Annual Report 2017–18

Tabled: 20 September 2018

3 Our performance: Keeping VAGO accountable

3.1 Reporting on our performance

The products and services we deliver are organised into two Parliamentary output groups in Budget Paper 3. Output Group 1 covers Parliamentary reports and services, and Output Group 2 covers audit reports on financial and performance statements. We have performance measures and targets for quantity, quality, timeliness and cost, across both our audit output groups.

Last year we revised our Budget Paper 3 measures to better reflect our performance, showing whether we are meeting our objectives, not just counting our outputs. These changes are reflected in this year's report.

Figure 3A
Performance against targets for Output Group 1—Parliamentary reports and services

Performance measures

Unit of measure

Target

Actual

Per cent variation

Result

Quantity

Average cost of Parliamentary reports

($ thousand)

499

484

-3

Quality

Percentage of performance audit recommendations accepted which are reported as implemented by audited agencies

(per cent)

80

80

0

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

(per cent)

85

88

4

Timeliness

Average duration taken to finalise responses to inquiries from Members of Parliament

(days)

20

15

-25

Average duration taken to produce performance audit Parliamentary reports

(months)

≤8

10.5

31

Average duration taken to produce financial audit Parliamentary reports after balance date

(months)

≤5

4.8

Cost

Total output cost

($ million)

15.5

15.5

0

Key: ✔ Target achieved or exceeded. ◯ Target not achieved—within 5 per cent variation. □ Target not achieved—exceeds 5 per cent variation.

Quantity

Average cost of Parliamentary reports

Every year we prepare a range of performance data for a benchmarking exercise run by the Australasian Council of Auditors-General (ACAG), which is discussed on page 27.

Our 2017–18 benchmarking data shows that 44 per cent of all paid hours worked by all VAGO staff were charged to audit work.

This proportion increases to 48 per cent when we include the hours spent developing our Annual Plan, which is required to be tabled in Parliament. This is also the average result for all states and territories.

This year we began reporting on the average cost of our Parliamentary reports, and we met our target for the reports tabled this year. We have increased our target for 2018–19 to cover salary and Consumer Price Index increases, new accounting standards coming into effect in 2018–19 and improved data analytics.

Quality

Performance audit recommendations which are reported as implemented by audited agencies

This is a new performance measure to track whether agencies are implementing the recommendations we've made and they accepted. This year we followed up with the agencies that were the subject of performance audits tabled in 2014–15 and 2015–16. Our surveys show that 80 per cent of the accepted recommendations have been implemented, which is in line with our target.

Overall level of satisfaction

We survey Parliamentarians each year to find out how satisfied they are with our reports and services. This year 88 per cent of Parliamentarians were satisfied or very satisfied with our work. This was down from 93 per cent last year, but is broadly consistent with the 2016 result of 86 per cent.

Timeliness

Responses to inquiries

We receive inquiries from Members of Parliament on a range of issues. For 2017–18, we have a new measure on responding to inquiries from Members of Parliament, and we achieved an average response time of 15 days which exceeds our target of 20 days. This is due to the relatively small number of straightforward inquiries received.

For 2018–19, we have changed the target to be 20 days or less.

Time to produce performance audit reports

This is another new measure for 2017–18. We took longer on average than our target of 8.5 months to produce performance audit reports. We exceeded this target because it took longer than expected to receive data from agencies, and there were technical delays in extracting and cleaning data for analysis. Our focus on audit quality also meant we gathered more audit evidence when we found issues, and we spent more time reviewing draft reports with agencies. For 2018–19, we have increased the target to 9 months to reflect the audits in our Annual Plan 2018–19.

Time to produce financial audit Parliamentary reports after balance date

The time taken to produce financial audit Parliamentary reports is on target.

Cost

We met our cost target this year, spending $15.5 million to deliver our Parliamentary reports and services.

