The year in review

As Auditor-General for Australia I am pleased to present this annual report to the Parliament. This year has seen the Australian National Audit Office (ANAO) continue to deliver high quality audit reports to ensure it delivers against its mandate under the Auditor-General Act 1997 (the Act).

On 21 February 2018, the Prime Minister and Cabinet Legislation Amendment (2017 Measures No. 1) Act 2018 amended the Act to reintroduce my ability to table ANAO annual reports directly to the Parliament. This aligns my annual reporting requirements with my responsibility to the Parliament and supports the independence of the Auditor-General.

The ANAO Corporate Plan 2017–18 sets out how the ANAO will deliver on its purpose and outlines 21 performance measures that are reported in Part 3: Report on Performance. In 2017–18, the ANAO issued 238 financial statements opinions and presented three financial audit related reports to the Parliament. The office also tabled 47 performance audits and provided briefings or submissions to parliamentary committees on 36 occasions.

The ANAO continues to focus on making full use of the audit mandate through developing methodology and building different report types including limited assurance reviews and information reports. In 2017–18 the ANAO published two assurance reviews under section 19A(1) of the Act and one information report in accordance with section 25 of the Act. The development of different audit techniques allows the ANAO to provide a greater range of assurance to the Parliament. The ANAO also continued to increase its coverage of efficiency issues with four performance audits focussing on efficiency tabled in 2017–18. The increased focus on efficiency reflects the Public Governance, Performance and Accountability Act 2013 (the PGPA Act) defining proper use or management of public resources to mean efficient, effective, economical and ethical.

As part of its focus on the implementation of the PGPA Act the ANAO also continued its work on performance statement audits, tabling the second audit in the series in March 2018 and commencing the third, which is due to table in November 2018. This work will ensue that the ANAO is well placed to respond to the recommendation by the JCPAA and draft recommendation by the PGPA Act Review relating to the expansion of this work. As I have informed the JCPAA and the Review, I believe that the mandatory annual auditing of Performance Statements is essential for the effective implementation of this important component of the accountability framework.

In 2017–18 the ANAO introduced reporting on ‘key learnings for all Australian Government entities’ in performance audit reports. This identifies key issues arising out of ANAO audits that all entities should consider. The ANAO has also increased its publication of audit insights. These publications identify and discuss common recurring issues, shortcomings and good practice examples, identified through our financial statement and performance audit work. Six audit insight publications were released covering a broad range of topics. As highlighted in the ANAO Annual Work Program, key issues emerging from reports tabled in 2017–18 included:

• Getting the basics right on important governance issues such as compliance with mandatory requirements, assessing performance, record keeping, and risk management.
• Maximising value for money from having an understanding of the market and maintaining competition through the procurement process.
• Using evidence in the design, implementation and review of programs.

The ANAO strives to achieve the highest quality in all of its work and particularly values the insights given by external reviews. In 2017–18, the ANAO for the first time engaged the Australian Securities and Investments Commission (ASIC) to conduct an external independent review of the ANAO’s Quality Assurance Framework and two audits of financial statements for the year ended 30 June 2017. The reviews were conducted using ASIC’s methodology for reviewing private sector audits. ASIC made a number of recommendations that the ANAO is in the process of implementing. The Independent Auditor undertook a performance audit of the ANAO’s cyber security processes which was tabled in Parliament on 4 December 2017. The report included a number of valuable recommendations relating to the ANAO’s own IT environment and the ANAO’s cyber security performance audits of other Australian entities. The ANAO response to the report’s recommendations is available on the ANAO website.

During this financial year the Systems Assurance and Data Analytics Group was established as part of the ANAO’s corporate structure. Its focus is on increasing quality and productivity in our audit work in an environment of increased data collection and generation in the public sector. Investing in the data analysis capability of the ANAO is also expected to support audit planning, improved audit outcomes, and potentially new audit products and services.

In April 2018 the ANAO finalised the 2018–2022 Workforce Plan. The objective of the plan is to ensure that the ANAO has a professional and capable workforce that can respond to the Auditor-General’s mandate and priorities in coming years.

The ANAO has a close working relationship with the JCPAA, established and governed by the Act and the Public Accounts and Audit Committee Act 1951. Throughout the year, the ANAO made 11 appearances or submissions assisting the JCPAA inquiries into Auditor-General reports and its inquiries into the Performance Management Reform agenda.

The year ahead

Publication of the ANAO’s annual audit work program is a significant step in the organisation’s performance information. It highlights to the Parliament and the sector at large, the areas of focus for the ANAO in the year ahead. Key features of the ANAO’s 2018–19 Annual Audit Work Program include:

• an ongoing focus on the key accountabilities as outlined in the PGPA Act, including efficiency, effectiveness, economy and ethics;
• compliance with legislation and government policy frameworks;
• promoting transparency on the effective use of taxpayers’ money through audits of procurement processes, contract management and grants management;
• program implementation and risk management in major areas of public investment, such as in Defence capability; large-scale infrastructure such as the national broadband network; the National Disability Insurance Scheme; and programs targeting Aboriginal and Torres Strait Islander peoples;
• value-for-money and transparency of the operations of government business enterprises;
• transparency in the measurement of performance and impact against agreed program objectives;
• effective delivery of services to citizens; and
• cyber resilience, including IT security and systems controls.

In 2016, the ANAO introduced the Future Ready Change Program (Future Ready) which was designed to position the ANAO to deliver audit services to the Parliament into the future. As the ANAO’s Future Ready strategy has come to a close the ANAO is transitioning to managing change as an ongoing part of business and embed a culture of continuous improvement. As outlined in the ANAO Corporate Plan 2018–19, the ANAO will support the delivery of its purpose by investing in improved ways of working, data and analysis, and workforce capability. 2018-19 will be a period of significant change for the ANAO as the office:

• transitions to new ways of working in a refurbished office;
• transitions to a new IT services contract; and
• implements the ANAO Workforce Plan.

Building the office’s data analytics capability is a particular priority as the entities the ANAO audits continue to collect, generate and share ever-increasing volumes of data and information. Increased capacity in this space will enable automation of some audit processes, supporting a focus on high risk areas within entities and driving efficiency within the audit process. Increasing the data analytics capability will be driven by the implementation of the ANAO’s data analytics road map and a data analytics pilot with the Department of Infrastructure, Regional Development and Cities. I have flagged in my liaison with Accountable Authorities that more real time electronic access to data and records has the potential to increase efficiency and quality for the ANAO and for them. I thank the Department of Infrastructure, Regional Development and Cities for participating in a pilot to help us build our approach.

Finally, a key focus for 2018-19 will be to continue to improve the ANAO’s support to the Parliament. We have a number of measures already in place including briefing individual members and committees, making submissions and appearances and providing summaries of reports to Senate estimates committees. A key challenge for us will be to seek to improve our support and we will continue to develop our strategic communication strategy, asking what more can be done to inform the Parliament and improve the ANAO’s relationship with the Parliament.

Grant Hehir
Auditor-General

Purpose

The purpose of the Australian National Audit Office (ANAO) is to improve public sector performance and support accountability and transparency in the Australian Government sector through independent reporting to the Parliament, the executive and the public.

The ANAO is established under Part 6 of the Auditor-General Act 1997 (the Act). Section 39 of the Act states that the function of the Audit Office is to assist the Auditor-General in performing the Auditor-General’s functions, and Part 6 of the Act establishes the ANAO under the Public Service Act 1999 and requires it to operate as an entity under the Public Governance, Performance and Accountability Act 2013 (the PGPA Act). The ANAO supports the Auditor-General in the role as an independent officer of the Parliament.

The executive arm of the Australian Government is accountable to Parliament for its use of public resources and the administration of legislation passed by the Parliament. The Auditor-General scrutinises and provides independent assurance as to whether the executive is operating and accounting for its performance in accordance with Parliament’s intent.

Role

The Auditor-General is appointed for a term of ten years by the Governor-General on the recommendation of the Joint Committee of Public Accounts and Audit (JCPAA) and the Prime Minister. As an independent officer of the Parliament, the Auditor-General has complete discretion in the performance or exercise of the functions or powers under the Act. In particular, the Auditor-General is not subject to direction in relation to:

• whether a particular audit is to be conducted;
• the way a particular audit is to be conducted; or
• the priority given to any particular matter.

In the exercise of the functions or powers under the Act, the Auditor-General must have regard to the audit priorities of the Parliament, as determined by the JCPAA.

Under the Act, the Auditor-General’s functions include:

• auditing the financial statements of Commonwealth entities, Commonwealth companies and their subsidiaries;
• conducting performance audits, assurance reviews, and audits of the performance measures, of Commonwealth entities and Commonwealth companies and their subsidiaries, other than government business enterprises where a request from the JCPAA is required for the wok to be undertaken;
• conducting a performance audit of a Commonwealth partner as described in section 18B of the Act;
• providing other audit services as required by other legislation or allowed under section 20 of the Act; and
• reporting directly to the Parliament on any matter or to a minister on any important matter.

Values

The ANAO values respect, integrity and excellence — values that align with the Australian Public Service (APS) values and address the unique aspects of the ANAO’s role and operating environment. The ANAO’s values guide the office in performing its role objectively, with impartiality and in the best interests of the Parliament.

Organisation

The ANAO has one outcome: to improve public sector performance and accountability through independent reporting on Australian Government administration to the Parliament, the executive and the public. The ANAO outcomes and programs framework can be found in Appendix 1.

To deliver on the ANAO’s purpose, the Auditor-General has organised the ANAO into five functional areas.

• Assurance Audit Services Group provides independent assurance on the financial statements and financial administration of all Australian Government entities. It also conducts assurance reviews.
• Corporate Management Branch leads corporate strategy and change for the ANAO. It provides services based on specialised knowledge, best practices and technology that enable the delivery of the ANAO’s purpose and audit outcomes.
• Performance Audit Services Group conducts performance audits and assurance reviews of Australian Government entities and their activities and produces related publications and other information reports.
• Professional Services and Relationships Group provides technical accounting, audit and legal advice and support to the Auditor-General, establishes, manages and monitors the implementation of the quality assurance framework, and manages the ANAO’s external relations.
• Systems Assurance and Data Analytics Group provides IT audit and data analytics support to the ANAO’s assurance and performance audit work, with staff from a range of professional and technical backgrounds including project management, system administration, database development, data analysis and financial systems management.

The ANAO created the Systems Assurance and Data Analytics Group in late 2017. Its focus is on increasing quality and productivity in delivery of audit work in an environment of increased data collection and generation in the public sector. Investing in the data capability of the ANAO is also expected to support audit planning, improve audit outcomes, and new audit products and services.

The organisational and senior management structure of the ANAO at 30 June 2018 is shown in Figure 2.1.

Relationship with the Parliament

Through the audit and related services the ANAO provides to the Parliament, the Australian public can have confidence that the Auditor-General is examining and reporting on the actions of public sector entities and whether public funds are being used economically, efficiently, effectively and ethically.

Joint Committee of Public Accounts and Audit

The JCPAA is the ANAO’s oversight committee. The JCPAA is one of the joint committees of the Commonwealth Parliament, and is established by the Public Accounts and Audit Committee Act 1951. The JCPAA formally links the Auditor-General and the ANAO to the Parliament. The Committee approves the proposed appointment of the Auditor-General, reviews all Auditor-General reports, reviews annual resource requirements and operations of the ANAO and reports of the Independent Auditor, and advises the Auditor-General on the Parliament’s audit priorities.

The JCPAA is required to review all reports that the Auditor-General tables in the Parliament and to report the results of its deliberations to both houses of Parliament. In 2017–18, officers of the ANAO attended ten private briefings and public hearings as part of the JCPAA’s review of audit reports. The JCPAA conducted 11 inquiries throughout 2017–18, resulting in the tabling of eight reports on its review of Auditor-General reports. The Auditor-General and staff from the ANAO assist the Committee throughout its inquiries, including appearing in hearings. An outline of these inquiries and reports is provided in Table 2.1.

Table 2.1: JCPAA inquiries and reports

In total, officers of the ANAO attended 11 private briefings and public hearings in relation to the committee’s functions to review Auditor-General reports, the reports of the Independent Auditor, annual resource requirements and operations of the ANAO.

The Act requires the Auditor-General to comply with requests by the JCPAA to submit draft estimates for the ANAO for a financial year before the annual Commonwealth budget for that financial year. The JCPAA has a duty in its legislation to make recommendations to both Houses of Parliament, and to the Minister who administers the Act, on the draft estimates of the ANAO. In 2017–18, the ANAO was subject to a budget savings measure after the draft estimates were submitted to the JCPAA. The ANAO sought authority from the Treasurer to brief the JCPAA on the impact of the measure. Consistent with normal budget operating rules authority was not forthcoming. Subsequent to this the ANAO received advice from the Australian Government Solicitor that the Auditor-General must comply with requests from the JCPAA notwithstanding budget operating rules. On this basis the Auditor-General has provided advice to the JCPAA that it is open to the JCPAA to make more than one request per budget cycle to provide an update on the ANAO’s budget estimates.

The JCPAA also advises the Auditor-General on the Parliament’s audit priorities.

Other parliamentary committees

The ANAO briefs and appears before other parliamentary committees, including Senate estimates committees and in the context of specific parliamentary inquiries. ANAO staff also provide briefings to individual members and senators on request. The ANAO was invited to provide private briefings and appear at public hearings before a number of other parliamentary committees in 2017–18. Details of these appearances are provided in the response to Criterion 15 in the report on performance.

Annual performance statements

As the accountable authority of the Australian National Audit Office, I present the 2017–18 annual performance statements of the Australian National Audit Office, as required under paragraphs 39(1)(a) and 39(1)(b) of the Public Governance, Performance and Accountability Act 2013 (PGPA Act); and section 16F of the Public Governance, Performance and Accountability Rule 2014 (PGPA Rule). In my opinion, these annual performance statements are based on properly maintained records, accurately reflect the performance of the entity for the reporting period, and comply with subsection 39(2) of the PGPA Act.

Grant Hehir
Auditor-General
7 August 2018

Purpose

The purpose of the ANAO is to improve public sector performance and support accountability and transparency in the Australian Government sector through independent reporting to the Parliament, the executive and the public (Outcome 1).

The ANAO seeks to achieve its purpose through its audit services, which include:

• financial statement audits of Australian Government entities (Program 1.1); and
• performance audits of Australian Government programs and entities (Program 1.2).

