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Type: Financial statement audit
Report number: 22 of 2024-25
Portfolios: Across Entities
Entities: Across Entities
Date tabled:
Audit Summary : show
Executive summary
The Australian National Audit Office (ANAO) publishes an annual audit work program (AAWP) which reflects the audit strategy and deliverables for the forward year. The purpose of the AAWP is to inform the Parliament, the public, and government sector entities of the planned audit coverage for the Australian Government sector by way of financial statements audits, performance audits, performance statements audits and other assurance activities. As set out in the AAWP, the ANAO prepares two reports annually that, drawing on information collected during financial statements audits, provide insights at a point in time of financial statements risks, governance arrangements and internal control frameworks of Commonwealth entities. These reports provide Parliament with an independent examination of the financial accounting and reporting of public sector entities.
These reports explain how entities’ internal control frameworks are critical to executing an efficient and effective audit and underpin an entity’s capacity to transparently discharge its duties and obligations under the Public Governance, Performance and Accountability Act 2013 (PGPA Act). Deficiencies identified during audits that pose either a significant or moderate risk to an entity’s ability to prepare financial statements free from material misstatement are reported.
This report presents the final results of the 2023–24 audits of the Australian Government’s Consolidated Financial Statements (CFS) and 245 Australian Government entities. The Auditor-General Report No. 42 2023–24 Interim Report on Key Financial Controls of Major Entities, focused on the interim results of the audits of 27 of these entities.
Consolidated financial statements
Audit results
1. The CFS presents the whole of government and the General Government Sector financial statements. The 2023–24 CFS were signed by the Minister for Finance on 28 November 2024 and an unmodified auditor’s report was issued on 2 December 2024.
2. There were no significant or moderate audit issues identified in the audit of the CFS in 2023–24 or 2022–23.
Australian Government financial position
3. The Australian Government reported a net operating balance of a surplus of $10.0 billion ($24.9 billion surplus in 2022–23). The Australian Government’s net worth deficiency decreased from $570.3 billion in 2022–23 to $567.5 billion in 2023–24 (see paragraphs 1.8 to 1.26).
Financial audit results and other matters
Quality and timeliness of financial statements preparation
4. The ANAO issued 240 unmodified auditor’s reports as at 9 December 2024. The financial statements were finalised and auditor’s reports issued for 79 per cent (2022–23: 91 per cent) of entities within three months of financial year-end. The decrease in timeliness of auditor’s reports reflects an increase in the number of audit findings and legislative breaches identified by the ANAO, as well as limitations on the available resources within the ANAO in order to undertake additional audit procedures in response to these findings
5. A quality financial statements preparation process will reduce the risk of inaccurate or unreliable reporting. Seventy-one per cent of entities delivered financial statements in line with an agreed timetable (2022–23: 72 per cent). The total number of adjusted and unadjusted audit differences decreased during 2023–24, although 38 per cent of audit differences remained unadjusted. The quantity and value of adjusted and unadjusted audit differences indicate there remains an opportunity for entities to improve quality assurance over financial statements preparation processes (see paragraphs 2.138 to 2.154).
Timeliness of financial reporting
6. Annual reports that are not tabled in a timely manner before budget supplementary estimates hearings decrease the opportunity for the Senate to scrutinise an entity’s performance. Timeliness of tabling of entity annual reports improved. Ninety-three per cent (2022–23: 66 per cent) of entities that are required to table an annual report in Parliament tabled prior to the date that the portfolio’s supplementary budget estimates hearing commenced. Supplementary estimates hearings were held one week later in 2023–24 than in 2022–23. Fifty-seven per cent of entities tabled annual reports one week or more before the hearing (2022–23: 12 per cent). Of the entities required to table an annual report, 4 per cent (2022–23: 6 per cent) had not tabled an annual report as at 9 December 2024 (see paragraphs 2.155 to 2.166).
Official hospitality
7. Eighty-one per cent of entities permit the provision of hospitality and the majority have policies, procedures or guidance in place. Expenditure on the provision of hospitality for the period 2020–21 to 2023–24 was $70.0 million. Official hospitality involves the provision of public resources to persons other than officials of an entity to achieve the entity’s objectives. Entities that provide official hospitality should have policies, and guidance in place which clearly set expectations for officials. There are no mandatory requirements for entities in managing the provision of hospitality, however, the Department of Finance (Finance) does provide some guidance to entities in model accountable authority instructions. Of those entities that permit hospitality 83 per cent have established formal policies, guidelines or processes.
8. Entities with higher levels of exposure to the provision of official hospitality could give further consideration to implementing or enhancing compliance and reporting arrangements. Seventy-four per cent of entities included compliance requirements in their policies, procedures or guidance which support entity’s obtaining assurance over the conduct of official hospitality. Compliance processes included acquittals, formal reporting, attestations from officials and/or periodic internal audits. Thirty-one per cent of entities had established formal reporting on provision of official hospitality within their entities (see paragraphs 2.36 to 2.56).
Artificial intelligence
9. Fifty-six entities used artificial intelligence (AI) in their operations during 2023–24 (2022–23: 27 entities). Most of these entities had adopted AI for research and development activities, IT systems administration and data and reporting.
10. During 2023–24, 64 per cent of entities that used AI had also established internal policies governing the use of AI (2022–23: 44 per cent). Twenty-seven per cent of entities had established internal policies regarding assurance over AI use. An absence of governance frameworks for managing the use of emerging technologies could increase the risk of unintended consequences. In September 2024, the Digital Transformation Agency (DTA) released the Policy for the responsible use of AI in government, which establishes requirements for accountability and transparency on the use of AI within entities (see paragraphs 2.67 to 2.71).
Cloud computing
11. Assurance over effectiveness of cloud computing arrangements (CCA) could be improved. During 2023–24, 89 per cent of entities used CCAs as part of the delivery model for the IT environment, primarily software-as-a-service (SaaS) arrangements. A Service Organisation Controls (SOC) certificate provides assurance over the implementation, design and operating effectiveness of controls included in contracts, including security, privacy, process integrity and availability. Eighty-two per cent of entities did not have in place a formal policy or procedure which would require the formal review and consideration of a SOC certificate.
