Portfolio overview

The Industry, Science, Energy and Resources portfolio is responsible for supporting science and its commercialisation; growing business investment and improving business capability; developing Northern Australia; streamlining regulation; developing and implementing a national response to climate change; improving Australia’s energy supply, efficiency, quality, performance and productivity; and facilitating the growth of small and family business.

As a result of the Administrative Arrangements Order, effective from 1 February 2020, the Department of Industry, Science, Energy and Resources was created from a merger of the Department of Industry, Innovation and Science; the energy and climate change functions (excluding climate science and adaptation) of the Department of the Environment and Energy; and small business functions from the Department of Employment, Skills, Small and Family Business. Following an amendment on 15 April 2021 to the Administrative Arrangements Arrangement Order, small business functions were transferred to the Department of the Treasury.

The new department continues to operate a Business Grants Hub and a shared services hub, which provide other Commonwealth entities with administrative support, including grants administration and payments processing; human resources and financial transactions processing; and the management information systems to support these processes. Further information is available from the department’s website at industry.gov.au.

In addition to the Department of Industry, Science, Energy and Resources, there are 12 entities within the portfolio (excluding subsidiaries), with responsibilities for marine, nuclear and geological science, Australia’s intellectual property rights system, offshore petroleum safety and environmental management, renewable energy regulation, financing the renewable energy sector, and advice on climate change mitigation.

In the 2021–22 Portfolio Budget Statements (PBS) for the Industry, Science, Energy and Resources portfolio, the aggregated budgeted expenses for 2021–22 total $8.54 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, Science, Energy and Resources represents the largest proportion of the portfolio’s expenses. The portfolio administered expenses are the most material component, representing 56 per cent of the entire portfolio’s expenses.

Figure 1: Industry, Science, Energy and Resources portfolio – total expenses and average staffing level by entity

Source: ANAO analysis of 2021–22 PBS.

Audit focus

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 Industry, Science, Energy and Resources portfolio, risk 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, including in relation to undertaking the procurement process for the National Medical Stockpile.

Governance

Recent audits emphasise the importance of transparency and consistency in decision-making, conformance and performance, as well as other elements of governance, such as culture and behaviour.

New programs that offer a range of more complex financial mechanisms as a form of assistance, such as concessional loans and guarantees, including through the Underwriting New Generation Investments program to boost investment into energy generation, will create the need to establish related risk tolerance levels and risk mitigation actions, as well as capabilities in managing these instruments.

Grants management

The delivery of end-to-end grants management services through the Business Grants Hub means the department needs to ensure that service, quality control expectations and reporting 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 other departments’ grant programs delivered through this mechanism. Grants management risks are heightened in an environment of additional funding where multiple programs target a similar group of beneficiaries, such as in drought assistance.

Asset management and sustainment

The portfolio carries a large number of physical assets, including nuclear and related scientific assets and Snowy Hydro infrastructure used for energy generation activities. These assets require specific maintenance and sustainability planning unique to the nature and use of the asset. The asset portfolio needs to adapt to changing needs and scientific advancements over time. It is also important that targets are set in asset management strategies, and that tracking and reporting against targets is undertaken, to provide a clear focus for performance and accountability for delivering on objectives.

Financial statements and other audit engagements

Overview

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

Table 1: Industry, Science, Energy and Resources 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, Science, Energy and Resources

Non-corporate

Moderate

3

2

Geoscience Australia

Non-corporate

Low

0

2

Australian Nuclear Science and Technology Organisation

Corporate

Moderate

2

3

Clean Energy Finance Corporation

Corporate

Moderate

3

2

Commonwealth Scientific and Industrial Research Organisation

Corporate

Moderate

2

2

Snowy Hydro Limited

Company

Moderate

4

4

Non-material entities 

Australian Institute of Marine Science

Corporate

Low

 

Australian Renewable Energy Agency

Corporate

Low

Clean Energy Regulator

Non-corporate

Moderate

Climate Change Authority

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)

Snowy Hydro Limited – half-year review

Snowy Hydro Limited – Australian financial services licensee compliance

     

Material entities

Department of Industry, Science, Energy and Resources

The Department of Industry, Science, Energy and Resources is responsible for supporting:

  • economic recovery, productivity and growth, and job creation by supporting manufacturing, business capability, technology, science and innovation;
  • the operation of energy markets and transition to lower emissions technologies; and
  • the development of mineral and energy resources.

