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Auditor-General Amendment Bill 2011

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2010-2011

 

 

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

 

HOUSE OF REPRESENTATIVES

 

 

 

 

 

AUDITOR-GENERAL AMENDMENT BILL 2011

 

 

SUPPLEMENTARY EXPLANATORY MEMORANDUM

 

 

 

Amendments to be moved on behalf of the Government

 

 

 

 

 

 

 

 

 

 

 

 

(Circulated by the authority of the Special Minister of State,

the Hon Gary Gray AO MP)



 

 

AUDITOR-GENERAL AMENDMENT BILL 2011

 

 

OUTLINE

 

These amendments implement a number of recommendations in the report of the Joint Committee of Public Accounts and Audit Inquiry into the Auditor-General Act 1997 (the JCPAA report) that require legislation.  The JCPAA report (report No. 419) was tabled on 22 December 2010. 

 

The recommendations of the JCPAA report that would be implemented by these amendments are set out in the table in the Notes on Amendments below.

 

 

 

Financial impact statement

 

The amendments will have no financial impact.

 



 

 

 

AUDITOR-GENERAL AMENDMENT BILL 2011

 

Government amendments

 

NOTES ON AMENDMENTS

 

Amendment 1 would omit the Schedule to the Auditor-General Amendment Bill 2011 and substitute a new Schedule. 

 

All of the items in the Schedule amend the Auditor-General Act 1997 (the Act) so as to implement the Government’s response to various recommendations in the JCPAA report that require legislation.  The first column in the table in the following pages sets out the relevant JCPAA recommendations, the second column identifies the various items in the Schedule that implement those recommendations, and the third column explains how the amendments would operate.

 

In addition to the amendments to implement the recommendations of the JCPAA report, the Schedule also contains amendments to change the arrangements for audits of Government Business Enterprises (GBEs). 

 

The Act currently provides that GBEs can only be audited by the Auditor-General if the audit is requested by the JCPAA, the Minister responsible for the GBE or the Finance Minister.  The JCPAA recommended (recommendation 2) that the Act be amended to provide the Auditor-General with the authority to initiate performance audits of Commonwealth controlled GBEs.

 

Successive governments have taken the view that the Auditor-General should not have the ability to audit GBEs of his or her own motion.  GBEs are subject to competitive pressures and disciplines that do not apply to other Commonwealth bodies and, to the greatest extent possible, they should be subject to the same audit arrangements as their competitors. 

 

The Government considers that audits or assurance reviews of GBEs should be requested by the Parliament in response to genuine public interest concerns about aspects of their operations, rather than as part of an annual work program.  The JCPAA, which comprises members from across the political spectrum and can conduct hearings in private, is the appropriate body to consider whether a particular GBE should be audited.  Accordingly, the Government amendments would allow the JCPAA alone to request an audit of a GBE by the Auditor-General.  As is currently the case, the Auditor-General would be able to ask the JCPAA to request an audit of a particular GBE.

 

The way that these amendments would operate is described in the table in the following pages.

 



JCPAA REPORT 419 - IMPLEMENTATION OF RECOMMENDATIONS REQUIRING LEGISLATION

 

JCPAA Recommendation

Implemented by:

Comment

Recommendation 1

That the Auditor-General Act 1997 be amended to provide the Auditor-General with explicit authority to conduct assurance engagements.  In circumstances where such assurance engagements have been identified as priorities by the Parliament, they should be subject to the same information-gathering powers that pertain to performance audits undertaken by the Auditor-General.  The Auditor-General should have the authority to determine arrangements, including reporting arrangements to the Parliament, to be followed in the conduct of these assurance engagements.

Items 1, 3, 24, 25, 27, 28 and 32

 

Item 28 also implements recommendation 7

In auditing terms, an assurance review involves an examination of one or more aspects of an agency’s activities to provide a level of assurance that is less than that provided by a financial statement or performance audit.  In undertaking assurance reviews, the Auditor-General adopts the professional standards issued by the Australian Auditing and Assurance Board.   

 

The Australian National Audit Office (ANAO) currently undertakes a number of assurance reviews, particularly in relation to Defence acquisition projects.  These reviews are undertaken using the Auditor-General’s power in section 20 of the Act to enter into audits by agreement.  The JCPAA considered that the Act should be amended to give the Auditor-General explicit authority to conduct assurance reviews. 

