BILLS DIGEST NO. 27, 2011–12, 22 August 2011

Auditor-General Amendment Bill 2011

Kai Swoboda
Economics Section

Date introduced:  28 February 2011

House:  House of Representatives

Private Member’s Bill introduced by: Mr R Oakeshott MP

Commencement:  The day after Royal Assent

Links: The links to the Bill, its Explanatory Memorandum and second reading speech can be found on the Bill's home page, or through http://www.aph.gov.au/bills/. When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the ComLaw website at http://www.comlaw.gov.au/.

Purpose

To purpose of the Bill is to amend the Auditor-General Act 1997 (the Act) to:

•       extend the Auditor-General’s mandate to:

–      undertake performance audits of private sector providers and state government agencies in certain circumstances

–      self-initiate performance audits of Government Business Enterprises and their subsidiaries, and

–      undertake a specific audit program of a sample of agency performance indicators.

•       provide that the Auditor-General can conduct assurance reviews with the same powers about access to information and premises in certain circumstances as applies to performance and financial audits

•       clarify that claims that information or a document is subject to legal professional privilege does not restrict the Auditor-General’s powers to obtain information and documents, and

•       clarify the position of the Auditor-General as auditor of Government controlled Corporations Act companies and their subsidiaries.

Background

This Private Members Bill is based on recommendations from the Joint Public Accounts and Audit Committee’s (JCPAA) inquiry into the Act.[1] The inquiry, largely undertaken during the 42nd Parliament, was completed in the 43rd Parliament with the tabling of the report on 10 February 2011.[2] The recommendations were unanimous. As at 8 August 2011, the Government has not tabled a written response to the report.

The Bill seeks to implement 9 of the 10 recommendations relating to amending the Act that were included in the JCPAA’s report.[3] A further 3 recommendations made by the JCPAA did not relate to amending the Act. Each of the recommendations that relate to provisions included in the Bill are outlined in the ‘Key provisions’ section of this Bills Digest.

This Bills Digest provides some background on the JCPAA’s rationale for its recommendations and also examines some of the evidence presented to the Committee, including that of the Auditor-General.[4]

Assurance reviews

The Bill proposes to amend the Act so that ‘assurance reviews’ are undertaken as a specific type of review, with the Auditor-General’s existing powers in relation to access to information and documents, and access to premises applying only if the review is identified as a priority of the Parliament. The existing functions and powers under section 20 of the Act to conduct audits by arrangement (see below) would remain.

Traditionally, the primary functions performed by the Auditor-General have included financial statement audits and performance audits. For these functions, the Act provides specific information gathering and access powers that include giving the Auditor-General powers to direct a person to provide information and includes penalties for non-cooperation.[5]

The Auditor-General also carries out a range of ‘assurance activities’. These generally consist of reviews undertaken by agreement with the client, either at the request of the client or in response to requests from stakeholders, including ministers and Parliamentary Committees.[6] Assurance activities are recognised by the auditing profession in standards issued by the Australian Auditing and Assurance Standards Board.[7]

Assurance activities are undertaken in accordance with section 20 of the Act. This section, in part, states:

20  Audits etc. by arrangement

              (1)              The Auditor-General may enter into an arrangement with any person or body:

              (a)              to audit financial statements of the person or body; or

              (b)              to conduct a performance audit of the person or body; or

              (c)              to provide services to the person or body that are of a kind commonly performed by auditors.[8]

Currently the main assurance activity the Australian National Audit Office (ANAO) is engaged in is the annual assurance review of the Defence Major Projects Report, which reports on the status of selected Defence equipment acquisition projects.[9] From July 2008 to March 2010, the Auditor-General was also involved in reviews of government advertising. These reviews were conducted as an assurance activity.[10]

Importantly, the strong information-gathering powers contained in sections 32 and 33 of the Act that apply to financial statements and performance audits do not apply to assurance activities.[11] Instead, the terms of an assurance review are negotiated with the agency concerned and reporting of individual assurance activities may be handled through the issue of a formal report or by correspondence.[12]

The main argument presented to the JCPAA inquiry in favour of strengthening the Auditor-General’s powers in relation to assurance reviews was that there would be greater confidence that the Auditor-General could carry out the review without negotiating over the terms, breadth and access to information as required.[13] The JCPAA noted that no evidence to the contrary was received.[14]

The JCPAA considered that on the basis of the evidence received, and there being no evidence to the contrary, that it was appropriate that the Auditor-General be provided with explicit authority to conduct assurance engagements.[15]

Allowing the Auditor-General to self-initiate performance audits of Government Business Enterprises

The Bill proposes to amend the Act to allow the Auditor-General to self-initiate performance audits of Government Business Enterprises (GBEs), including any subsidiaries.

Under current arrangements, the Auditor-General is not able to self-initiate a performance audit of a ‘Commonwealth authority’ or ‘Commonwealth company’, or any of its subsidiaries, unless the responsible Minister, the Finance Minister or the JCPAA requests the audit.[16] In its submission to the JCPAA inquiry, the ANAO noted that there had been no record of such a request since 1 January 1998, when this part of the Act came into operation.[17]

GBEs are defined in the Commonwealth Authorities and Companies Act 1997 to be a ‘Commonwealth authority’ or ‘Commonwealth company’ that is prescribed by the regulations for the purpose of this definition.[18] Entities that are a GBE are:

•       Commonwealth authorities

–      Australian Government Solicitor

–      Australian Postal Corporation

–      Defence Housing Authority

•       Commonwealth companies

–      Australian Rail Track Corporation Limited

–      ASC Pty Ltd

–      Medibank Private Limited, and

–      NBN Co Limited.[19]

