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Part 1 — Foreword by the Auditor-General

I am pleased to present this annual report to the Parliament. The latter half of this year has been unprecedented in its disruption, but the Australian National Audit Office (ANAO) continues to meet its mandate under the Auditor-General Act 1997 through the delivery of high quality audit and assurance reports.

The ANAO Corporate Plan 2019–20 outlined the ANAO’s key performance measures for the activities which contribute to achieving its purpose, alongside its delivery strategy. Each year the corporate plan is complemented by an annual audit work program (AAWP), which is designed to include balanced coverage of portfolios and activities across the public sector.

The ANAO’s performance during 2019–20 is reported on in detail in Part 3: Report on Performance. A total of 184 findings were reported to entities as a result of financial statements audits. I am pleased to see that the quality of financial reporting remains strong throughout the sector. In 2019–20, 42 performance audit reports were tabled against a target of 48. The reduction was a reflection of budget constraints (which will continue to reduce the ANAO’s capacity to deliver performance audits into the future), delays due to the COVID-19 pandemic (which creates challenges in entity engagement on audits and accessing information) and funding allocated to pilot assurance audits of annual performance statements. This impact will flow into 2020–21. Of the performance audits commenced in 2019–20, we achieved the intended coverage outlined in the AAWP with a focus on service delivery, performance against objectives and the implementation of past recommendations. This year also included a focus on fraud, and integrity and probity in governance, following significant cultural issues in organisations highlighted in 2018–19 by the Financial Services Royal Commission. Performance audits in the future will continue to consider the cultural attributes impacting on entity performance. I expect this to include an increase in our focus on the ethical dimension in the proper use or management of public resources under the Public Governance, Performance and Accountability Act 2013 (PGPA Act).

In 2019 the Minister for Finance requested that the ANAO undertake a program of pilot assurance audits of annual performance statements of Commonwealth entities subject to the PGPA Act, in consultation with the Parliament’s Joint Committee of Public Accounts and Audit (JCPAA). I agreed to the request and a pilot audit of the 2019–20 performance statements of three entities is underway. Subject to the outcome of the pilot, the full implementation of mandatory auditing of entity performance statements would give the Parliament the same level of assurance over non-financial performance information that it currently receives for financial performance information. I expect this to result in improvements in the quality of performance information provided to Parliament. While the ANAO is meeting the costs of conducting the pilot program through a reduction in the number of performance audits undertaken, transition to full implementation will require additional budget funding.

As previously forecast, the ANAO budget is in loss for the third year in a row. This is in part due to investment in new ways of working, including technologies that will improve the efficiency of the ANAO. The deficit also reflects our transition to a lower funding base. Without supplementary appropriations, the number of performance audits tabled in the Parliament will continue to reduce. On this basis, I have written to the Prime Minister to propose that the ANAO’s funding is put on a more sustainable basis to meet both mandated financial statements audits and the suite of performance and other reports which are provided to Parliament to achieve transparency and accountability in the Australian Government sector.

On 16 March 2020 the ANAO’s Business Continuity Management Plan, and Pandemic Action Plan, were activated in response to the COVID-19 pandemic. I wrote to the Public Service Commissioner on 30 March, following a direction made to the Public Service by the APS Commissioner on 27 March, indicating that ANAO operations were critical to supporting accountability and transparency. As a result, ANAO staff were not redeployed to government pandemic response measures. Due to prior year investments in technology, staff were well placed to work remotely. Entities also assisted the ANAO by making remote access to financial systems available to enable audit work to continue. Auditor-General reports continued to be presented for tabling in the Parliament through out of session arrangements in the Senate. During April 2020 I implemented an engagement ‘pause’ for performance audits in recognition of the work that audited entities were undertaking to adjust to new working arrangements and, for many, implementing the COVID-19 related measures announced by the Australian Government.

