Some schools have a grade system, on which you have to pass everything. To pass sight reading is obviously then very important, but it's usually not very difficult. I say this as a fellow crappy sigh reader - when it comes more than 2 voices, I'm going down. Also when it's too fast.
Other schools have classes in sight reading, and needs to see where to put you. If you are good, you should obviously not be put with the worst ones.
Most of the schools, in my experience, just check it. At my current school, the teachers had a tremendous difficulty not to laugh when I was finish with my sight reading on the audition. They didn't mention it in the talk afterwards, and my teacher haven't mentioned it in 2 years.
Do some practicing, like has been said, just to get a bit used to it. It's amazing how fast sight reading goes from "Have trouble reading right hand alone" to "Ability to read easy stuff".
Edit: It can also be like, if your pieces aren't the best, but your sight reading is freaking amazing, it might save you. Also the other way around: If your pieces are really well played, they wont care if your sight reading isn't.