The vocational education sector has been under fire over the past few years, with numerous stories about organisations operating unscrupulously hitting the media. While many would argue that the actions of a few have tainted the majority, it is not surprising that the regulator has decided to take a harder-line approach when it comes to accepting new entrants.
From 1 July 2018, ASQA will apply even greater scrutiny to initial applications for registration, introducing a revised set of requirements and evidence to help the regulator assess whether the organisation has the resources and skills needed to deliver quality training.
One of the key changes to the initial application requirements comes in the form of a new Financial Viability Risk Assessment Tool.
Why this change?
According to ASQA, the increased scrutiny is necessary because it has been seeing a high number of applicants who:
- Lack the educational capability to deliver high quality training and assessment
- Have insufficient financial resources or facilities to support the sustainable delivery of training and assessment
- Are not genuine (ie: organisations that have no intent to provide quality training)
- Rely excessively on consultants for initial registration and do not develop the organisation’s long-term capacity for delivery of high quality training and assessment, and
- Grow their scope rapidly after registration
The changes to how ASQA reviews financial viability will ensure applicants are fully financially prepared to operate a sustainable training business and help them understand the financial requirements for registration.
What are the key changes?
In reviewing the new Financial Viability Risk Assessment Tool, we note the overarching change from the previous application process is the requirement to provide significantly more detail in relation to an organisation’s financials.
For example, the previous Financial Viability Risk Assessment Pack asked applicants to estimate their annual turnover by checking one of three boxes. The new spreadsheet-based Tool requires applicants to complete a Profit & Loss Statement, forecasting expected Revenue and Expenses (at a line-item level) for each of the first 12 months of operation, rolled up to a total Year 1 & 2 Forecast.
You can access the new Financial Viability Risk Assessment Tool here.
What hasn’t changed?
Further to the detailed financial forecasting, ASQA still requires applicants to submit a Business/Strategic Plan. The plan should address a number of key areas, including the goals and objectives of the organisation, the strategic direction of the organisation, market/competitor analysis and organisational structure.
ASQA also still requires that the organisation be ‘independently assessed as a financially viable business entity’ by a qualified accountant. However, it is far more likely that new applicants will need greater input from their accountant than when completing the previous Financial Viability Risk Assessment Pack, due to the new level of detail required.
A positive outcome?
Although it may look as though ASQA is demanding too much detail from new business owners, we have long held the view that this level of planning is required upfront in order for a business to be successful (see: Why RTOs Should Embrace the Financial Viability Risk Assessment).
It will be critical for new training operators to engage an accountant early on in the planning and application process, rather than at the eleventh hour, which appears to have been one of the historical issues that led to the regulator’s increased scrutiny of financial viability. This will certainly lead to better long-term outcomes for students, as well as ensure business owners are set up to succeed.
If you’d like to speak with an expert in accounting for Registered Training Organisations, contact us today.