Audit snapshot

Why did we do this audit?

  • The purpose of the financial disclosure scheme is to preserve the integrity of the electoral system, maintain public confidence in the electoral process, and reduce the potential for undue influence and corruption.

Key facts

  • Disclosure returns are required from political parties, associated entities, political campaigners, third parties, donors and election candidates and senate groups.
  • Across the four financial years examined by the ANAO spanning two federal elections and eleven by-elections, 5882 returns have been obtained and 75 returns have not been obtained by the AEC.
  • Since 2015, 97 full scope and 68 limited scope reviews of returns have been planned.

What did we find?

  • The AEC’s management of the disclosure scheme is partially effective.
  • Not all required returns have been obtained, there is limited analysis of the returns that are obtained and evidence that some returns are incomplete.
  • The number of compliance reviews, and the resources allocated to them, have declined considerably over time.

What did we recommend?

  • The Auditor-General made seven recommendations focussed on the AEC obtaining accurate and complete returns from all entities with a disclosure obligation.
  • The AEC agreed to two recommendations, agreed with qualification to four and did not agree to one of the seven recommendations.

$5.2 bn

in total receipts has been reported by regulated entities between 2015–16 and 2018–19.

78%

of returns reviewed by the AEC across the five year period examined by the ANAO required amendment.

35%

of planned compliance reviews were either not undertaken, or not completed.

Summary and recommendations

Background

1. The financial disclosure scheme was introduced in 1983 to increase overall transparency and inform the public about the financial dealings of political parties, candidates, senate groups and others involved in the electoral process. Regulation of the receipt and public disclosure of campaign funding and expenditure was seen as complementary and a necessary corollary to the introduction of public funding of political parties and candidates.

2. The financial disclosure scheme requires specified participants (entities) in the electoral process that receive funding1, provide funding2, or incur political, now electoral expenditure3 to lodge financial disclosure returns with the Australian Electoral Commission (AEC). Such information assists voters to make judgements knowing who funds political representatives and to what extent.

Rationale for undertaking the audit

3. The administration of the financial disclosure requirements by the AEC was selected for audit because the purpose of the financial disclosure scheme is to preserve the integrity of the electoral system, maintain public confidence in the electoral process and reduce the potential for undue influence and corruption.4 The financial disclosure scheme is also a central pillar of the Australian arrangements to provide electors with sufficient information on which to base selection of their political representatives.

Audit objective and criteria

4. The objective of the audit was to examine the effectiveness of the AEC’s management of financial disclosures required under Part XX of the Commonwealth Electoral Act 1918, including the extent to which the AEC is achieving accurate and complete financial disclosures.

5. To form a conclusion against the audit objective the following high level audit criteria were used:

  • Has the AEC established effective arrangements to administer the financial disclosure scheme?
  • Has the AEC developed and implemented effective compliance monitoring arrangements?

Conclusion

6. The AEC‘s management of the financial disclosures required under Part XX of the Commonwealth Electoral Act 1918 is partially effective.

7. The arrangements that the AEC has in place to administer the financial disclosure scheme are limited in their effectiveness as:

  1. across the four year period examined, while the AEC has obtained 5882 annual and election returns, as at 30 June 2020, 75 returns have not been obtained. There have also been delays with the submission of returns to the AEC with 22 per cent of annual returns and 17 per cent of election returns lodged after the legislated due date;
  2. the AEC does not make effective use of available data sources to identify entities that may have a disclosure obligation that have not submitted a return;
  3. there is insufficient evidence that the returns that have been provided are accurate and complete5;
  4. there is limited analysis undertaken of returns that are obtained; and
  5. risks to the financial disclosure scheme are not managed in accordance with the risk management framework.

    8. Compliance monitoring and enforcement activities are partially effective with the result that the AEC is not well placed to provide assurance that disclosure returns are accurate and complete.

    Supporting findings

    9. Across the four year period examined by the ANAO the AEC has obtained 5882 annual and election returns, and as at 30 June 2020, has not obtained 75 returns. Compliance with legislated timeframes has also been an issue, with 22 per cent of annual returns and 17 per cent of election returns lodged after the legislated due date. Forty four entities have submitted annual returns on average over 30 days late on two or more occasions, with 12 (27 per cent) having lodged, on two or more occasions, on average over 120 days late. Additionally, the AEC does not make effective use of available data sources to identify entities that may have a disclosure obligation and have not submitted a return.

    10. There is insufficient evidence that annual and election returns are accurate and complete. While the AEC checks that all fields have been completed and looks for some obvious errors it does not compare the figures disclosed with other data available from internal or external sources, instead relying on its annual compliance review program to provide sufficient evidence that the annual and election returns are accurate and complete.

    11. The effectiveness of the analysis undertaken by the AEC is limited. Annual returns submitted by third parties and donors are not analysed. Election returns submitted by candidates, senate groups or election donors are not analysed. The analysis that is undertaken of annual returns submitted by political parties and associated entities is limited as there is no detailed analysis of the financial information, and effective data analytics and data matching techniques are not employed by the AEC.

    12. Risks to the financial disclosure scheme have not been managed in accordance with the AEC’s risk management framework. While the risk appetite and tolerance statement of this framework states that the AEC has a low/moderate risk tolerance for risks associated with the disclosure function there is no evidence that risks relating to all entities that have a disclosure obligation have been assessed and are being managed appropriately. Additionally, there is no treatment plan in place for the risk that has been identified by the AEC, being the risk of non-compliance by political parties.

    13. While the AEC has identified some lessons that it could learn from other electoral bodies that regulate financial disclosure schemes, there is little evidence of any resulting changes having been made to how the Commonwealth scheme is administered. The AEC has also not taken adequate steps to implement agreed recommendations from a review it commissioned in 2012 of the disclosure compliance function (which concluded that the AEC needed to become more proactive in its approach).

    14. The AEC does not apply an appropriate risk based approach to planning and conducting compliance activities.

    • While most reviews are planned on the basis of a risk assessment, there are a number of limitations in the risk assessment methodology employed.
    • Over the period assessed the AEC did not undertake a compliance review of any election donor returns or of any annual returns that included no financial disclosures (that is, a nil return).
    • The number of reviews, and the resources allocated to them, have declined considerably across the five year period analysed. These reductions do not reflect an assessment that the risk of non-disclosure or non-compliance has reduced and this situation is also at odds with the significant growth that has occurred in the total value of receipts and other figures included in the financial disclosure returns provided to the AEC.

    15. Planned compliance activities are not implemented in a timely and effective manner. Of the 168 reviews that were planned to have been conducted over the five year period examined by the ANAO, 58 (35 per cent) have not been completed. While completion rates have improved in the last two years this is due to the AEC significantly reducing the number of planned reviews, narrowing the scope of planned reviews, and reducing the value of the transactions being tested. There has also been a marked decline in the number of full reviews that are being conducted on large entities with disclosure obligations.

    16. The AEC does not appropriately act upon identified non-compliance. It is not making effective use of its enforcement powers and as such has not implemented a graduated approach to managing and acting on identified non-compliance.

    Recommendations

    Recommendation no.1

    Paragraph 2.19

    The Australian Electoral Commission improve the extent to which it is obtaining annual and election returns by taking:

    1. greater steps to identify entities with a reporting obligation, and drawing that obligation to the attention of those entities; and
    2. more effective action to obtain returns that have not been submitted by an entity with an identified disclosure obligation.

    AEC Response: Agreed with qualification

    Recommendation no.2

    Paragraph 2.43

    The Australian Electoral Commission use data analytics and data matching techniques to provide greater assurance over whether data included in returns can be relied upon, and as an indicator of returns that may require investigation.

    AEC Response: Agreed with qualification

    Recommendation no.3

    Paragraph 2.52

    The Australian Electoral Commission identify and develop treatment plans for risks relating to the financial disclosure scheme and manage the scheme in line with its revised risk management framework.

    AEC Response: Agreed

    Recommendation no.4

    Paragraph 3.13

    The Australian Electoral Commission apply the lessons learned that have been identified through:

    1. accessing specialist expertise to test the effectiveness of the processes and practices that are in place to identify undisclosed financial transactions; and
    2. establishing arrangements with other government agencies to share intelligence gathering, data interrogation and risk based sampling techniques.

    AEC Response: Agreed with qualification

    Recommendation no.5

    Paragraph 3.39

    The Australian Electoral Commission adopt a risk based approach to its compliance review program that:

    1. assesses the aggregate level of risk to inform decisions about the size and coverage of the program;
    2. includes all disclosures required under the updated legislative framework; and
    3. improves the effectiveness of the risk matrix used to select the majority of reviews, and better address risks of non-disclosure and incomplete disclosure.

    AEC Response: Agreed with qualification

    Recommendation no.6

    Paragraph 3.73

    The Australian Electoral Commission establish performance measures for its compliance program that are relevant, reliable and complete.

    AEC Response: Agreed

    Recommendation no.7

    Paragraph 3.90

    The Australian Electoral Commission implement a graduated approach to addressing non-compliance, including by making better use of its investigatory powers and seeking to have prosecutions undertaken by the Commonwealth Director of Public Prosecutions or civil penalties applied by the courts where serious or repeat non-compliance has been identified.

    AEC Response: Not agreed

    Summary of entity response

    An effective and transparent financial disclosure scheme is a key pillar of Australia’s democratic framework, and the outcomes of this audit demonstrate there are aspects of the AEC’s administration of the disclosure scheme that would benefit from further enhancements. The AEC acknowledges the audit team’s work and notes the observations, which we will address in line with our responses to the recommendations.

    However, the ANAO’s categorisation of the AEC’s management of the disclosure scheme as ‘partially effective’ is rejected. The proposed report contains some errors of fact and superficial analysis that lead to some flawed observations. It demonstrates a misunderstanding of the AEC’s business and the legislation under which it operates. The ANAO’s decision to conduct this audit prematurely –before recent legislative changes have had a chance to take effect — is akin to a building inspector assessing a two-storey house after only the first level had been completed. The result is a report that gives the Australian public an unduly negative and misleading impression of the effectiveness of the scheme.

    The ANAO’s finding that the AEC’s management of the disclosure scheme is ‘partially effective’ runs counter to the extent of disclosure achieved by the AEC (obtaining 98.9% of annual returns and 99.6% of election returns during the four year period examined), the transparency of the current system, and the successful operation of the scheme within existing legislative boundaries.

    The AEC view is that the ANAO has misunderstood the intent of the legislation. Over the period the AEC has been administering the requirements of the Electoral Act, the AEC has not detected systemic issues, wilful or large scale non-compliance with the legislation. And nor have others that scrutinise this scheme through our transparent sharing of the data. Our experience is that incomplete or incorrect disclosures are almost entirely caused by administrative mistakes or misunderstanding of disclosure obligations, which participants rectify. As a result, disclosure is achieved in line with the legislation.

    The AEC’s risk based approach to compliance reviews is the outcome of balancing the competing tensions of natural justice, apprehended bias and prudent use of Commonwealth funds with the preservation of public confidence in the transparency of the financial dealings of political parties and others involved in the electoral process.

    Moreover, the AEC disagrees with the ANAO’s view that it does not make effective use of its enforcement powers. The ANAO seems to have misinterpreted parliament’s intent on this issue. The AEC’s view, supported by data, is that the AEC has successfully achieved disclosure through consultation and education. The proposition the AEC should be more heavy-handed in its approach to enforcement is rejected, as prosecutorial action for amendments and other administrative mistakes would be disproportionate.

    The AEC believes the ANAO’s misunderstanding of the intent of the legislation exaggerates the nature of the recommendations and the perceived risk to electoral integrity.

    ANAO comment

    17. The core elements of the financial disclosure scheme were introduced in 1983 and required disclosure reporting to the AEC and also provided the AEC with powers to undertake reviews and inquiries to maintain compliance with the disclosure provisions as well as a range of penalties aimed at discouraging non-compliance. Since its introduction, the financial disclosure provisions of the Electoral Act have been subject to four substantial amendments, most recently in 2018. The impact of those recent amendments on the AEC’s practices was considered as part of the audit. Reflecting that the key elements of the AEC’s responsibilities for administering the scheme are longstanding the audit examined administration of the disclosure scheme across four financial years spanning two federal elections and eleven by-elections.

    18. To achieve the purpose of the disclosure scheme, it is important that reports be obtained from all those with a reporting obligation and that the reports obtained be timely, accurate and complete. While almost all returns sought by the AEC were obtained:

    • reporting has not been sufficiently timely, with 22 per cent of annual returns and 17 per cent of election returns lodged after the due date with some entities submitting returns late on multiple occasions; and
    • 78 per cent of returns reviewed by the AEC required amendment yet, rather than increasing its scrutiny of the reports that have been obtained, the AEC:
      • significantly reduced the number of planned reviews, narrowed the scope of planned reviews, and reduced the value of the transactions being tested;
      • did not undertake or did not complete 35 per cent of planned compliance reviews; and
      • has not undertaken a compliance review of any election donor returns or of any annual returns that included no financial disclosures (that is, a nil return).

    Key messages for all Australian Government entities

    Below is a summary of key messages, including instances of good practice, which have been identified in this audit that may be relevant for the operations of other Australian Government entities.

    Risk management

    Implementation of recommendations

    1. Background

    Introduction

    1.1 The financial disclosure scheme was introduced in 1983 to increase overall transparency and inform the public about the financial dealings of political parties, candidates, senate groups and others involved in the electoral process. Regulation of the receipt and public disclosure of campaign funding and expenditure was seen as complementary and a necessary corollary to the introduction of public funding of political parties and candidates.

    1.2 The financial disclosure scheme requires specified participants (entities) in the electoral process that receive funding6, provide funding7, or incur electoral expenditure8 to lodge financial disclosure returns with the Australian Electoral Commission (AEC). Such information assists voters to make judgements knowing who funds political representatives and to what extent.

    1.3 There are two main types of financial disclosure returns, annual and election returns. Annual financial disclosure returns are to be submitted by: registered political parties and the state and territory branches of registered political parties; associated entities; political campaigners9; third parties; and donors. Election returns are to be submitted by candidates, senate groups and donors.10 The information that is to be disclosed varies depending on the type of entity. The information requirements for each type of return and entity are illustrated in Table 1.1 on the following page. Key terms included in this table are defined in Appendix 5.

    Table 1.1: Annual and election return information requirements per type of entity

    Entity

    Type of return

    Receiptsa

    Gifts in kind

    Payments

    Debtsb

    Electoral Expenditure

    Discretionary benefits

    Capital Contributions

    Political party

    Annual

    Associated entity

    Annual

    Political campaigner

    Annual

    Third party

    Annual

    c

    Candidate and senate group

    Election

    Election donors

    Election

    c

    c

    Donors to political parties and political campaigners

    Annual

    c

    c

                     

    Note a: Receipts include all funds received that are over and under the disclosure threshold. Appendix 5 provides a definition for receipts and receipts over the threshold.

    Note b: Debts include the total outstanding amount of all debts incurred by, or on behalf of the entity as at the end of the financial year. Where the debt is greater than the disclosure threshold as at the last day of the relevant financial year the details of the debt are to be disclosed.

    Note c: Third parties, donors to political parties and political campaigners and election donors do not have to report all funds received — only donations received for the purpose of incurring electoral expenditure or making the donations declared. In addition, donors to political parties and political campaigners, and election donors have to report their donations made.

    Source: ANAO analysis of Commonwealth Electoral Act 1918 and AEC documentation.

    Legislative framework

    1.4 The legislative framework which applies to the financial disclosure scheme is contained in the Commonwealth Electoral Act 1918 (Electoral Act). There are no legislative or regulatory instruments in place to provide additional guidance on how the financial disclosure provisions under the Act are to be monitored or how the scheme is to be administered by the AEC.

    1.5 Since its introduction in 198311, the financial disclosure provisions of the Electoral Act have been subject to four substantial amendments. In 1995, the financial disclosure provisions were expanded to include associated entities12 and to require donors to submit financial disclosure returns. In 1998, the investigatory powers of the AEC were expanded to allow it to conduct an investigation to determine if an entity is, or was, an associated entity. In 2006, the Electoral Act was amended to:

    • increase the disclosure threshold13 from $1500 to $10,000, indexed annually to CPI.
      • for the 2019–20 financial year, the disclosure threshold was $14,000;
    • extend the definition of an ‘associated entity’ to apply to entities that are a financial member of a registered political party, and/or entities that have voting rights in a registered political party;
    • extend the application of the financial disclosure provisions to a new category of entity (third parties);
    • require donors to disclose the total amount of donations (gifts) made over the threshold;
    • require entities that incur political expenditure, now electoral expenditure, over the disclosure threshold to submit a financial return to the (AEC); and
    • remove the requirement for publishers and broadcasters to furnish returns on electoral advertisements.14

    1.6 In November 201815, the Electoral Act16 was amended to:

    • ban the receipt of foreign donations over $1000;
      • the onus of ensuring that the limitations on the receipt of funds ‘gifts’ from foreign entities is complied with is the responsibility of the recipient of the gift;
    • introduce a new class of entities (political campaigners) that have disclosure obligations;
    • require associated entities and political campaigners to register with the AEC;
    • revise the election funding model;
    • expand the ability of the AEC to undertake compliance reviews on political campaigners, third parties, and donors;
    • amend the enforcement provisions from a strict liability to a civil regime to deal with non-disclosure; and
    • require the publication of a register (known as the transparency register) that identifies all political parties, associated entities, third parties, political campaigners, organisational and individual donors known to the AEC.
      • the transparency register was released in December 2018 and is intended to allow the public to view all annual and election returns submitted by all the entities that have disclosure obligations under the Electoral Act.

