REPORT ON MINISTERIAL PORTFOLIOS AT NOVEMBER 25, 2003€¦ · REPORT ON MINISTERIAL PORTFOLIOS AT NOVEMBER 25, 2003 Part 2: Financial Statements and Performance Indicators There is

AUDITOR GENERAL f o r We s t e r n A u s t r a l i a

Report on Ministerial Portfolios at November 25, 2003

Report No 10 December 2003

AUDITOR GENERAL f o r We s t e r n A u s t r a l i a

THE SPEAKER THE PRESIDENT LEGISLATIVE ASSEMBLY LEGISLATIVE COUNCIL

REPORT ON MINISTERIAL PORTFOLIOS AT NOVEMBER 25, 2003

I submit this Report under section 95 of the Financial Administration and Audit Act 1985 (FAAA).

This Report includes:

opinions issued under the FAAA on or before November 25, 2003 on the controls, financial statements and performance indicators of departments, statutory authorities and subsidiary bodies with reporting dates between June 30, 2003 and July 31, 2003

opinions issued on corporatised bodies reporting under provisions mirroring the Corporations Act 2001, cemetery boards reporting under the Cemeteries Act and audits of other entities requested by the Treasurer

commentary on public sector auditing, financial management and reporting, and control and accounting issues

results of an audit of act of grace, ex-gratia and like payments made by government agencies.

D D R PEARSON AUDITOR GENERAL December 3, 2003

2 AUDITOR GENERAL FOR WESTERN AUSTRALIA

Contents

Auditor General’s Foreword 4

Part 1: Changes in Public Sector Auditing 5

Issue of more reader friendly audit opinions and a new Audit Practice Statement

Part 2: Financial Statements and Performance Indicators 6

Quality and timeliness during the 2003 audit cycle

Part 3: Control Issues 9

Review of:

- information systems

- expenditure, including corporate credit cards

- asset management of computer hardware, furniture, plant and equipment

Part 4: Act of Grace, Ex-Gratia and Like Payments 16

Results of an audit of act of grace and ex-gratia payments by agencies

Part 5: Corporate Governance 19

Follow-up of remuneration disclosure and Statement of Corporate Intent matters previously reported

Part 6: Accounting Issues 20

Asset valuation and International Financial Reporting Standards

Part 7: Summary of Audit Results 22

Results of audit opinions issued under the FAAA for agencies with reporting dates between June 30, 2003 and July 31, 2003 including Ministerial Portfolio table

Appendices:

Audit Opinion Template 36

Audit Practice Statement 38

AUDITOR GENERAL FOR WESTERN AUSTRALIA 3


Auditor General’s Foreword

Annual attest audits are primarily conducted under the Financial Administration and Audit

Act (FAAA) to form an opinion on the controls, financial statements and performance

indicators of individual agencies. Not all matters of significance will be identified during the

course of such routine procedures. However, any such issues disclosed are at least reported

to management who remain responsible for taking appropriate corrective action.

This report opens with details of changes to the form of audit opinions and the approach to

public sector auditing. Details of control and accounting issues noted during this audit cycle

as well as the results of a review of act of grace and ex-gratia payments are also provided.

A summary is provided of the audits completed at agencies with reporting periods ending

between June 30, 2003 and July 31, 2003 including:

audit opinions issued on controls, financial statements and performance indicators for

39 departments and 105 statutory authorities (including the final audits of six

abolished agencies) with

details of the 10 qualified opinions issued.

audit opinions issued on financial statements for

Treasurer’s Annual Statements

10 corporatised bodies

9 subsidiary entities

6 cemetery boards

8 request audits.

Details of each audit qualification and comments on progress made to resolve the

qualification appear in Tables 6 and 7 of this Report. The full audit opinion appears in the

annual report of each agency which should be tabled in Parliament by the Minister within 21

days of the audit opinion being issued.


Part 1: Changes in Public Sector Auditing

Audit opinions are now issued in a more reader friendly format.

A new Audit Practice Statement has been issued.

Issue of More Reader Friendly Audit Opinions Audit opinions are now issued in a shorter, easier to read format. The actual audit opinion and

any audit qualifications, appear first. Responsibilities of the audited agency and a summary of

Audit’s role are more clearly defined. Headings are used to improve clarity and assist readers.

Non-essential information has been removed and most audit opinions are likely to be less than

one page. The standard audit opinion template for a department is at Appendix 1.

New Audit Practice Statement For the first time a consolidated Audit Practice Statement covering all aspects of the audit

mandate has been prepared and is provided to Parliament at Appendix 2. This replaces the

Practice Statements tabled in Parliament in 1996 and 1997 which separately presented the

approaches to the assurance and performance aspects of the mandate.

This new Statement provides a concise summary of:

why we audit

what we audit

how we audit.

It is provided, in accordance with Section 95(1)(b) of the FAAA, which requires Parliament to

be informed of any major change in the extent or character of audits.

The Practice Statement can also be obtained from the Office website at www.audit.wa.gov.au/.



Part 2: Financial Statements and Performance Indicators

There is scope for most agencies to improve the quality and timeliness of financial

statements and performance indicators.

There was a significant increase in the total State assets audited within three months of

balance date.

Quality and Timeliness of Reporting A number of larger more commercially orientated agencies have been preparing good quality

financial statements in a timely manner for several years. This represents better practice

discharge of annual accountability obligations. In the 2002-03 audit cycle the 2001

Machinery of Government related administrative changes continued to cause transitional

annual financial and performance reporting challenges for most Departments, though at a

lesser level than occurred in 2002.

Aside from this, a significant proportion of agencies continue to submit poor quality financial

statements and performance indicators with numerous technical and typographical errors,

irrelevant, inconsistent or missing note disclosures and poor quality supporting working

papers. In addition, the unavailability of key agency staff due to leave and other commitments

at critical stages of the audit process complicated the audit task and required additional audit

resources and time to enable the formation of an audit opinion.

Whilst some agencies were late most agencies continued to submit signed financial

statements and performance indicators on the statutory date.

Agencies submitting financial statements and performance indicators after the statutory date

are summarised in Table 1.

2000-01 2001-02 2002-03 Depts Stat Health Total Depts Stat Health Total Depts Stat Health Total

Auth Sector Auth Sector Auth Sector

Financial statements and where appropriate performance 3 9 11 23 8 15 42 65 4 11 0 15 indicators not received by the statutory date

Expressed as a percentage of all 6% 9% 20% 11% 20% 14% 95% 33% 10% 10% 0% 10% agencies in that category

Table 1: Proportion of agencies not meeting reporting timelines Source: OAG

Of the 15 agencies in Table 1, all four departments and six of the statutory authorities had

applied to their Ministers for an extension of time to submit their financial statements and

performance indicators. Of the remaining five agencies, three submitted their financial


statements and performance indicators in the week after the statutory reporting date with the

Potato Marketing Corporation of Western Australia and Professional Standards Council

submitting more than a week late.

In 2003, agencies submitting on the final or statutory date comprised:

73 per cent of departments on their August 15 deadline (56 per cent in 2002)

64 per cent of statutory authorities on their August 31 deadline (52 per cent in 2002).

By contrast, 11 per cent of departments (four of 37) and 14 per cent of statutory authorities (16

of 113) submitted a week or more in advance of the statutory deadline. These agencies typically

submitted good quality financial statements and performance indicators supported by reliable

working papers and ensured the availability of key staff during the audit process. In consequence

they received clear audit opinions and were able to table their annual report in Parliament within

three to four months of year end.

Improvement in the timeliness of health sector submission is also pleasing, with the benefit of

six reporting entities in 2003 compared with 44 in 2002 being evident. This reduction in

reporting entities resulted from the amalgamation of non-metropolitan health service agencies

into three regional health agencies.

Over the years a number of agencies have developed the commendable practice of submitting

their finalised, but sometimes uncertified, financial statements and performance indicators to

Audit well in advance of the statutory deadline. This enables earlier commencement of the audit

process and provides the Accountable Officer or Authority with added confidence when

subsequently certifying the financial statements and performance indicators.

The exemplar better practice agencies for 2002-03 were:

Departments

Management

Legal Aid Commission

Lotteries Commission

Metropolitan Cemeteries Board

State Housing Commission

Department of Conservation and Land

Department of the Registrar, Western Australian Industrial Relations Commission

Office of the Inspector of Custodial Services

Police Service

Statutory Authorities/Corporations

Disability Services Commission

Fire and Emergency Services Authority of Western Australia

Fremantle Port Authority

Insurance Commission of Western Australia

South West Development Commission

Water Corporation

Western Australian Treasury Corporation

Western Power

Table 2: Better practice agencies for timeliness and quality of their 2002-03 financial statements and performance indicators

Source: OAG



PART 2: FINANCIAL STATEMENTS AND PERFORMANCE INDICATORS (continued)

The following table provides details of the 22 agencies (14 per cent) that submitted their draft

or finalised 2002-03 financial statements significantly ahead of statutory deadlines, to enable

earlier commencement of the audit process.

Weeks after Reporting Date

Number of Departments

Number of Statutory

Authorities/ Corporations

Total Number of Agencies

Within 4 weeks 4 7 11

Within 6 weeks * 8 8

Within 7 weeks * 3 3

Table 3: Timeliness of departments, statutory authorities and corporations submitting financial statements and performance indicators * statutory period after reporting date is approximately six weeks for departments and eight weeks for

statutory authorities. Source: OAG

With the implementation of computerised accounting systems capable of producing accrual

accounting based reports, it is a concern that 86 per cent of agencies have not progressed to

produce more timely annual financial statements and performance indicators. The experience

at year end reflects adversely on the standard of internal management reporting and

oversight occurring during the year. By contrast, in the better practice agencies named in

Table 2, rigorous and transparent monthly management reporting of quality management

information throughout the year was evident.

