ASQA’s new Financial Viability Risk Assessment (FVRA) Tool

 

You may or may not have noticed that ASQA has updated the tool they use to collect information about an RTO or CRICOS providers financial viability.  The new tool was published in May 2018 and came into effect from July 2018, but many RTOS may not have had a reason to be aware of this change in that time.

Why is this important?

While a form update may not seem like much it has a significant impact on RTOs as the new form now requires greater detail.

Have the requirements changed?

While the legislation hasn’t changed, the procedures have. Therefore, what ASQA now deems to be sufficient evidence of compliance with that legislation has shifted, resulting in more evidence being needed to be submitted and signed off by your accountant.

How is it different from the old FVRA?

The old FVRA was a form (word document to fill out, print and sign) that required the nominated account to provide certain ratios without being required to submit the workings to produce those ratios.  The accountant was required to have seen the related business plan and projections; however, these did not have to accompany the accountants sign off on your Financial Risk.

The document also contains inbuilt rules and formulas set up by ASQA that will automatically provide a “Result” as to the  completeness of the document and apparent financial risk of the RTO underpinning logic of the sheet is also determined by the type you select (existing/new entity or monitoring review.  Existing RTOs are required to provide further historical data or actual figures rather than only projections All RTOs including those applying for initial registration are required to show  available bank balances, any debts, creditors, describing any possible future funds that may be available as well as projecting monthly for 12 months and annually for two years anticipated student numbers and types, profit and loss and cash flow.  While the spreadsheet does not provide advice as to how to improve your result, it will tell you when the spreadsheet is incomplete or if the risk appears to be unexpectedly high.

Unlike the previous risk assessment, the calculations must be submitted along with all supporting evidence which includes a detailed strategic business plan, bank statements, reconciliation, financial audits, management account, ATO portal print outs and more.

When will I have to do a FVRA?

RTOs have to undertake the Financial Viability Risk Assessment if:

  • They are within the first two years of their initial registration and applying to extend scope
  • They are applying for initial CRICOS registration
  • ASQA have requested it (i.e.to check your financial viability at any time – ASQA have announced that they will request this if you declare to them that you have not recently had enrolments through your RTO. This typically happens as an outcome of the Delivery Data Activity Summary information requested prior to scheduling a compliance audit).

General advice on remaining financially viable (at all times)

  • Conduct financial audits annually to ensure your books are always in order and you can easily complete an ASQA request if required
  • Ensure you update your strategic business plan before you apply for any scope extensions so you can show you have researched the market and considered necessary costs and marketing strategies. Your business plan must cover:
    • Company overview (description of the business) including funding sources, target market (student cohort), key clients and/or industries, courses, locations and equipment and facilities
    • Goals and objectives of the organisation
    • Strategic/long term direction of the organisation
    • Market analysis of the industry being entered (including locations and methods of delivery you intend to offer, demand and competitors)
    • Basic strengths, weaknesses, opportunities and threats (SWOT) analysis
    • Financial projections for at least the next 12 and 24 months
  • Organisation structure/organisational chart. If your RTO becomes dormant for more than 6 months (i.e. you have not had any or very few enrolments into your courses) and you do not anticipate this improving in the near future, take steps to analyse and improve (lower) your RTOs financial risks. This may include steps such as*:
    1. Minimising expenditure
    2. Planning to extend your scope or seek additional registrations such as CRICOS or ELICOS (for overseas students)
    3. Considering other products/services you can offer to create revenue for the business
    4. Planning to access new or different markets (such as via a partnership)
    5. Planning to otherwise improve the profitability of your organisation
    6. Planning to seek other funding sources for your RTO such as state or federal funding, or private investors
    7. Considering selling your RTO or withdrawing registration if viability is uncertain or cannot be established/maintained.

*This is not financial advice always seek advice from a qualified accountant/financial advisor.

Top 10 Tips for CEOs working with ASQA’s new FVRA:

  1. Engage an experienced RTO accountant who has worked with the new FVRA as early on in the process as possible. Make sure they understand that you cannot submit the tool until the ‘Result’ shown (left of the introduction tab) is yellow or green. Allow plenty of time to gather evidence and run checks.
  2. Ensure your business plan explains all of your expenses and income clearly including any that doesn’t relate to your RTO courses but does relate to figures shown in your FVRA.
  3. Read the introduction carefully and fill out tab 1 ‘Provider details’ first. We recommend you work out tab 6 Student Numbers and Course Fees and tab 7 Key Expenses next. This will help with number 2 above.
  4. Ensure you scale all costs and income according to projected student numbers at a given point in time. Meaning, if you have 50 students and need 2 trainers to deliver, you should have enough money being paid to both trainers in that month and so on. Similarly, consider how you might need more equipment, facilities and resources to account for the increased number of students.
  5. Ensure you factor for costs that will allow you to grow and sustain your business such as marketing, commission fees (to education agents if for CRICOS providers if applicable), compliance, legal, accounting and recruitment.
  6. For existing RTOs – Even if your RTO has not yet been trading you are required to provide accurate ‘actual’ figures for year -1 and year -2 that would show outgoings and depreciation on costs required to gain/maintain registration throughout that period (as applicable).
  7. Show income anticipated from other revenue streams that your entity may have such as non-accredited training.
  8. Document assumptions and workings as you go so these can be cross referenced either by yourself, your accountant or a second accountant!
  9. Makes sure you check all of the workings in all of the tabs and can understand how and why the figures relate to your business and ask for explanations if you are not sure how or why something is shown how it is.
  10. If your risk is high – ask for advice from your accountant as to how to improve your position.

 

The link to the new form: https://www.asqa.gov.au/news-publications/forms-guides/financial-viability-risk-assessment-tool

 

 

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