    Responsible administering entity

    1.7 The AEC is responsible for managing the financial disclosure scheme. The Electoral Act provides enforcement powers, including the authority to undertake compliance reviews and investigations to ensure that entities are complying with their legislated requirements. As such, the AEC has obligations similar to other regulatory bodies (such as the Australian Competition and Consumer Commission, the Australian Prudential Regulation Authority, the Australian Securities and Investment Commission, and the Australian Transaction Reports and Analysis Centre) to manage and administer the scheme in such a way that it can provide assurance that entities that are required to submit financial disclosure returns are complying with their obligations.

    1.8 In June 2020, the AEC advised the ANAO that its approach to the funding and disclosure regime is one of education to achieve disclosure.

    Compliance Review Committee

    1.9 The Compliance Review Committee (CRC) was established by the AEC in 2014.17 It is responsible for approving and monitoring the disclosure schemes’ compliance review program. This includes approving the selection of reviews, considering changes to the risk matrix, considering changes to the methodology for conducting reviews, monitoring the progress of the compliance program, and amending the selection of reviews if required.

    1.10 The Committee is chaired by the Deputy Electoral Commissioner. The other members of the CRC are the First Assistant Commissioner Capability, and the Assistant Commissioner, Disclosure Assurance and Engagement.

    Electoral Integrity Reforms

    1.11 In September 2017, the AEC identified that the proposed changes to the Electoral Act would require the AEC to develop and implement new systems (including ICT systems) and processes to facilitate enhanced financial disclosure reporting obligations of affected individuals and organisations, and that its role to administer and enforce the new regime would require additional suitably skilled staff to:

    • process an increased number of disclosure returns, including associated reporting;
    • perform compliance and assurance functions; and
    • administer a new civil penalty regime.

    1.12 In December 2017, the AEC was allocated $56.5 million to implement the Electoral Integrity Reforms. The funding was provided to design and implement the technology and systems and meet additional staffing costs to administer and manage an expanded scheme. Of the $56.5 million the AEC allocated $19.5 million to design and deliver a Self-Service Platform (SSP).18 At the time of this performance audit, the SSP has not been delivered and the additional resources have not been engaged. The AEC advised the ANAO in June 2020 that the SSP is scheduled for delivery in the first quarter of 2020–21 and that recruitment of additional resources is underway. In July 2020, the AEC further advised the ANAO that $31 million (55 per cent) of the $56.5 million allocated in December 2017 has been spent.

    Rationale for undertaking the audit

    1.13 The administration of the financial disclosure requirements by the AEC was selected for audit because the purpose of the financial disclosure scheme is to preserve the integrity of the electoral system, maintain public confidence in the electoral process and reduce the potential for undue influence and corruption.19 The financial disclosure scheme is also a central pillar of the Australian arrangements to provide electors with sufficient information on which to base selection of their political representatives.

    Audit approach

    Audit objective, criteria and scope

    1.14 The objective of the audit was to examine the effectiveness of the AEC’s management of financial disclosures required under Part XX of the Commonwealth Electoral Act 1918.

    1.15 To form a conclusion against the audit objective the following high level audit criteria were used:

    • Has the AEC established effective arrangements to administer the financial disclosure scheme?
    • Has the AEC developed and implemented effective compliance monitoring arrangements?

    1.16 The audit scope focused on the administration and operations of the financial disclosure scheme since the McLeod review was completed in November 2012 and addresses how the AEC:

    • identifies those with disclosure obligations;
    • supports compliance with the scheme;
    • ensures that financial disclosure returns are accurate and complete;
    • selects and conducts reviews of financial disclosure returns;
    • conducts investigations into possible contraventions of the financial provisions; and
    • addresses non-compliance.

    Audit methodology

    1.17 The audit has examined records (electronic and hard-copy) held by the AEC, including records stored in group folders, Microsoft SharePoint, and email traffic stored in group mailboxes. All of the financial disclosure returns submitted from 2015–16 through to 2018–19 were tested for accuracy, completeness and timeliness using data extracted from a full back-up copy of the returns management system. All the compliance reviews planned and completed between 2015 and 2019 have also been tested.

    1.18 Interviews were held with staff involved in administering the financial disclosure scheme, and undertaking compliance monitoring activities. Interviews were also held with law enforcement agencies. The interviews were conducted to examine to what extent the AEC engages with law enforcement agencies as part of administering the financial disclosure scheme and managing its compliance monitoring program, particularly in relation to implementing the changes made to the Electoral Act in November 2018 that banned political parties from accepting foreign donations.

    1.19 The audit was conducted in accordance with ANAO Auditing Standards at a cost to the ANAO of $723 000.

    1.20 The team members for this audit were Joyce Knight, Cherise Reed, David van Schoten, Josh Carruthers, Irena Korenevski and Brian Boyd.

    2. Administration of the financial disclosure scheme

    Areas examined

    This chapter examines if the Australian Electoral Commission (AEC) has established effective arrangements to administer the financial disclosure scheme.

    Conclusion

    The arrangements that the AEC has in place to administer the financial disclosure scheme are limited in their effectiveness as:

    • across the four year period examined, while the AEC has obtained 5882 annual and election returns, as at 30 June 2020, 75 returns have not been obtained. There have also been delays with the submission of returns to the AEC with 22 per cent of annual returns and 17 per cent of election returns lodged after the legislated due date;
    • the AEC does not make effective use of available data sources to identify entities that may have a disclosure obligation that have not submitted a return;
    • there is insufficient evidence that the returns that have been provided are accurate and complete20;
    • there is limited analysis undertaken of returns that are obtained; and
    • risks to the financial disclosure scheme are not managed in accordance with the risk management framework.
    Recommendations

    The ANAO has made three recommendations to improve identification of entities with a reporting obligation and take more effective action when an entity does not meet its reporting obligation; greater use of data analytics and data matching techniques; and improved management of risks to the financial disclosure scheme.

    2.1 To examine the AEC’s administration of the financial disclosure scheme, the ANAO examined:

    • the extent to which the AEC has obtained returns from those with disclosure obligations;
    • evidence about whether the returns submitted are accurate and complete;
    • the extent to which the AEC analyses the returns it obtains; and
    • the identification and management of risks to the scheme.

    Does the Australian Electoral Commission obtain returns from all parties required to submit annual and election returns?

    Across the four year period examined by the ANAO the AEC has obtained 5882 annual and election returns, and as at 30 June 2020, has not obtained 75 returns. Compliance with legislated timeframes has also been an issue, with 22 per cent of annual returns and 17 per cent of election returns lodged after the legislated due date. Forty four entities have submitted annual returns on average over 30 days late on two or more occasions, with 12 (27 per cent) having lodged, on two or more occasions, on average over 120 days late. Additionally, the AEC does not make effective use of available data sources to identify entities that may have a disclosure obligation and have not submitted a return.

    2.2 The AEC’s approach to identifying entities required to submit an annual or election return varies depending on factors such as whether reporting entities are required to be registered.

    • Political parties, candidates and senate groups are identified by the AEC from its records of the registration and deregistration process for political parties, and its records of the nominations process for candidates and senate groups.
    • Associated entities self-identify, or are identified by the relevant political party. In 2014–15 and 2016–17 the AEC requested each political party provide a list of its associated entities. This was not done for 2015–16, 2017–18 or 2018–19. The AEC advised the ANAO in June 2020 that ‘the letters to political parties about identifying associated entities are not a requirement under the Electoral Act. The AEC’s experience with this process in the past is that the response has been patchy and we are not convinced of the value of this approach in identifying associated entities.’
    • To identify associated entities of political parties the AEC has made some use of media monitoring. The AEC also has the power to investigate if an entity is, or was, an associated entity.21 While AEC records indicate that it identified two entities in 2017–18 and 2018–19 that may be associated entities22, its records do not demonstrate that it has contacted or investigated the two entities to establish if a disclosure obligation exists.23 While the AEC advised the ANAO in June 2020 that it had decided at the time that there was insufficient evidence to warrant writing to the entities as potential associated entities, no record of this decision was made.
    • From January 2019, associated entities are required to register with the AEC. The AEC automatically registered all entities that lodged an annual return as an associated entity in 2017–18 as part of establishing the transparency register, see paragraph 1.6. Entities that no longer consider themselves to be an associated entity can apply to deregister. Since January 2019, 11 entities have deregistered.
    • Environmental scans and monitoring of the media are also used to identify potential third parties. For example, between 2017–18 and 2018–19 the AEC identified a total of 16 entities that may need to provide a third party return. Of the 16 entities, five submitted a return for 2017–18 or 2018–19 without any action required. One registered as a political campaigner. One of the entities was identified as a result of a complaint received in relation to the communication of electoral matter and subsequently submitted a third party return for 2018–19. For the remaining nine entities there is no evidence that the AEC contacted the entity to advise that a potential third party obligation had been identified. The AEC subsequently advised the ANAO that out of the nine entities one lodged a third party return and a donation from one was included in another entities third party return. For five entities, the entities’ websites were reviewed and it was determined that the activity would not have exceeded the disclosure threshold, or was outside disclosure obligations (the same sex marriage postal survey) and as such no further action was undertaken.24 For the remaining two entities, the AEC did not provide a response.25
    • Political campaigners were introduced as a new category of reporting entity in November 2018 and are required to be registered with the AEC. In January 2019 and early February 2019, four entities registered as a ‘political campaigner’. In mid-February 2019, to identify entities likely to be required to register and provide an annual return as a political campaigner the AEC analysed third party returns submitted in 2015–16, 2016–17 and 2017–18 and identified a further 18 entities that may need to register as a political campaigner. In April 2019, 23 entities had registered. Of the 23 registered political campaigners, 22 submitted a return for 2018–19, one entity de-registered in May 2019 and did not submit a return.26 Additionally, one entity that was not a registered political campaigner also submitted a return.27

    2.3 There are opportunities for the AEC to make use of other available data sources to identify entities that may have disclosure obligations (as well as to provide assurance over the completeness of returns that are received). For example:

    • Unions are required to register under the Fair Work Act 2009 with the Registered Organisation Commission (ROC) as a registered organisation and are required to submit financial statements that include disclosure of donations made; and
    • the Australian Transaction Reports and Analysis Centre holds financial information for transactions over $10,000 that the AEC could request access to so as to identify entities that have disclosure obligations as a result of reported transactions.28

    2.4 To advise entities that they have a disclosure obligation the AEC issues legal obligation letters. The letters are tailored for each type of reporting entity. They set out the legislative basis for the disclosure obligation, identify the due date, set out the process for lodging a return and advise of how further information or assistance can be sought.

    2.5 Political parties, associated entities and third parties that are known to the AEC are sent legal obligation letters after the end of each financial year. The AEC advised the ANAO in June 2020 that there is no requirement under the Electoral Act for the AEC to issue obligation letters by a set date and its standard practice is to aim to have the legal obligation letters issued before the end of July.

    2.6 Reminder letters are to be sent within four weeks of the due date. Where the annual return has not been provided a week after the due date the AEC is to send a failure to lodge letter. The total number of legal obligation, reminder and failure to lodge letters that the AEC has issued over the four year period examined by the ANAO (2015–16 to 2018–19) is detailed below at Table 2.1.

    Table 2.1: Number and type of correspondence issued per category of entity

    Category of entity

    Legal obligation letters

    Reminder letters

    Failure to lodge letters

    Political parties

    367

    288

    31

    Associated entities

    740

    585

    47

    Third parties

    116

    135

    13

    Total

    1223

    1008

    91

           

    Source: ANAO analysis of AEC documentation.

    2.7 The ANAO’s analysis identified that 92 per cent of reminder letters, and 27 per cent of failure to lodge letters issued to the various categories of reporting entities were issued late.29 For reminder letters the delay was on average 19 days, and 20 days for failure to lodge letters. There have also been a few cases where the AEC has not sent a legal obligation, reminder or failure to lodge letter, see Table 2.2 below.

    Table 2.2: Number and type of each entity that had an obligation to disclose where no legal obligation, reminder or failure to lodge letter was sent

    Financial Year

    Political parties

    Associated entities

    Third parties

    2015–16

    0

    3

    3

    2016–17

    0

    0

    0

    2017–18

    0

    3

    3

    2018–19

    0

    0

    0

    Totals

    0

    6

    6

           

    Source: Analysis of AEC returns management system.

    2.8 For donors, legal obligation letters are sent when they are identified by the AEC during the processing of annual returns submitted by political parties and associated entities. As such, there is no set date that legal obligation letters are to be sent to donors.

    2.9 For candidates and senate groups, a legal obligation letter is to be issued 30 days from polling day. For candidates that nominate an agent, the legal obligation letter is issued to the agent. Where the candidate does not nominate an agent, the legal obligation letter is to be sent to the candidate. Most candidates are endorsed by a political party, and as such the number of legal obligation letters issued does not match the number of returns due.

    2.10 For candidates that nominated for the 2016 and 2019 federal elections, the number of legal obligation letters that were issued per type and the average number of days between the polling date and the date of issue of the letter is detailed at Table 2.3 below.

    Table 2.3: Total number of each type of legal obligation letter issued to candidates for the 2016 and 2019 federal elections

    Election Event

    Type of letter

    Number of letters sent

    Average number of days between election and issuing of the letter

    2016 federal election

    Legal obligation

    1111

    38

     

    Reminder

    679

    89

     

    Failure to lodge

    201

    134

    2019 federal election

    Legal obligation

    631

    36

     

    Reminder

    387

    98

     

    Failure to lodge

    147

    124

           

    Source: ANAO analysis of the returns management system.

    2.11 As illustrated above, the AEC has not met its 30 day target to issue the legal obligation letters, and failure to lodge letters are not (on average) issued until more than 120 days after polling day. Where a failure to lodge letter is not complied with, the AEC attempts to contact the candidate, or the candidate’s agent directly.

    2.12 The ANAO has identified that the AEC spent, on average, 240 days attempting to contact candidates that had not lodged an election return. When combined with the 120 days on average between polling day and the issuing of a failure to lodge letter it takes, on average, 360 days for the AEC to refer the matter to the Commonwealth Director of Public Prosecutions (CDPP) for potential prosecution. The AEC’s approach to managing non-compliance and its enforcement activities where candidates have failed to lodge an election return is discussed in more detail in Chapter 3, paragraph 3.87 and 3.88 of this report.

    2.13 Overall, as illustrated in Table 2.4 on the following page, across the four years examined the AEC has obtained a total of 5882 financial disclosure returns (2569 annual returns and 3313 election returns).

    Table 2.4: Annual and election returns obtained by the AEC: 2015–16 to 2018–19 as at 30 June 2020

    Annual returns

    2015–16

    2016–17

    2017–18

    2018–19

    Total

    Category of entity

     

    Political parties

    92

    92

    90

    103

    377

    Associated entities

    188

    188

    187

    176

    739

    Third parties

    56

    34

    57

    52

    199

    Political campaigners

    N/A

    N/A

    N/A

    24

    24

    Donors to political parties and political campaigners

    400

    219

    251

    360

    1230

    Election returns

    2016

    2017

    2018

    2019

    Total

    Category of entity

     

    Candidates

    1650

    0

    87

    1518

    3255

    Senate groups

    11

    0

    0

    9

    20

    Election donors

    8

    0

    0

    30

    38

    Total obtained:

     

     

     

     

    5882

               

    Source: ANAO analysis.

    2.14 Most (78 per cent) of the annual returns were obtained in accordance with the legislated timeframes. In a similar manner to the annual returns, 2774 election returns (83 per cent) were obtained within the legislated timeframes. In contrast to the annual returns lodged, the majority (71 per cent) of election returns are nil returns. This is because, where an electoral candidate is endorsed by a political party, the political party is to include the details in its annual return.

    2.15 Of the annual returns that were lodged late, 67 per cent were lodged within 30 days of the due date, and 18 per cent were lodged more than 90 days after the due date. As illustrated below at Table 2.5, there were a small number of annual returns submitted more than three months after the due date.

    Table 2.5: Number of days late by entity type: 2015–16 to 2018–19

     

    Political parties

    Associated entities

    Third parties

    Donors

    <30 days late

    54

    87

    13

    190

    >30 days late

    1

    19

    0

    35

    >60 days late

    3

    2

    3

    55

    >90 days late

    5

    16

    4

    117

    Totals

    63

    124

    20

    397

             

    Source: ANAO analysis

    2.16 While some entities with legislated disclosure obligations have submitted returns late on multiple occasions the AEC’s approach to managing repeated late lodgement is passive, with the AEC advising that the first priority is to achieve disclosure.

    2.17 Over the four year period assessed there were 50 entities that lodged late in two of the four years analysed, 15 that lodged late in three, and six that lodged late in each of the four years. Of the six entities that lodged late in all four years, one was a political party30, four were associated entities31 and one a donor.32 Additionally, 44 entities that were late on two or more occasions, were on average over 30 days late, and of the 44 entities, 12 (27 per cent) that submitted late on more two or more occasions, were on average, over 120 days late. Nevertheless, the AEC has never referred an entity to the CDPP for late lodgement of an annual return.

