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Victorian Coat of Arms

Annual Report 2015–16

Ordered to be published

VICTORIAN GOVERNMENT PRINTER October 2016

The Hon. Bruce Atkinson MLC
President
Legislative Council
Parliament House
Melbourne
The Hon. Telmo Languiller MP
Speaker
Legislative Assembly
Parliament House
Melbourne

Dear Presiding Officers

I am pleased to transmit, in accordance with section 7B of the Audit Act 1994, the annual report of the Victorian Auditor-General’s Office for the year ended 30 June 2016 for presentation to Parliament.

Yours faithfully

Signature of Andrew Greaves (Auditor-General)

Andrew Greaves
Auditor-General

12 October 2016

Accountable officer’s declaration

In accordance with the Financial Management Act 1994, I am pleased to present the Report of Operations for the Victorian Auditor-General’s Office for the year ended 30 June 2016.

Signature of Dr Peter Frost (Acting Auditor-General)

Dr Peter Frost
Acting Auditor-General

Melbourne

13 September 2016

'Pursuant to section 20(3) of the Audit Act 1994, unless otherwise indicated, any persons named in this report are not the subject of adverse comment or opinion.'

Please Note: Page numbers are referenced throughout this HTML, please refer to our online PDF version of this report to see the correlating information.

A challenging but productive year

Photo of Dr Peter Frost, Acting Auditor-General

It has been a very difficult but remarkably productive year for our office. Looking back on 2015–16, our people are entitled to be gratified with the quality of the work they continued to deliver, for the significant value they added and, despite considerable internal upheaval, for maintaining their pride in, and commitment to, the office they serve.

In 2015–16, we tabled 39 reports in Parliament, some of them unprecedented in nature, covering topics as various as major projects, bullying and harassment, strategic planning in our education system, hospital performance and the Annual Financial Report on the state. The office also delivered 647 audit opinions on agencies’ financial statements and their non-financial performance indicators.

Sustained performance and commitment to continual improvement

We delivered most of our parliamentary performance targets within budget, and we have looked for more efficient and effective ways to produce our work. In particular, we completely reviewed and re-engineered our performance audit methodology and adapted our practice to better target our audit effort and maximise our impact throughout the public sector. With improvements to our practice always in mind, we are also looking forward to benefiting from the lessons and recommendations of the triennial audit of our office, which is nearing its conclusion.

Our impact

Our vision for the office has been to act as a catalyst for change, and, as the chapter on our impact sets out, whenever the agencies we audit have acted on our findings and implemented our recommendations, clearly attributable improvements and efficiencies have ensued. These take a variety of forms: agencies are prompted to amend policies and processes, to review their legislation and regulations, and to reconsider resourcing decisions, often while our audits are still on foot. This is a tribute not simply to our office, but to the vast majority of Victorian Public Service agencies with which we engage. While there is always room to improve, as the Key Audit Themes section of our report continues to demonstrate, it is heartening that many agencies have seen past the adversarial spin that is often put on their relationship with Parliament’s Auditor. They recognise audit engagements as opportunities for a transparent, objective and independent examination of their program delivery, which benefits them, assures the Parliament and serves our citizens.

Nothing better exemplifies that spirit of positive engagement than VAGO’s recent experience with the Department of Education & Training (DET). Following a disclaimer of audit opinion on DET’s financial statements, the office worked very closely with a clearly committed minister, secretary and senior staff as the department embarked on a major remedial program which already has yielded significant improvements.

Legislative reform fit for a modern public sector

To have maximum, effective impact, our office needs legislation that is fit for purpose. The Integrity and Accountability Legislation Amendment (A Stronger System) Act 2016 recently passed by Parliament gives the office “follow-the-dollar” powers—the ability to examine and report on the performance of bodies delivering government services under contract. This is a good start, but comprehensive reform of the Audit Act 1994 still beckons. Our legislation needs to be fit for the contemporary public sector we now audit, and it also needs to protect and preserve the independence and discretion of Parliament’s Auditor. Nonetheless, we do acknowledge the government’s ongoing review of the accountability and integrity system, and its commitment to improve the Auditor-General’s legislation.

Valuing and listening to our people: Creating a positive workplace culture

In any organisation, people are paramount, and building and maintaining a positive and resilient work culture capable of dealing with and learning from inappropriate behaviours—such as bullying and harassment—is of first-order importance. Unfortunately, this was an issue with which our office had a very public experience in 2015–2016. That experience served as our own internal catalyst for change and, with input from all our staff, we developed our Culture Program, a series of policy and process reviews and training and development initiatives. These were designed to address five key themes that an all-staff survey identified, namely:

Many of the Culture Program’s elements have already been completed, some are in progress and others will commence shortly. The Culture Program has given all our people opportunities to reflect, in particular, on the values and behaviours which should define the integrity business we are in, for ourselves, for our stakeholders and clients, and for the community. In the few months the program has been in progress, it has been especially gratifying to observe the discernibly more positive mood across the office, and a general willingness to ‘turn the page’ and look to the future.

We are rightly proud of our staff. They are among the most highly credentialed, trained and experienced across the Victorian public sector. Here again, the Culture Program has been the vehicle for us to take a fresh look at how we train, develop and treat our people.

Thank you to our principal stakeholder

Sincere thanks must go to Mr Danny Pearson (Chair) and Mr David Morris (Deputy Chair) and the other members of the Public Accounts and Estimates Committee for the support they provided, in helping the office come through the difficult period occasioned by the resignation of the former Auditor-General. One happy consequence is that the professional relationship between the Committee and this office is now stronger and more mutually respectful than ever. We look forward to building on that foundation.

The future

Finally, as we look ahead, we welcome the appointment of Victoria’s 27th Auditor-General, Mr Andrew Greaves. Andrew brings to his new role formidable skills and a wealth of audit experience gained both here and in other jurisdictions, most recently, as Auditor-General for Queensland. Parliament, the public sector and our citizens can have confidence that in its 166th year, Victoria’s oldest integrity office is in safe hands.

Signature of Dr Peter Frost (Acting Auditor-General)

Dr Peter Frost
Acting Auditor-General

What you need to know about this report

Our annual report informs parliamentarians, public sector agencies, integrity and oversight bodies and the community about our operational and financial performance.

Our annual report is prepared in line with the Department of Treasury and Finance's 2015–16 Model Report, available at Treasury and Finance's website, www.dtf.vic.gov.au. The model report is prepared under the Financial Management Act 1994 and incorporates the requirements of Australian Accounting Standards, Financial Reporting Directions (FRD) and Standing Directions as at 1 March 2016, for the reporting period ended 30 June 2016. A disclosure index in Appendix four (page 116) helps to identify how VAGO complies with statutory disclosure requirements.

[Figure 1] We report on our performance against several planning inputs

Part 1 includes a high-level summary of:

Parts 2 to 6 provide more information about our impact, our people, how our office is governed and managed, and our services.

Part 7 includes detailed statements that fulfil our financial reporting requirements.

The Appendices include further details about the information within the main sections of the report.

We welcome your feedback on our annual reporting. You can provide feedback through our website, www.audit.vic.gov.au.

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1. Snapshot of our year

Our achievements

Our challenge in the year ahead

Next steps

Our role in the public sector

What do we do?

The Auditor-General provides independent assurance to Parliament and the Victorian community on the state's financial reporting and performance. To do this, our office carries out financial audits and performance audits of public sector agencies. The agencies are accountable to Parliament for their use of public resources and the powers Parliament confers on them.

How do we fit into Victoria's integrity system?

Victoria's integrity system includes the following bodies:

Who do we audit?

The Auditor-General's audit responsibilities cover about 540 agencies which earn about $88 billion in revenue, hold assets worth more than $359 billion, and employ more than 340 000 people.

Agencies we audit include government departments, public bodies, educational institutions, public hospitals, local authorities, agencies controlled by the state or a public body, and particular bodies that provide government services under contract.

Guiding legislation and our mandate

Integrity legislation changes and Audit Act 1994 review

The principal pieces of legislation governing and guiding the Auditor-General and our office are:

The Audit Act 1994 gives the Auditor-General extensive access and reporting powers to enable him to fulfil this mandate, including getting full access to information from associated entities.

Since 2009, we have advocated for a complete rewrite of The Audit Act 1994. As governments have moved to different and innovative ways of delivering services, The Audit Act 1994 has failed to keep pace. This has steadily eroded our mandate and limited the assurance we can provide to Parliament.

In late 2015–16, Parliament passed the Integrity and Accountability Legislation Amendment (A Stronger System) Act 2016 (the Act). The Act is an important first step towards closing this accountability gap, and finally provides the Auditor-General with limited 'follow-the-dollar' powers. However, comprehensive legislative reform is needed to address the challenges of a contemporary public sector, and to improve its transparency and accountability.

We welcome the government's extensive review of the integrity and accountability system and its commitment to consider further improvements to our legislation.

Accountability

The Auditor-General is an independent officer of the Victorian Parliament, and cannot be directed by anyone, including Parliament or the government. Although independent, the Auditor-General remains accountable to Parliament, through the Public Accounts and Estimates Committee. Our office has a statutory relationship with the committee and must consult with it about our annual plan and, in certain circumstances, on our performance audit specifications. We are also subject to annual financial audits and independent performance audits every three years, as required under The Audit Act 1994. These audits ensure that we are held accountable to the same standards of performance rigour and financial statement accuracy to which we hold the public sector accountable.

Organisational changes

In early 2015–16, our performance audit business unit was segregated into two separate areas led by the appointment of two new Assistant Auditors-General. The former Auditor-General, John Doyle, resigned soon after in September 2015, and Dr Peter Frost became our Acting Auditor-General. After a brief trial of the new structure, we decided to revert to having a single Assistant Auditor-General to oversee our performance audit practice, while the other Assistant Auditor-General executive transitioned to lead the Audit Support Group as their Acting Executive Director, while the incumbent executive was on extended leave.

Our planning framework

Our planning framework aligns our strategic plan, annual plan and business plan, as shown in Figure 2.

[Figure 2] Our planning framework

Our progress against our Strategic Plan

Our Leadership Group prepares and approves our Strategic Plan in consultation with staff. Our Strategic Plan sets out our vision, purpose, objectives and values, and informs our Annual Plan, organisational Business Plan, and divisional business unit plans. Our 2016–17 Strategic Plan was rolled over from 2015–16, with the exception of some updates. We expect to prepare a new four-year plan for 2017–18, with guidance and support from our new Auditor-General.

We detail progress towards our 2015–16 Strategic Plan on page 12.

Our Annual Plan

Our Annual Plan, one of our key accountability mechanisms, sets out our work program for the next two financial years and the resources required to put that program into effect. The plan gives Parliament, the public sector and the community an opportunity to learn about our audit priorities and scrutinise our proposed program. This year, in addition to departments and key integrity and oversight bodies, we broadened our process for consulting stakeholders to include parliamentary committees for the first time.

Our Business Plan

Our Business Plan supports the delivery of our work program and initiatives, as set out in our Annual Plan. It also supports our day-to-day operations and office-wide business improvement projects, as we work towards achieving the objectives in our Strategic Plan.

Our Business Unit Plans

Our Business Unit Plans provide specific blueprints outlining the progress that each business unit makes towards various office objectives in the year ahead.

Individual performance development plans

Every year, each of our staff members prepares a performance development plan. The work priorities identified in each Business Unit Plan are linked directly to specific performance objectives outlined in individual staff performance development plans.

Performance against our 2015–16 Strategic Plan

Here is an overview of progress made during the year against the five objectives in our 2015–16 Strategic Plan.

Objective 1

Being authoritative and relevant

Better targeting of topics, audit effort directed to areas of public value, and promoting broader access to reports.

Achievements during 2015–16

We tabled 39 reports in Parliament, and produced 647 audit opinions on the financial statements and non‑financial performance indicators of agencies (page 14).

We continued to present at conferences, educational courses and professional groups to promote education of our report findings and to increase awareness of our activities (pages 142-143).

We continued to produce our 'Key Audit Themes' product, a summary of the most frequent and significant audit findings that offer opportunities for agencies to learn from the experience of others (pages 130-141).

Objective 2

Being highly regarded by Parliament

A smooth flow of reports to Parliament, and good engagement with parliamentary committees and individual parliamentarians.

Achievements during 2015–16

Of surveyed parliamentarians, 98 per cent of respondents agreed that our reports and services provide valuable information on public sector performance (page 48).

There were 285 Hansard references to our audit reports this year, an increase from 263 in 2014–15 (page 18).

We made submissions to five parliamentary committee inquiries (page 18).

We broadened our Annual Plan consultation to include parliamentary committees for the first time (page 11).

We provided regular briefings to Parliament and ministers, as well as support for, and effective engagement with parliamentary committees and relevant inquiries (pages 18 and 26).

Objective 3

Fostering productive relationships with audit clients

Clients are appropriately informed about audit plans, processes and activities, and our staff foster professional relationships with clients.

Achievements during 2015–16

We appropriately informed agencies about our audit plans (including our Annual Plan), processes and activities (page 11).

We established a stakeholder engagement project led by our Performance Audit business unit (page 65).

Objective 4

Fostering a stimulating work environment

Rigorous performance planning and management, best practice training, and a safe and healthy workplace.

Achievements during 2015–16

We developed a series of initiatives to improve our office's internal working culture (page 28).

We improved our performance development plan process so that management and staff clearly understand performance expectations (page 31).

We were actively involved in the national and international development of public sector audit, through our contributions to the Australasian Council of Auditors-General and the Pacific Association of Supreme Audit Institutions, and the hosting of auditors on secondment from Papua New Guinea (pages 37–38).

Objective 5

Leveraging our systems and processes to improve organisational performance

Systems and processes are aligned, investment in capability for long-term sustainability, and being a responsible corporate citizen.

Achievements during 2015–16

We reviewed and re-engineered our Performance Audit methodology (page 62).

We reviewed and strengthened our audit topic selection framework to increase its rigour (page 61).

We rolled out an updated audit sampling methodology to enhance our audit approach to tests of controls (page 47).

We established a new internal consultation policy and database to improve the efficiency and effectiveness of the provision of auditing and accounting advice to our audit engagement teams (page 47).

We developed a new post-audit quality assurance framework to drive continuous improvement for our audit engagements (page 47).

We established a specialist data analytics strategy and capability team within the office (page 65).

We established a strategic audit planning project led by our Performance Audit business unit (page 65).

Continued excellence in delivering our outputs

Our annual performance measures and outputs

The State Budget Papers contain our objectives, the two outputs Parliament holds us accountable for producing, and our supporting performance measures. Commentary is provided below Figures 3 and 4 about how we performed meeting our Output Group 1 and Output Group 2 targets.

[Figure 3] Performance against Output Group 1 targets

Performance measures

Unit of measure

2015–16

Actual

Target

Performance variation (%)

Result

Quantity

Auditor-General's reports

(number)

39

36

8.3

Quality

Average score of audit reports by external/peer assessors

(per cent)

86

80

7.5

Overall level of external satisfaction with audit reports and services—parliamentarians

(per cent)

86

85

1.2

Timeliness

Inquiries from Members of Parliament and the public responded to within 28 days

(per cent)

99

95

4.2

Reports completed on time

(per cent)

95

90

5.6

Cost

Total output cost(a)

($ million)

15

16.7

-10.2

(a) Total output cost excludes revenue recovered mainly from staff secondments.

Note: ✔ Target achieved or exceeded.

[Figure 4] Performance against Output Group 2 targets

Performance measures

Unit of measure

2015–16

Actual

Target

Performance variation (%)

Result

Quantity

Audit opinions issued on the financial statements of agencies

(number)

539

547

–1.5

Audit opinions issued on non financial performance indicators

(number)

108

110

–1.8

Quality

External/peer reviews finding no material departures from professional and regulatory standards

(per cent)

80

100

–20

Timeliness

Audit opinions issued within statutory deadlines

(per cent)

98

98

0

Management letters issued to agencies within established time frames

(per cent)

88

90

–2.2

Cost

Total output cost(a)

($ million)

26.0

24.1

7.9

(a)Total output cost excludes revenue recovered mainly from staff secondments.

✔ Target achieved or exceeded. ๐ Target not achieved—within 5 per cent variance. ■ Target not achieved—exceeds 5 per cent variance.

Output Group 1: Parliamentary reports and services

Our Output Group 1 targets primarily relate to the reports we table in Parliament on the results of our financial and performance audits. The Auditor-General's parliamentary reports include:

Output Group 1—Quantity

We tabled 39 reports, exceeding our target of 36. This result consists of 29 performance audit reports, eight Financial Audit reports, and two accountability products (our Annual Plan and Annual Report).

Output Group 1—Quality

Average score of audit reports

Our reports are independently assessed against criteria set by the Australasian Council of Auditors‑General. In 2015–16, eight reports—six performance reports and two financial audit reports—received an average score of 86 per cent, which exceeded our target of 80 per cent.

Overall level of satisfaction

Every year, we survey parliamentarians to find out how satisfied they are with our reports and services. In 2015–16, 37 per cent of parliamentarians responded to our survey (47 out of 127). Of those responding, 86 per cent indicated that overall, they were satisfied or very satisfied with our reports and services. This exceeds our target of 85 per cent.

Output Group 1—Timeliness

Reports completed on time

In 2015–16, we tabled 95 per cent of our reports within one month of the planned date. These results show that we continue to exceed our target in this area.

Responses to inquiries

In 2015–16, we responded to 99 per cent of inquiries within 28 days, exceeding our target of 95 per cent. This is especially notable because of the 10 per cent increase in inquiries during the year. The inquiries consisted of letters, email messages, telephone calls and online correspondence from various groups, including the general public. Key issues of concern were:

Output Group 1—Cost

In 2015–16, our budget for the delivery of Output Group 1 Parliamentary reports and services was $16.7 million. We delivered all parliamentary reports within this budget, at a cost of $15 million. Delays filling vacancies arising throughout the year meant we spent $1.7 million less than budgeted.

The cost of individual parliamentary reports—performance audit, financial audit, and accountability products—ranged from $102 553 to $618 390. The average cost of a performance audit parliamentary report was $364 870, a decrease of around $40 000 from the average cost of performance audit reports in the previous year. This significant decrease is because we published relatively more follow-up audit reports, which cost less than other reports.

In 2015–16, the average cost of a financial audit parliamentary report was $168 490, a decrease of around $12 500 from the average cost of financial audit reports produced in 2014–15.

Output Group 2: Audit reports on financial statements

Our Output Group 2 targets primarily relate to our audits of agency financial reports. In addition to audit opinions, we also issue interim and final management letters to advise agencies of issues raised in our audits. The Auditor-General's reports on financial statements include:

Output Group 2—Quantity

In 2015–16, we issued 539 audited opinions on the financial statements of agencies, and 108 audit opinions on non-financial performance indicators. These results are satisfactory, because they fall within the acceptable variation range (5 per cent of target), and are affected by factors beyond our control—such as machinery-of-government changes, which in turn affect the number of agency financial statements and performance statements we receive each year.

Output Group 2—Quality

In 2015–16, 10 financial audit engagements were subject to a post-audit quality review. Two instances of material departures from Australian Auditing Standards were identified, meaning that we did not meet our target of 100 per cent. The variance is a result of our peer/external review processes, which identified material departures from Australian Auditing Standards for two out of 10 audit engagements. Although all audit engagements reviewed in 2015–16 had sufficient appropriate evidence to support the audit opinion, we will perform a root cause analysis of the review outcomes that resulted in these material departures to identify and implement appropriate remediation.

Output Group 2—Timeliness

Audit opinions issued within statutory deadlines

In 2015–16, we issued 98 per cent of our audit opinions within the statutory deadline of four weeks of receipt of agency financial statements. This meets our target (98 per cent) and continues our record of achieving excellence in this area.

Management letters issued within established time frames

We issued 88 per cent of our final management letters in 2015–16 within the established time frames, just short of meeting our target of 90 per cent. This is a marginal reduction in performance compared with 2014–15 (91 per cent), but well within our acceptable variation range (within 5 per cent), and resulted from delays in clients preparing financial reports, several contentious and complex matters encountered during the financial reporting cycle, and audit opinion qualifications.

Output Group 2—Cost

In 2015–16, our budget for delivering Output Group 2 was $24.1 million. We delivered all products in Output Group 2 for $26.0 million (7.9 per cent more than our budget). The additional expenditure was largely a result of increased salary and audit service provider (ASP) costs.

The cost of individual financial audits ranged from $1 250 to $850 000, and the average cost of financial audits was $43 785, a marginal increase (2 per cent) on the average cost of financial audits in 2014–15. The Audit Act 1994 requires the Auditor-General to charge agencies an amount which is sufficient to defray the reasonable costs and expenses of a financial audit. The estimated cost is determined based on the expected level and range of resources to be used, commensurate with the audit risks and complexity of the audit. We carried out fewer audits in 2015–16 than in 2014–15, which contributed to the increase in the average cost of audits. The change in the number of audits arises from factors beyond our control.

Chief Financial Officer highlights

In 2015–16, we:

[Figure 5] Financial summary 2015–16 and previous four years

Item

2015–16 ($000)

2014–15 ($000)

2013–14

($000)

2012–13

($000)

2011–12

($000)

Percentage change 2014–15 to 2015–16

Total revenue

41 383

39 698

38 954

38 654

37 120

4

Total expenses

41 300

39 161

38 994

37 197

36 542

5

Surplus/deficit

83

537

(40)

1 457

578

–85

Financial assets

16 962

15 019

13 965

12 930

10 755

13

Non-financial assets

1 386

1 803

2 326

2 518

2 690

–23

Total assets

18 348

16 822

16 291

15 448

13 445

9

Total liabilities

9 654

8 211

8 217

7 333

6 787

18

Net assets

8 694

8 611

8 074

8 115

6 658

1

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2. Our impact

Relevant strategic objectives

Reports and advice

Being authoritative and relevant

Parliament

Being highly regarded by Parliament

Audit clients

Fostering productive relationships with audit clients

Beyond providing assurance to Parliament, we aim to be a catalyst for change in the public sector, in line with our vision in our Strategic Plan. Our findings and recommendations can often facilitate improvements in audited agencies, and the public sector more broadly.

Specifically, we bring value to the public sector in several ways, such as by influencing proposed amendments to policies or processes, legislative changes or how government resources are allocated. In 2015–16, we continued to observe tangible impacts of our work within the Victorian community.

Our impact achievements at a glance

Technological improvements

Government policy, standards and legislative inputs

Legislative changes arising from audits

Strengthening accountability frameworks in Victoria: submissions to reviews and consultations

Top five audit reports most covered by media

Governance and oversight

Resources allocated

Acceptance of recommendations

Our internal count of the number of recommendations accepted by agencies is based on agencies' formal submissions to our reports.

Our Performance Audit business unit made 145 recommendations in 2015–16, of which 139 were accepted (96 per cent). Our Financial Audit business unit made 44 recommendations, of which 43 were accepted (98 per cent). At an aggregate level, our total recommendation acceptance rate is 96 per cent. A similar acceptance rate in 2014–15 (96 per cent) is indicative of the influence our recommendations have in acting as a catalyst for change throughout the public sector.

Case studies

Technological improvements

New Information and Communications Technology Digital Dashboard delivering transparency

Following our April 2015 audit report Digital Dashboard: Status Review of ICT Projects and Initiatives, the Department of Premier & Cabinet's Enterprise Solutions team released its first ICT Digital Dashboard to track the cost of government ICT projects with values of more than $1 million. It is anticipated that this increase in reporting transparency will bolster the delivery of public ICT systems going forward.

Improved traffic flows on major roads

Traffic is flowing more smoothly on 23 major Melbourne roads after VicRoads tweaked the traffic light sequences at hundreds of intersections, following our June 2014 report Using ICT to Improve Traffic Management. Major traffic routes where peak-hour travel times have been cut in recent months include Dandenong Road, Ringwood Bypass, Nepean Highway, Blackburn Road, Burke Road, Toorak Road and Springvale Road.

