Performance audits

The Auditor-General Act 1997 (the Act) provides the Auditor-General with the authority to conduct, at any time, a performance audit of an agency, a Commonwealth authority or company, other than a Government Business Enterprise or any of its subsidiaries. The Auditor-General may conduct a performance audit of a fully owned Government Business Enterprise (GBE) or its subsidiaries if the responsible Minister, the Finance Minister or the Joint Committee of Public Accounts and Audit (JCPAA) requests the audit.

The Act defines a performance audit as a ‘review or examination of any aspect of the operations of a body or person’. In accordance with accepted auditing practice, performance audits are an independent, objective and systematic examination of the operations of a body for the purposes of forming an opinion on whether:

  • management of the operations has been economical, efficient and effective;
  • internal procedures for promoting and monitoring economy, efficiency and effectiveness are adequate; and
  • improvements might be made to management practices (including procedures for promoting and monitoring performance).

Typically, performance audits examine governance arrangements, information systems, performance measures, monitoring systems and legal compliance. Audits are conducted in accordance with ANAO Auditing Standards. All performance audit reports are tabled in the Parliament.

In seeking to improve public administration, performance audits also identify better practices, which may then be incorporated into Better Practice Guides (BPGs) for dissemination throughout the Australian Government public sector. These guides are discussed under Output Group 2.

Because of the size, complexity and diversity of many Australian Government entities, a performance audit usually examines selected segments of their operations. General (cross–portfolio or cross-agency) performance audits examine the same issue or activity in a number of entities, and the findings and recommendations of these audits are likely to have application across other public sector entities.

Audit topics are selected with two major considerations in mind:

  • where an audit can be expected to add the greatest value in improved accountability, economy, efficiency or administrative effectiveness; and
  • to ensure appropriate coverage of entity operations within available audit resources.

The Auditor-General may also undertake audits on request, for example, from the Parliament, ministers or parliamentarians. In the case of requests for reviews which are relatively straightforward, we are often able to respond to the relevant issues through normal correspondence rather than a formal report.

Business support process audits 7

Business Support Process (BSP) audits examine business processes that support the delivery of outputs provided by public sector entities. BSP reports provide for the examination of a particular aspect of the operations of the whole or part of the Australian Government sector.

PAS Auditors, from left, Richard Mackey, Janna Gilbert and Mark Rogala.

These audits are designed to examine areas and issues that are relevant to all, or a majority of entities. As such, audit findings and recommendations are usually reported to the Parliament in generic terms, without being attributed to individual entities. In addition to the parliamentary report on each audit, an individual report is provided to the chief executive of each of the entities examined in the audit. Output from these audits may also include the development of BPGs.

Protective security audits 8

Protective security audits are a separate category of BSP audits and as such these audits are now also part of Output Group 1 and the performance audit programme. Protective security audits examine particular aspects of security, including information security, personnel security and physical security.

Performance Audit Work Program

Our Audit Work Program, which covers performance audit services and to a lesser degree, assurance audit services, is developed annually in consultation with the JCPAA and audited entities. The JCPAA also seeks and coordinates comments from other Parliamentary committees on our draft Audit Work Program. This process is to ensure that our audit products and outputs meet the needs of the Parliament and public sector bodies, and are in tune with the key risks and challenges facing the Australian Government in a rapidly changing environment. These risks and challenges are taken into account in identifying the key areas of focus in developing the annual performance audit work program and in evaluating and assessing potential financial statement issues to be addressed during the course of financial statement audits.

Audit activity is planned having regard to business risks; financial materiality; program significance; audit impact; visibility of the program; the extent of recent audit coverage; and broad themes derived from the audit planning process. The performance audit themes identified in the 2006—07 Audit Work Program 9 are set out below:

  • governance (including financial management, information system integrity, administration of management systems, whole of government initiatives and compliance);
  • administration of border security;
  • project management;
  • service delivery; and
  • grants administration.

7 BSP and protective security audits are now included in Output Group 1, Performance Audit Services, as a result of a restructure, effective from 1 July 2006. Before the restructure, they were part of Output Group 3 and were reflected as such in the 2006-07 PBS. These changes reflect the fact that these audits are conducted under the performance audit provisions of the Auditor-General Act 1997 and the focus of these audits results in them contributing more to Outcome 1 than to Outcome 2.

8 ibid.

9 Available from the ANAO’s website.