INDEPENDENT AUDITOR’S REPORT (text reproduced from preceding images)

To the Attorney-General

Opinion

In my opinion, the financial statements of the Office of the Inspector-General of Intelligence and Security (‘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 Inspector-General of Intelligence and Security;
• Statement of Comprehensive Income;
• Statement of Financial Position;
• Statement of Changes in Equity;
• Cash Flow Statement;
• Notes to the forming part of the financial statements.

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.

Accountable Authority’s responsibility for the financial statements

As the Accountable Authority of the Entity, the Inspector-General of Intelligence and Security 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 Inspector-General of Intelligence and Security is also responsible for such internal control as the Inspector-General of Intelligence and Security 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 Inspector-General of Intelligence and Security 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 Inspector-General of Intelligence and Security 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.

Australian National Audit Office

Rebecca Reilly
Executive Director

Delegate of the Auditor-General

Canberra
24 September 2019

STATEMENT BY THE INSPECTOR-GENERAL OF INTELLIGENCE AND SECURITY

In my opinion, the attached financial statements for the year ended 30 June 2019 comply with subsection 42(2) of the Public Governance, Performance and Accountability Act 2013 (PGPA Act), and are based on properly maintained financial records as per subsection 41(2) of the PGPA Act.

In my opinion, at the date of this statement, there are reasonable grounds to believe that the Office of the Inspector-General of Intelligence and Security will be able to pay its debts as and when they fall due.

Margaret Stone
Inspector-General of
Intelligence and Security

24 September 2019

OFFICE OF THE INSPECTOR-GENERAL OF INTELLIGENCE AND SECURITY
STATEMENT OF COMPREHENSIVE INCOME
for the year ended 30 June 2019

The above statement should be read in conjunction with the accompanying notes.

OFFICE OF THE INSPECTOR-GENERAL OF INTELLIGENCE AND SECURITY
STATEMENT OF FINANCIAL POSITION
as at 30 June 2019

The above statement should be read in conjunction with the accompanying notes.

OFFICE OF THE INSPECTOR-GENERAL OF INTELLIGENCE AND SECURITY
STATEMENT OF CHANGES IN EQUITY
for the period 30 June 2019

The above statement should be read in conjunction with the accompanying notes.

Equity Injections
Amounts appropriated which are designated as ‘equity injections’ for a year (less any formal reductions) and Departmental Capital Budgets (DCBs) are recognised directly to contributed equity in that year.

OFFICE OF THE INSPECTOR-GENERAL OF INTELLIGENCE AND SECURITY
CASH FLOW STATEMENT
for the year ended 30 June 2019

The above statement should be read in conjunction with the accompanying notes.

Major Budget Variances for 2019

The following table provides high level commentary of major variances between budgeted information for the OIGIS published in the 2018-19 Portfolio Budget Statements (PBS) and the 2018-19 final outcome as presented in accordance with Australian Accounting Standards for the OIGIS.

The Budget is not audited. Major variances are those deemed relevant to an analysis of OIGIS’ performance and are not focused merely on numerical differences between the budget and actual amounts. Explanations of major variances are as follows:

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
for year ended 30 June 2019

Note 1 – Overview

1.1 Basis of Preparation of the Financial Statements

The financial statements are general purpose financial statements and are required by section 42 of the Public Governance, Performance and Accountability Act 2013.

The Financial Statements have been prepared in accordance with:

• Public Governance, Performance and Accountability (Financial Reporting) Rule 2015 (FRR); and
• Australian Accounting Standards and Interpretations – Reduced Disclosure Requirements issued by the Australian Accounting Standards Board (AASB) that apply for the reporting period.

The financial statements have been prepared on an accrual basis and in accordance with the historical cost convention, except for certain assets and liabilities at fair value. Except where stated, no allowance is made for the effect of changing prices on the results or the financial position.

The financial statements are presented in Australian dollars and values are rounded to the nearest dollar.

1.2 Significant Accounting Judgments and Estimates

In the process of applying the accounting policies listed in this note, OIGIS has made judgments in relation to leave provisions that have a significant impact on the amounts recorded in the financial statements. Leave provisions involve assumptions on the likely tenure of existing staff, future salary movements and future discount rates.

1.3 New Australian Accounting Standards

New or revised standards, interpretations and amending standards that were issued prior to the sign-off date and are applicable in the current reporting period did not have a material effect, and are not expected to have a future material effect, on OIGIS’s financial statements.

1.4 Taxation

OIGIS is exempt from all forms of taxation except Fringe Benefits Tax (FBT) and Goods and Services Tax (GST).

Revenues, expenses and assets are recognised net of GST except:

• where the amount of GST incurred is not recoverable from the Australian Taxation Office; and
• for receivables and payables.

1.5 Revenue from Government

Amounts appropriated for departmental appropriations for the year (adjusted for any formal additions and reductions) are recognised as Revenue from Government when OIGIS gains control of the appropriation. Appropriations receivable are recognised at their nominal amounts.

1.6 Events after the Reporting Period

There was no subsequent event that had the potential to significantly affect the ongoing structure and financial activities of OIGIS.

