REGISTERED TRAINING ORGANISATIONS Financial management …€¦ · FINANCIAL MANAGEMENT FOR RTOS 3 The education and training industry has very little debt. It has been built predominantly

Financial management for RTOs

REGISTERED TRAINING ORGANISATIONS

FINANCIAL MANAGEMENT FOR RTOS 1

Introduction 2

Financial health assessments 4

Accounting essentials 6

Monthly financial statements 9

Debt collection 14

Early warning signs 14

Consolidation within the Education Sector 15

New registration applications 16

Fee protection 19

AQTF providers 20

ESOS providers 21

Application checklist 22

Glossary 23

Contents

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Introduction

The Victorian Registration and Qualifications Authority (VRQA) is responsible for registering and regulating organisations in Victoria who wish to offer accredited vocational education and training (VET) qualifications and courses. These organisations are known as registered training organisations (RTOs).

The Australian Quality Training Framework (AQTF) is the set of standards outlining nationally consistent, high-quality training and assessment services for the clients of Australia’s VET system. All RTOs must comply with the AQTF standards and VET Guidelines.

If an organisation wishes to provide vocational education and training to international students, as well as registering as an RTO, they will need to be registered on the Commonwealth Register of Institutions and Courses for Overseas Students (CRICOS).

Purpose of this Guide

This Guide has been produced to assist RTOs in:

• gainingknowledgeinrelationtofinancialdiscipline• reducingtheriskofbusinessfailure• preparinganapplicationforinitialregistrationasanRTO• contributingtoahigh-qualityeducationsector.

2010 was a year of significant legislative and regulatory change in the education sector, and this included the decoupling of education and migration outcomes. It is imperative that businesses are able to adapt quickly to such changes in order to succeed.

The most successful RTOs:

• prepareandregularlyrevisitadynamicbusinessplan• establishmanagementinformationsystems(MIS)thatprovidethemwithregular,

accurate and timely financial reports, and enable them to assess quickly the changing landscape and make informed decisions

• areawareofhigh-risksituationsandtheearlywarningsignsofcashconstraintsand/or business failure

• arepreparedtochangebasedonsoundbusinessprinciples• recognisethatgoodcommunicationisvitalandinvolves: – keeping advisers well informed and seeking regular advice – controlling the messages sent to students to avoid false or misleading information – ensuring that the VRQA are kept informed of any changes to their business.


The education and training industry has very little debt. It has been built predominantly on capital investment and retained earnings. Given the timeline to complete the cycle (see diagram above), a principal executive officer (PEO) needs to be receiving good advice, strong financial support, have dedication and a passion for quality education.

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Financial health assessments

Stage 1

From December 2009 to April 2010 Grant Thornton Australia Limited (GTAL), on behalf of the VRQA, reviewed the financial position of over 130 RTOs, visited most on site and prepared an individual report on each RTO reviewed. These reports included recommendations for improvement. Observations made and trends noted as a result of these financial reviews are outlined below:

• Economiesofscaleallowedgreaterflexibilityandusuallyledtoprofitability.• Themostprofitablebusinessesconstantlyreviewedclasssizes,shiftedteachers

and students, had variable staffing and property leases, long-term agent relationships based on trust and strong debt collection policies.

• Businesseswithwell-qualifiedadvisorshadstrongbusinessdiscipline.• Studentswerelesscommittedtoalower-pricededucationproductandaremore

susceptible to being poached.• Theinternetsocialnetworkingmediahadbeenusedbystudentstocommunicate

the message to not pay tuition fees. As a result students stopped paying tuition fees, seemingly overnight.

• OnlyonepercentofRTOsreviewedusedaSolicitorTrustAccounttoprotect pre-paid fees and almost half used those funds to pay current trading expenses.

• MISwereverypoorandmanyPEOslackedknowledgeortraininginhowtointerpretfinancial reports. A quarter of the industry utilised cash accounting which provided misleading financial reports and did not support timely, informed decision making.

A number of businesses:

• wereunfamiliarwiththeissuesassociatedwithpoorpaymentofdebtors• didnotrealisethattheirstudentswerenotpayinguntilitwastoolatebecausetheir

MISdidnotprovidethemwiththeinformationtheyrequiredquicklyenough• didnotknowhowtoadequatelycombattheissueofnon-paymentoffeesfrom

students, leading to bad and doubtful debts• consideredwithholdingofcompletioncertificatesfromstudentsuntiltheypaid

all outstanding debt as a sufficient and robust debt collection policy and did not consider other, more proactive options such as written and verbal reminders, student payment plans or engaging debt collection agencies.