Despite the slow and sometimes late supply of financial statements and performance

indicators, significant effort by audit staff and contractors enabled audit opinions covering

assets of $55.3 billion, or approximately 75 per cent of total State assets to be issued by

September 30, 2003. This represents a 39 per cent increase on 2001-02 when 54 per cent of

the total State assets were audited by September 30, 2002.


Part 3: Control Issues

The statutory requirement for an explicit opinion on controls in the public sector reflects the

need for assurance about the integrity of the use of taxpayer’s money. In forming individual

opinions, the breadth and level of testing is determined using our audit methodology to assess

an agency’s operations, internal controls and risks. The audit process is however permeated

by judgement and most audit evidence is persuasive rather than conclusive. In addition,

consistent with auditing standards, some business areas at an agency are not tested in detail

each year.

In consequence, further complementary audits of the reliability of systems and procedures are

undertaken. These audits provide added assurance that the individual professional

judgements and conclusions reached during the course of annual attest audits are soundly

based and consistently applied across agencies.

Whilst control weaknesses vary across agencies, a common issue in 2002-03 continued to be

information technology controls. An updated summary of these findings over the last three

years appears in Table 4.

In addition, extended audit testing was conducted at selected agencies to ascertain trends in

relation to:

expenditure, at 11 agencies

asset management of computer hardware, furniture, plant and equipment, at eight

agencies.

The findings summarised below provide a basis for agencies to review their own individual

policies, procedures and practices and, where necessary, take appropriate action.

Information Technology Controls

Audit Conclusions Serious access control and other information system weaknesses exist at approximately

half of the agencies audited.

Computer access and security controls and controls over modifications to computer systems

continue to be a common weakness across government agencies. Most of the agencies that

were advised of these weaknesses last year have still not adequately addressed the problem.

Computer systems are vulnerable to a range of operational, natural disaster and other

inadvertent or deliberately caused disruptive events. Although the possibility of these events

is generally remote, the importance of many computer systems to everyday government

operations makes it essential that agencies have effective disaster recovery plans (DRPs) in

place. Most of the agencies identified last year as having inadequate DRPs have progressed

their development. Approximately one third of all the agencies whose DRPs were audited this

year have effective plans in place.



PART 2: CONTROL ISSUES (continued)

Recommendations Agencies should ensure that they have adequate computer access and security controls and

that computer system modifications are authorised before implementation. In addition,

priority needs to be given to completing the establishment and testing of DRPs for all critical

computer systems.

Review and Findings Information systems are critical in supporting and enabling the operations of most agencies.

Consequently, the audit of key information technology (IT) controls is seen as a priority to

provide assurance regarding the level of reliance that can be placed on the integrity, reliability

and availability of IT systems.

Not all key IT controls at agencies are reviewed by Audit each year. Rather, they are reviewed

on a rotational basis. Issues identified in previous years are also followed up to ensure

satisfactory resolution as shown in Table 4.

Findings 2000-01 2001-02 2002-03 Occurrences % Occurrences % Occurrences %

Access and Security

Inadequate password 27 out of 41 66 14 out of 26 54 18 out of 22 81 security (13 of 14 from 2001-02)

Staff access not being 23 out of 41 56 15 out of 26 58 19 out of 23 82 properly approved and (13 of 15 from 2001-02) reviewed

Access logs not being 23 out of 41 56 11 out of 26 42 14 out of 19 73 reviewed and monitored (10 of 11 from 2001-02)

Other Controls

Inadequate controls 8 out of 15 53 12 out of 20 60 12 out of 19 63 over system modifications (8 of 12 from 2001-02)

No effective disaster 16 out of 17 94 20 out of 21 95 20 out of 28 71 recovery plans (14 of 20 from 2001-02)

Inadequate controls over Not reviewed Not reviewed 16 out of 22 72 infrastructure modifications

Table 4: Summary of common information technology control findings at government agencies Ninety per cent of agencies had at least one control weakness with approximately half of these agencies having serious weaknesses.

Source: OAG


Access and Security Controls Computer access and security controls such as passwords are designed to prevent

unauthorised changes and disclosure or loss of valuable and confidential information. It is

disappointing that there has been insufficient improvement in these controls and that the high

incidence of poor control over modifications to computer system applications continues.

Inadequate controls over modifications to the information technology infrastructure, including

to the network, database structures and operating system software, is also of concern.

The existence of such weaknesses means unauthorised or inappropriate access and changes

that affect the performance, integrity and availability of critical computer systems could be

undertaken, and in many cases not be detected.

Disaster Recovery Planning In order to provide for the ongoing availability of critical information systems, agencies should

develop and test DRPs. These plans should identify systems critical to the operations of the

agency and prioritise the recovery processes accordingly. The development and testing of

DRPs can take some time. Last year, many of the agencies had begun the process of

developing suitable DRPs, a few having reached the stage where back-up facilities in place

only required final testing.

This year, 30 per cent of those agencies previously identified as having inadequate DRPs had

adequately developed and tested their DRPs whilst a further 55 per cent had taken action to

further progress the development of suitable DRPs.

Expenditure

Audit Conclusions Expenditure controls generally operated effectively, though some weaknesses in relation

to corporate credit cards require particular vigilance.

Payments made by the 11 agencies reviewed were generally satisfactory with relatively few

instances noted of deficiencies in authorisation, supporting documentation or evidence of

checking prior to payment.

In relation to corporate credit card based expenditure, weaknesses in controls were identified

at four of the 11 agencies.




Recommendations Agencies should ensure:

credit card expenditure is approved in a timely manner and cards are cancelled if

cardholders consistently do not provide timely support for their transactions

cardholders provide adequate evidence of the purpose and nature of their expenditure

cardholders’ expenditure is approved by their supervisor or a more senior officer

cash travel allowances provided to cardholders are reconciled to their entitlement and

the credit card transactions they incurred while travelling

cardholders’ need for a corporate credit card is periodically reviewed, and usage

agreements between cardholders and the agency are in place.

Review and Findings The following summarises findings in relation to corporate credit card controls, in descending

order of their incidence. Although the final two issues were only detected by audit sampling

at one agency, they are nevertheless noteworthy:

Timely verification that all transactions were for valid agency expenditure.

To avoid penalties from card providers, agencies normally pay monthly accounts prior to

confirming individual cardholders’ expenditure as valid and correct. It is therefore critical

that subsequent review and approval of the expenditure of individual cardholders be

verified in a timely manner, consistent with the monthly billing cycle.

Audit samples showed a small, but unacceptable percentage of credit card expenditures

that were approved by the cardholders’ supervisors more than two months after the

agency had paid the card provider. At one agency expenditure from up to 14 months ago

had not been approved, and at another agency expenditure for one cardholder had not

been approved for seven months. This was because cardholders often failed to lodge the

details of the expenditure in a timely manner. Without details of expenditure, these

transactions cannot be approved by supervisors and expensed appropriately in the

agency’s accounting records and financial reports.

A sound control is to cancel a card if the cardholder does not submit evidence in a timely

manner. Audit noted inconsistent application of this principle across agencies.

Often only the electronic funds transfer (EFT) docket was provided by the cardholder as

evidence. This contains insufficient details of the goods/services on which to base an

approval and does not meet the requirements of a Supplier Tax Invoice for GST purposes.

In particular, for hospitality expenditure, there was insufficient explanation of the nature

or purpose of the expenditure.


Cardholder agreements should be in place and users’ continuing need for a credit card

should be monitored.

Some agencies do not require all cardholders to sign an agreement, specifying the

purposes for which the cards should be used. In addition, some agencies do not

periodically review cardholders’ ongoing need for a card.

Cardholders should not approve their own expenditure.

At one agency, internal controls had not revealed that a significant number of cardholders

had incurred their own card expenditure from time to time or subordinates had incurred

the expenditure of more senior officers. This is contrary to sound practice and increases

the potential for inappropriate expenditure being approved.

Credit card expenditure should be reconciled with entitlements, for example, travel

allowances.

At one agency, there was no procedure to reconcile cash travel allowances provided to

cardholders against the credit card transactions they incurred while travelling. Although

audit sampling did not detect misuse, the absence of reconciliations increased the risk of

cardholders using their corporate cards and also retaining their cash allowance.

Asset Management of Computer Hardware, Furniture, Plant and Equipment

Audit Conclusions Asset management is generally satisfactory though a range of issues for attention were

identified at most of the agencies in the audit sample.

Audit testing at eight agencies resulted in positive assurance that:

asset disposals were properly authorised

lower value attractive items were appropriately safeguarded by way of property register

and periodic stocktakes.

The audit disclosed good practice asset management at three agencies:

Department of Agriculture

Police Service

State Housing Commission.

However, a range of deficiencies were noted at the other five agencies reviewed.




Recommendations

Agency management should place a higher priority on recording and managing public

property, and specifically:

review and reconcile asset records regularly to confirm that acquisitions, movements

and disposals have been recorded

reiterate asset capitalisation principles to staff and review expenditure accounts to

identify asset acquisitions that have been incorrectly expensed

commission thorough periodic stocktakes and follow-up discrepancies immediately

consider, and where necessary, approve asset write-offs in accordance with the FAAA.