The ANAO noted that it had received legal advice from the Australian Government Solicitor to the effect that there are no legal impediments to the Auditor-General’s mandate being extended to GBEs in which the Commonwealth has a majority interest.[20]

The JCPAA’s recommendation to allow the Auditor-General to self-initiate performance audits of GBEs was based on a reduction in the number and changes in character of GBEs since the Act commenced in 1998 and the centrality of the principle of the Auditor-General’s mandate to have the authority to conduct performance audits on all Commonwealth entities.[21] The JCPAA’s recommendation also appears to have been based on evidence from the ANAO that the significant investment in NBN Co Limited justified its inclusion within the Auditor-General’s powers to self-initiate a performance audit.[22]

During the second reading debate for the Bill, it appears that the Government will seek to amend the Bill so that the Auditor-General will not be able to self-initiate performance audits of GBEs or their subsidiaries.[23]

Audit of agency performance indicators

The Bill also proposes to amend the Act to require the Auditor-General to undertake an audit of a sample of government agency performance indicators and the quality of reporting against those indicators. In selecting the sample of performance indicators to be audited, the Auditor-General must have regard to the priorities of the Parliament as determined by the JCPAA.

In general terms, ‘performance indicator’ relates to measures of agency performance and can include both internal and external measures as well as covering a range of concepts such as inputs, processes, outputs and outcomes.[24] The terms ‘performance indicator’ and ‘sample’ are not defined in the Act.

Under current arrangements, the ANAO routinely examines the establishment and reporting of performance indicators by agencies as part of its ongoing performance audit program in the context of individual programs or activities as part of performance audits.[25]

Parliamentary input into identifying performance audit priority areas is undertaken on an annual basis and is co-ordinated by the JCPAA, which invites all other parliamentary committees to provide suggestions for any programs or functions within their portfolio area they believe should be audited.[26] The JCPAA noted that:

Those suggestions are then forwarded to the Auditor-General for his consideration in preparing his work program for the next financial year. By law the Auditor-General is free to reject proposed audit topics. However, he responds to all proposals so that committees can be advised of the status of their suggestions.[27]

The JCPAA’s discussion of performance indicators largely related to those indicators that are part of a broad outcomes and outputs framework implemented by the Commonwealth Government in the late 1990s for agency budgeting and reporting.[28] In this context, performance indicators that would likely by the focus of the Auditor-General’s audit of agency performance indicators include those reported as part of an agency’s portfolio budget statements and also those that are part of whole-of-government reporting set out in annual reporting requirements such as social inclusion and ecologically sustainable development and environmental performance.[29]

The main argument presented to the JCPAA inquiry in favour of extending the Auditor-General’s mandate to review agency performance indicators is that auditing performance indicators will contribute to an improvement in the quality and credibility of information reported by agencies.[30] No evidence opposing the Auditor-General undertaking such an audit was cited by the JCPAA.

Submissions to the JCPAA’s inquiry by the ANAO noted three different options to enhance audit coverage of performance indicators:

•       the conduct of a periodic review of indicators as part of the ANAO’s performance audit program

•       a review of an agency’s compliance with its performance indicator responsibilities as an adjunct to the audit of an agency’s financial statements in a similar way to that undertaken by the Western Australian Auditor-General, or

•       a review of an agency’s compliance with its responsibilities for a sub-set of indicators which the Parliament, and/or the Government considers relate to critical programs or areas of public administration including, for example, environmental sustainability. This review would be undertaken as an adjunct to the audit of an agency’s financial statements.[31]

The practice of Auditors-General routinely auditing the quality of reporting by agencies on performance indicators varies across jurisdictions. A recent investigation by the Victorian Parliament’s Public Accounts and Estimates Committee noted that regularised auditing of agency performance measures was undertaken in Western Australia and New Zealand and in Victoria for local government authorities. No such requirements exist in Tasmania or New South Wales.[32]

The arrangement supported by the JCPAA and referred to in the committee’s recommendation was the option of a review of an agency’s compliance with its responsibilities for a sub-set of indicators. It is noteworthy that the JCPAA’s recommendation included that the Auditor-General should be resourced appropriately to undertake this function—one that the Auditor-General estimated would require additional resources. While the resources required would be dependent on the number and type of indicators that would be subject to audit, the Auditor-General indicated that additional funding would be required:

It would nevertheless be expected that, indicatively, additional costs of up to $2 million per annum would be required. Clearly, the costs would be influenced by the number of critical programs or areas of public administration nominated. Further work would be required to confirm this estimate.[33]

Legal professional privilege and the Auditor-General’s powers to obtain information

The Bill proposes to amend the Act to confirm that claims of legal professional privilege do not override the Auditor-General’s information gathering powers. The Bill also provides that information or a document does not cease to become the subject of legal professional privilege if it is produced in response to a direction by the Auditor-General to produce information.

