Finance portfolio

The Finance portfolio is responsible for a range of finance-related functions, including providing the Australian Government with budget policy advice, superannuation arrangements for government employees, deregulation policy, data and digital policy and services and asset sales.

The Department of Finance is the lead entity in the portfolio and is responsible for supporting the government’s budget process and the development and implementation of the government’s regulatory frameworks for public sector resource management, governance and accountability. The department is also responsible for the preparation of the consolidated financial statements of the Australian Government, which includes the whole-of-government and the general government sector financial statements and the Australian Government’s financial outcome. The department provides shared services through the Service Delivery Office. Further information is available from the department’s website.

In addition to the Department of Finance, there are seven entities (excluding subsidiaries) within the portfolio that are responsible for: electoral administration; digital transformation; supporting retirement and insurance benefits for members of Commonwealth superannuation schemes; managing the investment activities of the Future Fund and other funds; auditing and reporting of parliamentarians’ work expenses; and supporting Australia’s naval defence capability.

In the 2023–24 Portfolio Budget Statements (PBS) for the Finance portfolio, the aggregated budgeted expenses for 2023–24 total $15.5 billion. The PBS contain budgets for those entities in the general government sector (GGS) that receive appropriations  directly or indirectly through 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 1. The Department of Finance represents the largest proportion of the portfolio’s expenses, and administered expenses of the portfolio are the most material component, representing 88 per cent of the entire portfolio’s expenses.

Figure 1: Finance portfolio – total expenses and average staffing level by entity

Source: ANAO analysis of 9 May 2023–24 Portfolio Budget Statements.

In determining the 2023–24 audit work program, the ANAO considers prior-year audit and other review findings and what these indicate about portfolio risks and areas for improvement. The ANAO also considers emerging risks from new investments or changes in the operating environment.

The primary risks identified for the portfolio relate to stewardship of whole-of-government frameworks to achieve intended outcomes, and the delivery of electoral services. In particular these relate to: the effective administration of a planned referendum to amend the Constitution; and the effective administration of the finance law in the context of devolved arrangements, particularly the stewardship of policy frameworks intended to promote the efficient, effective, economical and ethical use of public resources by entities.

Specific risks in the finance portfolio relate to: service delivery; regulation and financial management.

Service delivery

Entities in the Finance portfolio are responsible for the delivery of effective public sector services, including electoral services and ministerial and parliamentary services. Ongoing considerations for effective service delivery include establishing appropriate governance arrangements, addressing risks, providing accurate and consistent advice, implementing processes in accordance with applicable procedures, and establishing fit-for-purpose assurance and evaluation frameworks. 

Regulation

Entities in the Finance portfolio are the policy owners and stewards of whole-of-government frameworks, including the finance law and frameworks for procurement, grants administration, government advertising, risk management and digital policy. These frameworks are intended to: regulate the governance, performance and accountability of Commonwealth entities; and promote the efficient, effective, economical and ethical use of public resources by the Commonwealth and Commonwealth entities. Audit work has identified risks to the effectiveness of frameworks which operate under a self-regulatory approach, where policy owners establish the rules of operation and then largely leave it to entity accountable authorities to be responsible for compliance.  There are no formal mechanisms in these frameworks to provide assurance on compliance and whether the framework is having the intended result. In these circumstances, some risks can be mitigated by the policy owner providing guidance, support and advice to entities, and the management of known framework risks and issues as they arise. 

Recent audit activity has identified risks in achieving the intended outcomes of self-regulatory frameworks such as the procurement and grants frameworks. A particular risk relates to cases where entities have sought to comply with the letter of the procurement or grants rules without considering how this achieves the intent of the rules. Audits of procurement have identified occasions where the implementation of procurement arrangements has fallen short of reasonable standards, including in respect to the assessment of value for money , while audits of grants administration have identified risks relating to the promotion of open, transparent and equitable access to grants.  Audits of grants and procurement have also identified shortcomings relating to the provision of advice to decision-makers, record-keeping, probity management, public reporting, and other framework requirements.