The changes, at 660 sets of lights, were part of a push by VicRoads to make better use of technology in traffic management after our audit found that the authority was doing too little to tackle growing congestion on arterial roads. VicRoads accepted our recommendation to review traffic signals more regularly, with a focus on roads that also function as important tram and bus routes.

Other notable gains to the public as a result of actions undertaken by VicRoads included:

Governance and oversight

Tackling bullying and harassment to improve workplace culture

Our March 2016 report Bullying and Harassment in the Health Sector exposed a culture of bullying and harassment throughout Victoria's health system. Following the audit, the government developed a new strategy, Our pathway to change: Eliminating bullying and harassment in healthcare. As part of this new strategy, the government committed to:

An advisory committee led by the former Victorian Equal Opportunity & Human Rights Commissioner and current chief executive of Oxfam Australia, Helen Szoke, will oversee how this strategy is put into effect. It will bring together hospitals, unions, colleges, Australian Medical Association Victoria, WorkSafe, the Victorian Public Sector Commission and other stakeholders to tackle the issues that we identified in our audit.

The Goulburn Valley Health chief executive Dale Fraser welcomed our report. At the time of its publication, Mr Fraser said: 'We have considered [the Auditor-General's] audit findings with the program that we have already established, and will use his recommendations to further enhance our approach.' He added: 'We applaud the work of the Auditor-General's Office to bring focus on this most disturbing issue.'

The Minister for Health, the Hon Jill Hennessy, also confirmed that many parts of the health sector workforce were subsequently identifying significant cultural changes that need to take place within the health system to deal with bullying and harassment. In particular, the Minister '… perceived that there was a significant issue in the health system on this issue, and the Auditor-General confirmed that'.

Following the tabling of this report, we received many requests to present to hospitals and health services on the findings and recommendations from our audit.

Working to improve the management of the Caulfield Racecourse Reserve

A new bipartisan working group was established in March 2016 to conduct an independent review of the Caulfield Racecourse Reserve Trust, following our 2014 report Management and Oversight of the Caulfield Racecourse Reserve, which found that the reserve trustees had not managed the reserve effectively. The report also found that there had been insufficient attention given to use of the reserve for recreational pursuits and as a public park.

The working group, which reported to the Minister for Environment, Climate Change and Water, was established after calls from Caulfield State Liberal MP David Southwick, to find an 'agreed way forward on a new governance model for the Caulfield Racecourse Reserve'. The group would work with key stakeholders to 'establish a more robust accountable model', and provide independent advice on the long-term management of the Caulfield Racecourse Reserve.

Having completed its report in late August 2016, the bipartisan working group found that the current trustee structure was 'unworkable', and suggested that the government request the resignations of the trustees and establish a new independent body to manage the reserve, in order to accelerate implementation of required actions.

'This historic issue has been languishing for far too long and requires decisive action. We must ensure there is a balance between the needs of the racing community and local residents.'

— The Hon Lily D'Ambrosio, Minister for Energy, Environment and Climate Change

Corrective actions at alpine agencies

Our Portfolio Departments and Associated Entities: Results of the 2013–14 Audits report identified the following issues at Lake Mountain and Mount Baw Baw alpine resorts:

The relevant agencies took prompt and specific action to remedy these issues following the tabling of our report. We carried out a follow-up audit of these issues as part of our 2014–15 financial audits and found significant improvements, indicative of management's commitment to taking corrective action to resolve the issues we identified. In addition, the boards responsible for managing Lake Mountain and Mount Baw Baw were merged in April 2016 to improve governance at the two respective resorts.

Increasing consumer protection for building construction

Our May 2015 report Victoria's Consumer Protection Framework for Building Construction assessed the effectiveness of the consumer protection framework for domestic building construction. Our audit also examined the performance of the Victorian Building Authority (VBA), the Building Practitioners Board, Consumer Affairs Victoria and the Victorian Managed Insurance Authority, as the work of these bodies is critical to regulating domestic building and protecting consumers.

Following the audit, the government announced in March 2016 that it was establishing the Domestic Building Resolution Service, and replacing the Building Practitioners Board with the VBA. The VBA will be given new powers to direct builders to fix work that does not comply with regulations or is defective. Furthermore, Parliament passed the Building Legislation Amendment (Consumer Protection) Act 2016, which improved registration standards and allowed the VBA to attach conditions to registration, restricting the scope of work that a builder can perform.

'The VAGO May 2015 report on Victoria's Consumer Protection Framework for Building Construction has once again criticised the current system for providing inadequate protection to consumers. This bill responds to VAGO's report, as well as earlier reports …'

—The Hon Richard Wynne, Minister for Planning

'The government would like to acknowledge that there are longstanding flaws in the Victorian building system, as particularly identified by the Victorian Auditor-General in May last year. We need to act now to protect consumers as we know that when things go wrong the system is failing the community.'

—The Hon Philip Dalidakis, Minister for Small Business, Innovation and Trade

Addressing Occupational Violence

Our May 2015 report Occupational Violence Against Healthcare Workers contained a number of recommendations aimed at facilitating better and healthier workplaces.

Following the audit, the government committed to addressing occupational violence, particularly in the healthcare industry. The government has subsequently delivered specific initiatives, including:

In September 2015, health services also became eligible to apply for funding to reduce and prevent violence, as part of the allocation of $20 million to the Health Service Violence Prevention Fund, established by the government.

In addition, the government further committed to meeting all the state's public health boards to discuss the health and safety of their organisations, and to consider additional strategies to mitigate key risks.

'I was the lead facilitator at yesterday's Corrections Victoria Occupational Violence summit, which was held at Melton. I sat in the audience and heard your [staff's] presentation … [the] presentation was fantastic, [your staff] spoke really well and more than anything, [the] messages came across terrifically well. By far, the consensus of all of the people I spoke with was [VAGO's] session was the stand out for them… congratulations, outstanding presentation, very impressive indeed.'

—Paul Stevens, Manager Integrity Operations, Office of the Racing Integrity Commissioner

Increasing the transparency of the Environmental Contribution Levy

Our June 2014 report Administration and Effectiveness of the Environmental Contribution Levy found that the information published about the levy's purpose, activities and outcomes was limited and, consequently, information about how the levy was used was not transparent.

Following this, the government developed a discussion paper that examined the effectiveness of environment contribution investments in waterway health. The Minister for Water, the Hon Lisa Neville, confirmed that 'there were substantial improvements recommended in the transparency following this report'. The Minister also highlighted her confidence that: 'we will be able to, at the end of this, have a water plan, an implementation plan, targets, budget measures against that and be able to report back to not just the Auditor-General but, most importantly, back to Victorians who are making the contribution.'

Government policy, standards and legislative inputs

Holding agencies to account—Transparency in Government Bill 2015

Our March 2015 report Emergency Service Response Times assessed the accountability of emergency service organisations, the Department of Health & Human Services, and the Department of Justice & Regulation for their response time performance. We found that while response time performance had largely been stable throughout the last three years, multiple problems with emergency response time measures, targets and data prevented Parliament and the public from holding agencies fully to account.

Following our report, the government developed the Transparency in Government Bill 2015 (the Bill) which was presented to Parliament in April 2016. The Bill establishes a framework for the release of response times and performance data, by requiring the response times of ambulances and fire services in each local government area for prescribed emergency incidents to be published every three months.

'What this bill attempts to do is address the need to improve the public reporting of emergency services response times, as outlined in the 2015 Victorian Auditor-General's Office Emergency Service Response Times report. The Victorian Auditor-General's Office noted that there is limited public reporting of the actual number of minutes it takes to respond to urgent calls to the public and that a focus on only reporting high-level state-wide data means that there is little understanding of how performance varies across Victoria. VAGO identified a need to report on response times in a way that government, Parliament and the public can understand, rely on and use.'

—Frank McGuire, Member for Broadmeadows

Responding to the needs of vulnerable children and families—Children Legislation Amendment Bill 2016

Our March 2014 report Residential Care Services for Children found that the residential care system had insufficient capacity and capability to respond to the demand and growing complexity of children's needs. We also found that current staffing models did not provide sufficient quality and stability of care for children.

Following our May 2015 report Early Intervention Services for Vulnerable Children and Families, the government confirmed its commitment to improve services for vulnerable children and families, announcing a package of new measures that included:

In its 2016–17 Budget, the government allocated an additional $168 million to the Roadmap for Reform package for vulnerable children and families. Also, the Children Legislation Amendment Bill 2016 was introduced to Parliament in March 2016.

Our 2016 follow-up audit Residential Care Services for Children found that the Department of Health & Human Services had initiated adequate action to address all of the recommendations and underlying issues in our 2014 report. Actions implemented to date have had a positive impact on reducing the number of children in residential care and have improved how the respective department oversees the performance of its service providers.

Resources allocated

Strengthening our biosecurity

The government announced an investment of $25.6 million into the livestock and horticulture industries as part of its 2016–17 Budget, following our August 2015 report Biosecurity: Livestock, which found that Victoria's ability to respond to a livestock disease outbreak had been weakened by a decline in financial and staff resourcing for core biosecurity functions. The government also committed to acting on our recommendation to introduce a new electronic traceability system for sheep and goats, which will improve the traceability of livestock.

The Minister for Agriculture, the Hon Jaala Pulford further confirmed that we had exposed our industries to unacceptable risk, and that 'it has been a real priority for me to rebuild that capability, and we will need to continue to work to this end'.

In addition, our report informed a review by Australian agricultural ministers of the national biosecurity system, and underpinning Intergovernmental Agreement on Biosecurity. Representatives from our office were invited to discuss with the review panel the findings of our report, and the biosecurity challenges and opportunities the national review might address.

Increasing the effectiveness of our catchment management authorities

Our September 2014 report Effectiveness of Catchment Management Authorities found that catchment management authorities faced significant and escalating challenges if they were to maintain and enhance long-term land productivity, while also conserving the environment. The report also found that while existing catchment management approaches were delivering some gains, they were inadequate to meet these challenges.

Following the report, the government launched the first statewide strategy for integrated catchment management—Our Catchments, Our Communities (the Strategy). The Strategy confirms the government's commitment to managing our catchments to benefit our environment, and focuses on the management of the state's natural resources by ensuring catchment management partners work better together.

The Minister for Water, the Hon Lisa Neville highlighted that the Strategy will 'set that vision and framework for how [catchment management authorities] will work again in each community, backed up by the $22 million in the Budget to help implement the recommendations out of VAGO'.

Improving the condition of our regional and rural schools

Our February 2013 report Implementation of School Infrastructure Programs found that more than 5 000 individual school buildings were below the Department of Education & Training's accepted standard, requiring further investment to address this issue.

Following the report, the government confirmed that a key focus of its 2016–17 Budget was addressing the condition of secondary schools in rural and regional Victoria. In particular, the Minister for Education, the Hon James Merlino, highlighted that he was 'particularly proud to be able to deliver the funding for those 20 specialist schools'. He added: 'They are in the poorest condition. That was a result of an audit back in 2012'.

Further influence

Helping students with disabilities

The government commissioned an internal review of its Program For Students With Disabilities (the program) in July 2015, following our reports Program for Students with Special Learning Needs, Additional School Costs for Families, and Education Transitions, tabled in August 2012, February 2015 and March 2015 respectively.

The review, which was led by the Department of Education & Training, focused on the transition from primary to secondary school and the specific needs of students with autism and dyslexia. The review aimed to assess the effectiveness of the program, including ensuring that support and resourcing was sustainable, and that the program delivered improved learning and wellbeing outcomes for children and young people with disabilities.

The review was the most comprehensive undertaken since the program's inception, and delivered 20 key findings and 25 recommendations to help the government realise its vision of inclusive education for all students. Following this, the government announced an additional $22 million in funding for this area in April 2016.

Our Key Audit Themes—providing value to agencies

Appendix one summarises common findings from our audit reports. We encourage Victorian public sector agencies to self-assess their performance, systems and operations against the common challenges identified.

Phillip Island Nature Parks is one agency that completed a self-assessment against the common challenges identified in our Key Audit Themes 2014–15. The agency confirmed that it did not find any gaps in its performance, systems or operations following the assessment.

Improving the accessibility and communication of reports

We continually review and update our website to make our reports and services more accessible.

In 2015–16, we continued to publish media releases for all parliamentary reports and recorded short presentations that outline the key findings, conclusions and recommendations of each report. We also updated the form of these presentations to allow people to more easily understand and engage with the key findings of our audits.

Looking forward

Every year, we hope to broaden the impact of our work. In 2016–17, we will continue to engage with our stakeholders through events, one-on-one meetings and briefings.

We will continue to work to strengthen Victoria's accountability framework, by contributing to parliamentary and government reviews of legislation, policies and standards.

We will build on the success of our online recorded presentations, by introducing a new content management system to make our website more functional, usable and accessible.

We will aim to increase the number of face-to-face presentations about the findings of our reports, so that we distribute the key messages more broadly.

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3. Our people

Relevant strategic objectives

People
Fostering a stimulating working environment
Organisation
Leverage our systems and processes to improve our organisational performance

Our people are key to the success of our organisation. We value them and seek to provide rigorous performance planning and management, challenging work, developmental opportunities, flexible work arrangements and a closeknit, collaborative culture. We remain committed to providing a safe and healthy workplace.

Below is an overview of our achievements, challenges and future steps for our office.

Challenges in the year ahead

  • We reported seven injuries but no critical incidents under our OH&S policy. Although this is a reduction on the previous year's result of eight injuries, there is still scope for improvement (page 33)
  • We recorded two lost time claims as a result of OH&S incidents (page 33)

Next steps

  • We will deliver a cohesive and comprehensive learning and development program for our office (page 40).
  • We will review our internal communications processes and improve our communication and consultation practices (page 40).
  • We will continue to be actively involved in the national and international development of public sector audit, especially through our participation in ACAG

Achievements

Our staff are key to our success

Culture Program

The wellbeing of our staff is crucial. We believe in the importance of building and maintaining a positive workplace culture that effectively and decisively deals with the full range of inappropriate behaviours, including bullying and harassment. Following an investigation and release of a Parliamentary report into a bullying and harassment incident within our office in early 2015–16, the former Auditor-General resigned. We undertook a staff survey in December 2015, which had a response rate of 72 per cent. Our staff provided positive feedback about their work/life balance and physical work environment. Many staff members commented on the flexibility in their work arrangements and the capacity to manage 'work around life'. The results from the survey identified workplace culture as a key issue, and identified five key priority areas in consultation with staff at a number of meetings. These priority areas are the focus of our Culture Program.

Leadership

This encompasses the Leadership Group and other leaders within the office building individual and team capability to deliver the organisation's vision and the concept of 'one office'. This includes better communication and knowledge‑sharing.

In 2015–16, we reviewed our approval processes and delegations, and made recommendations to reduce internal red tape.

Behaviours and values

This includes redefining our approaches to inappropriate behaviour, agreeing and modelling the behaviour we want to see at our Office (and how our values support this), and reviewing how we recognise our staff.

In 2015–16, we engaged the Australian Human Resource Institute to train all our staff to recognise and work to eliminate bullying and harassment.

Practice management

This includes a focus on strategic, resource and budget planning, and delivering timely corporate activities.

In 2015–16, we rolled out our revised Performance Audit methodology, which included system updates and training.

People management and development

This includes reviewing our learning and development processes, and delivering a cohesive and comprehensive program that fulfils the collective and separate needs of our business units.

In 2015–16, we established a Learning and Development working group.

Organisational cohesion

This includes developing behaviours and processes that foster cross‑collaboration and reducing a 'silo' mentality within the office.

In 2015–16, we reviewed our grievance policy and processes, and revised policies to provide greater clarity about methods of informal dispute resolution and interconnections between related policies.

In 2016–17, activities aimed at improving culture will be continued, including:

Staff profile

At 30 June 2016, we had 199 staff, with 178 ongoing staff—about 168 full-time equivalents (FTE) and 21 fixed-term or casual staff. Figure 6 shows how many employees we had at 30 June 2016. Appendix three contains more information about our staff numbers.

[Figure 6] Headcount at 30 June 2016

Headcount at 30 June 2016

Note: Staff on leave without pay or absent on secondment, external contractors/consultants, and temporary staff employed by employment agencies are excluded.

As shown in Figure 7, our office is evenly balanced in relation to the age and gender of staff. Our recruitment strategy is based on merit, and we have a diverse mix of employees who come from a wide range of backgrounds, experiences and cultures.

[Figure 7] Age and gender pyramid, snapshot of staff at 30 June 2016

Age and gender pyramid, snapshot of
staff at 30 June 2016

Staff qualifications, development and training

Our staff are professionally qualified and accredited in a broad range of disciplines. The results of the 2015 Victorian People Matter Survey indicated that 62 per cent of public sector employees had a bachelor's degree or higher qualification. Eighty-two per cent of our staff have a bachelor's degree or higher qualification. Figure 8 provides an overview of our staff's qualifications.

[Figure 8] Our staff's educational qualifications

Our staff's educational
qualifications

Our financial auditors are required to obtain professional accounting accreditation from CPA Australia, Chartered Accountants Australia and New Zealand (CA), or a similar overseas organisation. In 2015–16, 32 of our staff had CPA accreditation (including two CPA Fellows), 34 had CA accreditation (including one CA Fellow), and one had accreditation from an overseas organisation.

Beyond holding qualifications in accounting and finance, other areas in which our staff hold qualifications include:

Our business plan allows for at least five days of training per staff member a year. In 2015–16, our staff spent, on average, 6.1 days in training, compared to 8.1 days in 2014–15 (see Figure 9). As the technical training curriculums for our two largest business units (performance audit and financial audit) were both being reviewed and updated, this decrease was expected.

[Figure 9] Average number of days staff spent in training and cost of training, 2011–12 to 2015–16

Average number of days staff spent in
training and cost of training, 2011–12 to 2015–16

In 2015–16, we set up a Learning and Development Working Group as part of our wider objective to deliver a cohesive and comprehensive Learning and Development program for our office, and in response to feedback from our staff survey. The working group is responsible for developing, delivering and maintaining a cohesive and comprehensive learning and development program and associated frameworks.

Performance planning cycle

In the 2015–16 performance review cycle, improvements were made to the performance development plan process to ensure that management and staff clearly understand performance expectations.

To support this change, we revised position descriptions, in consultation with staff, to establish the key responsibilities and Careers@VAGO capability profile for each role. The position descriptions then formed the basis of the objectives and measures aligned to business unit plans that employees set in their performance development plans.

Careers@VAGO Leadership Development Program

The Careers@VAGO Leadership Development Program aims to develop our people into leaders who are strategic thinkers, with adaptable, responsive and resilient mindsets. We expect our leaders to be able to coach, mentor and train staff, and build flexible, collegial teams. Our Leadership Development Program is based on four key leadership dimensions—strategic thinking, execution of goals, proficiency, and integrity—and has been developed with on-the-job learning principles in mind.

In 2015–16, 15 emerging leaders from our office participated in a 360-degree feedback process. This process informed the development of tailored learning and development plans for participants. As our first cohort complete their plans throughout 2016–17, we will review this program as part of our wider objective to deliver a cohesive and comprehensive Learning and Development program for our office.

'I am currently participating in VAGO's first Leadership Development Program and I'm finding the experience to be expanding my horizons. While it is still early days, I have undertaken the 360-degree feedback for the first time in my life, and this gave me a clear sense of my strengths and areas for development. I have also attended a fantastic training session on self-confidence for women, which was an eye-opener, and challenged my own beliefs and assumptions. I have many elements to achieve as part of my bespoke Learning and Development plan, and I'm finding that each element is a piece in the puzzle which is enabling me to develop my leadership skills further than I had thought possible.'

—Stephanie Briskin, Manager, Policy and Legislation

Professional qualifications

Our office supports lifelong learning and development through our Study Assistance Program, which reimburses study fees and provides study and examination leave.

Study assistance

In 2015–16, 34 staff members accessed study assistance. Of those, 19 utilised both study leave and financial help, and 21 were continuing their CPA or CA studies. Staff members also studied for other qualifications, including a Master of Science (Applied Statistics), Master of Social Policy, Master of Public Policy and Management, Master of Commerce, Master of Business Administration, Graduate Diploma of Government Law, Graduate Diploma of Applied Corporate Governance and Diploma of Business.

'I have been undertaking a Masters in Commerce (Human Resource Management) at Swinburne University since 2014. My study has provided me with the opportunity to enhance my intellectual capability, and my theoretical and practical knowledge of the Human Resource field. Having completed 11 of 12 subjects that relate to human resource management, organisational behaviour, leadership and change, people development and employee relations, study leave has allowed me to prepare and attend assessments, and will assist me to complete my Masters in October 2016.'

—Kitty Gordon, People and Culture Officer

Secondments

Internal

Where appropriate, we encourage our staff to undertake secondments to other business units within the office, to broaden their professional experience and organisational knowledge. In 2015–16, nine staff members undertook internal secondments.

'In January 2016 I commenced a 12-month secondment to the Standards and Quality team. As part of my secondment, I have gained exposure to a number of opportunities which have included connecting with other audit offices, attending round table discussions arranged by standard setting boards, developing training materials, and providing training on our financial audit methodology to staff and contractors commencing with our office.

'This secondment has also provided me with the opportunity to develop relationships with members of other teams that I had not previously worked with and to gain a greater understanding of the roles and functions of the different business units of the office. In addition, I have worked on a range of projects and provided advice in relation to financial auditing, giving me the chance to look at a wide range of auditing issues which has significantly contributed to my own professional development.'

—Jessica Cross, Secondee from the Financial Audit team to the Standards and Quality team

External

In 2015–16, four staff members were seconded to external organisations—one each to:

We support our staff members taking these opportunities to broaden their professional experience and expand their skillsets, which will be invaluable to the office when they return.

Merit and equity

We reviewed our policies and procedures to better support the organisational commitment we made in 2015–16, to make our workplace free from discrimination, harassment and bullying. This work has tied in closely with our other culture improvement projects, including updates to our:

We also abide by the Victorian Charter of Human Rights and the Code of Conduct for Victorian Public Sector Employees of Special Bodies.

Occupational health and safety

Our office places an emphasis on individual health. In 2015–16, we continued our efforts to strategically identify and manage hazards to psychological health. We have an OH&S policy and a range of supporting policies, as well as a workplace injury or illness guideline that aims to ensure that all our staff remain safe and healthy at work. In 2015–16, we carried out a WorkSafe review of our OH&S policy.

In October 2015, our office further supported a 'mental health month', a month-long program of activities and events aimed at raising awareness, encouraging discussion, and promoting positive mental health among staff in the workplace.

We also partnered with an external risk management consultancy to provide strategic advice and guidance regarding work-related injury and illness, and managing the return to work of staff members on extended leave.

With greater focus on OH&S and recognising its importance within our office, OH&S matters were added as a standing item to business unit meeting agendas.

Currently, we are only able to compare OH&S data for four years because of changes in operations and systems. In 2015–16, seven OH&S incidents were reported (one less than in 2014–15), an incident rate of 3.3 per 100 FTE. In the past three years, the number of reported incidents has remained stable.

In 2015–16, two standard WorkCover claims were lodged, as shown in Figure 10.

[Figure 10] WorkCover claims, 2012–13 to 2015–16

Claims and rate

2012–13

2013–14

2014–15

2015–16

No. of standard claims(a)

0(b)

0

3

2

Rate per 100 FTE

0.0

0.0

1.3

1.0

(a) Data from the Victorian WorkCover Authority (VWA). Standardised claims are those that have exceeded the employer excess or are registered as a standard claim and are open, with no payments at the time of extraction.

(b) The 2012–13 data has been revised to report accurate figures in line with VWA data. Previously, we had reported two claims for 2012–13, but these claims were not standardised claims.

In 2015–16, we recorded two lost time claims. As shown in Figure 11, the average cost of claims was $211 807.

