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Public Accounts Committee Act - Joint Committee of Public Accounts - Report - 330 - Review of Auditor-General's reports, May 1991 - September 1992, 2 March 1994


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PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

Review of Auditor-General’s Reports May 1991-September 1992

MARCH 1994

Joint Committee of Public Accounts

-

© Com monwealth of A ustralia 1994 ISBN 0 644 33277 8

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M E M B E R S H I P O F T H E

S E C T I O N A L C O M M I T T E E O N

A U D I T O R - G E N E R A L ' S R E P O R T S

Mr L J Scott, MP (Chairman)

Senator W R Parer

Senator B K Bishop

Mr E J Fitzgibbon, MP

Mr A P Griffin, MP

Mr CD Haviland, MP

Mrs J E Moylan, MP

Mr W L Taylor, MP

Mr M A J Vaile, MP

Secretary:

Inquiry staff:14

Dr J G Carter

Dr S Hnatiuk Mr P A James Miss Y Campagna

14. Other departmental staff and secondees who assisted with the inquiry were: Ms S Cardell; Ms S Casbum; Mr R Cavanagh; M r S Chopra; and Ms V Walker.

C O N T E N T S

C h a p t e r P a g e

Membership of the Committee iii

Membership of the Sectional Committee iv

Duties of the Committee v

List of Abbreviations xiii

Chairman's Foreword xv

Recommendations xvii

1. INTRODUCTION 1

A Requirement to Review 1

Audit Reports Reviewed in this Report 2

The Review Process 3

The Committee's Review 3

Review by Other Parliamentary Committees 4 The Structure of the Report 4

2. ARTS AND ADMINISTRATIVE SERVICES PORTFOLIO 6

Introduction 6

Significant Issues 7

Responses to Review Action 13

Works o f Art Valuation 13

Australian Estate Management 15

Services Provided to MPs and their S ta ff 16 Australian Valuation Office 18

VIII REVIEW OF AUDITOR-GENERAL'S REPORTS

Work Test for Unemployment Benefits 39 Assistance for Isolated Children 39

Auditor for ANUTECH 40

6. ENVIRONMENT, SPORT AND TERRITORIES PORTFOLIO 42

Introduction 42

Comments 43

7. FINANCE PORTFOLIO 44

Introduction 44

Significant Issues 45

Responses to Review Action 48

Late Fee or Penalty Interest to Debtors 48 The Recording o f Previously Unreported Assets 48

Provision for Debt Management Options 49

8. FOREIGN AFFAIRS AND TRADE PORTFOLIO 51

Introduction 51

Comment 52

9. HEALTH, HOUSING, LOCAL GOVERNMENT AND COMMUNITY SERVICES PORTFOLIO 53

Introduction 53

Significant Issues 54

Responses to Review Action 57

Nursing Homes Payments Scheme 57

Health Insurance Commission - Qualification o f Financial Statements 58 Health Insurance Commission - Estimates o f Expenditure 61

REVIEW OF AUDITOR-GENERALS REPORTS

13. PARLIAMENTARY DEPARTMENTS PORTFOLIO 85

Introduction 85

Comment 85

14. PRIMARY INDUSTRIES AND ENERGY PORTFOLIO 86

Introduction 86

Significant Issues 87

Responses to Review Action 90

Financial Statement Deficiencies 90

AQIS - Quarantine Division, Risk Analysis 90 AQIS - Quarantine Division, Performance Indicators 91

AQIS - Quarantine Division, Direct Billing 91 AQIS - Quarantine Division, Other Issues 92

15. PRIME MINISTER AND CABINET PORTFOLIO 94

Introduction 94

Audit Reports Reviewed by Other Parliamentary Committees 95

Significant Issues 95

Responses to Review Action 98

Review Action - Introduction 98

Review Action - Community Development Employment Projects 98

Review Action - Financial Statements o f Subsidiary Companies 100

Review Action - Grants Administration 102 Review Action - Doubtful Debts 103

General Comment on ATSIC Scrutiny 105

xii REVIEW OF AUDITOR-GENERAL'S REPORTS

20. ACCOUNTABILITY OF STATUTORY MARKETING AUTHORITIES AND GOVERNMENT BUSINESS ENTERPRISES 133

Introduction 133

Report 296 - The Auditor-General: Ally o f the People and the Parliament 133

The Australian Wool Realisation Commission and the Australian Wool Corporation 134

The National Rail Corporation Ltd 135

The Reaction of Parliament 136

APPENDICES

Appendix I Audit Reports Reviewed 137

Appendix II Submissions 143

Appendix III Witnesses at Public Hearing 152

Appendix IV Exhibits 153

REVIEW OF AUDITOR-GENERAL'S REPORTS

DTC Department of Transport and Communications

DVA Department of Veterans' Affairs

HIC Health Insurance Commission

ISC Insurance and Superannuation Commission

PBS Pharmaceutical Benefits Scheme

REVIEW OF AUDITOR-GENERAL'S REPORTS

Although this report is necessarily brief in the consideration it gives to the audit reports, the process of checking agency responses has been valuable in itself. Many agencies have been required to report to the Committee, in some cases more than

once, on their progress in implementing the Auditor-General's recommendations.

The reports of the Auditor-General make an essential contribu­ tion to parliamentary and public scrutiny of the Executive. This review has reminded agencies that the process of scrutiny continues beyond the tabling of an audit report.

On behalf of the Committee, I would like to thank the Australian National Audit Office for their assistance during this review, and for producing the audit reports in the first place.

Les Scott, MP Chairman

xviii REVIEW OF AUDITOR-GENERAL'S REPORTS

R e c o m m e n d a t i o n 5

The Department of Human Services and Health should deploy sufficient resources to ensure the backlog in the validation of nursing home returns is overcome by the beginning of the 1995-96 financial year, (paragraph 9.15)

R e c o m m e n d a t i o n 6

The Health Insurance Committee and the Department of Social Security should improve the systems of checking the eligibility of people claiming benefits under the Pharmaceutical Benefits Scheme. Improved systems should be operation by the end of calender year 1994. (paragraph 9.26)

R e c o m m e n d a t i o n 7

Comcare should allocate sufficient resources to ensure that it completes its review of all long-term incapacity cases by the end of the 1993-94 financial year, (paragraph 11.14)

R e c o m m e n d a t i o n 8

The Australian Customs Service should allocate sufficient re­ sources to ensure that:

(a) all of its manuals are revised by the end of the 1993-94 financial year; and

(b) the working group considering the future direction of Customs Service manuals report by the end of the 1993­ 94 financial year, (paragraph 12.23)

REVIEW OF AUDITOR-GENERAL'S REPORTS

R e c o m m e n d a t i o n 1 2

The Department of Finance should take a broader and more active role in improving internal audit standards in Commonwealth agencies by developing better in-house knowledge and expertise in internal audit and related activi­ ties, as part of its responsibility to improve financial manage­ ment and accountability in Commonwealth organisations,

(paragraph 19.31)

2 REVIEW OF AUDITOR-GENERAL'S REPORTS

committees. It is anticipated that, at times, this examination will show that another committee has reviewed or is reviewing the major issues identified in the audit report. At other times, the Committee may decide that further review is needed.

1.5 The Committee's aim will be to ensure that the

reports of the Auditor-General are given appropriate and timely consideration by the Parliament.

A u d i t R e p o r t s R e v i e w e d i n t h i s R e p o r t

1.6 The Committee's last major review of audit reports was in Report 320, Review o f Six Performance Audits, which was tabled in November 1992. Report 320 concluded with the Committee's consideration of Audit Report No. 24, 1990-91, Department o f Veterans' Affairs - Transport Services; Person­ nel and Pay Administration System, which had been tabled in May 1991.

1.7 This report contains the Committee's comments on

the series of audit reports tabled between May 1991 and 7 September 1992. The report also includes consideration of the six audit reports on ministerial portfolios and aggregate and departmental financial statements tabled between May 1990 and May 1991. These portfolio and financial state­ ment audits were not considered in Report 320 and had not been reviewed elsewhere by the Committee. In total 72 audit reports are considered in this report.2

1.8 Audit reports tabled after 7 September 1992 are currently being reviewed by the Committee and will be reported on separately.

2 A complete list of the audit reports reviewed in this report is at Appendix I.

4 REVIEW OF AUDITOR-GENERAL'S REPORTS

Review by Other Parliamentary Committees

1.13 As mentioned earlier, the House of Representatives

occasionally refers audit reports to one or other of its standing committees, or to certain joint committees.

1.14 Of the audit reports reviewed in this report three

were referred to the House of Representatives Standing Committee on Banking, Finance and Public Administration. These reports were:

• Audit Report No. 25, 1990-91, Australian Federal Police - Efficiency and Effectiveness o f Fraud Investi­ gations;

• Audit Report No. 15,1991-92, Department o f Defence - Procedures for Dealing with Fraud on the Commonwealth; and • Audit Report No. 40, 1991-92, Department o f Social

Security: Systems for the Detection o f Overpayments and the Investigation o f Fraud.

T h e S t r u c t u r e o f t h e R e p o r t

1.15 The Report's structure broadly reflects the structure

of the Commonwealth's ministerial portfolios3 - commencing, in Chapter 2, with a review of the audit reports in the arts and administrative services portfolio, and ending, in Chapter 18, with the audit reports of the Treasury Portfolio.4

3 The portfolio structure which this report reflects was th at current a t the end of

November 1993 - before the re-structuring announced by the Prime M inister in December 1993 and again in January 1994. Departmental responsibility for some of the m atters considered in the report has changed since the report was drafted.

4 There is no chapter relating to the Department of Tourism. Although the departm ent was created on 27 December 1991 and thus would fall within the time frame of this review, no findings concerning the departm ent were reported by the Auditor-General in audit reports tabled between December 1991 and September 1992.

A R T S A N D A D M I N I S T R A T I V E

S E R V I C E S P O R T F O L I O

I n t r o d u c t i o n

2.1 The arts and administrative services portfolio includes the Department of the Arts and Administrative Services (DAS) and 34 other bodies - 14 of which are statutory authorities.1

2.2 All agencies, including the department, fall within the program structure adopted for the portfolio, which currently consists of five programs, as follows:

• Program 1: Cultural Development; • Program 2: Government Services; • Program 3: Business Services; • Program 4: Purchasing Australia; and • Program 5: Corporate Management.1 2

2.3 In the period May 1991 to September 1992 the Auditor-General produced eight reports on aspects of the performance of portfolio agencies.

2.4 The Department of Administrative Services was the subject of all these audits, which were:

• Audit Report No. 28,1990-91, Department o f Admin­ istrative Services: Estate Management; • Audit Report No. 34,1990-91, Department o f Admin­ istrative Services: Services Provided to Members o f

Parliament and their Staff;

1 Senate Standing Committee on Finance and Public Administration, L ist o f

Commonwealth Bodies, AGPS, Canberra, June 1993, pp. 1-9.

2 For a description of the activities encompassed by these programs see: Program Performance Statem ents 1993-94, A rts and Administrative Services Portfolio, Budget Related Paper No. 7.1, AGPS, Canberra, August 1993, pp. 11-12.

8 REVIEW OF AUDITOR-GENERAL'S REPORTS

• debt management by DAS; and • potential conflict of interests in DAS' relationships with government.

2.7 Each of these issues is summarised in Table 2.1

below.

2.8 The table also contains information outlining the initial response of the relevant agencies to the Committee's request for comments, and indicates what, if any, further review action the Committee has taken.

2.9 Detailed comments on the agency responses, and the

Committee's findings in relation to each issue, are contained in the sections after the table.

Table 2.1

Arts and Administrative Services Portfolio

Significant Matters Initial Responses Committee Review Action

Works of a r t valuation:

ANAO noted that the Australian National Gallery (ANG) was not required to bring to account certain categories of works of a rt.3

Australian E state Management (AEM):

ANG's submission drew attention to the absence of a formal policy for the valuation of collections in Commonwealth collecting institutions.5

Information was sought from DAS about the steps, if any, that have been taken to establish such a policy.

ANAO recommended that:

. AEM be established as a legal entity to enable it to enter legally binding agreements with its public sector tenants;

DAS advised th at as at November 1991, recommendations relating to AEM were under consideration.6

AEM was requested to provide updated information on these points.

. AEM develop a strategy and funding for investing in property, including fixing required rate of return on investm ents and other performance indicators;

. AEM should assess the relevance of current accommodation guidelines to present needs, who should police them and whether such guidelines were needed at all.4

3 Auditor-General, Audit Report No. 20, 1990-91, Report on Ministerial Portfolios: Autum n Sittings 1991, AGPS, Canberra, 1991.

4 Auditor-General, Audit Report No. 28, 1990-91, Department o f Administrative Services: Estate Management, AGPS, Canberra, 1991.

5 Department of the Arts, Sport, th e Environment and Territories, Submission, p. S909 (Vol. 4 of Submissions).

6 Department of Administrative Services, Submission, pp. S1584, S1587, S I590, S1599 (Vol. 7 of Submissions).

Table 2.1 (continued)

Significant Matters Initial Responses Committee Review Action

S ervices provided to M P s an d th eir s ta ff by DAS:

AN AO was concerned a t delays in DAS responding to more substantial or policy- related issues.

AN AO recommended that:

. legislation recognise MPs' unique circumstances;

. there be clearer definition of entitlem ents allowed;

. public reporting of expenses be enhanced;

. more complete expenditure reports be provided to MPs.7

DAS responded to procedural and minor mechanical m atters but indicated that some outstanding ones would require a response by the Government.8

The Committee wrote to DAS and the M inister for the Arts and Administrative Services to press for early action on recommendations not yet responded to.

7 Auditor-General, Audit Report No. 34, 1990-91, Department o f Administrative Services: Services provided to Members o f Parliament and their Staff, AGPS, Canberra, 1991.

8 DAS. S iih m ia G in n nn Slfilfi-19 (Vr»l 7 of Snbmiflainnol

Table 2.1 (continued)

Significant Matters Initial Responses Committee Review Action

A u stralian V aluation O ffice (AVO):

ANAO recommended that AVO develop AVO saw no need for standards other AVO was asked for detailed reasons for rejecting the valuation standards specifically for its use.9 than those applying to the whole profession.12 ANAO's suggestion. M anaging acquisitions o f inform ation tech nology (IT):

The Committee wrote requesting information about

DAS provided advice to agencies purchasing IT valued at $ lm and m ore.13

Several recommendations were made concerning handling acquisitions from multiple suppliers.10 1 1

the advice which is provided for acquisitions valued at less than $lm .

D ebt m an agem en t by DAS: DAS's attem pts to reactivate the IDC, The Committee has decided to inquire into the

which was chaired by the D epartm ent of commercialisation of public sector operations. DAS is

An inter-departm ental committee (IDC) on Finance and the Attorney General's one of the agencies which will be the focus of the public sector constraints affecting the commercial operations of Government, formed in 1991 and covering debt

m anagem ent among other topics, had not yet reported.11

Department, were unsuccessful.14 inquiry.

9 Auditor-General, Audit Report No. 7, 1991-92, Report on Ministerial Portfolios: Budget Sittings 1991, AGPS, Canberra, 1992.

10 Auditor-General, Audit Report No. 12, 1991-92, Department o f Employment, Education and Training: Abstudy, Assistance for Isolated Children, Protective Security, AGPS, Canberra, 1992. ~ ” ’

11 Auditor-General, Audit Report No. 42, 1991-92, Department o f Administrative Services: Debt Management, AGPS, Canberra, 1992.

12 DAS, Submission, p. S1803 (Vol. 7 of Submissions).

13 DAS, Submission, p. S1803 (Vol. 7 of Submissions).

14 DAS, Submission, p. S1700 (Vol. 7 of Submissions).

Table 2.1 (continued)

Significant Matters Initial Responses Committee Review Action

Conflict of interest:

Potential conflicts of interest arise when DAS simultaneously, as a commercial entity, supplies goods while, as an adviser to

Government, advises on procurem ent - AN AO believed conflicting responsibilities should be performed by separate agencies.15

DAS had rejected the AN AO recommendation but had erected 'Chinese walls' by placing different functions in different divisions of the D epartm ent.16

This issue will be addressed in the Committee's Commercialisation Inquiry.

15 Auditor-General, Audit Report No. 43, 1991-92, Department o f Administrative Services, Conflict o f Interest: A m atter o f principle, AGPS, Canberra, 1992.

16 DAS, Submission, p. S1708 (Vol. 7 of Submissions).

14 REVIEW OF AUDITOR-GENERAL'S REPORTS

2.14 The Steering Committee was created at a Special

Premiers' Conference in July 1991 and included representa­ tives from treasuries or finance departments of each member government, and was expected to issue draft guidelines on the valuation of assets for comment by government trading

enterprises in May 1992.19

2.15 The Committee understands that the draft guidelines

were issued and, that following their receipt, the ANG sought and received a further extension from the Department of Finance for the 1992-93 Financial Year.20

2.16 The Department of Finance has indicated that the

draft guidelines are currently undergoing significant amend­ ment and that the release of a final revised set of guidelines is imminent.21

2.17 It has been almost three years since the ANAO first

reported on this matter. In this time the ANG Finance have repeatedly gone through the administratively laborious task of extending the ANG's exemption. The Committee hopes that once the final guidelines are in place, the completion of the valuation of the ANG's collection will be finalised.

Australian Estate Management

2.18 In response to the Committee's initial request for

advice, DAS provided copies of its Quarterly Returns to the Minister for Finance.22 These indicated that the concerns of the ANAO had yet to be fully addressed. A subsequent submission from DAS indicated that progress remained slow.23

19 DAS, Submission, pp. S3507-8 (Vol. 12 of Submissions).

20 Australian National Gallery, Correspondence, 14 January 1994.

21 Department of Finance, Correspondence, 1 March 1994.

22 This document referred to 17 audit reports and contained 323 pages of information. Although the document was indexed, the Committee considered th at it was not in a form which was adequate for submission to a parliamentary committee. Subsequent submissions have been satisfactory.

23 DAS, Submission, p. S2747 (Vol. 10 of Submissions).

16 REVIEW OF AUDITOR-GENERAL'S REPORTS

2.24 R e c o m m e n d a t i o n 1

Australian Estate Management and Department of Finance should expedite the revision and issuing of Accommodation Guidehnes.

Services Provided to MPs and their Staff

2.25 In a written submission to the Committee, DAS

described the steps that had been taken to provide more complete expenditure reports to Members of Parliament.27 The Department advised that the Ministerial and Parliamen­ tary Services Division - the provider of support services - was restructured during 1992 'to give a clear customer focus to all

its activities.'28 The changes involved redefining the Division's business plan,29 and upgrading its automatic systems to improve reliability and reduce the cost of capturing required data. DAS predicted that 'the Division will, in the current

financial year, be in a position where members of the Parliament can be provided with reports which better meet their needs'.30

2.26 The Committee is satisfied that this response satisfies

the concerns raised in the audit report.