Note 2 – Expenses

Accounting Policy

Accounting policies for employee related expenses are contained in Note 8.

Leasing Commitments

Note 3 – Own-Source Revenue

Accounting Policy

Resources Received Free of Charge

Resources received free of charge are recognised as revenue when, and only when, a fair value can be reliably determined and the services would have been purchased if they had not been donated. Use of those resources is recognised as an expense. Resources received free of charge are recorded as either revenue or gains depending on their nature.

The main resources received free of charge in 2018-19 are the provision of audit services (from the ANAO) and the installation and maintenance of the OIGIS owned internal secure computer network (from Australian Signals Directorate).

Note 4 – Financial Assets

All receivables are expected to be recovered in less than 12 months.

Accounting Policy

Receivables for goods and services, which have 30 day terms, are recognised at the nominal amounts due less any allowance for impairment. Collectability of debts is reviewed as at end of reporting period.

All financial assets are assessed for impairment at the end of each reporting period based on expected credit losses. Impairment of trade receivables is assessed on lifetime credit losses. The amount of the loss is measured as the difference between the assets carrying amount and the present value of estimated future cash flows discounted at the asset’s original effective interest rate. The loss is recognised in the Statement of Comprehensive Income.

Note 5 – Non-Financial Assets

Reconciliation of the Opening and Closing Balances of Property, Plant and Equipment

Accounting Policy

Acquisition of Assets

Assets are recorded at cost on acquisition except as stated below. The cost of acquisition includes the fair value of assets transferred in exchange and liabilities undertaken. Financial assets are initially measured at their fair value plus transaction costs where appropriate.

Asset Recognition Threshold

Purchases of property, plant and equipment are recognised initially at cost in the statement of financial position, except for purchases costing less than $2,000, which are expensed in the year of acquisition (other than where they form part of a group of similar items which are significant in total).

Fair Value Measurement

The fair values of property plant and equipment are determined using either the market selling price or depreciated replacement cost. The valuation of property plant and equipment at 30 June 2019 included $4,889,735 Level 2 assets (including office equipment and furniture, software and leasehold improvements) and $1,636 Level 3 assets (including office furniture).

The unobservable inputs (Level 3 fair value hierarchy) used to determine the fair value, include historical actual cost information and costing guides to estimate the current replacement cost. Useful life profiles have been applied to the replacement cost to reflect the expended life of the asset.

Revaluations

Following initial recognition at cost, property plant and equipment are carried at fair value less subsequent accumulated depreciation and accumulated impairment losses. Valuations are conducted with sufficient frequency to ensure that the carrying amounts of assets do not differ materially from the assets’ fair values as at the reporting date. The regularity of independent valuations depends upon the volatility of movements in market values for the relevant assets.

Revaluation adjustments are made on a class basis. Any revaluation increment is credited to equity under the heading of asset revaluation reserve except to the extent that it reverses a previous revaluation decrement of the same asset class that was previously recognised in the surplus/deficit. Revaluation decrements for a class of assets are recognised directly in the surplus/deficit except to the extent that they reverse a previous revaluation increment for that class.

Any accumulated depreciation as at the revaluation date is eliminated against the gross carrying amount of the asset and the asset restated to the revalued amount.

All revaluations are independent and are conducted in accordance with the stated revaluation policy. The most recent revaluation was conducted by the B&A Valuers as at 30 June 2017.

All assets were examined for indicators of impairment during the stocktake completed on 30 June 2019. No indicators of impairment have been identified.

Depreciation

Depreciable property plant and equipment assets are written-off to their estimated residual values over their estimated useful lives to OIGIS using, in all cases, the straight-line method of depreciation.

Depreciation rates (useful lives), residual values and methods are reviewed at each reporting date and necessary adjustments are recognised in the current, or current and future reporting periods, as appropriate.

Depreciation rates of depreciable assets are based on useful lives of:

Property – Plant & Equipment 1 – 11 years (2018: 1 – 11 years)
Leasehold Improvements 5 years (2018: Not applicable)

Derecognition

An item of property, plant and equipment is derecognised upon disposal or when no further future economic benefits are expected from its use or disposal.

Note 6 – Other Non-Financial Assets

Note 7 – Payables

Supplier payables expected to be settled in no more than 12 months.

Accounting Policy

OIGIS’ financial liabilities comprise trade and other payables and are recognised at amortised costs. Liabilities are recognised to the extent that the goods or services have been received (and irrespective of having been invoiced).

Other Payables are expected to be settled in no more than 12 months.

Accounting Policy

Superannuation

The liability for superannuation recognised as at 30 June represents outstanding contributions.

Note 8 – Employee Provisions

Accounting Policy

Liabilities for ‘short-term employee benefits’ and termination benefits expected within twelve months of the end of the reporting period are measured at their nominal amounts.

Leave

The liability for employee benefits includes provision for annual leave and long service leave. No provision has been made for sick leave as all sick leave is non-vesting and the average sick leave taken in future years by employees of OIGIS is estimated to be less than the annual entitlement for sick leave.