Review and Findings Unsatisfactory findings at five of the eight agencies audited, included:

Errors identified in asset records at three agencies.

Audit sampled assets from the asset register and checked that they existed. At two

agencies, although agency staff assisted auditors, some assets could not be located. This

was either because the agencies had not recorded sufficient details of the assets, or the

assets had been moved without updating the asset register. Eventually, after much effort,

the agencies were able to confirm the existence of these assets. At one agency, some

assets sampled ‘from the floor’ for tracing to the asset records, had not been recorded in

the asset register.

It is important to note that inaccurate records also increase the cost of agencies’ own

stocktakes.

If agencies do not have accurate records of their assets, theft may pass undetected or

asset holdings may be misreported in the financial statements.

Asset stocktakes were not always thorough, with agencies failing to locate all assets and

confirm that asset records were accurate.

At one agency, stocktake discrepancies were not investigated in a timely manner, and

were only followed up by management when Audit raised the issue. At another agency,

Audit located four assets that were not located by agency staff during their stocktake. At

a third agency, there was inadequate separation of duties because the officer who

maintains the asset register also performed the stocktake on his own.

Periodic stocktakes are an important control as they help identify errors in asset records,

any unrecorded losses, destruction or theft, and opportunities to put assets to better use

elsewhere in the organisation.


Asset write-offs were given insufficient attention by management.

At one agency, mid-level management approved asset write-offs. This is contrary to the

FAAA and associated Regulations that require write-offs to be approved by the

Accountable Officer or Accountable Authority. At two other agencies, Audit identified

instances where agency staff had concluded that assets were lost/missing, but had not

informed senior management that a formal write-off was necessary.

Some purchases were capitalised as assets where they should have been expensed.

At two agencies, purchases were incorrectly capitalised instead of expensed. Although not

material, asset balances, depreciation, expenses and the capital user charge would have

been misstated in the financial statements if not identified by Audit. It is of note that at

one of these agencies, and at one other agency, maintenance of the asset register was

entrusted to one person, without checking or review by supervisors. Periodic review by

management should have identified these errors.

The general ledger was infrequently reconciled to the asset records, making the task of

identifying errors more time consuming.

At three agencies, the general ledger was infrequently reconciled to the asset register, with

one of these agencies only performing the reconciliation at year end. Asset records and

the general ledger balances were therefore inaccurate for most of the year.

Even if the asset register is complete and accurate, if the asset reconciliation is not

performed regularly, management is not assured that the general ledger asset balances are

correct.

Depreciation was incorrectly calculated at two agencies.

One of the errors was caused by system problems, and the other related to an asset being

incorrectly classified as a non-depreciable asset.

The following control weaknesses or errors in accounting treatment were identified, each

at one agency only:

There was no review of expenditure accounts to identify incorrect expensing of assets.

Manual journal entries by asset officers were not reviewed and appropriately

authorised. This increased the likelihood of incorrect entries passing undetected.

Some assets were recorded on spreadsheets, rather than in an asset management

system, increasing the likelihood of errors.

For asset disposals, auctioneers’ selling fees were incorrectly offset against the sale

proceeds, for financial reporting purposes.



Part 4: Act of Grace, Ex-Gratia and Like Payments

Audit Conclusions Agencies overall displayed good practice in justifying and seeking approval for act of

grace and like payments.

The need to obtain ministerial approval for small dollar value act of grace payments

warrants review on grounds of cost effectiveness.

Twenty-eight agencies made 559 Act of Grace (AoG) or ex-gratia payments totalling $3.4

million in the last two years. Justification and proper approvals were found for 93 per cent of

the payments.

Six per cent of AoG payments were small amounts (less than $2 000) with some payments

made for as little as $30. Obtaining ministerial approval for small payments is

administratively inefficient.

Recommendations Agencies making AoG or ex-gratia payments should ensure they comply with the

requirements of the relevant legislation or applicable government guidelines.

Government should consider changing legislation to allow Accountable Officers and

Authorities to approve small AoG payments.

Review and Findings AoG and ex-gratia payments are made by government when it considers that there is a moral

obligation to compensate for loss or damage or it has a responsibility to relieve a person or

body from a financial hardship and that it would be proper and just to do so.

AoG payments are made under the authority of the FAAA and must meet the specific

conditions of Treasurer’s Instruction 319. AoG payments require approval of the responsible

Minister or the Treasurer and the Governor (for payments over $50 000). Ex-gratia payments

are made by agencies under authority of their own Act or as a prerogative of government,

sometimes in accordance with specific government guidelines. Executive government

approval is often not required where the agencies make payments under their own Act.

Information on AoG and ex-gratia payments made by all government agencies in 2001-02

and 2002-03 and universities and TAFE colleges for their 2001 and 2002 academic years was

collected. The review then determined whether:

justification for the payments was evident

proper approval was obtained.


The following table shows the nature, incidence and total amount of each type of payment.

Nature of Payment Number of Total Number Total Amount Agencies of Payments of Payments

Death of officer in line of duty 2 7 $ 1 175 526

Injury of officer in line of duty 1 3 $100 500

Damage or loss of personal property 9 453 $769 977

Departmental Error 7 28 $29 827

Moral Obligation to Compensate 11 27 $133 735

Legal Costs Reimbursement 2 13 $351 779

Miscarriage of Justice 1 3 $535 445

Government Initiative1 1 10 $293 505

Other 4 15 $ 20 338

Total 559 $3 410 632

Table 5: Act of Grace and ex-gratia payments made by government agencies in the last two years 1 Housing Indemnity Insurance rescue package arising from collapse of HIH Insurance Group.

Source: OAG

Among the most costly types of payment were for death of an officer in the line of duty (refer

Table 5). Seven of these types of payments were made, five by the Police Service and two by

the Fire and Emergency Service. Audit noted that both agencies made procedural changes as

a consequence of the tragedies.

The most common types of AoG and ex gratia payments were for damage or loss of personal

property. Nine agencies made 453 of these types of payments. The Water Corporation made

approximately 90 per cent of these for reasons such as damage from burst water mains,

damage due to dirty water and sewerage over flow. Reasons for payments by other agencies

included:

flood victim compensation to government employees working in the north of the State

damages to jewellery and clothing of government employees. Some payments were for as

little as $30 but still required ministerial approval in accordance with Treasurer’s

Instruction 319.

The next most common type of payment was for departmental error. Often, the error was

provision of incorrect information to the public with the consequent need to compensate for

costs incurred.



PART 4: ACT OF GRACE, EX GRATIA AND LIKE PAYMENTS MADE BY GOVERNMENT AGENCIES (continued)

Audit generally found appropriate justification and authority to make the payments.

Exceptions were:

The Police Service made $117 000 in ex-gratia payments ($46 695 in the period under

review) for legal costs and damages relating to two police officers found by the District

Court and the Full Court Appeal to have maliciously charged and falsely imprisoned a

colleague. The payments arose from an undertaking given by the Police Service, and with

the knowledge of Government, to fully support the defendants against the action.

However, the support provided was inconsistent with government guidelines for providing

of legal support to police officers as:

some payments were made in the course of the litigation rather than once the action

was finalised

the guidelines do not provide for payment of damages when an officer is found to have

acted maliciously

support continued to the Full Court Appeal.

Subsequent legal advice to the Government was that the State had little prospect of

recovering the money already paid and in fact, was obliged to honour the commitment to

fully support the officers. The Police Service has since revised its procedures for

administering the government guidelines.

Ministerial approval for AoG payments was not obtained by the Department of Justice for

20 payments totalling $3 617, the Department of Agriculture for 12 payments totalling

$4 800 and the Department of Land Administration for one payment totalling $1 400. All

three agencies are amending their procedures to ensure future compliance.

Curtin University made five payments totalling $44 906 without ministerial approval.

Various senior managers authorised the different payments. Curtin has advised that

payment guidelines will be established but that under the Curtin University of Technology

Act 1966, ministerial approval is not required. However, Crown Solicitor’s Office advice is

that ministerial approval is required.


Part 5: Corporate Governance

Remuneration Disclosure Requirements Ministerial Portfolios Reports for the last three years have recommended that the legislation

of public sector corporations be updated to provide for disclosure of additional management

information similar to provisions of the Corporations Act 2001. Action to implement the

remaining recommendations was taken during 2002-03.

On May 24, 2002 and November 1, 2002, regulations were gazetted requiring the Water

Corporation and Western Power, respectively, to disclose in their annual reports the

remuneration of each director and their five highest paid officers.

Regulations gazetted on March 4, 2003 now require the port authorities to disclose similar

information. However, the port authorities, except Fremantle Port Authority (FPA), are

required to disclose the remuneration of the three highest paid officers. FPA reports on the

five highest paid officers.

Statement of Corporate Intent – Corporatised Entities At the core of the accountability requirements for corporatised entities is the need to prepare,

each year, a strategic development plan and a statement of corporate intent (SCI). This SCI is

a contractual agreement between each corporation and the Government, and facilitates an

evaluation of the corporation’s performance each year.

