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Auditor-General—Audit report No. 7 of 2020-21—Assurance review—Advances to the Finance Minister for the period 1 August 2020 to 28 August 2020: Department of Finance


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The Auditor-General Auditor-General Report No. 7 2020-21 Assurance Review

Advances to the Finance Minister for the Period 1 August 2020 to 28 August 2020

Department of Finance

Australian National Audit Office

Auditor-General Report No. 7 2020-21 Advances to the Finance Minister for the Period 1 August 2020 to 28 August 2020

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© Commonwealth of Australia 2020

ISSN 1036-7632 (Print) ISSN 2203-0352 (Online) ISBN 978-1-76033-581-6 (Print) ISBN 978-1-76033-582-3 (Online)

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Advances to the Finance Minister for the Period 1 August 2020 to 28 August 2020

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C

anberra ACT

14 September 2020

Dear Mr President Dear Mr Speaker

T

he Australian National Audit Office has undertaken an independent assurance review in the Department of Finance titled Advances to the Finance Minister for the Period 1 August 2020 to 28 August 2020. The review was conducted in accordance with the authority contained in the Auditor-General Act 1997. Pursuant to Senate Standing Order 166 relating to the presentation of documents when the Senate is not sitting, I present the report of this review to the Parliament.

An assurance review may be initiated on the basis of information obtained in the course of performing an Auditor-General function or in response to requests from stakeholders, including parliamentarians, parliamentary committees or a resolution agreed to by the Senate.

Following its presentation and receipt, the report will be placed on the Australian National Audit Office’s website — http://www.anao.gov.au.

Yours sincerely

G

rant Hehir Auditor-General

The Honourable the President of the Senate The Honourable the Speaker of the House of Representatives Parliament House Canberra ACT

A uditor-General Report No. 7 2020-21 Advances to the Finance Minister for the Period 1 August 2020 to 28 August 2020

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A UDITING FOR AUSTRALIA

The Auditor-General is head of the Australian National Audit Office (ANAO). The ANAO assists the Auditor-General to carry out his duties under the Auditor-General Act 1997 to undertake performance audits, financial statement audits and assurance reviews of Commonwealth public sector bodies and to provide independent reports and advice for the Parliament, the Australian Government and the community. The aim is to improve Commonwealth public sector administration and accountability.

For further information contact: Australian National Audit Office GPO Box 707 Canberra ACT 2601

P

hone: (02) 6203 7300 Email: ag1@anao.gov.au

Auditor-General reports and information about the ANAO are available on our website: http://www.anao.gov.au

Audit team Garry Sutherland Xiaoyan Lu Kathleen Fong

Bola Oyetunji

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Contents Assurance review — section 19A of the Auditor-General Act 1997 ............................................................... 7

Conclusion ................................................................................................................................................. 7

Basis for conclusion ................................................................................................................................... 8

Responsibilities of the Secretary of the Department of Finance ............................................................... 8

Independence and quality control ............................................................................................................. 9

Responsibilities of the Auditor-General ..................................................................................................... 9

Inherent limitations .................................................................................................................................... 9

Appendix A .............................................................................................................................................. 11

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Assurance review — section 19A of the Auditor-General Act 1997 INDEPENDENT ASSURANCE REPORT

ADVANCES TO THE FINANCE MINISTER 1 AUGUST 2020 TO 28 AUGUST 2020

Conclusion Based on the procedures I have performed and the evidence I have obtained, nothing has come to my attention that causes me to believe that, in all material respects:

(a) the Advances to the Finance Minister (AFM) 2020-21 Determination No. 2 (as registered on legislation.gov.au)1 and the Finance Minister’s AFM media release2 are not presented completely and accurately for the period 1 August 2020 to 28 August 2020 based on the criteria outlined in this report; and (b) the internal controls related to the Department of Finance’s administration of AFM were

not suitably designed, implemented and operating effectively to achieve appropriate approval, recording and reporting of the AFM during the period.

My limited assurance conclusion has been formed on the basis of the matters outlined in this report.