2.27 DAS's response that the other aspects of this issue -

that is, the relevant legislation be amended, that there be clearer definition of entitlements and that public reporting of expenses be improved - has been less satisfactory.

27 DAS, Submission, p. S3510 (Vol. 12 of Submissions).

28 DAS, Submission, p. S3512 (Vol. 12 of Submissions).

29 A copy of the new business plan for 1993-94 is a t pp. S3515-37 (Vol 12 of Submissions).

30 DAS, Submission, p. S3513 (Vol. 12 of Submissions).

18 REVIEW OF AUDfTOR-GENERALS REPORTS

Australian Valuation Office

2.32 In Audit Report No. 17, 1991-92, the ANAO noted

that the use of specific professional valuation standards by the Australian Valuation Office (AVO) would codify the standards and practices developed within the AVO.

2.33 The ANAO therefore had recommended:

... that the AVO develop professional standards which would provide appropriate benchmarks for the performance o f valuations and against which the quality o f work per­ formed by individual valuers [could] be assessed.33

2.34 In its submission to the Committee, the AVO acknow­

ledged that property valuation is an inexact science and that valuation standards evolve. The AVO added, however, that the Institute of Valuers and Land Economists has working parties or subcommittees which develop guidance notes to assist valuers. Moreover, the AVO endeavours to maintain a consiste­ nt approach and style in its evaluations by using 'national report formats' for various categories of valuations. These report formats contain prompts to issues requiring consider­ ation by the valuer. In addition, the AVO advised that random quality checks are regularly conducted by all Regional Manag­ ers.34

2.35 The Committee considers that the AVO's commitment

to industry wide standards is appropriate and that quality control systems in place represent an adequate and sufficient response to the concerns raised in the audit report.

33 Auditor-General, Audit Report No. 17, 1991-92, p. 5.

34 Australian Valuation Office, Submission, pp. S3369-71 (Vol. 12 of Submissions).

2 0 REVIEW OF AUDITOR-GENERAL’S REPORTS

• can the regulatory responsibilities relinquished by an agency as a result of commercialisation be compen­ sated adequately by alternative accountability and control mechanisms?

• is it reasonable to expect business units to maintain high standards of integrity and ethical behaviour while at the same time having to meet the pressures of competition? • what should be the basis of the competition between

commercial units in the public sector and the private sector - should only the surplus capacity be used for commercial activities or should units stimulate demand and expand to meet it?

2.41 In view of the significance of these matters, and the

number of Commonwealth agencies operating in a commercial environment, the Committee, in early 1993, began an inquiry into the commercialisation of public sector operations. The terms of reference make specific mention of DAS, the Civil Aviation Authority and the Federal Airports Corporation as

case studies. The Committee will report separately on this inquiry.

REVIEW OF AUDITOR-GENERAL'S REPORTS

3.4 In addition, the Auditor-General reported on the

financial statements of the portfolio agencies and provided details of his on-going audits in his reports on ministerial portfolios.

A u d i t R e p o r t s R e f e r r e d t o O t h e r P a r ­

l i a m e n t a r y C o m m i t t e e s

3.5 On 7 May 1991 Audit Report No. 25, 1990-91 was

referred to the House of Representatives Standing Committee on Banking, Finance and Public Administration.3 The committee's findings were published in the report, Focusing on Fraud, Report o f the Inquiry into Fraud on the

Commonwealth, which was tabled on 25 November 1993.

S i g n i f i c a n t I s s u e s

3.6 The Committee's examination of the Auditor-

General's reports on Attorney-General's portfolio agencies revealed one issue which required further review:

• the need to rectify problems relating to the recording of assets by the Australian Federal Police.

3.7 The Committee became aware that matters raised by

the Auditor-General in earlier reports on the management and administration of the AFP had not been adequately addressed. The matters are described in Table 3.1 below.

3.8 Detailed comments on the agency responses, and the

Committee's findings in relation to each issue, are contained in the sections after the table.

3 House of Representatives, Votes and Proceedings, 1990-93, AGPS, Canberra, 1991, p. 707.

Table 3.1

Attorney-General's Department - Australian Federal Police

Significant Matters Initial Responses Suggested Committee Review Action

A dm inistration:

Problems relating to recording assets, processing salary payments and reconciling accounts, which were identified by the ANAO in 1989-904 and 1990-91,5 had not been rectified by the tim e of the audit in 1991-92,6 despite the AFP's acceptance of the ANAO's recommendations.7 8

Actions were in hand, or had been completed, to rectify the identified problems.

The Committee wrote to the AFP requesting advice on progress in implementing the ANAO's recommendations.

4 Auditor-General, Audit Report No. 32, 1989-90, Aggregate and Departmental Financial Statem ents 1988-89, AGPS, Canberra, 1990.

5 Auditor-General, Audit Report No. 22, 1990-91, Aggregate and Departmental Financial Statem ents 1990, AGPS, Canberra, 1991.

6 Auditor-General, Audit Report No. 29, 1992-93, Aggregate and Departmental Financial Statem ents 1991-92, AGPS, Canberra, 1993.

7 ANAO, Correspondence, 22 March 1993

8 Attorney-General's Department, Submission, pp. S812, S817 (Vol. 4 of Submissions).

24 REVIEW OF AUDITOR-GENERAL'S REPORTS

R e s p o n s e s t o R e v i e w A c t i o n

The Committee's Review

3.9 In its submission to the Committee, the Australian

Federal Police advised that, following the engagement of a consultant, it had adopted a revised policy on the recognition of assets and transferred its asset register to an improved computerised system.9 Steps had also been taken to address issues concerning the processing of salary payments, and systems to regularly reconcile its accounts had been intro­ duced. Attached to the submission was a memorandum from the ANAO confirming and endorsing these improvements.10

3.10 The Committee is satisfied with the response from

the Australian Federal Police.

The Banking, Finance and Public Administration Committee's Review

3.11 The Banking, Finance and Public Administration

Committee considered Audit Report No. 25, 1990-91 as part of its broader inquiry into Fraud on the Commonwealth. On 25 November 1993 the Banking Committee tabled its report Focusing on Fraud, Report o f the Inquiry into Fraud on the

Commonwealth. The Committee is of the view that the Banking Committee's report gives appropriate consideration to the matters raised in Audit Report No. 25, 1990-91. The Committee does not propose at this time to further review the matters.

9 Australian Federal Police, Submission, pp. S3758-63 (Vol. 12 of Submissions).

10 AFP, Submission, p. S3761 (Vol. 12 of Submissions).

26 REVIEW OF AUDITOR-GENERAL'S REPORTS

• Audit Report No. 18, 1991-92, Department o f Defence: Management o f Australian Purchases under the United States Foreign Military Sales Program (FMS);

• Audit Report No. 20, 1991-92, Department o f Defence: Project Audits; and • Audit Report No. 38 o f 1991-92, Department o f Defence: Management o f Army Training Areas.

4.5 In addition, the Auditor-General reported on the

financial statements of the portfolio agencies and provided details of his on-going audits in his reports on ministerial portfolios.

A u d i t R e p o r t s R e f e r r e d t o O t h e r P a r ­

l i a m e n t a r y C o m m i t t e e s

4.6 On 21 April 1992 Audit Report No. 15, 1991-92 was

referred by the Parliamentary Secretary to the Prime Minister to the House of Representatives Standing Committee on Banking, Finance and Public Administration.

S i g n i f i c a n t I s s u e s

4.7 The Committee's examination of the Auditor-

General's reports on defence portfolio agencies revealed two issues which required further review:

• the qualification of the financial statements of the Commercial Activities Trust Account of the Defence Science and Technology Organisation (DSTO); and

• persistent problems with the Department of Defence's departmental accounts and records.

4.8 Each of these issues is summarised in Table 4.1

below.

Table 4.1 Defence Portfolio

Significant Matters Initial Responses Committee Review Action

D e fen ce S cien ce and T echnology O rganisation (DSTO ):

. Qualified audit reports were issued for the 1990-91 and 1991-92 financial statem ents of the Commercial Activities Trust Account.3

Measures were in hand or planned to rectify identified weaknesses.6 The Committee wrote expressing concern and informing DSTO th a t it will continue to monitor its

progress in improving its performance.

D ep artm en tal accou nts and records:

ANAO commented that on the surface the D epartm ent appeared to be addressing the concerns raised, but it had found that many areas of difficulty regarding legislative

compliance and control had persisted. This was highlighted in its audit of the 1991-92 Financial Statem ents,4 5 which reported th a t remedial action taken in response to problems identified in 1989-90 and 1990-91 with respect to ten m atters were inadequate.

The Committee wrote requesting advice as to how the problems were being addressed.

ANAO concluded that the D epartm ent was not satisfying its accountability responsibilities to Parliament.

3 Auditor-General, Audit Report No. 1, 1991-92, Industry, Technology and Commerce Portfolio: Australian Customs Service, AGPS, Canberra, 1992; Audit Report No. 28, 1992-93, Report on Ministerial Portfolios: Autum n Sittings 1993, AGPS, Canberra, 1993.

4 Auditor-General, Audit Report No. 29, 1992-93, Aggregate and Departmental Financial Statem ents 1991-92, AGPS, Canberra, 1993, pp. 52-9.

5 Auditor-General, Audit Report No. 29, 1992-93; p. 47.

6 Department of Defence, Submission, p. S3086 (Vol. 11 of Submissions).

30 REVIEW OF AUDITOR-GENERALS REPORTS

The Banking, Finance and Public Administration Committee's Review

4.16 The Banking, Finance and Public Administration

Committee considered Audit Report No. 15,1991-92as part of its broader inquiry into Fraud on the Commonwealth. On 25 November 1993 the Banking Committee tabled its report Focusing on Fraud, Report o f the Inquiry into Fraud on the

Commonwealth. The Committee is of the view that the Banking Committee's report gives appropriate consideration to the matters raised in Audit Report No. 15, 1991-92. The Committee does not propose at this time to further review the matters.

32 REVIEW OF AUDITOR-GENERAL'S REPORTS

5.5 The performance audits produced by the Auditor-

General were:

• Audit Report No. 29, 1990-91, Department o f Em­ ployment, Education and Training: JOBTRAIN; • Audit Report No. 2, 1991-92, Australian National University - Housing Operations; • Audit Report No. 12, 1991-92, Department o f Em­

ployment , Education and Training: Management o f Information Technology; • Audit Report No. 14, 1991-92, Department o f Em­ ployment, Education and Training: Abstudy, Assist­

ance for Isolated Children, Protective Security; • Audit Report No. 21, 1991-92, Department o f Em­ ployment, Education and Training: National Account­ ing and Financial Management System; and • Audit Report No. 39, 1991-92, Department o f Em­

ployment, Education and Training: New Enterprise Incentive Scheme (NEIS), Technical and Further Education (TAFE) - Recurrent Grants, Skillshare.

5.6 In addition, the Auditor-General reported on the

financial statements of the portfolio agencies, and provided details of his on-going audits in his reports on ministerial portfolios.

S i g n i f i c a n t I s s u e s

General Matters

5.7 In the Committee's view, there are a number of

aspects of the operation of DEBT which mark it as an organisation worthy of close and continuing parliamentary attention.

34 REVIEW OF AUDITOR-GENERAL'S REPORTS

Specific Issues

5.12 The Committee's examination of the Auditor-

General's reports on employment, education and training portfolio agencies revealed four other issues which required further review:

• the housing operations provided by the Australian National University; • training for Commonwealth Employment Agency staff administering the Work Test for Unemployment

Benefit;

• the system of checking payments in respect of assist­ ance for isolated children; and • the appointment by ANUTECH of an external auditor.

5.13 Each of these issues is summarised in Table 5.1 below.

5.14 The table also contains information outlining the initial response of the relevant agencies to the Committee's request for comments, and indicates what, if any, further review action the Committee has taken.

5.15 Detailed comments on the agency responses, and the

Committee's findings in relation to each issue, are contained in the sections after the table.

Table 5.1

Employment, Education and Training Portfolio

Significant Matters Initial Responses Committee Review Action

A ustralian N ation al U n iversity (A N U ):

ANAO recommended th a t the ANU should make use of private property m anagers or government housing adm inistration agencies to manage its housing operations;

DEBT'S submission did not address these issues.5 6 7 The Committee wrote to the ANU requesting information on these two issues.

Clarification was needed of the legality under its Act for its provision of housing a t below m arket rates.

W ork T est for U n em p loym en t B enefit:

ANAO questioned the appropriateness of the training provided for CBS staff adm inistering the Work Test for Unemployment Benefit -

the training was required to encourage attitudinal change and develop skills.6

Attitudes were addressed in the first phase of the N ew start training.8 The Committee wrote requesting information on the reasons for preferring one-off training to ongoing

performance monitoring and retraining, which would be more effective, particularly in changing attitudes.

5 Auditor-General, Audit Report No. 2, 1991-92, Australian National University: Housing Operations, AGPS, Canberra, 1992.

6 Auditor-General, Audit Report No. 10, 1991-92, Department o f Social Security and Employment, Education and Training: Administration o f the Work Test for Unemployment Benefit; Department o f Social Security: Computer system for Unemployment and Sickness Benefit, AGPS, Canberra, 1992.

7 Department of Employment, Education and Training, Submission, pp. S1875, S1877 (Vol. 8 of Submissions).

8 DEBT, Submission, p. S1884 (Vol. 8 of Submissions).

Table 5.1 (continued)

$

Significant Matters Initial Responses Committee Review Action

A ssistan ce for Isolated Children:

ANAO advised there needed to be checks to ensure th a t applicants are not receiving assistance from more than one source.

D ata matching is being applied to information received from the Australian Taxation Office and the D epartm ents of Social Security, Veterans' Affairs and H ealth, Housing and Community

Services. Access to other databases was desirable.11

The Committee wrote to establish w hat other checks were being carried out and to obtain more detailed information about privacy concerns.

Auditor for A N U T E C H (a w h olly ow ned subsidiary o f th e A N U ):

The Auditor-General had approached ANUTECH with a view to having him appointed as sole auditor in keeping with Government policy.9 10 1 1

The board of ANUTECH did not appoint the Auditor-General, arguing th a t the request lacked legislative authority.12

The Committee's comment is found below.

9 Auditor-General, Audit Report No. 14, 1991-92, Department o f Employment, Education and Training: Abstudy, Assistance for Isolated Children, Protective Security, AGPS, Canberra, 1992.

10 Auditor-General, Audit Report No. 1, 1992-93, Report on Ministerial Portfolios Budget Sittings 1992, AGPS, Canberra, 1993; Audit Report No. 7, 1992-93, Saving Time and M oney with Common-Use Contracts, AGPS, Canberra, 1993.

11 DEBT, Submission, p. S3284 (Vol. 12 of Submissions).

12 DEBT, Submission, p. SI882 (Vol. 8 of Submissions).

38 REVIEW OF AUDITOR-GENERAL'S REPORTS

tenants offered by its Housing Office was greater than those offered by a real estate agency.14

5.20 In the Committee's view the ANU's response ad­

equately addresses the concerns raised by the AN AO.

5.21 In relation to the method used to determine rental

rates for its housing properties, the ANU advised that its rents are set following an annual assessment by a professional valuer. The rental rate is based on rents payable in the private rental market. However, the ANU acknowledged that there had been a minor departure from this policy during the late

1980s when rent increases in the private rental market were in the range of 20-30 percent per annum.

5.22 After lengthy negotiations with its tenants, the University had decided to depart from its policy, and instead charge rents based on the ACT Rental Housing Index which reflected the average rents paid. The ANU advised that once the rental market supply improved this policy ceased. The University added that, although it was no longer required to charge market rents under its revised Act, it still charged market rents.15

5.23 The Committee accepts that in changing its policy the ANU was endeavouring to reduce the potential hardship for its student tenants. Although the ANU's submission stated that 'some' rents were set by the alternative method, the Committee trusts that only those in need received the benefit of this change and that salaried staff who were renting from the university were not also advantaged.

5.24 The Committee notes that the submission from the ANU did not advise whether the variation of the method by which it set rents contravened its Act as it then stood. In the event, the ANU's Act was amended so that the charging of market rents was no longer required.

14 Australian National University, Submission, p. S3267 (Vol. 12 of Submissions).

15 ANU, Submission, p. S3268 (Vol. 12 of Submissions).

40 REVIEW OF AUDITOR-GENERAL'S REPORTS

Compliance with the Privacy legislation [was] a barrier to this sort of cross-agency linking.'18

5.30 DEBT is, however, investigating the possibility of checking student assistance records with information held on its Jobstart database. One element of this investigation has been to discuss the proposal with the Privacy Commissioner's Office in an attempt to obviate any problems under the existing data-matching guidelines.19

5.31 The Committee considers that these steps represent an adequate response to the concerns raised by the AN AO.

Auditor for ANUTECH

5.32 ANUTECH Pty Ltd is a wholly owned subsidiary

company of the ANU, principally involved in marketing the work of the university. The Auditor-General noted in Audit Report No. 7, 1991-92 that he had approached the university to ask the board of the company to appoint the Auditor- General as its auditor. He further noted despite his lack of success, he would be making a further approach in the light of the government announcement in December 1990 that the 'Auditor-General should be the sole external auditor for all Commonwealth owned or controlled entities, including government business enterprises.'20

5.33 DEBT advised the Committee, in its submission dated 5 November 1992, that ANUTECH Pty Ltd operated under the corporate law of the ACT and that the appointment of its auditor had followed the prescribed procedure. DEBT added that the request from the Auditor-General lacked legislative authority but that officers of the company, the university and the ANAO were discussing the manner by which the wishes of the government could be accommodated.21

18 DEET, Submission, p. S3285 (Vol. 12 of Submissions).

19 DEET, Submission, pp. S3286-7 (Vol. 12 of Submissions).

20 Auditor-General, Audit Report No. 7, 1991-92, p. 47.

21 DEET, Submission, p. S1882 (Vol. 8 of Submissions).

E N V I R O N M E N T , S P O R T A N D

T E R R I T O R I E S P O R T F O L I O

I n t r o d u c t i o n

6.1 The environment, sport and territories portfolio comprises the Department of Environment, Sport and Territor­ ies (DEST) and 40 other bodies - 13 of which are statutory authorities.1

6.2 All organisations, including the department, fall within the program structure adopted for the portfolio, which currently consists of six programs, as follows:

• Program 1: Environment; • Program 2: Antarctic; • Program 3: Meteorology; • Program 4: Sport and Recreation; • Program 5: Territories; and • Program 6: Corporate Services and Portfolio

Coordination.1 2

6.3 In the period May 1991 to September 1992 the Auditor-General reported on the financial statements of the portfolio agencies, and provided details of his on-going audits in his reports on ministerial portfolios, but produced no

reports on aspects of the performance of portfolio agencies.

