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 Treasury portfolio, considerations predominantly relate to the management of financial risks. These include the effective regulation of the Australian financial sector and the management of the Australian government’s balance sheet, particularly its financial assets and liabilities. There are also broader portfolio risk management capabilities that require further development, particularly when implementing transformational initiatives.

Regulation

A number of government outcomes in this portfolio are delivered through non-departmental entities, including financial regulators. Following the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, there is a renewed emphasis on the robustness of regulation of financial services by bodies such as the Australian Prudential Regulation Authority and the Australian Securities and Investments Commission, and governance arrangements in the sector, including within the government’s own financial management entities.

Asset management and sustainment

Financial and performance audit activities are identifying an increase in the use of financial instruments such as concessional debt and equity to fund major government initiatives and infrastructure, often through government business enterprises. This increase emphasises the need for transparency on the longer term costs and risks of these types of arrangements.

Governance

The audit of the Australian Bureau of Statistics’ Statistical Business Transformation Program, as well as the issues arising from the 2016 Census of Population and Housing, demonstrated the importance of risk management practices in supporting the implementation of major initiatives. As the Australian Bureau of Statistics undertakes its planning for the delivery of the 2021 Census, it is important that risks are identified and actively managed throughout the delivery of this program of work.

Portfolio overview

The Treasury portfolio is responsible for activities aimed at achieving strong, sustainable economic growth and the improved wellbeing of Australians.

The Department of the Treasury is the lead entity in the portfolio and is responsible for the development, delivery and implementation of economic policy and advice. This includes advice on the economy, budget, taxation, financial, foreign investment and structural policy, superannuation, small business, housing affordability and international economic policy. Further information is available from the Treasury’s website at www.treasury.gov.au.

In addition to the Department of the Treasury, there are 17 entities within the portfolio with a broad range of responsibilities, including revenue collection, consumer protection, financial regulation and the provision of official statistics. The portfolio includes the Australian Taxation Office (ATO) — audit considerations for the ATO are discussed separately.

In the 2019–20 Portfolio Budget Statements (PBS) for the Treasury portfolio, the aggregated budgeted expenses for 2019–20 total $160.81 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 the Treasury represents the largest proportion of the portfolio’s expenses, and administered expenses are the most material component, representing 99 per cent of the portfolio’s expenses (excluding the ATO).

Figure 1: Treasury 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 audits

Overview

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

Table 1: Treasury portfolio entities and risk profile

 

Type of entity

Risk of material misstatement

Number of higher risks

Number of moderate risks

Material entities 

Department of the Treasury

Non-corporate

Moderate

1

3

Australian Bureau of Statistics

Non-corporate

Low

0

1

Australian Office of Financial Management

Non-corporate

Moderate

1

0

Australian Prudential Regulation Authority

Non-corporate

Low

0

1

Australian Reinsurance Pool Corporation

Corporate

Moderate

0

2

Australian Securities and Investments Commission

Non-corporate

Moderate

1

1

National Housing Finance and Investment Corporation

Corporate

Moderate

Reserve Bank of Australia

Corporate

Moderate

2

0

Non-material entities 

Australian Competition and Consumer Commission

Non-corporate

Low

 

 

Commonwealth Grants Commission

Non-corporate

Low

Financial Adviser Standards and Ethics Authority Ltd

Company

Low

Inspector-General of Taxation

Non-corporate

Low

National Competition Council

Non-corporate

Low

Office of the Auditing and Assurance Standards Board

Non-corporate

Low

Office of the Australian Accounting Standards Board

Non-corporate

Low

Productivity Commission

Non-corporate

Low

Royal Australian Mint

Non-corporate

Moderate

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

Nil

     

Material entities

Department of the Treasury

The Department of the Treasury (the Treasury) is responsible for the development, delivery and implementation of economic analysis and authoritative policy advice issues such as the economy, budget, taxation, financial, foreign investment and structural policy, superannuation, small business, housing affordability and international economic policy. The Treasury also works with state and territory governments on key policy areas, and also manages federal financial relations.

The Treasury’s total budgeted expenses for 2019–20 are just over $141.6 billion, with 74 per cent of these expenses attributable to grants, as shown in Figure 2.

Figure 2: Treasury’s total budgeted expenses by category ($’000)

Note: Segment A refers to payments to Medicare Guarantee Fund, employee benefits, supplier expenses, depreciation and amortisation, foreign exchange and interest.

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 Treasury’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:

  • management and valuation of the Natural Disaster Relief and Recovery Arrangements provision. This is due to the judgement involved in estimating costs expected to be incurred for those eligible for assistance under these arrangements. The Treasury is also reliant on state and territory governments to provide information to support these estimates (KAM –Valuation of the Natural Disaster Relief and Recovery Arrangements provision);
  • stewardship over grant payments to states and territories under the Federal Financial Relations Act 2009, due to reliance on other Australian Government entities and state and territory governments to administer the programs and provide information to support payments (KAM –Accuracy and occurrence of grants expense);
  • valuation of investments in international financial institutions, due to the volatility of inputs applied in the re-measurement of those investments; and
  • implementation of funding arrangements and the accounting and valuation of transactions and balances associated with the National Housing Finance and Investment Corporation.

Australian Bureau of Statistics

The Australian Bureau of Statistics (ABS) is responsible for providing relevant, trusted and objective data, statistics and insights to inform Australia’s important decisions.

The ABS’s total budgeted expenses for 2019–20 are just under $457.4 million, with 66 per cent of these expenses attributable to employee benefits, as shown in Figure 3.

