personnel changes.

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5. Strengths and weaknesses of oversight arrangements This Section identifies strengths and weaknesses of the oversight arrangements. While oversight has generally been effective, a number of refinements have been identified to strengthen it. It is our strong view that these should be consistent with the devolved authority model for TAFEs, which has served Victoria very well on balance.

5.1. Issues

5.1.1. Issues raised in previous reviews

There have been several previous and relevant reviews, undertaken by dandolopartners, the State Services Authority and Auditor-General’s Office.

Recommendations from previous dandolopartners reports

dandolopartners has undertaken two reviews for SV in May 2008 and June 20096. In both these review we made a series of recommendations relating to TAFE governance, operations and oversight. For a full list of previous recommendations and a reconciliation of SV’s actions to-date please see Attachment 3.

While SV has achieved progress towards implementing many of these recommendations, the Government didn’t accept them all at that time for a number of valid reasons. Since then the market for training has evolved and brought some of the issues we raised into sharper focus. We therefore endorse the following recommendations for reconsideration because we believe they are still pertinent to oversight:

• Produce and maintain a consolidated set of contemporary Ministerial Directions and SV policies

• Continue to remove public sector requirements that unreasonably constrain TAFEs ability to compete (e.g. allow TAFEs to negotiate Institution specific EBAs)

• Restructure the composition of Boards: − Reduce the total number of Board members to around 10 (as a general rule). − All Boards be appointed on the basis of skills and experience, including local

knowledge where appropriate. − Boards develop a skills (using wider definition) matrix as part of strategic planning

process. − An audit of existing Board skills (against each Institutes’ skills matrix) is undertaken.

• Authority and accountability for all operational decisions (consistent with SCI, owner’s expectations, policies etc.) rest with the Institute.

• Institutes ‘continuously disclose’ in a way that streamlines reporting requirements rather than adds to them.

Recommendations from the State Services Authority report

In January 2009, the Minister for Skills and Workforce Participation, requested the State Services Authority (SSA) to review the organisational arrangements of SV. This was in the context of the implementation of the Victorian Government’s skills reform package, Securing Jobs for Your Future — Skills for Victoria.

Also see Attachment 3 for a full list of the SSA’s recommendations and SV’s response.

6 Review of TAFE Governance Arrangements, dandolopartners, May 2008 TAFE Governance Review: Stage 2 Consultation Findings, dandolopartners, June 2009


Pertinent to this review are recommendations 5 and 6 that relate to clarifying the role and strengthening the capability of the VSC, and improving governance arrangements.

Recommendations from Victorian Auditor-General’s Report

In 2009, the Auditor-General released a report into Governance and Fraud Control within Selected Adult Education Agencies. The initial audit objective of examining whether agencies’ systems, policies and procedures were robust and discouraged fraud was broadened to include agency governance arrangements after the audit found that some Boards and management were not complying with agency policies and procedures.

In relation to governance by Board members it was recommended that:

• Board members should be inducted to the requirements of, and comply with, relevant legislation and agency policies and procedures (Recommendation 4.2).

• Agency Boards should establish sufficient mechanisms so they are aware of material transactions and events, and can effectively monitor and assess the performance of the CEO (Recommendation 4.3).

• Agencies should review the operations of their audit committees (Recommendation 4.4).

To support the strengthening of TAFE governance arrangements, dandolopartners endorses the SSA and Auditor-General’s recommendations and suggests that SV commit to their implementation.

5.1.2. Issues raised in consultations

While SV has effective and professional relationships with many TAFEs, the situation is variable. Relationships can be hampered by:

• Confusion about legal authority: Minister, SV, VSC, TAFE Boards • Lack of clarity about TAFE operating ‘rules’ which are contained in a number of

instruments outlined in Section 2.1.1, although most TAFEs that we consulted with thought they understood their ‘operating rules’

• What some TAFEs see as a reduction of devolved decision-making capability over time and increased intervention by SV or the Minister

• In a limited number of cases, TAFEs taking material actions which are contentious without formal agreement with SV

• Some whole-of-government rules that impose real operating constraints on relatively large, commercial businesses operating in a competitive market (e.g. the requirement to get approvals for marketing activities).

Consultations with SV staff identified a number of matters where existing oversight arrangements are challenged:

• The training market has evolved substantially: − Contestability has created new pressures to clarify strategy and vision – in SV and

in TAFEs − Economic conditions have created new financial challenges for TAFEs

• Changes in the training market have created new challenges for governance: − The demands on Boards and senior executives are greater than before − Informality cannot be relied upon as in the past − ‘Owner’ versus ‘funder’ tensions have increased, requiring changes to SV internal

structures − SV has had to adapt to being responsible for all providers, not just the ones that it

owns (which have dominated oversight activities in the past)

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• SV reported a positive correlation between TAFE performance and positive engagement with SV to help resolve issues. On the other hand, where TAFEs have declined assistance, outcomes are not necessarily as positive.

• TAFEs vary in they way they meet agreed requirements, such as submitting financial reports, data and other information late

• Maintaining a full complement of Board members for a TAFE in a timely manner can be challenging

• A ‘one size fits all’ approach to governance and implementation does not work any longer. Governance arrangements need to reflect that there are significant differences between TAFEs: − Dual sector and TAFE only − Revenue size − Regional and metro − Experience and capability differences (particularly of Boards) − Maturity differences

• The Minister has some very significant powers as ‘owner’ of TAFEs (e.g. the Reserve Powers specified in Section 3.1.19 of ETRA). However, the powers aren’t very graduated, and in a number of cases require VSC involvement

• As a result, SV has often used informal relationships to influence TAFEs • Also, other mechanisms have been used to exert authority on TAFEs:

− Letter of Expectations − The Public Provider Funding Agreement − Changes to TAFE Constitutions

• SV lacks a well defined risk-based oversight framework that: − Identifies potential matters where oversight may need to be strengthened in

particular circumstances (e.g. property purchases by a TAFE) − Documents a range of oversight/intervention options (including requiring Ministerial

approval) − Specifies triggers for increased oversight/intervention (e.g. size of a transaction) –

escalation protocols • Also, robust internal systems and processes to support oversight by SV aren’t fully in

place yet (as further discussed in 5.6). For example: − While Ministerial Directions are available on the SV website, they are not

consolidated in once place − There is no consistent approach to communications with TAFEs across SV − The Executive memo system (that sits below Ministerial Directions) has been run-

down and needs to reflect a more professional communication system. Executive Memoranda should only be used to communicate important contractual or policy positions. It is important that the status of Executive Memoranda is clearly understood by TAFEs as an instrument of authority that is linked to ETRA.

Consultations with TAFEs identified a number of issues relating to oversight:

• Most TAFEs regard SV as being professional and effective in carrying out its oversight role. Relationships with SV appear to have improved significantly over the last 18 months

• However, in a minority of cases, relationships seem strained. Responsibility for this does not lie fully with SV

• Frustration was expressed about the extent/burden of oversight. This may be a perception issue, but was a consistent position of most of the TAFEs interviewed. In

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some cases it is not due to SV decisions but the implementation and requirements of broader Government policy (e.g. for fund investment). One TAFE claimed that there was a higher level of oversight involved with domestic operations comparative to oversight relating to international activities

• Most of those interviewed believed that communication has generally improved over the last 18 months or so. This was particularly evident with the SV Executive Team, led by the Deputy Secretary. However there were some exceptions: − It is not always clear when SV is communicating as a ‘purchaser’ or ‘funder’ with

TAFEs − SV’s Market Oversight role is not clearly understood or seen to be communicated

effectively − Some TAFE staff perceive that SV forums or meetings are being used to just

disseminate information rather than for two-way communication. On the other hand, some other TAFEs feel that there is inadequate information being communicated

− Frustration was expressed about the lack of communication around the Government’s strategic direction and its relationship to the Federal Government‘s priorities (although there seems to be direct reference to these matters in each Letter of Expectation)

− Some TAFEs feel that large amounts of data are provided to SV, without much being received in return, which was also recognised as a ‘perceived issue’ by SV staff in the Asset Management Branch. SV advised that quarterly reports are currently provided to TAFEs and the Business Intelligence tool will increasingly provide more data as it continues to come on line. SV may want to consider using this opportunity to increase its communication about how TAFE data is being used and create meaningful reports to demonstrate the value of this data.

• While generally TAFEs are confident that they understand their ‘operating rules’, there is a consistent view that the level of independence they have is diminishing, even as the requirements to be innovative and flexible in a competitive market are increasing. This may be a perception issue but it is generally held strongly. To an extent it may be a result of the restructuring of various governance instruments such as the Letter of Expectations, PPFA and Constitution. For example, one specific matter raised by several TAFEs is the proposal that the Constitution be amended to require a Board Secretary7

• There is concern that SV might react to an instance where there is a performance issue at one TAFE by imposing additional requirements on all TAFEs, even when their performance has been sound

• There is perceived by a number of TAFEs to be real tension between the ‘owner’ and ‘purchaser’ roles of SV. For example, some TAFEs believe that, while full service funding is to compensate TAFEs for higher employment costs that result from IR restrictions, SV uses it as justification for imposing additional service obligations on them as ‘owners’

• Also, some TAFEs claim that dealings with various SV staff can lack consistency of application between various divisions of SV. This relates to situations where TAFEs deal with different people in SV and it is apparent to them that there is a lack of communication between SV staff. While unable to determine specific examples of where this occurs, it should be noted that some SV staff made the same comment to us about their interactions with TAFEs

• There is a perception that SV imposes policy requirements on TAFEs without providing the necessary funding (under the PPFA)

7 This issue is dealt with in further detail in the Legislation & Governance Report.


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• There is a lack of confidence in some TAFEs about how system performance is being monitored. Some TAFEs assert that demand-driven funding is promoting popular, cheap courses that may not match industry skill requirements. Advice from SV indicates that there is no evidence base to support this assertion

• Some concern was expressed about ineffective monitoring of the financial viability of RTOs, which ultimately impacts neighbouring TAFEs

• The financial performance of TAFEs varies, and some TAFEs believe that SV should play a stronger role in monitoring performance and being prepared to deal with TAFEs that are in an unsustainable position. Whether SV has the capability to do this is unclear

• The community focus of TAFEs differs, with some regional TAFEs being less commercially focused versus community focused. This means that regional TAFEs tend to see additional reasons for a strong partnership relationship with SV

• Some TAFEs also reported an increased tension between maintaining their Community Service Obligations and continuing to remain competitive within the current demand-driven market

• There is resentment about some policy matters: − The requirement to invest funds with Treasury Corporation of Victoria (TCV), at

lower interest rates than previously obtained from AAA financial institutions − The requirement to have marketing activities centrally approved8 − Some TAFEs also believe they are not receiving value-for-money by having to use

government mandated service providers (e.g. marketing) − Cashflow difficulties caused by the payment mechanism under the SA.