In 2002-03 and 2003-04, Western Power and the Water Corporation submitted their annual

SCI to their Ministers for review by March 31, as required. After receiving the Treasurer’s

concurrence, the 2002-03 SCIs were tabled by the responsible Ministers on June 27, 2002 and

September 19, 2002 respectively. Western Power’s 2003-04 SCI was tabled on November 19,

2003. However, the Water Corporation’s SCI was still to be tabled at November 21, 2003.

For 2002-03 and 2003-04 the eight port authorities submitted their SCI to the Minister by

March 31, as required. The 2002-03 SCIs for Esperance and Port Hedland port authorities

were tabled on November 26, 2002, Fremantle Port Authority on December 3, 2002 and the

remaining five on April 1, 2003. This is a considerable improvement on 2001-02 where the

year had ended before the SCIs were tabled. However, the 2003-04 SCIs had not been tabled

at November 21, 2003.

Until tabling of the new SCI, the draft SCI is the current contractual agreement between the

corporation and the Government. Although this situation is provided for in the legislation,

prudent practice would suggest SCIs submitted on time by each corporatised entity should be

reviewed and tabled in Parliament prior to commencement of the financial year to which it

relates. This would provide Parliament with the opportunity to consider each entity’s SCI and

deliberate on the contents in a timely manner.



Part 6: Accounting Issues

Only one new Accounting Standard (AASB 1044 Provisions, Contingent Liabilities and

Contingent Assets) took effect in 2002-03. However, modifications to existing Standards

(AASB 1012 Foreign Currency Translation and AASB 1028 Employee Benefits) and minor

changes to Treasurer’s Instructions were made. The adoption of these revised requirements

was generally properly handled.

There have, however, been continuing issues with the application of the asset revaluation

Standard (AASB 1041 Revaluation of Non-Current Assets reissued July 2001) due to its

complexity and ongoing transitional arrangements.

The application of International Financial Reporting Standards (IFRS) in Australia is a major

event and will provide significant challenges for agencies. Agencies need to plan now for this

change, which will require significant effort and management.

Asset Valuations Agencies have generally complied with the transitional provisions of Accounting Standard

AASB 1041, and are working towards full compliance for all non-current assets within the

required timeframes.

This Standard gave entities the option to revert to the cost basis or to continue on a valuation

basis. Transitional provisions of the Standard allow public sector agencies to progressively

revalue property, plant and equipment to fair value up to the 2006 reporting date. However,

Treasurer’s Instruction 954 Revaluation of Non-Current Physical Assets reissued on April 30,

2003, mandates the fair value option for the measurement of land and buildings by

government departments and statutory authorities from July 1, 2004. This requirement

means that those agencies which currently measure land and buildings on the cost basis will

need to commission valuations of these classes of assets on a fair value basis by the 2005

reporting date.

For other classes of non-current assets, agencies have until the 2006 reporting date to

progressively move to the fair value basis.

International Financial Reporting Standards International Financial Reporting Standards (IFRS) are set to apply in Australia from

January 1, 2005. This means that agencies with a December 31 reporting date (primarily

TAFE colleges and universities) should apply IFRS to the reporting period ending

December 31, 2005 whilst for June 30 reporting dates the new standards apply to the

reporting period June 30, 2006.


The International Accounting Standards Board has issued a new standard entitled IFRS 1

First-time Adoption of International Financial Reporting Standards. It is expected that the

Australian Accounting Standards Board (AASB) will in the near future issue an equivalent

Australian Standard.

This new standard will provide the basis and rules for the adoption of IFRS’s. One major

requirement is that the first set of financial statements prepared under IFRS must have

comparative information using IFRS. This means that agencies with a December reporting

date need to have systems and procedures in place to record transactions using IFRS, as well

as existing Australian Accounting Standards from January 1, 2004. Similarly agencies with a

June reporting date should do the same from July 1, 2004.

Recognising the major significance, Audit has provided agencies with a IFRS checklist to assist

them in preparing for the introduction of IFRS. The checklist has also been placed on the OAG

website. In addition the Department of Treasury and Finance has a project team identifying

and analysing the impact on financial reporting for public sector entities.



Part 7: Summary of Audit Results

Four qualified opinions on controls, compliance with relevant laws or financial

statements were issued, compared with 16 in the 2002 audit cycle.

Six qualified opinions on performance indicators were issued, the same number for the

2002 audit cycle.

Audit opinions on 178 financial statement and 133 performance indicator audits had been

issued at November 25, 2003 as part of the 2003 audit cycle. However, the audits of ten

statutory authorities, one cemetery board and two request audits were not finalised. In

addition, one subsidiary entity, two cemetery boards and three request audits have yet to

submit financial statements for audit. (Upper Preston Lowden Cemetery Board and Beverley

Frail Aged Lodge Inc also remain outstanding from 2001 and 2002.)

Audit Qualifications – Financial Statements and Controls Four agencies received qualified opinions on their controls, compliance with relevant laws or

financial statements. This represents a decrease on the 16 qualified opinions issued in the

2002 audit cycle. Prior to forming a qualified opinion, agency management is consulted.

Details of the qualified opinions issued and related comments are set out in Table 6.

Agency

Department of

Details of Qualification

Controls: The Department collected and retained $1.5 million in fees from

contracts. Legal advice indicates that the Department did not have authority to charge or retain the fees which were used to partially offset the cost of managing the common use contracts.

The Industry and Technology Development Act 1998 (ITD Act) created an Account to be used, as specified, for the purposes of that Act. When the Department merged its two financial systems in March 2002 it began processing all moneys through its operating account and stopped using the specified Account for ITD Act moneys. This contravened the ITD Act.

Comments

The Department was addressing this issue prior to being abolished on

responsible for the ITD Act

were utilising the specified Account for transactions for the remainder of the reporting period.

Industry and Technology suppliers under government common use

February 2, 2003.

The Department of Industry and Resources became

from February 2, 2003 and

continued page 23


continued from page 22

Agency Details of Qualification Comments

Government Employees Superannuation Board

Controls: The Board could not reconcile its bank account to the general ledger during the year as there were a significant number of unexplained reconciling items.

Last year’s qualification in respect to the payment of Gold State Superannuation equivalent payments into the Government Employees Superannuation Fund has been continued for the current year as the matter was not appropriately resolved until March 4, 2003.

An effective reconciliation at June 30, 2003 was achieved, subsequent to year end.

On March 4, 2003 the previous funding arrangements ceased and appropriate alternative arrangements were put in place to satisfactorily resolve this issue.

Minister for Health in his capacity as the Deemed Board of Metropolitan Public Hospitals

Controls: The Health Service did not have adequate controls in place to ensure that all postal remittances relating to Special Purpose Accounts were brought to account. In addition incurring and certifying officers were not performing all duties required by the Treasurer’s Instructions.

New procedures to address these control weaknesses, implemented after June 30, 2003, will be subject to audit review in the 2003-04 financial period.

Rottnest Island Authority

Controls and financial statements: The Authority relied on information provided

The Authority has made a concerted effort to resolve this

by third parties to determine the landing matter, including regulatory fee revenue due to the Authority. The amendments allowing access Authority did not have controls in place to the third parties’ records. to verify the accuracy or completeness of The new procedures, the information provided. Consequently implemented after June 30, an opinion could not be formed on 2003, will be subject to audit whether $3.29 million included as review in the 2003-04 Admission Fees in Revenue from Goods financial period. and Services was fairly presented.

Table 6: Qualified financial statement and control audit opinions and comments Source: OAG

Section 93(1)(a)-(c) of the FAAA requires an opinion on whether:

the financial statements are based on proper accounts and records

the financial statements fairly present the transactions for the period and the financial

position at the end of the period



PART 7: SUMMARY OF AUDIT RESULTS (continued)

the controls exercised by the agency “are sufficiently adequate to provide reasonable

assurance that the receipt, expenditure and investment of moneys and the acquisition and

disposal of public property and other property and incurring of liabilities have been in

accordance with legislative provisions”.

Audit opinions on agency financial statements and controls allow Parliament and other users

to place more reliance than would otherwise be possible on this information.

Qualified audit opinions are issued where financial statements do not fairly present, or where

controls within the agency were not operating effectively during the review period. This

generally occurs when:

agency has not complied with provisions of the FAAA, Treasurer’s Instructions or other

relevant laws

departure from accounting standards or other mandatory reporting requirements.

Agency management is responsible for keeping proper accounts and maintaining adequate

systems of internal control, preparing and presenting financial statements and performance

indicators and complying with FAAA and other relevant laws. Primary responsibility for the

detection, investigation and prevention of irregularities rests with agency management.

In forming an opinion, audit work involves judgement and most audit evidence is persuasive

rather than conclusive. Limitations in any audit include the use of sample testing, the

effectiveness of internal control structures and the possibility of collusion. As a result, audits

are not an absolute guarantee of the veracity or reliability of agency information and not all

matters of significance may be identified.

Audit Qualifications – Performance Indicators Performance indicators of 133 agencies were audited by November 25, 2003 and six received

qualified opinions. This represents a similar result to the six qualified opinions issued during

the 2002 audit cycle. Prior to forming a qualified opinion, agency management is advised of

Audit concerns and matters may be resolved to avoid a qualification. Details of the qualified

opinions issued and related comments are set out in Table 7.

Eleven agencies did not submit performance indicators as required by the FAAA, representing

an increase on 2001-02 when ten agencies did not submit performance indicators. In

2002-03 the 11 agencies not submitting were:

three that were abolished and only operated for part of the year: Commissioner of

Workplace Agreements, Department of Industry and Technology and Department of

Training


three that did not submit for 2002-03 following announcement of intention to abolish:

Agricultural Practices Board of Western Australia, Landcare Trust and Perth International

Centre for Application of Solar Energy

five that continue to not submit performance indicators: Aboriginal Affairs Planning

Authority, Administrations of the Legislative Assembly, Legislative Council and Joint House

Committee and Royal Commission Into Whether There Has Been Any Corruption Or Criminal

Conduct By Western Australian Police Officers.

