Treasury Audit focus In determining the audit work program the ANAO considers prior year audit and other review findings and what these indicate about portfolio risks and areas for improvement as well as emerging risks from new investments reforms or operating environment changes In the Treasury portfolio considerations predominantly relate to the management of financial risks These include the effective regulation of the Australian financial sector and the management of the Australian government balance sheet particularly its financial assets and liabilities There are also broader portfolio risk management capabilities that require further development particularly when implementing transformational initiatives Regulation A number of government outcomes in this portfolio are delivered through non departmental entities including financial regulators Following the Royal Commission into Misconduct in the Banking Superannuation and Financial Services Industry there is a renewed emphasis on the robustness of regulation of financial services by bodies such as the Australian Prudential Regulation Authority and the Australian Securities and Investments Commission and governance arrangements in the sector including within the government own financial management entities Asset management and sustainment Financial and performance audit activities are identifying an increase in the use of financial instruments such as concessional debt and equity to fund major government initiatives and infrastructure often through government business enterprises This increase emphasises the need for transparency on the longer term costs and risks of these types of arrangements Governance The audit of the Australian Bureau of Statistics Statistical Business Transformation Program as well as the issues arising from the Census of Population and Housing demonstrated the importance of risk management practices in supporting the implementation of major initiatives As the Australian Bureau of Statistics undertakes its planning for the delivery of the Census it is important that risks are identified and actively managed throughout the delivery of this program of work Portfolio overview The Treasury portfolio is responsible for activities aimed at achieving strong sustainable economic growth and the improved wellbeing of Australians The Department of the Treasury is the lead entity in the portfolio and is responsible for the development delivery and implementation of economic policy and advice This includes advice on the economy budget taxation financial foreign investment and structural policy superannuation small business housing affordability and international economic policy Further information is available from the Treasury website at www treasury gov au In addition to the Department of the Treasury there are entities within the portfolio with a broad range of responsibilities including revenue collection consumer protection financial regulation and the provision of official statistics The portfolio includes the Australian Taxation Office ATO — audit considerations for the ATO are discussed separately In the Portfolio Budget Statements PBS for the Treasury portfolio the aggregated budgeted expenses for total billion The PBS contain budgets for those entities in the general government sector GGS that receive appropriations directly or indirectly through the annual appropriation acts The level of budgeted departmental? and administered? expenses and the average staffing level for entities in the GGS within this portfolio are shown in Figure The Department of the Treasury represents the largest proportion of the portfolio expenses and administered expenses are the most material component representing per cent of the portfolio expenses excluding the ATO Figure Treasury portfolio — total expenses and average staffing level by entity Source ANAO analysis of PBS Budget related papers pre machinery of government changes announced on May Financial statements audits Overview Entities within the Treasury portfolio ? and the risk profile of each entity are shown in Table Table Treasury portfolio entities and risk profile Type of entity? Risk of material misstatement? Number of higher risks? Number of moderate risks? Material entities Department of the Treasury Non corporate Moderate Australian Bureau of Statistics Non corporate Low Australian Office of Financial Management Non corporate Moderate Australian Prudential Regulation Authority Non corporate Low Australian Reinsurance Pool Corporation Corporate Moderate Australian Securities and Investments Commission Non corporate Moderate National Housing Finance and Investment Corporation? Corporate Moderate ? Reserve Bank of Australia? Corporate Moderate Non material entities Australian Competition and Consumer Commission Non corporate Low Commonwealth Grants Commission Non corporate Low Financial Adviser Standards and Ethics Authority Ltd Company Low Inspector General of Taxation Non corporate Low National Competition Council Non corporate Low Office of the Auditing and Assurance Standards Board Non corporate Low Office of the Australian Accounting Standards Board Non corporate Low Productivity Commission Non corporate Low Royal Australian Mint Non corporate Moderate Other audit engagements including Auditor General Act section engagements Nil Material entities Department of the Treasury The Department of the Treasury the Treasury is responsible for the development delivery and implementation of economic analysis and authoritative policy advice issues such as the economy budget taxation financial foreign investment and structural policy superannuation small business housing affordability and international economic policy The Treasury also works with state and territory governments on key policy areas and also manages federal financial relations The Treasury total budgeted expenses for are just over billion with per cent of these expenses attributable to grants as shown in Figure Figure Treasury total budgeted expenses by category Note Segment A refers to payments to Medicare Guarantee Fund employee benefits supplier expenses depreciation and amortisation foreign exchange and interest Source ANAO analysis of PBS Budget related papers pre machinery of government changes announced on May The four key risks for Treasury financial statements that the ANAO has highlighted for specific audit coverage in including those that the ANAO considers potential Key Audit Matters KAMs are the management and valuation of the Natural Disaster Relief and Recovery Arrangements provision This is due to the judgement involved in estimating costs expected to be incurred for those eligible for assistance under these arrangements The Treasury is also reliant on state and territory governments to provide information to support these estimates KAM Valuation of the Natural Disaster Relief and Recovery Arrangements provision stewardship over grant payments to states and territories under the Federal Financial Relations Act due to reliance on other Australian Government entities and state and territory governments to administer the programs and provide information to support payments KAM Accuracy and occurrence of grants expense valuation of investments in international financial institutions due to the volatility of inputs applied in the re measurement of those investments and implementation of funding arrangements and the accounting and valuation of transactions and balances associated with the National Housing Finance and Investment Corporation Australian Bureau of Statistics The Australian