MODULE 8

Auditing Academic Institutions

Overview:

Educational Services is widely considered a counter-cyclical industry. Typically,

when the economy is doing poorly and unemployment is rising, more working
adults, as their career prospects start to dim, decide to upgrade their education.
This, in turn, leads to higher enrollment and increased profit at the schools. We
note that traditional undergraduate education for young students is generally non-
cyclical. Culinary arts schools, however, can be labeled as moderately cyclical.
Also, certain types of educational institutions do perform largely in sync with the
broader economy. For example, providers of information technology instruction
benefit in good times, when companies are likely to boost related investment.

There is a growth element to this industry. Education companies are reporting a

trend of rising demand from working adults. More and more employers are
requiring college degrees for a greater range of jobs. Enrollment rates are tracking
higher at most schools. To an 18-year-old, thinking about the future, or a 30-year-
old without a college degree, looking for a career boost, diplomas are becoming the
standard rather than the exception.

Module Objectives:
Know the nature and background of the particular specialized industry;
Learn the overview, statistics, and updates of the specialized industry in the
Philippine setting;
Identify the different audit considerations and trends for the industry.
 Nature and Background of Specialized Industry

The Educational Services sector comprises establishments that provide instruction

and training in a wide variety of subjects. This instruction and training is provided by
specialized establishments, such as schools, colleges, universities, and training
centers. These establishments may be privately owned and operated for profit or not
for profit, or they may be publicly owned and operated. They may also offer food
and/or accommodation services to their students.
Educational services are usually delivered by teachers or instructors that explain,
tell, demonstrate, supervise, and direct learning. Instruction is imparted in diverse
settings, such as educational institutions, the workplace, or the home, and through
diverse means, such as correspondence, television, the Internet, or other electronic
and distance-learning methods.
 The training provided by these establishments may include the use of simulators
and simulation methods. It can be adapted to the needs of the students, for example
sign language can replace verbal language for teaching students with hearing
impairments. All industries in the sector share this commonality of process, namely,
labor inputs of instructors with the requisite subject matter expertise and teaching
ability.

The education industry can be described as the collection of organizations and

businesses that provide products and services aimed at enhancing the quality of
education in society. The education industry plays an increasingly important role in
supporting public education by meeting the demand for products and services that
both complement basic education services and supplement their underlying goals.
 The industry is defined by four main categories:
1.Schools/ Service Providers: – Providing Elementary and Secondary Education,
Alternative/Special Education Services, Education Management Organizations,
Charter Schools, Virtual Schools, and Proprietary Schools.
2.Supplemental Education Service Providers: Providing Higher Education,
Vocational Education, Learning Centers, Tutoring Services and Assessment
Services.
3.Educational Products & Services Sector: Production and supply of educational
material and products including Educational Products, Publishing, and
Supplemental Products.
4.Education Support Services Sector: – Providing support and ancillary services to
the education industry including Education Consultants, Education Information
and Research, Education Investment Services, Education Policy Specialists, and
Technology Services.
 Overview, Updates, Statistics of the Specialized Industry in the Philippines

Philippines’ education industry has showcased a significant growth in the past

decade owing to the adoption of the enhanced basic education model. The
financial support and aid from the foreign countries such as Australia, Canada, US
and others have been aiding the Philippines government in restructuring the
education system in the country. The several programs and initiatives have been
taken by the Philippines government to improve the quality of education in the
country. The increasing investments by the government and other local and foreign
agencies for the provision of universal access to quality education at all levels to
the Filipinos are likely to boost the total number of enrollments and establishments
in the education industry in Philippines.
 The K-12 education market has been the largest contributor to the overall
revenues of the Philippines education industry. The revenues of K-12 education
market were estimated to be worth USD ~ million in 2013, which grew from USD ~
million in 2008. The major growth driver in the K-12 education market was the
implementation of the enhanced basic education program in Philippines. This
market has been highly fragmented with the presence of large number of public and
private players competing on the basis of tuition fees, infrastructure and other
services. The major segments in the K-12 education market are namely
kindergarten, primary and high school. Secondary level of education accounted for
the majority share to the overall revenues of the K-12 education market.
 The higher education market is the second largest contributor to the revenues of
the Philippines education industry. The market share of the higher education market
in Philippines declined to ~% in 2013. This declining market share was possibly due
to the inclining tuition fees for the private and public higher education institutions.
Some of the major players operating in this market are namely University of the
Philippines, De La Salle University and others. This market is likely to grow at a
CAGR of ~% in the next 5 years.