Agency Details of Qualification Comments

Department of Health The reported key effectiveness indicators for Outcome 3 did not measure achievement of “Improvement in the quality of life of people with chronic illness or disability”.

In addition, the reported key efficiency indicators did not include approximately $185 million of the Department’s $563 million total expenditure for the year and were unable to be verified due to inadequate supporting documentation.

The Department is currently reviewing all performance indicators in order to address these issues.

Department of Land Administration

The Department was unable to collect performance data for its new effectiveness

The new effectiveness indicator was not

performance indicator for the outcome implemented in time to “Access to high quality spatial information is collect data for 2002-03. facilitated and coordinated by the Western However, the Department Australian Land Information System will be collecting baseline (WALIS) Office for the benefit of Western data during 2003-04. Australians”.

Eastern Goldfields The Board has not reported effectiveness The Board’s operations are Transport Board measures as it has been unable to accurately

measure the number and distribution of deficit funded and the Board considers any consultancy

people needful of public transport in the costs for the necessary area of its operations. research and surveys would

not be warranted.

Minister for Health in The key effectiveness indicators presented The agencies are currently his capacity as the by the three agencies for Outcome 3 were reviewing their performance Deemed Board of not key measures of “Improvement in the indicators to address this Metropolitan Public quality of life of people with chronic illness issue. Hospitals or disability”.

Peel Health Services

South West Health Board

Table 7: Qualified performance indicator audit opinions and comments

Source: OAG




Section 93(1)(d) of the FAAA requires an opinion on whether the reported performance

indicators “are relevant and appropriate having regard to their purpose and fairly represent

indicated performance”.

Qualified audit opinions are issued where the performance indicators are not relevant and

appropriate having regard to their purpose or do not fairly represent indicated performance.

Output Based Management (OBM) Structures and Government Desired Outcomes have

resulted in some agencies’ outcomes being at too high a level. In consequence, there is a need

to revisit outcomes and balance the input and output information required to develop

performance indicators with a better agency focus. Agencies need to assess the measurability

of their outcomes, level at which the outcomes and outputs are pitched, whether the

outcomes complement the Government Desired Outcomes and the usefulness of their Key

Performance Indicators (KPIs) to potential users.

A review of OBM is currently being undertaken by the Department of Treasury and Finance

including increased emphasis on outcomes and the need for agencies to develop relevant and

useful KPIs. As part of this review, the Department is currently revising Treasurer’s

Instruction (TI) 904 to address the following issues:

increased focus on outcomes, including where agencies share outcomes

removal of reference to output measures (given the proposal to drop output measures

from the budget statements)

scope to broaden the definition of outputs for efficiency indicators

value in focusing on key performance indicators

definition of efficiency

criteria for assessing the relevance/usefulness of KPIs

legal status of resource agreements.

When agencies comply with the revised TI or as a result of any changes to their outcomes,

their KPIs should be reviewed. Any changes to their KPIs should include ensuring that there

is comparability with earlier reported KPIs.

A case in point is the Department for Planning and Infrastructure. The Department’s outcome

statement was revised in 2002-03 although the Department’s operations had not changed

significantly. The Department, however, continued to report the same effectiveness indicators

and measures pending finalisation of a review of its outcome and performance indicators for

2003-04 reporting purposes.


Ministerial Portfolio Summary of Audit Opinions Issued The audit opinion, issued to the responsible Minister for each government agency, is tabled in

Parliament by the Minister and printed in full in the agency’s annual report and on their

website.

Results of annual audits of government agencies and other entities are shown in the following

table under one of two categories:

The Legislature This category includes the results of the three parliamentary departments.

Ministerial Portfolios The Government of the day assigns responsibility for the control of government agencies to

individual Ministers and the results of audits conducted under the FAAA are reported on this

basis.

The results of other audits involving financial statements only are also reported under this

category with:

subsidiary bodies, conducted under the Corporations Act 2001, with the related agency

boards under the Cemeteries Act are reported to the Minister for Local Government

request audits under section 78 of the FAAA are reported to the Treasurer.




Key to Table of Audit Opinions

The table lists each agency audited and whether the opinion was qualified or unqualified for

both its controls and financial statements and performance indicators and the date the

opinion was issued.

Unless otherwise noted, audit opinions relate to the reporting period July 1, 2002 to June 30,

2003. Performance indicators are only required for agencies reporting under the FAAA. These

opinions are issued on the same date as the financial statement audit opinions.

Agencies’ names are listed alphabetically without ‘The’ in their statutory titles.

The following symbols are used in the Ministerial Portfolio table:

unqualified opinion

N/A opinion is not applicable as performance indicators are not required to be submitted

* extension of time was granted by Minister for submission of financial statements and performance indicators and the extended timeframe was met

# late submission of certified financial statements and performance indicators

Table 8: Symbols in ministerial portfolio table

The details of each qualification are shown earlier in this report at Table 6 (for financial

statements and controls) and Table 7 (for performance indicators).


Audit Opinions Financial Statements Date Opinion Indicators Issued

Performance and Controls

The Legislature

Parliamentary Departments Administration of the Legislative Assembly

Administration of the Legislative Council

Administration of the Joint House Committee

Ministerial Portfolios

Not Submitted 17/10/2003



Premier; Minister for Public Sector Management; Federal Affairs; Science; Citizenship and Multicultural Interests Anti-Corruption Commission

Department of the Premier and Cabinet

Governor’s Establishment

Office of the Public Sector Standards Commissioner

Parliamentary Commissioner for Administrative Investigations

Royal Commission into Whether There Has Been Any Corrupt Or Criminal Conduct By Western Australian Police Officers

Deputy Premier;Treasurer; ANZAC Day Trust (01/01/02 – 31/12/02)

Department of Treasury and Finance

Office of Energy

Perth International Centre for Application of Solar Energy

Treasurer’s Annual Statements

Minister for Energy

Western Australian Gas Disputes Arbitrator

Western Australian Independent Gas Pipelines Access Regulator

Western Australian Treasury Corporation

Western Power Corporation Subsidiary: Wind Energy Corporation Pty Ltd

Not Submitted

Not Submitted

N/A

N/A N/A

28/10/2003

15/10/2003

19/09/2003

30/09/2003

20/10/2003

29/08/2003

27/03/2003

15/10/2003

15/10/2003

21/11/2003

31/10/2003

31/10/2003

31/10/2003

29/08/2003

29/07/2003 11/09/2003






Deputy Premier;Treasurer; Minister for Energy (continued)

Request Audits

Aberdeen Unit Trust N/A 30/09/2003

Beverley Frail Aged Lodge (Inc) Not Submitted (3 years ending 30/06/01, 30/06/02 and 30/06/03)

Consolidated Financial Statements for the State Audit in Progress of Western Australia

Curtin University of Technology Superannuation Scheme 1968-1993 (01/07/01 - 30/06/02) N/A 31/01/2003

(01/07/02 - 30/06/03) N/A 28/10/2003

Director of Legal Aid and Others in Trust N/A 31/07/2003

Foundation for Advanced Medical Research Inc Not Submitted

Friends of the KEMH Inc Not Submitted

Ngala Inc N/A 17/09/2003

SB Investment Trust N/A 21/10/2003

South West Cogeneration Joint Venture Audit in Progress

Swan Bells Foundation Incorporated N/A 19/11/2003

Tertiary Institutions Service Centre (Inc) N/A 16/09/2003

Minister for Agriculture, Forestry and Fisheries; the Mid-West,Wheatbelt and Great Southern Agricultural Practices Board of Western Australia Not Submitted 05/11/2003

Agriculture Produce Commission 31/10/2003

Agriculture Protection Board of Western Australia 31/10/2003

Department of Agriculture 30/09/2003

Department of Fisheries 26/09/2003

Forest Products Commission 31/10/2003

Great Southern Development Commission 10/10/2003

Landcare Trust Not Submitted 05/11/2003

Mid-West Development Commission 12/11/2003

Perth Market Authority 07/11/2003

Potato Growing Industry Trust Fund Advisory 05/11/2003 Committee

Potato Marketing Corporation of Western Australia# Audit in Progress Subsidiary: Fresh Western Pty Ltd Not Submitted

Poultry Industry Trust Fund Committee 05/11/2003 (01/08/02 – 31/07/03)

Rural Business Development Corporation Audit in Progress

Western Australian Egg Marketing Board* 06/11/2003

Western Australian Meat Industry Authority Audit in Progress

Wheatbelt Development Commission 31/10/2003




Minister for Local Government and Regional Development; Heritage; the Kimberley, Pilbara and Gascoyne; Goldfields-Esperance Department of Local Government and Regional

Development* 26/09/2003

Fremantle Cemetery Board (Final Audit) 04/11/2003

Gascoyne Development Commission 14/11/2003

Goldfields-Esperance Development Commission 10/10/2003

Heritage Council of Western Australia 12/11/2003

Kimberley Development Commission 10/10/2003

Metropolitan Cemeteries Board 27/08/2003

National Trust of Australia (WA) 19/11/2003

Pilbara Development Commission 31/10/2003

Cemeteries Act Audits

The following cemetery boards audited under the Cemeteries Act do not have a statutory date for submitting financial statements.