Financial management

Finance portfolio entities have a role in maximising financial outcomes for the Australian Government and the public and providing advice on financial management and appropriations. Effective decision-making, especially in relation to investments and the management of resources and assets, involves appropriate planning, calculation and analysis, execution, monitoring and evaluation. 

Avoiding the risk of non-compliance with the appropriations framework requires effective engagement between the Department of Finance and other entities. 

Overview

Entities within the Finance portfolio, and the risk profile of each entity, are shown in Table 1.

Table 1: Finance portfolio entities and risk profile

Department of Finance

The Department of Finance is responsible for supporting the government’s budget process and oversight of public sector resource management, and for governance and accountability frameworks. In addition, the Department of Finance is responsible for the production of the Australian Government’s consolidated financial statements. The Department of Finance also provides shared services through the Service Delivery Office.

The Department of Finance’s total budgeted liabilities for 2023–24 are just under $160.0 billion, with superannuation liabilities representing 98 per cent, and outstanding insurance claims representing one per cent as shown in Figure 4. Investments represent 90 per cent of total budgeted assets, while employee benefits represent five per cent of total budgeted expenses.

Figure 4: Department of Finance’s total budgeted financial statements by category ($’000)

Source: ANAO analysis of 9 May 2023–24 Portfolio Budget Statements.

There are five key risks for the Department of Finance’s 2022–23 financial statements that the ANAO has highlighted for specific audit coverage, including four risks that the ANAO considers potential key audit matters (KAMs).

• The complex assumptions and calculations underpinning the actuarial assessment of the public sector superannuation liability. (KAM – Valuation of superannuation provisions)
• The estimation of the outstanding claims liability for the Australian Government’s self-managed general insurance fund, due to the complex calculation of the liability that involves assumptions requiring significant judgement. (KAM – Valuation of, and accounting for, outstanding insurance claims)
• The valuation of the property portfolio, which consists of a large number of properties with unique characteristics. The process is complex and involves the use of different valuation methods that require significant judgement on the selection of assumptions within the valuation models. (KAM – Valuation of properties)
• The valuation of private market investments, due to the inherent subjectivity and significant judgements and estimates required where market data is not available to determine the fair value of these investments. (KAM – Valuation of private market investments)
• The accuracy of employee expenses and valuation of provisions relating to members of Parliament and their staff.

ASC Pty Ltd

ASC Pty Ltd (ASC) is a proprietary company limited by shares registered under the Corporations Act 2001. The Minister for Finance is the sole shareholder Minister on behalf of the Commonwealth of Australia.

ASC and its subsidiaries — including ASC AWD Shipbuilder Pty Ltd and ASC OPV  Shipbuilder Pty Ltd – support Australia’s naval capabilities. ASC was the builder of Australia’s fleet of Collins class submarines for the Royal Australian Navy. ASC is responsible for the ongoing design enhancement, maintenance, and support of Australia’s fleet of Collins class submarines.

ASC’s total actual revenue for 2021-22 was just under $581.0 million, with the majority attributable to revenue from contracts with customers, as shown in Figure 5.

Figure 5: ASC Pty Ltd actual financial statements by category ($’000)

Source: ANAO analysis of ASC Pty Ltd’s 2021-22 Annual Report.

Note: Revenue includes an amount of $5.286 million which represents a reversal of asset impairment provision (shown as a negative expense in ASC Pty Ltd’s annual report).

There are five risks for the ASC Pty Ltd 2022–23 financial statements that the ANAO has highlighted for specific audit coverage.

