To the Minister for Employment, Skills, Small and Family Business
In my opinion, the financial statements of the Department of Employment, Skills, Small and Family Business (‘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;
Cash Flow Statement;
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 me. 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
Accuracy and completeness of administered
supplier and subsidy expenses
Refer to Note 18A Administered Suppliers and Note 18B Administered Subsidies
I focused on this area given the significant value of supplier and subsidy expenses and the importance of the Entity’s processes to monitor compliance with its employment services programs for the accuracy and completeness of the payments.
The accuracy of these payments is dependent on self-assessed information provided by claimants, both individuals and entities. The complete and accurate recording of expenses is dependent upon the effective design and implementation of the compliance risk management regime to address the risk that inappropriate payments may not be detected and corrected by the Entity.
During 2018-19 the Entity recognised administered supplier expenses of $1.4 billion, and administered subsidy expenses of $377.5 million.
How the audit addressed the matter
To address this key audit matter, I:
tested the design and effectiveness of key controls and information technology (IT) systems related to the calculation and processing of payments
assessed the Entity’s design and implementation of the compliance program used to determine the validity of self-assessed information provided by claimants; and
evaluated the Entity’s analysis of the impact of the results and error rates detected by the compliance program.
Key audit matter
Valuation of the VET Student Loan (VSL) and Trade Support Loan (TSL) receivables
Refer to ‘Overview – Significant Accounting Judgements and Estimates’ and Note 20A ‘Receivables – Advances and Loans’
I focused on the Entity’s VSL and TSL receivables as the valuation of the receivables involves significant and complex judgements.
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.
During 2018-19 the Department recognised VSL and TSL receivables of $1.1 billion.
How the audit addressed the matter
To address this key audit matter, I:
evaluated the design and effectiveness of controls in place over the eligibility of students and apprentices for these loan programs;
assessed the design and effectiveness of internal controls relating to the collection of the data used by the Entity to calculate the receivables;
evaluated the reasonableness of the actuarial methodology used to calculate the receivables; and
assessed the reasonableness of the key assumptions used in the calculation of the receivables by comparing them with industry benchmarks for discount rates and salary growth rates in a range of occupations.
Accountable Authority’s responsibility for the financial statements
As the Accountable Authority of the Entity, the Secretary of the Entity 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 Title of the Accountable Authority 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.