Details of Cemetery Board audits completed are:

Albany Cemetery Board N/A 30/10/2003

Bunbury Cemetery Board N/A 12/11/2003

Chowerup Cemetery Board Not Submitted

Dwellingup Cemetery Board N/A 29/10/2003

Geraldton Cemetery Board N/A 25/11/2003

Kalgoorlie-Boulder Cemetery Board Audit in Progress

Nabawa Cemetery Board N/A 25/11/2003 (Final Audit: 01/07/02 - 31/08/03)

South Caroling Cemetery Board N/A 07/11/2003

Upper Preston-Lowden Cemetery Board Not Submitted (3 years ending 30/06/01, 30/06/02 and 30/06/03)

Minister for Consumer and Employment Protection; Indigenous Affairs; Minister Assisting the Minister for Public Sector Management Aboriginal Affairs Planning Authority Not Submitted 21/10/2003

Building and Construction Industry Training Board 31/10/2003

Commissioner of Workplace Agreements Not Submitted 05/03/2003 (Final Audit: 01/07/02 – 15/09/02)

Construction Industry Long Service Leave 07/11/2003 Payments Board

Department of Consumer and Employment Protection 10/10/2003

Department of Indigenous Affairs* 17/10/2003

Department of the Registrar, Western Australian 09/09/2003 Industrial Relations Commission

Real Estate and Business Agents Supervisory Board 04/11/2003

Settlement Agents Supervisory Board 04/11/2003

Workers’ Compensation and Rehabilitation Commission 27/08/2003






Attorney General; Minister for Health; Electoral Affairs Animal Resources Authority Audit in Progress

Commissioner for Equal Opportunity 22/09/2003

Department of Health Qualification 10/10/2003

Department of Justice 10/10/2003

Hawthorn Hospital 20/11/2003

Law Reform Commission of Western Australia 14/10/2003

Legal Aid Commission of Western Australia 28/08/2003

Legal Contribution Trust (01/01/03 – 30/06/03) 05/11/2003

Legal Contribution Trust (01/07/02 – 31/12/02) 17/04/2003

Legal Costs Committee 24/10/2003

Local Health Authorities Analytical Committee* Audit in Progress

Minister for Health in his capacity as the Deemed Qualification Qualification 19/11/2003 Board of Metropolitan Public Hospitals

Office of Health Review Audit in Progress

Office of the Director of Public Prosecutions 24/09/2003

Office of the Information Commissioner 19/09/2003

Peel Health Services Qualification 20/11/2003

Professional Standards Council (01/01/02 – 31/12/02)# 18/07/2003

Quadriplegic Centre Board 19/11/2003

Queen Elizabeth II Medical Centre Trust 25/11/2003

South West Health Board Qualification 20/11/2003

WA Country Health Service Audit in Progress

Western Australian Alcohol and Drug Authority 07/11/2003

Western Australian Centre for Pathology and Audit in Progress Medical Research

Western Australian Electoral Commission 23/09/2003

Western Australian Health Promotion Foundation 22/10/2003

Minister for the Environment Botanic Gardens and Parks Authority* Audit in Progress

Bunbury Water Board 14/11/2003

Busselton Water Board 19/11/2003

Department of Conservation and Land Management 15/09/2003

Department of Environmental Protection 14/10/2003

Keep Australia Beautiful Council (WA) 26/09/2003

Office of Water Regulation 08/09/2003

Swan River Trust* 12/11/2003

Water and Rivers Commission 14/11/2003

Zoological Parks Authority 30/09/2003




Minister for Police and Emergency Services; Justice; Community Safety Fire and Emergency Services Authority of 30/09/2003

Western Australia

Office of the Inspector of Custodial Services 08/08/2003

Police Service 10/10/2003

Public Trustee 30/09/2003

Western Australian Fire Brigades 31/10/2003 Superannuation Board

Minister for Planning and Infrastructure Albany Port Authority

Armadale Redevelopment Authority

Broome Port Authority

Bunbury Port Authority

Commissioner of Main Roads Subsidiary: Tarolinta Pty Ltd

Dampier Port Authority

Department for Planning and Infrastructure

East Perth Redevelopment Authority

Eastern Goldfields Transport Board#

Esperance Port Authority

Fremantle Port Authority

Geraldton Port Authority

Metropolitan (Perth) Passenger Transport Trust (Final Audit)

Midland Redevelopment Authority

Port Hedland Port Authority

Subiaco Redevelopment Authority

Western Australian Coastal Shipping Commission

Western Australian Government Railways Commission (Final Audit)

Western Australian Independent Rail Access Regulator

Western Australian Land Authority

Western Australian Planning Commission

N/A 30/09/2003

14/11/2003

N/A 26/09/2003

N/A 12/09/2003

30/09/2003 N/A 30/09/2003

N/A 30/09/2003

15/10/2003

03/11/2003

Qualification 20/11/2003

N/A 26/09/2003

N/A 29/08/2003

N/A 26/09/2003

31/10/2003

14/11/2003

N/A 30/09/2003

03/11/2003

14/11/2003

30/09/2003

31/10/2003

30/09/2003

31/10/2003






Minister for State Development Coal Industry Superannuation Board 24/10/2003

Coal Miners’ Welfare Board of Western Australia 12/11/2003

Department of Industry and Resources* 29/10/2003

Department of Industry and Technology Qualification Not Submitted 30/09/2003 (Final Audit: 01/07/02 - 02/02/03)

Minerals and Energy Research Institute of 18/11/2003 Western Australia

Minister for Education and Training Country High School Hostels Authority 17/11/2003

Curriculum Council# 13/10/2003

Department of Education and Training* 14/11/2003

Department of Education Services 30/09/2003

Department of Training Not Submitted 26/06/2003 (Final Audit: 01/07/02 - 02/02/03)

Trustees of the Public Education Endowment 22/09/2003

Minister for Community Development;Women’s Interests, Seniors and Youth; Disability Services; Culture and the Arts Board of the Art Gallery of Western Australia

Department for Community Development

Department of Culture and the Arts

Disability Services Commission

Library Board of Western Australia

Perth Theatre Trust

Screen West (Inc)

Western Australian Museum

30/09/2003

15/10/2003

17/09/2003

27/08/2003

14/11/2003

14/11/2003

14/11/2003

12/11/2003




Minister for Tourism; Small Business; Sport and Recreation; Peel and the South West Department of Sport and Recreation 14/10/2003

Peel Development Commission 06/11/2003

Recreation Camps and Reserve Board 28/10/2003

Rottnest Island Authority Qualification 31/10/2003

Small Business Development Corporation 12/11/2003

South West Development Commission 25/09/2003

Western Australian Boxing Commission 28/10/2003

Western Australian Institute of Sport* 14/11/2003

Western Australian Sports Centre Trust 14/11/2003

Western Australian Tourism Commission 19/11/2003

Minister for Housing and Works; Racing and Gaming; Government Enterprises; Land Information Betting Control Board (01/08/02 - 31/07/03) 17/10/2003

Burswood Park Board 11/11/2003

Country Housing Authority 29/08/2003

Department of Housing and Works 25/09/2003

Department of Land Administration Qualification 15/10/2003

Department of Racing, Gaming and Liquor 15/09/2003

Gaming Commission of Western Australia 04/11/2003

Gold Corporation 21/11/2003

Government Employees’ Housing Authority# 18/09/2003

Government Employees Superannuation Board Qualification 21/10/2003

Insurance Commission of Western Australia 27/08/2003

Lotteries Commission 28/08/2003

Racecourse Development Trust (01/08/02 - 31/07/03) 12/11/2003

Racing Penalties Appeal Tribunal of Western Australia 17/10/2003 (01/08/02 - 31/07/03)

State Government Insurance Corporation 27/08/2003

State Housing Commission 29/08/2003 Subsidiaries: Homeswest Loan Scheme Trust N/A 29/08/2003

Keystart Bonds Limited N/A 29/08/2003 Keystart Housing Scheme Trust N/A 29/08/2003 Keystart Loans Limited N/A 29/08/2003 Keystart Support (Subsidiary) Pty Ltd N/A 29/08/2003 Keystart Support Pty Ltd N/A 29/08/2003 Keystart Support Trust N/A 29/08/2003

State Supply Commission* Audit in Progress

Totalisator Agency Board (01/08/02 - 31/07/03) 26/09/2003

Water Corporation N/A 28/08/2003

Western Australian Building Management Authority 25/09/2003

Western Australian Greyhound Racing 31/10/2003 Authority (01/08/02 – 31/07/03)



Appendix 1

Audit Opinion Template

INDEPENDENT AUDIT OPINION

To the Parliament of Western Australia

{ENTITY NAME}

FINANCIAL STATEMENTS FOR THE {PERIOD} ENDED {DATE}

Audit Opinion

In my opinion,

(i) the controls exercised by the {Entity Name} provide reasonable assurance that the receipt and expenditure

of moneys, the acquisition and disposal of property, and the incurring of liabilities have been in accordance

with legislative provisions; and

(ii) the financial statements are based on proper accounts and present fairly in accordance with applicable

Accounting Standards and other mandatory professional reporting requirements in Australia and the

Treasurer’s Instructions, the financial position of the {Entity} at {Date} and its financial performance and

cash flows for the {Period} ended on that date.

Scope

The Accountable Officer’s Role

The Accountable Officer is responsible for keeping proper accounts and maintaining adequate systems of internal

control, preparing the financial statements, and complying with the Financial Administration and Audit Act 1985

(the Act) and other relevant written law.

