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Audit Act - Report upon audits, examinations and inspections carried out under the Audit and other Acts, dated - 6 September 1982


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The Parliament of the Commonwealth of Australia

REPORT OF THE AUDITOR-GENERAL

Upon audits, examinations and inspections under the Audit and other Acts

September 1982

Presented and

ordered to be printed 7 September 1982

Parliamentary Paper No. 236/1982

Report of the Auditor-General

upon audits, examinations and inspections under the Audit and other Acts September 1982

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Report of the Auditor-General upon audits, examinations and inspections under the Audit and other A cts—Septem ber 1982

Australian Government Publishing Service, Canberra 1982

© Commonwealth of Australia 1982

Printed by C. J- Thompson . Commonwealth Government Printer. Canberra

Auditor-General’s Office CANBERRA, A.C.T. 7 September 1982

Sirs, In accordance with the authority contained in the Audit Act 1901,1 transmit to the Parliament a signed copy, of a report dated 6 September 1982 on audits, examinations and inspections carried out under the provisions of the Audit Act and other Acts.

Yours faithfully,

(K. F. BRIGDEN) AUDITOR-GENERAL

The Honourable the President of the Senate, The Right Honourable the Speaker of the House of Representatives, Parliament House, Canberra, A.C.T.

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Contents Page

PREFACE 1. 1.1 1.2

1.3 1.4

2. 2.1

3. 3.1

4. 4.1 4.2

4.3 4.4 4.5 4.6

5. 5.1

6. 6.1 6.2 6.3 6.4

7. 7.1 7.2 7.3

7.4

7.5

8. 8.1

9. 9.1

10. 10.1 10.2

10.3

II. 11 . 1

1 1 . 2

12. 1 2 . 1

12.2 12.3 12.4

ix

DEPARTMENT OF ADMINISTRATIVE SERVICES ............................................. 1

Australian Survey O f f i c e .................................................................................................... 1

Overseas Property O f f i c e .................................................................................................... 1

Accounting at Overseas Posts .......................................................................................... 2

References continued from Previous Reports ................................................................. 3

Overseas Property Office- -Accounting at Overseas Posts ........................................ 3

ATTORNEY-GENERAL’S D E P A R T M E N T ................................................................. 6

Australian Security Intelligence O rg a n iz a tio n ................................................................. 6

DEPARTMENT OF A V IA T IO N ..................................................................................... 7

Reference continued from Previous Reports .............................................

Motor transport fleet .................................................................................................... 7

DEPARTMENT OF THE CAPITAL T E R R I T O R Y .................................................. 8

Rates Branch ................................................................................................................... 8

National Sports Centre .................................................................................................... 9

ACT Rental H o u s in g ......................................................................................................... 10

Business Leases Branch ......................................................................................... .... . 10

Miscellaneous Revenue ...................................................... 11

Data Collection and Revenue Analysis System ............................................................ 11

DEPARTMENT OF C O M M U N IC A T IO N S ................................................................. 13

Technical Asset C o n t r o l .................................................................................................... 13

DEPARTMENT OF D E F E N C E ..................................................................................... 14

Army Stock Control System— S C U B A ............................. 14

Cockatoo Island Dockyard—Repair and Refit of S u b m a rin e s........................................ 16

Regional Offices .............................................................................................................. 20

Audits with Satisfactory F i n d i n g s .................................................................................... 21

RAEME Workshops ................................................................................................... 21

DEPARTMENT OF E D U C A T IO N ..................................................................... 22

Secondary Allowances S c h e m e .......................................................................................... 22

Aboriginal Overseas Study Award S c h e m e ...................................................................... 22

Overpayment Procedures .............................................................................................. 22

References continued from Previous Reports ................................................................ 23

Aboriginal Grants Schemes ......................................................................................... 23

Overpayment p ro c e d u re s .............................................................................................. 23

Canberra College of Technical and Further Education ............................................. 24

Audits with Satisfactory F in d i n g s .................................................................................... 24

Assistance for Isolated Children S c h e m e ...................................................................... 24

Post Graduate Award Scheme .................................................. .... ............................. 25

Adult Secondary Education Assistance Scheme ....................................................... 25

DEPARTMENT OF EMPLOYMENT AND INDUSTRIAL RELATIONS . . . 26 Commonwealth Employment Service (CES) ................................................................ 26

DEPARTMENT OF FINANCE .................................................................................... 32

Accounting Office Washington. Misappropriation of M o n e y s ........................................ 32

DEPARTMENT OF FOREIGN AFFAIRS ................................................................ 33

Accounting at Overseas Posts ......................................................................................... 33

Reference continued from Previous Reports ................................................................ 34

Accelerated payments and overseas property m a n a g e m e n t........................................ 34

The Australian Secret Intelligence S e r v i c e ..................................................................... 34

DEPARTMENT OF HEALTH .................................................................................... 35

Central Register of Medical Practitioners (CROMP) Data Bases .............................. 35

Reference continued from Previous R e p o r t ..................................................................... 38

Commonwealth Medical Benefits- Reimbursements to Registered Medical Benefits O rg an isatio n s............................................................................................................. 38

DEPARTMENT OF HOME AFFAIRS ..................................................................... 40

Cocos (Keeling) Islands Postal and Philatelic Services ............................................. 40

Cocos (Keeling) Islands- Administration ..................................................................... 41

Australian Archives ........................................................................................................ 42

References continued from Previous Reports ................................................................ 43

Norfolk Island Administration ..................................................................................... 43

Administration of Christmas Island ............................. ............................................ 44

13. 13 .1

13.2

13.3

14. 14.1 14.2 14.3

15. 15 .1

15.2

15.3

16. 16.1 16.2 16.3

17. 17 .1

18. 18.1 18.2 18.3 18.4 18.5 18.6

19. 19.1

20. 20.1

21. 2 1 . 1

2 1 . 2 21.3

22. 2 2 . 1 22.2 22.3

23. 23.1

23.2

DEPARTMENT OF IMMIGRATION AND ETHNIC AFFAIRS .................... Accounting at Overseas Posts ....................................................................................

Reference continued from Previous Reports ....................................... . . . .

Accounting at Overseas Posts— North Asia Region ............................................

Audits with Satisfactory F i n d i n g s ...............................................................................

Regional Office—S y d n e y .........................................................................................

DEPARTMENT OF INDUSTRY AND C O M M E R C E .......................................

Cargo Control and A c c o u n tin g ....................................................................................

Refunds and Remissions of Duties ..........................................................................

Reference continued from^Previous Reports ...........................................................

Excise on naturally occurring petroleum liquids— Bass Strait area ....................

DEPARTMENT OF NATIONAL DEVELOPMENT AND ENERGY . . . Commonwealth Regional Development P ro g ra m ......................................................

Reference continued from Previous Reports ...........................................................

Offshore petroleum royalties ...............................................................................

Audits with Satisfactory F i n d i n g s ...............................................................................

National Energy Research, Development and Demonstration Program . . . . Bureau of Mineral Resources, Geology and G e o p h y s ic s .......................................

Personnel and p a y r o l l ..............................................................................................

DEPARTMENT OF PRIMARY INDUSTRY ......................................................

Export Inspection C h a r g e s ............................................................................... - ■

Bureau of Agricultural Economics ..........................................................................

Reference continued from Previous Reports ...........................................................

Levies, taxes and c h a r g e s .........................................................................................

DEPARTMENT OF SCIENCE AND T E C H N O L O G Y .......................................

Australian Industrial Research and Development I n c e n t iv e s ..................................

DEPARTMENT OF SOCIAL SECURITY ...........................................................

National Benefits System .........................................................................................

Computer Environment Review ...............................................................................

Subsidy P a y m e n t s ........................................................................................................

Management S e rv ic e s ...................................................................................................

Telephone Rental Concessions to Pensioners ...........................................................

Audits with Satisfactory F i n d i n g s ...................................................................................

Home Savings Grant Scheme ...................................................................................

DEPARTMENT OF TRADE AND RESOURCES .................................................

Reference continued from Previous Reports ................................................................

Accounting at overseas posts—Osaka ..........................................................................

DEPARTMENT OF TRANSPORT AND C O N ST R U C T IO N ..................................

Contracts Branch- -South Australia/Northern Territory R e g io n .............................

DEPARTMENT OF THE TREASURY ....................................................................

Australian Taxation Office - Postings and T r a n s fe r s ......................................................

Australian Taxation Office Company Tax Instalments ............................................

Audits with Satisfactory F i n d i n g s ...................................................................................

Australian Bureau of Statistics 1981 Population and Housing C e n s u s ...................

DEPARTMENT OF VETERANS' AFFAIRS ...........................................................

Departmental Drawing Account Brisbane ...............................................................

Payments of Pensions Overseas ...................................................................................

Reference continued from Previous Reports ...............................................................

Telephone rental concessions to p e n s io n e r s ...............................................................

GENERAL ...........................................................................................................................

Internal Audit .................................................................................................................

Department of Administrative Services ....................................................................

Department of Communications ..............................................................................

Department of Foreign A f f a i r s ...................................................................................

Department of Health ..............................................................................................

Department of Social Security ...................................................................................

Department of Veterans’Affairs .........................................................................

Government Wide Review User Training and Involvement in the Development of Computer S y s te m s .......................................................................................................

45 45 45 45 46 46

47 47 51 51 51

53 53 53 53 55 55 56 56

57 57 58 59 59

60 60

page

64 64 69 70 71 72

73 73

74 74 74

75 75

76 76 77 78 78

80 80 81 82 82

84 84 85 85 85 86 86 86

87

vi

page

AUDITS OF STATUTORY AUTHORITIES 24. Aboriginal Development Commission ......................................................................

25. Australian Apple and Pear Corporation .................................................................

26. Australian Canned Fruits C o r p o r a ti o n ......................................................................

27. Australian Capital Territory Schools Authority .......................................................

28. Australian Dairy C o r p o r a tio n .....................................................................................

29. Australian Industry Development Corporation .......................................................

30. Australian Maritime College .....................................................................................

31. Australian National University ................................................................................

32. Curriculum Development C e n t r e ................................................................................

33. Darwin Cyclone Tracy Relief Fund T r u s t .................................................................

APPENDIX A Audits carried out under Section 41D of the Audit Act or under other Acts, etc APPENDIX B Companies in which the Commonwealth has a Controlling Interest . . . . APPENDIX C Status of Financial S ta te m e n ts ...........................................................................

93 95 96 97

99 101 103 104 105 106 107

1 1 1 113

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PREFACE

In past years, the Report tabled during the Budget Sittings has included the statutory report under section 51 of the Audit Act 1901 on the annual Financial Statements pre­ pared by the Minister for Finance. The date of its tabling in the Parliament has been governed largely by the availability of the Minister’s Financial Statements in printed

form.

To assist Estimates Committees in their examination of departmental estimates for the forthcoming year, I have decided to prepare two separate Reports for tabling during the 1982 Budget Sittings. This Report, the first of the two, concerns the results of audits completed as at 30 June 1982. The second, the statutory report on the Financial State­

ments prepared by the Minister for Finance, will be transmitted to the Presiding Officers in the near future.

This Report contains the results of audits completed as at 30 June 1982 in relation to departments, Authorities and other bodies.

The nature and extent of audits are indicated, and the comments of the departments and other bodies concerned are included where appropriate. Brief mention is also made of audits in respect of which the audit findings were satisfactory.

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1. DEPARTM ENT OF ADMINISTRATIVE SERVICES

1.1 Australian Survey Office Introduction The Australian Survey Office of the Department of Administrative Services pro­ vides land, engineering and topographic survey and drafting support services for Com­ monwealth Government purposes. Costs are recovered from some departments and

authorities.

An audit was undertaken of some functions of the Australian Survey Office in West­ ern Australia during March 1982. The audit included examination of revenue recoveries, employment of contract surveyors and draftsmen, procurement and asset control.

Audit findings A number of unsatisfactory features was referred to the Department including:

» the lack of adequate procedures for the indentification and control of recoverable jobs

• the absence of an approved job costing system for estimating costs prior to the commencement of work on specific surveys

• the non-observance of prescribed procedures for the engagement of survey con­ sultants and contract draftsmen • the non-observance of prescribed tender/quotation procedures for the purchase of goods and services in relation to publication of contracts and obtaining quotes

in all appropriate cases

• the failure to adjust discrepancies revealed in the stocktake of assets conducted in October 1981, and

• the lack of a formal procedures manual for the various functions of the Office.

In reply the Department advised that:

• recoverable jobs will be identified on job cards at commencement and be subject to quarterly check • on issue of instructions Senior Surveyors will estimate a target time and check and compare actual time on completion of each job

• procedures for engaging survey consultants and contract draftsmen have been amended and an approach has been made to the Purchasing Division with a view to improving the present system with respect to contract drafting

• prescribed procedures in relation to procurement are now being followed • action is in hand to adjust discrepancies in the October 1981 stocktake, and e procedures will be written and adopted into the Administrative section of the

Procedures Manual of the Office progressively.

1.2 Overseas Property Office

Introduction The functions of the Overseas Property Office are to acquire, lease and dispose of land and property and to arrange for the construction of buildings and provision of office accommodation overseas for Commonwealth Government purposes.

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A survey of the operations of the office in Canberra was undertaken in 1981-82 to evaluate the effectiveness of the operational and management systems.

Certain controls which are in operation at overseas posts were evaluated during programmed visits overseas. Separate reference to these programmed inspections is given at paragraph 1.3.

Audit findings

The following matters were discussed with senior management and referred for de­ partmental comments:

• the current management information system did not provide prompt and suf­ ficient information on management performance

• errors and omissions in procedural matters for arranging and terminating leases had been noted together with procedural deficiencies with sub-leases, and

• the cyclical maintenance program for repainting overseas properties had fallen behind schedule. -

In response the Department advised that:

• the current management information system is regarded as adequate given the re­ straints under which it operates—however the methods by which overseas prop­ erty records may be placed on ADP is currently under investigation with the hope that the range and number of reports will be increased and improved

• action has been taken to correct the leasing errors and to improve the procedures for sub-leases, and • work under the cyclical maintenance program can only be undertaken if suf­ ficient funds are available, and during periods of expenditure restraint priority is

given to essential repairs over routine maintenance.

1.3 Accounting at Overseas Posts

Paragraph 10.1 of this Report refers to audit inspections of a number of overseas posts in Europe administered by the Department of Foreign Affairs. The inspections in­ cluded a review of the activities carried out at the posts by officers of the Department on behalf of the Department of Administrative Services.

Europe During January-May 1982, Audit officers reviewed functions at Brussels, The Hague, Madrid, Tel Aviv and Copenhagen. The principal aspects referred in March- June 1982 for corrective action to the respective Heads of Mission at the posts and to the Departments of Administrative Services and Foreign Affairs are reported below.

The Hague The audit inspection in February 1982 extended to functions undertaken by rep­ resentatives of the Australian Information Service and the Australian Government Publishing Service (AGPS). The general conclusion following the inspection was that the standard of financial administration was adequate, although a number of weak­ nesses required remedial action. The principal aspects referred to the Head of Mission and to the Departments of Administrative Services’ and Foreign Affairs’ Central Offices for comment and advice of remedial action follow.

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Expenditure—Instances were noted where requisitions were being raised after the re­ ceipt of suppliers’ invoices rather than when the obligation was incurred, thus bypassing a key control in the expenditure system.

Procurement—In most cases, competitive tenders and quotations were being sought from a minimum number of suppliers, some of whom did not reply. It was suggested that a wider distribution of requests could result in a more effective procurement operation.

Accelerated payments—Paragraph 10.1 refers to accelerated payments incurred by the post, part of which involved AGPS expenditure.

A reply had not been received from the Head of Mission and the Departments con­ cerned at the date of this Report.

Brussels The conclusion following the inspection in May 1982 was that the standard of financial administration at the post was generally satisfactory, although there were several weaknesses that required remedial action. The principal aspects referred to the Head of Mission and the Departments of Administrative Services and Foreign Affairs

for comment and advice of remedial action are referred to below.

Property management—Paragraph 10.1 refers to the 3 year lease of furniture valued at BF350 000 (SA7290 approx.) at an annual cost of approximately BF210 000 (SA4375 approx.). The post advised that the lease was entered into because of lack of funds for the purchase of furniture.

Asset accounting—Boards of Inspectors reports’ submitted to the Overseas Property Office (OPO) in May 1981 recommended disposal of a number of items of furniture and equipment. At the time of the inspection OPO had not given approval to disposal action. The stores were held in leased premises, the lease of which could be terminated

if approval to dispose of the items was given. The cost of the leased premises is BF7055 ($A 150 approx.) per month.

A reply has not been received from the Head of Mission and the Departments at the date of this Report.

1.4 References continued from Previous Reports Overseas Property Office— Accounting at Overseas Posts The March 1982 Report at paragraphs 8.3, 8.4 and 16.1 referred to several matters arising from inspections of Department of Foreign Affairs posts at Seoul, Beijing, Paris

and Tokyo that were also referred to the Overseas Property Office (OPO) of the Department of Administrative Services in February 1982. The Department’s response to the matters referred for comment follows.

Accelerated payments— Paragraph 8.3 of the March 1982 Report referred to instances of accelerated payments made at overseas posts at Seoul, Beijing and Paris. The effect of the payments was avoidance of the lapsing of the appropriation (see section 36 of the Audit Act 1901).

Seoul Procurement o f carpet tiles—Associated with the purchase of carpet tiles for the Chancery, a cheque for $3873, being the balance of the annual expenditure allocation, was drawn on 20 May 1981 and held in the Cashier’s safe until the shipping documents

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were received on 4 September 1981. In addition, contrary to instructions, the supplies were purchased direct from the Australian supplier instead of through the OPO.

The Department advised that the post had confirmed that the purchase payment was prepared but not effected until the shipping documents were received and that the post had been instructed not to breach the regulations in this manner.

Excess deposit—After consultation with OPO the post paid a deposit of $4890 on 20 May 1981 for purchase/import of a motor car from the USA. The deposit would normally have been $500. The car had not been delivered at the time of the audit inspection in September 1981.

The Department advised that the post had commented that the higher deposit was paid to ensure full utilisation of the funds available and that the post has been instructed not to resort to this procedure again. This Office has asked for a further response on this matter from the Department as it appeared from correspondence held at the post that the higher deposit was made with the concurrence of the Department.

At the date of this Report the Department’s further response had not been received.

Beijing In April and May 1981 the post made payments in advance totalling Y37 235 ($A18 962) to the Chinese authorities for a number of services which had not been received by November 1981.

The Department’s response failed to give an explanation for payments being made prior to the receipt of final specifications for the work. This Office has asked for a further response on this matter from the Department as, from files examined at the post, it appeared that the payment was made with the concurrence of the Department.

At the date of this Report the Department’s further response to this matter had not been received.

Paris The Department’s response contained no reference to the payments made in Paris or to the problems experienced by the posts in committing and spending funds in the limited period available. Further comments of the Department have been requested.

At the date of this Report the Department’s further response had not been received.

Property management— Osaka Paragraph 16.1 of the March 1982 Report referred to a staff apartment which was not occupied on a full time basis since it was vacated by the Department of Foreign Affairs in 1976 but was being leased out on a short term basis only. It was suggested to the Department that the requirement for the apartment should be reviewed and alternative arrangements considered.

The Department has advised that it is investigating the legality of a Foreign Mission subleasing to other than a representative of a Foreign Mission. The Department also understands that the apartment will be used by an Australia-based officer due to be posted to Osaka during this financial year.

Sale o f premises— Tokyo Paragraph 8.4 of the March 1982 Report referred to an apartment in Tokyo purchased in May 1975 and unoccupied since July 1979, even though costs continued to be incurred.

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The Department has advised that the continuing charges are fixed costs which cannot be avoided, and the main reason for the delay in arranging the sale from the time the premises were vacated was the need to obtain a property valuation and to clarify discrepancies in the valuation received. The Department also advised that 2 buyers are interested in the property.

Comment Following a review of the Department’s reply this Office expressed concern regarding the agreement by the OPO to posts effecting payments which were in breach of section 34 (4) of the Audit Act 1901 and the Department’s response relating to the accelerated expenditure referring to the posts’ comments without commenting on its own involvement.

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2. ATTORNEY-GENERAL’S DEPARTMENT

2.1 Australian Security Intelligence Organization The accounts of the Australian Security Intelligence Organization for the year ended 30 June 1982, with the exception of that part of the accounts determined by the Attorney- General to be exempt accounts within the meaning of section 70D of the Audit Act, have been audited by my Office and the results of the audit were generally satisfactory.

As required by sub-section 70D (5) of the Act I have notified the Minister of the total amount which according to the audited accounts was allocated and credited to the exempt accounts during the year.

The Attorney-General has furnished me with a certificate relating to the exempt accounts. A copy of that certificate will be included in the Report on the Financial Statements prepared by the Minister for Finance.

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3. DEPARTM ENT OF AVIATION 3.1 References continued from Previous Reports Motor transport fleet Paragraph 17.1 of the March 1982 Report mentioned that a reply was awaited to Audit representations regarding unsatisfactory matters noted in connection with motor transport operations at certain Tasmanian airports.

On 11 March 1982 the Director of the Victoria/Tasmanian Region of the then De­ partment of Transport in an interim reply commented that it was not possible to insti­ tute detailed procedures at smaller airports to the degree necessary at larger establish­ ments. He also advised that the matters raised were being investigated and a detailed

reply would be forwarded as soon as possible.

At the date of preparation of this Report the detailed reply had still not been received from the Department.

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4. DEPARTMENT OF THE CAPITAL TERRITORY 4.1 Rates Branch Background The Department of the Capital Territory, through its Rates Branch, administers ordinances relating to general, water and sewerage rates in the Australian Capital Territory and collects and accounts for moneys due and payable. An automatic data processing system used by the Department for municipal rates accounts is in the process of being redesigned. <

An audit was undertaken of the Rates Branch in 1982. The audit objectives were to:

• evaluate the accuracy of the information to be transferred to the redesigned data processing system

• review the effectiveness of the procedures for collecting and accounting for rates, including follow-up of outstanding amounts, and

• determine the extent of control discrepancies and their effect on the collection of rates revenue.

Audit findings Several unsatisfactory aspects were referred to the Department for comment. These matters, together with the Department’s responses, are set out below.

Account raising—Instances were noted where leases had been recorded at the Land Titles Office but no rate accounts had been raised. The system should contain controls to ensure rate accounts are raised when leases are granted.

Redeterminations—Unimproved values of properties used in the calculation of general rates are redetermined every three years on the basis of Australian Taxation Office valuations. Manual checks are made to ensure that all redeterminations are entered but such checks are not designed to detect inaccuracies and did not appear to be cost effec­ tive. The implementation of computer checks, including reasonableness checks, was proposed to the Department.

Suspense accounts—Transactions which cannot be matched to accounts are transfer­ red to a suspense account and noted in a memorandum book. Internal control was inad­ equate in that:

• listings of transactions could not be reconciled to the total of the account

• the memorandum book was not reconciled to the suspense account

• entries in the memorandum book dating back to 1975 had not been cleared, and

• not all unmatched transactions were entered in the memorandum book.

Remissions—It was suggested that an internal check should be applied to amounts cal­ culated as remissions of rates for pensioners and hardship cases.

Recoveries—Rate arrears totalling $6 306 780 at 26 January 1982 are classified accord­ ing to account types as follows: residential $3 005 454, commercial $2 594 817, private fiats $230 427, institutions, churches etc $288 368, vacated account $246 083, govern­ ment dwellings $26 287 and other $417 344. Action for recovery of rate arrears has been restricted and within the several classifications of accounts, for example commer­ cial, residential, institutions, action to recover was based on the dollar materiality of the arrears. Recovery action had not been taken on certain account types for over twelve months.

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Departmental reply The Department advised that:

• delays do occur from time to time in account raising due to manpower problems or as a result of particular circumstances concerning a specific lease

• redetermination of values as at 1 January 1982 will be processed by the redesigned computer system which will provide a variety of edits, including reasonableness checks

• measures have been introduced to clear identifiable transactions posted to the sus­ pense account, however the problem will not be overcome until the redesigned computer system is introduced

• calculations of remissions should be subject to verification and this will be insti­ tuted within the limits of manpower resources, and

» attempts have been made to reduce the balance outstanding on all accounts and the redesigned computer system will include some innovations to reduce the cleri­ cal effort involved in the recovery process.

4.2 National Sports Centre Background The National Sports Centre, which is a sub-section of the Recreation and Tourism Branch of the Department of the Capital Territory, manages and promotes the use of

various facilities at Bruce, ACT. The Centre encompasses the National Athletics Stadium, the National Indoor Sports Centre, and 6 floodlit tennis courts and 2 floodlit netball courts adjacent to the Indoor Centre. Work is proceeding on additional sporting and recreation facilities. The Centre houses the offices of the Australian Institute of

Sport whose athletes use the facilities.

An audit of the National Sports Centre was completed in May 1982. The objectives of the audit were to:

• evaluate the Centre’s accounting procedures, office system and associated controls

• examine procedures for hiring and use of facilities, and

• review the basis for determining hire charges.

Audit findings Unsatisfactory matters referred to the Department on 10 May 1982 included: Hiring procedures—No complete record of hiring existed to provide evidence that all revenue earned had been brought to account. In many cases it was not evident that for­ mal agreements between the Centre and hirers existed with the result that charges and conditions of hire were not clearly established.

Debtors—Serially pre-numbered sundry debtor advices had not been used and a debtors ledger is not maintained. Recovery of outstanding debts is the responsibility of the financial administration of the Department. It was suggested that by furnishing a duplicate debtor’s advice to the departmental financial administration, debt control and recovery action would be facilitated.

Segregation o f duties—It was noted that one officer may accept bookings, record trans­ actions and collect moneys. This is unsatisfactory and should be avoided if possible.

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Hire charges—Hirers of the Stadium and the Indoor Sports Centre are required to sub­ mit a statutory declaration specifying gross takings. In some cases declarations had not been received and hire charges had been calculated on unconfirmed figures.

At the date of preparation of this Report a reply had not been received from the Department.

4.3 A.C.T. Rental Housing Background 4

Reference was made in paragraph 3.1 of the March 1982 Report to findings from an audit of the rental housing system of the Housing Branch of the Department of the Capital Territory, Departmental comments received on 1 March 1982 are summarised below.

Tenant records In relation to the Audit observation that the alphabetical card system used to main­ tain records of tenants was unsatisfactory, the Department advised that the card index had been reviewed and necessary corrective action taken; further, all card systems were to be reviewed periodically.

Rental rebates It had been noted that records of rental rebates did not always indicate that the assessing officer had sighted evidence of the applicant’s income.

The Department advised that all applicants for rental rebate must now submit proof of income with their applications. Evidence of the applicant’s income is now filed on the respective rebatee’s file. For aged and invalid pensioners this may be documented or an endorsement placed upon the file.

Operating instructions It had been observed that in a number of cases instructions available to officers in charge of sub-sections were inadequate and frequently pre-dated the rental housing computer system. In response the Department advised that procedures for the Housing Branch staff have been completed and implemented for use in relation to account cre­ ation, processing of refunds, preparation of journals, recoveries, account explanatory notes, rebates, subsidies, deductions and bad debt recoveries and write-offs. In relation to the computer system operations the duties of officers in the production control area have been revised to facilitate a clear separation of responsibilities.

4.4 Business Leases Branch Background Land for commercial, industrial, accommodation, tourist, institutional, rural and community purposes is leased and managed by the Business Leases Branch of the De­ partment. Market forces influence the method used for disposal of leases which may be by auction sale, tender or by direct negotiation. Lease management includes responsi­ bility for oversighting the development or re-development of leased land, reappraisal of rents, variations of leases and negotiation of lease renewals.

Paragraph 2.5.1 of the September 1981 Report referred to a field survey of the con­ trols exercised by the Business Leases Branch over the collection of revenue from busi­ ness leases.

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An audit of the Branch was undertaken during 1982. The audit objectives were to:

• examine the method of negotiating lease renewals to determine consistency with the Ministerial guidelines of 9 June 1980 • evaluate financial and operational controls over revenue from business leases, and • review procedures for collecting land rent and land rent in arrears.

Audit findings A number of unsatisfactory matters noted in the collection, recording and receipt of money was brought to the Department’s attention. Audit recommended to the Depart­ ment that written procedures be issued for the guidance of officers in the disposal of land by auction, direct grants of land and the collection of moneys.

At the date of preparation of this Report a reply had not been received from the Department.

4.5 Miscellaneous Revenue Background All revenue collected by the Department in the Australian Capital Territory not re­ lating to specific revenue headings contained in the Estimates of Receipts and Summary of Estimated Expenditure is accounted for under the heading of Miscellaneous Rev­ enue. The 1981-82 estimate for Miscellaneous Revenue was $5 363 900. Miscellaneous Revenue is derived mainly from charges relating to the diverse functions of a local government nature for which the Department is responsible.

An audit was undertaken of Miscellaneous Revenue in March 1982, The audit objectives were to:

• identify and document the revenue collection system • evaluate the adequacy of the system to ensure that safeguards exist for the collec­ tion of moneys, and • examine the procedures for the recording and follow-up of outstanding debts.

Audit findings The system was found to be generally satisfactory, but a number of procedural mat­ ters concerning trade waste, file security, business leases adjustment advices and delays in the recovery action process was referred to the Department for comment.

Departmental reply The Department advised that appropriate action has been taken in regard to a number of the matters raised. Improvements in the task of debt recovery are antici­ pated with the installation of new accounting hardware in the near future and the consequent reduction in manual processing.

