The work of the ANAO is mainly funded by government appropriation, with a small amount of revenue generated from audit fees paid by clients for audits by arrangement under section 20 of the Auditor-General Act 1997. Audit fees are set to recover the expenses incurred as part of paid audits.

Overview of financial performance and future financial viability

The ANAO reported a total comprehensive income loss of $5.548 million in 2019–20. Excluding the impact of depreciation, the ANAO’s result for the 2019–20 financial year was an operating deficit of $3.117 million (Figure 3.1).

The ANAO’s revised budget submission to the JCPAA for the 2019–20 financial year reflected that any further savings measures applied to the ANAO that reduced the funding base would impact on our ability to deliver the planned audit program. This required the ANAO to seek approval from the Minister for Finance for an operating loss for 2019–20 by virtue of accessing the prior-year unspent appropriations to meet resourcing pressures, which was approved by the minister on 8 May 2020.

The ANAO had built up its reserves by conservative budget management, including by limiting expenditure on investments. Use of reserves has been focussed on investment in activities to improve future business delivery. Options for efficiency and productivity have been explored and implemented or are in the process of being implemented; however, they are not keeping pace with reductions to appropriation while the costs of delivering quality audit products continue to increase. The ANAO is now in a position where, in order to deliver the mandated financial statement audit functions, we need to reduce the number of discretionary performance audits provided to the Parliament.

The 2019–20 operating result was impacted by two factors – ongoing cost increases relating to increased complexity of auditing, and the ANAO’s accommodation and IT projects. These expenses were in line with management expectations and the budgeted operating deficit of $3.400 million, excluding depreciation approved by the Minister for Finance. Given the volume of Commonwealth information collected by the ANAO, it is imperative that our IT systems are maintained at a level capable of searching, analysing and storing this information, and applying appropriate security controls. This, along with increasing complexity of government entity transactions and activities, increasing numbers of Commonwealth corporate entities, and higher market costs for audit services and qualified resources, have been key cost drivers for the ANAO. It is also imperative that the quality of our audit work is maintained over time, particularly in an environment where extracting evidence is becoming more complex and dependent on use of technology-based tools, where and scrutiny of audit findings is increasing. The ANAO’s accommodation project was completed during 2019–20, with the ANAO moving into its new premises in December 2019.

The impact of the COVID-19 pandemic on the ANAO’s budget position saw a reduction in travel and training expenses in the final quarter of 2019–20, in line with government travel restrictions and social distancing requirements. The reduction was partially offset by increases in IT costs to enable ANAO staff to work remotely. These reduced travel and training expenses have resulted in a small reduction to the approved budgeted operating deficit of $3.400 million.

The operating deficit of $3.117 million was also impacted by the bond rate movement and adjustments to the ANAO’s employee benefits provisions.

Figure 3.1: Operating result, excluding depreciation and amortisation, 2015–16 to 2019–20

Expense impacts

The ANAO consistently spends most of its budget on employee related expenses, contractors and consultants. All positions are Canberra based, predominantly undertaking audits on key portfolio and material agencies. The ANAO also engages contractors, under the supervision of senior staff at the ANAO, within and at locations outside of Canberra to undertake audits of entities. ANAO staff travel to interstate locations to maintain appropriate oversight and quality assurance processes over these audits, including attendance at entity audit committees.

Where required, the ANAO also engages contractors and consultants such as valuers and actuaries to provide expertise required to complete the audit program. In 2019–20 contractors and consultants for non-audit services were engaged to fill key resourcing gaps and provide the ANAO with the right technical expertise to deliver its Accommodation and IT projects.

The ANAO’s total expenses for 2019–20 were $77.155 million excluding depreciation.

Figure 3.2: Expenses by type, 2019–20

Financial position

The ANAO’s overall financial position continued to remain sound in 2019–20.

• Total assets increased as at 30 June to $73.221 million; and
• Total liabilities increased to $50.942 million.

The substantial increase in the ANAO’s assets and liabilities during 2019–20 was primarily driven by the adoption and implementation of the new accounting standard AASB 16 – Leases, which recognises leases as a right-of-use asset, with a corresponding interest bearing liability.

Excluding the impact of AASB 16 – Leases, the majority of the ANAO’s assets and liabilities are financial assets, with the largest balance being appropriation receivable ($23.771 million). The ANAO’s appropriation receivable has reduced by $12.411 million since 2018–19, reflecting the use of the accumulated reserves to fund the Accommodation and IT Transformation Projects and the ANAO’s operating loss.

Excluding the impact of AASB 16 – Leases, the majority of the ANAO’s liabilities are comprised of employee provisions ($12.696 million) and payables ($3.606 million). The ANAO’s employee provisions have increased by $0.931 million in 2019–20, due to a change in probability factors and discount rates based on a report provided by the Australian Government Actuary, and the impact of the bond rate adjustment.

The ANAO continues to operate with sufficient cash reserves to fund its liabilities and commitments as and when they fall due.

Revenue impacts

Government revenue from departmental and special appropriations decreased between 2018–19 and 2019–20 by $0.781 million to $69.236 million.

Own-source revenue in 2019–20 was $4.879 million, $0.894 million more than the own-source revenue earned in 2018–19. The increase in own-source revenue was primarily due to an increase in audits by arrangement under section 20 of the Auditor-General Act 1997 ($0.851 million).

Entity resource statement

The entity resource statement provides additional information about the various funding sources that the ANAO may draw upon during the year. Appendix C details the resources available to the ANAO during 2019–20 and sets out the ANAO’s summary of total expenses for Outcome 1.