5.2. The ‘owner’ versus ‘purchaser’ tension SV has “oversight responsibilities for the performance of, and governance arrangements for TAFES – including their financial accountability, transparency in operations and responsiveness to government policies.” However, it is has been unclear to an extent in the past how this translates into roles, responsibilities and actions.

Until recently the Tertiary Education Governance, Policy and Planning Division was responsible for “providing strategic support and oversight to the publicly owned tertiary education and training system and ensuring Victoria’s tertiary education needs are factored into all State and Commonwealth decision making”. How these elements interacted with, or translated into, the oversight role for TAFEs is not immediately clear.

During the period in which this review was being undertaken, structural changes occurred in the Department. Of particular relevance to the review, from July 22, the Tertiary Education Governance and Development Division has been established to:

• Oversight public provider financial, educational and commercial performance and advise on public provider governance

• Support TAFE, and University Boards, including co-ordination of board appointments • Support development of TAFE and ACFE service and asset strategies as input to

departmental infrastructure.

This structural change should help ‘ring fence’ the ‘owner’ role within SV from the ‘purchasing agent’ role, and help address some of the issues documented below. Engagement with TAFEs also occurs on public provider funding matters (under a PPFA). This engagement is strongly linked to the owner oversight role and is not separately dealt with below.

8 We understand from SV advice that modifying this requirement is under active consideration


The scope of SV’s `TAFE oversight’ role is somewhat ambiguous:

• As owner, SV has an interest in overseeing: − Governance of TAFEs − Adherence to / alignment with government policy − Compliance with relevant legislation − Strategy − Financial management of government assets and funds − Major policy decisions including negotiation of EBAs

• As purchaser, SV has an interest in overseeing: − Quality of provision and standards of training − Compliance with relevant processes (including financial acquittal for training).

The ‘owner’ role is complicated by the ‘purchaser’ role of SV (technically on behalf of the VSC), which involves all VET providers. Before moving to contestability, TAFEs were provided with significantly more support than RTOs due to the Government’s major investment in them as a purchaser. Under contestability, theoretically SV should provide all VET providers with equal levels of support according to demand (though it may provide additional support as part of the ‘owner’ function and related community service obligations).

The ambiguity about what SV provides as ‘owner’ and what it provides as ‘purchaser’ is creating tensions. For example, some TAFEs believe that while full service funding is to compensate TAFEs for higher employment costs that result from IR restrictions, SV is perceived to use it as justification for imposing additional service obligations on them as ‘owners’.

The ‘purchaser’ and ’owner’ roles have been clarified to an extent within SV by previous structural changes. However, some confusion still exists in TAFEs (and suspicion that the purchasing function is used to pursue ‘owner’ objectives). It is not evident that the structures in place at the time of the consultations with TAFEs appropriately reflected new governance demands, as strong separation between the ‘owner’ and ‘purchaser’ roles does not appear to occur.

While we were not asked to consult with private sector RTOs, it can be expected that they will also have difficulty understanding the separation between potentially conflicting SV roles with respect to TAFEs. It would be interesting to know whether they see TAFEs being favoured by SV because of the ‘owner’ role. Anecdotally, RTOs are supposedly unhappy with the fact that TAFEs have access to the government’s MAMS contract for marketing services, providing superior buying power to that available to RTOs. In contrast, it is interesting to note that TAFEs view these types of contracts as a bureaucratic constraint on their marketing activities.

We are not in a position to assess whether the new structural arrangements in SV introduced on July 22, 2011 will fully deal with this issue. One test will be to check whether they clarify roles and diminish concerns about the purchaser/owner tension from the perspectives of TAFEs over the next twelve months.

5.3. TAFE owner oversight It seems unclear internally, and with TAFEs, what the nature of the ‘owner oversight’ role precisely is:

• As a facilitator for TAFEs – assisting them achieve agreed objectives? • Advice and assistance with approvals? • Performance monitoring? • Intervention?

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While some key SV oversight and performance instruments for TAFEs are now largely in place (e.g. Letter Of Expectations, Statement of Corporate Intent (SCI), KPIs) the process is not yet mature:

• Linkages between the three elements need strengthening • The instruments need refining in terms of content and structure

− Some TAFEs are critical of what they see as unrealistic expectations being expressed (specifically that a contraction of delivery was “unacceptable”, in the face of market reality that would occur irrespective of anything the TAFEs did)

− It also appears that some TAFEs load their SCI with detail to ‘protect themselves’ • The use of Public Provider Funding Agreements to impose governance requirements

creates an additional level of complexity • The value of current arrangements for AGMs seems questionable. Consideration

should be given to the AGM involving a suitably senior representative of the Minister.

With regard to the Statement of Intent, it is preferable for this to be noted rather than approved by the Minister, after ensuring that it is not inconsistent with Government expectations. The TAFE Board should be responsible for it, and this could be perceived to be diminished if it has been formally approved, moving responsibility to the Minister.

In addition, a couple of important parts of the governance ‘jig-saw’ are yet to be established:

• New TAFE Constitutions • New guidelines, under the Education and Training Reform Act 2006 (ETRA), on the

commercial powers and accountabilities of TAFEs.

It would be preferable if these two instruments were developed with clarity and agreement about a sustainable basis for governance. However, there are legislative imperatives for the instruments to be put in place in the near future, Nonetheless, it is desirable that the instruments continue to promote devolved authority and matching accountability.

5.4. System performance The level of commitment in TAFEs to the move to contestability, and their comfort with it, varies, which creates tensions. For example:

• Some TAFEs see a gap in the way the effectiveness of the current system is assessed (e.g. demand-driven funding is promoting popular, cheap courses that may not match industry skill requirements). They are unclear about who is monitoring and evaluating system performance? What is SV’s role? What is the VSC’s role?

• Some TAFEs have not taken up SV support to prepare for and transition to contestability, which is resulting in performance issues according to SV.

There is little clarity about the consequences of poor financial performance for struggling TAFEs. Some TAFEs are clearly in difficult financial positions, and it is not inconceivable that the future of some will be threatened. It is important that TAFEs understand what responses/escalation is triggered by the assessment of financial information as part of the purchaser role.

It could also be worthwhile developing and implementing a roadmap to enable financially constrained TAFEs to build critical mass and increased financial capability. This could involve a more pro-active approach to consolidating some TAFEs, either together or with universities.

5.5. Legislative framework for oversight The question is whether the legislative framework provides SV with the capacity to effectively undertake its role as ‘system manager’ of the Victorian VET system.

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We see two issues here:

• The consistency between the legislative framework and current operational practice

• The capacity provided to the Minister to enable SV to undertake the role effectively.

In relation to the first issue, and as discussed previously in Section 3, according to the VSC: “SV, not the VSC, supports the Minister (as owner) in over-sighting public provider governance and financial accountabilities”. Despite apparent agreement about this, many of the governance, operational and performance instruments used between TAFEs and the government are still technically made through the VSC. SV therefore undertakes much of its system manager role as a delegate of the VSC. Specifically, SV administers:

• The Public Provider Funding Agreements (PPFA) between the VSC and TAFEs • The Service Agreement between the VSC and each TAFE and RTO.

This is not a desirable or sustainable situation.

It effectively means that:

• SV technically requires VSC agreement (through a delegation) to undertake key aspects of the system manager role when the VSC does not see it should play a role in oversighting public providers

• It is unclear who is responsible for activities undertaken by SV in its system manager role to the extent that it is acting as a delegate of the VSC – the Minister or the VSC

• If the Minister is required to take action in relation to TAFE performance, VSC involvement is required. It is understood this was designed as a ‘check’ to Ministerial power at the time the original legislation was enacted, however the significant change in roles and responsibilities means its appropriateness should be reviewed.

Quite simply, our view is that this is not an appropriate or workable arrangement in the current operating environment.

In relation to the second issue, performance issues arise in TAFEs from time to time and current oversight mechanisms are deficient. While the Minister has some strong powers as ‘owner’ of TAFEs, these powers are concentrated at the `ballistic’ end of the spectrum – e.g. replacing the Chair and Ministerially appointed Board Members or putting the TAFE into administration. The ‘ballistic’ nature of the Reserve Powers means that it is unlikely that they will be used unless the circumstances are extreme.

As highlighted in Section 5.1.2, SV lacks a risk-based oversight framework. Under the current governance arrangements, the Minister needs the legislative power to establish through SV, a well defined risk-based oversight framework that:

• Identifies potential matters where oversight may need to be strengthened in particular circumstances (e.g. property purchases by a TAFE)

• Documents a range of oversight/intervention options (including the ability to issue specific Directions and require Ministerial approval for certain transactions)

• Specifies triggers for increased oversight/intervention (e.g. size of a transaction) – escalation protocols.

Potential options for applying a graduated approach to intervention include:

• Changes to performance requirements and the nature of assessment • Reporting levers (e.g. changing the frequency of reporting, or the visibility of reports

for example through regular face to face reviews between the CEO and Executive Director)

• The Deputy Secretary meeting the CEO to express concerns • The Minister meeting the Chair to express concerns

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• The Minister issuing a specific direction.

However, considerable caution is required in developing such a graduated approach to intervention, to ensure that intervention is appropriately matched to need. Great care is required to ensure that delegated authority to TAFEs remains strong. It would be very undesirable if this approach led to the potential for greater intervention and less delegated authority to TAFEs for normal business activities9.

For example, our understanding is that at present a Ministerial direction has to be rule making – setting rules – and cannot be an executive decision. Providing the Minister with the capability to issue a specific direction (i.e. an executive decision) would require legislative change, as we understand it. This would obviously be seen by TAFEs as creating the potential for greater intervention.

While there are reasons why the power to provide a specific direction, with appropriate public disclosures, may be worth consideration in a GBE framework where two Ministers are involved, we do not believe it is a step that is warranted under the present governance arrangements.

In addition to the graduated approach suggested above, within the current governance model, Skills Victoria should identify any ways to foster/influence good behaviour that build on current relationships and the progress made with individual TAFEs. Relaxing reporting requirements or increasing approval thresholds for a TAFE that has a demonstrated track record of strong performance could play a role here.