The ANAO commenced monthly assurance reviews of Advances to the Finance Minister given the size of advances available (in the order of $40 billion), and to provide the Parliament with timely assurance and transparency of the Australian Government’s pandemic response. In 2019–20, the ANAO presented two assurance reviews. The ANAO has released a multi-year COVID-19 audit strategy as part of the 2020–21 AAWP consultation process. The strategy outlines how the ANAO will respond to the COVID-19 pandemic in three phases:

  • Phase 1 – Four ‘in-flight’ topics that commenced before 30 June 2020. The four topics are:
    1. The ATOs management of risks related to the rapid implementation of COVID-19 economic response measures;
    2. Management of the Australian Public Service’s workforce response to COVID-19;
    3. Procurements to increase the National Medical Stockpile; and
    4. Services Australia COVID-19 measures and enterprise risk management.
  • Phase 2 – will focus on: policy design; implementation (including risk management); and performance assessment including evaluation and dissemination of lessons learned.
  • Phase 3 – will review the outcomes of the Australian Government’s COVID-19 response and consider whether government objectives were met through the response measures.

Early audits will have a strong focus on risk management in the sector: risk emerging from rapid design and implementation; how entity risk appetite has changed and how new risk tolerance levels have been articulated and actioned; and strategies being put in place to achieve acceptable levels of compliance.

The audit program will need to be flexible given the emergence of new policies developed or adjusted as the pandemic continues, including through the Federal Budget in October 2020. Nonetheless, the COVID-19 strategy outlined in the AAWP gives a sense of the broad scope of possible audits into government policies and programs. An important consideration in our program will be the opportunity to identify lessons learned. COVID-19 risk management will also be considered in the scope of, where relevant, those audits listed in the 2020–21 Annual Audit Work Program.

In the longer term, the audit program will need to address the delivery of the intended outcomes of the COVID-19 response, including at a macro level, and we will plan for audits of recovery programs. This will be documented in future AAWP.

Through our work to date on financial audits during the pandemic, we are seeing issues emerging which may well provide challenges to entities in preparation of financial statements. These issues include material uncertainties arising in asset valuations and difficulties in performing inventory stocktakes. We expect that entities and their audit committees will turn their minds to risks in financial management, and ensure that the accounting treatment and disclosures are appropriate for the Parliament to understand these risks and uncertainties.

During 2019–20 the ANAO appeared before, and responded to questions from, a range of parliamentary committees, including the Senate’s Select Committee on Administration of Sports Grants. The administration of grants is a regular performance audit focus for the ANAO. This program was selected because it was administered by a corporate commonwealth entity not subject to the Commonwealth Grants Rules and Guidelines. For the public sector there are strong lessons in grants management and general administration that come from this audit. They go to the core public sector values of being apolitical and providing the Australian Government with advice that is frank, honest, timely and based on the best available evidence. A major issue, which I believe remains unresolved, relates to how a minister can be the decision-maker with respect to the resources of a corporate entity. As corporate entities are established with the purpose of them being legally separate, this is a critical question for the operation of the public sector’s financial and resource management framework.

In the course of the select committee’s inquiry, numerous requests for audit information have been made. The legislative and policy framework in which the Auditor-General and ANAO operate reinforces that the Auditor-General and ANAO are custodians of documents belonging to others. The documents are collected for audit purposes in order for the Auditor-General to form conclusions against the objectives of the audit according to auditing standards. It would be inconsistent with this framework for the ANAO to become an alternate source for the release of information that is the subject of a public interest immunity claim by the information owners.

The ANAO regards integrity as a core value of the organisation — critical in sustaining the confidence of Parliament, strengthening public trust in government and delivering quality audit and assurance reports pursuant to the Auditor-General Act 1997. As part of the ANAO’s 2019–20 Corporate Plan, we committed to investing further in integrity as a key organisational capability through the development of an Integrity Framework. The framework consolidates and provides an overarching structure to the existing ANAO integrity control system and serves to assist in ethical decision making and effective management of risk, fraud and personal conduct.

Grant Hehir