The ANAO audits the annual financial statements of Australian Government entities and the Consolidated Financial Statements of the Australian Government. The Consolidated Financial Statements present the consolidated whole-of-government financial result inclusive of all Australian Government controlled entities, including entities outside the general government sector. These audits are designed to give assurance to the Parliament that an entity’s financial statements fairly represent its financial operations and financial position at year end. The ANAO also undertakes a range of assurance reviews by arrangement with entities, and in accordance with section 20 of the Auditor-General Act 1997.

A performance audit is a review or examination of any aspect of the operations of an entity which is undertaken in accordance with the ANAO Auditing standards. The ANAO’s performance audits are presented to the Parliament and identify areas where improvements can be made to aspects of public administration. They often make specific recommendations to assist public sector entities to improve performance. Performance audits may also involve multiple entities and examine common aspects of administration or the joint administration of a program or service. An assurance review of defence major projects is also undertaken annually.

Analysis of performance against purpose

The performance measurement framework is based on measuring:

• what we did (output);
• how well we did it (quality and/or efficiency); and
• what the benefits were (impact).

Taken together, the performance measures tell a story of the ANAO’s achievement of its purpose. The output measures relay progress in the delivery of the ANAO’s audit work. This audit work generates findings and recommendations for improvement that are directed at entities and tabled in Parliament. The impact measures seek to provide information on entities’ implementation of audit findings and recommendations for the information of the Parliament, and the extent to which Parliament’s engagement with our work leads to improvements in public sector administration.

The ANAO performance measures also include measures relating to quality and/or efficiency. The ANAO is committed to demonstrating transparency of its operations. The quality and efficiency measures are intended to demonstrate efficient use of taxpayer resources and the ANAO’s commitment to quality in its work.

Overall the ANAO achieved 15 measures out of 21. Where measures were not achieved, the ANAO is comfortable with the justification and has provided details in the response to each criterion on the following pages.

The ANAO’s Annual Audit Work Program 2017–18 outlined the Office’s focus on: influencing more timely delivery of annual reports and enhancing accessibility of financial statements audit opinions; the delivery of performance audit activity across the full scope of the Auditor-General’s mandate; and performance audit coverage across the full spectrum of public sector activity.

Over the course of the year, the ANAO actively engaged with public sector entities to influence more timely delivery of annual reports, including audited financial statements, through advice and support regarding the transition to tiered reporting and simplified financial statements that assist in the readability and transparency of financial information. More timely delivery of annual reports supports transparency of entities operation to the Parliament through being available in time for use at Senate Estimates. In relation to the 2016–17 financial year, reported in 2017–18, 87 per cent of entities had signed their financial statements and the associated auditor’s report issued within three months of the end of the year, compared to 80 per cent in the prior year. This supports entities tabling their annual report ahead of the October Senate Estimates period.

The ANAO also tabled three assurance reports in Parliament which summarised the ANAO’s assurance audit findings and an assurance review of major defence equipment acquisition projects which reported on 27 Major Projects. At the conclusion of the 2015–16 audit cycle 22 significant and moderate findings were reported. At the conclusion of the 2016–17 audit cycle 68 per cent (15) of these findings were reported as resolved within 12 months of being reported to Parliament. When the timeframe is extended to 18 months the percentage of findings addressed by material entities increases to 95 per cent.

In 2017–18 the ANAO completed 47 performance audits. The primary focus of ANAO performance audits was effectiveness – the extent to which entities delivered on intended objectives. 2017–18 also saw continued emphasis on the economy and efficiency with which entities manage and use public resources, reflecting the Auditor-General’s mandate. During the year, the ANAO continued to develop a methodology and associated guidance for examining efficiency themes in performance audits and continued to broaden its coverage to also focus on corporate entities and government business enterprises (GBEs)—noting that the Auditor-General undertakes audits of GBEs only at the request of the JCPAA. In 2017–18, the ANAO tabled four audits of GBEs.

ANAO performance audits identify areas where improvements can be made to aspects of public administration and makes specific recommendations to assist public sector entities to improve their program management. Entities indicate their agreement to implement ANAO recommendations in the audit report, which is tabled in Parliament. In this way, entities inform Parliament of improvements they intend to make as a result of ANAO audits. In 2017–18, 85 per cent of recommendations made in audit reports were agreed by entities. Further information in relation to this measure can be found in the response to Criterion 13.

The ANAO has started measuring entities implementation of performance audit recommendations over time. The ANAO also sought advice from all relevant entities on progress in implementing recommendations made in audits tabled in 2015–16. Entities reported that 89 percent of recommendations made during the period had been implemented within 24 months.

Through delivery of its annual audit work program, the ANAO continues to play an important role in advising the Parliament, through the JCPAA, on the implementation of reforms to the resource management framework following the introduction of the PGPA Act. A key aspect of this role has included an examination of the effectiveness of corporate planning, performance reporting and risk management in the public sector. Along with the examination of new areas of public administration, a continuing role for the ANAO is reviewing entities’ implementation of recommendations arising from earlier audits, with eleven performance audits that either followed up on an entity’s progress in implementing recommendations, or followed on from other related audits.

A sound quality framework supports delivery of high-quality audit work and enables the Auditor-General to have confidence in the opinions and conclusions in reports prepared for the Parliament. A key element of the ANAO Quality Assurance Framework is monitoring of compliance with policies and procedures that comprise the system of quality control. The monitoring system comprises internal and external quality assurance reviews of the ANAO’s audit and other assurance engagements. All assurance conclusions were found to be appropriate in the audits reviewed under the monitoring program.

In 2017–18 the ANAO invited the Australian Securities and Investments Commission (ASIC) to conduct an external independent review of the ANAO’s Quality Assurance Framework and two audits of financial statements for the year ended 30 June 2017. In respect of the quality framework and within the scope of ASIC’s review, no areas were identified where the design of the framework did not satisfy the requirements of the ANAO Auditing Standards. The ASIC report made two good practice recommendations that the ANAO is in the process of addressing. In respect of the file reviews, ASIC made findings in respect of the sufficiency and adequacy of audit documentation, including evidencing judgements made by the audit team. The ANAO has considered these findings and assured itself that there was no impact on the audit conclusion. 

The ANAO is committed to demonstrating transparency of its operations. The results relating to average cost per audit, staff utilisation and learning and development hours all met or exceeded their targets.

In addition, the ANAO continues to be responsive to requests from Parliament, through briefing Members of Parliament (MPs), submissions to and/or appearances before parliamentary committees. Notably, the ANAO engagement with Parliament has expanded beyond the primary relationship with the JCPAA. In 2017–18 the ANAO received a number of requests for submission and/or appearance from committees other than the JCPAA.

Performance results

The ANAO measures its performance against its purpose using a range of performance criteria, which were outlined in the ANAO’s 2017–18 Corporate Plan and 2017–18 Portfolio Budget Statements. These criteria include deliverables that assist the ANAO with assessing the value created by its activities and performance measures that help with assessing the value added for the Parliament, the executive and the public.

Program 1.1 – Assurance Audit Services

The primary purpose of financial statements is to provide relevant and reliable information to users about a reporting entity’s financial performance and position. In the public sector, the users of financial statements include Ministers, Parliament and the community. The preparation of timely and accurate audited financial statements is also an important indicator of the effectiveness of an entity’s financial management, which fosters confidence in an entity on the part of users.

The ANAO’s financial statements audits, undertaken in accordance with the ANAO Auditing Standards, provide an independent examination of the financial accounting and reporting of public sector entities. They provide independent assurance that financial statements have been prepared in accordance with the Government’s financial reporting framework and Australian accounting standards. The ANAO’s assurance audits contribute to improvements in the financial administration of Australian Government entities.

The Auditor-General reports on audits of financial statements to the Parliament twice a year. The first of these reports, Interim Phase of the Audits of the Financial Statements of Major General Government Sector Entities, reports on ANAO coverage of key financial systems and controls in major Commonwealth entities. The second report, Audits of the Financial Statements of Australian Government Entities, reports on the results of the financial statements audits of all Commonwealth entities. The independent reporting to the Parliament on this activity supports accountability and transparency in the Australian Government sector.

Key to the ANAO’s audit process is an assessment of entities’ internal control frameworks as they apply to financial reporting. An effective internal control framework provides the ANAO with a level of assurance that entities are able to prepare financial statements that are free from material misstatement. In 2017–18, a total of 99 findings were reported to the entities included in the interim audit report to Parliament, comprising no significant, 12 moderate and 87 minor findings. This is a decrease on the interim audit results of 2016–17 with a total of 114 findings reported comprising two significant, 22 moderate and 90 minor findings. Eighty-three per cent of moderate findings continue to be in the areas of:

• compliance and quality assurance frameworks supporting program payments, revenue collection and financial reporting; and
• management of IT controls, particularly the management of privileged users.

The Consolidated Financial Statements present the consolidated whole of government financial results inclusive of all Australian Government controlled entities, as well as the General Government Sector financial report. The 2016–17 Consolidated Financial Statements were signed by the Minister for Finance on 27 November 2017 and an unmodified auditor’s report was issued on the same day.

A total of 222 findings were reported to entities as a result of the 2016–17 financial statements audits. These comprised two significant, 20 moderate and 200 minor findings. Most of the significant and moderate findings were in the areas of:

• management of IT controls, particularly the management of privileged users;
• compliance and quality assurance frameworks supporting program payments;
• revenue, receivables and cash management; and
• the management of non-financial assets.

Six legislative breaches were also reported to entities during 2016–17. Three of the legislative breaches were significant and 3 were non-significant. A significant breach is reported where: a significant potential or actual breach of the Constitution occurs; or non-compliance with an entity’s enabling legislation, legislation the entity is responsible for administering, or the PGPA Act is identified. A non-significant legislative breach is reported where instances of non-compliance with other legislation, or sub-ordinate legislation, are identified.

Performance measures

Assurance audit services contribute to achieving the ANAO’s purpose through:

• providing assurance on the fair presentation of financial statements of the Australian Government and its controlled entities by providing independent audit opinions for the Parliament, the executive and the public;
• presenting two reports annually addressing the outcomes of the financial statement audits of Australian Government entities and the consolidated financial statements of the Australian Government, to provide the Parliament with an independent examination of the financial accounting and reporting of public sector entities; and
• contributing to improvements in the financial administration of Australian Government entities.

To assess its performance against its purpose in relation to assurance audit activities, the ANAO measures:

• the percentage of the estimated 250 entities provided an auditor’s report for tabling in Parliament;
• the number of assurance reports presented to the Parliament;
• the number of other assurance reports produced;
• the percentage of auditor’s reports issued within three months of the financial year end reporting date;
• the percentage increase to the average cost per audit;
• the percentage of assurance audit staff available hours charged to audit work;
• the percentage of recommendations agreed by audited entities; and
• the percentage of moderate and significant findings that are addressed by material entities within one year of reporting.

The number of financial statements auditor’s reports issued is a key measure of the ANAO’s core business in achieving its purpose. Financial statements auditor’s reports provide assurance to the Parliament that the financial statements of the entity comply with Australian Accounting Standards and other reporting requirements (such as the Public Governance, Performance and Accountability (Financial Reporting) Rule 2015) and present fairly the entity’s financial position and its financial performance and cash flows for the period. The target of 250 reflects the expected number of entities that would require an audit opinion on financial statements for the year ended 30 June 2017.¹

During the 2017–18 financial year, the ANAO completed 238 mandated² financial statements audits for the year ended 30 June 2017. This included the Consolidated Financial Statements (CFS) of the Australian Government. All entities that provided the ANAO with a set of financial statements for audit received an auditor’s report for tabling in Parliament. At 30 June 2018, the Minjerribah Camping Partnership had not presented the ANAO with signed financial statements for the year ended 30 June 2017 therefore no auditor’s report was issued for this entity during 2017–18.

In addition to the financial statements audits, the ANAO also completed two mandated non-financial statement audits in 2017–18. These are compliance audits required by the Australian Postal (Performance Standards) Regulations 1998 and s.313 (3) of the Bankruptcy Act 1966.

Details of issues identified during the financial statements audits are included in the Auditor-General Report Audits of the Financial Statements of Australian Government Entities for the Period Ended 30 June 2017.

The Auditor-General presents insights and findings from the outcomes of the financial statement audits of Australian government entities and the CFS of the Australian Government through independent reports to the Parliament. The reports support accountability and transparency in the Australian Government sector and provide Parliament an independent examination of the financial accounting and reporting of public sector entities.

• Audits of the Financial Statements of Australian Government Entities for the Period Ended 30 June 2017 was tabled in December 2017. This report complemented the interim phase report published in June 2017, and provided a summary of the final results of the audits of the Consolidated Financial Statements for the Australian Government and the financial statements of Australian Government entities.
• Interim Report on Key Financial Controls of Major Entities was tabled in June 2018. This report focused on the results of the interim audit phase, including an assessment of entities’ key internal controls, of the 2017–18 financial statements audits of 26 entities including all departments of state and a number of major Australian government entities.
• 2016–17 Major Projects Report was tabled in January 2018. This report is the ANAO’s priority assurance review of major defence equipment acquisition projects which reported on 27 Major Projects. The Auditor-General provided a qualified Independent Assurance Report relating to progress and performance as reported in one Project Data Summary Sheet (PDSS) for the ARH Tiger Helicopters. This was the tenth annual Major Projects report to the Parliament. It built on previous reports, further enabling longitudinal analysis, and identified that: all projects continued to operate within their total approved budget; delivering Major Projects on schedule remained an ongoing challenge; and the presentation of Defence capability information had an element of uncertainty.

In addition to the conduct of mandated financial statements audits, the ANAO undertakes other assurance activities by arrangement with audited entities to support accountability and transparency in the Australian Government sector. Measuring section 20 audits (i.e. audits by arrangement) contributes to the delivery of program 1.1 by independently identifying improvements in the financial administration of Australian Government entities. In 2017–18, the ANAO completed 45 other assurance activities.

These activities generally consist of audits or reviews conducted under section 20 of the Auditor-General Act 1997. These activities include financial statements audits and audits or review of compliance with legislative requirements. Once inquiries by the ANAO have been concluded, the outcomes and any findings from these individual assurance activities are communicated through the issue of a formal report or by other correspondence. The ANAO charges a fee for these audits and reviews.

In order to support timely reporting of entities’ financial performance to the Parliament through annual reports, the ANAO aims to issue 85 per cent of auditor’s reports within 3 months of the financial year end reporting date.

Providing timely auditor’s reports also supports entities in meeting requirements to provide audit cleared financial information to the Department of Finance in accordance with deadlines that are set to assist the Australian Government to prepare the Final Budget Outcome by 30 September and the CFS by 30 November each year. The CFS present whole-of-government financial results, inclusive of all Australian Government–controlled entities.

