In determining the 2021–22 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, reforms or changes in the operating environment.

In the Finance portfolio, considerations predominantly relate to its responsibilities to advise the government on, and oversee the implementation of, regulatory frameworks for the effective management of the public sector. The Department of Finance has particular responsibilities for the rules and guidelines regarding financial management across all government entities. This creates risks in how the department gains assurance that these rules and guidelines are being implemented as intended, and that the operations of government are transparent to the parliament.

A key area of risk for the public sector, including the Finance portfolio, is the impact of COVID-19, both on entity operations and through the need to manage the longer term budget impacts of COVID-19 response measures. The Department of Finance is also responsible for the administration of the Advance to the Finance Minister mechanism, which has been utilised to provide access to funding for COVID-19-related measures. The volume of funds allocated through this mechanism requires transparency, reliable reporting arrangements and strong governance.

Specific risks in the Finance portfolio relate to governance and financial management.

Governance

In its management of the $42.975 billion Advance to the Finance Minister (AFM) made for 2019–20 and 2020–21, the Department of Finance has a responsibility to prepare reporting on expenditure from the AFM that is accurate and timely, and establish controls over the administration of the AFM that achieve appropriate approval, recording and reporting of each advance.

The Department of Finance has the capacity to leverage its position in relation to the Public Governance, Performance and Accountability Act 2013 (PGPA Act), resource management, governance and reporting matters to influence positive change and compliance in the Australian Government sector. This includes performance measures and reporting, corporate planning, and the role of audit committees. Recent audits focusing on PGPA Act topics have identified a number of areas where the current regulatory approach is associated with poor levels of compliance  (such as for corporate plans, performance statements and procurement arrangements).

The Department of Finance has responsibility for a number of initiatives designed to improve efficiency and effectiveness, including the provision of shared services through the Service Delivery Office. The reforms relating to shared services require both efficiencies to be identified and measured, as well as improvements to be realised in grants management and procurement outcomes (including Indigenous procurement). Audits in recent years have identified challenges in these areas. 

Financial management

From a whole-of-government perspective, the Department of Finance provides advice on investment strategies, including funding and equity arrangements, and associated financial reporting (including valuation approaches by Commonwealth companies). Other risks in financial management and reporting include the judgements involved in the assumptions and calculations underpinning the public sector superannuation liability and the self-managed general insurance fund liabilities, together with the valuation of the property portfolio assets. The department has a role in supporting government to manage the costs of the COVID-19 response measures and managing the impacts of a delayed 2020–21 Budget process.

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, as well as the production of the Australian Government’s consolidated financial statements.

The department’s total budgeted expenses for 2021–22 are just under $11.3 billion, with 71 per cent of these expenses attributable to superannuation, as shown in Figure 2.

Figure 2: Department of Finance’s total budgeted expenses by category ($’000)

Source: ANAO analysis of 2021–22 PBS.

There are three key risks for the Department of Finance’s 2020–21 financial statements that the ANAO has highlighted for specific audit coverage, all of which the ANAO considers potential key audit matters (KAMs).

• The complex assumptions (including risk factors identified in relation to the impact of COVID-19) 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 (including risk factors identified in relation to the impact of COVID-19) within the valuation models. (KAM – Valuation of properties)

ASC Pty Ltd

ASC Pty Ltd and its subsidiaries – ASC AWD Shipbuilder Pty Ltd and ASC OPV Shipbuilder Pty Ltd – support Australia’s naval capabilities. ASC Pty Ltd built Australia’s fleet of Collins class submarines for the Royal Australian Navy and is responsible for the ongoing design enhancements, maintenance and support of the submarines through the in-service support contract.

ASC is part of the alliance-based contract arrangement that delivered three air warfare destroyers for the Royal Australian Navy. This alliance is made up of the Department of Defence, representing the Australian Government, ASC as the lead shipbuilder, and Raytheon Australia as the mission systems integrator.

ASC OPV Shipbuilder Pty Ltd is constructing the first two ships in Australia’s new fleet of modern offshore patrol vessels.

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’s total actual expenses for 2019–20 were just under $644 million, with 46 per cent attributable to labour expenses, as shown in Figure 3.

Figure 3: ASC Pty Ltd’s total actual expenses by category ($’000)

Source: ANAO analysis of ASC Pty Ltd’s 2019–20 annual report.

There are three key risks for ASC’s 2020–21 financial statements, primarily surrounding the revenue and profit recognition due to the material nature of the programs and complexity of contracts. The risks are in relation to:

• the air warfare destroyer program;
• the offshore patrol vessel program; and
• the Collins class submarine in-service support contract.

Australian Naval Infrastructure Pty Ltd

Australian Naval Infrastructure Pty Ltd (ANI) was established to acquire, hold, manage and develop the infrastructure and related facilities used for the Commonwealth’s ongoing Naval Shipbuilding Plan. 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 by the Minister for Finance and Minister for Defence, jointly owns shares in ANI.

ANI has recently completed a $535 million project to expand the surface shipyard at Osborne in support of the Hunter Class Frigate program, and is also modernising existing facilities. In conjunction with Naval Group and the Commonwealth, ANI is developing a new submarine yard that will be utilised for construction of the Attack class submarines.

ANI’s total actual expenses for 2019–20 were just under $45 million, with 45 per cent of these expenses attributable to depreciation and amortisation, as shown in Figure 4.

Figure 4: Australian Naval Infrastructure Pty Ltd’s total actual expenses by category ($’000)

Source: ANAO analysis of Australian Naval Infrastructure Pty Ltd’s 2019–20 annual report.

There are two key risks for ANI’s 2020–21 financial statements that the ANAO has highlighted for specific audit coverage.

• The recognition and valuation of property, plant and equipment.
• Accounting for capital work in progress.

Both risks reflect ANI’s significant investment in new assets, in addition to its existing large holdings, and the complex judgements required to estimate the fair value of these assets.

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, under the DisabilityCare 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 Emergency Response Fund Act 2019, and the Future Drought Fund Act 2019, for the benefit of future generations of Australians.

The Future Fund’s total budgeted expenses for 2021–22 are just over $584 million,  with 88 per cent of these expenses attributable to supplier expenses, as shown in Figure 5.

Figure 5: Future Fund Management Agency’s total budgeted expenses by category ($’000)

Source: ANAO analysis of 2021–22 PBS.

There are two key risks for the Future Fund’s 2020–21 financial statements that the ANAO has highlighted for specific audit coverage, including one risk that the ANAO considers 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, and due to additional risk factors identified in relation to the impact of COVID-19. (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 and additional risk factors identified in relation to the impact of COVID-19.