The technical-vocational training segment accounted for a share of ~% in 2008

which declined marginally to ~% in 2013. The major reason for this decline was the
no or low fees charged by the public technical-vocational training institutions in
Philippines. This market is expected to witness an increase in the revenues to USD
~ million over the period from 2013 to 2018. The Philippines private tutoring market
has contributed a share of ~% in 2008 which decreased slightly to ~% in 2013. The
trend of homeschooling in Philippines can be attributed for the decline in the market
share. The major players operating in the tutoring market are namely AHEAD
tutorial and review center, MSA Academic Advancement Institute and others. It is
expected that the private tutoring market in Philippines will grow at a CAGR of ~%
during the period from 2013 to 2018.
The test preparation market has been the fifth largest market in the Philippines
education industry. The market revenues for test preparation increased from USD
Ì´ million in 2008 to USD ~ million in 2013. The Philippines test preparation market
has been dominated by the private players who compete with each other through
review fees and other flexibility options in timings and scheduling classes. The
significant players in the Philippines test preparation market for civil engineering
review are namely Besaville Review Center, Padilla Review Center, Gillesania
Review Center and others. The inclining personal disposable incomes, escalating
competition have been some of the reasons for remarkable growth of this segment.
This market is expected to grow at a CAGR of ~% over the period 2013-2018.

The least share has been contributed by the Philippines teacher training market in
2008. It is likely to grow gradually in the future years owing to the government
initiatives and programs in this segment. The teacher education market has also
been growing rapidly and is expected to maintain its growth momentum in the
future years. The teacher education market has been segmented into bachelors
and masters degree programs offered in the field of teacher education in
Philippines.
 The Philippines e-learning segment has been expanding rapidly and includes
online-learning and training, software development and e-content development.
This market is likely to grow at a remarkable rate in the future years. The
Philippines education industry is estimated to register escalating CAGR of ~% for
the period from 2013 to 2018 with the private players established in the industry
driving the enrollments in the education industry in the coming years.

The Philippines has 1,963 institutions of higher education. As of 2019, student

enrollment was 1.5 million for private and 1.6 million for public institutions. Through
the Quality Tertiary Education Act, public university tuition is free.
 There is a strong presence of international schools in major cities such as
Manila, Cebu, and Davao. In Manila, there are more than ten popular schools:
Brent International School, British School of Manila, Chinese International School
Manila, Domuschola International School, International School of Manila, The
King’s School Manila, Multiple Intelligence International School, Reedley
International School, Korean International School Philippines, The Beacon School,
Faith Academy, Australian International School, and Southville International
School and Colleges. These international schools offer both International
Baccalaureate (IB) and Advanced Placement (AP) programs, with annual tuition
fees ranging from $13,000 to $15,000.
 Most Filipino students studying abroad are from the local private education
network. This network is composed of 18,350 schools. The Coordinating Council of
Private Educational Associations (COCOPEA) is the umbrella organization of all
private schools in the Philippines. The Association consists of the Philippine
Association of Colleges and Universities (PACU); the Philippine Accrediting
Association of Schools, Colleges, and Universities (PAASCU); Association of
Christian Schools, Colleges, and Universities (ACSCU); Catholic Education
Association of the Philippines (CEAP); and Technical Vocational Schools
Association of the Philippines (TVSA).
The U.S. Embassy in the Philippines and CHED signed a Joint Statement on
Higher Education Cooperation in 2019 to increase collaboration in institutional
linkages, capacity building, and developing government/industry/academic ties.
 The joint statement recognizes the growing market, the possible economic
rebound after the pandemic, and the transition to a K-12 system to allow more
middle-class students to have the option of studying abroad.

