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  • W ater Entities: R

    esults of the 2012–13 A udits

    2013–14:18 D

    ecem b

    er 2013

    Level 24 35 Collins Street Melbourne Vic. 3000

    Telephone 61 3 8601 7000 Facsimile 61 3 8601 7010 www.audit.vic.gov.au

    Victorian Auditor-General’s Report December 2013 2013–14:18

    Water Entities: Results of the 2012–13 Audits

  • V I C T O R I A

    Victorian Auditor-General

    Water Entities: Results of the 2012–13 Audits

    Ordered to be printed

    VICTORIAN

    GOVERNMENT PRINTER

    December 2013

    PP No 290, Session 2010–13

  • This report is printed on Monza Recycled paper. Monza Recycled is certified Carbon Neutral by The Carbon Reduction Institute (CRI) in accordance with the global Greenhouse Gas Protocol and ISO 14040 framework. The Lifecycle Analysis (LCA) for Monza Recycled is cradle to grave including Scopes 1, 2 and 3. It has FSC Mix Certification combined with 55% recycled content.

    ISBN 978 1 922044 73 0

  • Victorian Auditor-General’s Report Water Entities: Results of the 2012–13 Audits iii

    The Hon. Bruce Atkinson MLC The Hon. Ken Smith MP President Speaker Legislative Council Legislative Assembly Parliament House Parliament House Melbourne Melbourne

    Dear Presiding Officers

    Under the provisions of section 16AB of the Audit Act 1994, I transmit my report on Water Entities: Results of the 2012–13 Audits.

    This report summarises the results of the financial audits of the 19 water entities and one controlled entity for the year-ended 30 June 2013.

    It informs Parliament about significant issues identified during our audits and complements the assurance provided through individual audit opinions included in the entities’ annual reports.

    The report highlights the increase in borrowings resulting from investment in infrastructure assets and payment of dividends to government, and its effect on the financial results and long-term financial sustainability of the water industry. Servicing the growing debt and repaying the debt in the future are key challenges for the industry.

    Yours faithfully

    John Doyle Auditor-General

    12 December 2013

  • Victorian Auditor-General’s Report Water Entities: Results of the 2012–13 Audits v

    Contents

    Audit summary ......................................................................................... vii

    Conclusions ............................................................................................................ vii Findings .................................................................................................................. vii

    Financial and performance reporting ................................................................. vii Financial results ............................................................................................... viii Financial sustainability ....................................................................................... ix Information technology ....................................................................................... ix Procurement ........................................................................................................x Treasury management ........................................................................................x

    Recommendations ....................................................................................................x Submissions and comments received .................................................................... xii

    1. Background .......................................................................................... 1

    1.1 Introduction ..................................................................................................... 1 1.2 Structure of this report ..................................................................................... 3 1.3 Audit of financial reports .................................................................................. 3 1.4 Audit of performance reports ........................................................................... 5 1.5 Conduct of water entity financial audits ........................................................... 6 1.6 Subsequent events ......................................................................................... 6

    2. Financial reporting ................................................................................. 9

    2.1 Introduction ................................................................................................... 10 2.2 Audit opinions issued .................................................................................... 10 2.3 The quality of financial reporting ................................................................... 10

    3. Performance reporting......................................................................... 15

    3.1 Introduction ................................................................................................... 16 3.2 Conclusion .................................................................................................... 16 3.3 Performance reporting framework ................................................................. 16 3.4 Audit opinions issued .................................................................................... 16 3.5 The quality of performance reporting ............................................................ 17 3.6 Performance reporting developments and future audit approach ................. 18

    4. Financial results................................................................................... 21

    4.1 Introduction ................................................................................................... 22 4.2 Financial results ............................................................................................ 22 4.3 Financial position .......................................................................................... 26

  • Contents

    vi Water Entities: Results of the 2012–13 Audits Victorian Auditor-General’s Report

    5. Financial sustainability ......................................................................... 29

    5.1 Introduction ................................................................................................... 30 5.2 Financial sustainability risk assessment........................................................ 30 5.3 Five-year trend analysis ................................................................................ 33

    6. Information technology ........................................................................ 45

    6.1 Introduction ................................................................................................... 46 6.2 General information technology controls over financial reporting ................. 46 6.3 Information technology security .................................................................... 47 6.4 Information technology change management ............................................... 52

    7. Procurement ....................................................................................... 57

    7.1 Introduction ................................................................................................... 58 7.2 Conclusion .................................................................................................... 58 7.3 Procurement management framework .......................................................... 58 7.4 Policies .......................................................................................................... 60 7.5 Management practices .................................................................................. 60 7.6 Governance and oversight ............................................................................ 61 7.7 Contract testing ............................................................................................ 61

    8. Treasury management ......................................................................... 63

    8.1 Introduction ................................................................................................... 64 8.2 Conclusion .................................................................................................... 64 8.3 Treasury management framework ................................................................ 64 8.4 Policies .......................................................................................................... 66 8.5 Management practices .................................................................................. 66 8.6 Governance and oversight ............................................................................ 68

    Appendix A. VAGO reports on the results of financial audits ...................... 71

    Appendix B. Frameworks ......................................................................... 73

    Appendix C. Audit status ......................................................................... 77

    Appendix D. Entity level financial sustainability .......................................... 81

    Appendix E. Acronyms and glossary ........................................................ 93

    Appendix F. Audit Act 1994 section 16—submissions and comments ....... 99

  • Victorian Auditor-General’s Report Wate