Read an overview of the Infrastructure, Regional Development and Cities portfolio including details of key activities, expenses and staffing levels. The audit focus section outlines the influences on the ANAO’s allocation of financial audit resources and the selection of performance audit topics and other activities. Also included is a list of material and non-material entities within the portfolio with their corresponding risk profile and key risks. Any risks that are considered key audit matters (KAMs) by the ANAO are separately identified.

Portfolio overview

The Infrastructure, Regional Development and Cities portfolio covers a number of policy areas, including safety across the civil aviation, maritime and transport sectors; air navigation services; developing and administering the national capital; and road, rail and freight transport systems.

The Department of Infrastructure, Regional Development and Cities is the lead entity in the portfolio and is responsible for improving infrastructure across Australia, through funding coordination of transport and other infrastructure; providing an efficient and competitive transport system; strengthening the sustainability and diversity of regional economies; supporting governance arrangements in the Australian territories; and providing advice on population policy and national policy on cities. Further information is available from the department’s website at www.infrastructure.gov.au.

In addition to the department, there are 11 entities within the portfolio with responsibility for matters such as maritime, transport and civil aviation safety; infrastructure planning, financing and delivery, including development of the Western Sydney Airport and Inland Rail project; and strategic planning for the national capital.

In the 2018–19 Portfolio Budget Statements (PBS) for the Infrastructure, Regional Development and Cities portfolio, the aggregated budgeted expenses for 2018–19 total $4.6 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 Infrastructure, Regional Development and Cities represents the largest proportion of the portfolio’s expenses, and administered expenses are the most material component, representing 85 per cent of the entire portfolio’s expenses.

Figure 1: Infrastructure, Regional Development and Cities portfolio — total expenses and average staffing level

Bar chart showing the average staffing level and expenses for entities in the portfolio.

Source: ANAO analysis of 2018–19 PBS Budget related papers.

Audit focus

The Infrastructure, Regional Development and Cities portfolio is responsible for regulating transport system safety and directing investment in infrastructure and regional development projects of national significance. The portfolio also has a focus on facilitating partnerships between all levels of government, the private sector and local communities and providing good governance to the Australian territories.

Specific characteristics and risks within the portfolio that influence the ANAO’s allocation of financial audit resources and the annual selection of performance audit topics and other activities include:

  • funding provided to third parties to deliver government outcomes on national infrastructure projects;
  • major procurement and contracting activities, and associated probity risks;
  • partnering with the private and public sectors, including government business enterprises, often using innovative financing models;
  • financial management and accounting for a range of grant programs;
  • a range of transport regulatory responsibilities;
  • complex valuation methods and models used to derive the value of Commonwealth investments and liabilities; and
  • completeness and accuracy of revenue streams.

Considering the identified risks, expenditure and diversity of the portfolio, the ANAO has planned six performance audits for 2018–19.

Financial statements audits and other audit engagements

Entities within the Infrastructure, Regional Development and Cities portfolio, and the risk profile of each entity, are shown in Table 1.

Table 1: Infrastructure, Regional Development and Cities portfolio entities and risk profile

 

Type of entity

Risk of material misstatement

Number of higher risks

Number of moderate risks

Material entities  

Department of Infrastructure, Regional Development and Cities

Non-corporate

Moderate

1

3

Airservices Australia

Corporate

Moderate

1

5

Australian Rail Track Corporation

Company

Moderate

2

4

Moorebank Intermodal Company Limited

Company

Moderate

1

2

National Capital Authority

Non-corporate

Low

0

3

WSA Co Limited

Company

Moderate

1

3

Non-material entities  

Australian Maritime Safety Authority

Corporate

Low

 

Australian Transport Safety Bureau

Non-corporate

Low

Civil Aviation Safety Authority

Corporate

Low

Infrastructure and Project Financing Agency

Non-corporate

Low

Infrastructure Australia

Corporate

Low

National Transport Commission

Corporate

Low

 

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

Australian Rail Track Corporation — grant audit

Norfolk Island Health and Residential Aged Care Service — financial statements audit

     

Material entities

Department of Infrastructure, Regional Development and Cities

The Department of Infrastructure, Regional Development and Cities is responsible for improving infrastructure across Australia through funding coordination of transport and other infrastructure; providing an efficient, sustainable, competitive and safe transport system for all transport users; strengthening the sustainability, capacity and diversity of regional economies; and supporting governance arrangements in the Australian territories. Responsibilities related to transport security were transferred to the Department of Home Affairs in December 2017 as a result of machinery-of-government changes.