4.6 Data Collection and Revenue Analysis System Background The Data Collection and Revenue Analysis System is a computer program central to the departmental accounting for cash receipts. Under the system details of the cash register receipts are recorded on cassettes when the receipts are issued. The information

is processed to produce reports and magnetic tape transaction files which update de­ partmental ledgers and print the Receiver’s Statements for input to the Department of Finance Central Ledger System. An audit of the system was undertaken during 1981. The objectives were to:

11

• determine the reliance which can be placed on the data capture sub-systems, and • evaluate the accuracy and reliability of the revenue analysis functions.

Audit findings Controls generally within the system were considered to be satisfactory. However, it was recommended to the Department that policy and procedures be developed for the serviceability, control and security of cassettes.

The Department has advised that appropriate action has been taken.

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5. DEPARTM ENT OF COMMUNICATIONS 5.1 Technical Asset Control Introduction The Department holds approximately $15 million worth of technical assets throughout Australia. The recording and control of these assets is the responsibility of the Central Office of the Department in Canberra, the function having been transferred

from Melbourne to Canberra in mid-1981.

An audit of the Department’s systems for the acquisition and control of assets was undertaken in early 1982. The objectives of the audit were to determine whether:

• the system and procedures for controlling and recording assets were adequate, and • controls over general tender and quotation procedures for the acquisition of major asset items were operating satisfactorily.

Audit findings Matters represented to the Department following the audit are summarised below.

Recording—The asset register was deficient in that certain assets were not recorded, older asset records did not contain a cost or value for the assets and accessory items, which could be removed from the main asset, were not individually labelled or recorded.

Asset movement—Procedures for recording the movement of assets between regions were not fully complied with.

Stocktaking—No organised program for a stocktaking cycle had been instituted. In ad­ dition, the procedures for the conduct of stocktaking had not been approved and a register of stocktakes had not been maintained. Finance Directions generally envisage annual stocktakings.

Procurement—The requirements of Finance Regulations 51 and 52AA were not always observed by the Department. Finance Regulation 51 provides for quotations or tenders (depending on the value of the purchase) to be obtained from suppliers and, where such quotations/tenders are not sought, a certificate of exemption to be obtained before

the purchase is made from a properly delegated officer in accordance with Regulation 52AA.

In reply the Department advised that:

• approval was being sought from the Department of Finance for an officer of the Department to be authorised to issue certificates of exemption • owing to limited staff resources it was considered impracticable to value older assets and an estimate of the value would be made when they are due for disposal

or write-off action, and • corrective action had been taken in respect of the other matters raised.

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6 . DEPARTMENT OF DEFENCE

6.1 Army Stock Control System—SCUBA Background In late 1977, recognising that the computing hardware at its central site would be­ come increasingly costly to maintain, the Department decided to transfer all its existing DP systems to another computer. The conversion process was accelerated from 1979 onwards. The SCUBA (Stock Control Usage Based-Army) system was introduced as part of the conversion of the Arftiy EDP supply systems.

SCUBA was designed to assist in managing the high volume, low cost range of the Army’s inventory, including spare parts, clothing, general stores etc., and to incorpor­ ate more sophisticated techniques of stock control and forecasting than were available previously. The system deals with approximately 200 000 supply items, accounting for about 80% of all Army supply items and about 20% of the inventory value.

SCUBA consists of 3 interlinking subsystems and several interfaces including a cen­ tral system in Canberra, a mini-computer system used by the stock controllers at Head­ quarters Logistic Command in Melbourne, and mini-computer systems which maintain the accountable stock records at 8 Army depots. It operates on a Univac computer in Canberra and on Perkin Elmer 7/32 mini-computers in Melbourne and at depots.

Audit coverage An audit was conducted in Canberra and at an Army supply depot with the objec­ tives of evaluating the internal controls operating within the Department’s Computer Services Division as they related to SCUBA and of assessing their effectiveness within a supply depot environment. The following aspects were considered:

• management and organisational controls • application systems development, implementation, modification and review controls • software systems development, implementation, modification and review controls • data integrity controls • processing controls, and • general environmental controls.

Audit considered SCUBA to be effective in meeting the performance criteria of the superseded system but identified certain control weaknesses that affected the reliability of the enhancements provided by SCUBA. Audit findings, the more important of which are shown below, were referred to the Department for comment.

System development, implementation and testing The initial system development phases had been ill-defined and had been further affected by inadequate project control. The system development guidelines now in force had not been available at the commencement of the SCUBA project.

Total system test strategies were lacking at the time of implementing SCUBA as the guidelines did not require that manual and operations procedures be tested as part of the whole strategy. The Department accepted the criticism in relation to past activities in SCUBA but advised that Army is now more conscious of the need for clearly defined phases, firm

project control and total system test strategies in the design and implementation of any future system and that specific control mechanisms have now been developed.

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Accuracy o f data

The data which was loaded onto SCUBA at the data conversion stage could not be confirmed as accurate at the time of the audit review. Monitoring and corrective action had not been sufficient to detect and amend several types of invalid and inconsistent data remaining on the data base. This affected the degree of reliance that could be

placed on a number of management reports produced by the system.

The Department agreed that there were still inconsistencies between depot records and the central record and advised that action is continuing to correct the inconsisten­ cies as they are discovered.

Program change controls Although system change procedures were well defined, controls were not being applied during some urgent changes. Also, while satisfactory controls existed for the protection of the source code of production programs (i.e. to ensure they were not im­ properly amended), these controls were being entirely negated as program modifica­ tions were being made to unprotected copies of the source code.

The Department advised that it is to be expected that when urgent changes are required, in some instances, standard procedures must be shortcut. It advised, however, that every attempt is made to ensure that control measures are not overlooked.

Passwords The existing policy for the changing and control of passwords was not being enfor­ ced either within the Computer Services Division or at the depot reviewed by Audit. The control afforded by using passwords was therefore seriously weakened.

The Department agreed that, in some instances, the policy on passwords may not have been enforced and advised that this may have been aggravated by the lack of clear direction in the policy which is being rewritten to define more clearly the requirements. The Department also advised that depots are now observing the policy and that, in ac­ cordance with current policy, new procedures are to be implemented within the Com­

puter Services Division to ensure that passwords will be changed regularly.

Completeness o f data Insufficient controls existed at the depot reviewed to ensure the completeness of data both at original input stage and during the clearing of rejects. In addition, formal procedures were not always followed, possibly due to insufficient staff training.

The Department advised that extra validation and range checks are under consider­ ation and, if accepted, will be the subject of system change request action which will be accorded appropriate priority. The Department also advised that the additional task of checking input is beyond the capacity of depot staff though, in general, compliance with

formal procedures is subject to monitoring.

Depot environmental controls The general environmental controls existing at the depot reviewed were inadequate. The airconditioning in the computer room was unsatisfactory and the building itself and its location constituted a fire risk. No off-site storage for computer files was used.

The Department advised that an upgrade of the airconditioning has been requested and back-up files are now stored off-site. It accepted that a fire risk existed but con­ sidered that due to the age and type of building involved as well as the lack of funds to provide new facilities the present system must be tolerated.

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Conclusion

Audit recognised that amendments made in the development of the initial system design represented improvements on the previous system. The difficulties under which the system was introduced were also noted.

The control weaknesses identified by Audit place doubt on the continuing ef­ fectiveness of the system and on the reliability of information provided by it. These weaknesses are now being addressed by the Department.

6.2 Cockatoo Island Dockyard— Repair and Refit of Submarines

Cockatoo Island Dockyard is operated by Vickers Cockatoo Dockyard Pty Limited (VCD) under a Trading Agreement and Lease with the Commonwealth. The Agree­ ment was entered into in January 1972 for a period of 21 years.

Apart from Navy submarine refitting which is given precedence under the Agree­ ment, VCD undertakes, under separate contracts, other Defence work such as con­ struction of the new Fleet Underway Replenishment Ship (AOR) under fixed price ar­ rangements and also bids for commercial contracts.

VCD is responsible for maintaining Commonwealth assets and the Agreement pro­ vides for Commonwealth funding of replacement of equipment utilised solely on naval work and discretionary replacement of buildings, works and services. VCD operates essentially as an independent contractor, retaining profits and meeting losses, and pay­ ing the assessed or minimum rent to the Commonwealth.

Under the current submarine refitting program, 2 of the RAN Oberon Class submarines are undergoing refit at VCD at any one time. Recent submarine refits are shown below:

Cost

Dates (programmed) (estimated)

$m

HMAS Otway January 1979-January 1982 ......................... 28.98

HMAS Ovens March 1980-August 1982 ......................... 32.97

HMAS Orion May 1981 May 1983 .................................. 36.00 * •

During 1981 this Office undertook audit surveys in the following areas relating to Commonwealth oversight of dockyard operations including the repair and refit of submarines:

• general contractual matters

• contract charges ■

• management aspects • Commonwealth assets, and

• review processes.

Audit memoranda on these matters were sent to the Department of Defence (the Department) in January and May 1982. Below is a summary of audit findings and departmental responses.

Following changes to the Administrative Arrangements Order in May 1982, portfolio responsibility for the dockyard was transferred from the Department of Defence to the newly created Department of Defence Support. During the gradual process of handover, the Department of Defence has undertaken to refer all of the relevant matters to the new Department and provide it with background papers.

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Reference in this Report to future action by the Department of Defence may be read to include, unless otherwise indicated, action by the Department of Defence Support.

General contractual matters Cost-plus contracts—The Trading Agreement provides for work to be quoted for as far as possible at fixed or firm prices or otherwise on an incentive price or cost-plus-profit basis. Audit noted that submarine refits have been carried out under cost-plus contracts

rather than other forms of contract envisaged in the Agreement.

The Department advised that it preferred to negotiate contracts other than on a cost-plus basis but for submarine refits it had not found a satisfactory alternative to cost-plus contracts. It considered that no prudent ship repairer would engage in work involving significant technical risks without a substantial contingency or higher profit

margin. The Department stated that the technical complexity of the refits militated against the use of incentive contracts and that tighter types of contracts could frequently cause delays, discord, and costly legal arguments between the 2 parties. It relied upon the supervision and controls inherent in the activities of the resident

Principal Naval Overseer and his staff and the General Overseer and Superintendent of Inspection, East Australian Area, for control of the efficiency of the contractor.

Schedule o f Conditions—The undertaking of each major refit is governed by approved orders from the Commomwealth for the performance of necessary tasks and by a related Schedule of Conditions signed by the Commonwealth and VCD. This Office was concerned that at the time of commencement of the refits of HMAS Ovens and HMAS Orion, although an approved order had been given, the respective Schedules of Conditions had not been signed. At the time of the audit in December 1981,

approximately $4 million in costs had been incurred on the HMAS Orion refit without a signed Schedule.

In reply the Department stated that the Schedule for HMAS Orion had since been cleared at senior level and the formal signature was expected shortly. It undertook to complete formalities for the HMAS Onslow refit before its planned commencement in August 1982.

Overhead recovery rate form ula—In January 1976, the Minister for Defence promulgated a Substituted Mode of Performance for certain requirements of the Trading Agreement which, inter alia, introduced a formula to calculate the overhead recoverable from the Commonwealth. Provision was made for the Commonwealth to review the variables of the formula in certain circumstances and otherwise at intervals of no more than 2 years. The intent of this provision was to ensure that the Commonwealth’s interests were examined and protected. Audit noted that reviews had

not been finalised and the recovery rate remained based on the overheads at the level of commercial work in 1975.

The Department advised that it recognised the need to review the variables of the formula and that representations had been received from (and discussions held with) VCD on the matter but that any moves for change were considered unwise, pending clarification of certain complex legal matters. The Department has since advised that a

legal opinion had been obtained which clarified those matters and enabling the review to be completed.

Contract charges Direct cost allocations— Refits and commercial work—In Audit’s view neither records maintained by the Department, nor those of VCD to which it has access, were considered sufficient to allow it to apply adequate control over costs charged against

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refit sub-jobs and to allow follow up of anomalies. Audit suggested that control of costs would be improved if similar procedures to those in use for submarine mid-term dock­ ings were adopted.

The Department agreed that some improvement may be necessary in the method of recording direct costs in respect of submarine refits. It stated, however, that the number of cost dissections required in a submarine refit was substantially higher than in mid­ term dockings and the manual recording used in the latter projects was not practicable for full refits. Nevertheless, an investigation is in progress to determine whether a pro­ cedure based on a more advanoed control system would be practical and cost effective.

The following matters relate to departmental interpretations of a document entitled ‘Standard Conditions for Determination of the Costs of Contracts’ which was issued by the Department of Administrative Services and is subsidiary to the Trading Agreement and Lease.

Idle time—The Standard Conditions provide for idle time to be included in the con­ tract cost only if approved by the Department of Defence. There was no evidence that any such approvals (or rejections) had been given. Audit suggested that the Depart­ ment implement a cost control system over ‘short term’ idle time expense.

The Department agreed that an element of idle time of short duration must exist in an establishment such as Cockatoo Island Dockyard. Its incidence, however, is sig­ nificantly influenced and maintained at an irreducible minimum by the redeployment of manpower resources to other tasks such as commercial work and maintenance of buildings and plant. VCD’s costing system is dependent upon the proper and actual manpower bookings at the source and, therefore, the Company has the initial responsi­ bility to audit its own procedures on manpower chargings and a further requirement to advise the Commonwealth on and obtain approval for the charging of idle time costs. The Department advised that, nonetheless, it would further investigate the practicality and cost effectiveness of detailed identification of ‘short term’ idle time.

Costs o f rework—The audit disclosed that some difficulty was evident at working levels of the Department in establishing responsibility for rework and segregating relevant costs. Up to the time of the audit all costs of rework had been paid for by the Common­ wealth under the cost-plus-profit basis. Audit recommended that a legal opinion be obtained to confirm current interpretation by the Department of responsibility for costs of rework.

The Department advised that the Standard Conditions clearly place responsibility on the contractor for certain rework costs including rectification of defective work within the contractor’s control. It conceded, however, that determining responsibility for defective work had proven difficult but that action was continuing on ways to re­ solve the problem. It indicated also, that it is not always practicable in each case to seg­ regate the actual costs of rectification. In the interim the Department has included a clause in the Schedule of Conditions for the next refit, which more clearly calls up the Standard Conditions, and has advised officers involved in supervision and monitoring of VCD operations of its effect.

Central to Audit’s interest in the matter is the possibility that the Commonwealth may have been meeting costs of rectification of defective work which are the financial responsibility of the contractor. It is important that the question of responsibility be clear to both the contractor and the Department’s representatives and that the costing system be capable of identifying all rework costs that may be recoverable.

Depreciation—Depreciation on assets acquired by VCD is governed by the amounts al­ lowable for income tax purposes. Audit brought to attention that in respect of newly

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acquired assets, depreciation was being calculated from a date other than the date of ac­ quisition. The Department commented that prior to the allowances for 1980 then under consideration, the depreciation had been relatively small, but undertook to

ensure that, in future, the basis for depreciation charges would accord with the prescribed requirements.

Management aspects Roles and functions o f elements o f the Department—Audit considered that sound management practice requires that administrative responsibilities for such matters as the following be summarised in a single management document for the Cockatoo Island Dockyard:

• approving/recommending authorities for such matters as the overhead rate pay­ able to VCD

• approval of the annual rental, and • advice to VCD.

Such a document could not be produced to Audit. The Department relied on officers’ duty statements and various divisional functional statements.

The Department stated there was no doubt that a departmental handbook on the administration of the Trading Agreement and Lease could be written, but it would cover a limited range of people who already know what their duties are. The Department commented that it was difficult to see what improvement would result and the cost effectiveness of producing such a document was very doubtful. It will, however, discuss the suggestion with the Department of Defence Support to determine an appropriate means of disseminating the information.

This Office considers that, in view of the rotation of service officers through critical areas and the movement of civilians over time, more comprehensive documentation in this area is essential. Potential difficulties were demonstrated by a recent example where VCD was allowed to proceed with upgrading of the computer installation resulting in potential expenditure of $300 000 without appropriate authority or

financial provision being made.

Cost investigation—Payments under cost-plus contracts are subject to cost investigation by officers of the NSW Regional Office, Department of Defence.

Audit considered that current procedural documentation for the cost investigators was inadequate in the absence of a charter or statement of objectives and there was a lack of sufficiently detailed working papers.

In consultation with this Office corrective action has now been commenced and the Department has undertaken to ensure that future working papers contain greater detail of queries, evaluations, and policy discussions.

Commonwealth assets The Trading Agreement and Lease provides for VCD to account for Commonwealth assets in accordance with procedures issued to it by the Commonwealth. All Commonwealth assets are also required to be maintained in good and serviceable working order and condition.

Audit observed the following unsatisfactory matters in relation to Commonwealth oversight of VCD obligations in this matter:

• in a significant number of cases particulars in the Assets Register were not of sufficient detail to readily identify the Commonwealth assets

19

• a stocktake commenced in 1979-80 had not been effectively completed by the Department, and

• approvals had not been formalised for disposal of obsolete assets.

Corrective action has been commenced on the above aspects.

Review A Defence (Industrial) Committee panel examined a number of aspects relating to the operation of the Cockatoq Island Dockyard by VCD. The panel was, however, unable to complete one of its terms of reference: “review the overall operations of submarine refitting with a view to a reduction in the cost of work and the time taken”.

The main reason given by the panel was the lack of suitable yardsticks against which to measure performance in submarine refitting. The Department was asked to comment on action instituted since 1975 to establish suitable yardsticks to monitor and measure performance.

The departmental reply indicated that diligent efforts were being made in the monitoring of actual historical records of manhours against a consistent work breakdown structure. The Submarine Refit Work Content Committee, established in 1976 with the aim of identifying and eliminating unnecessary work from the major refit, has achieved specific reductions in manhours. The design of future submarines is being developed to improve access for maintenance.

Conclusion Monitoring the performance of contracts for the refitting of submarines would be improved if action were taken by the Department in the following unresolved areas:

• finalisation of review of overhead recovery rate formula

• implementation of more advanced automated control systems for monitoring direct cost allocations

• control over short-term idle time

• clarification at the working level of responsibility for rework arising from defective work by the contractor, and • documentation of roles and responsibilities of departmental officers over operations at Cockatoo Island Dockyard.

As long as it continues to use cost-plus contracts, the Department will have to place heavy reliance on the staff of the Principal Naval Overseer at the Dockyard in oversighting the efficiency of the contractor.

6.3 Regional Offices Regional Office— Sydney An audit was conducted with the objective of assessing legal compliance and finan­ cial regularity of selected financial and administrative systems. The review covered the

utilisation of computer service bureaus, control over use of telephones, and the system of recoverable expenditure in respect of services provided to other governments. No significant unsatisfactory matters were revealed.

Regional Office— Melbourne Paragraph 5.18 of the March 1982 Report referred to:

e a significant number of advances outstanding for lengthy periods

20

• outstanding advances not being cleared to the sundry debtors ledger in accord­ ance with the departmental instructions • inadequate follow-up action being taken to ensure the recovery of debts and ac­ quittance of advances, and • the question of the imposition of charges for use of departmental telephones and

tie lines by non-departmental organisations.

A departmental reply had not been received in time for incorporation in that Re­ port. The Department has since advised that bearing in mind the number of trans­ actions processed it did not consider the number of outstanding debts over 6 months old to be excessive. It also advised that the value of debts over 6 months had been substan­

tially reduced since the audit. Satisfactory action was notified in respect of the other matters raised.

6.4 Audits with Satisfactory Findings RAE M E Workshops Military workshops undertake inspection, technical servicing, repair, modification and recovery of equipment. When capacity is not available or where special facilities are needed, repair work may be placed with other Commonwealth, State Government or private repair agencies (trade repair).

Audits of management systems at Royal Australian Electrical and Mechanical En­ gineers (RAEME) Workshops were conducted in South Australia, Queensland, and Western Australia with the objective of assessing whether:

• equipment was being maintained in a serviceable condition • management was provided with adequate feedback on the state of maintenance of equipment, and • controls existed to ensure legal compliance, financial regularity and cost

effectiveness.

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7. DEPARTM ENT OF EDUCATION

7.1 Secondary Allowances Scheme Audits were undertaken of the Secondary Allowances Scheme in the A.C.T. and Vic­ toria. The Scheme was introduced in 1974 with the object of providing financial assist­ ance to low income families to help them to keep their children at school for the final 2 years of secondary education and to ensure that as many as possible of those eligible are in receipt of assistance. The basis of the Scheme is a non-competitive means tested allowance.

The objectives of the audit were to ascertain whether proper procedural instruc­ tions were in existence and were being complied with, whether adequate controls over expenditure were implemented and whether there were procedures to ensure that the objectives of the Scheme were being met. The audit was mainly directed towards legal compliance and financial regularity.

The audit in Victoria indicated a satisfactory position but as a result of the audit in the A.C.T. some unsatisfactory matters were referred to the Department on 5 May 1982, including:

• the index card system in use did not ensure that all recipients of benefits under the various student assistance schemes were recorded to guard against more than one application by the same person • input/output checks on the departmental ADP system were inadequate, and • there was inadequate internal control over procedures to check whether appli­

cants’ income complied with the means test criteria.

The first 2 matters were first reported by this Office in paragraph 2.6.1 of the 1978-79 Report in relation to an integrated project review of Student Assistance Programs.

A reply to the latest representations had not been received from the Department at the date of preparation of this Report.

7.2 Aboriginal Overseas Study Award Scheme An audit of this small Scheme—10 awards are offered each year —disclosed that trav­ elling advances to many of the award-holders had not been acquitted, and that no independent checks were performed to verify the number of dependants of an award- holder and whether the award-holder was in receipt of other scholarships or allowances.

The Department advised that procedures have been instituted to ensure that travel­ ling advances are acquitted on a regular basis and that independent checks would be instituted.

7.3 Overpayment Procedures An indepth audit of the system for identifying and recovering overpayments of student assistance in the Northern Territory Office of the Department was undertaken during the year. The main objectives of the system are to locate, assess and record over­ payments arising from all student assistance schemes, carry out follow-up procedures to recover the debt, properly record such recoveries, initiate steps to write-off irrecover­ able debts or to waive recovery in certain other cases and to furnish management with prompt and useful management reports.

The principal objective of the audit was to assess the effectiveness and adequacy of the procedures and controls operating within the system.

22

The audit disclosed several unsatisfactory aspects which were referred on 5 April 1982 to the Northern Territory Office of the Department. These included:

• a lack of comprehensive and up to date instructions • a lack of evidence of a check of overpayment calculations • undue delay in commencement of recovery action after the discovery of an overpayment

• inadequate recovery procedures, and • that overpayment debt had increased from $30 140 in respect of 124 debtors at 30 June 1981 to $61 350 for 295 debtors at 31 December 1981.

At the date of preparation of this Report a reply had not been received in respect of the Northern Territory, but other advice from the Department has indicated that a gen­ eral review of the recoveries system, to be carried out by consultants during 1982-83, should lead to substantial changes in the existing systems and in the redevelopment of computer programs.

Further reference to overpayments is at paragraph 7.4 of this Report.

7.4 References continued from Previous Reports Aboriginal Grants Schemes Paragraph 6.2 of the March 1982 Report referred to several matters on which further advice had been sought from the Central Office of the Department following audits in a number of States of the Aboriginal Study Grants Scheme and the Aboriginal

Secondary Grants Scheme. These were:

• procedures for determining the eligibility of applicants for benefits under the Schemes • evidence of any assessment of the Schemes to determine whether the Schemes were achieving the objectives for which they were instituted, and • details of liaison arrangements with other Commonwealth departments to detect

or prevent payments to ineligible persons.

In reply the Department detailed procedures and arrangements by which it is assured of eligibility of applicants and which provide for liaison with other Common­ wealth departments. The Department also advised that the Aboriginal Secondary Grants Scheme had been subject to an indepth evaluation in 1976. In addition, both

Aboriginal grant schemes were briefly reviewed recently in conjunction with another major review, the report on which has not yet been released. The Department has re­ cently announced the commissioning of a comprehensive evaluation of the Aboriginal Study Grants Scheme.

Overpayment procedures Paragraph 6.4 of the March 1982 Report referred to a number of defects in internal control which were disclosed during an indepth audit of the system for identifying and recovering overpayments of student assistance in the Victorian Office of the Depart­

ment. These defects, which were referred to the State Office of the Department included:

• a lack of formal instructions • instances where a check of calculations was not carried out by a second officer • absence of a reconciliation between computer produced repayment records and the receipts issued by the Collector of Public Moneys, and

23

• absence of any evidence of a reconciliation between the sundry debtors control account and subsidiary Recovery Section records.

The Department has since advised that:

• formalised instructions are currently being drafted but will not be finalised until a national review of Recoveries Sections procedures has been completed

• arrangements have been made to reinforce instructions to staff to ensure a check of calculations by a second officer

• the matter of reconciling computer produced records and Collector of Public Moneys records is under consideration and the problem is expected to be rem­ edied in the near future, and

• it considers the requirement to reconcile the sundry debtors control account with subsidiary Recovery Section records to be outdated since the ADP system was introduced and that as there is no evidence that failure to carry out such reconcili­ ations has created any problems there is no current proposal to do them.

Reference to unsatisfactory aspects revealed during an audit of overpayment pro­ cedures in the Northern Territory Office of the Department is at paragraph 7.3 of this Report.

Canberra College o f Technical and Further Education Paragraph 6.5 of the March 1982 Report mentioned a number of unsatisfactory- aspects which had been disclosed by an audit of the administration and facilities unit of the Canberra College of Technical and Further Education and referred to the Depart­ ment for advice of remedial action. These included:

• failure to observe a number of stores accounting procedures

• inaccuracies in stores records

• delays in stocktaking of assets

• the absence of running sheets to record and facilitate the supervision over the use of certain vehicles under College control, and

• inadequate recovery procedures for library material on loan.

In reply the College advised this Office of remedial action which had been taken in respect of the stores procedures, the vehicle running sheets and library materials. The College advised that staff ceilings and increases in accountable stores have caused stocktaking problems in the past and advised that attempts have been made recently to alleviate the situation by raising the minimum figure for accountable assets and utilising College holidays for the stocktaking program.

7.5 Audits with Satisfactory Findings Assistance for Isolated Children Scheme An audit of the Assistance for Isolated Children Scheme was conducted in Victoria in May 1982. The Scheme is designed to provide assistance for children who, because they reside in isolated areas, do not have reasonable daily access to an appropriate government school and must either live away from home to attend school or study at

home by correspondence.

The principal objectives of the audit were to evaluate the Department’s administra­ tion of the Scheme and to determine whether the internal audit coverage had been adequate.

24

Post Graduate Award Scheme An audit of the administration of the Post Graduate Award Scheme was carried out in Western Australia. The Scheme is to encourage and assist talented graduates to undertake higher degree studies and to complete them as soon as possible.

The audit included an evaluation of legal compliance, financial regularity and man­ agement reporting procedures.

Adult Secondary Education Assistance Scheme An audit of the Adult Secondary Education Assistance Scheme was carried out in Queensland and Western Australia during 1982. The Scheme provides financial assist­ ance to adult Australian students undertaking one year and in special circumstances the

final two years of matriculation level courses at secondary schools, technical colleges, colleges of advanced education and other approved institutions.

The objectives of the audit were to examine whether adequate procedural instruc­ tions were in existence and were being complied with, whether the financial controls in the system were effective, and whether management reporting was adequate.

2 5

8. DEPARTMENT OF EMPLOYMENT AND INDUSTRIAL RELATIONS

8.1. Commonwealth Employment Service (CES) Introduction The main functions of the Commonwealth Employment Service (CES) as prescribed in section 6 of the Commonwealth Employment Service Act 1978 are briefly:

• to assist persons seeking employment to obtain suitable positions

• to make special arrangements and provide special facilities to assist those with special requirements or disadvantages in relation to employment

• to assist employers in filling vacancies with suitable employees

• to promote and implement manpower programs, and

• to collect and provide labour market information.

CES has a Central Office located in Melbourne and regional offices in each State. States are divided into zones, each under a manager responsible for a number of em­ ployment offices.

The Norgard Review In October 1976 the Government commissioned Mr J. D. Norgard to undertake a comprehensive review of the CES. This was the first major review of the Service since its inception in 1946. The review was highly critical of the service that the CES pro­ vided to both job seekers and employers. It reported that the CES was not satisfying any client group because its limited resources were spread thinly over a multitude of tasks—in effect the CES was a 1946 style organisation trying to cope with 1977 problems.

The final report by Mr Norgard in June 1977 contained a large number of rec­ ommendations and suggestions for improving the CES over several years. In November 1977, the Government indicated its firm intention to implement a number of the re­ port’s major recommendations. The then Minister, in announcing the Government’s decision, highlighted:

• establishment of a clearly identifiable, unified organisation for the CES within the existing departmental structure under the control of a National Director who would be totally responsible within the Department for CES management and the delivery of manpower programs

e introduction of the concept of CES Zone Offices to provide for better supervision and performance control at the operational level • acceptance of the objectives of CES offices being located in good quality, ground floor, shop-front accommodation in central business districts and the approval of

the development of a program to provide improved accommodation over a 5 year period, and • investigation of the introduction of a computerised system for the CES.

Audit scope and objectives An audit indepth of the CES was commenced in May 1981 covering regional offices and a number of zone and employment offices in Victoria, New South Wales and West­ ern Australia. The broad objectives of the audit were to:

26

• establish whether CES has clearly defined its objectives and whether they are con­ sistent with Government and departmental policy, and • ascertain the effectiveness of the following operating systems and the extent to which associated Government initiatives based on the Norgard Report have been

implemented by the Department:

—the placement and vacancy filling services to employers and job seekers, and —the gathering and dissemination of information about the labour market and job opportunities.

