Key Issues in Auditor-General’s mid-term report

See full report here: Auditor-General’s mid-term report

• Both financial and performance audit has identified significant issues with cyber security, procurement and indigenous programs.
• Performance audits in areas of policy development and service design tended to have a higher proportion of positive outcomes.
• Performance audits of procurement had a high proportion of negative conclusions. ANAO analysis confirmed that this is irrespective of the portfolio involved, the objective of the audit or the stage of delivery. The issues identified tend to go to the demonstration and achievement of value for money VFM.
• Regulatory activities also had a high proportion of negative findings, particularly related to how entities implement risk-based approaches to regulation.
• With respect to the identified areas of concern, three (procurement, regulation and cyber security) relate to areas where there are clear regulatory frameworks that set out required actions for government entities, however, low levels of compliance are observed. This raises concerns around the effectiveness of the internal regulation of the Government sector. Framework setters should have some accountability for the effectiveness of its operation.
• Non- financial public sector performance reporting is an area of significant concern. Over the past five years, the ANAO has published seven audits covering 34 entities in relation to the revised non-financial performance reporting framework established by the Public Governance, Performance and Accountability Act 2013 (PGPA Act).
  • Findings support the need to implement an audit framework over Performance Statements.
  • Given the importance of non-financial performance information in the public sector, audit committees may consider whether internal audit programs have an appropriate focus on processes supporting both financial and non-financial information?
• Ethics is the fourth ‘e’ in the definition of proper use and management of public resources in the Public Governance, Performance and Accountability Act 2013 alongside effectiveness, economy and efficiency.
  • The absence of clear rules and frameworks around ethics in the public sector poses a challenge for ANAO auditing in this field. However it is the responsibility of audit to raise issues when they are identified if it is to be part of the solution and not the problem.
  • Going forward the ANAO will prioritise developing a methodology to assess ethics in audits.
  • Audit committees may want to consider the role they play in providing assurance to Accountable Authorities in respect of the effectiveness of their internal integrity of ethical frameworks.

Key themes from the audits of the financial statements of Australian Government entities for the period ended 30 June 2020

See full report here: Auditor-General Report No.25 (2020–21) Audits of the Financial Statements of Australian Government Entities for the Period Ended 30 June 2020

• 233 of 246 Auditor’s Reports issued. 77% of auditor’s reports issued within three months of year-end, down from 83% last year. Total audit findings across all categories for the 19-20 audit cycle was 142, a decrease since last year. There were two significant (Category A findings) and one instance of a significant legislative breach. 77% (2018–19: 86%) of moderate findings related to:
  • IT controls – management of user access and privileged users;
  • Compliance and quality assurance frameworks supporting program payments; and
  • Management of non-financial assets
• With respect to the quality of financial statement preparation, 14 entities had findings relating to the weaknesses in processes supporting financial statement preparation. 62% of entities provided draft financial statements in accordance with the agreed timeline. The total number of adjusted and unadjusted audit differences decreased in number and increased in value from 2018-19.
• The implementation of the new accounting standards was managed quite well overall. The early preparation of position papers assisted with this, and the application of Finance guidance and use of accounting position papers minimised issues resulting from implementation.
• The outcomes of the ANAO’s financial sustainability analysis for 2019–20 was broadly consistent with previous years. Eight entities predominantly associated with the tourism and aviation sectors were impacted by COVID-19. Responses by these entities to these impacts included: letters of support from the relevant minister or parent entity; restructure of operations including reducing staff; approval from Government to access cash reserves; and additional Government funding.
• Cyber security remains a strategic priority for the Australian Government. With 84% of Government entities having utilised remote working arrangements during the COVID-19 pandemic an assessment of exposure to cyber security intrusions during the COVID-19 pandemic was performed by 105 entities. Of the 105 entities, 74 did not identify any additional threats due to the COVID-19 pandemic, and the remaining 31 entities did identify at least one new threat as part of this assessment. The most common threat identified was related to phishing scams.
• Financial statements audits have identified issues in the area of management of leave and entitlements over a number of years. Three financial statements audits were selected for further assessment of compliance of the management of leave accruals and balances with human resource policies and requirements. The ANAO assessed the monitoring of controls and reporting in the management of staff leave and the completeness and accuracy of leave accruals and adjustments. Key issues identified that should be considered by all entities were:
  • a large proportion of leave that generally should be approved in advance was not entered into and approved in the HR system in advance;
  • a number of staff who had excessive annual leave balances;
  • leave being taken that did not comply with entity policies;
  • breaking of long service leave over a public holiday by using annual leave when the practice is not permitted under their conditions;
  • lack of retention of medical certificates when this is required by entity policy;
  • all three entities we looked at have a very similar pattern with a significantly higher proportion of staff starting personal leave on a Monday, with quite a drop off on those starting the use of personal leave on a Friday; and
  • large flex debit and credit balances that were outside entity policy settings.
• The ANAO identified some key lessons to note for financial audits, including: the benefits of remote system access for audit teams; identifying those responsible for the oversight of key management personnel remuneration and expenses; look into unusual transactions and speak up if something doesn’t seem right; the benefits of position papers and agreeing the timing and review of key estimates by management, especially those potentially impacted by the COVID-19 pandemic and associated economic conditions; the application in 2020–21 of the new auditing standard on auditing accounting estimates; and the importance of collaboratively agreeing on responsibilities/expectations and key timings.