    2.18 Overall, as illustrated by Table 2.6, across the four year period analysed by the ANAO, as at the end of June 2020, it was evident that there are 75 returns that the AEC has not obtained from reporting entities.33 Further details of the returns that have not been provided are listed in Appendix 3.

    Table 2.6: Annual and election returns not obtained by the AEC: 2015–16 to 2018–19 as at 30 June 2020

    Annual returns

    2015–16

    2016–17

    2017–18

    2018–19

    Total

    Political parties and registered state and territory branchesa

    9

    6

    17

    1

    33

    Associated entities

    0

    0

    0

    0

    0

    Third parties

    0

    0

    0

    1

    1

    Political campaigners

    N/A

    N/A

    N/A

    1

    1

    Donors to political parties and political campaigners

    0

    5

    2

    19

    26

    Election returns

    2016

    2017

    2018

    2019

    Total

    Candidates

    0

    0

    0

    12

    12

    Senate groups

    2

    0

    0

    0

    2

    Election donors

    0

    0

    0

    0

    0

    Total not obtained:

     

     

     

     

    75

               

    Note a: Prior to 2018–19, the AEC did not require political parties that deregistered part way through a year to submit an annual return. Between 2015–16 and 2017–18 a total of 32 political parties deregistered part way through a year. The legislation has been amended ‘to avoid doubt’ that deregistered political parties are required to submit a return and the AEC now seeks returns from deregistered political parties to cover the part of the year for which they were registered.

    Source: ANAO analysis of AEC records and AEC website.

    Recommendation no.1

    2.19 The Australian Electoral Commission improve how it is obtaining annual and election returns by taking:

    1. greater steps to identify entities with a reporting obligation, and drawing that obligation to the attention of those entities; and
    2. more effective action to obtain returns that have not been submitted by an entity with an identified disclosure obligation.

    AEC response: Agreed with qualification

    2.20 The AEC is already effective at discharging its responsibility to obtain required disclosure returns demonstrated by the ANAO findings that during the period of review the AEC obtained 98.9% of annual returns and 99.6% of election returns and will continue to update its program of awareness activities as part of continued improvement.

    2.21 With the change to a civil penalty regime introduced by legislative reform in January 2019, the AEC is using this to obtain returns that have not been submitted and will assess the effectiveness of the program once the current civil actions are complete.

    ANAO comment:

    2.22 While almost all returns sought by the AEC were obtained, 22 per cent of annual returns and 17 per cent of election returns were lodged after the due date with some entities submitting returns late on multiple occasions.

    Is there sufficient evidence that the annual and election returns are accurate and complete?

    There is insufficient evidence that annual and election returns are accurate and complete. While the AEC checks that all fields have been completed and looks for some obvious errors it does not compare the figures disclosed with other data available from internal or external sources, instead relying on its annual compliance review program to provide sufficient evidence that the annual and election returns are accurate and complete.

    2.23 As at February 2020, annual and election returns can be lodged electronically through the eReturns portal, sent through the post, faxed or emailed directly to the AEC. For returns that are not submitted via the eReturns portal the AEC manually enters the data into the returns management system.

    2.24 As part of processing the returns that are received, the AEC checks whether:

    • the right type of return has been lodged34;
    • that the return has been signed by the correct signatory35;
    • all transactions listed are within the relevant period; and
    • all relevant fields are complete and appear to be correct.

    2.25 As part of processing the financial disclosure returns, the AEC looks for some obvious errors, for example, where electoral funding provided by the AEC or a state electoral authority has been disclosed as a ‘donation’ rather than an ‘other receipt’.

    2.26 There are opportunities for the AEC to undertake further checking of internal data sources to provide an indication of the accuracy and completeness of returns. For example, for political parties, the AEC guidance material does not identify if the amount of electoral funding36 provided by the AEC is to be cross checked with the value of total receipts, as disclosed by the relevant political parties, or identified as a receipt over the threshold.

    2.27 For example, after the 2016 federal election, 24 political parties were allocated $62 million in funding. Three received funding less than the disclosure amount and as such were not required to disclose it as a receipt over the threshold. Of the remaining 21 political parties, twelve (57 per cent) disclosed the correct amount.37 The remaining nine parties (43 per cent) received election funding amounts above the disclosure threshold without disclosing any of this funding in their annual return as a receipt over the threshold. The amounts totalled $325,340.38

    2.28 In April 2018, the AEC identified six39 out of the nine political parties that had received electoral funding and failed to disclose it.40 The AEC subsequently wrote to the parties identified and the parties contacted submitted amendments to correct the oversight.

    2.29 In addition to not disclosing election funding as receipts above the threshold, it was evident from this analysis that total receipts were also under-reported by some parties. Specifically:

    • the Jacqui Lambie Network disclosed total receipts for 2016–17 of $2750 with the election funding received of $73,963 clearly not included in the total receipts;
    • the Glenn Lazarus Team disclosed $500 in total receipts (or two per cent of the $21,435 in electoral funding it received); and
    • the Bullet Train for Australia Party received $15,801 in electoral funding. This party deregistered on 23 May 2017. As such the AEC did not send a legal obligation letter to the party and a return was not submitted.41

    2.30 Across seven election events held in 2018–1942, 28 political parties have received $54 million in election funding. Of the 28 political parties, 18 received funding where the individual transactions were less than the disclosure threshold and as such were not required to disclose it. Of the remaining 10 political parties that received funding, eight political parties correctly reported the funds received as an ‘other receipt’ received over the disclosure threshold. Two political parties did not.43

    2.31 The AEC does not have processes or systems in place, outside of the compliance review program, to match data in the return with financial data reported elsewhere by the entity. For example financial statements published by organisational donors, financial statements provided by organisations registered with the Australian Charities and Not for profits Commission44 or Unions registered with the Fair Work Commission and identified on the ROC register.45

    2.32 While the AEC’s guidance material states that the AEC undertakes data matching this is a manual process and its effectiveness is limited. The purpose of the data matching that is undertaken is to identify donors that may have a disclosure obligation and have not provided a return as well as to identify errors in amounts reported in donor and recipient returns. While the AEC identifies discrepancies between the recipients and donors of donations over the threshold, the effectiveness of this process is limited due to the varying disclosure requirements that apply to different entities. Political parties are not required to report multiple donations received that are under the disclosure threshold where the total value exceeds the disclosure threshold, whereas donors are required to report multiple donations made where the total value exceeds the disclosure threshold.

    2.33 The total number of discrepancies and the value of under and over-disclosures is outlined below at Table 2.7. To try and resolve identified discrepancies the AEC engages with the donor and the political party, a process that can take up to 12 months (if resolution is achieved).

    Table 2.7: Number and value of discrepancies identified by the AEC

    Financial Year

    Number of discrepancies identified

    Value of over-disclosures

    Total value of under-disclosures

    2015–16

    266

    $716 000

    $1 517 000

    2016–17

    156

    $477 000

    $375 000

    2017–18

    74

    $0

    $457 000

           

    Source: Analysis of donor discrepancies.

    2.34 In June 2020, the AEC advised the ANAO that of the 496 discrepancies identified between 2015–16 and 2017–18, two for 2015–16, six for 2016–17, and nine for 2017–18 remain unresolved. The AEC further advised that work to identify discrepancies in the 2018–19 annual returns has commenced.

    2.35 As such, the AEC is largely reliant on its annual program of compliance reviews on a selection of annual returns submitted by political parties and associated entities to provide sufficient evidence that the annual and election returns are accurate and complete. Chapter 3 examines the design and implementation of the compliance review program. It is worth noting that not all returns have been included in the scope of this program. For example, the program has not examined any:

    • return that reported no financial data (a nil-return); or
    • election returns submitted by donors.46

    Does the Australian Electoral Commission effectively analyse annual and election returns?

    The effectiveness of the analysis undertaken by the AEC is limited. Annual returns submitted by third parties and donors are not analysed. Election returns submitted by candidates, senate groups or election donors are not analysed. The analysis that is undertaken of annual returns submitted by political parties and associated entities is limited as there is no detailed analysis of the financial information, and effective data analytics and data matching techniques are not employed by the AEC.

    2.36 The analysis that the AEC does undertake is limited to annual returns submitted by political parties and associated entities. The AEC builds an annual return profile for each political party and associated entity. In light of the expanded compliance review program, introduced in January 2019, this analysis will need to be expanded to include third parties, political campaigners and donors.

    2.37 Annual return profiling forms part of the risk assessment of each political party and associated entity and is used to develop the annual compliance review program (see Chapter 3). The annual return profile for associated entities and political parties tracks the reported value of total receipts, proportion of total receipts comprised of ‘gifts-in-kind’, detailed receipts (receipts over the disclosure threshold), total payments and total debts over a 10 year period. The return profile is comprised of two parts: the first part is an analysis of the information disclosed in the current and previous annual returns that have been submitted47; and the second part seeks to identify anomalies.

    2.38 While the analysis is intended to identify changes (risks) in established disclosure patterns, and detect anomalies that indicate obvious errors in the return, its effectiveness is limited. For example, the analysis asks if the ratio of detailed receipts to total receipts varies from the parties 10 year average by more than 50 per cent. Where the entity has not previously disclosed any detailed receipts an alert will not be raised. The analysis also asks if the ratio of total gifts in kind varies from the six year average by more than 95 per cent. While an alert will be raised where an entity has disclosed gifts-in-kind for the first time, it will not raise an alert where an entity has not disclosed any gifts-in-kind. As such, the analysis is geared towards identifying the likelihood that the information in the return is incorrect.

    2.39 While the same tests are applied to associated entities and political parties, the annual return profiling activity does not take into account the varying sizes and/or complexity of the organisation, applying a one size fits all model. As a result, some of the entities will never trigger the alert as the levels of financial activity are not high enough, for example where the total of receipts, payments or debts disclosed do not exceed $5 million.48 Further, where alerts are raised, a total of four alerts are required to highlight the anomalies as a risk. None of the tests or anomalies are weighted to indicate which anomalies, if any, constitute a higher risk.

    2.40 In 2019, the tests to identify changes (risks) in established disclosure patterns, and detect anomalies that indicate obvious errors in the return were modified. The thresholds of the tests to identify changes (risks) in established disclosure patterns were increased, a new test was added (total payments exceed total payments over the previous three years) and one was removed (is the cash balance less than $0). One of the modifications made was to increase the ratio of detailed receipts to total receipts from the parties 10 year average from 50 per cent to 100 per cent. The analysis also asks if the ratio of total gifts in kind vary from the six year average by more than 95 per cent, this has now been increased to 100 per cent. While the number of tests to identify anomalies was reduced from 11 to seven, the number of alerts required to be triggered was not. As such, a political party or associated entity must now trigger a higher proportion of alerts in order for a flag to be raised. To determine the rationale for the changes the ANAO examined the meeting minutes of the Compliance Review Committee for 2017, 2018 and 2019 and while there is evidence that the committee considered changes to the risk matrix (see paragraphs 3.23 to 3.25), there is no evidence that this included the changes to the annual return profiling activity.

    2.41 Additionally, as discussed in paragraphs 2.24 to 2.31, the AEC does not undertake detailed analysis of the financial information that is provided, cross check information with other internal data sources such as the amount of election funding provided or external data sources such as the ACNC and ROC registers. As demonstrated by the analysis at paragraphs 2.27 to 2.30, there are considerable potential benefits to the AEC from greater use of data matching with figures included in disclosure returns. The results of data matching could also be used by the AEC to inform the selection of returns for compliance reviews.

    2.42 Annual return profiles are not developed for returns submitted by third parties or donors, and there is no analysis done by the AEC on election returns.

    Recommendation no.2

    2.43 The Australian Electoral Commission use data analytics and data matching techniques to provide greater assurance over whether data included in returns can be relied upon, and as an indicator of returns that may require investigation.

    AEC response: Agreed with qualification

    2.44 The AEC will consider opportunities for data analytics to be used to provide greater assurance that the data included in returns can be relied upon. It should be noted that there are inherent difficulties and risks in using other public sources of financial information due to the different requirements of the reporting to the AEC and bodies such as the Registered Organisations Commission and the Australian Charities and Not-for-profit Commission.

    Does the Australian Electoral Commission effectively identify and manage risks to the financial disclosure scheme?

    Risks to the financial disclosure scheme have not been managed in accordance with the AEC’s risk management framework. While the risk appetite and tolerance statement of this framework states that the AEC has a low/moderate risk tolerance for risks associated with the disclosure function there is no evidence that risks relating to all entities that have a disclosure obligation have been assessed and are being managed appropriately. Additionally, there is no treatment plan in place for the risk that has been identified by the AEC, being the risk of non-compliance by political parties.

    2.45 The AEC Corporate Plan identifies five strategic risks:

    • the Commonwealth Electoral Act and the AEC’s operating model loses relevance;
    • the AEC is unable to uphold electoral integrity and transparency;
    • the AEC fails to build trusting relationships with electors, political stakeholders and the government;
    • the AEC cannot source and maintain a capable and trained APS and temporary workforce; and
    • the AEC is not properly positioned for the future, with systems and processes not sustainable, relevant and modern.

    2.46 The financial disclosure scheme plays a significant role in managing the risks associated with upholding electoral integrity and transparency, and maintaining the trust of electors, political stakeholders and the government.

    2.47 The risk register for the business unit responsible for administering the financial disclosure scheme and conducting compliance reviews identifies a single operational risk — the AEC fails to identify non-compliance by political parties. There is no evidence that risks relating to other entities that have disclosure obligations have been assessed and are being appropriately managed in line with AEC’s risk management framework.49

    2.48 The risk of non-compliance by political parties was identified as a compliance, governance and integrity risk with seven identified controls:

    • the issuing of legal obligation letters, reminders and stakeholder follow up to achieve timely disclosure;
    • management of workloads to ensure that returns are uploaded to the AEC’s website by the public release date;
    • returns are available for inspection and missing or incomplete disclosures come to the attention of the AEC;
    • compliance reviews;
    • education material provided to political parties and entities to assist entities to understand disclosure obligations;
    • selection of entities for a compliance review; and
    • work by staff is overseen by other staff members and branch management.

    2.49 The AEC has rated the risk as medium and has accepted the risk. This approach does not align with the AEC’s approved risk management framework. The approach outlined in the risk management framework states that compliance, governance and integrity risks with a residual risk rating of ‘medium’ are to have a risk treatment plan developed, are to be escalated to an Assistant Commissioner to be managed and reports provided to the Organisational Health Committee.

    2.50 According to the risk register the risk owner is an Assistant Commissioner, however there is no risk treatment plan in place. The risk register does not identify dependencies or identify how the controls will be monitored or tested and there is no reporting to the Organisational Health Committee or the Business Assurance Committee (in the quarterly risk management reports it receives) regarding the operation of the financial disclosure scheme.

    2.51 In October 2015, the business unit risk register identified the returns management system as an operational risk to the financial disclosure scheme. As part of the Electoral Integrity Reforms the AEC is to design, develop and implement a Self Service Platform (SSP) to replace the returns management system. In October 2019, the project management plan identified that module four of this project is intended to deliver a funding and disclosure portal by the end of April 2020. An exception report outlining the status and progress of the SSP project was provided to the June 2020 board meeting, where the board was advised that the SSP project cannot deliver to its baseline schedule and an updated exception report will be tabled when revised schedule, costings and resource requirements are confirmed.

    Recommendation no.3

    2.52 The Australian Electoral Commission identify and develop treatment plans for risks relating to the financial disclosure scheme and manage the scheme in line with its revised risk management framework.

    AEC response: Agreed

    2.53 Risks related to the financial disclosure scheme have been updated to recognise risks related to all participants and will be reported to the relevant AEC governance committees.

    3. Compliance monitoring and enforcement

    Areas examined

    This chapter examines if the Australian Electoral Commission (AEC) has developed and implemented effective compliance monitoring and enforcement arrangements.

    Conclusion

    Compliance monitoring and enforcement activities are partially effective with the result that the AEC is not well placed to provide assurance that disclosure returns are accurate and complete.

    Recommendations

    The ANAO has made four recommendations to improve the effectiveness of the compliance monitoring and enforcement activities undertaken by the AEC.

    3.1 To assess the AEC’s compliance monitoring and enforcement activities for the disclosure scheme the ANAO examined:

    • whether the AEC has applied lessons learned from how other electoral bodies regulate their schemes;
    • the planning and conduct of compliance reviews, which are the key control the AEC relies upon to assure itself that disclosure returns are accurate and complete; and
    • the AEC’s response to non-compliance where it has been identified.

    Has the Australian Electoral Commission sought to learn lessons from how other electoral bodies regulate financial disclosure schemes?

    While the AEC has identified some lessons that it could learn from other electoral bodies that regulate financial disclosure schemes, there is little evidence of any resulting changes having been made to how the Commonwealth scheme is administered. The AEC has also not taken adequate steps to implement agreed recommendations from a review it commissioned in 2012 of the disclosure compliance function (which concluded that the AEC needed to become more proactive in its approach).

    3.2 In November 2019, the AEC advised the ANAO that:

    • it ‘maintains an awareness of the financial disclosure frameworks within Australian jurisdictions and, to a lesser extent outside of Australia maintaining links to a number of relevant electoral management organisations’;
    • ‘the array of schemes across Australia and internationally is diverse and the AEC is cognisant of the need for environmental awareness to support its administration of the Funding and Disclosure legislation’; and
    • provided the ANAO with a summary of some of the activities it has undertaken in recent years to maintain ‘currency in the financial disclosure space’.