The audit focused on improvements suggested in the Norgard Report the broad thrust of which was endorsed by the Government. They may be summarised as follows:

• CES needs clear objectives to pursue, rather than a list of functions to perform. It is important that all functions of the CES be periodically reviewed to ascertain the contribution they are making to achieving the general objectives. It is only in this way that the necessary clarity of objectives can be maintained in the minds of CES staff • CES officers need a detailed knowledge of the local labour markets in which they

operate. Qualitative assessments should be made by experienced officers and local labour market statistics should be available • in carrying out their central task, employment offices need to provide sufficient information to both employer and prospective employee to lead to referral of a

client for interview • CES needs to develop its marketing and promotional strategies and techniques so that it is in a better position to assist employers and jobseekers generally • a real-time computerised job bank should be established as soon as possible, as an

interim step towards a sophisticated bi-directional matching system, and • CES employment offices should be located in good quality, ground floor, shop­ front accommodation in central business districts to provide readily identifiable and accessible employment services to all members of the public.

Audit findings and departmental responses Objectives and priorities Audit found that national objectives for CES were not clearly defined and dis­ seminated to all CES staff and no formal prorities were set. The Victorian Regional

Office had, however, identified broad objectives to be achieved and issued appropriate strategies with quantifiable targets.

Audit also noted that the CES National Director, in recognition of the problems of defining objectives and establishing priorities in terms of CES functions, referred in the Department’s annual report of 1979-80 to the need to prepare a strategy plan for the next 3-5 years. A Planning Project Management Committee was established in 1980 to carry out the first phase of the planning strategy project which involved information gathering and seeking views and advice from CES staff at various levels. In its report of

February 1981, the Committee referred to the widespread opinion among officers that CES lacked a clearly enunciated central purpose and set of objectives that would define its role and guide the determination of priorities.

Departmental response The Department advised on 2 June 1982 that it was not feasible to develop a single integrated plan which would guide staff at employment office level in the appropriate

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priorities. The nature of employment office workload is such that it is often necessary for the employment office manager to make decisions in regard to operational priorities on a daily basis to cope with other workload pressure of a more immediate nature. The broad national objectives were taken up and developed in operational terms at regional, zone and employment office levels utilising knowledge of local labour market require­ ments and other relevant local considerations.

Audit comments Problems can arise with, the setting of objectives at the regional or lower level. Objectives so set may not be consistent with Central Office policy and may differ from region to region. Audit suggests that the Central Office should prepare for dissemi­ nation through regional offices both long and short term plans consistent with the achievement of national objectives, as well as a statement of priorities to facilitate the co-ordination and timely execution of these plans.

Labour market information The 2 major areas responsible for gathering, disseminating and analysing labour market information in the regions are the Manpower Research and Information Branch (MR&IB) and the employment offices. The former is concerned with general infor­ mation for the region as a whole. It undertakes special research projects in accordance with programs prepared locally or by Central Office and also publishes reports on the State labour market for distribution to zone/employment offices.

Audit noted that CES had a limited ability through research by MR & IB to provide labour market information on labour resources and industrial occupational shortfalls and then only on a macro scale. The information provided had little relevance at em­ ployment office level. Employment office managers indicated to Audit that they did not feel confident that they had sufficient labour market knowledge to provide ready advice on labour market availability within their area of responsibility.

In representing the position to the Department, Audit suggested that MR&IB should investigate the feasibility of supplying localised industrial and labour market in­ telligence applicable to a specific employment office to facilitate a better understanding of the labour market conditions for improved planning and delivery of manpower programs.

Departmental response The Department advised on 26 March 1982 that the lack of regular and reliable statistical data relevant to a small area was the major constraining influence on the ability of MR&IB to provide labour market assessments at the employment office

level. In addition, the regular program of statistical collection and analysis and research work which the Branch was required to undertake to meet Central and regional office information requirements left few resources in MR&IB to undertake detailed labour market research work.

The Department also advised that the system of labour market reporting was under review. An expanded form of regular reports covering many aspects of the labour mar­ ket, particularly employment and unemployment, would be formally introduced. Dis­ tribution of these reports to employment offices would help to overcome shortcomings in the present system.

Audit comments The initiatives taken by the Department to review its system of labour market reporting are acknowledged. Audit considers, however, that labour market reporting

28

should include information applicable to specific employment offices so that problems associated with employment in a particular geographic area can be readily and posi­ tively identified.

Placement and matching services Audit findings on the recording o f information Audit testing at selected employment offices in New South Wales indicated that many job seeker and vacancy cards maintained by employment offices lacked details necessary to facilitate effective matching.

Job seeker cards were incomplete in respect of:

• areas where work sought • education level of job seeker • qualification, skill and experience of job seeker • employer to whom job seeker referred, and

• details of disabilities of job seeker.

Vacancy cards lacked adequate information on:

• type of industry • description of duties of vacancy • details of transport to place of employment • names of job seekers referred to employers, and • results of referral.

Departmental response The Department advised on 2 June 1982 that recording pertinent details for match­ ing purposes on job seeker and vacancy records had been recognised as a problem. It expected that ‘monitoring checklists’ aimed at standardising quality control performed

in employment offices would highlight shortcomings and generate corrective action.

Audit findings on matching process Audit testing at selected employment offices in Victoria revealed shortcomings in the system including:

• there was no assurance that all vacancies notified were circulated and all eligible applicants were effectively matched, and • preference was given to matching local vacancies and applicants to the disadvant­ age of vacancies or applicants from outside the particular employment office area.

As ‘out of area’ matching was an integral part of the placement service, Audit considered that it also should receive attention.

Departmental response The Department advised on 8 February 1982 that it agreed in principle with Audit comments regarding lack of control within operating systems to ensure that all notified vacancies were circulated and all eligible applicants were effectively matched. It con­ sidered that the implementation of controls over the matching procedures would not be cost effective. The Department also advised that regional management in Victoria had directed that out of area matching was to receive top priority in 1982. A full review of

procedures, communication and staff training to meet this directive was due to com­ mence soon.

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Marketing/Promotion The availability of CES services to employers is promoted through personal visits to employers, addresses by CES officers to service groups and organisations and through the advertising media. Monthly statistics on employers visited by employment office promotional officers and total hours expended on those visits are recorded on the Plan­ ning and Performance Review System (P&PRS) quarterly returns. These returns are used by zone and employment office managers to plan promotional work and to measure actual performance against set promotional targets.

It was not evident to Audit that a formal marketing policy had been communicated to regional offices. Promotional targets were set by employment office managers and varied from office to office. Audit acknowledged that promotional work could vary ac­ cording to the need of the local market, but there was no evidence to suggest that for­ mal studies had been carried out to provide employment offices with a clear definition of purpose and advice on the most effective forms of promotion necessary to meet the need of the local labour market.

Audit also observed that statistics on P&PRS quarterly returns relating to promo­ tional field work were inadequate to enable a meaningful analysis of promotional performance.

Audit testing at selected employment offices in Western Australia indicated that there were significant inaccuracies in summarising promotional statistics from employ­ ment office records to P&PRS quarterly returns.

Departmental response The Department advised on 2 June 1982 that, while it was true that regions had not been provided with a formal marketing policy statement, regional marketing managers were informed of marketing objectives and priorities. A CES promotional manual was being developed which would formally set down objectives, concepts and standards of promotional activities and would provide guidelines in formulating and implementing plans of action including procedures for undertaking market penetration studies.

It also advised on 26 March 1982 that a revised P&PRS which is to be computerised would improve the management information available to CES. The range of statistical information collected and the methods of collection were the subject of review by an internal task force.

Automation A real-time system called ‘Job Bank’ is being developed by the Department for recording and circulating job vacancies. The computer system will replace the current telex and facsimile vacancy circulation system and will provide immediate access to de­ tails of job information throughout the CES network. Job Bank will be implemented progressively with a view to full national operation by 1984.

Audit enquiries on progress in implementing CES computer systems revealed that following the Government’s decision in 1977 on the Norgard Report, investigation by the Department assessed the cost savings in favour of computerisation at $4.5 million per annum. Approval was given in 1981 to acquire computer facilities to operate a real­ time system.

In drawing attention to the potential annual cost saving estimated by the Depart­ ment, this Office on 9 December 1981 expressed its concern at slow progress in the De­ partment in implementing automated systems.

30

Office modernisation program The recommendation of the Norgard Report had been progressively implemented but not all employment offices reviewed met the standards specified in the report.

Departmental response The Department advised on 2 June 1982 that the program to modernise employ­ ment offices had been virtually abandoned due to financial restraints. The 1981-82 CES leasing program had been confined to the relocation of those offices faced with the ter­

mination of leases.

General conclusion CES has progressively upgraded its operations since the adoption of the Norgard Report recommendations by the Government in 1977. However, as indicated by the findings from this audit on some aspects of the operations of CES and from the depart­ mental replies to the various matters raised by Audit, it will take further time to im­ plement the decisions fully. The task is somewhat complicated by the need for CES to be receptive to the changing environment since 1977 and to modify its operations accordingly.

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9. DEPARTMENT OF FINANCE

9.1 Accounting Office Washington, Misappropriation of Moneys In December 1981, a cheque was issued by the Accounting Office, Australian Embassy, Washington for SUS671 802 for a progress payment on communication equipment pur­ chased for the Royal Australian Navy. The authority to issue the cheque was contained in an expenditure voucher which had been substituted for a properly prepared and authenticated claim from the equipment supplier. The substituted voucher contained the forged signature of a pecson empowered to certify accounts as properly due for pay­ ment. Following issue of the cheque it was paid into a bank account opened by a locally engaged officer whose duties were associated with processing accounts for payment at the Accounting Office. Action to obtain a security clearance on this officer had not been finalised when the fraud occurred. Such clearances are understood to take up to 18 months. An investigation of the incident was carried out by a team of officers from the Australian Federal Police and the Departments of Finance and Foreign Affairs.

In a report on the outcome of its investigation the team concluded, among other things, that the fraud occurred not because of any inadequacy of the system but rather because of the forging of signatures of officers and that it would not seem possible to devise a cost-effective system which would prevent fraud of this kind. The team never­ theless put forward for consideration certain suggestions for improvement in control.

This Office has reviewed the report of the investigating team. It shares the team’s opinion of the futility of attempting to design a system that, of itself, would eliminate the risk of misappropriation by forgery.

It notes that the team has offered several suggestions for change and emphasised the need to improve procedures relating to security checks. Audit considers that attention to these aspects together with the implementation of procedural changes proposed by the Department will at least minimise the risk of a recurrence.

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10. DEPARTM ENT OF FOREIGN AFFAIRS 10.1 Accounting at Overseas Posts Introduction Accounting operations at the Department’s 83 overseas posts are part of the com­ mon services it provides in support of its own functions and those of other departments represented at the posts. Performance of the common service accounting function is inspected by the Department’s internal auditors in accordance with an approved program of visits. The aim of the program is to provide for an internal audit inspection of a post once in a two-year cycle. Twenty-eight posts were inspected in 1981-82'.

Independent assessment by this Office of controls over post accounting operations includes evaluation of internal audit performance and results, together with inspections of selected overseas posts by Audit officers based at Canberra, London and Washington.

During January-May 1982 officers from the London Audit Branch carried out inspections of Department of Foreign Affairs’ posts at Tel Aviv, Madrid, The Hague, Copenhagen and Brussels.

The main objectives of the audits were to examine the overall standard of account­ ing and financial administration with a view to highlighting unsatisfactory practices and significant breakdowns in control and to assess the systems in operation for regularity and compliance.

Audit findings The overall standard of administration was satisfactory, but there were some accounting matters which required corrective action. Common unsatisfactory matters reported at a number of the posts are referred to below.

Commitment control—Commitments against available funds were in a number of instances not recorded before a liability was incurred, thus bypassing a key control in the expenditure system.

Procurement—Procedures prescribed by Finance (Overseas) Regulations require over­ seas offices if practicable to call competitive quotations or tenders in the purchase of goods and services. The availability of competitive quotations and tenders was not always being explored.

Asset accounting—Procedures for the inspection of and control over the disposal of surplus stores were not being correctly applied.

Revenue—Procedures for the collection, recording and banking of moneys received were not always being followed.

These aspects together with a number of observations concerning individual weak­ nesses detected at each post were referred in March-June 1982 for corrective action to the respective Heads of Mission at the posts and to the Department’s Central Office and to the Department of Administrative Services.

Individual matters of particular concern to this Office at The Hague and Brussels are referred to below.

The Hague Revenue—The nature and extent of deficiencies in routine procedures for the collection, banking and reimbursement of the imprest account indicated a lack of understanding of the financial requirements.

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Asset accounting—Boards’ of Inspectors reports on stores submitted for disposal were split on a value basis which enabled write-off action to fall within the post’s financial authority rather than have the matter reviewed by a delegate at the Department’s Cen­ tral Office.

Accelerated expenditure—In July 1981 the post was requested to provide information to the Chief Auditor, London on the circumstances surrounding a number of payments made in June 1981. The results of the recent inspection indicate that the information provided to this Office by the post may have been inaccurate. The post and the Department have been asked for their comments.

Brussels Property management—In late 1979 the post, with Overseas Property Office (OPO) approval, entered into a 2 year agreement at an annual fee of approximately BF210 000 (SA4375 approx.) for the lease of various furnishings. Their estimated purchase price was BF350 000 (SA7290 approx.). Normally, such items would have been purchased but the post advised that because of a lack of funds for the purchase of furniture and equipment the items were leased. At the end of the agreement it was given a choice of purchasing for BF190 000 (SA3958 approx.), or renewing the lease for a further 12 months. The latter option was exercised, with OPO approval, with the result that after 3 years the post will have paid approximately BF630 000 ($A13 125 approx.) in lease charges and will have no title to goods which could have been purchased at the outset

for BF350 000 (SA7290 approx.).

Advice of corrective action has been received from the Heads of Mission, Tel Aviv, Madrid and Copenhagen. A reply has not been received from the Heads of Mission at The Hague and Brussels or the Departments of Foreign Affairs and Administrative Services at the date of this Report.

10.2 Reference continued from Previous Reports Accelerated payments and overseas property management Paragraphs 8.3 and 8.4 of the March 1982 Report commented on matters arising from inspections of Department of Foreign Affairs posts at Seoul, Beijing, Tokyo and Paris that were referred to the Department of Administrative Services, Overseas Prop­ erty Office for comment. Paragraph 1.4 of this Report refers to these matters and to the response from the Department of Administrative Services.

10.3 The Australian Secret Intelligence Service The accounts of the Australian Secret Intelligence Service for the year ended 30 June 1982, with the exception of that part of those accounts determined by the Minister for Foreign Affairs to be exempt accounts within the meaning of section 70D of the Audit Act, have been audited by my Office with satisfactory findings.

As required by sub-section 70D (5) of the Act I have notified the Minister of the total amount which, according to the audited accounts, was allocated and credited to the exempt accounts during the year. The Minister for Foreign Affairs has furnished me with a certificate relating to the exempt accounts. A copy of that certificate will be included in the Report on the Financial Statements prepared by the Minister for Finance.

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11. DEPARTM ENT OF HEALTH 11.1 Central Register of Medical Practitioners (CROMP) Data Bases Introduction To assist in the correct identification of the provider of medical and pharmaceutical services for purposes of payment of Commonwealth medical and pharmaceutical

benefits, the Department maintains a Central Register of Medical Practitioners (CROMP) which consists of a group of data bases containing details of:

• medical practitioners, participating optometrists and accredited dentists whose professional services attract Commonwealth medical benefits under the pro­ visions of the Health Insurance Act 1973 • authorised prescribers of pharmaceutical benefits • approved hospitals, and • medical practitioners able to assist in national disasters.

The system records for each medical practitioner the following particulars:

• registered name of the practitioner • registration details • registered specialities (up to 6 in each State), and • practice address (es).

CROMP directly impacts on Commonwealth payments in respect of medical and pharmaceutical benefits, estimated at approximately $1,165 billion for 1981-82, and to some extent on other expenditure programs of the Department. It also impacts on the Department’s ADP statistics system which is used, among other things, for investigat­

ing medical fraud and overservicing.

An audit indepth of CROMP was conducted by this Office early in 1982. The audit encompassed the overall controls over CROMP in the Central Office of the Depart­ ment and, in Victoria, the manual controls existing and/or desirable in the States to supplement the ADP system.

Except to the extent required for comprehension, the audit did not cover the inves­ tigatory statistics system.

Objectives o f the audit The objectives of the audit were to:

• determine whether the data input and stored was complete, accurate, valid and properly authorised • assess the integrity of data stored on computer files • determine whether or not there was compliance with legislative and regulatory

requirements • note any indicators of lack of cost effectiveness, and • make any recommendations considered desirable to improve the system or over­ come weaknesses.

Audit findings ADP system The CROMP data bases are maintained by a newly developed system which allows for online update at the Central Office of the Department. In examining the system

35

Audit attention was given to system documentation and program coding in relation to the addition of new practices and practitioners. The coding in all cases reflected the documented specifications, including edit tables, and appeared well structured. The overall system documentation, however, appeared somewhat disjointed but Audit

understood that it was the Department’s intention to rectify this situation as the system development was nearing completion.

Audit concluded that the Department’s administration of data bases was generally satisfactory but the following matters in relation to the CROMP data bases were re­ ferred to the Department on48 June 1982:

• the maintenance of a data base to incorporate changes and also a production ver­ sion updated from that data base was seen to be an unnecessary duplication and, as the production version is unused for a large part of each day, it may be vulner­ able to unauthorised access

• batch mode access to the CROMP data bases should not be permitted as, in this mode of access, the data base does not have the degree of protection which is afforded under other modes of access generally in use within the Department

• the use by programmers of a copy of the CROMP data bases for testing of systems being developed constituted a data privacy exposure, and

• image copies of the data bases existed on scratch tapes in the scratch pool and, although the tapes would need some interpretation to be legible, this was also seen as a data privacy exposure.

Within CROMP one data base required for the Pharmaceutical Benefits System was seen as duplicating some functions of the Provider data base. Audit endorsed efforts being made within the Department to integrate these data bases.

Departmental response As at the time of preparation of this Report, the Department’s response on the above matters had not been received.

CROMP Administration Unit, Canberra The following is a summary of aspects represented to the Department:

• although the Administration Unit in the Department’s Central Office conducted a regular check of the output of the system to the input, the check was not suf­ ficient to ensure that all data received had been processed; to overcome this de­ ficiency, Audit recommended that an exception report be produced periodically to show those documents on which action had not been completed by the Unit

• it was suggested that the system keep a history of passwords used by each user group to further improve security

• a summary print of the more critical transactions input to the system should be provided to State Offices to enable them to check that the data submitted had been actioned and that there were no unauthorised updates

• there should be a formalised system to confirm with practitioners the accuracy of details held within CROMP, and

• Audit supported a consultant’s recommendation that a password be re-input im­ mediately prior to a medical practitioner being added to CROMP as is presently the practice in regard to deletions.

36

Departmental response The Department advised on 30 June 1982 that:

• when the online history facility is available about the end of July 1982, a system will be introduced to record details of each source reference and to write off the source references when action on all data is finalised • an exception report for the above system will also be produced • each user is allocated an identifier code for use in the system and has the responsi­

bility of ensuring the security of that code by changing to new and secret pass­ words on a regular basis. The daily update report does include the indentifiers used to make changes and the keeping of a history of passwords would guarantee only a minimal increase in security • the provision of a summary print of more critical transactions to State Offices

would have major difficulties including the necessity to determine transactions regarded as critical, the fact that source documents affecting a State do not always come from that State and limited resources in some States to perform the check­ ing involved • all States had online enquiry facilities and can check data that has been requested

for input but they would not be able to confirm data not originated from their State • procedures were being drawn up in Central Office to standardise the confirmation with practitioners of data prior to the issue of new provider numbers

• consideration would also be given to initiating a periodic approach to doctors to confirm details held on CROMP with the objective of eliminating incorrect data and reducing the possibility of fraudulent entries, and

• consideration will be given to making it mandatory for the operator password to be used when adding a new provider to CROMP.

Operations in Victoria Matters represented to the Department included:

• a lack of documented procedures, which was seen as a major weakness in Victoria (it had, however, been noted that, following the commencement of the audit in that State, instructions developed in New South Wales had been forwarded from the Department’s Central Office to Victoria for information and comment) • a recommendation that there only be one input point in each State since there

appeared to be insufficient control in Victoria of data input to CROMP from outrider areas • a lack of an input/output reconciliation to ensure data input in relation to a State was correct

• the procedures for the allocation of additional provider numbers not including sufficient controls to confirm the authenticity of requests from medical prac­ titioners, and • confirmation that a direction had been given that requests from practitioners for

amendments to provider details (such as change of address, additional provider numbers and deletions) be confirmed in writing.

Departmental response The Department advised that, since the audit, interim procedures had been implemented in Victoria dealing specifically with the above matters.

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General

The Department was advised that, in Audit’s view, the controls, particularly in State divisional offices as evidenced in Victoria, were inadequate to ensure the com­ pleteness and accuracy of the data bases. Having regard to the importance of CROMP in connection with payments made under various expenditure programs it was suggested that early attention be given to the need for improved co-ordination of the overall system.

In response the Department stated that major improvements that have been implemented during the past 18 months are now complete and it is in the process of preparing uniform procedures for use by State divisions. These procedures were being designed to ensure key controls in the system were operating uniformly throughout the Department yet allowing flexibility according to each State’s staffing situation.

Audit also expressed the opinion that insufficient use was made of information con­ tained in CROMP in the checking and processing of payments made under the various expenditure programs. It noted that the recent audit of Commonwealth Medical Benefits had disclosed that claims for medical benefits under a speciality item were not checked against CROMP to confirm that the doctor concerned was registered for the particular speciality. Although the Department had advised that from 1 July 1982 it would check claims relating to 2 specialities with details in CROMP, this Office suggested in January 1982 that other specialties should also be checked either by com­ puter or by other means (Paragraph 9.1 of the Report dated 24 March 1982). At the date of preparation of this Report, however, the Department had not advised of any in­

tentions to extend the check to other specialties.

11.2 Reference continued from Previous Report Commonwealth Medical Benefits— Reimbursments to Registered Medical Benefits Organisations Paragraph 9.1 of the March 1982 Report referred to an indepth audit of the ADP and other systems which control reimbursements to registered medical benefits organis­ ations (MBOs) for Commonwealth medical benefits paid on behalf of the Common­ wealth. As mentioned in that paragraph some aspects of the Department’s reply, con­ cerning adherence to the requirements of Finance Regulations and the Health Insurance Act 1973 in regard to the acceptance of computer reports as a basis for reim­ bursement and adjustment of advances, were still under consideration by this Office at the date of preparation of that Report.

Following subsequent Audit representations in March 1982, the Department re­ cently advised that action will be taken to obtain Ministerial approval under section 20F of the Health Insurance Act to certain changes that have occurred in the financial arrangements for payments to MBOs since they were approved by the then Minister on

1 November 1978. In addition the Department advised that the Delegate of the Minis­ ter for Finance had approved on 29 June 1982 new system controls and accounting pro­ cedures pursuant to Finance Regulation 45a which deals with certification of accounts for payment when supporting documentation is computer produced data.

In referring to previous representations by this Office concerning inconsistencies be­ tween divisional offices of the Department in the adjustment of advances to MBOs to take account of stale cheques and the lag in presentation of benefit cheques by members of the organisations, the Department stated that it had referred this matter to the Joint

Management Review on Medical and Hospitals Claims (mentioned in paragraph 9.1 of

38

the March 1982 Report). In response to a further question by this Office whether, in view of the significant amounts involved in advances to MBOs, the advances should be made at more frequent intervals than monthly, the Department stated that it has sought advice from the Department of Finance on certain aspects.

3 9

12. DEPARTM ENT OF HOME AFFAIRS

12.1 Cocos (Keeling) Islands— Postal and Philatelic Services Paragraph 10.4 of the March 1982 Report mentioned a number of unsatisfactory mat­ ters that had been represented to the Administrator of the Islands as well as identifying certain issues requiring clarification.

Matters requiring clarification Audit comment referred to apparently conflicting legislative and financial pro­ visions. In response the Acting Administrator advised that:

• the 5 existing sources of legislative and financial administrative provisions are not necessarily incompatible

• advice had been received to the effect that the Audit Act 1901 applies generally to the transactions and affairs conducted under the Ordinance, and • no instructions had been given to the Administrator by the Minister pursuant to section 5 (3) of the Territory o f Cocos (Keeling) Islands Administration Ord­

inance 1975 or by a person or authority holding a delegation under the provisions of sub-section 8 (3) of the Cocos (Keeling) Islands Act 1955 or section 17 of the Interpretation Ordinance 1955.

This Office is giving further consideration to these matters.

Results o f inspection and audit—financial period 3 September 1979 to 30 June 1980 The Acting Administrator advised in response to representations by this Office that:

• the Administration and Department of Home Affairs and Environment are most concerned at the ‘weaknesses and breakdowns’ in the Postal Services’ internal controls, and

• it is not through lack of awareness or concern that these weaknesses exist, but rather they reflect the hasty introduction of the Postal Service without adequate forethought to and provision of a system that meets the service, legislative and financial management requirements, and « this unsatisfactory situation has been compounded by difficulty in filling the

staffing establishment.

In response to issue relating to weaknesses in internal control over revenue banking, standing order client balances, handover/takeover statements and advances, the Acting Administrator advised of corrective measures to be implemented.

Results o f inspection and audit—year ended 30 June 1981 and 30 June 1982 The Acting Administrator also detailed new procedures that have been or are to be implemented to correct the unsatisfactory matters summarised at pages 98-99 of the March 1982 Report which were revealed during the inspection and audit for the year ended 30 June 1981. These procedures were reviewed during a visit to the Territory by Audit officers in June 1982. Although an improvement in procedures and standard of accounting was noted, further representations to the Administrator were necessary regarding some matters that had previously been reported on but remained unsatisfactory, in particular:

• control over printers’ issues of stock to agents, and • conflicting instructions in regard to approval to write-off lost stamps and the issue of replacement stock.

40

In response the Administrator advised of remedial action which included the intro­ duction of improved procedures for printers’ issues of stock to agents and for the replacement of stamps lost in transit.

The Senate has referred the comments in the March 1982 Report to its Standing Committee on Finance and Government Operations for investigation and report.

12.2 Cocos (Keeling) Islands—Administration

Paragraph 10.3 of the March 1982 Report referred to several matters in connection with the collection of public moneys, purchasing, telephone and telegraphic services, electricity charges, asset inventories and housing operations where the Administrator had disputed certain aspects of Audit findings.

A further audit inspection was undertaken in June 1982 during which a number of previously unsatisfactory matters was resolved and areas of disputation reduced. The following matters were, however, formally referred to the Administrator:

» the continuing absence of determination of policy and authority for establishing electricity charges

• the failure to execute tenancy agreements with occupants of departmental hous­ ing and to record rental details

• the failure to complete a review of charges for aircraft handling and medical ser­ vices which had remained unchanged since 1974 and 1963 respectively, and

• non-completion of revised accounting procedural instructions.

In response the Administrator advised that:

• the Department of Home Affairs and Environment had advised that it was not aware of any impediment to the Commonwealth (through the Administrator) charging for a service it provides and a review of the rates of electricity charge is to be undertaken shortly

• the Administration is awaiting policy and operational instructions from the De­ partment of Home Affairs and Environment in regard to execution of housing tenancy agreements, but does not consider that the Administration has a responsi­ bility to record rental details

• accounting procedures for individual control areas have been prepared and await consolidation

• a preliminary investigation into aircraft handling fees has been undertaken but a full review cannot be completed until all relevant positions on the Island are per­ manently staffed, and

• the Administration has been aware of the position in regard to medical fees for some time and has previously raised the matter with the Department of Home Affairs and Environment.

Comment As is evident from the above, a number of issues remain outstanding and this Office is participating in interdepartmental discussions aimed at their resolution.

41

The Senate has referred the comments in the March 1982 Report to its Standing Committee on Finance and Government Operations, for investigation and report.

12.3 Australian Archives

Paragraph 10.1 of the March 1982 Report referred to an audit of Australian Archives in the Australian Capital Territory which resulted in a number of unsatisfactory mat­ ters being referred to Archives management for comment.

In response the Central Office of Archives advised:

e lack of disposal authorities' is a general problem existing in varying degrees in all regional offices and, within the confines imposed by staff ceilings and other com­ peting priorities relating to Archives functions, the problem is being addressed to the fullest extent possible • unserialised records are now accepted only in emergency situations, when there

are severe shortages or where there is a particularly confused group of records in an agency and there is no time to sort it out before the transfer is made. In ad­ dition, serialisation is given a relatively low priority on Archives’ work pro­ grammes because of other work considered to have higher priority • for general materials on loan, Archives consider that the present practice provides

agencies with sufficient time to assess how much longer they need to retain an item. In respect to “open period” material it is proposed to institute a system of sending a statement of outstanding items to all agencies • delay and duplication in clearance of material from Department of Defence is attributed to security matters and, from Attorney-General’s Department, it re­ sults from evaluation of certain categories of legal opinions • there is no regular follow-up procedure for review of old series files because it is clearly evident from each volume if it contains material for destruction • the temporary use of security vault and film storage shelving for general records resulted from the necessity to stage the installation of new shelving at Mitchell and the requirement to meet a deadline for the demolition of the old Parkes sheds • safe operating procedures for use of fumigation chambers have been drafted in consultation with officers of the Australian Institute of Health and are ready for implementation, and • the current procedure of transporting records to Sydney for destruction is not of itself the cause of the current backlog. During the past 18 months Repository Ser­ vices staff have been fully engaged in activities connected with the occupation of the new Mitchell building and the requirement to evacuate some 15 000 metres of records from the Administration Building sub-basement and the basement of the Edmund Barton Building. It has been necessary to accord priority to these activi­ ties. The use of paper recycling plants in Sydney is currently the only option avail­ able given the quantity of material involved and the requirement for confiden­ tiality and accountability. It is also the most acceptable alternative in terms of resources conservation.