12. In the absence of a formal process for obtaining and reviewing SOC certificates, there is a risk that deficiencies in controls at a service provider are not identified, mitigated or addressed in a timely manner (see paragraphs 2.57 to 2.66).
Audit committee member rotation
13. Audit committee member rotation considerations could be enhanced. The rotation of audit committee membership is not mandated, though guidance to the sector indicates that rotation of members allows for a flow of new skills and talent through committees, supporting objectivity. Forty-six per cent of entities did not have a policy requirement for audit committee member rotation.
14. Entities could enhance the effectiveness of their audit committees by adopting a formal process for rotation of audit committee membership, which balances the need for continuity and objectivity of membership (see paragraphs 2.16 to 2.21).
Fraud framework requirements
15. The Commonwealth Fraud Control Framework 2017 encourages entities to conduct fraud risk assessments at least every two years and entities responsible for activities with a high fraud risk may assess risk more frequently. All entities had in place a fraud control plan. Ninety-seven per cent of entities had conducted a fraud risk assessment within the last two years. Changes to the framework which occurred on 1 July 2024 requires entities to expand plans to take account of preventing, detecting and dealing with corruption, as well as periodically examining the effectiveness of internal controls (see paragraphs 2.16 to 2.21).
Summary of audit findings
16. Internal controls largely supported the preparation of financial statements free from material misstatement. However, the number of audit findings identified by the ANAO has increased from 2023–24. A total of 214 audit findings and legislative breaches were reported to entities as a result of the 2023–24 financial statements audits. These comprised six significant, 46 moderate, 147 minor audit findings and 15 legislative breaches. The highest number of findings are in the categories of:
- IT control environment, including security, change management and user access;
- compliance and quality assurance frameworks, including legal conformance; and
- accounting and control of non-financial assets.
17. IT controls remain a key issue. Forty-three per cent of all audit findings identified by the ANAO related to the IT control environment, particularly IT security. Weaknesses in controls in this area can expose entities to an increased risk of unauthorised access to systems and data, or data leakage. The number of IT findings identified by the ANAO indicate that there remains room for improvement across the sector to enhance governance processes supporting the design, implementation and operating effectiveness of controls.
18. These audits findings included four significant legislative breaches, one of which was first identified since 2012–13. The majority (53 per cent) of other legislative breaches relate to incorrect payments of remuneration to key management personnel and/or non-compliance with determinations made by the Remuneration Tribunal. Entities could take further steps to enhance governance supporting remuneration to prevent non-compliance or incorrect payments from occurring (see paragraphs 2.72 to 2.137).
Financial sustainability
19. An assessment of an entity’s financial sustainability can provide an indication of financial management issues or signal a risk that the entity will require additional or refocused funding. The ANAO’s analysis concluded that the financial sustainability of the majority of entities was not at risk (see paragraphs 2.167 to 2.196).
Reporting and auditing frameworks
Changes to the Australian public sector reporting framework
20. The development of a climate-related reporting framework and assurance regime in Australia continues to progress. ANAO consultation with Finance to establish an assurance and verification regime for the Commonwealth Climate Disclosure (CCD) reform is ongoing (see paragraphs 3.20 to 3.24).
21. Emerging technologies (including AI) present opportunities for innovation and efficiency in operations by entities. However, rapid developments and associated risks highlight the need for Accountable Authorities to implement effective governance arrangements when adopting these technologies. The ANAO is incorporating consideration of risks relating to the use of emerging technologies, including AI, into audit planning processes to provide Parliament with assurance regarding the use of AI by the Australian Government (see paragraphs 3.25 to 3.33).
22. The ANAO Audit Quality Report 2023–24 was published on 1 November 2024. The report demonstrates the evaluation of the design, implementation and operating effectiveness of the ANAO’s Quality Management Framework and achievement of ANAO quality objectives (see paragraphs 3.34 to 3.39).
23. The ANAO Integrity Report 2023–24 and the ANAO Integrity Framework 2024–25 were also published on 1 November 2024 to provide transparency of the measures undertaken to maintain a high integrity culture within the ANAO (see paragraphs 3.44 to 3.46).
Cost of this report
24. The cost to the ANAO of producing this report is approximately $445,000.
Type: Performance audit
Report number: 17 of 2024-25
Portfolios: Prime Minister and Cabinet
Entities: Aboriginal Hostels Limited; Aboriginal Investment NT; Outback Stores Pty Ltd
Date tabled:
Audit Summary : show
Summary and recommendations
Background
1. The National Anti-Corruption Commission’s (NACC’s) 2022/2023 Integrity Outlook states:
Conflicts of interest are also a prevalent source of corruption issues. Many types of corrupt conduct – such as breaches of public trust, abuse of office and misuse of information – originate from conflicts of interest. Such conflicts therefore pose a substantial risk for government agencies, parliamentarians, and public officials. This is why identifying, disclosing and managing potential conflicts of interest is a critical pillar of integrity architectures.1
2. The Public Governance, Performance and Accountability Act 2013 (PGPA Act) requires an official of a corporate Commonwealth entity (CCE) to:
- not improperly use their position or information obtained through their position to gain or seek to gain a benefit or advantage for themselves or others, or to cause detriment to the entity, Commonwealth or others2; and
- disclose the details of any material personal interests that relate to the affairs of the entity.3
3. The Public Governance, Performance and Accountability Rule 2014 (PGPA Rule) provides further guidance for CCE officials, including that material personal interests must be disclosed as soon as practicable after becoming aware of them or when there are changes in the interests. The disclosure must include details of the nature and extent of the interest and how the interest relates to the affairs of the entity.4
4. The Corporations Act 2001 (Corporations Act) sets out comparable requirements for Commonwealth companies, including a ‘Director’s duty to notify other directors of [a] material personal interest when [a] conflict arises’, including outlining details of the nature and extent of the interest and how it relates to the affairs of the company. The notice must be given at a directors’ meeting as soon as practicable after the director becomes aware of their interest in the matter and details must be recorded in the minutes of the meeting.5
Rationale for undertaking the audit
5. Public confidence in Commonwealth entities and Commonwealth companies can be damaged when conflicts of interest are not appropriately identified and managed. The public is entitled to have confidence in the integrity of public officials, and to know that officials’ personal interests do not conflict with their public duties.
