Auditors have posted a question mark over the viability of the country's largest polytechnic, Unitec, after it reported a $31 million deficit for 2017.

Photo: RNZ / Claire Eastham-Farrelly

The Tertiary Education Commission (TEC) has appointed an adviser to the institute in light of the result, which followed a $24m deficit in 2016.

The institute had expected to make a deficit last year due to major building works, but the 2017 annual report said enrolments fell by about 660 full-time students or 7 percent to 8842 contributing to a result that was about $10 million worse than expected.

The report said Unitec's ongoing income and liquidity were dependent on enrolments and its ability to cut costs, borrow money and sell assets if necessary.

"These matters indicate that a material uncertainty exists that may cast significant doubt on the Group's ability to continue as a going concern," the auditors wrote.

However, the report said the council believed the institute was a going concern and would be able to pay its bills.

Unitec interim chief executive Alastair Carruthers said the auditor's comments were reasonable, but they were warnings of possible threats rather than reality.

"We're talking about the risk of that occurring, but not the reality of it occurring so what it does is put us on notice to the need to address the adverse winds that we along with all other [institutes of technology and polytechnics] are experiencing," he said.

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Mr Carruthers said enrolments had dropped again this year, but the institute would try to attract more students in the second half of the year.

He said Unitec would struggle to make a surplus in light of the falling student numbers, but it would be able to cope with another deficit.

"We're working very closely with TEC, we do have a really good facility and a great relationship with our bank and we have got plenty of assets still on our balance sheet that can be used to help us trade through," he said.

Mr Carruthers said Unitec was cutting costs by not replacing staff who left and stopping most of its capital works. It had also cancelled last year's staff bonuses and had begun significant cost and structural changes.

He said the institute was pausing its redevelopment to figure out how big it needed to be, but in the current environment it did not expect to return to its former size of more than 10,000 full-time students.

Mr Carruthers said Unitec had no debt thanks to the sale of land for a government housing redevelopment in April this year. The annual report valued that land at $138 million. It also noted that delays in agreeing the sale resulted in the institute breaking a loan covenant, which meant the institute's bank could have requested immediate repayment of a $108 million loan.

The 2017 deficit and appointment of an official advisor are the latest in a string of difficulties for Unitec.

Staff have been critical of reforms at the institute and a 2016 survey revealed extremely poor morale. That year the Qualifications Authority downgraded Unitec's quality rating from a one to a two on its four-point scale and the institute went on to record a $24m deficit after an 8.5 percent drop in enrolments.

Last year, the institute took student enrolments back in-house a year after it out-sourced them to a private company and at the end of 2017 then-chief executive Rick Ede left his job one year earlier than his contract was due to end.

However, the institute was not alone in having problems.

Seven other institutes of technology and polytechnics reported deficits for 2017 and a ninth, Tai Poutini on the West Coast, which was being propped up by a government bail-out, was expected to do the same.

Earlier this year the government warned that institutes of technology and polytechnics were struggling and began work on a new structure to make the sector less vulnerable to swings in student enrolments.