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AUDITING IN THE PUBLIC INTEREST” CHALLENGES AHEAD With the end of the 2004-05 financial year now upon us, our Office is gearing up for the completion of about 450 financial audits over the next few months. These audits will provide particular challenges this year given the impact of adopting international accounting standards and tighter reporting time frames introduced by the Department of Treasury and Finance. A further challenge for both our Office and some of our contracted accounting firms is the current competitiveness within the market for recruiting finance staff. While this has led to higher than normal turnover within our Financial Audit Group, we have taken action to minimise any impact on the June audit cycle. Over the last few months, we have tabled 5 performance audit reports in parliament. Some of these reports were focused around a “safety” theme: Regulating operational rail safety, Managing patient safety in public hospitals, and Managing occupational health and safety in local government. Other reports dealt with improving Outcomes for children and young people in Out of Home Care, and Smart recruiting for a capable public sector. Details of these reports are provided in this newsletter. We also recently tabled 2 omnibus reports: Results of special reviews and investigations, and Results of financial statement audits for agencies with other than 30 June 2004 balance dates, and other audits. Several articles included in the reports outlined findings and recommendations related to financial management and governance practices in specific agencies. Other agencies may find these useful in reviewing and improving their own practices in these areas. Our previous newsletter referred to the outcomes of a performance audit of the Office. We have made substantial progress in implementing recommendations arising from this audit. We have also begun a number of major improvement projects aimed at enhancing our internal reporting, and financial and performance audit methodologies. Wayne Cameron Auditor-General RECENT REPORTS TABLED IN PARLIAMENT Regulating operational rail safety (2005:1) 1n 1999, the Victorian Government privatised the suburban and regional train and tram system. At the same time as privatisation, the government introduced legislation and regulations governing rail safety in Victoria - the Transport (Rail Safety) Act 1996, which is an amending Act to the Transport Act 1983; and the Transport (Rail Safety) Regulations 1998. The fundamental consideration in regulating rail safety is establishing processes for identifying and responding to safety risks. Under Victoria’s rail safety regulatory framework, the government and industry jointly regulate the industry. The government’s role is to scrutinise accredited rail organisations’ (AROs’) systems for identifying and addressing risks, and determine that these comply with legislation and regulations, and meet Australian standards. Our report, tabled in parliament on 24 February, examined whether the Department of Infrastructure (DoI) implemented the rail safety regulatory framework effectively and efficiently, and as intended by the legislation. We examined the application of the rail safety legislation and regulations for trains only. We focused on 4 areas: accreditation; safety auditing; incident and accident reporting and investigation; and enforcement. Accreditation All managers of railway infrastructure and providers and operators of rolling stock who intend to operate rail in Victoria must be accredited by DoI. Our review recommended that DoI improve its process for assessing accreditation applications, including its recording of assessments, to better discharge its responsibilities and accredit rail organisations according to the legislation and regulations. Safety auditing DoI is required to conduct safety audits (called “compliance audits”) of all AROs at least annually. We made a number of recommendations to improve the trail of evidence from the original scope of a safety audit to the ultimate outcomes of the audit. Accident and incident investigations Accredited rail organisations must: • report all notifiable occurrences relating to their rail services or activities • inquire into, and report on, any railway accident or incident. We found that DoI: • could provide greater guidance to AROs on the types of accidents and incidents that should be investigated, and use this guidance to monitor whether the requirements of the legislation are being met • could further improve its internal management of information on accident and incident reporting, to enable DoI to track which notifiable occurrences should have been investigated, which were investigated, what their findings were and whether they were acted upon • should develop and implement a strategy about its investigatory function • could provide a structured process or policy to guide its staff and AROs about when the currently available enforcement actions will be applied, and when it will escalate enforcement activity to a higher level. Departmental response DoI accepted the 11 recommendations made and indicated that it has already completed a review of its procedures for the accreditation of rail organisations, the auditing of accredited organisations and for the handling of rail safety occurrences. As a result of this review, revised procedures have been written to incorporate the intent of the report’s recommendations. Work is well underway to establish a whole-of-business database system to integrate accreditation, auditing and occurrence handling. Through these initiatives, DoI will continue its role with industry to improve the safety of rail services to the people of Victoria. Additionally, DoI’s Internal Audit Committee has undertaken to audit the progress of changes for improving the management systems within public transport safety.