6. Specialist skills and expertise may be required to provide a suitable composition for Commonwealth boards. The board members that are appointed to boards in respect of their specialist skills or expertise can have inherent interests that exist as a consequence of their specialist experience. For example, they may be involved in industry associations or have duties to other organisations. These interests can conflict with their duties as a board member.
7. The NACC and the Australian Public Service Commission (APSC) have highlighted functions commonly undertaken by Australian Government entities that have a heightened risk of conflicts of interest, including procurement, recruitment and grant activities.6
8. This audit was conducted to provide assurance to the Parliament that the selected entities are ensuring the integrity of their functions by appropriately managing conflicts of interest.
9. The selected entities represent a cross section of Indigenous portfolio agencies in the Prime Minister and Cabinet portfolio, each with a board as its accountable authority under the PGPA Act:
- Aboriginal Hostels Limited (AHL) is a Commonwealth company which employs staff under the Public Service Act 1999;
- Aboriginal Investment NT (known prior to August 2024 as the Northern Territory Aboriginal Investment Corporation) is a CCE; and
- Outback Stores Pty Ltd (Outback Stores) is a Commonwealth company.
Audit objective and criteria
10. The objective of the audit was to assess the effectiveness of the management of conflicts of interest by AHL, Aboriginal Investment NT and Outback Stores.
11. To form a conclusion against the objective, the ANAO adopted the following two high-level audit criteria:
- Have the entities developed appropriate arrangements to manage conflicts of interest?
- Are the entities effectively managing conflicts of interest consistent with their own policies?
12. The audit examined the entities’ management of conflicts of interest over the period 1 July 2021 to 30 June 2024, including in the areas of board governance, recruitment, procurement, annual Senior Executive Service declarations (AHL) and grant management (Aboriginal Investment NT).
Conclusion
13. AHL, Aboriginal Investment NT and Outback Stores were partly effective in the management of conflicts of interest. While there were frameworks in place to manage conflicts of interest, there were shortcomings with the implementation of those frameworks. There were deficiencies with the documentation of board consideration of conflicts and documentation of conflicts of interest declarations and management actions for procurement, recruitment and grant activity.
14. AHL, Aboriginal Investment NT and Outback Stores have developed largely appropriate arrangements to manage conflict of interest consistent with legislative requirements of corporate Commonwealth entities (Aboriginal Investment NT) and Commonwealth companies (AHL and Outback Stores). Each entity has assessed conflict of interest risks, developed a conflict of interest policy and implemented arrangements to support the declaration of interests by board members. AHL and Aboriginal Investment NT require activity specific conflict of interest declarations for staff involved in procurement and recruitment. Aboriginal Investment NT and Outback Stores implemented conflict of interest training for their boards and employees in 2024. AHL requires employees to undertake integrity training but has not implemented training for board members. All entities have implemented some form of assurance arrangement. AHL did not address alleged conflict of interest matters that were identified in three complaints, and Outback Stores did not have a complaints system or undertake controls assessment.
15. The entities were partly effective in implementing arrangements for managing conflicts of interest. Board assessments of declarations of interest were not sufficient to record whether the board had determined declarations to be material personal interests. Aboriginal Investment NT’s board did not include declarations of interests in three out of session meetings and a workshop and did not always record the nature and extent of declared conflicts. There were instances of Aboriginal Investment NT Grants Committee members with declared conflicts of interest recommending grant applications for board approval. AHL did not adequately document conflict of interest management for recruitment as required by its policy. Aboriginal Investment NT did not adequately document conflict of interest management for procurement as required by its policy. The Outback Stores board recorded board members’ interests as conflicts of interest without documenting its assessment of the interests. AHL did not monitor training completion rates.
Supporting findings
Arrangements to manage conflicts of interest
16. All entities assessed conflict of interest risks within their enterprise risk management frameworks. Aboriginal Investment NT’s and Outback Stores’ conflict of interest risk assessments occurred between April and June 2024.
- AHL had a conflict of interest related risk factor and control for recruitment in its enterprise risk register until March 2023. AHL assessed conflict of interest risks relating to ‘leakage’ of hostel accommodation revenue, procurement, and acceptance of gifts and benefits in its fraud risk register. Not all existing controls for conflict of interest were identified in these assessments.
- From April to June 2024 Aboriginal Investment NT assessed conflict of interest risks relating to procurement, recruitment and grant assessment. These assessments were undertaken after conflict of interest risks had been realised with its first grant round, which ran from May 2023 to February 2024.
- Outback Stores included an entity-wide conflict of interest risk in its risk register in May 2024 with mitigation strategies including development of a conflict of interest policy, declaration processes, and training and education arrangements. (see paragraphs 2.3 to 2.17)
17. All entities have developed arrangements for declaring, managing and overseeing conflicts of interest, including establishing gifts, benefits and hospitality policies and registers. All entities refreshed conflict of interest-related policies and procedures during 2024.
- AHL had a conflict of interest policy and specific arrangements for managing conflict of interest for recruitment. AHL’s procurement policy was updated in April 2024 to include a requirement for activity specific conflict of interest declarations.
- In May 2024 Aboriginal Investment NT implemented a conflict of interest policy and introduced declaration requirements for recruitment. After conflict of interest issues were identified with its first grant round, which ran from May 2023 to February 2024, it updated its policies, guidelines and forms to strengthen declaration and management requirements.