The financial statements consist of the Statement of Financial Performance, Statement of Financial Position,

Statement of Cash Flows, Output Schedule of Expenses and Revenues, Summary of Consolidated Fund

Appropriations and Revenue Estimates, and the Notes to the Financial Statements.

Summary of My Role

As required by the Act, I have independently audited the accounts and financial statements to express an opinion

on the controls and financial statements. This was done by looking at a sample of the evidence.

An audit does not guarantee that every amount and disclosure in the financial statements is error free. The term

‘reasonable assurance’ recognises that an audit does not examine all evidence and every transaction. However,

my audit procedures should identify errors or omissions significant enough to adversely affect the decisions of

users of the financial statements.

AUDITOR GENERAL

Month , xxxx


INDEPENDENT AUDIT OPINION

To the Parliament of Western Australia

{ENTITY NAME}

PERFORMANCE INDICATORS FOR THE {PERIOD} ENDED {DATE}

Audit Opinion

In my opinion, the key effectiveness and efficiency performance indicators of the {Entity Name} are relevant and

appropriate to help users assess the {Entity}’s performance and fairly represent the indicated performance for the

{Period} ended {Date}.

Scope

The Accountable Officer’s Role

The Accountable Officer is responsible for developing and maintaining proper records and systems for preparing

performance indicators.

The performance indicators consist of key indicators of effectiveness and efficiency.

Summary of My Role

As required by the Financial Administration and Audit Act 1985, I have independently audited the performance

indicators to express an opinion on them. This was done by looking at a sample of the evidence.

An audit does not guarantee that every amount and disclosure in the performance indicators is error free, nor

does it examine all evidence and every transaction. However, my audit procedures should identify errors or

omissions significant enough to adversely affect the decisions of users of the performance indicators.

AUDITOR GENERAL

Month , xxxx



Appendix 2

Audit Practice Statement

Introduction Practice Statements are issued in accordance with Section 95(1)(b) of the Financial

Administration Audit Act 1985 (FAAA). This Section of the Act requires the Auditor General

to inform Parliament of any major change in the extent or character of his audits. This

Statement replaces two previous major statements released in May 1996 (Public Sector Attest

Audit Practice Statement) and November 1997 (Examining and Auditing Public Sector

Performance), as well as the periodic updates released since then.

This new Statement offers an updated, concise, and consolidated plain English summary of:

why we audit

what we audit

how we audit.

To support the release of this new Practice Statement the Office of the Auditor General’s

website has also been enhanced to provide more information on our audit practices

(http://www.audit.wa.gov.au).

Why We Audit? In the Westminster system of government, all authority for government activity ultimately

stems from Parliament. Public sector agencies are therefore accountable to Parliament for

their use of public resources and the powers conferred on them by Parliament.

To assist it to oversee the public sector, Parliament seeks independent assurance that

agencies are operating, and accounting for their performance, in accordance with

Parliament’s purpose. This is the Auditor General’s role, whose office and functions are

established by means of the FAAA.

Adverse comments, recommendations, or audit qualifications by the Auditor General alert

Parliament, and thus the public, to matters of concern. Positive reports and opinions, on the

other hand, add credibility to management’s assertions, allowing users to place more reliance

on such information.

Specifically the Auditor General:

audits and provides an opinion to Parliament on each public sector agency’s annual

financial statements and performance indicators

provides an opinion on the adequacy of controls in satisfying legislative provisions

conducts performance examinations

reports to Parliament any significant matters.


What We Audit? In 2002-03 the Auditor General audited a public sector of some 115 000 employees, with a

combined revenue and expenditure in excess of $28 billion.

Organisations audited by the Auditor General include:

government departments

statutory authorities

controlled entities

State-owned corporations.

For a comprehensive list of audited agencies refer to our Annual Report.

How We Audit?

General Principles To achieve the vision and objectives of the OAG, the Office adheres to the following principles:

all audits are conducted in accordance with professional standards and international best

practice

the highest standards of ethical and personal behaviour are demonstrated

all audits are approached in a fair and constructive way

audits are conducted and reported in an impartial manner.

Types of Audits The Auditor General undertakes two types of audits.

Assurance: audits the ‘assertions’ made by public sector agencies about their financial and

non-financial performance, providing assurance that these statements are ‘true and fair’

Compliance and Performance examinations: investigations of agency operations, including

their efficiency and effectiveness to determine whether funds are spent in accordance with

Parliament’s expectations.



AUDIT PRACTICE STATEMENT (continued)

Common Elements

Limitations

There are limitations to any external audit that users need to be aware of.

Audits are not an absolute guarantee of the truth or reliability of agency information, and

may not have identified all matters of significance. This is because the work undertaken

to form an opinion is permeated by judgement and most audit evidence is persuasive

rather than conclusive. In addition, there are inherent limitations in any audit, including

the use of testing, the effectiveness of internal control structures and the possibility of

collusion.

Primary responsibility for the detection, investigation and prevention of irregularities

rests with agency management. Consequently it is an agency’s management who remains

responsible for keeping proper accounts and maintaining adequate systems of internal

control, preparing and presenting the financial statements, complying with the FAAA and

other relevant laws.

While Performance and Compliance Examinations can be a catalyst for positive change,

the Auditor General cannot, and should not, be seen as the implementer of such change.

This remains the responsibility of agency management, and ultimately Parliament.

Audit Evidence

Sufficient evidence is gathered to enable conclusions and recommendations to be made.

Audit staff gather information and evidence from a range of sources including agency records,

data analysis, interviews with relevant staff members and surveys or client questionnaires.

Audit work may also include discussions with special interest groups, gathering and analysing

information from contracted agencies and special studies.

Access to Information

Under the FAAA, audit staff have unrestricted access to information held by agencies,

irrespective of any restrictions on disclosure imposed by other legislation such as secrecy

provisions.

Confidentiality of audit files and working papers is provided by the fact that the Office of the

Auditor General is an ‘exempt agency’ under the Freedom of Information Act 1992.


Communication

Good communication with each agency is a vital part of the audit process.

Entry interviews are held to clarify the examination scope and to agree on communication

protocols.

Significant findings and emerging issues that arise during the examination are progressively

discussed with an agency’s CEO and/or nominated contact officer to ensure that they are kept

fully informed.

Matters of Significance

Under the FAAA the Auditor General is required to report, at least once a year on the results

of audits that “… in his opinion are of such significance as to require reporting …”. The

Auditor General has defined these Matters of Significance as the key messages in OAG reports

and further defined ‘key messages’ as the issues a general parliamentary reader would take

away from the report after the detail of specific findings and recommendations has receded

into the background.

Acting on Recommendations of the Auditor General

The Auditor General has no authority to enforce the adoption of recommendations arising

from an audit. Adoption of the recommendations is a decision for the agencies concerned, or

the prerogative of Parliament and the Executive Government.

The Public Accounts Committee of Parliament reviews the reports of the Auditor General and

may require agencies to advise on action taken in respect of matters raised in reports.

Assurance Audits

Financial and Performance Indicator Audits

The Office undertakes two types of assurance audits: audits of financial statements, and audits

of performance indicators. Together the audits provide independent assurance to Parliament

regarding the financial statements and key performance indicators included an agency’s

Annual Report.

Financial Audits

Financial Audits focus on public sector agency’s annual financial statements. They provide

assurance to Parliament that the information provided is based on proper accounts, and is

presented fairly in accordance with applicable Accounting Standards and other mandatory

professional reporting requirements, including the Treasurer’s Instructions. The Auditor




General’s opinion will also state whether the controls exercised by the agency provide

reasonable assurance that the receipt, expenditure, and investment of monies, the acquisition

and disposal of property, and the incurring of liabilities have been in accordance with relevant

legislation.

Performance Indicator Audits

The Auditor General’s audit of performance indicators differs from his financial audits in that

the audit opinion not only addresses the traditional area of ‘fair representation’ but also

provides an assessment of whether or not the indicators are relevant and appropriate having

regard to their purpose.

Assurance Audit Resources Assurance Services Division (ASD) staff of the OAG undertake both the Financial and

Performance Indicator audits. Private sector contractors appointed under the FAAA are

contracted by the Division to assist with audit work. At least 20 per cent of field audits are

contracted in this way to cost effectively procure specialist expertise. In addition, this sustains

a level of public sector expertise in the market that can be accessed to cope with peaks in

workload.

The audits of Consolidated Fund dependent agencies are funded from Parliament’s

appropriation and are not paid for by the audited agencies, although the cost is disclosed in

their financial statements. Other agencies are required to pay for their audits.

Methodology The financial attest audit process is risk based and audit software is used during the planning,

analysis and testing, and evaluation phases. The OAG uses an internationally recognised

audit methodology adapted to the public sector environment. The OAG’s Audit

Documentation and Planning Tool (ADAPT) is a dynamic database of tools and techniques that

enable each audit program to be individually tailored to address each agency’s specific risk

profile.


The Assurance Audit Process

Strategic Planning

and management controls through discussion with agency management and previous audits; assessing

audit strategy and audit plan including an estimated cost of the audit.

Occurs prior to commencing the audit and involves discussing the audit strategy with agency management/audit committee. The plan includes the mix of compliance testing and verification procedures developed for the audit and an estimate of cost.

controls assessment results are reported in an interim management letter and discussed with

assess whether additional audit procedures are

Involves audit analysing, verifying and assessing financial statement balances for compliance with legislation and accounting standards; verifying and

appropriateness; reporting findings in a final management letter and discussions with

Involves: presenting the audit opinion to the Minister

report and advising the Minister of any significant

identified during these audits are tabled in

management is given the opportunity to consider the

inclusion in these reports so that natural justice is

a briefing shortly after the tabling.

and Commencement

Management Letter and

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Involves identifying organisational risks, governance

internal controls and information systems based on knowledge of agency’s operations; and develop an

To keep agency management informed internal

agency management/audit committee. Audit also

required to form an opinion.

assessing performance indicators for relevance and

management/audit committee at the exit interview.