Achievement of this measure relies on entities providing the ANAO with auditable Financial Statements within the timeframe. The ANAO works closely with entities to facilitate the timely finalisation of the financial statements with the objective of issuing auditor’s reports within two business days of the financial statements being signed.

The result of 87 per cent of entities issued a signed auditor’s report within three months of the financial year end is an increase from 80 per cent in the prior year.

The ANAO is committed to delivering cost-effective audits through increased efficiency and effectiveness. One way of demonstrating this is to measure the cost of delivering audits over time. This new measure is designed to track the ANAO’s organisational performance against the delivery of audit outcomes.

In 2017–18 the ANAO is reporting on audits of financial statements from the 2016–17 audit cycle, as the financial year ends on 30 June and the audit occurs post the end of the financial year. Therefore, the average cost per audit for AASG is calculated by comparing the average cost of the 2016–17 audit cycle, which is completed in September 2017, to the average cost of the 2015–16 audit cycle, which is completed in September 2016. The 2016–17 average cost was $153,726 and the 2015–16 average cost was $156,587 representing a 2 per cent decrease.

The ANAO is committed to demonstrating transparency of its operations. Monitoring the percentage of audit staff available hours charged to audit work gives an indication of staff utilisation which is an indicator of the efficient and effective allocation of resources in delivering financial statements audits.

The target rate of 85 per cent of available hours being charged to audit work reflects the need for staff to undertake professional development and contribute to corporate tasks. The result of 90 per cent utilisation is within the ANAO’s tolerance for this measure.

This was a new measure in the 2017–18 Corporate Plan.

The ANAO adds value by providing entities with audit findings and recommendations to improve internal controls and business processes, based on observations noted during the conduct of financial statements audits. These matters are reported to the accountable authority and copied to the chair of the audit committee and the chief financial officer via an interim management letter, a closing report or a final management letter. All factual observations concerning the audit findings are agreed with entities before finalising these reports. Included in the measure of agreed recommendations are situations where the audited entity agrees with the ANAO’s factual observations, but the entity may suggest an alternative method to resolve the issue.

The audit findings and recommendations are reported using a rating scale whereby significant and moderate risk issues are reported individually to the audited entities, the Minister and the Parliament. Lower risk issues are also reported individually to each entity, and in aggregate in the ANAO’s reports to Parliament.⁴

All audit findings and recommendations are followed up as part of the audit of the following year’s financial statements.

The ANAO measures the percentage of moderate and significant findings that are implemented by entities in order to measure the impact that the ANAO’s audit work has on public administration. This criteria relates to the percentage of moderate or significant findings⁵ for material entity audits, addressed within 12 months of being reported to the entity. ‘Addressed’ means that the entity has responded to and actioned the ANAO finding.

In order to calculate this measure a full 12 month period is required following the end of an audit cycle to allow entities time to respond to findings and provide the ANAO the opportunity to evaluate the timeliness and appropriateness of their response and confirm the finding as resolved or unresolved. As a result this performance measure considers the unresolved significant and moderate findings reported at the conclusion of the 2015–16 audit cycle. At the conclusion of the 2015–16 audit cycle 22 significant and moderate findings were reported. At the conclusion of the 2016–17 audit cycle 68 per cent (15) of these findings were reported as resolved within 12 months of being reported to Parliament.

When the timeframe is extended to 18 months the percentage of findings addressed by material entities increases to 95 per cent.

Program 1.2 – Performance Audit Services

The ANAO reports to the Parliament on aspects of public administration, and makes specific recommendations to assist Parliament in holding government entities to account for meeting expectations of, and making improvements to, proper use of resources as required by the PGPA Act. Performance audits may report on one entity, or involve multiple entities on a common aspect of administration or policy implementation or where there is joint administration of a program or service.

The ANAO’s performance audit services include audit activities which involve performance audits of all or part of an entity’s operations and result in independent performance audit reports to the Parliament. Other reports are also prepared, including the Defence Major Projects Report, limited assurance reviews and information reports. These reports, along with performance audits contribute to accountability and transparency of public sector administration.

In 2017–18, the primary focus of ANAO performance audits was effectiveness – the extent to which entities delivered on intended objectives. The year also saw continued emphasis on economy and efficiency with which entities manage and use public resources, reflecting the Auditor-General’s mandate. During the year the ANAO continued to develop methodology and associated guidance for examining efficiency in performance audits and continued to broaden its coverage to also focus on corporate entities and government business enterprises (GBEs)—noting that the Auditor-General undertakes audits of GBEs only at the request of the JCPAA. In 2017–18, the ANAO tabled performance audits of four GBEs.

In 2017–18, 13 audits were cross entity audits (audits of the same topic across multiple entities) and included topics such as corporate planning, performance reporting, contract management, government policy implementation, risk management and financial management.

In response to ongoing parliamentary interest in entities’ implementation of ANAO audit recommendations, in 2017–18 the Auditor-General tabled 11 performance audits that either followed up on an entity’s progress in implementing recommendations, or followed on from other related audits. The 2018–19 annual audit work program continues a series of audits that will examine entity progress in implementing recommendations arising from a previous performance audit, or from a related Parliamentary enquiry.

Performance measures

Performance audit services contribute to achieving the ANAO’s purpose through:

• audits of the performance of Australian Government programs and entities, including identifying recommendations for improvement and key learnings for all government entities; and
• other assurance reviews and information reports to Parliament.

To assess performance against purpose in relation to performance audit activities, the ANAO measures the number of: performance audits presented to Parliament; the time and cost of these audits (our efficiency); percentage of recommendations agreed to and the status of their implementation by entities (our impact and effectiveness).

In 2017–18, the Auditor-General presented 47 performance audits for the information of the Parliament. The publication of the 48th report (Army’s Protected Mobility Vehicle – Light) was expected to occur in December 2017. It has however been delayed as a result of an application made by Thales Australia on 5 January 2018 to the Attorney-General to consider issuing a certificate under subsection 37(1)(b) of the Auditor-General Act 1997 prohibiting the inclusion of particular information in a public audit report. A certificate from the Attorney-General was received on 29 June 2018 requiring consideration of the impact of the certificate on the proposed public report. Thales Australia also sought orders from the Federal Court of Australia to restrain the publication of particular information in the proposed audit report. The Federal Court action was dismissed by consent shortly after the issuance of the Attorney-General’s certificate.

In addition to the performance audits presented to Parliament, the Auditor-General also presented the limited assurance reviews of Murray-Darling Basin National Partnership Agreement and Achieving value for money from the Fair Entitlements Guarantee Recovery Program as well as the Australian Government Procurement Contract Reporting information report.

Table 3.2: Number of performance audit reports, 2015–16 to 2017–18

Note a: 2015–16 and 2016–17 - the number of performance audits presented to the Parliament was affected by the double dissolution of the Parliament of Australia on 9 May 2016.

There are two issues that impact the length of an ANAO Performance Audit. The first issue which impacts on average audit length is finding and leveraging efficiencies in the audit production process. In 2017–18 efficiencies included: reducing the time taken to print and prepare reports for tabling; more effective use of resourcing; and improved processes for audit clearance. These have all contributed to reduction in time without compromising audit quality.

The second issue relates to the selection of performance audits. Some audits will be more complex and/or cover multiple agencies and therefore take longer, whereas other audits will be an in-depth review on a targeted issue, so can be completed in a shorter timeframe. In selecting audit topics the ANAO ensures an appropriate balance between the level of complexity and depth of the audit program as a whole. While no analysis has been undertaken to assess the impact of this issue there was no strategy to change the audit mix in this regard for 2017–18.

Table 3.3: Duration of performance audit reports, 2015–16 to 2017–18

The ANAO is committed to delivering cost-effective audits through increased efficiency and effectiveness. One way of demonstrating this is to measure the cost of delivering audits over time. This new measure is designed to track the ANAO’s organisational performance against the delivery of audit outcomes.

The average cost per audit for PASG is calculated by comparing the average cost of the 2016–17 audit cycle to the average cost of the 2017–18 audit cycle.

This result is consistent with the reduction in the average length of the audit as outlined in Criterion 10.

Table 3.4: Cost of performance audit reports, 2015–16 to 2017–18

Note a: Cost is calculated on a nominal cost recovery basis using an accrual-based costing model.

The ANAO is committed to demonstrating transparency of its operations. Monitoring the percentage of audit staff available hours charged to audit work gives an indication of staff utilisation which is an indicator of the efficient and effective allocation of resources in delivering performance audits.

The ANAO continues to streamline its processes to ensure that to the extent possible, staff are working on audit related activities. In particular, in 2017–18, a new resourcing approach was rolled out to minimise the transition time for staff between audits. While this delivered some improvements, the resourcing approach will be further refined through 2018–19 to further optimise the percentage of hours allocated to audit work. The 80 per cent target reflects the need for staff to undertake professional development and contribute to corporate tasks.

The ANAO makes recommendations in performance audits reports to support Parliament to hold entities to account for their administration and service delivery. Throughout a performance audit, the ANAO keeps entities informed of findings and discusses potential recommendations to ensure entities understand the basis and intention of recommendations. Over time, this approach has resulted in a consistently high percentage of entities agreeing to ANAO recommendations, although 2017–18 saw an increase in the number of recommendations that were agreed with qualifications which has affected the average. Table 4 provides details of recommendations agreed against those made. Only recommendations that were agreed without qualification are included as ‘agreed’ recommendations – 12 recommendations were agreed with qualification.

There were four recommendations made where entities did not either agree or disagree. Specifically, the recommendations were in two reports Management of the Contract for Telephone Universal Service Obligations and Australia Post’s Efficiency of Delivering Reserved Letter Services. In both reports, the Department of Communications and the Arts elected not to state whether or not it agreed with the recommendations directed towards it. In the latter report, the Department of Finance also elected not to state whether or not it agreed with the recommendations directed towards it. This approach to dealing with recommendations does not assist the Parliament in holding entities to account.

Table 3.5: Agreement to recommendations in performance audit reports, 2015–16 to 2017–18

Note a: There were also 4 recommendations for which no response was provided.

The ANAO monitors entities’ implementation of performance audit recommendations by attending entity audit committees, and conducting audits which follow up on entity progress in implementing previously made audit and related Parliamentary enquiry recommendations. For the first time this year, the ANAO also sought advice from all relevant entities on progress in implementing recommendations made in audits tabled in 2015–16. The self-reported evidence suggests that entities are implementing ANAO recommendations largely within 24 months of the recommendation being agreed. For those recommendations that have not yet been implemented, entities have advised that work is underway.

ANAO-wide

There are a number of measures that are shared across the ANAO and they generally relate to relationships, corporate and professional services. This area of activity contributes to achieving the ANAO’s purpose through:

• facilitating dissemination of the ANAO’s findings to members of Parliament, the executive and the public;
• providing organisation-wide support services for the ANAO, based on specialised knowledge, professional practice and technology; and
• ensuring ANAO audits are of high quality and compliant with auditing standards.

The ANAO supports the work of the Parliament by providing independent assurance and opinions, including information, assistance and briefings to parliamentarians and to parliamentary committees, particularly the JCPAA.

Performance measures

To assess performance against its purpose in relation to ANAO-wide activities, the ANAO measures:

• performance in delivering audit services through the ANAO’s key relationship with the Parliament;
• whether the Quality Assurance Program indicates that audit conclusions are appropriately supported and the ANAO quality assurance framework is operating effectively;
• the number of learning and development hours undertaken by ANAO staff; and
• increase in social media followers.

The ANAO supports the work of Parliamentary Committees by providing private briefings on request, and making appearances and submissions to Committee inquiries. In 2017–18, the ANAO made 36 appearances and submissions to parliamentary committees as detailed in Table 3.6.

The result exceeded the target and is comparable to the 2016–17 result of 39. The relationship with the JCPAA remains the ANAO’s key parliamentary engagement. However, in order to support the work of the Parliament more broadly the ANAO has focused on proactively seeking broader opportunities to engage with the Parliament and improve the utilisation of audit reports in parliamentary proceedings. More than half (sixty seven per cent) of ANAO appearances and submission in 2017–18 were to Parliamentary Committees other than the JCPAA, the ANAO’s oversight committee. Engagement activities included:

• the inclusion of a key learnings section in performance audit reports which is included in an Executive Summary for parliamentary briefings;
• development of Audit insights products that provide information on audit issues and examples of good practice, as identified through financial statement and performance audit work, by way of shared learnings for all Commonwealth entities;
• providing a summary before each estimates hearings to Estimates Committees which includes information about all audit reports that have tabled since the last estimates hearings; and
• reviewing all Senate, House and Joint Committee inquiries and making submissions and being available to appear at hearings where there is relevant audit coverage to the committee inquiry terms of reference.

Table 3.6: ANAO appearances and submissions to Parliamentary Committees

In 2017–18 the ANAO provided 21 private briefings to individual Parliamentarians on request. Of these briefings, 19 related to specific audit reports and two briefings were to provide a general outline on the role of the Auditor-General and functions of the ANAO. Most briefing requests are prompted by the receipt of an audit tabling notice from the ANAO to relevant Ministers, Shadow Ministers, party leaders and independent Senators.

All briefings provided by the ANAO to parliamentarians or a parliamentary committee are published on the ANAO website.

In determining the ANAO’s audit work program, the Auditor-General must consider the priorities of the Parliament, as determined by the JCPAA. Formal consultation with the JCPAA about the audit priorities of the Parliament occurs in approximately April to May each year to inform the development of ANAO’s Annual Audit Work Program. Throughout the year the Auditor-General also receives direct requests from Members and Senators of the Parliament of Australia, for audits of particular areas of public administration as new issues emerge. Where the Auditor-General determines that further examination is warranted as a result of an audit request, a response can be provided through a range of mechanisms, including by initiating a performance audit, an assurance review, or an information report, or through correspondence.

In 2017–18 the Auditor-General received eight requests for audit from members of the Parliament. A response to seven of the eight requests was provided in 28 days. The one request not finalised within 28 days was due to the ANAO conducting a range of inquiries to enable a response. Table 3.7 outlines the ANAO’s actions regarding these requests.

Table 3.7: Parliamentary request for audit

The ANAO engaged an independent research firm, ORIMA Research Pty Ltd, to conduct a survey of JCPAA members and other parliamentarians in 2018. The result of 100 per cent against a target of 90 per cent was based on the percentage of JCPAA members who responded to the survey that agreed or strongly agreed to the following statements:

• The ANAO’s reports and services have contributed to improved public sector accountability and transparency; and
• The ANAO’s reports and services help improve public sector administration.

