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Independent Auditor's Report

Letter head for the Australian National Audit Office, includes the logo

INDEPENDENT AUDITOR’S REPORT
To the Minister for Families and Social Services Opinion

In my opinion, the financial statements of the Department of Social Services (the Entity) for the year ended 30 June 2020:

  1. comply with Australian Accounting Standards – Reduced Disclosure Requirements and the Public Governance, Performance and Accountability (Financial Reporting) Rule 2015; and
  2. present fairly the financial position of the Entity as at 30 June 2020 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 as at 30 June 2020 and for the year then ended:
  • Statement by the Secretary and Chief Finance 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 (including Independence Standards) (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.

GPO Box 707 CANBERRA ACT 2601
38 Sydney Avenue FORREST ACT 2603
Phone (02) 6203 7300 Fax (02) 6203 7777

Key audit matter

Validity of grants expenses

Refer to Note 2.1B ‘Grants’

I focused on this area as there are a large number of grants programs with differing legislative and policy requirements which make the management of grant processes complex. This has the potential to impact the validity of grant expenses. Further, to manage the grants program and depending on the type of grant, the Entity has implemented manual compliance processes including risk management processes at the commencement and during the life cycle of the grants program.

For the year ended 30 June 2020 the grants expenses were $2.7 billion.

How the audit addressed the matter

The audit procedures undertaken to address this matter included:

  • evaluating the information technology controls specifically access controls, change management, approvals and delegations for grants and payment processing;
  • assessing manual controls supporting grants management, focusing on risk management and compliance processes; and
  • examining supporting documentation for a sample of grant agreements to assess the validity of expenditure amounts.

Key audit matter

Accuracy and occurrence of personal benefits expenses

Refer to Note 2.1C ‘Personal Benefits’

I focused on this area as the accuracy and occurrence of personal benefits expense is dependent on the correct self-disclosure of personal circumstances by a large number of diverse recipients. The accuracy of personal benefits expense is also reliant on a complex information technology system for the processing of a high volume of payments across numerous personal benefit types with varying conditions for determining payment amount.

The complexity of the personal benefits expense was increased due to the rapid implementation of stimulus measures in response to the COVID-19 pandemic where a range of normal payment eligibility requirements were either expanded, relaxed or waived. The additional measures comprised the coronavirus supplement, economic support payments, and a range of related initiatives.

Personal benefits expense increased by $18 billion from the previous year to $129.2 billion for the year 30 June2020 and this was mainly due to the COVID-19 stimulus measures.

How the audit addressed the matter

The audit procedures undertaken to address this matter included:

  • assessing the internal controls in place over the personal benefits payments, focusing on processes for monitoring compliance with requirements to disclose accurate personal information;
  • assessing the information technology controls, specifically access controls to personal circumstances data and controls designed to prevent and detect unauthorised changes to the information technology environment; and
  • recalculating a sample of personal benefits payments made to recipients, based on relevant legislation and personal circumstances data held by the Australian Government.

Key audit matter

Valuation of personal benefits provisions, personal benefits receivables and contingent liabilities

Refer to Overview, Note 4.3A ‘Personal Benefits and Other Provisions’, Note 4.1B ‘Receivables’ and

Note 7.1 ‘Contingent Assets and Liabilities’

I focused on this area as the valuation of the provisions and receivables involve estimation models which require significant judgements and assumptions including, but not limited to: new budget measures affecting benefit programs timing of payments; personal circumstances of recipients; and the economic environment. The accuracy and completeness of the source data used by the actuary in developing the estimation of the provisions and receivables is also a key component of the valuation process.

The complexity of these valuations was increased due to uncertainty associated with estimating the impact of the COVID-19 pandemic on future cash flow estimates used in the Entity’s valuation models.

I also focused on the appropriate accounting and disclosure of the impacts of the Income Compliance Program in view of the Government’s decision relating to the program which used averaged income data to calculate an individual’s personal benefits debt that was then included in personal benefits receivables. The Government made a decision to refund $741.6 million and zeroed $1.013 billion of debts owing at year-end relating to this program. The Government decision to repay or zero debts covered debts raised using income averaging since 1 July 2015. Debts raised prior to 1 July 2015 using income averaging can be reviewed and assessed on a case by case basis if requested by the individual. I therefore focused on whether these potential debt repayments and zeroing had been appropriately accounted for and disclosed by the Entity.

As at 30 June 2020 the provisions totalled $4.7 billion and the receivables totalled $4.7 billion

How the audit addressed the matter

The audit procedures undertaken to address this matter included:

  • evaluating the appropriateness of management’s processes to assess whether judgements and assumptions used in the estimation models remain appropriate;
  • assessing the work undertaken by the Entity’s actuary;
  • assessing the accuracy and completeness of data used in the estimation models;
  • evaluating the accounting and disclosures relating to the Income Compliance Program for consistency with data extracted from the debt management system, and the Government’s decision to refund debt paid and zero unpaid debt at year-end by raising a personal benefits payable and impairment allowance for the full debt; and
  • evaluating the Entity’s assessment that an unquantifiable contingency existed as 30 June 2020 and the appropriateness of the associated disclosure.

Accountable Authority’s responsibility for the financial statements

As the Accountable Authority of the Entity, the Secretary 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

Signature of Grant Heir, Auditor-General, Australian National Audit Office




Grant Heir
Auditor-General
Canberra
18 September 2020