The main limitation of this approach to refining the current governance arrangements is that it could be dealing with the outcomes of an under-performing governance model, not the causes. As discussed further in Section 6, an alternative approach to governance, at least for the larger TAFEs, also warrants consideration.

5.6. Support systems SV has a range of major business systems and processes that support the following business areas: oversight of governance; educational and commercial performance; finance; asset strategies; and market facilitation.

There has been investment by SV to develop the business systems and processes needed to support each business unit’s oversight function. However, it is also clear that some critical SV internal systems and processes need to be addressed to resolve the following issues:

• While effort has been made to improve overall communications within SV, there is no system-wide process or set of protocols to assist internal staff in determining when to formally document or further communicate important information received from TAFEs

• There is also a need for a higher-level procedure to be established that sets out how the relationship between TAFE Institutes and SV should be managed and how stakeholders should be engaged to maximise support and cooperation of the TAFE sector

• There is no established system in place to store and share relevant data across divisions (the asset management branch is currently looking at ways to share the data across Skills Vic (i.e. ‘quickplace’) and the summary reports are provided to the Skills Vic executive)

• There are five or six websites where someone from a TAFE Institute could reasonably expect to find information from SV: − Skills Victoria − Skills Victoria Corporate

9 We define ‘normal business’ as whatever a TAFE does in conformity with its SOI.


− SVTS − Training Support Network − DEECD − Victorian TAFE Association

• There is no website that provides user friendly access to all Ministerial Directions and Executive Memoranda

• While Ministerial Directions are available on the SV website, they are not consolidated in one place

• There is no publicly available guidance that explains which ones are currently in effect or out-of date

• The Governance Charter published in 2005 has not been updated • It is understood that the Skills Victoria corporate website will be subsumed into the

broader DEECD website which provides a good opportunity to consolidate, centralise and increase the availability of necessary information for TAFEs

• The Executive Memoranda system has been used for inappropriate communication. Executive Memoranda sits below Ministerial Directions in terms of instruments of authority, and should only be used to communicate important contractual or policy positions. It is important that the status of Executive Memoranda is clearly understood by TAFEs. An internal business system with an approval and recording regime and titling and content protocols is needed to support this

• There is no centralised system for sending out or requesting information from TAFEs: − SV could benefit if more information was shared internally before going out to

Institutes. For example, other areas of SV would find the data collected for the Asset Management Plan process very useful (e.g. campus locations, numbers and condition of buildings/assets)

− Informing TAFEs about how the Asset Management data informs broader policy work by SV beyond just asset planning would enable SV to send a clear message to TAFEs that their work is valued and not wasted

− Standard data reports on TAFE delivery should be provided centrally by SV to reduce confusion and the need for ad hoc similar data requests (if only internally across the division).

While it was beyond our brief to investigate this, it was also noted that:

• Not all TAFEs have robust financial platforms to capture and report data appropriately • Some TAFEs have not accepted that SV has a legitimate right to view / monitor this

type of data.

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6. TAFE Governance In this Section the focus is on:

• Providing an overview on governance, governance options and the TAFE governance model

• Identifying where governance arrangements limit the capacity of TAFEs to meet both Government policy goals and operate effectively in a competitive, commercial environment.

• Testing the validity of our previous recommendations was tested in light of recent experience

• Identifying contemporary issues and options to address these issues.

6.1. What is governance

Governance involves defining power, establishing expectations and defining performance. Inherent in the concept of governance is a distinction between roles within a hierarchy of decision-makers in any organisation.

Governance and control is essentially aimed at:

• Supporting business/organisational operations to achieve corporate goals • Ensuring that statutory and legal obligations are met • Managing risk.

Corporate or organisational governance arrangements establish the plans, delegations, policies and processes that determine how an organisation (and any controlled entities) is directed, administered or controlled.

Successfully operating under any managerial model requires, amongst other things:

• A common vision of goals • Defined plans about how to achieve goals (including policies and processes) • A sensible split between the roles and responsibilities of various decision-makers and

clarity and common understanding about these roles and responsibilities • Capable people in the key roles • A strong culture of partnership focused on cooperatively achieving the goals of the

institution (i.e. A results focus) and agreed expectations about interrelationships.

Underpinning the first three elements are three types of formal instruments:

• Plans – which establish what is to be done over a specified period • Delegations – which empower persons to carry out specified roles and establish

corresponding responsibilities and accountabilities • Policies and processes– which establish how things will be done across the

organisation.

The fourth element depends primarily on appointment decisions. The last element depends largely on leadership and institutional and personal ‘culture and chemistry’.

There is a vast literature on governance, some general and some more specific to different types of organisations. Perhaps the best-recognised set of general governance guidelines in

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Australia is that published by the ASX10. While designed for listed public companies, they have broader application with appropriate modification.

6.2. The devolved authority model

According to SV:

Victorian TAFE Institutes (and their Boards) are established under the Education and Training Reform Act 2006 (ETRA). Each TAFE is governed by a Board of directors, accountable to the Minister for Higher Education and Skills for setting the strategic directions of the entity, within the framework of government policy. In performing its functions and exercising its powers under the ETRA, the Board of a TAFE is accountable for:

• The effective and efficient governance of the Institute • The discharge of the Institute’s statutory functions • The educational and financial performance of the Institute.

This devolved governance model allows TAFEs to engage with industry and ensure their training delivery is the most appropriate and effective for employers, increasing local autonomy and flexibility, and enabling services to be innovative and responsive to community needs.

Devolved management is an application of the subsidiarity principle. The Oxford English Dictionary defines subsidiarity as the idea that:

a central authority should have a subsidiary function, performing only those tasks which cannot be performed effectively at a more immediate or local level.

In other words, only have central decision-making, management or government do what can’t be effectively done locally.

The reasons for applying the subsidiarity principle are multifaceted.

A prime reason is to empower people to make decisions and solve problems relevant to their area of operation. It also encourages local experimentation and innovation, and the ownership of the outcomes of local decisions. Another reason is that it best aligns or matches local activity with local interests – exploiting direct influence and feedback if you like. As well, no central authority is likely to have the knowledge necessary to wisely intervene on local issues.

In our view, the claims about the benefits of the devolved governance model that SV makes in the quote above are justified11.

It is important at the outset of a discussion on TAFE governance to stress that the devolved governance model didn’t happen by chance – it has a profound basis. Also, it has performed reasonably well overall. On the other hand, a centralised approach is fundamentally at odds with the requirements of demand based funding of both public and private sector training providers!

However, this is not to say that there haven’t been, and will be, instances when things happen in a devolved governance model that may be less likely in a centralised governance arrangement. The problem is that responding by reducing the level of devolved responsibility could have the unintended consequence of significantly diminishing the benefits from “increasing local autonomy and flexibility, and enabling services to be innovative and responsive to community needs”.

10 http://www.asx.com.au/documents/about/cg_principles_recommendations_with_2010_amendments.pdf 11 In the education sector (both school and VET), it is interesting to compare and contrast the centralist managerial approach

taken by successive NSW Governments with the devolved managerial approach taken by successive Victorian Governments.

http://en.wikipedia.org/wiki/Oxford_English_Dictionary

http://en.wikipedia.org/wiki/Oxford_English_Dictionary


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The critical question is how to strengthen the devolved governance model in a way that reduces the risks of poor performance while not removing the fundamental features of the model?

6.3. The governance spectrum

In Victoria, the State Services Authority has published guidelines for selecting the most appropriate legal form and governance arrangements when establishing a public entity.12 The current governance arrangements establish TAFEs as statutory authorities.

Two approaches set the bounds for governance models of government service entities:

• The government owned company model: − Company has broad powers and functions established in its Constitution − Owners (usually two Ministers) set broad expectations in writing annually − Entity advises the owner of its corporate intent annually (opportunity for interaction

between the owners and the company on this, but owner approval not required – responsibility ultimately lies with the company)

− Oversight operates via company reporting o Continual disclosure of material matters o Periodic reporting against plan (e.g. Six monthly) o Annual report at an AGM

− ‘Owners’ are assisted by Departmental representatives in monitoring and analysing company reports

• The Departmental agency approach: − Services are provided by an entity that is legally and administratively part of a

Department.

There are many variants in between the bounds.

The statutory authority model (which currently applies to TAFEs) is one, being closer to the former than the latter in many regards:

• The authority has defined powers and functions established in legislation • Normal operation of the authority requires some Ministerial interaction (e.g. For

approvals on some financial and operating matters) • Strong Ministerial oversight is assisted by a Department that has extensive, regular

interaction with the authority.

The SSA makes the following distinctions between various governance options:

• In cases where it is not appropriate that a function be performed by a department, the government could introduce legislation to Parliament to establish a statutory authority to provide: − Service delivery − Stewardship of public assets − Integrity functions − Regulatory functions − Quasi-judicial functions, and in some cases − Independent advice

12 Legal Form and Governance Arrangements for Public Entities Guidelines, October 2010. Available at: http://www.ssa.vic.gov.au/products/view-products/legal-form-and-governance-arrangements-for-public-entities.html


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• A statutory authority should not be established when the function is more appropriately undertaken within a Department. For instance, functions that:

− • do not need to be independent from Ministerial influence, and/or − • do not need to be legally independent from the Crown

• State business corporation: a statutory corporation, including a State body, may be declared as a State business corporation under the State Owned Enterprises Act. A State business corporation is required to operate its business as efficiently as possible, consistent with prudent commercial practice, and to maximise its economic contribution to the State. The State business corporation form is suitable for entities where there is a commercial focus and where a skills based Board is required to navigate through and make decisions on a range of complex infrastructure, commercial, legal, environmental or other issues

• State owned company: a Corporations Act company declared as a State owned company under the State Owned Enterprises Act. As with State business corporations, a State owned company is required to operate its business as efficiently as possible consistent with prudent commercial practice and to maximise its economic contribution to the State.

The term Government Business Enterprise (GBE) is often used in common vernacular to describe both the state business corporation and state owned company models.

As a generalisation, the selection of the optimum governance arrangement for an entity delivering services involves matching the level of required managerial autonomy with needs of the operating environment:

• A commercial operating environment (with most revenue not being on a direct government funding basis) where competition with other service providers is a feature. This requires an entity to operate as a business corporation – having considerable flexibility in the management of financial, organisational, human and physical resources. It also requires managerial oversight by a strong, skills-based Board

• Specialised services funded by government provided in a regulated manner, with the need for close interaction with policy makers may best be governed in a way that ensures closer Ministerial interaction. The Statutory Authority model is one option for such entities.