[Figure 11] Lost time and average cost of claims, 2012–13 to 2015–16

Lost time and cost

2012–13

2013–14

2014–15

2015–16

Number of lost time claims(a)

0

0

3

2

Average cost of claims

$0(c)

$0

$43 343(c)

$211 807(b)

(a) All data from VWA. A lost time claim is a standardised claim one with one or more days compensated by the VWA (after employer excess) at the time of the extraction. Previously, VAGO reported the number of actual lost time days. Now we report the number of lost time claims to ensure the privacy of claimants.

(b) Based on claims reported between 1 July 2015 and 30 June 2016. Claims include employer and VWA payments to date plus an estimate of outstanding claims costs (further costs as calculated by the VWA's statistical case estimate model).

(c) This historical data has been replaced with correct costings as supplied by VWA. Previously, VAGO made claims cost calculations using internal payment data, which did not include all claims costs paid.

Occupational Health and Safety Committee

The OH&S Committee is a consultative group made up of trained Health and Safety Representatives, a Human Resources representative, and a Leadership Group representative.

The committee provides a forum at which management and employees can identify, discuss and resolve health and safety issues. The committee also provides guidance and OH&S-related recommendations to our Operations Committee and Leadership Group, to assist in the facilitation of a safe working environment.

During 2015–16, the committee:

Our performance towards meeting OH&S performance indicators is shown in Figure 12.

[Figure 12] Performance against OH&S performance indicators, 2015–16

Performance indicator

Result

Performance

All new and existing staff are offered ergonomic assessments and required products are sourced and purchased.

All staff have been offered an ergonomic assessment within two weeks of starting work at VAGO.

All claims received are lodged with WorkCover within 10 working days.(a)

One out of three claims was lodged outside this time frame.

All reported incidents and accidents are followed up within 24 hours and closed as soon as practicable.

100 per cent.

Return to work plans are in place, as soon as practicable and regularly monitored until complete.

100 per cent.

Report on the number of claims and costs is provided to the Leadership Group as required.

Reported as required.

Coordinate and chair the OH&S Committee and schedule quarterly meetings.

Four meetings held in 2015–16, meeting the requirements of the Occupational Health and Safety Act 2004.

(a) This performance indicator has been revised from five working days to 10 in line with WorkSafe requirements.

Note: ✔ Target achieved or exceeded. ■ Target not achieved—exceeds 5 per cent variance.

OH&S training

In 2015–16, all Health and Safety Representatives and First Aid Officers were appropriately trained in their respective roles. Our office also has a staff member trained as an Equal Opportunity Contact Officer.

In 2016–17, we will launch a revised OH&S compliance e-learning module for all employees to complete.

Staff Consultation Committee

Members of the Staff Consultation Committee (SCC)—formerly called the Staff Consultation and Development Group—act as a conduit between staff and the Leadership Group.

The committee includes staff representatives from a range of levels throughout the organisation, with at least one representative from each business unit. Ex-officio members include a representative from People and Culture, the Assistant Auditor-General, Standards and Quality, and the Acting Auditor-General/Chief Executive Officer.

The Executive Director, Governance, Legal and Strategy has line of sight on behalf of the Leadership Group over the SCC's activities and initiatives, to enable clear reporting lines and accountability. The SCC also provides periodic updates to the Operations Committee.

Staff can use the SCC to provide anonymous feedback on the work and culture of our office. The SCC meets every two months and schedules special meetings as required. Non-members are also welcome to attend meetings, suggest agenda items, make presentations to the group, and approach SCC members at any time in complete confidence.

The SCC's objectives are to:

In 2015–16, the SCC:

In 2015–16, the SCC sought to play a more prominent role in activities that influenced the culture of our office. This is reflected in the projects it has undertaken.

Recruitment and retention

In 2015–16, our staff continued to demonstrate their resilience while delivering quality outcomes, despite being impacted by delays in the filling of vacancies that affected the adequate resourcing of some projects. Consequently, we commenced a full review into our recruitment policies and practices to clarify and streamline our approach to reducing the time it takes to fill vacancies. This work will conclude in early 2016–17, and the results will feed into our strategic recruitment model.

Our strategic recruitment model is aimed at attracting and retaining candidates for difficult-to-fill roles, particularly those requiring specific expertise within our Performance Audit business unit.

In addition, potential candidates can register their interest for roles within our office, including graduate and internship positions, on our website, at any time.

'In 2015–16, I undertook a 200-hour internship with the Performance Audit business unit at VAGO as part of a placement requirement for an Executive Internship subject for my tertiary studies. At the time, I was completing a Masters in Public Policy and Management at the University of Melbourne, and worked on the planning phase of the Regulating Gambling and Liquor audit.'

'On completion of my placement with VAGO, an Associate opportunity was available and I was recruited into this role within the Performance Audit business unit. VAGO continues to support me in my new role through on-the-job training and other development activities.'

—Zoe Parer-Cook, Intern

Staying in touch

We also have a number of ways to stay in touch with employees on extended leave—such as leave without pay or maternity, partner or long service leave. These ways include sending them our monthly internal newsletter, Voice of VAGO, and any 'All Staff' communications, and all pertinent team-related information such as recruitment activity and significant business unit updates.

Staff departures, turnover and exemptions

A shown in Figure 13, our staff turnover was 15.4 per cent in 2015–16. This is a decrease from 17.4 per cent in 2014–15, which suggests a stabilisation of our workforce after a significant period of uncertainty. The turnover figure is slightly lower than the Australian average of 16 per cent.1 When comparing the last five years of departures and turnover data, it is clear that the exceptionally low turnover we experienced in 2012–13 was unique.

[Figure 13] Staff departures and turnover

Year

Number of employees

Full-Time Equivalent (FTE)

Voluntary turnover rate

(per cent)

Ongoing

Fixed-term and casuals

Ongoing

Fixed-term

2011–12

21

12

19.7

11.8

11.9

2012–13

7

3

6.3

2.7

5.6

2013–14

17

6

16.9

6.0

12.4

2014–15

26

6

25.2

6.0

17.4

2015–16

22

5

21.8

5.0

15.4

In December 2015, one manager role and one senior manager role did not have to be advertised. Both roles had been submitted to competitive processes as fixed-term contracts, and these contracts were subsequently converted into ongoing roles.

Contributing to capacity-building

We contribute to capacity building in the audit sector through engagement with other Australian and international audit offices.

The Australasian Council of Auditors-General

ACAG members

2015–16 Members of Australasian Council of Auditors-General, from left: Andrew Richardson (South Australia), Julie Crisp (Northern Territory) Rod Whitehead (Tasmania), Peter Frost (VAGO), Lyn Provost (New Zealand), Maxine Cooper (ACT), Colin Murphy (Western Australia), Margaret Crawford (New South Wales), Grant Hehir (Australian National Audit Office), Rachael Portelli (Secretary), Andrew Greaves (Queensland).

In 2015–16, our office continued to be actively involved in the national and international development of public sector audit, through our participation in the Australasian Council of Auditors-General (ACAG).

Involvement in ACAG brings significant benefits, allowing us to:

Highlights of our 2015–16 work with ACAG included:

International engagement

We share insights, systems and practices with international stakeholders to help them grow capacity and knowledge throughout our profession. We do this through direct engagement with auditors and audit offices from other countries, as well as participation in the Pacific Association of Supreme Audit Institutions (PASAI).

Hosted delegations and secondments

In 2015–16, we met representatives of audit offices from Uganda, Japan, Vanuatu and South Korea. We also hosted two auditors on secondment from Papua New Guinea, as part of a program coordinated by the Australian National Audit Office and supported by the Department of Foreign Affairs & Trade. Further information about international delegations is available on our website.

Pacific Association of Supreme Audit Institutions

PASAI is our regional chapter of the International Organisation of Supreme Audit Institutions (INTOSAI). We support PASAI's work on building the capacity of public sector audit offices in the Pacific region.

'Delegates attending the PAISAI/ACAG Regional Working Group on Environmental Auditing in Melbourne, May 2016.'

In May 2016, we hosted the PASAI/ACAG Regional Working Group on Environmental Auditing. Delegates from Australia, Indonesia and the Pacific region shared their emerging practice and recent findings from environmental audit, and considered ways to improve the impact of audits.

At the annual PASAI Congress in Port Vila, Vanuatu, on 13–16 October 2015, our Executive Director, Governance, Legal and Strategy, Dr Marco Bini, presented the keynote address, speaking about how we apply INTOSAI Independence Principles. PASAI has since used our work to produce a toolkit for Pacific Auditors-General, to assess their independence and promote changes to their legislation.

Twinning with audit offices in the Pacific region

Our office participates in a 'twinning' program, designed to provide focused assistance and support, using a framework agreed between ACAG and PASAI. We are twinned with Tuvalu, reflecting the similar relationship between Tuvalu's Parliament and the Parliament of Victoria. In 2015–16, at the request of Tuvalu, we:

Contributing to staff engagement and the wider community

Our office supports staff engagement and contributes to broader community development through the activities of the Social Club, and through our staff's volunteering efforts.

Our Social Club makes a difference

Our Social Club arranges many events and charity drives throughout the year to promote engagement and teamwork and support staff morale. Social Club events are often held after business hours to allow staff who do not regularly interact the opportunity to get to know each other.

The Social Club supports about 12 charities a year. In 2015–16, our staff participated in and hosted a number of fundraising events for charities (see Figure 14).

[Figure 14] Charities supported by VAGO's Social Club in 2015–16

Charity

Amount raised ($)

Tree Project

441.50

Cancer Council

354.35

East Timor Hearts Fund

288.70

Leukaemia Foundation

313.85

Shorter Brothers' fight against Duchenne

463.40

Street Action & Bicycles for Humanity

469.95

Sacred Heart Mission

233.91

Movember

407.81

beyondblue

623.46

Beagle Rescue Victoria

613.61

Autism Spectrum Australia

571.86

Save the Bilby Foundation

309.80

Total

5 092.20

Our donations are appreciated…

'We are grateful for your gift donated on behalf of Max, William and Hudson Shorter.'

—Shorter Brothers' fight against Duchenne

'Thank you so, so much…that's amazing and so generous! It will go straight towards our vet bills and be a big help.'

—Beagle Rescue Victoria

Volunteering

In 2015–16, our staff carried out a diverse range of volunteering activities, including taking part in sporting groups, providing community legal advice and donating blood.

'I volunteer for Bush Search & Rescue Victoria, a division of Bushwalking Victoria Incorporated that assists the Victoria Police Search & Rescue Squad with self-sufficient search groups for overnight searching on foot in rough and in any weather conditions. I often volunteer with searches for lost people in bushland areas and the snow fields.

'Recently, I was involved in the search of a missing person in Victoria's bushland, and have attended training in alpine environments, including the steep snow and ice technical training.

'Volunteering provides me with the opportunity to use my skills and experience to provide an additional benefit to the community. By participating in search call outs and weekend training, I have also been able to further develop my teamwork, communication and initiative skills, whilst supporting the balance between my work and personal life. '

—Rowan Jennion, Assistant Manager, Financial Audit

Looking forward

In 2016–17, we will continue to undertake activities that foster world-class auditing, effective management and leadership, robust performance management, planned ongoing professional development, a safe and healthy workplace and a close-knit, collaborative culture. These activities include:

Our Social Club will explore means for increasing staff engagement, by making it easier for staff who work part-time or are only in the office during specific periods of the day to attend events. It will also cooperate more closely with other VAGO committees and groups in volunteering, and improving environmental performance and health.

Externally, we will continue to be actively involved in the national and international development of public sector audit, especially through our participation in ACAG and PASAI.

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4. Our office

Relevant strategic objectives

Organisation

Leverage our systems and processes to improve our organisational performance

We pride ourselves as being a high-performing organisation. In 2015–16, we worked to streamline our business performance to ensure that we best use our limited resources to make a difference in the community.

Here is an overview of our achievements, challenges and future steps for our office.

Challenges in the year ahead

  • Our internal audit function identified opportunities for improvement in the areas of practice management, assurance mapping, management reporting, ICT vulnerability assessment, audit service provider management and supervision, and knowledge management (page 54).

Next steps

  • We will develop a new ICT strategy (page 58).
  • We will see changes to our organisational structure (page 58).
  • We will review our organisational performance measures to ensure that they provide adequate assurance to Parliament on our operational performance (page 58).
  • We will act on the findings of the 2016 Public Accounts and Estimates Committee audit of our office (page 58).

Achievements

Leadership Group

Our Leadership Group provides advice and counsel to the Auditor-General. It also manages our day-to-day operations, through weekly meetings and regular committee meetings.

Figure 15 shows our organisational chart as at 30 June 2016.

In 2015–16, significant changes to the structure of the executive management team included:

[Figure 15] Executive management organisational chart

Executive profiles

Acting Auditor-General/ Chief Executive Officer

Peter Frost (BA, BLitt, MPhil, MEd, PhD)

Peter was appointed Our Chief Operating Officer in January 2007 and became the Deputy Auditor-General/Chief Executive Officer in 2013. He has also been Acting as the Auditor-General since September 2015, and provides leadership to all of the business units within VAGO.

Peter has extensive senior public sector management experience, gained primarily in the Victorian public sector, higher education and international development with the Commonwealth Secretariat, World Bank and Asian Development Bank.

Assistant Auditor-General, Information Systems Audit

Karen Phillips (BBus (Acc), BComp, MIMS)

Karen joined VAGO in April 2014 and manages the Information Systems Audit business unit. Before this, Karen was a director at PricewaterhouseCoopers, specialising in systems assurance, internal controls, internal audit and business continuity management.

Assistant Auditor-General, Standards and Quality

Matthew Zappulla (BCom, FCA)

Matthew joined VAGO in April 2014 and manages the Standards and Quality business unit. Matthew has oversight of the Technical Issues Committee and Technical Panel, as well being the Leadership Group representative on our Staff Consultation Committee and Challenge Committee. Before this, Matthew was a director at PricewaterhouseCoopers responsible for overseeing the implementation of assurance methodologies and technologies.

Assistant Auditor-General, Financial Audit

Craig Burke (BBus (Acc), FCPA)

Craig was appointed as Assistant Auditor‑General, Financial Audit in November 2014. He is responsible for VAGO's financial audit business unit, and has substantial financial expertise, with more than 30 years in public sector accounting, risk management and auditing throughout several organisations, including the Parliament of Victoria.

Assistant Auditor-General, Performance Audit

Steven Vlahos (BSc, MSc)

Steven joined VAGO in November 2002, and manages the Performance Audit business unit. Steven has substantial performance auditing experience, with more than 15 years in public sector auditing and expertise in several areas, including transport, planning, and local government.

Acting Executive Director, Audit Support Group

Chris Sheard (BArts (Hons))

Chris joined VAGO in July 2003, and has substantial performance auditing experience, with more than 13 years in public sector auditing, and expertise in several areas, including health and human services, justice, education and the environment. Chris has also been Acting Executive Director for the Audit Support Group business unit since February 2016, while the substantive incumbent has been away on extended leave. The Audit Support Group consists of the Finance, Reports and Communications, Information Technology and Services, and People and Culture groups.

Executive Director, Governance, Legal and Strategy

Marco Bini (BCom, LLB, MCom, LLM, MPubPol, PhD)

Marco joined VAGO in September 2007. He is the Executive Director for the Governance, Legal and Strategy business unit, which provides a range of internal policy, governance and strategy services. Marco has significant public sector experience and provides a range of legal, policy and administrative advice to VAGO.

Executive information

Our executive officers are responsible for our office's ongoing activities and deliverables. In 2015–16, no executive officers were involved in carrying out special projects. Information on our executive officers by classification, and reconciliation of numbers is provided in Figures 16 and 17.

[Figure 16] Number of executive officers by classification, at 30 June 2016

Classification

Total (ongoing)

Vacancies

Male

Female

No.

Var.(a)

No.

No.

Var.

No.

Var.

EO1

1

0

0

1

0

0

0

EO2

7

2

0

5

2

2

0

EO3

17

–2

0

10

–2

7

0

Total

25

0

0

16

0

9

0

(a) Var. refers to variance to the numbers reported for June 2015.

Note: The Auditor-General is not included in this table.

[Figure 17] Reconciliation with executive numbers, June 2016 and June 2015

Remuneration and vacancies

2016

2015

Executives employed with total remuneration over $100 000

21

25

Vacancies

0

0

Executives employed with total remuneration below $100 000

7

1

Accountable officer(a)

0

1

Secondment

0

0

Separations

–3

–1

Total executive numbers at 30 June

25

26

(a) Including the Auditor-General, VAGO's Accountable Officer.

Declaration of interests

All our executive officers and business unit managers have completed statements declaring whether their interests, shares in, and other benefits from business enterprises could give rise to a conflict of interest. There were no such conflicts.

Committees reporting to the Acting Auditor-General

Executive remuneration—Remuneration Committee

The Remuneration Committee is responsible for ensuring that we follow our remuneration policy, and for monitoring the executive officer annual performance appraisal process and salary review. This committee comprises the Auditor-General, an independent member and the Manager, People and Culture. In 2015–16, the independent member was Ms Liz Roadley, Director for Enterprising Results, an external company.

Operations Committee

In 2015–16, the Operations Committee, made up of the Leadership Group, focused on:

Before April 2016, the Operations Committee met monthly, after which a decision was made to move to quarterly meetings. Two subcommittees report to the Operations Committee:

Challenge Committee

The Challenge Committee oversees the progress of all Parliamentary reports (see pages 63 and 70 for Performance Audit and Financial Audit respectively).

Accredited Purchasing Unit

The Accredited Purchasing Unit oversees procurement for goods and services (greater than $100 000) throughout all business areas in our office.

Other committees

The Audit and Risk Committee (see page 52) also reports to the Acting Auditor-General.

Working with other integrity bodies

Due to recent changes to our legislation (see page 9), as part of the reform of Victoria's integrity system, our office is interacting more frequently with other Victorian integrity bodies. The Audit Act 1994 largely prevents us from sharing information collected during the course of an audit, and we work within these limitations.

We have commenced our mandatory reporting process and have the capacity to receive referrals, share information with other integrity bodies and conduct coordinated investigations. We also have a representative on Victoria's Independent Broad-based Anti-corruption Commission's ongoing Prevention and Education Advisory Group.

Our commitment to continual improvement

Our office has a range of quality systems and processes in place to help us continually raise our standards and better meet the needs of our key stakeholders. These systems and processes are collectively bound together as part of our quality framework.

A key component of our quality framework is an internal assessment of the maturity of these systems and processes against the Australasian Council of Auditors-General (ACAG) Governance and Audit framework. ACAG's framework covers the requirements of:

The following key quality controls are already incorporated in our audit methodologies:

In addition, the following activities were undertaken in 2015–16 to improve the quality of our financial audits:

Complying with standards issued by the Auditing and Assurance Standards Board

Under the Audit Act 1994, we must comply with the standards issued by the Auditing and Assurance Standards Board. These cover audit planning, communication, conduct, evidence, quality assurance and reporting.

In addition to the rigorous standards and risk-based audit methodologies applied by our Performance Audit and Financial Audit teams (see pages 62 and 69), other quality assurance activities conducted over our audits include:

We comply with all Australian auditing and assurance standards and have developed our audit methodologies based on these standards.

Parliamentary accountability measures

Under the Audit Act 1994, we must consult Parliament's Public Accounts and Estimates Committee when developing our Annual Plan and, in certain circumstances, on specifications for performance audits.

Our office is also subject to both financial statement and performance audits, conducted on behalf of Parliament. Our financial statements are audited every year. The Audit Act 1994 also requires a performance audit of our office every three years to determine whether the Auditor-General is achieving his objectives effectively, and is doing so economically and efficiently, and in compliance with The Audit Act 1994. The Public Accounts and Estimates Committee appoints our performance auditor.

The performance audit of our office currently underway commenced in July 2016. Specific preparations on this front included:

We maintain a Continuous Improvement Register to monitor progress against agreed actions that arise from reviews such as internal audits, post-audit quality reviews, surveys, audit debriefs and external reviews. In addition, our internal audit function annually reviews progress against the commitments our office has made towards the implementation of any internal audit recommendations.

Surveys of key stakeholders

We survey a range of key stakeholders to obtain feedback on our audits and audit reports. The results of these surveys assist us to identify new improvement initiatives and monitor progress on existing initiatives. An independent survey company runs the surveys to better assure the validity of the results. We publish high-level results of the surveys on our website.

Surveys of parliamentarians

Every year, for more than a decade, our office has surveyed parliamentarians to gauge their feedback. The results of this survey contribute significantly to our efforts to continually improve our performance and services.

The results of our surveys of parliamentarians are used as a performance measure of quality for Output Group 1—Parliamentary reports and services. In 2015–16, parliamentarians' overall satisfaction with our office and services remains positive, with a survey score of 86 out of 100, which exceeded our target of 80. Further details regarding our performance for this measure are on page 14.

The survey results also showed that parliamentarians' perceptions of our office's work were highly positive, with 98 per cent of respondents agreeing that the Auditor-General's reports and services provide valuable information on public sector performance. In addition, 89 per cent agreed that the Auditor-General's reports and services help improve public sector administration.

Image lists three results from the MP survey
Quotes from survey of parliamentarians

'I think [VAGO staff] do a great job and it's a fantastic resource.'

'When I have had face-to-face briefings on tabled reports the presentation quality has been very good.'

Surveys of audited agencies

In 2015–16, VAGO surveyed:

We use survey results to assess the impact of activities aimed at increasing the clarity of audit reports, better understand the audited agency's environment, and improve communication with audited agencies.

For performance and financial audit surveys, an overall index score out of 100 is generated, based on three areas—audit process, audit reporting, and value of the audit to the agency.

The performance audit surveys in 2015–16 had an average index score of 71 index points, which is a decrease on the previous year's score of 75.

The financial audit surveys in 2015–16 had an average index score of 75.3 index points. Although this is slightly lower than the score of 76.8 index points when the survey was last run in 2013–14, it remains in line with our benchmark of 75 index points.

Stakeholder survey

In 2015–16, we carried out a pilot survey of stakeholders who were previously consulted as part of the planning phase of our performance audits, to better understand their perceptions of how our audits have acted as a catalyst for change. Results of this survey are currently being considered.

Quality assurance

To seek assurance that our audits meet professional and internal quality standards, the robustness of the audit process and the quality of the final audit report are reviewed.

Review of audit processes
Performance Audit

In 2015–16, external reviewers of several performance audits found that all had complied with performance assurance standards, and recommended only minor changes to internal documents. As part of our Performance Audit Methodology Review project (see page 62), we worked to implement these identified improvements.

The reviewers found that our executives have a high level of control over the quality of tabled audit reports, but that our Engagement Quality Control Review (EQCR) arrangements would benefit from further review. In response, the Standards & Quality group led a review of the EQCR policy, which was finalised by the end of 2015–16.

Financial Audit

We undertake engagement quality reviews of a selection of completed financial audits, including audits undertaken by Audit Service Providers.

Our key performance measure for the quality of our financial audit reports is through the conduct of engagement quality reviews, which aim to uncover any material departures from professional and regulatory standards on our financial audits. Our performance for this measure in 2015–16 is discussed on page 15.

Our engagement quality reviews also identify areas for continual improvement, which guide the development of technical training programs, policies and guidance materials for our financial audit staff.

External assessments of audit reports

Each year a selection of parliamentary audit reports are independently assessed against criteria agreed to by the Australasian Council of Auditors-General (ACAG). The six assessors on the panel bring experience as members of Parliament, senior public servants and journalists. Each audit office selects three assessors to review each report. These assessors receive a copy of the printed report, and are also able to access the report online.

After their review, the panel provides its opinion on how well we communicated our audit findings. The scores are combined with the results from the financial audit reports and are used as a quality measure. Our performance for this measure in 2015–16 is discussed on page 14.

Quotes from ACAG assessors

Bullying and Harassment in the Health Sector (March 2016)

'The authors of the report have done very well to summarise and analyse all the evidence, identify priority areas for improvement and produce a set of recommendations that should ensure greater workplace harmony and safety—as well as better performance—for all concerned.'

