Report on Ministerial Portfolios at November 1, 2004 and Performance Examination of Management of Natural Resource Management Funding

Report No 9 - November 2004

This Report provides:

• a summary of the results of the 169 financial statement and controls audits, 127 performance indicator audits and 16 audit certifications completed to November 1, 2004
• commentary on the timeliness and quality of financial statements and performance indicators
• commentary on specific control, corporate governance, accounting and auditing issues.

Timeliness and Quality

There was significant improvement in the timeliness of submission of financial statements and performance indicators with 34 per cent of departments and 58 per cent of statutory authorities submitting in the last week or earlier, compared with 17 and 26 per cent respectively in 2002-03. Fewer agencies submitted on the statutory date and less submitted late. A major achievement saw audit opinions covering 87 per cent of the State's assets issued within three months of reporting date compared with 75 per cent in 2002-03.

The number of qualified opinions issued reduced significantly in 2003-04 but the quality of financial statements still requires improvement at many agencies. Issues not warranting a qualification were reported to agency management for action to improve controls and the quality of reporting and accountability to the Parliament.

Twenty six better practice agencies were identified for submitting good quality statements early to enable commencement of their audit. Thirteen of these agencies also appeared on this list last year and are commended for the continuing high standard of their supporting documents and ensuring key staff availability during the audit process.

Summary of Results - Controls and Financial Statement Audits

Of the 169 financial statement and controls audits completed to November 1, 2004, the opinion of two agencies were qualified on their controls or financial statements. The qualifications were:

• Government Employees Superannuation Board could not reconcile its bank account to the general ledger during the year as there were a significant number of unexplained reconciling items. A reconciliation was achieved subsequent to year end. Further, the Board was not able to reconcile a number of general ledger clearing accounts throughout the year and at year end.
• Rottnest Island Authority did not have adequate controls in place to ensure the accuracy and completeness of information provided by third parties which is used to determine landing fee revenue due. An opinion could not be formed on whether $3.5 million included as Admission Fees in Revenue from Goods and Services was fairly presented.

Summary of Results - Performance Indicators

One of the 127 opinions on performance indicators was qualified. The Department of Education Services' new effectiveness indicators on non-university providers of higher education awards were not reported as the data was not collected for the 2003-04 reporting period.

Nine agencies did not submit performance indicators as required by the Financial Administration and Audit Act 1985. Two agencies were abolished, two did not operate for the full year, one has not submitted performance indicators for the last two years and four continue to not submit performance indicators.

Compliance and Control Issues

Findings during the audit cycle were reported through management letters to individual agencies. Common control issues identified across agencies were:

• significant IT security access control weaknesses and inadequate disaster recovery or business continuity plans continue to be evident at many agencies. As previously reported, key security controls for user access management, responsibilities of individuals for their own passwords and monitoring system access, including activity and event logging for network and operating systems, are basic controls not evident at all agencies.
• payroll procedures require improvement at most of the agencies reviewed. Higher priority needs to be given to payroll controls including review of payroll reports by cost centre managers to provide assurance of the accuracy and validity of their fortnightly payroll and monthly reconciliation of the payroll systems to the agency's general ledger records.
• Statements of Corporate Intent for the Water Corporation, Western Power and the eight port authorities were not tabled in a timely manner to enable the Parliament to consider their contents.

International Financial Reporting Standards

Agencies have made satisfactory progress in preparation for International Financial Reporting Standards (IFRS) implementation, with all including disclosure by way of a note to their financial statements of the key differences in accounting policies that are expected to arise from adopting Australian equivalents to IFRS.

PERFORMANCE EXAMINATION OF NATURAL RESOURCE MANAGEMENT FUNDING

Six regional natural resource management (NRM) groups have, since March 2003, been the key recipients of approximately $13.5 million of State and Commonwealth bilateral funding. Funding has been provided to the groups to develop regional NRM strategies and investment plans and for priority projects. The strategies and plans are to be accredited before the groups receive further funding to invest in their regions.

The State through the Department of Agriculture (the Department) has the responsibility to make sure the groups are capable of effectively managing the up to $400 million that they will receive and distribute on NRM projects over the next four years.

Key Findings

• Management of pre-accreditation funding by the Department has been adequate, though imminent funding increases will require more rigorous arrangements.
• The State and the regional groups both recognise that current governance arrangements within the groups need to be strengthened to refl ect the significant increase in NRM funding that will be made to them over the next four years. Whilst contractual agreements with the groups are being strengthened prior to funding increases, issues relating to governance structures, the capacity of the groups to meet higher governance standards and the need for the Department to obtain greater assurance that public moneys are spent appropriately are yet to be resolved.

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