1 Senate Standing Committee on Finance and Public Administration, List o f

Commonwealth Bodies, AGPS, Canberra, June 1993, pp. 77-87.

2 For a description of the activities encompassed by these programs see: Program Performance Statements 1993-94, Environment, Sport and Territories Portfolio, Budget Related Paper No. 7.5, AGPS, Canberra, August 1993, pp. 8-9.

f i n a n c e p o r t f o l i o

I n t r o d u c t i o n

7.1 The finance portfolio comprises the Department of Finance and six other bodies - all of which are statutory authorities.1

7.2 All organisations, including the department, fall within the program structure adopted for the portfolio, which currently consists of eight programs, as follows:

• Program 1: Budget Development and Management; • Program 2: Resource Management and Framework; • Program 3: Government Financial Administration and Services;

• Program 4: Retirement Benefits; • Program 5: Specific Payments and Receipts Activi­ ties; • Program 6: Asset Sales; • Program 7: Corporate Services; and • Program 8: Australian National Audit Office.1 2

7.3 In the period May 1991 to September 1992 the Auditor-General produced two reports on aspects of the performance of portfolio agencies.

7.4 The agencies which were the subject of these audits were:

• the Department of Finance; and • the Retirements Benefits Office.

1 Senate Standing Committee on Finance and Public Administration, List o f

Commonwealth Bodies, AGPS, Canberra, June 1993, pp. 89-90.

2 For a description of the activities encompassed by these programs see: Program Performance Statem ents 1993-94, Finance Portfolio, Budget Related Paper No. 7.6, AGPS, Canberra, August 1993, p. 7.

Table 7.1 Finance Portfolio

a

Significant Matters Initial Responses Committee Review Action

L ate F ee or P en a lty In ter est to Debtors:

Finance does not apply a late fee or penalty interest to Government agencies or other debtors who are late in paying principal and/or interest owing to the

Commonwealth.3

A clause requiring late fees or penalty interest could be inserted in future agreem ents.5

The Committee wrote to establish w hether such a clause is now routinely used in standard agreements.

D ep artm en tal A ssets an d Liabilities:

The Commonwealth holds substantial unreported assets and liabilities (e.g. non rent-producing land and buildings, moneys owing from the States; and superannuation

estim ated at $38.4b in 1988, annual and long service leave entitlements). These should be reported.

Superannuation liabilities are reported by public sector super funds and could be reported in Whole of Government Accounts.

Finance will recommend th a t Financial Statem ent Guidelines will require reporting for employee entitlements from 1993-94.

The Committee noted th a t the D epartment's submission was w ritten in November 1992 and requested advice on subsequent progress.

Some of these issues were also raised in a recently tabled Audit Report4

Guidance in estim ating employment entitlem ent liabilities will be produced.®

3 Auditor-General, Audit Report No. 22, 1990-91, Aggregate and Departmental Financial Statements 1990, AGPS, Canberra, 1991.

4 Auditor-General, Audit Report No. 34, 1992-93, The National Bankcard: Who Will Pay the Piper?, AGPS, Canberra, 1993.

5 Department of Finance, Submission, p. S1820 (Vol. 8 of Submissions).

Table 7.1 (continued)

Significant Matters Initial Responses Committee Review Action

D ep artm en tal A ssets and L iabilities (cen t.)

A requirem ent for the production and audit of an aggregated statem ent of assets and liabilities should be included in the proposed Financial M anagement and Accountability Act.7

Legislation should await decision on departm ental accrual accounting and the issue of standards.9

The Committee wrote requesting an update (as above).

D eb t M an agem en t by DA S B u sin ess U n its:

Progress has been hindered by:

. Finance's decision to delay promulgation of Finance Regulations pending the passage of the new Financial M anagement and Accountability legislation; and

. the inactivity of the Interdepartm ental Committee on Public Sector Constraints.8

Finance was considering revisions to the Finance Regulations and Directions in the context of the proposal to introduce legislation to replace the A udit A ct

1901.10 1 1

The Committee expects th a t the Financial M anagement and Accountability legislation will shortly be introduced to the Parliament.

The Committee notes th a t a discussion paper was produced by the D epartm ent of Finance in August 1993.11

7 Auditor-General, Audit Report No. 34, 1991-92, Accounting for and reporting o f departmental assets and liabilities, AGPS Canberra, 1992.

8 Auditor-General, Audit Report No. 42, 1991-92, Department o f Administrative Services: Debt Management, AGPS, Canberra, 1992.

9 Finance, Submission, p. S1851 (Vol. 8 of Submissions).

10 Finance, Submission, p. S1852 (Vol. 8 of Submissions).

11 Finance, Draft Discussion Paper, A policy framework for commercialisation - Issues for Discussion, August 1993.

48 REVIEW OF AUDITOR-GENERAL'S REPORTS

R e s p o n s e s t o R e v i e w A c t i o n

Late Fee or Penalty Interest to Debtors

7.11 In response to the Committee's request for further information on whether a late fee or penalty clause is routinely included in agreements, the Department of Finance advised that it was proposed 'to issue a finance circular to agencies

advising that agreements between Commonwealth and government agencies or other debtors, should include a clause imposing penalty interest or a late fee'.12

7.12 The Committee welcomes Finance's proposal to advise ail agencies on this matter, but notes with some concern that it has taken the department a year to move from acknowledg­ ing that such a clause could be inserted in all agreements to proposing that a finance circular be issued.

7.13 On 18 January 1994, the Committee was advised by the department that a draft finance circular had been provided to Treasury and the Attorney-General's Department for comment. This was because the proposed policy had 'Premiers'

Conference/Loan Council implications and implications for advice on agreements provided by A-G's.' Finance expected to be able to release the proposed finance circular 'within the next month or so.'13

The Recording o f Previously Unreported Assets

7.14 Finance advised that, following the completion of the

move to financial reporting on an accrual basis (which includes statements of assets and liabilities), the information obtained from agencies would provide the basis for the preparation of

whole of government accounts. The department added, 'There are, however, a range of conceptual, presentational and practical issues to be resolved', and advised that the Australian

12 Finance, Submission, p. S3770 (Vol. 12 of Submissions).

13 Finance, Correspondence, 18 January 1994.

5 0 REVIEW OF AUDITOR-GENERALS REPORTS

7.20 On the first point, the government's new financial

management and administration legislation is scheduled for introduction in the first period of sittings in 1994. It is likely that the Committee will take close and active interest in the provisions of the relevant Bills.

7.21 On the second point, the Committee notes that in

August 1993, Finance published a draft discussion paper which, among other matters, identified a number of constraints on the commercial activities of government.17

7.22 As mentioned in Chapter 2, the Committee is

currently conducting an inquiry into aspects of the commer­ cialisation of government operations. The broad policy frame­ work for commercialisation will be considered as part of the inquiry.

17 Finance, Draft Discussion Paper, A policy framework for commercialisation - Issues for Discussion, August 1993.

5 2 REVIEW OF AUDITOR-GENERAL'S REPORTS

C o m m e n t

8.4 The Committee's view is that the responses of the agencies to the issues raised in the financial statement and ministerial portfolio audit reports for this portfolio were satisfactory.

5 4 REVIEW OF A UDITOR-GENERAL'S REPORTS

Department of Veterans' Affairs

• Program 1: Benefits; • Program 2: Health; • Program 3: War Graves; • Program 4: Corporate Services; and • Program 5: War Memorial.3

9.3 In the period May 1991 to September 1992 the

Auditor-General produced three reports on aspects of the performance of portfolio agencies.

9.4 The Department of Health, Housing, Local

Government and Community Services, and its predecessor, the Department of Community Services and Health, were the subject of these audits, which were:

• Audit Report No. 31, 1990-91, Nursing Homes Payment Scheme; • Audit Report No. 32, 1990-91, Administration o f the Medicare Benefits Schedule; and • Audit Report No. 41, 1991-92, Assistance for People

with Disabilities - Employment Grants, Community Participation Grants; Protective Security.

9.5 In addition, the Auditor-General reported on the

financial statements of the portfolio agencies, and provided details of his on-going audits in his reports on ministerial portfolios.

S i g n i f i c a n t I s s u e s

9.6 The Committee's examination of the Auditor- General's reports on the Department of Health, Housing, Local Government and Community Services (and its predecessor) revealed two issues which required further review:

3 For a description of the activities encompassed by these programs see: Program Performance Statem ents 1993-94, Health, Housing, Local Government and Community Services Portfolio (Department o f Veterans' Affairs), Budget Related Paper No. 7.8B, AGPS, Canberra, August 1993, pp. 12-13.

Table 9.1

Health, Housing, Local Government and Community Services Portfolio

Significant Matters Initial Responses Committee Review Action

N u rsin g H o m es P a y m en t Schem e:

H aving identified inadequate controls, AN AO recommended the daily certification of nursing home payments before release.

The D epartm ent considered th a t a daily m anual certification would result in 'such an unwieldy process th a t it would cause unacceptable delays to payments to nursing homes'.®

The Committee wrote to the D epartm ent seeking further information.

ANAO noted delays in the validation of nursing home returns. Validation operates as a fraud deterrent.4 This was being addressed with increased

staffing, however the backlog was not expected to be cleared until 1994-95.7

The Committee wrote requesting updated information about progress in clearing backlog and other measures employed as fraud deterrents.

Q ualification o f F in ancial S tatem en ts:

The H ealth Insurance Commission's (HIC) financial statem ents were qualified due to a m aterial num ber of invalid pharmaceutical benefits paym ents to pharmacists.5 6

HIC has been progressively implementing more rigid procedures for checking entitlem ents for free or concessional medication.8

Officers of the HIC were called to a public hearing to report on progress in reducing the number of invalid payments.

4 Auditor-General, Audit Report No. 31, 1990-91, Department o f Community Services and Health: N ursing Homes Payment System, AGPS, Canberra, 1991.

5 Auditor-General, Audit Report No. 32, 1989-90, Aggregate and Departmental Financial Statem ents 1988-89, AGPS, Canberra, 1990; Audit Report No. 14, 1990-91, Aggregate Financial Statem ent prepared by the M inister for Finance for the year ended 30 June 1990; Audit Report No. 20, 1990-91, Report on Ministerial Portfolios: Autum n Sittings 1991, AGPS, Canberra, 1991; Audit Report No. 28 o f 1992-93, Report on Ministerial Portfolios: Autumn sittings 1993, AGPS, Canberra, 1993.

6 Departm ent of Community Services and Health, Submission, p. S1019 (Vol. 5 of Submissions).

7 DCSH, Submission, p. S375 (Vol. 2 of Submissions)

8 Departm ent of Health, Housing and Community Services, Submission, pp. 1000-1 (Vol. 5 of Submissions).

58 REVIEW OF A UDfTOR-GENERAL'S REPORTS

as that year provided the base for a new funding system and full validation was necessary 'as misclaims could result in substantial amounts being overadvanced.' The submission also claimed that the backlog of later financial years would 'be cleared by 1995-96.lU

9.14 It is unclear to the Committee whether the backlogs,

identified above, will be cleared by the dates nominated by the department. Considering that the records under review date back some eight years, the Committee considers that valida­ tions should be completed by the beginning of the 1995-96 financial year.

9.15 R e c o m m e n d a t i o n 5

The Department of Human Services and Health should deploy sufficient resources to ensure the backlog in the validation of nursing home returns is overcome by the beginning o f the 1995-96 financial year.

Health Insurance Commission - Qualification o f Financial Statements

9.16 The Committee called officers from the Health Insurance Commission (HIC) to give evidence before it on 25 October 1993. The Committee was concerned that the financial statements of the agency had since 1989-90 been repeatedly subject to qualification by the AN AO - particularly

in respect of the Pharmaceutical Benefits Scheme (PBS).

9.17 The problems had persisted into 1992-93. In Audit Report No. 28, 1992-93, the Auditor-General commented that although the accounting systems and procedures of the HIC could generally be relied upon to produce accurate financial information, the PBS statements had again been qualified.12 1 1

11 DHHLGCS, Submission, p. S3365, (Vol. 12 of Submissions)

12 Auditor-General, A udit Report No. 28, 1992-93, p. 146.

6 0 REVIEW OF AUDITOR-GENERAL'S REPORTS

eligibility checking, and improved its communications with the Department of Social Security. The level of invalid payments has been estimated by the ANAO to be greater than that which resulted in the qualification of the financial statements in 1991-92, at between $9.2m and $13.8m. However, since the estimated maximum level of invalid payments made was less than 1% of the total benefits paid during the year ($1 476m), the breach was considered to be one of a minor and technical nature, and did not warrant the qualification of the 1992-93 financial statements.17

9.22 Thus, while the HIC has reduced the proportion of

invalid payments in relation to total benefits, the Committee understands that the reduction can be accounted for, in large part, by an increase in total benefits paid.

9.23 While the Committee recognises the efforts of HIC in

reducing the level of invalid payments made, it would encour­ age the Commission to strive for a greater reduction in the absolute level of invalid payments made.

9.24 A separate but very important issue arising from the

administration of the PBS, is the need to improve the current systems of confirming that a person claiming a PBS is actually entitled to the benefit. This matter was raised by the HIC in their submission.

9.25 Resolution of this matter calls for close co-operation

between the HIC and the Department of Social Security. The HIC has advised that the difficulties in this area will be resolved once a computer system designed to integrate client records is operational, 'sometime in 1994'.18

17 ANAO: Correspondence, 25 Januaiy 1994.

18 HIC, Submission, p. 3305a, (Vol. 12 of Submissions).

62 REVIEW OF AUDITOR-GENERAL'S REPORTS

9.30 The Committee notes the practice now exists for the

HIC to detail the various types of benefits covered by the estimates. The Committee shares the Commission's confidence that this will provide the necessary assurance that all types of benefits are included in estimates submitted for ministerial

approval.21

9.31 Although the $94m over-expenditure did not result in

any disadvantage to beneficiaries or the public purse,22 the Committee is concerned that there was at least some potential for this to occur.

9.32 The Committee's follow up inquiries have revealed

that on 25-27 January and 26 February 1993, difficulties in communication between the DHHLGCS and HIC resulted in it breaching the terms of relevant legislation. In these two instances, the benefits bank accounts had been overdrawn by $16.5m and $3.3m respectively.

9.33 Furthermore, the Committee is concerned that both

the over-expenditure and the overdrawn bank accounts appear to have a single cause, that being an apparent lack of com­ munication between HIC and its oversight department.

9.34 It is apparent to the Committee, from the explan­

ations provided in HIC's most recent submission, that both parties are able to solve these problems as they arise, but these are simply band-aid measures - fixing the problem after it has arisen.23 Submissions from the Commission did not indicate a proactive stance to potential communications problems. Consequently the Committee considers it appropriate for the Department and the Commission to ensure their communica­ tion protocols reduce the re-occurrence of 'communications breakdowns'.

21 HIC, Submission, p. S3918 (Vol. 13 of Submissions).

22 HIC, Submission, p. S3917 (Vol. 13 of Submissions).

23 HIC, Submission, pp. S3916-8 (Vol. 13 of Submissions).

6 4 REVIEW OF AUDITOR-GENERAL'S REPORTS

• Audit Report No. 46, 1991-92, Department o f

Immigration and Ethnic Affairs: Language Services; and • Audit Report No. 52, 1991-92, Department o f

Immigration and Ethnic Affairs: Information Technology Management.

10.5 In addition, the Auditor-General reported on the

financial statements of the portfolio agencies and summarised the results of his performance audits in his reports on Minis­ terial Portfolios.

S i g n i f i c a n t I s s u e s

10.6 The Committee's examination of the Auditor- General's reports on the immigration and ethnic affairs portfolio revealed one issue which required further review:

• deficiencies in procedures relating to the use of the government credit card.

10.7 This issue was reported in Audit Report No. 2 3 ,1991­

92, Aggregate and Departmental Financial Statement 1990-92. The issue is summarised in Table 10.1 below.

10.8 The table also contains information outlining the initial response of the relevant agencies to the Committee's request for comments, and indicates what, if any, further review action the Committee has taken.

10.9 Detailed comments on the agency responses, and the

Committee's findings in relation to the issue, are contained in the sections after the table.

Table 10.1

Department of Immigration and Ethnic Affairs

Significant Matters Initial Responses Committee Review Action

A u stralian G overnm ent Credit Card:

Deficiencies with the use of credit cards (regular reconciliations, supporting documentation, number of unused cards on issue) were found in 1990-91 and 1991-92.3

Improved procedures were introduced.4 The Committee wrote to the D epartment asking for a report on progress in dealing with the problem.

3 Auditor-General, Audit Report No. 23, 1991-92, Aggregate and Departmental Financial Statements 1990-92, AGPS, Canberra, 1992.

4 Department of Immigration and Ethnic Affairs, Submission, p. S2388 (Vol. 9 of Submissions).

6 6 REVIEW OF AUDITOR-GENERAL'S REPORTS

R e s p o n s e s t o R e v i e w A c t i o n

Australian Government Credit Card

10.10 In Audit Report No. 23,1991-92, the Auditor-General drew attention to deficiencies in DIEA's procedures for the use of credit cards. In its initial submission to the Committee the department advised that improved procedures had been introduced and that a review of credit card use had been undertaken.5

10.11 Following the Committee's request for further information, DIEA advised that the review into credit card usage in the department had been completed in March 1993. The review had resulted in:

• a reduction in the number of credit card holders; • recommendations to tighten the use of credit cards; and • a reconciliation of the credit card accounts to avoid

recurring overdraft balances.

10.12 The Department also advised that new guidelines for the use of departmental credit cards were issued on 30 Septem­ ber 1993. These required the training of prospective card holders, provided distinct lines of responsibility and accounta­ bility, and required program managers to monitor card usage and ensure approved acquittal procedures were followed.6

10.13 The Committee considers that DIEA's response

adequately addresses the concerns raised in the audit report.