SUB-SECTORS
 Community college programs and boarding schools: Continues to be a niche
market. Most Filipino families prefer direct university entry.
 Higher education (undergraduate and graduate): According to the IIE Open
Doors Report, there were 3,295 Filipino students enrolled in the United States
for the 2019-2020 academic year, including 1,753 pursuing undergraduate
degrees, 1,007 seeking graduate degrees, 444 pursuing Optional Practical
Training (OPT), and 91 in other programs. The states with the highest number of
Filipino students are California, New York, Texas, Massachusetts, Maryland,
 Hawaii, Florida, Pennsylvania, and New Jersey. This mirrors locations with the
largest Filipino communities in the U.S., as community and family support networks
are determining factors in where Filipino students choose to study. With over 50%
of the population aged 24 and younger, there will be a surge of youth positioned to
enter higher education institutions.

 Online programs and education technology: The pandemic has sparked demand for
online
programs and education technology tools across all academic levels for distance
learning. However, this educational model shift has experienced challenges,
primarily due to the lagging Philippine Internet connectivity. Speedtest Global Index
documents Philippine mobile Internet speed at 14.24 Mbps (global average is 30
Mbps) and fixed broadband speed at 23.80 Mbps (global average is 74.64 Mbps).
For many years, the Philippines’ Internet speed ranked lower than Syria and was
the slowest in Asia. Cellular coverage is spotty at best due to a long-lasting
duopoly between two major players that has not encouraged investment in the
sector. The nation of 109 million people and 7,000 islands has only 20,000 cellular
towers.
 Research and development: Research and development opportunities lie in
academic programs relevant to the government priority disciplines of science,
maritime, medicine, health, engineering and technology, agriculture, teacher
education, hospitality, and architecture and town planning. Private and public
institutions welcome partnership opportunities for research and accommodate
visiting fellows and professors for knowledge exchange programs and capacity
building.
 Professional training services: The majority of the Philippine workforce is aged 25
– 54 years
old. There are more than 500,000 Philippine small- and medium-sized enterprises
(SMEs) seeking training to advance their business operations. Several training
centers partner with private and public sector employers to offer technical training
and programs. There is an increased interest in executive education programs
and certificates among Philippine business leaders. The Philippine Business for
Education, a USAID-funded education organization, and several others urge the
government to create a national plan for workforce competitiveness and skills
development to support its growing economy.
DIGITAL MARKETING STRATEGIES
Filipino students are fascinated by education events promoted via social media. As
a social media capital of the world, Filipinos actively use social media platforms for
a whopping 10 hours per day, seven days per week. The best platforms to reach
the most students are Facebook (75 million active users), Twitter (12 million active
users), and Instagram (10 million active users). YouTube (11 million active users) is
the most popular platform for social video streaming. LinkedIn’s usage (8 million
active users) has also been growing among newly graduated students and young
professionals.
Audit Considerations
A World Bank study assesses the quality of basic education services and the
strength of existing systems used to allocate and manage public education
resources. It tracked public education resources from national and local
governments to a nationally representative sample of elementary schools and
high schools in the Philippines and assessed the availability and quality of key
education inputs. The key findings of the report are as follows:

Teachers
·The availability of teachers in schools has improved as a result of recent teacher
hiring efforts. However, there are signs of growing inefficiency in teacher
deployment because of weaknesses in teacher allocation systems.
·Teacher absenteeism rates in elementary and high schools are generally low
compared to other countries. However, they tend to be high in highly urbanized
cities.

· There have been big improvements in the hiring process but significant delays
still exist.
·Teacher performance on content knowledge assessments is poor and professional
development systems are inadequate.