- Outback Stores implemented a conflict of interest policy in June 2024. Its Board Charter does not fully align with provisions of the Corporations Act relating to declaration of interests. (see paragraphs 2.18 to 2.81)
18. All entities have developed training and education arrangements to promote compliance with conflict of interest requirements. Board members for all entities are provided with induction packs that outline conflict of interest requirements. Aboriginal Investment NT and Outback Stores developed online conflict of interest training for employees and board members in 2024. New and existing AHL employees undertake mandatory APS integrity training. The National Indigenous Australians Agency provides support to Indigenous portfolio agencies in the Prime Minister and Cabinet portfolio. (see paragraphs 2.82 to 2.104)
19. All entities implemented some form of arrangement to obtain assurance over the management of conflicts of interest.
- AHL undertook internal audits which detected deficiencies in its conflicts of interest arrangements for recruitment and complaints management. AHL has a complaints system, but it did not consider conflict of interest-related aspects of three complaints in accordance with its Conflict of Interest Policy.
- Aboriginal Investment NT has implemented a complaints system and undertook an internal audit in 2024 which detected deficiencies in its conflicts of interest arrangements for grants assessment.
- Outback Stores undertook an internal audit in 2024 that assessed compliance with its June 2024 Conflict of Interest Policy. It did not have a complaints system or undertake controls assessment. (see paragraphs 2.105 to 2.127)
Effectiveness of conflict of interest arrangements
20. Each entities’ board had processes for members to declare interests and conflicts of interests. All of the boards were deficient in recording their assessment of board members’ declared interests and whether they were considered to be material personal interests. Deficiencies were also identified with activity-specific processes for declaring and managing conflicts of interest relating to recruitment (all entities), procurement (all entities), SES declarations (AHL), and grant assessment (Aboriginal Investment NT).
- AHL did not record its assessment of whether a board member’s declared interest as a conflict and no management plan was put in place. AHL complied with the requirement for annual declaration of SES interests, but record keeping was deficient. While conflicts of interest for AHL’s recruitment activities were generally declared consistent with its policy, management of conflicts were not always documented. AHL’s procurement processes were largely consistent with policy requirements.
- Aboriginal Investment NT had three out of session board meetings and one board workshop where the standard declaration of interests agenda item did not occur. Aboriginal Investment NT did not always document the nature and extent of conflicts of interest declared by board members and grants committee members, and in some instances grants committee members with declared conflicts voted to recommend board approval of grant applications. Aboriginal Investment NT did not follow its procurement policy requirements for activity-specific conflict of interest declarations.
- Outback Stores recorded board member’s declared interests as ‘conflicts of interest’ without documenting how it related to the affairs of the entity or management plans. It did not have any declared conflicts of interest for procurement and recruitment activity. (see paragraphs 3.3 to 3.50)
21. Aboriginal Investment NT and Outback Stores established monitoring arrangements for their conflict of interest training, which was implemented in 2024, and achieved employee completion rates of over 90 per cent. AHL does not monitor employee completion rates for mandatory integrity training or conflicts of interest components of induction training. (see paragraphs 3.51 to 3.59)
Recommendations
Recommendation no. 1
Paragraph 2.11
Aboriginal Hostels Limited undertake an assessment of drivers behind employee responses to the corrupt behaviour question in the Australian Public Service Employee Census and use this assessment to reassess the entity’s conflict of interest risks.
Aboriginal Hostels Limited response: Agreed.
Recommendation no. 2
Paragraph 2.112
Aboriginal Hostels Limited establish processes to ensure that conflict of interest matters are addressed and documented in complaint management.
Aboriginal Hostels Limited response: Agreed.
Recommendation no. 3
Paragraph 3.17
Aboriginal Hostels Limited establish processes to ensure that employees comply with its recruitment policy requirements to declare, manage and document conflicts of interest.
Aboriginal Hostels Limited response: Agreed.
Recommendation no. 4
Paragraph 3.30
Aboriginal Investment NT establish processes to ensure employees comply with its procurement policy requirements to declare, manage and document conflicts of interest.
Aboriginal Investment NT response: Agreed.
Recommendation no. 5
Paragraph 3.41
Aboriginal Hostels Limited, Aboriginal Investment NT and Outback Stores implement arrangements to record their boards’ assessment of whether a declaration made by a board member is determined to be a material personal interest. Where the interest is determined to be a material personal interest, boards should record the disclosure and consequence in accordance with legislative requirements.
Aboriginal Hostels Limited response: Agreed.
Aboriginal Investment NT response: Agreed.
Outback Stores response: Agreed.
Summary of entity responses
22. The proposed audit report was provided to AHL, Aboriginal Investment NT and Outback Stores. An extract was provided to the National Indigenous Australians Agency (NIAA). The summary responses are reproduced below. The full responses from each entity are at Appendix 1. Improvements observed by the ANAO during the course of this audit are listed in Appendix 2.
Aboriginal Hostels Limited
AHL acknowledges the findings in the report, gratefully accepts its recommendations and will take appropriate action to strengthen areas relating to the implementation of our established frameworks for managing conflicts of interest.
I would like to thank the ANAO audit team for their professional and collaborative approach throughout this process.
Aboriginal Investment NT
We welcome the report and accept its recommendations. As a newly established corporate Commonwealth entity, ensuring trust and confidence in our arrangements through the highest integrity standards is vital. We are committed to ensuring that appropriate control and procedural arrangements are implemented as our organisation continues to grow and mature. We have already undertaken steps to implement the recommendations and have planned for an internal audit to follow up on their implementation. This internal audit has been scheduled in our 2024–25 Strategic Internal Audit Program.
Outback Stores Pty Ltd
Thank you for your correspondence of 28 October 2024 regarding the proposed report under s.19 of the Auditor–General Act 1997 on the management of conflicts of interest.
Outback Stores acknowledges the importance of the audit in providing assurance to the Parliament over the effectiveness of the management of conflicts of interest. Further, the broader public are entitled to have confidence in officials of all Indigenous portfolio bodies in the integrity of these agencies.
Outback Stores accept the key findings, recommendations and opportunities for improvement outlined in the report, with alignment to the sole recommendation complete.
Key messages from this audit for all Australian Government entities
23. Below is a summary of key messages, including instances of good practice, which have been identified in this audit and may be relevant for the operations of other Australian Government entities.