The response rate of JCPAA members to the 2018 survey (27 per cent), representing 4 of the 15 members surveyed, was significantly lower than in the 2015 survey (67 per cent). Comparative analysis of the 2015 and 2018 surveys in respect to the satisfaction ratings that the ANAO improved public sector performance and supported accountability and transparency, indicate that the JCPAA results were similar in terms of the level of agreement. In addition, JCPAA members were positive in their ratings of the ANAO’s engagement with the JCPAA, particularly in relation to the ANAO’s engagement on issues of relevance, representation of the ANAO at JCPAA public hearings, provision of private briefings, and general communication and consultation by the ANAO. Recognising the surveys limited response rate, the ANAO will consider alternative methods to measure this performance indicator in the future.

The ANAO supports accountability and transparency in the Australian Government sector through independent reporting to the Parliament. To provide some insights into the Parliament’s utilisation of ANAO reports, preliminary analysis of mentions of ANAO reports by Parliamentarians or Parliamentary Committees was conducted for internal reporting purposes. The results of the analysis reveals that in 2017–18 there were over 230 individual mentions of ANAO reports, with a significant increase of mentions by Parliamentary Committees during the Senate Estimate hearings held in October 2017, and in February and May 2018. The high number of mentions reflects the continued and respected contribution of the ANAO in informing Parliament on a wide range of matters relating to the performance of the public sector. It is expected that over time, this analysis may reveal trends in parliamentary interest and utilisation of ANAO’s reports, which will inform continued improvement to the audit services and support provided to the Parliament.

Quality in the delivery of the ANAO’s audit services is critical in supporting the integrity of audit reports and maintaining the confidence of the Parliament and public sector entities. This is reflected in the target set in the performance indicator.

The ANAO Quality Assurance Framework, is a system of quality control designed to provide assurance that it complies with applicable professional standards and relevant regulatory and legal requirements, and that the reports issued are appropriate in the circumstances.

A key element of the ANAO Quality Assurance Framework is monitoring of compliance with policies and procedures that comprise the system of quality control. The monitoring system comprises internal and external quality assurance reviews of the ANAO’s audit and other assurance engagements. The system is designed to provide the Auditor-General with assurance that engagements comply with the ANAO Auditing Standards, relevant regulatory and legal requirements and ANAO policies, and that reports issued are appropriate in the circumstances. Monitoring activities is the responsibility of the Professional Services and Relationships Group reporting to EBOM and the ANAO Audit Committee. The ANAO Quality Committee is responsible for monitoring the ANAO’s progress in addressing the findings and recommendations arising from the monitoring programs.

Monitoring processes include:

• annual quality assurance reviews of completed audits covering all of the functions of the ANAO;
• real time quality reviews of in-process financial statement audits;
• progress reviews at specified points by the audit executive and Auditor-General for in-process performance audits;
• bi-annual external peer reviews of completed performance audits performed by the Office of the Auditor General New Zealand; and
• external reviews of the quality framework and completed audits, as considered appropriate.

In 2017–18, the annual quality assurance program of completed audits reviewed 10 financial statement audits, four performance audits and one limited assurance review. In addition, three real time quality reviews of in-process financial statement audits were conducted.

As in previous years, the mix of audits selected for review comprised audits conducted utilising in-house resources and those undertaken by contracted firms. Consistent with prior quality assurance programs, the majority of the findings related to the sufficiency and adequacy of audit documentation. Identified areas for improvement in financial statement audit documentation included clearly evidencing changes made to the audit plan during the course of the audit and the reasoning for the changes. An improved practice implemented by the ANAO to address this area of improvement is the introduction of a formal meeting of all team members at a mid-point in the audit to consider the results of testing completed and any necessary changes to the planned audit approach. For performance audits, documentation could have been improved in areas relating to engagement with IT Audit specialists and assessment of documentation provided by management.

No issues that were indicative of systemic deficiencies were identified. All assurance conclusions were found to be appropriate in the circumstances.

The ANAO also has a Qualifications and Accounting Policy Committee, which provides a forum for engagement executives to consult on difficult or contentious matters and, where necessary, resolve differences of opinion on audit related matters. ANAO policy identifies the matters that must be referred to the committee, and the committee meets as required to provide advice to the Auditor-General. The committee was consulted on 17 matters in 2017–18.

In 2017–18 the ANAO invited the Australian Securities and Investments Commission (ASIC) to conduct an external independent review of the ANAO’s Quality Assurance Framework and two audits of financial statements for the year ended 30 June 2017. These reviews were conducted using ASIC’s methodology for reviewing private sector audits. In respect of the file reviews, ASIC made findings in respect of the sufficiency and adequacy of audit documentation, including evidencing: review of contract terms and conditions for grants made; prior year judgements in respect of the appropriateness of accounting policies; the basis for selecting journals for testing; and the reasonableness of assumptions used by valuation experts.

In respect of the quality framework, ASIC conducted a high level review of the ANAO’s policies covering the key requirements of auditing standard ASQC 1 and a detailed review of the ANAO’s program of internal quality reviews of financial statement audits. Within the scope of ASIC’s review, it identified no areas where the design of the framework did not satisfy the requirements of ASQC 1 and made two good practice recommendations:

• Consideration could be given to rating all public interest entities as high risk or appointing a second reviewer; and
• Consideration could be given to reviewing and challenging audit judgements in internal reviews of audits.

The ANAO is in the process of addressing these recommendations.

Based on the results of reporting to the EBOM and completed internal and external reviews, the Auditor-General is satisfied that the system of quality control functioned effectively in 2017–18.

The ANAO’s auditing policies for performance and assurance audits include requirements for staff to undertake 20 hours of professional development per financial year. Ensuring technical competence in audit staff is a key element of supporting quality audit outcomes.

The ANAO is required to have policies and procedures designed to provide reasonable assurance that personnel have competence, capabilities and commitment to ethical principles necessary to:

• perform engagements in accordance with ANAO auditing standards, relevant ethical requirements and applicable legal and regulatory requirements; and
• enable Signing Officers to issue reports that are appropriate in the circumstances.

Competence is developed through a variety of methods such as continuing professional development, including training. Technical training can be in the form of formal presentations, such as technical updates, conferences, e-learning or time spent in preparation of presentations of technical training. Typically CPD hours for the preparation of technical training equals three hours per one hour of presented material, e.g. a two hour presentation equals six hours of eligible preparation CPD hours.

ANAO staff are encouraged to maintain professional development and membership of professional bodies and to meet the CPD requirements of any relevant professional bodies of which they have membership.

Where a staff member has not completed the minimum continuing professional development hours required, they are expected to increase their participation in the following year’s learning and development activity. This will be agreed with their supervisor / administrative manager when developing their Individual Development Plan which forms part of the ANAO’s performance management framework.

In 2017–18 100 per cent of audit staff undertook at least 20 hours of professional development against a target of 100 per cent. The result excludes the following:

• staff who were not employed on audit work for the full year;
• non audit staff, such as practice management;
• contractors, who are expected to bring and maintain the appropriate level of expertise;
• staff on long term leave; and
• staff who were part time.

The ANAO measures followers on Twitter in order to measure the level of interest in the ANAOs audit work. The figures reported above are an approximation as Twitter follower numbers were not available at 30 June 2017. The ANAO have been able to use Buffer software to report on Twitter statistics since December and the ANAO has used the mean between the number at 1 January 2017 and 31 December 2017 as the baseline against which the percentage increase is assessed.

Transparency reporting

The Corporations Act 2001 includes requirements for annual transparency reporting by auditors. Although the ANAO is not subject to the transparency reporting requirements for private sector audits that are specified in that Act, the ANAO has embraced the principles of transparency reporting. Appendix 4 summarises the requirements that are relevant to the ANAO and shows where the required information is presented in this annual report.

Report on financial performance

The work of the ANAO is mainly funded by Government appropriation, with a small percentage of revenue generated from audit fees paid by clients for audits by arrangement under section 20 of the Auditor-General Act 1997. Audit fees are set to cover our expenses.

Overview of financial performance and future financial viability

The ANAO remains in a sound financial position, operating within its appropriation and with sufficient cash reserves to fund its debts as and when they fall due.

In monitoring financial performance, the ANAO excludes the impact of depreciation and amortisation that affect the operating results. In 2017–18, after adjusting for the impact of depreciation and amortisation, the ANAO’s operating surplus was $1.68 million. The ANAO continues to refine its approach to ensure that it operates within budget.

Figure 3.1: Operating result (excluding depreciation and amortisation) 2012–13 to 2017–18

The ANAO budgets to remain financially sustainable into the forward estimates, and continues to implement operational efficiencies. The past 12 months have been focused on implementing its three-year Future Ready Change Program (Future Ready), enabling the organisation to maintain a professional practice and an agile workforce into the forward estimates.

In the first quarter of 2018–19, both the accommodation lease for the ANAO office building and the arrangement with the current IT provider (UNISYS) will expire. Work has commenced on reviewing the ANAO’s accommodation requirements and determining the future IT environment that will be needed to support staff and the delivery of the Auditor-General’s mandate. Discussions with the Department of Finance will be undertaken if additional funding is required to support either project.

Expense impacts

The ANAO consistently spends most of its budget on employee related expenses, contractors and consultants. All staff are based in Canberra and predominantly undertake audits on key portfolio and material agencies. The ANAO also engages contractors, under the supervision of senior staff at the ANAO, within and at locations outside of Canberra to undertake audits of entities. ANAO staff travel to interstate locations to maintain appropriate oversight and quality assurance processes over these audits, including attendance at entity Audit Committees.

Where required, the ANAO also engages contractors and consultants such as valuers and actuaries to provide expertise required to complete the audit program. In 2017-18 Contractors and consultants for non-audit services are primarily comprised of the workplace strategy consultant and IT consultants for the ICT Source Contract.

The ANAO’s total expenses for 2017–18 was $73.58 million excluding depreciation.

Figure 3.2: Expenses by type 2017–18

Financial position

As at 30 June 2018, the ANAO had net equity of $31.60 million, representing $45.55 million of assets offset by $13.94 million of liabilities.

Most of the ANAO’s assets and liabilities are of a financial nature, with the largest balance being appropriation and other receivables ($42.13 million). The majority of the ANAO’s liabilities relate to employee provisions ($10.75 million) and suppliers ($2.44 million).

Table 3.8: Summary of financial performance 2016–17 and 2017–18

Note a: The impact of excluding depreciation and amortisation resulted in the ANAO achieving a $1.68 million surplus

Revenue impacts

Government revenue decreased in 2017–18 to $71.19 million.

Own source revenue in 2017–18 was $0.34 million less than the previous year’s $4.42 million. Audit services income and rendering of other services decreased slightly by a total of $0.13 million and international development funding decreased by $0.21 million.

Entity resource statement

The entity resource statement provides additional information about the various funding sources that the ANAO may draw upon during the year. Appendix 5 details the resources available to the ANAO during 2017–18 and sets out the ANAO’s summary of total expenses for Outcome 1.

Financial Statements

• Independent auditor’s report
• Statement by the Auditor-General and Acting Chief Finance Officer
• Statement of Comprehensive Income
• Statement of Financial Position
• Statement of Changes in Equity
• Cash Flow Statement
• Administered Schedule of Comprehensive Income
• Administered Reconciliation Schedule
• Overview
• Note 1: Budget Variances
• Note 2: People and Relationships
• Note 3: Funding
• Note 4: Financial Performance
• Note 5: Financial Position
• Note 6: Other information

Download the audited financial statements at Related documents on this page.

The Auditor-General is responsible for both administering the Act and managing the ANAO within the arrangements of the broader Australian Public Service. Part 6 of the Act establishes the ANAO under the Public Service Act 1999 and requires it to operate as an entity under the PGPA Act.

The ANAO is committed to building the capabilities of the organisation to achieve the Auditor-General’s purpose. It does this through implementing governance frameworks, ensuring commitment to good governance practices and investing in developing organisational capability.

Governance

The ANAO has a clearly defined governance framework that supports management of the organisation and its resources. The framework provides the governance structure for the ANAO. The ANAO’s corporate governance framework, processes and related organisational capability support:

• achievement of its purpose;
• compliance with relevant laws, standards and directions; and
• meeting public expectations of probity, accountability and transparency.

The ANAO governance structure is outlined in Figure 4.1.

Figure 4.1: ANAO governance structure at 30 June 2018

Executive Board of Management

The Executive Board of Management (EBOM) provides leadership to the ANAO in achieving organisational purpose and assists the Auditor-General to meet their statutory responsibilities.

The EBOM is responsible for supporting the ANAO’s strategic direction; overseeing business; identifying strategic and operational risks; managing the ANAO’s budget and workforce; and delivering against the commitments and initiatives outlined in annual business plans. The EBOM meets monthly and terms of reference are reviewed annually. In 2017–18 the Auditor-General determined that the Senior Executive Director, Systems Assurance and Data Analytics Group, should be appointed as a standing member of the EBOM. The revised standing membership is:

• Auditor-General (Chair);
• Deputy Auditor-General;
• Group Executive Directors, Assurance Audit Service Group, Performance Audit Service Group and Professional Standards and Relationships Group;
• Senior Executive Director, Corporate Management Branch;
• Senior Executive Director, Systems Assurance and Data Analytics Group; and
• Chief Finance Officer.

The members as at 30 June 2018 are outlined at Appendix 1.

Staff are informed about key decisions of the EBOM through communications from the Auditor-General which are published on the ANAO intranet after each meeting.

Standing Committees

To support the EBOM and ensure organisational accountability and transparency, standing committees have been established. All standing committees provide oversight to specific areas of strategic operations and are responsible for identifying and managing risk on an ongoing basis. Committees report to the EBOM through summary reports and meeting minutes. The terms of reference for the standing committees are reviewed annually.

In 2017–18 the EBOM created the Accommodation Steering Committee as a sub-committee to provide visibility to the EBOM on the progress of the accommodation project. The Accommodation Steering Committee is also responsible for the management of risk associated with the accommodation project and providing oversight of the development of designs and plans.

The business of the ANAO is governed through the following committees.

• People and Change Committee provides strategic advice to the EBOM on people and capability development and on managing change in the ANAO.
• Quality Committee provides assurance and assistance to the EBOM on the ANAO’s quality framework and the strategic and operational risks associated with quality.
• Finance Committee advises the EBOM on financial matters, and monitors the strategic and operational risks associated with resources.
• IT Strategic Committee provides advice to the EBOM on information technology, business systems strategic directions and investments and monitors associated operational and strategic risks.
• Security Committee provides assurance and assistance to the EBOM on the ANAO’s security framework and monitors associated strategic and operational risks.
• Work Health and Safety Committee is responsible for monitoring and reviewing the Work Health and Safety (WHS) policies and practices and advising the ANAO on WHS matters.
• Accommodation Steering Committee supports the implementation of the ANAO’s accommodation project and provides advice to the EBOM and the Accommodation Project Team as required.