• Revenue recognition for accounting of In-Service Support Contract (ISSC) is a high risk. This is primarily due to the magnitude of the revenue which is derived by a model which involves significant assumptions and data to estimate revenue.
• Revenue recognition for accounting for Sovereign Shipbuilding Talent Pool (STTP) and Life of Type Extension (LoTE) programs is recognised as a moderate risk. This is primarily due to the magnitude of the program, complexity of judgements and estimates used in estimating revenue.
• Tax accounting is a moderate risk due to positions undertaken by ASC. This is due to judgements undertaken by ASC to determine the accounting and disclosure impacts of tax positions undertaken.
• Liabilities recognised for unsettled expenditure is a moderate risk primarily due to the complexity and judgements involved in estimating the liability.
• Capitalisation of costs in relation to the Digital transformation Program is a moderate risk primarily due to judgements involved for capitalisation of costs.

Australian Naval Infrastructure Pty Ltd

The Australian Naval Infrastructure Pty Ltd (ANI) is responsible for supporting the Commonwealths’ continuous naval shipbuilding program by being the owner, developer and manager of infrastructure and related facilities.

The infrastructure held by ANI at Osborne in South Australia is used by Luerssen Australia Pty Ltd for the construction of two offshore patrol vessels, BAE Systems Maritime Australia for the Hunter Class Frigate program, and ASC Pty Ltd for maintenance of the Collins class submarines under contract arrangements with the Commonwealth, represented by the Department of Defence.

ANI is a proprietary company limited by shares registered under the Corporations Act 2001. The Commonwealth, represented jointly by the Minister for Finance and Minister for Defence as Shareholder Ministers, wholly own all of ANI’s share capital.

ANI’s total assets for 2021-22 were just under $1.5 billion, with 94 per cent attributable to property, plant and equipment, as shown in Figure 6. Total revenue is just over $42.2 million, with 97 per cent attributable to lease income.

Figure 6: Australian Naval Infrastructure Pty Ltd actual financial statements by category ($’000)

Source: ANAO analysis of the Australian Naval Infrastructure Pty Ltd’s 2021-22 Annual Report.

There are two key risks for ANI’s 2022–23 financial statements that the ANAO has highlighted for specific audit coverage.

• The recognition and valuation of property, plant and equipment due to the value and complexity of assets held by ANI. This includes judgements undertaken by ANI to assess asset remaining useful lives and recognising the transition to the Nuclear Powered Submarine Program following the AUKUS announcement.
• The accounting for, and reporting of, ANI’s revenue from properties which includes a number of revenue streams, the volume and complexity of transactions, and the impact of the application of Australian accounting standard AASB 15 Revenue from Contracts with Customers on revenue recognition, measurement and disclosure.

Future Fund Management Agency

The Future Fund Board of Guardians, supported by the Future Fund Management Agency (together the Future Fund), is responsible for investing the assets of the Future Fund under the Future Fund Act 2006, and other investment funds, managed on behalf of the Department of Finance. The investment of the funds is managed under the Disability Care Australia Fund Act 2013; the Medical Research Future Fund Act 2015; the Aboriginal and Torres Strait Islander Land and Sea Future Fund Act 2018; the Future Drought Fund Act 2019; and the Emergency Response Fund Amendment (Disaster Ready Fund) Act 2022 as a means to provide financing sources for substantial future investments in the Australian economy.

The Future Fund’s total budgeted assets for 2023–24 are just under $219.4 billion with 92 per cent of these assets attributable to other investments, as shown in Figure 7.

Figure 7: Future Fund Management Agency’s total budgeted financial statements by category ($’000)

Source: ANAO analysis of 9 May 2023–24 Portfolio Budget Statements.

There are two key risks for the Future Fund 2022–23 financial statements that the ANAO has highlighted for specific audit coverage, including one risk that the ANAO considers to be a potential key audit matter (KAM).

• The valuation of private market investments, due to the inherent subjectivity and significant judgements and estimates required where market data is not available to determine the fair value of these investments. (KAM – Valuation of private market investments)
• The valuation of public market investments undertaken by the custodian of the Future Fund, due to the size of the investments.