The Department of Infrastructure, Regional Development and Cities’ total budgeted expenses for 2018–19 are just under $4.09 billion, with 75 per cent of these expenses attributable to grant expenses, as shown in Figure 2.

Figure 2: Department of Infrastructure, Regional Development and Cities’ total budgeted expenses by category ($’000)

Source: ANAO analysis of 2018–19 PBS Budget related papers.

The four key risks for the Department of Infrastructure, Regional Development and Cities’ financial statements that have been highlighted for specific audit coverage, including those that are considered key audit matters (KAMs) by the ANAO, are the:

  • valuation of the investments in Australian Rail Track Corporation and Airservices Australia, due to the complexity of the valuation process and the significance of the investment to the financial statements (KAM – Valuation of the Australian Government’s investment in the Australian Rail Track Corporation and Airservices Australia);
  • valuation of concessional loans, due to the judgements required in selecting the assumptions used in the valuation models (KAM – Valuation of concessional loans);
  • management of, and accounting for, the department’s grant programs, due to the size and diversity of these programs; and
  • impact of machinery-of-government changes.

Airservices Australia

Airservices Australia (Airservices) is responsible for the provision of air navigation services across Australian and oceanic airspace, and the provision of aviation rescue firefighting services at major Australian airports. Supported by a national network of communications, surveillance and navigation facilities and infrastructure, Airservices is funded through charges levied on its customers and borrowings from debt markets.

Airservices’ total actual expenses for 2016–17 were just over $1 billion, with 65 per cent of these expenses attributable to employee benefits, as shown in Figure 3.

Figure 3: Airservices Australia’s total actual expenses by category ($’000)

Source: ANAO analysis of Airservices Australia’s 2016–17 annual report.

The six key risks for Airservices’ financial statements are the:

  • completeness of airways revenue, given the complexity of the flight traffic data and dependence on multiple IT systems when generating customer invoices;
  • management of, and accounting for, assets under construction and existing, completed property, plant and equipment and intangibles. Capturing of costs related to assets under construction and determining their appropriate treatment under relevant accounting standards is complex, due to the technical nature of those assets and the judgements involved in assessing whether costs can be capitalised. Valuation of completed asset infrastructure, which is a material balance, is sensitive to changes in the assumptions used in the valuation models;
  • calculation of provisions for legal obligations and related contingencies, due to the complexity of the underlying event that gave rise to a potential legal obligation, in addition to the significant judgements required in valuing the liability;
  • management of, and accounting for, a large number of diverse, material contracts, which are complex in nature;
  • valuation of the Airservices’ defined benefit superannuation scheme liability, including the sensitivity of the fund and the economic and demographic assumptions supporting the calculation of the liability; and
  • management of, and accounting for, a range of financial instruments, including interest rate swaps and forward exchange contracts, which are complex in nature.

Australian Rail Track Corporation Limited

The Australian Rail Track Corporation (ARTC) is responsible for the development, maintenance, management and delivery of some of Australia’s major rail networks, including the national interstate rail network, the Hunter Valley coal rail network and the inland rail network.

ARTC’s total actual expenses for 2016–17 were just over $646 million, with 29 per cent of these expenses attributable to depreciation and amortisation expenses and net impairment, as shown in Figure 4.

Figure 4: Australian Rail Track Corporation Limited’s total actual expenses by category ($’000)

Source: ANAO analysis of Australian Rail Track Corporation’s 2016–17 annual report.