A further audit of Archives was undertaken at the Western Australian Regional Office in April 1982 with the same audit objectives, viz to determine whether:

• disposal authorities were up to date and being observed • disposal and appraisal systems were effective • storage space was commensurate with demands and was being effectively utilised

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• reference and access systems were efficient and meeting client demands • safety, security and fumigation facilities were adequate and health regulations were being complied with, and • management controls were effective.

The following is a summary of matters represented to the Archives Office in West­ ern Australia together with the response:

Storage—It was noted that with the intermixing of temporary and permanent record containers in the general storage area there is a possibility of contamination/infestation of permanent records. In addition there appeared to be a failure to monitor the sulphur dioxide content of the area where permanent records are stored with the possibility of

adverse effects on such records.

In response the Archives Office stated that the location together, for efficiency reasons, of high use permanent and temporary material may result in fumigated and unfumigated records being housed in the same area. The fumigation process is princi­ pally aimed at eliminating mould and bacterial infestation. The environmental con­ ditions within the storage area are such that the spread of mould is very much retarded. However, given the potential for cross infestation the bulk storage area is treated regu­ larly for insect and other pests.

The repository is not equipped to carry out the monitoring of sulpher dioxide levels but liaison will be maintained with the State Public Health Department to undertake regular tests.

Conservation—It was observed that no facilities had been provided at regional level to conserve permanent records in need of repair and maintenance.

Archives advised that in accordance with Joint Management Review recommen­ dations, priority has been allocated, in the short to medium term, to the development and staffing of conservation facilities in the A.C.T., N.S.W. and Victoria. Conservation units in other regional offices (including W.A.) will be provided as staff ceilings allow.

The lack of disposal authorities and problems with fumigation were also represented to the Western Australian Regional Office and Archives comment on these matters was similar to that from the Central Office in respect of the Australian Capital Territory.

Conclusion The replies from Australian Archives to the matters raised in the Australian Capital Territory and Western Australian Offices appear adequate to cover the matters of Audit concern.

12.4 References continued from Previous Reports Norfolk Island Administration Paragraph 10.2 of the March 1982 Report referred to continuing unsatisfactory issues represented to the Norfolk Island Administration and the inadequacies of the

audit provisions contained in the Norfolk Island legislation represented to the Depart­ ment of Home Affairs and Environment.

The Department of Home Affairs and Environment recently advised that a legal opinion is being sought from the Attorney-General’s Department on the adequacy of the audit provisions

At the date of preparation of this Report no response had been received from the Norfolk Island Administration in relation to representations made in December 1981.

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Administration o f Christmas Island Paragraph 10.5 of the March 1982 Report referred to a number of unsatisfactory issues relating to administrative matters at Christmas Island.

Following a further audit inspection in June 1982 a report has been forwarded to the Administrator and a reply is awaited.

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13.1 Accounting at Overseas Posts

Paragraph 10.1 of this Report refers to audit inspections of a number of overseas posts in Europe administered by the Department of Foreign Affairs. The inspections in­ cluded a review of the activities carried out at certain posts by officers of the Depart­ ment of Immigration and Ethnic Affairs who undertake the screening of applications

received from prospective migrants to Australia and the issue of visas to persons wish­ ing to enter Australia on a temporary basis.

Audit findings The overall standard of administration was satisfactory, but some administrative matters required corrective action. Common unsatisfactory matters reported at a number of the posts were referred to the Department’s Central Office for comment. These matters and the Department’s comments are set out below.

Assisted passage fares—Payments had been made for air fares in relation to the move­ ment of migrants to Australia under the Assisted Passage arrangements when there was no evidence that the posts had been allocated funds for this purpose or had been advised pursuant to Finance (Overseas) Direction 11.02 that moneys were available for the purpose.

The Department advised of the difficulties of managing a program across a large number of posts world wide and the need to meet the requirements of different carrier billing systems. Overall budgeting control had been exercised through the Central Office of the Department. The Department has, however, reviewed the procedures and

proposes introducing new arrangements.

Fees—The fee for processing applications for re-entry visas was not being collected until the application had been approved rather than at the time of application as prescribed by the Department.

The Department indicated that all posts will be circularised on the need to collect a fee for the application in advance of processing.

These aspects together with a number of observations concerning individual weak­ nesses detected at each post were referred in March-June 1982 for corrective action to the respective Heads of Mission at the posts and to the Department’s Central Office.

The Hague— Accelerated payments—Paragraph 10.1 of this Report refers to pay­ ments made by the post on behalf of the Department in June 1981. The Department advised that they had instituted investigations in regard to this matter and would advise when the reply from the Head of Mission was received.

Advice of corrective action has been received from the Heads of Mission, Tel Aviv, Madrid and Copenhagen and the Department’s Central Office. A reply had not been received from the Head of Mission, The Hague, at the date of this Report.

13.2 Reference continued from Previous Reports Accounting at Overseas Posts— North Asia Region Paragraph 12.1 of the March 1982 Report referred to a number of unsatisfactory matters disclosed during an audit inspection of the temporary entry function at the

Australian Embassy, Tokyo, and the immigration functions at Seoul, Tokyo, Osaka and Beijing. The Department’s response is summarised below.

13. DEPARTMENT OF IMMIGRATION AND ETHNIC AFFAIRS

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Collection o f fees without administrative authority—Certain posts were collecting a fee for assessment of technical and professional qualifications including Hong Kong, Tokyo and Seoul. A total of $15 968 was collected during 1980-81 for approximately 800 cases. Action was taken to cease collections and posts were directed to make re­ funds where departmental records could readily identify those people who had paid the fee.

Visa applications (Tokyo)— working holidays scheme—The Department considered that current procedures are generally satisfactory. It agreed, however, that the sugges­ tion for a checklist would assist in processing and it had commenced preparation of a new application form.

Collection o f overseas student charges—The Department considered that controls over the collection of charges for overseas students admitted to undertake preliminary English courses were satisfactory. Students are tested after completion of the English course and are then required to submit details of further studies to the Department, which will collect charges before a further temporary entry permit is issued.

Conducting o f English tests at overseas post.*—The Department advised that the use of standard English language testing procedures could assist in streamlining the require­ ments and procedures for temporary entry to Australia.

Checking o f visa applications—The proposed system had been considered in the past and was thought to be impracticable due to the difficulty of identifying country of origin or place of residence. The Department believes a consolidated listing must be maintained.

13.3 Audits with Satisfactory Findings

Regional Office— Sydney The New South Wales Regional Office of the Department processes applications for citizenship, accreditation as translators and interpreters, translation requests and community liaison. An audit of these functions covered legal compliance and financial regularity.

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14. DEPARTM ENT OF INDUSTRY AND COMMERCE 14.1 Cargo Control and Accounting

The Cargo Control and Accounting (CC&A) system adopted by the Department of Industry and Commerce is based on a commodity-control approach to monitor and account for cargo imported into Australia. Under the system companies are required to have effective control over and accounting for cargo and are subject to departmental monitoring to ensure that adequate procedures are followed by the companies and their agents.

Monitoring by the Department is achieved through the following control mechanisms:

• Cargo Control—which includes the responsibility for the movement of cargo dis­ charged at Australian ports • Cargo Accounting—which includes inspection of commercial firms and their cargo accounting systems in relation to goods imported, and

• Services and Support functions—which support the system through such action as internal checks, and maintaining registers of manifests lodged.

An audit completed in Queensland and Western Australia in 1981 revealed contol weaknesses which impaired the effectiveness of the system. Due to the similarities of Customs systems throughout Australia, the audit findings would be generally relevant to departmental operations in the other States and Territories, particularly where the

findings were common to both Queensland and Western Australia.

Matters brought to the attention of the Department included the following.

Cargo Control Issue and use o f cargo container seals—Cargo containers are normally sealed by companies or agents responsible for loading at overseas ports. The seals should remain intact until the containers are released from Customs control. However, instances were

noted where:

• the resealing of a container was carried out by a pest control company following fumigation

• broken seals were replaced by shipping companies, and

• seals were attached with tape to the container door.

As the issue and use of seals are outside the control of Customs and if the system is to be relied upon, an assessment is necessary of the effectiveness of the control over seals exercised by the companies and agents.

Checking seals—Although departmental procedures require the checking of seals, these were not always carried out effectively. It was observed that during a routine check carried out by Customs officers:

• the seals on the containers selected for detailed inspection were not checked prior to the release of the container, and • the seal was not intact when the officers arrived at the consignee’s premises after the container was delivered, but no further action was taken.

In view of the foregoing and particularly as the effectiveness of the system relies basically upon the companies and agents, the Department was requested to comment on the extent to which the use of seals is relied upon to control cargo.

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The Department responded by advising that there is no provision in Customs legis­ lation for the use of seals as a means of control. It would not be possible to police the placement of seals as they originate from diverse commercial sources. However, it was considered that there are adequate procedures to ensure security of containers from the time they come within Australian Customs control.

The effectiveness of seals on cargo containers is currently being examined by the Customs Co-operation Council in Brussels. Australia, the United Kingdom, the United States of America and Canada are among the many nations participating in the study.

Release o f consignments—Pursuant to section 40AA of the Customs Act 1901, a Col­ lector may give permission in writing to a person to remove goods to such a place and subject to such requirements as he considers appropriate. It was noted in Queensland that, out of 1400 permissions to remove goods, 1200 were granted with permission to empty the containers without supervision.

Customs records noted in the audit showed that several containers salvaged from a grounded vessel were found to be heavier than the declared weight, one being sig­ nificantly so. In another instance a container when emptied was found to contain items significantly in excess of the number shown on the manifest.

Although these 2 instances may not be typical the number of permissions granted with Collector’s approval to empty containers without supervision seems high in view of the potential amount of revenue involved and the risk of imports entering Australia illegally.

The Collector replied that permissions are granted only after a considered decision is made by an appropriately resonsible officer as to the risks involved. The volume of imports dictates that such procedures should exist. Where breaches of the requirements of the permission are found, the concession would be denied in future, and consider­ ation given to prosecution action.

Security over containers Under the commodity control approach, responsibility for the proper control over containers rests with the companies and agents handling them. Customs responsibility is to ensure that the steps taken by the companies and agents are adequate.

Security during transfer—Enquiries in Western Australia disclosed that virtually no control existed over air cargo transferred from terminal to depot.

In response the Collector stated that the airline operator is responsible for account­ ing for air cargo. The Bureau’s basic interest lies in diversion/substitution and relies on random checks.

Security over empty containers—Control over empty containers was considered inad­ equate in both States. Shipping companies do not seem to have exercised stringent security controls over empty containers and in some instances it was not evident that in­ spections by Customs officers were carried out to ensure that containers declared empty were in fact empty. They were not always manifested and were often off-loaded in open, uncontrolled low security areas where they were not sealed or placed against each other door-to-door to prevent access. Although most container holding yards have gatekeepers, other security aspects such as fencing were considered inadequate.

In its responses the Department accepted that there were deficiencies in the control over empty containers and that programmed checks were not always carried out. How­ ever, irregular spontaneous checks on empty containers were undertaken, although not all results were recorded. This gave rise to the seemingly low incidence of checks being

48

carried out. New procedures applicable from 15 March 1982 should correct the position.

Manifest checks and gate checks—Instances were noted in both States where the specified minimum checks on manifests were not implemented. Checks on some mani­ fests were delayed, while other manifests were returned with no check performed at all. It was not evident that gate checks had been carried out in Western Australia in respect of cargo unloaded from the container terminal.

The Collector in Queensland advised that, of the 224 vessels reported during the period 8 September 1981 to 10 November 1981, 117 were subjected to some physical check. The Collector in Western Australia has stated that programmed checks on manifests are now being performed and gate checks at the relevant cargo terminals

have been instituted.

Places fo r examination—Sub-section 17 (b) of the Act provides that the Minister may, by notice in the Gazette, appoint places for the examination of goods on landing. Audit investigation in Western Australia revealed that not all landed cargoes are transported to the appointed warehouses for examination. Some warehouses to which cargo is transported have not been gazetted as prescribed.

The Collector has indicated that action will be taken to appoint places of examin­ ation not already gazetted.

Review o f control checks—Cargo control reports in Western Australia were not always submitted for review or for subsequent revision of the Cargo Control program.

The Collector’s reply stated that corrective action has been taken to ensure that cargo inspection reports are followed up.

Tracer action—Subject to the provisions of the Customs Act, dutiable goods may be transported after they have been unloaded. The movements of such cargo are moni­ tored by the use of an internal document called a tracer. However, owing to the low in­ cidence of the use of tracers and the lack of feedback and follow-up, the system is con­ sidered ineffective in both States.

The absence of effective control over tracers was acknowledged. The Collector in Western Australia advised that tracer action has now been increased. Since July 1981, tracers have been properly recorded to ensure follow-up action. The Collector in Queensland indicated that control defects would be corrected in the revised system of

undocumented cargo control to be implemented on 15 March 1982.

Collector’s Permits and Continuing Permissions—One of the conditions for unship­ ping cargo by a company is to apply for a Collector’s Permit under section 74 of the Act. Collectors may also issue continuing permissions under section 40aa to facilitate the movement of landed cargo. Audit observed that, in Queensland: •

• a number of companies discharging cargo did not hold Collector’s Permits to do so, and no review has been made of permits issued to assess the continued need of some companies to hold them, and

• all continuing permissions were revoked in 1980, but subsequently a few were reissued. Some companies engaged in the movement of cargo are operating with­ out continuing permission.

The Collector advised that Collector’s Permits and the matter of expired permits and/or the necessity for new ones are currently under review.

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Cargo Accounting Shipping companies and freight agents are responsible for developing, subject to Customs approval, sound commercial practice and accounting procedures to record and control cargo in their charge. It is the responsibility of Customs to ensure com­ pliance with such practice and procedures. To discharge this responsibility, the Bureau of Customs:

* maintains for each company a dossier which includes a Procedure Statement of the company’s cargo controj and accounting procedures, and

» conducts random checks to ensure that the companies comply with the pro­ cedures documented in the Procedure Statements.

The company dossiers are fundamental to the monitoring of performance of the companies as they are used to determine the extent and frequency of checks to be car­ ried out.

Company dossiers—The Procedure Statements require updating to incorporate changes which occur. Audit established that company dossiers have not been main­ tained, rendering them ineffective to determine the scope and extent of random checks. That situation was particularly evident in Queensland in respect of airline companies. The Procedure Statements did not contain information in respect of employees’ respon- sibilites, their functional inter-relationship, and internal controls and check points in the companies’ accounting systems.

The Collector in Queensland advised that the Procedure Statements are not out­ dated, but new statements will be prepared where necessary and others will be amended. It was anticipated by the Department that the updating of Procedure State­ ments in both Queensland and Western Australia will be completed shortly.

Random checks—Random checks should be carried out in accordance with an ac­ cepted sampling plan. However, it was noted that the intended frequency of check was not always achieved. In some cases, batch reports were missing, and not all manifests could be located; in others, samples are selected from incomplete populations. The Col­ lector in Queensland advised that steps have been taken to ensure that all batches will be subject to selection for checks to be carried out.

All airway bills are required to be screened. The present system at the Brisbane Air­ port does not ensure that all airway bills were eventually accounted for after screening. If an entry for an airway bill was not lodged, the omission might not be detected. There was a relatively low level of control exercised over the presentation of the cargo arrival lists, and a low incidence of random checks of cargo to airway bills.

In relation to accounting for commercial airway bills, the Department agreed that there is no real way of knowing that all bills are presented despite escorting the satchel from aircraft to the point of checking by Customs. An ADP based system is not seen as presenting a better method unless a 100% check of all cargo is made. Every effort is made to ensure that all bills are presented by the escorting procedure and a secure handling method.

Services and Support Functions Services and support functions provide for internal checks at various levels and the maintenance of essential registers. Observations made in both States indicated that internal checks were inadequate and ineffective. Deficiencies noted include the failure to carry out checks, lack of follow-up action, and conflicting records as to the results of internal check results.

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The Collectors agreed with the deficiencies noted by Audit and advised that more training would be given to Customs officers as a means of ensuring that procedures laid down in the manuals are followed.

Audit conclusion Advice received from the Department on the audit findings in Queensland and Western Australia indicates that certain changes relating to the Cargo Control and Ac­ counting procedures have been implemented. To the extent that those findings were ap­ plicable in other locations, the changes should have been adopted Australia-wide.

The revenue and other implications of failures to adhere to satisfactory Cargo Con­ trol and Accounting procedures are extremely serious.

In the light of the evidence of deficiencies adduced by the audit, the Department should have overhauled those procedures and ensured that satisfactory arrangements to monitor their observance have been made.

14.2 Refunds and Remissions of Duties Under the customs and excise legislation certain duties paid may be refunded or remit­ ted. Regulations prescribe further the circumstances under which refunds and re­ missions of duties may be made.

An audit of the procedures relating to refunds and remissions was carried out in New South Wales, Victoria, South Australia and Western Australia. The audit objec­ tives were to ascertain whether there are adequate systems to ensure that:

• correct amounts are refunded to persons legally entitled to receive them, and • the Commonwealth revenue is protected.

Although the results of the audit indicate that the systems in operation are basically satisfactory, instances of system break-downs were referred to the respective Collec­ tors. The Collectors have since advised that appropriate action is being taken to correct the deficiencies disclosed.

14.3 References continued from Previous Reports Excise on naturally occurring petroleum liquids— Bass Strait area Previous Reports have referred to the relationship between the then Department of Business and Consumer Affairs and the Department of National Development and En­ ergy in connection with the verification for excise purposes of the production from the

Bass Strait area. Paragraph 2.4.4 of the September 1981 Report outlined details of advice from the Departments on various aspects relating to procedures for the assess­ ment and collection of excise.

In addition to the matters referred to in paragraph 15.2 of this Report, the advice of the Department of National Development and Energy was sought on aspects which re­ lated specifically to that Department’s responsibility in respect of excise. These aspects together with the Department’s response are summarised below.

Advice was requested on the present position regarding the Department’s verifi­ cation and reporting to the Department of Industry and Commerce, for the calendar years 1980 and 1981, in relation to the split between parity and non-parity production insofar as this relates to the calculation of excise payable to that Department.

The Department stated that a report covering 1980 was forwarded to the former Department of Business and Consumer Affairs in October 1981 and the report covering 1981 was expected to be sent to the Department of Industry and Commerce by the end

51

of July 1982. In future, reports will be prepared on a 6 monthly basis, and each report would be completed about 3 months after the end of each reporting period.

Advice was also requested on the results of an analysis, made with the use of a com­ puter based model developed in August 1980, of the likely consequences for excise col­ lections from metering errors and on progress in implementing the proposal to combine the impact of metering errors with variations in full well stream composition.

The Department advised that the computer based model was designed to provide an indication of the accuracy of excise collections. The analysis indicated that the effect of metering tolerances was minimal. The international consultancy group (referred to in paragraph 15.2 of this Report) examined a statistical technique to assess the effect on royalty and excise payments of the uncertainties in the analysis of full well stream com­ position and meterings. Their report indicated satisfactory levels of accuracy. Consist­ ently with the recommendations of the consultants report, compositional data would be reviewed regularly using this technique. Further advice was currently being sought from the Australian Bureau of Statistics on the appropriate basis for the application of this statistical technique to assess the effect of uncertainties in full well stream analysis.

Comments were also sought from the Department of Industry and Commerce on those matters, previously referred to the Department of National Development and Energy, which fell within the former Department’s area of responsibility. The following is a summary of the Department’s response.

The philosophy of the computerised mass balance method used by the producer to allocate sales products back to source fields has been substantiated by the international consultancy group; the measurement standards and procedures determining the input data to that computerised method have been certified by an acceptable authority (as re­ ferred to in paragraph 15.2 of this Report). It now appears necessary to establish practi­ cable audit trails for verification of production and sales quantities, and thus payment of the correct excise duty.

On completion, the Producers’ Petroleum Measurement and Accounting Manual will become the official document against which the State and Commonwealth will measure the producers’ performance. The Manual is expected to be completed by 31 August 1982.

To avoid unnecessary duplication but at the same time ensure that the interests of both the State and Commonwealth are protected, the monitoring and verification procedures followed by the State Department of Minerals and Energy, the Department of National Development and Energy and the Australian Customs Service are being co­ ordinated and will be documented. Consideration is being given to an arrangement whereby certification by one department could cover the verification requirements of one or both of the other departments. Work on the co-ordinated departmental pro­ cedure statements is continuing and will be completed as quickly as possible.

5 2

15. DEPARTM ENT OF NATIONAL DEVELOPMENT AND ENERGY 15.1 Commonwealth Regional Development Program Paragraph 15.1 of the March 1981 Report outlined the objectives of the Commonwealth Regional Development Program and the role of the then Decentralis­ ation Advisory Board.

The Board was abolished on 30 April 1981 following the Review of Commonwealth Functions and as a result no further projects were approved under the Regional Devel­ opment Program. The Department is currently responsible for the administration of those projects for which commitments remain outstanding. It is intended that the

Decentralisation Advisory Board Trust Account will be closed after all commitments have been met.

In 1981-82 the Department spent S3 586 698 from the Trust Account on assistance. Repayment of loans and interest credited to the Consolidated Revenue Fund totalled $4 273 068 and $5 016 000 was paid from Division 924-5 to the credit of the Trust Account. As at 30 June 1982, 77 projects were being administered by the Department and outstanding commitments totalled $4 229 083.

An audit of the Program was carried out in the Central Office of the Department during the year. The principal objective of the audit was to assess the adequacy of the Department’s management and financial administration of remaining projects. The focus was on legislative compliance and financial regularity.

Audit findings The audit disclosed a number of unsatisfactory features including the following: • most projects received only limited monitoring and only a small number of proj­ ect sites had been inspected

• there were minor deficiencies in the processing of loan payments, and • minor discrepancies occurred in loan accounting records.

The Department advised that because of staff restrictions, monitoring and inspec­ tion functions were directed primarily to projects considered to be at risk or to projects where approval is sought to defer or vary payment. The Department proposed to dis­ cuss with the Public Service Board the continuing need for the monitoring function.

The Department also provided satisfactory explanations of the other matters.

15.2 Reference continued from Previous Reports

Offshore petroleum royalties Paragraph 2.16.1 of the September 1981 Report referred to the determination and collection of offshore petroleum royalties and outlined departmental advice on progress in connection with various aspects previously referred to in Auditor-General’s Reports

and on other relevant aspects.

During the year this Office has continued to monitor departmental action to establish appropriate machinery to monitor and control procedures associated with the payment of royalties by the licensees who are jointly engaged in recovering petroleum in the Bass Strait area.

Formal advice was recently sought from the Department on progress in respect of the aspects which remained outstanding at the time of preparation of the September 1981 Report. Matters on which specific comments were sought and the Department’s response are summarised below.

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Past royalty payments—Advice was sought from the Department on:

• progress in the verification of the licensees’ recalculation of past royalty pay­ ments, and

• the current position concerning the question of the licensees’ liability for interest on the additional royalties payable since inception following the Agreement reached in 1980 between the Designated Authority and the licensees on the ascer­ tainment of wellhead value.

The Department advised that arrangements for the conduct of an audit of past roy­ alty payments are under consideration by officers of the Department and the Victorian Department of Minerals and Energy, in consultation with the Commonwealth Audit Office and the Auditor-General for Victoria. The matter had also been the subject of correspondence between the Minister for National Development and Energy and the Victorian Minister for Minerals and Energy. Commencement of the audit had been delayed pending the recruitment of suitable staff by the Victorian Department. A roy­ alty auditor was appointed in January 1982 and it is expected that the audit will com­ mence early in 1982-83 following completion of tasks associated with establishing ap­ propriate procedures, for the licensees and the Victorian Department of Minerals and Energy, for the ongoing measurement and verification tasks.

The Department also indicated that the Victorian Department was advised on 12 August 1981 that, in view of advice from the Commonwealth Attorney-General’s De­ partment, the licensees were not liable to pay any interest on additional royalties pay­ able following the Agreement on the ascertainment of wellhead value.

Documentation o f procedures—The Department was requested to advise on:

• progress in revising the Royalty Accounting Section of the licensees’ Petroleum Measurement and Accounting Manual, and

• progress in finalising the documentation of the monitoring and verification pro­ cedures followed by the Victorian and Commonwealth Departments.

In response the Department advised that the Royalty Accounting Section of the manual was expected to be completed by 31 July 1982 and that the remaining chapters of the manual were expected to be completed by 31 August 1982.

The Department further advised that work had commenced on the procedures to be followed by the Victorian and Commonwealth Departments. These procedures could not be completed until the licensees’ procedures were finalised. The Commonwealth’s procedures were also dependent, in part, on procedures being developed by the Vic­ torian Department. As part of the development of the Commonwealth’s procedures, the documentation of procedures of the Australian Customs Service was also being reviewed.

Engagement o f consultants— Advice was sought on the findings of the international consultancy group engaged to assess the procedures followed by the licensees for sam­ pling production and details of sharing of the costs of the consultancy.

In reply the Department advised that the report of the consultants was received in May 1982. The findings of the consultants were released by the Minister for National Development and Energy on 23 June 1982. The consultants had concluded, inter alia. that the sampling procedures, standards and techniques used for the purpose of calcu­ lating royalty and excise payments for the Bass Strait area are carried out in accordance with accepted international practice. The consultants’ report had also stated that, in a

54

few cases where industry recognised standards do not exist at present, internal stan­ dards and procedures developed and used are comprehensive and in accordance with good oil field practice.

On the matter of costs, the Commonwealth will meet $155 239 and the Victorian Government $6 468 of the total cost of $161 707 of the consultancy based on their re­ spective shares of total petroleum revenue (both excise and royalties) from Bass Strait production.

Registration o f metering procedures—In respect of progress by the licensees in obtain­ ing registration with the National Association of Testing Authorities (ΝΑΤΑ) of metering procedures, the Department advised that the licensees were informed by ΝΑΤΑ on 22 April 1982 that the metering and measuring procedures and standards used in the production of petroleum had been registered with the Association.

Audit o f Bass Strait production—In response to a request for advice of the results of the annual audit of Bass Strait production conducted by the Victorian Department, the Department stated that the audit was conducted on 16-18 June 1982 with representa­ tives of the Department and the Australian Customs Service attending as observers.

The report of the audit had not yet been finalised.

Offshore petroleum legislation—Regarding the present position in respect of the amendments to the offshore petroleum legislation, the Department indicated that proc­ lamation of the offshore legislation was expected later this year following the passage of complementary legislation in all States and the Northern Territory.

Collection procedures—The Department was also requested to advise of action being taken to develop collection procedures for accounting for Commonwealth revenue.

The Department advised that procedures for the collection of petroleum royalties, fees and other moneys under the amended Petroleum (Submerged Lands) Act had been approved by the Australian Minerals and Energy Council’s Standing Committee on Offshore Petroleum Legislation. Arrangements had been made among all State and

Territory Mines Departments and the State and Territory Accounting Offices of the Department of Finance to ensure that the new procedures can be implemented im­ mediately the amended legislation is proclaimed.

Previous Reports have mentioned that the procedures following by licensees for the measurement and allocation of production from the various fields are also of prime im­ portance in relation to excise on naturally occurring petroleum liquids and paragraph 14.3 of this Report includes reference to certain matters which relate specifically to the

Department’s responsibilities in respect of excise.

The Joint Committee of Public Accounts reported on its inquiry into petroleum royalties and excise in its 190th Report of 25 August 1981. The Committee examined, inter alia, matters concerning offshore petroleum royalties and excise referred to in the 1978-79 Auditor-General’s Report and subsequent Reports.

15.3 Audits with Satisfactory Findings National Energy Research, Development and Demonstration Program An audit of grants made under the National Energy Research Development and Demonstration Program was carried out in 1982. The primary purpose of these grants,

which totalled $10.7 million in 1981-82, is to make more effective use of existing re­ search resources and to foster and support additional research, development and dem­ onstration. Payments are made from the Energy Research Trust Account.

55

The primary objective of the audit was to assess the adequacy of procedures for the control and administration of payments made under the Program with particular refer­ ence to grant application and assessment procedures and the methods used to monitor the performance of grantees.

Bureau o f Mineral Resources, Geology and Geophysics An audit of the Bureau of Mineral Resources, Geology and Geophysics was carried out in the Central Office of the Department in 1982. The functions of the Bureau are to develop an integrated, comprehensive, scientific understanding of the geology of the Australian continent, the Australian offshore area and the Australian Antarctic Terri­ tory as a basis for minerals exploration, to be the primary national source of geo-science data, and to undertake mineral resource assessments.

The objectives of the audit were to ascertain whether the policies and practices of the Bureau were consistent with Government policies and departmental objectives and whether the procedures followed complied with legal and financial requirements.

Personnel and payroll An audit of the personnel and payroll functions was carried out in the Central Office of the Department in 1982. The principal objective of the audit was to evaluate the systems and internal control in the areas of recruitment, manpower planning, con­ sultancy, training, staff and industrial relations, workers compensation and payroll procedures.