Under current arrangements, section 32 of the Act provides the Auditor-General with broad powers to obtain information and documents. According to legal advice provided to the ANAO, legal professional privilege does not limit the Auditor-General’s right of access.[34] However, the ANAO noted that agencies, directly or indirectly through their legal advisors, at times claim that certain documents are protected by legal professional privilege and therefore are unable to be accessed by the Auditor-General.[35] While the Auditor-General noted that despite these difficulties the ANAO had never been refused access to this information[36], claims of this nature can lead to protracted negotiations and subsequent delays in the audit process and, at times, require legal intervention to reach a resolution.[37]

The JCPAA accepted the Auditor-General’s view that the efficiency of the audit process is diminished when the Auditor-General and his officers are engaged in time-consuming invalid negotiations about the provision of privilege documents.[38]

In supporting the Auditor-General’s proposals to clarify that legal professional privilege did not affect the Auditor-General’s powers under section 32 of the Act, the JCPAA considered the related issues of the waiver of legal professional privilege as a result of providing access to the ANAO and the publication of material protected by legal privilege in public reports.[39]

In other selected Australian jurisdictions, the powers of Auditors-General to procure information that is claimed to be subject to legal professional privilege appear to be limited.[40] While the Victorian Government will review the Victorian Parliament’s Public Accounts and Estimates Committee recommendation that the Victorian Audit Act be amended to explicitly abrogate legal professional privilege for the state Auditor-General’s information gathering powers, it noted that this was a complex matter relating to an important common law right.[41]

In response to the issue of the potential waiver of legal professional privilege, the ANAO noted, based on legal advice it had received, that this could be achieved through the inclusion in the Act of a specific power that allows the Auditor-General access to material over which entities claim legal professional privilege but this access does not amount to a waiver of this privilege by the entities concerned.[42] The ANAO further suggested that a provision along the lines of that included in the Inspector-General of Taxation Act 2003 would seem to satisfy the objective.[43] Proposed new section 32A of the Bill is modelled on this Act.

The Auditor-General has discretion, subject to section 37 of the Act, to include information subject to legal professional privilege in public reports.[44] While the JCPAA expressed some concern that the decisions of the Auditor-General could lead to a situation whereby the Commonwealth was exposed to potential litigation, the Committee appeared to be satisfied that the mechanisms built into section 37 of the Act provided adequate consideration of whether or not information subject to legal professional privilege should be included in public reports.[45]

Acting as auditor under the Corporations Act

Under current arrangements, the Auditor-General, under section 21 of the Act, may accept appointment as the auditor of:

•       a subsidiary of a Commonwealth authority

•       a Commonwealth company, or

•       any other company in which the Commonwealth has a controlling interest.

The ANAO considered that when the Act was drafted, the Commonwealth Authorities and Corporations Act 1997 defined a Commonwealth company as ‘a Corporations Act company in which the Commonwealth has a controlling interest’. However, as a result of recent amendments to the Commonwealth Authorities and Corporations Act 1997 related to the definition of ‘control’, paragraph 21(1)(c) of the Act should be amended to read ‘any subsidiary of a Commonwealth company’.[46]

The JCPAA accepted that this was largely a technical amendment and that the purpose was to make it clear that the Auditor-General should audit any Commonwealth controlled companies and their subsidiaries.[47]

Allowing the Auditor-General to ‘follow the money’ to audit parties to contracts and agreements

The Bill further proposes to amend the Act so that the Auditor-General can include both private sector companies and state government agencies within the scope of performance audits, with some limitations relating to materiality and, in the case of state government agencies, direction by the responsible Minister, Finance Minister or the JCPAA.

Under current arrangements, the Auditor-General is able to access relevant records and information held by any ‘person’ (including non-Commonwealth bodies and organisations).[48] However, the ANAO noted that such access can be used in assessing the performance of the relevant agency that is subject to a performance audit but not in assessing the performance of the external party.[49]

Services provided under grants to state and territory governments

Under current arrangements, the Auditor-General is limited to assessing the Commonwealth’s administration of arrangements with states and territories, and not the use to which the funds have been put.[50]

The JCPAA inquiry noted a range of concerns about the limits to the Auditor-General’s mandate, and assessed four options put forward by the Auditor-General to enhance accountability arrangements:

Provide the authority for the Auditor-General to conduct an audit to assess the performance of bodies that receive Commonwealth funding in circumstances where there is a corresponding or reciprocal responsibility to deliver specified outcomes in accordance with agreed arrangements...

Require, as a matter of government policy, legislation relating to Australian Government Special Purpose Payments (SPP) and agreements that are put in place to govern the provision of payments for specified purposes to include a provision that provides the Auditor-General with the authority to conduct an audit to assess the performance of bodies that receive Commonwealth funding where there is a corresponding or reciprocal responsibility to deliver specified outcomes in accordance with agreed arrangements...

Require, as a matter of government policy, SPP legislation and agreements to provide the Auditor-General with access to information and records relating to the use to which the funds in question have been put by the parties to the legislation or agreement...

Explore opportunities and any necessary legislative changes which would assist in further cooperation between the Auditor-General and State and Territory Auditors-General. Such arrangements would be designed to assist in the Commonwealth and State and Territory Auditors-General working in a complementary manner and may provide for the authority for the Auditor-General to share information obtained during the course of audits with State and Territory Auditors-General.[51]

Of these options, the JCPAA supported the requirement that all funding agreements between the Commonwealth and other levels of government include standard access clauses providing the Auditor-General with access to all information and records, and a capacity to inspect work on all projects, relating to the use of Commonwealth funds under those agreements.[52]

While the JCPAA supported the view that the Auditor-General should have access to audit the performance of bodies that receive funding provided by the Commonwealth to states and territories, the Committee also recognised the potential for constitutional issues to arise.[53] Advice provided to the ANAO by the Australian Government Solicitor noted that:

...in general, we see scope from a constitutional perspective for the Auditor-General to be given a greater role in financial statements and performance audit activity of non-Commonwealth bodies...However, we emphasise that our comments are general in nature. Development of a proposal to confer [increased audit authority in relation to financial assistance to States and Territories] on the Auditor-General may give rise to the need to further consider particular constitutional issues.[54]

