- Introduction
Background
1.1The Consolidated Financial Statements are prepared each year by the Department of Finance and issued by the Minister for Finance. They present the consolidated whole-of-government financial results for all Australian Government-controlled entities, as well as for the General Government Sector.
1.2The Australian National Audit Office (ANAO) publishes two reports annually that independently examine the financial accounting and reporting by Commonwealth entities. These reports provide insights into the risks, governance arrangements and internal control frameworks of these agencies as follows:
- Interim Report on Key Financial Controls of Major Entities: reports on specific entities’ internal controls (approximately 24 entities, known as ‘controls entities’), including IT system controls, to support the preparation of financial statements that are free from misstatement
- Audits of the Financial Statements of Australian Government Entities: reports on the results of the financial statements audits of all Commonwealth entities (approximately 250 entities) and the Australian Government’s Consolidated Financial Statements.
- Audit findings are raised by the ANAO in response to the identification of a potential business or financial risk posed to an entity. Often these risks arise from deficiencies within an entity’s internal control processes or frameworks. Weaknesses in internal controls increase the possibility that an entity will not prevent or detect a material misstatement in its financial statements in a timely manner.
Conduct of the inquiry
1.4Under section 8(1) of the legislation establishing the Joint Committee of Public Accounts and Audit (JCPAA), the Public Accounts and Audit Committee Act 1951, one of the duties of the Committee is to ‘examine all reports of the Auditor-General (including reports of the results of performance audits) that are tabled in each House of the Parliament’. The Committee is empowered to ‘report to both Houses of the Parliament, with any comment it thinks fit, on any items or matters in those reports, or any circumstances connected with them, that the Committee thinks should be drawn to the attention of the Parliament’.
1.5On 24 January 2023, the JCPAA resolved to conduct an inquiry into any matters contained in and associated with Auditor-General Report No. 8 of 2022-23: Audits of the Financial Statements of Australian Government Entities for the Period Ended 30 June 2022.
1.6The inquiry received 17 submissions and 3 supplementary submissions (see Attachment A) and conducted three public hearings (see Attachment B).
Auditing of the Commonwealth Financial Statements
1.7The ANAO’s final report for the period 2021–22 examined the Consolidated Financial Statements and financial statements of 248 Australian Government entities. The overall findings of the ANAO audit are indicated below.
1.8The ANAO issued 237 unmodified auditors’ reports, including the Consolidated Financial Statements, and one modified auditors’ report. From the audits of entities’ financial statements, a total of 175 findings were reported to entities.
1.9A breakdown of the type and number of findings made, compared to the previous year, is provided in Figure 1.1. A detailed list of moderate and significant findings is provided at Attachment C.
1.10From the audit of the Australian Government’s Consolidated Financial Statements, there were no significant or moderate audit issues identified in 2021–22. The highest number of significant and moderate findings were in the categories of:
- IT security management and user access
- Accounting and control of non-financial assets.
- The ANAO noted in its 2021–22 report, compared to 2020–21:
- an increase in findings related to processes supporting financial statements preparation
- a decline in the delivery of draft financial statements in line with entity financial statements project plans
- an increase in the number of unadjusted audit differences (misstatements that have not been corrected in the signed financial statements)
- an increase in overall total value of unadjusted audit differences reported to entities.
Figure 1.1Comparison of findings between the past two ANAO audit reports on the Commonwealth Financial Statements
Source: Auditor-General Report No. 8 of 2022-23: Audits of the Financial Statements of Australian Government Entities for the Period Ended 30 June 2022.
Areas of focus in the inquiry
1.12Although a number of issues were raised by the ANAO in its audit report (see Attachment A), the Committee has focussed on three areas in this present inquiry as follows.
Financial sustainability
1.13The ANAO concluded from its audit that that the financial sustainability of the majority of entities was not at risk but that there were some areas for improvement. The ANAO stated that there would be benefit in the Government developing performance targets or benchmarks for entities to assess and compare their financial sustainability.
1.14The Committee held hearings to further investigate financial sustainability issues that had been raised for the Department of Home Affairs, the Department of Agriculture, Fisheries and Forestry, and the National Disability Insurance Agency. These agencies appeared alongside the ANAO and Department of Finance (Finance).
Defence’s use of appropriations
1.15The ANAO reported in its Financial Statements audit that the Department of Defence (Defence) had used funding available from Appropriation Act (No. 2) 2020-21 for the termination payment in relation to the cancelled Attack Class submarine project. The ANAO queried whether this use of non-operating funding as operating expenditure was consistent with the intention of the Parliament when passing the Act. The ANAO noted that advice from the Australian Government Solicitor and Finance had been that the use of these funds in this way was not inconsistent with the Appropriation Acts.
1.16The Committee investigated this issue further at a public hearing with ANAO, Finance and Defence.
The Protective Security Policy Framework
1.17The Protective Security Policy Framework (PSPF) managed by the Attorney-General’s Department (AGD) was an area of focus for the ANAO in its Financial Statements audit. The PSPF is a set of guidelines and principles designed to help Commonwealth organizations protect their information, assets, and people from various security risks. The ANAO has found that some government entities had not conducted the timely removal of IT user access and highlighted this as a potential security threat to systems and information across the Commonwealth.
1.18The Committee conducted a hearing with ANAO, AGD, and the Australian Signals Directorate (ASD) to explore this issue further.