Historically TAFEs fitted in the latter category. However, over time, and especially with the Skills Reform agenda, they have moved into a much more commercial operating environment. The response to date has been to modify the statutory basis for their operation to mimic key features of the business corporation model. The key question that this report seeks to address is whether this is still the most appropriate approach?

AFE oversight and governance

dandolo artners p 37

The detailed instruments that are used in the current model are detailed in Figure 2 below.

6.4. The TAFE governance model

Review of T


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6.5. Governance issues identified in previous dandolopartners reports

As mentioned in Section 5, dandolopartners conducted a major review of TAFE governance arrangements for SV during 2008/9.

Our 2008 report found the following:

• The existing governance arrangements have served Victoria well to this point. Victorian TAFE Institutes are recognised as the most efficient and effective collection of Institutes in Australia and they compare well with similar institutions in other western, industrialised economies. Devolved management has fostered innovation and provided the capability to respond efficiently and effectively to contribute to the skill training goals of Government. Also, governance arrangements within TAFEs have improved significantly and generally demonstrate good practices, although there is variability across TAFEs in terms of governance performance (Note: the Review did not involve a comprehensive assessment of internal governance practices at all TAFEs).

• However, there are areas where the arrangements could be strengthened. • The main areas where the existing arrangements are problematic in the current

environment are: − There is a lack of clarity about the contemporary expression of Government’s

requirements and expectations of TAFEs (i.e. what the full set of relevant, contemporary instruments such as Directions, policies and skills/training objectives is)

− There is confusion about the Government’s review function. For example some TAFEs submit strategic plans, but the lack of Government response to these plans can imply de facto approval, which is not the Department’s intention

− While the regulatory function has been recently clarified (through creation of the VRQA), some TAFE Chairs/CEOS still see some links between regulatory activities and owner/purchaser activities

− There remains a heavy reliance on informal communication between TAFEs and Government, and there is inconsistent understanding of what issues require formal and informal involvement/approval by SV. While informal communications are deemed to be effective and important, they should not be unduly relied upon

− Increased operational complexities are requiring greater operational autonomy and flexibility while at the same time lifting the requirements for effective governance;

− The appointment of Board Members is too slow, impacting on the quality of Boards. The two-term limitation on appointments also causes particular problems for TAFEs

− Boards are too large to operate in the most effective way, although it is recognised that this is linked to remuneration constraints and some other characteristics of TAFEs. The presence of elected staff and student representatives impacts negatively on Board effectiveness as they are seen to represent narrow interests

− Attracting and retaining CEOs and other staff is severely constrained by existing remuneration arrangements13

− Public sector industrial relations requirements (e.g. a TAFE wide EBA) significantly constrain performance

13 There is currently a stable group of CEOs, especially in the large Metropolitan TAFEs. However, this could change in time

and the situation will need to be carefully monitored as there is a transition to new management in the period ahead.


− Capabilities to deal with competitive neutrality requirements appear to vary across TAFEs

− Despite a significant capital replenishment requirement there appears to be no effective mechanism for establishing a multi-year capital program for TAFEs

− There are significant differences in the financial capability of TAFEs and consequently differences in their capacity to invest, grow and effectively manage risks

− Meeting the training requirements of national clients is complicated by restrictions on the use of Government funds for Victorian-based training versus national training.

The Report also identified things likely to change over the next 5-10 years:

• The operating environment is changing in the following ways: − The demand for training services is very strong in a period of sustained economic

growth and skill shortages − The balance of emphasis on quality versus quantity in TAFE service contracts will

need to increase to meet Government’s skills training goals. In addition, the move to contestability will provide a mechanism for government to insist on quality standards (for example in its requests for tender for training services quality standards will need to be mentioned)

− An increasing proportion of TAFE revenue is commercial or provided by Government on a contestable basis (currently around 50 % in some cases)

− The desire and need to purchase land and buildings is increasing as TAFEs expand − TAFEs are increasingly operating in flexible, innovative and commercial ways, often

in association with other business partners. This increases governance requirements and could potentially lead to differences between the goals of Government and the goals of a TAFE

− Pressures for competitive neutrality are increasing, particularly where TAFEs are in more genuine competition with RTOs.

• These changes are impacting on existing governance arrangements in the following ways:

− The effectiveness of current instruments (e.g. Directions and performance agreements) to effectively influence governance is changing as the proportion of tied government revenue declines

− New mechanisms will be required to ensure that there is a match between a TAFE’s strategic direction and the Government’s vision and goals

− TAFEs are generally better placed in terms of internal governance capability to take greater operational responsibility. However, the importance of having effective Boards with a balance of skills is increasing and vigilance will be required to ensure that governance arrangements continue to strengthen to meet increasing responsibilities

− The notion of having elected Board representatives (staff and student elected officials) is at odds with contemporary governance practice where Board members should have an institution-wide view rather than a particular stakeholder view

− The growing emphasis on quality will create challenges for some TAFEs, particularly those in regional areas where they are trying strike a balance between adequate breadth and depth of program

− Regional TAFEs are also likely to be most at risk of depleting revenue under a more highly contestable model, which is likely to put additional strain on operating budgets and potentially limits their capacity to invest and manage commercial risks

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− Attracting and retaining CEOs who can successfully operate at the interface between Government and business in the changing environment will be even more important

− Greater operational flexibility will be needed to ensure efficient and effective performance in an increasingly commercial, competitive environment, within agreed bounds

− There will be increasing pressure for transparency in financial arrangements to satisfy competitive neutrality requirements. This will require a move to activity-based, full cost accounting and charging/payments (i.e. covering CSO obligations, capital costs and benefits derived from non-TAFE owned assets such as land)

− Future growth will increasingly require borrowing/funding, and governance arrangements will need to be developed to handle new approaches to borrowing/funding

− Some larger TAFEs already view surpluses generated from commercial activity as representing a return on assets owned by the Institute rather than the Government. Greater clarity will be required on ownership to prevent difficulties in this area from emerging

− The effectiveness of a ‘one size all approach’ is being challenged by the increasing operational and financial divergence between financially strong TAFEs and TAFEs with limited financial reserves

− Establishing relationships with business partners (e.g. in foreign jurisdictions) is complicated by the governance structures of TAFEs which are neither companies nor Government Departments.

The 2009 Report:

• Assessed the level of TAFE support for a number of specific recommendations to address issues identified in the 2008 Report

• Identified perceived implementation issues; and • Refined a set of recommendations for consideration by SV.

The following findings summarise consultations with TAFE Institutes at that time:

• There is widespread recognition that the governance arrangements for Institutes require some modification

• There is general agreement that the following needs to be done to improve how governance operates between the Government and individual Institutes: − Better articulation of the Government’s expectations (as owner) − Continuous disclosure of major variances to strategic plans/intent − 6-monthly reporting of performance − Greater flexibility in the remuneration of CEOs and Board Members − Removal of stakeholder group representatives from Boards − Clearer authority and accountability.

• There is acceptance in most, but not all, Institutes that the following would be potentially useful additions to the current governance arrangements:

− A move to activity based accounting (particularly where that is consistent with an Institute’s current accounting practices)

− Reflection of full costs in pricing. • The above recommendations are generally supported with the following important

caveats:

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− New reporting requirements should replace, rather than add to, the current administrative burden on Institutes

− Individual Institutes’ obligations to the Government as ‘purchaser’ do not become materially out of step with those that apply to RTOs

− There needs to be due recognition given to the fact that some of the recommendations are much more difficult to implement in smaller regional Institutes than larger metropolitan Institutes

− Institutes should continue to have Boards that reflect the communities they operate in

• However, some suggested changes are strongly resisted: − Migrating Institutes to a Government Business Enterprise (GBE) legal structure

(strong resistance was conveyed although the legal structure was not in scope for this project phase)

− Giving responsibility for Board appointments and the Chair position to an independent third party

− Imposing Board members from outside the community.

SV has achieved progress towards implementing many of the ‘refinement’ recommendations we made as documented in Attachment 3. However, the Government didn’t accept all the recommendations for a number of valid reasons. In addition, it was clear that moving to a GBE type governance arrangement was not widely supported at that time.

6.6. Recent experience and emerging issues

Experience since 2008 has confirmed many of our expectations listed above. While reforms have been made to ETRA are not necessarily deficient, they continue the approach of refinement rather than substantial change. It is important to also point out that not all the reforms have been implemented yet (e.g. those relating to Board appointments).

In our view, recent experience highlights the fact that greater operational flexibility will be needed to ensure efficient and effective performance in an increasingly commercial, competitive environment, within agreed bounds. This will put increasing tension on the current governance model. From SV’s perspective, the current oversight arrangements have a number of deficiencies discussed in more detail in the Oversight Report. Some of these deficiencies can be overcome through further refinements to current arrangements, but others are really indicative of deficiencies of current governance arrangements.

The main challenges relating to governance from SV’s perspective are:

• Changes in the training market have created new challenges for governance: − The demands on Boards and senior executives are greater than before − Informality cannot be relied upon as in the past

• TAFEs vary in their capability and in the way they meet agreed requirements • Maintaining a full complement of Board members for a TAFE in a timely manner can

be challenging • A ‘one size fits all’ approach to governance and implementation does not work any

longer. Governance arrangements need to reflect that there are significant differences between TAFEs:

− Dual sector and TAFE only − Revenue size − Regional and metro

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− Experience and capability differences (particularly of Boards) − Maturity differences

• The Minister has some very significant powers as ‘owner’ of TAFEs (e.g. the Reserve Powers specified in Section 3.1.19 of ETRA). However, the powers aren’t very graduated, and in a number of cases require VSC involvement

• SV lacks a well defined risk-based oversight framework that: − Identifies potential matters where oversight may need to be strengthened in

particular circumstances (e.g. property purchases by a TAFE) − Documents a range of oversight/intervention options (including requiring Ministerial

approval) − Specifies triggers for increased oversight/intervention (e.g. size of a transaction) –

escalation protocols.

When problems arise with TAFE performance, the natural tendency is to tighten oversight through whatever mechanism is available:

• Letters of Expectation • Constitutions • Ministerial Directions.

However, the problem with doing this is that interventions can become so intrusive that they conflict with the basic principle of devolved management. Consultations with TAFEs indicate that many believe that this situation has now been reached.

