Risk Assessment Framework
TEQSA will introduce a number of changes to our approach to the risk assessments for 2020. The 2020 provider risk assessment will incorporate feedback received by TEQSA during our consultation with the sector in 2019, and will feature a specific focus on the financial viability of providers due to the significant impacts of COVID-19. We will continue to adjust our approach to future risk assessments as the currency of data improves via the Transformation of the Collection of Student Information (TCSI) project.
Sector feedback on TEQSA’s Risk Assessment Framework
Last year, TEQSA engaged the sector for feedback on the Risk Assessment Framework (RAF). In July 2019, TEQSA released a Risk Assessment Consultation Paper. This was followed by workshops conducted across five cities—Melbourne, Perth, Adelaide, Brisbane, and Sydney. At the conclusion of the consultation process, TEQSA released a Consultation Summary Report, which outlined the sector’s feedback.
Overall, providers informed TEQSA that:
- Provider context and responses should remain as an integral component of TEQSA’s risk assessments, and TEQSA should release further guidance on how it considers contextual factors when conducting risk assessments.
- The Completions indicator was not meaningful in and of itself, and is an indirect outcome of other indicators such as Student Load and Progress.
- The Graduate Destinations indicator should factor in forms of employment other than full-time or those undertaking full-time further study to reflect the current nature of employment trends.
- TEQSA should only consider recent regulatory decisions when weighing regulatory history in the overall Risk to Students rating, noting there will be a point when adverse regulatory history should no longer be deemed relevant to the risk ratings.
- The inclusion of benchmarking in the risk assessment reports would be useful for providers to know where they sit in comparison with similar institutions.
- The data lag poses as issue to the usefulness and currency of the risk ratings.
Changes to Risk Assessments in 2020
In response to the sector’s feedback, TEQSA will implement a number of changes to risk assessments for 2020. The extent of these changes are limited by circumstances of COVID-19, and broader changes will be contemplated following a post-cycle review of the 2020 risk assessments. For this year:
- TEQSA has altered the timing of the risk assessment cycle to commence in the final quarter of this calendar year; this ensures that assessments are created as soon as provider data from the previous year (2019) becomes available to TEQSA. The currency of data used in the risk assessments will improve when the Department of Skills, Education and Employment (DESE) implements the TCSI project in 2021.
- Recognising the likely impact of COVID-19 on provider revenue, TEQSA will incorporate financial data from each provider for the first half of 2020. In order to do so, TEQSA will be writing to each provider in September 2020 to request unaudited financial statements as at June 30, 2020. Being mindful that providers are experiencing significant disruptions to their operations, TEQSA will continue to rely on historical data through existing data collections for all other risk indicators.
- TEQSA will focus its risk findings at the headline risk categories: Risk to Students and Risk to Financial Position. Further commentary under the sub-risk indicators within these headline risk categories will not be included this year. This will reduce the scope of information we will require from providers.
- TEQSA will provide guidance to providers on the types of evidence they may wish to provide in responding to the initial risk assessment from TEQSA. This includes any demonstrated actions or initiatives that providers have undertaken to mitigate any identified risks to students and financial position.
- The final risk assessment report will indicate where the provider’s response has or has not had a material impact on the final risk ratings, with appropriate reasoning.
Risk to Students
- Regulatory history will continue to be used to inform the overall Risk to Students rating. To ensure that consideration of regulatory decisions are current, TEQSA will only weigh regulatory decisions made from 1 January 2019, and any active conditions on the provider’s registration or course accreditation when determining the Risk to Students rating.
- Based on the feedback received during the 2019 consultation, the Completions and Graduate Destinations indicators will not be risk rated. The risk assessment report will continue to feature this information but it will be provided as supplementary data for noting only.1
- Providers’ data will be benchmarked against similar providers in the risk assessment reports to enable comparability between providers. Benchmark groups will be based on the provider categories of ‘University’ (incorporating the categories Australian University, Australian University of Specialisation, Australian University College, Overseas University and Overseas University of Specialisation) and ‘Higher Education Provider’ within the Higher Education Standards Framework (Threshold Standards) 2015.
Risk to Financial Position
COVID-19 has brought about significant changes to the nature and magnitude of risks to students and the sector. The higher education sector has been adapting to changes such as border closures, the shift to online delivery, and the forecasted decline in student revenue. In light of these factors, TEQSA considers financial viability to be a priority risk and will adjust our approach to focus on this when determining the overall Risk to Financial Position.
- The overall Risk to Financial Position will be determined based on the five indicators of financial viability: operating margin, liquidity, total liabilities-to-tangible assets, debt service coverage, and operating cash flow ratio.
- The five indicators of financial viability will be risk rated individually to inform the overall Risk to Financial Position. Under the previous model, these five indicators were weighted to form a compound risk indicator for financial viability.
- TEQSA will request that providers send us their unaudited financial statements as at June 30, 2020, as well as the total student load for 2020 through a supplementary data collection request. Providers can expect to receive the supplementary data collection request in September 2020.
- This data collection request will be designed to minimise burden and will only include information needed to risk rate the financial viability indicators. Providers will be able to supply this information to TEQSA using their usual financial reports.
- To ensure continuity and comparability with previous risk assessments, TEQSA will continue to report the data for the Financial Sustainability indicator as supplementary information.
What stays the same?
- Provider risk assessments will continue to be treated confidentially by TEQSA.
- TEQSA will send each registered provider a risk assessment featuring information from various sources, including the Provider Information Request (PIR), Higher Education Information Management System (HEIMS), the Quality Indicators of Learning and Teaching (QILT), findings from TEQSA’s assessment processes, and information from previous risk assessment cycles.
- Every provider will continue to be given the opportunity to respond to the initial risk assessment in order to provide further context and information on the ways in which they have mitigated any risks to students and the institution’s financial position.
- The overarching framework of the risk assessment will remain the same, with two headline risk ratings—Risk to Students and Risk to Financial Position, both of which are underpinned by a range of risk indicators relating to students, staff, and financial information.
- The outcome of the risk assessments will continue to inform TEQSA’s approach to regulation, which is guided by principles of risk, necessity and proportionality.
For more information on the 2020 risk assessments, please contact the Risk Team at risk [at] teqsa.gov.au.
- The remaining indicators (Student Load, Attrition, Progress, Graduate Satisfaction, Senior Academic Leaders, Student-Staff Ratio, and Casual Academic Staffing) will continue to be risk rated based on the most recent data available to TEQSA and will inform the overall Risk to Students.