Financial monitoring framework overview
TEC has recently implemented a new Financial Monitoring Framework (FMF). This framework allows TEC to apply a transparent and consistent approach to monitoring the financial performance of Tertiary Education Institutes (TEIs).
TEC uses the Financial Monitoring Framework to ensure that its response to financial risk is appropriate, graduated, and focuses resources on the areas of greatest need. It also assesses whether certain TEIs require more support, guidance or, if necessary, a formal intervention to return them to a more stable financial position.
TEC considers more than just the current financial performance of TEIs. The framework utilises historical reported performance, and forward-looking forecast information supplied by TEIs. These measures are combined into an overall risk rating. An increased weighting is applied to the forecast information when the TEC has higher confidence in the forecasts being supplied. This allows the framework to be as forward looking as possible.
The framework uses a series of measures that reflect different elements of TEIs’ financial performance. These measures are grouped into two main categories:
- Viability, which provides a shorter term view, and
- Sustainability, which provides a longer term view.
These measures are described in more detail in the document, Measures within the framework. In summary, these measures assess financial ratios related to profitability, liquidity, the level of borrowings, a TEI’s ability to service any borrowings, along with a range of measures that look at how stable the operations of a TEI are.
These scores result in an overall FMF risk rating. This rating categorises TEIs as:
- Low risk (a score of 3 or higher)
- Moderate risk (a score between 2 and 3)
- High risk (a score of below 2)
Note - if TEC has very low confidence in the forecast supplied, the best risk rating achievable is moderate risk, due to the uncertainty such a situation presents.
TEC produces a one page summary report for each TEI when there is enough new information available. This typically occurs when TEIs provide audited results and 3-year forecasts to TEC, although these can occur more frequently for moderate or high-risk TEIs.
The overall risk assessment determines the level of monitoring TEC undertakes and the level of reporting required from TEIs. Reporting information and the implications of a TEI’s risk rating can be found in the following pages:
The following links show an example of an output report and explains in more detail how the model works.
Read a full description of the financial monitoring framework (PDF, 637 Kb)
For any enquiries please email: email@example.com
14 December 2011