Operational Committees

There are three ANAO operational committees.

• Remuneration Committee advises the Auditor-General on processes to support changes in remuneration and performance payments.
• Qualifications and Accounting Policy Committee provides a forum for engagement executives to consult on difficult or contentious matters and, where necessary, resolve differences of opinion on audit related matters. ANAO policy identifies the matters that must be referred to the committee, and the committee meets as required to provide advice to the Auditor-General.
• Weekly Operational Committee oversees the operational activities of the ANAO with a particular emphasis on staffing, performance and external relations. The committee also considers the status of the audit program in service group reporting and any other matter of strategic importance to the ANAO. The committee meets weekly.

Audit Committee

The Audit Committee provides independent assurance and advice to the Auditor-General, including reviewing the appropriateness of the ANAO’s financial and performance reporting, systems of risk oversight and management, and systems of internal control. Section 45 of the PGPA Act and section 17 of the PGPA Rule set out the role of the audit committee for Commonwealth entities.

In order to maximise the independence of the assurance and advice provided by the Audit Committee the Auditor-General appoints only external independent members. The Audit Committee met five times during 2017–18.

During 2017–18 its membership comprised:

• Mr Will Laurie (Chair), external independent member;
• Mr Sean Van Gorp, external independent member; and
• Ms Maria Storti, external independent member.

Dr Ian Watt’s engagement on the ANAO Audit Committee ceased in June 2017 and he was replaced by Ms Maria Storti in August 2017. In December 2017, the engagement of Mr Will Laurie as Chair of the Audit Committee was renewed for a further two years.

External scrutiny

The ANAO’s operations, processes and reports are periodically subjected to independent external review.

Part 7 of the Auditor-General Act 1997 provides for the appointment of an Independent Auditor who undertakes the audit of the ANAO’s financial statements and carries out selected performance audits having regard to the audit priorities of the Parliament determined by the JCPAA. The Independent Auditor position is a part-time statutory appointment for a period of at least three years and not more than five years. The current Independent Auditor is Mr Peter van Dongen, who was appointed as the Independent Auditor in June 2014.

In 2016–17, the Independent Auditor undertook a performance audit of the ANAO’s cyber security processes. The report, Review of Cyber Security, was tabled in Parliament on 4 December 2017. The report included a number of recommendations relating to the ANAO’s own IT environment and the ANAO’s cyber security performance audits of other Australian Government entities. The ANAO response to the report’s recommendations is available on the ANAO website.

The ANAO received an unmodified auditor’s report on its financial statements for the year ended 30 June 2018.

No decisions made by a court or administrative tribunal or by the Australian Information Commissioner had or may have a significant effect on the operations of the ANAO in 2017–18. However, in January 2018, proceedings were filed by Thales Australia in the Federal Court of Australia, seeking to prevent the Auditor-General from publishing particular information in a proposed audit report; Army’s Protected Mobility Vehicle – Light. These proceedings were filed after the Auditor-General declined a request to exclude certain information from the proposed audit report. In January 2018, Thales Australia also sought a certificate from the Attorney-General under subsection 27(1)(b) of the Auditor-General Act 1997. The Auditor-General received a certificate on 29 June 2018 which requires omission of particular information from the proposed report. The proceedings in the Federal Court of Australia were dismissed by consent shortly thereafter.

The ANAO was not the subject of any agency capability reviews or reports by the Commonwealth Ombudsman in 2017–18.

Governance practices

The Auditor-General has a framework of practices supported by strategic planning, risk management, quality assurance, the control environment and capability development. These assist in supporting good quality organisational governance and management.

Strategic planning

Strategic planning drives the ANAO’s activities and enables the ANAO to adjust its activities and resourcing to align with emerging priorities and support achievement of its purpose. The ANAO’s organisational priorities are identified in the ANAO corporate plan and performance is measured and reported in the annual performance statements in the annual report. The ANAO tracks all key strategic projects, including milestones and dependencies, at the EBOM and uses this to drive the business of the ANAO governance committees.

Key elements of the ANAO’s strategic planning framework for 2017–18 are presented in Figure 4.2.

Figure 4.2: ANAO strategic planning framework

ANAO corporate plan

The corporate plan is the ANAO’s primary planning document and sets out how the office will achieve its purpose. The corporate plan is complemented by the ANAO’s annual audit work program which reflects the ANAO’s audit strategy and deliverables.

The corporate plan sets out the purpose of the ANAO and the environment within which the ANAO expects to operate. It also outlines the planned performance framework including details of the methodology, data and information to be used to measure and assess performance and capability investments including the plans and strategies to be implemented to achieve its purpose. It includes an overview of the ANAO’s risk oversight and management systems.

ANAO annual audit work program

The annual audit work program sets out the ANAO’s audit strategy and deliverables for the coming year. It informs the Parliament, the public and government sector entities of the planned coverage of the Australian Government sector by way of financial statements audits, performance audits and other assurance activities.

The annual audit work program presents information on the financial statements audits and other assurance activities that will be finalised in the coming year. The program also presents information on performance audits in progress and a rolling program of potential performance audits and assurance engagements for each portfolio.

A whole-of-organisation planning process brings together the knowledge and insights gained from the ANAO’s financial statements audit work and the program of performance audits to inform the identification of topics for inclusion in each year’s program. The development of the annual audit work program takes into account the views of the Parliament, as presented by the JCPAA. The ANAO also consults directly with entities subject to financial statements audit coverage and potential performance audit coverage to obtain their views on the program. The Auditor-General consults with other review agencies including the Commonwealth Ombudsman, the Inspector-General Intelligence and Security, and the Inspector-General of Taxation in preparing the program. The release of draft potential performance audit topics on the ANAO’s website provides an opportunity for members of the public to provide views.

Risk oversight and management

The ANAO’s Risk Management Framework is based on adherence to the Commonwealth Risk Management Policy of July 2014. The policy adopts definitions outlined in the international standard on risk management, AS/NZS ISO 31000:2009 Risk management – Principles and guidelines. The standard defines risk as ‘the effect of uncertainty on objectives’, and risk management as the ‘coordinated activities to direct and control an organisation with regard to risk’. The policy has nine elements and the ANAO has established risk oversight and management systems to address each of those elements.

The ANAO’s management of risk is designed to be built into business-as-usual practices with the aim of using consistent language, approaches and documentation across all levels of the organisation. Risks associated with audit products are identified and managed within the delivery of the products and within the quality framework.

Risks need to be managed in the context of achieving organisational goals and objectives. While all staff contribute to the way risks are managed, senior staff in key positions are expected to have a clear view of the risk treatment (where applied) and its effectiveness in operation.

The ANAO has adopted an integrated approach to managing risk, whereby risks are considered and assessed at different levels within the organisation. Identifying and assessing risks does not occur in isolation, but requires the consideration of risks identified and treated at other levels. Any significant risks are to be escalated to ensure that these are appropriately treated and the residual risk reduced to an acceptable level. All risk assessments, including their identification, controls, likelihood, consequence, and residual risk rating are documented consistently across the ANAO. Controls embedded within the ANAO’s current business processes are identified as part of the risk evaluation process.

The EBOM reviews any serious risk incidents each month, and any risk assessed as ‘high’ or above is monitored as a standard agenda item. Business risks are reviewed at least annually. There were no serious risk incidents in 2017–18, and all risks with controls in place were assessed as ‘medium’ or ‘low’.

Internal audit

Internal audit provides an objective audit service which is designed to add value and improve the ANAO’s operations. A systematic and disciplined approach is taken to evaluate and improve the effectiveness of risk management, control and governance processes.

In 2017–18, the ANAO’s internal auditor, BellchambersBarrett, completed the following reviews:

• Business Continuity and Disaster Recovery;
• Gifts, Benefits and Official Hospitality Policy;
• Management of Underperformance;
• Performance Statement Audit;
• Fraud Risk Assessment and Fraud Control Plan;
• Outsourcing of IT Services — Project Implementation; and
• Learning and Development — Mandatory Training.

The seven completed internal audits made 16 recommendations in total. Following the June 2018 Audit Committee meeting there were 11 outstanding internal audit recommendations that had work in progress to address the recommendations. Three of these relate to internal audits completed in 2016–17 where the implementation had not been achieved within the anticipated completion date.

Quality Assurance Framework

Auditing Standards

The ANAO’s work is governed by the ANAO Auditing Standards established by the Auditor-General, in accordance with section 24 of the Act. The ANAO Auditing Standards are set out in a legislative instrument under the Legislation Act 2003. It is the Auditor-General’s intention that audits conducted by the ANAO should be conducted to the same standards required of the auditing profession in Australia and consistent with the international public sector auditing community, to the extent that they are not inconsistent with the provisions of the Act or other relevant legislation.

The ANAO defines audit quality as the provision of timely, accurate and relevant audits, performed in accordance with the Act, ANAO Auditing Standards and methodologies which are valued by the Parliament. Delivering quality audits results in improved public sector performance through accountability and transparency.

All ANAO executives and staff have a responsibility for quality. The Auditor-General is ultimately responsible for the system of quality control in place for assurance engagements conducted by the ANAO. The Deputy Auditor-General is responsible for ensuring that the system of quality control satisfies the requirements of the ANAO Auditing Standards. The Deputy Auditor-General is assisted by the Group Executive Directors, who also report at least annually to the EBOM on audit quality and business management matters. Internal and external reviews also provide important scrutiny and reference points on the effectiveness of the quality framework.

Prior to February 2018, the ANAO Auditing Standards incorporated the standards made by the Auditing and Assurance Standards Board as applied by the auditing profession in Australia (the AUASB standards). This was in the context that, until recent years, there was not a robust standard-setting framework for international public sector auditing standards. Since 2004, the International Organization of Supreme Audit Institutions (INTOSAI) has worked to build the capacities and structures needed to provide a widely recognised set of international professional standards for public-sector auditing.

ASAE 3500 Performance Engagements (ASAE 3500) is the relevant AUASB standard for performance audits in Australia. The AUASB reissued ASAE 3500 in October 2017. The revised version of the standard included changes to the requirements for the content of performance audit reports. The most significant change impacts the way conclusions and findings are required to be reported. The revised standard requires that the conclusion on the performance audit be clearly separated from any findings and recommendations and only significant negative findings can be referred to in stating the conclusion. The revised standard does not include the flexibility to enable the ANAO to continue to include both positive and negative findings and observations in the conclusion section of its audit reports.

The ANAO Auditing Standards established in February 2018 largely adopt the revised ASAE 3500, however the reporting requirements of ASAE 3500 are replaced with those contained in INTOSAI Standard ISSAI 3000 Standard for Performance Auditing (ISSAI 3000). The reporting requirements of ISSAI 3000 are consistent with the current practice of the ANAO in reporting conclusions, findings and recommendations in performance audit reports. Specifically, the reporting requirements of ISSAI 3000 allow for the audit conclusion to include and be presented together with other information that highlights both positive and negative aspects of performance. This is consistent with the ANAO’s current approach in reporting to the Parliament and with the ANAO’s purpose.

The ANAO Auditing Standards also incorporate Auditing Standard ASQC 1 Quality Control for Firms that Perform Audits and Reviews of Financial Reports and other Financial Information, other Assurance Engagements and Related Services Engagements (ASQC1). ASQC 1 requires the ANAO to establish and maintain a system of quality control to provide it with reasonable assurance that the ANAO complies with the ANAO Auditing Standards and other applicable requirements and that reports issued by the Auditor-General are appropriate in the circumstances.

The ANAO maintains a focus on the quality framework as a core business investment. A sound quality framework supports delivery of high-quality audit work and enables the Auditor-General to have confidence in the opinions and conclusions in reports prepared for the Parliament. The system of quality control established and maintained by the ANAO encompasses a number of key elements including learning and development requirements, delegations framework, methodology development and review, an escalation framework for accounting policy and qualifications risk, both supervisory and arms’ length internal review, and external review. The quality framework and its activities are overseen by the Professional Services and Relationships Group which reports to the Auditor-General on technical quality and standards issues.

Figure 4.3:  ANAO Quality Framework

Methodology

The ANAO Auditing Standards are supported by a methodology incorporating audit manuals applicable to performance audit and assurance audit work. This methodology is regularly reviewed and updated as required for changes in the ANAO Auditing Standards, industry better practice, new and emerging products and to address findings from the ANAO quality assurance program. In 2017–18 updates to the methodology included:

• a substantial update of the performance audit manual to incorporate changes to the ANAO Auditing Standards and to reflect current practice in a more robust manner;
• continuing development of the methodology for auditing performance statements to reflect experience gained in this relatively new subject matter; and
• issuing guidance arising from post-implementation reviews of the application of the methodology to efficiency audits and performance audits of Government Business Enterprises.

Compliance with ANAO Quality Assurance Framework

The ANAO quality framework includes policies and processes to monitor compliance with the policies and procedures contained in the framework, particularly as they relate to the performance of audits. Monitoring programs are additional to, and supplement, the supervision and review policies that apply to all audits and the engagement performance element of the framework, and are the responsibility of the business units. Monitoring activities are the responsibility of the Professional Services and Relationships Group reporting to EBOM and the ANAO Audit Committee. The ANAO Quality Committee is responsible for monitoring the ANAO’s progress in addressing the findings and recommendations arising from the monitoring programs.

Monitoring processes include:

• annual quality assurance reviews of completed audits covering all of the functions of the ANAO;
• real time quality reviews of in-process financial statement audits;
• progress reviews at specified points by the audit executive and Auditor-General for in-process performance audits;
• bi-annual external peer reviews of completed performance audits performed by the Office of the Auditor General New Zealand; and
• external reviews of the quality framework and completed audits, as considered appropriate.

The key enhancement to the quality framework in 2017–18 was the introduction of external reviews for assurance audits. The ANAO invited ASIC to conduct an external independent review of the ANAO’s Quality Assurance Framework and two audits of financial statements for the year ended 30 June 2017. The reviews were conducted using ASIC’s methodology for reviewing private sector audits. ASIC conducted a high level review of the ANAO’s policies covering the key requirements of auditing standard ASQC 1 and a detailed review of the ANAO’s monitoring program of internal quality reviews of financial statement audits. Within the scope of ASIC’s review, it identified no areas where the design of the framework did not satisfy the requirements of ASQC 1 and made two good practice recommendations that the ANAO is in the process of addressing.

Control environment

The ANAO has a robust control environment in place. The current control framework includes the following approved policies and procedures which document key business procedures and incorporate details of key internal controls. Regular reviews of controls are undertaken by management and through the use of internal audit. Key documents include:

• Auditor-General instructions (AGIs). These apply key principles and requirements of the Commonwealth’s resource management framework to the operations of the ANAO;
• Financial Management Procedures (to support the AGIs);
• Delegations and authorisations; and
• The Employee Handbook.