Group title
Governance and risk management
Key learning reference
Group title
Grants and procurement
Key learning reference
Type: Performance audit
Report number: 14 of 2024-25
Portfolios: Prime Minister and Cabinet
Entities: Indigenous Business Australia; National Indigenous Australians Agency
Date tabled:
Audit Summary : show
Summary
Background
1. Indigenous Business Australia (IBA) is a corporate Commonwealth entity established under the Aboriginal and Torres Strait Islander Act 2005. IBA’s purpose includes to enhance Aboriginal and Torres Strait Islander self-management and economic self-sufficiency.1 The National Indigenous Australians Agency (NIAA) is a non-corporate Commonwealth entity established as an executive agency in 2019. It is the lead Australian Government agency for Aboriginal and Torres Strait Islander policies and programs. NIAA’s purpose includes advancing a whole-of-government approach to improving the lives of Aboriginal and Torres Strait Islander people.2
2. Parliamentary committee and Auditor-General reports identify risks to the successful delivery of government outcomes and provide recommendations to address them. Where a parliamentary committee has made policy recommendations, the responsible minister is required to prepare and table a government response in the Parliament. The Auditor-General provides independent assurance as to whether the Executive government is operating and accounting for its performance in accordance with the Parliament’s intent. Auditor-General reports, which include audited entities’ responses to recommendations, are tabled in the Parliament. The tabling in the Parliament of an agreed response to parliamentary committee or Auditor-General recommendations is a formal commitment by the government or an entity to implement the recommended actions.
3. Successful implementation of agreed3 recommendations by Australian government entities requires effective governance arrangements to respond to, monitor and implement recommendations, with fit-for-purpose and proportionate implementation planning that sets clear responsibilities and timeframes for delivering the agreed actions.
4. The ANAO undertakes audits of implementation of recommendations made by parliamentary committees and the Auditor-General.4
Rationale for undertaking the audit
5. Parliamentary committee and Auditor-General reports have identified risks to and shortcomings in the successful delivery of outcomes in the Indigenous affairs portfolio. Recommendations have specified actions aimed at addressing those risks and identified opportunities for improving public administration. Implementation of agreed recommendations delivers on a formal commitment to the Parliament and is an important part of realising the full benefit of a parliamentary inquiry or audit. Appropriate and timely implementation of agreed recommendations demonstrates accountability to the Parliament and a commitment to improving public administration.
6. This audit provides assurance to the Parliament about whether recommendations directed to IBA and NIAA are being implemented as agreed.
Audit objective and criteria
7. The audit objective was to examine whether the selected entities have implemented a selection of agreed parliamentary committee and Auditor-General recommendations.
8. To form a conclusion against the objective, the following high-level criteria were adopted.
- Do IBA and NIAA have fit-for-purpose arrangements to respond to, monitor and implement agreed recommendations?
- Did IBA and NIAA respond to and implement agreed recommendations effectively?
9. To allow sufficient time for implementation, the ANAO examined implementation of agreed recommendations made between January 2020 and December 2022. The 25 recommendations examined comprised 10 recommendations from three parliamentary committee reports, and 15 recommendations from four Auditor-General reports.
Conclusion
10. As at August 2024, IBA had largely implemented the agreed recommendations examined in this audit, and NIAA had partly implemented the agreed recommendations. Implementation was not supported by robust governance arrangements in either entity, although arrangements matured during the course of the audit.
11. IBA’s arrangements to respond to, implement and monitor agreed parliamentary committee and Auditor-General recommendations are largely fit for purpose. IBA documented practices for managing recommendations in 2024. As at August 2024, these practices were not fully implemented as IBA was not subject to any parliamentary committee recommendations. NIAA’s arrangements to respond to parliamentary committee and Auditor-General recommendations are partly fit for purpose. NIAA documented practices for managing recommendations in 2024. These included new practices for managing parliamentary committee recommendations. As at August 2024, these practices were not fully implemented. The practices have the potential to be fit for purpose.
12. NIAA’s advice to government on how to respond to parliamentary committee recommendations was partly effective. IBA fully implemented three of the four agreed Auditor-General recommendations and largely implemented the remaining one. NIAA fully implemented six of 21 agreed parliamentary committee and Auditor-General recommendations and largely implemented one. Implementation of the remaining 14 NIAA recommendations was either partial (seven) or ongoing as at August 2024 (seven).
Supporting findings
Arrangements for managing agreed recommendations
13. IBA documented practices to respond to, implement, monitor and close agreed parliamentary committee recommendations in April 2024. These practices include implementation planning that covers roles and responsibilities, timeframes and risk. As at August 2024, these practices had not been implemented as IBA had no active parliamentary recommendations. NIAA documented practices to identify and respond to parliamentary committee recommendations in September 2023. NIAA does not monitor compliance with required timeframes for responding to parliamentary committee recommendations, and practices could be improved to promote better timeliness. NIAA documented practices to implement, monitor and close agreed parliamentary committee recommendations in August 2024. This followed commitments made to the Executive Board, Audit and Risk Committee and the Parliament to clarify and improve practices. As at August 2024, NIAA’s practices documented in August 2024 have not been implemented. (See paragraphs 2.4 to 2.39)
14. IBA and NIAA have established practices to respond to, implement, monitor and close agreed Auditor-General recommendations, including reporting to audit and risk committees and providing implementation updates to accountable authorities. IBA’s management practices for Auditor-General recommendations were documented and strengthened to include implementation planning in April 2024. IBA’s practices could be improved to clarify the role of the IBA Board in approving responses to recommendations. NIAA’s practices were documented in August 2024. This included formalising practices for implementation planning established in October 2023, requiring reporting to the Executive Board on implementation and closure, and improving closure practices to support the Audit and Risk Committee to fulfil its assurance function. (See paragraphs 2.40 to 2.63)
Implementation of agreed recommendations
15. IBA was not the subject of parliamentary committee recommendations in the timeframe examined in this audit. NIAA was responsible for coordinating the government response to two parliamentary committee reports examined in this audit. NIAA did not provide draft responses and associated advice in sufficient time to enable government to table responses in the timeframes set by the Parliament. Draft responses prepared by NIAA were consistent with relevant Australian Government guidelines, except that responses to disagreed recommendations did not always clearly state why the recommendation was not accepted. Advice to the Minister for Indigenous Australians (the minister) for recommendations that were accepted did not always include implementation details; risks or sensitivities; or a timeframe. In October 2022, the minister requested more information on outstanding responses to parliamentary committee reports, which was not provided. In April 2024, NIAA recommended to the minister that a ‘standard response’ be made to 39 recommendations in 10 outstanding parliamentary reports dating back to 2010. The response ‘noted’ the recommendations and stated that, given the passage of time, a substantive response was no longer appropriate. This was in line with correspondence from the government, except that NIAA did not advise the minister on whether or why a different response might be warranted. (See paragraphs 3.5 to 3.21)
16. Implementation planning for the examined recommendations was limited in both entities.
- IBA assigned responsibility and identified implementation actions for all four recommendations. It did not establish timeframes or assign risk ratings.