 

The main provision implementing this recommendation is item 24, which inserts a new Division 2A into the Act.  This Division will comprise new section 19A which will allow the Auditor-General to conduct an assurance review of a Commonwealth agency, a Commonwealth authority or its subsidiaries, or a Commonwealth company or its subsidiaries.  New section 19A distinguishes between assurance reviews conducted of the Auditor-General’s own motion and ‘priority assurance reviews’, that is, assurance reviews identified by the JCPAA as a priority of the Parliament.  The Auditor-General can determine the arrangements for the conduct of an assurance review, including reporting mechanisms, while reports of priority assurance reviews must be tabled in the Parliament.

 

In keeping with the auditing arrangements for GBEs that would come into effect as described in the amendments to implement recommendation 2 below, assurance reviews of GBEs would be undertaken at the request of the JCPAA.  The Auditor-General would be able to ask the JCPAA to request an assurance review of a GBE.

 

Items 1 and 3 of the Bill insert definitions of ‘assurance review’ and ‘priority assurance review’ into section 5 of the Act.

 

Item 27 would amend paragraph 23A(b) of the Act.  Section 23A allows the Auditor-General to share information with other persons if it would help in the performance of an audit.  This amendment would allow such information sharing in the course of an assurance review.

 

Section 24 of the Act requires the Auditor-General to set auditing standards for the various kinds of audits that can be performed under the Act.  Item 28 would require the Auditor-General to set standards for the conduct of assurance reviews.  Persons conducting assurance reviews would be required to comply with these standards in the same way as persons conducting financial statement or performance audits must currently comply with auditing standards set by the Auditor-General.

 

Item 32 amends section 31 of the Act to make it clear that the Auditor-General’s coercive powers are only available for priority assurance reviews.

 

Item 25 would amend section 20 of the Act to make it clear that it would remain open for the Auditor-General and a GBE to enter into arrangements for the conduct of assurance reviews or performance audits of the GBE (that is, without a request from the JCPAA).

 

Recommendation 2

That the Act be amended to provide the Auditor-General with the authority to initiate performance audits of Commonwealth controlled Government Business Enterprises.

 

Items 8, 9, 10, 12, 13 and 14

Subsection 16(2) of the Act provides that the Auditor-General may audit a GBE only at the request of the responsible Minister, the Finance Minister or the JCPAA.  Other Commonwealth authorities can be audited at the Auditor-General’s discretion. 

 

The Government does not agree to that recommendation.  Instead, for the reasons indicated in the Notes on Amendments above, the Government proposes that the Act be amended so that GBEs could be audited only at the request of the JCPAA.  The Auditor-General could ask the JCPAA to make such a request, as is currently the case. 

 

Various provisions in the Act establish the framework within which GBEs may be audited.  Those provisions generally state that such audits can only be instigated at the request of the JCPAA, the responsible Minister or the Finance Minister, and that the Finance Minister must consult the responsible Minister before requesting an audit.  The items in column 2 amend those provisions to remove references to the responsible Minister and the Finance Minister. 

 

Recommendation 3

That the Act be amended as necessary to enable the Auditor-General to review an agency s compliance with its responsibilities for a sub-set of performance indicators.  Proposed performance indicators to be audited should be identified annually by the Auditor-General and forwarded to the Parliament, via the JCPAA for comment, in a manner similar to the annual performance audit work program for the ANAO.

 

The Auditor-General should be resourced appropriately to undertake this function.

 

Items 19, 20, 21, 22 and 23

 

 

The Act does not explicitly recognise the role of the Auditor-General in auditing the appropriateness of an agency’s performance indicators or its reporting against those indicators.  

 

These amendments will address that deficiency by providing explicit authority for the Auditor-General to assess the appropriateness of the performance indicators of agencies and Commonwealth authorities and companies and the adequacy of their reporting against those indicators in terms of their completeness and accuracy.  A report on an audit of performance indicators may be included in the annual report of the agency or authority concerned to complement the report on the financial statements of the agency or authority.

 

Recommendation 3 is primarily implemented by item 19, which inserts new section 18A into the Act.  (Item 19 also inserts a new section 18B into the Act; its purpose is explained in the comments against recommendations 11, 12 and 13 below.)