The department’s total budgeted expenses for 2021–22 are $5.18 billion, with 33 per cent of these expenses attributable to payments to corporate Commonwealth entities, as shown in Figure 2.

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

 

Source: ANAO analysis of 2021–22 PBS.

There are five key risks for the department’s 2020–21 financial statements that the ANAO has highlighted for specific audit coverage, including two risks that the ANAO considers potential key audit matters (KAMs).

  • 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).
  • The valuation of the Australian Government’s investment in Snowy Hydro Limited, due to the materiality of the investment and complexities associated with the choice of assumptions and judgements applied in the valuation model. (KAM – Valuation of Snowy Hydro Limited administered investment).
  • The 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.
  • The valuation of the security for the Ranger uranium mine rehabilitation and accuracy of the cost of rehabilitation works, due to the complexity of the valuation and judgement involved in the valuation, and reliance on the data provided by third parties.
  • The management of, and accounting for, the department’s grant programs, due to the size and diversity of these programs.

Geoscience Australia

Geoscience Australia delivers information and advice on Australia’s geology and geography to support faster and smarter decision-making. The agency develops applications and solutions in response to Australia’s challenges by bringing together observations, data and knowledge from across geoscience disciplines.

Geoscience Australia’s total budgeted expenses for 2021–22 are just over $330 million, with 63 per cent of these expenses attributable to supplier expenses, as shown in Figure 3.

Figure 3: Geoscience Australia’s total budgeted expenses by category ($’000)

 

Source: ANAO analysis of 2021–22 PBS.

There are two key risks for Geoscience Australia’s 2020–21 financial statements.

  • The recognition of revenue related to long-term contracts and the relevant deferred revenue at year end, as it is a complex process that involves judgement.
  • The valuation of the mineral and fossil collections and other assets, including plant and equipment, as this process involves estimation and judgement.

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 2021–22 are just over $398 million, with 41 per cent of these expenses attributable to employee benefits, as shown in Figure 4.

Figure 4: Australian Nuclear Science and Technology Organisation’s total budgeted expenses by category ($’000)

 

Source: ANAO analysis of 2021–22 PBS.

There are five key risks for ANSTO’s 2020–21 financial statements.

  • The complexities arising from a potential restructure of the ANSTO group, including the potential wind-up of subsidiaries.
  • The cash flow and going concern considerations in relation to the financial position of the ANSTO Nuclear Medicine Pty Ltd subsidiary.
  • The valuation of the decommissioning provision, due to the complexity of the calculation and reliance on the exercise of significant judgement.
  • The valuation and subsequent depreciation of assets, due to their unique nature and materiality.
  • The 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.

Clean Energy Finance Corporation

The Clean Energy Finance Corporation (CEFC) is a corporate Commonwealth entity established under the Clean Energy Finance Corporation Act 2012. The CEFC is responsible for facilitating increased flows of finance into the clean energy sector. The CEFC’s role is to invest with commercial rigour in a diverse portfolio of clean energy technologies that are solely or mainly Australia-based – either directly or indirectly through industry and the banking sector – and that, in aggregate, have an acceptable but not excessive level of risk relative to the sector.

The CEFC seeks to mobilise capital investment in renewable energy, low-emissions technology and energy efficiency in Australia through commercial loans, concessional loans, equity investments and loan guarantees.

The CEFC is required to liaise with relevant bodies, including the Australian Renewable Energy Agency, the Clean Energy Regulator, other Australian Government entities, and state and territory governments, to facilitate its investment function. In the Investment Mandate Direction 2020, the responsible ministers have strongly encouraged the CEFC Board to make available from its original $10 billion of funding up to:

  • $1 billion of investment finance over 10 years for the Reef Funding Program;
  • $1 billion of investment finance over 10 years for the Sustainable Cities Investment Program;
  • $200 million for debt and equity investment through the Clean Energy Innovation Fund;
  • $100 million for an Australian Recycling Investment Fund; and
  • $300 million in concessional finance through the Advancing Hydrogen Fund.

The CEFC’s total budgeted expenses for 2021–22 are $141 million, with 28 per cent of these expenses attributable to employee benefits, as shown in Figure 5.

Figure 5: Clean Energy Finance Corporation’s total budgeted expenses by category ($’000)

 

Source: ANAO analysis of 2021–22 PBS.