Probity and independence

The ANAO’s commitment to high ethical and professional standards underpins the quality of its work. For audit professionals, independence is an element central to the quality of each audit. It is the avoidance of circumstances that could compromise any member of the audit team’s ability to act with integrity and exercise objectivity and professional scepticism. The ANAO Auditing Standards and the ANAO Independence Policy require staff and contractors engaged in audits to comply with the relevant provisions of the Accounting Professional & Ethics Standard Board, APES 110 Code of Ethics for Professional Accountants relating to independence. Any threat to independence must be evaluated and safeguards applied to reduce the threat to an acceptable level. Situations where a threat cannot be reduced to an acceptable level are not entered into or allowed to continue.

When conducting procurements, the ANAO adheres to the Department of Finance Ethics and Probity in Procurement Principles. Staff involved in assessing procurements are required to receive a probity briefing from the procurement team. Any open tender procurements require the completion of probity and conflict of interest declarations from staff involved in evaluating the responses before they are given access to the responses. Complex procurements have nominated probity advisors included in the evaluation team either from internal ANAO staff or specialised external probity advisors.

Fraud control and prevention

The Finance Committee is responsible for monitoring fraud control and prevention. The fraud control framework is made up of the Fraud Control Policy, Fraud Control Plan and Fraud Risk Register. Consistent with previous years, the ANAO continues to maintain appropriate fraud prevention, detection, investigation, reporting and data collection procedures. The ANAO enhances fraud awareness amongst staff through various mechanisms, including a fraud e-learning module. In July 2017 the Auditor-General made annual completion of the fraud e-learning module mandatory for all ANAO staff.

The current Fraud Control Plan is linked to the ANAO Risk Management Framework and consolidates all fraud prevention and detection activities in one document. Having particular regard to the risk to the ANAO’s reputation should fraudulent activity occur the ANAO periodically reviews its fraud control framework to take into account changes in its operating environment. The Fraud Control Policy, Fraud Risk Assessment and Fraud Control Plan are reviewed annually and published every two years.

There were no incidents of fraud in 2017–18. All fraud risks were assessed and appropriate controls were in place.

Auditor-General’s disclosure of expenses

The Auditor-General voluntarily discloses publically any expenses incurred to ensure transparency. His expenses for the 2017 calendar year and for January to June 2018 are available on the ANAO website. The Auditor-General’s expenses are disclosed every six months.

Gifts and benefits

The ANAO gifts and benefits policy recommends that ANAO employees do not accept any gifts or benefits in their role as an employee of the ANAO. Employees are required to report any offered gift or benefit (whether accepted or refused) within ten business days of the offer being made, through an internal gifts and benefits register. The data collected through the register is reported to the ANAO’s EBOM, and a subset of the data is reported publicly, twice per year.

Outside employment

The ANAO provides its employees with flexibility to participate in activities outside the APS if the activities do not conflict or adversely affect the performance of their official duties. There is a range of activities that may be deemed to be in the public interest and of professional benefit to the individual and to the ANAO. Outside work is other employment (paid or unpaid) or volunteer activities undertaken by an employee in addition to their official duties or while on paid or unpaid leave from the ANAO.

Prior approval is required for all outside activities and employment unless specifically excluded from the policy. If an employee commenced outside employment before joining the ANAO, the employee must obtain approval to continue the employment immediately upon commencement. In all other cases, employees must obtain approval before commencing outside employment.

Approval is not required where activities are solely of a personal nature, that is when employees perform work or undertake activities for voluntary community organisations or sporting bodies. Passive investment activities, such as rental properties, share trading and so on, are also excluded from approval requirements. However all exclusions from approval are on the basis that activities are undertaken in the employee’s own time, no ANAO resources are used and that there is no conflict of interest or adverse effect on their official duties.

At 30 June 2018, the ANAO approved 41 staff undertaking outside employment activities.

Compliance survey

On a bi-annual basis the delegates of the ANAO are required to assert through the Compliance Survey compliance with the financial framework, including the PGPA Act. Results of the survey are reported to the ANAO Audit Committee and EBOM. The response rate to the surveys was 100 per cent of applicable staff.

In 2017–18 the survey identified no major breaches of the ANAO delegations, financial management rules and associated legislation. Two minor breaches related to incorrectly reporting contracts on AusTender were reported. Relevant staff were counselled to ensure future breaches do not re-occur.

Detailed reporting and analysis of staff misuse of credit cards is regularly provided to the EBOM and the Finance Committee. All incidents of incidental personal use are reported to the EBOM. The CFO directly contacts these staff and reminds them of their obligations in using the corporate credit cards and ensures prompt repayment of monies into the departmental bank account. In 2017–18 there were 18 incidents of staff misuse of credit cards. All these incidents were investigated and found to be inadvertent and the staff involved were counselled.

Organisational capability

Building the capabilities of the organisation is a key priority for the ANAO to ensure a workplace culture focused on excellence, integrity and respect. The ANAO maintains working relationships with international and national audit counterparts, audited entities and the audit profession to build its capability through the two-way exchange of information and practices.

Future Ready

In 2016, the ANAO introduced the Future Ready Change Program (Future Ready) which was designed to position the ANAO to deliver audit services to the Parliament into the future. Future Ready was embedded in the ANAO Corporate Plan 2017–18 under the Capability section. Future Ready outlined the strategic shifts the ANAO would make to sustainably deliver value-adding audit services into the future and centred on four key capability areas:

• new models of audit service delivery;
• advanced information and communication technology (ICT) strategy and systems;
• contemporary communication capabilities; and
• leadership capabilities.

New models of audit service delivery

The purpose of investments in this capability was to drive improvements in the ANAO’s audit products through increasing the range of audit topics and audit types that are undertaken, improving audit practice management processes to share information and skills across the office, investing in accommodation that supports a collaborative work environment and supporting quality audit outcomes.

In 2017–18 the ANAO developed new audit methodologies for performance statement audits and efficiency audits and created a collaboration space for all staff to trial new ways of working. The ANAO also improved the quality framework as outlined in the Quality Assurance section. In 2017–18, the ANAO adopted a revised Social Media Policy and ANAO Independence Policy.

The accommodation project is a large project which commenced in 2017–18 to support a collaborative work environment. The design is intended to support collaborative work while making efficient use of space.

Accommodation project

The ANAO’s current lease expires in September 2018. The ANAO has been undertaking a project throughout 2017–18 to design a workplace that supports delivery of the Auditor-General’s purpose now and into the future and meets government space requirements. After completing a thorough search for suitable office space that delivered value-for-money to the Commonwealth, the ANAO is in negotiations to enter a 12 year lease to remain in the current building, 19 National Circuit, Barton. Fit-out works will be undertaken to develop a workplace that efficiently and effectively uses available space and better supports communication, collaboration and adaptability.

The EBOM established an Accommodation Steering Committee which meets monthly and reports on the progress of the project. The Steering Committee is assisted in its work by an Accommodation Project Board which meets fortnightly to manage the operational implementation of the project.

To support the change process the ANAO engaged consultants, Puzzle Partners, to develop a workplace strategy to guide the design of the future work environment. The strategy was informed by workplace observations, as well as feedback provided during staff discovery sessions and CoDesign Sessions, in a dedicated project information space and through an online workplace survey. Staff were able to trial and provide feedback on furniture options in a pop-up space.

Final designs for the fit-out have been agreed and the ANAO is now commencing procurement processes to support the refurbishment. It is expected that this project will continue to be rolled out over the coming financial year.

Advanced ICT strategies and systems

Future Ready outlined investments in ICT strategies and systems that were aimed at investing in data analytics, improving options for flexible and remote working, centralising systems and tools used across the ANAO and supporting them from Corporate Management Branch.

As outlined in Part 2, the ANAO has created the Systems Assurance and Data Analytics Group. This group is responsible for implementing the ANAO’s Data Analytics Strategy.

Any investments in the ANAO’s ICT capability must be supported by the ANAO IT service provider. A key activity for 2017–18 has been the procurement of a new IT support contract for the ANAO.

ANAO IT support

The ANAO outsources a number of IT functions including a service desk and management of hardware, infrastructure and IT processes. The existing outsourcing agreement expires in mid-2018, and the ANAO approached the market through an open tender to procure IT services to provide support into the future.

After rigorous evaluation and negotiation processes the ANAO selected ASG Group Limited (ASG) to provide IT services in a new three year contract. The contract with ASG commenced on 2 July 2018 and has been designed by the ANAO to support and mature its technology capability, including:

• Transformation to a PROTECTED cloud through Infrastructure as a Service;
• Capability to support ANAO’s future business environment – technology for new accommodation, improved remote working, collaborative computing, data analytics;
• Introduction of new service support arrangements – onsite helpdesk and greater online support;
• New performance framework with service levels that align with critical business needs; and
• Focus on building a mature, risk based approach to ANAO’s cyber resilience.

Unisys, the previous IT service provider, has agreed to an extension of its current contract in order to facilitate the transition to ASG.

Contemporary communication capabilities

The ANAO has invested in improving its communication over a number of years. This has included focussing the communication within audit reports. In 2017–18 the ANAO introduced reporting on ‘key learnings for all Australian Government entities’ in every report since Auditor-General Report No. 9 of 2017–18, Management of the Pre-construction Phase of the Inland Rail Programme. Key learnings identify key issues arising out of ANAO audits that all entities should consider and is another mechanism by which the ANAO seeks to improve public administration.

In 2017–18, the ANAO has increased the number of audit insights it publishes. These publications identify and discuss common recurring issues, shortcomings and good practice examples, identified through our financial statement and performance audit work. Six audit insight publications were released covering a broad range of topics.

A key area of focus for the ANAO has been improving the organisations internal communication with staff.

Events

The ANAO organises regular events designed to keep staff informed and engaged.

Town Hall events are designed to inform staff of current organisational priorities, future directions and relevant developments. The purpose is to create a sense of cohesion across the organisation and to recognise achievements of staff. Three Town Hall events were held in 2017–18.

The ANAO Leaders Speaking program is designed to expose staff to ideas about leadership, beyond those they are typically exposed to working in audit and the APS more broadly. Three Leaders Speaking events were held in 2017–18. Guest speakers who gave a presentation about their lives and leadership experiences were Virginia Haussegger AM (former journalist and now adjunct professor at University of Canberra’s Institute for Governance and Policy Analysis and head of the 50/50 by 2030 Foundation), Lyn Provost (former Auditor-General and Comptroller General NZ) and Julie Crisp (current Auditor-General NT).

Leadership capabilities

Investments in the ANAO’s leadership capability were aimed at forming strong relationships with counterparts, shaping and managing business strategy and providing a framework for people development. The key activities in 2017–18 was the development of the ANAO Workforce Plan and the ongoing investment in the ANAO’s national and international relationships.

Workforce plan

At 30 June 2018, the ANAO employed 320 staff, including 27 Senior Executives. The ANAO staffing profile, details of coverage of employment instruments, diversity statistics and salary information can be found at Appendix 2.

In April 2018, the EBOM endorsed the ANAO Workforce Plan. The objective of the plan is to ensure that the ANAO has a professional and capable workforce that can respond to the Auditor-General’s mandate and priorities in coming years. The plan was developed in response to a number of challenges the ANAO faces:

• Workload demand and workforce supply: the annual financial audit cycle has periods of intensity that the ANAO must meet, but is currently restricted by the service group by service group approach;
• Capability development and deployment: existing systems do not effectively identify and respond to resourcing and capability gaps, reducing workforce efficiencies;
• Organisational and industry separation: ANAO workforce and recruitment strategies are not aligned with the rates of turnover within the organisation and the wider auditing industry;
• The future auditor: the need to build a skilled workforce for the future that is forward-looking, risk focused, technologically adept, change orientated and highly adaptive supported by recruitment methods that proactively meet resourcing needs and recognise the core and specialist capabilities required; and
• High performance culture: the need to embed a cohesive culture that aligns to our professionalism and values, driven by empowered leadership and a commitment to high performance.

The plan will be implemented through the following two enabling frameworks and three strategies which are in development:

• human resource metrics framework;
• core capability framework, including new capability areas such as data analytics and assurance;
• recruitment strategy;
• onboarding and separation strategy; and
• development and high performance strategy.

Recruitment and retention

Graduate program

The ANAO’s graduate program is open to university students who are completing their final year of study or have completed a degree within the past seven years. During the 12-month program, graduates undertake an intensive learning and development program, consisting of technical, people management and general training and skill development.

In 2018, the ANAO’s graduate program included 29 graduates: 11 in the Assurance Audit Services Group; 11 in the Performance Audit Services Group; 3 in the Systems Assurance Data Analytics Group, 1 in the Professional Services and Relationships Group and 1 in the Corporate Management Branch. As part of the partnership program between the ANAO and the Papua New Guinea Auditor-General’s Office (AGO), sponsored by the Department of Foreign Affairs and Trade, two graduate-level staff from the AGO also participated in the 2018 ANAO graduate program.

Intern program

The ANAO’s undergraduate employment program provides paid part-time practical work experience for people studying relevant disciplines at universities in Canberra. During 2017–18, 14 students took part in the ANAO intern program. The ANAO continued to foster productive relationships with the Australian National University, the University of Canberra, Chartered Accountants Australia and New Zealand and CPA Australia to recruit students for the program.

Supporting high performance

During 2017–18, the ANAO supported 54 staff members to undertake professional qualifications and tertiary education, including programs offered by Chartered Accountants Australia and New Zealand, CPA Australia and ISACA (which is the professional association for IT audit specialists). The ANAO also invested in a diverse range of programs to build capabilities, including coaching, technical workshops, well-being and communication skills.

The ANAO’s learning and development program supports staff to meet continuous professional development (CPD) requirements relating to their membership of professional accounting associations. This includes:

• support to complete 120 hours of CPD over a three-year period, with a minimum of 20 hours to be completed per financial year. This includes ten hours of formal technical training in relevant areas such as financial statements auditing, accounting or legal frameworks;
• a written declaration that they have complied with the CPD requirements for each financial year; and
• evaluation of training undertaken by staff against the learning and development curriculum.

The ANAO recognises and rewards individual staff and teams who make a significant contribution to achieving its business objectives, in areas such as client service, people management, business management, audit management and innovation. The recognition and awards system comprises formal ANAO awards (Auditor-General’s Australia Day Awards, Outstanding Achievement Awards, Professional Development Awards, and Certificates of Appreciation) and formal external awards (Public Service Medals, Institute of Public Administration Australia Awards, Chartered Accountants Australia and New Zealand – Leadership in Government Awards).