5 Department of Immigration, Local Government and Ethnic Affairs, Submission, p. S2388 (Vol. 9 of Submissions).

6 Department of Immigration and Ethnic Affairs, Submission, p. 4 of Sub 163 (Vol. 13 of Submissions).

I N D U S T R I A L R E L A T I O N S

P O R T F O L I O

I n t r o d u c t i o n

11.1 The industrial relations portfolio comprises the De­ partment of Industrial Relations (DIR) and 32 other bodies - 30 of which are statutory authorities.1

11.2 All organisations, including the department, fall within the program structure adopted for the portfolio, which currently consists of three programs, as follows:

• Program 1: Industrial Relations Policy Development, Workplace Reform and Best Practice; • Program 2: Public Sector Workplace Development and Services; and • Program 3: Corporate Direction and Support.1 2

11.3 In the period May 1991 to September 1992 the

Auditor-General produced one report on aspects of the performance of portfolio agencies.

11.4 The agency which was the subject of this report was

Comcare and the report was:

• Audit Report No. 4,1991-92, COMCARE: Compensa­ tion Payments Operations; 1989-90 Financial State­ ment Audit; 1989-90 Annual Report Presentation.

1 Senate Standing Committee on Finance and Public Administration, L ist o f

Commonwealth Bodies, AGPS, Canberra, June 1993, pp. 147-160.

2 For a description of the activities encompassed by these programs see: Program Performance Statem ents 1993-94, Industrial Relations Portfolio, Budget Related Paper No. 7.10, AGPS, Canberra, August 1993, pp. 10-11.

Table 11.1

Industrial Relations Portfolio

Significant Matters

C om care - C ase M anagem ent:

Initial Responses Committee Review Action

AN AO recommended that a system be implemented whereby all long-term perm anent incapacity cases are reviewed on a cyclical basis to improve case management

and to ensure that the level of documentation supporting ongoing determinations is more consistent.3 4

A strategy for the ongoing m anagem ent of long term incapacity cases was being developed as part of a national project and a consultant's report on this was

expected in early 1993.5

The Committee wrote asking for a report on progress in developing and implementing a strategy.

C om care - O verservicing:

ANAO recommended that formal controls be established to identify instances of apparent over-servicing*

Comcare was examining cases of apparent overservicing and determining their causes and strategies for dealing with them .6

The Committee sought advice on progress in this matter.

3 Auditor-General, Audit Report No. 4, 1991-92, COMCARE: Compensation payment operations, 1989-90Financial statem ent audit, 1989-90Annual Report presentation, AGPS, Canberra, 1992.

4 Auditor- General, Audit Report No. 4, 1991-92.

5 Department of Industrial Relations, Submission, p. S1350 (Vol. 6 of Submissions).

72 REVIEW OF AUDITOR-GENERAL'S REPORTS

11.14 R e c o m m e n d a t i o n 7

Com care should allocate sufficient resources to ensure that it completes its review of all long-term incapacity cases by the end of the 1993-94 financial year.

Comcare - Over-Servicing

11.15 Regarding the examination of apparent cases of

overservicing, Comcare provided the Committee with details of the checks it is able to carry out on its PRACSYS computer system, which was installed in May 1993. The Committee was also advised of various liaison arrangements with other compensation schemes designed to identify patterns and practices requiring specific management strategies, and the training provided to staff under Comcare Australia's Fraud Control Strategy.9

11.16 The Committee considers that the systems and

strategies developed by Comcare as outlined in its submission satisfy the concerns, raised by the AN AO.

9 Comcare, Submission, pp. S3356-7 (Vol. 12 of Submissions).

74 REVIEW OF AUDITOR-GENERALS REPORTS

12.4 The agencies which were the subject of these audits

were:

• Australian Customs Service; • Commonwealth Scientific and Industrial Research Organisation; and • Australian Institute of Marine Science.

12.5 The performance audits produced by the Auditor-General were:

• Audit Report No. 27, 1990-91, Australian Customs Service - Diesel Fuel Rebate Scheme; • Audit Report No. 1, 1991-92, Industry, Technology and Commerce Portfolio: Australian Customs Service; • Audit Report No. 8, 1991-92, Commonwealth Scien­

tific and Industrial Research Organisation: External Funds Generation; • Audit Report No. 48, 1991-92, Australian Institute o f Marine Science: External Funds Generation; and • Audit Report No. 51, 1991-92, Industry, Technology

and Commerce Portfolio: Australian Customs Service.

12.6 In addition, the Auditor-General reported on the financial statements of the portfolio agencies and summarised the results of his performance audits in his reports on Minis­ terial Portfolios.

S i g n i f i c a n t I s s u e s

12.7 The Committee's examination of the Auditor- General's reports on industry, technology and regional devel­ opment portfolio agencies revealed four issues which required further review:

• the qualification of the Financial Statements of the Australian Customs Service (ACS);

Γ

Table 12.1

Industry, Technology and Regional Development Portfolio - Australian Customs Service

Significant Matters Initial Responses Committee Review Action

Qualification of Financial Statem ent:

1989-90 and 1990-91 Financial Statem ents were qualified because ACS could not certify that all revenue due to it was received.3

O ther issues

This resulted from the system of self­ assessment used to calculate the revenue due. ACS believed the revenue leakage was not m aterial.7

The Committee requested th a t ACS justify the statem ent th a t little revenue is lost through the self­ assessment system.

The slow pace with which the ACS was implementing ANAO recommendations in relation to:

The Committee wrote expressing concern a t the delay and requested a timetable for finalisation of action in response to recommendations.

• reducing delays in finalising cargo checks;4

. introducing a structured training plan, reviewing and updating ACS manuals;5 and

. preparing a national th reat assessment.6

3 A uditor-G eneral, Audit Report No. 14, 1990-91,Aggregate Financial Statement prepared by the M inister for Finance for the year ended 30 June 1990, AGPS, C anberra, 1991; Audit Report No. 23, 1991-92, Aggregate and Departmental Financial Statem ents 1990-91, AGPS, C anberra, 1991.

4 A uditor-G eneral, Audit Report No. 32, 1989-90, Aggregate and Departmental Financial Statem ents 1988-89, AGPS, C anberra, 1990..

5 A uditor-G eneral, Audit Report No. 1, 1991-92, Industry, Technology and Commerce: Australian Customs Service, AGPS, C anberra, 1992.

6 A uditor-G eneral, Audit Report No. 61 o f 1991-92, Industry Technology and Commerce Portfolio: Australian Customs Service, AGPS, C anberra, 1992.

7 Australian Customs Service, Submission, p. S736 (Vol. 4 of Submissions).

Table 12.1 (continued)

Significant Matters Initial Responses Committee Review Action

D iesel F uel R ebate Sch em e (DFRS):

ANAO recommended th a t the eligibility guidelines be rew ritten to provide more useful guidance to relevant officers.8

The submission from ACS did not respond to this recommendation.19 The committee wrote, requesting a response.

N e w C u stom s L egislation The legislation was being reviewed by the

A ustralian Law Reform Commission.11 The Committee wrote, requesting information about progress with the review.

Implementation of some of ANAO's recommendations concerning the DFRS, especially those relating to penalties, required am endm ents to legislation.9 1 0 *

8 A uditor-G eneral, Audit Report No. 27, 1990-91, Australian Customs Service: Diesel Fuel Rebate Scheme, AGPS, C anberra, 1991.

9 A uditor-G eneral, Audit Report No. 27, 1990-91.

10 ACS, Submission, pp. S749; S759-73 (Vol. 4 of Subm issions).

11 ACS, Submission, p. S769 (Vol. 4 of Submissions).

Table 12.2

Industry, Technology and Regional Development Portfolio - Commonwealth Scientific and Industrial Research Organisation

Significant Matters Initial Responses Committee Review Action

E xternal funds generation:

ANAO made a large num ber of recommendations to improve CSIRO's ability to raise funds from external sources.12

The submission from DITARD providing an updated response to the m atters raised by the Auditor-General did not address

the ANAO recommendations and contained only general com m ent.13

The Committee wrote to CSIRO seeking information about specific actions taken in response to each ANAO recommendation.

12 Auditor-General, Audit Report No. 8, 1991-92, The Commonwealth Scientific and Industrial Research Organisation: External Funds Generation, AGPS, Canberra, 1992.

80 REVIEW OF AUDITOR-GENERAL'S REPORTS

Australian Customs Service - Cargo Checks

12.16 Regarding the Committee's request for advice for a

progress report in reducing delays in finalising cargo checks, the ACS submitted that there were 'now no substantial delays in finalising cargo checks.' A new national risk management scheme had recently been introduced which had 'expanded the number and scope of "real time" and immediate post event checks. ... greater emphasis [was] now placed on contempora­ neous checking activities'.18

12.17 The Committee considers that the new procedures as

outlined by the ACS have adequately addressed this issue.

Australian Customs Service - Introduction o f a Training Plan

12.18 The ACS advised the Committee, in its submission dated 22 October 1993, that it had introduced a

'comprehensive training plan' for Contraband Enforcement Teams - the subject of the recommendation of the ANAO. The training consisted of formal class room courses, followed by supervised on-the-job training.19

12.19 The Committee is satisfied that this issue has been

adequately addressed by the ACS.

Australian Customs Service - Manuals

12.20 In its audit report dated 13 August 1991, the ANAO had observed that an ACS manual had not been amended to reflect changed operating procedures following a joint ACS/Au­ stralia Post review of mail procedures.20

18 ACS, Submission, p. S3323 (Vol. 12 of Submissions).

19 ACS, Submission, p. S3323 (Vol. 12 of Submissions).

20 Auditor-General, Audit Report No. 1 o f 1991-92, p. 6.

8 2 REVIEW OF AUDITOR-GENERALS REPORTS

• the ACS response to the second audit report was that 'the development of a plan [to conduct a threat assessment] had commenced';24 • the original submission to the Committee by

DITARD on behalf of the ACS, stated that a national threat assessment commenced in early 1992 and would be completed in March 1993;25 and • the submission from the ACS, dated 22 October 1993,

revealed that little of substance had been done on the assessment and that progress had been impeded 'initially by a lack of qualified staff and subsequently by the serious illness of the staff member tasked with the project.'26

12.26 The latest advice to the Committee is that a protec­ tive security risk review, including a threat assessment would be completed in the 'near future.' ACS has suggested that 'some form of consultancy' might be necessary to accelerate the process. That option was to have been presented to the

December 1993 meeting of the ACS Security Policy Commit­ tee.27

12.27 The response by the ACS to the audit findings has not been adequate. It has been six years since the initial finding and ACS is still considering what steps should be taken to complete a national threat assessment.

12.28 If the ACS disagrees with the audit recommendation it should say so and be prepared to publicly defend its position. If the ACS agrees with the recommendation, as it has indicat­ ed, it should immediately assign a far greater priority to the matter than they have so far.

24 Auditor-General, Audit Report No. 51 o f 1991-92, p. 18.

25 DITAC, Submission, p. S753 (Vol. 4 of Submissions).

26 ACS, Submission, p. S3324 (Vol. 12 of Submissions).

27 ACS, Submission, p. S3324 (Vol. 12 of Submissions).

84 REVIEW OF AUDITOR-GENERAL'S REPORTS

12.34 The Committee will await the introduction of the new

legislation with interest.

Commonwealth Scientific and Industrial Research Organisation

12.35 Audit Report N o.8,1991-92contained 31 recommen­ dations concerning external funds generation by CSIRO. As part of its review of the audit, the Committee sought a submission from the relevant portfolio department, DITARD. DITARD's submission, dated 15 October 1992, was in the Committee's view, inadequate. The submission did not specifi­ cally address the audit recommendations and only contained general comments.31

12.36 The Committee subsequently sought and received a

submission on the matter from CSIRO.32 The Committee is satisfied with CSIRO's positive response to the Auditor- General's recommendations.

31 When seeking submissions the Committee clearly requests th a t the submission should specifically address the recommendations within the audit report and includes with its correspondence guidelines for those making submissions.

32 See Commonwealth Scientific and Industrial Research Organisation, Submission, p. S3830 (Vol. 13 of Submissions).

P R I M A R Y I N D U S T R I E S A N D

E N E R G Y P O R T F O L I O

I n t r o d u c t i o n

14.1 The primary industries and energy portfolio compris­ es the Department of Primary Industries and Energy (DPIE) and 111 other bodies - 58 of which are statutory authorities.1

14.2 All organisations, including the department, fall within the program structure adopted for the portfolio, which currently consists of four programs, as follows:

• Program 1: Industries Development; • Program 2: Industry and Community Services; • Program 3: Research and Assessment; and • Program 4: Corporate Management and Policy.1 2

14.3 In the period May 1991 to September 1992 the Auditor-General produced three reports on aspects of the performance of portfolio agencies.

14.4 The Department of Primary Industries and Energy was the subject of all of these audits, which were:

• Audit Report No. 26,1991-92, Program Evaluation in the Departments o f Social Security and Primary Industries and Energy; • Audit Report No. 35, 1991-92, Department o f Pri­

mary Industries and Energy: Australian Quarantine Inspection Service Quarantine Division; and • Audit Report No. 47, 1991-92, Energy Management o f Commonwealth Buildings.

1 Senate Standing Committee on Finance and Public Administration, L ist o f

Commonwealth Bodies, AGPS, Canberra, June 1993, pp. 77-87.

2 For a description of the activities encompassed by these programs see: Program Performance Statem ents 1993-94, Primary Industries and Energy Portfolio, Budget Related Paper No. 7.12, AGPS, Canberra, August 1993, pp. 6-7.

Table 14.1

Primaiy Industries and Energy Portfolio

Significant Matters Initial Responses Committee Review Action

F in an cial S tatem en t D eficiencies:

The deficiencies identified in the 1990-91 financial audit of DPIE, had not been rectified a year later.3

Recommendations were accepted and remedial action was undertaken."’ The Committee wrote to the departm ent expressing concern and requested advice on progress in resolving

the problems.

AQ IS - Q uarantine Division:

ANAO recommended the use of risk analysis to guide resource allocation for inspections, with reports on the effectiveness of detection procedures being prepared to guide State operations and provide performance inform ation to Parliament.

It was possible that substantial losses through bad debts would be incurred unless a direct billing system was introduced for export

inspection and quarantines services.4 5

Risk analysis would be used increasingly to target quarantine operations. AQIS experts would be examining issues identified in recent reviews.

Performance indicators were still to be settled pending allocation of activities to government business.

Direct billing was under consideration.6

The Committee wrote to AQIS expressing concern and seeking a progress report.

3 A uditor-G eneral, Audit Report No. 23, 1991-92, Aggregate and Departmental Financial Statements 1990-91, AGPS, C anberra, 1992; Audit Report No. 29, 1992-93, Aggregate and Departmental Financial Statements 1991-92, AGPS, C anberra, 1993.

4 A uditor-G eneral, Audit Report No. 35, 1991-92, Department o f Primary Industries and Energy Australian Quarantine Inspection Service Quarantine Division, AGPS, C anberra, 1992.

5 D epartm ent of P rim ary Industries an d Energy, Submission, pp. S887-9 (Vol. 4 of Submissions).

6 Australian Quarantine Inspection Service, Submission, pp. S842, S846, S847A (Vol. 4 of Submissions).

Table 14.1 (continued)

Significant Matters Initial Responses Committee Review Action

E n ergy m an agem en t o f C om m onw ealth buildings:

ANAO recommended there be departm ental energy management plans with:

. DPIE assisting departm ents to develop them and approving and monitoring them.

Recommendation agreed by Government, except for the need for DPIE to approve plans. However the departm ent would analyse annual reporting on this issue to assess overall progress.

The Committee noted the Government response.

. DPIE proposing to Government that departm ents should spend a fixed percentage of their energy budgets on efficiency improvement.

Recommendation rejected by Government.7 8

The Committee noted the response.

ANAO recommended more specific guidelines for annual reporting by departm ents on energy related issues.

Guidelines for annual reporting was being reviewed to reduce the overlap with program performance statem ents. In the interim, DPIE's short version guidelines for reporting energy issues had been distributed to agencies.9

The Committee intends to monitor this issue as part of its involvement in the development of annual reporting guidelines.

7 Auditor-G eneral, Audit Report No. 47 o f 1991-92, Energy Management o f Commonwealth Buildings, AGPS, C anberra, 1992.

8 D PIE, December 1992 Quarterly Return to the Minister for Finance, p. 12.

9 D PIE, Submission, p. S833A (Vol. 4 of Submissions).

90 REVIEW OF AUDrrOR-GENERAL'S REPORTS

R e s p o n s e s t o R e v i e w A c t i o n

Financial Statement Deficiencies

14.10 On 25 October 1993, the Committee received advice from DPIE which detailed the reasons for the deficiencies and the steps that had been taken to rectify them. The Committee is satisfied with the Department's response, which indicated that problems with loan waivers, loan guarantees and adminis­ tration of the War Service Land Settlement Scheme had been solved.10 1 1

AQIS - Quarantine Division, Risk Analysis

14.11 In Audit Report No. 35, 1991-92, the Auditor- General advocated greater emphasis on risk analysis to determine resource allocation and recommended that this information be made available to state agency managers and the Parliament. Whilst the submission from DPIE of 19 Octob­ er 1992 had indicated that this issue was still under examin­ ation,11 a later submission from AQIS, dated 18 October 1993, advised that both recommendations had been implemented. In their submission AQIS described several initiatives that had been taken. The Committee was also advised that information

on AQIS's risk analysis and resource allocation had been included in the DPIE Annual Report 1992-93 and the AQIS Report to Clients, 1992-93.12

14.12 The Committee is satisfied with the response from

AQIS on this issue.

10 DPIE, Submission, pp. S3407-11 (Vol. 12 of Submissions).

11 DPIE, Submission, pp. S842-3 (Vol 4 of Submissions).

12 AQIS, Submission, p. S3384 (Vol. 12 of Submissions).

REVIEW OF AUDITOR-GENERAL'S REPORTS

AQIS - Quarantine Division, Performance Indicators

14.13 In Audit Report No. 35,1991-92, the Auditor-General

also recommended that AQIS should develop performance measures and indicators to demonstrate that effective manage­ ment and value for money was being achieved. The initial response from DPIE was that 'when the allocation of activities

to government business has been agreed ... performance indica­ tors for those activities will be settled.'13

14.14 One year later the response from AQIS was essential­ ly the same, although it added that 'in the meantime the development of performance indicators for activities which may be described as government business is being addressed in the AQIS Business Plan for 1993/94.' AQIS stated that the audit

recommendation was 'substantially implemented.'14

14.15 AQIS has subsequently advised the Committee that its Operational Program Statements incorporate objectives and performance indicators for each program. AQIS also provided a draft business plan to the Committee, which identified

government business as an item for each AQIS activity. AQIS added that work on the draft business plan would resume when the restructuring package announced in the 1993-94 Budget had been completed.15

14.16 The Committee is satisfied with the response from

AQIS' on this issue.