I have undertaken a limited assurance review of the Department of Finance’s reporting and administration of the AFM, in order to express a conclusion on the Determination made from 1 August 2020 to 28 August 2020, based on the following criteria:

• Have accounts and records been appropriately obtained and maintained to support the complete and accurate reporting of AFM, taking into consideration whether:

− the Department of Finance has a central register of all applications and approvals;

− all decisions for the AFM have been documented appropriately, including identifying the appropriation act under which the advance is made;

− all accounts and records for the application for the AFM has been adequately maintained;

− the Department of Finance has effective processes in place to obtain assurance from entities over the completeness and accuracy of the information provided to the Department of Finance;

− the underlying financial information in relation to the AFM supports the description of the purpose for the amount advanced under the AFM as described

1 Advance to the Finance Minister Determination (No. 2 of 2020-2021), available from: https://www.legislation.gov.au/Details/F2020L01057. 2 Mathias Cormann (Minister for Finance), ‘Advances to the Finance Minister in the week ending Friday 28 August 2020’, media release, Parliament House, Canberra, 28 August 2020, available from

https://www.financeminister.gov.au/media-release/2020/08/28/advances-finance-minister-week-ending-friday-28-august-2020 [accessed 31 August 2020].

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in the Determination (as registered on legislation.gov.au) and the Finance Minister's AFM media release; and

− the Finance Minister’s AFM media release presents complete and accurate information about the Determination made in the relevant week.

• Are the controls related to the Department of Finance’s administration of AFM suitably designed, implemented and operating effectively to achieve appropriate approval, recording and reporting of AFM during the period, taking into consideration whether:

− the Department of Finance has guidance or a framework that communicates clearly to entities as to the requirements to apply for the AFM, and whether this was complete, accurate, and compliant with the criteria set out in the Annual Appropriation Acts;

− the Department of Finance has an appropriate risk framework for the AFM;

− existing controls are capable of addressing the identified risks effectively;

− the Department of Finance has implemented and operated effective controls over the approval process to ensure applications for the AFM are only approved when applying entities provide sufficient information to support compliance with the criteria set out in the Annual Appropriation Acts; and

− the AFM approval process complied with the criteria set out in the Annual Appropriation Acts.

Basis for conclusion I have conducted the review in accordance with the ANAO Auditing Standards, which include the relevant Standards on Assurance Engagements ASAE 3000 Assurance Engagements Other than Audits or Reviews of Historical Financial Information (ASAE 3000) and ASAE 3150 Assurance Engagements on Controls (ASAE 3150).

I believe that the evidence I have obtained is sufficient and appropriate to provide a basis for my conclusion.

Responsibilities of the Secretary of the Department of Finance The Secretary of the Department of Finance is responsible for the administration of the AFM, the preparation of the above-mentioned Determination and maintenance of supporting accounts and records relevant to the reporting of the AFM in accordance with Supply Acts Nos. 1 and 2 2020-2021.3 The Secretary is also responsible for such internal control procedures as the Secretary determines necessary to enable the administration of the AFM and preparation of the above-mentioned Determination that is free from material misstatement, whether due to fraud or error.

3 Supply Act (No. 1) 2020-2021, available from https://www.legislation.gov.au/Details/C2020A00030 Supply Act (No. 2) 2020-2021, available from https://www.legislation.gov.au/Details/C2020A00031

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Independence and quality control I have complied with the independence and other relevant ethical requirements relating to assurance engagements, and applied Auditing Standard ASQC 1 Quality Control for Firms that Perform Audits and Reviews of Financial Reports and Other Financial Information, Other Assurance Engagements and Related Services Engagements in undertaking this assurance review.

Responsibilities of the Auditor-General My responsibility is to express a limited assurance conclusion on whether the Finance Minister’s and the Department of Finance’s reporting of the AFM is complete and accurate, in all material respects, and internal controls related to the AFM were designed, implemented and operating effectively for the period from 1 August 2020 to 28 August 2020, as evaluated against the criteria. The ANAO Auditing Standards require that I plan and perform my procedures to obtain limited assurance about whether anything has come to my attention that the Department of Finance’s reporting of the AFM is not complete and accurate, in all material respects, and internal controls related to the AFM were not designed, implemented and operating effectively for the period from 1 August 2020 to 28 August 2020.

An assurance engagement to report on the design and operating effectiveness of controls involves performing procedures to obtain evidence about the suitability of the design of controls to achieve the control objectives and the operating effectiveness of controls throughout the period.

