Portfolio overview

The Treasury portfolio is responsible for activities aimed at achieving strong, sustainable economic growth and fiscal settings for the good of the Australian people.

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, the budget, taxation, the financial sector, foreign investment, structural policy, superannuation, small business, housing affordability and international economic policy. Further information is available from the Treasury’s website at treasury.gov.au.

In addition to the Department of the Treasury, there are 16 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 2021–22 Portfolio Budget Statements (PBS) for the Treasury portfolio (excluding the ATO), the aggregated budgeted expenses for 2021–22 total $185.88 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 entire portfolio’s expenses.

Figure 1: Treasury portfolio – total expenses and average staffing level by entity

Note: Excludes the Australian Taxation Office.

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 Treasury portfolio, considerations are predominantly related to policy development, coordination and management of risks in relation to the economic response measures to COVID-19, and implementing related adjustments to financial regulatory settings. Audit considerations also include the effective regulation of the Australian financial sector and the management of the Australian Government’s balance sheet, including government debt. Broader portfolio risk management capabilities also require further development, particularly when implementing transformational initiatives.

Specific risks in the Treasury portfolio relate to policy development, regulation, and asset management and sustainment.

Policy development

The Department of the Treasury, alongside other portfolio entities, has been a key entity in designing, coordinating and briefing the Australian Government on its economic response measures to the COVID-19 pandemic in compressed timeframes. Portfolio risks in relation to these measures may arise from economic modelling in an environment where the outlook for both the global and domestic economies remains uncertain. In this environment, it is important to maintain a reliable and up-to-date evidence base and appropriately use this evidence, and to provide comprehensive, frank and timely advice to government as a sound base for economic recovery work.

Regulation

A number of government outcomes in the Treasury portfolio are delivered through non-departmental entities, including financial regulators such as the Australian Prudential Regulation Authority, the Reserve Bank of Australia and the Australian Securities and Investments Commission. In response to the COVID-19 pandemic, over 80 regulatory changes have been made to provide greater flexibility and support to those impacted by the pandemic, including changes to assist the flow of credit and to recapitalise companies. This follows a renewed emphasis on the robustness of regulation of financial services arising from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.

Other regulatory functions in the Treasury portfolio delivered through non-departmental entities include national energy market regulators. An audit of the Australian Energy Regulator highlighted the need for improving governance, management, risk and compliance approaches.

Asset management and sustainment

Financial statements 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, often through government business enterprises. This emphasises the need for transparency on the longer term costs and risks of these types of arrangements and debt management plans. There are also corporate Commonwealth entities funded to improve aspects of asset management, such as the National Housing Finance and Investment Corporation, which has been established to reduce pressure on housing affordability. In response to the COVID-19 pandemic, a number of measures were implemented across the Treasury portfolio to support the stimulus packages announced by government, as well as to provide stabilisation to financial markets and support the ongoing provision of credit to business.

Financial statement 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

1

Australian Bureau of Statistics

Non-corporate

Low

2

2

Australian Office of Financial Management

Non-corporate

Moderate

0

2

Australian Prudential Regulation Authority

Non-corporate

Low

0

2

Australian Reinsurance Pool Corporation

Corporate

Moderate

0

2

Australian Securities and Investments Commission

Non-corporate

Moderate

2

2

National Housing Finance and Investment Corporation

Corporate

Moderate

0

2

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

Moderate

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

     

Material entities

Department of the Treasury

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

The Treasury’s total budgeted expenses for 2021–22 are $165.11 billion, with 65 per cent of these expenses attributable to grants (Figure 2).

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

 

Note a: Payments to Medicare Guarantee Fund, employee benefits, supplier expenses, depreciation and amortisation, foreign exchange, finance costs and interest.

Source: ANAO analysis of 2021–22 PBS.

There are two key risks for the Treasury’s 2020-21 financial statements that the ANAO has highlighted for specific audit coverage, both of which the ANAO considers potential key audit matters (KAMs).

  • The management and valuation of the Natural Disaster Relief and Recovery Arrangements provision, 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)
  • The 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)

Australian Bureau of Statistics

The Australian Bureau of Statistics (ABS) is Australia’s national statistical agency. It provides official statistics on a range of economic, social, population and environmental matters of importance to governments, industry and the wider Australian community.

The ABS’s total budgeted expenses for 2021–22 are $690.83 million, with 72 per cent of these expenses attributable to employee benefits (Figure 3).

Figure 3: Australian Bureau of Statistics’ total budgeted expenses by category ($’000)

 

Source: ANAO analysis of 2021–22 PBS.

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

  • The valuation and impairment assessments of intangibles (software).
  • The recognition of revenue from the rendering of services.
  • The valuation and impairment of non-financial assets, leasehold improvements, and plant and equipment.
  • The accuracy of census contractor expenses.