The JCPAA therefore recommended that the power for the Auditor-General be limited by requiring a Minister or the JCPAA to request such an audit.[55]

Services provided by private contractors

Under current arrangements, the Auditor-General is unable to assess the performance of contractors engaged by Commonwealth agencies.[56]

The main argument for providing the Auditor-General with a broader mandate to audit private sector contractors that undertake services on behalf of a Commonwealth agency is that limited access undermines the process of public accountability.[57] The main arguments against the extension of the mandate can be summarised as:

•       there is a diminished responsibility for the relevant oversighting agency to manage contracts appropriately[58], and

•       by increasing the regulatory burden on private sector providers:

–      there is a potential to encourage a bias to provide services in-house that could be contracted and to increase the regulatory burden[59], and

–      private sector providers are discouraged in participating in the provision of services.[60]

The JCPAA considered that, given the increasing use of contractors as an integral element of government service delivery, it was appropriate that the Auditor-General have the power to scrutinise the use of Commonwealth funds by external entities including contractors.[61] The JCPAA also suggested that some limits should be made on this power, with these types of audits of external entities/contractors only be undertaken where the entity’s/contractor’s performance is, in the Auditor-General’s opinion, significant in the context of an audit of a Commonwealth entity and that the scope of these audits would be restricted to the work undertaken under contract to the Commonwealth.[62]

Policy position of the government, non-government parties/independents

Government Members of the House of Representatives have expressed their support for the Bill and noted that the Government will introduce some amendments to clarify the powers for the Auditor-General and to ensure that the new provisions function in line with the intent of the JCPAA report.[63]

It can be expected that as the Member introducing the Bill, Mr Oakeshott will support, ‘reluctantly’, possible Government amendments to remove the ability of the Auditor-General to self-initiate performance audits of GBEs and their subsidiaries.[64]

There has been no position expressed on the Bill by the Australian Greens, nor two independent members in the House of Representatives, Mr Katter and Mr Windsor.

Several opposition Members of the House of Representatives have expressed their support for the intent of parts of the Bill. However, opposition Members speaking to the Bill did not support extending the powers of the Auditor-General to audit private sector contractors on the basis that the provisions would increase the regulatory burden for businesses contracting to provide services to the government and discourage businesses to continue to seek government business.[65] Coalition Members also noted that, in the absence of a front-end assessment of program design by an agency such as an ‘office of due diligence’, the extension of the Auditor-General’s powers do nothing to prevent wasteful spending.[66]

While initially indicating that the coalition would not support the entire Bill, it appears that, with the exception of the provisions relating to extending the mandate to audit private sector contractors, the coalition will support the remainder of the Bill.[67]

Financial implications

The Explanatory Memorandum to the Bill notes that the Bill will have no financial impact.[68]

The JCPAA specifically asked the Auditor-General about the resource implication of various mandate variations outlined in the ANAO’s initial submission to the inquiry. In summary, the ANAO noted that, given current work programs, no budget supplementation would be required for the following proposals:

•       extending to the mandate of the Auditor-General to self initiate performance audits of GBEs

•       extending to the mandate of the Auditor-General to audit certain internal parties (including contractors) who are involved in the delivery of government programs or activities, and

•       extending to the mandate of the Auditor-General to audit the performance of bodies that receive Commonwealth funding.[69]

As noted earlier, the ANAO advised that additional costs of up to $2 million per annum would be required to undertake the performance indicator audit work proposed by the JCPAA.[70]

Key provisions

As noted above, the Bill amends the Act to alter the functions and powers of the Auditor-General in response to a range of the recommendations arising from a review of the Act by the JCPAA.[71]

The key provisions of the Bill are summarised together with the relevant JCPAA recommendation to facilitate a comparison between the Committee’s recommendation and the amendments proposed by the Bill.

Recommendation 1

The Auditor-General Act 1997 be amended to provide the Auditor-General with explicit authority to conduct assurance engagements. In circumstances where such assurance engagements have been identified as priorities by the Parliament, they should be subject to the same information-gathering powers that pertain to performance audits undertaken by the Auditor-General. The Auditor-General should have the authority to determine arrangements, including reporting arrangements to the Parliament, to be followed in the conduct of these assurance engagements.[72]

Item 9 of schedule 1 inserts a proposed new section 19A that provides for the Auditor-General to undertake assurance reviews of agencies, Commonwealth authorities and their subsidiaries and Commonwealth companies and their subsidiaries.[73] The Auditor-General has discretion as to the conduct of assurance reviews and any reporting arrangements. The Auditor-General’s existing powers in relation to obtain information under section 32 and to access premises under section 33 also apply to assurance reviews, but only if the review is identified as a priority of the Parliament by decision of either House of the Parliament or of the JCPAA.

Item 12 is a consequential amendment that inserts a proposed new paragraph 31(aa) to re-affirm that the powers to obtain information under section 32 and to access premises under section 33 apply to assurance reviews only in the case where the review has been identified as a priority of the Parliament as outlined in proposed new section 19A.

Further consequential amendments are contained in items 1 and 11. Item 1 amends subsection 8(4) of the Act to include ‘assurance review’ as an additional item to which the Auditor-General is not subject to direction from anyone in relation to whether or not a particular audit is to be conducted and the way in which a particular audit is to be conducted. Item 11 provides the Auditor-General the power to undertake assurance reviews to set ‘auditing and assurance’ standards rather than simply ‘auditing’ standards.