Talent Management program

Following the success of a pilot program in 2017, the ANAO launched its Talent Management Program in April 2018. The 2018 program will run along similar lines to the pilot program with nine ANAO staff participating. Themes for the year will include:

• leadership capabilities;
• embracing change; and
• managing performance.

Participants also have been asked to explore and make recommendations regarding strategic issues facing the ANAO as identified by the EBOM.

360-degree feedback

The Executive 360 project was developed to assess the leadership capabilities of the Executive Level cohort to deliver on the ANAO Corporate Plan 2017–18. In late 2017, the ANAO engaged Nous Group to deliver this project in conjunction with an in-house project team. There were a number of critical success factors:

• at the completion of the project the ANAO had a clear understanding of the development needs and strengths of its Executive Level staff;
• Executive Level staff had a positive development experience; and
• the 360 instrument was developed to meet ANAO needs and align to the Australian Public Service Integrated Leadership System.

Between January and June 2018, 77 Executive Level 1 and 88 Executive Level 2 staff undertook a survey followed by individual Executive Coach debriefs.

The Executive will review the final report and its recommendations in early July and decide how best to provide development to Executive Level staff in terms of their personal and professional development.

Staff Engagement

The ANAO is committed to building a productive and supportive workplace that encourages and engages its employees. Each year, the ANAO participates in the APS Employee Census. The ANAO’s 2017–18 survey achieved a staff response rate of 81 per cent, which while a good result, was a little lower than last year’s response rate of 84 per cent. Of the 319 staff who were eligible to complete the survey, 258 did so. The ANAO received the report in late July and is currently reviewing the results.

In November 2017, the ANAO launched an innovative staff engagement and capability building program called LearnFest. LearnFest was inspired by a similar program run at the National Audit Office in the United Kingdom. The overarching principles of LearnFest were to improve organisational culture, develop staff and leadership capability and support diversity and wellbeing.

Across the LearnFest week, 20 to 24 November 2017, staff attended workshops and activities to build their professional and technical skills along with sessions aimed at improving management and leadership skills and workshops that linked directly to personal health and wellbeing. The ANAO Diversity Contact Officer Network also hosted a multi-cultural food festival, FoodFest, and handmade market during LearnFest enabling recognition of diversity and creativity of staff. LearnFest had 1001 attendances at 37 workshops led by 21 internal presenters and 14 external presenters. Seventy five per cent of ANAO staff attended at least one LearnFest workshop.

The ANAO Senior Executive Service (SES) Conference is an opportunity for senior ANAO leaders to exchange ideas and solve challenges on current and future operating environment and priorities as well as plan and agree strategic directions for the organisation. During this year there was an expectation that SES staff would lead and facilitate the conference to encourage diversity of ideas as well as build individual capability. Two SES conferences were held in 2017–18. These fed into the development of the ANAO Corporate Plan 2017–18, development of the ANAO’s data strategy, and improvements to the ANAO’s engagement strategy.

Health and Wellbeing Initiatives

The ANAO is committed to promoting the health and wellbeing of its staff. The ANAO recognises that work-based health and wellbeing programs positively contribute to morale, resilience and productivity by reducing workforce absence, illness and workplace injury. The ANAO participates in the Australian Public Service Commission’s Benchmarking on unscheduled absences across the APS which can provide information on staff wellbeing. The most recent report received, covering the period 1 July 2017 to 30 March 2018 shows the ANAO’s unscheduled absence rate at 7.8 days compared to the APS average of 8.4 days.

By informing, enabling and supporting staff to make healthy choices, the ANAO is contributing to the overall health and wellbeing of its social community. During 2017–18, programs that were promoted include:

• diversity contact officers;
• the introduction of the Reasonable Adjustment Passport;
• the Employee Assistance Program;
• Mental Health Guru;
• flu vaccinations (156 staff received vaccination onsite with a further 42 opting to receive a voucher);
• annual health checks (87 staff participated);
• Whole of Canberra Workplace Challenge in April (37 staff participated);
• the introduction of eight mental health first aid officers; and
• provision of fruit for staff during National Safe Work Week.

Relationships

The ANAO invests in a number of relationships to support its ability to be a learning organisation through the two-way exchange and sharing of information and practices, and to support other nations through peer-to-peer institutional capacity development. In November 2017 the EBOM endorsed the ANAO’s Engagement Strategy that details the ANAO’s organisational engagement approach to key relationships with the public sector auditing community.

The ANAO’s key relationships include the Australasian auditing community, through our membership in the Australasian Council of Auditors-General (ACAG). The ANAO also has close links with the international and regional auditing community through the INTOSAI and its regional working groups, and contributes to the delivery of the Australian Government’s aid program in the Indo-Pacific region. The ANAO values its relationships with the Australian Accounting Standards Board (AASB) and the AUASB, in their roles of setting and maintaining professional and ethical standards for the accounting and auditing professions, which underpin the delivery of quality audit services.

The ANAO website contains further information about the ANAO’s relationships.

International relationships

International Supreme Audit Institutions

The ANAO is a member of INTOSAI, which is dedicated to promoting the exchange of audit and financial management information among its member nations and providing a network for the international public sector audit community.

The ANAO also contributes to the activities of two INTOSAI regional organisations:

• the Asian Organization of Supreme Audit Institutions; and
• the Pacific Association of Supreme Audit Institutions (PASAI).

Engagement with other supreme audit institutions (SAIs) allows the ANAO to participate in the international dialogue about best practice public administration and developments in public sector auditing. The ANAO also responds to requests from SAIs directly, including by hosting and presenting to visiting delegations, providing information and participating in surveys.

Key engagements in the 2017–18 period included:

• participating in the 20^th PASAI Congress in Tuvalu. The theme for the Congress was ‘Promoting Values and Benefits of Supreme Audit Institutions through Effective Communication’;
• as a panellist at the Board of Audit of Japan 22nd Tokyo International Meeting on Audit. Meeting discussions were based around the theme of Auditing the Implementation of Energy Policies in the respective participating countries;
• co-hosting in Sydney, Australia, the 27th Meeting of the INTOSAI Working Group on IT Audit alongside the Chair, the Auditor General of India. The meeting was attended by 48 delegates from 23 member countries;
• as a presenter at the Institute of Internal Audit Public Sector Conference Singapore. The ANAO’s presentation provided an auditor’s perspective on digital transformation, under the conference theme of Internal Audit: Adding Value in Public Sector Transformation;
• participating in the Global Audit Leadership Forum in Luxembourg. Forum discussions were focused on the topics of: Carrying out performance audit in a political context - what are the limitations; and Communicating audit findings in a digital world - challenges and opportunities;
• participating in the PASAI Regional Working Group on Environmental Audit in Brisbane;
• hosting a six month overseas fellowship programme participant from the Board of Audit of Japan, supported by the Japanese Government. The fellowship program aims to foster specialists with international experience and to contribute to the further improvement of the Board of Audit of Japan’s performance audit;
• as a guest editor for the first e-newsletter of the Commonwealth Auditors General Group. The first edition focuses on leveraging technology in public audit and draws on international peers’ experiences and learnings from conducting cybersecurity audits; and
• as a member of an expert group that is led by National Audit Office of the People’s Republic of China, preparing for the 2019 INTOSAI congress meeting theme discussions relating to information technologies for the development of the public administration.

Australia’s International Aid Program

Through a partnership agreement with the Department of Foreign Affairs and Trade, the ANAO is participating in Australia’s international aid program to assist and support the Indonesia and Papua New Guinea audit offices to build institutional capacity and facilitate the sharing of auditing knowledge across all offices. The partnership supports the Australian Government’s sectoral aid initiative to develop effective governance institutions. Under the program, the ANAO contributes to strengthening the financial statements audit and performance audit capacity and the joint sharing of auditing knowledge and practice, including through the deployment of senior ANAO staff and through twinning arrangements.

Australia Indonesia Government Partnerships Fund

The ANAO’s activities under the Australia Indonesia Government Partnerships Fund (GPF) program with the Audit Board of Indonesia (BPK) are designed to support BPK’s efforts to strengthen management of its audit functions. The program is aligned with the BPK strategic plan objectives of delivering high quality audits and achieving national development goals by Indonesian Ministries and Agencies. The key 2017–18 program focused on performance and financial audit management, quality assurance systems and organisational development to support audit management and capability. An ANAO SES staff member is deployed to the BPK to provide ongoing support to the implementation of performance audit action plan and related organisational development activities. The program includes visiting senior staff providing technical training and updates to BPK, and delegations of BPK senior staff visiting Australia for strategic discussions.

Australia Papua New Guinea Twinning and Strongim Gavman Program

The Institutional Partnership Program (IPP) commenced on 1 July 2017 after the conclusion of the precursor program, the Strongim Gavman Program. The IPP supports the development of long term institutional relationships between Australian and Papua New Guinea Government entities. The ANAO’s activities under the IPP with the AGO support the AGO’s efforts to strengthen the management of its audit functions, in-line with the AGO Corporate Plan 2017-2021 strategic objectives. In 2017, the ANAO reviewed the support provided to the AGO, moving from a model with two embedded advisers to one senior performance audit adviser with increased reciprocal short-term exchange activities to provide more targeted support for key priority AGO projects. The key 2017–18 program focus areas were leadership engagement, financial audit methodology and technical support, contract management, information and communications technology support and IT audit. The program continued individual capacity building opportunities through AGO staff placements in ANAO graduate and manager programs.

National relationships

Accountable authorities

The ANAO has an important relationship with the accountable authorities of Australian Government entities, who have primary responsibility for and control over public sector entities’ operations. The ANAO engages with auditees at a number of levels to strengthen relationships and promote improved financial reporting and public sector administration.

The ANAO considers that its ongoing relationship with chief financial officers (CFO), officials of audited entities and audit committees helps to achieve its purpose to both improve public sector performance and support accountability and transparency in the Australian Government sector. As part of this work, the ANAO conducts client seminars, CFO Forums and Audit Committee Chair Forums to share insights on emerging and topical audit issues and changes in financial reporting requirements affecting Australian Government entities.

The ANAO hosted CFO forums in December 2017 and June 2018 that were each attended by approximately 80 CFOs and entity representatives. In these forums the ANAO shares information about issues arising in audits, key focus areas of the audit program and provides insights and themes on the effectiveness of public administration. The forums are streamed online, with the broadcast retained on our website after the live delivery, to provide multiple access opportunities for CFO’s to participate.

Audit committees play an important role in entities’ governance frameworks. Two audit committee chairs forums were held in December 2017 and June 2018 that were co-presented with the Department of Finance and attended by approximately 40 audit committee chairs and representatives on each occasion To provide opportunities for interstate chairs to participate, the Auditor-General held a forum in Sydney in February 2018 that was attended by seven chairs of audit committees. The forums provide an opportunity to share insights from the audit program and relevant updates and information to assist committees to meet the requirements of the PGPA Act and Rules. A communique is published on the ANAO website after each forum.

Australasian Council of Auditors-General

The Auditor-General is a member of the ACAG, which comprises the Auditor-General for Australia, the Auditors-General for each Australian state and territory, and the Auditors-General for Fiji, New Zealand and Papua New Guinea. ACAG’s objective is to promote and strengthen public sector audit in Australasia through leadership, collaboration, engagement, advocacy and peer support. The ANAO contributes to the council’s work by attending business meetings and sub-committee meetings, preparing discussion papers, participating in information exchanges, undertaking annual benchmarking and client surveys and conducting peer reviews. In February 2018 the delivery of the ACAG Introduction to Performance Audit Methodology training program was presented in Canberra, at the ANAO offices.

ACAG hosts the International Meeting of Performance Audit Critical Thinkers (IMPACT) every two years. In 2018, Margaret Crawford, New South Wales Auditor-General, hosted the conference in Sydney. ANAO representatives that participated in the IMPACT conference were:

• Grant Hehir, the Auditor-General for Australia, who was a panel member addressing the topic ‘the performance auditor of the future’; and
• Lisa Rauter, Group Executive Director, Performance Audit Services Group, who presented to a conference breakout session on ‘Auditing Innovative Approaches to Policy and Program Design and Delivery’.

The Deputy Auditor-General represented the ANAO at the biannual joint ACAG and Canadian Council of Legislative Auditors (CCOLA) meeting in Toronto. CCOLA is an organisation devoted to sharing information and supporting the continued development of auditing methodology, practices and professional development. The 2018 meeting included a performance audit symposium focused on the theme ‘Navigating through Complexity’.

Professional Accounting Bodies and Standard Setting Boards

The ANAO is actively involved in the work of two professional accounting bodies in Australia, CPA Australia and Chartered Accountants Australia and New Zealand. Ms Carla Jago, Group Executive Director Assurance Audit Services Group, is a member of the Chartered Accountants Australia and New Zealand ACT Regional Council and was the Public Sector Representative on the Chartered Accountants Australia and New Zealand Audit Advisory Committee until December 2017.The ANAO has knowledge level status under CPA Australia’s Recognised Employer Partner program. The ANAO contributes to the development of accounting and auditing standards through contributing to ACAG responses to exposure drafts for new or amended standards proposed by the AASB, the Auditing and Assurance Standards Board, the Australian Professional and Ethical Standards Board and the International Public Sector Accounting Standards Board.

Other management issues

The management activities and services that support the ANAO’s audit functions are undertaken in line with government policies and better practice. Reporting against the following activities is provided in Appendix 3:

• compliance with financial law;
• assets management;
• purchasing and procurement;
• consultants;
• procurement activities to support small business;
• advertising and market research;
• grant programs;
• environmental protection and biodiversity conservation;
• disability reporting;
• work health and safety reporting;
• freedom of information; and
• service charter.

Appendix 1: Organisational information

Outcomes and programs framework

Figure A.1.1: Outcome and programs framework

Executive Board of Management

Table A.1.1: Standing Membership of the Board at 30 June 2018

 

Appendix 2: Workforce information

Table A.2.1: Staff coverage under employment instruments, 30 June 2018

Note:  Includes ongoing, non-ongoing and casual staff.
All employees are covered by either the ANAO Enterprise Agreement 2016–2019 or a common law employment contract.
Employees covered by the Enterprise Agreement may also have an individual flexibility agreement in operation.
Information in this table coves substantive classification of staff and does not include acting arrangements.

Table A.2.2: Ongoing, non-ongoing and casual staff, by substantive classification and gender, 30 June 2018 and 2017

Note:  APS = Australian Public Service; EL= Executive Level; SES = Senior Executive Service
Includes all staff employed by the ANAO, including operative and inoperative staff. Inoperative staff are defined as staff who are absent from work for more than 13 weeks.
Information in this table covers substantive classification of staff and does not include acting arrangements.