Audit Opinion and Report to Minister

for tabling in Parliament in the agency’s annual

issues discussed with the agency at the exit interview.

Reports on the attest audit results and issues

Parliament in December and June each year. Agency

accuracy and fairness of any article drafted for

preserved. Ministers are briefed prior to the report tabling and Members of Parliament are provided with

Entrance Interview

Interim Management Findings

Final Audit Procedures,

Exit Interview

Report to Parliament




Compliance and Performance Examinations

Examinations The Office undertakes two types of performance examinations – Compliance and

Performance. They provide independent assurance to Parliament and the community that

funds appropriated for particular activities are spent wisely and in accordance with

Parliament’s expectations. They reinforce the accountability of Ministers and public sector

managers for their performance, as well as recognising and advising Parliament of

management initiatives and achievements. The examinations are undertaken in accordance

with section 80 (b) of the FAAA.

Compliance and Performance examinations reinforce the accountability of Ministers and

public sector managers for their performance, as well as recognising and advising Parliament

of management initiatives and achievements.

Compliance Examinations

Compliance examinations provide assessment of the internal controls and legislative

compliance of an agency. They generally involve assessing:

the adequacy of internal controls and the functionality of computerised information

systems

compliance with legislation, public sector policies, an agencies own internal policies and

accepted good practice

instances of inefficiency, waste or extravagance.

Performance Examinations

Performance examinations evaluate whether an agency is effectively meeting its objectives

and using its resources economically and efficiently. They can cover all or part of the activities

of an agency or agencies. The examinations seek to improve resource management and add

value to an agency through recommendations on improving operations and procedures.

Resourcing Compliance and Performance Examinations Two separate Divisions of the OAG undertake these examinations, namely the Compliance

and Information Systems Division and the Performance Review Division. Internal staff

principally conduct the examinations, though specialist assistance is obtained on an as

required basis.


Methodology All reviews are conducted using the Office’s own methodology which complies with the FAAA,

and is broadly consistent with the general principles of the Australian Auditing Standards.

The Examination Process

environmental scans. Approved topics are periodically prioritised.

Agency CEO notified that the topic is being researched. Communication protocols are established.

usefulness of proceeding and the scope and

the end of the field-work, review findings,

and discuss with the CEO/senior management.

day of tabling.

Planning Phase

Collate and Analyse

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Topic Identification Potential topics are identified through year-round

Notification of Audit/Review

Research the business area, conclude on the

approach of the examination.

Conduct the examination according to the work program. Ensure that the agency is kept informed of preliminary findings.

Atassess significance, determine recommendations

Draft Summary of Findings is provided to agency for confirmation of facts and context.

Report to Parliament The report is tabled in Parliament. Members of Parliament are usually provided a briefing on the

Undertake Field-Work

Draft Summary of Findings




Following up Examinations Follow-up reviews are generally done on significant compliance and performance

examinations, usually around two to three years after the report is tabled. These follow-ups

aim to provide Parliament with an assessment of changes that have occurred as a result of

the initial examination.

Follow-up reviews are not undertaken when circumstances have changed significantly since

the original report.

Further Information For more information on how we go about conducting our audits, including additional

explanation on some of the items included in this Practice Statement, please refer to

http://www.audit.wa.gov.au.


Previous Reports of the Auditor General

1999 Report on the Western Australian Public Health Sector – Matters of Significance

– Summary of the Results of Agency Audits April 21, 1999

Proposed Sale of the Central Park Office Tower – by the Government Employees Superannuation Board April 21, 1999

Lease now – pay later? – The Leasing of Office and Other Equipment June 30, 1999

Getting Better All The Time – Health Sector Performance Indicators June 30, 1999

Report on the Western Australian Public Tertiary Education Sector – 1998 Annual Reporting Cycle June 30, 1999

Fish for the Future? – Fisheries Management in Western Australia October 13, 1999

Public Sector Performance Report 1999 – Controls, Compliance and Accountability Audits – Follow-up Performance Examinations November 10, 1999

A Stitch in Time – Surgical Services in Western Australia November 24, 1999

Report on Ministerial Portfolios to November 5, 1999 – Issues Arising from Audits – General Control Issues – Summary of the Results of Agency Audits November 24, 1999

2000 Public Sector Performance Report 2000 – Emerging Issues – Management Control Issues April 5, 2000

Report on the Western Australian Public Health Sector and of Other Ministerial Portfolio Agencies for 1999 April 5, 2000

A Means to an End – Contracting Not-For-Profit Organisations for the Delivery of Community Services June 14, 2000

Private Care for Public Patients – A Follow-on Examination of the Joondalup Health Campus Contract June 21, 2000

Report on Western Australian Public Universities and TAFE Colleges – 1999 Annual Reporting Cycle June 21, 2000

Bus Reform: Further down the road – A follow-on examination into competition reform of Transperth bus services June 28, 2000

Surrender Arms? – Firearm Management in Western Australia September 13, 2000

Second Public Sector Performance Report 2000 – Administration of Legislation – Financial and Management Control Issues October 11, 2000

A Tough Assignment – Teacher Placements in Government Schools October 18, 2000

Report on Ministerial Portfolio at December 1, 2000 – Summary of Audit Results – Accountability Issues (Corporate Governance, Accounting for GST Transitional Loan) December 20, 2000

2001 Sale of the Gas Corporation’s Businesses (Special Report) February 14, 2001

On-line and Length? – Provision and Use of Learning Technologies in Government schools May 23, 2001

Implementing and Managing Community Based Sentences May 30, 2001

Public Sector Performance Report, 2001 – Administration of Legislation – – Financial and Management Control Issues – Follow-up Examination June 20, 2001

Report on Public Universities and TAFE Colleges – 2000 annual reporting cycle June 20, 2001

Lifting the Rating: Stroke Management in Western Australia August 22, 2001

Good Housekeeping: Facilities Management of Government Property and Buildings August 29, 2001

Second Public Sector Performance Report 2001 – Management , Compliance and Control Issues – Follow-up Performance Examinations September 19, 2001

Righting the Wrongs: Complaints Management in the Western Australian Public Sector October 17, 2001



2001 (continued) Third Public Sector Performance Report 2001 – Appointment and Use of Contract Staff

– Management of Mobile Phones in Government – Ombudsman’s Statistics and Complaints Automated Register Project – The Perth Convention Centre

Life Matters: Management of Deliberate Self-Harm in Young People

First Byte: Consortium IT Contracting in the Western Australian Public Sector

Report on Ministerial Portfolios at November 30, 2001 – Summary of Audit Results – Accounting and Contemporary Issues – Summary Results of Agency Audits

2002 Level Pegging: Managing Mineral Titles in Western Australia

Report on Public Universities and TAFE Colleges and of other Ministerial Portfolio Agencies for 2001

A Critical Resource: Nursing Shortages and the Use of Agency Nurses

Public Sector Performance Report 2002 – Agency Management of Fringe Benefits Tax – Common Use Contracts in Government – Procurement of Medical Equipment – Follow-up Performance Examination

A Measure of Protection: Management and Effectiveness of Restraining Orders

Grounds for Improvement: Government Owned or Controlled Contaminated Sites

Management of Hospital Special Purpose Accounts

Second Public Sector Performance Report 2002 – Management of Confidential Personal Information in Government Electronic Databases – Management of Intellectual Property by the Department of Agriculture – Performance Examination: Family Centres

Report on Ministerial Portfolios at November 29, 2002

2003 Customer Calling: Call Centres and the Delivery of Customer Benefits

Contracting Not-For-Profit Organisations for Delivery of Health Services

Supplementary Report on Ministerial Portfolio Agency Audits for 2001-02, primarily the Public Health Sector

Public Sector Performance Report – Management of Marine Safety and Seas Search and Rescue – Regulation of the Taxi Industry and Small charter Vehicles – Security of the Government Internet Gateway

Report on Public Universities and TAFE Colleges for 2002

Balancing Act: The Leasing of Government Assets

Second Public Sector Performance Report 2003 – Management of Water Resources in Western Australia – Regulation of Gaming and Wagering in Western Australia – Performance Examination

A Roof Over Our Heads: Maintenance of Public Housing

Turning the Tide: The Business Sustainability of the Rottnest Island Authority

The above reports can be accessed on the

November 7, 2001

November 28, 2001

December 5, 2001

December 19, 2001

June 19, 2002

August 14, 2002

August 14, 2002

September 25, 2002

October 16, 2002

November 13, 2002

November 27, 2002

December 4, 2002

December 11, 2002

April 2, 2003

April 16, 2003

June 11, 2003

June 25, 2003

August 13, 2003

September 17, 2003

September 24, 2003

October 29, 2003

November 26, 2003

Office of the Auditor General’s website at www.audit.wa.gov.au/

On request these reports may be made available in an alternative format for those with visual impairment.


Documents

REPORT ON MINISTERIAL PORTFOLIOS AT NOVEMBER 25, 2003€¦ · REPORT ON MINISTERIAL PORTFOLIOS AT NOVEMBER 25, 2003 Part 2: Financial Statements and Performance Indicators There is