Recommendation 2

That the Act be amended to provide the Auditor-General with the authority to initiate performance audits of Commonwealth controlled Government Business Enterprises.[74]

Item 3 amends subsection 16(1) of the Act by removing any reference to GBEs so that a GBE that is a ‘Commonwealth authority’, or any of its subsidiaries, may be subject to a performance audit by the Auditor-General at any time.[75]

Item 4 repeals subsections 16(2) and 16(3) of the Act as a consequential amendment to proposed subsection 16(1), to confirm that the Auditor-General would have the power to conduct a performance audit of a GBE that is a Commonwealth authority, or any of its subsidiaries, at any time rather than at the request of the responsible Minister, Finance Minister or the JCPAA.

Item 5 amends subsection 17(1) of the Act by removing any reference to GBEs so that a GBE that is a ‘Commonwealth company’, or any of its subsidiaries, may be subject to a performance audit by the Auditor-General at any time.[76]

Item 6 repeals subsections 17(2) and 17(3) of the Act as a consequential amendment to proposed subsection 17(1), to confirm that the Auditor-General would have the power to conduct a performance audit of a GBE that is a Commonwealth company, or any of its subsidiaries, at any time rather than at the request of the responsible Minister, Finance Minister or the JCPAA.

Item 7 amends subsection 18(4) as a consequential amendment to proposed subsections 16(1) and 17(1) to confirm that the Auditor-General’s general power to self-initiate performance audits of ‘Commonwealth public sector’ agencies under subsection 18(1) of the Act also applies to performance audits of a GBE that is a Commonwealth authority or Commonwealth company, or any of its subsidiaries.[77]

Recommendation 3

That the Act be amended as necessary to enable the Auditor-General to review an agency’s compliance with its responsibilities for a sub-set of performance indicators. Proposed performance indicators to be audited should be identified annually by the Auditor-General and forwarded to the Parliament, via the JCPAA for comment, in a manner similar to the annual performance audit work program for the ANAO.

The Auditor-General should be resourced appropriately to undertake this function.[78]

Item 2 inserts a proposed new section 14A into the Act which requires the Auditor-General, at least once per year, to audit a sample of ‘Agency’ performance indicators and the quality of reporting against those indicators. The Auditor-General is required to have regard to the priorities of the Parliament as determined by the Joint Committee of Public Accounts and Audit in selecting the sample of performance indicators.[79] The terms ‘performance indicator’ and ‘sample’ are not defined in the Act.

Recommendation 4

That the Act be amended to make clear that claims of legal professional privilege do not override the Auditor-General’s information gathering powers. The Act should also be amended to make clear that access to documents upon which legal professional privilege is claimed does not amount to a waiver of such privilege.[80]

Item 13 inserts a proposed new section 32A to confirm that the Auditor-General’s powers to obtain information under section 32 of the Act are not limited by a claim that information or a document is the subject of legal professional privilege. Information or a document does not cease to be the subject of legal professional privilege merely because it is produced in response to a direction under section 32.

Recommendation 6

That section 21 of the Act be amended to reflect that the Auditor-General is able to audit any Commonwealth-controlled entity including Commonwealth-controlled companies and their subsidiaries.[81]

Item 10 amends paragraph 21(1)(c) so that the Auditor-General may accept appointment under the Corporations Act 2001 as the auditor of any company which is a subsidiary of a Commonwealth company rather than only those companies in which the Commonwealth has a controlling interest.[82]

Recommendation 7

That the Act be amended to require the Auditor-General to set auditing and assurance standards.[83]

Item 11 provides the Auditor-General the power to undertake assurance reviews to set ‘auditing and assurance’ standards rather than simply ‘auditing’ standards. This is largely a consequential amendment that flows from the JCPAA’s recommendation no. 1 discussed above.

Recommendations 11 and 12

That the Act be amended as necessary so that the Auditor-General may conduct a performance audit to directly assess the performance of bodies that receive Commonwealth funding in circumstances where there is a corresponding or reciprocal responsibility to deliver specified outcomes in accordance with agreed arrangements if a Minister or the Joint Committee of Public Accounts and Audit requests the audit. The Auditor-General may ask a Minister or the Joint Committee of Public Accounts and Audit to make such a request (recommendation 11).[84]

That the Act be amended so that the functions performed by entities including private contractors on behalf of the Commonwealth in the delivery of government programs can be subject to direct audit by the Auditor-General (recommendation 12).[85]

Item 8 inserts a proposed new section 18A to provide for the Auditor-General, as part of a performance audit of an entity, to audit the performance of a ‘contractor’ (which is defined as ‘a person that is a party to a contract or agreement with the entity to which the contractor either provides goods or services or provides goods or services to other persons on behalf of the entity’), where the Auditor-General considers that the performance by the contractor is likely to be material to the findings of the audit.

If the contractor is an agency of a state, territory or local government, or is a subsidiary of or controlled by such an agency, item 8 requires that the Auditor-General may audit the performance of the contractor only if requested to do so by the responsible Minister, the Finance Minister or the JCPAA. The Auditor-General is not prevented from asking the responsible Minister, the Finance Minister or the JCPAA to make such a request.

Recommendation 13

That the Act be amended to ensure that when a decision is made by the Auditor-General to conduct an audit of a non-Commonwealth body, the reasons for that decision should be disclosed in the publication of the report.[86]

Item 8 includes requirements for the Auditor-General to outline the reasons for auditing the performance of the contractor in the audit report tabled in each House of Parliament (proposed new subsection 18(3)).

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[1].               Explanatory Memorandum, p. 1.

[2].               Joint Committee of Public Accounts and Audit, Report 419, Inquiry into the Auditor-General Act 1997, December 2010, House of Representatives, Canberra; Australia, House of Representatives, Votes and Proceedings, vol. 22, 2010-11, p. 301.