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16. DEPARTM ENT OF PRIMARY INDUSTRY 16.1 Export Inspection Charges

The Department is responsible for the inspection and certification of certain primary products for export.

Exports of those products are prohibited unless the conditions prescribed in the Export Regulations made under the Customs Act 1901 and the Commerce (Trade De­ scriptions) Act 1905 are met. Generally these regulations require premises to be regis­ tered or approved with set conditions relating to preparation, processing, manufacture,

packaging, storage and labelling. Grains and flour are inspected for insect contamination.

Export inspections are performed for up to 8 hours during official hours at no cost to the exporter or the shipping company. Where inspections are required in excess of 8 hours or outside official hours the exporter or shipping company is charged a fee de­ signed to recover the cost of overtime incurred.

During the year an audit was conducted in South Australia of the grain export in­ spection arrangements and associated overtime recoveries. The main objectives of the audit were to review the adequacy of procedures and controls for:

• the inspection of grain exports, and

• the recovery of overtime charges associated with such inspections. Several matters, some of which related to other than grain products and to States other than South Australia, were taken up with the Central Office of the Department. Details of these matters together with departmental comments are set out below.

Adjustment o f recovery rates for overtime The audit disclosed that the rates set for recovery of overtime charges were adjusted infrequently. For example, the rate for recovery of grain inspections had not been reviewed since 1977. Overtime recoveries in South Australia for grain inspections dur­

ing 1980-81 represented a significant shortfall on costs.

The Department advised that the rates for recovery are adjusted when the overall level of expenditure on overtime exceeds the income received from such recoveries. The review of rates is conducted on an Australia-wide basis for all commodities without consideration of specific situations in particular States, with the result that one State may be expending either more or less on overtime payments than it is recovering. At the date of the advice the recovery rates were under review and an adjustment was expected on completion. Rapid escalation of wage costs tend to cause a disparity be­

tween overtime costs of inspections and associated recoveries.

Non-recovery o f overtime expenditure where the overtime inspections were requested but not performed The South Australian Department of Agriculture, which undertakes export grain inspections on behalf of the Commonwealth is reimbursed for overtime requested by the exporter but not performed. Under Regulation 15 of the Export (Grain) Regu­ lations the exporter may only be charged for overtime services rendered.

The Department advised that overtime costs cannot be recovered from the exporter in these circumstances. It was suggested to the Department that it consider recom­ mending changes to the relevant legislation to enable recoveries to be made where these circumstances arise. The departmental reply indicated that a current review of relevant

legislation comprehends this question.

5 7

Arrangements fo r reimbursement o f State departments fo r export inspections carried out The costs of export inspections carried out by the South Australian Department of Agriculture during normal hours are reimbursed by the Central Office of the Depart­ ment while the costs of overtime inspections are reimbursed to the State Department by the South Australian Regional Office of the Department. This procedure was queried on the grounds that it may be conducive to duplicated payments.

The Department advised that the current arrangement is a longstanding one; it con­ tains sufficient controls to ensure that duplicate payments do not occur. It advised that its Central Office does not have the administrative machinery to handle the overtime claims. No change in procedures was proposed as an examination did not disclose any duplicate payments.

Investigation Unit Departmental Instructions for Investigation Staff require staff in this category to maintain adequate working papers to support findings and recommendations contained in investigation reports. These could not be produced during the audit carried out in South Australia.

The departmental reply outlined the requirements of the instructions and expressed the opinion that these were met in practice. It also advised commencement of a review of the role, scope and operations of the investigation unit and the adequacy of working papers will be considered in the course of this review.

Reimbursement procedures Reimbursement of expenditure incurred by State departments on export inspec­ tions is based on Certificates of Expenditure setting out details of advances received from the Commonwealth, overtime payments received from the State Regional Office of the Department and details of actual expenditure associated with the export inspec­ tions. Audit enquiries relating to these Certificates of Expenditure disclosed that:

• no formal agreement with State departments exists to indicate the type of cost to be included in the Certificates or the basis of calculation of such costs for reim­ bursement (for example amounts are included for Workers’ Compensation In­ surance, Employers’ Superannuation Contribution, Provision for Long Service Leave, overhead expenses, purchases of equipment, etc.), and

• items included in the Certificates are not subject to any check or verification even where this is possible from Central Office records of advances or recoupment de­ tails maintained by the Regional Offices.

The departmental response indicated that no formal agreement had been made with State Governments and the need for such agreements was not deemed necessary at this stage. The Department also advised that procedures would be varied to include a check of figures included in the Certificates of Expenditure against relevant departmental records. A comprehensive review of all inspection services is proposed and such matters as manning, cost effectiveness, coverage and the basic principles for cost recoveries will be examined.

16.2 Bureau of Agricultural Economics The Bureau of Agricultural Economics (BAE) is an independent research organisation within the Department of Primary Industry. It is responsible for research and economic evaluation of policy options for the agricultural, pastoral and forest industries.

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The Bureau receives research grant funds for its meat and wool research activities from the Meat Research Trust Account and the Wool Research Trust Fund. It was considered by this Office that the Bureau had not established an adequate costing sys­ tem to enable accurate estimation of costs as a basis for subsequent applications for grant funds. In particular:

• not all overhead costs were included in estimates • differing methodology for cost calculations had been adopted among particular projects • no system of staff time recording had been established, and • statements of expenditure had not been submitted by BAE as required by the

prescribed conditions of grants.

In response, the Bureau advised that it is currently reviewing the methods used for estimating and accounting for grant moneys so that a consistent and realistic approach in future submissions and reports of expenditure would be made.

16.3 Reference continued from Previous Reports Levies, taxes and charges Paragraph 14.1 of the March 1982 Report referred to audit representations relating to several unsatisfactory findings concerning the collection of levies, taxes and charges by the Department.

The Department’s response referred to the following matters.

Documentation o f procedures—Action to issue documented procedures for collection of all levies, taxes and charges was proposed with the adoption of a revised levies com­ puter system currently under development.

Identification o f potential payers—The Department agreed with Audit concerning the lack of a formal mechanism for validation for completeness of the Department’s records of potential payers and advised of action it proposed.

Wheat Tax—The Department had sought confirmation from the Wheat Board that it was fully aware of the implications of the Wheat Tax Acts 1957 and 1979 which im­ poses the tax on wheat sold but not delivered to the Board as well as on wheat delivered to the Board.

Poultry Industry Levy—In the Australian Capital Territory the Department of the Capital Territory is responsible for collection of levies. Legislative deficiencies have prevented any useful verification of levy returns. It is understood that the Department is preparing draft legislation which would require producers to keep records of the

numbers of hens kept for commercial purposes.

Investigations—The Department advised that it had commenced action to upgrade the effectiveness of its investigation programs.

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17. DEPARTMENT OF SCIENCE AND TECHNOLOGY 17.1 Australian Industrial Research and Development Incentives Background The object of the Industrial Research and Development Incentives Act 1976 is to promote the development and improve the efficiency of Australian Industry by encour­ aging industrial research and development in Australia in matters relating to science and technology.

Provision is included in the Act for the establishment of the Australian Industrial Research and Development Incentives Board with functions which include the pro­ vision of financial assistance for industrial research and development in Australia. In carrying out its functions and exercising its powers the Board may receive directions from the Minister with respect to the policies and practices to be followed and advice from various committees including the Technical Standing Committee and the Aus­ tralian Industrial Research and Development Incentive Advisory Committee.

The Act provides for financial assistance in respect of expenditure on industrial re­ search and development by way of:

(a) commencement grants

(b) project grants, and (c) public interest proposals.

Commencement grants and project grants are made to eligible companies and the Minister may authorise the Board to make arrangements for projects of industrial re­ search in a field of science and technology that he is satisfied are in the public interest.

Expenditure under the Provisions of the Act for the financial year ended 30 June 1981 totalled:

$

(a) commencement g r a n t s ............................................................... 9 657 424

(b) project g r a n t s .............................................................................. 36 056 484

(c) public interest proposals .......................................................... 4 999 638

50 713 546

This is an increase of $16.76 million over equivalent expenditure in the previous year.

An audit examination of the operations of the Australian Industrial Research and Development Incentives Board and the financial assistance made available under the provisions of the Act during the year ended 30 June 1981 was completed during October 1981.

Audit findings Representations were made on 16 November 1981 to the Chairman, Australian In­ dustrial Research and Development Incentives Board and a copy was forwarded to the Secretary, Department of Science and Technology. Significant matters referred to included:

(a) commencement grants • the sampling techniques previously adopted by the Board to check commencement grants have been replaced by judgmental sampling. There was insufficient file evidence to reveal the basis of the decision to change and

60

consequently to determine the adequacy of the sampling and the efficacy of controls over expenditure

• the Board has authorised senior officers to interpret eligibility criteria and defi­ nitions of eligible expenditure to determine the grant payable and approve within limits the subsequent payments. Meetings are held to discuss interpret­ ations which are based largely on precedent. Records of the decisions are,

however, not referenced or consolidated for ready access and guidance of staff

• it was noted that for both commencement and project grants some payments had been made substantially ahead of need without adequate documentation of the reasons

(b) project grants • instances were noted where the Board has overridden the preliminary techni­ cal assessment and not documented its reasons for approving a project grant

• prospective applicants are required to nominate 2 referees for an independent assessment of the merits of their project. Nevertheless in some instances grants were paid prior to obtaining referees’ assessments

• to ensure that grant moneys are being expended for the purpose intended and in accordance with the provisions of the Act it is considered necessary for per­ iodic and particularly final technical assessments to be made. Audit noted that review procedures focused more on financial than technical assessment.

Intermittent technical investigations are often not completed and, further­ more, a final technical investigation may not be undertaken

• cost checks and reviews are often completed by telephone indicating that the information initially obtained may have been incorrect or insufficient to determine the correct amount payable

• the required 6 monthly summaries of expenditure were not always obtained

• in some cases final payments had been made before obtaining final financial and technical reports

• instances were observed where over a year had elapsed between cost reviews

• shortcomings in documenting cost checks and cost reviews and little or no in­ dication of the reasons for varying recommendations of investigating officers

• certain firms which were incurring operating losses were approved to receive a grant. Such firms may be unable to benefit commercially from the results of research and development. It is considered that file evidence should be avail­ able to indicate that the position received full consideration when eligibility

was assessed and the grant was approved (c) public interest proposals • concern was expressed that projects had commenced without adequate planning, and

• it appeared that advances had been made to contracting companies ahead of demonstrated need.

Departmental response The Department of Science and Technology, advised that as the matters raised, in the main, related to the departmental responsibility to provide assistance to the Board it had been agreed that the departmental reply also would be on behalf of the Chairman.

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The response advised of general agreement with Audit observations. It pointed out, as an overall comment, that many of the reservations are attributable to limitations of staff" and demands of time or have arisen from the need to make the most effective use of available resources. The Board and its office are, where possible, progressively streamlining and modifying practices to assist in meeting the very heavy demands placed on Board members and assisting staff.

Specific comments on the Audit findings are:

(a) commencement gfants • the Department detailed the principles now being applied, to the extent that re­ sources are available, and advised that 79% of commencement grant applicants were visited during 1980-81 for the purpose of verifying claims

• a consolidation of precedent Board decisions was undertaken in 1978 but this has not been updated. Current operational instructions and effort to retrospectively collate other criteria will be given appropriate priority

(b) project grants • it is correct that taken in isolation, a Board decision may at times appear contrary to the substance of a specified document of advice. It is however, clearly impracti­ cal to reconcile every decision with each information item the Board sees. The

possibility of improving procedures in this area is under review and some improve­ ments, such as standardised recording of reasons for rejections of projects, have been implemented

• when 2 referees’ reports are not available the Board decides whether the infor­ mation to hand is sufficient to allow a decision to be made. The Board has recently decided to include in the standard letter acknowledging receipt of a project grant application a paragraph which prompts applicants to expedite referees’ responses

• in principle it is agreed that periodic and final technical assessments of all ap­ proved projects should be undertaken, however, these tasks are very demanding on resources. Priority is given to those tasks which are essential to the continuing operation of the scheme

• where the Board’s staff has a thorough knowledge of the procedures followed by the particular company verification is based on telephone discussion without a visit to a company

• verification that expenditures have been incurred is at times postponed and pay­ ments are made subject to later verification

• it has become necessary over the last 2 years to reduce the frequency of visits to companies to verify expenditure, because of staffing limitation and increased numbers of grant agreements

• current practice has been reviewed subsequent to the audit report and it is now intended to vary the practice in relation to cost checks, cost reviews and pay­ ments. Also action has now been taken to build up an information sheet on each company to indicate the reliability which can be placed on its claims •

• supervisory staff are to determine ways in which calculations can be more effec­ tively documented without additional effort. The reasons for decisions contrary to recommendations should be recorded and this arrangement has now been j implemented

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• it is agreed that documentation should indicate that an operating loss has been noted and taken into account in the analysis of expenditure or in approving grants. The situation is now being rectified (c) public interest proposals • on average, public interest proposals spend some 9 months in the approval and

planning phase, and • forecast expenditure payments to companies carrying out research and develop­ ment on behalf of the Commonwealth are made on the assessed need for funds in

either the subsequent 6 or 3 month period dependant upon the terms of the agree­ ment with a particular company.

Audit comment The action taken or proposed as referred to in the departmental advice of 19 February 1982 should improve control over the financial assistance made available under the provisions of the Industrial Research and Development Incentives Act 1976. Audit emphasises that the Board has a responsibility to institute without delay effective

control over its disbursement of significant amounts of public moneys.

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18. DEPARTM ENT OF SOCIAL SECURITY

18.1 National Benefits System Background Paragraph 2.19.1 of the September 1981 Report referred to the development by the Department of the ADP system, (the National Benefits System (NBS)), to facilitate the payment of unemployment, sickness and special benefits, and to replace the existing ADP system (the Basic Unemployment Benefits System (BUBS)).

The paragraph detailed the results of an indepth audit of the NBS carried out at the Department’s Central Office and in South Australia, the basic purpose of which was to evaluate the controls by management over the development and implementation of the system. Because of continuing operational difficulties and ongoing changes occurring in the system at the time of the audit, however, this Office was unable to finalise the necessary testing and consequently could not reach a conclusion on the system’s internal controls in a normal operating environment.

Testing of the NBS in South Australia was subsequently finalised at 2 of the Depart­ ment’s regional offices in March/April 1982, the objective being to determine whether controls relating to computer processing and associated clerical procedures were operating satisfactorily. Indepth audits involving the ADP system and clerical pro­ cedures for benefits payments were also carried out at 2 regional offices in Queensland and one in the Northern Territory. The NBS had replaced the BUBS in Queensland and the Northern Territory during July/August 1981.

The objectives of the audits in Queensland and the Northern Territory were to examine the overall system for the payment of unemployment, sickness and special benefits, including receipt of claims, assessment, computer processing and review of continuing entitlement, and to form an opinion on the efficiency of the system.

In Queensland and South Australia testing of key controls within the ADP system and clerical controls over the input of information to the system was achieved through testing a sample of transactions selected by a computer audit package.

Audit findings Results of the audits were discussed with senior officers at the respective State Headquarters of the Department and subsequently referred for comment to the State Directors. Comments on the more important findings were also sought from the De­ partment’s Central Office.

The following is a summary of the more important findings and of replies from the State Directors and Central Office of the Department together with further Audit com­ ment as appropriate:

Weaknesses in the ADP system Reconciliation o f batches— The computer produced report which was designed to rec­ oncile batches of transactions from regional offices was not operating properly since it contained transactions from more than one office. Consequently, as a compensating control, regional offices continued to maintain manually prepared batch control regis­ ters. There also appeared to be no control to ensure that all material received at a re­ gional office and requiring variation to the computer records was actually processed through all phases of the system.

The State Director, Queensland, advised that regional offices in that State had been required to supply additional information to enable the output monitor at the State

64 *

*

Headquarters to effectively complete the task of reconciling all batches input against the batch output report. The Department’s Central Office advised that it was aware of the system fault but its correction had been allocated a low priority and would receive attention when other more urgent tasks were completed. The Department also advised

that the manual controls to be adhered to in the batching process had recently been reinforced by memorandum issued to all States.

Reports on system changes and other defects requiring attention—A number of processing problems had been reported by computer operators or users covering either:

• desired changes to systems operating procedures, or • areas where the system was not operating according to specifications.

These matters were awaiting attention by the Department.

Information obtained by this Office from the South Australian State Headquarters of the Department indicated that 429 reports were outstanding as at 20 April 1982. Of these, 199 originated from South Australia, 138 from Queensland and 92 from the De­ partment’s Central Office, 185 being classified as Priority A reports which dealt with

system weaknesses affecting payments or payments information and/or significantly affecting systems efficiency.

In referring the number of outstanding reports to the Department’s Central Office, the following factors were taken into consideration:

• reports originating from South Australia and Queensland may have dealt with the same or a similar problem but attempts by Audit to confirm the details of the out­ standing reports at the Department’s Central Office had not been successful • the priority which should be given to a report depended upon the judgment of an

individual operator or user, and • while aspects covered by some of the outstanding operations reports may not be vital to the operation of the system, attention to them would make the system op­ erate more smoothly.

The Central Office referred in its response to a request, made by the Joint Com­ mittee of Public Accounts at its hearing on 20 May 1982 in relation to the reference in paragraph 2.19.1 of the September 1981 Report to the NBS, that the Department pro­ vide further information concerning the system. The Department advised that one of the areas on which information was requested by the Committee was the subject of out­ standing operations reports and a response would be provided to the Committee and

this Office by 16 July 1982.

Failure to adjust rates o f benefit payable—A major advantage of the NBS is its potential to calculate automatically the rate of benefit from the eligibility data input to the computer system. However, in South Australia it was noted that the system failed to account for a change in a particular rate of unemployment benefit increased by legis­ lation effective from 1 November 1981. This had resulted in a number of

underpayments. The Central Office of the Department advised that the problem was caused by a programming error as well as a delay in receiving assent to the legislation. Cases which were underpaid during this period had been identified and all payments of arrears had

been made.

Weaknesses in related clerical procedures Programming o f reviews—During the audit at one Queensland regional office it was noted that some officers appeared reluctant to utilise the facilities available under the

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ADP system for following up the return of review forms by sickness beneficiaries and preferred to use manual methods.

The State Director advised that the instructions to regional offices had been amended to provide for utilisation of the system for programming and following up entitlement reviews for all benefits.

In the Northern Territory regional office covered by the audit the position of Field Investigation Officer was unfilled and no reviews of entitlements were being performed by field officers.

The N.T. Director agreed that there had been difficulties in filling the position. Pending a permanent appointment it had been filled on a temporary basis with the object of clearing arrears of work and maintaining essential functions.

Employers’ reports—Instances were observed in South Australian regional offices of failure to forward report forms to employers seeking information on the reason why ap­ plicants for unemployment benefit had ceased their employment, or to follow-up the return of reports from employers. Failure to obtain an employer’s report could result in overpayment of benefit because the method of terminating employment determines the date from which the initial payment of benefit may be made.

The State Director stated that the issue and follow-up of employers’ reports is a mandatory part of the processing of a claim. The procedures had been reinforced by a memorandum addressed to regional offices and were being closely monitored by Area Management in the State.

Applications for unemployment benefits were being approved in the Northern Ter­ ritory before employers’ reports were obtained.

The N.T. Director explained that, wherever possible, employers’ reports should be received and considered before payment of grant. However, in the Northern Territory a very high proportion of claimants last worked outside the Territory and delays are con­ sistently experienced in obtaining reports from interstate employers. As a consequence, determining officers exercise discretion whether benefit should be paid or not before re­ turn of the report. Identity is properly established by other means and adjustments, due to date of cessation of employment or to the claimant being voluntarily unemployed, and which arise from information contained in the report, can still be made after grant of benefit.

Payment o f supplementary allowances to sickness beneficiaries—After receiving benefit for more than 6 weeks, sickness beneficiaries are entitled to a supplementary al­ lowance if they are paying more than a specified amount for rent or for lodgings. Cases were noted in South Australia and Queensland where rent payable had been incorrectly coded, and as a result, the additional allowance to which the beneficiary was entitled had not been paid.

The respective State Directors advised that corrective action is being undertaken in Queensland, and in South Australia an ADP program has been designed to identify such cases for investigation. The Central Office of the Department has not yet com­ mented on a suggestion by this Office that the problem could be associated with the de­ sign of a related form.

Filing o f source and data input documents—Initial problems, associated with the filing of documents related to the payment of benefits, which were noted during the audit in Queensland appeared to have been largely resolved by the issue of an instructional booklet by the State Headquarters. The Central Office of the Department was asked to confirm that the booklet would be adopted on a national basis.

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The State Director advised that the booklet was under consideration for adoption by other States. In its response the Central Office confirmed that a booklet had been issued to all States as they converted to the NBS.

Automatic calculation o f special benefits—Depending on the circumstances, special benefit may be paid at either the sickness benefit or the unemployment benefit rates. Programs under the NBS automatically calculate benefit payable at a rate equivalent to sickness benefit. Where the lower unemployment benefit rate is applicable, manual

assessment is required. In Queensland, because of an oversight, some cases were being paid incorrectly at the sickness benefit rate.

The State Director advised that, due to clerical error, some special benefit appli­ cations were determined at an inappropriate rate. The total number of cases and the amount of any excess payments were not yet available. An investigation into the matter was being conducted. New cases of special benefits were being carefully monitored and,

in addition, the ADP file was being subjected to a weekly check to detect any cases that may have been missed. The Central Office advised that the problem is being examined to determine the best long term solution. In the meantime, each State regularly perfor­ med a special run to check that each case was being paid at the correct rate.

Manual cheque issues—In South Australia a number of cases was noted where the in­ itial payment of benefit had been by manual cheque but the corresponding documents for input to the NBS had not been correctly prepared. In other cases the input docu­ ments had not been prepared at all or, because of a system fault, had not been recorded on the NBS payment history microfiche.

The State Director advised that the need to prepare correct input to the NBS in re­ spect of manual cheque details has been stressed to regional offices and the need for careful review of such transactions has been strongly enforced. Details of the cases which involved a system fault had been referred to the Department’s Central Office.

Coding o f special benefit categories—Audit tests in 2 regional offices in Queensland revealed a high percentage of clerical errors in the coding of special benefit categories. This Office considered that these errors could lead to the distortion of statistics and affect the programming of entitlement reviews.

The State Director advised that the majority of errors were caused by a problem with the coding guide which has now been revised. Current special benefit cases will be checked to ensure they have been coded correctly.

The Central Office of the Department did not comment further on Audit sugges­ tions that the clerical errors could lead to distortion of statistics and adversely affect the programming of entitlement reviews or on a view that the problem could be attribu­ table to the design of a coding sheet.

Other policy issues Identification o f beneficiaries—Problems noted in this area during the audit in Queensland included:

• the need to obtain proof of age from persons, claiming to be in the 18 to 20 age group, because of the possibility that persons under 18 might falsely state their age to obtain higher benefit • the need for persons claiming a dependent spouse but no dependent children to

produce proof of marriage or equivalent relationship, and » the difficulty in obtaining satisfactory identification for transients arriving from interstate and seeking benefit.

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The State Director observed, in relation to the first 2 of the matters, that:

• departmental instructions require, as a general rule, dates of birth to be verified only for claimants aged 16, 17 or 18 years and that for persons aged 19 or more, normal proof of identity should suffice • if there is any doubt as to marriage or dependency this can usually be resolved at a

pre-grant interview, and • provisions for proof of identity laid down in departmental instructions are con­ sidered adequate. , The Central Office of the Department did not comment on the Audit findings.

Comment—The need to establish satisfactory means of identification is one of the more important reasons why claimants for benefit should be subject to pre-grant interview. Comment on pre-grant interviews follows.

Pre-grant interviews—Paragraph 2.19.2 of the September 1981 Report included refer­ ence to an exchange of correspondence with the Department’s Central Office on mat­ ters concerning interviews with persons receiving unemployment benefits, including the policy for conducting pre-grant interviews. The Department stated that its policy was to conduct such interviews except for certain categories of benefit claimants where ex­ perience has shown the use of resources for this purpose was not justified. Pre-grant in­ terviews were part of an integrated control philosophy and should not be seen in isolation.

At the Queensland regional offices visited during the audit it was observed that the pre-grant interviews comprised assistance by counter staff to help claimants complete the Application for Benefit forms. Only in exceptional circumstances, such as where there were problems in identifying the claimant, were interviews arranged with a deter­ mining or assessing officer.

However, in New South Wales during the course of a recent audit of benefit pay­ ments now in the process of finalisation, it was noted that the policy was for all claim­ ants to be subject to interview by a determining or assessing officer. In respect of claim­ ants for unemployment benefit, interviews were arranged at the time the application was lodged and were held to coincide with the lodgment of the initial income statement some 14 days later. A special record of interview (Form SU305) was completed by the interviewing officer. Subsequent Audit enquiries at one Queensland regional office revealed that stocks of Form SU305 were on hand but not utilised.

The Central Office of the Department was requested to comment on whether:

• in view of the inconsistencies observed, there was a need to re-state the policy for holding pre-grant interviews, and • the policy apparently adopted in Queensland for limiting such interviews com­ plied with intended departmental policy. The State Director commented that the policy adopted in Queensland was the most economical use of resources to obtain reasonable results. The question of a more indepth interview for those not presently covered would be considered should more re­ sources become available. Comments had not been received from the Central Office of the Department at the date of preparation of this Report.

General The Central Office of the Department observed that the NBS System had now been implemented in all States and it had clearly demonstrated the capacity to achieve more efficient processing of claims, and to maintain payments to an increased number of

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claimants without the same increase in manual resources. In a system which was issuing over 11 million cheques each year and receiving daily input from 162 regional offices, the Department stated it would be naive to think that isolated breakdowns in clerical procedures did not occur. The matters raised in the audits in South Australia, Queensland and the Northern Territory were examples of problems which arose from time to time. However in terms of the Department’s operations as a whole, these in­ stances were minor and insignificant.

Audit conclusions It was concluded from the audit inspections that, generally speaking, the NBS was working in a satisfactory manner and normal day-to-day computer processing was being handled without any major problems. However a large number of processing problems and system faults remains to be dealt with.

A number of weaknesses as reported above in related clerical procedures was also observed, the majority being associated with the preparation of input to the system. These weaknesses had varying effects on the validity, accuracy and completeness of in­ formation coming into the system and early attention should be given to their

rectification.

While this Office agrees that the NBS has demonstrated the capacity to achieve more efficient processing of claims it does not accept that the various matters still re­ quiring remedial action can properly be classified as minor or insignificant. At the date of preparation of this Report certain aspects of the Department’s responses to the

Audit representations were being considered by this Office while, as indicated above, re­ sponses on some matters were still awaited.

18.2 Computer Environment Review In February/March 1982 an audit review was conducted of the environment of the De­ partment’s computing facility in Brisbane to assess operational control aspects including:

• management and organisation

• physical security • operations, and

• processing.

Audit findings The following matters were referred to the Department’s State Director and Cen­ tral Office.

Program controls Although controls over the use of programs existed, the procedures did not ensure that unauthorised amendments to production programs would necessarily be detected. Control over programs at State Offices had been raised by Audit regularly over recent

years and the Department had advised in June 1981 that to overcome the problems of control of programs in its State centres it had taken steps to acquire 2 proprietary soft­ ware packages. The audit review in Brisbane revealed, however, that the software pack­ ages had still not been implemented.

In reply the State Director advised that program amendments were normally pro­ vided by the Central Office Senior Programmer by means of a link tape and authorised link authority. Urgent program changes were telephoned to the Liaison Programmer,

69

Brisbane, with special notification to the Assistant Director, Operations, and the Com­ puter Centre Manager for validation.

The Central Office recently advised that, although the software packages had been acquired, significant implementation delays had occurred because of technical prob­ lems and that, at this stage, the Department was not able to advise a planned schedule for implementation.

Other findings Other matters referred to4the State Director included:

• computer file control was considered deficient in that the tape library was not required to be locked when the librarian was absent, control at such times being passed to the Senior Computer Operator although as a result, a generally recog­ nised segregation of functions ceased to exist

• the location of the computer centre in the lower basement of the building was not a suitable location as that area had previously been subject to flooding, and

• a complete and up-to-date ADP Operations Manual to replace the existing Man­ ual was necessary to provide a basis for the effective operation of the computer centre.

In reply the State Director advised that:

• the Senior Computer Operator is the direct supervisor of the Tape Librarian and as such has free authorised access to the computer room and the tape library but subordinate operators enter the library by his authority and, although it was not practicable to lock the library completely during the absence of the librarian be­ cause this could inhibit the progress of vital production, it was agreed that the door between the library and the scheduling area should be locked to prevent un­ authorised entry

• the unsuitability of the present site for the computer centre had been recognised and plans were under consideration to relocate the centre, and • a draft of the intended system documentation and standards procedures had been received following its approval at a recent conference of Computer Centre Man­

agers and the procedures would be adopted when they had been approved by the Department’s ADP Security Committee.

Comment—Some aspects arising from the Department’s replies were being considered by this Office at the date of preparation of this Report. The delays which have occurred in the implementation of the software packages are a matter for some concern having regard to the improvement in control over the use of programs that was expected from their use.

18.3 Subsidy Payments An audit was completed in South Australia during February 1982 of the departmental systems, procedures and practices associated with the payment of the following types of subsidy:

• personal care subsidy paid under the Aged or Disabled Persons Homes Act 1954

• delivered meals subsidy paid under the Delivered Meals Subsidy Act 1970, and

• food and accommodation subsidy paid under the Homeless Persons Assistance Act 1974.