    Previous reviews

    3.3 In August 2012, the Electoral Commissioner initiated a review of the Australian Electoral Commission’s disclosure and compliance function, following criticism in the Parliament regarding the compliance review program, the selection of organisations for a compliance review and the AEC’s use of its investigatory powers.

    3.4 The review was conducted by Ron McLeod AM. It was completed in November 2012 and concluded that the AEC needed to become more proactive in the way that it administers and enforces compliance with the financial disclosure scheme and introduce a better governance and management structure. The review made four recommendations with the AEC accepting all four recommendations. The ANAO’s analysis is that implementation action was inadequate across three of the four recommendations (see Appendix 2, Table A.1).

    3.5 In 2013, a project team conducted relevant research and analysis of practices of other organisations with the same, or similar responsibilities as part of the AEC’s efforts to implement the recommendations from the McLeod report. AEC documentation states that the project team considered the compliance approaches of a number of organisations to update its business model and approach to regulating the financial disclosure scheme. These included the Electoral Commission (UK), Elections Canada, the Federal Election Commission, the New York City Campaign Finance Board, the New South Wales Election Funding Authority, Fair Work Australia, the Australian Taxation Office (ATO), the Australian Crime Commission (ACC), now the Australian Criminal Intelligence Commission, and the Department of Human Services (DHS), now Services Australia. Information obtained from these activities was used to assist the AEC to develop and implement the revised methodology to select entities for a compliance review as recommended by the McLeod review. The revised approach was piloted in 2014, and has been in effect since 2015.

    Accessing specialist expertise

    3.6 In 2013, the AEC met with the ATO to discuss its processes for identifying transactions that may not be reported in tax returns, and occurring ‘off the books’. The ATO advised that this is a very complex area and that its knowledge and experience has developed over many years. Accordingly, the AEC proposed buying in expertise and access to data that the AEC does not currently have. In December 2014, AEC records indicate that the Australian Crime Commission offered AEC opportunities for learning and sharing. The AEC noted that the work is different to the compliance investigations undertaken by the AEC, therefore it considered that the training and learning opportunities would not be relevant. While the AEC stated that it would continue to send its staff to other learning and training opportunities such as with the Institute of Internal Auditors, in July 2020 the AEC advised the ANAO that no staff have attended training with the Institute of Internal Auditors.

    3.7 In November 2016, the AEC informed its audit committee that the Commonwealth government procurement panels contain specialists with the necessary expertise that can be accessed by the AEC, and no further action on the relevant McLeod review recommendation was required.

    3.8 In October 2019, the AEC proposed that specialist expertise should be engaged to assist with development of an enhanced compliance review program, including exploring options to meet the objectives of the Electoral Integrity Reforms and the associated changes made to the Electoral Act in November 2018. As a result of these changes, the AEC will need to be able to detect foreign donations and identify potential entities with disclosure obligations. As at June 2020, there is no evidence that the AEC has sought to obtain access to specialist expertise to develop the enhanced compliance program as required. As a result, the AEC has not yet established a framework for how foreign donations will be detected and treated.

    Workforce and training requirements

    3.9 AEC documentation examined by the ANAO identified that accounting related disciplines are required, with qualifications or experience in investigations desirable to effectively undertake and manage the compliance review program. In January 2018, critical gaps in the workforce were identified by the AEC. As at October 2019, the AEC was in the process of identifying options to engage additional resources necessary to deliver an expanded compliance review program, with a decision made to contract-in an additional 12 resources through a labour hire arrangement. As at May 2020, there is evidence that the AEC has commenced the development of a training needs assessment for the expanded compliance program, and recruitment activities have commenced.

    Intelligence gathering, data interrogation and risk based sampling techniques

    3.10 In April 2014, the AEC contacted officers from the ACC, the ATO and Fair Work Australia to discuss intelligence gathering, data interrogation and risk based sampling techniques. In late 2014 and 2015 the AEC stated in its internal responses to the McLeod Report that the discussions held around commonalities such as the ‘honest complier approach’ had been useful but the difference in scope and reach of the other agencies were significant and limited the exchange. In December 2014, these discussions were suspended and no further action has been undertaken.

    Use of a tip-off facility

    3.11 In 2014, the AEC observed that the ATO and DHS (Services Australia) use information that results from ‘tip-offs’ in their compliance program work. As such, the AEC established a tip-off facility. The tip-off facility was implemented in 2015 and uses a dedicated mailbox as well as the existing Financial and Disclosure group mailbox to receive tip-offs. The AEC’s publicly available information states that it may use tip-offs as part of its compliance work, and outlines how the AEC may use the information it receives. Information about the tip-off facility can be found on the AEC website, including links to the dedicated mailbox and a phone number. In June 2020 the AEC advised the ANAO that over 150 tip-offs have been received.

    3.12 The ANAO’s analysis of the email traffic in the FAD Tip-Off mailbox identified that 114 discrete matters covering a broad range of topics have been raised with the AEC, with 21 matters categorised as unwanted, unsolicited digital communication (spam) or junk emails. Of the 93 matters remaining, 16 related to funding and disclosure.50 Of the 16 matters, one was related to an existing investigation51, and two were redirected to other agencies as they were considered by the AEC to be outside of its jurisdiction. For the remaining 13 matters, the AEC has not recorded the outcome as part of actioning the matter.

    Recommendation no.4

    3.13 The Australian Electoral Commission apply the lessons learned that have been identified including through:

    1. accessing specialist expertise to test the effectiveness of the processes and practices that are in place to identify undisclosed financial transactions; and
    2. establishing arrangements with other government agencies to share intelligence gathering, data interrogation and risk based sampling techniques.

    AEC response: Agreed with qualification.

    3.14 The AEC will again review the use of specialist expertise to enhance the effectiveness of the processes and practices that are in place to identify undisclosed financial transactions and consider the use of this expertise against cost and likelihood of the risk of such transactions occurring for entities with disclosure obligations.

    3.15 The establishment of arrangements with other government agencies will be subject to any legal restrictions in the Electoral Act, privacy regulations or other governing legislation.

    Does the Australian Electoral Commission apply a risk based approach to planning and conducting compliance activities?

    The AEC does not apply an appropriate risk based approach to planning and conducting compliance activities.

    • While most reviews are planned on the basis of a risk assessment, there are a number of limitations in the risk assessment methodology employed.
    • Over the period assessed the AEC did not undertake a compliance review of any election donor returns or of any annual returns that included no financial disclosures (that is, a nil return).
    • The number of reviews, and the resources allocated to them, have declined considerably across the five year period analysed. These reductions do not reflect an assessment that the risk of non-disclosure or non-compliance has reduced and this situation is also at odds with the significant growth that has occurred in the total value of receipts and other figures included in the financial disclosure returns provided to the AEC.

    3.16 The AEC has identified that the number of entities with disclosure obligations means it is unable to examine the accuracy and completeness of all the financial disclosure returns it receives. As such, the AEC has established an annual compliance program in order to provide some assurance that entities with disclosure obligations are meeting them.

    3.17 AEC guidance material identifies that its approach to compliance reviews does not presume that selected entities have failed to meet their disclosure obligations. Rather, party agents and financial controllers are:

    treated as honest compliers who are conscientiously attempting to discharge their disclosure obligations.52

    Approval of the annual compliance review program

    Compliance Review Committee

    3.18 As discussed at paragraph 1.9, the Compliance Review Committee (CRC) is responsible for approving and monitoring the compliance review program. The role of the CRC is to: approve the selection of reviews; consider changes to the risk matrix; consider changes to the methodology of conducting reviews; monitor the progress of the compliance program; and amend the selection of reviews if required.

    3.19 The AEC has advised that it aims to approve the annual compliance program as close as possible to the start of the calendar year.53 The AEC plans to complete compliance reviews by the end of the calendar year to allow for the timely commencement of the new program on an annual basis. AEC documentation demonstrates that the guidance is inconsistent listing December, January and February as the date that the annual compliance review program is to be considered and approved.

    3.20 Over the period assessed, the annual compliance review program has been considered and approved by mid-February up until 2017. In 2018 and 2019, approval of the annual program did not occur until March. While the CRC agreed in August 2019 that the 2020 compliance review program would include all 22 political campaigners, as at June 2020, the compliance review program has not been finalised.

    Selection of entities for a compliance review

    3.21 Prior to 2014, the AEC’s planned approach to compliance reviews was to review every political party and its associated entities over a three year electoral cycle, with approximately 60–70 reviews scheduled annually.

    3.22 In response to the McLeod recommendations, the AEC established a pilot program in 2014 to select political parties and associated entities for a compliance review based on a revised methodology. The revised methodology was to select entities for a compliance review on the basis of risk, supplemented with selections based on the application of professional judgement and including a random element.

    3.23 The AEC adjusted the risk matrix in 2015 and again in 2017. The criteria now consists of 10 risk factors that are grouped into three categories: error risks; materiality; and organisational profile. The AEC has identified four specific risks that are used to determine the error risk, two to determine materiality and four to assess risks related to the organisational profile. Each risk is individually rated using a six point rating scale (0 –5) and weighted to calculate a risk rating.

    3.24 In October 2017, the AEC engaged consultants at a cost of $11,100 to conduct ‘agreed upon procedures’54 as to whether the risk matrix provided ‘a robust and defensible methodology that can be efficiently and consistently applied’. The consultants found that the current risk matrix is ‘generally effective’ at selecting a sample of returns that are more likely to show error, and made eight recommendations, to address the following issues:

    • some elements that have a higher bearing on the risk of non-compliance in terms of potential for error are not given sufficient weighting;
    • returns identified to have errors based on conclusive criteria do not always have these errors resolved prior to the returns being published;
    • the nature and weighting of risk matrix elements results in the compliance sample being skewed towards selection of political parties over associated entities; and
    • there is some duplication and lack of clarity in some elements which can result in either a skewed compliance sample result or inconsistent application of the risk matrix.

    3.25 The AEC agreed to four of the eight recommendations and agreed ‘in principle’ to four. Based on the ANAO’s examination of CRC meeting minutes held in 2018 and 2019, the AEC has not implemented any of the recommendations..

    3.26 In addition, the ANAO’s analysis of the risk assessment process has identified a number of limitations.

    • The materiality factors do not recognise that a zero dollar figure of total receipts is a risk. If a nil disclosure is lodged against total receipts, the resulting risk rating score is allocated the lowest possible score of zero. It is significant in this respect, as across the five year period examined, the AEC has not undertaken a compliance review of a ‘nil return’.
    • The risk matrix only considers the value disclosed against total receipts as a stand-alone risk factor, it does not consider the value of total payments, or total debts. The total receipts figure comprises only one of six parts of the annual disclosure return. There is also no use of data matching (see paragraph 2.31) by the AEC to identify higher risk reports.
    • The risk factor ‘number/value of amendments’ allows a limited timeframe for an entity’s risk rating to be adjusted to reflect any amendments that have been made. Only amendments made and lodged between the date that the return was lodged and the date that the risk assessment is completed are captured.55
    • The late lodgement factor does not take into account how late a financial disclosure return has been lodged, assigning the same rating to a return that is submitted less than 7 days late, to one that is submitted over 60 days late.

    3.27 The below case study illustrates some of the shortcomings with the application of the risk assessment process. During the course of audit the ANAO extracted all of the annual returns from the returns management system and sorted all returns (per year) based on the value of total receipts (lowest to highest). During this process it was identified that the entity in the below case study had reported a total receipts figure of zero. An examination of previously reported values identified that the entity had previously reported a much higher value for total receipts. To determine if this was unusual the ANAO accessed the financial statements lodged by the entity with the ROC, where it was identified that the total receipts amount was incorrect and highlighted the impact of the limitations of the risk assessment processes employed by the AEC that have been identified.

    Case study 1. Application of the risk matrix

    The Australasian Meat Industry Employees Union SA & WA Branch submitted its annual return for 2015–16 on 27 October 2016. The return was submitted late and did not include a figure for total receipts, or total debts. The only information included in the return was a total payment figure of $864,564. The ANAO reviewed the annual return profile and risk assessment as well as the 2017 compliance program risk matrix to examine the risk assessment for this entity and identified the following errors and limitations.

    • While the annual return profile and risk assessment picked up substantial variations in the total receipts and total debts figures, no anomalies were flagged.
    • The annual returns for 2014–15 and 2015–16 were lodged late. The risk factor ‘late lodgement’ risk score was incorrectly calculated as ‘20’. In accordance with the risk factor a risk score of ‘25’ should have been calculated.
    • The entity had not disclosed any figure against total receipts and as such was given a materiality score of ‘zero’.
    • An examination of the entity’s lodgement of financial statements for the 2015–16 financial year to the ROC identified that the entity should have disclosed approximately $850 000 in total receipts.

    Previous returns lodged with the AEC also demonstrated that the total receipts figure disclosed was incorrect. While the annual return risk profile and analysis identified the change in established pattern, no anomalies were flagged for follow-up action. The error was not identified as part of the returns matching or transaction matching processes and as at August 2020, the AEC has not contacted the entity, and an amended return to correct the error has not been submitted.

    3.28 While the risk matrix has not been updated since January 2017, for the 2019 compliance review program the selection of entities on the basis of the risk assessment has been modified to exclude entities that have had a compliance review conducted two or more times within the last three years. This change was made as the AEC noted that several entities were continually getting a high risk score.

    3.29 The AEC has noted that undertaking compliance reviews on the basis of random selection provides an opportunity to evaluate the appropriateness and effectiveness of the risk based selection methodology. While two reviews completed in 2017 and 2018 that were selected randomly found material inaccuracies and non-disclosures, no adjustments were made to the risk assessment methodology in light of the findings of those reviews.

    Full versus limited scope reviews

    3.30 Compliance reviews may be either a full or limited scope review.

    • Full reviews have set criteria for assessing annual disclosure forms and seek to confirm that the reported value of all of the figures included in the return are accurate. For political parties this can include a sample of party units.56
    • A limited scope review seeks to verify the accuracy of one or more parts of the annual disclosure return. There is no set criteria for limited reviews except for including an examination of receipts above the threshold. The AEC’s guidance material does not contain a clear methodology for determining the scope of a limited review, or calculating the number of hours that are to be allocated.

    3.31 In 2015 and 2016, the number of hours allocated to a review was generally based on whether the review was a limited or full scope review. A budget of between 20 and 100 hours (68 hours on average) was allocated to conduct a limited review, except for three of the 35 reviews planned.57 A budget of up to 250 hours, (111 hours on average) was allocated to conduct a full scope review.58

    3.32 In 2017, the AEC modified its approach to budgeting the hours required to undertake a compliance review. In 2017, the average number of hours budgeted for a limited review increased from 68 to 120 hours. In 2018 and 2019, the average number of hours budgeted to undertake a limited review increased again from 120 to 178 hours. The change in approach from 2017 is illustrated below at Table 3.1. This table shows that the percentage of limited reviews where the budget allocated was in excess of 100 hours comprised 100 per cent of the limited reviews planned in 2018 and 2019.

    Table 3.1: Proportion of limited scope reviews allocated a budget in excess of 100 hours

     

    2015

    2016

    2017

    2018

    2019

    Total number of limited reviews planned

    17

    18

    10

    12

    11

    Number of planned limited reviews with a budget in excess of 100 hours

    2

    1

    3

    12

    11

    % of planned limited scope reviews in excess of 100 hours

    12%

    6%

    30%

    100%

    100%

               

    Source: ANAO analysis of AEC documentation.

    3.33 In 2019, 11 full and 11 limited reviews were planned, with a total of 1800 hours budgeted for limited reviews, whereas 1505 hours were budgeted for full reviews. These findings indicate that the budgeting of hours now incorporates an assessment of the size, complexity and operations of the entity when determining the scope of the review.

    Allocation of resources

    3.34 The AEC allocates resources to conduct compliance reviews on the same basis as selecting entities for a review. Of the resources available for compliance reviews, 75 per cent are allocated to compliance reviews selected on the basis of the risk assessment, 15 per cent selected on the basis of professional judgement and 10 per cent selected randomly. The planned and actual resources allocated for compliance reviews has fallen significantly since 2015.

    • The reduction in total resources being applied to compliance reviews (the number of hours budgeted for 2019 is 40 per cent less than was budgeted for 2015) does not reflect an assessment that the level of risk has fallen.
    • The proportion of reviews selected according the AEC’s risk assessment has increased (noting the shortcomings identified at paragraphs 3.23 to 3.26 with the AEC’s methodology), while there were no reviews planned or undertaken in 2018 or 2019 on the basis of professional judgment.
    • The proportion of budgeted and actual hours no longer aligns with the AEC decision to allocate 75 per cent of hours to risk based reviews, 15 per cent to professional judgement, and 10 per cent to randomly selected compliance reviews.
    • There were significant shortfalls in 2016, 2018 and 2019 (to date) in the number of actual hours invested in compliance reviews, compared to those budgeted, see Table 3.2 on the following page.