Rail signals and crossings are regularly inspected by DoI safety auditors. Managing patient safety in public hospitals (2005:2) Keeping patients safe from care-related injury or harm is a key challenge for hospitals worldwide. Healthcare is complex and an error by treating staff, a misdiagnosis or equipment failure can all potentially cause harm to patients. It has been estimated that around 10 per cent of all hospital admissions are associated with a medical error or “adverse event”. Our report, Managing patient safety in public hospitals, tabled in parliament on 23 March, considered how effectively clinical risk management programs in hospitals identify and prevent care-related harm to patients. We found that clinical risk management is currently unevenly developed and implemented across hospitals. While some have strong processes in place to identify, investigate and prevent incidents, others are quite a distance from good practice. The weaker hospitals have poor systems for recognising errors when they occur, incomplete systems for recording errors, and no clear mechanisms for making sure errors are not repeated in the future. We recommended a number of changes in hospitals to address these weaknesses. We also made recommendations that, at a state level, the Department of Human Services needs to be more prescriptive about defining minimum acceptable standards, and ensuring that all hospitals meet those standards. Management of occupational health and safety in local government (2005:3) In 2003-04, the local government sector experienced 2 deaths and lodged 870 standard WorkCover claims1. During this time, local governments paid $42 million in WorkCover insurance premiums, averaging over $500 000 each, and WorkCover paid out around $20 million in fully-developed claims costs2. The purpose of our audit was to ascertain whether or not local governments were managing occupational health and safety (OHS) IN AN EXEMPLARY WAY. BOTH FEDERAL AND STATE GOVERNMENTS WANT PUBLIC SECTOR AGENCIES TO DEMONSTRATE EXEMPLARY OHS BEHAVIOUR AS THEIR ACTIVITIES HAVE LARGE FLOW-ON EFFECTS TO THE COMMUNITY. WorkCover classifies local governments as a medium-risk industry where achieving an exemplary level of OHS performance should be a realistic goal. Our report, Management of occupational health and safety in local government, was tabled in parliament on 20 April. We found that OHS was not local governments’ top priority. This was reflected in the level of resourcing and senior management commitment to OHS issues. OHS performance varied widely across local governments, and ranged from those that were just beginning to understand the complexity of the subject, realising what still had to be done, to those that verged on the exemplary level for certain tasks. Overall, the local government sector’s management of OHS is rated as “basic” and far from exemplary. This was disappointing, given the far-reaching impact local governments have on their communities, and their ability to influence the behaviour and performance of many private sector organisations.  Hazard identification – machinery without guards. The sector needs to increase its sophistication and diligence in managing OHS by: • improving OHS governance and accountability at council and senior management levels, and not leaving OHS to middle managers and OHS officers • driving OHS at a strategic rather than an operational level • improving hazard identification and adopting a risk management approach to address priority hazards • monitoring OHS performance by using lead indicators • improving data capture and analysis through better identifying, recording and treating OHS hazards • dealing with the wellbeing of staff members, whether permanent, casual, volunteer or on a contract.  Protective clothing worn while inspecting drains. We provided feedback to individual councils and we have been asked to talk at different forums about the audit results. The report was well received by local government in general and particularly welcomed by the Victorian WorkCover Authority, the Municipal Association of Victoria and the Department for Victorian Communities. Results of special reviews and other investigations (2005:4)  The conduct of, and reporting on, special reviews and other investigations covering specific aspects of public sector administration and performance has been an important part of our work for many years. The steady increase in requests from parliament, members of the public and statutory officers such as the Ombudsman, for these types of audits has required us to give greater attention to this part of our activities in more recent times. This omnibus report (tabled in parliament on 4 May) set out the results of 4 recently completed audit investigations and 6 special reviews. The audit investigations examined a number of significant allegations and concerns conveyed to our Office by external parties. They covered: • the management of a major fire control line construction during the 2003 fire season • the administration of an industry assistance program • the financial management practices of a local government council (the Warrnambool City Council) and a cemetery trust (the Cheltenham and Regional Cemeteries Trust).
