Introduction

The Auditor-General is an independent officer of the Parliament who is responsible for undertaking audits of the financial statements and performance of Australian Government entities.[1] In fulfilling this role, the Auditor-General is assisted by the Australian National Audit Office (ANAO). The ANAO has two planned Outcomes, namely:

To provide assurance on the fair presentation of financial statements of Australian Government entities by providing independent audit opinions and related reports for the information of Parliament and the Executive.

To improve the efficiency and effectiveness of the administration of Australian Government programs and entities by undertaking a program of independent performance audits and assurance reviews for the information of Parliament and the Executive.

The Audit Work Program July 2010 (the Program) is the ANAO’s annual audit coverage publication outlining:

• portfolio/agency audit strategy overviews;
• performance audits in progress as at 1 July 2010;
• a rolling program of potential performance audit and better practice guide topics that may commence in 2010–11 or future years; and
• the Australian Government entities subject to financial statement audit coverage.

Auditor-General Mandate

The Auditor-General Act 1997 (the Act) establishes the mandate of the Auditor-General to undertake audits in Australian Government entities. The Act, the Financial Management and Accountability Act 1997 and the Commonwealth Authorities and Companies Act 1997 provide the Auditor-General with the authority to undertake financial statement and performance audits (other than for Government Business Enterprises)[2] and to provide additional services, including better practice guides and other assurance and review reports.

In undertaking audits, and in accordance with the Act, the Auditor-General sets auditing standards which persons performing audit functions must comply with. In setting the standards, the Auditor-General has adopted the Auditing Standards issued by the Australian Auditing and Assurance Standards Board including, the ‘Standard on Assurance Engagements ASAE 3500 Performance Engagements’.

Assurance Audit Services

Through the conduct of financial statement audits, the ANAO provides assurance to the Parliament, the Executive and individual entities about the financial administration and accountability of public sector entities.

The Auditor-General (or delegate) conducts financial statement audits to express an opinion on whether the financial statements of Australian Government entities have been fairly presented in accordance with Australian Accounting Standards and the Government’s reporting framework. In addition to the audit opinion, the responsible Minister and the entities are provided with separate reports outlining the results of the financial audit process.

On an annual basis the Auditor-General also provides two reports to the Parliament that summarise the results of an assessment of the interim phase of the audit of the financial statements (in June) and a report on the summary results of audits (in December).

The 2010–11 financial statement audit work plan includes the completion of the audit of the 2009–10 financial statements of some 259 Australian Government entities.^[3] The 2010–11 program also includes the commencement of the 2010–11 financial statement audits.

Performance Audit Services

Performance Audit Services deliver agency-specific audits and cross-agency audits which are general performance audits of particular themes or common aspects of administration across a number of entities. The objectives of a performance audit are twofold. The first is to provide the Parliament with assurance relating to the administration of Government programs. The second objective is to assist public sector managers by identifying and promoting better administrative and management practices.

Performance audits can include an examination of one or more of the following:

• economy (minimising cost);
• efficiency (maximising the ratio of outputs to inputs);
• effectiveness (the extent to which intended outcomes were achieved); and
• legislative and policy compliance.

In addition to performance audits, the Auditor-General can undertake other assurance activities which may be handled through a formal report or correspondence.

The ANAO also produces a program of better practice guides based on emerging issues that have an impact on the performance of the public sector and, to a large extent, draw on the results of previous audits. Better practice guides aim to improve public administration by providing a vehicle for better practices employed in some organisations to be recognised and promulgated to all Australian Government entities.

In December 2009, the functions of the former Office of Evaluation and Audit (OEA) were transferred from the Department of Finance and Deregulation to the ANAO. As a consequence, the ANAO’s performance audit program will be enhanced to include a greater number of audits focusing on Indigenous-specific programs in addition to audits of other programs which have an identified Indigenous-specific outcome or component.

In 2010–11, the Auditor-General expects to table in the Parliament and/or publish:

• 56 performance audits[4] (including cross-agency audits);
• four better practice guides; and
• one Defence Materiel Organisation Major Projects Report.

The composition of products may change as more detailed planning is undertaken, or as other issues, such as stakeholder requests that in the Auditor-General’s opinion warrant further inquiry, emerge.

Strategic and Integrated Audit Planning

In developing the Program, the ANAO adopts an ongoing and integrated approach to the planning of its financial statement, performance audit and related products. In this context, the ANAO endeavours to maintain a balance between planning and delivering products that address the key risks and challenges facing the Commonwealth public sector and individual entities, while also producing contemporary products that are responsive to a changing environment, stakeholder requests and cover matters of public interest.

When developing the Program, the ANAO undertakes a process that involves:

• consulting the Parliament, entities and stakeholders
• conducting an environmental scan of key risks and challenges to public administration
• understanding the operations of agencies and identifying areas that could potentially improve performance.