[3].               The Bill does not address the JCPAA’s recommendation that ‘subject to consultation to consultation with affected bodies, consideration be given to amending the Act so that all statutory authorities or other bodies that fall outside the ambit of the CAC Act are liable to pay audit fees for financial statements’ (Joint Committee of Public Accounts and Audit, ibid, p. 31).

[4].               Copies of the submissions by the Australian National Audit Office to the JCPAA inquiry are available at: http://www.aph.gov.au/house/committee/jcpaa/agact/subs.htm

[5].               Auditor-General Act 1997, sections 32 and 33.

[6].               Australian National Audit Office (ANAO), ‘Assurance Activities’, ANAO website, viewed 4 August 2011, http://www.anao.gov.au/Publications/Assurance-Activities

[7].               Australian National Audit Office, 1st Submission to the Joint Committee of Public Accounts and Audit, Inquiry into the Auditor-General Act 1997, April 2009, p. 1, viewed 4 August 2011, http://www.aph.gov.au/house/committee/jcpaa/agact/subs/sub3.pdf

[8].               Auditor-General Act 1997, section 20.

[9].               Australian National Audit Office, ‘Assurance Activities’, op. cit.

[10].               Joint Committee of Public Accounts and Audit, Report 419, Inquiry into the Auditor-General Act 1997, December 2010, House of Representatives, Canberra, p. 8, viewed 4 August 2011, http://www.aph.gov.au/house/committee/jcpaa/agact/report/fullreport.pdf

[11].               Auditor-General Act 1997, section 31.

[12].               Australian National Audit Office, 1st Submission to the Joint Committee of Public Accounts and Audit, op. cit.

[13].               Joint Committee of Public Accounts and Audit, op. cit., p. 11.

[14].               Joint Committee of Public Accounts and Audit, op. cit., p. 13.

[15].               Joint Committee of Public Accounts and Audit, op. cit., p. 13.

[16].               Auditor-General Act 1997, section 16.

[17].               Australian National Audit Office, 1st Submission to the Joint Committee of Public Accounts and Audit, Inquiry into the Auditor-General Act 1997, op. cit., p. 5.

[18].               Commonwealth Authorities and Companies Act 1997, section 5.

[19].               For a list of GBEs and the Acts under which they are established, see Commonwealth Authorities and Companies Regulations 1997, viewed 27 June 2011, http://www.comlaw.gov.au/Details/F2011C00129. The Department of Finance and Deregulation maintains a list of GBEs that are Commonwealth authorities and Commonwealth companies under the Commonwealth Companies and Authorities Act 1997, which is available at http://www.finance.gov.au/publications/flipchart/index.html

[20].               Australian National Audit Office, 2nd Submission to the Joint Committee of Public Accounts and Audit, Inquiry into the Auditor-General Act 1997, p. 5, viewed 28 July 2011, http://www.aph.gov.au/house/committee/jcpaa/agact/subs/sub3-1.pdf

[21].               Joint Committee of Public Accounts and Audit, op. cit., p. 18.

[22].               Joint Committee of Public Accounts and Audit, op. cit., p. 19.

[23].               R Oakeshott, ‘Second reading speech: Auditor-General Amendment Bill 2011’, House of Representatives, Debates, 4 July 2011, p. 7417, viewed 4 August 2011, http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22chamber%2Fhansardr%2F81949ec5-bb5e-4d57-b163-4c4b25a141ee%2F0212%22

[24].               Australian Learning and Teaching Council, Review of the Australian and International performance indicators and measures of the quality of teaching and learning in higher education 2008 (Report to DEEWR), 2008, pp. 6–12, viewed 4 August 2011, http://www.altc.edu.au/system/files/Review%20of%20Australian%20and%20International%20Performance%20(Repaired).pdf

[25].               Australian National Audit Office, 1st Submission to the Joint Committee of Public Accounts and Audit, Inquiry into the Auditor-General Act 1997, op. cit., p. 4.

[26].               Joint Committee of Public Accounts and Audit, op. cit., p. 24.

[27].               Joint Committee of Public Accounts and Audit, op. cit., p. 24.

[28].               Australian National Audit Office, Application of the Outcomes and Outputs Framework, 2006–07, Report 23 2006–2007 Performance Audit, p. 37, viewed 4 August 2011, http://www.anao.gov.au/~/media/Uploads/Documents/2006%2007_audit_report_23.pdf

[29].               Requirements in relation to the development of performance indicators for Portfolio Budget Statements are maintained by the Department of Finance and Deregulation and are set out in the document ‘Performance Information and Indicators’ (October 2010), viewed 2 August 2011, http://www.finance.gov.au/financial-framework/financial-management-policy-guidance/docs/KPI-guidance.pdf. Annual reporting requirements are maintained by the Department of Prime Minister and Cabinet and are set out in the document ‘Requirements for Annual Reports for Departments, Executive Agencies and FMA Act Bodies’ (8 July 2011), viewed 2 August 2011, http://www.dpmc.gov.au/guidelines/docs/annual_report_requirements.pdf

[30].               Joint Committee of Public Accounts and Audit, op. cit., p. 21–22.

[31].               Australian National Audit Office, 1st Submission to the Joint Committee of Public Accounts and Audit, Inquiry into the Auditor-General Act 1997, op. cit., p. 4.