    Table 3.2: Comparison of planned versus actual hours for 2015 through to 2019

     

    2015a

    2016a

    2017

    2018

    2019

     

    Budget

    Actual

    %

    Budget

    Actual

    %

    Budget

    Actual

    %

    Budget

    Actual

    %

    Budget

    Actual

    %

    Total hours

    5515

    4721

    85

    4044

    2989

    74

    3900

    3 660

    94

    3350

    1860

    55

    3305

    1415

    43

    Risk based

    4095

    3953

    96

    3054

    2395

    78

    3050

    2 150

    70

    2950

    1730

    59

    3005

    1362

    45

    Professional judgementb

    875

    312

    36

    600

    364

    61

    550

    880

    160

    0

    0

     

    0

    0

     

    Random

    545

    456

    84

    390

    231

    59

    300

    630

    210

    400

    130

    32

    300

    53

    17

                                   

    Note a: In 2015 and 2016, the actual hours includes hours on reviews that commenced but were not completed and were subsequently removed from the compliance program.

    Note b: In 2018 and 2019 no compliance reviews were planned or completed on the basis of professional judgement.

    Source: ANAO analysis.

    3.35 Testing of the compliance reviews demonstrates that while the selection of compliance reviews includes a risk based element, the AEC uses a resource driven approach to plan and conduct compliance activities. From 2017, the AEC has reduced the number of reviews that are planned.

    3.36 In addition to reducing the number of planned reviews from 2017 onwards, resources to complete compliance reviews have also been re-deployed to other projects such as the implementation of the changes made to the Commonwealth Electoral Act 1918 (the Electoral Act) in 2018 and the development of a new election funding mechanism throughout 2019.

    3.37 The increase in the value of disclosures, the decline in the number of completed reviews, and the declining percentage of the population selected for a compliance review (see Table 3.3), is not supported by an AEC risk assessment demonstrating that the overall risk of non-disclosure, the provision of false and/or misleading information and other non-compliant behaviours has declined. As a result, the AEC is unable to demonstrate that the compliance program, in its current form, is sufficient to provide assurance that the annual financial disclosure returns are meeting legislated requirements.

    3.38 Due to legislative changes made to the disclosure scheme that came into effect on 1 January 2019, political campaigner, third party and donor returns for 2018–19 were the first ones able to be included in the compliance review program. As noted at paragraph 3.20, the CRC agreed in August 2019 that the 2020 compliance review program would include all 22 political campaigners. As at June 2020, the 2020 compliance review program has not been finalised.

    Recommendation no.5

    3.39 The Australian Electoral Commission adopt a risk-based approach to its compliance review program that:

    1. assesses the aggregate level of risk to inform decisions about the size and coverage of the program;
    2. includes all disclosures required under the updated legislated framework; and
    3. improves the effectiveness of the risk matrix used to select the majority of reviews, and better address risks of non-disclosure and incomplete disclosure.

    AEC response: Agreed with qualification

    3.40 The AEC already adopts a risk based approach to its compliance review program which is considered annually by its compliance review committee and is not of the view that the results of the compliance review programs would justify this.

    3.41 The 2020 compliance program, which applies to the 2018–19 disclosures, will be the first program to run under the amended legislation introduced in 2019. Following completion of the current program the AEC will consider the approach for including all disclosures as part of the risk matrix, including consideration of the current risk factors and weightings.

    Are planned compliance activities implemented in a timely and effective manner?

    Planned compliance activities are not implemented in a timely and effective manner. Of the 168 reviews that were planned to have been conducted over the five year period examined by the ANAO, 58 (35 per cent) have not been completed. While completion rates have improved in the last two years this is due to the AEC significantly reducing the number of planned reviews, narrowing the scope of planned reviews, and reducing the value of the transactions being tested. There has also been a marked decline in the number of full reviews that are being conducted on large entities with disclosure obligations.

    Conduct of compliance reviews

    3.42 The AEC guidance material states that the AEC is to apply the Australian Auditing Standards to the conduct of compliance reviews. The specific products that the AEC refers to in its guidance material include the compliance plan, risk assessment, gathering of appropriate and sufficient evidence, appropriate analytical procedures, sufficient and appropriate audit documentation and reporting with regard to the financial records examined.

    3.43 ANAO examination of the compliance reviews undertaken identified that the AEC’s compliance activities do not meet the Australian Auditing Standards.

    3.44 As discussed at paragraph 3.18, the CRC approves the annual compliance review schedule. The schedule identifies if the review is to be a ‘limited’ or ‘full’ scope review and the number of hours that have been budgeted. For each compliance review, an individual compliance review plan is to be developed. These individual compliance plans identify the basis of the selection, results from preliminary work, the review scope, focus and justification, the methodology and the budgeted hours. They do not record the engagement or operational risks. Additionally, where a change to the scope of a review has occurred the rationale for the change in scope is not consistently documented.

    3.45 There are a number of limitations identified in relation to the risk assessment processes employed by the AEC as discussed at paragraphs 3.26 to 3.28 of this report.

    3.46 The AEC does not employ appropriate audit procedures to gather sufficient and appropriate evidence.59 To obtain evidence the AEC outlines the documentation that it requires in the notice that is issued to the political party and/or associated entity that has been selected for a compliance review, known as a ‘section 316(2A) notice’. The notice outlines the information that is required, including: trial balances; bank account listings; cash receipt and cash payment journals; bank deposit slips for all amounts greater than the disclosure threshold; aged creditor listings; and audited financial statements where available. The notice includes a document checklist that entities are to certify and return. Testing undertaken by the ANAO of 40 compliance reviews conducted between 2017 and 2018 identified 16 (40 per cent) did not have a completed and certified documentation checklist on file. Additionally, the AEC does not gather the requested information directly from the systems used to provide the information, and does not observe the entity extracting the requested information from its accounting systems as all reviews are undertaken as desktop reviews. This approach means the AEC is placing significant reliance on entities to provide it with complete and accurate information.

    3.47 Further, the AEC specifically states in its guidance that it does not provide an opinion on the adequacy of the internal controls.

    3.48 The AEC has developed standardised testing procedures that it applies to test the information provided as part of conducting a compliance review of the annual return. While these testing procedures are modified to align with the scope of the review and the sections of the annual return that is being examined, there is no evidence to confirm that the testing process is evaluated to confirm that it meets the relevant auditing standard.

    3.49 Lastly, at no point throughout the process, does the AEC require its compliance officers to certify that the review has been undertaken in accordance with the Australian Auditing Standards that it has identified are to apply.

    Compliance reviews completed

    3.50 The AEC has consistently performed poorly in terms of completing its annual program of reviews and has not completed the planned compliance reviews by the end of any of the last five calendar years.

    3.51 The percentage of the population being tested has also declined while the total value of receipts, payments, and debts as reported since 2017 has increased, see Table 3.3. This growth is expected to continue as the total value of disclosures for 2018–19, just for political parties and associated entities, has increased from $2.3 billion in 2015–16 to $2.8 billion in 2018–19 (24 per cent).

    Table 3.3: Comparison of completed compliance reviews to value of disclosures

     

    2015

    2016

    2017a

    2018

    2019

    No. of completed reviews

    33

    22

    23

    17

    15c

    % of population tested

    12%

    8%

    8%

    6%

    6%

    Total value of political party disclosuresb

    N/A

    N/A

    $429,453,541

    $440,805,632

    $322,809,655

    Total value of associated entity disclosuresb

    N/A

    N/A

    $1,832,812,035

    $1,862,842,904

    $2,024,241,813

    Total value

     

     

    $2,262,265,576

    $2,303,648,536

    $2,347,051,468

               

    Note a: Returns submitted for the 2015–16 financial year are reviewed in the compliance review program for the 2017 calendar year, returns submitted for the 2016–17 financial year are reviewed in the compliance program for the 2018 calendar year and returns submitted for the 2017–18 financial year are reviewed in the compliance program for the 2019 calendar year.

    Note b: The blank cells are due to the ANAO conducting analysis of aggregate values for 2015–16 onwards.

    Note c: As at March 2020, 15 reviews had been completed.

    Source: ANAO analysis.

    3.52 The number of ‘full reviews’ being conducted on large entities has also decreased over the period assessed. Since 2017, full reviews are primarily conducted on small or medium sized entities, with limited reviews conducted on large entities. In 2018, only one full review was conducted on a large entity and all full reviews in 2019 were conducted on small or medium sized entities. This is reflected in the reduction in the number of hours it has taken the AEC to complete full scope and limited scope reviews. In 2018 and 2019, the average number of hours to complete a full review decreased from 169 hours to 70 hours across 13 full reviews and for limited scope reviews the average decreased from 132 to 110 hours across 19 limited reviews.

    3.53 The parts of the return that are subject to compliance review activity, the value of the transactions tested by the AEC, and the value of the amendments identified by the AEC have all declined, yet there has been no improvement in the error rate, see Table 3.5. As such, the decline in the number of findings (see Table 3.4) and the number and value of amendments does not demonstrate that the AEC is becoming more effective or that compliance rates are improving. Rather, it demonstrates that the AEC has reduced the number, scope and value of the transactions being tested through the compliance review program.

    Number of compliance reviews conducted

    3.54 The number of planned versus completed compliance reviews is illustrated below at Figure 3.1.

    Figure 3.1: Number and scope of compliance reviews planned versus conducted

     

    Note a: The 2019 program is still in progress, with 15 reviews completed as at 31 March 2020.

    Note b: In 2018, there were three compliance reviews not completed and their planned scope is unknown.

    Note c: In 2017, more full reviews were completed than planned, because four limited scope reviews were expanded to full scope reviews.

    Source: ANAO analysis.

    3.55 Across the five years examined the ANAO identified that 168 compliance reviews were planned. AEC records identified that there were 97 full scope compliance reviews and 68 limited scope reviews planned.60 Of the 97 full scope reviews planned, 69 (71 per cent) have been completed and 28 (29 per cent) have not been completed. Of the 68 planned limited scope reviews, 41 (60 per cent) have been completed, with 27 (40 per cent) not completed. As at March 2020, 7 (10 per cent) reviews from the 2019 program had not yet been completed.

    Review scope

    3.56 Figure 3.1 illustrates the fall in the number of compliance reviews that have been planned and completed over the period assessed and also identifies the fall in the number of full scope reviews that have been conducted. Table 3.4 illustrates the impact of narrowing the scope of reviews that are conducted. There has been a reduction in testing along with the reduction in findings, but the proportion of findings has not improved. Across the five year period, all reviews tested receipts above the threshold and the proportion of findings remained stable (between 53 and 65 per cent). The proportion of findings across other parts of the annual returns fluctuated over the five year period. For example, the proportion of findings in total debts increased from 11 of 25 (44 per cent) in 2015 to 10 of 12 (83 per cent) in 2018.

    Table 3.4: Compliance reviews — comparison between parts of the financial disclosure return tested and findings of non-compliance: 2015 through to 2019

     

    2015 programa

    2016 programb

    2017 programc

    2018 programd

    2019 programe

     

    Tested

    Findings

    Tested

    Findings

    Tested

    Findings

    Tested

    Findings

    Tested

    Findings

    Total receipts

    24

    18

    17

    12

    20

    10

    6

    4

    8

    2

    Gifts in kind

    24

    6

    16

    6

    19

    6

    8

    5

    11

    2

    Receipts above the threshold

    33

    19

    22

    13

    23

    13

    17

    11

    15

    8

    Total payments

    24

    15

    17

    13

    19

    13

    5

    2

    8

    1

    Total debts

    25

    11

    16

    13

    19

    10

    12

    10

    8

    3

    Debts above the threshold

    25

    7

    16

    12

    19

    10

    13

    8

    10

    1

                         

    Note a: In 2015, 24 full scope reviews and 9 limited scope reviews were completed.

    Note b: In 2016, 15 full scope reviews and 7 limited scope reviews were completed.

    Note c: In 2017, 17 full scope reviews and 6 limited scope reviews were completed.

    Note d: In 2018, 5 full scope reviews and 12 limited scope reviews were completed.

    Note e: In 2019, as at March 2020, 8 full scope and 7 limited scope reviews have been completed.

    Source: ANAO analysis.

    Value of disclosures tested

    3.57 The total value of disclosures selected for testing is also declining as detailed at Table 3.5. While the value of amendments is decreasing the error rate does not indicate that overall compliance is improving. Rather, it demonstrates that the AEC has reduced the number, scope and value of the transactions being tested through the compliance review program.

    Table 3.5: Compliance reviews completed — analysis of number of amendments per review per scope, the error rate, the value of disclosures and the value of disclosures tested: 2015 to 2019

    Year

    Scope and No. of completed reviews

    No. of amendments

    Error rate

    Total receipts

    $ million

    Receipts over the threshold

    $ million

    Total payments

    $ million

    Total debts

    $ million

     

     

     

    Per type and Aggregate

    Return

    Test

    %

    Return

    Test

    %

    Return

    Test

    %

    Return

    Test

    %

    2015

    Full

    24

    20

    84%

    73%

    162

    162

    100

    113

    113

    100

    161

    161

    100

    12

    12

    100

    Limited

    9

    4

    44%

    32

    0

    0

    13

    13

    100

    32

    0

    0

    4

    1

    24

    Annual-total

     

     

    194

    162

    84

    126

    126

    100

    193

    161

    84

    17

    13

    80

    2016

    Full

    15

    13

    86%

    87%

    137

    137

    100

    49

    49

    100

    138

    138

    100

    3

    3

    100

    Limited

    7

    6

    86%

    82

    25

    30

    36

    36

    100

    76

    22

    29

    18

    0

    0

    Annual-total

     

     

    219

    161

    74

    85

    85

    100

    214

    160

    75

    21

    3

    15

    2017

    Full

    17

    14

    82%

    74%

    135

    135

    100

    41

    39

    95a

    128

    128

    100

    24

    24

    100

    Limited

    6

    3

    50%

    33

    7

    21

    15

    15

    99b

    28

    2

    6

    8

    2

    21

    Annual-total

     

     

    168

    142

    85

    56

    54

    96

    156

    129

    83

    32

    26

    80

    2018

    Full

    5

    5

    100%

    94%

    12

    12

    100

    7

    7

    100

    14

    14

    100

    2

    2

    100

    Limited

    12

    11

    92%

    62

    10

    16

    30

    30

    100

    61

    0

    0

    4

    1

    25

    Annual-total

     

     

    74

    22

    30

    37

    37

    100

    75

    14

    18

    7

    3

    51

    2019

    Full

    8

    4

    50%

    67%

    4

    4

    100

    2

    2

    100

    3

    3

    100

    15

    15

    100

    Limited

    7

    6

    86%

    31

    0

    0

    20

    20

    100

    26

    0

    0

    15

    0

    0

    Annual-total

     

     

    35

    4

    10

    22

    22

    100

    29

    3

    10

    30

    15

    50

    Totals

     

    78%

    690

    491

    71

    327

    325

    99

    667

    468

    70

    107

    61

    56

                                       

    Note a: In 2017, the full review undertaken on the Australian Labor Party (State of Queensland) did not test the full $8.4 million of receipts above the threshold that had been disclosed, with $6.5m (77 per cent) tested. As a result, 100 per cent of receipts over the threshold were not tested.

    Note b: In 2017, the limited review undertaken of the National Party of Australia — Victoria was on 10 party units, as such the full amount of the receipts over the threshold was not tested.

    Source: ANAO analysis.

    3.58 As illustrated above, in the 2015 and 2017 compliance review programs $194 million and $168 million in total receipts respectively was disclosed across all returns selected for a review with $162 million (84 per cent) and $142 million (85 per cent) tested. For total payments, $193 million and $156 million was disclosed with $161 million (84 per cent) and $129 million (83 per cent) tested. In 2019 the total receipts disclosed across all returns selected for a review was $35 million and total payments was $29 million. Of the $35 million in total receipts, $4 million (10 per cent) has been tested and of the $29 million in total payments only $3 million (10 per cent) has been tested. These significant reductions in testing have occurred at the same time that significant growth in the value of disclosures has occurred, see paragraph 3.51 and Table 3.3.

    Value of amendments

    3.59 Reflecting the reduction in the number, scope and value of transactions being tested, the value of amendments being identified by the AEC has also declined, see Figure 3.2.

    Figure 3.2: Compliance reviews — comparison between reviews requiring amendments and the value of under and over disclosures

     

    Source: ANAO analysis.

    3.60 The analysis highlights that the value of under-disclosure and over-disclosures that are identified are impacted by the value of the transactions being tested. For instance, the spike in the value of under and over disclosures identified by the AEC in 2016 is due to the selection of a single associated entity, the CFMEU Construction & General Division (WA Branch) for a full compliance review. The CFMEU Construction & General Division (WA Branch) was responsible for $13.7 million (34 per cent) of the total value of under-disclosures identified and $38.7 million (84 per cent) of the total value of over-disclosures identified in that year.

    Size of entity

    3.61 The AEC guidance material states that political parties and associated entities are categorised as either small61, medium62 or large63 on the basis of the total value of receipts.64 The ANAO examined the number of full scope versus limited scope compliance reviews that have been conducted since 2015 according to the AEC’s categorisation of the size of the entity. As illustrated at Table 3.6, there has been a marked decline in the number of full reviews that are being conducted on large entities. Since 2017, full reviews have focused on small or medium sized entities, with limited reviews conducted on large entities. In 2018, only one full review was conducted on a large entity and all full reviews in 2019 were conducted on small or medium sized entities.