Consultation

Notwithstanding the Auditor-General’s obligations to provide an independent assessment and assurance to the Parliament, an important part of developing the Program is the consultation process. While the Auditor-General has complete discretion in the selection of areas subject to performance audits, the ANAO adopts a consultative approach to developing the Program which takes account of the priorities of the Parliament, as advised by the Joint Committee of Public Accounts and Audit (JCPAA), and the views of entities and other stakeholders. The ANAO’s consultation process is designed to ensure that its audit products and other outputs not only meet the needs of Parliament but also assist entities to improve public administration.

Environmental scan

The Program is developed against the backdrop of a changing environment in which the Australian Public Service (APS) operates. In this context, the ANAO undertakes an environmental scan that identifies key areas/issues that present risks or challenges across entities and public administration. The areas/issues identified are an important source used by the ANAO to inform the performance audit program. Key areas/issues the ANAO identified for 2010–11 include:

• Ongoing implementation of economic stimulus measures—over the last two years a series of new measures such as the ‘Economic Security Strategy’ (October 2008), ‘Nation Building and Jobs Plan’ (February 2009) and the 2009–10 Federal Budget, including the ‘Nation Building Infrastructure package’ (May 2009), have been announced by the Government in response to the global economic turndown. The implementation of these measures has been a key priority for a number of agencies and involves new programs, extensions to existing programs and material expenditure. The ANAO has either completed,[5] is in the process of undertaking,[6] or has on the forward program,[7] a number of audits looking at aspects of the implementation of these measures.
• Council of Australian Governments (COAG) reform agenda—the COAG reform agenda aims include to ‘boost productivity, workforce participation and geographic mobility, and support wider objectives of better services for the community, social inclusion, closing the gap on Indigenous disadvantage and environmental sustainability’. The reform agenda is supported by the Intergovernmental Agreement on Federal Financial Relations, which commenced on 1 January 2009, and provides the overarching framework for the Commonwealth's financial relations with the states and territories.

The reform agenda includes changes to roles and responsibilities, program and service delivery models and, at the Commonwealth level, the separation of policy responsibilities from funding arrangements. To provide coverage of this area, the ANAO has identified a number of audits that will examine specific aspects of the new arrangements, such as National Partnerships, in addition to considering the broader implications of the reform agenda across various other audits.

• APS Reforms—in March 2010, an advisory group on public sector reform delivered its report Ahead of the Game: Blueprint for the Reform of Australian Government Administration (the Blueprint). The 28 recommendations of the Blueprint were accepted by the Government in May 2010. The nine independent areas of reform outlined in the Blueprint are intended to help the APS meet the challenges it faces in future years. The Blueprint requires agencies to commit to reforms across four core components, namely: meeting the needs of citizens, providing strong leadership and strategic direction, presenting a highly capable workforce, and operating efficiently and at a consistently high standard.

The implementation of the reform agenda by agencies will potentially impact on a wide range of functions. These include: policy and program development and implementation; governance arrangements; recruitment; and the overall performance of agencies. In undertaking various audits, the ANAO will consider the impact of the Blueprint and its intended outcomes.

• Indigenous—the ANAO has established a program of Indigenous-focused audits following the transfer of the OEA function. The Indigenous audit program draws on the targets and strategic areas for action agreed in 2008 by COAG and detailed in the National Indigenous Reform Agreement (NIRA) which provides the overall framework for the delivery of the Government’s Closing the Gap in Indigenous Disadvantage Initiative.  Within the six targets set by COAG under the Closing the Gap initiative, there are seven strategic areas for action—early childhood, schooling, health, economic participation, healthy homes, safe communities, and governance and leadership. These areas, known as the ‘Building Blocks’, form the framework for the ANAO’s audit coverage.
• Whole-of-government policy and program design and delivery—public administration is increasingly being influenced by whole-of-government, evidence-based, citizen-centric approaches to policy and program design and delivery. This is demonstrated through the emphasis on linking areas such as the service delivery reform agenda ‘works for you’, which is aimed at improving government service delivery to give Australians better access to social, health and welfare services. Complementing this approach can be a renewed manner of engaging third-party providers from the private and not-for-profit sectors and forming partnerships with other government jurisdictions. These changes are also supported by, among other factors, the COAG and APS reform agendas.
  In responding to this approach to policy and program design and delivery, the Program identifies a number of potential audits in specific agencies while also covering cross-agency themes in potential topics such as performance measurement and reporting and the ICT Reform Program.
• New policies—new policies announced by the Government are implemented on a continual basis. The scope of an audit may include an examination of policy implementation and the extent to which policy objectives have been met. Accordingly, an analysis of new policies contributes to development of the Program and is reflected in the potential audit topics across all portfolios. In this context, policies announced and introduced in recent times, such as Trade Training Centres in Schools, present a contemporary opportunity to examine the implementation of a large-scale initiative.
• Areas identified by past performance audits and reviews—an analysis of previous audit coverage provides an insight to those areas where the ANAO continues to find weaknesses in particular controls, systems or approaches which can have widespread effects on public administration. These areas include: governance, (such as risk management); the efficient and effective use of human and financial resources (including engaging third-party providers and administering grants); project management; information systems; and performance measurement and reporting.