Table A.2.3: Ongoing, non-ongoing and casual staff, by attendance type, 30 June 2018 and 2017

Note: Includes all operative and 12 paid inoperative staff, excluding 11 inoperative staff that were on leave without pay. Inoperative staff are defined as staff who are absent from work for more than 13 weeks.
One full time ongoing staff identifies as indigenous.
All ANAO staff are Canberra based.

Remuneration

The ANAO’s employment framework supports strategies in developing and building capability, investing in its staff, flexible working arrangements and appropriate remuneration. The ANAO’s Enterprise Agreement 2016–19 came into effect on 21 April 2016 and covers the terms and conditions of employment at the ANAO, other than terms and conditions applying under a relevant Commonwealth law or implied at common law. The Agreement provides for a two per cent annual pay increase which is funded from within existing and known future agency budget and revenue streams.

The salary ranges for SES are determined by the ANAO’s SES Remuneration Policy (available on the ANAO website) and having regard to public sector benchmarks, such as the annual APS remuneration survey. The nature of the work, specific skills and individual contributions to business outcomes are key factors in setting individual SES salaries. SES remuneration payments are set out under Note 2.3 of the financial statements at Part 3 of this this report.

Table A.2.4: Available salary ranges for APS employees by classification at 30 June 2018

Note:  APS = Australian Public Service; EL= Executive Level

Table A.2.5: Performance payments in 2017–18

Note: APS = Australian Public Service; EL= Executive Level; SES = Senior Executive Service

Table A.2.6: Summary of performance ratings for the period ending 31 October 2017

Note: APS = Australian Public Service; EL= Executive Level

Non-salary benefits

The ANAO offers staff a number of non-salary benefits which include:

• annual influenza immunisation;
• spectacle reimbursement;
• mentoring and coaching programs;
• in-house capability development programs;
• confidential employee assistance program for employees and their immediate families;
• study assistance to eligible employees;
• access to flexible working arrangements; and
• contributions to relevant professional memberships.

The ANAO provides the Senior Executive Service (SES) staff and where there is a business need some EL and APS staff with a mobile phone, tablet, laptop and/or airline lounge membership. Employees can also make use of a range of salary sacrifice benefits, including additional superannuation and leased motor vehicles.

Workplace consultative forum

The Workplace Consultative Forum (WCF) is an important part of the ANAO’s ongoing commitment to employee engagement. The WCF has 19 members which includes staff, union and management representatives. In 2017–18, the WCF met on four occasions to discuss and consider a range of employment-related issues, including accommodation, enterprise bargaining and the performance and career development program.

Workforce diversity

The ANAO aims to create an organisation that encourages and welcomes diversity. This includes diversity of backgrounds, views, thoughts and approaches. The ANAO’s objective is to attract a range of people across varying professions and backgrounds, especially within the executive level roles, to build a successful and sustainable organisation with a culture that enriches its work and impact. Diversity fosters an environment of mutual learning, respect, openness and appreciation to differences and other perspectives. Such a positive culture creates opportunities for a variety of different voices to be encouraged and heard.

The ANAO has Diversity Contact Officers (DCOs) who champion diversity across the ANAO, with a focus on building a positive workplace culture. The DCO cohort provides informal and confidential support to staff that are seeking assistance and guidance on workplace issues, such as harassment and bullying.

The ANAO DCO’s host events and supports recognised days to educate and raise awareness among our staff. During 2017–18, sponsored events included:

• R U Ok Day;
• International Women’s Day;
• Harmony Day; and
• Mental Health Awareness week.

The 2018–20 Diversity and Inclusion Strategy was developed in consultation with staff and the Diversity Council Australia. The strategy was approved by the Executive and released in February 2018. The strategy provides the ANAO with guidance on ways to successfully embrace diversity by creating an environment that values and uses the contributions of people with different backgrounds, experiences and perspectives. The strategy aims to create a supportive, flexible, and engaging workplace in which our employee’s differences are respected and viewed as an organisational asset.

At 30 June 2018, the ANAO has one employee (less than one per cent of staff) who self-identified as Indigenous. The ANAO collaborates with other Australian Government agencies so that it can better meet the employment needs of Indigenous Australians.

The ANAO held a selection of events to commemorate NAIDOC Week in 2017. In keeping with the year’s theme of ‘Our Languages Matter’, the ANAO hosted a workshop for staff to learn elements of the Ngunnawal language, alongside a lecture examining Aboriginal languages more broadly across Australia.

The ANAO Reconciliation Action Plan (RAP) was released in February 2018. The ANAO RAP describes how the ANAO will contribute to reconciliation between Aboriginal and Torres Strait Islander people and non-Indigenous people. It lists a set of practical actions that will be undertaken to:

• build upon cultural awareness within our organisation to create a work place where all people can share experiences in an inclusive environment that is culturally safe and diverse;
• actively promote the involvement of Aboriginal and Torres Strait Islander peoples in our organisation; and
• work in collaboration with Aboriginal and Torres Islander peoples to build respectful relationships that support our vision of becoming an employer of choice for Aboriginal and Torres Strait Islander peoples.

This plan was developed by the RAP Working Group in consultation with Reconciliation Australia, Curijo Consulting and with input from staff from across the organisation as part of a workshop held at the start of 2017.

Appendix 3: Other management issues

Compliance with financial law

In 2017–18, the ANAO had no significant issues under paragraph 19(1)(e) of the PGPA Act, relating to non-compliance with the finance law.

Assets management

The ANAO’s assets management policy is set out in the Auditor-General’s Instructions and supporting financial management procedures. High-value assets are subject to whole-of-life management, including formal tendering for acquisition, scheduled maintenance, and detailed accounting of disposal or return at the end of the useful life of the asset. The ANAO’s asset management practices are designed to protect the interests of the Australian Government.

Purchasing and procurement

The ANAO’s approach to procuring goods and services, including consultancies, is consistent with, and reflects the principles of, the Commonwealth Procurement Rules. These rules are applied to activities through the Auditor-General’s Instructions and supporting financial management procedures.

The ANAO’s Procurement Plan is published annually and available from the AusTender website: www.tenders.gov.au. The plan is updated when circumstances change.

The ANAO’s tender evaluation processes are designed to be fair and equitable and to enable potential suppliers to compete for ANAO business. Before proceeding to a substantive evaluation, the ANAO undertakes a check against all mandatory requirements that are listed in the tender documentation.

The ANAO also participates in a number of collaborative procurement arrangements with other agencies, such as the ICT Hardware Panel, led by the Digital Transformation Agency and the Legal Services Multi-Use List, run by the Attorney-General’s Department.

All tenders and contractual arrangements undertaken in 2017–18 were carried out in accordance with the Commonwealth Procurement Rules.

No contracts in excess of $10,000 (including GST) or standing offers were exempted by the Auditor-General from being published on AusTender on the basis that they would disclose exempt matters under the Freedom of Information Act 1982.

Consultants

The ANAO engages consultants as required to undertake a variety of tasks. The most common uses of contracted consultants include the application of expert professional skills to:

• investigate or diagnose a defined issue or problem;
• provide independent advice, information or creative solutions; and
• provide specialised services, including assistance with actuarial calculations, probity services, and legal advice.

The major competitive tendering and contracting activities in 2017–18 were to obtain professional skills to assist with certain financial statement and performance audits and the ANAO accommodation project.

During 2017–18, 32 new consultancy contracts were entered into involving total actual expenditure of $808,256 million (including GST). In addition, 8 ongoing consultancy contracts were active during 2017–18, involving a total actual expenditure of $301,238 million.

Table A.3.1: Breakdown of the new consultancy contracts by category

Annual reports contain information about actual expenditure on contracts for consultancies. Information on the value of ANAO’s contracts and consultancies is available on the AusTender website: www.tenders.gov.au.

Procurement initiatives to support small business

The ANAO supports small business participation in the Commonwealth Government procurement market. Small and Medium Enterprises (SME) and Small Enterprise participation statistics are available on the Department of Finance’s website: Statistics on Australian Government Procurement Contracts.

Procurement practices support SMEs by the use of the Commonwealth Contracting Suite for low-risk procurements valued under $200,000. Practices also support the use of electronic systems or other processes to facilitate on-time payment, including the use of payment cards.

The ANAO recognises the importance of ensuring that small businesses are paid on time. The results of the Survey of Australian Government Payments to Small Business are available on the Treasury’s website: www.treasury.gov.au.

Advertising and market research

The ANAO did not undertake media advertising campaigns and therefore did not make any payments to advertising agencies in 2017–18. The ANAO did not make any payments to direct mail organisations or polling organisations.

Payments over $13,000 (including GST) to market research organisations and media advertising organisations, incurred in the course of audit and assurance reviews, are set out in Table A.3.2.

Table A.3.2: Payments over $13,000 (including GST) to advertising agencies, market research organisations, polling organisations, direct mail organisations and media advertising organisations, 2017–18

Grant programs

The ANAO does not administer any grant programs.

Environmental protection and biodiversity conservation

Section 516A of the Environment Protection and Biodiversity Conservation Act 1999 requires that Australian Government entities include a section detailing their environmental performance and contribution to ecologically sustainable development in their annual report.

Contribution to ecologically sustainable development

While the ANAO does not have any specific responsibility for administering ecologically sustainable development provisions, its audit reports make an indirect contribution by improving accountability and providing independent assessments of Australian Government programs to Parliament.

Effect of activities on the environment

The ANAO monitors its energy and water usage and waste management, as core indicators of the effect of its activities on the environment.

Energy

The Australian Government’s Energy Efficiency in Government Operations (EEGO) policy aims to reduce the energy consumption of Australian Government operations with particular emphasis on building energy efficiency. The EEGO Policy is administered by the Department of the Environment and Energy.

Figure A.3.1 compares the ANAO’s tenant light and power use and central services with the EEGO target figures.

Figure A.3.1: Tenant lights, power and central services, 2013–14 to 2017–18

EEGO = Energy Efficiency in Government Operations; MJ—megajoules

Note: Tenant light and power figures are calculated by dividing the energy used in the ANAO’s tenanted areas by the average number of occupants for the past financial year. Central services figures are calculated by dividing the energy used to run the building’s plant machinery by the number of tenanted square metres.

The EEGO Policy sets energy intensity targets of 7,500 megajoules per person per year for tenant light and power; and 400 megajoules per square metre per year for central services.

During 2017–18, the ANAO’s tenant light and power use averaged 6953megajoules per person, which was below the EEGO target of 7500 megajoules. The ANAO’s central services energy usage, for the same period, was 341 megajoules per square metre. This was a decrease of 18 megajoules per square metre compared to the result for 2016–17. This result equates to a four-and-a-half star National Australian Built Environment Rating System¹⁰ (NABERS) energy rating, which is considered ‘Good Performance’.

Water and waste

Based on occupied building floor area, the ANAO’s building water use intensity was 0.68 kilolitres per square metre in 2017–18 compared with 0.77 kilolitres per square metre in 2016–17.

The ANAO holds regular discussions with the lessor of its Barton office with the aim of improving the overall environmental performance of the premises.

Details of the disposal of ANAO’s waste, is provided at Table A.3.3.

Table A.3.3: Waste, quantity and disposal, 2016–17 to 2017–18

 

Disability reporting

Since 1994, Commonwealth departments and agencies have reported on their performance as policy adviser, purchaser, employer, regulator and provider under the Commonwealth Disability Strategy. In 2007–08, reporting on the employer role was transferred to the Australian Public Service Commission’s State of the Service Report and the APS Statistical Bulletin. These reports are available on the Commission’s website: www.apsc.gov.au. Since 2010–11, departments and agencies have no longer been required to report on these functions.

The Commonwealth Disability Strategy has been overtaken by the National Disability Strategy 2010–2020, which sets out a 10-year national policy framework to improve the lives of people with disability, promote participation and create a more inclusive society. Further information is available on the Department of Social Services website: www.dss.gov.au.

Work health and safety

Under section 35 of the Work Health and Safety Act 2011 (WHS Act), the ANAO is required to notify Comcare of any incidents arising out of the conduct of a business or undertaking that result in death, serious injury or serious illness of a person or involve a dangerous incident. No incidents were reported in the 2017–18 period.

Freedom of information

The Freedom of Information Act 1982 provides the Auditor-General with an exemption from the provisions of the Freedom of Information Act 1982 and in 2015 the Australian Information Commissioner determined that the Auditor-General’s exemption extends to the ANAO.

Performance audits, assurance reviews and audit opinions are tabled in the Parliament and/or published on the ANAO’s website. Correspondence with members of Parliament is published on the ANAO’s website. Other corporate information is published on the ANAO website including:

• Auditor-General’s credit card transactions;
• meetings held with members of Parliament;
• Senior Executive Service remuneration policy and details;
• gifts and benefits received and declined; and
• The ANAO risk management framework.

Service charter

As the ANAO does not provide services directly to members of the public it does not have a service charter. However, the ANAO recognises that it provides a service to the community, through the delivery of a range of audit services, and welcomes feedback. Comments and suggestions can be made via the ANAO website: www.anao.gov.au, or by phone on (02) 6203 7300. Members of the public are also invited to make contributions to specific audits with each audit having a facility for contributions to be received while the audit is in progress.

Appendix 4: Transparency reporting

Table A.4.1: Transparency reporting

Note: The Prescribed Information is based on the items set out in Schedule 7A of the Corporations Regulations 2001.

Appendix 5: Entity resource statement and expenses by outcomes

Entity resource statement

Table A.5.1: Entity resource statement 2017–18

Note a: Appropriation Bill (No. 1) 2017–18, prior year departmental appropriation and section 74 receipts.

Expenses by outcome

Table A.5.2: ANAO’s summary of total expenses for Outcome 1, 2017–18

Note a: Full year budget, including any subsequent adjustment made to 2017–18 Budget.

Note b: Departmental appropriation combines ‘Ordinary annual services (Supply Bill (No. 1) and Appropriation Act (No. 1))’ and ‘Revenue from independent sources (s74 of the PGPA Act)’.

Appendix 6: Contact directory

Street Address:

19 National Circuit
BARTON ACT 2600

Postal Address:

GPO Box 707
CANBERRA ACT 2601

Phone: (02) 6203 7300
Website: www.anao.gov.au
Email: communication@anao.gov.au

Abbreviations list

List of requirements

Section 17AJ(d) of the Public Governance, Performance and Accountability Rule 2014 (PGPA Rule) requires the following list of requirements be included in the annual report as an aid of access.

Table A.7.1: List of requirements