 

New section 18A would allow the Auditor-General to conduct audits of the appropriateness of some or all of the performance indictors in an agency, authority or company and its reporting against those indicators.  These audits could be conducted at any time, including in the course of preparing the entity’s financial statements.  As with other audits conducted under the Act, the Auditor-General would, if necessary, be able to exercise the full range of statutory powers available to the office in conducting performance indicator audits. 

 

In keeping with the auditing arrangements for GBEs that would come into effect as described in the amendments to implement recommendation 2 above, the JCPAA would need to request a performance indicator audit of a GBE.  The Auditor-General could ask the JCPAA to request such an audit.

 

Item 20 of the Bill replaces existing subsections 19(1) and (2) of the Act with five new subsections.  Together, these new subsections contribute to the implementation of recommendations 3, 11, 12 and 13 of the JCPAA report (how they implement recommendations 11, 12 and 13 is explained in the comments against those recommendations below). 

 

Briefly, section 19 of the Act requires the Auditor-General to give a proposed (draft) audit report to the agency concerned.  The agency has 28 days to comment on the proposed report.  Those comments must be taken into account by the Auditor-General and included in the final report. 

 

Item 20 would make section 19 of the Act apply to performance indicator audit reports prepared under new section 18A (see new subsection 19(2A)). 

 

Item 21 of the Bill inserts a reference to new section 18A into existing subsection 19(3).  This would allow the Auditor-General to give a copy of a proposed audit report under new section 18A to any person, including a Minister, who, in the Auditor-General’s opinion, has a special interest in the report.

 

Items 22 and 23 would amend subsection 19(4) of the Act.  These amendments would reduce the period within which comments on a proposed report of a performance indicator audit must be provided from the standard 28 days to 14 days.  This reduction in the period within which comments must be provided would maximise the opportunity for reports of performance indicator audits that are conducted concurrently with a financial statement audit to be included in the annual report of the agency or authority. 

 

Consistent with the practice in relation to the Auditor-General’s annual work program, the Auditor-General would consult the JCPAA in selecting the performance indicators to be audited.

 

Recommendation 4

That the Act be amended to make clear that claims of legal professional privilege do not override the Auditor-General s information gathering powers.  The Act should also be amended to make clear that access to documents upon which legal professional privilege is claimed does not amount to a waiver of such privilege.

 

Items 29, 30 and 31

Items 29, 30 and 31 amend section 30 of the Act. 

 

Section 30 spells out the relationship between the Auditor-General’s information gathering powers and other laws.  While the Auditor-General infrequently uses these formal powers, agencies occasionally argue that the power to require the production of documents does not override legal professional privilege.  The purpose of the amendment is to make it clear that agencies are not able to decline to produce documents to the Auditor-General on the ground that they are subject to legal professional privilege. 

 

Item 29 converts existing section 30 into subsection 30(1), while item 30 replaces existing paragraph 30(b) with a new paragraph which would make it clear that the Auditor-General’s powers to gather information under sections 32 and 33 of the Act are not limited by:

·            any other law, unless that law expressly excludes sections 32 and 33 of the Act, or

·            any rule of law relating to legal professional privilege, any other privilege or the public interest. 

 

Item 31 inserts a new subsection 30(2) which would ensure that the production of a document or the provision of information to the Auditor-General under section 32 or 33 would not amount to a waiver of any privilege that might otherwise attach to the document or information.

 

Recommendation 6

That section 21 of the Act be amended to reflect that the Auditor-General is able to audit any Commonwealth-controlled entity including Commonwealth-controlled companies and their subsidiaries.

Item 26

Item 26 amends section 21 of the Act, which allows the Auditor-General to act as the auditor of companies established under the Corporations Act 2001 that are owned or controlled by the Commonwealth.  Recent amendments to the Commonwealth Authorities and Companies Act 1997 have cast doubt on the Auditor-General’s ability to be appointed as the auditor of subsidiaries of Commonwealth companies.  Item 26 would clarify the Auditor-General’s abilities in this regard by inserting a reference to subsidiaries of Commonwealth companies in the list of Corporations Act companies which the Auditor-General may audit.

 

Recommendation 7

That the Act be amended to require the Auditor-General to set auditing and assurance standards.