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The objective of the audit was to form an opinion whether the departmental sys­ tems and controls were adequate to ensure that subsidies are paid only to approved or­ ganisations for the purposes of providing prescribed personal care services to eligible persons. The audit encompassed legal compliance, financial regularity and cost effec­

tiveness aspects.

Audit findings The overall result of the audit was satisfactory except in respect of the following matters which were referred to the State Director of the Department:

• suggestions that an additional check be performed during departmental inspec­ tions of certain subsidised organisations • reference to an overpayment of $560, arising from a weakness in a departmental system, which was noted during a comparatively small audit test and might indi­

cate the presence of other overpayments • the need for the issue of written procedures covering the payment of the subsidies, and

• the desirability of examining the advantages that might ensue from establishing closer liaison between the Department and other bodies with related responsibili­ ties in this area.

The State Director advised that:

• during inspections of subsidised hostels an additional random check would be made from schedules of payments previously made • written procedures covering the processing of payments of some subsidies, which were already available, had been issued in a consolidated form and instructions

concerning other subsidies would be issued progressively as they were completed, and • discussions with a State organisation had been held as a result of the Audit rep­ resentations and it is planned that further consultation will take place with a view

to arriving at an adequate mechanism for ongoing liaison and exchange of information.

At the date of preparation of this Report advice had not been received from the De­ partment on the matters raised by this Office in relation to the overpayment.

18.4 Management Services An audit with particular reference to personnel administration was carried out during February/March 1982 at 2 regional offices and at some sections of the State Head­ quarters in Victoria.

The audit, which encompassed legal compliance, financial regularity and cost effec­ tiveness aspects, revealed a generally satisfactory position but representations were made to the State Director on a number of deficiencies in the controls over, and the pro­ cedures for the recording of, staff attendances.

The State Director advised that the adverse findings in the audit report had been conveyed to the Regional Managers of the 2 offices. Flextime requirements were being revised to take account of changed flextime periods. The revision would also permit greater emphasis to be given to the need for accurate recording, proper supervision and

reconciliation of flextime sheets with daily staff statements, leave applications and higher duties forms. A visit to the regional offices would be made to ensure these re­ quirements were being carried out.

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An audit covering legal compliance, financial regularity and cost effectiveness aspects, was also completed in Western Australia in January 1982 of the operation of the departmental systems and procedures for the control of selected items of adminis­ trative expenditure. The audit also encompassed action by the Department to improve the control over assets and the stocktaking thereof following earlier Audit represen­ tations on the need for remedial action.

The departmental control over the administrative expenditure examined during the audit was found to be satisfactory but instructions covering procedures for the control over assets had still not been issued. An effective stocktake had also not been conducted since 1975.

In March 1982 the State Director acknowledged that little progress had been made to rectify the situation regarding inventory control and stocktaking and stated that the Department had not previously been able to allocate staff resources to the task of preparing the necessary procedures or to conduct a stocktake. The Director advised, however, that an officer was being seconded to remedy the position.

The Director recently informed this Office that stocktakes of furniture and fittings had been carried out at all but 2 regional offices and at all departmental residences. Pro­ cedures relating to the acquisition, issue and disposal of machines had been written and other procedures were in course of being written. The Director was confident that all remedial action would be completed by early August 1982.

18.5 Telephone Rental Concessions to Pensioners Previous Reports have referred to overpayments and administrative difficulties relating to the telephone rental concession to pensioners. Paragraph 2.19.7 of the September 1981 Report outlined action being taken by the Department to overcome these difficulties.

An audit was carried out in Victoria during February/March 1982 to review the procedures for processing applications for the concession and checking monthly claims from the Australian Telecommunications Commission (Telecom) for reimbursement of telephone rental concessions allowed to pensioners.

Audit findings Comments were sought from the Department’s State Director on the following aspects:

• the basis used in selecting for check a 10% sample of items included in the monthly claims from Telecom

• proposals for review of the results of those test checks • delays of up to 6 months occurring before errors detected by the departmental checks were corrected by Telecom

• no evidence of check of the accuracy of individual amounts listed in the claims, and • the feasibility of including questions on pension review forms concerning the eligi­ bility criteria for the telephone rental concession.

In reply, the State Director advised that:

• Central Office instructions, which had been implemented, were that a random sample of the order of 10% of cases submitted by the Commission be checked each month

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• the results of samples from the Telecom accounts of December 1981 to June 1982 would be reviewed and assessed to determine what future action was required • the delays in attending to discrepancies had been discussed with Telecom which had advised that it was working to reduce the time to approximately 2 weeks • a check of the reasonableness of amounts appearing on the Telecom accounts had

been introduced, and • the Department’s Central Office was considering aspects relating to the perform­ ance of household income checks to verify eligibility for the concession.

18.6 Audits with Satisfactory Findings Home Savings Grant Scheme An indepth audit of the Home Savings Grant Scheme established under the Home Savings Grants Act 1976 was conducted in February 1982 at the then Department of

Housing and Construction, Western Australian Regional Office.

The objectives of the audit were to examine the adequacy and effectiveness of de­ partmental practices, procedures and internal controls in relation to the receipt, record­ ing, examination and determination of applications under the Scheme, the prevention and detection of any irregular payments, and management information systems.

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19. DEPARTMENT OF TRADE AND RESOURCES 19.1 Reference continued from Previous Reports Accounting at overseas posts— Osaka Paragraph 16.1 of the March 1982 Report referred to a number of unsatisfactory matters disclosed during a review of common services and property functions at the Australian Trade Commission and Consulate General, Osaka. The matters included:

• lack of proper control over commitments and some apparently accelerated pay­ ments, and '

• the need to review the post’s requirement for a staff apartment which was not oc­ cupied on a permanent basis.

The matters were referred to the Head of Post and the Department. In response the Department has provided satisfactory explanations and advice of remedial action.

The question of the continuing requirement for the staff apartment was referred also to the Department of Administrative Services. The Department of Administrative Services’ response is referred to at paragraph 1.4 of this Report.

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20.1 Contracts Branch— South Australia/Northern Territory Region Background The Department of Transport and Construction is the Commonwealth’s major de­ sign and construction organisation. For other than minor items the Department is re­ sponsible for capital works as well as for repairs and maintenance requirements of Commonwealth departments and other Commonwealth bodies on a recoverable basis. The work may be carried out under contract or by the Department’s own day labour

force. If the former, it is the function of the Contracts Branch to arrange and manage contracts for these services.

An audit of the systems operating in the Contracts Branch, Adelaide was carred out during the year.

The audit was directed at an evaluation of departmental systems relating to:

• the obtaining of quotations • the calling of tenders, including tender acceptance and certificates of exemption, and • the preparation of formal contracts.

The object of the audit was to assess legislative compliance, financial regularity and that management procedures contained provisions for evaluating whether contracts were carried out in an economical and effective manner.

Audit findings The audit revealed that the systems in operation complied with legal requirements, and that key controls within the system and management controls over the Branch’s operations were generally effective.

20. DEPARTMENT OF TRANSPORT AND CONSTRUCTION

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21. DEPARTMENT OF THE TREASURY 21.1 Australian Taxation Office— Postings and Transfers The Australian Taxation Office operates an extensive computer network where infor­ mation relating to taxpayers is maintained centrally from input data supplied by Branch Offices. The processing of such information includes lodgement, assessment, account recording of taxpayers returns, and various debit/credit postings and transfers between accounts as well as between States.

An audit to assess the adequacy of controls over the input of transactions relating to the taxpayers’ accounts, including the transfers of credits, was carried out in the Branch Offices of the Australian Taxation Office in Victoria, Queensland, South Australia and Tasmania.

Audit findings The more important matters arising from the audit together with comments from the Deputy Commissioners are set out below. Computer systems and procedures are generally common throughout the Australian Taxation Office so that defects noted

during the audit in one Branch would normally apply in all Branches.

Authorisation o f transactions Changes in taxpayers’ accounts on computer file require the signature of a desig­ nated officer as evidence of authorisation for the input of transactions. In view of the volume of transactions, the different types of delegation and the fact that the lists of authorised signatures were incomplete and out of date, it was difficult to ensure that only properly authorised transactions were processed.

The Deputy Commissioner in Queensland advised that the Central Office of the Taxation Office was aware of the problems, and the input authorisation has been the subject of an intensive review since early 1981, with a view to limiting reliance on signa­ ture as a control mechanism. It was further advised that there were compensating controls in the system to help deter unauthorised input of transactions.

Delegations The audit in Queensland disclosed departures from the approved delegations for some types of transactions. The Deputy Commissioner advised that current and pre­ vious organisation restructuring, combined with changes in the roles of staff, have led in part to the problem, and the approved delegations and authorisations are no longer ap­ propriate. All authorisations and delegations will be reviewed as part of the current re-organisation of the Management Branch.

Segregation o f duties Segregation of functions is an important control mechanism in reducing the risk of misappropriation. While this has been recognised by the Taxation Office and estab­ lished in most areas it was noted that in 2 areas the facility existed both to create credit balances on accounts and issue refund cheques. Audit recommended that the functions should be segregated in those areas as well.

The Deputy Commissioner in Queensland did not accept this recommendation on basis that the increased control through segregation of the preparation processes was not significant enough to justify the additional costs, given that the 2 transaction types are subject to separate authorisation.

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Adjustment o f credits The audit of the procedures relating to adjustments and refunds of credits revealed that, although there were controls over taxpayer accounts in credit, in certain cases some risks of fraudulent credit adjustments existed. The Australian Taxation Office has been aware of the problem although no corrective action has yet been taken.

The Deputy Commissioner in Queensland accepted that the current procedures were not the preferred method of processing and alternative solutions are being con­ sidered centrally. The Deputy Commissioner also stated that there are other controls in the system to detect the fraudulent issue of refund cheques.

Unauthorised access to information The Taxation Office operates an on-line enquiry system to obtain urgently required information from the central computer files. The distribution of information should be on a need-to-know basis only with proper authorisation.

In one State the possibility existed for unauthorised persons, including persons not employed by the Taxation Office to have access to limited information about taxpayers.

In response the Deputy Commissioner stated that technical limitations prevented the exclusion of access to the on-line enquiry centre by other Commonwealth em­ ployees. But the proper use of password/call back controls should ensure that sensitive information is not passed to unauthorised persons.

Control over input documents Deficiencies were found in respect of documentation of procedures, control over the issue and storage of input documents, management trail and in other areas relating to the use of input documents.

The Deputy Commissioner in Tasmania advised that internal Audit has recently commenced a comprehensive national review of these areas with a view to rectifying these and other deficiencies in the system.

21.2 Australian Taxation Office— Company Tax Instalments Subject to Division lA of Part VI of the Income Tax Assessment Act, company tax is collected by quarterly instalments in the year when the income is derived. Instalment of tax will normally be one quarter of the notional tax of a company at the time of issue of

the Notice of Instalment. The notional tax will be either:

• the tax payable in respect of the last assessment, or • an estimate of the current year tax payable made either by a representative of the company or by the Commissioner.

An audit to evaluate the internal control over the collection of company instal­ ments was carried out in the Sydney, Parramatta and Perth Branch Offices of the Aus­ tralian Taxation Office.

Audit findings The results of the audit indicate that generally the system was operating satisfac­ torily. Certain matters requiring attention were referred to the Deputy Commissioners. These included:

Additional tax on variation o f tax instalments The Income Tax Assessment Act provides that where a company estimates that the amount of income tax payable in respect of the income to which the instalments relate will be different from the original estimate, an application in writing may be made to

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vary the instalments. This option can be exercised once only and must be made before a due date.

Where the amount of income tax payable on the actual taxable income exceeds the estimated income tax, subject to the provisions of the Act, additional tax is payable.

The Act provides for the variation of company instalments of tax to be paid where the company estimates that the taxable income to be derived will be less than the one used for calculating the instalments. The application has to be made in writing. Where the estimated income turns out td be less than the actual taxable income by more than allowed for in the Act, the Act provides for the imposition of additional tax.

It was noted during the audit that for some time the computer system was defective in respect of reporting cases where the variation resulted in the tax instalments being understated. As a result, certain cases where additional tax should have been applied were not reporced and additional tax was not imposed. Advice from the Deputy Com­ missioners indicated that the problem was reported to the Head Office in December

1981 and the necessary computer program changes were effected in April 1982.

Microfiche In the Taxation Office microfiche is used extensively to store accounting infor­ mation. In some areas it is the only hard copy record available. It was observed that the quality of some microfiche was poor which adversely affected use. Advice received indicated that the problem has been referred to the Head Office and steps have been taken to rectify the problem.

Additional tax fo r late payment In respect of tax paid after the due date, the Income Tax Assessment Act provides for the imposition of additional tax. Such tax may be imposed automatically by com­ puter process. Alternatively, a listing of potential cases produced by the computer is used as a basis to impose the tax manually.

Inconsistencies in the manual calculation of additional tax for late payment were noted. In response, Audit was advised that the procedures relating to the calculation and imposition of these taxes have recently been reviewed by Internal Audit and action was in course to ensure that a consistent approach will be adopted in future.

In the Parramatta Office it was observed that reports in respect of some potential cases had not been dealt with since approximately December 1980 without formal approval from Head Office.

In the response from the Branch Office it was stated that actioning of the reports had been discontinued without formal approval pending evaluation of the cost effectiveness of such reports.

21.3 Audits with Satisfactory Findings Australian Bureau o f Statistics— 1981 Population and Housing Census The Commonwealth is required by section 8(1) of the Census and Statistics Act 1905 periodically to undertake a census. Since 1961 a census has been undertaken every 5 years. The 1981 Population and Housing Census was conducted on 30 June 1981.

A Data Transcription Centre (DTC) was set up in Melbourne to transfer data from the 1981 Census forms to magnetic tapes for further processing at the Central Office of the Australian Bureau of Statistics in Canberra. The DTC commenced processing oper­ ations in Melbourne in July 1981 and transcription was complete by the scheduled date of 30 June 1982.

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An audit of the DTC was carried out in May/June 1982 with the following objectives:

• to ascertain and examine procedures intended to ensure the completeness, accu­ racy and validity of data transcription from the census forms onto magnetic tapes and subsequent transfer of the tapes to Canberra • to ascertain whether data (census forms, machine readable forms and magnetic

tapes) was protected from loss, damage, unauthorised access or premature destruction • to evaluate the procedures for storage, work flow and coding to determine whether controls were adequate, and • to ascertain whether resources were effectively utilised by examining recruitment

procedures and reviewing cost effectiveness indicators relating to processing and staff levels.

The scope of the audit was limited to a review, by observation and enquiry, of the following areas:

• accommodation arrangements • recruitment and training • management control • operating systems in respect of quality control, flow control and computer

operations • post enumeration survey • security, and • destruction of records.

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22. DEPARTM ENT OF VETERANS’ AFFAIRS

22.1 Departmental Drawing Account— Brisbane Reference was made in paragraph 2.22.2 of the September 1981 Report to significant shortcomings in the administration of, and irregularities in, the operation and reconcili­ ation of the Department of Veterans’ Affairs Drawing Account and associated func­ tions within the Queensland Branch Office of the Department. The Department sub­ sequently advised this Office and the Joint Committee of Public Accounts of corrective action taken or proposed. <

A follow-up audit in March 1982 disclosed that, although significant progress had been made in overcoming the deficiencies previously noted, some unsatisfactory fea­ tures still existed. The principal matters referred to the Queensland Branch of the De­ partment were:

• as checks of some variations to pensioner entitlements were still being performed up to 9 days after the relevant fortnightly cheques had been issued, there was no basis on which the Certifying Officer could have been satisfied, as required by sec­ tion 34 of the Audit Act, that the payments might properly be made • as delays of up to 2 months had occurred in rebanking certain pension cheques

after repayment action had been determined, it was suggested that departmental checks should focus not only on appropriate action being taken but also on its promptness • Audit review of the register of spoiled cheques and reconciliation with the related cheques revealed that one cheque was apparently missing but this had not been noted by the Department due to the lack of an independent check of the register for some months, and • certification and/or authorisation of some fortnightly and other payments of pen­ sions had not occurred as required by section 34 of the Audit Act.

A reply dated 30 June 1982 from the Queensland Branch, which outlined remedial measures taken or proposed, included the following advice:

• changes would be made to operating procedures to ensure compliance with sec­ tion 34 of the Audit Act • staffing constraints at the time of audit caused a backlog in the rebanking of cheques but an improved position had since been attained • a monthly independent check of spoiled cheques is now provided for, the Pay­

master’s attention has been directed to his responsibilities in this matter and, although the missing cheque had not been located, controls inbuilt into the system are designed to ensure any attempt at fraudulent negotiation would be immedi­ ately detected, and • evidence of certification and authorisation of all pension payments is now avail­

able and the Paymaster had been reminded of his responsibility to ensure that ap­ proval of the Authorising Officer had been given prior to issue of manually pre­ pared cheques.

It is a matter of serious concern that the Branch officers responsible for making the payments failed to observe the fundamental statutory controls.

Further to the reference in paragraph 2.23.8 of the September 1981 Report, the De­ partment has advised this Office that, in order to reduce the detailed checking of indi­ vidual pension payments which is otherwise required, action is being taken to categorise

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pension payments, based upon computer produced data, as a prescribed class of pay­ ments for the purposes of Finance Regulation 45a. This Office agrees with the Depart­ ment’s intention and with its view that, as a prerequisite to such action, it is necessary that the overall system controls and accounting procedures involved be identified and accepted as adequate by the delegate of the Minister for Finance. It is important that this action be finalised at an early date.

22.2 Payments of Pensions Overseas

Introduction

The Repatriation Act 1920 provides for the payment of pensions and allowances to eligible veterans and their dependants. A pension may be transferred for payment over­ seas through one of the Department’s paying agents if the pensioner is leaving Australia to reside overseas permanently. An absence in excess of 12 months is regarded as permanent.

Where the pension transfer is to the United Kingdom, Eire or to countries where Australia has no diplomatic representation, copies of basic documents together with an overseas transfer notification are required to be sent to the Deputy Commissioner of Pensions at the Australian High Commission in London. Payments to pensioners living

in New Zealand are made by the New Zealand Department of Social Welfare subject to reimbursement by the Commonwealth. Transfer notifications to London and New Zealand originate at departmental Branch Offices, a copy of the advices being for­ warded to the Central Office.

Where a transfer is made to North America or to other countries where Australia has diplomatic representation, all relevant documentation is held by the Central Office of the Department and payments of pension in these cases are arranged by the Central Office by despatch of transfer notifications to the respective overseas mission.

A field survey was undertaken during 1982 at the Central Office of the Department, the principal objectives of the audit being to determine the adequacy of departmental controls and procedures for the payment of pensions to eligible veterans and their de­ pendants residing permanently overseas and of records maintained in respect of those pensioners. Supplementary reviews were carried out at the office of the Australian High Commission in London and at departmental Branch Offices in New South Wales and

Western Australia.

Audit findings The results of the audit at the Central Office were generally satisfactory but the following matters were referred to the Department: •

• the register of outward transfers, which records the transfer of pensions overseas, was incomplete in that no details were entered against some consecutive numbers. This is contrary to departmental instructions which emphasise the importance of preserving an unbroken sequence of numbers as a control measure • a suggestion that the administrative procedures for the transfer of pension pay­

ments to and from New Zealand be reviewed in the light of difficulties and delays being experienced in transfer notifications of pensioners’ entitlements to and from the New Zealand Department, and • contrary to the arrangements with the New Zealand Department a quarterly advice for internal audit purposes of a 5% sample of payments made in New

Zealand had not been received regularly.

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In reply the Department advised:

• the register of outward transfers has been brought up to date and stricter control measures will be taken in future to ensure that details in respect of all consecutive numbers are obtained • the New Zealand paying authority will be approached concerning the difficulties

and delays mentioned in regard to the transfer notifications, and • although the 5% sample of payments intended to be provided by the New Zealand Department for internal a*udit purposes supplemented an annual nominal roll provided to the Central Office of the Department and checked in respect of all

pensions paid in New Zealand, the sample check will be re-instituted as soon as internal audit resources are available.

The audit reviews at the New South Wales and Western Australian Branch Offices resulted in generally satisfactory findings although some aspects were referred to the State Administrations for appropriate action.

The audit at the Australian High Commission in London had not been finalised at the date of preparation of this Report.

In response to Audit enquiries concerning departmental consideration which, it was understood, had been given to the introduction of a computer-based system for the processing of pensions paid overseas, the Central office of the Department advised that a proposal to extend the current ADP systems for such purposes was feasible but it would need further consideration and its priority in relation to other pressing projects would need to be decided.

22.3 Reference continued from Previous Reports Telephone rental concessions to pensioners Previous Reports have referred to Audit representations to the Department on the need for review of the continuing eligibility of pensioners in receipt of telephone rental concessions.

Paragraph 2.22.3 of the September 1981 Report referred to the completion of the pilot study for testing eligibility for the concession in Tasmania and the consequential withdrawal of the concession in 429 cases. Progress of reviews by the Department in other States has been:

• reviews have been completed in New South Wales and Queensland resulting in 5482 concessions being withdrawn in New South Wales and 2415 in Queensland. Annual savings as a result of these withdrawals are estimated by this Office to be in excess of $250 000 • the review in Victoria was completed in April 1982 and disclosed that 3203 con­

cessions were required to be withdrawn in that State. It was discovered sub­ sequently that details in respect of one particular area code, involving 1881 con­ cessions, had not been provided by the Australian Telecommunications Commission. These have now been received and arrangements made for matching with departmental records, and • reviews in South Australia and Western Australia, where the number of con­

cessions is recorded as 13 492 and 10 539 respectively, are in progress and are expected to be completed by the end of September 1982. Preliminary matching has indicated a need for investigation in 2940 of these cases.

The Department advised that sample checks of 10% only of the monthly accounts from the Commission are continuing pending their submission in magnetic tape form

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which would enable a 100% check to be made with departmental records. The Com­ mission was still not in a position to provide the accounts in this form and was not pre­ pared to state when this might be available. Negotiations were proceeding with the Commission.

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23. GENERAL

23.1 Internal Audit

Previous Reports have referred to the standard of internal audit in departments and statutory authorities and in particular to measures taken by the Public Service Board to improve that standard.

In January 1982 the Joint Implementation Committee (JIC) and its associated Interdepartmental Advisory Committee on Internal Audit (IDAC) undertook the sec­ ond annual survey of internal audit in departments and statutory authorities staffed under the Public Service Act. The survey aimed to obtain information concerning their internal audit operations in 1981, to review the progress achieved in respect of internal auditing and to assess the efficacy of the training and other development programs sponsored by the Board and supported by the departments.

The JIC concluded from the survey that in 1981 most organisations had made further progress in developing their internal audit function. It concluded that there had been a considerable improvement in the organisation and planning of internal audit activities and an upgrading in the status and training of the internal audit work-force. It was considered also that the survey provided evidence that internal audit now covered a wider range of activities and was attracting more widespread support from senior management.

The survey nevertheless revealed evidence of uneven progress in internal audit and very little development of the internal audit function in some of the smaller units. Progress was also reported to be inhibited by staffing problems in some cases. Difficult­ ies in recruiting or developing suitable personnel were reported to be most acute in the ADP auditing area and some organisations stated that it could be several years before they achieved an adequate ADP audit capability.

In concluding its comments on the survey the JIC felt that it should assume greater direct responsibility for the planning and direction of the development programs and endeavour to do more to help the smaller units in solving their problems. To develop and oversight further training initiatives, an Education Committee of IDAC has been established.

This Office is a member of the JIC and of the IDAC and has participated as a member of the IDAC Education Committee, the IDAC Sub-Committee on Audit Prac­ tices Manual and the IDAC Sub-Committee on Internal Audit Standards.

The Office’s contribution to the development of internal audit is also reflected in the movement of staff to internal audit units. During 1981-82, this Office lost 27 officers on promotion or transfer to internal audit positions, including one second division officer. The Department of Veterans’ Affairs alone recruited 11 staff from this Office.

Paragraph 2.23.7 of the September 1981 Report referred to a review of internal audit in departments by this Office. A further 4 departments have since been reviewed, and a follow-up review of one department previously reported upon was made. Para­ graphs 9.7 and 15.7 of the March 1982 Report contained particulars of 2 of the reviews. Certain additional work has been undertaken in the ensuing period. Except in one de­ partment, adequate internal audit charters had been approved and adopted and the de­ partments reviewed were continuing progressively to adopt systems based audit meth­ odology and documentation.

Comments resulting from reviews of individual departments are detailed below.

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A summary is also included of a response from a department on matters included in the September 1981 Report. The departmental response had not been received at the time of preparation of that Report.

Department o f Administrative Services Paragraph 2.23.7 of the September 1981 Report referred to unsatisfactory aspects of internal audit within the Department. At the date of preparation of that Report a reply was awaited from the Department.

The Department has since advised that a reorganisation proposal for the internal audit function had been prepared for consideration by the Public Service Board. A re­ cent Audit investigation revealed that a reorganisation has now been approved and the consequential recruitment of internal audit staff is in progress. Satisfactory expla­

nations and advice on remedial action were received from the Department in respect of other matters.

Department o f Communications Audit found that the Department did not have an active internal audit function and a number of unsatisfactory matters was referred to the Department for comment. At the date of preparation of this Report the Department’s response had not been

received. In summary, the matters referred for comment were:

• staffing and recruitment problems were creating difficulty in filling the established internal audit positions • an internal audit charter had been prepared but it had not been approved due to the need to finalise certain aspects concerning the scope of the charter, and

• no approved internal audit manual or program of audit existed.

Department o f Foreign Affairs A review of the internal audit function was conducted at the Central Office of the Department in May 1982. The objectives of the review were:

• to examine the internal audit charter to ensure that it was in compliance with Public Service Board directives • to assess whether the Department’s internal audit standards were in accordance with professional standards, and

• to determine whether the Internal Audit Section had a long term strategic plan and whether such a plan was translated into an annual work program.

Audit findings In relation to these objectives the audit revealed that:

• an adequate Internal Audit Charter had been approved • the Public Service Board’s Interim Internal Auditing Standards had been adopted • an Audit Committee had been established to monitor the internal audit function • a Strategic Plan had been developed, and

• systems based audit methodology had been implemented.

The following unsatisfactory matters were referred to the Department for comment. There was a lack of analytical review and follow-up reporting of actual audit re­ sources employed on overseas inspections. The Departmental Audit Committee estab­ lished in June 1980 should provide for this review.

85

Although internal audit staff numbers have increased, there were some positions unoccupied in 1981-82 for lengthy periods. A departmental rationale statement would assist in outlining internal audit staffing requirements and identify the optimum period that an officer’s career path may include working in the Internal Audit Section.

The audit revealed that there was an absence of effective control over domestic audit times. Such control facilitates future planning. Delays of several months were also evidenced in replies to audit reports. An internal audit manual had not been prepared and audit working papers were considered inadequate.

In response the Department has advised that machinery now exists by way of the Departmental Audit Committee to approve the annual internal audit program and to receive quarterly reports on the status of the program.

The internal audit section is staffed by a mix of professionally qualified officers, experienced departmental officers and officers who are undertaking relevant part time study. In view of the Department’s dual overseas and domestic functions it considered it important that there be this useful blending. Positions created in October 1980 were not occupied until the end of the first quarter 1981 solely due to delays brought about by promotional procedures and security clearances.

The Department advised that the other matters raised had been examined and, where possible, remedial action would be taken.

Department o f Health Paragraph 9.7 of the March 1982 Report included comment on field surveys of internal audit conducted in New South Wales, Victoria and Queensland which had pro­ vided generally satisfactory results. An additional review has since been conducted in the Australian Capital Territory focusing on the role of the audit committee of the De­ partment, the internal audit charter, planning of audits and quality assurance. Audit also reviewed the extent of implementation/ follow-up by management of internal audit recommendations. The outcome of the review was satisfactory.

Department o f Social Security The Department’s internal audit activities were discussed in paragraph 15.7 of the March 1982 Report. Further reviews were conducted in June 1982 at the Department’s Central Office and in Victoria, South Australia and Western Australia covering the planning and co-ordination of audits, the adequacy of working papers, the effectiveness of the quality assurance program and the implementation/follow-up by management of internal audit recommendations.

No major deficiencies were found but the review identified a need to refine the stra­ tegic planning process of internal audit. The Department advised that its internal audit function was being restructured and when that process was finalised it would have the opportunity to adopt a more precise form of resource planning and management.

The review also indicated that the Department had implemented a systems based audit approach to internal audit.

Department o f Veterans’ Affairs Paragraph 2.23.7 of the September 1981 report commented on moves towards a centrally controlled internal audit organisation and associated implementation prob­ lems. The new organisation was subsequently approved and an appointment made to the reclassified position of Chief Internal Auditor.

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Advice was sought from the Department in June 1982 on a number of matters con­ cerning the further development of its internal audit operation. In reply the Depart­ ment advised that:

6 the attainment of a fully developed internal audit operation was dependent on re­ cruitment processes but it expected the Branch to be fully staffed by the end of September 1982 • a new draft program for 1982-83 had been prepared and was to be considered

shortly by the Audit Committee • the philosophies and methodology adopted by the Internal Audit Branch fol­ lowed those of the General Audit Manual of this Office and material produced by

the Public Service Board • it was intended to update the Internal Audit Manual as soon as possible • the Branch was in the process of establishing standardised working papers based

on the module prepared by the Public Service Board, and • in regard to the introduction of an internal audit quality assurance program, the Department intended to make regular use of the Public Service Board question­ naire once the Audit Managers in the Branches took up duty and it was intended

that there would be regular and documented review of major audits by the Assist­ ant Secretary (Internal Audit) as well as a program of peer reviews.