AQIS - Quarantine Division, Direct Billing

14.17 The response from DPIE in October 1992 was that direct billing for export inspection and quarantine was being considered in the development of a billing policy for AQIS

13 DPIE, Submission, p. S846 (Vol. 4 of Submissions).

14 AQIS, Submission, p. S3393 (Vol. 12 of Submissions).

15 AQIS, Correspondence, 23 February 1994.

9 2 REVIEW OF AUDITOR-GENERAL'S REPORTS

which had also been subject to ANAO recommendations.16 The department advised that a final policy 'is nearing comple­ tion.'17

14.18 In October 1993, AQIS advised that direct billing procedures for export inspection and quarantine were expected to be introduced in conjunction with a new billing policy. A draft policy had been circulated to AQIS and state manage­ ment for comment, but it was not expected that the revised policy would be in place before January 1994.18

14.19 AQIS has subsequently advised the Committee that in December 1993 it introduced a 'new debt management policy and associated procedures designed specifically to minimise outstanding debt and to ensure prompt collection of monies

due.' The agency was also trialing the use of electronic funds transfer arrangements for payment of some fees.19

14.20 The Committee considers that this issue has been adequately addressed by AQIS.

AQIS - Quarantine Division, Other Issues

14.21 The Committee commends the positive response by AQIS to the 69 recommendations made by the Auditor-General but notes that four require legislative amendment. The submission from AQIS dated 18 October 1993 contained advice

that legislation in respect of three of the recommendations 'had drafting priority for introduction in [the] Budget 93 sit­ tings.'20

16 Recommendation 45 advocated a detailed examination of debt management policies, recommendation 46 advocated the expediting of the search for a new debt management system to be established nationally, and recommendation 52 advocated direct billing for export inspection and quarantine services. All recommendations had been agreed to.

17 DPIE, Submission, pp. S846A, S847A (Vol. 4 of Submissions).

18 AQIS, Submission, pp. S3393, S3397 (Vol. 12 of Submissions).

19 AQIS, Correspondence, 23 February 1994.

20 AQIS, Submission, p. S3373 (Vol. 12 of Submissions).

REVIEW OF AUDITOR-GENERAL'S REPORTS 93

14.22 The Committee has received further advice from AQIS on this matter which indicated that issues referred to in two of the recommendations had been included in one of the two Bills proposed to replace the Quarantine Act 1908.

Unfortunately, when it became clear in 1993 that this new legislation would require additional drafting resources, particularly for subordinate legislation, the then Minister agreed in October 1993 to defer indefinitely further work on

the Bills.

14.23 AQIS added however, that amendments to the Quarantine Act which were expected to be introduced to the 1993-94 Budget Session of Parliament would accommodate three of the four audit report recommendations. The fourth recommendation, concerning on the spot fines, raised 'a number of complex policy and operational issues' which

required attention. AQIS advised that resolution of these issues would be pursued as soon as resources allowed.21

14.24 The Committee appreciates that the issues may be

complex, but notes that the audit report was tabled in May 1992. This delay is excessive and the Committee considers that AQIS should commit itself to finalising this outstanding issue. In drawing its conclusion the Committee is mindful of the

restructuring of AQIS which is presently occurring.

14.25 R e c o m m e n d a t i o n 1 0

AQIS should allocate sufficient resources to ensure that its review of the feasibility of introducing on the spot fines is completed by October 1994.

21 AQIS, Correspondence, 23 February 1994.

P R I M E M I N I S T E R A N D C A B I N E T

P O R T F O L I O

I n t r o d u c t i o n

15.1 The Prime Minister and Cabinet portfolio comprises the Department of the Prime Minister and Cabinet and 32 other bodies - 22 of which are statutory authorities.1

15.2 All organisations, including the department, fall within the program structure adopted for the portfolio, which currently consists of eight programs, as follows:

• Program 1: Departmental Policy Co-ordination; • Program 2: Government Support Services; • Program 3: Special Policy & Program Functions; • Program 4: Corporate Services; • Program 5: Governor-General; • Program 6: Portfolio Policy Advising Agencies; • Program 7: Public Administration & Accountability; • Program 8: Aboriginal & Torres Strait Islander

Affairs1 2

15.3 In the period May 1991 to September 1992 the

Auditor-General produced one report on aspects of the performance of portfolio agencies. This agency was the Aboriginal and Torres Strait Islander Commission (ATSIC).

1 Senate Standing Committee on Finance and Public Administration, List o f

Commonwealth Bodies; AGPS, Canberra, June 1993, pp. 217-228.

2 For a description of the activities encompassed by these programs see: Program Performance Statem ents 1993-94, Prime M inister and Cabinet Portfolio, Budget Related Paper No. 7.13A, AGPS, Canberra, August 1993, p. 7.

REVIEW OF AUDITOR-GENERAL'S REPORTS 95

15.4 The performance audit produced by the Auditor-

General was:

• Audit Report No. 12, 1990-91, Aboriginal and Torres Strait Islander Commission - Community Develop­ ment Employment Projects.

15.5 In addition, the Auditor-General reported on the financial statements of the portfolio agencies, and provided details of on-going audits in his reports on ministerial port­ folios.

A u d i t R e p o r t s R e v i e w e d b y O t h e r P a r ­

l i a m e n t a r y C o m m i t t e e s

15.6 On 4 December 1990 the House of Representatives resolved to refer Audit Report No. 12,1990-91 to the House of Representatives Standing Committee on Aboriginal Affairs.3 The Committee tabled its findings on 13 May 1991.4

S i g n i f i c a n t I s s u e s

15.7 The Committee's examination of the Auditor- General's reports on Prime Minister and Cabinet portfolio agencies revealed two issues which required further review:

• the qualification for several years of the Community Development Employment Projects (CDEP) Scheme administered by ATSIC; and • the failure to follow ATSIC rules in the administra­

tion of grants.

15.8 Each of these issues is summarised in Table 15.1

below.

3 House of Representatives, Votes and Proceedings, 1990-93, AGPS, Canberra, 1990, p. 393.

4 House of Representatives Standing Committee on Aboriginal, Review o f Audit Report No. 12, 1990-91 on Community Development Employment Projects, AGPS, Canberra, 1991.

9 6 REVIEW OF AUDITOR-GENERAL'S REPORTS

15.9 The table also contains information outlining the

initial response of the relevant agencies to the Committee's request for comments, and indicates what, if any, further review action the Committee has taken.

15.10 Detailed comments on the agency responses, and the Committee's findings in relation to each issue, are contained in the sections after the table.

Table 15.1

Prime Minister and Cabinet Portfolio

Significant Matters Initial Responses Committee Review Action

Aboriginal and T orres Strait Islan der C om m ission (ATSIC)

C om m u nity D evelop m en t E m p loym en t P rojects Schem e:

Audits have been qualified for the 1988-89, 1989-90, 1990-91 financial years because paym ents had been made without adequate verification.5

New procedures were introduced and continuing changes were being made, including the introduction of new information technology systems.7

The Committee called officers of ATSIC to a public hearing to explore the problems being experienced and the progress being made to resolve them.

G ran ts adm inistration:

Failure to follow Commission rules and procedures were noted by the Auditor- General.6 New procedures were introduced, staff

appointed and trained, and internal audit enhanced.8

5 A uditor-G eneral, Audit Report No. 32,1989-90, Aggregate and Departmental Financial Statem ents 1988-89, AGPS, C anberra, 1990.; Audit Report No. 20, 1990-91, Report on Ministerial Portfolios: Autum n Sittings 1991, AGPS, C anberra, 1991; Audit Report No. 7, 1991-92, Report on Ministerial Portfolios: Budget Sittings 1991, AGPS, C anberra, 1992; Audit Report No. 1, 1992-93, Report on M inisterial Portfolios: Budget Sittings 1992, AGPS, C anberra, 1993.

6 A uditor-G eneral, Audit Report No. 7, 1991-92, Audit Report No. 1, 1992-93.

7 Aboriginal and T orres S tra it Isla n d er Commission, Submission, pp. S2066-7; S2072 (Vol. 8 of Submissions).

8 ATSIC, Submission, pp. S2075-6 (Vol. 8 of Submissions).

98 REVIEW OF AUDiTOR-GENERAL'S REPORTS

R e s p o n s e s t o R e v i e w A c t i o n

Review Action - Introduction

15.11 The Auditor-General has made many adverse findings in relation to the performance of ATSIC. The administration of the CDEP scheme, the veracity of ATSIC's financial statements, internal lines of responsibility for other grants programs, and ATSIC's supervision of subsidiary companies have all been questioned in recent audit reports.

15.12 In view of these findings, and the fact that ATSIC spends a significant amount of public money (in 1992-93 ATSIC's total outlays were $823m9), the Committee called officers from ATSIC to a public hearing on 25 October 1993.

15.13 ATSIC's financial statements have been qualified for two reasons. First, because the Auditor-General found that there was not a reasonable assurance that all CDEP grants had been made to eligible participants. Secondly, because of the absence, or partial nature, of financial returns from some of ATSIC's subsidiary companies.10

Review Action - Community Development Employment Projects

15.14 The CDEP scheme was designed as an alternative to unemployment benefits. Under the scheme Aboriginal people or specific interest groups, within rural and remote communi­ ties where there are no alternative employment prospects, can receive a benefit in return for participating in community development activities. The CDEP Project and Program Guide

9 ATSIC, Program Performance Statem ents 1993-94, p. 23.

10 Auditor-General, Audit Report No. 1, 1992-93, pp. 104-5.

REVIEW OF AUDITOR-GENERAL'S REPORTS 99

makes it mandatory that CDEP recipients provide and certify a participant schedule to ATSIC within four weeks prior to the commencement of each quarter.11

15.15 The Committee noted that the Auditor-General had qualified the CDEP scheme every financial year since 1987­ 88.1 1 12 The qualifications were due to inadequate controls over the completeness of CDEP documentation and resulting pay­ ments.13 In its annual report ATSIC had acknowledged that

it was unable to verify that all payments to communities were based on accurate participating schedules.14

15.16 At the hearing, officers from ATSIC advised the Committee that it was difficult to keep track of CDEP partici­ pants, as Aboriginal communities were very mobile.15 The Committee was advised that this problem was being addressed

through a census of all participants and projects in the scheme. The census was being carried out in conjunction with the Department of Social Security and aimed to provide reliable information to be cross referenced with the participant

schedules. On completion of the census, a system of spot checking would be introduced to obviate the need for frequent and comprehensive surveys.16

15.17 At the hearing the General Manager of ATSIC's Economic Division, Mr Ronald Morony, informed the Commit­ tee that the census was three quarters completed and indicated some of the results that were emerging. Contrary to ATSIC's

expectations that a substantial number of CDEP participants might be receiving Jobsearch or Newstart allowance as well as CDEP payment, the level of this 'double dipping' was only of

11 ATSIC, Exhibit, p. K724, (Vol. 3 of Exhibits).

12 ATSIC, Transcript, p. 37 (Canberra, 25 October 1993).

13 Auditor-General, Audit Report N o .l o f 1992-93, p. 104.

14 ATSIC, Annual Report 1990-91, p. 154.

15 ATSIC, Transcript, p. 18 (Canberra, 25 October 1993).

16 ATSIC, Transcript, p. 18 (Canberra, 25 October 1993).

100 REVIEW OF AUDiTOR-GENERAL'S REPORTS

the order of 1%. However, a significant number of those surveyed, some 11%, were in fact not claiming their full entitlements.17

15.18 At the Committee's hearing the Chief Executive Officer of ATSIC, Dr Peter Shergold, expressed the concern felt in some Aboriginal communities about the accountability demands of the CDEP program. He explained that in commu­ nities where there is no work, individuals will receive unem­ ployment benefits - 'sit down money'. Yet if those same

individuals decided that they would work on community enterprises they were soon confronted by field officers 'with their clipboards and their participant schedules and their wanting to know the details of how every dollar was spent.'18

15.19 While the Committee understands this view, it is important that all moneys spent by Commonwealth agencies be properly accounted for. If Dr Shergold's anecdote reveals anything it is that controls in relation to the payment of unemployment benefit should be adhered too, rather than

indicating that controls in relation to CDEP payments should be relaxed.

Review Action - Financial Statements o f Subsidiary Companies

15.20 Audit Report No.l, 1992-93 drew attention to the

financial statements of two of ATSIC's subsidiary companies. The financial statement of the Morr Morr Pastoral Company Pty Ltd had been qualified because the company had not conducted a stock take of cattle by 30 June 1991, whilst the other company, Baruwei Enterprises Pty Ltd had not submit­ ted audited financial statements. The audit report added that the latter company had subsequently ceased trading.19

17 ATSIC, Transcript, p. 18-9 (Canberra, 25 October 1993).

18 ATSIC, Transcript, p. 41 (Canberra, 25 October 1993).

19 Auditor-General, Audit Report No. 1, 1992-93, p. 105.

REVIEW OF AUDiTOR-GENERAL'S REPORTS 101

15.21 In relation to Morr Morr Pastoral Company, ATSIC

advised the Committee, in a submission dated 12 November 1992, that the numbers of livestock held by the Company had been progressively ascertained during 1992 as part of the Brucellosis and Tuberculosis Eradication Campaign pro­

gram.20 This is an adequate and appropriate response.

15.22 Concerns about the operation and financial perform­

ance of Baruwei Enterprises were raised with ATSIC at the hearing on 25 October 1993. The Committee was particularly concerned about loans totalling $2.9m which had been extend­ ed to Baruwei Enterprises against security of less than

$lm.21 The questions posed by the Committee were taken on notice.

15.23 ATSIC explained in a subsequent submission that the $2.9m represented the balance remaining on a total of eight loans made from 24 November 1978 to 1 July 1988 to establish the company as a wholesaler and supermarket operator. The loans were first made by the Aboriginal Loans Commission and

then by the Aboriginal Development Commission.22 At the time of approval each loan was 'deemed to be covered by adequate security.' In March 1989 the Aboriginal Development Commission had decided to liquidate the company and at

30 June 1992 the remaining value of assets held as security amounted to less than $lm.23

15.24 The Committee acknowledges that this is largely an inherited problem for ATSIC - the decisions taken in relation to Baruwei were not ATSIC's, but those of its predecessors. There is little ATSIC can do but sell the remaining assets of

the company and write off the balance of the loan which it is seeking to do.24 The Committee also notes the comments by Mr Robert Beadman, the General Manager of ATSIC's Corpo-

20 ATSIC, Submission, p. S2081 (Vol. 8 of Submissions).

21 Auditor-General, Audit Report No. 1, 1993-94, Report on Ministerial Portfolios Budget Sittings Vol. 3, AGPS, Canberra, 12993, pp. 7-8.

22 ASTIC, Transcript, p. 31 (Canberra, 25 October 1993).

23 ATSIC, Submission, p. S3868 (Vol. 13 of Submissions).

24 ATSIC, Submission, p. S3869 (Vol. 13 of Submissions).

102 REVIEW OF AUDITOR-GENERAL'S REPORTS

rate Services Division, that there was not as strict an insis­ tence on commercial viability in loans extended before the establishment of ASTIC.25 The financial loss associated with Baruwei Enterprises highlights the importance of adopting a

commercial approach in the marketing of loans. This require­ ment is embedded in ATSIC's enabling legislation and the Committee expects that future loans to subsidiary companies will have a more secure basis than those extended to Baruwei

Enterprises.

Review Action - Grants Administration

15.25 In 1992-93, ATSIC made more that 6 000 grants to over 1 500 ATSIC organisations, the payments totalling $624m.26

15.26 The Auditor-General's review of the administration of housing and CDEP grants, revealed a number of general weaknesses in administration and some specific instances where the Commission's rules and procedures had not been

followed. Despite the identification of non-compliance of grant conditions by some recipients, the Commission had continued to release grant funds and not take action to recover outstand­ ing grant monies as required under its legislation.27

15.27 ATSIC advised the Committee that it took the Auditor-General's concerns very seriously and that its positive attitude had been remarked upon by the ANAO when that organisation had appeared before a Senate estimates commit­ tee. Officers from ATSIC also advised the Committee that the Commission had implemented new grant administration procedures, had restructured and reformed the Business Funding scheme and had sought to tighten accountability in the amendments to the ATSIC Act.28

25 ATSIC, Transcript, p. 31 (Canberra, 25 October 1993).

26 ATSIC Transcript, p. 5 (Canberra, 25 October 1993).

27 Auditor-General, Audit Report No. 7 o f 1991-92, p. 40.

28 ATSIC Transcript, pp 33-4 (Canberra, 25 October 1993).

REVIEW OF AUDITOR-GENERAL'S REPORTS 103

15.28 The Committee was advised that ATSIC considered

its accountability regime to be of the highest standard and 'already a number of key organisations [had] seen their applications for future funding rejected because of their inability to meet ATSIC's standards.'29

15.29 The Committee notes ATSIC's positive response to the Auditor-General's concerns and trusts that the results of these responses will be reflected in future reports of the Auditor-General.

Review Action - Doubtful Debts

15.30 ATSIC has interests in various subsidiary companies 'acquired to enable Aboriginals and Torres Strait Islanders to engage in business enterprises and not necessarily acquired as a commercial investment.'30 Several companies have ceased trading and have been wound up resulting in substantial losses

to ATSIC. The case of Baruwei Enterprises Pty Ltd, was mentioned earlier.

15.31 In its written submission, ATSIC advised that in

early 1993 it had undertaken a review of its subsidiary companies and other entities, and that this resulted in 'a reduction of approximately $4.7 million in the carrying value of these assets.'31 In ATSIC's 1991-92 annual report it dis­

closed that the investment value in various entities was $11.11 million.32

15.32 The Committee notes that this issue forms part of the reference of an inquiry being conducted by the House of Representatives Standing Committee on Aboriginal and Torres Strait Islander Affairs. This committee has undertaken an

inquiry relating to Audit Report No. 36, 1992-93 and the sections within Audit Report No. 1, 1993-94 relating to the

29 ATSIC Transcript, p. 7 (Canberra, 25 October 1993).

30 A uditor-G eneral, Audit Report No. 1, 1992-93, p. 105.

31 ATSIC, Submissions, p. S3870 (Vol. 13 of Submissions).

32 ATSIC Annual Report 1991-92, Note 12.

104 REVIEW OF AUDITOR-GENERAL'S REPORTS

Commission.33 This latest report refers to the CDEP Pro­ gram, enterprise funding, housing loans and investments in controlled and related entities. The Committee will await with interest the findings of that inquiry.

