Audit focus

In determining the 2019–20 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 Industry, Innovation and Science portfolio, considerations predominantly relate to the provision of evidence-based advice to government, effective governance of, and service delivery by, portfolio entities, and the management of scientific assets. The department’s responsibilities for the Business Grants Hub also bring delivery and accountability risks.

Policy development

Audit work has highlighted that effective policy development, particularly where there are short timeframes, requires articulation of the evidence-based and frank advice on likely impacts and implementation risks of proposals.

An area of policy risk is in developing performance frameworks to ensure that the success of policy implementation can be measured and the benefits articulated.

Governance

The audit of the Northern Australia Infrastructure Fund highlighted that, while the use of expert judgement in decision-making may be appropriate, this does not reduce the expectation that the use of this judgement is transparent and clearly documented.

Recent audits, including of the Australian Institute of Marine Science, emphasise the importance of boards focusing on soft elements of governance, such as culture and behaviour, alongside the harder elements of overseeing conformance and performance.

Service delivery

One key area of service delivery risk is the achievement of efficient business operations. In regulatory service delivery, particularly where other agencies play a key role in detection, such as in the regulation of illegal dumping, measuring efficiency can assist in ensuring ongoing affordability and risk-based management.

Asset management and sustainment

The portfolio carries a large number of physical assets, predominantly for scientific purposes. These assets often require specific maintenance and sustainability planning unique to the nature and use of the asset, but the asset portfolio also needs to be managed to adapt to changing needs and scientific advancements over time.

Grants management

The delivery of end-to-end grants management services through the department’s Business Grants Hub means the department needs to ensure that service and quality control expectations are agreed and maintained, and that priorities accord with entity expectations, to provide assurance that policy objectives are being met. This will also apply to any department grant programs delivered through this mechanism.

Portfolio overview

The Industry, Innovation and Science portfolio is responsible for boosting Australia’s competitiveness and facilitating economic and technological transformation to deliver a modern, digital and globally integrated economy that supports economic growth and job creation.

The Department of Industry, Innovation and Science is responsible for supporting science and commercialisation; growing business investment and improving business capability; developing northern Australia; and streamlining regulation. The department has established a grants hub to streamline the administration of government grants to business. Further information is available from the department’s website at www.industry.gov.au.

In addition to the Department of Industry, Innovation and Science, there are seven entities within the portfolio (excluding subsidiaries), with responsibilities in relation to marine, nuclear and geological science, Australia’s intellectual property rights system, and offshore petroleum safety and environmental management.

In the 2019–20 Portfolio Budget Statements (PBS) for the Industry, Innovation and Science portfolio, the aggregated budgeted expenses for 2019–20 total $5.34 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 1. The Department of Industry, Innovation and Science represents the largest proportion of the portfolio’s expenses. Departmental expenses are the most material component, representing 55 per cent of the entire portfolio’s expenses.

Figure 1: Industry, Innovation and Science portfolio — total expenses and average staffing level by entity

Source: ANAO analysis of PBS 2019–20 Budget related papers pre–machinery-of-government changes announced on 29 May 2019.

Financial statements and other audit engagements

Overview

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

Table 1: Industry, Innovation and Science portfolio entities and risk profile

 

Type of entity

Risk of material misstatement

Number of higher risks

Number of moderate risks

Material entities 

Department of Industry, Innovation and Science

Non-corporate

Moderate

2

2

Australian Nuclear Science and Technology Organisation

Corporate

Moderate

1

3

Commonwealth Scientific and Industrial Research Organisation

Corporate

Moderate

0

5

Non-material entities 

Australian Institute of Marine Science

Corporate

Low

 

Geoscience Australia

Non-corporate

Low

IP Australia

Non-corporate

Low

National Offshore Petroleum Safety and Environmental Management Authority

Corporate

Low

Northern Australia Infrastructure Facility

Corporate

Low

Other audit engagements (including Auditor-General Act 1997 section 20 engagements) 

Nil

         

Material entities

Department of Industry, Innovation and Science

The Department of Industry, Innovation and Science is responsible for supporting science and commercialisation, growing business investment and improving business capability, developing northern Australia, and streamlining regulation.