Conclusion As the quality of internal auditing is taken into account in the planning of audits to be undertaken by this Office, internal audit arrangements will continue to be reviewed.

23.2 Government Wide Review— User Training and Involvement in the Development of Computer Systems A government-wide review was conducted to examine the level of involvement in the development of computer systems by the final users of those systems and the effective­ ness of training provided for user staff. A total of 26 computer sites was included in the review.

The purpose of the review was to determine whether Commonwealth activities are exposed to risks of waste or financial loss as a result of inadequate consultation between the developers of a computer system and its prospective users or as a result of poor training of system users.

This review was based on the Guidelines on Internal Controls for Computer Based Systems published by the Office of the Public Service Board.

Method There are specific stages in the development of a computer system which are com­ mon to all organisations. The stages, described in terms of their purposes, are:

• initial investigation to determine whether it is desirable to develop or modify a system and whether this is feasible • specification of the users’ requirements to state in detail what the system is to do • system design to specify how the system is to achieve its purpose .

« development of the system • acceptance and changeover • operation, and ® review to assess performance.

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To cover the development methodologies used by Commonwealth organisations these stages can be further divided into the following:

Initial investigation—preliminary system study; feasibility study.

Specification—user requirements specification.

System design—strategic system design; detailed system design.

Development—software acquisition/development; hardware acquisition; user documentation; user trainings

Acceptance—acceptance testing; implementation.

Operation—production operation.

Review—post implementation review.

Twelve control objectives were considered in the survey. Eleven of these cor­ responded to the more detailed stages shown above except that there was one objective for system design. Production operation was outside the scope of the survey. The twelfth objective covered communication among the groups involved in system devel­ opment. Evaluation of the application of controls in the sites surveyed follows. These comments refer to major developments: in very small projects it is not necessary to apply the same levels of control, and control objectives can be achieved even though some of the stages are merged or deleted.

I . Preliminary System Study Objective·. Proposals for new computer systems and major modifications do not pro­ ceed without the consideration and approval of senior management

The objective was not achieved at 8 sites. The most common approach was to appoint a steering committee which usually included a member of senior management. The method for carrying out the study varied. Users, working groups of users and data processing staff, or analysts who interviewed the users were most commonly the partici­ pants in the preliminary studies.

At those sites where the objective was not met there was a failure to consult ad­ equately with management staff whose responsibilities were affected by the proposed system or no opportunity was provided for senior management to review the results of the study.

Two sites were found to be unsatisfactory because the preliminary and feasibility studies were merged into a single study for medium to large systems. For all but small, simple systems the 2 studies should be carried out as separate exercises. Organisational standards, by which systems are classified by size and complexity, should be set to de­ termine which stages are necessary in the development process.

2. Feasibility Study Objective: Prospective users of a proposed computer based system make sufficient con­ tribution to the study of its feasibility. This objective may be met by the establishment of a mechanism which permits

genuine operational needs to be identified, which confirms that the overall objectives of the organisation will be served by the proposed system and which assesses the system s effects on potential users. Of the 20 sites where the objective was achieved, steering committees were used in 11 cases, management committees at 4, both at 2. At others it was achieved by following established procedures and formal reporting arrangements.

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At 4 sites the objective was not met through:

• lack of involvement of heads of sections expected to be extensively affected by the proposed system, and

• inadequate consideration of the organisation’s statement of objectives or strategic plan by senior management in evaluating the proposal.

Because of the special nature of the work performed, this objective was not relevant to 2 of the sites.

3. Specification o f Requirements Objective: The specifications of a proposed computer based system are prepared in full consultation with management and the future users of the system.

To develop a statement of system requirements, it was common practice to establish a project team, varying in numbers with the size and complexity of the proposed sys­ tem. Among the techniques used to achieve the objective were the appointment of a user as team leader, the inclusion of, or free access to, members of the sections exten­

sively affected by the system and the provision of reporting and review mechanisms to user and senior management.

This objective was not met at 13 sites. User staff were not included in project teams at 4 sites. The effects of such exclusion can be offset through consultation with the par­ ties affected but at 3 of these 4 sites, and at a further 2, consultation with user staff was inadequate. At 10 sites there was a failure to obtain the formal agreement of the affected user sections to elements of the specification.

4. System Design Objective: The design of a computer based system fully satisfies the needs of its users.

The system design should accurately and completely fulfil the specification of re­ quirements and should not include any unnecessary features. It should also be suf­ ficiently flexible to be adapted to future needs. User procedures should be designed to fit the users’ operational environment. Documents and screen layouts should be de­

signed for ease of use.

This objective was not satisfied at 12 sites. At 8 sites users were not provided with regular opportunities to review the design. Senior management and user representatives did not approve finalised elements of the design at 8 sites and, at a further 4, user sec­ tion heads were not required to give their formal agreement. Design documentation that related elements of the design to specific requirements was not used at 8 sites. At a

further 8 sites the design documentation did not include system operating procedure outlines.

5. Hardware Acquisition Objective: The equipment which will be used is suited to the working environment of its prospective users and to their intended operating procedures.

All but 7 sites satisfied this objective.

At none of these 7 sites was the effect of the equipment on the intended working environment assessed and, at 2, problems had ensued. At 6 sites there was failure to ensure that the users’ working environment could accommodate the proposed equip­ ment or that the equipment was ergonomically designed and suited to the proposed working procedures of its users.

89

6. Software Acquisition/Development Objective: The experience and special knowledge of the intended users are freely avail­ able to and are used by the technical personnel engaged in the development or acquisition of computer programs for the system.

At 6 sites there were no established procedures whereby users could review the el­ ements of a system and at only one was a user appointed as consultant to technical per­ sonnel engaged in the development of the system.

7. User Documentation * Objective: Users participate in the preparation of user manuals and operating instructions.

To achieve this objective the format and contents of documentation should suit the users’ operational needs, be free of unnecessary technical jargon and be intelligible to persons for whose use it is intended. To this end, the services of expert technical writers were used at 4 sites to prepare the user manuals.

This objective was not met at 18 sites. At only 11 sites were there effective amend­ ment distribution procedures to update manuals. Users were not responsible for writing and editing user manuals at 6 sites, while at 4 of these drafts of manuals were not cir­ culated amongst users for comment.

8. User Training Objective: Users are adequately trained in the running of systems.

The review sought to determine whether all levels of staff, operative and mana­ gerial, understood the functions of the systems and were sufficiently trained to make best use of the systems.

At only 7 sites was this objective achieved.

Training of senior staff in the management of computer system development and of user operations was not satisfactory at 11 sites and not done at 3. At 13 sites middle level management staff were not adequately trained to know the capabilities of the computer systems affecting their areas of responsibility. The training of user staff in their duties and roles in the operation of systems was inadequate at 12 sites.

Trainees were required to evaluate their training at 9 sites ahd 8 organisations moni­ tored on-the-job training of new personnel for effectiveness and comprehensiveness. User experiences were disseminated through user group meetings at 10 sites and through bulletins at 9; 8 sites used both.

9. Acceptance Testing Objective: A new or modified system is put into operation with the co-operation and agreement of its users.

Users should be deeply involved in system testing and no system should be put into operation without the formal approval of senior management and without consul­ tations with user sections.

Users were actively involved in system testing at 18 sites. At 17 of these, users were responsible for the preparation of test data and the review of results. At 15 sites, user staff were given the opportunity to run independent acceptance tests.

Of the 18 sites, at 17 the objective was achieved by also requiring formal user sign-offs and senior management approval before making systems operational.

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10. Implementation Objective: The changeover to the new system takes place with minimum disruption.

There are 2 parts to this objective: a detailed implementation plan must be in oper­ ation and appropriate data conversion procedures must be followed. Implementation plans were used at 20 sites but in 3 of these not all affected user groups were consulted. At 22 sites the users examined the data on master files for the new system to assure

themselves of its completeness and accuracy. At 17 sites the objective was achieved by meeting both standards.

It is noted that at 7 of the sites not meeting the objective there was failure to use ad­ equate project control techniques in implementing new or modified systems.

11. Post-Implementation Review Objective: The utility of a system is reviewed periodically after implementation.

After an initial period of operation the system should be reviewed to ascertain whether the system objectives were met and to recommend any tuning. There should be periodic reviews to ensure that the system continues to meet user requirements. Sys­ tems may need to be modified in the light of changing organisational requirements and objectives.

At 6 sites only were both types of review performed and the objective met. Of the others, the initial review alone was conducted at 5 sites, one site performed only the periodic reviews and the remaining 14 did neither.

Reports on system performance were prepared and distributed by operations staff at 16 sites. At all but one site there were formal procedures permitting system malfunc­ tions to be detected and reported or system changes to be requested. Of these sites, the procedures at 4 were not adequately enforced.

12. Communication Objective: Management, system analysts, designers and users can communicate and work together effectively.

This objective requires that a formal system development methodology be used specifying outputs, allocating responsibilities and stipulating sign-off requirements for each stage. Mutual understanding of computing and user terminology enhances the quality of system development.

The control objective was considered not relevant to 2 sites; of the others, the objec­ tive was achieved at 14 by having and using a detailed system development method­ ology. Data dictionaries, manual or automated, were used as a development tool at 16 sites.

Familiarisation training was provided at 13 sites for both data processing analysts and users. Training was provided for one group or the other at 8 sites.

Conclusions In this review 12 control objectives were evaluated at 26 computer sites. At no site were all 12 objectives met and at 2 sites none were met. The results are summarised in Table 1.

TABLE 1

Number of Objectives Met . . . . 1 2 1 1 10 9 8 7 6 5 4 3 2 1 0

Number of Sites Meeting Objectives . 0 3 3 2 4 4 2 2 1 0 1 2 2

In the early stages of the system life cycle, where projects are identified and author­ ised, controls were generally satisfactory. There was evidence of sufficient involvement

91

of users in the selection of hardware and in the acquisition or development of computer programs from approved designs. Most organisations actively involved their user staff in the testing of new or modified systems.

In the analysis and specification of user requirements and in the system design, the work and the responsibility were often left to data processing staff. In many cases the prospective system users were not familiar with the system development methodology adopted by the organisation and were not invited to participate in the work. Where users were involved the procedures for formal communication between them and data processing staff were frequently inadequate.

Areas of particular concern were those of user documentation, training of user staff and post-implementation reviews. Only rarely were user sections required to approve user manuals and operating instructions before issue. Training of user staff at the oper­ ational level was usually adequate although there was little formal evaluation of train­ ing for effectiveness.

There is a definite lack of automatic data processing awareness outside the specialist areas, especially at the managerial level. Many of the organisations surveyed were not prepared to allocate resources to training in automatic data processing. Once systems were operational there was little monitoring of their effectiveness and efficiency.

The weaknesses in the area of specification of users’ requirements were partly com­ pensated for by their involvement in acceptance testing. Thus, in most cases, user needs may have been satisfied although the risk of wasted effort could be lessened by greater user involvement in earlier project phases. The lack of project control procedures at im­ plementation presented a risk of poor management of resources. The paucity of user training and review gave concern that system performance could be ineffective and in­ efficient and that faults in the original analysis and design could remain undetected.

Each organisation reviewed is being informed of the relevant findings of the survey.

The Public Service Board’s ‘Guidelines on Internal Controls for Computer Based Systems’ recommends the use of system development and modification standards and provides guidance on the level of involvement in projects by user and management staff. Organisations conscientiously applying these guidelines would meet the control objectives of this survey.

Managements of government organisations should be familiar with the published guidelines, introduce development methodologies which call for involvement of user and management staff and ensure that staff use the methodologies and observe the guidelines.

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Audits of Statutory Authorities 24. ABORIGINAL DEVELOPM ENT COMMISSION

The Aboriginal Development Commission was established by the Aboriginal Develop­ ment Commission Act 1980 to further the economic and social development of people of the Aboriginal race of Australia and people who are descendants of indigenous in­ habitants of the Torres Strait Islands and, in particular, to establish a Capital Account

with the object of promoting their development, self-management and self-sufficiency.

On 1 July 1980 the Commission commenced operations with the following functions:

• land acquisition (previously carried out by the Aboriginal Land Fund Commission)

• housing loans and enterprise loans (previously carried out by the Aboriginal Loans Commission), and

• enterprise grants (previously carried out by the Department of Aboriginal Affairs).

From 1 July 1980 to mid September 1980 all payments, including salaries, were made through the Department of Aboriginal Affairs after which the Commission main­ tained its own accounts and records.

The accounts and records of financial transactions and records relating to assets of, or in the custody of, the Commission for the year ended 30 June 1981 have been audited and reports on the audit and the financial statements have been submitted to the Minis­ ter as required by the Act. The Commission’s annual report for the year ended 30 June

1981, including the financial statements for that year and the audit reports were tabled in the Senate on 27 May 1982.

Results of the audit of the Commission as at March 1981 revealed weaknesses in internal control, absence of written instructions and procedures, and incomplete accounts for fixed assets, advances, investments and shares. The matters were discussed with Commission officers on 10 April 1981 and in a reply received on 9 November 1981

the Commission advised of remedial action taken or proposed.

Draft financial statements were received on 9 November 1981. Because of the deficiencies in internal control and procedures during the period covered by the finan­ cial statements, substantive detailed testing by this Office was necessary to finalise the audit. A number of items which required adjustment was referred to the Commission.

Signed financial statements were received on 26 February 1982.

As outlined above, deficiencies existed in the accounting system and the accounts and records maintained by the Commission for a considerable period after the close of the financial year ended 30 June 1981.

My report on the financial statements mentioned that the material deficiencies were subsequently rectified and included 3 qualifications in respect of breaches of the Act in the following circumstances.

Terms and conditions o f employment Following Public Service Board approval on 2 September 1980 to the terms and conditions of employment for persons engaged by the Commission under section 33 of

9 3

the Act, 3 part-time employees were paid at rates in excess of that prescribed. The Commission advised that the officer in charge of the area at the time was unaware of the relevant Public Service employment provisions applicable. This situation has since been remedied.

Engagement o f consultants The Commission did not obtain Public Service Board approval for the terms and conditions for engagement of consultants, as required by section 35 of the Act. The reason given by the Commission was a misunderstanding and/or misapprehension of the relevant Public Service—Engagement of Consultants Provisions. It has now sought retrospective approval from the Board.

Delegation to invest funds Moneys of the Capital Fund were invested by officers who did not hold a delegation from the Commission under section 44 of the Act. The Commission acknowledged the observation and agreed that the General Manager’s written endorsement was not obtained in these particular instances but pointed out that all investments were made strictly in accordance with section 37 of the Act after due deliberation and consultation with the General Manager.

94

The Australian Apple and Pear Corporation was established by the Australian Apple and Pear Corporation Act 1973. The Corporation’s principal functions are to promote and control the export of Australian apples and pears and to promote trade and com­ merce in apples and pears within Australia. Under arrangements with the Common­

wealth the Corporation also administers the Apple and Pear Stabilization Scheme and the Apple and Pear Export Underwriting Scheme.

The accounts and records of financial transactions and records relating to assets of, or in the custody of, the Corporation for the year ended 31 December 1981 have been audited and reports on the audit and the financial statements have been forwarded to the Minister for Primary Industry as required by the Act.

The audit report on the financial statements referred to payments made to officers of the Corporation contrary to the terms and conditions of service determined by the Corporation and approved by the Public Service Board pursuant to section 24 (2) of the Act.

The annual report of the Corporation, which includes the financial statements for the year ended 31 December 1981 and the audit report thereon, was presented to the Parliament on 5 May 1982.

25. AUSTRALIAN APPLE AND PEAR CORPORATION

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26. AUSTRALIAN CANNED FRUITS CORPORATION The Australian Canned Fruits Corporation was established by the Canned Fruits Mar­ keting Act 1979. The Corporation’s principal function is to administer a statutory mar­ keting scheme for canned deciduous fruit. The Commonwealth Act and complemen­ tary State legislation enable the Corporation to acquire canned deciduous fruit produced and manage the selling arrangements both in Australia and overseas.

The accounts and records of the financial transactions and records relating to assets of, or in the custody of, the Corporation for the year ended 31 December 1981 have been audited and reports on the audit of the financial statements have been submitted to the Minister as required by the Act.

The audit report on the financial statements stated that:

• the Corporation failed to obtain the Minister’s prior approval for supplementary advances totalling $3 092 043 paid for acquisition of canned fruit, pursuant to sec­ tion 21 (1) of the Act • payments for travelling expenses were made to employees of the Corporation

contrary to the terms and conditions of employment determined by the Corpor­ ation and approved by the Public Service Board pursuant to section 32 (2) of the Act, and • a Corporation bank account was overdrawn on 9 occasions during the year be­ yond the limit approved by the Treasurer pursuant to section 45 of the Act.

The Corporation has advised that:

• action has been taken to ensure that prior approval for supplementary advances is obtained in future • the practice of paying actual travelling expenses ceased by 31 December 1981, and • most occasions where the bank overdraft limit had been exceeded were due to

bank charges being debited without prior notification to the Corporation, and suitable arrangements have been made with the Bank to prevent the recurrence of similar situations.

96

The ACT Schools Authority was established by the Schools Authority Ordinance 1976. The principal function of the Authority is to establish and conduct educational or related services in the Australian Capital Territory on behalf of the Commonwealth.

The accounts and records of financial transactions and records relating to assets of, or in the custody of, the ACT Schools Authority for the years ended 30 June 1980 and 30 June 1981 have been inspected and audited and the audit of financial statements for the year ended 30 June 1980 has been completed. Reports to the Minister in compliance

with sections 63L (1) and 63m (2) of the Audit Act 1901 have been furnished.

Sections 33 (3) and 34 (1) of the Schools Authority Ordinance 1976 provided for the financial statements and the accounts and records of financial transactions of the Authority to be audited by an auditor appointed by the Treasurer. On 19 May 1977, the then Treasurer, appointed the Auditor-General Mr D. R. Steele Craik personally as auditor of the Authority.

The appointment continued until Mr Steele Craik retired on 13 February 1981. From then until 26 November 1981, (the date Statutory Rule No. 348 of 1981 was made under the Audit Act 1901) there was no auditor of the Authority. Consequently it was not possible to issue by 30 June 1981 a report on the inspection and audit of the

financial transactions of the Authority for the year ended 30 June 1980. The Statutory Rule declared the Authority to be a public authority to which Division 3 of Part XI of the Audit Act applies and the person occupying the position of Auditor-General be­ came the auditor of the Authority.

The audit reports on the accounts and records for the period ended 30 June 1977 and for the years ended 30 June 1978 and 30 June 1979 referred to unresolved questions concerning the extent of the Authority’s responsibilities for the establishment and con­ duct of schools in the Australian Capital Territory. Those questions included the extent and nature of the Authority’s responsibilities for accounting for moneys and other

assets received by schools from other than Government sources and the effect those questions had on the Authority’s financial statements and the auditor’s responsibilities under sections 63L and 63M of the Audit Act (formerly sections 34 and 33 of the Schools Authority Ordinance 1976).

The Authority has since received a legal advising from the Deputy Crown Solicitor dealing with these matters. The advising concluded that, as the Ordinance presently stands, it is not practicable to comply strictly with the provisions relating to finance. The Authority has made representations to the Department of Education to initiate

amendments to the Ordinance in order to have the position clarified.

Mr Steele Craik’s report of 26 June 1980 on the inspection and audit for the year ended 30 June 1979 also referred to deficiencies in revenue collection procedures, expenditure accounting and school’s accounts and records. It pointed out that replies had not been received to representations made to the Authority on those shortcomings.

The report also referred to the Authority’s failure to respond to previous queries relat­ ing to weaknesses in control over administrative expenditure and the absence of a com­ plete set of accounting instructions, an internal audit charter and an approved internal audit program.

Although the Authority has since advised of remedial action it has taken or pro­ poses in respect of most of the abovementioned deficiencies, it has still not responded to representations relating to the absence of an internal audit charter or an approved

27. AUSTRALIAN CAPITAL TERRITORY SCHOOLS AUTHORITY

97

internal audit program, nor has it issued a complete and comprehensive set of account­ ing instructions. In addition, a reply has not been received to representations made in May 1979 concerning certain unsatisfactory aspects relating to salaries, wages and al­ lowances procedures.

Audit investigations during the year 1979-80 disclosed further unsatisfactory aspects of the Authority’s control over procurement and of its internal audit activities. The Authority has advised of remedial action proposed in respect of the deficiencies in procurement control but no response has been received to representations, made on 6 August 1980, regarding the unsatisfactory position in respect of internal audit.

Further representations were made to the Authority during the year ended 30 June 1981 regarding continuing unsatisfactory procedures relating to the payment of salaries and wages and the accounts and records maintained by schools. On 2 June 1982 the Authority responded in respect of the matters relating to school accounts and records and advised that a finance instruction manual would be issued shortly and should result in the adoption of more acceptable procedures within schools. The Authority has still not responded to correspondence in respect of salaries and wages procedures and de­ fects in the internal audit organisation.

At the date of this report, financial statements for the year ended 30 June 1981 had not been submitted for audit. Delays in the presentation of financial statements and the unresolved legal ques­ tions relating to the responsibilities of the Authority, the treatment of non-government moneys and the effect of these matters on the auditor’s responsibilities were reported upon by the Joint Committee of Public Accounts in its 193rd Report.

98

The Australian Dairy Corporation which was established by the Dairy Produce Act 1924 has functions relating to the promotion and control of exports of dairy produce and the promotion of commerce in dairy produce within Australia.

The accounts of the Corporation for the year ended 30 June 1981 have been audited and reports on the audit and on the financial statements have been provided to the Min­ ister for Primary Industry as required by the Act. The financial statements together with the audit report were included in the Corporation’s annual report which was pre­ sented to the Parliament on 5 May 1982.

The audit report on the financial statements listed the following companies in which the Corporation has a majority interest and/or a majority voting right and for which the Auditor-General is not the auditor:

• Asia Dairy Industries (HK) Limited, and • PT Australia Indonesian Milk Industries.

The audit report noted that the auditors of Asia Dairy Industries (HK) Limited stated, in reporting on the company’s accounts for the year ended 31 December 1980, that they were unable to independently verify that expenses amounting to SA411 199 incurred or paid on behalf of and charged to the company by the Corporation and other related companies were properly chargeable to Asia Dairy Industries (HK) Limited.

The company’s management has advised that it is continuing discussions with the audi­ tors to avoid a similar qualification in the future.

The audit report on the Corporation’s financial statements referred to the following matters.

Dairy Products Stabilization Trust Fund The Corporation has not maintained 7 separate product accounts as required by section 11 (1) of the Dairy Industry Stabilization Act 1977 and associated regulations. Separate accounts have not been kept as required for processed butteroil or processed cheese.

The Corporation advised that an amendment to the legislation is proposed to re­ move the need to maintain separate product accounts for processed butteroil and processed cheese.

Travel expenses— Chairman and Board members Contrary to the provisions of section 12a of the Dairy Produce Act 1924, the Corporation reimbursed the Chairman and members of the Corporation for expenses incurred in the course of overseas travel otherwise than in accordance with the determi­ nation of the Remuneration Tribunal.

The Corporation advised that the payments were made on economic and adminis­ trative cost grounds but that the practice would be reviewed.

Travel expenses— Corporation staff Until 30 April 1981 the Corporation paid travelling allowances to its staff at a rate different from the rate approved by the Public Service Board pursuant to section 20B of the Dairy Produce Act 1924. Following the repeal on 1 May 1981 of Public Service

Regulation 75a which covered travelling allowances the Corporation has not had ap­ proved terms and conditions for travelling allowance pursuant to section 20b of the Act.

28. AUSTRALIAN DAIRY CORPORATION

99

At the date of this Report the Corporation has not submitted revised terms and con­ ditions for approval by the Public Service Board and has advised that travelling allow­ ances would continue to be paid on the basis of actual expenses incurred.

The audit report on the inspection and audit of the accounts and records referred to:

• production of promotional material involving expenditure of $182 745 of which only $125 000 received prior approval of the Minister • inconsistency in accounting treatment of direct butteroil allowance compared with other allowances approved under section 17 of the Dairy Industry Stabiliza­

tion Act, and • problems of definition of table quality butter which lead to difficulties in admin- stering allowances payable under section 17 of the Dairy Industry Stabilization Act.

Advice has been received that, legislative changes are proposed to ratify current practice for the treatment of direct butteroil allowance. The Corporation has advised that a precise definition of table quality butter has been decided upon and that the new basis for payment of allowances was to be applied with effect from 1 January 1982.

Rebates on sales o f skim milk powder to Holland M ilk Products Inc.

In a statement to the House of Representatives on 29 October 1981 the Minister for Primary Industry indicated that my Office would be asked to undertake an examination of all aspects of the rebates paid by the Australian Dairy Corporation on skim milk powder sales to Holland Milk Products Inc. (HOMPI) during the period December

1974 to December 1977. The Minister made such a request and I agreed to put in hand an examination of the matter. On 27 April 19821 reported to the Minister the results of my examination.

29. AUSTRALIAN INDUSTRY DEVELOPMENT CORPORATION

The Australian Industry Development Corporation was established by the Australian Industry Development Corporation Act 1970. The functions of the Corporation as defined in section 6 (1) of the Act are— (a) to facilitate and encourage the establishment, development and advancement

of Australian industries concerned with the manufacture, processing, treat­ ment, transportation or distribution of goods, or the development or use of natural resources (including the recovery of minerals) or of technology, by— (i) providing, or assisting in the provision of, the financial resources required

by Australian companies engaging, or proposing to engage, in any such in­ dustries or in activities that are connected with, or incidental to, those in­ dustries; and (ii) engaging or participating in enterprises or developmental projects in re­ lation to any such industries or activities; and

(b) to secure, to the greatest extent that is practicable, participation by Australian residents in the ownership and control of companies engaging in any such industries or activities.

Report on 1981 accounts In accordance with the requirements of section 36a of the Act, the accounts and records of the financial transactions of the Corporation for the year ended 30 June 1981 have been audited. The report furnished to the Treasurer on the results of the inspection and audit referred to the following matters.

The Corporation entered into a number of transactions during June and July 1981 which had the effect of increasing its taxable income for the year ended 30 June 1981 and reducing its taxable income for the year ended 30 June 1982 without materially altering accounting income in either year. In response to representations from this Office the Corporation advised that the transactions were effected in order to protect taxation benefits, notably dividend rebates, to which it was entitled for the year ended

30 June 1981. Brief particulars of the transactions are set out below.

Currency futures contracts Until June 1981, the Corporation’s dealings on the currency futures market appear to have been made exclusively for the purpose of covering exposure to foreign exchange risks. During June and July 1981 the Corporation arranged 17 contracts with a broker and, by means of selective closure of these contracts, obtained substantial gains in

1980-81 which, subject to the brokerage and other costs, exactly equalled losses in­ curred in 1981-82. On the evidence available, I consider that the purpose of these trans­ actions was to increase 1980-81 taxable income and decrease that for 1981-82 and that there was a clear intention that any amounts paid by the broker to the Corporation as a

result of contract closures during 1980-81 would be recouped in the subsequent year. The extent of the Corporation’s exposure to foreign exchange risks was not altered by these transactions.

Hedge contracts In order to offset the impact of the currency futures transactions on accounting profit, the Corporation also entered into hedge contracts with the broker who had par­ ticipated in the currency futures trading. A set of 2 contracts dated 24 June 1981, which

101

provided for settlement on 2 July 1981, produced an accounting loss which broadly offset the accounting income derived from the futures contracts. A further 2 contracts dated 1 July 1981, which also provided for settlement on 2 July 1981, achieved the required offset for the 1981-82 futures accounting loss and guaranteed that neither party to the contracts would lose significantly. Moreover, the 1981-82 tax position created by the futures contracts was not substantially changed by these hedge contracts.

Hedge contracts had previously been used by the Corporation solely to cover foreign exchange exposures resulting from transactions undertaken in the normal course of business. 4

Bills o f exchange On 29 June 1981 the Corporation sold bills of exchange to its subsidiary, A.I.D.C. Securities Limited, thereby realising accrued interest which then became taxable in 1980-81. The interest would otherwise have been derived during 1981-82 and become taxable in that year. The bills were repurchased on 30 June 1981 at the same price at which they were sold.

Summary The following table summarises the effects of the transactions on accounting and taxable income and shows their cost to the Corporation in brokerage and other charges.

Accounting Taxable Accounting Taxable

Income Income Income Income Cost to

1980-81 1980-81 1981-82 1981-82 AIDC

$ $ $ $ $

Futures Contracts . . . 464 480 profit 820 980 profit 561 080 loss 917 580 loss 96 600

Hedge Contracts . . . 520 942 loss 515 955 profit 4 987 loss 4 987

Bills of Exchange . . 621 944 profit 621 944 loss

56 462 profit 1 442 924 profit 45 125 loss 1 544 511 loss 101 587

Audit comment I advised the Corporation on 27 August 1981 that, in my opinion, which had then been formed without the benefit of competent legal advice, the transactions were not things necessary or convenient to be done for or in connexion with the performance of its functions, nor were they entered into in the course of investing or dealing in the moneys of the Corporation to obtain revenue for the purpose of meeting expenses in­ curred in connexion with its operations. Following this advice, the Corporation sought the opinion of Senior Counsel.