The six key risks for ARTC’s financial statements are the:

  • valuation of rail network assets. This is a material balance for ARTC, is sensitive to changes in the assumptions used in the valuation models adopted, and involves highly specialised components;
  • taxation-related balances, as there is complexity and judgement involved in accounting for deferred tax assets;
  • revenue recognition for a number of income streams, as there are significant judgements exercised by management in estimating the amount of revenue to be accounted for;
  • calculation of provisions for claims for rail-related incidents at year end, due to the complexity of the underlying event that gave rise to a potential legal obligation, in addition to the significant judgements required in the selection of the model’s assumptions in valuing the liability;
  • funding and debt management, particularly the monitoring and renegotiation of ARTC’s debt arrangement, as the operations are currently supported via a number of complex arrangements, with current liabilities exceeding current assets; and
  • management of, and accounting for, grants, particularly recognition and calculation of deferred grant income, as this relies heavily on management’s assessments.

Moorebank Intermodal Company Limited

The Moorebank Intermodal Company Limited (MIC) was established to oversee the development and future operation of the Moorebank intermodal terminal in Sydney’s south-west. It is designed to enable more freight to be moved by rail both locally and nationally. The Moorebank terminal will have an import and export facility with a direct link to Port Botany, and also an interstate and regional facility to connect to the national rail freight network. The terminal will be developed and operated by co-investor Sydney Intermodal Terminal Alliance.

MIC’s total actual expenses for 2016–17 were just under $3.7 million, with 55 per cent of these expenses attributable to employee benefits, as shown in Figure 5.

Figure 5: Moorebank Intermodal Company Limited’s total actual expenses by category ($’000)

Source: ANAO analysis of Moorebank Intermodal Company Limited’s 2016–17 annual report.

The three key risks for MIC’s financial statements are the:

  • calculation of provisions related to land remediation obligations, due to the complexity of the underlying event that gave rise to a potential legal obligation, the significant judgements required in the selection of the model’s assumptions in valuing the liability, and the increasing activity as the terminal development progresses;
  • management of, and accounting for, MIC’s interests in investment trusts, due to increasing development activity and the technical nature of the transactions between MIC and the trusts; and
  • procurement controls supporting contract management, which are material and can potentially create long-term obligations requiring long-term funding.

National Capital Authority

The National Capital Authority (NCA) is responsible for managing the strategic planning, promotion and enhancement of Canberra as the national capital for all Australians through the development and administration of the National Capital Plan, the operation of the National Capital Exhibition, delivery of education and awareness programs, and works to enhance the character of the national capital.

The NCA’s total budgeted expenses for 2018–19 are just under $49 million, with 47 per cent of these expenses attributable to depreciation and amortisation, finance costs and impairment of assets, as shown in Figure 6.

Figure 6: National Capital Authority’s total budgeted expenses by category ($’000)

Source: ANAO analysis of 2018–19 PBS Budget related papers.

The three key risks for the NCA’s financial statements are the:

  • valuation of land and buildings, which is a material balance and sensitive to changes in the assumptions used in the valuation models;
  • financial reporting of the NCA’s construction activities, requiring judgement to determine the status of projects at the end of the financial year; and
  • financial reporting of leasing arrangements.

WSA Co Limited

WSA Co Limited was established in August 2017 to build the Western Sydney Airport in Badgerys Creek, in south-western Sydney. WSA Co is a government business enterprise wholly owned by the Australian Government, represented by the Minister for Finance and the Minister for Urban Infrastructure and Cities as shareholder ministers.

The Australian Government will invest up to $5.3 billion for WSA Co to build Western Sydney Airport. This investment covers WSA Co’s work on the earthworks and construction of the airport, including compliance with environmental conditions. It also includes funding for the Department of Infrastructure, Regional Development and Cities to develop and finalise the airspace and flight path design.

The four key risks for WSA Co’s financial statements are the:

  • recognition and measurement of capital expenditure incurred in developing the airport, particularly the value of work in progress recognised during airport construction activities;
  • policies and processes for procurement, particularly relating to management of contracts for the delivery and cost management of major construction activities, given the material amounts contained within the contracts;
  • calculation of provisions for land remediation activities that may need to be undertaken prior to and during construction on the airport site; and
  • taxation-related balances, as there is complexity and judgement involved in accounting for deferred tax assets given the nature of the project.