To the Hon'ble Minister of Corporate Affairs, Ministry of Education, Our Beloved PM Shri Narendra Modi ji and our state CM Shri Nayab Singh Saini ji,
Education and healthcare are fundamental pillars of a thriving nation, historically regarded as noble services. Yet, behind the "not-for-profit" facade of many private institutions lies a highly corporatized machinery generating massive, untaxed wealth. The systematic financial exploitation of citizens in these sectors has reached a breaking point, and existing financial audits are entirely insufficient to uncover the true scale of the profiteering.
It is time to mandate Cost Audits for the Education Sector, irrespective of turnover, and declare these Cost Audit Reports as public documents. As a practicing Cost Accountant, I see the glaring gaps in how these institutions report their finances. Watching a child navigate the milestone of 10th grade brings the stark financial reality of the education system into sharp focus. Today, an average middle-class parent is forced to surrender 30% to 40%—and in many cases, over 50%—of their hard-earned salary solely to fund school fees and arbitrary institutional charges. The financial mechanics of private schools demand immediate regulatory scrutiny.
The Anatomy of Profiteering in Private Schools
The exploitation of parents is not incidental; it is structurally embedded into the operating model of private schools. The "loot" begins the moment a child steps through the gates for admission and continues relentlessly:
The Admission Goldmine: Even a modest primary school with just 100 students can generate lakhs of rupees purely through non-refundable admission fees, building funds, and developmental charges.
The Book and Uniform Cartel: Schools routinely mandate the purchase of textbooks and uniforms directly from the school or tied-up vendors at Maximum Retail Price (MRP). In reality, these institutions secure these materials from distributors at massive discounts ranging from 50% to 70%. To guarantee this revenue stream, schools deliberately change textbook editions annually, intentionally rendering older books useless.
The Extracurricular Mirage: Parents are billed heavily for "activity fees"—ranging from sports to digital learning. The actual cost incurred by the school to facilitate these activities is a mere fraction of the charging price.
Labour Exploitation for Margin Maximization: While charging premium fees, the core service providers—the teachers—are severely underpaid. It is a widespread practice to hire underqualified staff (such as 12th-standard pass candidates, predominantly young women) for salaries as low as ₹3,000 to ₹10,000 per month. The gap between the premium fees collected and the abysmal wages paid creates an enormous, hidden profit margin.
The Solution: Mandatory, Public Cost Audits
Financial audits (under the Companies Act or Trust Acts) only verify if the money spent matches the receipts. They do not question the efficiency, necessity, or margin of the cost. A rigorous Cost Audit, however, will expose the truth.
Exposing the Margin Per Student: Institutions must be forced to prepare a standardized cost sheet determining the exact cost incurred per capita. By comparing the actual cost of service delivery against the exorbitant fees collected, a cost audit will definitively identify the exact margin per student that a private school is secretly earning, destroying the "not-for-profit" illusion.
Removal of Turnover Thresholds: Profiteering is not limited to mega-institutions. Micro and medium-sized schools are equally complicit. Cost audit applicability in these sectors must be mandatory, regardless of the institution's annual turnover.
Public Transparency: The resulting Cost Audit Report must not be locked away in boardrooms. It must be a public document, accessible to parents, patients, and citizens. If institutions are truly serving the public good, they should have no fear of public financial transparency.
Exposing Bogus "Related Party" Transactions (The Trust Loophole): Many educational institutions operate under a Trust or Society to maintain a "charitable" tax-exempt status. However, the management frequently siphons out profits through related-party transactions. For example, the Trust will lease land, buildings, or IT equipment from a private company owned by the Trustees themselves at vastly inflated, above-market rates. A standard financial audit only checks if the rent was paid; a Cost Audit scrutinizes the "Arm's Length Price" of these transactions, immediately exposing how tax-free school revenue is being legally laundered into the founders' private pockets.
Curbing Unjustified Annual Fee Hikes: Schools routinely enforce an annual fee hike of 10% to 15%, citing generic "inflation" or "teacher salary increments." However, without a cost mechanism, parents have no way of knowing if this is true. A mandatory Cost Audit establishes a direct, mathematical correlation between actual cost escalation and fee escalation. If the teaching staff's total payroll only increased by 4%, the Cost Audit Report will blatantly expose a 15% fee hike as unjustified profiteering rather than operational necessity.
Stopping the "Asset Building" Tax on Current Parents: Schools frequently charge exorbitant, non-refundable "Development Fees" or "Building Funds." Financially, these institutions are forcing current parents to fund the capital expenditure (CapEx) of the Trust's future real estate empire. Cost Accounting principles dictate that current students should only bear the depreciation of the assets they are currently utilizing, not the entire capital cost of a new auditorium or campus wing they may never see completed. Cost Audits will separate capital expenditure from revenue expenditure, stopping the practice of treating parents as interest-free investors.
Preventing Cross-Subsidization and Hidden Cost Centers: Many large private schools bundle services—such as mandatory transportation, expensive canteens, or premium on-campus sports academies. Frequently, the management uses the compulsory tuition fees collected from all students to subsidize commercial ventures (like a horse-riding club or a swimming academy) utilized by only a fraction of the student body. A proper Cost Audit mandates the creation of separate "Cost Centers," ensuring that general tuition fees are spent exclusively on core academics, preventing the cross-subsidization of the management’s pet projects.
Auditing Government Subsidies and EWS Obligations: Countless private schools acquired prime real estate from the government at highly subsidized, throwaway prices on the strict legal condition that they provide free education to the Economically Weaker Sections (EWS). Many schools flout this rule, or manipulate their financial books to claim they are taking a massive loss on EWS students to justify hiking fees for general category students. A Cost Audit will accurately measure the exact financial impact of the EWS quota, ensuring schools are honoring their social contract in exchange for the public subsidies they happily absorbed.
Anticipating Evasion: The "Cashback" Loophole
Critics and school managements will inevitably attempt to game the system. A common tactic is the "ghost salary" model—paying a teacher ₹25,000 formally via bank transfer to inflate expenses on paper, while coercing the teacher to return ₹15,000 in cash.
However, a robust cost audit ecosystem can mitigate this. These practices are inherently traceable through forensic accounting. Furthermore, this creates a volatile environment for the management; disgruntled employees and teachers leaving the institution are highly likely to act as whistleblowers when they realize the disparity between their legal rights and their actual compensation. The fear of exposure alone will act as a significant deterrent.
Call to Action
The commercialization of education and health is hollowing out the middle class. By bringing this sector strictly under the purview of mandatory cost audits, the government can instantly curb black money generation, reduce the financial burden on the common man, and restore integrity to these vital sector.
I urge the concerned ministries to introduce immediate amendments to mandate Cost Records and Cost Audits for all entities operating in Education Sector. Accountability cannot be optional.
Sincerely,
CMA Mohit Sharma
Practicing Cost Accountant