In an opinion dated 15 September 1981, Senior Counsel advised that the steps taken by the Corporation constituted an activity of the Corporation engaged in —and engaged in bona fide—for the purposes of performing its functions as defined in section 6 (1) of the Act.

Nonetheless, I consider it a matter of concern that a statutory authority of the Com­ monwealth should engage in transactions of the kind described above.

Financial statements In deference to Senior Counsel’s opinion, my report in terms of section 37 (3) of the Act on the financial statements of the Corporation and the group accounts for the year ended 30 June 1981 was given without qualification.

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30. AUSTRALIAN MARITIME COLLEGE

The Australian Maritime College was established by the Maritime College Act 1978, its principal functions being to conduct an institution for the provision of maritime and maritime related education for persons engaged in the shipping and fishing industries, to develop knowledge and skills in these fields, to award degrees, diplomas and certificates

to students and to consult and liaise with other institutions and authorities in Australia with similar interests and functions.

The accounts and records of financial transactions and records relating to the assets of, or in the custody of, the College for the year ended 31 December 1980 were audited and reports on the audit and the College’s financial statements for that year were sub­ mitted to the Minister as required by the Act.

The audit reports included the following unsatisfactory matters.

Computation o f the value o f creditors—The audit indicated that the amount of $856 273 shown as creditors in the Statement of Assets and Liabilities had been deter­ mined in a way that did not bring all creditors into the financial statements.

Investments—During the year the College invested surplus funds in interest bearing de­ posits. As the investment of funds by the College is outside the powers conferred by the Act, the breach was taken up with the College and the investments were terminated in June 1980.

Commonwealth Shipbuilding Bounty—Payments of Commonwealth bounty in re­ spect of the construction of the College’s vessels had been included by the College in the value assigned to the item ‘Training Vessels’ appearing in the Statement of Assets and Liabilities. Those payments did not represent cost to the College. The Minister was

therefore advised that the value shown for the asset Training Vessels was overstated by the amount of the bounty, i.e. $548 806.

1981 Financial statements At the date of preparation of this Report, the College’s financial statements for 1981 had been received by this Office and the audit was in progress.

103

The Australian National University was established by the Australian National Uni­ versity Act 1946. The principal functions of the University are to provide facilities for university education and for post-graduate research and study in the Australian Capital Territory.

The accounts and records of financial transactions of the University and records re­ lating to assets of, or in the custody of, the University for the year ended 31 December 1980 have been audited and reports on the audit have been furnished to the Minister and the Council of the University as required by the Act. Reports on the audit of the financial statements have been submitted to the Governor-General and the Council of the University as required by the Act.

The University’s annual report for the year ended 31 December 1980, which in­ cluded the financial statements and the audit report thereon, was presented to the Par­ liament on 18 February 1982.

The audit reports included reference to the following unsatisfactory matters.

Unauthorised bank accounts—Section 3lA of the Act provides that the University may open and maintain an account or accounts with an approved bank. ‘Approved bank’ is defined in the Act as the Commonwealth Trading Bank of Australia or another bank approved by the Treasurer. During 1980, the University maintained with other than an approved bank 4 accounts which were opened before section 3lA of the Act be­ came operative. The amounts were not significant and the University has since taken action to obtain the Treasurer’s approval.

Stores Control— Research School o f Physical Sciences—An audit of the school disclosed a high incidence of discrepancies between actual and recorded stores holdings, inadequacies in physical control over metals and arrears in the stocktaking cycle. The University advised of remedial action taken or proposed.

Housing operation—Non-current assets—The March 1981 Report referred to incon­ sistencies in the valuation of and accounting for disposal of non-current assets of the Housing Operation. These inconsistencies were found still to exist. The University advised that consideration is being given to the basis for accounting and control over such assets.

Internal audit—The absence of a formal internal audit charter was referred to the Uni­ versity together with a number of suggestions for improving the internal audit function. The University responded that it is giving consideration to preparation of an internal audit charter and has advised that an officer has been seconded to the internal audit unit to develop the internal audit function.

31. AUSTRALIAN NATIONAL UNIVERSITY

104

32. CURRICULUM DEVELOPMENT CENTRE

The Curriculum Development Centre was established by the Curriculum Development Centre Act 1975. The principal functions of the Centre concern devising and develop­ ing school curricula and educational material and making school curricula and edu­ cational materials available.

In compliance with section 41 (1) of the Act the accounts and records of financial transactions of the Centre and records relating to assets of, or in the custody of the Centre for the year ended 30 June 1981 have been inspected and audited.

Paragraph 34 of the March 1981 Report in respect of the year ended 30 June 1980 referred to certain deficiencies in procedures.

Despite advice from the Centre that remedial action had been taken or was proposed, audit investigations during the year ended 30 June 1981 disclosed continuing deficiencies in the Centre’s accounting and internal control procedures in:

• registration and examination of accounts for payment • permanent advances and advances to staff for travel expenses • procurement of assets and supplies • receipts and inward remittances • royalty receipts

• stocks and sales of publication material • debtors records and controls • asset registers • registry procedures, and

• library cataloguing.

Following representations from this Office, the Centre provided details of remedial action taken or proposed. The Centre advised that the financial year 1980-81 was a difficult one with a number of staff changes in the finance and record keeping areas. The Centre also advised that, more significantly, the Review of Commonwealth Func­ tions decision to abolish the Centre unless the States agreed to contribute 50% of operating costs resulted in the deferment of initiatives related to the automation of sundry debtors, creditors and general ledger and the abandonment of a scheme to fully integrate stores and stores accounting systems.

The Centre has submitted draft financial statements for the year ended 30 June 1981 for report in compliance with section 40 (3) of the Act. Draft statements were received by this Office on 19 October 1981 and again on 9 March 1982. On both occasions the statements were returned to the Centre because certain items appearing in the statements were not adequately supported by the detailed accounts, records and

subsidiary documentation.

The Centre advised it would employ temporary staff for several months to extract all relevant information in an attempt to resolve the matters. It also proposed to furnish the Parliament with an interim annual report for the year ended 30 June 1981 together with an explanation for the non-inclusion of financial statements required by section 40 of the Curriculum Development Centre Act.

At the date of this Report, financial statements for the year ended 30 June 1981 had not been resubmitted for audit.

105

33. DARWIN CYCLONE TRACY RELIEF FUND TRUST Previous Reports have referred to the establishment of the Trust, by Trust Deed in January 1975, to distribute money contributed to a Trust Fund for victims of the cyc­ lone which devastated Darwin on 24 December 1974. Under the Trust Deed the Auditor-General for the Commonwealth is the auditor of the Trust Fund.

The costs of administering the Trust continue to be borne by the Commonwealth Government. At the date of preparation of this Report, the distribution of remaining money held in the Trust Fund 4iad not been finalised. The continued delay has prevented this Office from completing the audit of the accounts of the Trust.

CANBERRA A.C.T. 6 September 1982

(K. F. BR1GDEN) AUDITOR-GENERAL

106

APPENDIX A AUDITS CARRIED OUT UNDER SECTION 41d o f t h e a u d i t a c t o r u n d e r o t h e r ACTS, ETC.

The Auditor-General is empowered under the provisions of section 51A of the Audit Act to include in any Report made by him under the Act such information as he thinks desirable in relation to audits, examinations and inspections carried out by him in pur­ suance of the provisions of the Audit Act or any other Act.

The activities scheduled hereunder are subject to audit under the authority of specific legislation, under section 4lD of the Audit Act, by arrangement between the Auditor-General and the Minister or the authority responsible for the activity or pur­ suant to other arrangements. Comments on some of these audits appear in this Report.

Activity Basis o f audit

Aboriginal Development Commission Aboriginal Hostels Limited Albury-Wodonga Development Corporation Anglo-Australian Telescope Board Applied Ecology Pty Ltd

Army and Air Force Canteen Service Australia Council Australia-Japan Foundation Australian Apple and Pear Corporation

Australian Art Exhibitions Corporation Limited Australian Atomic Energy Commission Australian Bicentennial Authority Australian Broadcasting Commission, Australian Broadcasting Tribunal

Australian Canned Fruits Corporation Australian Canned Fruit Sales Promotion Committee Australian Capital Territory— Australian Capital Territory Bushfire Council

Australian Capital Territory Electricity Authority

Australian Capital Territory Forestry Trust Account Australian Capital Territory Rental Housing Australian Capital Territory Schools Authority(^) Australian Capital Territory Transport Trust

Account Building and Construction Industry Long Service Leave Board Canberra College of Advanced Education Canberra Commercial Development Authority

Canberra Municipal Accounts Canberra Public Cemeteries Trustees Canberra Showground Trust Canberra Theatre Trust

Canberra Theatre Trust Staff Superannuation Plan Capita! Territory Health Commission Legal Aid Commission (ACT) Milk Authority of the Australian Capital Territory

National Capital Development Commission Australian Centre for International Agriculture Re­ search (a) Australian Dairy Corporation Australian Dried Fruits Corporation Australian Egg Board

Australian Film Commission Australian Film and Television School, The Australian Heritage Commission Australian High Commission Britain-Locally Engaged

Staff— Pension Scheme Australian Honey Board Australian Honey Board Research Fund Australian Industry Development Corporation

Aboriginal Development Commission Act 1980 By arrangement Albury-Wodonga Development Act 1973 Anglo-Australian Telescope Agreement Act 1970

By arrangement By arrangement Australia Council Act 1975 Australia-Japan Foundation Act 1976 Australian Apple and Pear Corporation Act 1973 By arrangement Atomic Energy Act 1953 By arrangement

| Broadcasting and Television Act 1942

Canned Fruits Marketing Act 1979 Canned Fruit (Sales Promotion) Act 1959

Careless Use o f Fire Ordinance 1936 Australian Capital Territory Electricity Supply Act 1962 Section41o, Audit Act 1901

Section 4Id, Audit Act 1901 Audit Act 1901 Section 4Id, Audit Act 1901

By arrangement

Canberra College o f Advanced Education Act 1967 By arrangement Section 4lD, Audit Act 1901 Cemeteries Ordinance 1933

By arrangement By arrangement By arrangement Health Commission Ordinance 1975

Legal Aid Ordinance 1977 By arrangement National Capital Development Commission Act 1957 Australian Centre for International Agricultural Re­

search Act 1982 Dairy Produce Act 1924 Australian Dried Fruits Corporation Act 1978 Egg Export Control Act 1947

Australian Film Commission Act 1975 Australian Film and Television School Act 1973 Australian Heritage Commission Act 1975 By arrangement

Honey Industry Act .1962 By arrangement By arrangement

107

Activity Basis o f audit

Australian Institute of Aboriginal Studies Australian Institute of Criminology Australian Institute of Marine Science Australian Institute of Multicultural Affairs Australian Institute of Sport Australian Maritime College Australian Meat and Livestock Corporation Australian Military Forces Relief Trust Fund Australian National Airlines Commission 4

Subsidiary Companies etc— Bingil Bay Cruises Pty Ltd Great Barrier Reef Hotel Pty Ltd Great Keppel Holdings Pty Ltd Great Keppel Island Pty Ltd

Hideaway Island Pty Ltd Keppel Investments Pty Ltd Lclone Pty Ltd (b) Parkview (Keppel!) Pty Ltd The Charybdis Trust Wanderer’s Paradise Pty Ltd Australian National Gallery Australian National Parks and Wildlife Fund Australian National Railways Commission Australian National University, The Australian Overseas Projects Corporation Australian Postal Commission Australian Shipping Commission

Subsidiary Company— ANL Cargo Operations Pty Ltd Australian Telecommunications Commission Australian Tobacco Board Australian Tourist Commission Australian Trade Union Training Authority Australian War Memorial

Australian Wheat Board Australian Wine and Brandy Corporation Australian Wine Research Institute, The Australian Wool Corporation Australian Wool Testing Authority

Banks and associated activities— Commonwealth Banking Corporation Commonwealth Trading Bank of Australia Commonwealth Savings Bank of Australia Commonwealth Development Bank of Australia CBFC Limited

Subsidiary Company— CBFC Leasing Pty Limited CTB Leasing Pty Limited C.T.B. Nominees Limited Travelstrength Limited

Subsidiary Company— Travelstrength Services Pty Ltd Corporation Properties Limited Reserve Bank of Australia Investigations under Banking Act Bankruptcy Administration Christmas Island Civil Aviation Agency—Papua New Guinea Cocos (Keeling) Islands Postal and Philatelic Services Commissioner for Employees’ Compensation

Commonwealth Accommodation and Catering Services Limited Commonwealth Government Inscribed Stock Registries Commonwealth Hostels Provident Fund Commonwealth Parliament—Refreshment Rooms Commonwealth Scientific and Industrial Research

Organization Science and Industry Endowment Fund

Australian Institute o f Aboriginal Studies Act 1964 Criminology Research Act 1971 Australian Institute o f Marine Science Act 1972 Australian Institute o f Multicultural Affairs Act 1979 By arrangement Maritime College Act 1978

Australian Meat and Livestock Corporation Act 1977 Services Trust Funds Act 1947 Australian National Airlines Act 1945

- By arrangement

J

National Gallery Act 1975 National Parks and Wildlife Conservation Act 1975 Australian National Railways Act 1917 Australian National University Act 1946 Australian Overseas Corporation Act 1978 Postal Services Act 1975 Australian Shipping Commission Act 1956

By arrangement Telecommunications Act 1975 Tobacco Marketing Act 1965 Australian Tourist Commission Act 1967

Trade Union Training Authority Act 1975 Australian War Memorial Act 1980 Wheat Marketing Act 1979 Australian Wine and Brandy Corporation Act 1980

By arrangement Wool Industry Act 1972

Commonwealth Banks Act 1959

» By arrangement

Reserve Bank Act 1959 Banking Act 1959 Bankruptcy Act 1966 Christmas Island Act 1958 By arrangement Cocos (Keeling) Islands Act 1955 Compensation (Commonwealth Government Em­

ployees) Act 1971 By arrangement

Commonwealth Inscribed Stock Act 1911 By arrangement By arrangement Science and Industry Research Act 1949

Science and Industry Endowment Act 1926

108

Activity Basis o f audit

Commonwealth Serum Laboratories Commission Controller of Enemy Property

Criminology Research Council Curriculum Development Centre Custodian of Expropriated Property Darwin Cyclone Tracy Relief Fund Trust

Defence Force (Papua New Guinea) Retirement Benefits Board Defence Service Homes Corporation Defence Support, Department of

Aircraft Engineering Workshop, Pooraka Ammunition Factory, Footscray Australian Government Clothing Factory, Coburg Explosives Factory, Albion

Explosives Factory, Maribyrnong Explosives Factory, Mulwala Government Aircraft Factories, Fishermens Bend and Avalon

Munitions Filling Factory, St Marys Ordnance Factory, Bendigo Ordnance Factory, Maribyrnong Small Arms Factory, Lithgow Director of National Parks and Wildlife Export Finance and Insurance Corporation

Export Sugar Committee Fund Fruit Industry Sugar Concession Committee Great Barrier Reef Marine Park Authority Health Insurance Commission

Subsidiary Company— Medibank Properties Pty Limited High Court of Australia Housing Loans Insurance Corporation Joint Coal Board

Subsidiary Company— Coal Mines Insurance Pty Ltd Law Reform Commission Medical Research Endowment Fund

Museum of Australia National Aeronautics and Space Administration of the United States of America-Projects in Australia

National Companies and Securities Commission

Commonwealth Serum Laboratories Act 1961 National Security (Enemy Property) Regulations under Trading with the Enemy Act 1939 Criminology Research Act 1971 Curriculum Development Centre Act 1975 Regulations under Treaty o f Peace (Germany) Act 1919 By arrangement Defence Force (Papua New Guinea) Retirement

Benefits Act 1973 Defence Service Homes Act 1918

Section 41D, Audit Act 1901

National Parks and Wildlife Conservation Act 1975 Export Finance and Insurance Corporation Act 1974 By arrangement Sugar Agreement Act 1979

Great Barrier R eef Marine Park Act 1975 Health Insurance Commission Act 1973

By arrangement High Court o f Australia Act 1979 Housing Loans Insurance Act 1965

Coal Industry Act 1946

Law Reform Commission Act 1973 Medical Research Endowment Act 1937 Museum o f Australia Act 1980 By arrangement

National Companies and Securities Commission Act 1979

National Debt Commission National Library of Australia National Standards Commission Norfolk Island Norfolk Island Provident Account Northern Territory Transport Trust Account Omega Navigation Facility Trust Fund Overseas Telecommunications Commission (Australia)

Papua New Guinea Superannuation Fund Financial Statements Parliament House Construction Authority Phosphate Mining Company of Christmas Island Lim­

ited (a) (b) Pipeline Authority Qantas Airways Limited Subsidiary Companies—

Q.H. Tours Limited Qantair Limited Wentworth Hotel Limited Qantas Airways Limited (U.K.) Retirement

Benefits Scheme The Provident Fund of the Qantas Airways Lim­ ited Staff Superannuation Plan Queensland Meat Inspection Agreement

River Murray Commission

By arrangement National Library Act 1960 Weights and Measures (National Standards) Act 1960 Norfolk Island Act 1979. Provident Account Ordinance 1958 Section 41D, Audit Act 1901

By arrangement Overseas Telecommunications Act 1946 By arrangement

Parliament House Construction Authority Act 1979 By arrangement

Pipeline Authority Act 1973

► By arrangement

Queensland Meal Inspection Agreement Act 1932 River Murray Waters Act 1915

109

Activity Basis o f audit

Royal Australian Air Force Veterans’ Residences Trust Fund Royal Australian Air Force Welfare Trust Fund Royal Australian Navy Relief Trust Fund Services Canteens Trust Fund Snowy Mountains Engineering Corporation Snowy Mountains Hydro-electric Authority South Pacific Trade Commission Special Broadcasting Service Stevedoring Industry Finance Committee Superannuation Fund Investment Trust

Walter Oswald Watt Memorial Fund

Royal Australian Air Force Veterans’ Residences Act 1953

j Services Trust Funds Act 1947 Snowy Mountains Engineering Corporation Act 1970 Snowy Mountains Hydro-electric Power Act 1949 By arrangement Broadcasting and Television Act 1942 Stevedoring Industry Finance Committee Act 1977 Superannuation Act 1976

By arrangement

(a) Activity commenced since 30 June 1981 (b) Auditor-General appointed auditor since 30 June 1981

110

APPENDIX B COM PANIES IN WHICH THE COM MONW EALTH HAS A CONTROLLING INTEREST

Set out below is a schedule of companies in which the Commonwealth or its statutory authorities has a controlling interest within the meaning of section 6 of the several Companies Acts and Ordinances.

The schedule has been compiled from records held in my Office. In respect, how­ ever, of those companies for which I have not been appointed auditor, I have no means of ensuring that all are listed.

Company

(Aboriginal Development Commission) * Arnhem Transport Services Pty Limited (In liquidation) . * Baruwei Enterprises Pty L i m i t e d ........................................

* Smiths General Contracting Pty Limited .........................

Aboriginal Hostels Limited ..................................................

Applied Ecology Pty L i m i t e d ..................................................

* AUSSAT Pty L t d .................................................................

Australian Bicentennial Authority ........................................

(Australia Council) * Aboriginal Arts and Crafts Pty L i m i t e d ..............................

Australian Art Exhibitions Corporation Limited . . . . (Australian Dairy Corporation) * Asia Dairy Industries (Hong Kong) Limited ....................

* P.T. Indomilk .....................................................................

(Australian Industry Development Corporation) * A.I.D.C. Securities L im ite d .................................................

* AIDC Leasing Pty Ltd ................................................. .

* InterScan Australia Pty L t d .................................................

* InterScan Holdings Pty L t d .................................................

* Southern Alloys Venture Pty Limited ..............................

Australian Institute of Sport .................................................

(Australian National Airlines Commission) Bingil Bay Cruises Pty Ltd ..................................................

Great Barrier Reef Hotel Pty L t d ........................................

Great Keppel Holdings Pty Ltd ........................................

Great Keppel Island Pty Ltd .............................................

Hideaway Island Pty Ltd ..................................................

Keppel Investments Pty Ltd .............................................

Lclone Pty L t d .....................................................................

Parkview (Keppell) Pty Ltd .............................................

Wanderer's Paradise Pty Ltd .............................................

(Australian National University) * Anutech Pty L im i te d ...........................................................

(Australian Shipping Commission) ANL Cargo Operations Pty Ltd .......................................

* Australian National Line (U.K.) Limited .........................

* ANL Maritime Services L i m i t e d .......................................

(Australian Wine and Brandy Corporation) * Australian Fine Wines Limited .......................................

Commonwealth Accommodation and Catering Services Limited (Commonwealth Banking Corporation Group) CBFC L i m i t e d .....................................................................

CBFC Leasing Pty L im i te d .................................................

CTB Leasing Pty Limited ...................

C.T.B. Nominees Limited ...................

* National Bank of Solomon Islands Limited Travelstrength L i m i t e d .........................

Travelstrength Services Pty Ltd . . . (Health Insurance Commission) Medibank Properties Pty Limited . . .

Corporation Properties Limited CTB Australia Limited . .

Percentage owned

100 51 85 100 100

100 100

100 100

100 50

100 100 100 100 100 100

100 100 100 100 100 100 100 100

89

100

100 100 100

100 100

100 100 100 100

100 100 51 100 100

100

111

APPENDIX C STATUS OF FINANCIAL STATEMENTS

Financial Statements for Organisations Which Balanced Prior to 30 June 1982 Not Formally Submitted in Final Form at the Date of Preparation of this Report (30 June 1982)

Activity Period

Army and Air Force Canteen S e r v ic e ....................

Australian Capital Territory Schools Authority . Australian Capital Territory Transport Trust Account

Australian National University .........................

Canberra College of Advanced Education . . . Commonwealth Hostels Provident Fund . . . Curriculum Development C e n t r e .........................

City of Canberra Municipal Accounts . . . .

' Cocos (Keeling) Islands Postal and Philatelic Services Department of Defence Support— Aircraft Engineering Workshop, Pooraka . . Ammunition Factory, Footscray .........................

Australian Government Clothing Factory, Coburg Explosives Factory, Albion ...................................

Explosives Factory, M a rib y rn o n g ........................

Explosives Factory, Mulwala .........................

Government Aircraft F a c to r i e s .........................

Munitions Filling Factory, St Mary’s . Ordnance Factory, Bendigo . . . .

Ordnance Factory, Maribyrnong . . Small Arms Factory, Lithgow . . . Overseas Telecommunications Commission Qantas Airways L i m i t e d .........................

Trustees of Canberra Public Cemeteries .

28 July 1981 to 25 Jan. 1982 1 July 1980 to 30 June 1981 19 June 1978 tol7Ju n el9 7 9 18 June 1979 to 15 June 1980

16 June 1980 to 30 June 1981 1 Jan. 1981 to 31 Dec. 1981 1 Jan. 1981 to 31 Dec. 1981 1 Jan. 1981 to 31 Dec. 1981 1 July 1980 to 30June 1981 1 July 1980 to 30 June 1981 1 July 1980 to 30 June 1981

1 June 1981 to 30 May 1982 1 June 1981 to 30 May 1982 1 June 1981 to 30 May 1982 1 June 1981 to 30 May 1982

1 June 1981 to 30 May 1982 1 June 1981 to 30 May 1982 26 May 1980 to 31 May 1981 1 June 1981 to 30 May 1982

1 June 1981 to 30 May 1982 1 June 1981 to 30 May 1982 1 June 1981 to 30 May 1982 1 June 1981 to 30 May 1982

1 April 1981 to 31 March 1982 1 April 1981 to 3! March 1982 1 July 1980 to 30 June 1981

113

Financial Statements Formally Submitted and Under Audit Examination at the Date of Preparation of this Report (30 June 1982)

Date Submitted in

Activity Period Final Form (a)

Australian Capital Territory Forestry Trust Account Australian Capital Territory Rental Housing . . .

Australian Capital Territory Transport Trust Account 4

Australian High Commission Britain Locally Engaged Staff Pension Scheme . . . .

Australian Maritime C o l l e g e ...................................

Australian War M e m o r ia l.......................................

Australian Wheat Board ........................................

Canberra Commercial Development Authority . .

City of Canberra Municipal A c c o u n t s ....................

Canberra Showground T r u s t ...................................

Cocos (Keeling) Islands Postal and Philatelic Services Department of Defence Support Australian Government Clothing Factory, Coburg Explosives Factory, M u l w a l a ..............................

Defence Force (Papua New Guinea) Retirement Benefits Board ( b) High Court of A u s tr a lia ............................................

Legislative Drafting I n s t i t u t e ...................................

Medical Research Endowment Fund ....................

Q.H. Tours L i m i t e d .................................................

South Pacific Trade C o m m issio n ..............................

Superannuation Fund Investment Trust . . . \

The Provident Fund of Qantas Airways Limited Staff Superannuation Plan Trustees of Canberra Public Cemeteries . . . .

1 July 1980 to 30 June 1981 4 March 1982 1 July 1980to30June 1981 5 Nov. 1981* 20 June 1977 to 18 June 1978 10 March 1980*

1 July 1980 to 30 June 1981 27 May 1982 1 Jan. 1981 to 31 Dec. 1981 16 June 1982 1 July 1980 to 30Junel981 23 June 1982 1 Dec 1980 to 30 Nov. 1981 25 June 1982 1 July 1980 to 30 June 1981 5 J a n .1982* 1 July 1979 to 30 June 1980 6 April 1982 1 July 1980 to 30 June 1981 16 April 1982* 3 Sept. 1979 to 30 June 1980 17 June 1982

26 May 1980 to 31 May 1981 21 Dec. 1981 26 May 1980 to 31 May 1981 31 Oct. 1981 1 July 1974 to 5 Mar. 1975 2 Oct. 1978

1 July 1980 to 30June 1981 31 Dec. 1981 1 July 1981 to 30 Dec. 1981 30 June 1982* 1 July 1980 to 31 Dec. 1980 29 April 1982 1 Jan. 1981 to 31 Dec. 1981 1 June 1982 1 April 1981 to 31 March 1982 30 June 1982 1 Jan. 1981 to 31 Dec. 1981 31 May 1982 1 July 1980 to 30June 1981 8 April 1982 1 April 1981 to 31 March 1982 21 June 1982

1 July 1979 to 30 June 1980 18 March 1982*

* returned for correction (a) Including all necessary amendments.

( b) Responsiblity for Papua New Guinea Defence matters was transferred on 5 March 1975. Consideration of the financial statement for the period ending 5 March 1975 has been deferred pending legislative action to ratify the abolition of the Board with effect from 6 March 1975.

114

Financial Statements Reported upon since the Date of Preparation of the March 1982 Report (23 February 1982)

Activity

Aboriginal Development C o m m iss io n .....................................................................

Australian Capital Territory Forestry T r u s t ...........................................................

Australian Apple and Pear Corporation ................................................................

Australian Canned Fruits Sales Promotion Committee ........................................

Australian Canned Fruits C o rp o ra tio n .....................................................................

Australian Capital Territory Schools A u t h o r i ty ......................................................

Australian Dairy Corporation ...............................................................................

Australian Military Forces Relief Trust Fund ......................................................

Australian Tobacco B o a r d .........................................................................................

Christmas Island—Net cost of a d m in isterin g ...........................................................

Department of Defence Support — Explosives Factory, A l b i o n ...............................................................................

Explosives Factory, Maryibrynong ................................................................

Munitions Filling Factory, St M a r y s ................................................................

Small Arms Factory, L i t h g o w ..........................................................................

National Aeronautics and Space Administration of the United States of America— Projects in A u s tr a l ia ..............................................................................................

Qantair Limited .......................................................................................................

Royal Australian Airforce Welfare Trust F u n d ......................................................

Royal Australian Navy Relief Trust Fund ...........................................................

Services Canteens Trust Fund ...............................................................................

Wentworth Hotel L im ite d .........................................................................................

Period

1 July 1980 to 30Junel981 1 July 1979 to 30 June 1980 1 Jan. 1981 to 31 Dec. 1981 U an. 1981 to 31 Dec. 1981 1 Jan. 1981 to 31 Dec. 1981 1 July 1979 to 30 June 1980 1 July 1980 to 30 June 1981 1 Jan. 1981 to 31 Dec. 1981 1 Jan. 1981 to 31 Dec. 1981 1 July 1980 to 30 June 1981

26 May 1980 to 31 May 1981 26 May 1980 to 31 May 1981 26 May 1980 to 31 May 1981 26 May 1980 to 31 May 1981

1 Oct. 1980 to 30 Sept. 1981 1 April 1981 to 31 March 1981 1 Jan. 1981 to 31 Dec. 1981 1 Jan. 1981 to 31 Dec. 1981 1 Jan. 1981 to 31 Dec. 1981 1 April 1981 to 31 March 1982

Date Submitted in Final Form (a)

Date of Audit Report

26 Feb. 1982 11 May 1982

8 Sept. 1981 8 April 1982

25 Feb. 1982 16 April 1982

11 March 1981 20 April 1982

26 March 1982 7 May 1982

3 May 1982 23 June 1982

30 Oct. 1981 11 March 1982

12 F e b .1982 3 March 1982

22 March 1982 7 April 1982

28 Aug. 1981 20 April 1982

23 Feb. 1982 24 May 1982

5 March 1982 24 May 1982

3 March 1982 23 June 1982

18 March 1982 23 June 1982

3 March 1982 3 May 1982

4 June 1982 25 June 1982

24 Feb. 1982 3 March 1982

18 March 1982 30 March 1982

12 March 1982 2 April 1982

4 June 1982 25 June 1982

(a) Including all necessary amendments.