- NIAA’s implementation planning for 10 parliamentary committee recommendations was partial or not undertaken. NIAA assigned responsibility for all 11 Auditor-General recommendations examined. Other elements of implementation planning were not consistently undertaken. (See paragraphs 3.22 to 3.26)
17. IBA’s monitoring, assurance and closure of the four recommendations improved over the time period examined by the audit. IBA monitored implementation progress for all Auditor-General recommendations. Reporting on some recommendations to the Audit, Risk and Performance Committee was not timely nor complete until the committee requested evidence of implementation in September 2022. After September 2022, IBA prepared closure reports and effectively closed all recommendations.
18. NIAA did not consistently monitor implementation progress for the parliamentary committee recommendations examined in this audit, or report on progress to an oversight or assurance body. NIAA did not formally close the three (of 10) recommendations it considered implemented. NIAA monitored implementation progress for all 11 Auditor-General recommendations examined in this audit, and reported progress to the Audit and Risk Committee. Reporting on some recommendations was not timely. While closure reports were prepared for all 11 recommendations (which NIAA considered implemented), one closure report had no supporting evidence, senior official approval was inconsistently recorded and evidenced, and 10 closure reports were not shared with the Audit and Risk Committee. The committee noted closure of all 11 recommendations. (See paragraphs 3.27 to 3.42)
19. IBA and NIAA’s implementation of the 25 agreed recommendations examined in this audit, as at August 2024, was as follows.
- Of four Auditor-General recommendations to IBA, IBA considered all four to have been implemented. The ANAO assessed that three recommendations were fully implemented and one was largely implemented.
- Of 10 parliamentary committee recommendations relevant to NIAA, NIAA considered two were fully implemented and one was partly implemented. The ANAO assessment agreed with NIAA’s.
- Of 11 Auditor-General recommendations to NIAA, NIAA considered all 11 to be fully implemented. The ANAO assessed that four recommendations were fully implemented, one was largely implemented, and six were partly implemented.
- Of the 21 recommendations relevant to NIAA, responses to 11 included commitments that were additional to the recommendation. The ANAO assessed that additional commitments were fully implemented for three; partly implemented for five; and that implementation was still ongoing for three. (See paragraphs 3.43 to 3.54)
Recommendations
20. The Auditor-General did not make any recommendations. Eight opportunities for improvement were identified, relating to:
- IBA’s practices for responding to parliamentary committee and Auditor-General recommendations;
- NIAA’s practices for monitoring parliamentary activity, assisting government to responding to parliamentary committee recommendations, and closing Auditor-General recommendations; and
- the Department of the Prime Minister and Cabinet’s guidance to Australian Government entities on responding to parliamentary committee recommendations.
Summary of entity responses
21. The proposed audit report was provided to IBA and NIAA. An extract of the proposed audit report was provided to the Department of the Prime Minister and Cabinet. Entities’ summary responses are provided below. Entities’ full responses are provided at Appendix 1.
Indigenous Business Australia
Indigenous Business Australia (IBA) wishes to thank the ANAO for their professional and collaborative engagement with IBA throughout this audit.
The performance audit process has been useful for IBA in driving further improvements in internal processes relating to the implementation and management of ANAO and parliamentary committee recommendations and IBA will consider the further opportunities for improvement as part of its continual improvement processes.
National Indigenous Australians Agency
The National Indigenous Australians Agency (NIAA) welcomes the findings of the audit, including that it has established practices to respond to, implement, monitor and close parliamentary committee and Auditor-General recommendations. The NIAA acknowledges the opportunities for improvement identified in the report and has already made significant progress to strengthen processes for managing and implementing parliamentary committee and Auditor-General recommendations.
Department of the Prime Minister and Cabinet
The Department of the Prime Minister and Cabinet (the department) regularly reviews processes to ensure the robust provision of support to parliamentary committees and guidance to entities. This includes providing advice to entities on parliamentary committee reports with substantive recommendations that require responses from the Government. As part of this process, the department ensures entities are aware of the timeframes under Senate resolution 44 for responding to committee reports.
The department’s Tabling Guidelines provide advice on the preparation of government responses, including that all recommendations must be addressed and reasons provided for not accepting a recommendation, and timeframes for responses as set by Parliament.
Key messages from this audit for all Australian Government entities
22. The ANAO undertakes audits of implementation of recommendations made by parliamentary committees and the Auditor-General. In June 2021, the ANAO published Audit Insights: Implementation of Audit Recommendations, which includes observations from these audits for the benefit of all Australian Government entities.
23. Below are further key messages identified in this audit and which may be relevant for the operations of other Australian Government entities.