The leave liabilities are calculated on the basis of employees’ remuneration at the estimated salary rates that will be applied at the time the leave is taken, including OIGIS’s employer superannuation contribution rates to the extent that the leave is likely to be taken during service rather than paid out on termination.

The liability for long service leave has been determined by using the Short Hand Method per the Financial Reporting Rules. The estimate of the present value of the liability takes into account attrition rates and pay increases through promotion and inflation.

Superannuation

Staff of OIGIS are members of the Commonwealth Superannuation Scheme (CSS), the Public Sector Superannuation Scheme (PSS), the PSS accumulation plan (PSSap) and other industry super funds held outside the Australian Government.

The CSS and PSS are defined benefit schemes for the Australian Government. The liability for defined benefits is recognised in the financial statements of the Australian Government and is settled by the Australian Government in due course. This liability is reported in the Department of Finance’s administered schedules and notes.

OIGIS makes employer contributions to the employees’ superannuation scheme at rates determined by an actuary to be sufficient to meet the current cost to the Government. OIGIS accounts for the contributions as if they were contributions to defined contribution plans.

The PSSap is a defined contribution scheme.

Note 9 – Key Management Personnel Remuneration

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of OIGIS, directly or indirectly. OIGIS has determined the key management personnel to be the Chief Executive, Deputy Chief Executive and Assistant Chief Executives. Key management personnel remuneration is reported in the table below:

Accounting Policy

This note is prepared on an accrual basis. The total number of key management personnel that are included in the above table are 4 individuals (2018: 3 individuals). The 2019 figure includes one of the officers for part of the year. The 2018 figure also included one of the officers for part of the year.

Note 10 – Related Party Disclosures

Related Party Relationships

OIGIS is an Australian Government controlled entity. Related parties to OIGIS are:

• Key Management Personnel, their close family members and entities controlled or jointly controlled by either;
• the members of the Executive – key management personnel for the whole of government financial statements; and
• other Australian Government entities.

Transactions with Related Parties

Given the breadth of Government activities, related parties may transact with the government sector in the same capacity as ordinary citizens. Such transactions include the payment or refund of taxes, receipt of a Medicare rebate or higher education loans. These transactions have not been separately disclosed in this note.

Giving consideration to relationships with related entities, and transactions entered into during the reporting period by the entity, it has been determined that there are no related party transactions to be separately disclosed.

Note 11 - Contingent Assets and Liabilities

Contingent liabilities and contingent assets are not recognised in the statement of financial position but are reported in the relevant notes. They may arise from uncertainty as to the existence of a liability or asset or represent an asset or liability in respect of which the amount cannot be reliably measured. Contingent assets are disclosed when settlement is probable but not virtually certain and contingent liabilities are disclosed when settlement is greater than remote.

OIGIS has no contingencies to report at 30 June 2019 (2018: Nil).

Note 12 – Financial Instruments

The net fair values of the financial assets and liabilities are at their carrying amounts. OIGIS derived no interest income from financial assets in either the current and prior year.

Financial Assets

OIGIS classifies its financial assets as measured at amortised cost using the effective interest method. Financial assets are recognised and derecognised upon trade date.

Financial assets are assessed for impairment at the end of each reporting period based on Expected Credit Losses.

Credit terms are net 30 days (2018: 30 days).

Classification of financial assets on the date of initial application of AASB 9

Financial assets class	AASB 139 original classification	AASB 9 new classification	AASB 139 carrying amount at 1 July 2018 $	AASB 9 carrying amount at 1 July 2018 $
Cash and cash equivalents	Loan and receivables	Amortised Cost	199 788	199 788
Trade and other receivables	Loan and receivables	Amortised Cost	151 919	151 919
Total Financial Assets			351 707	351 707

Financial Liabilities

Financial liabilities are classified as other financial liabilities. Financial liabilities are recognised and derecognised upon ‘trade date’.

Supplier and other payables are recognised at amortised cost. Liabilities are recognised to the extent that the goods or services have been received (and irrespective of having been invoiced).

Settlement is usually made net 30 days.

Note 13 – Appropriations

Note 13A – Annual Appropriations (‘Recoverable GST exclusive’)

Ordinary Annual Services	2019 $	2018 $
Annual Appropriation	9 642 000	6 819 000
PGPA Act – Section 74 Receipts	510 223	261 431
Annual Departmental Capital Budget1	275 000	11 585 000
Total appropriation	10 427 223	18 665 431
Appropriation applied (current and prior years)	11 491 154	3 353 815
Variance2	(1 063 931)	15 311 616

1. Departmental Capital Budgets are appropriated through Appropriation Acts (No 1,3,5). They form part of ordinary annual services, and are not separately identified in the Appropriation Acts.
2. Variance between Total Appropriation and Appropriation Applied is due in part to section 74 receipts and underspends related largely to recruitment delays associated with security clearance requirements. The underspend in the current year is offset by the expenditure of previous years appropriations related to the purchase of assets and construction of the SCIF leasehold improvement.
   Note 13B: Unspent Annual Appropriations (‘Recoverable GST exclusive)

Note 14 – Aggregate Assets and Liabilities