Figure 3B
Performance against targets for Output Group 2—Audit reports on financial and performance statements

Performance measures

Unit of measure

Target

Actual

Per cent variation

Result

Quantity

Average cost of audit opinions issued on performance statements

($ thousand)

5

5

0

Average cost of audit opinions issued on the financial statements of agencies

($ thousand)

50.0

48.2

-4

Quality

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

(per cent)

100

59

-41

Proportion of agencies disclosing prior period material errors in financial statements

(per cent)

≤5

1

Timeliness

Audit opinions issued within statutory deadlines

(per cent)

98

98

0

Management letters to agencies issued within established time frames

(per cent)

90

81

-10

Cost

Total output cost

($ million)

28.4

27.6

-3

Key: ✔ Target achieved or exceeded. ◯ Target not achieved—within 5 per cent variation. □ Target not achieved—exceeds 5 per cent variation.

ACAG benchmarking data shows that in 2017–18 our audits cost 27 cents for every $1 000 in public sector transactions, down from 30 cents in 2016–17.

The average cost for all states and territories was 35 cents.

Quantity

Cost of audit opinions—performance and financial

This year, for the first time, we have reported on the average cost of the audit opinions issued on the performance and financial statements of agencies. This is a direct measure of our efficiency measure because it relates the number of opinions issued to their cost. We met both these targets in 2017–18. The targets for both measures for 2018–19 have increased to cover salary and Consumer Price Index increases, new accounting standards coming into effect in 2018–19 and improved data analytics.

Quality

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

This audit quality measure is obtained through post audit quality reviews of a targeted selection of our financial audits in accordance with our three-year rolling review program. The measure is intended to reflect our level of compliance with the requirements of the applicable Australian Auditing Standards, Australian Accounting Standards and Accounting Professional and Ethical Standards.

While our target is 100 per cent compliance, this is rarely achieved in practice, either in the public or the private sector. One reason for this is that we adopt a conservative approach to our assessments.

For example, if a part of our audit work is not documented, our presumption is that the work has not been performed (in the absence of evidence to the contrary). This is the same approach applied by other audit regulators and by most firms in their internal quality review programs.

But more importantly, while we examine a number of key audit areas in each file reviewed, if we find issues in any one area we rate that entire file as having not met standards. In comparison, the Australian Securities and Investments Commission (ASIC) measures just the percentage of key audit areas within inspected files that are noncompliant, as opposed to complete audit files, and reports noncompliance in the range of 19–25 per cent.

We did not meet our target: 41 per cent of our targeted sample of reviewed audit files were found to have material departures. Our findings do not necessarily mean there are material misstatements in the overall financial reports of these entities. Rather, in our view, we did not demonstrate a sufficient basis to form and issue our opinions.

This result is not necessarily representative of the quality of all financial audit engagements conducted, as the selection of audit files was not statistically random. Factors such as prior quality findings, coverage across sectors and our contracted audit service provider firms influenced the file selection process.

We will look to amend the measure and target in 2019–20 to align with the more relevant ASIC measure and industry benchmarks.

Proportion of agencies disclosing prior period material errors in financial statements

This new quality measure is the proportion of agencies disclosing prior period material errors in financial statements. This means that a significant financial statement error was identified, rectified and disclosed in the current-year financial statements by the agency which had not been previously identified by us. We are pleased to have met this new target.

Timeliness

Audit opinions issued within statutory deadlines

This year, we met our target for issuing audit opinions within statutory deadlines.

Management letters issued within established time frames

We did not meet our target for issuing management letters within the established time frame with 81 per cent issued in 2017–18, short of our target of 90 per cent. Last year, government entities and VAGO received very late notice from government of new shortened time lines required for completing audits and tabling annual reports across the public sector. Other audit matters, such as responding in a timely way to our draft management letters, became a secondary priority for agencies in some cases. We also lacked sufficient resources during the compressed time frame to chase down late responders.

Almost all the control gaps identified in the draft letters were still discussed during the audit close-out process with management and audit committees.

Cost

The total cost for this output group was within budget, at $27.6 million.

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