Group title
Governance and risk management
Key learning reference
Type: Performance audit
Report number: 12 of 2024-25
Portfolios: Cross-entity
Entities: Across entities
Date tabled:
Audit Summary : show
Summary and recommendations
Background
1. The National Anti-Corruption Commission’s (NACC’s) 2022/2023 Integrity Outlook states:
Conflicts of interest are also a prevalent source of corruption issues. Many types of corrupt conduct – such as breaches of public trust, abuse of office and misuse of information – originate from conflicts of interest. Such conflicts therefore pose a substantial risk for government agencies, parliamentarians, and public officials. This is why identifying, disclosing and managing potential conflicts of interest is a critical pillar of integrity architectures.1
2. The Public Governance, Performance and Accountability Act 2013 (PGPA Act) sets out general duties of accountable authorities and officials of Australian Government entities.2 The general duties related to conflicts of interest for an official include:
- not improperly using their position or information obtained through their position to gain or seek to gain a benefit or advantage for themselves or others, or to cause detriment to the entity, Commonwealth or others3; and
- disclosing the details of any material personal interests that relate to the affairs of the entity.4
3. The Public Governance, Performance and Accountability Rule 2014 (PGPA Rule) provides further detail on requirements for managing conflicts of interest.5 Under the PGPA Act, accountable authorities have a duty to establish and maintain appropriate systems of risk oversight and management and internal control.6 In addition, the PGPA Rule establishes a requirement for the accountable authority to take all reasonable measures to prevent, detect and deal with fraud and corruption relating to the entity.7
4. Boards of corporate Commonwealth entities (CCEs) are the accountable authority unless otherwise prescribed by an Act or the rules. Membership of boards can consist of both executive directors and non-executive directors. CCE boards are responsible for the operations of their entities.
5. The Department of Finance states:
Corporate Commonwealth entities generally have enabling legislation that establishes the scope of their activities and a multi-member accountable authority (such as a board of directors).
6. Specialist skills and expertise may be required to provide a suitable composition for a CCE board. The board members that are appointed to CCE boards in respect of their specialist skills or expertise can have inherent interests that exist as a consequence of their specialist experience. For example, they may be involved in industry associations or have duties to other organisations. These interests can conflict with their duties as a board member of a CCE.
7. The operations of boards for four CCEs were selected for examination as a part of this audit:
- the Australian Sports Commission (ASC);
- Food Standards Australia New Zealand (FSANZ);
- Infrastructure Australia (IA); and
- the National Portrait Gallery of Australia (NPGA).
Rationale for undertaking the audit
8. According to the Australian Public Service Commissioner, the public is entitled to have confidence in the integrity of public officials, and to know that the personal interests of public officials do not conflict with their public duties.8 Apparent conflicts can be just as damaging to confidence in public administration as real conflicts, so disclosures and effective management of real, apparent and potential conflicts of interest is an important element of the Australian Government’s integrity framework.
9. Section 29 of the PGPA Act provides a duty to disclose material interests. CCE board members may have material personal interests that relate to their role as a member of an accountable authority. Board requirements for specific qualifications, skills and experience pose the risk that domain knowledge and industry familiarity may lead to conflicts of interest.
10. This audit was conducted to provide assurance to the Parliament that the boards of the four CCEs are effectively managing conflicts of interest.
Audit objective and criteria
11. The objective of the audit was to assess the effectiveness of the operations of the boards of four CCEs in managing conflicts of interest.
12. To form a conclusion against the objective, the ANAO examined:
- Have the boards developed appropriate arrangements to manage board conflicts of interest?
- Have the boards effectively managed board conflicts of interest consistent with their own policies?
13. The audit examined the operations of the boards of four CCEs in managing conflicts of interest over the period 1 July 2021 to 31 December 2023. The appointment process for board members was not examined as part of this audit.
Conclusion
14. The operations of the boards in managing conflicts of interest were largely effective. Arrangements for managing conflicts of interest were implemented by the boards in accordance with legislative requirements and documented by some of the boards in policies and procedural guidance. The effectiveness in implementing these arrangements were inconsistent across the boards which resulted in deficiencies in declaring and managing conflicts of interest by the boards. This reduced the overall effectiveness of the boards in their management of conflict of interest risks.
15. The boards have developed largely appropriate arrangements for managing conflicts of interest. All boards have implemented arrangements to support the declaration of interests by board members, including following their appointment and during the term of their appointment. The arrangements implemented by the boards were aligned to requirements in the Public Governance, Performance and Accountability Act 2013 (PGPA Act) and Public Governance, Performance and Accountability Rule 2014 (PGPA Rule). The board of the NPGA did not have a conflict of interest policy that included managing conflicts of interest related to its board. The boards of the ASC and FSANZ had not developed conflict of interest management plans for board members holding other roles within the Australian Government. The boards have largely relied on board induction processes to provide training and education in relation to managing conflicts of interest. The boards had implemented varying arrangements to obtain assurance over the management of conflicts of interest relating to board members.
16. The boards were partly effective in implementing arrangements for managing board conflicts of interest consistent with their own policies. There were shortcomings in the operating effectiveness of processes for declaring and managing conflicts of interest across all boards. This included instances where: declarations of interest were not obtained from newly appointed board members in a timely manner; declarations of interests were not implemented as a standing agenda item at board meetings; and boards’ assessments of declarations of interest were not sufficiently documented to record whether the board had determined declarations to be material personal interests.
Supporting findings
Arrangements to manage conflicts of interest
17. The boards had identified and assessed fraud and corruption risks within their risk management frameworks. The board of IA had identified conflict of interest controls for its then board within its operational and fraud risk registers. (See paragraphs 2.3 to 2.14)
18. All boards had arrangements for board members to declare interests following appointment and at board meetings. The arrangements implemented by the boards were aligned to requirements in the PGPA Act and PGPA Rule. The ASC, FSANZ and IA boards had policies and procedural guidance to manage board conflicts of interest. The NPGA board did not have a conflict of interest policy that provided coverage of the board, with the exception of a policy for declaring, managing and overseeing board conflicts of interest related to the acquisition of works. The boards for ASC and FSANZ had not developed management plans for potential conflicts of interest relating to ex-officio board members that held other roles within the Australian Government. (See paragraphs 2.15 to 2.60)
19. The boards largely relied on board induction processes and related resources from the Department of Finance for promoting compliance with conflict of interest requirements. The boards for the ASC and FSANZ had developed guidance specific to managing board conflicts of interest. The FSANZ board provided board members with access to its learning management system, which included training related to conflicts of interest. The IA board had delivered training for board members that included a module on conflicts of interest. None of the boards had documented training plans for board members or arrangements for monitoring training undertaken by board members. The Department of Finance’s resources on managing conflicts of interest are not specific to boards of corporate Commonwealth entities. (See paragraphs 2.61 to 2.84)
20. None of the boards had implemented an assurance strategy or framework that was specific to, or provided coverage of, board conflicts of interest. All boards had developed some form of arrangement to obtain assurance over board conflicts of interest.