Australian Office of Financial Management

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

The AOFM’s total budgeted expenses for 2021–22 are just over $18.2 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)

 

Note a: Employee benefits, supplier expenses, depreciation and amortisation, other expenses, finance costs, write-down and impairment of assets and grants

Source: ANAO analysis of 2021–22 PBS.

There are two key risks for the AOFM’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 management and financial reporting of Australian Government securities, which are impacted by external market factors. (KAM – Valuation of Australian Government securities)
  • The commencement of the Structured Finance Support Fund, a $15 billion fund to support continued access to funding markets for small and medium-sized enterprises (SMEs) impacted by the economic effects of the COVID-19 pandemic, and the $2 billion Australian Business Securitisation Fund, through which the AOFM will invest in the securitisation of loans made by SME lenders.

Australian Prudential Regulation Authority

The Australian Prudential Regulation Authority (APRA) is responsible for the prudential regulation of 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 2021–22 are $675.87 million, with 67 per cent of these expenses attributable to private health insurance risk equalisation payments, which are not operational costs for APRA.

Figure 5: Australian Prudential Regulation Authority’s total budgeted expenses by category ($’000)

 

Source: ANAO analysis of 2021–22 PBS.

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

  • 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.
  • The recognition and valuation of internally developed software. Assessing the nature and extent of costs that can be capitalised under Australian accounting standards can be complex and subject to management judgement.

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 2019–20 were $164.5 million, of which 40 per cent were attributable to outwards retrocession premium expense (Figure 6).

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

 

Source: ANAO analysis of Australian Reinsurance Pool Corporation’s 2019–20 annual report.

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

  • The recognition and reporting of premium revenue and unearned premium liability, which involves complex calculations and reliance on third-party information.
  • The 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, supporting a fair, strong and efficient financial system for all Australians. ASIC’s core responsibility is to maintain and facilitate the performance of Australia’s financial system and promote confident and informed participation by investors and consumers.

ASIC’s total budgeted expenses for 2021–22 are just over $661 million, with 39 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 2021–22 PBS.

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

  • The estimation of the Commonwealth’s future liability for repayment of unclaimed monies, which uses a complex valuation model.
  • Total remuneration paid to public office holders may exceed the limits set by the Remuneration Tribunal outlined in the Remuneration Determinations.
  • The compliance with Commonwealth Procurement Rules.
  • The 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.

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. NHFIC is responsible for the establishment and operation of an Affordable Housing Bond Aggregator, which provides finance to registered community housing providers by aggregating their lending requirements and issuing bonds to institutional investors; the establishment and operation of the National Housing Infrastructure Facility, which provides grants and finance to support the creation of housing-related infrastructure; and the Australian Government’s First Home Loan Deposit Scheme, which supports eligible buyers to purchase their first home. The scheme commenced on 1 January 2020 and is administered by NHFIC.

NHFIC’s total actual expenses for 2019–20 were just over $101.3 million, with 73 per cent of these expenses attributable to concessional loan provisions, as shown in Figure 8.

Figure 8: National Housing Finance and Investment Corporation’s total actual expenses by category ($’000)

 

Source: ANAO analysis of the National Housing Finance and Investment Corporation’s 2019–20 annual report.

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

  • The accounting for, and assessment of, concessional loans, which are complex and involve the application of judgement surrounding the selection and application of indices such as market rates. NHFIC’s aim is to improve housing outcomes by reducing pressure on housing affordability, which will be undertaken by providing concessional finance to registered community housing providers.
  • The significant value of bonds issued under the Affordable Housing Bond Aggregator and the subsequent fair value measurement, which may require the use of judgement of bonds.

Reserve Bank of Australia

The objectives of the Reserve Bank of Australia (RBA) are to determine and implement monetary policy, work to maintain a strong financial system and efficient payments system, and issue the nation’s banknotes. 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.

The RBA’s total actual expenses for 2019–20 were $664 million, of which 48 per cent were attributable to staff costs, including superannuation, as shown in Figure 9.

Figure 9: Reserve Bank of Australia’s total actual expenses by category ($’000)

 

Source: ANAO analysis of the Reserve Bank of Australia’s 2019–20 annual report.

There are two key risks for the RBA’s 2020–21 financial statements, both of which the ANAO considers potential key audit matters (KAMs).

  • 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 and the increase in volume of Australian bond holdings as a result of the RBA’s continued response to the COVID-19 pandemic. (KAM – Valuation of Australian dollar securities and foreign currency investments)
  • The 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)

Potential audits

Potential Performance audit: 2021-22
Activity
Potential Performance audit: 2021-22
Activity
Potential Performance audit: 2021-22
Activity

In progress audits

Performance audit (Report preparation)
Performance audit (Report preparation)
Activity