Stage 2

On17May2010,theMinisterforImmigrationandCitizenship,SenatorChrisEvansannounced a new Skilled Occupation List (SOL). The range and number of occupations listed in the new SOL was more than halved, as compared to the previous SOL, with the intention of delivering a more tightly focused general skilled migration program. It was anticipated that this would have a significant impact on students enrolled in courses which were no longer on the SOL and was likely to affect their opportunity to apply for permanent residency. The VRQA considered that the new SOL could have a substantial impact on current and potential student enrolments of particular RTOs and, as a result, on the overall financial health of their institution. GTAL were instructed to perform Stage 2 follow-up reviews of these RTOs.

These follow-up reviews by GTAL highlighted that, in most cases, management had adopted the recommendations made during Stage 1 and were experiencing the benefits.

There had been a 20–30 per cent improvement in debt collection as a result of:

• managementbeingmoreawareandthereforebetterequippedtodealwithdebtcollection issues

• implementationofdirectdebitsystems• afarmoreproactiveapproachbybusinesses.Significant changes relating to the practices of using pre-paid course fees to fund trading had been made. In many cases a need to give unprecedented large refunds had convinced management a change in practice was needed.

Written business plans were common and being implemented strategically. There had been a material shift in variations relating to property tenancy and increase in casual staffing,providingincreasedflexibility.

Accrual accounting was being implemented by almost all RTOs (although education is still needed on interpreting financial data).

New courses that are attractive to students and in demand were being offered. Short courses were attractive to the local market and domestic students were being actively sought. Contestable funding (ie government assisted funding) was also being actively sought.

Investors were entering the market in an effort to purchase a range of providers and achieve economies of scale (see Consolidation within the Education Sector section on page 15).

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Example of accrual accounting

X sold a car to Y, with credit terms of 60 days, on 15 June 2010. Even though no cash was due to change hands for 60 days, X recorded the revenue in its financial accounts at 15 June because it uses accrual accounting.

The income from the sale was recorded as a debtor. When Y made the payment to X on 14 August 2010 (that is, 60 days later), this debtor was reversed, as Y no longer owed X money.

If X has a 30 June 2010 financial year end, accrual accounting brings their revenue forward (in comparison to cash accounting). If X uses cash accounting, the revenue from selling the car would not have been recognised until 14 August 2010 – the next financial year.

Accounting essentials

There are 2 basic accounting methods prescribed: cash and accrual.

For accounting purposes, the best method, regardless of the type of business, is the accrual-based accounting method as cash-based accounting can distort the true operations of a business. It is therefore recommended that RTOs adopt an accrual-based accounting system.

Cash accounting

Cash accounting recognises revenue and expenditure only when there is a cash transaction.

Accrual accounting:

• matchesrevenueintheaccountstotheperiodwhengoodsorservicesareactuallyprovided to the customer

• matchesexpenditureintheaccountstotheperiodwhengoodsorservicesareactually received from a supplier

• recognisesrevenueandexpenditurewheneveratransactionoccurs–thiscan be on credit, with the actual cash to change hands at a later date

• recognisesthesituationwherecashisreceivedinadvanceandthereremains a liability to provide goods or services in the future.


Pre-paid student fees

A student paid their fees ($5000) upfront for Semester 3 2010 on 29 June 2010.

In cash accounting this income would be recognised in profit and loss for the year ending 30 June 2010 even though the costs to deliver the course to the student were notincurred/paiduntilthenextfinancialyear(July2010–June2011).Thisinflatedtheprofits for the 2010 financial year and decreased the profits in the 2011 financial year.

In accrual accounting pre-paid cash is recorded as a liability in the balance sheet and only recognised in profit and loss as the course costs are incurred. The inclusion of income and expenses in the same financial year provide a more accurate picture of the financial position of the organisation.

Accrual accounting – outcomes

Accrual accounting results in financial accounts that provide a more accurate representation of how a business is positioned at the date of the financial or management reports. The inclusion of debtors and creditors means that the financial statementsshowexpectedfuturecashinflows(thatis,fromdebtors),andexpectedfuturecashoutflows(thatis,fromcreditors),aswellasthecashinflowsandoutflowsthat have already occurred.