 

Item 28.  See also comments on recommendation 1

Item 28 would amend section 24 of the Act, which currently allows the Auditor-General to set auditing standards for financial statement audits conducted under Division 1 of Part 4 of the Act, performance audits conducted under Division 2 of Part 4, audits conducted by the Independent Auditor conducted under Part 7 of the Act and audits conducted under section 56 of the FMA Act.  Persons performing audits of the kind specified must comply with these auditing standards.

 

The effect of the amendment to be made by item 28 would be to allow the Auditor-General to set auditing standards that are to be complied with by persons conducting assurance reviews.

 

Recommendations 11 - 13 are the ‘follow the money’ recommendations and are discussed as a group.

 

Recommendation 11

That the Act be amended as necessary so that the Auditor-General may conduct a performance audit to directly assess the performance of bodies that receive Commonwealth funding in circumstances where there is a corresponding or reciprocal responsibility to deliver specified outcomes in accordance with agreed arrangements if a Minister or the Joint Committee of Public Accounts and Audit requests the audit.

 

The Auditor-General may ask a Minister or the Joint Committee of Public Accounts and Audit to make such a request.

 

Recommendation 12

That the Act be amended so that the functions performed by entities including private contractors on behalf of the Commonwealth in the delivery of government programs can be subject to direct audit by the Auditor-General.

 

Recommendation 13

That the Act be amended to ensure that when a decision is made by the Auditor-General to conduct an audit of a non-Commonwealth body, the reasons for that decision should be disclosed in the publication of the report.

Items 2, 4, 5, 7, 11, 15, 17, 18, 21, 33 and 34

 

These recommendations are primarily implemented by item 19.

 

Item 19 would insert a new section 18B into the Act which would allow the Auditor-General to conduct an audit of a ‘Commonwealth partner’.  A Commonwealth partner is defined in new subsection 18B(2) to mean a person or body which has received Commonwealth money to achieve a Commonwealth purpose.

 

The main features of new section 18B are that:

·            A ‘Commonwealth partner’ can be a state and territory government, an entity controlled by them, and other persons or bodies, including contractors and grantees (subsection 18B(2));

·            If the entity that is to be audited is a state or territory government or an entity controlled by them, the audit must be requested by the responsible Minister or the JCPAA (paragraph 18B(1)(a)), but the Auditor-General can ask the Minister or the JCPAA to request such an audit (subsection 18B(9));

·            The purpose of the audit of a Commonwealth partner must be limited to assessing the extent to which the operations of the partner contributed to the achievement of the purpose for which it received the Commonwealth funds (subsection 18B(3));

·            An audit of a Commonwealth partner can be conducted as part of an audit of a Commonwealth agency or authority (subsection 18B(4));

·            The audit report must be tabled in the Parliament, either as a standalone report (subsection 18B(6)) or as part of a report of an audit of a Commonwealth agency or authority (subsections 18B(6) and (7)).

 

Item 33 would amend section 33 of the Act (‘Access to premises etc’) to ensure that the Auditor-General would have the same power to enter the premises of a Commonwealth partner, examine and make copies of relevant documents as are currently available in respect of the premises and documents of the Commonwealth or a Commonwealth authority or company.

 

Item 34 would insert a new section 56A into the Act.  New section 56A is intended to address possible Constitutional limitations on the Commonwealth’s powers to audit state and territory governments and entities controlled by them.  This Constitutional ‘safety net’ would make it clear that, if any provision in the Act could be interpreted as being to some extent beyond the Commonwealth’s legislative power, it is the Parliament’s intention that the provision is not to be interpreted that way, but is instead to be given every interpretation that is within the Commonwealth’s power.

 

The remaining items facilitate the implementation of the ‘follow the money’ recommendations by:

·            Inserting definitions of ‘Commonwealth partner’ (item 2), ‘responsible Minister’ (item 4) and ‘senior manager’ (item 5) into section 5 of the Act; and

·            Requiring copies of proposed and final reports to be given to ‘senior managers’ of Commonwealth partners (items 7, 15, 11, 17, 18, 20 and 21).  These amendments would ensure that Commonwealth partners would have the same opportunities to consider and comment on proposed reports that relate to their operations, and to receive copies of final reports, as are afforded under the Act to Commonwealth agencies, authorities and companies.