Grants to Non-Government Schools (March 2016)

'The report has highlighted the clear absence of goals, outcomes and governance processes around state funding.'

Universities: 2015 Audit Snapshot (May 2016)

'The report seems to identify and deal well with the key areas where improvement is needed.'

Benchmarking our activities

We benchmark our activities against audit offices throughout Australia, and use the results of this benchmarking to identify priority areas for improvement—see Figure 18..

[Figure 18] Comparison of our costs against other state and territory audit offices

While our office performed better than the state and territory average, this result should be interpreted with caution, given the differences between jurisdictions and audit offices. We are confident that we performed well against these benchmarks, particularly considering that we produce a higher proportion of performance audits than most other Australian audit offices.

Improving our information and communications technology

Technological improvements

In 2015–16, we reviewed, implemented and began developing several technologies to improve the effectiveness, efficiency and quality of our operations and services. In addition, we:

Information and communications technology expenditure

Although there were no major technology improvements for our office in 2015–16, there were a number of upgrades and planning conducted for future work, which we will undertake in 2016–17 and beyond.

In 2015–16, we upgraded the records management system, secure document delivery system, employee service portal, and AmP system. Planning work for future ICT improvements included evaluating:

In addition, we established a specialist data analytics team (see page 65).

As shown in Figure 19, during 2015–16, we spent $1.7 million on ICT. This expenditure was expected, and reflects the small size of our organisation when compared to other public sector agencies.

[Figure 19] Details of information and communications technology expenditure

Business as Usual ICT expenditure $'000

Non-Business as Usual ICT expenditure (operational expenditure and capital expenditure) $'000

Operational expenditure $'000

Capital expenditure $'000

1 495

169

73

96

Note: Our ICT expenditure reflects our costs in providing business-enabling ICT services. It comprises Business As Usual (BAU) ICT expenditure and Non-Business As Usual (Non-BAU) ICT expenditure. Non-BAU ICT expenditure relates to extending or enhancing our current ICT capabilities, and consist of both operational ICT expenditure and capital ICT expenditure. BAU ICT expenditure is all remaining ICT expenditure, which primarily relates to ongoing activities to operate and maintain our current ICT capabilities.

Audit and risk management

Audit and Risk Committee chair’s report (year ended 30 June 2016)

The Audit and Risk Committee is appointed by the Auditor-General to provide independent advice to assist him in the discharge of his responsibilities for the management of the Victorian Auditor-General's Office's risk, control and compliance framework, and the external accountability responsibilities as prescribed in the Financial Management Act 1994, the Audit Act 1994 and other relevant legislation and prescribed requirements.

2015–16 Audit and
Risk Committee
members: Lyn Baker,
Sara Watts (Chair),
Derek Parkin,
Joydeep Hor.

2015–16 Audit and Risk Committee members: Lyn Baker, Sara Watts (Chair), Derek Parkin, Joydeep Hor.

All committee members are independent, non-executive members who are appointed by the Auditor-General for a term of three years and are eligible for reappointment subject to a formal review of the member's performance by the Auditor-General. The Audit and Risk Committee has appropriate financial and industry expertise. All members are financially literate and have an appropriate understanding of the operation of the office.

Sara Watts has been Chair of the Audit and Risk Committee since 1 January 2014. The members of the Audit and Risk Committee for the year ended 30 June 2016, their qualifications and attendance at meetings, are set out in Figure 20.

[Figure 20] Members of the Audit and Risk Committee, qualifications and meeting attendance, 2015–16

Committee member

2015–16

Meetings attended

Meetings held

Sara Watts (Chair), BSc, MBA, GAICD, FCPA Non-executive director

4

4

Kerry Jacobs (term ended 31 December 2015), BComm, MCom(Hons), PhD, FCPA, FCA Professor of Accounting, UNSW at ADFA, Canberra

2

2

Lyn Baker, BA, MBA, GAICD Non-executive director and consultant

4

4

Derek Parkin OAM, BComm, CTA, FCA, CPA, FAICD Professor of Accounting, University of Notre Dame Australia, Fremantle

Non-executive director

3

4

Joydeep Hor (commenced 1 January 2016), LLM, LLB(Hons), BA, FCIPD, FAHRI

Managing Principal, People + Culture Strategies, Sydney

2

2

The responsibilities of the Audit and Risk Committee are defined in its charter, which is approved by the Auditor-General.

The responsibilities of the committee include:

In fulfilling its responsibilities at each meeting, the Audit and Risk Committee has received operational management reports, risk management reports and briefings from the Auditor-General on his activities and issues affecting the office.

During the course of the year, the Audit and Risk Committee has considered:

At the time of signing this report the annual financial report for the year ended 30 June 2016 had been considered and recommended for adoption by the Auditor General.

In July 2015, the Audit and Risk Committee provided feedback on the Standing Directions (Directions) to the Minister for Finance for consideration. The issues raised by the committee related to how risk is to be managed within public sector agencies, expertise required of audit committee members, and, potentially, improving the Directions by referring to elements of the Australian Securities Exchange Guidelines and Principles for audit committees. The committee took further action to proactively reflect these items in its own charter.

The Audit and Risk Committee has met in camera with the external financial auditors, the Auditor‑General and the internal auditor. In the last financial year, committee members held a workshop to undertake a comprehensive self-assessment and review the charter and work plan. The current work plan was endorsed and approved at the committee's meeting in February 2016.

In closing, the committee wishes to acknowledge the significant and positive contribution made by the Acting Auditor-General consequent to the resignation of the Auditor General.

Sara Watts's signature

Sara Watts (Chair) 9 August 2016

Risk management

Management of risk is an integral part of our culture and organisational processes. The aim of risk management at VAGO is to identify, understand, communicate and manage risks that could influence the office's ability to achieve its strategic objectives.

To achieve this, we have a risk management policy in place, which is based on and is consistent with the Australian/New Zealand Risk Management Standard: AS/NZS ISO 31000:2009. Our risk management policy incorporates compliance requirements and articulates operational and strategic risks within the organisation.

Risks are captured in either the strategic risk register or in separate business unit risk registers. Business unit heads are responsible for overseeing their business unit's risk management processes and monitoring any changes at the business unit level that may impact the strategic risk register or the organisation.

In 2015–16, the strategic risk register was reviewed, and significant changes were introduced to more appropriately reflect the risks, challenges and opportunities facing our organisation. Key strategic risks facing our organisation include:

Attestation of compliance with the Australian/New Zealand Risk Management Standard

I, Peter Frost, certify that the Victorian Auditor-General's Office (VAGO) has risk management processes in place consistent with AS/NZS ISO 31000:2009 (or an equivalent designated standard) and an internal control system in place that enables the executive to understand, manage and satisfactorily control risk exposures.

The Audit and Risk Committee verifies this assurance and that the risk profile of VAGO has been critically reviewed within the last 12 months.

Peter Frost's signature

Dr Peter Frost
Acting Auditor-General
Victorian Auditor-General's Office

9 August 2016

Attestation of compliance with the Ministerial Standing Direction 4.5.5.1—Insurance

I, Peter Frost, certify that the Victorian Auditor-General's Office (VAGO) has complied with Ministerial Direction 4.5.5.1—Insurance.

Peter Frost's signature

Dr Peter Frost
Acting Auditor-General
Victorian Auditor-General's Office

9 August 2016

Internal audit

PricewaterhouseCoopers has been appointed as our internal auditor for the period July 2015 to June 2018. The internal auditor reports to our Audit and Risk Committee and the Auditor-General. The following reviews were carried out in 2015–16:

The internal auditor also attended each meeting of our Audit and Risk Committee where reports were being considered, and provided a report on the status of the internal audit program, as required.

Compliance with legislation and policy

We must comply with a range of state and Commonwealth legislation and policy, and report on our compliance in this report.

Audit opinion delegations

Under the Audit Act 1994, the Auditor-General can delegate the authority to sign audit opinions (section 7G(1)) and must report the names of people to whom these powers have been delegated.

Under our current 'Audit Opinion Delegations' policy, the Auditor-General signs the audit opinions on the financial reports of:

The Auditor-General also signs any modified opinions, and the opinions for agencies whose financial operations are significant in economic and infrastructure terms for whole of government.

To be eligible to receive a delegated power to sign audit opinions (see Figure 21 for delegations in 2015–16), a staff member must have all of the following:

Audit opinions delegations by role and individual (including acting roles), 2015–16

Financial Audit, Assistant Auditor-General

Craig Burke

Financial Audit, Sector Directors

Simone Bohan

Travis Derricott

Stan Naylor

Tim Loughnan

Ronald Mak

Anna Higgs

Roberta Skliros

Charlotte Jeffries

Jonathan Kyvelidis

Tim Maxfield

Financial Audit, Acting Sector Directors

Peter Gallagher

Standards and Quality, Assistant Auditor-General

Matthew Zappulla

Standards and Quality, Director

Paul Martin

Managing and responding to complaints

Our policies 'Complaints about the conduct of audits' and 'Complaints about matters other than audits' require us to make publicly available an annual summary of complaints received and any trends arising.

In 2015–16, we received one complaint under the 'Complaints about the conduct of audits' policy. We acknowledged this within the required five business days and responded to it within four business days, well within the 28 business days allowed within the complaints policy.

We did not receive any complaints under the 'Complaints about matters other than audits' policy.

Due to the minimal number of complaints made in previous years under both policies (less than five in total), no further trend analysis is available.

Overseas travel

All overseas travel by our staff must be approved by the Auditor-General. In November 2015, a performance audit senior manager was sent to New Zealand to attend the Pacific Association of Supreme Audit Institutions Co-operative Audit Workshop.

In addition, as outlined on page 38, the Executive Director, Governance, Legal and Strategy, also attended the annual PASAI Congress in Vanuatu in October 2015, and presented a paper titled Applying INTOSAI Independence Principles: The Australian Experience', which compared the independence of audit offices in Australia.

Environmental management

Our office aims to minimise our:

We are committed to continually improving our environmental performance and do this by encouraging environmental awareness and integrating environmental performance monitoring and reporting into our business. We expect all our staff to support our environmental commitments.

Governance

In 2015–16, a review of our Environmental Management Committee found that a committee structure was no longer necessary to manage the reporting and awareness campaigns, but that a single role championing these activities would be more appropriate. The role of Environmental Representative was subsequently created as a formal role within our Social Club Committee.

Environmental performance

VAGO monitors and analyses its environmental performance against seven focus areas to help us to understand our environmental impact, identify areas to improve, and allow us to benchmark our performance against other jurisdictions.

Environmental management statistics

Looking forward

As part of the coming year, we will see changes to our organisational structure, which will reflect our new priorities and areas of audit interest. In consultation with the new Auditor-General, we will:

We will consider the outcomes of the triennial Public Accounts and Estimates Committee performance audit, and implement and monitor progress against any agreed actions.

[ Contents of this report | VAGO Home | VAGO Publications ]

5. Performance audit

Relevant strategic objectives

Reports and advice

Being authoritative and relevant

Parliament

Being highly regarded by Parliament Here is an overview of our achievements, challenges and future steps for our Performance Audit business unit.

Challenges in the year ahead
  • Our significant turnover and staffing challenges require us to be innovative in our structure and delivery of our work program (page 36).
  • Our average indexed ratings for questions about audit value was decreased by 10 per cent, from 74 per cent in 2014–15 to 64 per cent in 2015–16, with audit clients less likely to agree that the audit would help them to improve the performance of the audited activity (page 64).
  • Our average index score for performance audit reporting decreased by 3 per cent, from 76 per cent in 2014–15 to 73 per cent in 2015–16, with agencies’ perceptions about the balance and fairness of our reports affecting the score (page 64).
Next steps
  • We will focus on our six improvement projects, which will enhance the quality of our performance audit practices (page 66).
  • We will continue to build advanced data analytic capabilities throughout our office (page 66).
  • We will review our approach towards the selection of follow-up audit topics (page 66).
  • We will review and update our audit procedures as appropriate, to account for our new ‘follow-the-dollar’ powers (page 66).
  • We will work with other jurisdictions to develop a strategy for the way we conduct concurrent audits (page 66).

Achievements

What we do

Our performance audit program provides assurance to Parliament and the public on the effectiveness, efficiency and economy of public sector agencies' operations and activities, and the extent to which they are complying with relevant legislation.

Performance audits may examine all or part of an agency's activities, or the activities of a number of agencies. Our audits can find examples of better practice and can identify opportunities for improvement.

Below is a list of all performance audit reports tabled during the year.

August 2015

Unconventional Gas: Managing Risks and Impacts

Applying the High Value High Risk Processes to Unsolicited Proposals

Biosecurity: Livestock

Follow up of Management of Staff Occupational Health and Safety in Schools

Follow up of Managing Major Projects

Follow up of Collections Management in Cultural Agencies

September 2015

Realising the Benefits of Smart Meters

Regional Growth Fund: Outcomes and Learnings

October 2015

Department of Education & Training: Strategic Planning

Delivering Services to Citizens and Consumers via Devices of Personal Choice: Phase 2

December 2015

Access to Public Sector Information

Implementing the Gifts, Benefits and Hospitality Framework

East West Link Project

Responses to Performance Audit Recommendations 2012–13 and 2013–14

February 2016

Victorian Electoral Commission

Public Safety on Victoria's Train System

Hospital Performance: Length of Stay

Administration of Parole

March 2016

Local Government Service Delivery: Recreational Facilities

Bullying and Harassment in the Health Sector

Patient Safety in Victorian Public Hospitals

Digital Dashboard: Status Review of ICT Projects and Initiatives – Phase 2

Grants to Non-Government Schools

May 2016

Reducing the Burden of Red Tape

Monitoring Victoria's Water Resources

Managing and Reporting on the Performance and Cost of Capital Projects

June 2016

Follow up of Residential Care Services for Children

Follow up of Asset Confiscation Scheme

Follow up of Recreational Maritime Safety

We tabled 29 of the 35 performance audit reports listed in our Annual Plan 2015–16, three more than our target of 26 performance audit reports. The 29 reports consist of 27 performance audit reports and two Information Systems Audit reports.

Four audits originally planned for delivery in 2015–16 were deferred to either 2016–17 or 2017–18:

Prospective audits 'University student management systems' and 'Administration of court non-judicial functions', originally scheduled to be completed in 2015–16, were discontinued after further assessment of the proposed topic.

How we do it

The quality of our performance audits is measured and monitored through our performance audit program quality framework.

The quality framework includes:

Selection of performance audit topics

We seek to maximise the impact of our performance audits. As part of the process for shortlisting potential topics, we assess the risk and materiality of the activity proposed for examination.

We also consider:

In 2015–16, we reviewed and strengthened our topic selection framework to increase its rigour, by introducing the following additional criteria:

Figure 22 provides a high-level illustration of our performance audit topic selection framework.

[Figure 22] Selection of performance audit topics

See the Annual Plan 2016–17 for more discussion of VAGO's performance audit topics.

Stakeholder consultation and engagement

We consult widely with parliamentarians, public sector agencies and the community to gather information and ideas, and to discuss the merits and approach of potential audit topics. This helps us target our audits, both at a whole-of-government level and within sectors.

We analyse feedback from stakeholders and the community to identify themes that recur and are highly relevant to our mandate. These themes are fed into our annual planning process for consideration.

Parliament plays a significant part in shaping our audit program. In our 2016 parliamentary survey, half (52 per cent) of all respondents made suggestions in relation to areas for us to focus on, most of which we can group into four main areas:

With our thorough approach to gathering and analysing information, briefing agencies and clearing proposed audit reports, each audit typically ranges from six to 10 months in duration. This is why we include a two-year program in our Annual Plan.

After we have consulted on the specification of an audit as part of our annual planning process, we will typically undertake more detailed planning and scoping to refine the criteria and lines of inquiry related to the audit. We normally do this by gathering and reviewing relevant documents and consulting key stakeholders, including agencies, interest groups, academics and others about key matters. We then finalise the specification before commencing the conduct of the audit.

Resourcing our audits

Our performance audits are typically delivered by in-house staff who are trained internally. From time to time, we engage experts to advise our performance audit teams on complex and technical issues.

Standards-based performance audit methodology

We carry out our performance audits using our AmP system, an electronic database which was developed in-house. AmP is used to document work and evidence and assist to manage and review audits.

AmP contains policies, guidance and standard procedures that align with the auditing standards set by the Australian Auditing and Assurance Standards Board.

In 2015–16 VAGO completed an AmP Review project to update our methodology, practice and policies, including the provision of AmP guidance to staff.

Challenge Committee

Our Challenge Committee oversees the progress of audits and clarifies any ambiguities to ensure the quality, accuracy, logic and rigour of an audit to determine whether it should progress to the next stage. The committee adds value to the audit process, and to the office more broadly, by identifying opportunities to improve internal processes and common themes in audits.

Debrief process

When a performance audit is completed, we debrief to identify key lessons, issues, and opportunities for improvement. Each audit debrief is considered and discussed by our Challenge Committee.

The lessons and outcomes from audits are shared with staff and used to inform staff training materials.

In 2015–16, several continual improvement actions were identified through the debrief process. These covered a range of areas, including:

Quality assurance

To seek assurance that our audits meet professional and VAGO quality standards, the robustness of the audit process and the quality of the final audit report are reviewed. See page 49 for further information.

Feedback from audited agencies

For every performance audit, we undertake a postaudit survey to find out if audited agencies found the audit valuable. These surveys tell us whether the audited agencies believe the audit will help them to improve their performance.

For performance audits tabled in 2015–16, the average indexed ratings for questions about audit value was 64 per cent, a decrease from 74 per cent in 2014–15. While mostly positive, audit clients were less likely to agree that the audit would help them to improve the performance of the audited activity.

We also ask audited agencies about the performance audit process and performance audit reporting to identify areas for improvement. While the average index score for the performance audit process was consistent with the previous year, the average index score for performance audit reporting fell from 76 per cent in 2014–15 to 73 per cent in 2015–16, with agencies' perceptions about the balance and fairness of our reports affecting the score.

Extracts from agencies' responses to our post-audit surveys

'The auditors identified useful and constructive recommendations that will improve monitoring of [the audited activity]. The report was thorough and clear on what needed to be improved, why, and the outcomes expected.'

'… It would also have been [beneficial] to include a project that was running well and on schedule, to highlight any differences in project management skills or capability.'

Key developments in 2015–16

Performance Audit restructure

As indicated in our Annual Report 2014–15, we reviewed the Performance Audit business unit's operating structure in early 2015–16 as part of our commitment to continual improvement. In early 2015–16, we introduced a new structure to Performance Audit to better target audit effort, and maximise our impact in the public sector.

After receiving feedback from staff, we further refined the structure in the second half of 2015–16. Our Performance Audit business unit now consists of six teams:

The new structure encourages greater collaboration across the Performance Audit business unit, as well as innovation in how we select, plan and execute our audits. This structure also recognises that there are some challenges that can only be resolved through a whole-of-government approach, and which cannot be addressed adequately through a traditional sector-based audit structure. By better focusing on the things that matter most, our new structure aims to maximise our impact on improving public sector performance in these critical areas.

Improvement projects

Within the Performance Audit business unit, we established six working groups to explore and oversee the implementation of improvement projects identified through reflection on operations, or through the audit debrief process.

The working groups focus on:

Data analytics in audits

In 2015–16, our Information Systems Audit business unit established an advanced analytics strategy and specialist data analytics team. Through the use of new technologies and advanced analytics, the team aims to leverage data to enhance the audit process, reduce audit risks and uncover insights. Recent performance audits that have incorporated data analytics extensively include Hospital Performance: Length of Stay (February 2016), and the Efficiency and Effectiveness of Hospital Services: Emergency Care audit currently in progress.

VAGO's advanced analytics capability will:

In 2015–16, our data analytics team developed an advanced data analytics strategy and explored suitable tools and systems, leading to the development of a proof of concept. The focus going forward will be the implementation of systems and tools and the building of internal advanced analytic capabilities throughout our office.

Increased flexibility in follow-up audits

In 2015–16, we discontinued our Responses to performance audit recommendations report, after analysing how agencies responded to the report, and finding that we could not always verify agencies' stated responses. However, we will continue to carry out follow-up audits, choosing each topic after discussions with agencies and reviewing evidence of the actions agencies have implemented in addressing our audit report recommendations. This will give us more flexibility and allow us to target follow-up audits better.

Governance program

We will continue to examine governance issues in the public sector through our Governance Program. The audit stream of the program will examine key governance issues in the Victorian public sector. The stream includes the following audits for 2016–17:

We will also examine existing education and better practice activities as part of our Effectiveness of the Victorian Public Sector Commission audit, also scheduled for 2016–17.

Looking forward

Targeted audit program and follow-the-dollar audits

In 2016–17, we plan to table 29 performance audit reports drawn largely from the topics listed in our Annual Plan 2016–17. We remain committed to our follow-up program and intend to review our approach towards the selection of follow-up audit topics. Furthermore, in response to amendments to the Audit Act 1994, we will further review and update our audit procedures as appropriate, to account for our new 'follow-the-dollar' powers.

Collaborating with others

We plan to work with other jurisdictions to develop a strategy for the way we conduct concurrent audits, particularly in light of changes to the Audit Act 1994 and our ability to now share more information with other auditor-general offices.

Innovation and continual improvement

We are committed to continuing to improve our performance audit practices. We will build on our improvement projects as follows:

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6. Financial audit

Relevant strategic objectives

Reports and advice

Being authoritative and relevant

Parliament

Being highly regarded by Parliament

Here is an overview of our achievements, challenges and future steps for our Performance Audit business unit.

Challenges in the year ahead
  • We did not achieve our target of 100 per cent for the performance measure ‘External/peer reviews finding no material departures from professional and regulatory standards’ (page 14).
  • Our average index score for financial audit process decreased by 4 per cent, from 77 per cent in 2014–15to 73 per cent in 2015–16, with some agencies concerned about the timeliness of the audit program, the continuity of audit staff, and responsiveness to agency needs (page 71).
Next steps
  • We will increase our focus on people within the financial audit business unit, particularly around learning and development, reward and recognition, and succession planning (page 72).
  • We will change our model for delivery of financial audits, particularly around the extent to which we rely on audit service providers for high-risk, material and/or strategic financial audits (page 72).
  • We will continue to enhance our Audit Snapshot reports to Parliament (page 72).
  • We will rebase all of our financial audit budgets as part of a cyclical review process (page 72).

Achievements

What we do

Our financial audit program delivers a number of assurance services for a range of agencies.

As part of Output Group 1, our financial audit program delivers reports to Parliament on the results of financial audits and on the Annual Financial Report of the State of Victoria.

As part of Output Group 2, our financial audit program delivers audit opinions on financial statements and performance statements of public sector agencies, an opinion on the Annual Financial Report of the State of Victoria and a review report on the estimated financial statements of the State of Victoria.

Eight financial audit reports (including one Information Systems Audit report) listed in our Annual Plan 2015–16 were tabled, as listed below. There were no changes to the proposed program of tabled reports during the year.

October 2015

Financial Systems Controls Report: Information Technology 2014–15

November 2015

Local Government: 2014–15 Audit Snapshot

Auditor-General's Report on the Annual Financial Report of the State of Victoria, 2014–15

Public Hospitals: 2014–15 Audit Snapshot

December 2016

Water Entities: 2014–15 Audit Snapshot

Portfolio Departments and Associated Entities: 2014–15 Audit Snapshot

May 2016

Universities: 2015 Audit Snapshot

Technical and Further Education Institutes: 2015 Audit Snapshot

How we do it

The objective of each of our annual financial audits is to express an 'audit opinion' as to whether the financial report (or other statement as applicable) presents fairly, in all material respects, the financial position and the financial performance of the audited agency, in accordance with applicable Australian Accounting Standards and the relevant legislative financial reporting requirements. When undertaking a financial audit, the Audit Act 1994 requires the Auditor-General to also consider the issues of waste, probity, and the prudent use of public resources.