Consultations with TAFEs identified a number of issues relating to governance:

• While generally TAFEs are confident that they understand their ‘operating rules’, there is a view among most of those we consulted with that the level independence they have is diminishing, even as the requirements to be innovative and flexible in a competitive market are increasing. This may be a perception issue although on our review of the key governance instruments (LOE, PPFA and draft constitution), TAFEs have less autonomy than would be the case under a GBE model. However, we are not in a position to map how the level of intervention has changed over time.

• There is concern that SV might react to an instance where there is a performance issue at one TAFE by imposing additional requirements on all TAFEs, even when their performance has been sound

• There is a perception that SV imposes policy requirements on TAFEs without providing the necessary funding (under the PPFA)

• Maintaining a full complement of Board members for a TAFE in a timely manner can be challenging as appointing Board Members takes too long

• Recruiting people with appropriate capability and experience to Boards can be a challenge, especially given the level of remuneration involved. Generally this problem is greater in regional areas

• The community focus of TAFEs differs, with regional TAFEs being less commercially focused and more community focused. This means that regional TAFEs tend to see additional reasons for a strong partnership relationship with SV

• Some TAFEs believe the governance arrangements (i.e. lack of delegated authority on matters such as purchasing buildings) place them at a significant competitive disadvantage with Dual Sector TAFEs and Universities. While we haven’t been asked to do a comparative assessment of relative autonomy, we note that Universities also have governance restrictions on them

• There is increased interest from TAFEs in moving towards the GBE model of governance.

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6.7. Key challenges

Essentially the approach being pursued in Victoria with TAFEs involves taking some risk (that devolving management to TAFEs could result in an under-achievement of performance in some limited instances) in order to gain system-wide benefits as part of the Skills Reform agenda:

• By exploiting competitive service provision • Through the increased flexibility, responsiveness and innovation that a devolved

management approach enables.

Two major problems are now evident with respect to governance:

1. Tension between the devolved management of TAFEs and concerns about performance/accountability are evident, and seem to be getting more problematic as TAFEs’ commercial activities develop in response to competitive market requirements and as they do business with the government as funder under a new and contestable funding model.

• There is an increasing mismatch between the aspiration of devolved management (with appropriate accountability) and the reality of requirements imposed on TAFEs that limit their autonomy (e.g. in governance instruments including the LOI, the PPFA and the model draft constitution)

• The reaction to specific ‘performance issues’ seems to be to introduce additional sector wide rules (e.g. the current moratorium on a TAFE acquiring an RTO).

2. The ‘one size fits all’ approach to governance and implementation is increasingly problematic. Governance arrangements need to reflect that there are significant differences:

• Dual sector versus TAFE only • Revenue/size • Regional and metro differences • Experience differences (particularly of Boards) • Performance differences (including under the contestable model) • Maturity differences.

Emerging issues related to the size and focus of TAFEs include:

• Regional TAFEs generally have a stronger link to local communities and have greater demands placed on them to undertake activities that are non-commercial. Some see themselves as being different from, say, a government business enterprise in this regard

• A number of the larger TAFEs compete with dual sector TAFEs that operate with greater autonomy

• International activities of TAFEs appear to be less restricted in terms of requirements and owner oversight than local activities

• While the assignment does not involve an assessment of business viability, it appears that the ongoing financial viability of some smaller, regional TAFEs could become a concern.

A critical element of the governance model is the capability and performance of Boards. We are not in a position to comment on performance but note that:

• The ETRA amendments to strengthen the Board appointment process have not been implemented yet

• Remuneration for TAFE Board Members and the Chairs does not appear to appropriately match the responsibility requirements of the positions

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• Elected representatives are still a feature of Boards • TAFE Boards are bigger than is the norm in comparable business entities • All Boards should conduct periodic reviews of their performance – it is not clear to

what extent this occurs with TAFEs.

The challenge is to establish the best way to provide TAFEs with the additional operational flexibility and financial capability necessary to continue to be innovative and successful in an increasingly competitive environment while at the same time operating in a manner that matches Government expectations and is within the risk tolerance of Government.

6.8. Options

One option would be to retain the current governance arrangements (TAFEs operating as statutory authorities) and introduce the changed oversight arrangements proposed in Section 5.6. However, as also mentioned in Section 5.6, a limitation of this approach is that it could be dealing with the outcomes of an under-performing governance model, not the causes.

A further option would be to change the oversight arrangement and also make the some further refinements to Board arrangements:

• The size of Boards should be limited to 10 as a general rule, with capacity for an exception to this cap for regional Institutes that are unable to accommodate the range of skills/geographic representation within the limit14

• Boards should be skill/experience based without representatives (e.g. staff and student representatives)15

• Determine whether the CEO should be a Board Member or not • Restructure remuneration for the Chairman and Members so it is commensurate with

the size and responsibilities of the positions • Boards should be required to conduct periodic reviews of their performance.

Another option would be to establish at least some TAFEs as Government Business Enterprises (GBEs).

Victoria has a robust and mature framework for GBEs. An overview of the framework and alternative governance arrangements has been published by the State Services Authority.16 This document provides guidance for “determining the most appropriate legal form and governance arrangements when establishing a public entity”.

The approach involves a ‘two shareholders’ model (a ‘portfolio’ Minister and a ‘shareholder’ Minister (The Treasurer):

• GBEs are primarily accountable to their portfolio Minister and the Parliament for their performance

• They are also accountable to the Treasurer where the Treasurer has a legislated role to receive corporate planning or other financial documents.

14 Currently the Boards must be not less than 9 and not more than 15 persons. 15 This doesn’t preclude a person from one of these groups being eligible for consideration in terms of skills/experience. 16 Op. cit.


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An advantage of this approach is that the oversight arrangements are mature and are well understood:

• while the main governance instruments are similar to those currently used with TAFES (letter of expectations, corporate plan, annual report, continuous disclosure etc.), the GBE model involves a robust corporate planning and performance reporting framework that has been developed over time specifically for commercial entities17

• there is clarity about who does what, with specified thresholds for obtaining approvals for capital expenditure and for continuous disclosure requirements. For example, the framework would provide greater clarity about where a TAFEs has autonomy, comparable to the type of autonomy that other GBEs have

• specific powers relating to borrowing powers and capital expenditure would be specified

• it would provide Directors with an easier to understand definition of their role and responsibilities, especially if the Corporations Law company model is used

• Treasury and Skill Victoria would assist the two Ministers apply the oversight framework - a model used successfully with a significant number of Government owned commercial businesses in Victoria.

Establishing TAFEs as GBEs would impact on a number of aspects of governance including:

• The articulation of owner expectations • Strategic plan review • Board structure and remuneration • Operating autonomy • Remuneration and industrial relations arrangements • Efficient reporting arrangements • Risk management and compliance • Ministerial oversight by both the portfolio Minister (the Minister administering ETRA)

and a shareholder Minister (The Treasurer).

The way oversight arrangements work in practice would need to be worked out, but comparability with the form and level of oversight for other GBEs would provide a useful reference point.

A critical aspect of this model is the imperative of appointing a Chair and Directors with the appropriate skills and experience to undertake the key roles of a Board. As outlined by the ASX Governance Principles18, these key roles usually include:

• overseeing the organisation, including its control and accountability systems • appointing and removing the chief executive officer • where appropriate, ratifying the appointment and the removal of senior executives • providing input into and approval of management’s development of corporate strategy

and performance objectives • reviewing, ratifying and monitoring systems of risk management and internal control,

codes of conduct, and legal compliance • monitoring senior executives’ performance and implementation of strategy

17 For details see:

http://www.dtf.vic.gov.au/CA25713E0002EF43/WebObj/CorporatePlanningandPerformanceReportingRequirements/$File/Corporate%20Planning%20and%20Performance%20Reporting%20Requirements.pdf

18 Op. cit.


• ensuring appropriate resources are available to senior executives

• approving and monitoring the progress of major capital expenditure, capital management, and acquisitions and divestitures

• approving and monitoring financial and other reporting.

The Board also needs to ensure that the rights of owners are respected and facilitate the effective exercise of those rights.

We favour this option, at least for larger TAFEs. However, it is unclear whether the GBE model would suit all TAFEs.

One approach would be to give TAFEs a choice of becoming a GBE. This introduces the spectre of a two-tier model, which could have some downsides in terms of requiring different oversight arrangements for different TAFEs. However, it could be argued that there are already two tiers (Dual sector TAFEs and other TAFEs), and this is managed satisfactorily from an oversight perspective.

It should be noted that consultations with Treasury and Premier and Cabinet indicate that they would support a move to the GBE governance model for TAFEs. However, Treasury would prefer ‘one in – all in’.

In addition to the issue of governance, consideration should be given to developing and implementing a roadmap to enable financially constrained TAFEs to build critical mass and increased financial capability.

One other option on governance would be to privatise TAFEs. We include this here for completeness, but it has been outside our terms of reference to evaluate it. However, we note that such as change would involve the sale of important public assets and remove public provision of vocational education and training in what is an emerging and still immature market place.

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7. Recommendations Legislative framework

It is recommended that consideration be given to:

1. Amending ETRA to transfer responsibility to the Minister for the legislative roles of VSC that are currently delegated to SV. In particular, VSC should play no role in TAFE governance matters

2. Undertaking further work to determine the future need and relevance of the residual functions that the VSC performs

3. If there are valuable functions that should be performed, consideration should be given to whether the VSC is the optimal organisation to undertake it? Other options should be identified and compared with VSC.

Skills Victoria

Under the existing governance arrangements:

4. ETRA should be amended so the Minister has the clear responsibility and accountability for the system manager role undertaken by SV.

5. The Minister should have legislative power to establish through SV, a well-defined risk-based oversight framework specifying:

• Risk areas where oversight requires a particular focus • Thresholds and triggers for reporting/notification and follow-up with respect to these

risks areas (these would need to be commercially sensible) • Protocols for escalating attention • A range of effective and efficient intervention mechanisms short of using the

Minister’s Reserve power.

Such an approach could involve providing additional autonomy than currently exists to TAFEs for activity that falls below the thresholds (e.g. for property transactions).

Potential options for applying a graduated approach to intervention include:

• Reporting levers (e.g. the frequency of reporting, or the visibility of reports. For example, if an issue arises that is deemed to be high risk, then more regular, face-to-face reviews between the CEO and Executive Director may be required)

• Changes to performance requirements and the nature and regularity of assessment • The Deputy Secretary meeting the CEO to express concerns • The Minister meeting the Chair to express concerns • The Minister issuing a specific Direction to an individual TAFE.