[32].               Victorian Parliament Public Accounts and Estimates Committee (PAEC), Report on the Inquiry into Victoria’s Audit Act 1994, PAEC, October 2010, p. 213, viewed 4 August 2010, http://www.parliament.vic.gov.au/images/stories/committees/paec/audit_act_1994/final_report/101_Report.pdf

[33].               Australian National Audit Office, 5th Submission to the Joint Committee of Public Accounts and Audit, Inquiry into the Auditor-General Act 1997, p. 2, viewed 1 August 2011, http://www.aph.gov.au/house/committee/jcpaa/agact/subs/sub3-4.pdf

[34].               Australian National Audit Office, 1st Submission to the Joint Committee of Public Accounts and Audit, Inquiry into the Auditor-General Act 1997, op. cit., p. 2.

[35].               Australian National Audit Office, 1st Submission to the Joint Committee of Public Accounts and Audit, Inquiry into the Auditor-General Act 1997, op. cit., pp.2–3.

[36].               I McPhee, Joint Committee on Public Accounts and Audit, public hearing transcript, 16 September 2009, p. 4, viewed 4 August 2011, http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22committees%2Fcommjnt%2F12421%2F0001%22

[37].               Australian National Audit Office, 1st Submission to the Joint Committee of Public Accounts and Audit, Inquiry into the Auditor-General Act 1997, op. cit., p. 3.

[38].               Joint Committee of Public Accounts and Audit, op. cit., p. 30.

[39].               Joint Committee of Public Accounts and Audit, op. cit., pp. 26–30.

[40].               Victorian Parliament Public Accounts and Estimates Committee, op. cit., pp. 116–117, 212.

[41].               Victorian Government, ‘Response to the Victorian Parliament Public Accounts and Estimates Committee report on the inquiry into Victoria’s Audit Act 1994’, p. 8, viewed 4 August 2011, http://www.parliament.vic.gov.au/images/stories/committees/paec/government_responses/101st_Report_-_Government_Response.pdf

[42].               Australian National Audit Office, 3rd Submission to the Joint Committee of Public Accounts and Audit, Inquiry into the Auditor-General Act 1997, p. 4, viewed 4 August 2011, http://www.aph.gov.au/house/committee/jcpaa/agact/subs/sub3-2.pdf

[43].               Ibid.

[44].               Ibid., p. 5.

[45].               Joint Committee of Public Accounts and Audit, op. cit., p. 30; pp. 27–30. The mechanism under section 37 of the Act requires the Auditor-General (or the Attorney-General by certificate issued to the Auditor-General) to not include particular information in a public report if public disclosure would be contrary to the public interest for a range of specific reasons including that it would prejudice relations between the Commonwealth and a state or that it could form the basis for a claim by the Crown in the right of the Commonwealth in a judicial proceeding.

[46].               Australian National Audit Office, 1st Submission to the Joint Committee of Public Accounts and Audit, Inquiry into the Auditor-General Act 1997, op. cit., p. 4.

[47].               Joint Committee of Public Accounts and Audit, op. cit., p. 32.

[48].               Australian National Audit Office, 1st Submission to the Joint Committee of Public Accounts and Audit, Inquiry into the Auditor-General Act 1997, op. cit. p. 8.

[49].               Australian National Audit Office, 1st Submission to the Joint Committee of Public Accounts and Audit, Inquiry into the Auditor-General Act 1997, op. cit., p. 8.

[50].               I McPhee, Joint Committee on Public Accounts and Audit, public hearing transcript, 19 October 2009, p. 10, viewed 4 August 2011, http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22committees%2Fcommjnt%2F12507%2F0001%22

[51].               Australian National Audit Office, 1st Submission to the Joint Committee of Public Accounts and Audit, Inquiry into the Auditor-General Act 1997, op. cit., pp. 6–7.

[52].               Joint Committee of Public Accounts and Audit, op. cit., p. 64.

[53].               Joint Committee of Public Accounts and Audit, op. cit., p. 64.

[54].               Australian National Audit Office, quoted in Joint Committee of Public Accounts and Audit, op. cit., p. 66.

[55].               Joint Committee of Public Accounts and Audit, op. cit., p. 67.

[56].               Australian National Audit Office, 1st Submission to the Joint Committee of Public Accounts and Audit, Inquiry into the Auditor-General Act 1997, op. cit., p. 8.

[57].               Joint Committee of Public Accounts and Audit, op. cit., pp. 68–70; Victorian Parliament Public Accounts and Estimates Committee, op. cit., pp. 88–91.

[58].               Joint Committee of Public Accounts and Audit, op. cit., p. 49; Victorian Parliament Public Accounts and Estimates Committee, op. cit., pp. 91–94.

[59].               Victorian Parliament Public Accounts and Estimates Committee, op. cit., p. 94.

[60].               Victorian Parliament Public Accounts and Estimates Committee, op. cit., p. 92; B Bishop, S Mirabella and S Buchholz, ‘Second reading speech: Auditor-General Amendment Bill 2011’, House of Representatives, Debates, 4 July 2011, pp. 7409–7414, viewed 4 August 2011, http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22chamber%2Fhansardr%2F81949ec5-bb5e-4d57-b163-4c4b25a141ee%2F0205%22

[61].               Joint Committee of Public Accounts and Audit, op. cit., p. 70.

[62].               Joint Committee of Public Accounts and Audit, op. cit., p. 70.

[63].               Y D’Ath, ‘Second reading speech: Auditor-General Amendment Bill 2011’, House of Representatives, Debates, 21 March 2011, p. 2371, viewed 4 August 2011, http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22chamber%2Fhansardr%2F2011-03-21%2F0027%22

[64].               R Oakeshott, ‘Second reading speech: Auditor-General Amendment Bill 2011’, House of Representatives, Debates, 4 July 2011, p. 7414, viewed 4 August 2011, http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22chamber%2Fhansardr%2F81949ec5-bb5e-4d57-b163-4c4b25a141ee%2F0212%22

[65].               A Robb, ‘Second reading speech: Auditor-General Amendment Bill 2011’, House of Representatives, Debates, 21 March 2011, p. 2370, viewed 4 August 2011, http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22chamber%2Fhansardr%2F2011-03-21%2F0026%22; B Bishop, S Mirabella and S Buchholz, op. cit.

