Victorian Rorts Reveal The Danger Of University Deregulation

The share price collapse of high-flying private education provider Vocation reminds us of the perils of privatising education.

On its website and Annual Report, Vocation asks us to “be extraordinary”.

“Thousands of people across the country are making their lives better every day with our courses,” the company claims. “They’re getting jobs, being promoted, even changing their careers entirely.” Vocation presents itself as high-quality and resepctable. It boasts none other than John Dawkins, the architect of the Hawke government's university reforms, as the chair of its board.

But the performance of ASX-listed private training provider Vocation in recent weeks has been anything but extraordinary.

After questions were raised by the Victorian government about potential irregularities in its training courses, the share price of the listed company has collapsed. Now the lawyers are circling, and angry investors are calling for the head of high-flying managing director Mark Hutchinson.

What happened at Vocation is still yet to be fully explained; the scandal came to light after some diligent reporting by Fairfax Media’s Joe Aston. But it is clear that the Victorian Department of Education and Early Childhood Development has uncovered potentially serious mismanagement at its wholly-owned subsidiaries Aspin and BAWM.

An audit by the Department discovered lax standards, poor quality training, and a “tick and flick” strategy in which public subsidies were harvested by Vocation, while the training was then sub-contracted out to cheaper third-party providers.

As a result, Vocation has had to forfeit $19.6 million in state government training funding, and BAWM and Aspin will not be allowed to enroll new students.

As the Department of Education and Early Childhood Development told Smart Company’s Cara Walters, “BAWM and Aspin will also no longer accept new students and will be withdrawing from their 2014-16 Victorian Training Guarantee contracts and leaving the market early next year following the ‘teach out’ of continuing students.”

In effect, this means that two of Vocation’s leading training providers have been banned from government-funded training in state of Victoria.

The market reaction was immediate. Vocation’s share price dropped by more than half, and the company has been plunged into crisis.

Vocation is a former darling of the stock market, growing rapidly in recent years by merging and acquiring other private colleges and training providers, including BAWM, Aspin and the Endeavour College of Private Health. With revenue more than doubling to $137 million this financial year, it returned a handsome profit of $36 million, or nearly 26 per cent.

As late as August, its share price was trading above $3, after initial public offering listed at $1.89. Late yesterday they were trading at just 81c.

The company has been forced to release a series of humiliating share market announcements in an attempt to comply with its continuous disclosure obligations. There are also serious questions being asked about whether Hutchinson misled investors in a conference call with brokers on August 21.

The stink at Vocation has exposed some very dodgy dealings in the state’s vocational education and training (VET) sector. For instance, it appears that a former key bureaucrat in the Victorian department named Fred Ritman left his job in the public sector to found a small education IT company, OzSoft.

OzSoft was then acquired by Vocation’s subsidiary BAWM in 2013. At the Department, Ritman was the manager of compliance directly responsible for the funding of private providers like BAWM and Aspin.

Vocation’s profits were in large part driven by a ruthless model of supplier squeeze, in which public subsidies for training were booked as revenue, with courses delivered for less than the subsidy by training subcontractors in a process known as auspicing. As a result, Vocation could grow its bottom line without the need to invest in costly classrooms, libraries and teachers.

It was precisely this practice of auspicing at BAWM that the Department of Education and Early Childhood Development decided to investigate.

The scandal at Vocation will come as no surprise to close observers of training in Victoria. The sector has been in a state of almost constant crisis since the former Labor government of John Brumby decided to deregulate it.

The Brumby reforms were a textbook example of free market fundamentalism. Under Labor, Victoria radically deregulated its VET funding, introducing a voucher system that allowed private training providers to compete against government institutions and TAFEs for state government funding. The reforms were intended to liberalise the sector and allow more flexibility for students wishing to take courses with private training institutions.

What happened? Widespread rorting. As New Matilda reported back in 2012, private providers went on a rampage of dubious enrolments, luring students with offers of iPads and cash bonuses to courses of low quality and poor employment prospects. Between 2008 and 2011, private enrolments in the Victorian VET sector exploded by 300 per cent.

In many cases, the training provided was no more than some desultory classes and a cursory assignment or test. Regulation was lax, and there was little checking of the credentials or quality of those offering the training.

According to the Australian Education Union’s Mary Bluett, some courses were essentially fronts for the purpose of funnelling government training subsidies.

“There was no regulator capable of checking the quality of private providers that moved into the space," she told New Matilda back in 2012. “The Victorian Registration and Qualifications Authority theoretically could do it, but they had no capacity to do it … I'm not going to say all private providers are bad, some of the well-established ones do a good job, but what this system did was encourage fly-by-nighters.”

As prominent policy analyst Leesa Wheelahan of the University of Melbourne wrote, it was “a lesson in how not to reform vocational education”.

If it seems like we’ve seen this before, it’s because we have.

In the go-go years before the global financial crisis, entrepreneur Eddy Groves also conned the share market with his plans for a private childcare revolution. With a high profile and a knack for salesmanship, Groves went on a debt-fueled spending spree, buying up childcare centres across the country.

At the time, the community childcare sector warned that the profits were illusory, and were based on lowering standards and cutting salaries for childcare educators and teachers.

ABC Learning also enjoyed prominent former politicians on its board, such as former Brisbane Lord-Mayor Sallyanne Atkinson. But it was heavily dependent on federal government subsidies for its income, and the books were cooked.

When the ABC house of cards came tumbling down, the federal government was forced to step in, bailing out more than 400 ABC centres to keep them running until the company was put in receivership. The bulk of those centres ended up being bought by charity consortium GoodStart. Groves lost his fortune, but ended up escaping criminal charges.

No prominent ABC figures have been held to account for the huge fraud perpetrated on investors.

Vocation hasn't collapsed, but the similarities between ABC and Vocation are striking. Both companies were helmed by charismatic entrepreneurs seeking to make outsize profits from public education subsidies, in poorly-regulated sectors where services had traditionally been delivered by community centres and public institutions.

The lessons for university reform seem obvious. And yet, the Abbott government is pushing ahead with its plans to deregulate Australia’s university sector, opening it up for competition between public universities and private colleges and training providers.

As New Matilda’s investigation of the secret scholarship given to Frances Abbott by private college the Whitehouse Institute of Design reveals, there are serious questions hanging over the quality of academic standards at the Whitehouse Institute and, by extension, other private colleges and tertiary education providers.

In any system in which the government wants to contract out billions of dollars of taxpayers money for the provision of public services, quality and regulation are key issues. But the Abbott government slashed funding to the tertiary education regulator, TEQSA, in May.

The continuing mess of vocational education and training in Victoria shows that once the deregulation genie is out of the bottle, it can be very hard to protect students and the taxpayer from fly-by-nighters and shady operators intent on making a fast buck.