    Table 3.6: Size and type of entity selected for a full or limited scope compliance review: 2015 to 2019

     

     

    2015

    2016

    2017

    2018

    2019

    Type of entity

    Size of entity

    Number of reviews completed

     

    Full

    Limited

    Full

    Limited

    Full

    Limited

    Full

    Limited

    Full

    Limited

    Political party

    Small

    4

    0

    0

    0

    1

    0

    0

    0

    2

    0

    Medium

    6

    0

    4

    1

    5

    3

    2

    4

    2

    3

    Large

    9

    0

    4

    3

    3

    3

    1

    7

    0

    3

    Sub-Total

    19

    0

    8

    4

    9

    6

    3

    11

    4

    6

    Associated entity

    Small

    1

    3

    2

    0

    4

    0

    0

    0

    2

    0

    Medium

    2

    4

    1

    0

    1

    0

    2

    1

    2

    1

    Large

    2

    2

    4

    3

    3

    0

    0

    0

    0

    0

    Sub-Total

    5

    9

    7

    3

    8

    0

    2

    1

    4

    1

    Total

    24

    9

    15

    7

    17

    6

    5

    12

    8

    7

    Total number of reviews completed

    33

    22

    23

    17

    15

                           

    Source: ANAO analysis.

    3.62 Some of the decline can be linked to the AEC undertaking a limited scope compliance review after an initial full scope review has been conducted on a large entity. Testing of compliance reviews conducted between 2015 and 2019 has identified 24 entities that have had multiple compliance reviews conducted across the five years examined. Of the 24 entities, 13 were large entities, (12 political parties and one associated entity) eight were medium entities (all political parties), with three entities where the size category changed across years due to increases/decreases in the total receipts figures disclosed (two political parties and one associated entity). Of the 13 large entities, all 13 had a full review conducted initially, with a subsequent limited review conducted at a later date for 10 (77 per cent), however there was no consistent duration between the reviews conducted. As discussed at paragraph 3.28, in 2019, the AEC modified the selection process to exclude entities that had been selected on multiple occasions.

    Findings from compliance reviews

    3.63 Findings from compliance reviews are communicated through the issuing of the draft report to the entity and publication of the final report on the AEC website.65 Where the AEC has found instances of non-compliance with the disclosure requirements, the report identifies and explains the rationale for the amendment/s that are recommended. Non-compliance may be in the form of under-disclosure, over-disclosure, or require an administrative change. Over the period examined, the ANAO has not identified a case where the entity has not made the recommended amendment.

    3.64 Under-disclosure is when an amount disclosed in the return is less than the correct sum, or an amount has not been disclosed as required. Over-disclosure is when the amount disclosed in the return is greater than the correct sum, or was not required to be disclosed. An administrative change can include an amendment to the details of the financial disclosure return, such as the name, address, and contact details of the party agent and/or financial controller, classification of receipt type, but no change to the amount disclosed.

    3.65 Under-disclosure is considered by the AEC to be more concerning as it demonstrates that the disclosures are incomplete and inaccurate. The ANAO has observed, see Figure 3.2, that the value of under and over disclosures identified by the AEC has fallen in line with the reduction in the number and scope of compliance reviews that have been completed.

    Monitoring and reporting

    Internal monitoring and reporting

    3.66 In 2015, the reporting to the CRC was ad-hoc with five reports provided after the compliance schedule was approved. In March, reports were provided to the CRC on the approach to reviewing party units and an evaluation of the risk based methodology. In April, October and December the CRC were provided updates on the progress of the 2015 compliance schedule. In August, the CRC approved a revised approach to conducting compliance investigations, and in December, agreed to institute a more structured reporting framework to occur on a quarterly basis in April, July, October and January of each year. The matters covered by the reports that were provided identified that resourcing issues and delays in receiving requested information were commonly encountered, particularly after an election had been called.

    3.67 The ANAO has identified inaccuracies in the reporting provided to the CRC on the outcomes of compliance reviews that was potentially misleading. For example, seven limited reviews, which only tested receipts above the threshold, were reported as having ‘accurate’ results across all parts of the form including those parts not tested. Further, while the AEC prepared end of year reports for the 2014, 2015 and 2016 compliance programs, and prepared spreadsheets detailing the results, the AEC advised the ANAO in June 2020 that these reports were provided to the relevant branch head but not to the CRC.

    3.68 A high level outline of progress is also provided to the AEC’s Executive Leadership Team. These reports did not include an update on the compliance review program until September 2016 and did not include any information on the findings of individual reviews until August 2017. Since August 2017, the weekly reports include an overview of the progress of the compliance review program, upcoming publication timeframes of reviews, and high level summary comments on the findings of individual reviews.

    External monitoring and reporting

    3.69 The AEC’s corporate plan and portfolio budget statements identify one performance measure that is used to assess the performance of the compliance review program: ‘compliance reviews of political parties and entities with disclosure obligations completed and published’. This measure was first included in the AEC’s 2018–2022 corporate plan. The ANAO applied the framework outlined in Appendix 4 to analyse the AEC’s performance measure.

    3.70 The measure is not relevant. The measure is limited to identifying that compliance reviews have been conducted and does not provide any information to enable a user to identify if the purpose of the compliance reviews has been achieved. Namely to provide assurance that the disclosure returns are accurate and complete.

    3.71 The measure is partly reliable. While the completion and publishing of compliance reviews is measurable, it does not include a quantitative target that can be used to assess the extent to which the compliance program is meeting its objectives, or determine if the performance of the regulated entities is improving, stable or declining.

    3.72 The measure is not complete. The measure has no target, no timeframes, and does not use qualitative and quantitative measures to assess the overall performance of the AEC to undertake the compliance review activities or determine if the program is meeting its objectives.

    Recommendation no.6

    3.73 The Australian Electoral Commission establish performance measures for its compliance program that comply with the Department of Finance guidance and are relevant, reliable and complete.

    AEC response: Agreed.

    3.74 The AEC has updated its performance measures in relation to recent changes to the PGPA Act that affect how we set, measure and report on performance.

    Does the Australian Electoral Commission appropriately act upon identified non-compliance?

    The AEC does not appropriately act upon identified non-compliance. It is not making effective use of its enforcement powers and as such has not implemented a graduated approach to managing and acting on identified non-compliance.

    3.75 To assess the AEC’s approach to identified non-compliance, the ANAO identified the range of offences under the Electoral Act, the AEC’s policies and procedures outlining its approach to addressing non-compliance, and its use of the legislative powers available to investigate instances of non-compliance and take further action such as referring matters to the Office of the Commonwealth Director of Public Prosecutions (CDPP) for potential prosecution.

    Offences

    3.76 According to the AEC’s enforcement and prosecutions policy the five offences under Part XX of the Electoral Act include:

    • failing to furnish a return66;
    • furnishing an incomplete return;
    • failing to retain records;
    • providing false or misleading particulars, information or evidence; and
    • refusing or failing to comply with a notice.67

    3.77 The five offences listed in the enforcement and prosecutions policy do not reflect the recent changes that were made to Part XX of the Electoral Act.

    3.78 In November 2018, the specific offences outlined were repealed and replaced with references to section 137.1 of the Criminal Code Act 1995 (the Criminal Code). Section 137.1 of the Criminal Code makes it an offence to provide false or misleading information or documents. In addition to the referral to the Criminal Code, breaches of the Electoral Act are to be enforced using a civil penalty regime. Civil penalties are outlined in the Regulatory Powers (Standard Provisions) Act 2014, and require the application of the penalty to be sought through the courts.

    Findings from compliance reviews

    3.79 At the conclusion of a compliance review a final report is issued and is published on the AEC website. The actions that the AEC undertakes to address non-compliance are limited to seeking an amendment to correct the errors identified within the annual disclosure returns submitted by political parties and associated entities. Even where repeat offenders or comprehensive failures in disclosure have been identified, or where the AEC has not been able to make a conclusion on the completeness and accuracy of a return, the AEC has not taken further action to address the non-compliance (see below case studies).

    3.80 Across five years of compliance reviews examined by the ANAO, four political parties have been involved in three compliance reviews where repeated non-compliance was found, Australian Greens (South Australia), the Australian Labor Party (Northern Territory) Branch, the Australian Labor Party (Tasmanian Branch) and the Australian Labor Party (Victorian Branch). In each case, the AEC directed the entity to lodge an amendment to correct the non-compliance and did not take any further action such as invoking its investigatory powers under subsection 316(3) of the Electoral Act, or referring the matter to the CDPP.

    Case study 2. Repeated non-compliance with disclosure requirements

    The disclosure form lodged by the Australian Labor Party (Northern Territory) Branch was reviewed as part of the 2015, 2017 and 2018 compliance review programs. All three compliance reviews found under-disclosures in receipts above the threshold and total debts, and two compliance reviews found under-disclosures in total payments and debts above the threshold. While all three compliance reviews stated that future non-compliance may result in a referral to the CDPP, there is no evidence of the AEC taking any further action.

    3.81 Across the five years of compliance review programs examined (2015 through to 2019) the ANAO has identified five cases where the AEC has advised that it was unable to make a conclusion on the accuracy and completeness of an annual return, and one case where control issues were identified.

    Case study 3. Cases where the AEC has not been able to provide a conclusion on the accuracy and completeness of an annual return

    The cases are the Enterprise Club, the Liberal Party of Australia — Tasmanian Division, the Australian Labor Party (Northern Territory) Branch, the Greens NSW, the Liberal Party of Australia (Victorian Division), and the 500 Club (WA).

    For the Enterprise Club, the AEC reserved its opinion on whether the disclosure return was accurate and complete because the entity did not provide bank statements. For the Liberal Party of Australia — Tasmanian Division, the AEC noted that it could not verify the total gifts in kind disclosure as the party was unable to provide supporting documentation. For the Australian Labor Party (Northern Territory) Branch, the AEC could not conclude that the resulting amendment to the disclosure form was accurate because three party units did not provide a report of total receipts and total payments. For the Greens NSW and the Liberal Party of Australia (Victorian Division), the AEC identified discrepancies in total receipts and total payments for party unit figures and could not conclude that amendments following the compliance reviews were fully compliant with disclosure requirements. The AEC identified that there were internal control issues in its review of the 500 Club (WA) but stated that it does not examine the existence or effectiveness of internal controls.68

    Enforcement and prosecution

    3.82 In all of the five cases where the AEC was unable to make a conclusion on the accuracy and completeness of an annual return, there was no evidence that the AEC had considered undertaking an investigation, through invoking its powers under subsection 316(3) of the Electoral Act to identify the cause/s of the non-compliance and determine if the contravention of the financial disclosure provisions should be referred to the CDPP for potential prosecution. As such, the AEC has not sought to apply a graduated approach to enforcement in line with established best practice, see Figure 3.3.

    Figure 3.3: Graduated response to non-compliance

    Figure 3.3 is a best practice model illustrates the framework that has been applied to the examination of the enforcement approach adopted by the Australian Electoral Commission. The model is in the form of a triangle comprised of four discrete segments. The first segment is the base of the triangle and labelled ‘encouragement’ and is defined as encouraging voluntary compliance through education of and engagement with regulated entities. The second segment is labelled ‘direction’ defined as formal advice to correct identified non-compliance. The third segment is labelled ‘enforcement’. This segment is not defined. The fourth segment is labelled ‘prosecution’ defined as referral of a matter to the CDPP.

    Source: Adapted from ANAO Better Practice Guide — Administering Regulation — June 2014.

    3.83 In line with the best practice approach, the first response of the AEC to address non-compliance should be, and is, ‘encouragement’. To do so, the AEC engages with entities and individuals through the issuing of letters and corresponding with entities to encourage voluntary compliance.

    3.84 The AEC’s compliance review program enables the AEC to provide directions to entities and individuals that have disclosure obligations. The AEC has limited its use of these directions to requiring entities or individuals to lodge a late return or recommend that an amendment be lodged to correct an error.

    3.85 The AEC is able to commence an investigation of contravention or suspected contraventions of the Electoral Act.69 Since 2015, the AEC has undertaken two investigations, neither of which were designed to address systemic issues, frequent non-compliances, or matters where the AEC was unable to provide an opinion on the accuracy and completeness of the return, identified through a compliance review. Rather, one investigation was in relation to whether appropriate disclosures were made under Part XX of the Electoral Act in respect of the plane used by Pauline Hanson’s One Nation party during the 2016 federal election.70 The second was to determine if Get Up Pty Ltd met the definition of an ‘associated entity’.71

    3.86 The AEC does not have the power to apply administrative penalties to address minor non-compliance (such as failure to provide an election return by independent candidates — those not endorsed by a registered political party — that were unsuccessful in achieving four per cent of the vote and therefore not eligible to receive any election funding). By way of comparison, there are legislative instruments that authorise the AEC to apply administrative penalties to individuals who do not vote.

    3.87 In the period examined by the ANAO (from 2015–16), the AEC has prepared briefs for the referral of six cases of non-disclosure to the CDPP for potential prosecution. Each of the six related to the 2016 federal election. The AEC has not referred any matters to the CDPP as a result of findings from compliance reviews since 2016.72

    3.88 Out of the six cases from the 2016 election, the AEC advised the ANAO in June 2020 that five were referred to the CDPP:

    • one was removed from the prosecutions list by the AEC, as the candidate lodged the election return in December 2017, over 12 months late;
    • two were withdrawn and/ or discontinued; and
    • two proceeded to prosecution, with a total of $2000 in penalties applied. In both cases, the matter took over 600 days to settle.

    3.89 In August 2020, the AEC advised the ANAO that it was taking enforcement action against eleven candidates that did not lodge returns in relation to the 2019 federal election (those returns were due in September 2019).

    Recommendation no.7

    3.90 The Australian Electoral Commission implement a graduated approach to addressing non-compliance, including by making greater use of its investigatory powers and seeking to have prosecutions undertaken by the Commonwealth Director of Public Prosecutions or civil penalties applied by the courts where serious or repeat non-compliance has been identified.

    AEC Response: Not Agreed

    3.91 The AEC has a graduated approach to addressing non-compliance and makes appropriate use of its investigatory powers when required. Necessary enforcement action is undertaken where appropriate. The AEC’s administration of Part XX of the Electoral Act, in line with its interpretation of the intent of that legislation, does not lead to a view that a more heavy handed approach to enforcement is warranted.

    Appendices

    Appendix 1 Entity response

    Page 1 of entity response

    Page 2 of entity response

    Page 3 of entity response

    Page 4 of entity response

    Page 5 of entity response

    Page 6 of entity response

    Page 7 of entity response

    Page 8 of entity response

    ANAO comment on the AEC response
    1. The ANAO has summarised the legislated disclosure framework (see for example Table 1.1) and has accepted suggestions from the AEC as to where those summaries could be improved. In relation to enforcement cycles, while there has been a considerable delay in the AEC finalising its compliance review program for 2020, the ANAO was able to examine the planning and conduct of reviews over a five-year period spanning 2015 to 2019. The analysis of outstanding returns reflects the ANAO’s analysis of evidence obtained from the AEC, noting that the AEC maintains a view that prior to 2018–19 it was not required to obtain disclosures from political parties that had deregistered during the year (the legislation has been amended ‘to remove doubt’ that deregistered parties do have a reporting obligation).

