25 October 2022

Senator the Hon Katy Gallagher
Minister for Finance
Parliament House
Canberra ACT 2600

Dear Minister

Annual Performance Statements Audit Program 2021–22 and Future Years

I am writing to advise you of the outcomes of the 2021–22 annual performance statements audit program and my proposal for expanding the program of audits in 2022–23 and the following two financial years. This is in line with the funding provided by Parliament in the Australian National Audit Office’s (ANAO) 2021–22 budget.

In December 2017, the Joint Committee of Public Accounts and Audit (JCPAA) recommended that the Australian Government amend the Public Governance, Performance and Accountability Act 2013 (PGPA Act) to enable mandatory annual audits of performance statements by the Auditor-General. This recommendation was agreed by the Independent Review of the PGPA Act (the review). The review further recommended in September 2018 that the Minister for Finance, in consultation with the JCPAA, request the Auditor-General conduct a pilot program of assurance audits of annual performance statements, prior to the introduction of mandatory performance statements audits.

The pilot program was conducted over two years in 2019–20 and 2020–21, examining the performance statements of the Attorney-General’s Department and the Departments of Social Services and Veterans’ Affairs. The pilot demonstrated that the conduct of an audit on entity performance statements results in improvements in the quality and reliability of performance information provided to the Parliament.

Consistent with budget funding provided in the 2021–22 Budget, the ANAO commenced the staged implementation of an annual performance statements audit program. The 2021–22 program examined the performance statements of six entities: the Attorney-General’s Department; the Departments of Agriculture, Water and the Environment; Education, Skills and Employment; Social Services; Veterans’ Affairs; and the Treasury.

The ANAO has completed the audits undertaken as part of the 2021–22 audit program. As required by subsection 40(2) of the PGPA Act, I am writing to provide you with a copy of my independent auditor’s reports with respect to these entities. Section 40(3) of the PGPA Act requires that the auditor’s reports be tabled in both Houses of the Parliament, by the Minister, accompanied by a copy of the entity’s annual performance statements.

The individual auditor’s reports are provided in the following attachments:

• Attachment A - Independent auditor’s report on the annual performance statements of the Attorney-General’s Department
• Attachment B - Independent auditor’s report on the annual performance statements of the Department of Agriculture, Water and the Environment
• Attachment C - Independent auditor’s report on the annual performance statements of the Department of Education, Skills and Employment
• Attachment D - Independent auditor’s report on the annual performance statements of the Department of Social Services
• Attachment E - Independent auditor’s report on the annual performance statements of the Department of Veterans’ Affairs 2021-22
• Attachment F - Independent auditor’s report on the annual performance statements of the Treasury

Overall, the quality of performance statements has improved this year, demonstrating that the accountability and transparency promoted by performance statements audits is having a positive impact. I was able to issue an unqualified auditor’s report for three entities’ performance statements, compared to last year where no entity that was audited received an unqualified report. Overall quality, however, remains variable, with the performance statements for three entities being qualified.

The unqualified statements show that entities continue to improve the quality of their performance information and can produce accurate and reliable performance statements, underpinned by appropriate data and analysis. Notwithstanding, further progress is necessary for entities to develop more of a performance culture, enabling a maturity from compliance to a value add where performance information strengthens strategic planning and resource allocation decisions. Implementation of an enterprise level performance framework that applies the intent and requirements of the PGPA Act in an entity specific way would set the foundation for such a change.

An enterprise level performance framework could mitigate many of the issues found in the audits to date. For the six audits, I issued 22 significant (Category A and B) findings, primarily relating to:

• the absence of reliable and verifiable sources of information and methodologies – including one instance where the reported result was based on an undocumented phone call with one industry representative;
• insufficient evidence – including an inability to reconcile the reported results to evidence contained in internal systems;
• the lack of appropriate due diligence and quality assurance processes – failure by entities to implement systems or processes to obtain a reasonable degree of confidence about the accuracy of performance information reported by third parties in receipt of government funding; and
• inadequate record keeping.

The significant findings demonstrate that further improvement is required for performance statements to improve accountability and transparency and enable meaningful assessment of actual against planned results to inform strategic planning and resource allocation decisions. High quality performance statements that move beyond satisfying compliance requirements can also promote the effective use of data and evidence, assisting entities to improve policy and program design and evaluation, enhance service delivery and regulation and provide better advice to inform government decisions.

In response to entity feedback, the timeliness of audits was improved this year, with all audits being finalised by the beginning of October. Last year, audits were not completed until the end of November, which limited their usefulness in informing improvements to entity Portfolio Budget Statements (PBS) and Corporate Plans for the next financial year.

I am also writing to advise of my proposal to expand the ANAO’s program of audits of annual performance statements to include 10 entities in 2022–23, which is consistent with the approved audit program presented in the ANAO’s 2021–22 PBS.

The ANAO will continue the program of work with the Attorney-General’s Department, and the Departments of Social Services and Veterans’ Affairs and the Treasury. Performance statements audits will also be conducted in two new entities, Services Australia and the Department of Health and Aged Care.

Taking into consideration the 1 July 2022 Machinery of Government (MOG) changes, I also plan to continue the program of work with the Departments of Agriculture, Fisheries and Forestry and Education as well as the newly created Departments of Employment and Workplace Relations and Climate Change, Energy, the Environment and Water. This will enable the ANAO to build on the audit work conducted on the 2021–22 performance statements of the then Departments of Agriculture, Water and the Environment and Education, Skills and Employment.

I have also included a proposed program of work for 2023–24 and 2024–25, consistent with the funding provided in the 2021–22 Budget, at Attachment G. I intend to include the forward work program in my 2023–24 Annual Audit Work Program. Entities have responded positively to early engagement with the ANAO and an indicative timeframe for inclusion in the audit program would enable entities to appropriately plan and prepare for a performance statements audit. This year’s results demonstrate the benefits of early engagement.

The ANAO will continue to liaise with your department on this program of work, including to review audit methods and outcomes each year, and will actively work with the sector to ensure ongoing improvements in the audit program, the quality of performance information reported by entities and entity capability and preparation practices.

Yours sincerely

Grant Hehir
Auditor General