The procedures performed in a limited assurance review vary in nature and timing from, and are less in extent than for, a reasonable assurance engagement and consequently the level of assurance obtained in a limited assurance review is substantially lower than the assurance that would have been obtained had a reasonable assurance engagement been performed. Accordingly, I do not express a reasonable assurance opinion on the reporting of the AFM or on the internal controls.

I have conducted my limited assurance review by making such enquiries and performing such procedures I considered reasonable in the circumstances, including:

• making enquiries of management and others within the entity, as appropriate;

• examining the internal control design specifications and documentation;

• examining supporting documentation for the determination; and

• evaluating the evidence obtained.

The procedures selected depend on my judgement, including the assessment of the risks that the reporting of the AFM is not complete and accurate or the controls are not suitably designed, implemented or operating effectively.

Inherent limitations Because of the inherent limitations of an assurance engagement, together with the internal control structure it is possible that, even if the controls are suitably designed and operating effectively, the control objectives may not be achieved so that fraud, error, or non-compliance with laws and regulations may occur and not be detected. Further, the internal control structure,

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within which the controls that I have assured are designed to operate, has not been assured and no opinion is expressed as to its design or operating effectiveness.

A limited assurance engagement throughout the specified period on operating effectiveness of controls is not designed to detect all instances of controls operating ineffectively as it is not performed continuously throughout the period and the tests performed are on a sample basis. A

limited assurance engagement throughout the specified period does not provide assurance on whether complete and accurate reporting of the AFM or the outcome of the evaluation of controls will continue in the future.

Australian National Audit Office

G

rant Hehir Auditor-General Canberra 4 September 2020

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Appendix A

What this report is about

1. This report is the fifth monthly report, focusing on the AFM Determination issued of $230.08 million for the period from 1 August 2020 to 28 August 2020 out of the available $39.9085 billion for the financial year 2020-21. Figure 1 provides a summary of the AFM carried forward to 2020-21, including the appropriations that expired at 30 June 2020, while Figure 2 provides a summary of entities that received AFM Determinations during 2019-20 and 2020-21 (to 28 August 2020).

2. The objective of these reviews is to provide Parliament with timely assurance on the AFM made under the Government’s stimulus package response to COVID-19 of $42.975 billion. The first three monthly limited assurance reviews of the AFM4 relating to the 2019-20 financial year were tabled in Parliament for the seven Determinations totalling $1.974 billion issued during that period. The fourth monthly limited assurance review of the AFM5 relates to the 2020-21 financial year and was tabled in Parliament on 13 August 2020.

4 Auditor-General Report No. 36 of 2019-20, available from https://www.anao.gov.au/work/assurance-review/advances-to-the-finance-minister-for-the-period-1-july-2019-to-24-april-2020 Auditor-General Report No. 40 of 2019-20, available from https://www.anao.gov.au/work/assurance-review/advances-to-the-finance-minister-the-period-25-april-2020-to-29-may-2020 Auditor-General Report No. 1 of 2020-21, available from https://www.anao.gov.au/work/assurance-review/advances-to-the-finance-minister-the-period-30-may-2020-to-26-june-2020

5 Auditor-General Report No. 3 of 2020-21, available from https://www.anao.gov.au/work/assurance-review/advances-to-the-finance-minister-the-period-27-june-2020-to-31-july-2020

Figure 1: AFM summary 2019-20 and 2020-21

Source: ANAO analysis.

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Figure 2: Summary analysis of entities receiving AFMs (2019-20 and 2020-21)

Source: ANAO analysis.

3. This report should be read in conjunction with the limited assurance reports tabled in 2019-20 and 2020-21.6

Background

4. The AFM is a provision in the annual Appropriation Acts which enables the Minister for Finance (Finance Minister) to provide additional urgently needed appropriation to entities for expenditure in the current year. The Finance Minister may only agree to issue an AFM if satisfied that there is an urgent need for expenditure that is either not provided for or has been insufficiently provided for in the existing appropriations of the entity. The Finance Minister provides the additional appropriation by means of a Determination. Before issuing a determination to increase an entity's appropriation item, the Finance Minister must be satisfied that the legislative criteria set out in the annual Appropriation Acts are met.