This information is critical for management decision making.

Accrual accounting – deferred income

In some cases, a business will require its clients or customers to make an upfront payment such as a deposit for goods or services.

Under the cash accounting method, this would immediately be recognised as revenue. In actual fact, some or the entire amount is likely to be refundable if, for whatever reason, the good or service is not delivered to the customer. That is, when income is received in advance, there is still a liability to the business to provide the good or service to which the income relates.

Under accrual accounting any advance payment would be deferred as a liability in the business’s financial accounts until the good or service has been substantially delivered tothecustomer.Thestatementoffinancialpositionreflectstheliabilityofthebusinessto provide something to the customer in the future.

Including these liabilities in management or financial accounts allows for improved resource planning by management, as all future obligations are recorded.

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Accrual accounting – summary

• Profitandlossandbalancesheetsmoreaccuratelyreflectthecurrentpositionofthe business, and are indicative of not only historic but also future obligations and benefits. This provides more useful information when making decisions.

• Managingcashflowsisjustascriticalasgeneratingaprofit,particularlyforsmallbusinesses.

• Recordingamountsduefromdebtorsandamountsowingtocreditorsinthefinancialstatements rather than as a separate list leads to better financial management.

• Revenuesarematchedtoexpenses,whichprovideamoreaccuratereflectionofthecosts associated with providing goods or services to customers during each period.


When reviewing financial statements or management accounts, it is critical to determine which accounts are material (that is, important) as these should be focal pointsformanagementdecisions.Materialaccountsareoftenbusinessspecific, that is different accounts are more critical for different businesses.

It is crucial to review monthly accounts in context. In isolation, financial accounts are often little more than a list of numbers. When presented in context and compared with information from prior periods and against budgets, they begin to explain how a business is performing and how it is positioned.

For example, a net profit of $15,000 for the month may seem like a reasonable result in isolation. However, when the previous three month’s profits were each around $200,000, a $15,000 profit would appear to be disappointing and warrant further investigation.

Profit and loss statement

Not all profit and loss accounts are material, despite the fact they all contribute to the overall profit or loss of the business. There are costs that are incidental to conducting a business and these should not be the focus of managers when reviewing financial information. The focus needs to be on those expenses that can be controlled.

Direct costs

Direct costs are usually variable and linked to service output. For an RTO direct costs may include tutor/teacher salaries, agent commissions, tuition materials and cost of premises. Often direct costs will be a similar percentage of revenue each month and they should be reviewed with reference to revenue by asking the following questions:

• Aredirectcoststrendingupwardsovertime,indicatinginefficiencies?

• Canoperationsbestreamlinedtoreducedirectcostsovertime?

Overheads

Overheads are the expenses that are necessary to run a business. They include marketing costs, support staff wages, maintenance, general office expenses and professional fees.

It is important to look beyond the closing balances of overhead accounts at the actual transactions that have taken place. For example, an advertising campaign would drive overheads up.

Monthly financial statements

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Fixed costs

Fixed costs are expenses that stay relatively constant regardless of the level of sales, for example the cost of renting premises, insurance, utilities and permanent employees.

The advantage of fixed costs is that management knows exactly what it needs to pay. The cost is fixed regardless of business activity. The disadvantage is that costs cannot becontrolledwhileincomestreamsaresusceptibletofluctuation.

Variable costs

Variable costs change with the amount of revenue earned, for example agent commissions, tuition books, casual/part-time employees.

Theadvantageofvariablecostsisthattheycanbecontrolledwithfluctuationsin revenue and can be managed to maintain profit margins. The disadvantage is that the ultimate total cost is unknown.

Flexible cost structure

Aflexiblecoststructureisonethatcontainsmorevariablecoststhanfixedcosts. Such a structure allows a business to manage its costs in line with revenue. As revenue increases, so too will expenses. If revenue declines, it allows management to cut costs and maintain a margin (or profit).

Majorexpensesincluderent,commissionsandstaffcosts.Rentisusuallyfixed; however,optionstocreategreaterflexibilityinrelationtorentinclude:

• avoidinglong-termleases• enteringshort-termleaseswithanoptiontoextend(tocreateflexibilityintheevent

of student numbers declining)• sub-lettingpremisesunderornotutilised.