Such a graduated approach to intervention should ensure that intervention is appropriately matched to need. It is also recommended that great care be taken to ensure that delegated authority to TAFEs for normal business activity remains strong.

In addition, SV should:

• Stress test the system – identify how extreme events would be handled (e.g. Major fraud or corruption, insolvency etc.)

• Develop and implement a road-map to enable financially constrained TAFEs to build critical mass and increased financial capability

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6. Revised oversight arrangements consistent with the risk-based oversight framework proposed in Recommendation 5 should be implemented by means of the Letter of Expectation and a Ministerial Direction. Devolved authority to TAFEs should not be inadvertently reduced in:

• The Public Provider Funding Agreement • New TAFE Constitutions • New guidelines, under the Education and Training Reform Act 2006 (ETRA), on the

commercial powers and accountabilities of TAFEs. In addition, the Minister should ‘note’ the Statement of Corporate Intent rather than ‘approve’ it, mainly because the Statement of Corporate Intent should be `owned’ by the TAFEs.

7. SV should strengthen business processes, systems and communications as follows:

• continue the current practice of engaging at Deputy Secretary and General Manager level with each TAFE at least twice a year. This engagement should involve the CEO and the Chair if possible. A meeting with both the Chair and the CEO should occur at least once a year. If practical, the AGM for each TAFE should involve a suitably senior representative of the Minister. Each TAFE Chair and CEO should jointly meet with the Minister annually for a strategic discussion

• strengthen the client manager approach for all oversight dealings between SV and each TAFE. The client manager should be the coordinator of interactions, oversighting two-way communication flows between SV and a TAFE and escalating issues within SV consistent with the protocols described in Recommendation 5 above. We envisage that several senior staff from the Tertiary Education, Governance and Development Division would each handle several TAFEs.19

• develop and implement: − A high-level procedure that sets out how the relationship between TAFE Institutes

and Skills Victoria should be managed and how stakeholders should be engaged to maximise support and cooperation of the TAFE sector. This should specify the role of the client manager in SV for each TAFE

− A system-wide process or set of protocols to assist internal staff in determining when to formally document or further communicate important information received from TAFEs o Executive Memoranda should only be used to communicate important

contractual or policy positions. It is important that the status of Executive Memoranda as instruments of authority is clearly understood by TAFEs

− A system to store and share relevant TAFE data across divisions − Improved website access for TAFEs to

o All contemporary Ministerial Directions o Contemporary Executive memoranda o A revision of the Governance Charter published in 2005

− A centralised system for sending out to, or requesting information from, TAFEs. − develop and implement a range of process and system refinements to support its

oversight role that are elaborated on in more detail in the Report.

19 The focus in this recommendation is on oversight engagement (the owner and funder functions). However, engagement

with TAFEs also occurs on purchasing matters. Procedures would need to be developed to clarify how the client manager would deal with any significant purchasing issues raised by TAFEs. This would involve an appropriate ‘hand-off’ to the Training Market Operations Division.


dandolopartners 49

TAFE governance

8. Allow TAFEs (perhaps above a specified threshold relating to size and financial strength) the option of becoming GBEs20:

• With similar operating capabilities (including the power to borrow) and accountabilities as other GBEs

• Preferably under Corporations Law, with consequent changes to Board size and structure (7 – 9 Directors appointed on the basis of skills and experience)

• With company constitutions that are consistent with the notion of devolved management authority, unless specified thresholds are reached for particular activities where Government approvals are required (e.g. property purchases or business acquisitions)

• With dual Ministerial oversight as per well established arrangements for GBEs − Oversight responsibility would lie with both SV and Treasury, and be more

‘hands-off’ on many operational issues than currently occurs (this would strengthen the ‘owner’ versus ‘purchaser’ distinction amongst other things)

− Establish and implement a risk assessment model for oversight of these TAFEs specifying: o Any risk areas where oversight requires a particular focus o Thresholds and triggers for reporting/notification and follow-up with respect to

these risks areas (these would need to be commercially sensible) o Protocols for escalating attention.

20 Note: This is not consistent with Treasury’s preference for ‘one in all in’.


d o ers andol partn 50

8. Next Steps A logical sequence for dealing with the matters raised would be to:

1. Consult with TAFEs, the VTA and the VSC on the recommendations in this Report 2. Identify those recommendations which are not dependent on governance

arrangements, make decisions on them and implement changes as appropriate (e.g. regarding business process, systems and communications)

3. Identify any matters where further analysis is required before decisions can be made or where it has been identified that further analysis would be worthwhile (e.g. a more forensic analysis of any issues with ETRA under current operating arrangements)

4. Determine how to proceed with the recommendations relating to the VSC and analyse how and when to implement them (this will require legislative changes)

5. Determine whether to proceed with the recommendation to move at least some TAFEs to a GBE governance arrangement and analyse how and when to implement this (it will require legislative changes)

6. Identify those recommended changes to oversight arrangements that will continue to be relevant in the future in light of the decisions above, and analyse how and when to implement them.

Consultation with TAFEs and the VSC could occur by the end of the year at the latest. Step 2 could begin immediately unless there are perceived to be issues relating to business process, systems and communications that would benefit from consultation with TAFEs.

If the Government is amenable to considering the recommendations on the VSC and TAFE governance, it could be worthwhile scoping out what implementation would involve at the same time as consultations with TAFEs and the VSC are occurring.

Implementation of the VSC and TAFE governance recommendations requires legislative changes. If the Government’s parliamentary schedule allows it, legislative change to enable the key elements of the recommendations to be implemented in 2013 could be feasible.


Attachment 1: VSC delegations to SV

Item Victorian Skills Commission Function Delegation of functions to Skills Victoria

1. Contract management (other than in relation to VET): Approve request for quotes/proposals; enter into an agreement or contract; make payment in accordance with an agreement or contract.

�

2. Capital Expenditure: approve budget for capital expenditure; approve budget variations; make payments in accordance with budgeted variations.

�

3. Asset management: acquisition; disposal; transfer; hold property. �

4. Debtors write off; and funds management including bank accounts opening and closing; transfer of funds and entering into investment transactions.

�

5. Negotiate, approve and enter into performance agreements with the TAFE Institutes and make appropriate payments

�

6. Enter into performance agreements with Industry Training Boards and make appropriate payments

�

7. Apply money for Commission purposes;

Enter into a performance agreement and make appropriate payments under the agreement

�

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8. General power to do all things necessary or convenient for the Commission to do for or in connection with performance of its functions (only to give effect to other specific delegations)

�

9. Consult with Minister on following issues relating to establishment and management of TAFE Institutes: • Order to establish TAFE Institutes • Order to establish TAFE Institute Board etc., • Recommend to remove elected or appointed Board member • Request Board to recommend removal of Board member • Providing Board member opportunity to provide explanation in relation to

failure to comply with legislation • Ensuring Board member has failed to comply with legislation

�

10. Consult with and advise the Minister with respect to the establishment of Industry Training Boards

�

11. Consult with and advise Minister on issuance of Ministerial guidelines on vocational education and training or adult, community and further education in TAFE Institutes

�

12. Consult with and advise Minister on issuance of Ministerial directions on matters referred to in s.5.2.1

�

13. Make determinations about work experience placements for post-secondary students (delegates must provide copies of determinations to Deputy Secretary within 14 days; Boards and Councils may only make determinations in relation to their own students)

�


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14. Suspend, for a specified time or indefinitely, conditions of employment for any students or class of students; Boards and Councils may only make determinations in relation to their own students

�

15. Management of State’s Training scheme for apprentices

Determine that a specified training scheme is an approved training scheme and -

• Specify matters in accordance with s.5.5.2 (2) • Publish notice of determination in Government Gazette

�

16. Approve employer to employ a person under a training agreement (must have regard to all matters referred to in s.5.5.7)

�

17. Attach conditions to approval under s.5.5.7 (3) �

18. Revoke approval under s. 5.5.7 (must first give written notice to parties and consider any submissions in line with procedural fairness)

�

19. Approve form of, and particulars to be contained in, training agreement subject to legislative guidelines

�

20. Approve person to act instead of parent or guardian of apprentice �

21. Consent to contracts of training not being executed by parent or guardian where apprentice under 18. Endorse consent on contracts

�


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22. Receive, and nominate persons or bodies to receive, training agreements and outlines of training programs (the delegation to Manager, Apprenticeships and Traineeships is limited to receiving training agreements and outlines of training programs)

�

23. Determine the terms (or fix minimum/maximum terms) of training agreements �

24. Reduce the terms of training agreements if satisfied that apprentices have the required knowledge and skills

�

25. Extend the term of training agreements if satisfied that apprentices do not have the required knowledge and skills

�

26. Order cancellation or suspension of training agreements where of opinion that special circumstances make such action desirable

�

27. On the application of employer-

a. Order suspension of training agreement for specified period, or

B. Order cancellation of training agreement (conduct due inquiry, following rules of procedural fairness)

�

28. Determine any questions or differences arising between employers and apprentices (following roles of procedural fairness)

�


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29. Must enquire into any matter referred to Commission under s.5.5.17(1) and may make any order authorised under s.5.5.17(3)

�

30. Establish and maintain register of apprentices (lodged under 5.5.12) �

31. Pay travel (and such subsidies) of accommodation to apprentices �

32. Charge fees determined by Minister for certificates or duplicate certificates for purposes of this part of the Act (Part 5.5)

�

33. Receive applications for review of decisions of approved training agents

Extend time for making applications for review

Review decisions of approved training agents in accordance with section 5.5.22 (compliance with rules of procedural fairness)

�

34. Declare any class of training agreements to be a class of training agreements to which Schedule 4 of the Act does not apply (notice of declaration must be published in Government Gazette before declaration takes effect)

�

35. Receive written notice from employer of termination of employment of apprentice

�


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36. Receive written notice from employer who decides not to continue employment of apprentice on completion of approved training scheme

�

37. Respond to general enquiries from external parties:

• Policy matters or VSC views or opinions; • Matters that have been announced publicly or matters of fact and have

no sensitivity; • Matters with sensitivity.

�

38. Make formal public statements (e.g. Media and news releases):

• Policy matters or VSC views or opinions • Matters that have been announced publicly or matters of fact and have

no sensitivity; • Matters with sensitivity.