5. Entities may have urgent need for expenditure because forecasts of future expenditure may be based on assumptions that prove to be wrong, assessments of future economic conditions that do not eventuate or circumstances that are unanticipated. It is therefore an established practice to build into estimates of future expenditure some flexibility to account for contingencies. The AFM is a long-standing feature of the Appropriation Bills dating from 1979 when the AFM replaced the Advance to the Treasurer following the establishment in 1976 of the office of the Finance Minister. Typically, the Advance is established in the first Appropriation Acts each year and then replenished whenever supplementary Appropriation Acts are passed.

6 Refer to footnotes 4 and 5.

$1,880

$94

$250 $230.08

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

$2,000

Department of Health Department of Industry, Science, Energy and Resources

Department of Infrastructure, Transport, Regional Development and Communications

Australian Trade & Investment Commission

2019-20 2020-21

Million

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Accountability for Advances to the Finance Minister

6. Entities are required to report AFM spending fortnightly to the Department of Finance. Entities also need to advise how they intend to manage any underspend. To ensure transparency, AFM determinations are:

• registered on the Federal Register of Legislation (FRL);

• tabled in Parliament at the next available opportunity; and

• listed on the Department of Finance’s website with a link provided to it on the FRL.

7. At the end of the financial year, the Department of Finance prepares an AFM annual report, which is subject to review by the Australian National Audit Office, detailing all Determinations that have been issued in that financial year. The report is tabled in the Parliament and is made available on the Department of Finance’s website.

Determinations issued in 2020-21

8. Table 1 below contains details of the Determinations issued during the period 27 June 2020 to 28 August 2020.

Table 1: Determinations issued in the 2020-21 financial year as at 28 August 2020

AFM Determination No.

Dates Source of AFM Entity Purposes Advance

provided ($’000)

1 3 July 2020 Supply Act No. 2

2020-2021

Department of Infrastructure, Transport, Regional Development and Communications

To fund the Local Roads and Community Infrastructure Program and provide funding to local governments for the delivery of road resilience and community infrastructure projects.

250,000

2 24 August 2020 Supply Act No. 1

2020-2021

Australian Trade and Investment Commission To fund Stage Two of the International Freight Assistance Mechanism and extend the program

to 31 December 2020. The International Freight Assistance Mechanism supports exporters of premium and perishable agricultural produce by underwriting domestic and international airfreight connectivity.

230,080

Total 480,080

Source: Advance to the Finance Minister Determination (No. 1 of 2020-2021), available from https://www.legislation.gov.au/Details/F2020L00875 Advance to the Finance Minister Determination (No. 2 of 2020-2021), available from: https://www.legislation.gov.au/Details/F2020L01057

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Review criteria and findings

9. To form a conclusion against the review objective, the ANAO adopted the following high level criteria:

• Have accounts and records been appropriately obtained and maintained to support the complete and accurate reporting of AFM?

• Are the controls related to the Department of Finance’s administration of Advances to the Finance Minister suitably designed, implemented and operating effectively to achieve appropriate approval, recording and reporting of AFM?

Accounts and records

10. The Department of Finance has a central register of all applications and approvals for each Determination. The register maintains accounts and records which includes documentation of all decisions made for a Determination. Nothing has come to my attention that causes me to believe that the Department of Finance does not have processes in place to obtain assurance over the completeness and accuracy of the information provided from entities. From evaluation of the evidence provided, nothing has come to my attention that the Finance Minister’s AFM media release does not present complete and accurate information about the Determination made in the relevant week. The Finance Minister’s second 2020-21 AFM media release was published on 28 August 2020 and referenced the second Determination.

Controls over AFM administration

11. The Department of Finance provided guidance to entities through the Estimates Memorandum 2019/34 which advises entities of the application and management requirement for a Determination to be compliant with the criteria set out in the Appropriation Acts. The Department of Finance has a risk framework for the management of the AFM process through

existing controls. Nothing has come to my attention that causes me to believe that the Department of Finance has not implemented controls over the approval process to ensure that applications for the AFM have only been approved when applying entities have provided

sufficient information to support their compliance with the criteria set out in the Appropriation Acts. From enquires made, nothing has come to my attention that the Department of Finance has not suitably designed and implemented controls relating to the AFM’s administration processes and that these controls were not operating effectively to achieve appropriate approval, recording and reporting of AFM during the period.