Staff costs usually include a mix of fixed (permanent) and variable (casual). Options to creategreaterflexibilityinrelationtostaffcostsinclude:• changingtheratioofpermanentandcasualemployees• changingtheratioofadministrativeandteachingstaff• closelymonitoringstudentenrolments• adjustingstaffinglevelstocateronlyforthenumberofstudentscurrentlyenrolled• keepingaccuratestudentrecords• accuratelyforecastingstudentenrolments.


Balance sheet Asset accounts

• Cashaccounts

Cash is the lifeblood of a business. Without cash, staff and creditors cannot be paid, business operations are limited and the business becomes insolvent. A constantly deteriorating cash balance should be of significant concern to management as it indicates that further funding may be necessary.

• Accountsreceivable

Accounts receivable is one of the key working capital accounts. A continuously inflatingreceivablesbalance,whichmayoccurifstudentsaretakinglongertopaytheirfees,canmeanthatcashinflowsinthebusinessarebeingstifled,threateningthe solvency of the business.

(Reconciliation of receivables and debt collection is discussed on page 13–14.)

• Relatedpartyloans

Director/shareholder contributions may be represented by related party loans, being how much money has been contributed to, or drawn out of, the business by management and owners. Often owners will contribute significant amounts of capital to start a business which needs to be repaid as the business becomes successful. However, drawing too much money out of a business too early can seriously hamper the business’s ability to meet its financial obligations and re-invest for growth.

Liability accounts

• Creditors

Creditors indicate the obligations of the business. A constantly increasing creditor balancecanmeanthatthebusinessisunabletoserviceitsdebts.Aloworzerocreditor balance may mean that credit terms from suppliers are not being used optimally.

• Provisions

Provisions are typically those liabilities that are contingent on a certain event happening, for example, a provision for annual leave is not paid unless a staff memberactuallytakesannualleave.Provisionsrepresentpotentialcashoutflowsand should be managed to ensure that all provisions such as long service leave do not become payable at once.

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• Pre-paidincome

Pre-paid income relates to fees that have been paid by customers or students in advance. (See page 21)

• GST/PAYGW/Superannuationpayable

It is critical to ensure that all tax and superannuation obligations are met, as failure to do so can attract large penalties from the Australian Taxation Office (ATO).

Owners of a business using the ATO as a source of funding by not meeting its tax obligations are liable to be prosecuted for defaulting on payment arrangements.

Aged debtors reports

Aged debtors reports keep track of what amounts are outstanding, how long they have been outstanding for and from whom. Usually these are grouped in 30 day brackets (0–30 days, 31–60 days, 61–90 days, etc).

These reports can give managers information about the likelihood of outstanding debts being received, what percentage may be doubtful (bad debts), and who the problem payers are. It allows management to actively chase payment from debtors to ensure timely collection.

Large numbers of outstanding debts of more than 90–120 days can indicate issues with collection practices or overly generous terms to debtors. The total amounts outstanding should reconcile with trade debtors or accounts receivable in the financial statements.

Reconciling outstanding debts to the financial statements ensures that the financials accuratelyreflectpotentialfuturecashinflows,andalsohelpsensurethatallrevenuehas been recorded.

Aged creditor reports

Aged creditor reports show the breakdown of amounts payable and how long they have been payable for. Like aged debtors, these are usually grouped into 30 day brackets. These reports can help prioritise payments to suppliers when resources are limited (as is often the case). A large number of creditors in the 90+ days range is often indicative of a business that is struggling to pay its debts.

Creditor reports should also be reconciled to the financial statements to ensure that the financialstatementsaccuratelyreflectfuturecashoutflowsandthatallexpenseshavebeen recorded.


Bank reconciliations

Bankreconciliationsreconcilethebankbalanceshowninthefinancialstatements with the bank balance on the bank statement and are the fundamental indicator of the efficiency of a business’s financial administration. Discrepancies can arise, for example, where cheques have been made out to suppliers but the suppliers have not yet banked them, or where cheques have been received but the funds have yet to clear into the bank account.

If the bank reconciliation fails to reconcile the bank balance shown in the bank statement with the balance shown in the financial statements, this can mean transactions have gone unrecorded.

Cash flow forecasts

Cashflowforecastscanbedevelopedusingknowledgeofcurrentdebtorsand creditors,aswellashistoricdataonmonth-to-monthexpenditure.Reviewingcashflowforecasts provides information as to whether the business is going to generate net cash inflowsornetcashoutflowsoverthecomingmonths.