�

39. Administrative details of contracts including :

• Nature • Period • Quantum.

�

40. Legal Matters including:

• Engagement of legal advisors in relation to legal dispute; • Management and conduct of litigation in which VSC is a party including

settlement of a claim; • Acceptance of service of legal documents on behalf of the commission • Maintain register of all significant legal matters in which the VSC is a

party

�


Item Memoranda of Understanding between Victorian Skills Commission and Skills Victoria

Skills Victoria provides the following support to the VSC

41. Governance

• advises and supports the VSC to comply with

relevant legislation and principles of good governance;

• provides an annual report and Financial Management Act (FMA) reporting;

• supports VSC’s assessment of its performance as a Board;

• provides a delegation management system; and • provides a senior DBI officer as board secretary.

42. Audit and risk

• provides effective audit and risk services to the VSC; • supports the VSC Audit & Risk Committee; • appoints an internal auditor and liaises with them and

the external auditor as necessary; and • manages risk processes as necessary.

43. Strategic and annual planning

• supports development of strategic and annual plans,

as agreed by the VSC; • monitors and reports progress against VSC plans.

44. Stakeholder Engagement

• supports the VSC in engaging stakeholders; and • provides effective communications, including timely

responses to correspondence, facilitating meetings between members and stakeholders, maintaining a quality website, and publishing reports as necessary.

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Item Memoranda of Understanding between Victorian Skills Commission and Skills Victoria

Skills Victoria provides the following support to the VSC

45. Meeting Management • provides appropriate meeting venues and timely and quality Board papers;

• supports the Chair in effective meeting management; and

• supports VSC sub-committees as established from time to time.

46. Chair and member executive support

• manages processes for member appointments, re-

appointments and payments; and • facilitates Chair’s meetings with Minister, Secretary

and senior Skills Victoria staff, as necessary

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Attachment 2: Map of Interactions

Area Specific Nature of Issue Problems that Arise Existing or Proposed Solutions by SV

• MARKET ANALYSIS: Clarification of what is expected under Ministerial Directions)

• Lack of clarity about what the Ministerial Directions are

• Questioning of the authority bestowed by directions

• Lack of capacity to sanction non-compliance • Lack of formality adopted (i.e. refuse to put

certain queries/issues in writing)

• Publish all Ministerial Directions in one place on Web Strategy / Planning

(relating to statements of strategic intent, strategic planning)

• ASSET MANAGEMENT: - Planning - BERC

• Information being sought • Process and timelines • Understanding strategic intent • Policy Information • Technical matters • Process and timelines • Understanding strategic intent

• Regular bulletins which produced as APB’s • Participation in the VETFM and Business Managers’ Networks • Individual feedback. • Prompt response to all inquiries

• ASSET MANAGEMENT: - Planning, - BERC - Finance and costing21

• Ensuring all capital projects are included in TAFE AMP’s and on the SV MYS even if fully funded by the Institute.

• Finance and costing

• Regular bulletins produced as APB’s • Participation in the VETFM and Business Managers’ Networks • Individual feedback • Prompt response to all inquiries

Governance

(relates to issues including Board appointments, CEO remuneration, legal status, legislative requirements, Ministerial Directions)

• ASSET MANAGEMENT:

- Costing and cashflow, - Maintenance and Minor Works

• Information being sought • Process and timelines • Understanding strategic intent • Data not available • Different counting e.g. dual sectors

• Regular bulletins produced as APB’s • Participation in the VETFM and Business Managers’ Networks • Individual feedback • Prompt response to all inquiries • Establish constant methodology for data or assumptions about

data

21 Four main compliance areas Owners Agreement (SV), Asset Management Plan (SV), Asset Management (Framework (Govt), BERC process for new asset investment (Govt)


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Area Specific Nature of Issue Problems that Arise Existing or Proposed Solutions By SV

ASSET MANAGEMENT: TAFE Asset Management System (TAMS)

• Property • Property related • Technical/use related

• System failure • Access query • Property information incorrect

For Manager Asset Strategy:

• Host support • Education and training • Individual feedback • Prompt response to all inquiries For TAFE Asset/Facility Managers and Manager Asset Strategy (SV) • Participation in the VETFM Network • Individual feedback • Better communication from third party support networks • Better process in place and articulate this to all TAFEs

• FINANCE: Queries from TAFEs on a number of finance issues

• Not always the most appropriate area to provide the response

• FINANCE: Queries regarding data contained in financial reports

• Some TAFEs require numerous follow ups before a response is given

• FINANCE: Submission of quarterly financial reports, budgets and theft and losses returns

• A number of Institutes are often late in submitting their reports

Budgeting / Budget / EBAs

(relates to matters of major expenditure, accounting and presentation of accounts, staff remuneration issues)

• ASSET MANAGEMENT: - Cost estimation, - Cashflow management,

Planning, - BERC, - Finance and costing22


• Finance and costing • Cost estimation • Ambitious project delivery • Incorrect scope

• Regular bulletins produced as APB’s • Participation in the VETFM and Business Managers’ Networks • Individual feedback • Prompt response to all inquiries

22 Five main compliance areas Owners Agreement (SV), Asset Management Plan (SV), Asset Management (Framework (Govt), BERC process for new asset investment (Govt),DTF Quarterly

reporting to government


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• Ensuring all data that supports the AMP’s about spatial, costs and dollars are accurate and consistent for performance reporting

Set up a TAFE data profile and performance framework (commenced) and work with Institutes and the VETFM network.

Information management

(relates to the capture and dissemination of information held / expected to be held by TAFEs for audit purposes)

• ASSET MANAGEMENT: • Asset Management Planning

Performance measurement • BERC23

• Information being sought • Process and timelines • Understanding strategic intent • Data not available • Different counting e.g. dual sectors

• Regular bulletins which produced as APB’s • Participation in the VETFM and Business Managers’ Networks • Individual feedback • Prompt response to all inquiries • Establish constant methodology for data or assumptions about

data • MARKET ANALYSIS: SV seek

feedback into content of information provided to TAFEs e.g. quarterly VET system reports, quarterly TAFE specific reports (which support Strategic Dialogue process), development of new information products.

• Refer NMIT submission to Fees and Funding Review

• MARKET ANALYSIS: Reconciliation of annual training delivery data. TAFEs are required to sign a document that summarises their data for the previous calendar year.

• The data manipulation required to align SV and TAFE numbers is complex.

• TAFEs that are unable to replicate the data we generate are provided with guidance/education.

Facilitation / support functions

(relates to the services provided by SV to TAFEs including market facilitation, marketing, asset planning and management, obligations under various support processes e.g. MAMS)

• ASSET MANAGEMENT: Integrated Asset Management Plan (IAMP)

• Lead the annual review on the development of individual TAFE Asset Management Plans and supporting TAFEs through the BERC process24

• Consistency of information being sought • Process and timelines • Understanding

For Manager Asset Strategy: • Regular bulletins produced as APB’s • Participation in the VETFM Network • Individual feedback • Prompt response to all inquiries For TAFE Asset/Facility Managers and Manager Asset Strategy (SV) • Provide specialist consultant support to assist TAFEs when a

change process is introduced • Regular bulletins which produced as APB’s • Participation in the VETFM and Business Managers’ Networks • Individual feedback

23 Four main compliance areas Owners Agreement (SV), Asset Management Plan (SV), Asset Management (Framework (Govt), BERC process for new asset investment (Govt) 24 Ibid.


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• Prompt response to all inquiries

• Existing system inadequate • No system or reliable records in place • System failure • Access query • Property information incorrect

• Work with TAFEs to develop and install TAMS – Property • Host support has been set up • Education and training is provided • Individual feedback • Prompt response to all inquiries

ASSET MANAGEMENT:

TAFE Asset Management System – Property25

• TAFEs require property management system

• Property related • Technical/use related

• Third party facilitation sometimes causes a miss communication

• Cross over to DEECD operating environment

• Participation in the VETFM Network • Individual feedback • Better communication from our third party support networks • Better processes in place and articulate to all TAFEs • DEECD crossover arrangements finalised

ASSET MANAGEMENT:

Capital Budget and Project Management26

• Cost estimation • Cashflow management • Planning • BERC • Finance and costing


• Finance and costing • Cost estimation • Ambitious project delivery • Incorrect scope

• Regular bulletins which produced as APB’s • Participation in the VETFM and Business Managers’ Networks • Individual feedback. • Prompt response to all inquiries

25 Compliance tasks are DEECD operating environment, Town planning and local planning schemes, Land Monitor and DTF. 26 Five main compliance areas Owners Agreement (SV), Asset Management Plan (SV), Asset Management (Framework (Govt), BERC process for new asset investment (Govt),DTF Quarterly

reporting to government


Attachment 3: Previous Report Recommendations dandolo Recommendations – refinements to address current issues Action

Produce and maintain a consolidated set of contemporary Ministerial Directions and Skills Victoria policies

• No. This is in progress and is being undertaken together with the transfer of the new IT platform

Remove public sector requirements that unreasonably constrain a TAFE’s ability to compete (e.g. allow TAFEs to negotiate Institution specific EBAs)

• ETRA Amendments

• Ministerial Directions- i.e. forming companies and acquiring private providers

• Reviewing constitutions –including developing commercial guidelines

• No negation on EBAs

Investigate options for assisting TAFEs meet the training needs of national clients provided there is a clear benefit to Victoria.

• Unproclaimed part of legislation

• Letter of owner expectations

• Investigations continue

• Support is provided to TAFEs to explore business opportunities on case by case basis (dialogues etc)

Establish a multi-year capital program and introduce capital payments for services • Asset Management plan developed

Stage 1 Report Only

Develop new arrangements for borrowings • Under review

• Development of commercial guidelines

Stage 2 Report

1. An annual owner’s letter of expectation should be instituted

• Pre-work for this to occur includes: − development of an appropriate template (tested with Institutes) − changes to the current policy documentation that Institutes currently draw on to

assess Government’s expectations − clear enunciation of Government priorities as they relate to the wider VET sector

reforms (particularly contestability).

• The letter should replace existing instructions that are provided to Institutes (i.e. the owner’s expectation letter should not be an additional instruction).

The letter should have an explicit reference to the ownership status of Institutes (i.e. by Government not the community) to clear up confusion among some Institutes.