Figure 3: Australian Bureau of Statistics’ 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 ABS’s key risk for its financial statements relates to the valuation and impairment assessments of intangibles (software). The ABS is undergoing significant technology upgrades with the acquisition of specialised platforms that, due to their nature, present complexities from a valuation perspective.

Australian Office of Financial Management

The Australian Office of Financial Management (AOFM) is responsible for managing Australian Government debt and financial assets and the issuing of Treasury bonds, Treasury indexed bonds and Treasury notes into the financial markets.

The AOFM’s total budgeted expenses for 2019–20 are just over $17 billion. Nearly all of these expenses are attributable to interest payments, as shown in Figure 4.

Figure 4: Australian Office of Financial Management’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 AOFM’s key risk for its 2018–19 financial statements that the ANAO has highlighted for specific audit coverage in 2019–20, and that the ANAO considers a potential Key Audit Matter (KAM), is the management and financial reporting of Australian Government securities, which are impacted by external market factors (KAM – Valuation of Australian Government securities).

Australian Prudential Regulation Authority

The Australian Prudential Regulation Authority (APRA) is responsible for regulating the Australian financial services industry through the oversight of banks, credit unions, building societies, friendly societies, general insurers, life insurers, private health insurers, reinsurance companies and most of the superannuation industry. APRA is funded largely by the industries that it regulates.

APRA’s total budgeted expenses for 2019–20 are just over $634 million, with 71 per cent of these expenses attributable to risk equalisation payments, as shown in Figure 5, and are not APRA’s operational costs.

Figure 5: Australian Prudential Regulation Authority’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.

APRA’s key risk for its financial statements is the calculation and recognition of administered levy revenue, including the financial institutions supervisory levies, financial assistance levies, and the private health insurance risk equalisation levy revenue and associated payments. This involves complex calculations that are prescribed by legislation.

Australian Reinsurance Pool Corporation

The Australian Reinsurance Pool Corporation (ARPC), established by the Terrorism Insurance Act 2003, is responsible for administering the Terrorism Reinsurance Scheme, providing primary insurers with reinsurance for commercial property and associated business interruption losses arising from a declared terrorist incident.

ARPC’s total actual expenses for 2017–18 were $161 million, of which 39 per cent were attributable to outwards retrocession premium expense, as shown in Figure 6.

Figure 6: Australian Reinsurance Pool Corporation’s total actual expenses by category ($’000)

Source: ANAO analysis of the Australian Reinsurance Pool Corporation’s 2017–18 annual report.

ARPC’s two key risks for its financial statements are the:

  • recognition and reporting of premium revenue and unearned premium liability, which involves complex calculations and reliance on third-party information; and
  • calculation and reporting of reinsurance expense, which involves the risk of inaccurate calculation of reinsurance premiums.

Australian Securities and Investments Commission

The Australian Securities and Investments Commission (ASIC) is Australia’s integrated corporate, financial services, markets and consumer credit regulator to support a fair, strong and efficient financial system for all Australians. ASIC’s core responsibility is to maintain and facilitate the performance of that financial system and promote confident and informed participation by investors and consumers.

ASIC’s total budgeted expenses for 2019–20 are just under $588 million, with 41 per cent of these expenses attributable to employee benefits, as shown in Figure 7.

Figure 7: Australian Securities and Investments Commission’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 two key risks for ASIC’s financial statements are the:

  • estimation of the Commonwealth’s future liability for repayment of unclaimed monies, which uses a complex valuation model; and
  • recognition of ASIC’s diverse administered revenue streams, involving complex calculations that are prescribed in a number of Acts and regulations. ASIC’s administered revenue streams are captured by different input channels and systems, and in some cases are subject to changes driven by annual review by the government.

Reserve Bank of Australia

The objective of the Reserve Bank of Australia (RBA) is to determine and implement monetary policy, work to maintain a strong financial system, and issue the nation’s currency. As well as being a policymaking body, the RBA provides selected banking services to a range of Australian Government entities and to a number of overseas central banks and official institutions. The RBA is also responsible for the management of Australia’s gold and foreign exchange reserves.

RBA’s total actual expenses for 2017–18 were $588 million, of which 48 per cent were attributable to staff costs (including superannuation), as shown in Figure 8.

Figure 8: Reserve Bank of Australia’s total actual expenses by category ($’000)

Source: ANAO analysis of the Reserve Bank of Australia’s 2017–18 annual report.

The two key risks for the RBA’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:

  • valuation of Australian dollar securities and foreign currency investments, due to the complexity in determining the fair value of a range of investments. In addition, there is an inherent risk of significant financial impact due to fluctuations in the value of the Australian dollar (KAM – Valuation of Australian dollar securities and foreign currency investments);
  • accuracy of the liability for Australian banknotes on issue, due to the dependence on the assumption that all Australian notes on issue retain their legal tender status. In addition, there is a high volume of note production, and the supply and security of banknotes is structurally significant to the economy (KAM – Accuracy of the liability for Australian banknotes on issue).

National Housing Finance and Investment Corporation

The National Housing Finance and Investment Corporation (NHFIC) commenced in 2018–19 and is established by the National Housing Finance and Investment Corporation Act 2018. The NHFIC is responsible for the:

  • establishment and operation of an Affordable Housing Bond Aggregator to provide finance to registered community housing providers by aggregating their lending requirements and issuing bonds to institutional investors; and
  • establishment and operation of the National Housing Infrastructure Facility to provide grants and finance to support the creation of housing-related infrastructure.

There are no Portfolio Budget Statements for the NHFIC and, at the time of publication of this audit work program, the key risks for the NHFIC had not yet been finalised.

In progress performance audits

Performance audit (Open for contribution)
Activity