Results of Audits for Entities with 30 June 2008 Balance
Dates
1. Overview
1.1 Scope of this report
This is the second in a series of three reports presented to
Parliament each financial year that relate to financial audits
completed during the year.
This report deals principally with the audit of public sector
entities with financial reports that have 30 June 2008 balance
dates. This year there are, 380 of these reporting entities, with a
net decrease of ten from last year. During the past year several
changes have been made to the reporting entities, including:
- nine were reporting for the first time in
2007–08
- six were wound up
- five were wound up and merged with their parent entity
- eight were no longer subject to audit by the
Auditor-General
- seven were transferred to different portfolios.
These changes are listed by portfolio in Figure 1A, with
additional detail provided in the portfolio chapters.
1.2 Results of audits
At 31 October 2008, 95 per cent of financial reports had been
finalised and all of these received clear audit opinions. Clear
opinions were also issued on all statements of performance prepared
by the 16 water corporations.
This year there were no qualified audit opinions issued; an
improvement from
2006–07, when three financial reports were qualified as at 31
October.
However, two entities received an emphasis of matter to draw
attention to a matter in the audit opinion relevant to the users of
the financial report, which did not require qualification.
Figure 1A
2007–08 changes to portfolio entities
Source: Victorian Auditor-General's Office.
1.3 Quality of reporting
The quality of financial reports is measured by timeliness and
accuracy. The later the reports are produced and published after
year-end, the less useful they become.
It is important that public sector entities prepare and publish
timely financial information. In 2007–08, the timeliness of
entities’ financial reports has made no improvement and was again
comparable with last year. Figure 1B lists the average number of
weeks under each Act.
Figure 1B
Average number of weeks to finalise financial reports
Source: Victorian Auditor-General's Office.
Another measure of report quality is the number and size of
adjustments required, or made after submission to audit. Ideally,
there should no errors or adjustments. There were minimal material
adjustments made to the reports of material entities in 2007–08,
apart from the Department of Transport, which required 12
adjustments.
This year as part of our cyclical approach to reviewing
significant aspects of financial management, we reviewed the
liability management practices of departments. Public sector
entities typically spend the largest portion of their outlays on
employee benefits and payments to suppliers for goods and services.
Therefore, our analysis focuses on these expenditure streams and
the results are provided in Part 2.5.
1.4 Effectiveness of internal control
Internal controls should ensure reliable, accurate and timely
reporting. The audit of financial reports includes an examination
of the internal control framework that relates to financial
reporting. Where significant control weaknesses or breakdowns are
identified these matters are reported to the entity’s
management.
This year the common areas for improvement were:
- performing independent reviews of account reconciliations
- reviewing changes to masterfile standing data
- segregating incompatible functions
- management of information system (IS) access controls.
1.5 Financial sustainability
This report analyses financial sustainability indicators for 148
entities. These entities were selected because they generate their
own revenues, rather than relying solely on government
appropriations. Those with significant infrastructure assets are
also included because, while they do not generate revenues, these
assets create significant expenditure obligations in terms of their
maintenance, renewal and replacement.
While based on only three years data, our analysis demonstrates
that a number of entities that rely primarily on their own revenues
are showing signs of financial pressure. Most often these entities,
while generating small operating surpluses, do not generate
sufficient own-sourced revenues to be able to build up enough
retained earnings to finance future asset replacement. This
situation warrants review. Under the current government funding
approach, depreciation expenses are generally not funded until
capital requirements are established. However state entities are
generally governed by boards who are held fully accountable for
financial management and performance.
1.6 Recommendations
- The Department of Treasury and Finance (DTF) should reassess
the current reporting time frames in the context of current
standards and achievement in other jurisdictions. (Recommendation
2.1)
- Entities should assess their policies and processes against the
commonly identified weaknesses within internal and information
system control environments and implement any required changes so
that their controls are operating in a cost effective manner.
(Recommendation 2.2)
- The entities that rely significantly on their own-sourced
revenues and those with significant infrastructure assets should in
consultation with the portfolio department and DTF establish
targets for key financial sustainability indicators, these targets
should then be used to monitor actual performance and to model the
impact of proposed changes to revenue and expenditure policies.
(Recommendation 2.3)
- The Department of Sustainability and Environment (DSE) should
reconcile records for the state’s crown land holdings within the
expected financial reporting cycles, with any required adjustments
being made progressively. (Recommendation 11.1)
- DTF should provide authoritative guidance to all departments
and entities regarding the need for their full cooperation and
support in any requests from the DSE in relation to their crown
land holdings. (Recommendation 11.2)
- DSE should establish effective procedures to record transfers
and movements of crown land holdings between government entities so
they are appropriately accounted for in the financial reports of
those entities. (Recommendation 11.3)
1.7 General
The total cost of the preparing and printing this report was
$610 000.