15.33 During the hearing the issue was raised of the level

of debts owing to ATSIC's Business Funding Scheme (BFS). This scheme facilitates the acquisition, ownership and develop­ ment of enterprises to promote economic independence of Aboriginal and Torres Strait Islander people. The BFS was reviewed during 1992-93 with the aim of improving the scheme's effectiveness and a revised scheme was launched in July 1993.34 3 5

15.34 In Audit Report No. 1, 1992-93, the Auditor-General had identified various problems with the scheme, including that loans arrears not being regularly monitored and that appropriate remedial action had not been taken promptly.30 ATSIC advised the Committee that an Arrears Task Force had

been established in February 1993 with the aim of reducing the number of loans in arrears. Within nine months, the task force had reduced the loans in arrears from $4.9 million to $2.3 million.36

15.35 The Committee was also advised that ATSIC had

taken action over debts relating to its housing loans and that the total loans written off since 1974 was less than half a percent of all home loan funds revised over those 19 years. ATSIC added, in its supplementary submission, that its procedures require that 'strenuous efforts are made to enforce payment of [any] remaining debt before a loan write off can occur.'37

33 Auditor-General, Audit Report No. 1, 1993-94, Vol. 3, pp. 5-9.

34 ATSIC, Submission, p. S3871 (Vol. 13 of Submissions).

35 Auditor-General, Audit Report No. 1 o f 1992-93\ pp. 106-7.

36 ATSIC, Submission, p. S3871 (Vol. 13 of Submissions).

37 ATSIC, Submission, p. S3867 (Vol. 13 of Submissions).

II

REVIEW OF AUDITOR-GENERAL'S REPORTS 105

15.36 The Committee considers that ATSIC has taken

appropriate steps to reduce its doubtful debts. The reduction in the provision of doubtful debts of $1.154m in 1990-91 com­ pared to $0.139m in 1991-9238 is evidence of ATSIC's efforts. Nevertheless, it is a matter to which continuing attention

should be paid.

General Comment on ATSIC Scrutiny

15.37 In his opening statement at the Committee's hearing,

Dr Peter Shergold, Chief Executive Officer of ATSIC, remark­ ed that some of his key managers 'feel that they are being audited and evaluated and improved almost to a standstill.' In the last three years ATSIC's Office of Evaluation and Audit

had undertaken over 170 evaluations or audits, and made some 6 000 recommendations to improve administration. This was in addition to the audits undertaken by the Australian National Audit Office.39

15.38 The work of the Office of Evaluation and Audit is commendable and is evidence of ATSIC's determination to establish and maintain satisfactory accountability standards. However, the number of recommendations made by the office

and the concerns expressed by the ANAO over the last three years indicate that continued monitoring is required and that further improvement can be anticipated.40

38 ATSIC, Annual Report 1991-92, Note No. 26.

39 ATSIC, Transcript, pp. 6-7 (Canberra, 25 October 1993).

40 The Committee understands th at ATSIC's financial statements for 1992-93 have again been qualified and th a t the qualification again concerns the CDEP.

S O C I A L S E C U R I T Y P O R T F O L I O

I n t r o d u c t i o n

16.1 The social security portfolio comprises the Depart­ ment of Social Security (DSS) and six other bodies - two of which are statutory authorities.1

16.2 All organisations, including the department, fall within the program structure adopted for the portfolio, which currently consists of six programs, as follows:

• Program 1: Income Security for the Retired; • Program 2: Income Security for People with Disabili­ ties and the Sick; • Program 3: Income Security for the Unemployed; • Program 4: Income Security for Families with

Children;

• Program 5: Provisions for Special Circumstances; and • Program 6: Corporate and Other Services.1 2

16.3 In the period May 1991 to September 1992 the

Auditor-General produced eight reports on aspects of the performance of portfolio agencies.

16.4 The Department of Social Security was the subject of all of these audits, which were:

» Audit Report No. 30, 1990-91, Department o f Social Security: Age Pension Sub-Program, Income and Assets Testing and Real Estate;

1 Senate Standing Committee on Finance and Public Administration, L ist o f

Commonwealth Bodies, AGPS, Canberra, June 1993, pp. 231-232.

2 For a description of the activities encompassed by these programs see: Program Performance Statem ents 1993-94, Social Security Portfolio, Budget Related P aper No. 7.14, AGPS, Canberra, August 1993, pp. 9-10.

REVIEW OF AUDITOR-GENERAL'S REPORTS 107

• Audit Report No. 5, 1991-92, Department o f Social Security: Family Allowance Supplement - Income and Assets Testing; • Audit Report No. 10, 1991-92, Departments o f Social

Security and Employment, Education and Training: Administration o f the Work Test for Unemployment Benefit and Department o f Social Security: Computer System for Unemployment and Sickness Benefit; • Audit Report No. 19, 1991-92, Department o f Social

Security: Operational performance monitoring and Sickness Benefit; • Audit Report No. 26,1991-92, Program Evaluation in the Departments o f Social Security and Primary

Industries and Energy; • Audit Report No. 32, 1991-92, Department o f Social Security: Review and Appeals - Adelaide Office o f the Social Security Appeals Tribunal;

• Audit Report No. 40, 1991-92, Department o f Social Security, Systems for the Detection o f Overpayments and the Investigation o f Fraud; and • Audit Report No. 44, 1991-92, Department o f Social

Security: Entitlement Checks in Localities with Community Development Employment Projects.

16.5 In addition, the Auditor-General reported on the

financial statements of the portfolio agencies, and provided details of on-going audits in his reports on ministerial port­ folios.

A u d i t R e p o r t s R e v i e w e d b y O t h e r P a r ­

l i a m e n t a r y C o m m i t t e e s

16.6 On 24 June 1992 the House of Representatives

resolved to refer Audit Report No. 40, 1991-92to the House of Representatives Standing Committee on Banking, Finance and Public Administration.3

3 House of Representative, Votes and Proceedings, 1990-93, AGPS, Canberra, 1992, p. 1570.

108 REVIEW OF AUDITOR-GENERAL'S REPORTS

R e s p o n s e s t o R e v i e w A c t i o n

The Committee's Review

16.7 The Committee's view is that the responses of the

agencies within this portfolio satisfy the issues raised in the audit reports.

The Banking, Finance and Public Administration Committee's Review

16.8 The Banking, Finance and Public Administration

Committee considered Audit Report No. 40, 1991-92as part of its broader inquiry into Fraud on the Commonwealth. On 25 November 1993 the Banking Committee tabled its report Focusing on Fraud, Report o f the Inquiry into Fraud on the

Commonwealth. The Committee is of the view that the Banking Committee's report gives appropriate consideration to the matters raised in Audit Report No. 40, 1991-92. The Committee does not propose at this time to further review the matters.

1.

T R A N S P O R T A N D

C O M M U N I C A T I O N S P O R T F O L I O

I n t r o d u c t i o n

17.1 The transport and communications portfolio com­

prises the Department of Transport and Communications and 30 other bodies - 21 of which are statutory authorities.1

17.2 All organisations, including the department, fall

within the program structure adopted for the portfolio, which currently consists of six programs, as follows:

• Program 1: Aviation; • Program 2: Broadcasting; • Program 3: Communications; • Program 4: Land Transport;

• Program 5: Maritime; and • Program 6: Corporate Direction and Support.1 2

17.3 In the period May 1991 to September 1992 the

Auditor-General reported on the financial statements of the portfolio agencies, and provided details of his on-going audits in his reports on ministerial portfolios, but produced no reports on aspects of the performance of portfolio agencies.

1 Senate Standing Committee on Finance and Public Administration, List o f

Commonwealth Bodies, AGPS, Canberra, June 1993, pp. 235-244.

2 For a description of the activities encompassed by these programs see: Program Performance Statem ents 1993-94, Transport and Communications Portfolio, Budget Related Paper No. 7.16, AGPS, Canberra, August 1993, pp. 9-11.

110 REVIEW OF AUDITOR-GENERAL'S REPORTS

C o m m e n t

17.4 As noted earlier (see Chapter 2) the Committee is presently conducting an inquiry into the commercialisation of public sector operations. This inquiry is, in part, examining the operations of the Civil Aviation Authority and the Federal Airports Corporation. The results of the Committee's inquiry

will be reported separately.

T R E A S U R Y P O R T F O L I O

I n t r o d u c t i o n

18.1 The Treasury portfolio comprises the Department of

the Treasury and 16 other bodies - 11 of which are statutory authorities.1

18.2 All organisations, including the department, fall

within the program structure adopted for the portfolio, which currently consists of eight programs, as follows:

• Program 1: Economic Policy; • Program 2: Financial System; • Program 3: Payments to or for Other Levels of Government;

• Program 4: Corporate Services - Departmental; • Program 5: Australian Bureau of Statistics; • Program 6: Taxation Administration; • Program 7: Industry Commission; and

• Program 8: Trade Practices Commission.1 2

18.3 In the period May 1991 to September 1992 the Auditor-General produced six reports on aspects of the performance of portfolio agencies.

18.4 The agencies which were the subject of these audits

were:

the Australian Bureau of Statistics; the Health Insurance Commission; and the Royal Australian Mint.

1 Senate Standing Committee on Finance and Public Administration, L ist o f

Commonwealth Bodies, AGPS, Canberra, June 1993, pp. 279-285.

2 For a description of the activities encompassed by these programs see: Program Performance Statem ents 1993-94, Treasury Portfolio, Budget Related Paper No. 7.17, AGPS, Canberra, August 1993, pp. 3-4.

112 REVIEW OF AUDITOR-GENERAL’S REPORTS

18.5 The performance audits produced by the Auditor-

General were:

• Audit Report No. 28, 1991-92, Australian Taxation Office: Prescribed Payments System; • Audit Report No. 29, 1991-92, Australian Taxation Office: Conversion o f Automated Production Systems; • Audit Report No. 30, 1991-92, Australian Taxation

Office: Attendances and Absences; • Audit Report No. 31, 1991-92, Australian Taxation Office: Use and Management o f Consultants; • Audit Report No. 33, 1991-92, Australian Taxation

Office: Administration o f Fringe Benefits Tax; and • Audit Report No. 36, 1991-92, Australian Taxation Office: Procedures for Managing the Economic Policy Program;

18.6 In addition, the Auditor-General reported on the

financial statements of the portfolio agencies, and provided details of his on-going audits in his reports on ministerial portfolios.

S i g n i f i c a n t I s s u e s

18.7 The Committee's examination of the Auditor-

General's reports on Treasury portfolio agencies revealed three issues which required further review:

• weaknesses in the maintenance of accounts and records by the Australian Bureau of Statistics; • failure to perform regular reconciliations of manage­ ment systems by the Insurance and Superannuation

Commission; and • weaknesses in the maintenance of various manage­ ment systems and the coin collection by the Royal Australian Mint.

18.8 Each of these issues is summarised in Table 18.1

below.

REVIEW OF A UDITOR-GENERAL'S REPORTS 113

18.9 The table also contains information outlining the

initial response of the relevant agencies to the Committee's request for comments, and indicates what, if any, further review action the Committee has taken.

18.10 Detailed comments on the agency responses, and the

Committee's findings in relation to each issue, are contained in the sections after the table.

Table 18.1 Treasury Portfolio

Significant Matters Initial Responses Committee Review Action

A ustralian Bureau o f S tatistics:

Several weaknesses were identified in the All three organisations had accepted The Committee wrote to the Treasury, expressing maintenance of accounts and records.3 ANAO recommendations for improving their performance.6 concern about the delay in remedying the weaknesses

identified by the ANAO,7 and requesting a timetable

In su ran ce and Superan nu ation C om m ission:

There was a failure to perform regular reconciliations between the Finance Ledger System and the Commission's subsidiary systems.4

R oyal A u stralian M int:

The ANAO identified weaknesses in inventory systems, assets register, allocation of costs and in the m anagem ent of its coin

collection.5

for the resolution of outstanding problems.

3 Auditor-General, Audit Report No. 20, 1990-91, Report on Ministerial Portfolios: Autumn Sittings 1991; Audit Report No. 23, 1991-92, Aggregate and Departmental Financial Statements 1990-91.

4 Auditor-General, Audit Report No. 22, 1990-91, Aggregate and Departmental Financial Statem ents 1990; Audit Report No. 23, 1991-92.

5 Auditor-General, Audit Report No. 20, 1990-91; Audit Report No. 22, 1991-92, Report on Ministerial Protfolios - Autum n Sittings 1992, AGPS, Canberra, 1992.

6 Australian Bureau of Statistics, Submission, pp. S2030-31 (Vol. 8 of Submissions); Insurance and Superannuation Commission, Submission, p. S2051 (Vol. 8 of Submissions); Royal Australian Mint, Submission, pp. S 1478-82 (Vol. 6 of Submissions).

7 ANAO, Correspondence, 15 April 1993.

REVIEW OF AUDfTOR-GENERAL'S REPORTS 115

R e s p o n s e s t o R e v i e w A c t i o n

Australian Bureau o f Statistics

18.11 In its submission to the Committee dated 21 October

1993, the Australian Bureau of Statistics advised that all actions recommended in both audit reports had been com­ pleted.

18.12 The Committee is satisfied with the response of the

Australian Bureau of Statistics.

Insurance and Superannuation Commission

18.13 The Insurance and Superannuation Commission

advised the Committee that the Commission was 'ensuring that relevant reconciliations ... [were being] undertaken in a timely manner.'8

18.14 The submission also addressed the ANAO's finding

that no competitive quotes had been sought for the engage­ ment of a consultant. The Commission explained that the short time frame of the project, coupled with the apparent lack of expertise in the market place, meant that only one consulting

company was approached. The Committee notes the Commissi­ on's advice that it 'now has a stringent policy regarding the engagement of consultants'.9

18.15 In the Committee's view, this is an adequate response

to the audit findings.

8 ISC, Submission, p. S3559 (Vol. 12 of Submissions).

9 ISC, Submission, pp. S3559-60 (Vol. 12 of Submissions).

116 REVIEW OF AUDITOR-GENERAL'S REPORTS

Royal Australian Mint

18.16 The submission from the Royal Australian Mint dated

21 October 1993 indicated that progress had been made in the areas of inventory systems, the assets register and allocation of costs.10 1 1 However, the Committee is concerned at the very slow pace in improving the management of the coin collection. Concern about management of the coin collection was first raised in Audit Report No. 22, 1991-92, was unresolved in Audit Report No. 28, 1992-93,11 and commented upon most

recently in Audit Report No. 1, 1993-94.12

18.17 The Mint's initial response to Audit Report N o . 22,

1991-92 was to outline to the ANAO 'the initiatives it was taking to improve management of the coin collection'. In November 1992 the Mint advised the Committee that valuing the coin collection was unlikely to provide value for money, but added that one of its officers was undertaking curatorial training. This, together with advice received from the Numis­ matic Association of Australia Dealer's Association, was expected to improve its management of the collection.13

18.18 In a later submission to the Committee, dated 6 July

1993, the Mint advised that a 'tender [would] shortly be called to compile a new coin catalogue which will include current market values.'14 No mention was made of the curatorial training of one of its officers in this submission or a later one

dated 21 October 1993.15

10 Royal Australian Mint, Submission, pp. S3312-20 (Vol. 12 of Submissions).

11 Auditor-General, Audit Report No. 28, 1992-93, Report on M inisterial Portfolios - Autum n Sittings 1993, AGPS, Canberra, 1993, pp. 306-7.

12 Auditor-General, Audit Report No. 1, 1993-94, Report on M inisterial Portfolios - Budget Sittings 1993, vol. 7, AGPS, Canberra, 1993, p. 9.

13 The Mint, Submission, p. S1481 (Vol. 6 of Submissions).

14 The Mint, Submission, p. S2931 (Vol. 11 of Submissions).

15 The Mint, Submission, p. S3318 (Vol. 12 of Submissions).

REVIEW OF AUDfTOR-GENERALS REPORTS 117

18.19 Finally, in January 1994, the Mint advised the

Committee that the coin collection was currently being catalogued and valued by the Australian Valuation Office with an anticipated completion date of April 1994.16

18.20 The importance of properly managing the coin

collection, and the risk associated with poor management, were graphically demonstrated in Audit Report No. 28, 1992-93. In this report the ANAO estimated the market value of the collection to be substantially greater than the $55 000 indicat­

ed as the cost of acquisition because of the number of rare and high quality coins held in the collection. Moreover, after reviewing ten of the more valuable coins, the ANAO found that three of those coins, estimated to have a market value of

$17 000, could not be located.17

18.21 In response to this incident, the Mint advised that

the 'three coins in question were on display at the Mint, but unfortunately ANAO [had] incorrectly reported the 'loss' without further consultation.'18

18.22 The Committee is satisfied that the Mint has

responded appropriately, albeit some years late, to the findings of the Auditor-General.

16 The Mint, Correspondence, 20 January 1994.

17 Auditor-General, Audit Report No. 28, 1992-93, pp. 306-7.

18 The Mint, Submission, p. S2932 (Vol. 11 of Submissions).

C R O S S P O R T F O L I O A U D I T S

I n t r o d u c t i o n

19.1 From time to time the ANAO reports on issues which

have relevance across the whole of the Australian Public Service. These reports are the result of cross-portfolio audits.

19.2 In the period May 1991 to September 1992 the

Auditor-General produced the following cross portfolio audit reports:

• Audit Report No. 33, 1990-91, Departmental Admin­ istrative Activities • Audit Report No. 34, 1991-92, Accounting for and reporting o f departmental assets and liabilities; • Audit Report No. 37, 1991-92, Management o f

Central Office Training in Selected Departments; and • Audit Report No. 50, 1991-92, Internal Audit in Se­ lected Commonwealth Organisations.

19.3 Because these reports have wide applications, the

Committee has not sought detailed comments from any specific agencies. The only exception is in relation to Audit Report No. 50,1991-92, where the views of a number of agencies were surveyed.

19.4 In reviewing the Auditor-General's regular audit

reports on ministerial portfolios and aggregate and departmen­ tal financial statements the Committee is cognisant of cross portfolio issues as they relate to matters raised in the audit reports listed above.

19.5 The following paragraphs contain comments about

each of the cross-portfolio audits performed during the period under review.

REVIEW OF AUDITOR-GENERAL'S REPORTS 119

D e p a r t m e n t a l A d m i n i s t r a t i v e A c t i v i ­

t i e s

19.6 Audit Report No. 33, 1990-91 studies in some detail

the incidence of minor, technical and immaterial breaches of legislation reported in audit reports on departmental financial statements. In this report the Auditor-General found that these breaches, although not resulting in the qualification of the statements, indicate that more attention is needed in

relation to these issues, in the presentation of the accounts and records of the departments.