Ifthereisanetcashoutflowtheremaybeaneedtosecureadditionalfunding. Managementofcashflowtimingandcostsshouldbereviewedtoassesswhetherextreme levels of expenditure in certain periods can be eliminated. If a business has fundingfromexternalsources,thecashflowforecastisoftenjustasimportanttothelender as a profit and loss and balance sheet.

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For RTOs there should be adequate communication with students at all times. Student uncertainty will lead to non-payment of fees. It is important that students know at enrolment:

• whattheirfeeobligationsare

• studentfeeandpaymentpoliciesandtheconsequencesofnon-paymentoffees

• howpaymentismade

• whenpaymentismade

• whathappensifpaymentisnotmade.

Fee collection by direct debit is a good option as it is automatic and once set up requires little management intervention.

A business should create a sound and documented debt collection policy that clearly outlines what debt collection techniques the business has implemented. These can include:

• mailreminders

• phonecalls(abusinessmayusededicatedstaff)

• apolicyofnopayment=nocertificate

• referraltoadebtcollectionagency.

Early warning signs of business failure

Examples of these signs include:

• dropinstudentnumbers

• noflexibilitywithstaffandpremises

• nobusinessplan

• poormanagementinformationservices

• poorcashreserves

• cashflowcontrolledbypartiesotherthanthePEO

• pre-paidmoniesbeingusedtotrade

• poordebtorcollectionpoliciesandpractices

• notprofitableandunlikelytobeinthenearfuture

• notreceivingtimelyqualityadvicefromexternaladvisors.

Debt collection

Consolidation within the Education Sector


There is a growing trend within the education sector for investors to look at consolidation of RTOs. When consolidation is undertaken, the following should be considered:

• theVRQAshouldbeadvisedofanyintentiontoconsolidatebyanRTOassoon as possible to help ensure a smooth transition of the consolidating entities

• theconsolidatedentitycandemonstratefinancialviabilitytotheVRQA

• thePEOhascontrolofthecashatbank

• thatallrequiredAQTFstandardsandVETGuidelinesaremet(forexample,in relation to premises, staffing, course quality, and the fit and proper person test, etc)

• pre-paidrevenueremainsinthecontroloftheRTOandnottheparentcompany

• RTOsareawareoftheincreasedriskintheeventthatcrossguaranteesare provided between consolidating entities.

New registration applications

An initial (new) registration application must be compliant with:

• VETGuidelinesforVETproviders

• AQTFConditions.

GTAL has been engaged by the VRQA to assess the financial aspects of an application for RTO accreditation. The assessment criteria below summarises the areas that GTAL reviews.

Assessment criteria

Guideline Description

1.1 1/1.4.2 Approved strategic plan/primary purpose

1.1.2 Approved business plan

1.1.3 Agent use and student recruitment information

1.2.1 Three-year certified financial plan

1.2.2 Analysis of financial viability, including a high-level assessment of the existing or related entity supporting the RTO applicant

1.3.2 Managementinformationsystems–financialandstudentrecords

1.3.6 Additional requirements in relation to ownership, involvement of agents in fees collection, securing student fees until commencement

1.6.1 Mechanismsestablishedtoreportsignificantchangeincontrol,management or operations

New registration applications

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Requirements for registration

The following pages provide a summary of the key areas that need to be considered when preparing an initial (new) registration application.

AQTF Condition 5

In addition to Guideline 1 for VET Providers, applicants must address the requirements of AQTF Condition 5.

• Financialmanagement

The applicant must be able to demonstrate to the VRQA that it will be financially viable at all times during the period of its registration.

This is the single largest area of focus of GTAL’s review of initial (new) registrations.

• Feeprotection

The fee protection mechanisms vary for AQTF and Education Services for Overseas Students (ESOS) providers. (See page 19)

• Engagementofaqualifiedaccountant

Preparation or review of the financial forecast model by a qualified accountant improves theaccuracyandintegrityofthefinancialprojections.

Primary purpose/separate legal entity

When the Education and Training Reform Amendment (Skills) Act 2010 is proclaimed, legislation will require the provision of vocational education to be the primary purpose of an RTO. There are certain exemptions to this requirement, the most common of which apply if staff are being trained in a not-for-profit organisation or enterprise RTO (an RTO seeking to train its own staff). Note that applicants must apply for this exemption.