The department’s total budgeted expenses for 2019–20 are just over $2.91 billion, with 40 per cent of these expenses attributable to payments to corporate Commonwealth entities, as shown in Figure 2.

Figure 2: Department of Industry, Innovation and Science’s total budgeted expenses by category ($’000)

Source: ANAO analysis of PBS 2019–20 Budget related papers pre–machinery-of-government changes announced on 29 May 2019.

The four key risks for the department’s 2018–19 financial statements that the ANAO has highlighted for specific audit coverage in 2019–20, including those that the ANAO considers potential Key Audit Matters (KAMs), are the:

  • completeness and accuracy of the department’s offshore petroleum and uranium royalties revenue, due to the reliance on the data included in self-assessments provided by uranium and petroleum producers (KAM – Completeness and accuracy of royalty revenue);
  • completeness and accuracy of the department’s other revenue streams, which are diverse in nature, often rely on manual calculations to quantify the amount of revenue recognised, and/or are cash-based transactions;
  • valuation of concessional loans made under the Northern Australia Infrastructure Facility, due to the complexity of the accounting treatment for these loans and the level of estimation required in the calculations supporting their valuation; and
  • management of, and accounting for, the department’s grants programs, due to the size and diversity of these programs.

Australian Nuclear Science and Technology Organisation

The Australian Nuclear Science and Technology Organisation (ANSTO) is Australia’s national nuclear research and development organisation. ANSTO operates Australia’s only nuclear research reactor and the Australian Synchrotron, contributes to radiopharmaceutical production and supply, and conducts research into areas of national priority, including human health, the environment and the nuclear fuel cycle. ANSTO also provides advice to government and other stakeholders on matters relating to nuclear science, technology and engineering.

ANSTO’s total budgeted expenses for 2019–20 are just under $408 million, with 39 per cent of these expenses attributable to employee benefits, as shown in Figure 3.

Figure 3: Australian Nuclear Science and Technology Organisation’s total budgeted expenses by category ($’000)

Source: ANAO analysis of PBS 2019–20 Budget related papers pre–machinery-of-government changes announced on 29 May 2019.

ANSTO’s four key risks for its financial statements are the:

  • valuation of the decommissioning provision, due to the complexity of the calculation and reliance on the exercise of significant judgement;
  • complexities arising from the sale of the PETTECH operations and impairment testing carried out over each of ANSTO’s investments being subject to judgement and estimation;
  • valuation and subsequent depreciation of assets, due to their unique nature and materiality; and
  • completeness and accuracy of material streams of commercial revenue, due to the number of revenue streams from both commercial and government sources and complex funding arrangements.

Commonwealth Scientific and Industrial Research Organisation

The primary functions of the Commonwealth Scientific and Industrial Research Organisation (CSIRO), as set out in the Science and Industry Research Act 1949, are to carry out scientific research and facilitate the application or utilisation of the results of such research. CSIRO is responsible for delivering science and innovative solutions for industry, society and the environment.

CSIRO’s total budgeted expenses for 2019–20 are just under $1.44 billion, with 54 per cent of these expenses attributable to employee benefits, as shown in Figure 4.

Figure 4: CSIRO’s total budgeted expenses by category ($’000)

Source: ANAO analysis of PBS 2019–20 Budget related papers pre–machinery-of-government changes announced on 29 May 2019.

CSIRO’s key five risks for its financial statements are the:

  • capturing of actual costs of various projects and their complex accounting treatments in accordance with the relevant accounting standards;
  • completeness and accuracy of project revenue, due to the number of revenue streams from a variety of sources and funding models;
  • ongoing management of CSIRO innovation funds, due to the diverse nature and funding arrangements for investments in the early stages of technological opportunities;
  • calculation of waste remediation liabilities, due to the significant judgements required in the selection of the model’s assumptions; and
  • valuation of CSIRO’s land and buildings, plant and equipment, and properties held for investment or sale. These are material balances sensitive to movements in assumptions adopted in the underlying valuation models.