Audit objectives

The objectives of the audit were to:

• assess whether financial delegations associated with the expenditure of public monies were determined, applied and managed in accordance with applicable legislation, Government policy and applicable internal controls; and
• identify better practices and recommend improvements as necessary to current practices.

Audit focus and scope

The audit focused on financial delegations for the expenditure of public monies. It assessed relevant aspects of the audited agencies' control structures and sample tested individual expenditure transactions.

Audit testing of a statistically selected sample of transactions included examination of financial delegations used for spending proposals, supplier invoices and payments during 2002–2003. Expenditure transactions were reviewed to determine whether financial delegations had been applied in accordance with the relevant policies, procedures, financial delegation schedules, and
legislation. Sample testing did not extend to purchasing procedures such as requests for quotations and the evaluation of tenders.

The audit was conducted in five medium sized² FMA Act agencies, as follows

• Australian Agency for International Development (AusAID);
• Australian Competition and Consumer Commission (ACCC);
• Commonwealth Superannuation Administration (ComSuper);
• Department of the Treasury (Treasury); and
• Office of the Director of Public Prosecutions (DPP).

Background

Changes to financial legislation¹ for the public sector adopted at the start of 1998 have seen a shift from central agency control to a framework of devolved authority with enhanced responsibility and accountability being demanded of public sector agencies and statutory bodies.

The Financial Management and Accountability Act 1997 (FMA Act) makes the Chief Executive (CE) responsible for managing the affairs of the agency in a way that promotes proper use of Commonwealth resources. In order for CEs to uphold their accountability and governance obligations in the devolved environment, an effective control structure must be designed and maintained.

The payment of accounts for goods and services is a significant business process that requires an effective control structure to achieve the required outcomes. A key component of an effective control structure in the payment of accounts process is a formalised system for the delegation of authority. The latter must also be complemented by clear guidance, instructions and awareness raising of attendant responsibilities.

Audit conclusion

The ANAO concluded that, generally, agencies had developed adequate control structures for the application of financial delegations for the expenditure of public monies. However, the ANAO noted that financial delegations were not always being managed in accordance with relevant legislation. In particular, the requirement to document the approval of a spending proposal was not being adhered to in the majority of instances. As well the statutory power for entering into contracts, agreements and arrangements was incorrectly referenced in some organisations.

In addition, during its testing of a sample of transactions, the ANAO found that the number of approvals being granted by inappropriate delegates was higher than the ANAO expected, given that financial delegations are a routine and well established control. However, it is up to CEs to determine the acceptable level of error and to implement controls, guidance and training commensurate with the nature of the business and the acceptable level of risk. Nevertheless such controls should be complemented by adequate guidance and training.

The ANAO identified examples of sound and better practices in several agencies ³. The ANAO also identified a number of opportunities for marked improvement in the control structures in most agencies, including the need for:

• policy documents to be amended to provide an interpretation of the legislation relevant to the agency;
• the nature and monetary limits of the delegation to be detailed in the instruments of delegation;
• the relevant risks and controls in the fraud risk assessment to be identified and assessed; and
• Financial Management and Information Systems' controls to be reviewed so that they support the overall control structure.

Footnotes

1 From 1 January 1998, the former Audit Act 1901 was replaced by three Acts which together provide a robust framework for the financial management of the Commonwealth public sector as follows:

(a) the Auditor-General Act 1997 provides for the appointment, independence, status, powers and responsibilities of the Auditor-General, the establishment of the ANAO and for the audit of the ANAO by the Independent Auditor;

(b) the Financial Management and Accountability Act 1997 sets down the financial regulatory, accountability and accounting framework for Commonwealth bodies such as departments that have no separate legal financial existence of their own (i.e. they are simply agents of the Commonwealth); and

(c) the Commonwealth Authorities and Companies Act 1997 provides standardised accountability, ethical and reporting provisions for Commonwealth bodies that have a separate legal existence of their own (e.g. Commonwealthcontrolled companies and their subsidiaries and those statutory authorities whose enabling legislation gives them legal power to own money and assets).

2 Medium sized agencies (in terms of staffing levels) have been defined by the Australian Public Service Commission (APS Commission) in the Commission's State of the Service Report 2002–2003 to include those with 251 to 1000 ongoing staff.

3 Refer Table 1 in the full report.