Our financial audits apply a risk-based audit methodology to ensure that they are performed in accordance with the Australian Auditing Standards and relevant professional and legislative requirements. Each year, our financial auditors review key internal controls over the financial systems of each government agency to assess the risk of material misstatements in the financial report. They also test aspects of controls or activities in detail, to draw out and report on systemic or sector-specific issues.

Selection of areas of audit focus

'Areas of focus' are selected for specific review as part of our financial audits, such as governance, probity, fraud, financial prudence and noncompliance. The selected areas of focus are identified in our annual plan, and can result in related commentary being included in our reports to Parliament on the results of financial audits.

Delivering our audits

Resourcing

Our financial audits are conducted by our staff, or with the assistance of externally engaged firms. All financial audits conducted with the assistance of external firms known as audit service providers (ASPs) are subject to project management and quality assurance by our staff, and all audit opinions are issued by the Auditor-General.

The mix of resources we use to deliver our financial audit program changes over time based on multiple factors. In 2015–16, approximately 33 per cent of our audits were undertaken by our staff, with the remaining 67 per cent undertaken with the assistance of ASPs, as shown in Figure 23.

[Figure 23] Audits conducted in 2015–16, by materiality, risk and sourcing model

Materiality and audit risk

In-house (number)

Audit service provider assisted (number)

Total (number)

Material entity audits

High risk

10

4

14

Moderate risk

17

15

32

Low risk

0

1

1

Total material entity audits

27

20

47

Non-material entities

High risk

3

12

15

Moderate risk

56

130

186

Low risk

100

208

308

Total non-material entity audits

159

350

509

Total audits

186

370

556

Note: Based on data as at 30 June 2016.

The criteria we use to determine the resourcing of financial audits includes:

Risk-based financial audit methodology

To ensure that our financial audits are performed in accordance with the Australian Auditing Standards and relevant professional and legislative requirements, our financial audit methodology is integrated into our electronic audit toolset, Integrated Public Sector Audit Methodology, which was developed with the Queensland Audit Office, and is in use in four other Australian jurisdictions.

Methodology for reviewing the estimated financial statements

Our review of the state's estimated financial statements uses the principles in ASAE 3450 Assurance Engagements involving Corporate Fundraising, and/or Prospective Financial Information.

Technical Issues Committee

Our Technical Issues Committee provides advice and recommendations to the Auditor-General on proposed modifications to financial audit opinions, the appropriate policy or guidance that we should adopt in relation to significant financial reporting and auditing issues, and issues affecting our legislative mandate.

The committee comprises the Assistant Auditor-General, Standards and Quality, the Assistant Auditor-General, Financial Audit, the Standards and Quality Director, the relevant Financial Audit Sector Director responsible for the audits under consideration, and an independent Financial Audit Sector Director.

Technical Panel

Our Technical Panel was established in June 2015 to inform and discuss the following matters with the Auditor-General and Deputy Auditor-General/Chief Executive Officer:

Our Technical Panel generally meets every month, and provides a forum to capture feedback from the Auditor-General and Deputy Auditor-General on the above matters.

Challenge Committee

Our Challenge Committee reviews the progress and completion of financial audit parliamentary reports at key points in their development to ensure their quality, accuracy, logic and rigour. The committee then determines if the approach and the report are of a sufficiently high standard to progress to the next phase, or for documentation to be issued to relevant agencies.

Debrief process

At the end of every financial audit parliamentary report, we conduct an audit debrief process to identify positives and areas for improvement, which are considered in future activities. Each audit debrief is given careful consideration by our Challenge Committee.

Quality assurance

To seek assurance that our audits meet professional and VAGO quality standards, our audits are reviewed by external or peer reviewers both in relation to the robustness of the audit process, and the quality of the final audit report. See page 49 for further information.

Feedback from audited agencies

Every second year we survey chief financial officers, and ask about the value they obtain from their financial audits.

In 2015–16, the average indexed rating for questions about audit value was 76 index points, which was consistent with the results for 2013–14 survey. Feedback from most financial audit clients was positive about the value of the audit, and in particular, many clients indicated that the audit provided assurance and confidence in relation to the financial processes of their organisation

We also survey the chief financial officers about the financial audit process and financial audit reporting to identify areas for improvement. While the average index score for financial audit reporting to agencies was consistent with the previous survey, the average index score for financial audit process decreased from 77 per cent to 73 per cent, 4 per cent lower than the last time the survey was run in 2013–14. While professionalism and skills of staff continue to score well, some agencies were concerned about the timeliness of the audit program, the continuity of audit staff, and responsiveness to agency needs. We discussed feedback received with our agency contacts where relevant, in part to clarify that feedback, and any action we may take in response as appropriate.

Extracts from agencies responses to our post-audit surveys

'We value VAGO's observations on our financial statements—they raise issues that we sometimes overlook.'

'Recommendations are well received and respected within our organisation.'

Key developments in 2015–16

Contentious and complex matters

In 2015–16, we encountered several contentious and complex matters during a financial reporting cycle that had been influenced by the 2015 machinery-of-government changes. This resulted in a disclaimer of audit opinion on the 2014–15 financial report of the Department of Education & Training (DET).

Pleasingly, we note that DET has undertaken a major program of work throughout 2015–16 to systematically address the matters raised by our audit. This has included a revaluation of all land and buildings, a review and cleanse of asset records and a new assurance regime over school based transactions has been developed and is being implemented. This program of work has been assigned a very high priority by DET.

Our review of the State of Victoria's 2016–17 Estimated Financial Statements was completed over a week earlier than in the previous year. This is a substantial achievement, given that the already tight deadlines for this review had been further tightened and some contentious matters were considered as part of that review. This led to the Auditor-General issuing an emphasis-of-matter paragraph.

Financial audit re-orientation

The re-orientation of our financial audit business unit undertaken in 2015–16 included a review of the model for the delivery of audits, which considered the optimal resourcing model for the conduct of financial audits—that is, using internal resources or undertaking audits with the assistance of ASPs. This project will result in the delivery of a larger proportion of higher-risk, material and/or strategic financial audits using internal resources, and will benefit our office in several ways, including increasing control and oversight and consistency of approach to the more significant audits, reducing risk and increasing assurance.

In addition, we successfully managed the implementation of our new ASP panel arrangements.

Looking forward

Targeted audit program

We plan to table seven financial audit snapshot reports and one information technology financial systems controls report in 2016–17. We expect to issue 555 audit opinions on financial statements and 111 audit opinions on performance statements.

Innovation and continual improvement

We are committed to continual improvement in our financial audit practice and have identified the following three areas of focus for 2016–17.

People

Our focus will particularly be on learning and development (including developing and rolling out the financial audit training curriculum), reward and recognition, and succession planning.

Product

We will continue to enhance our financial audit reports to Parliament, including how we develop focus areas and analyse financial sustainability. We will continue to change our model for delivering financial audits, particularly the extent to which we rely on ASPs for high-risk, material and/or strategic financial audits. Also, we will implement an updated audit sampling methodology to enhance our audit approach to tests of details. We will further consider introducing enhanced audit reports (opinions), as envisaged under the Auditing and Assurance Standards Board Enhanced Audit Reporting framework.

Process

We will review how we supervise our ASPs.

In addition, we will rebase all of our financial audit budgets as part of a cyclical review process.

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7. Our financial management

Relevant strategic objective

Organisation

Leverage our systems and processes to improve organisational performance.

Financial performance

Our net financial result for the year as shown in Figure 24 was a surplus of $83 000 (compared with a surplus of $537 000 in 2014–15).

[Figure 24] Revenues and expenses, 2011–12 to 2015–16

Item

2015–16 ($'000)

2014–15 ($'000)

2013–14 ($'000)

2012–13 ($'000)

2011–12 ($'000)

Revenue

General appropriation

15 789

15 404

15 179

14 661

13 959

Special appropriation

576

541

495

362

456

Section 29

24 732

23 536

23 191

23 136

22 547

Section 32 carry-over

344

Other

286

217

89

151

158

Total revenue

41 383

39 698

38 954

38 654

37 120

Total expenses

41 300

39 161

38 994

37 197

36 542

Surplus/(deficit)

83

537

(40)

1 457

578

Revenue

We are funded through Parliamentary appropriations and Financial Management Act 1994 section 29 revenue (as shown in Figure 25).

Revenue increased 4 per cent in 2015–16 because of increases in inflation in respect of general appropriation, and increases in internally generated Section 29 revenue as a result of increases in the recovery of audit service providers (ASP) costs. Other revenue increased as a result of recovering additional costs from our staff seconded to other agencies.

[Figure 25] Sources of VAGO funding, 2011–12 to 2015–16

Note: See Figure 24 for breakdown.

Expenses

Our office spends most of its budget on employees, contract audit services (including ASPs) and miscellaneous expenses, such as accommodation, supplies and services.

As shown in Figure 26, spending increased 5 per cent in 2015–16, mainly as a result of ASPs' fees and staff salaries—despite annualised FTE declining from 184.4 to 182.2. We also spent more on consultants, human resources recruitment fees, PwC internal audit fees, and legal fees.

[Figure 26] Expenses, 2011–12 to 2015–16

Expenses, 2011–12 to 2015–16

Note: See Figure 27 for breakdown.

[Figure 27] Expenses from ordinary activities, 2011–12 to 2015–16

Item

2015–16 ($'000)

2014–15 ($'000)

2013–14 ($'000)

2012–13 ($'000)

2011–12 ($'000)

Expenses

Depreciation and amortisation

657

765

753

802

732

Employee expenses

23 715

23 238

21 714

19 587

18 917

Contract audit services

11 893

10 446

11 652

11 956

11 531

Rental expenses – accommodation

1 520

1 514

1 509

1 462

1 477

Other expenses

3 515

3 198

3 366

3 390

3 885

Total expenses(a)

41 300

39 161

38 994

37 197

36 542

(a) Gross including secondment costs.

Output results

Output Group 1—Parliamentary reports and services

Output revenue increased by $0.4 million, in line with inflation. Output costs were lower by $1.1 million due to lower salaries from unfilled staff positions and lower contractor costs, offset by higher consulting and internal audit fees.

Output Group 2—Audit reports on financial statements

Output revenue increased by $1.3 million, mainly due to increased ASPs' fee recovery. Output costs are higher by $3.2 million, largely due to higher ASPs' fees ($1.4 million) and higher employee entitlements ($1.7 million).

[Figure 28] Total revenues and expenses attributed to outputs, 2014–15 and 2015–16

Output Group

2015–16

2014–15

Revenue ($'000)

Expenses(a) ($'000)

Net result ($'000)

Revenue ($'000)

Expenses(a) ($'000)

Net result ($'000)

1. Parliamentary reports and services

16 239

15 151

1 088

15 840

16 221

(381)

2. Audit reports on financial statements

25 144

26 149

(1 005)

23 858

22 940

918

Total

41 383

41 300

83

39 698

39 161

537

(a) Gross including secondment costs.

Financial position

As shown in Figure 29, our financial position at 30 June 2016 remained strong, with total assets of $18.3 million, total liabilities of $9.6 million and net assets of $8.7 million.

Assets

Total financial assets increased by $1.9 million due to an increase in the SAU asset (inter-agency balance). This is, in turn, due to a corresponding increase in liabilities (see comments below).

Non-financial assets reduced by $0.4 million from a declining asset base.

Liabilities

Total payables increased by $0.6 million, mainly from higher supplier costs and accrued salaries from more days leading to 30 June, offset by early payment of some creditors.

Lease liabilities were higher ($0.1 million) due to increased purchase of motor vehicles.

Provisions have increased by $0.7 million. This is mostly attributable to increased employee entitlement provisions from higher annual leave and long service leave. This is partly a result of new staff bringing additional entitlements as they join our office. Our accommodation make-good provision of $0.6 million switched from non-current to current because our lease is due to expire on 31 March 2017.

Net assets

Net assets increased by $0.1 million from the resultant operating surplus.

[Figure 29] Asset and liability movement, 2011–12 to 2015–16

Item

2015–16 ($'000)

2014–15 ($'000)

2013–14 ($'000)

2012–13 ($'000)

2011–12 ($'000)

Financial assets

16 962

15 019

13 965

12 930

10 755

Non-financial assets

1 386

1 803

2 326

2 518

2 690

Total assets

18 348

16 822

16 291

15 448

13 445

Total liabilities

9 654

8 211

8 217

7 333

6 787

Net assets

8 694

8 611

8 074

8 115

6 658

Other financial matters

Financial report

Under Standing Direction 4.2 of the Financial Management Act 1994, the financial statements of government departments must be presented fairly and in accordance with the requirements in the model financial report. This annual report complies with this requirement.

Consultancies

In 2015–16, we engaged one consultancy where the total fees payable were greater than $10 000. Details of this consultancy are outlined in Figure 30. We also engaged seven consultancies where the total fees payable were less than $10 000, with total expenditure of $26 000 (excluding GST).

Details of individual consultancies—payments in excess of $10 000, 2015–16

Consultant

Purpose of consultancy

Start date

End date

Total approved project fee (excluding GST)

Expenditure 2015–16 (excluding GST)

Future expenditure (excluding GST)

Aginic

Advice on data analytics software

20 April 2016

20 May 2016

$46 000

$46 000

Performance audit contractors

In 2015–16, we paid $0.54 million ($0.45 million in 2014–15) to 17 contractors for services related to our performance audits (See Figure 31).

[Figure 31] Payments to performance audit contractors, 2014–15 and 2015–16

Performance audit contractor

2015–16 ($'000)

2014–15 ($'000)

Australian Survey Research Group Proprietary Limited

45

13

Chappell Dean Proprietary Limited

77

29

Clear Horizon Consulting Proprietary Limited

108

77

Deakin University

0

12

EMI Partners

0

10

E W Russell & Associates Proprietary Limited

16

16

Guidera Consulting Group Proprietary Limited

77

0

J H Resources Proprietary Limited

0

29

O'Connor Marsden & Associates Proprietary Limited

0

21

Orima Research Proprietary Limited

30

43

Ovum Proprietary Limited

24

21

P S Consulting

0

47

Paul Edney

20

0

P G Rorke

46

59

Pitt Group

0

34

Security Infrastructure Solutions

68

0

Wallis

0

22

Other—Seven service providers (three in 2014–15)

29

16

Total

540

449

Financial audit service providers

In 2015–16, we paid $11.4 million ($10.0 million in 2014–15) to 27 audit firms that provided services related to our financial statement audits (see Figure 32).

[Figure 32] Payments to financial audit service providers

Financial Audit Service Provider (ASP)

2015–16 ($'000)

2014–15 ($'000)

Accounting and Auditing Solutions

47

66

Coffey Hunt Audit

411

466

Crowe Horwath

461

838

Crowe Horwath Albury

428

336

Crowe Horwath Vic

706

478

Crowe Horwath West Vic

215

0

Davidsons Assurance Services Proprietary Limited

56

57

Deloitte Touche Tohmatsu

92

401

DFK Kidsons

74

110

DMG Audit and Advisory

178

75

Ernst & Young

1 163

846

Grant Thornton Audit Proprietary Limited

76

90

HLB Mann Judd (VIC Partnership)

2 365

2,013

Johnsons MME

227

278

KPMG

370

6

LD Assurance

102

128

McLean Delmo Bentleys Proprietary Limited

812

186

MGR Accountants Proprietary Limited

17

62

Pricewaterhousecoopers (Vietnam) Limited

38

34

RSD Advisors

1 102

982

RSM Australia Proprietary Limited (previously RSM Bird Cameron)

2 288

1 551

UHY Haines Norton Melbourne Proprietary Limited

16

872

University of Melbourne(a)

82

81

Other—four service providers (two in 2014–15)

28

41

Total

11 354

9 997

Note: The University of Melbourne was engaged to assist in the review of the estimated financial statements. The University of Melbourne is also one of the agencies the Auditor-General is required to audit, and it has not been engaged by VAGO directly or indirectly to audit its own financial statements.

Financial report

Contents

Declaration

Accountable officer's and chief financial officer's declaration

The attached financial statements for the Victorian Auditor-General's Office (VAGO) have been prepared in accordance with Standing Direction 4.2 of the Financial Management Act 1994, applicable Financial Reporting Directions, Australian Accounting Standards including Interpretations, and other mandatory professional reporting requirements.

We further state that, in our opinion, the information set out in the comprehensive operating statement, balance sheet, statement of changes in equity, cash flow statement and accompanying notes, presents fairly the financial transactions during the year ended 30 June 2016 and financial position of VAGO at 30 June 2016.

At the time of signing, we are not aware of any circumstance which would render any particulars included in the financial statements to be misleading or inaccurate.

We authorise the attached financial statements for issue on 9 August 2016.

Peter Frost's signature.Chiang Yip's signature

Dr Peter Frost Acting Auditor-General Victorian Auditor-General's Office

Melbourne 9 August 2016

Chiang Yip Chief Financial Officer Victorian Auditor-General's Office

Melbourne 9 August 2016

Independent auditor's report

Image displays the independent auditor's report to the Auditor-General

Comprehensive operating statement

Image displays a comprehensive operating statement.

Balance sheet

Image displays the balance sheet.

Statement of changes in equity

Image is a statement of changes in equity

Cash flow statement

Image is a cash flow statement.

Notes to the financial statements

Note 1. Summary of significant accounting policies

These annual financial statements represent the audited general purpose financial statements for the Victorian Auditor-General's Office (VAGO) for the year ending 30 June 2016. The purpose of the report is to provide users with information about VAGO's stewardship of resources entrusted to it.

(a) Statement of compliance

These general purpose financial statements have been prepared in accordance with the Financial Management Act 1994 (FMA) and applicable Australian Accounting Standards (AAS) which include Interpretations, issued by the Australian Accounting Standards Board (AASB). In particular, they are presented in a manner consistent with the requirements of the AASB 1049 Whole of Government and General Government Sector Financial Reporting.

Where appropriate, those AASs paragraphs applicable to not-for-profit entities have been applied. Accounting policies are selected and applied in a manner which ensures that the resulting financial information satisfies the concepts of relevance and reliability, thereby ensuring that the substance of the underlying transactions or other events is reported.

To gain a better understanding of the terminology used in these financial statements, a glossary of terms and style conventions can be found in Note 25.

These annual financial statements were authorised for issue by Dr Peter Frost (Acting Auditor-General) and Chiang Yip (Chief Financial Officer) on 9 August 2016.

(b) Basis of accounting preparation and measurement

The accrual basis of accounting has been applied in the preparation of these financial statements, whereby assets, liabilities, equity, income and expenses are recognised in the reporting period to which they relate, regardless of when cash is received or paid.

Judgements, estimates and assumptions are required to be made about the carrying values of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on professional judgements derived from historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.

Those judgements, estimates and assumptions that have the most significant effect on the amounts recognised in the financial report are included in the following notes:

  • Notes 8 and 9—estimated useful life of major classes of property, plant and equipment, and intangible assets; and
  • Note 13—wage inflation and discount rate used in the measurement of employee entitlements.

Revisions to accounting estimates are recognised in the period in which the estimate is revised and also in future periods that are affected by the revision. Judgements and assumptions made by management in the application of AASs that have significant effects on the financial statements and estimates, with a risk of material adjustments in the next year, are disclosed throughout the notes to the financial statements.

These financial statements are presented in Australian dollars, the functional and presentation currency of VAGO.

This report has been prepared in accordance with the historical cost convention. Historical cost is based on the fair values of the consideration given in exchange for assets.

Consistent with AASB 13 Fair Value Measurement, VAGO determines the policies and procedures for recurring fair value measurements such as property, plant and equipment, and financial instruments, in accordance with the requirements of AASB 13 and the relevant Financial Reporting Directions.

All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

  • Level 1 — Quoted (unadjusted) market prices in active markets for identical assets or liabilities;
  • Level 2 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable; and
  • Level 3 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.

For the purpose of fair value disclosures, VAGO has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above.

In addition, VAGO determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

(c) Reporting entity

The financial statements cover VAGO as an individual reporting entity. Its address is:
Level 24, 35 Collins Street, Melbourne VIC 3000

VAGO is an administrative agency acting on behalf of the Crown.

The financial statements include all the controlled activities of VAGO.

A description of the nature of VAGO's operations and its principal activities is included in the report of operations, which does not form part of these financial statements.

Objectives and funding

The main purpose of VAGO is to provide assurance to Parliament on the accountability and performance of the Victorian public sector.

VAGO is predominantly funded by accrual-based Parliamentary appropriations for the provision of pre-agreed outputs. Its financial audit function is provided on a fee-for-service basis and the revenue generated is treated as administered revenue.

VAGO's outputs

VAGO has 2 outputs:

  • Parliamentary reports and services
  • Audit reports on financial statements.

Information about VAGO's outputs is set out in Note 2.

(d) Administered items

VAGO administers but does not control certain resources of the state. It is accountable for the transactions involving those administered resources, but does not have the discretion to deploy the resources for achievement of VAGO's objectives. For these resources, VAGO acts only as an agent of the Victorian Government. Administered resources are accounted for using the accrual basis of accounting.

The administered resources of VAGO are primarily audit fees raised from performing attest audits and relate to the activities of the output 'Audit reports on financial statements'. (also refer Note 2).

Transactions and balances relating to these administered resources are not recognised as VAGO's income, expenses, assets or liabilities within the body of the financial statements, but are disclosed in Note 3. Except as otherwise disclosed, administered items are accounted for on the same basis and using the same accounting policies as for departmental items. Both controlled and administered items of VAGO are consolidated into the financial statements of the state.

(e) Scope and presentation of financial statements
Comprehensive operating statement

The comprehensive operating statement comprises two components, being 'net result from transactions' (or termed as 'net operating balance') and 'other economic flows included in net result'. The sum of these two represents the net result.

The net result is equivalent to profit or loss derived in accordance with AASs.

'Other economic flows' are changes arising from market remeasurements. They include:

  • gains and losses from disposals of non-financial assets;
  • revaluations and impairments of non-financial physical and intangible assets; and
  • revaluation of the long service leave liability.

This classification is consistent with the whole of government reporting format and is allowed under AASB 101 Presentation of Financial Statements.

Balance sheet

Assets and liabilities are presented in liquidity order with assets aggregated into financial assets and non-financial assets.

Current and non-current assets and liabilities are disclosed in the notes, where relevant. In general, non-current assets or liabilities are expected to be recovered or settled more than 12 months after the reporting period, except for the provisions of employee benefits, which are classified as current liabilities if VAGO does not have the unconditional right to defer the settlement of the liabilities within 12 months after the end of the reporting period.

Statement of changes in equity

The statement of changes in equity presents reconciliations of non-owner and owner changes in equity from opening balances at the beginning of the reporting period to the closing balances at the end of the reporting period. It also shows separately changes due to amounts recognised in the 'Comprehensive result' and amounts related to 'Transactions with owner in its capacity as owner' .

Cash flow statement

Cash flows are classified according to whether or not they arise from operating, investing or financing activities. This classification is consistent with requirements under AASB 107 Statement of Cash Flows.

Rounding

Amounts in the financial statements have been rounded to the nearest $1 000, unless otherwise stated. Figures in the financial statements may not equate due to rounding. Please refer to the end of Note 25 for a style convention for explanations of minor discrepancies resulting from rounding.

(f) Income from transactions

Income is recognised to the extent that it is probable that the economic benefits will flow to the entity and the income can be reliably measured.

Appropriation income

Appropriated income becomes controlled and is recognised by VAGO when it is appropriated from the Consolidated Fund by the Victorian Parliament and applied to the purposes defined under the relevant appropriations act. Additionally, VAGO is permitted under section 29 of the FMA to have certain income annotated to the annual appropriation. The income which forms part of a section 29 agreement is recognised by VAGO and the receipts paid into the Consolidated Fund as an administered item. At the point of income recognition, section 29 provides for an equivalent amount to be added to the annual appropriation, which is then available for application.

