Audit Results Report by Ministerial Portfolios at 11 November 2005

Report No 12 - November 2005

Background

This Report provides:

• a summary of the results of the 175 financial statement and controls audits and 127 performance indicator audits for agencies with financial years primarily ending on 30 June and 31 July 2005, and 24 audit certifications completed to 11 November 2005
• commentary on ongoing information systems control weaknesses and other compliance and control issues
• commentary on timeliness of financial reporting and the future earlier reporting requirements commencing in 2005-06 under the Financial Administration Legislation Amendment Act 2005 (FALAA) using the presentation required from adopting the Australian Equivalents of International Financial Reporting Standards (AIFRS) for the first year
• results of a review of key performance indicators and their use by agencies as an accountability and management tool.

In general, public sector accountability continued to improve during the year. However, timeliness of submission of financial statements and performance indicators overall did not improve on the gains of the last two years. A higher proportion of departments met the statutory deadline but submitted in the last week or on the statutory date. More statutory authorities submitted late. Financial statements for three statutory authorities had not been received at 11 November 2005. Significant improvement in timeliness will be essential in 2005-06 to meet the earlier legislative tabling requirements.

Better Practice Agencies

Twenty-one better practice agencies were identified for timely submission of good quality statements to enable commencement of their audit. Fifteen of these agencies also appeared on this list last year. These agencies 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 175 financial statement and controls audits completed to 11 November 2005 the opinions of three agencies were again qualified on their controls. These continuing control qualifications from previous years were:

• Government Employees Superannuation Board could not effectively reconcile a number of general ledger clearing accounts throughout the year and at year end
• Minister for Health in his capacity as the Deemed Board of the Metropolitan Public Hospitals did not exercise adequate control over postal remittances relating to Special Purpose Accounts and assurance could not be provided that all postal remittances were receipted and properly brought to account
• Rottnest Island Authority implemented additional procedures but these did not provide assurance of effective controls to verify the accuracy and completeness of landing fee revenue information provided by third parties.

Summary of Results – Performance Indicators

None of the 127 opinions on performance indicators were qualified. Seven agencies did not submit performance indicators as required by the Financial Administration and Audit Act 1985. Two commenced operations in 2004 and are developing performance indicators and one is being wound up. The remaining four continue not to comply with the requirement.

Compliance and Control Issues

Findings during the audit cycle were reported through management letters to individual agencies. Although these issues did not warrant a qualification, agency management needs to ensure that matters raised during internal and external audits are addressed to improve controls and the quality of reporting and accountability to the Parliament. Control weaknesses identified across agencies were:

• significant information systems controls relating to security and business continuity planning. 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.
• asset management procedures, incurring and certifying of expenditure, payroll certifi cation by cost centre managers and employee termination procedures.

Statements of Corporate Intent (SCIs) for the Water Corporation, Western Power, eight port authorities and four other statutory authorities and entities required to produce SCIs were, with one exception, not generally tabled in Parliament in a timely manner.

FALAA and AIFRS Changes to Financial Reporting for 2005-06

Commencing in 2006, Ministers will be required to table agency annual reports within 90 days of each agency’s end of financial year. Furthermore, the fi nancial statements need to use the new standard AIFRS presentation for the fi rst time with comparative figures for the previous year. In order to achieve these challenges, agencies generally need to develop a more rigorous approach to their annual reporting obligations, including early submission to audit.

Key Performance Indicators as an Accountability and Management Tool

The key performance indicators required to be tabled in Parliament by government departments and statutory authorities need to be further developed as an integrated management tool. At present, 38 per cent of agencies are not routinely reporting performance and trends for monthly or quarterly management review and monitoring.

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