Meetingthisrequirementofprimarypurposeisgenerallystraightforwardwhenthe applicant is a start-up business or when the applicant is an existing business and intends to conduct training through a new entity (most commonly a subsidiary).

When the applicant intends to run the RTO as a division of an existing business, proving education is the primary purpose is more difficult. In these instances, GTAL will extend the scope of review to include a review of the existing business.


Ability to cover six months working capital

The VET Guidelines require that the applicant demonstrates sufficient working capital to maintain operations for six months without tuition fees and/or provides an additional undertaking to cover any working capital shortfall.

The test applied by GTAL essentially compares the current cash reserves of the business to the fixed costs for six months to assess adequate working capital coverage. In the event of a shortfall, the VRQA will deem one or a combination of the following as an acceptable financial undertaking to be provided by the applicant:

• injectionofadditionalequitytomeettheshortfallandsupportthebusiness

• anindependentcommercialloantocovertheshortfallwithanagreementthat no principal repayment will be made within the first 12 months of the loan

• abankguaranteethatwillcovertheshortfall

• athirdpartyguaranteefromanindividual,companyorTrustwithrelevant documentation supporting the guarantor’s ability to provide the shortfall.

Preparing a financial forecast

Applicants often fail to invest time, money and expertise in the preparation of financial forecasts.Duetothemajorityofapplicantsreceivingstudentfeesinadvance,financialforecastspreparedoncash-basedaccountingdonotreflectthetruefinancialstandingof the business. Generally, cash-based accounting will overstate revenue and therefore profitability, and understate liabilities and as a consequence overstate the net asset position of the business.

It is recommended applications are accompanied by financial forecasts:

• basedonaccrualaccounting

• thatarefullyintegratedandincludeaprofitandlossstatement,cashflowstatementand balance sheet

• providedinExcelformat

• prepared,asaminimum,onamonthlybasisforthefirstyear.

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Engaging a qualified accountant

While a qualified accountant cannot categorically confirm the financial viability of an applicant’s business (as the model is based on assumptions), they can:

• confirmthattheyhavepreparedorreviewedthefinancialmodel

• confirmthatthefinancialmodelpreparedorreviewedaccuratelyreflectsthe assumptions upon which they were based

• assistanapplicanttopreparefinancialprojectionsusingaccrual-basedaccounting.

Applicantsshouldensurethattheassumptionsuponwhichthefinancialprojections are based:

• reflectaccrual-basedaccounting

• areclearlydefinedanddocumentedinthefinancialmodel

• correlatetoandreflectthestatementsmadeinthebusinessplan

• areaccompaniedbysupportingdocumentationwherepossible (opening cash balance supported by bank statement and bank reconciliation).

Fee protection

A tuition assurance scheme (TAS) is a scheme approved by the Australian GovernmentMinisterforEducationtoensurethatoverseasstudentsreceivethecoursethey have paid for. If a provider is unable to meet its teaching obligations to a student (for whatever reason) one of the other providers in the scheme will take over teaching the student. The VET industry is unique in that it is incumbent on those who remain to carry the burden left by others who fail.

There are several schemes and providers must be a member of a scheme and apply for coverage unless they are exempt (see below).

Currently for providers intending to collect student fees in advance (excluding non-refundable administration fees):

• thereisnoTAS(thatmeetsAQTForVETGuidelinesrequirements)availablefordomestic providers

• OverseasStudentsTuitionAssuranceScheme(OSTAS)onlycoversoverseas students who have commenced studies, leaving students not yet in Australia exposed as they are not easily relocated.

For these reasons the VRQA is seeking to protect the interests of all stakeholders (students, RTOs, Australian Council for Private Education and Training (ACPET) and the education reputation of Australia). Currently, there are different fee protection mechanisms in place for AQTF and ESOS providers.


AQTF providers

When the provider intends collecting student fees in advance, it must ensure that it complies with one of the following options.

• Option1

TheRTOisorwillbe(onceregistered)agovernment-administeredRTO;or

• Option2

The RTO holds membership of an approved tuition assurance scheme. Currently there is no approved scheme available that meets AQTF or VET guidelines requirementsfordomesticproviders;or

• Option3

The RTO agrees to limit pre-paid fees received to:

– <$1000 prior to commencement

– <$1500 for ongoing students.