Where applicable, amounts disclosed as income are net of returns, allowances, duties and taxes. All amounts of income over which VAGO does not have control are disclosed as administered income in the schedule of administered income and expenses (see Note 3). Income is recognised for each of VAGO's major activities as follows:

Output appropriations

Income from the outputs VAGO provides to Parliament is recognised when those outputs have been delivered and the Minister for Finance and the Treasurer have certified delivery of those outputs in accordance with specified performance criteria.

Special appropriations

Under section 94A(6) of the Constitution Act 1975, revenue related to costs associated with the Auditor-General is recognised when the amount appropriated for that purpose is due and payable by VAGO.

Sale of goods and services

Income from the supply of services

Income from the supply of services is recognised by reference to the stage of completion of the services being performed. The income is recognised when:

  • the amount of the income, stage of completion and transaction costs incurred can be reliably measured; and
  • it is probable that the economic benefits associated with the transaction will flow to VAGO.

Under the stage of completion method, income is recognised by reference to labour hours supplied.

Income from sale of goods

Income from the sale of goods is recognised when:

  • VAGO no longer has any of the significant risks and rewards of ownership of the goods transferred to the buyer;
  • VAGO no longer has continuing managerial involvement to the degree usually associated
  • with ownership nor effective control over the goods sold;
  • the amount of income, and the costs incurred or to be incurred in respect of the transactions,
  • can be reliably measured; and
  • it is probable that the economic benefits associated with the transaction will flow to VAGO.

Sale of goods and services includes regulatory fees which are recognised at the time the regulatory fee is billed.

Fair value of services received free of charge or for nominal consideration

Contributions of services received free of charge or for nominal consideration are recognised at fair value when control is obtained over them, irrespective of whether these contributions are subject to restrictions or conditions over their use. Contributions in the form of services are only recognised when a fair value can be reliably determined and the services would have been purchased if not received as a donation.

(g) Expenses from transactions

Expenses from transactions are recognised as they are incurred, and reported in the financial year to which they relate.

Employee expenses

Refer to the section in Note 1(m) regarding employee benefits.

These expenses include all forms of considerations given by VAGO in exchange for service rendered by employees or for the termination of employment. This includes wages and salaries, superannuation, fringe benefits tax, leave entitlements, termination payments and WorkCover premiums.

Superannuation

The amount recognised in the comprehensive operating statement is the employer contributions for members of both defined benefit and defined contribution superannuation plans that are paid or payable during the reporting period.

The Department of Treasury and Finance (DTF) in its annual financial statements, discloses on behalf of the state as the sponsoring employer, the net defined benefit cost related to the members of these plans as an administered liability. Refer to DTF’s annual financial statements for more detailed disclosures in relation to these plans.

Depreciation and amortisation

All plant and equipment and other non-financial physical assets (excluding items under operating leases and assets held for sale) that have finite useful lives are depreciated. Depreciation is generally calculated on a straight-line basis, at rates that allocate the asset’s value, less any estimated residual value, over its estimated useful life. Refer to Note 1(l) for the depreciation policy for leasehold improvements.

The estimated useful lives, residual values and depreciation method are reviewed at the end of each annual reporting period, and adjustments made where appropriate.

Intangible produced assets with finite useful lives are amortised as an expense from transactions on a straight-line basis over the asset's useful life.

Depreciation begins when the asset is available for use, that is, when it is in the location and condition necessary for it to be capable of operating in the manner intended by management.

Note 8 provides details on the estimated useful lives that are used in the calculation of depreciation and amortisation on property, plant and equipment. Note 9 provides details on the estimated useful lives that are used in the calculation of amortisation on intangible assets.

Interest expense

Interest expense represents costs incurred in connection with borrowings. It includes interest components of finance lease repayments, and the increase in financial liabilities and non-employee provisions due to the unwinding of discounts to reflect the passage of time.

Interest expense is recognised in the period in which it is incurred. Refer to Note 25 for an explanation of interest expense items.

Capital asset charge

A charge levied on the written down value of controlled non current physical assets in a department’s balance sheet which aims to: attribute to agency outputs the opportunity cost of capital used in service delivery; and provide incentives to departments to identify and dispose of underutilised or surplus assets in a timely manner. The capital asset charge is calculated on the budgeted carrying amount of applicable non financial physical assets.

Other operating expenses

Other operating expenses generally represent the day-to-day running costs incurred in normal operations and include:

Contract audit services, rental expenses—accommodation, recruitment and training and other operating expenses

Contract audit services, rental expenses—accommodation, recruitment and training and other operating expenses are recognised as an expense in the reporting period in which they are incurred.

Fair value of services provided free of charge or for nominal consideration

Contributions of resources provided free of charge or for nominal consideration are recognised at their fair value when the transferee obtains control over them, irrespective of whether restrictions or conditions are imposed over the use of the contributions.

Contributions in the form of services are only recognised when a fair value can be reliably determined and the services would have been purchased if not donated.

(h) Other economic flows included in net result

Other economic flows measure changes in the volume or value of assets or liabilities that do not result from transactions.

Net gain / (loss) on non-financial assets

Net gain / (loss) on non-financial assets and liabilities includes realised and unrealised gains and losses as follows:

Net gain / (loss) on disposal of non-financial assets

Any gain or loss on the disposal of non-financial assets is recognised at the date of disposal and is determined after deducting the proceeds from the carrying value of the asset at that time.

Net profits or losses on disposal of motor vehicles held under finance leases are treated as a controlled item, and disclosed in the comprehensive operating statement.

When any other type of plant and equipment is disposed of, the disposal proceeds are treated as an administered item, being remitted to the Consolidated Fund according to the provisions of the FMA. The written down value of such disposals is treated as a controlled item, being debited to contributed capital, according to the provisions of Financial Reporting Direction 119 Contributions by Owners.

Impairment of non-financial assets

Assets are assessed annually for indications of impairment, except for non-financial physical assets held for sale.

If there is an indication of impairment, the assets concerned are tested as to whether their carrying value exceeds their recoverable amount. Where an asset’s carrying value exceeds its recoverable amount, the difference is written off as an other economic flow.

If there is an indication that there has been a reversal in the estimate of an asset’s recoverable amount since the last impairment loss was recognised, the carrying amount shall be increased to its recoverable amount.

The impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised in prior years.

It is deemed that, in the event of the loss or destruction of an asset, the future economic benefits arising from the use of the asset will be replaced unless a specific decision to the contrary has been made. The recoverable amount for most assets is measured at the higher of depreciated replacement cost and fair value less costs to sell. Recoverable amount for assets held primarily to generate net cash inflows is measured at the higher of the present value of future cash flows expected to be obtained from the asset and fair value less costs to sell.

Refer to Note 1(l) in relation to the recognition and measurement of non-financial assets.

Net gain / (loss) on financial instruments

Net gain / (loss) on financial instruments includes:

  • impairment and reversal of impairment for financial instruments at amortised cost; and
  • disposals of financial assets.
Other gains / (losses) from other economic flows

Other gains / (losses) from other economic flows include the gains or losses from the revaluation of the present value of the long service leave liability due to changes in the bond interest rates.

(i) Administered income

VAGO does not gain control over assets arising from audit fees, consequently no income is recognised in VAGO's financial statements.

VAGO collects these amounts on behalf of the Victorian Government. Accordingly, the amounts are disclosed as income in the schedule of Administered Items (see Note 3).

(j) Financial instruments

Financial instruments arise out of contractual agreements that give rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Due to the nature of VAGO’s activities, certain financial assets and financial liabilities arise under statute rather than a contract. Such financial assets and financial liabilities do not meet the definition of financial instruments in AASB 132 Financial Instruments: Presentation. For example, statutory receivables arising from taxes, fines and penalties do not meet the definition of financial instruments as they do not arise under contract.

Where relevant, for note disclosure purposes, a distinction is made between those financial assets and financial liabilities that meet the definition of financial instruments in accordance with AASB 132 and those that do not.

The following refers to financial instruments unless otherwise stated.

Categories of non-derivative financial instruments

Receivables

Receivables are financial instrument assets with fixed and determinable payments that are not quoted on an active market. These assets are initially recognised at fair value plus any directly attributable transaction costs. Subsequent to initial measurement, receivables are measured at amortised cost using the effective interest method, less any impairment.

Receivables category includes cash (refer to Note 1(k)), trade receivables and other receivables, but not statutory receivables.

Financial liabilities at amortised cost

Financial instrument liabilities are initially recognised on the date they are originated. They are initially measured at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, these financial instruments are measured at amortised cost with any difference between the initial recognised amount and the redemption value being recognised in profit and loss over the period of the interest bearing liability, using the effective interest rate method.

Financial instrument liabilities measured at amortised cost include all of VAGO's contractual payables, and interest bearing arrangements other than those designated at fair value through profit or loss.

(k) Financial assets
Cash

Cash comprises cash on hand.

Receivables

Receivables consist of:

  • contractual receivables, such as debtors in relation to goods and services; and
  • statutory receivables, such as amounts owing from the Victorian Government and Goods and Services Tax (GST) input tax credits recoverable.

Receivables and work-in-progress related to audit fees raised are reported as administered items in Note 3. Contractual receivables are classified as financial instruments and categorised as receivables (refer to Note 1(j) Financial instruments for recognition and measurement). Statutory receivables are recognised and measured similarly to contractual receivables (except for impairment), but are not classified as financial instruments because they do not arise from a contract.

Receivables are subject to impairment testing as described below. A provision for doubtful receivables is recognised when there is objective evidence that the debts may not be collected, and bad debts are written off when identified.

For the measurement principle of receivables, refer to Note 1(j).

Impairment of financial assets

At the end of each reporting period, VAGO assesses whether there is objective evidence that a financial asset or group of financial assets is impaired. Objective evidence includes financial difficulties of the debtor, default payments, debts which are more than 60 days overdue, and changes in debtor credit ratings. All financial assets are subject to annual review for impairment.

Bad and doubtful debts for financial assets are assessed on a regular basis. Those bad debts considered as written off by mutual consent are classified as a transaction expense. Bad debts not written off by mutual consent and the allowance for doubtful receivables are classified as ‘other economic flows’ in the net result.

(l) Non-financial assets
Work in progress

Work in progress represents the reasonable cost of audit services performed but not yet invoiced and is based on:

  • weekly timesheets and hourly rates for each level of staff; and
  • cost of work undertaken on behalf of the Office by contracted audit service providers.

The recoverability of work in progress is regularly reviewed and an allowance for impairment is provided if there is evidence that amounts are not fully recoverable. Work-in-progress related to audit fees raised is reported in administered items in Note 3.

Property, plant and equipment

All non-financial physical assets are initially measured at cost, and subsequently measured at fair value less accumulated depreciation and impairment.

The initial cost for non-financial physical assets under a finance lease (refer to Note 1(n)) is measured at amounts equal to the fair value of the leased asset or, if lower, the present value of the minimum lease payments, each determined at the inception of the lease.

The fair value of plant and equipment is normally determined by reference to the asset’s depreciated replacement cost.

Certain assets are acquired under finance leases. Refer to Notes 1(n) Leases and 1(p) Commitments for more information.

For the accounting policy on impairment of non-financial physical assets, refer to impairment of non-financial assets under Note 1(h) Impairment of non-financial assets.

More details about the valuation techniques and inputs used in determining the fair value of non-financial physical assets are discussed in Note 8 Property, plant and equipment.

Leasehold improvements

The cost of leasehold improvements is capitalised as an asset and depreciated over the remaining term of the lease or the estimated useful life of the improvements, whichever is the shorter.

Intangible assets

Purchased intangible assets are initially recognised at cost. Subsequently, intangible assets with finite useful lives are carried at cost less accumulated amortisation and accumulated impairment losses. Costs incurred subsequent to initial acquisition are capitalised when it is expected that additional future economic benefits will flow to VAGO.

When the recognition criteria in AASB 138 Intangible Assets are met, internally generated intangible assets are recognised and measured at cost less accumulated amortisation and impairment.

Refer to Note 1(g) Depreciation and amortisation, and Note 1(h) Impairment of non-financial assets.

Prepayments and accrued income

Prepayments represent payments in advance of receipt of goods or services or that part of expenditure made in one accounting period covering a term extending beyond that period. Accrued income represents amounts not received at the balance sheet date in exchange for the provision of services in the accounting period.

(m) Liabilities
Payables

Payables consist of:

  • contractual payables, such as accounts payable. Accounts payable represent liabilities for goods and services provided to VAGO prior to the end of the financial year that are unpaid, and arise when VAGO becomes obliged to make future payments in respect of the purchase of those goods and services; and
  • statutory payables, such as goods and services tax and fringe benefits tax payables.

Contractual payables are classified as financial instruments and categorised as financial liabilities at amortised cost (refer to Note 1(j)). Statutory payables are recognised and measured similarly to contractual payables, but are not classified as financial instruments and not included in the category of financial liabilities at amortised cost, because they do not arise from a contract.

Borrowings

Borrowings are initially measured at fair value, being the cost of the borrowings, net of transaction costs (refer to Note 1(n) Leases).

Subsequent to initial recognition, borrowings are measured at amortised cost with any difference between the initial recognised amount and the redemption value being recognised in net result over the period of the borrowing using the effective interest rate method.

Provisions

Provisions are recognised when VAGO has a present obligation, the future sacrifice of economic benefits is probable, and the amount of the provision can be measured reliably.

The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at reporting date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows, using a discount rate that reflects the time value of money and risks specific to the provision.

Employee Benefits

Provision is made for benefits accruing to employees in respect of wages and salaries, annual leave and long service leave (LSL) for services rendered to the reporting date.

(i) Wages and salaries, and annual leave

Liabilities for wages and salaries and annual leave are recognised in the provision for employee benefits as ‘current liabilities’, because VAGO does not have an unconditional right to defer settlements of these liabilities.

Depending on the expectation of the timing of settlement, liabilities for wages and salaries, and annual leave, are measured at:

  • nominal value if VAGO expects to wholly settle within 12 months; or
  • present value if VAGO does not expect to wholly settle within 12 months.

(ii) Long service leave

Liability for LSL is recognised in the provision for employee benefits.

Unconditional LSL is disclosed in the notes to the financial statements as a current liability, even where VAGO does not expect to settle the liability within 12 months because it will not have the unconditional right to defer the settlement of the entitlement should an employee take leave within 12 months.

The components of this current LSL liability are measured at:

  • nominal value – if VAGO expects to wholly settle within 12 months; and
  • present value – if VAGO does not expect to wholly settle within 12 months.

Conditional LSL representing less than seven years of continuous service is disclosed as a non-current liability. There is an unconditional right to defer the settlement of the entitlement until the employee has completed the requisite years of service. This non-current LSL liability is measured at present value. Consideration is given to expected future wage and salary levels, experience of employee, departures and periods of service. Expected future payments are discounted using a single weighted average discount rate based on market yields of national government bonds in Australia that reflects the estimated timing and amount of benefit payments.

Any gain or loss following revaluation of the present value of the non-current LSL liability is recognised as a transaction, except to the extent that a gain or loss arises due to changes in bond interest rates for which it is then recognised as an other economic flow (refer to Note 1(h)).

(iii) Termination benefits

Termination benefits are payable when employment is terminated before the normal retirement date, or when an employee decides to accept an offer of benefits in exchange for the termination of employment. VAGO recognises termination benefits when it is demonstrably committed to either terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal or providing termination benefits as a result of an offer made to encourage voluntary redundancy. Benefits falling due more than 12 months after the end of the reporting period are discounted to present value.

(iv) Performance incentive entitlements

The Executive Officers' performance incentive entitlements for the performance review period ending on the balance sheet date and payable within the next financial year, are classified as a current liability in the balance sheet.

On-costs related to employee expenses

On-costs such as payroll tax, workers' compensation and superannuation are recognised separately from the provision for employee benefits.

Operating lease contracts

Provision is made for rentals due under operating lease contracts, where the amortised cost of the whole-of-life lease rentals exceeds the rentals due at the end of the reporting period.

(n) Leases

A lease is a right to use an asset for an agreed period of time in exchange for payment.

Leases are classified at their inception as either operating or finance leases based on the economic substance of the agreement so as to reflect the risks and rewards incidental to ownership. Leases of property, plant and equipment are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership from the lessor to the lessee. All other leases are classified as operating leases.

Finance leases

VAGO as lessee

At the commencement of the lease term, finance leases are initially recognised as assets and liabilities at amounts equal to the fair value of the lease property or, if lower, the present value of the minimum lease payment, each determined at the inception of the lease. The lease asset is accounted for as a non-financial physical asset. If there is certainty that VAGO will obtain the ownership of the lease asset by the end of the lease term, the asset shall be depreciated over the useful life of the asset. If there is no reasonable certainty that the lessee will obtain ownership by the end of the lease term, the asset shall be fully depreciated over the shorter of the lease term and its useful life.

Minimum finance lease payments are apportioned between reduction of the outstanding lease liability, and periodic finance expense which is calculated using the interest rate implicit in the lease and charged directly to the comprehensive operating statement. Contingent rentals associated with finance leases are recognised as an expense in the period in which they are incurred.

Operating leases

VAGO as lessee

Operating lease payments, including any contingent rentals, are recognised as an expense in the comprehensive operating statement on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern of the benefits derived from the use of the leased asset. The leased asset is not recognised in the balance sheet.

All incentives for the agreement of a new or renewed operating lease are recognised as an integral part of the net consideration agreed for the use of the leased asset, irrespective of the incentive’s nature or form or the timing of payments.

In the event that lease incentives are received to enter into operating leases, the aggregate cost of incentives are recognised as a reduction of rental expense over the lease term on a straight line basis, unless another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.

(o) Equity
Contributions by owners

Consistent with the requirements of AASB 1004 Contributions, contributions by owners (that is, contributed capital and its repayment) are treated as equity transactions and, therefore, do not form part of the income and expenses of VAGO.

Additions to net assets which have been designated as contributions by owners are recognised as contributed capital. Other transfers that are in the nature of contributions to or distributions by owners have also been designated as contributions by owners.

(p) Commitments

Commitments for future expenditure include operating and capital commitments arising from contracts. These are disclosed by way of a note (refer to Note 16 Commitments for expenditure) at their nominal value and inclusive of the Goods and Services Tax (GST) payable.

In addition, where it is considered appropriate and provides additional relevant information to users, the net present values of significant individual projects are stated. These future expenditures cease to be disclosed as commitments once the related liabilities are recognised in the balance sheet.

(q) Contingent assets and contingent liabilities

Contingent assets and contingent liabilities are not recognised in the balance sheet, but are disclosed by way of a note (refer to Note 17 Contingent assets and contingent liabilities) and, if quantifiable, are measured at nominal value. Contingent assets and liabilities are presented inclusive of GST receivable or payable respectively.

(r) Accounting for the Goods and Services Tax (GST)

Income, expenses and assets are recognised net of the amount of associated GST, except where GST incurred is not recoverable from the taxation authority. In this case, the GST payable is recognised as part of the cost of acquisition of the asset or as part of the expense.

Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the taxation authority is included with other receivables or payables in the balance sheet.

Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the taxation authority, are presented as operating cash flow.

Commitments and contingent assets and liabilities are also stated inclusive of GST (refer to Note 1(p) and Note 1(q)).

(s) Foreign currency transactions

All foreign currency transactions during the financial year are brought to account using the exchange rate in effect at the date of the transaction.

(t) Events after the reporting period

Assets, liabilities, income or expenses arise from past transactions or other past events. Where the transactions result from an agreement between VAGO and other parties, the transactions are only recognised when the agreement is irrevocable at or before the end of the reporting period. Adjustments are made to amounts recognised in the financial statements for events which occur between the end of the reporting period and the date when the financial statements are authorised for issue, where those events provide information about conditions which existed at the reporting date. Note disclosure is made about events between the end of the reporting period and the date the financial statements are authorised for issue where the events relate to conditions which arose after the end of the reporting period that are considered to be of material interest.

(u) Australian Accounting Standards issued that are not yet effective

Certain new Australian Accounting Standards (AAS) have been published that are not mandatory for the 30 June 2016 reporting period. VAGO has assessed their applicability and potential for early adoption and has chosen not to early adopt these standards.

Note 2. Departmental (controlled) outputs

Output groups – VAGO has 2 output groups:
(1) Parliamentary reports and services

VAGO informs Parliament, its primary client, of the results of its work through its reports.

The reports provide Parliament with independent assurance on the adequacy of accountability and resource management practices in the public sector and include:

  • performance audits, that focus on the effectiveness, efficiency and economy of publicly funded activities, or probity and compliance;
  • an annual assessment of the state’s finances;
  • reports of results from the financial statement audits conducted during the year;
  • management letters to audited agencies conveying matters for improvement identified during audits.

VAGO also tables the Auditor-General’s Annual Plan and the VAGO Annual Report to inform Parliament of its planned activity and actual performance respectively.

(2) Audit reports on financial statements

A core statutory responsibility of the Auditor-General is to undertake an annual audit of the financial statements, and in some cases other statements (such as performance statements), of public authorities, including departments and municipal councils and of the State of Victoria, and to issue an audit opinion on whether the financial statements, and other statements where applicable, are fairly presented.

The main products from this output group are:

  • audit reports on the financial statements of public sector authorities, including departments and municipal councils, and on the State’s Annual Financial Report
  • audit reports on performance statements prepared by local government, certain water bodies, and technical and further education institutes
  • management letters issued to audited authorities conveying matters for improvement and other findings identified during audits
  • a negative assurance report on the review of the General Government Sector’s Estimated Financial Statements for inclusion in the State’s annual budget papers presented to Parliament.

Other products include the examination and certification by the Auditor-General of warrants authorising the expenditure of public funds by government. The preparation of warrants in Victoria is required under the provisions of the Constitution Act 1975 and the Financial Management Act 1994. Warrants provide the legislative authority for the Treasurer to issue funding in accordance with the relevant parliamentary authority and must be signed by the Auditor-General and approved by the Governor.

Another product from this output group comprises the audit of acquittal statements for the receipt and expenditure of Commonwealth-funded activities or capital works. These audits are undertaken in accordance with the requirements of the relevant funding agreement.

The major function of VAGO is to provide the organisational framework and resources to enable the Auditor-General to carry out an external audit of public sector agencies on behalf of Parliament.

All resources controlled by VAGO in order to carry out its functions have been included in the financial report.

External contractors are appointed by the Auditor-General, following a process of contestability, to assist in the conduct of performance and attest audits. The costs of such are expensed as a controlled item. Audit fee income arising from attest audits, whether undertaken directly or contracted out, is required under the FMA to be paid into the Consolidated Fund and is treated as an administered item.

Table shoes the controlled income and expenses for the year ended 30 June 2015.

Note 3. Administered (non-controlled) items

In addition to the specific operations of VAGO which are included in the financial statements (comprehensive operating statement, balance sheet, statement of changes in equity and cash flow statement), VAGO administers or manages other activities and resources on behalf of the state such as income from audit fees raised from performing attest audits. The transactions relating to these activities are reported as administered items (refer to Note 1 (d) and (i)) in this note.

Table shows the administered (non-controlled) items.
Table shows the administered (non-controlled) items.

Note 4. Income from transactions

Image shows the income from transactions.

Note 5. Expenses from transactions

Table shows the expenses from transactions

Note 6. Other economic flows included in net result

Table shows the other economic flows included in net result

Note 7. Receivables

Table shows the receivables.

Note 8. Property, plant and equipment

Table shows the property, plant and equipment, carrying amounts.
Table shows the property, plant and equipment, gross carrying amount and accumulated amortisation and depreciation.
Tables shows the property, plant and equipment, movements in carrying amounts and fair value measurement hierarchy for assets as at 30 June 2015
Tables shows the property, plant and equipment, reconciliation of Level 3 fair value
Tables shows the property, plant and equipment, description of significant unobservable inputs to Level 3 valuations

Note 9. Intangible assets

Table shows the intangible assets.

Note 10. Prepayments and accrued income

Table shows prepayments and accrued income

Note 11. Payables

Table shows payables.

Note 12. Borrowings

Table shows borrowings.