• The legislation has been amended

• Letter of Expectation 2009 with: − Appropriate template tested with TAFEs − Changes to the current policy documentation are in-train − Clear enunciation of Gov priorities as they relate to wider VET reforms − Letter replaces number of documents – Now all one document

• The letter does have explicit reference to the ownership status of Institutes

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dandolo Recommendations – refinements to address current issues Action

2. TAFEs be required to submit an annual statement of corporate intent • Under amendments passed in 2010 but not yet in force

3. Restructure the composition of Boards:

• Reducing the total number of Board members to around 10 (as a general rule).

• All Boards be appointed on the basis of skills and experience, including local knowledge where appropriate.

• Boards develop a skills (using wider definition) matrix as part of strategic planning process.

An audit of existing Board skills (against each Institutes’ skills matrix) is undertaken.

• Board number currently at 9-15

• Yes to all other points

4. Minister to appoint the Chair (following the Board proposing a person or through consultation with the Board). Board to appoint Directors (with some independent quality assurance).

• Composition of Boards is in legislation amendments for April 2012

5. Boards be skill/experience based without representatives (e.g. staff and student representatives) .

• It should be acknowledged that there is a need to: − consult more widely on this matter − identify alternative engagement mechanism for representative groups

affected.

Any decision about whether to nominate or appoint (depending on the appointment mechanism) a CEO to the Board should be a matter for individual Institutes to determine.

• This has not been implemented.

6. Authority and accountability for all operational decisions (consistent with SCI, owner’s expectations, policies etc) rest with the Institute.

• Under review

7. The Board appoint the CEO and determine remuneration. • Yes- within approval arrangements

8. Institutes ‘continuously disclose’ in a way that streamlines reporting requirements rather than adds to them.

• In train- not consistently applied throughout office

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dandolo Recommendations – refinements to address current issues Action

9. Six monthly reporting against KPIs be required.

due recognition should be given to the importance of establishing a model approach that is effective and efficient (effective in terms of only providing necessary information and efficient in terms of cost and effort).

• In train- currently under development

10. A formal annual report with AGM process be established. • To be implemented with new TAFE Constitutions – no later than April 2012

•

11. Activity based accounting be implemented over a suitable timeframe, with appropriate assistance being provided to smaller Institutes.

• Currently under review and investigation

• Currently in trial in Institute and may be rolled out in the new phase of the review

12. Payment for services to reflect full costs be implemented. • As above

13. Performance measurement of service quality be pursued, with further consideration being given by Skills Victoria, and consultation occurring on how it may be best implemented.

• Implementation of KPIs

• Customer satisfaction surveys

• A competency based system is in place – with funding based on demand

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SSA Review Skills Victoria Response

Recommendation 1: Role of Skills Victoria

That the Minister for Skills and Workforce Participation, with the Secretary, DIIRD and Deputy Secretary, Skills Victoria, endorse the following ongoing roles for Skills Victoria:

• 1.1 providing policy functions and giving policy advice to the Minister on skills and training and the higher education sector. This localised policy function should work closely with economic modelling and labour market research sections of DIIRD to include broader labour market and industry analysis. Skills Victoria’s role will include leadership in relation to future Victorian and national skills and training related matters.

• 1.2 undertaking broad stakeholder engagement and communication with a wide network of public and private training providers, employers, industry bodies, workplaces, students (actual and potential), and national bodies. This includes providing services (e.g. assisting training providers, information provision) to make the overall training market more efficient and effective.

• 1.3 managing Government’s relationship with TAFEs. • 1.4 contract management of vocational education and training services. In particular,

ensuring an accurate, timely and robust payment system and processes to eligible registered training providers supported by high quality data collection.

• 1.5 oversight and regulation of the apprenticeship and traineeship system; and oversight of the Victorian VET and higher education legislation.

• 1.6 delivery of specific skills programs and projects, as required (e.g. Skills for Transition).

It is imperative that a robust policy and funding framework, as well as appropriate regulatory and relationship management approaches be maintained in order to effectively implement the Victorian Government’s skills reforms.

Skills Victoria will continue to undertake these functions, through the provision of strategic advice and analysis of Victoria's skill needs and through its role as the system manager for the Vocational Education and Training (VET) sector.

Skills Victoria will also continue to play an active advocacy role with the Commonwealth Government, enabling continued national leadership in skills delivery and reform

Recommendation 2: Data Collection

That Skills Victoria should continue to play an active role in the national implementation project to ensure improved capacity to measure VET outcomes, including completions.

Skills Victoria will continue to play a central role in the National Implementation Project to maximise outcomes for the vocational education and training sector. Skills Victoria currently represents Victoria on the National VET Data Strategy Action Group. This Group is responsible for managing the implementation of eight national projects designed to enhance, extend and ensure uniform data governance practice for the National VET Data Collection to support Council of Australian Government (COAG) outcome measurement requirements for VET. Victoria’s current data collection and governance arrangements will be considered as a best practice model to be adopted nationally.

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Recommendation 3: Leadership and Planning

That the Deputy Secretary, Skills Victoria establishes a stable and effective leadership team that:

• 3.1 develops a strategic planning framework that aligns all levels of business and work plans within Skills Victoria. This framework should clearly outline relevant strategies and measures related to Skills Victoria’s transition to its changed role as outlined in recommendation 1.

• 3.2 works with DIIRD Corporate Services and Development, to undertake workforce planning to ensure that Skills Victoria’s workforce is aligned to the requirements of Skills Victoria’s role in the new skills environment.

The Skills Victoria Business Plan aligns with DIIRD’s strategic planning framework, corporate objectives and outputs and is based around the key responsibilities of the organisation. A workforce planning exercise has been implemented to further maximise strategic capability, internal leadership and planning in the context of the reform agenda.

Recommendation 4: Opportunities to Improve Alignment Between Skills Victoria and DIIRD

• 4.1 That the Minister for Skills and Workforce Participation prioritises co-location of Skills Victoria with other DIIRD divisions to facilitate stronger alignment between Skills Victoria and DIIRD.

• 4.2 That the Secretary, DIIRD and the Deputy Secretary, Skills Victoria enhance DIIRD corporate support functions to effectively provide for Skills Victoria’s business of running a data and payment system for external stakeholders.

Co-location of Skills Victoria with other divisions of DIIRD and enhancement of DIIRD corporate support functions will form part of the ongoing operational considerations of the Department.

Recommendation 5: Role of the Victorian Skills Commission

That the Minister for Skills and Workforce Participation propose amendments to the Education and Training Reform Act such that the Victorian Skills Commission:

• 5.1 becomes an industry advisory and engagement body and no longer has the legislative responsibility for skills funding and regulation; and

• 5.2 has a clear remit to engage widely with and be accessible to industry and employers on skills needs within the new skills system.

It is important that the development of a revised role for the Victorian Skills Commission is reflective of its current funding and regulatory functions.

It should be noted that the membership of the Commission has been strengthened to ensure the expertise in enterprise and industry necessary to facilitate the Securing Jobs for Your Future-Skills for Victoria agenda. This was a key commitment of the agenda.

Recommendation 6: Victorian Skills Commission Membership

That the Minister for Skills and Workforce Participation propose amendments to the Education and Training Reform Act to:

• 6.1 broaden the membership base of the Victorian Skills Commission to improve alignment with the economic and employment objectives of skills and training;

• 6.2 ensure the Commission’s membership is expertise based rather than representative.

In order to align the Victorian Skills Commission with the policy objectives outlined in Securing Jobs for Your Future – Skills for Victoria, the membership base of the Commission has been renewed to ensure the expertise in enterprise and industry necessary to facilitate the reforms.


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Recommendation 7: Role of Industry Training Advisory Bodies

That the Minister for Skills and Workforce Participation direct the Victorian Skills Commission to review and provide advice on the role and operation of Industry Training Advisory Boards, including:

• 7.1 developing clear guidelines and expectations of Industry Training Advisory Boards including key performance indicators; and

• 7.2 developing ways to strengthen the links between the Victorian Skills Commission and Industry Training Advisory Boards.

The Victorian Skills Commission has established a working group to review the role and deliverables of Industry Training Advisory Bodies (ITABs) in the context of the new requirements of Securing Jobs for Your Future – Skills for Victoria.

Recommendation 8: Location of Adult, Community and Further Education

• 8.1 That the Minister for Skills and Workforce Participation discusses with the Secretary of DIIRD and the Secretary DPCD, the formal location, business rules and protocols associated with the dual focus of skills training and community enhancement of ACFE.

• 8.2 That DIIRD and DPCD work closely together and, where possible, establish processes to brief the Minister jointly, particularly in relation to funding in the new skills environment.

The Secretaries of DIIRD and DPCD will provide advice to the Minister for Skills and Workforce Participation on the matters raised relating to the dual focus of skills training and community enhancement of ACFE. DIIRD and DPCD will continue to work cooperatively, and where possible, jointly brief the Minister for Skills and Workforce Participation.

Recommendation 9: TAFE Governance

That the Minister for Skills and Workforce Participation ensure that a comprehensive proposal on the future of TAFE governance which brings together relevant pieces of work is available for consideration by Government by early 2010.

DIIRD has conducted an independent Review of TAFE Governance and advice regarding the Review will shortly be provided to the Minister for Skills and Workforce Participation.

Recommendation 10: Regulatory Oversight of Registered Training Organisations

That the Minister for Skills and Workforce Participation establishes a process to review the regulatory scheme provided for under the Education and Training Reform Act as it relates to the quality of vocational education and training.

A Review of the regulatory scheme provided for under the Education and Training Reform Act 2006 has commenced.

Recommendation 11: Financial Agreements with Providers

That the Minister for Skills and Workforce Participation note that the financial agreements and contract requirements for TAFE Institutes and registered training organisations appear to be fit for purpose as an accountability framework for monitoring and reporting on the funding elements of a demand-driven system to effect the transition between the old and new systems.

As part of the implementation process for Securing Jobs for Your Future – Skills for Victoria, funding and contracting processes have been independently evaluated as part of a review and have been found to be fit for purpose.

Recommendation 12: Alignment between Corporate plans and financial output and outcome measures

• 12.1 That the Secretary, DIIRD and the Deputy Secretary, Skills Victoria work with DTF to ensure that appropriate output and outcome measures are developed to reflect the policy objectives of a demand-driven system.

Skills Victoria will develop appropriate output and outcome measures as part of Divisional


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• 12.2 That the Deputy Secretary, Skills Victoria, work to ensure that future Divisional Business Plans reflect the specific outputs and outcomes measures related to the broader policy objectives of skills reform and which are more appropriate to a demand-driven funding system.

planning processes and practices