High-profit training backfires with dubious business model exposed

Stock market crash draws attention to firms competing with TAFE

Sue Simpson
Research Officer

Training magnate Mark Hutchinson on 'Young Rich List'.

The “surrender” of $19.6 million in government funding by a training provider headed by a Young Rich List entrepreneur reinforces Federation’s call for a pre-election commitment by major parties to restore TAFE’s lost funding and halt the expansion of private providers.

TAFE is publicly accountable through parliament, has a committed workforce and strong reputation. No TAFE bureaucrats are on any Rich Lists; no TAFE colleges risk deregistration by the national regulator nor do TAFE students face revocation of their qualifications, as is the case of unfortunate students registered in failing private companies.

The collapse in the share price of private provider Vocation following a Victorian Department of Education audit into two of its most profitable Victorian subsidiaries, has rung alarm bells in the sector, exposing a business model reliant on government funding and student indebtedness.

The lack of effective regulation, poor moral standards and the lure of quick profits has seen students being enrolled in inappropriate but high-subsidy paying courses and ridiculously short courses without proper assessment.

Taking up the shortfall in rigorous scrutiny of the sector by regulators hampered by inadequate funding, share market analysts are having a closer look at private training companies planning to list on the ASX.

In a media release issued on October 27, Vocation “agreed to surrender” almost $20 million in Victorian government funding. This is more than triple the total amount previously forfeited by companies subject to negative audits in the previous year. The release said the company will “also undertake a series of measures to ensure continuous improvement” in its practices.

Share trade was halted as the value of shares fell 56 per cent in one day and some investors are reported as seeking a class action against the company for failure to disclose the timing and the extent of investigations by the Victorian Department.

Media reports say 2400 students have had their qualifications revoked.

Vocation has been forced to restructure its Victorian operation including “the discontinuation of the use of third party training and assessment providers and an overhaul of the senior management team”. One of its RTOs is no longer an approved provider.

The Victorian Education Department audit revealed poor quality training and assessing by third parties and lack of control over recruitment brokers so that some students were being enrolled in courses attracting greater government subsidies.

Last month, at the same time as the investigation, Vocation’s Chief Executive Mark Hutchinson appeared on the BRW’s Young Rich List at number 81 with an estimated worth of $26 million.

Vocation floated on the ASX last December with a share price of $1.89 before soaring to $3.40. Following revelations of the outcome of the Victorian Department investigations, the share price dropped to 75 cents.

At its launch a year ago, the company had the support of the Big End of town. The company float was underwritten by Macquarie Bank and UBS. Its board chairman is former Labor federal treasurer and federal education minister John Dawkins, the architect of deregulation and competition in tertiary education.

Until the week before the ASX listing of Vocation, Mr Dawkins was still the chair of the National Skills Standards Council (NSSC), the body responsible for the development of national standards for regulation of VET which was, ironically in view of the events that were to unfurl with Vocation, proposing higher standards of regulation.

Mr Dawkins saw no conflict of interest between his role on the NSSC and his role as chair of a company seeking to become one of the largest providers of VET training and compliance administration. His knowledge of the industry has not stopped Vocation from becoming a case study for all that can occur when regulation is inadequate and profit is the main game.

Vocation has big ambitions. According to its Initial Public Offer prospectus (IPO), Vocation aims to be a national rival to state-based TAFE systems — to provide not just enterprise and individual training but also the quality control that comes with the provision of administrative and compliance support to private providers.

Its business model was based firmly on beating TAFE in gaining state and federal competitive tender contracts.

The success of its Victorian RTOs was to be replicated in the other states and territories as governments around Australia opened up more funding to private providers. The rollout of Smart and Skilled in NSW, the largest state, was a key to expansion.

Even higher than Mark Hutchinson on the 2014 Young Rich List are the entrepreneurs behind the Australian Careers Network (ACN), Ivan Brown and Prakash Charan. They are in position numbers 12 and 13.

In two-and-a-half years, they have accumulated a fortune of $177 million, with “a healthy $25.5 million net profit from $50 million revenue in the 2014 financial year” (The Australian Financial Review, October 28). Their company, focused on trades training, is set to list on the ASX later this year.

While there is no suggestion that ACN is in breach of the law, questions must be raised as to whether taxpayer dollars should be used to pump up quick profits. According to the ACN prospectus issued on November 4, 100 per cent of “pro forma revenue” for the 2014 financial year comes from Victorian, NSW and Federal Government funding. The company acknowledges that profit forecasts could fall if the Victorian Labor Party wins this month’s Victorian State election.

Government policy plus a non-unionised workforce of low-paid trainers and assessors; an expansion in online courses; the use of subcontracting to third parties for recruitment of students, delivery and assessment and in particular VET Fee Help loans has been the basis of the expansion in private training providers. VET Fee Help has funded the parasitical growth of “Study now, pay later” advertising lures. The provider gets the government subsidy paid direct whilst the student gets the debt.

The Australian College of Private Education and Training providers (ACPET) has gone into damage control “in response to reports about misleading advertising, delivering poor training and soliciting students for courses for which they are not suited” (ACPET media release, October 28) with a recently held national conference and commitments to “eliminate poor performance”.

Recent reports, however, simply build on what has already been known by the underfunded national regulator, the Australian Skills Quality Authority (ASQA).

In recent Senate Estimates hearings, the head of the underfunded ASQA, Chris Robinson, explained that from next year higher regulatory standards for RTOs will be introduced including a requirement that RTOs be responsible for use of third party recruiters.

“There have been some very unscrupulous practices,” he said. “We will need to do a major blitz on the marketing practices of RTOs when the new standards hit the deck.”

Last financial year 4 per cent of applications for renewal of registration were rejected whilst 12 per cent of applications for a new RTO were rejected. Given “limited” resources, ASQA can only focus on “the most serious complaints”.

“There are still too many of them out there,” said Mr Robinson. “We need to keep going at a faster rate in getting rid of the unscrupulous folk.”

It would be much cheaper simply to support the public provider, TAFE.