Note 13. Provisions

Table shows current provisions.
Table shows movement in provisions.

Note 14. Superannuation

Employees of VAGO are entitled to receive superannuation benefits and VAGO contributes to both defined benefit and defined contribution plans. The defined benefit plan provides benefits based on years of service and final average salary.

VAGO does not recognise any defined benefit liability in respect of the plan because the entity has no legal or constructive obligation to pay future benefits relating to its employees; its only obligation is to pay superannuation contributions as they fall due. The Department of Treasury and Finance recognises and discloses the state's defined benefit liabilities in its disclosure for administered items.

However, superannuation contributions paid or payable for the reporting period are included as part of employee benefits in the comprehensive operating statement of VAGO.

The name, details and amounts expensed in relation to the major employee superannuation funds and contributions made by VAGO are as follows:

Note 15. Leases

Table shows leases.

Note 16. Commitments for expenditure

Table shows commitments for expenditure

Note 17. Contingent assets and contingent liabilities

At the reporting date, VAGO was not aware of any contingent assets or contingent liabilities.

Note 18. Financial instruments

Table shows financial instruments, financial risk management objectives and policies
Table shows financial instruments, net holding gain/(loss) on financial instruments by category
Table shows financial instruments, credit risk
Table shows financial instruments, liquidity risk
Table shows financial instruments, fair value

Note 19. Cash flow information

Table shows cash flow information

Note 20. Summary of compliance with annual Parliamentary and special appropriations

Table shows a summary of compliance with annual Parliamentary and special appropriations, summary of compliance with annual Parliamentary appropriations
Table shows a summary of compliance with annual Parliamentary and special appropriations, summary of compliance with special appropriations.

Note 21. Responsible persons

Image shows the responsible persons

Note 22. Remuneration of executives

Image shows remuneration of executives

Note 23. Remuneration of auditors

Image shows the remuneration of auditors

Note 24. Subsequent events

VAGO has no subsequent events to report.

Note 25. Glossary of terms and style conventions

Glossary

Actuarial gains or losses on superannuation defined benefit plans

Actuarial gains or losses are changes in the present value of the superannuation defined benefit liability resulting from:

  • (a) experience adjustments (the effects of differences between the previous actuarial assumptions and what has actually occurred); and
  • (b) the effects of changes in actuarial assumptions.

Borrowings

Borrowings refers to interest-bearing liabilities raised from finance leases.

Comprehensive result

The net result of all items of income and expenditure recognised for the period. It is the aggregate of operating result and other comprehensive income.

Capital asset charge

The capital asset charge represents the opportunity cost of capital invested in the non-financial physical assets used in the provision of outputs.

Commitments

Commitments include those operating, capital and other outsourcing commitments arising from non-cancellable contractual or statutory sources.

Depreciation

Depreciation is an expense that arises from the consumption through wear or time of a produced physical or intangible asset. This expense is classified as a 'transaction' and so reduces the 'net result from transactions'.

Employee benefits expenses

Employee benefits expenses include all costs related to employment including wages and salaries, fringe benefits tax, leave entitlements, redundancy payments, defined benefits superannuation plans, and defined contribution superannuation plans.

Financial asset

A financial asset is any asset that is:

(a) cash;

(b) a contractual or statutory right:

  • to receive cash or another financial asset from another entity; or
  • to exchange financial assets or financial liabilities with another entity under conditions that are potentially favourable to the entity; or

Financial instrument

A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Financial assets or liabilities that are not contractual (such as statutory receivables or payables that arise as a result of statutory requirements imposed by governments) are not financial instruments.

Financial liability

A financial liability is any liability that is:

(a) A contractual obligation:

  • To deliver cash or another financial asset to another entity; or
  • To exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavourable to the entity.

Financial statements

A complete set of financial statements comprises:

  • balance sheet as at the end of the period;
  • comprehensive operating statement for the period;
  • a statement of changes in equity for the period;
  • cash flow statement for the period;
  • notes, comprising a summary of significant accounting policies and other explanatory information;
  • comparative information in respect of the preceding period as specified in paragraphs 38 of AASB 101 Presentation of Financial Statements ; and
  • a statement of financial position as at the beginning of the preceding period when an entity applies an accounting policy retrospectively or makes a retrospective restatement of items in its financial statements, or when it reclassifies items in its financial statements in accordance with paragraphs 41 of AASB 101.

General government sector

The general government sector comprises all government departments, offices and other bodies engaged in providing services free of charge or at prices significantly below their cost of production. General government services include those which are mainly non-market in nature, those which are largely for collective consumption by the community and those which involve the transfer or redistribution of income. These services are financed mainly through taxes, or other compulsory levies and user charges.

Intangible produced assets

Refer to produced assets in this glossary.

Interest expense

Costs incurred in connection with the borrowing of funds includes interest on short-term and long-term borrowings, interest component of finance leases repayments, and the increase in financial liabilities and non-employee provisions due to the unwinding of discounts to reflect the passage of time.

Net result

Net result is a measure of financial performance of the operations for the period. It is the net result of items of income, gains and expenses (including losses) recognised for the period, excluding those that are classified as 'other economic flows - other comprehensive income'.

Net result from transactions/net operating balance

Net result from transactions or net operating balance is a key fiscal aggregate and is income from transactions minus expenses from transactions. It is a summary measure of the ongoing sustainability of operations. It excludes gains and losses resulting from changes in price levels and other changes in the volume of assets. It is the component of the change in net worth that is due to transactions and can be attributed directly to government policies.

Net worth

Assets less liabilities, which is an economic measure of wealth.

Non-financial assets

Non-financial assets are all assets that are not ‘financial assets’. It includes plant and equipment, intangible assets and prepayments and accrued income.

Other economic flows included in net result

Other economic flows included in net result are changes in the volume or value of an asset or liability that do not result from transactions. It includes:

  • gains and losses from disposals and impairments of non-financial physical and intangible assets; and
  • gains and losses arising form the revaluation of the long service leave liability.

Payables

Includes short and long-term trade debt and accounts payable, grants and interest payable.

Produced assets

Produced assets are non-financial assets that have come into existence as outputs of production processes. Produced assets include certain intangible assets, such as computer software.

Receivables

Receivables include amounts owing from government through appropriation receivable, short and long-term trade credit and accounts receivable, grants and taxes receivable.

Sales of goods and services

Refers to income from the direct provision of goods and services and includes fees and charges for services rendered and sales of goods and services.

Supplies and services

Supplies and services generally represent cost of goods sold and the day-to-day running costs, including maintenance costs, incurred in the normal operations of VAGO.

Transactions

Transactions are those economic flows that are considered to arise as a result of policy decisions, usually an interaction between two entities by mutual agreement. They also include flows in an entity such as depreciation where the owner is simultaneously acting as the owner of the depreciating asset and as the consumer of the service provided by the asset. Taxation is regarded as mutually agreed interactions between the government and taxpayers. Transactions can be in kind (e.g. assets provided/given free of charge or for nominal consideration) or where the final consideration is cash. In simple terms, transactions arise from the policy decisions of the government.

Style conventions

Figures in the tables and in the text have been rounded. Discrepancies in tables between totals and sums of components reflect rounding. Percentage variations in all tables are based on the underlying unrounded amounts.

The notation used in the tables is as follows:

-zero, or rounded to zero
(xxx.x)negative numbers
200xyear period
200x–0xyear period

The financial statements and notes are presented based on the illustration for a government department in the 2015–16 Model Report for Victorian Government Departments. The presentation of other disclosures is generally consistent with the other disclosures made in earlier publications of VAGO's annual reports.

[ Contents of this report | VAGO Home | VAGO Publications ]

8. Appendices

  1. Appendix one - Key audit themes
  2. Appendix two - External engagements in 2015-16
  3. Appendix three - Employee profile by gender, age and classification
  4. Appendix four - Disclosure index
  5. Appendix five - Extract of whole-of-government financial statements—non-audited
  6. Appendix six - Policies and compliance
  7. Appendix seven - Additional information available on request
  8. Appendix eight - Five-year statistics

Appendix one – Key Audit Themes

Image of the key audit themes

Helping you to use the key audit themes
We regularly give tailored presentations on the key audit themes to specific sectors or interests. If you want us to present to your organisation, email us at ag@audit.vic.gov.au.

Introduction

Audits are designed to help agencies understand risks and challenges and help them to improve performance, governance and accountability.

All of our audit reports are publicly available. Despite this, agencies do not always take the opportunity to learn from the experience of others.

To help agencies benefit from insights from our wider audit program, each year we look through our reports to see whether similar findings appear across different reports. If a matter comes up in several audits, it is likely to be a widespread theme of interest to a range of agencies.

Key audit themes for 2015–16

Seven themes arise from our 2015-16 audit reports, each drawing on a number of common findings:

This year, about 20 per cent of findings in our audit reports were positive—higher than usual. Where appropriate, we have reflected this in the themes. However, as our audit program is designed to address areas of risk for the public sector, audit findings more often cover areas to improve than affirm positive practice.

How to use the themes

Each theme includes a high-level summary and detail on what we have seen and why it is problematic. We include excerpts from audit reports published between July 2015 and June 2016 to illustrate our findings and help you to identify reports that you may want to read in more detail. We present specific instances of good management, where available. It is important to remember that practices may have improved since our reports were tabled.

The self-assessment questions for each theme give a practical starting point for assessing how your agency fares in relation to that theme. People use the themes in different ways:

01 Governance and oversight

Governance arrangements include the structures, processes and practices that an agency uses to achieve its objectives. Poor governance arrangements make it more difficult for an agency to operate effectively and blur accountability for actions and outcomes. A long-running challenge in the public sector, the past year's audits found some areas of positive performance, as well as persistent shortcomings.

Governance frameworks

There were encouraging improvements in relation to governance frameworks. We found that several agencies have worked to more clearly and formally define their governance arrangements.

'Over the past six months the Department of Economic Development Jobs Transport & Resources (DEDJTR) has put a governance framework in place to ensure that there are consistent assumptions underpinning the transport modelling and economic appraisal of projects, and that these have been properly applied.'

Applying the High Value High Risk Process to Unsolicited Proposals (August 2015).

However, many aspects remain to be improved. We found that several governance frameworks were unclear or inadequate. The task of appropriately governing collaborative operations continues to be challenging, particularly for information-sharing.

'[The Department of Education and Training's (DET)] governance framework is deficient and consequently undermines the application of its planning framework… DET's reliance on committees makes it difficult to identify responsible executive officers and diminishes their accountability. It is impossible to know whether these committees are operating effectively as it is often unclear who oversees their performance, how decisions are made, who is attending and how often they meet.'

Department of Education and Training: Strategic Planning (October 2015).

Oversight of delegated or contracted activity

In 2015–16, we continued to find significant shortcomings in how senior managers and agencies oversee and monitor, especially in outsourced or 'arm's length' arrangements.

'In some cases, DET relies on system authorities to administer and oversee grants made to schools. In effect, this means that the system authorities oversee themselves... DET does not oversee or monitor system authorities to assure itself that grants are used for their intended purpose or achieving the intended outcomes.'

Grants to Non-Government Schools (March 2016)

'While there have been overall improvements during the year in how outsourced IT environments are managed, additional improvements are still required. There is a need to increase awareness of ownership and obligations relating to these outsourced environments, including assessing the reliability and quality of audits conducted over an entity's outsourced environment and assessing the impact of any control weaknesses on the entities' control environment.'

Financial Systems Controls Report: Information Technology 2014–15 (October 2015)

Responding to recommendations and reviews

A key aspect of governance is having systems in place to ensure that actions take place in response to audits and other reviews. We found positive signs of responsiveness to our recommendations.

'The majority of agencies, 82 per cent, reported assigning recommendations to responsible individuals. Nearly half of the individuals assigned to monitor and report on specific recommendations held executive management positions. This greater accountability for the timely completion of recommendations is reflected in the completion rates for agencies that took this approach.'

Responses to Performance Audit Recommendations 2012–13 and 2013–14 (December 2015)

'The department has initiated adequate action to address all of the recommendations in our 2014 report. In most instances, this has meant addressing systemic issues that require a long time to overcome.'

Follow up of Residential Care Services for Children (June 2016)

However, we found several examples where the effort was not enough to address identified problems. Some agencies were particularly slow to address recommendations or did not address all recommendations. In other instances, the action taken did not lead to effective change. Audit committees did not always fulfil their role in seeking assurance that recommendations were being addressed.

'The department's audit committee has processes in place to assess progress in implementing recommendations from other external reports. However, it is not assessing the impact these actions are having. As a consequence, neither the department nor the audit committee can be assured that the effort being put into addressing the issues underlying the recommendations is effective.'

Follow up of Managing Major Projects (August 2015)

Complying with regulatory frameworks

Some agencies did not comply with mandatory requirements, mainly in relation to financial management and accountability. We found several instances where agencies did not comply with the Financial Management Act 1994—the public sector's framework for financial administration, accountability and reporting—and the Standing Directions and standards that sit under this Act. More broadly, some agencies did not comply with mandated processes and policies, or fulfil reporting obligations.

'2014–15 was the first financial year public hospitals were required by Standing Direction 4.5.6 Treasury Risk Management of the Financial Management Act 1994, to invest non-operational funds of greater than $2 million with the state's treasury bodies, rather than investing in deposit institutions with a lower than AAA credit rating. Seventeen public hospitals did not comply with this requirement.'

Public Hospitals: 2014–15 Audit Snapshot (November 2015)

'Agencies also fall well short of fully complying with their obligations under Part II of the Freedom of Information Act 1982, to publish registers of the information they hold.'

Access to Public Sector Information (December 2015)

Self-assessment questions

  1. What assurance does my agency have that its governance arrangements are appropriate, clear and well understood?
  2. How does my agency monitor activity that it is responsible for or that it has delegated or contracted to others?
  3. How does my agency know whether it is identifying, managing and monitoring all relevant risks?
  4. Does my agency have a system in place to monitor action on recommendations and reviews in a way that ensures that action is timely and meaningful and addresses the core problem?
  5. Have we done enough to address the problems we already know about?
  6. Does my agency have assurance over how it complies with relevant legislation and regulations?

02 Effective leadership

Leadership is a critical element of an organisation. The approach of public sector leaders to decision-making and culture has a major influence on their organisations. Although audits rarely set out to consider the effectiveness of leadership, several reports highlighted the significant role of leadership within the programs and activity they assessed.

Guidance and direction

There were instances of leadership showing the way and being the source of improvement, as well as instances where agencies failed to effectively set direction and drive change.

'Systemic failures by [the Department of Health and Human Services] DHHS—some of which were identified over a decade ago in our 2005 audit—collectively indicate that DHHS is not effectively providing leadership or oversight of patient safety.'

Patient Safety in Victorian Public Hospitals (March 2016)

Operational guidance from the centre on key activities or processes was often unclear, inadequate or absent, although we found some examples of good guidance material.

Creating a positive and ethical culture

Leaders are role models for an organisation's behaviour and actions. Leaders who model appropriate conduct and behaviour will contribute to a positive culture. We found problems with culture—how members of an organisation approach their work and interact with each other—that were concerning. Leaders have opportunities to make a difference to these matters, by driving cultural change.

'There is widespread fear among staff and a reluctance to raise issues or make formal complaints because of the perceived repercussions of doing so.'

Bullying and Harassment in the Health Sector (March 2016)

'There needs to be cultural change across Victoria Police, supported by strong leadership for this initiative to succeed.'

Follow up of Asset Confiscation Scheme (June 2016)

Frank and fearless advice

For leaders to fulfil their roles and make informed decisions, they need frank, impartial and timely advice from the public sector. This is enshrined in the values and principles that guide the public sector, with 'providing frank, impartial and timely advice to government' listed as a key value in the Public Administration Act 2004. We found some positive examples where decision-makers were supported well with advice.

'Advice provided to government to support decisions on the establishment and rollout of the [Protective Services Officer (PSO)] … program was comprehensive. The report back to government following the first 18 months of the program was focused on the government's priorities at the time, but it also advocated for changes to the PSO program in order to improve efficiency and effectiveness and to reduce costs. While government chose not to follow this advice, the options presented were comprehensive and soundly based.'

Public Safety on Victoria's Train System (February 2016)

However, we found several instances where this principle was not fulfilled across aspects of public sector administration including for major policies and infrastructure decisions. Similarly, we found shortcomings in advice or information provided to oversight bodies such as audit committees.

'Over the life of this costly and complex project, advice to government did not always meet the expected standard of being frank and fearless. This highlights a risk to the integrity of public administration that needs to be addressed.'

East West Link Project (December 2015)

'The application of the [High Value High Risk] … process to CityLink Tulla had significant gaps which [the Department of Treasury and Finance] … needs to address for similar proposals in the future. The lack of sufficient information on the project's benefits, the absence of a full funding analysis and weaknesses in the approach to stakeholder engagement are fundamental gaps which compromise the quality of advice government is entitled to receive.'

Applying the High Value High Risk Process to Unsolicited Proposals (August 2015)

'Public sector leadership needs to be focussed on creating a sense of public trust for government's stewardship role. This public trust needs to be a network of trust: Citizens must be able to trust public institutions to defend their interests. Politicians and ministers must be able to trust that the public service will give them objective, high quality and fearless advice.'

—Chris Eccles, Secretary, Department of Premier & Cabinet, in his 'Leadership from the centre' address, Melbourne 23 June 2016

Self-assessment questions

  1. How does my agency get assurance and feedback about whether the guidance and support we give other agencies or staff meets their needs?
  2. Does my agency’s leadership group use indicators to benchmark positive culture to strengthen integrity and monitor the risk of inappropriate behaviour?
  3. Do I have assurance that my agency provides frank and fearless advice to government? Do I offer advice both for and against options in briefings to support decision-making?

03 Managing information

The right information can completely change the way you look at a problem. Having relevant, complete and accurate information helps to improve decision-making. Sharing information can have a huge impact. Taking time to focus on the technical side of managing information can provide your agency with more reliable reporting.

Quality of data and information

We continued to find widespread shortcomings in data and information throughout the public sector. Some agencies failed to record important decisions or activity. Others did not effectively analyse, use or disseminate the information they held. Some agencies did not model or forecast options and plans effectively. Nonetheless there were positive examples where agencies had good quality data and information.

'[The Department of Environment, Land, Water and Planning's] spatial data has long been recognised for its high quality, and efforts to ensure that it is supported by mature and robust governance and management processes have made it one of Victoria's most valuable and highly used data sources.'

Access to Public Sector Information (December 2015)

Systems and controls

Today, the public sector does much of its work using information systems. We found examples of out-of-date systems, including those used for financial management and reporting, that undermined efficiency and effectiveness. We found that, although financial reporting systems and controls throughout the public sector are generally sound, many weaknesses remained, including in security controls.

'IT security controls need improvement—IT security control weaknesses account for 68 per cent of all IT audit findings. There is poor management of IT security, particularly relating to user access and alignment with Victorian Government IT security standards.'

Financial Systems Controls Report: Information Technology 2014–15 (October 2015)

Record-keeping

Often, agencies could not show why or how they had spent funds, made decisions or managed risks. However, record-keeping is not just about creating an audit trail. It is a fundamental governance matter because it is about retaining corporate knowledge and improving how the public sector works. Addressing this shortcoming is a straightforward way of improving the public sector's efficiency, economy and effectiveness. We found pervasive inadequacies in record-keeping.

'The absence of documentation for three of the 15 selected projects is a significant issue, as it is impeding effective project governance by agencies and means we have been unable to assess if these projects addressed key elements in the investment lifecycle guidance.'

Managing and Reporting on the Performance and Cost of Capital Projects (May 2016)

Self-assessment questions

  1. What information does my agency collect and how does it use it? Is this enough? Could this be improved?
  2. Are my agency’s information and monitoring systems in place, up to date, secure, and meeting users’ needs?
  3. Is my agency committed to record-keeping, including training our staff and allocating enough time and resources to record-keeping? Is it easy to trace decisions and demonstrate activities? Are key processes documented properly?

04 Implementation and delivery

The public sector is responsible for delivering big-budget projects and programs to bring about the outcomes and objectives that government sets. The community expects government to deliver the services and outcomes it says it will. In keeping with legislation, performance audits examine whether it has done so effectively, efficiently and economically.

Achieving results

Public sector goals are hard to achieve. Agencies do not face an easy task to achieve their targets in a complex environment with limited resources and constant change. We found that the public sector's performance was mixed. We found examples of the public sector achieving good results:

'[State schools are] now performing better than non-government schools and the Victorian workers' compensation scheme in returning injured employees back to work earlier.'

Follow up of Management of Staff Occupational Health and Safety in Schools (August 2015)

'[The Parole System Reform Program] has improved the operations of the APB [Adult Parole Board]. Board members now have sufficient time to consider each case, and improved ICT systems allow easier access to information and the improved recording of decisions made.'

Administration of Parole (February 2016)

We found several instances where the public sector did not achieve intended results, or fully implement projects and programs.

'I also found a real risk that the expected benefits will not be achieved. Current forecasts predict consumers will only receive approximately 80 per cent of the benefits identified in the most recent 2011 cost-benefit analysis—provided that all issues and risks are effectively mitigated—and as costs increase over the life of the program, the final net cost to consumers is likely to rise above $319 million.'

Realising the Benefits of Smart Meters (September 2015)

Project management

Several audits found that projects and programs were delivered late and over budget. Infrastructure and services were not available as soon as intended, and the state paid millions of dollars more than planned, particularly in relation to ICT and capital projects.

'None of the ICT Projects considered in this audit were completed or will be completed as initially budgeted. One of the six projects examined finished on schedule. One project was terminated prior to system delivery, six years after the planned completion date and having cost twice the intended budget. Most of the six projects examined in this audit faced significant challenges at various points during implementation.'

Digital Dashboard: Status Review of ICT Projects and Initiatives – Phase 2 (March 2016)

Self-assessment questions

  1. Is my agency achieving its objectives?
  2. How informative are the explanations given for any target shortfalls?
  3. How is my agency monitoring project timeliness and spending?
  4. How does my agency respond when projects are in danger of going over budget or schedule?

05 Measuring and reporting performance

Reporting financial and non-financial performance demonstrates whether government has delivered on its commitments and used funds provided by Parliament efficiently, effectively and for the purposes that were intended. Public sector agencies are required to publish financial reports that comply with legislation and standards and that fairly present their financial position. If performance measurement and reporting systems are designed poorly or reports are difficult to understand or unreliable, then the public sector cannot be held to account for its performance.

Financial reporting

We continued to find that public sector financial reporting can be largely relied on, with most financial statements of Victorian public sector agencies receiving a clear audit opinion.

'Clear financial audit opinions were issued for the 79 local councils for the year ended 30 June 2015. This means that Parliament and the public can have confidence in the financial statements of these local councils.'

Local Government: 2014–15 Audit Snapshot (November 2015)

However, we found that more financial reports could not be completely relied on. Twenty-six audit opinions were either a qualified or disclaimer opinion or the opinion identified an emphasis of matter. Of particular concern, the Annual Financial Report of the State of Victoria (AFR) and the financial reports of two of the seven government departments had problems that led to the Auditor-General issuing qualified opinions.

'The AFR received a modified audit opinion, consisting of two audit qualifications: the AFR did not record an expense, and associated liability, recognising the state's obligation to return to the Commonwealth Government $1.5 billion of funding relating to the [East West Link] … project; the property, plant and equipment balances of DET, which are included in the AFR, were not supported by proper accounts and records.'

Auditor-General's Report on the Annual Financial Report of the State of Victoria, 2014–15 (November 2015)

We observed that the overall timeliness of financial reporting is slipping. This reduces the accountability and transparency of the public sector's finances. The AFR was late, because most of the agencies that contribute to this report were late in providing their draft financial statements to the Department of Treasury and Finance.