Understanding the operations of agencies and identifying areas that could potentially improve performance

Given the often changing role and expectations of agencies, the ANAO seeks to maintain a current knowledge of their administrative arrangements and operating environment, including how business risks are identified and managed. This analysis is informed by a variety of sources including annual reports, budget papers and portfolio budget statements, internal and external reviews, audit committees, discussions with senior management and stakeholders, Parliamentary Hansard and media coverage.

To assist with identifying risks, the ANAO’s performance audit and financial statement audit teams discuss, at least on an annual basis, the business risks for agencies and develop integrated audit plans. This joint work provides the basis for a work program for each portfolio that identifies audit issues and defines areas that may warrant performance audit examination. This can include single audits on a specific topic or a series of audits that examine a topic or program over time.

Criteria for Selecting Individual Audit Topics

From the rolling program of potential performance audit topics and other ad-hoc requests from stakeholders, including the Parliament, the selection and conduct (including timing, scope and method) of a performance audit is at the discretion of the Auditor-General. In choosing which audits to undertake a number of factors are taken into account, including:

• potential benefits
• financial materiality
• risks to reputation and service delivery
• extent of previous audit and review coverage.

A preliminary estimate of an audit’s potential benefits can often be made at the strategic planning stage. Potential benefits can take many forms and include improvements in: service/program delivery, administrative and financial efficiencies, accountability and transparency, and performance assessment.

Financial materiality is based on an assessment of the total value of one or more of annual expenditure, annual revenue and assets and liabilities, in the proposed area of audit. As a general rule, total values less than $100 million would be considered as being low in financial materiality, values in the $100 million to $500 million range would be medium, and values of
$1 billion or higher would be considered to have high financial materiality.

A further input into the selection of audit topics is an assessment of risks to reputation and service delivery. This requires consideration of the visibility of the proposed audit topic and is related to the social and economic aspects of the activity and the importance of its operations to the Parliament and the public. The ranking of potential audits, therefore, has regard to the degree of Parliamentary and public interest in the outcome.

Coverage refers not only to previous ANAO coverage but also to other independent reviews of the activity that have been, or are proposed to be, undertaken. Such reviews may include internal audits, evaluations conducted by external consultants or examinations undertaken by Parliamentary Committees. As a general rule, a higher ranking would be warranted where a Parliamentary Committee has requested a follow-up review, a previous review indicated that a follow-up should occur or a previous review has identified significant issues.

Stakeholder requests

In addition to the rolling program of performance audits, other areas for audit that were not planned for can arise. From time to time, the Auditor-General receives requests from stakeholders, including the Parliament (through the JCPAA) or individual Members of Parliament and Senators, for information or reviews of particular areas. If, in the Auditor-General’s opinion, a request warrants further examination it can be handled through various mechanisms including a formal report, a review or correspondence.

Structure of the Audit Work Program

The Program is divided into four sections:

• Performance audits by portfolio—outlines an audit strategy overview by ministerial portfolio/agency followed by descriptions of performance audits in progress as at
  1 July 2010 and a range of potential audit topics from which audits to be undertaken in
  2010–11 and future years may be selected.
• Cross-portfolio audits—outlines performance audits that will involve a number of departments and agencies and are either in progress as at 1 July 2010 or are potential topics that could start in 2010–11 or future years. 
• Better practice guides—outlines potential better practice guides.
• Financial statement audits—lists all financial statement audits to be undertaken in
  2010–11 by ministerial portfolio/agency.

---

^[1]    The term ‘entity’ is used to describe all organisations subject to the Financial Management and Accountability Act 1997 and the Commonwealth Authorities and Companies Act 1997.

^[2]    Performance audits of Government Business Enterprises can be undertaken following a request from the responsible Minister, the Minister for Finance and Deregulation or the Joint Committee of Public Accounts and Audit.

^[3]    The Auditor-General is also engaged in an additional 64 audits by arrangement.

^[4]    This represents an increase of nine audits from 2009–10 and reflects both the restoration of the performance audit program to previous levels and the integration of the functions of the former OEA.

^[5]    ANAO Audit Report No. 33 2009–10, Building the Education Revolution—Primary Schools for the 21st Century.

[6]    The ANAO is currently undertaking audits of the Regional Funding Programs and the Home Insulation Program.

^[7]    The Program includes potential audits such as the ‘Development and Implementation of the Australian Government’s Guarantee of Large Deposits and Wholesale Funding’.

 

Previous: Abbreviations

Next: Agriculture, Fisheries and Forestry