Bureau of Statistics ABS is responsible for providing relevant trusted and objective data statistics and insights to inform Australia important decisions The ABS total budgeted expenses for are just under million with per cent of these expenses attributable to employee benefits as shown in Figure Figure Australian Bureau of Statistics total budgeted expenses by category Source ANAO analysis of PBS Budget related papers pre machinery of government changes announced on May The ABS key risk for its financial statements relates to the valuation and impairment assessments of intangibles software The ABS is undergoing significant technology upgrades with the acquisition of specialised platforms that due to their nature present complexities from a valuation perspective Australian Office of Financial Management The Australian Office of Financial Management AOFM is responsible for managing Australian Government debt and financial assets and the issuing of Treasury bonds Treasury indexed bonds and Treasury notes into the financial markets The AOFM total budgeted expenses for are just over billion? Nearly all of these expenses are attributable to interest payments as shown in Figure Figure Australian Office of Financial Management total budgeted expenses by category Source ANAO analysis of PBS Budget related papers pre machinery of government changes announced on May The AOFM key risk for its financial statements that the ANAO has highlighted for specific audit coverage in and that the ANAO considers a potential Key Audit Matter KAM is the management and financial reporting of Australian Government securities which are impacted by external market factors KAM Valuation of Australian Government securities Australian Prudential Regulation Authority The Australian Prudential Regulation Authority APRA is responsible for regulating the Australian financial services industry through the oversight of banks credit unions building societies friendly societies general insurers life insurers private health insurers reinsurance companies and most of the superannuation industry APRA is funded largely by the industries that it regulates APRA total budgeted expenses for are just over million with per cent of these expenses attributable to risk equalisation payments as shown in Figure and are not APRA operational costs Figure Australian Prudential Regulation Authority total budgeted expenses by category Source ANAO analysis of PBS Budget related papers pre machinery of government changes announced on May APRA key risk for its financial statements is the calculation and recognition of administered levy revenue including the financial institutions supervisory levies financial assistance levies and the private health insurance risk equalisation levy revenue and associated payments This involves complex calculations that are prescribed by legislation Australian Reinsurance Pool Corporation The Australian Reinsurance Pool Corporation ARPC established by the Terrorism Insurance Act is responsible for administering the Terrorism Reinsurance Scheme providing primary insurers with reinsurance for commercial property and associated business interruption losses arising from a declared terrorist incident ARPC total actual expenses for were million of which per cent were attributable to outwards retrocession premium expense as shown in Figure Figure Australian Reinsurance Pool Corporation total actual expenses by category Source ANAO analysis of the Australian Reinsurance Pool Corporation annual report ARPC two key risks for its financial statements are the recognition and reporting of premium revenue and unearned premium liability which involves complex calculations and reliance on third party information and calculation and reporting of reinsurance expense which involves the risk of inaccurate calculation of reinsurance premiums Australian Securities and Investments Commission The Australian Securities and Investments Commission ASIC is Australia integrated corporate financial services markets and consumer credit regulator to support a fair strong and efficient financial system for all Australians ASIC core responsibility is to maintain and facilitate the performance of that financial system and promote confident and informed participation by investors and consumers ASIC total budgeted expenses for are just under million with per cent of these expenses attributable to employee benefits as shown in Figure Figure Australian Securities and Investments Commission total budgeted expenses by category Source ANAO analysis of PBS Budget related papers pre machinery of government changes announced on May The two key risks for ASIC financial statements are the estimation of the Commonwealth future liability for repayment of unclaimed monies which uses a complex valuation model and recognition of ASIC diverse administered revenue streams involving complex calculations that are prescribed in a number of Acts and regulations ASIC administered revenue streams are captured by different input channels and systems and in some cases are subject to changes driven by annual review by the government Reserve Bank of Australia The objective of the Reserve Bank of Australia RBA is to determine and implement monetary policy work to maintain a strong financial system and issue the nation currency As well as being a policymaking body the RBA provides selected banking services to a range of Australian Government entities and to a number of overseas central banks and official institutions The RBA is also responsible for the management of Australia gold and foreign exchange reserves RBA total actual expenses for were million of which per cent were attributable to staff costs including superannuation as shown in Figure Figure Reserve Bank of Australia total actual expenses by category Source ANAO analysis of the Reserve Bank of Australia annual report The two key risks for the RBA financial statements that the ANAO has highlighted for specific audit coverage in including those that the ANAO considers potential Key Audit Matters KAMs are the valuation of Australian dollar securities and foreign currency investments due to the complexity in determining the fair value of a range of investments In addition there is an inherent risk of significant financial impact due to fluctuations in the value of the Australian dollar KAM Valuation of Australian dollar securities and foreign currency investments accuracy of the liability for Australian banknotes on issue due to the dependence on the assumption that all Australian notes on issue retain their legal tender status In addition there is a high volume of note production and the supply and security of banknotes is structurally significant to the economy KAM Accuracy of the liability for Australian banknotes on issue National Housing Finance and Investment Corporation The National Housing Finance and Investment Corporation NHFIC commenced in and is established by the National Housing Finance and Investment Corporation Act The NHFIC is responsible for the establishment and operation of an Affordable Housing Bond Aggregator to provide finance to registered community housing providers by aggregating their lending requirements and issuing bonds to institutional investors and establishment and operation of the National Housing Infrastructure Facility to provide grants and finance to support the creation of housing related infrastructure There are no Portfolio Budget Statements for the NHFIC and at the time of publication of this audit work program the key risks for the NHFIC had not yet been finalised