Notethatstudentexposureshouldnotexceed$1500atanypoint;or

• Option4

The RTO holds an unconditional bank guarantee from an Australian bank. This is likely to require cash reserves or equity in property. It would require a Trust to hold theguaranteeandmaybecostprohibitiveformostRTOs;or

• Option5

The RTO can demonstrate an alternative measure of ‘equal rigour’ approved by the VRQA.

Currently the only measure approved by the VRQA is to hold any monies in excess of Option 3 in a Solicitor Trust Account.

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When the provider intends collecting student fees in advance from overseas students prior to commencement it must ensure that it complies with one of the following options:

• Option1

The RTO has implemented a TAS and pre-paid fees are held in a Solicitor Trust Account.

• Option2

The RTO has implemented a tuition assurance scheme and no fees are paid prior to commencement.

• Option3

The RTO does not charge any pre-paid tuition fees (a non-refundable administration fee can be collected).

When the provider collects student fees in advance from overseas students, these pre-paid fees are covered by OSTAS after the student commences.

MaddocksLawyers,inconjunctionwiththeVRQA,havedevelopedamodelSolicitorTrust Deed that caters for both AQTF and ESOS providers. This model Trust Deed is available free of charge and can be sourced from the VRQA.

ESOS providers


Beforesubmittinganapplicationforinitial(new)registration,anapplicantmustensurethat as a minimum:

• theapplicationiscompleteandaddressesthespecificrequirements of VET Guideline 1 and AQTF Condition 5

• strategic,businessandfinancialplanshavebeenapprovedbytheboard or governing body of the applicant

• theprimarypurposeofeducationhasbeenproved

• thereisconsistencybetweenthebusinessandfinancialplans

• start-upcapitalinvestmentissufficient

• fixedcostscanbecoveredforaperiodofsixmonthswithoutanyrevenue

• financialforecastsarebasedonaccrualaccounting

• financialforecastsmakeadistinctionbetweenprofitandlossandcashflow

• financialprojectionshavebeenpreparedorreviewedbyaqualifiedaccountant (as required by AQTF Condition 5)

• keyareasofMISandchangeincircumstancesrequirementshavebeenaddressed

• studentfeeprotectionmechanismshavebeenestablished

• forexistingproviders:ATOpaymentsareuptodate.

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Application checklist


Australian Quality Training Framework (AQTF)

the set of standards outlining nationally consistent, high-quality training and assessment services for the clients of Australia’s VET system

ATO Australian Taxation Office

Balance sheet a snapshot of a business’s financial condition comprising assets, liabilities and shareholders’ equity at a specific moment in time, usually at the close of an accounting period

Casual employee an employee who usually works on an irregular basis and who may or may not be offered work which they have the option of accepting or refusing

Fit and proper person test

identifies any past behaviour of a provider, associate or high managerial agent of a provider which may impact on the suitability of the provider to be registered to provide education and training to students

GTAL Grant Thornton Australia Limited

GST broad sales tax of 10 per cent on most goods and services transactions in Australia

MIS ManagementInformationSystems

PAYGW stands for Pay As You Go Withholding, a tax that an employer may be required to withhold from employees and others and send to the Australian Taxation Office

Permanent employee an employee who has been hired with the intention of an ongoing employment relationship or for an indefinite period

Principal Executive Officer person who has executive responsibility for the operation of the organisation

Glossary

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Profit and Loss profit and loss statements are generated monthly, quarterly or annually and summarise the revenues for a period and subtract the expenses incurred for the same equivalent period to arrive at the profit or loss for the business

RTO Registered Training Organisation

SOL Skilled Occupation List

Solicitor Trust Account

transaction account used to hold money in trust on behalf of students

Solicitor Trust Deed document conveying title to trust property and setting out the purpose for which the trust has been formed

Solvency ability to pay debts as and when they fall due

Tuition Assurance Scheme (TAS)

scheme approved by the Australian Government MinisterforEducationtoensurethatoverseasstudentsreceive the course for which they have paid

VET Vocational Education and Training

VRQA Victorian Registration and Qualifications Authority

© State of Victoria 2010

Documents

REGISTERED TRAINING ORGANISATIONS Financial management …€¦ · FINANCIAL MANAGEMENT FOR RTOS 3 The education and training industry has very little debt. It has been built predominantly