AUDITOR GENERAL FINDS DETERIORATION IN FINANCIAL MANAGEMENT CONTROLS DURING HIS ANNUAL FINANCIAL AUDITS

The Auditor General Mr Colin Murphy tabled a report in Parliament today on the results of his 2007-08 audits of agency financial accounts. Mr Murphy commented “it was pleasing that the vast majority of agencies received an unqualified audit opinion but nevertheless there remains considerable room for agencies to improve their financial reporting and control framework”.

In total 171 audit opinions were issued. Opinions for two other small agencies had not been issued as they were still not ready for audit as at 3 November 2008. Two agencies, the Peel Development Commission and the Western Australian Alcohol and Drug Authority received qualified audit opinions on controls and performance indicators respectively.

In terms of management issues, 74 agencies had significant and/or moderate financial management control weaknesses brought to their attention. In total, Mr Murphy’s Office identified 352 issues which was a 34 per cent increase over the previous year. This amounts to a marked deterioration in the control environment of many agencies.

The Office again found numerous weaknesses in information system (IS) controls, most commonly in security, business continuity planning, change control and IS operations. The need for improvement in key performance
indicators was identified at 37 agencies with most recommendations relating to the relevance of the indicators to agency outcomes and the need to report against targets.

Fifty-one agencies were rated as better practice agencies in 2008, compared with 40 in the prior year. However, despite this improvement Mr Murphy found that many agencies continue to provide financial statements, key performance indicators and supporting working papers for audit that are of poor quality and/or late. Referring to the approach by agencies to financial reporting, he said, “for a number of agencies, reporting deadlines remain a challenge that can only be achieved with substantial effort by agency and audit staff. For these agencies, a fundamental change in approach will be required rather than incremental improvement.”

Mr Murphy also raised concerns about the level of effort and expertise required by medium and smaller agencies to meet current high reporting standards. Whilst recognising that these standards are intentionally high and entirely appropriate for our trading enterprises and larger government agencies, he stated that in his view, for smaller agencies the value of these detailed reports is not commensurate with the effort that is required to produce and audit them.

In this context, he welcomed the Australian Accounting Standards Board’s project to consider a differential reporting regime.

Mr Murphy recommended that all agencies ensure that:

• Financial statements, key performance indicators and supporting working papers supplied for audit are of good quality and are provided in a timely manner
• Management control issues brought to their attention during their audit are addressed to ensure the continuing integrity of their financial control environment
• Key performance indicators remain relevant and include targets against which their performance can be assessed.

Mr Murphy also reported that he received 14 notifications under section 82 of the Financial Management Act 2006 relating to two parliamentary questions. In each case it was his opinion that the Minister’s decision not to provide the requested information to Parliament was reasonable and therefore appropriate.

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