To the Minister for Education

Opinion

In my opinion, the financial statements of the Department of Education (‘the Entity’) for the year ended 30 June 2019:

(a) comply with Australian Accounting Standards – Reduced Disclosure Requirements and the Public Governance, Performance and Accountability (Financial Reporting) Rule 2015; and

(b) present fairly the financial position of the Entity as at 30 June 2019 and its financial performance and cash flows for the year then ended.

The financial statements of the Entity, which I have audited, comprise the following statements as at 30 June 2019 and for the year then ended:

• Statement by the Accountable Authority and Chief Financial Officer;
• Statement of Comprehensive Income;
• Statement of Financial Position;
• Statement of Changes in Equity;
• Statement of Cash Flows;
• Administered Schedule of Comprehensive Income;
• Administered Schedule of Assets and Liabilities;
• Administered Reconciliation Schedule;
• Administered Cash Flow Statement; and
• Notes to and forming part of the financial statements, comprising a Summary of Significant Accounting Policies and other explanatory information.

Basis for opinion

I conducted my audit in accordance with the Australian National Audit Office Auditing Standards, which incorporate the Australian Auditing Standards. My responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of my report. I am independent of the Entity in accordance with the relevant ethical requirements for financial statement audits conducted by the Auditor‐General and his delegates. These include the relevant independence requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) to the extent that they are not in conflict with the Auditor‐General Act 1997. I have also fulfilled my other responsibilities in accordance with the Code. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my opinion.

​

Key audit matters

Key audit matters are those matters that, in my professional judgement, were of most significance in my audit of the financial statements of the current period. These matters were addressed in the context of my audit of the financial statements as a whole, and in forming my opinion thereon, and I do not provide a separate opinion on these matters.

Key audit matter

Valuation of the Higher Education Loan Program (HELP) receivable

Refer to ‘Overview – Significant Accounting Judgements and Estimates - Higher education loan program’, Note G2.3 ‘Fair value gains, and Note H1.2 Receivables - Advances and loans’

I focused on the Entity’s HELP receivable as the valuation of the receivable involves significant and complex judgements about the timing and recoverability of HELP debts.

These judgements include assumptions about discount factors, future employment and salary rates and future collectability of repayments that contain a significant degree of uncertainty and are influenced by the economic environment.

The receivable is subject to an actuarial assessment and relies on the completeness and accuracy of taxation data and information provided by a number of universities.

During 2018-19 the Entity recognised a HELP receivable of $50.0 billion, and fair value gains of $5.6 billion.

How the audit addressed the matter

To address this key audit matter, I:

• evaluated the design and operating effectiveness of key actuarial controls, including data reconciliations and the Entity’s review and approval of the estimate;
• understood and evaluated the reasonableness of the Entity’s actuarial methodology. This included considering the work and findings of the external actuarial expert engaged by the Entity; and
• assessed the reasonableness of key actuarial assumptions by comparing them with accepted industry benchmarks for discount rates and salary growth rates in a range of occupations.

Key audit matter

Valuation of Higher Education Superannuation Program (HESP) provision

Refer to Note ‘Overview – Significant Accounting Judgements and Estimates - Higher education superannuation program’, Note G1.7 ‘Fair value losses’, and Note H3 ‘Provisions’

I focused on the HESP liability as the valuation of the provision is complex and involves significant judgement about the value of the Commonwealth’s superannuation liability in respect of current and former university employees. These judgements include the selection of discount rates and estimation of salary increase rates.

The provision is subject to an actuarial assessment and relies on the completeness and accuracy of data provided by a number of universities and their individual actuaries.

A cost sharing arrangement that includes recovery of a proportion of funds from participating States underpins the proportion of the provision that is reported by the Entity which adds to the complexity of the calculation.

For the year ended 30 June 2019, the provision was reported as $7.3 billion, and the fair value losses were $917.2 million.