Performance audit update

• 42 performance audits were tabled in 2019-20. This is the same target planned for 2020-21. This is a reduction on previous years and reflects the reducing performance audit budget and the movement of resources to undertake the performance statements pilot program.
• Four insights products will be tabled this year with a focus on performance measurement, regulation, service delivery through other entities and procurement.
• Common findings of interest across audits include performance measurement, additionality, record keeping, a lack of documenting the basis for decisions, risk, ethics, stewardship of public resources, governance structures, value for money, and delivery of agreed savings.
• Several procedural changes that worked well this year included:
  • Electronic access to records - reducing the burden on the entity. The positive impacts of this have been somewhat offset by poor file structure in entities and using informal filing systems such as storing decisions in emails takes additional time and resources to work through;
  • Performance audit working more closely with financial statements audit teams to identify risks and share information – this can trigger the need for performance audit, it also saves time in understanding context, controls and governance arrangements; and
  • Remote access to audit committees – saves time and travel budget and allows both AASG and PASG to attend and engage with the Committees.
• Key messages for entities’ future engagement with the ANAO include:
  • invest in performance measurement capability;
  • encourage collaboration between performance and financial audit teams on, systems, controls and evidence;
  • be open in the provision of information to the ANAO as clearance processes for the release of documentation creates bottlenecks and inefficiencies for both parties; and
  • when agreeing to recommendations have a way to ensure these are followed up and actioned.
• The ANAO is currently considering risks at portfolio and sector level for next year’s audit plan.

Performance Statements Pilot

• The ANAO conducted and completed a performance statements audit of Department of Veterans Affairs and the Attorney-General’s Department. Performance statements audit opinions will be delivered to the Finance Minister.
• Messages for the sector include: making sure performance statements read clearly; there is evidence supporting reported measures; ensuring timely access to data before selecting performance measures; establishing targets helps determine delivery and progress and is the most useful assurance that objectives are being delivered; employ a mix of quantitative and qualitative measures; determine case studies at outset to avoid selection bias; focus on capability building; and the corporate plan is a living document and the performance measures within it can be updated when your environment changes to ensure all measures are relevant.

Procurement Information Report

• 10 years of procurement data was examined with a focus on 2018-19. Key findings included:
  • $64.5 billion was spent by the 125 entities required to report on AusTender on 62,928 parent contracts ($47.2 billion) and 15,222 contract amendments ($17.3 billion).
• Limited tender was significantly more prominent than open tender.
• Contract variations are reducing in incidence but it remains an issue given the value of some of these variations and how value for money is ensured:
  • Less than nine per cent of amended contracts were reported as being amended within twelve months of being published.
  • 41.8 per cent of amended contracts increased by more than 100 per cent - 20 per cent of these increased by more than 200 per cent.
• Consultancy contracts reported in 2018–19 totalled $647.0 million.

Products released in 2020

• Insights on:
  • Rapid Implementation
  • Performance measurement and monitoring
  • Management of Conflicts of Interest in Procurement Activity and Grants
  • Fraud Control
• Dedicated ANAO website page for COVID-19 related audit activity and COVID-19 audit strategy (https://www.anao.gov.au/work-program/covid-19)
• Assurance Review of Advances to the Finance Minister (1 July 2019 through to 30 October 2020) https://www.anao.gov.au/pubs/assurance-review

Application of Data Analytics in Financial Statements and Performance Audits

• The Data Analytics Strategy was developed in 2018. The objective is to transform the ANAO into a data-driven organisation. There are three stages of delivery involved in this strategy: capability development; embedding data analytics in performance audit planning and scoping; and embedding data analytics in financial statements audits to drive efficiency and improve quality.
• The ANAO’s current priorities in the application of data analytics in our financial and performance audits are set out below.
  • Streamline and standardise data acquisition processes for efficiency and timeliness, and obtain population data where relevant and appropriate.
  • Standardise our data analytics solutions to be applied across all audits. Develop Capabilities in data analytics across the Office.
  • Discover and analyse rich data sets to provide insights for risk assessment, audit planning for use in multiple audits.

Data Acquisition strategy and process - Accountability, Risk and Assurance in shared services (Finance)

• Observations on how to uplift the maturity of shared services across the APS were presented.
• A particular focus was Grants Administration as a shared service, specifically in relation to accountability, risk and assurance and what can be done to address and mitigate these risks as well as provide more assurance.
• It was noted that the APS is continuing to reform its internal processes and is moving ahead to leverage more opportunities for shared capability.
• The acceptance and support for shared services will underpin its success and help drive efficiency and achieve the desired outcomes across the Commonwealth.

Update on Audit Committee disclosure requirements and duties under the Public Governance, Performance and Accountability (PGPA) Act (Finance)

Audit Committee PGPA Rule Amendments

• Enhanced audit committee disclosure requirements in annual reports applied from the 2019-20 reporting period. The application of the rule is being analysed by the Department of Finance.
• From July 2021, changes to membership of an audit committee apply. Guidance on audit committees is available on the Finance website.

PGPA Act: General Duties of Officials

• The PGPA Act and Rule provide a number of duties that apply to officials and accountable authorities. An accountable authority, as an official of a Commonwealth entity, shares the same general duties as officials (i.e. employees) under sections 25 to 29 of the PGPA Act.
• Accountable authorities have additional duties in sections 15 to 19 of the Act relating to governing their entity and in sections 12 to 16 of the Rule relating to the disclosure of any material personal interests.
• Resource Management Guides on the Finance website contain additional information:
  • RMG 200: Duties of Accountable Authorities
  • RMG 203: General duties of officials.
• The implications of these changes for Government Business Enterprises were explored via a case study.