      The criteria and sub-criteria used to form a conclusion against the audit objective are detailed at paragraph 4 and 5 of the report, and were provided to the AEC at the start of the audit. The basis upon which the ANAO has come to the conclusion that the administration of the scheme is partially effective is detailed at paragraphs 9 to 16.
    2. The AEC comments do not accurately reflect the two audit criteria that underpin the audit conclusion. Those criteria address the AEC’s:
      • performance in obtaining timely, accurate and complete returns (see Chapter 2 of the audit report); and
      • compliance monitoring and enforcement activities, with a particular focus on the AEC’s program of compliance reviews, which are the key control the AEC relies upon to assure itself that disclosure returns are complete and accurate (see Chapter 3 of the audit report).
    3. Paragraphs 4 and 5 detail the criteria used to make the assessment that the AEC is ‘partially effective’ and Paragraphs 9 to 16 of the audit report outline the key findings underpinning this assessment. The AEC’s approach to using its enforcement powers is one of eight audit sub-criteria. In terms of compliance and enforcement, the more significant audit findings relate to the AEC:
      • significantly reducing the number of planned compliance reviews, narrowing the scope of planned reviews, and reducing the value of the transactions being tested;
      • not undertaking or not completing 35 per cent of planned compliance reviews; and
      • not undertaking a compliance review of any election donor returns or of any annual returns that included no financial disclosures (that is, a nil return). In this latter respect, the 2012 review similarly identified that the AEC’s approach to compliance reviews did not adequately address the risk of non-disclosure, including the potential for secret donations.
    4. The ANAO’s conclusions in relation to the AEC’s compliance and enforcement approach are similar to those of a 2012 review commissioned by the AEC (see paragraph 3.4).
    5. Chapter 3 of the audit report outlines that the increase in the value of disclosures, the decline in the number of compliance reviews and the declining percentage of the population selected for a compliance review is not supported by an AEC risk assessment demonstrating that the overall risk of non-compliant behaviour has declined. As a result, the AEC is unable to demonstrate that the compliance program in its current form is sufficient to provide assurance that the annual financial disclosures are meeting legislated requirements.
    6. The report has been amended to reflect the advice that it is now taking enforcement action against eleven candidates that did not lodge returns in relation to the 2019 Federal election (those returns were due in September 2019).
    7. See paragraph 3.79, 3.80 and 3.81 of the report along with case study No.2 and No.3.
    8. See paragraphs 3.79, 3.80 and 3.81 along with case study No.2 and No.3.
    9. Paragraphs 3.76 to 3.78 identify the changes made to the penalty regime.
    10. See paragraphs 3.80, case study 2, paragraph 3.81 and case study 3 of the report.
    11. Chapter 3 of the audit report sets out that the AEC is unable to demonstrate that its compliance review program, in its current form, is sufficient to provide assurance that the annual financial disclosure returns are accurate and complete. Similar concerns were raised in a 2012 review which included a finding that the compliance reviews were ‘largely ineffective in identifying apparent deliberate failures to declare significant amounts of money or gifts’ and that ‘it is reasonable to believe that compliance is not complete’.
    12. See paragraphs 2.26 to 2.30 of the report. The AEC does not cross-check the value of total receipts, as disclosed by the relevant political parties, or identified as a receipt over the threshold, with the amount of electoral funding provided.
    13. See paragraphs 3.56 to 3.58 and Tables 3.4 and 3.5 where the impact of the reduction in the number, value of transactions and size of entity subject to a review have declined are identified and the error rate across the five year period assessed is analysed.
    14. The major component of the returns not obtained relates to political parties that deregistered where the AEC did not seek a disclosure for that part of the year for which the party was registered. As identified in the note to Table 2.6, the legislation has been amended not to introduce a new reporting obligation but ‘to avoid doubt’ that a deregistered party had a reporting obligation and the AEC now seeks returns from deregistered parties.
    15. It is important that the AEC not only obtains disclosure returns but that those returns be timely. Paragraph 2.12 identifies that the AEC spent, on average, 240 days attempting to contact candidates that had not lodged an election return. Paragraph 2.14 identifies that most annual returns (78 per cent) are received in accordance with the legislated timeframes. Paragraph 2.15 and Table 2.5 of the report identify the number of annual returns that have been submitted late, including the number of entities that submitted returns over 90 days late.
    16. See paragraphs 3.22 to 3.29.
    17. Paragraphs 3.24 and 3.26 of the report outline the limitations of the risk assessment process used to select entities for a compliance review.
    18. The ANAO Insights publication of November 2019 sets out the importance of entities implementing recommendations they agree to. The 2012 McLeod Review reached a similar conclusion to that of this ANAO performance audit (it concluded that the AEC should become more proactive in the way that it seeks to administer and enforce compliance with the financial disclosure scheme) and while each of the four McLeod Review recommendations were agreed to by the AEC it did not proceed to implement three of those recommendations (see Appendix 2 of the audit report).

      Similarly:
      • paragraph 3.25 sets out that the AEC did not implement agreed recommendations from a 2017 review it commissioned of its risk matrix for compliance reviews; and
      • earlier ANAO audit activity identified that the AEC had not adequately and effectively implemented the earlier ANAO recommendations on the conduct of Federal elections (Auditor-General Report No. 6 of 2015–16, Auditor-General Report No. 4 of 2014–15 and Auditor-General Report No. 31 of 2013–14).
    19. Obtaining access to specialist expertise was first recommended to the AEC in 2012 (see Appendix 2) and there have been delays in the AEC engaging the additional staff for which it has been provided with additional resources (see paragraphs 3.6 to 3.9).
    20. The AEC has not implemented previous recommendations it has accepted to improve its approach to compliance reviews, comprising:
      • a 2012 review that recommended the AEC use its existing powers to extend the scope and depth of its compliance review program (see Appendix 2); and
      • a 2017 review that included eight recommendations to improve the risk matrix it uses to select entities for compliance reviews (see paragraph 3.24).

      In addition, as outlined at paragraphs 3.30 to 3.62, while 78 per cent of returns reviewed by the AEC required amendment the AEC has:

      • significantly reduced the number of planned reviews, narrowed the scope of planned reviews, and reduced the value of the transactions being tested;
      • not undertaken or not completed 35 per cent of planned compliance reviews; and
      • not undertaken a compliance review of any election donor returns or of any annual returns that included no financial disclosures (that is, a nil return).
    21. The report has been amended as follows: “Compliance with legislated timeframes has also been an issue, with 22 per cent of annual returns and 17 per cent of election returns lodged after the legislated due date.”
    22. See paragraph 2.5.
    23. The audit was conducted in accordance with the ANAO Auditing Standards. Consistent with longstanding ANAO practices various opportunities were afforded to the AEC executive to engage with the audit process:
      • at the commencement of the audit, the ANAO informed the Commissioner and Deputy Commissioner of the audit objective, scope as well as the two criteria and sub-criteria being applied. The AEC was invited to provide representations to the ANAO concerning the administration of the financial disclosure scheme in the context of the objective of the audit. The AEC only provided representations in relation to one of the eight sub-criteria.
      • an entry interview was arranged with the AEC. The Commissioner, Deputy Commissioner and First Assistant Commissioner Capability did not attend the entry interview. The Assistant Commissioner of the Disclosure, Assurance and Engagement Branch was in attendance. At no stage during audit fieldwork did the AEC inform the ANAO that the Commissioner, Deputy Commissioner or First Assistant Commissioner sought direct engagement with the audit team.
      • during the conduct of audit fieldwork the ANAO held various discussions with the AEC to understand the disclosure scheme and the AEC’s administration of it. This included meeting with the AEC’s Chief Legal Officer.
      • prior to issuing the Report Preparation Paper (a precursor to the Proposed Report required under s19 of the Auditor-General Act), the ANAO met with the AEC to outline the emerging findings and possible recommendations. The most senior representative present from the AEC was the First Assistant Commissioner Capability.
      • after providing the Report Preparation Paper to the AEC, an exit interview was held. The most senior representative present from the AEC was the First Assistant Commissioner Capability. It was open to the Commissioner and Deputy Commissioner to attend the exit interview.

    Appendix 2 Implementation of the McLeod recommendations

    1. The below table provides an analysis of the extent to which the McLeod recommendations have been implemented by the AEC.

    Table A.1: Implementation of McLeod Recommendations

    Recommendation

    Intention of the recommendation

    ANAO analysis of the extent to which the recommendation has been implemented

    Status of implementation

    Use existing powers under subsection 316(2A) to support an expanded program of compliance reviews aimed at extending their scope and depth.

    To expand the scope and depth of the compliance review program to encourage full disclosure and improve the effectiveness of the AEC to identify instances of non-disclosure by:

    • better application of risk management techniques;
    • more emphasis on intelligence gathering and analysis;
    • adopting a ‘heavier touch’ approach to support full disclosure, identify instances of non-disclosure, and appropriately enforce non-compliance.
    • While the AEC has implemented a revised approach to select entities for a compliance review on the basis of a risk assessment that takes into account a range of factors, the factors selected have not improved the effectiveness of the AEC to identify instances of non-disclosure, or where false and/or misleading information has been provided.
    • The quantity of compliance reviews planned and conducted since 2015 has substantially declined.
    • Where multiple amendments have been required, or the AEC has been unable to make an assessment as to the accuracy of the return the AEC has not invoked its broader investigatory powers as envisaged.
    • The AEC does not effectively gather and analyse intelligence or use data to build an accurate risk profile of the entities that it is responsible for regulating.
    • The AEC still adopts a ‘light touch’ approach that encourages voluntary compliance with legislated obligations, and does not include a proactive and graduated approach to address non-compliance.

    Not implemented

    Implement a new business model to facilitate broadening the compliance function.

    Facilitate an expanded compliance review program through:

    • the use of random ‘spot checks’;
    • greater use of analytical skills;
    • recruitment of staff with sophisticated financial forensic skills; and
    • a strategic approach to identifying associated entities of political parties.
    • The AEC has implemented a new business model for its compliance program where all returns are checked to identify discrepancies between political party and donor returns.
    • Staffing and workforce requirements initially identified to support the new business model have not been implemented.
    • Projects to implement the new business model have not addressed the intent of this recommendation in full and were never finalised.
    • The AEC has not implemented a strategic approach to identifying associated entities of political parties.

    Not implemented

    Establish a new branch to encompass the party registration, political funding, public disclosure and related compliance functions of the Commission.

    Provide dedicated leadership and integrate the political party registration, disclosure and processing and compliance review functions into a new branch.

    • A new branch was established in late 2013 with a dedicated branch head in January 2014.
    • The new branch completed a work program of review and analysis of existing compliance procedures. While a suite of guidance material was developed, it has not been maintained.
    • The AEC established a Moderating Committee (now Compliance Review Committee) in June 2014 to oversee the selection, planning and conduct of compliance reviews.

    Implemented

    Further develop the specific ICT system as an integrated information management system to serve the needs of all of the elements of the Financial, Assurance and Disclosure (FAD) group.

    Design, develop and implement an information management system capable of receiving, processing and publishing financial disclosure returns, generating and issuing correspondence, capturing and sharing intelligence and supporting the compliance review function.

    • The existing ICT system to lodge, process and publish annual and election returns has not been updated since it was established in 2010.
    • The ICT system does not meet all of the Compliance Team’s information management needs.
    • In December 2016, the Assistant Commissioner Information Technology stated that the significant investment required to redevelop the existing ICT system was not compatible with the AEC’s IT Strategic Plan.
    • At the time of this ANAO performance audit, the AEC was in the process of designing and building a new Self-Service Platform which aims to replace the existing ICT system and address the underlying intent of the recommendation.

    Not implemented

           

    Source: Analysis of AEC documentation

    Appendix 3 List of entities that have not submitted a return as at 30 June 2020

    Table A.2: Entities that have not submitted a return as at 30 June 2020

    ANAO count

    Entity

    Type of entity

    Year of return

    1

    Australia’s First Nations Political Party

    Political party

    2015–16

    2

    Australian Independents

    Political party

    2015–16

    3

    Australian Sovereignty Party

    Political party

    2015–16

    4

    Australian Sports Party

    Political party

    2015–16

    5

    Australian Voice Party

    Political party

    2015–16

    6

    Coke in the Bubblers

    Political party

    2015–16

    7

    Republican Party of Australia

    Political party

    2015–16

    8

    The Wikileaks Party

    Political party

    2015–16

    9

    Uniting Australia Party

    Political party

    2015–16

    10

    Australian Antipaedophile Party

    Political party

    2016–17

    11

    Australian Defence Veterans Party

    Political party

    2016–17

    12

    Australian Motoring Enthusiast Party

    Political party

    2016–17

    13

    Bullet Train for Australia

    Political party

    2016–17

    14

    John Madigan’s Manufacturing and Farming Party

    Political party

    2016–17

    15

    Palmer United Party

    Political party

    2016–17

    16

    21st Century Australia

    Political party

    2017–18

    17

    Australian Cyclists Party

    Political party

    2017–18

    18

    Australian Equality Party (Marriage)

    Political party

    2017–18

    19

    Australian Recreational Fishers Party

    Political party

    2017–18

    20

    Australian Sex Party

    Political party

    2017–18

    21

    Consumers Rights & No Tolls

    Political party

    2017–18

    22

    Country Minded

    Political party

    2017–18

    23

    Drug Law Reform Australia

    Political party

    2017–18

    24

    Family First Party

    Political party

    2017–18

    25

    Family First Party — QLD

    Political party

    2017–18

    26

    Family First Party — SA

    Political party

    2017–18

    27

    Family First Party — VIC

    Political party

    2017–18

    28

    Glenn Lazarus Team

    Political party

    2017–18

    29

    Outdoor Recreation Party (Stop The Greens)

    Political party

    2017–18

    30

    Renewable Energy Party

    Political party

    2017–18

    31

    Smokers Rights Party

    Political party

    2017–18

    32

    Renewable Energy Party

    Political party

    2017–18

    33

    Fraser Anning’s Conservative National Party

    Political Party

    2018–19

    34

    Queensland Teachers Union of Employees

    Third party

    2018–19

    35

    Industry Super Australia

    Political Campaigner

    2018–19

    36

    Coles, Don

    Candidate

    2019 Federal Election

    37

    Cox, Henry

    Candidate

    2019 Federal Election

    38

    Futter, B.J

    Candidate

    2019 Federal Election

    39

    Gaffy, Sean Gordon

    Candidate

    2019 Federal Election

    40

    Hearn, Jeremy

    Candidate

    2019 Federal Election

    41

    Lazarus, Sandra

    Candidate

    2019 Federal Election

    42

    Parker, Jeremy

    Candidate

    2019 Federal Election

    43

    Pecora, Tony

    Candidate

    2019 Federal Election

    44

    Swanson, Kim

    Candidate

    2019 Federal Election

    45

    Turner, John

    Candidate

    2019 Federal Election

    46

    Walker, Peter

    Candidate

    2019 Federal Election

    47

    Wharton, Wayne

    Candidate

    2019 Federal Election

    48

    Marijuana (HEMP) Party/Australian Sex Party

    Senate group

    2016 Federal Election

    49

    Unendorsed

    Senate group

    2016 Federal Election

    50

    Beljica, Nick

    Donor

    2016–17

    51

    Chalmers Legal Studio Pty Ltd

    Donor

    2016–17

    52

    Martin & McMillan Family Trust

    Donor

    2016–17

    53

    NE Management Group Pty Ltd

    Donor

    2016–17

    54

    Yin, Andy

    Donor

    2016–17

    55

    DK Capital Pty Ltd

    Donor

    2017–18

    56

    McGregor, Alexander

    Donor

    2017–18

    57

    Alpha Tax Aid

    Donor

    2018–19

    58

    Australians Against Counterfeit and Contraband Products

    Donor

    2018–19

    59

    Balwyn Lifestyle Centre

    Donor

    2018–19

    60

    Collective Events Pty Ltd T/A Moby Dicks Whale Beach

    Donor

    2018–19

    61

    Jack Ta Pty Ltd

    Donor

    2018–19

    62

    LK Creative Pty Ltd

    Donor

    2018–19

    63

    Sealease Pty Ltd

    Donor

    2018–19

    64

    The Australian Workers’ Union National Office

    Donor

    2018–19

    65

    Zarraffa’s Management Pty Ltd

    Donor

    2018–19

    66

    Eagle, Miriam

    Donor

    2018–19

    67

    Falkiner, Brereton

    Donor

    2018–19

    68

    Gunter, Michael

    Donor

    2018–19

    69

    Melrose, Ian

    Donor

    2018–19

    70

    Molina, D

    Donor

    2018–19

    71

    Sittczenko, Anatolu

    Donor

    2018–19

    72

    Stefanova, Kristina

    Donor

    2018–19

    73

    Strofield, Jonathan

    Donor

    2018–19

    74

    Tyndall, Lewis

    Donor

    2018–19

    75

    Widin, William

    Donor

    2018–19

           

    Appendix 4 Methodology to assess the appropriateness of performance information for the compliance review program

    Table A.3: Methodology for testing performance measures

    Finance guidance

    Assessment type

    Assessment characteristics

    Explanation

    Relevant

    Individual assessment

    Benefit

    The performance criterion clearly indicates who will benefit and how they will benefit from the entity’s activities.

    The performance criterion should explain who will benefit from the activity and how the recipient benefitted.

    Focus

    The performance criterion should address a significant aspect/s of the purpose, via the activities.

    The performance criterion should assist significantly in informing whether the purpose is being achieved, and the attribution of the entity’s activities to it is clear.

    Understandable

    The performance criterion should provide sufficient information in a clear and concise manner.

    The performance criterion should be stated in plain English and signal the impacts of activities to inform users.

    Reliable

    Measurable

    The performance criterion should use and disclose information sources and methodologies that are fit for purpose.

    The performance criterion should be capable of being measured to demonstrate the progress of fulfilling the purpose. This includes documenting a basis or baseline for measurement or assessment, for example a target or benchmark.

    Free from Bias

    The performance criterion should be free from bias and where possible, benchmarked against similar activities.

    The performance criterion should allow for clear interpretation of results and provide an objective basis for assessment.

    Complete / adequate

    Overall assessment

    Balanced

    The performance criteria should provide a balanced examination of the overall performance story.

    The performance criteria should reflect a balance of measurement types (effectiveness and efficiency), bases (quantitative and qualitative) and timeframes (short, medium and long-term).

    Collective

    The performance criteria should collectively address the purpose.

    The performance criteria should demonstrate the extent of achievement against the purpose through the activities identified in the corporate plan.

           

    Source: Auditor-General Report No.17 2018–19, Implementation of the Annual Performance Statements Requirements 2017–18.

    Appendix 5 Glossary

    Associated entity

    An entity must be registered as an associated entity if it meets the definition of an associated entity as outlined in section 287H of the Electoral Act. Section 287H of the Electoral Act defines an associated entity as an entity that is:

    1. controlled by one or more registered political parties;
    2. the entity operates wholly, or to a significant extent, for the benefit of one or more political parties;
    3. the entity is a financial member of a registered political party;
    4. another person is a financial member of a registered political party on behalf of the entity;
    5. the entity has voting rights in a registered political party; or
    6. another person has voting rights in a registered political party on behalf of the entity.