How the audit addressed the matter

To address this key audit matter, I:

• evaluated the design and operating effectiveness of key actuarial controls, including data reconciliations and the Entity’s review and approval of the estimate;
• understood and evaluated the appropriateness of the Entity’s actuarial methodology. This included assessing the work and findings of the external actuarial expert engaged by the Entity;
• assessed the reasonableness of key actuarial inputs including, demographic inputs and discount rates by comparing them against accepted industry benchmarks related to bond, salary and pension rates; and
• assessed the reasonableness of the allocation of the total unfunded liability against the funding agreements between the Commonwealth and participating States.

​

Key audit matter

Accuracy and valuation of ‘Assistance to families with children’ personal benefit expenses, receivable and provision.

Refer to Note ‘Overview – Significant Accounting Judgements and Estimates - Personal benefits – Child Care Subsidy program’, Note G1.2 ‘Personal benefits expenses - Assistance to families with children”, Note H1.2 ‘Personal benefits receivable’ and Note H3 ‘Provisions – Personal benefits’

I focused on the personal benefit expense, receivable and provision because:

• the expenses are based on information provided by the payment recipients and the accurate recording of expenses may be significantly impacted by the provision of inaccurate information; and
• the receivable and the provision are large balances underpinned by significant judgements and uncertainties, including selection of discount rates and estimations of future claims. They are determined based upon a complex actuarial assessment and rely on the accuracy of information submitted by claimants.

During 2018-19 the Entity recognised personal benefits expenses of $7.5 billion, a receivable of

$296.2 million and a provision of $475.8 million.

How the audit addressed the matter

To address this key audit matter, I:

• assessed the design and operating effectiveness of key internal controls related to the accreditation and registration of child care providers that submit claims for personal benefit payments;
• assessed, on a sample basis, the registration and eligibility of parents for child care fee assistance;
• assessed the compliance framework including testing a sample of attendance checks to verify information provided to the Entity that is used as a basis for payment calculations;
• assessed the information used in the estimation process for accuracy and completeness;
• evaluated the methodology and model used by the Entity in estimating the child care personal benefits receivable and provision balances; and
• assessed the reasonableness of key actuarial assumptions, including discount rates, against accepted industry benchmarks and estimating future claims against historical trends.

Accountable Authority’s responsibility for the financial statements

As the Accountable Authority of the Entity, the Secretary of the Department of Education is responsible under the Public Governance, Performance and Accountability Act 2013 (the Act) for the preparation and fair presentation of annual financial statements that comply with Australian Accounting Standards – Reduced Disclosure Requirements and the rules made under the Act. The Secretary is also responsible for such internal control as the Secretary determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the Secretary is responsible for assessing the ability of the Entity to continue as a going concern, taking into account whether the Entity’s operations will cease as a result of an administrative restructure or for any other reason. The Secretary is also responsible for disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the assessment indicates that it is not appropriate.

​

Auditor’s responsibilities for the audit of the financial statements

My objective is to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes my opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian National Audit Office Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.

As part of an audit in accordance with the Australian National Audit Office Auditing Standards, I exercise professional judgement and maintain professional scepticism throughout the audit. I also:

• identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for my opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control;
• obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Entity’s internal control;
• evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Accountable Authority;
• conclude on the appropriateness of the Accountable Authority’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Entity’s ability to continue as a going concern. If I conclude that a material uncertainty exists, I am required to draw attention in my auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify my opinion. My conclusions are based on the audit evidence obtained up to the date of my auditor’s report. However, future events or conditions may cause the Entity to cease to continue as a going concern; and
• evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

I communicate with the Accountable Authority regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that I identify during my audit.

From the matters communicated with the Accountable Authority, I determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. I describe these matters in my auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, I determine that a matter should not be communicated in my report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Australian National Audit Office

[signed by] Peter Kerr Executive Director

Delegate of the Auditor‐General

Canberra

10 September 2019

​