Designing performance measurement frameworks

If the framework for measuring performance is not designed well in the first place, it undermines the entire performance measurement regime. This has been a longstanding theme in our audits. We found that some programs or agencies did not have performance measurement frameworks at all. For those that did, key performance indicators were not always relevant, or agencies did not set targets for performance. In several instances, evaluations should have been carried out but were not, meaning that agencies had no strong evidence to demonstrate performance or inform future activities.

'The long-term water quality monitoring programs in the Port Phillip and Western Port region are not clearly linked to these objectives and they have not been evaluated against them.'

Monitoring Victoria's Water Resources (May 2016)

We found some positive examples, especially in our financial audits.

'The 2014–15 reporting period was the first year local councils were required to prepare information on a prescribed set of performance indicators in accordance with the Local Government Performance Reporting Framework. The new regime requires extensive financial and non-financial information to be disclosed.'

Local Government: 2014–15 Audit Snapshot (November 2015)

Demonstrating and reporting performance

This year, we found that some agencies had improved their performance reports.

'We have observed better-quality performance statements in 2015, as TAFEs included more information describing indicators and the method of calculation, and more detailed explanations of variances.'

Technical and Further Education Institutes: 2015 Audit Snapshot (May 2016)

However, more commonly, agencies' performance reports could not demonstrate what they had done or show the benefits and results of their programs. We sometimes found a lack of transparency, where agencies held information but did not report it, either internally to management or externally to the public.

Public reporting lacks transparency and has been inadequate over the past decade… The absence of sufficient information on the changing scope and components of these initiatives make the content and impacts of these programs impenetrable to citizens.'

Reducing the Burden of Red Tape (May 2016)

Self-assessment questions

  1. Does our performance measurement framework cover our key activities? Does it have relevant and appropriate key performance indicators and targets set in advance to help us measure our progress?
  2. Do we evaluate key projects and programs to determine whether they are meeting their objectives?
  3. Are we reporting all the information we are required to, internally and externally?
  4. How do we monitor the timeliness of our financial reporting? How do we ensure that it receives a clear audit opinion?

06 Monitoring and managing risks to financial sustainability

Agencies must be able to generate enough funds from operations to meet financial obligations, fund asset replacement and renewal, and absorb foreseeable changes. Management must monitor and manage its agency's ability to do this. Our audits found improvements in most indicators of risks to financial sustainability, although a range of challenges remain.

Impact of funding models on financial sustainability

The funding or pricing models that some agencies are required to operate within can challenge the capacity of management to make long-term financial plans, or to grow income beyond a fixed ceiling. Agencies that rely on earned income from operations, including arts, sports and tourism organisations, can be particularly vulnerable to financial sustainability risks.

'These [self-funded] entities face significant financial challenges, that if not addressed, may lead to a reduction in the services they provide to the community. If they are to be financially sustainable over the long term, the underlying pricing model used to generate revenue may need amendment, another funding source may need to be identified, cost structure may need review, or additional government support may be required.'

Portfolio Departments and Associated Entities: 2014–15 Audit Snapshot (December 2015)

Maintaining and renewing assets

A key aspect of financial sustainability is being able to replace and repair assets. Assets include buildings such as schools, hospitals, and universities and other infrastructure such as community swimming pools. Assets have to be maintained and eventually replaced. Managing this process is a significant part of the work of many agencies. We found that some agencies were not funding new assets or maintaining assets at the same rate as assets were depreciating. If assets are not maintained or replaced, the quality of services the community receives can decrease and, as time goes by, it can become more expensive to address problems.

'The continuing deficits are not allowing public hospitals to build up reserves from operations to replace or renew their fixed assets. Funds for replacement and new assets are provided mostly through specific purpose government grants, which are awarded based on the assessment of business cases. In addition, public hospitals also undertake specific fund raising. Current revenue levels create longer-term financial sustainability risks, and could, ultimately, impact the quality and variety of services offered to the public.'

Public Hospitals: 2014–15 Audit Snapshot (November 2015)

Self-assessment questions

  1. Has my agency assessed the impact of our funding or pricing models on our financial sustainability?
  2. Does my agency monitor key indicators of risk to financial sustainability, including debt and cash flow?
  3. Does my organisation have an appropriate risk management regime in place to assess financial sustainability risks?
  4. What actions does my agency take in response to significant and emerging risks to its financial sustainability?
  5. Is my organisation maintaining, replacing and renewing assets as required?

07 Stakeholder engagement

This year, several of our audits assessed how well agencies engage with stakeholders, including the public. This engagement has become more frequent, reflecting the impact it has on effective public sector administration. One of the Victorian Special Minister of State's six directions for reforming the public sector includes considering how citizens and communities co-create public value.

Getting input from stakeholders

We found good examples of stakeholders being consulted to collect information, opinions and advice.

'The department is working to improve its complaints processes and assess the feasibility of an independent advocacy role for children and young people in residential care, which will contribute further to meeting their needs. This has involved engaging with children and young people in residential care to include their voice in identifying the issues and the possible actions to address these.'

Follow Up of Residential Care Services for Children (June 2016)

However, we did see shortcomings. Sometimes, agencies did not consult key stakeholders, or did not consult in a well-planned way.

'DEDJTR engages extensively with non-government stakeholders on livestock biosecurity matters. However, this engagement has not occurred in line with an overarching strategic approach. The needs of, and risks to, non-government stakeholder groups — including livestock industries and private veterinary practitioners—have not been systematically assessed.'

Biosecurity: Livestock (August 2015)

Communicating to stakeholders

Communications activities can often be overlooked. Failing to communicate can significantly affect outcomes, effective implementation, the uptake of a service and stakeholders' perceptions. Although some agencies' communications and awareness activities were effective, others' were not.

'The lack of a PSO public awareness strategy means that agencies are not capitalising on the presence of PSOs to improve perceptions of safety and increase patronage on trains after 6 pm.'

Public Safety on Victoria's Train System (February 2016)

Self-assessment questions

  1. Do we have a stakeholder engagement plan for the whole organisation?
  2. Is stakeholder engagement given adequate consideration in planning key projects, programs and activities?
  3. Do we carry out adequate communications and awareness activities for stakeholders?
  4. Do we review how effectively we engage stakeholders?

Appendix two – External engagements in 2015–16

Presentations by the Auditor-General and senior staff in 2015–16

Date

Presentation to

Topic

3 August 2015

Centre for Excellence in Child and Family Welfare (a peak body for family service providers)

Key findings of the audit Early intervention services to vulnerable children and families.

4 August 2015

Inquiry into Rate Capping Policy

Presentation of findings from recent audits of local government.

7 August 2015

Association of TAFE Business Managers

Financial Outcomes for the Sector for 2014 and perspectives looking forward to 2015.

7 August 2015

Local Government Pro Chief Executive Officers Forum

Financial Sustainability Risk and the Asset Renewal Gap.

15 August 2015

ANZSOG Ministerial Staff Workshop

Overview of Auditor-General's role and responsibilities and interactions with ministers' offices.

14 September 2015

Masters students in the Health Services Management & Public Health Program

Quality and Safety Assurance—the role of the Victorian Auditor-General's Office.

21 September 2015

Monash University Governance

Auditors-General in the integrity system.

25 September 2015

University of Melbourne

Oversight of the public sector: explosion or erosion?

A perspective from the Victorian Auditor-General's Office.

8 October 2015

Governance Institute Public Sector Update Luncheon

Key Audit Themes 2014–15.

15 October 2015

Annual PASAI Congress in Vanuatu

'Applying INTOSAI Independence Principles: The Australian Experience', comparing independence of Audit Offices across Australian jurisdictions.

26 October 2015

Safe and Secure Hospitals Conference

Addressing Violence in Victorian Health Care Settings—an Audit Perspective.

28 October 2015

PwC Audit Committee Chairs luncheon

Key Audit Themes 2014–15.

30 October 2015

Local Government Finance Professionals

Results of the 2014–15 Local Government Audits.

13 November 2015

Victorian OHS Network

Occupational Violence against Healthcare Workers audit.

18 November 2015

AUSFOG Conference

Audit observations.

4 December 2015

VicRoads Audit Committee

Key Audit Themes 2014–15.

12 February 2016

Australian College of Health Service Management

Health Service Financial management—An Audit Perspective.

25 February 2016

DOJR Statutory Entities

VAGO Update.

18 February 2016

Local Government Finance Professionals

Local Government Audit Snapshot 2014–15.

2 March 2016

Australian Institute of Project Management Panel Roundtable (AIPM Melbourne Chapter)

Project Management in Local Government—the state of play.

17 March 2016

Australian Institute of Building Surveyors

(South Australian Chapter Conference, Adelaide)

Presentation on Victoria's consumer protection framework for building construction report.

18 March 2016

Local Government Pro CEO Forum

Integrity and Accountability Legislation Amendment (A Stronger System) Bill 2015—A VAGO perspective.

13 April 2016

KPMG Accounting and Reporting Issues Seminar

Key Audit Themes 2014–15.

20 April 2016

7th Annual Victorian Major Projects conference

East West Link Project.

12 May 2016

PASAI/ACAG Regional Working Group on Environmental Auditing

Impacts of Performance Audits—Regulatory Approaches.

12 May 2016

Victorian Country Pools Conference (Aquatics & Recreation Victoria)

VAGO report—Asset management shortfalls: what does this mean to country pools?

26 May 2016

Local Government Finance Professionals

Preparedness for 30 June 2016 audits.

26 May 2016

Australian Health Services Financial Management Association 'Meeting of the Minds'

Key Audit Themes 2014–15.

2 June 2016

Regulators' Community of Practice (hosted by the Commissioner for Better Regulation)

Reducing the Burden of Red Tape performance audit—key insights and recommendations.

8 June 2016

Ernst & Young Government Accounting update

Key Audit Themes 2014–15.

24 June 2016

Corrections Victoria Occupational Violence Summit

Occupational Violence Audit.

14 July 2016

Sustainability Victoria Stakeholder Engagement Network

Better Practice Guide: Public Participation in Government Decision-making.

International delegations to VAGO in 2015–16

Date

Organisation

Purpose, interest or theme of visit

17 September 2015

Ugandan Ministry of Finance, Planning and Economic Development

Public Private Partnerships.

24 November 2015

Foreign Policy Research Team of Cheongju City Hall, South Korea

Information Systems Auditing and ICT systems interfaces.

Obtaining data easily for auditing or anti-corruption purposes.

Information System Audit reports by VAGO.

10 December 2015

National Audit Office of the People's Republic of China

Financial audit methods used by VAGO as well as general information about performance audit. The delegation outlined specific topics for discussion during their visit.

Financial audit under the context of a mixed economy.

How to improve the accounting information transparency and the audit independence.

26 February 2016

Board of Audit of Japan

VAGO's overall role and mandate, our audit of private public partnerships, and specifically our Operating Water Infrastructure Using Public Private Partnerships audit.

4 May 2016

Northern Pacific Auditors-General

The role and mandate of VAGO and an outline of current and planned financial and performance audits.

Appendix three – Employee profile by gender, age and classification(a)(b)

Ongoing Employees

Fixed term & Casual

Number (headcount)

Full time (headcount)

Part time (headcount)

FTE

FTE

June 2016

178

149

29

168.45

20.80

June 2015

163

138

25

156.00

20.60

 

 

June 2016

June 2015

Ongoing

Fixed term & Casual

Ongoing

Fixed term & Casual

Number (headcount)

FTE

FTE

Number (headcount)

FTE

FTE

Gender

Male

73

72.00

14.00

72

71.00

10.00

Female

105

96.45

6.80

91

85.00

10.60

Total

178

168.45

20.80

163

156.00

20.60

Age

Under 25

2

2.00

3.00

6

6.00

2.00

25-34

59

56.63

9.00

59

58.00

8.00

35-44

67

62.32

5.80

51

46.50

6.60

45-54

37

34.90

3.00

32

30.90

2.00

55-64

11

10.60

0.00

14

13.60

2.00

Over 64

2

2.00

0.00

1

1.00

0.00

Total

178

168.45

20.80

163

156.00

20.60

Classification

Auditor-General

0

0.00

0.00

1

1.00

0.00

Executive

24

23.70

0.00

24

23.80

1.00

STS(c)

3

2.70

0.00

3

2.60

0.00

Grade 6

43

39.03

3.00

33

30.40

4.00

Grade 5

40

37.39

7.80

24

22.00

8.00

Grade 4

28

26.23

3.00

34

32.80

1.00

Grade 3

35

34.40

1.00

33

32.40

3.60

Grade 2

5

5.00

6.00

11

11.00

3.00

Grade 1

0

0.00

0.00

0

0.00

0.00

Total

178

168.45

20.80

163

156.00

20.60

(a) All figures reflect active employees during the last full pay period in June each year.

(b) Excluded are those on leave without pay or absent on secondment, external contractors/consultants, and temporary staff employed by employment agencies.

(c) The Senior Technical Specialist roles at VAGO comprise one specialist senior auditing role, one specialist senior accounting role, and one senior business management role.

Appendix four – Disclosure index

Our annual report is prepared in accordance with all relevant Victorian legislation and pronouncements. This index has been prepared to facilitate identification of our compliance with statutory disclosure requirements.

Legislation

Requirement

Page

Ministerial directions

Report of operations—FRD guidance

Charter and purpose

FRD 22G

Manner of establishment and the relevant Minister

9

FRD 22G

Purpose, functions, powers and duties

9

FRD 22G

Key initiatives and projects

12–13

FRD 22G

Nature and range of services provided

9

Management and structure

FRD 22G

Organisational structure

42

Financial and other information

FRD 8D, SD 4.2(k)

Performance against output performance measures

14

FRD 8D

Budget portfolio outcomes

147

FRD 10A

Disclosure index

145

FRD 15C

Executive officer disclosures

45

FRD 22G

Employment and conduct principles

32

FRD 22G

Occupational health and safety policy

33

FRD 22G

Summary of the financial results for the year

17

FRD 22G

Significant changes in financial position during the year

17

FRD 22G

Major changes or factors affecting performance

10

FRD 22G

Subsequent events

123

FRD 22G

Application and operation of Freedom of Information Act 1982

149

FRD 22G

Compliance with building and maintenance provisions of the Building Act 1993

148

FRD 22G

Statement on National Competition Policy

148

FRD 22G

Application and operation of the Protected Disclosure Act 2012

148

FRD 22G

Details of consultancies over $10 000

76

FRD 22G

Details of consultancies under $10 000

76–77

FRD 22G

Statement of availability of other information

150

FRD 22G

Disclosure of ICT expenditure

51

FRD 24C

Reporting of office-based environmental impacts

57

FRD 25B

Victorian Industry Participation Policy disclosures

148

FRD 29A

Workforce data disclosures – Public Sector Employees

29, 144

SD 4.5.5

Risk management compliance attestation

54

SD 4.5.5.1

Ministerial Standing Direction 4.5.5.1 compliance attestation

54

SD 4.2(g)

Specific information requirements

1–72

SD 4.2(j)

Signoff requirements

4

Financial report

Financial statements required under Part 7 of the Financial Management Act 1994

SD4.2(a)

Statement of changes in equity

84

SD4.2(b)

Operating statement

82

SD4.2(b)

Balance sheet

83

SD4.2(b)

Cash flow statement

85

Other requirements under Standing Directions 4.2

SD4.2(c)

Compliance with Australian accounting standards and other authoritative pronouncements

86

SD4.2(c)

Compliance with Ministerial Directions

80

SD4.2(c)

Accountable officer's and chief financial and accounting officer's declaration

80

SD4.2(d)

Rounding of amounts

88

SD4.2(f)

Compliance with Model Financial Report

76

Other disclosures as required by FRDs in notes to the financial statements

FRD 9A

Disclosure of administered assets and liabilities

103

FRD 13

Disclosure of Parliamentary appropriations

120

FRD 21B

Disclosures of responsible persons, executive officers and other personnel (contractors with significant management responsibilities) in the financial report

121

FRD 103F

Non-current physical assets

107–109

FRD 110

Cash flow statements

85

FRD 112D

Defined benefit superannuation obligations

89

FRDs applicable to VAGO with no disclosures to make in 2015–16

FRD 11

Disclosure of ex-gratia payments

FRD 12A

Disclosure of major contracts

FRD 22G

Application and operation of the Carers Recognition Act 2012

FRD 22G

Disclosure of government advertising expenditure

FRD 102

Inventories

 

 

Legislation

Financial Management Act 1994

86

Audit Act 1994

9

Freedom of Information Act 1982

149

Building Act 1993

148

Protected Disclosure Act 2012

148

Victorian Industry Participation Policy Act 2003

148

The only departure from FRDs is in relation to FRD 30B Standard Requirements for the Publication of Annual Reports, April 2015. The departure is specifically in relation to 5.3 Design. Section 5.3 Design of FRD30B suggests that internal colour should be kept to one colour, or as few colours as possible where it is essential to enable the readability and legibility of complex charts, graphs, maps or diagrams. Our Annual Report 2015–16 uses several colours in complex charts, graphs, maps and diagrams to enable our readers to easily understand content and flow.

Appendix five – Extract of whole-of-government financial statements—non-audited

The following table provides a comparison between the actual financial statements of VAGO and the forecast financial information published in the Budget Paper No. 5 Statement of Finances 2015–16 (BP5), for the portfolio of Parliament. The table comprises the comprehensive operating statement. The table has been prepared on a consolidated basis and includes all general government sector agencies within the portfolio. Financial transactions and balances are classified into either controlled or administered categories as agreed with the Treasurer in the context of the published statements in BP5. The following statements are not subject to audit and are not prepared on the same basis as VAGO's financial statements as they include the consolidated financial information of the Parliament agency.

Appendix six

Policies and compliance

Building Act

VAGO does not own or control any government buildings and, therefore, has no responsibilities under the Building Act 1993.

DataVic Access Policy

In August 2012, the Victorian Government endorsed the DataVic Access Policy to enable public access to government data, and to improve how the public sector shares information.

VAGO complies with this policy, and agreed data sets are available on our website.

Victorian Industry Participation Policy

The Victorian Industry Participation Policy Act 2003 requires public bodies and departments to report on the application of the Victorian Industry Participation Policy. During 2015–16, VAGO did not undertake any procurement activity that was subject to the Victorian Industry Participation Policy.

National Competition Policy

VAGO complies with the National Competition Policy, including complying with the requirements of the Department of Treasury and Finance's Competitive Neutrality Policy.

Oversight by the Victorian Inspectorate

The Victorian Inspectorate was established in 2012 as part of the reform of Victoria's integrity systems. The Inspectorate has monitoring and oversight functions in respect of certain integrity bodies including VAGO.

In 2015–16, VAGO had nothing to report to the Inspectorate and the Inspectorate did not review any of VAGO's activities.

Work arrangements

VAGO offers flexible work arrangements for staff, in response to staff demand and legislative obligations for employers to provide flexible working conditions. We encourage our staff to take advantage of the arrangements available to them.

Declaration of interests

All executive officers and business unit managers have completed statements declaring whether their interests, shares in, and other benefits from business enterprises could give rise to a conflict of interest, and there were no such conflicts.

Protected disclosures

To enable and encourage people to make disclosures about improper conduct within the public sector, Victorian legislation protects the confidentiality and welfare of these individuals and sets up a system to investigate disclosed matters.

Under the Protected Disclosure Act 2012, VAGO cannot receive protected disclosures.

Disclosures about VAGO officers may be made to the Independent Broad-based Anti-corruption Commission or the Victorian Inspectorate.

Further information on VAGO's responsibilities is available at: http://www.audit.vic.gov.au/about_us/corporate_information/protected_disclosures.aspx.

Freedom of information

The Freedom of Information Act 1982 provides the community the right to access, as far as possible, information held by the Victorian Government.

Section 20A of the Audit Act 1994 broadly precludes us from disclosing information we gather during an audit, other than reporting to Parliament. Section 20B of the Audit Act 1994 also precludes third parties from accessing any audit-related information and documents we hold.

Our administrative processes come under the state's Freedom of Information legislation. We did not receive any applications under this legislation in 2015–16.

Further information on what we do in relation to the Freedom of Information Act 1982 is available on our website.

Freedom of Information Requests

Requests for access to non-audit-related information and documents we hold can be made to:

 

Chris Sheard
Acting Executive Director, Audit Support Group
Victorian Auditor-General's Office

By email

chris.sheard@audit.vic.gov.au

In writing

Freedom of Information Victorian Auditor-General's Office Level 24, 35 Collins Street Melbourne 3000

Appendix seven

Additional information available on request

This report and our website publish all information required by the Directions of the Minister for Finance.

Further details in respect of the information items below have been retained by us and are available if requested—subject to the Freedom of Information requirements, if applicable:

This information can be requested from our Freedom of Information Officer, as listed in Appendix six.

There were no relevant activities undertaken by our office with respect to the following areas:

The following information is available from our website:

Appendix eight

Five-year statistics

2015–16

2014–15

2013–14

2012–13

2011–12

Reports tabled in Parliament

Auditor-General's report on the finances of the state

(number)

1

1

1

1

1

Sector-based reports on results of financial audits

(number)

7

8

5

5

5

Performance audit reports

(number)

29

25

29

29

29

Non-audit reports (annual report and annual plan)

(number)

2

2

2

2

2

External assessment of Parliamentary reports

(per cent)

86

86

84

84

83

Parliamentarian satisfaction with reports and services

(per cent)

86

81

90

92

93

Audit reports on financial statements

Audit responsibilities (agencies at 30 June 2016)

(number)

552

547

553

550

561

Unqualified opinions issued during reporting year

(number)

530

541

550

547

545

Disclaimer of opinions issued during reporting year

(number)

1

14

Qualified opinions issued during reporting year

(number)

8

6

4

3

4

Total opinions issued during reporting year

(number)

539

547

554

550

563

Audit opinions issued within time frame

(per cent)

98

99

100

100

99

External/peer reviews finding no material departures from professional and regulatory standards

(per cent)

80

86

100

100

100

Audit reports on performance statements

Total opinions on performance statements

(number)

108

108

114

115

115

Audit reports on local government performance statements

Unqualified opinions issued during reporting year

(number)

79

79

78

79

77

Qualified opinions issued during reporting year

(number)

0

1

2

Total opinions issued during reporting year

(number)

79

79

79

79

79

Audit reports on regional water authority performance statements

Unqualified opinions issued during reporting year

(number)

15

19

16

16

16

Qualified opinions issued during reporting year

(number)

4

Total opinions issued during reporting year

(number)

19

19

16

16

16

Audit reports on technical and further education institute performance statements

Unqualified opinions issued during reporting year

(number)

10

10

19

20

20

Qualified opinions issued during reporting year

(number)

Total opinions issued during reporting year

(number)

10

10

19

20

20

Resources

In-house staff

(number)

199

184

185

179

176

Financial audit service providers

(number)

27

24

23

36

41

Average days sick leave per employee

(number)

8.9

8.7

8.8

7.3

6.4

Workers compensation claims (standardised claims)(a)

(number)

2

3

0

2(b)

5(c)

Injuries reported

(number)

7

8

6

2

4

Grievances lodged

(number)

1

4

2

2

5

Training and professional development per employee

(days)

6

8.1

8.9

8.5

6.1

Financial management

Expenditure on audit service providers

($ million)

11.4

10.0

10.8

10.7

10.8

Revenue from audit fees

($ million)

24.7

23.5

23.2

23.1

22.5

Operating surplus/(deficit)

($ million)

0.1

0.5

0.0

1.5

0.6

Assets

($ million)

18.3

16.8

16.3

15.4

13.4

Liabilities

($ million)

9.7

8.2

8.2

7.3

6.8

(a) Standardised claims are those that have exceeded the employer excess or are registered as a standard claim and are open with no payments at the time of extraction. This data is supplied by the Victorian WorkCover Authority (VWA)

(b) This data has been revised to report accurate figures in line with data supplied by VWA. Previously, two claims were reported for 2012–13. This was inaccurate because these claims were not standardised claims.

(c) This data has been revised to report accurate figures in line with data supplied by VWA. Previously, five claims were reported for 2011–12. This was inaccurate because these claims were not standardised claims.

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