    Political campaigner

    A person or entity (except a political entity, a member of the House of Representatives or Senator) is to register as a political campaigner for the financial year, if:

    1. the amount of electoral expenditure incurred by or with the authority of the person or entity during that or any one of the previous three financial years is $500,000 or more; or
    2. the amount of electoral expenditure incurred by or with the authority of the person or entity:
      1. during that financial year is $100,000 or more; and
      2. during the previous financial year was at least two-thirds of the revenue of the person or entity for that year.

    Third party

    A third party is a person or entity that incurs electoral expenditure more than the disclosure threshold.

    Annual return

    An annual return is a financial disclosure return that covers activity over a financial year. Annual returns are to be lodged by political parties, associated entities, political campaigners, third parties and donors.

    Total receipts

    The total value of all funds received from external entities, including, but not limited to, gifts of money (donations), membership subscriptions, loan monies received, returns on investments, proceeds from the sale of assets, public funding provided by the Commonwealth or a State or Territory, and discretionary benefits provided by the Commonwealth or a State or Territory.

    Gifts-in-kind

    Gifts-in-kind include goods or services received for which no payment (in cash or kind) or inadequate consideration is made. Examples include, but are not limited to free/discounted services such as legal advice, accounting services, use of premises, equipment and facilities, use of a vehicle, fuel and/or maintenance, production services by a broadcaster, advertising, air travel, and printing. The value of the gift-in-kind is to be calculated and disclosed using the fair value method.

    Receipts over the threshold

    Receipts over the threshold are all (funds received from external entities where the individual transaction is over the disclosure threshold). For each person or entity, the following details must be disclosed:

    1. full name and address details of the person or organisation from whom the funds or gift-in-kind was received;
    2. the sum of amounts received from that person or organisation (details of individual amounts received from the same source that are less than the disclosure threshold are not required to be disclosed);
    3. whether the receipt is a ‘donation’ or ‘other receipt’.73

    Payments

    Payments include, but are not limited to, salaries, administrative expenses, purchase of assets, electoral expenses, loan repayments, bank charges, service fees. The total payments figure is reported as a single line item in the annual return.

    Debts

    Debts include, but are not limited to, loans, overdrafts, unpaid accounts, and other liabilities including superannuation payable, and GST and PAYG debts payable to the ATO.

    Debts above the threshold

    The details of all outstanding debts greater than the disclosure threshold owed to a person or entity as at the last day of the relevant financial year. The details required to be disclosed are the full name and address of the person or organisation that the debt is owed to (the creditor), the amount that is owed, and whether the debt is owed to a financial or non-financial institution.

    Electoral expenditure

    Electoral expenditure is to be reported by political campaigners and third parties in their annual returns and by candidates and senate groups in their election returns. Electoral expenditure means expenditure incurred for the dominant purpose of creating or communicating electoral matter.

    Electoral matter

    Electoral matters means matter communicated or intended to be communicated for the dominant purpose of influencing the way electors vote in an election.

    Discretionary benefits

    Discretionary benefits include grants, contracts, payments and other benefits requiring the exercise of discretion by the Commonwealth or State or Territory.

    Capital contributions

    Capital contributions are amounts paid to or for the benefit of one or more political parties paid out of funds generated from capital of the associated entity.

    Election return

    Election returns are to be furnished by candidates, senate groups and election donors for an election or by-election. Election returns are to be provided within 15 weeks after the polling day for the relevant election or by-election. For the 2019 federal election this date was 2 September 2019. Election returns cover the period that the person was a candidate or member of a senate group in an election or by-election, commencing the day a person announced or was nominated as a candidate, or the day that members of a group make a request under section 168 of the Electoral Act for their names to be grouped in the ballot papers for an election or by-election, and ceasing 30 days after polling day.

    Candidates

    A candidate is a person who has been nominated as a candidate in an election or by-election.

    Senate groups

    Senate groups are a group of two or more candidates nominated for election to the Senate who have their names grouped in the ballot papers in accordance with section 168 of the Electoral Act.

    Election donors

    A person or entity that made a donation/s to a candidate or member of a Senate group in an election or by-election over the disclosure threshold.

       

    Footnotes

    1 Entities in the electoral process that receive funding include registered political parties and the state and territory branches of registered political parties.

    2 Entities in the electoral process that provide funding include associated entities, third parties, and donors.

    3 Entities in the electoral process that incur electoral expenditure include third parties and political campaigners.

    4 See Second reading speech of the Electoral Legislation Amendment Bill in November 1983, p. 58.

    5 ANAO analysis identified that for the 2016 federal election $325,340 in funding provided to political parties by the AEC was not disclosed as required in the 2016–17 annual returns lodged by the relevant political party. The under reporting principally related to nine political parties that did not initially disclose the funding as a ‘receipt above the threshold’. The oversight was not identified by the AEC until April 2018. Across seven by-elections and the 2019 federal election held in 2018–19, 28 political parties received $54 million in funding that was required to be disclosed as a ‘receipt over the threshold’. The ANAO has examined the amount of electoral funding provided and the returns submitted by all political parties that received funding and identified two that have not disclosed $73,441 in funding that they received as required.

    6 Entities in the electoral process that receive funding include registered political parties, state and territory branches of registered political parties, and candidates.

    7 Entities in the electoral process that provide funding include associated entities, third parties, and donors.

    8 Entities in the electoral process that incur electoral expenditure include third parties and political campaigners.

    9 Registered political parties and the state and territory branches of registered political parties, associated entities, and political campaigners are required to submit annual financial disclosure returns 16 weeks after the end of each financial year. For 2018–19, the due date for annual financial disclosure returns was 21 October 2019. For third parties and donors annual financial disclosure returns are due 20 weeks after the end of the financial year. For 2018–19 the due date for financial disclosure returns was 18 November 2019.

    10 Election returns are required to be submitted 20 weeks after each election event. For the 2019 federal election, election returns were due 2 September 2019.

    11 In 1983, the Electoral Act was amended to introduce a new Part, Part XVI — Election Funding and Financial Disclosure. The provisions in this new part of the Electoral Act required political parties, candidates, and groups of candidates to disclose donations (referred to as ‘gifts’) and the amount of electoral expenditure incurred.

    12 An associated entity is defined in Section 287H of the Electoral Act.

    13 The disclosure threshold is the dollar value of donations that can be made before they are required to be disclosed.

    14 The Electoral and Referendum Amendment (Electoral Integrity and Other Measures) Act 2006 also increased the tax deductible threshold for political donations from $100 to $1500 per year.

    15 For the purposes of the financial disclosure scheme the relevant provisions and associated changes to the Electoral Act that were made in November 2018 came into effect on 1 January 2019.

    16Electoral Legislation Amendment (Electoral Funding and Disclosure Reform) Act No.147, 2018.

    17 The Compliance Review Committee was established as part of the AEC’s efforts to implement Recommendation no.1 and no.2 of the McLeod review (see further information at paragraphs 3.3 to 3.5).

    18 Module four of this project is intended to deliver a funding and disclosure portal.

    19 See second reading speech of the Electoral Legislation Amendment Bill in November 1983, p. 58.

    20 ANAO analysis identified that for the 2016 federal election $325 340 in funding provided to political parties by the AEC was not disclosed as required in the 2016–17 annual returns lodged by the relevant political party. The under reporting principally related to nine political parties that did not initially disclose the funding as a ‘receipt above the threshold’. The oversight was not identified by the AEC until April 2018. Across seven by-elections and the 2019 federal election held in 2018–19, 28 political parties received $54 million in funding that was required to be disclosed as a ‘receipt over the threshold’. The ANAO has examined the amount of electoral funding provided and the returns submitted by all political parties that received funding and identified two parties that have not disclosed $73 441 in funding that they received as required.

    21 Subsection 316(3A) of the Commonwealth Electoral Act https://www.legislation.gov.au/Details/C2019C00103 can be invoked where an authorised officer has ‘reasonable grounds’ to believe that a person is capable of producing documents or other things, or giving evidence, relating to whether another person or an entity is, or was at a particular time, a political campaigner, third party or associated entity.

    22 The two entities identified by the AEC that may be associated entities are the Democratic Reform Movement and the Defenders of Self-Funded Retirees.

    23 The introduction of this power was intended to enable the AEC to compel an entity to produce evidence in order to draw a conclusion on the operations of that entity, when not available on the public record or provided by the entity upon request.

    24 The five entities are Family Voice, Canberra Declaration, the Real Estate Institute of Australia, the Property Investors Council of Australia, and The Ally Network.

    25 The two entities that the AEC did not provide a response for are Unions ACT and Pathology Providers of Australia.

    26 Industry Super Australia de-registered as a political campaigner on 7 May 2019.

    27 Pesec Limited was not identified by the AEC has a potential political campaigner, was not listed on the transparency register as at January 2020, however submitted an annual return in October 2019.

    28 The Australian Transaction Reports and Analysis Centre advised that its information could be accessed by the AEC and used to: support the management of the financial disclosure scheme in relation to the identification of parties with disclosure obligations; identify environmental risks; inform its risk assessment processes used to select entities for a compliance review; and support AEC efforts to investigate and identify potential non-compliant behaviours.

    29 For example, for 2018–19 the AEC process for political parties was to involve reminder letters being sent on 4 September 2019 where a report had not yet been received. This did not occur. Rather, reminder letters were sent to 191 entities between 1 October and 11 October 2019.

    30 The Democratic Labour Party — WA Branch.

    31 The four associated entities are the CFMMEU — Maritime Union of Australia, the Nepean Club, YLNP No.1 Ltd (James Killen Foundation) and the Chinese Liberals Association.

    32 While the AEC’s returns management system identified that this entity had donor reporting obligations that were not met on time, in August 2020 the AEC advised the ANAO that ‘the entity had no obligation to lodge a donor return in any of the four years. The entity is named on returns as providing ‘other receipts’ above the threshold and one donation in 2015–16 of $1,999 which does not require disclosure’.

    33 This includes 32 political parties that between 2015–16 and 2017–18 deregistered partway through a financial year, and were not asked by the AEC to submit an annual financial disclosure return. Some later re-registered. For example, the Palmer United Party deregistered in May 2017. The AEC did not send a legal obligation letter seeking a return for the 11 months of the 2016–17 financial year it was registered for and the party did not provide an annual financial disclosure return. In December 2018, the Palmer United Party re-registered under the name United Australia Party, now Clive Palmer’s United Australia Party.

    34 Associated entities can have a dual reporting obligation where they incur electoral expenditure. Where this occurs an associated entity is to submit an associated entity return and a third party return.

    35 For political parties the party agent is the correct signatory, for associated entities, third parties and political campaigners the financial controller is the correct signatory.

    36 After each election, the AEC provides funding to independent candidates or those endorsed by a political party that received at least four per cent of formal first preference votes cast in the electorate contested by that candidate.

    37 The twelve political parties are the Liberal Party of Australia, Australian Labor Party, Australian Greens, the National Party of Australia, Pauline Hanson’s One Nation Party, Nick Xenophon Team (Centre Alliance), Derryn Hinch’s Justice Party, Christian Democratic Party, Family First, Country Liberals (Northern Territory), Katter’s Australian Party and Australian Recreational Fishers Party.

    38 The nine parties that received electoral funding amounts above the disclosure threshold and did not include it as a receipt over the threshold in their disclosure return were the Rise Up Australia Party, Jacqui Lambie Network, Glenn Lazarus Team, Liberal Democratic Party, Animal Justice Party, Australian Christians, Shooters Fishers and Farmers Party, Bullet Train for Australia and Australian Liberty Alliance.

    39 The six parties that the AEC wrote to in April 2018 were the Rise Up Australia Party, Jacqui Lambie Network, Liberal Democratic Party, Animal Justice Party, Australian Christians and Australian Liberty Alliance.

    40 The three parties that the AEC did not contact are the Glenn Lazarus Team, Shooters Fishers and Farmers, and Bullet Train for Australia.

    41 See note a on Table 2.6.

    42 The seven election events were the Braddon, Longman, Mayo, Perth and Fremantle by-elections held in July 2018, the Wentworth by-election in October 2018 and the Federal Election in May 2019.

    43 The Liberal Democratic Party has not disclosed $34 991 and Pauline Hanson’s One Nation Party has not disclosed $38 450 in funding provided by the AEC.

    44https://www.acnc.gov.au/charity [accessed 13 May 2020].

    46 Prior to January 2019, subsection 316(2A) of the Electoral Act allowed for compliance reviews to be conducted on the election returns lodged by donors to candidates at federal elections (these donors being the only category of persons captured as ‘prescribed persons’ under subsections 17A(2) and 17(2) of the Electoral Act.

    47 For example, the value of the disclosures identified in the annual returns submitted in 2017–18, will be compared with the value of the disclosures identified in the 2016–17 annual return.

    48 The $5 million dollar threshold was one of the 11, now seven, tests to identify anomalies.

    49 The AEC’s risk management framework identifies that it has a low/moderate tolerance for risks associated with the disclosure function.

    50 Of the 16 matters, 13 are funding and disclosure specific, one is a report of possible electoral corruption, one relates to electoral funding and one to political donations.

    51 The information provided was in relation to the use of an aeroplane by Pauline Hanson’s One Nation Party in the 2016 federal election and the investigation conducted by the AEC into the matter.

    52 52 The AEC’s Compliance Handbook details the AEC’s approach to planning and conducting compliance reviews.

    53 In March 2020, the AEC advised the ANAO that: ‘It has been a long standing practice that as returns are not due until the end of October, following which some discrepancy work is done and late returns followed up, the compliance program aims to begin as close as possible to the start of a calendar year in relation to the previous financial year’s returns. Recent compliance programs have had delayed starts for a combination of reasons — delays in completing the work necessary to approve all returns, analysing and making modifications to the risk matrix, staffing.’

    54 Under the Australian Auditing Standards, agreed upon procedures involve undertaking procedures agreed by the client (that is, it is not fully independent) and factual findings are to be reported but no conclusion or opinion is to be expressed and no assurance is provided by the practitioner.

    55 The compliance review program is generally approved in the first quarter of the new calendar year.

    56 Political parties may have a decentralised network of party units that account for a portion of their finances. Party units are local branches, campaign committees, and electorate/election committees.

    57 In 2015, two limited reviews were allocated a budget of 150 hours and in 2016 one limited review was allocated a budget of 250 hours. The two limited reviews in 2015 allocated a budget in excess of 100 hours were two unions. The Australian Workers Union SA Branch and Construction, Forestry, Mining, Energy Union — ACT. In 2016, one limited review was allocated a budget of 250 hours for the Liberal Party of Australia — N.S.W Division.

    58 A total of 65 full scope reviews were planned for 2015 and 2016.

    59 The relevant Australian Auditing Standard is ASA 500 — Audit Evidence.

    60 There are three reviews where the planned scope is unknown.

    61 Small entities are those where the total receipts figure in the disclosure return is no greater than 10 times the disclosure threshold. For example, for the 2016 compliance reviews undertaken on 2014–15 disclosure returns, the disclosure threshold was $12,800 in 2014–15. Therefore, an entity would be categorised as small in 2014–15 if the total receipts disclosure was equal to or less than $128,000.

    62 Medium entities are those where the total receipts are less than $2,500,000 but greater than the total receipts figure for small entities.

    63 Large entities are defined as those where the total receipts exceed $2,500,000.

    64 The categories were established on the basis of total receipts disclosed by known political parties and associated entities in 2014.

    65 The AEC commenced online publishing of the final reports of compliance reviews from the 2017 program onwards.

    66 Prior to November 2018, subsection 315(1) of the Electoral Act made it an offence to fail to furnish a return. The offence was categorised as a strict liability offence. A strict liability offence is an offence where there are no fault elements for any of the physical elements of the offence; and the defence of mistake of fact is available. In November 2018, failing to lodge a return is captured in each section of the Electoral Act that relates to a specific electoral participant. Political parties and political campaigners are captured in section 314AB. Associated entities are captured in section 314AEA. Third parties are captured in section 314AEB. A civil penalty regime applies to political parties, political campaigners, associated entities and third parties.

    67 Subsection 316(5) of the Electoral Act makes it an offence for a person to refuse to comply with a notice issued under subsection (316(2A), 316(3) or 316(3A)) to the extent that the person is capable of complying with the notice.

    68 As stated in paragraph 3.47, the AEC specifically states in its guidance that it does not provide an opinion on the adequacy of the internal controls.

    69 To conduct an investigation the AEC is able to issue a notice to a person or organisation in accordance with subsection 316(3) of the Commonwealth Electoral Act, where the AEC has reasonable grounds to believe that a person or organisation is capable of producing documents or other things or giving evidence relating to a contravention, or possible contravention, of a civil penalty provision […] relating to matters that are set out in, or required to be set out in, a claim or return […].

    70 The investigation into Pauline Hanson’s One Nation Party was instigated as a result of a media segment aired on the ABC’s Four Corners program on 3 April 2017.

    71 The investigation into Get Up Pty Ltd was instigated as a result of documents tabled at a public hearing of the Joint Standing Committee on Electoral Matters in November 2016, including ‘how-to-vote’ cards distributed by Get Up for the 2016 federal election.

    72 The 2016 compliance review program was conducted on 2014–15 annual returns.

    73 An ‘other receipt’ is a receipt that does not meet the definition of a donation (‘gift’). A gift is defined at Section 287 of the Commonwealth Electoral Act 1918 as any disposition of property made by a person to another person, being a disposition made without consideration in money or money’s worth or with inadequate consideration, and includes the provision of services for no consideration or for inadequate consideration.