- The ASC board obtained attestations from its board members on compliance with section 29 of the PGPA Act and provided reporting to its audit committee.
- The FSANZ board maintains a centralised register of interests declared by board members that is published on its website.
- The IA board undertook an internal audit in 2018–19 that covered board conflicts of interest and conducted Australian Securities and Investments Commission register searches of board members’ interests in 2021 to confirm declarations.
- The NPGA board had undertaken a specific review of board declarations to update its register of interests for board members. (See paragraphs 2.85 to 2.105)
Effectiveness of conflict of interest arrangements
21. There were instances across all boards where processes for declaring interests were not operating effectively.
- The ASC, FSANZ and NPGA boards had instances where they held board meetings where declarations of interests were not included in agendas or obtained during board meetings.
- The ASC and NPGA boards had instances where they did not obtain declarations of interests from newly appointed board members in a timely manner.
- All boards did not sufficiently document their assessment of declared interests and whether they were considered to be material personal interests. (See paragraphs 3.3 to 3.24)
22. All boards had implemented induction processes for their board members that covered conflict of interest. The ASC’s board induction processes were updated to provide coverage of conflicts of interest for board members commencing from March 2022, but not all current members had received the guidance. The FSANZ, IA and NPGA boards had implemented additional training and education arrangements on conflict of interest obligations for board members. (See paragraphs 3.25 to 3.35)
Recommendations
Recommendation no. 1
Paragraph 2.52
The National Portrait Gallery of Australia update its conflict of interest policy to document requirements and arrangements for declaring, managing and overseeing conflicts of interest relating to the board.
National Portrait Gallery of Australia response: Agreed.
Recommendation no. 2
Paragraph 2.58
The Australian Sports Commission and Food Standards Australia New Zealand assess conflict of interest risks for board members holding other roles within the Australian Government, and develop mitigations that are documented in a management plan.
Australian Sports Commission response: Agreed.
Food Standards Australian New Zealand response: Agreed.
Recommendation no. 3
Paragraph 2.82
The Department of Finance improve training and education arrangements for corporate Commonwealth entities to raise awareness for entities and their board members in understanding how to implement arrangements to meet conflict of interest obligations. This should be undertaken in consultation with portfolio departments.
Department of Finance response: Agreed.
Recommendation no. 4
Paragraph 3.21
The Australian Sports Commission, Food Standards Australia New Zealand, Infrastructure Australia and National Portrait Gallery of Australia implement arrangements to record the board’s assessment of whether a declaration made by a board member is determined to be a material personal interest. Where the interest is determined to be a material personal interest, boards should record the disclosure and consequence in accordance with the Public Governance, Performance and Accountability Rule 2014.
Australian Sports Commission response: Agreed.
Food Standards Australian New Zealand response: Agreed.
Infrastructure Australia response: Agreed.9
National Portrait Gallery of Australia response: Agreed.
Summary of entity responses
23. Extracts of the proposed report were provided to the ASC, the Department of Finance, FSANZ, IA and the NPGA. The summary responses are provided below, and the full responses are included at Appendix 1. Improvements observed by the ANAO during the course of the audit are listed in Appendix 2.
Australian Sports Commission
Thank you for providing the Australian Sports Commission (ASC) with the opportunity to comment on the Australian National Audit Office (ANAO) proposed audit report on Management of Conflicts of Interest by Corporate Commonwealth Entity Boards.
The ASC acknowledges and accepts the key findings, recommendations and the opportunities for improvement presented in the Section 19 Report.
Department of Finance
The Department of Finance agrees the recommendation and findings provided in the report extract.
Food Standards Australia New Zealand
FSANZ acknowledges the importance of this audit to provide assurance to Parliament that the operations of Boards effectively manage conflicts of interest. In this context it is noted FSANZ is one of four entities (out of 74 CCE’s) assessed over the period July 2021 to December 2023.
The Board notes the audit’s findings that our arrangements for managing conflicts of interest align with the relevant legislation and are largely effective. As the independent agency responsible for the development of draft food standards for Australia and New Zealand, trust and confidence of decision-makers and stakeholders is important. The FSANZ Board takes a very conservative approach to managing conflicts of interest and, for transparency, we maintain and manage a register of all interests of Board members, regardless of whether they are classified as a material personal interest or not.
Infrastructure Australia
As the Australian Government’s independent adviser on nationally significant infrastructure investment planning and project prioritisation Infrastructure Australia values accountability, acting with integrity and upholding the highest ethical standards.
We appreciate the work of the ANAO which found that the boards of the four CCEs were largely effective in their management of conflicts of interest.
Infrastructure Australia accepts the recommendation that we strengthen our recording of the assessment and consequences of declared conflicts of interest. We have also commenced work to reflect the ANAO feedback on opportunities for improvement in administrative and management practices to strengthen our governance framework in relation to conflicts of interest.
National Portrait Gallery of Australia
The National Portrait Gallery (NPGA) welcomes the Australian National Audit Office’s (ANAO) report and accepts the recommendations made for the agency.
The report finds that the NPGA has developed largely effective arrangements for managing conflicts of interest for its the Board in accordance with legislative requirements.
The report identifies areas for improvement and makes two recommendations where the NPGA can take steps to strengthen its processes and assurance activities through update of its existing Conflict of Interest policy and processes. The NPGA agrees with, and is already taking steps to implement, these recommendations.
The NPGA also recognises the other areas of improvement identified in the Report, notably the expansion of assurance activities and the implementation of a Board training workplan. This will ensure that the NPGA is operating in alignment with government best practice in conflicts of interest management.
The NPGA thanks the ANAO audit team for their professionalism during the audit process.
Key messages from this audit for all Australian Government entities
24. Below is a summary of key messages, including instances of good practice, which have been identified in this audit and may be relevant for the operations of other Australian Government entities.
Group title
Governance and risk management
Key learning reference