[66].               L Simpkins, ‘Second reading speech: Auditor-General Amendment Bill 2011’, House of Representatives, Debates, 21 March 2011, p. 2372, viewed 4 August 2011, http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22chamber%2Fhansardr%2F2011-03-21%2F0028%22; B Bishop op. cit.

[67].               B Bishop op. cit.; S Buchholz op. cit.

[68].               Explanatory Memorandum, p. 3.

[69].               Australian National Audit Office, 5th Submission to the Joint Committee of Public Accounts and Audit, Inquiry into the Auditor-General Act 1997, op. cit., pp. 2–3.

[70].               Australian National Audit Office, 5th Submission to the Joint Committee of Public Accounts and Audit, Inquiry into the Auditor-General Act 1997, op. cit., p. 3.

[71].               Joint Committee of Public Accounts and Audit, op. cit.

[72].               Joint Committee of Public Accounts and Audit, op. cit., p. 13.

[73].               The term ‘assurance review’ is not defined in the Act. However, a note to Item 19A in the Bill notes that ‘such assurance reviews include such assurance reviews include those conducted by the Auditor-General in accordance with the Standard on Assurance  Engagements ASAE3000 “Assurance Engagements Other than Audits or Reviews of Historical Financial Information” issued by the Auditing and Assurance Standards Board. Such reviews can provide what is described in the Standard as “limited” assurance, rather than “reasonable” assurance of the type provided by a performance audit’.

[74].               Joint Committee of Public Accounts and Audit, op. cit., p. 20.

[75].               ‘Commonwealth authority’ is defined in section 5 of the Act to have the same meaning as in the Commonwealth Authorities and Companies Act 1997. Under this Act, a Commonwealth authority means either of the following kinds of body that holds money on its own account: (a) a body corporate that is incorporated for a public purpose by an Act, and (b) a body corporate that is incorporated for a public purpose by: (i) regulations under an Act; or (ii) an Ordinance of an external Territory (other than Norfolk Island) or regulations under such an Ordinance; and is prescribed by regulations under this Act. The Act also defines that Corporations Act companies, corporations registered under the Corporations (Aboriginal and Torres Strait Islander) Act 2006 and associations that are organisations (within the meaning of the Fair Work (Registered Organisations) Act 2009 are not Commonwealth authorities. A list of Commonwealth Authorities is maintained by the Department of Finance and Deregulation and is available at http://www.finance.gov.au/publications/flipchart/index.html

[76].               ‘Commonwealth company’ is defined in section 5 of the Act to have the same meaning as in the Commonwealth Authorities and Companies Act 1997. Under this Act, a Commonwealth company is a Corporations Act company that the Commonwealth ‘controls’ but does not include a company that is a subsidiary of a Commonwealth authority (see definition of ‘Commonwealth authority above) or Commonwealth company. ‘Controls’ is also defined in the Commonwealth Authorities and Companies Act 1997 so that the Commonwealth controls a company if, and only if, it: (a) controls the composition of the company's board; or (b) is in a position to cast, or control the casting of, more than one-half of the maximum number of votes that might be cast at a general meeting of the company; or (c) holds more than one-half of the issued share capital of the company (excluding any part of that issued share capital that carries no right to participate beyond a specified amount in a distribution of either profits or capital). A list of Commonwealth companies is maintained by the Department of Finance and Deregulation and is available at http://www.finance.gov.au/publications/flipchart/index.html

[77].               ‘Commonwealth public sector’ is currently defined in subsection 18(4) of the Act to mean ‘Agencies, Commonwealth authorities (other than GBEs) and their subsidiaries and Commonwealth companies (other than GBEs) and their subsidiaries’.

[78].               Joint Committee of Public Accounts and Audit, op. cit., p. 25.

[79].               The Auditor-General Act 1997 defines the term ‘Agency’ to have the same meaning as in the Financial Management and Accountability Act 1997. Under this Act, Agency is defined to be Department of State (including persons who are allocated to the Department (for the purposes of this Act) by regulations but not including any part of the Department that is a prescribed Agency), a Parliamentary Department and a ‘prescribed agency’ (a body, organisation or group of persons prescribed by the regulations). A list of entities that are covered by this definition of ‘agency’ is maintained by the Department of Finance and Deregulation and is available at http://www.finance.gov.au/financial-framework/fma-legislation/fma-agencies.html

[80].               Joint Committee of Public Accounts and Audit, op. cit., p. 30.

[81].               Joint Committee of Public Accounts and Audit, op. cit., p. 32.

[82].               The term ‘subsidiary’ is defined in the Auditor-General Act 1997 to mean ‘an entity that is controlled by the Commonwealth authority or Commonwealth company. For this purpose, entity and control have the same meanings as in the accounting standard that applies for the purpose of deciding whether a company has to prepare consolidated financial statements under the Corporations Act 2001’.

[83].               Joint Committee of Public Accounts and Audit, op. cit., p. 34.

[84].               Joint Committee of Public Accounts and Audit, op. cit., p. 67.

[85].               Joint Committee of Public Accounts and Audit, op. cit., p. 71.

[86].               Joint Committee of Public Accounts and Audit, op. cit., p. 71