19.7 The Committee understands that as part of its

proposed new financial management and audit legislation, the government is considering an amendment to the requirement that the Auditor-General report on minor, technical and immaterial breaches of Commonwealth legislation.

19.8 The Committee will give further consideration to this

matter once the Government's legislation is tabled in Parliament.

A c c o u n t i n g f o r a n d R e p o r t i n g o f D e ­

p a r t m e n t a l A s s e t s a n d L i a b i l i t i e s

19.9 In Audit Report No. 23, 1991-92, Aggregate and

Departmental Financial Statements 1990-91, the Auditor- General highlighted a number of new directions in Commonwealth public sector reporting, including moves toward consolidation and accrual of financial information, and

the increased discussion of public sector indebtedness.1

19.10 These issues were discussed again in Audit Report

No. 34, 1991-92. In this report the Auditor-General reinforced his support for comprehensive disclosure of all Commonwealth assets and liabilities. The report estimated the level of unre­

ported Commonwealth assets and liabilities to be $20.3b and $44.7b respectively. The ANAO subsequently recommended that all assets and liabilities should be reported, to provide the

1 Auditor-General, Audit Report No. 23 o f 1991-92, Aggregate and Departmental Financial Statem ents 1990-91, AGPS, Canberra, 1992, p. 14.

REVIEW OF AUDITOR-GENERAL'S REPORTS

public, with a better picture of the overall financial position of the Commonwealth.2 The Committee notes that the ANAO's concerns are being addressed with the introduction of full accrual accounting in the public service.

19.11 The Minister for Finance announced on 4 November

1992 that the Commonwealth was to move to financial reporting on an accrual basis as a major step in the Governme­ nt's public sector reform program. These requirements have been adopted progressively in recent times, and will be adopted

throughout the Australian Public Service from 30 June 1995.

19.12 The Committee has expressed its support for the ado­

ption of accrual reporting in the public sector previously, and once again restates this position. It is the view of the Commit­ tee that accrual accounting will promote the reporting of all Government assets and liabilities; provide enhanced

information to public sector managers; and allow for more effective assessment of program performance.

M a n a g e m e n t o f C e n t r a l O f f i c e

T r a i n i n g

19.13 Audit Report No. 37, 1991-92, reviewed the manage­

ment of central office staff training within the Departments of Finance; Employment, Education and Training; Primary Industries and Energy; and Health, Housing and Community Services. The report also considered the role of the Public Service Commission in the provision of training services.

19.14 The key result of the audit report was the develop­

ment, by the ANAO, of a framework under which the delivery of training services could be better achieved. This framework was based on best practice in the various agencies which were the subject of the review.

19.15 The issue of training in the Public Service was dealt

with in depth in the Committee's Report 323, Managing People in the Australian Public Service - Dilemmas o f Diversity and Devolution, tabled in December 1992. The Committee was

2 Auditor-General, Audit Report No. 34, 1991-92, Accounting for and reporting o f departmental assets and liabilities, AGPS, Canberra, 1992, p. 22.

REVIEW OF AUDITOR-GENERAL'S REPORTS 121

aware of the Auditor-General's findings on this matter, and also heard extensive evidence in support of agencies being responsible for their own training activities.

19.16 The Committee recognised the value of a variety of

approaches but, nevertheless, felt this was out weighed by the advantage of having a central coordinating body. Consequently, the Committee recommended that the Public Service Commission coordinate and disseminate information about best practice in human resource development in the Australian

Public Service.3

I n t e r n a l A u d i t i n S e l e c t e d

C o m m o n w e a l t h O r g a n i s a t i o n s

Background

19.17 Audit Report No. 50,1991-92was the second of three

projects undertaken by the AN AO in response to a recommen­ dation of the Committee in Report 296 - The Auditor-General: Ally o f the People and Parliament. The Committee's recom­ mendation was that the ANAO undertake an efficiency audit

of internal audit in the Commonwealth sector, including a comprehensive survey of internal audit practices.4

19.18 The first project was a questionnaire on management

perceptions of internal audit. The questionnaire was distribut­ ed to all Commonwealth agencies and the responses revealed that, although internal audit was well established and enjoyed the support of management, it did not always provide manage­

ment with relevant and appropriate advice.

19.19 Audit Report No. 50, 1991-92 reviewed in detail the

operation of the internal audit function in eight

Commonwealth organisations. The Auditor-General concluded that although there was increased recognition of the value of

3 Joint Committee of Public Accounts, Report 323 - Managing People in the Australian Public Service - Dilemmas o f Devolution and Diversity, AGPS, Canberra, 1992, p. 131.

4 Joint Committee of Public Accounts, Report 296 - The Auditor-General: Ally o f the People and the Parliament, AGPS, Canberra, p. 206.

122 REVIEW OF AUDITOR-GENERAL'S REPORTS

internal audit, and that general performance had improved since the ANAO's previous survey, concerns remained in regard to independence and scope of the work undertaken by the internal audit sections in the organisations reviewed.

19.20 The third project undertaken by the ANAO was the

publication in March 1993 of a guide entitled, A Practical Guide to Public Sector Internal Auditing.

Comments

19.21 The Committee regards very highly the work the

Auditor-General has done in raising the quality and profile of internal audit in Commonwealth agencies. Each of the three projects undertaken by the ANAO has contributed to real improvements. The initial survey provided a solid factual basis

from which further improvements could be made, and helped focus management attention on internal audit. The detailed examination in Audit Report No. 50,1991-92provided specific examples of problems and possible solutions. Finally, the Practical Guide pulls together the ANAO's thoughts on best practice in internal auditing.

19.22 Although the Committee considers the Practical

Guide to be an important and valuable publication, its value is only realised if it is used by managers and auditors in Commonwealth organisations. The Committee sought to gauge the reaction of users and to test how Commonwealth agencies measure up to the best practice described in the Practical

Guide by first asking the ANAO for their perceptions, and then seeking comments from various agencies.5

19.23 The ANAO replied that the Practical Guide had been

well received by all levels of the public sector, academia, and the internal audit profession. The ANAO made the following observations:

5 The Committee sought comments on these points from those agencies contacted in the course of reviewing the audit reports covered in this report.

REVIEW OF AUDITOR-GENERAL'S REPORTS 123

• the Practical Guide had been provided to organisa­ tions throughout the Commonwealth, State Government, and Local Government Authorities; • the Department of Finance had included the Practical

Guide on the Commonwealth Managers Toolbox, and Finance Circular 1993/5 had encouraged the use of the Practical Guide·, • the New South Wales Public Accounts Committee

had used the publication in forming conclusions in its report, Internal Audit in the New South Wales Public Sector; • academics had supported the Practical Guide, and

seen it as contributing to the promotion of public sector internal auditing; and • the internal audit profession had welcomed the Practical Guide, with the Institute of Internal Audi­

tors, along with many individual auditors providing favourable comments.6

19.24 The comments from the various departments and

agencies surveyed by the Committee are summarised in Table 19.1 below.

6 AN AO, Correspondence, 13 October 1993.

124 REVIEW OF AUDITOR-GENERAL'S REPORTS

Table 19.1

Comments by Commonwealth Agencies on the ANAO Practical Guide to Public Sector Internal Auditing

Agency Response Committee

Comment

D epartm ent of Arts DAS internal audit DAS's response

and Administrative practices generally dem onstrated an

Services (DAS) accord with the appreciation of, and

practices outlined in support for, the

the Practical Guide. practices described

in the Practical

However, a number

of deficiencies in its

current practices

have been identified

and are being ad­

dressed.7

Guide.

D epartm ent of Departmental pro- The departm ent's re-

Defence cedures were consis- sponse dem onstrates

tent with the Practi- an understanding of

cal Guide.8 and com mitm ent to,

internal audit.

7 Department of Arts and Administrative Services, Submission, pp. S3552-5 (Vol. 12 of Submissions).

8 Department of Defence, Submission, pp. S3562-6 (Vol. 12 of Submissions).

REVIEW OF AUDITOR-GENERAL'S REFORTS 125

Table 19.1 (continued)

Agency Response Committee

Comment

D epartm ent of Em- DEBT considered While DEBT ap-

ployment, Education th a t its internal peared to have an

and Training audit practices were appreciation of the

(DEBT) consistent with those practices described

in the Practical in the Practical

Guide. Guide, it was diffi­

cult to gauge their

DEBT identified a support for the prac-num ber of strategies tices because of the

being put into place:

. a' comprehensive'

draft audit m anual

. 'professional devel­

opment through indi­

vidual development

plans'; and

. 'development of an

Audit MIS, AM IS'9

brevity of their sub­

mission.

D epartm ent of the Many of the issues The departm ent's re-

Environment, Sport raised in the Practi- sponse dem onstrates

and Territories cal Guide are formal- a commitment to

ly included in the internal audit and

Department's State- the Committee looks

m ent o f Audit Poll- forward to the re-

cies and Procedures lease of the internal

and Internal Audit

Charter.10 * An in­

ternal audit manual

was currently being

developed.

manual.

9 Department of Employment, Education and Training, Submission, p. S3286 (Vol. 12 of Submissions).

10 Department of Environment, Sport and Territories, Submission, pp. S3428-39 (Vol. 12 of Submissions).

126 REVIEW OF AUDITOR-GENERALS REPORTS

Table 19.1 (continued)

Agency Response Committee

Comment

D epartm ent of The D epartm ent The Committee com-

Finance advised the Commi­

ttee:

. of its support for

legislative backing to

ensure the estab­

lishment of Audit

Committees;

. that the Finance

Directions would be

amended to emphas­

ise the importance of

internal audit as a

key management

tool; and

. that the departm en­

t's regional offices

now included inter­

nal audit activities as

a topic in their train­

ing program s.11

m ents appear below.

D epartm ent of The submission dealt The comprehensive

H ealth Housing, in depth with the submission provided

Local Government major issues raised in dem onstrates an

and Community the Practical Guide, appreciation of, and

Services and noted th a t its com mitm ent to

internal audit manu- internal audit. The

al was currently Committee encour-

being reviewed and ages the speedy

updated.12 revision of the inter­

nal audit manual.

11 Department of Finance, Submission, pp. S3773-4 (Vol. 12 of Submissions).

12 Department of Health, Housing, Local Government and Community Services, Submission, pp. S3445-53 (Vol. 12 of Submissions).

REVIEW OF AUDITOR-GENERALS REPORTS 127

Table 19.1 (continued)

Agency Response Committee

Comment

D epartm ent of The submission dealt The Committee

Immigration and in depth with the commends the co-

Ethnic Affairs major issues raised in operative approach

the Practical Guide, taken by the depart-and indicated that m ent to ANAO

work will commence audits, and encour-on the production of ages the speedy

an internal audit completion of the

guide.13 The sub- internal audit manu-mission also detailed

the liaison proced­

ures employed when

the ANAO conducts

an audit of the de­

partm ent.

al.

D epartm ent of The submission dealt The Committee

Prim ary Industries in depth with the notes th a t the level

and Energy major issues raised in of compliance exist-

the Practical ing in the Depart-

Guide.14 m ent's Internal

Audit Unit, demon­

strates the departm ­

ent's support for the

Practical Guide and

commitment to

internal audit.

13 Department of Immigration and Ethnic Affairs, Submission, pp. S3786-91 (Vol. 13 of Submissions).

14 Department of Prim ary Industry and Energy, Submission, pp. S3412-23 (Vol. 12 of Submissions).

128 REVIEW OF AUDITOR-GENERAL'S REPORTS

Table 19.1 (continued)

Agency Response Committee

Comment

D epartm ent of the The Treasury advised The Committee con-Treasury that it shared sidered the response

common resources to inadequately

with the D epartm ent detail Treasury

of Finance and uti- attitude and re-

Used the auditing sponse to the Practi-

services of the de- cal Guide since

partm ent, and that details of the level of

Finance's auditing compliance were not

section procedures

'follow the practices

described in [the

Practical Guide].'15

provided.

D epartm ent of The submission dealt The departm ent's

Veterans' Affairs in depth with the response demon-

major issues raised in strates an appreci-the Practical Guide, ation and support

and noted that the for the practices

internal audit manu- described in the

al was being re-writ- Practical Guide. The

ten.16 Committee encour­

ages the speedy revi­

sion of the depa­

rtm ent's internal

audit manual.

15 Department of the Treasury, Submission, p. S3311 (Vol. 12 of Submissions).

16 Department of Veterans' Affairs, Submission, pp. S3360-3 (Vol. 12 of Submissions)

REVIEW OF AUDITOR-GENERAL'S REPORTS 129

Table 19.1 (continued)

Agency Response Committee

Comment

Australian Bureau of ABS practice closely The ABS submission

Statistics (ABS) corresponds with dem onstrates a

those suggested in commitment to

the Practical Guide. internal audit and

The internal audit appreciation of the

m anual was cur- principles described

rently being con- in the Practical

verted to an electron­

ic version for use in

the Bureau's office

autom ation environ­

m ent.17

Guide.

Australian Industrial AIR considered that, The Committee

Registry (AIR) due to its small size agrees th at the

and the centralised operations of the

nature of its oper- Registry do not

ations: appear to support a

full tim e internal

. it did not have

sufficient workload

audit unit.

to justify a full-time However, given the

or part-tim e internal importance of inter-audit position. nal audit as a m an­

agement tool, the

. the establishment Committee encour-of an Audit Commit- ages AIR to use as

tee was considered to appropriate, part-be inappropriate.18 time internal audi­

tors on contract

from the private sec­

tor.

17 Australian Bureau of Statistics, Submission, pp. S3344-5 (Vol. 12 of Submissions).

18 Australian Industrial Registry, Submission, p. S3557 (Vol. 12 of Submissions).

130 REVIEW OF AUDITOR-GENERAL'S REPORTS

Table 19.1 (continued)

Agency Response Committee

Comment

A ustralian Customs ACS had instituted The Committee

Service (ACS) many of the recom- encourages the ACS

mendations made to continue to adopt

within the Practical best practices' in

Guide.

ACS considered that

their internal audit

activities were well

structured and well

managed. It was

policy to pursue the

adoption public

sector internal audit

best practices wher­

ever possible.19

public sector inter­

nal auditing.

Commonwealth CSIRO had been CSIRO's response

Scientific and aware of the develop- dem onstrated an

Industrial Research m ent of the Practical appreciation of, and

Organisation Guide since it was support for the

(CSIRO) one of the eight practices described

organisations in- in the Practical

volved in the original

audit of internal

audit. Its internal

audit practice closely

conforms to the

Practical Guide. 20

Guide.

19 Australian Customs Service, Submission, pp. S3329-31 (Vol. 12 of Submissions).

20 Commonwealth Scientific and Industrial Research Organisation, Submission, pp. S3852- 60 (Vol. 13 of Submissions).

REVIEW OF AUDITOR-GENERALS REPORTS 131

19.25 Most of the agencies surveyed showed an appreciation

of, and support for, the ANAO's Practical Guide. In a number of instances the agencies indicated that they were amending their internal audit manuals to accord with the practice described by the ANAO.

19.26 The Committee encourages all government agencies

to ensure that their internal audit manuals and practices reflect the best practice described by the ANAO. Specifically, those agencies, mentioned above, which are currently revising their manuals should complete the task promptly.

19.27 R e c o m m e n d a t i o n 1 1

The Departments of Employment, Education and Training; Environment, Sport and Territories; Human Services and Health; Immigration and Ethnic Affairs and Veterans' Affairs should:

(a) allocate sufficient resources to complete the revision of their internal manuals by the end of the 1993-94 financial year; and

(b) ensure that the procedures in their departmental internal audit manuals conform to those outlined in A Practical Guide to Public Sector Internal Audit.

Department o f Finance's Role in Internal Audit

19.28 In Audit Report No. 50,1991-92, the Auditor-General

recommended that:

• the Government's proposed new financial manage­ ment and accountability legislation should require that agencies develop internal audit plans and that audit committees be established to monitor and

review the plans;

132 REVIEW OF AUDITOR-GENERAL'S REPORTS

• the Department of Finance should establish a consul­ tative group to advise on the type of Finance Direc­ tions and Regulations needed in relation to internal audit; and • the Department of Finance should develop better in­

house knowledge and expertise in the area of internal audit so that it can help to improve standards in public sector internal auditing.

19.29 Finance did not accept these recommendations. The

department believed it was inappropriate for the government to legislate to the level of detail recommended by the Auditor- General. The department also believed that, in a devolved environment, it was inappropriate for them to have a broad role in assisting agencies to develop expertise in internal audit.21

19.30 The Committee agrees with the view expressed by the

Auditor-General that the Department of Finance should take a broader and more active role in improving internal audit standards in Commonwealth agencies. The Committee believes this role fits squarely with Finance's policy and program responsibilities.

19.31 R e c o m m e n d a t i o n 1 2

The Department o f Finance should take a broader and more active role in improving internal audit standards in Commonwealth agencies by developing better in-house knowledge and expertise in internal audit and related activities, as part o f its responsibility for enhancing finan­

cial management and accountability in Commonwealth organisations.

21 Department of Finance, Submission, p. S1853 (Vol. 8 of Submissions).

A C C O U N T A B I L I T Y O F

S T A T U T O R Y M A R K E T I N G

A U T H O R I T I E S A N D G O V E R N M E N T

B U S I N E S S E N T E R P R I S E S

I n t r o d u c t i o n

20.1 During the period under review, the Auditor-General released two reports dealing with matters which, in his view, had the potential to seriously limit the Parliament's ability to call to account certain Commonwealth controlled entities.

20.2 The two reports were:

• Audit Report No. 35, 1990-91, Potential Erosion o f Accountability to the Parliament, Australian Wool Realisation Commission, Australian Wool Corporation; and • Audit Report No. 16,1991-92, Accountability O ff the

Rails, National Rail Corporation Limited.

20.3 These reports dealt with the provisions of a series of

Bills which were, at the time, before the Parliament. The Bills proposed to allow the Australian Wool Realisation Commission, the Australian Wool Corporation, and the National Rail Corporation to appoint private sector auditors,

rather than be subject to the scrutiny of the Auditor-General.

Report 296 - The Auditor-General: Ally o f the People and the Parliament

20.4 In April 1989 the Committee tabled the report of its

inquiry into the then Australian Audit Office. The report, Report 296 - The Auditor-General: Ally o f the People and the Parliament, contained 78 recommendations aimed at strengthe­ ning the role of the Auditor-General in ensuring public sector

accountability to the Parliament.