There are five key risks for the CEFC’s 2020–21 financial statements.

  • The measurement of interest and fee income from the CEFC’s loans and deposits, which continues to be a significant portion of the CEFC’s revenue, in view of the corporation’s contractual lending arrangements.
  • The accounting for complex financing arrangements, due to the bespoke nature of each investment transaction, and ensuring ongoing compliance with the accounting standards for financial instruments as the portfolio continues to develop.
  • The valuation and accounting for direct equity investments, which are required to be at fair value under Australian accounting standard AASB 9 Financial Instruments.
  • The verification of the carrying value of the CEFC’s investment in its associates – that is, entities that the CEFC does not control but has significant influence over – and the resultant adjustments through the income statement for the CEFC’s share of gains/losses from associates.
  • The adequacy of the impairment provision relating to loans, in view of the complexity of the transactions undertaken, the concentration of sectorial exposure and the degree of management judgement required to estimate the provisions.

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 2021–22 are just over $1.45 billion, with 55 per cent of these expenses attributable to employee benefits, as shown in Figure 6.

Figure 6: CSIRO’s total budgeted expenses by category ($’000)

 

Source: ANAO analysis of 2021–22 PBS.

There are four key risks for CSIRO’s 2020–21 financial statements.

  • The completeness and accuracy of research project revenue, due to the degree of judgement involved across a number of revenue streams from a variety of sources and funding models.
  • The valuation of unlisted companies, including within the CSIRO innovation funds, due to their diverse nature, early-stage development and funding arrangements.
  • The calculation of waste remediation liabilities, due to the significant judgements required in the selection of the model’s assumptions.
  • The 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 and are subject to possible impairment.

Snowy Hydro Limited

Snowy Hydro Limited is a government business enterprise whose primary business includes energy generation activities to supply the National Electricity Market and operating as a retail energy provider to over one million customers through the Red Energy and Lumo Energy brands. Snowy Hydro’s energy generation capacity of 5,500 megawatts supplies New South Wales, Victoria and South Australia, primarily through the generating capacity of the Snowy Mountains hydroelectric scheme.

Snowy Hydro is currently progressing Snowy 2.0, a pumped hydro project that will add 2,000 megawatts of on-demand generation and approximately 350,000 megawatt hours of large-scale storage to the National Electricity Market.

Snowy Hydro’s total actual expenses for 2019–20 were just under $2.6 billion, with 69 per cent of these expenses attributable to the direct costs associated with revenue earned by Snowy Hydro’s retail utilities and generation business units, as shown in Figure 6

Figure 7: Snowy Hydro Limited’s total actual expenses by category ($’000)

 

Source: ANAO analysis of Snowy Hydro Limited’s 2019–20 annual report.

There are eight key risks for Snowy Hydro’s 2020–21 financial statements.

  • The valuation of financial instruments, including hedging instruments, forward contracts and swaps, reflecting the complexity of the valuation process and model. These valuations require an increased level of judgement from management to determine inputs into the valuation model – particularly unobservable inputs. There may be increased levels of uncertainty associated with inputs into valuation models due to the economic impacts of the COVID-19 pandemic.
  • The valuation of renewable energy certificates, due to the complexity of management’s methodology and the level of judgement applied by management for determining the value and accounting treatment for these certificates.
  • The completeness and accuracy of the impairment of retail debtors, given the reach of Snowy Hydro’s retail customer base, the economic impacts of the COVID-19 pandemic, and the increased level of judgement required by management to determine the key inputs to be applied in the expected credit loss model.
  • The valuation and existence of unbilled retail revenue, reflecting the timing of customer electricity meter readings and the end of the financial year. The methodology for estimation of unbilled revenue requires increased judgement by management and the use of a complex model.
  • The valuation of capitalised customer acquisition costs, reflecting the increased judgement applied in accounting for the amortisation of this balance.
  • The capitalisation of Snowy 2.0 costs, which reflects the complexity of the underlying project work and the judgement that needs to be applied to meet the requirements of the accounting standards.
  • The valuation and impairment of non-financial assets, particularly due to the judgement and estimation required to determine the economic and cash flow assumptions underpinning the valuation model applied in the impairment assessment.
  • The potential development of gas-powered electricity generators, particularly due to the judgement applied in determining whether capitalised costs are in accordance with the accounting standards.