School infrastructure

· The availability of key facilities has improved but classroom deficits still remain.
·Public infrastructure improvement systems suffer from many problems which result
in poor quality and incomplete classrooms and water and sanitation facilities.
School funding and management
·Schools have only limited discretionary funding to implement their own school
improvement plans.
·While most discretionary funding is provided by the national government, a
significant portion fails to reach schools.
·Schools face difficulties in using public funds because of burdensome management
and reporting requirements.
· Transparency and accountability for fund use is relatively weak at the school level.
· School level accountability through School Governing Councils is generally weak.
·Parental awareness of the existence of School Governing Councils is limited.
However, parents are more aware and participate more actively in Parent Teacher
Associations.
Local government funding
· Local government funding to basic education is relatively low, declining and
unequal.
·Poor record-keeping and reporting makes it difficult to assess the distribution and
effectiveness of local government funding for education.
Equity
·Significant differences in levels of education spending and the quality of the
learning environment exist across regions and provinces.
·Even though urban schools tend to serve wealthier populations, they tend to
perform poorly compared to rural schools.
·Schools serving poorer communities tend to be more resource-constrained than
wealthier schools.
Detailed policy suggestions are provided in the main report for each of the topics
covered. Common policy suggestions include:

· Increase public spending on education.

· Improve allocation of education inputs through better planning.

·Give schools greater authority in planning and resource management decisions and
simplify reporting requirements.

· Improve transparency of fund allocation and resource use across the system.

· Strengthen the role of School Governing Councils and Parent Teacher

Associations.
·Address funding and quality inequalities through improved financing mechanisms
and focused interventions for schools serving disadvantaged groups.
Accounting
The industry’s primary sources of income are – Fees, Subscriptions,
Donations, Grants, etc. A group of persons known as ‘Trustee’ or ‘Governing
Body’ or ‘Executive Committee’ or ‘Board of Management’ organise and manage
it. Day-to-day routine activities are entrusted to a person who is known as
Secretary. Since there are many chances of fraud and embezzlement of the fund
of the Institutions, it becomes essential that the accounts of Institutions should
be drawn properly. Generally, accounts of an educational institution are
maintained under cash-basis of accounting and not under Mercantile-basis of
accounting.
Collection of tuition fees, admission fees, fines, session charges and special
fees— laboratory fees, library fees, sports fees etc. — should be separately
recorded in Collection Register.
Students’ Ledger must be maintained where all these collections should be credited
to the respective students. Students’ Ledger should also include free studentship,
concessions and writing-off irrecoverable fees which are to be sanctioned by higher
authority or Managing Committee etc.

Periodical reconciliation should also be made between the fees collected, fees
outstanding at the beginning and at the end of the period, fees written-off with fees
that should have been collected according to the number of students in different
classes having regard to the number of students enjoying free studentship,
concessions etc.
Audit Trends
Integrated Strategic Planning and Monitoring • Turnaround Strategies (District,
School, Support Services) • Business Intelligence Systems • National Assessments
and Examinations • Data Quality Audits • Organizational Structure Design
(Amalgamation/Rationalization) • Post Provisioning • Business Process Re-
engineering

Covid-19 Pandemic
The COVID-19 pandemic has forced the Philippine education sector not only to
upgrade its capabilities for remote learning, but more importantly, to realize that it
could barely survive without the social, economic, and political problems of the
country being resolved. As it appears, charging head on into a crisis with these
problems as baggage would require Filipino students to take charge of their
education, since their respective families and teachers can only do so much to help
them. However, there is no need to leave these students alone to fend for
themselves. Rather, an opportunity presents itself: to gather students together into
small communities – communities of learning and inquiry – with the help of
technology. With the new strategies being developed and reintroduced, the
direction now seems to point to the possibility of fostering communities of learning
and inquiry through distance education (Spencer, 2020), preferably, using social
media. In the end, it will be noteworthy for future researchers to look into how the
community of inquiry and learning framework can best help students from the
Philippines as well as students from other developing and poor countries to
achieve quality education through technology-assisted interventions.
Assessments:

1.State the nature and background of the specialized industry.

2.What are the relevant statistics, and updates of the specialized industry in the
Philippine setting?
3.Identify the different audit and accounting considerations and trends for the
industry.
4.Look for at least 2-3 audited financial statements of companies under the
specialized industry in the Philippines and list down your observations from audit
report to the financial statements.