134 REVIEW OF AUDiTOR-GENERALS REPORTS

20.5 Two major recommendations in Report 296were that

the Auditor-General should be the external auditor for Statutory Marketing Authorities and Government Business Enterprises.1

20.6 The government broadly accepted this recommenda­ tion. In its response to Report 296, which was tabled in December 1990 the government agreed that the Auditor- General should be the sole external auditor for all

Commonwealth owned and controlled entities, but that the Minister for Finance should have the power to exempt statutory marketing authorities and government business enterprises where and when 'special circumstances' apply.1 2

20.7 The Committee understands that the Government

intends to give legislative force to its position on the mandate of the Auditor-General in its proposed new financial manage­ ment and audit legislation, which is scheduled for introduction early in 1994.

T h e A u s t r a l i a n W o o l R e a l i s a t i o n

C o m m i s s i o n a n d t h e A u s t r a l i a n W o o l

C o r p o r a t i o n

20.8 In May 1991, two Bills were introduced to the House of Representatives:

• the Australian Wool Realisation Commission Bill 1991, which established the Commission which was to take over the $2.7b debt and 4.7m bale stockpile of the Australian Wool Corporation, and • the Australian Wool Corporation Bill 1991, which

established a new Corporation to promote and mar­ ket Australian wool.

1 J oint Committee of Public Accounts, Report 296 - The Auditor-General: Ally o f the People and the Parliament, AGPS, Canberra, 1989, recommendation 19, p. 92, recommendation 21, p. 107.

2 Senate, Hansard, 6 December 1990, p. 5222.

REVIEW OF AUDITOR-GENERAL'S REPORTS 135

20.9 In arguing again against the appointment of a private

sector auditor to the Commission and the Corporation, which the Bills allowed for, the Auditor-General stated that:

It is surprising that a Bill such as that proposing the creation o f the Australian Wool Realisation Commission, with significant cost implications for the taxpayer, should even be contemplated as suitable for potential choice o f private sector auditor because of'special circumstances'?

He continued,

The introduction and passage o f these Bills with the current audit provisions could have a significant and serious effect on the ability o f the Parliament to exercise the responsibilities entrusted to it by the Australian people,3 4

T h e N a t i o n a l R a i l C o r p o r a t i o n L t d

20.10 The National Rail Corporation Agreement Bill, which was introduced into Parliament in November 1991, was the result of an inter-government agreement between the New South Wales, Victorian, and Western Australian and

Commonwealth governments to establish a National Rail Corporation.

20.11 The Commonwealth's involvement in the Corporation was to be significant. It would contribute equity of $296 million (out of a total of $415 million until 1996-97), its long term equity share would be 54.3%, and it would be entitled to

39.5% of the voting rights for the first five years of operation.

20.12 In Audit Report No. 16,1991-92, the Auditor-General raised the following points about the accountability provisions contained in the Bill:

3 Auditor-General, Audit Report No. 35,1990-91, Potential Erosion o f Accountability to the Parliament, Australian Wool Realisation Commission, Australian Wool Corporation, AGPS, Canberra, 1991, p. 2.

4 Auditor-General, Audit Report No. 35, 1990-91, p. 2.

136 REVIEW OF AUDITOR-GENERAL'S REPORTS

• although the Corporation would be entirely publicly funded, there was no legislative requirement for it to report to the Parliaments of the Commonwealth or the States; and

• despite the fact that Commonwealth government policy stated that the Auditor-General be the sole external auditor of Commonwealth owned or con­ trolled entities, a private sector auditor had been

appointed under the Corporations Law.5

T h e R e a c t i o n o f P a r l i a m e n t

20.13 In both instances, the reports of the Auditor-General

had prompt and positive effects. On 26 June 1991 the Australian Wool Realisation Commission Bill and the Australian Wool Corporation Bill were amended in the Senate

to confirm the position of the Auditor-General as the sole external auditor of those organisations. As well, on 2 March 1992 the National Rail Corporation Agreement Bill was amended in similar terms.

20.14 By making these amendments the Parliament has

clearly stated that it considers the Auditor-General to be an essential element in the process of holding the government and its agencies to account.

20.15 The Committee intends to examine closely the

government's proposed new financial management and auditing legislation, when it is introduced to Parliament, to ensure that appropriate provision is made for this and other issues of public sector accountability.

Les Scott, MP Chairman

2 March 1994

5 Auditor-General, Audit Report No. 16, 1991-92, Accountability o ff the Rails, AGPS, Canberra, 1991, p. 2.

A P P E N D I X I - A U D I T R E P O R T S

R E V I E W E D

1989-90:

No. 31 - Report on Ministerial Portfolios - Autumn sittings 1990 No. 32 - Aggregate and Departmental Financial Statements 1988-89

1990-91:

No. 5 - Report on Ministerial Portfolios - Budget Sittings 1990 No. 14 - Aggregate Financial Statement prepared by the Minister for Finance for the year ended 30 June

1990

No. 20 - Report on Ministerial Portfolios - Autumn Sittings 1991 No. 22 - Aggregate and Departmental Financial Statements 1990

No. 25 - Australian Federal Police - Efficiency and Effectiveness of Fraud Investigations No. 26 - Report on the audit of the Australian Wheat

Board 1989-90

No. 27 - Australian Customs Service - Diesel Fuel Rebate Scheme No. 28 - Department of Administrative Services - Estate Management No. 29 - Department of Employment, Education and

Training - JOBTRAIN

138 REVIEW OF AUDITOR-GENERAL'S REPORTS

No. 30

No. 31 ·

No. 32 ■

No. 33 - No. 34 ■

No. 35 -

1991-92:

No. 1 -

No. 2 -

No. 3 -

No. 4 -

No. 5 -

No. 6 -

No. 7 -

No. 8 -

No. 9 -

Department of Social Security - Age Pension Sub-Program - Income and Assets Testing - Real Estate

Department of Community Services and Health - Nursing Homes Payment Scheme Department of Community Services and Health - Administration of the Medicare Benefits

Schedule Departmental Administrative Activities Department of Administrative Services - Services provided to Members of Parliament

and their Staff Potential Erosion of Accountability to the Parliament - Australian Wool Realisation Commission

- Australian Wool Corporation

Industry, Technology and Commerce Portfolio - Australian Customs Service Australian National University - Housing Operations

Department of Administrative Services - Purchasing Reforms COMCARE - Compensation payment operations

- 1989-90 Financial statement audit - 1989-90 Annual Report presentation Department of Social Security Family Allowance Supplement

- Income and Assets Testing Department of the Parliamentary Library - Review of Management Report on Ministerial Portfolios

- Budget Sittings 1991 The Commonwealth Scientific and Industrial Research Organisation - External Funds Generation Department of Veteran's Affairs

REVIEW OF AUDITOR-GENERAL'S REPORTS 139

No. 10 -

No. 11 -

No. 12 -

No. 13 -

No. 14 -

No. 15 -

No. 16 -

No. 17 ■

No. 18 ■

No. 19

No. 20 No. 21

Department of Social Security and Employment, Education and Training - Administration of the Work Test for Unemployment Benefit Department of Social Security

- Computer System for Unemployment and Sickness Benefit Department of Immigration, Local Government and Ethnic Affairs

The Migration Program - Concessional Family and Independent Entrant Migration Department of Employment, Education and Training

- Management of Information Technology Efficiency Audit - Evaluation in Preparation of the Budget Department of Employment, Education and

Training - Abstudy - Assistance for Isolated Children - Protective Security Department of Defence

- Procedures for Dealing with Fraud on the Commonwealth Accountability off the Rails, National Rail Corporation Limited

- Erosion of Accountability to the Parliament Aggregate Financial Statement prepared by the Minister for Finance year ended 30 June 1991 Department of Defence

- Management of Australian Purchases under the United States Foreign Military Sales Program (FMS) Department of Social Security

- Operational performance monitoring - Sickness Benefit - Department of Defence - Department of Employment, Education and

Training - National Accounting and Financial Management System

REVIEW OF AUDITOR-GENERAL'S REPORTS

No. 22 - Report on Ministerial Portfolios - Autumn Sittings 1992 No. 23 - Aggregate and Departmental Financial Statements 1990-91 No. 24 - Department of Administrative Services 1990-91

Financial Statements of Business Units No. 25 - Report on the audit of the Australian Wheat Board No. 26 - Program Evaluation in the Departments of Social

Security and Primary Industries and Energy No. 27 - Retirement Benefits Office - The CSS/PSS Choice No. 28 - Australian Taxation Office

- Prescribed Payments System No. 29 - Australian Taxation Office - Conversion of Automated Production Systems No. 30 - Australian Taxation Office

- Attendances and Absences No. 31 - Australian Taxation Office - Use and Management of Consultants No. 32 - Department of Social Security

- Review and Appeals, Adelaide Office of the Social Security Appeals Tribunal No. 33 - Australian Taxation Office - Administration of Fringe Benefits Tax No. 34 - Accounting for and reporting of departmental

assets and liabilities

No. 35 - Department of Primary Industries and Energy - Australian Quarantine Inspection Service Quarantine Division No. 36 - Department of the Treasury

- Procedures for Managing the Economic Policy Program No. 37 - Management of Central Office Training in Selected Departments No. 38 - Department of Defence

- Management of Army Training Areas

REVIEW OF AUDITOR-GENERAL'S REPORTS 141

No. 39 - Department of Employment, Education and Training - New Enterprise Incentive Scheme (NEIS) - Technical and Further Education (TAPE)

- Recurrent Grants - Skillshare

No. 40 - Department of Social Security - Systems for the Detection of Overpayments and the Investigation of Fraud No. 41 - Department of Health, Housing and Community

Services - Assistance for People with Disabilities - Employment Grants - Community Participation Grants - Protective Security No. 42 - Department of Administrative Services

- Debt Management

No. 43 - Department of Administrative Services - Conflict of Interest: A matter of principle No. 44 - Department of Social Security - Entitlement Checks in Localities with

Community Development Employment Projects No. 45 - Department of Veterans' Affairs - Outsourcing - The Management of Redundancy

Arrangements

No. 46 - Department of Immigration, Local Government and Ethnic Affairs - Language Services No. 47 - Energy Management of Commonwealth Buildings No. 48 - Australian Institute of Marine Science

- External funds generation No. 49 - Department of Administrative Services - Management of Sydney Central construction project No. 49A- Supplementary volume

No. 50 - Internal Audit in Selected Commonwealth Organisations No. 51 - Industry, Technology and Commerce Portfolio - Australian Customs Service

142 REVIEW OF AUDITOR-GENERAL'S REPORTS

No. 52

No. 53 -

1992-93:

No. 1 -

Department of Immigration, Local Government and Ethnic Affairs - Information Technology Management Australian Customs Service

- Accommodation, Victoria: Lexington Building

Report on Ministerial Portfolios - Budget Sittings 1992

ηAPPENDIX II - SUBMISSIONS S u b m i s s i o n s

1 Department of Defence

2 Department of Foreign Affairs and Trade

3 Department of Employment, Education and Training

4 Department of the Arts, Sport, the Environment and Tourism and Territories

5 Department of Health, Housing and Community Service

6 Royal Australian Mint

7 Department of Veterans' Affairs

8 Department of Finance

9 Department of Social Security

10 Department of Social Security

11 Department of Social Security

12 Department of Social Security

13 Department of Veterans' Affairs

14 Department of Veterans' Affairs

15 Department of Veterans' Affairs

16 Department of Community Services and Health

REVIEW OF AUDITOR-GENERAL'S REPORTS

17 Department of Community Services and Health

18 Department of Administrative Services

19 Department of Administrative Services

20 Department of Employment, Education and Training

21 Department of Industry, Technology and Commerce

22 Department of Foreign Affairs and Trade

23 Department of the Prime Minister and Cabinet

24 Attorney-General's Department

25 Department of Transport and Communications

26 Department of Administrative Services

27 Department of Finance

28 Department of Foreign Affairs and Trade

29 Department of Defence

30 Department of Transport and Communications

31 Department of Veterans' Affairs

32 Department of Community Services and Health

33 Department of Primary Industries and Energy

34 Department of Finance

35 Department of Defence

36 Department of Industry, Technology and Commerce

37 Civil Aviation Authority

38

39

40

41

42

43

44

45

46

47

48

49

50

51

52

53

54

55

56

57

REVIEW OF AUDITOR-GENERAL'S REPORTS 145

Attorney-General's Department

Department of Industrial Relations

Federal Airports Corporation

Commonwealth Department of Primary Industries

Special Broadcasting Service

Department of the Parliamentary Reporting Staff

Department of the Arts, Sport, the Environment and Territories

Office of the Clerk of the Senate

Office of the Clerk of the House

Joint House Department

Department of the Parliamentary Library

Department of Health, Housing and Community Services

Department of Foreign Affairs and Trade

Department of Defence

Australian National Audit Office

Department of Industrial Relations

Department of Social Security

Telecom Australia

Reserve Bank of Australia

Royal Australian Mint

146 REVIEW OF AUDITOR-GENERAL'S REPORTS

58 Department of Administrative Services

59 Department of Finance

60 Department of Social Security

61 Department of Employment, Education and Training

62 Department of Defence

63 Australian Bureau of Statistics

64 Department of Employment, Education and Training

65 Department of the Prime Minister and Cabinet

66 Insurance and Superannuation Commission

67 Aboriginal and Torres Strait Islander Commission

68 Department of Veterans' Affairs

69 Department of Transport and Communications

70 Department of Immigration, Local Government and Ethnic Affairs

71 Department of Treasury

72 Australian Bureau of Statistics

73 National Museum of Australia

74 Attorney-General's Department

75 Australian Customs Service

76 Department of Primary Industries and Energy

77 Department of Defence

78 Department of the Treasury

79

80

81

82

83

84

85

86

87

88

89

90

91

92

93

94

95

96

97

98

REVIEW OF AUDITOR-GENERAL'S REPORTS 147

Australian Quarantine and Inspection Service

Department of Employment, Education and Training

Department of Industry, Technology and Commerce

Department of Defence

Australian Broadcasting Corporation

Department of Employment, Education and Training

Australian Taxation Office

Department of Sport, the Environment and Territories

Department of Sport, the Environment and Territories

Department of the Arts and Administrative Services

Australian Taxation Office

Department of Veterans' Affairs

Department of Immigration and Ethnic Affairs

Department of Social Security

Department of the Arts and Administrative Services

Public Service Commission

Australian Taxation Office

Department of Finance

Department of Health, Housing, Local Government and Community Services

Department of Employment, Education and Training

148 REVIEW OF AUDITOR-GENERAL'S REPORTS

99 The Returned and Services League of Australia Ltd

100 Department of Finance

101 Health Insurance Commission

102 Royal Australian Mint

103 Commissioner of Taxation

104 Industry Commission

105 Department of Health, Housing, Local Government and Community Services

106 Insurance and Superannuation Commission

107 Department of Social Security

108 Department of Finance

109 Department of Veterans' Affairs

110 Commonwealth & Defence Force Ombudsman

111 Merit Protection and Review Agency

112 Australian Bureau of Statistics

113 The Prime Minister and Cabinet

114 Department of Primary Industries and Energy

115 Department of Defence

116 The Prime Minister and Cabinet

117 Australian National Railways Commission

118 Australian Taxation Office

119 Department of Defence

120

121

122

123

124

125

126

127

128

129

130

131

132

133

134

135

136

137

138

139

REVIEW OF AUDITOR-GENERAL S REPORTS 149

Department of Administrative Services

Department of Employment, Education and Training

Department of the Environment, Sport and Territories

Department of Social Security

Australian Science and Technology Council

Department of Industrial Relations

Department of Immigration and Ethnic Affairs.

Department of Finance.

Department of Foreign Affairs and Trade.

Department of Transport and Communications.

Health Insurance Commission.

Australian Veterans and Defence Services Council.

Australian National University.

Department of Defence

Department of Employment, Education and Training

Health Insurance Commission.

War Widows' Guild of Australia.

The Treasury.

Australian Customs Service.

Australian Bureau of Statistics

150 REVIEW OF AUDITOR-GENERAL'S REPORTS

140 Australian Federation of Totally and Permanently Incapacitated Ex-Servicemen and Women Limited.

141 Comcare Australia.

142 Department of Veterans' Affairs.

143 Department of Health, Housing, Local Government and Community Services.

144 Australian Department of the Arts and Administra­ tive Services.

145 Australian Quarantine and Inspection Service.

146 Department of Primary Industries and Energy.

147 Department of the Environment Sport and Territories.

148 Department of Defence.

149 Australian Estate Management.

150 Department of Health, Housing Local Government and Community Services.

151 Regular Defence Force Welfare Association Inc. National Office

152 Legacy Co-ordinating Council Incorporated

153 Aboriginal and Torres Strait Islander Commission

154 Department of the Arts and Administrative Services

155 Australian Industrial Registry.

156 Insurance and Superannuation Commission.

157 Department of Defence

158

159

160

161

162

163

164

165

166

167

168

169

170

REVIEW OF AUDITOR-GENERAL'S REPORTS 151

Department of Defence

Australian Federal Police.

Department of Veterans' Affairs.

Department of Finance.

Department of Defence

Department of Immigration and Ethnic Affairs.

Department of Defence

Commonwealth Scientific and Industrial Research Organisation

Aboriginal and Torres Strait Islander Commission

Health Insurance Commission

Health Insurance Commission

Australian National Audit Office

Health Insurance Commission

A P P E N D I X I I I - W I T N E S S E S A T

P U B L I C H E A R I N G S

C a n b e r r a , M o n d a y 2 5 O c t o b e r 1 9 9 4

Aboriginal and Torres Strait Islander Commission

Dr Peter Shergold, Chief Executive Officer

Robert Beadman, General Manager, Corporate Services Division

Morris D Brown, Acting Assistant General Manager, Economic Programs Branch

William J Eldridge, Assistant General Manager, Budget and Procedures Branch

Ronald A Morony, General Manager, Economic Division

Gail B Wright, Acting Manager, CDEP Administration Section, Economic Programs Branch

Health Insurance Commission

Kenneth J Hazell, Acting Managing Director, Health Insurance Commission

Simon R Hawkins, Manager, Research and Analysis, Compliance Branch

John P Nearhos, General Manager, Professional Review Division

Warren G Turk, Manager, Pharmaceutical Benefits Branch

Ralph G Watzlaff, Manager, Compliance

A P P E N D I X I V - E X H I B I T S

1 Aboriginal & Torres Strait Islander Commission, - Grant Procedures Manual

2 ATSIC - Finance Manual

3 ATSIC - Aboriginal Employment Development Policy - Community Development Employment Projects

4 ATSIC - Community Development Employment Projects, Program Background

5 ATSIC - Guide for CDEP Organisations - not included for reasons of bulk

6 ATSIC - CDEPS - Setting Our Own Course - not included for reasons of bulk