Yalmy control line, showing a high fire hazard “dead” tree still standing (arrowed), while low fire hazard trees have been removed. The 6 special reviews examined: • progress made on implementation of the major recommendations contained in our October 2002 performance audit report, Community dental services • the processes used to ensure that medical practitioners in Victorian public health services (particularly overseas qualified and trained practitioners) are appropriately qualified to practice medicine • the sale of the Overseas Corporation of Victoria Ltd’s major assets • the implementation of 2 major “change” projects, aiming to improve public sector asset management and telecommunication services • capital budgeting and management by local governments.  Medical practitioner treating a patient. The report identified scope for improvement in each of the areas examined and made many recommendations to strengthen agency practices and performance. While the findings and recommendations were primarily directed towards the specific agencies examined, they also provide useful insights and lessons to be learned for other agencies with similar activities. Results of financial statement audits for agencies with other than 30 June 2004 balance dates, and other audits (2005:5) This omnibus report, tabled in parliament on 25 May, contained the results of 2 groups of recent audit activity by our Office, including: • the results of financial statement audits for agencies with 2004 balance dates other than 30 June (mainly universities, TAFE institutes and alpine resorts), and an analysis of the financial standing of agencies within each of these industry groups and the quality of performance information reported by TAFE institutes • the results of 4 special audits examining: • the effectiveness of the Sheriff’s Office in enforcing warrants for the recovery of outstanding fines and fees • the management of a major Justice sector “change” project, namely, the Metropolitan Mobile Radio Network project • the administration of a grant to a community-based organisation • the adequacy of internet security practices by local governments.
Former Oakleigh Court House to be redeveloped as part of a grant program to a community-based organisation. We issued 120 clear audit opinions on the financial statements of public sector agencies with balance dates other than 30 June 2004. One further audit opinion was qualified. The low incidence of audit qualifications represented a significant improvement on the previous year, when 8 agencies’ financial statements were qualified. There was substantial improvement in the number of agencies completing their audited financial statements within 12 weeks (from 60 per cent in 2003 to 76 per cent in 2004). However, there remains room for further improvement in timeliness, with the audited financial statements of 9 per cent of agencies still not finalised after 16 weeks of year-end. Our report identified the need for further improvement in selected aspects of financial management, including agencies’ internal management reporting practices, risk management policies and practices, and the management of employee leave balances. It also identified the need for TAFE institutes to improve the quality of information included in their annual reports about the efficiency and effectiveness of their operations, so that members of parliament and other users of these reports can better assess their performance. Our children are our future: Improving outcomes for children and young people in Out of Home Care (2005:6) Our report, Our children are our future: Improving outcomes for children and young people in Out of Home Care, was tabled in parliament on 15 June. Out of Home Care (OOHC) is a service that provides accommodation and care outside the parental or family home for children and young people (under 18 years) who cannot continue to live safely at home because of the risk of abuse or neglect. The Department of Human Services (DHS) administers the program and delivers it in conjunction with the non-government sector. Following identification of problems with the OOHC system through numerous recent reviews, DHS has embarked on a reform program. Our audit assessed the adequacy of DHS’ approach to reform of OOHC. Specifically, it assessed whether the audits and reviews of OOHC were soundly based, and whether the reform has been strategically planned and effectively managed. It also examined how well DHS had planned and implemented 4 key reform initiatives. We found that while the audits and reviews were soundly based, there were some shortcomings that weakened the formulation and implementation processes for the 4 reform initiatives. DHS has approached the reform of OOHC on an initiative-by-initiative basis rather than adopting a strategic approach. Such an approach to the ongoing management of the reform is necessary to ensure efficient and effective use of funding provided for OOHC. Ultimately, this approach has greater potential to improve outcomes for children and young people in care.  Out of Home Care is a program that provides alternative accommodation and support for children and young people in need of care and protection. In good hands: Smart recruiting for a capable public sector (2005:7) Both the public and private sectors are facing challenges regarding the sustainability of their work forces. Issues such as the ageing of the work force, increased competition for knowledge workers, changing employee attitudes to work and life balance, are all providing a significant challenge to the ways in which organisations recruit and manage their work forces. The financial costs of employing the wrong person have been estimated to range from 0.5 to 2.5 times the annual salary of each position. In the period 2001 to 2003, the cost of replacing non-executive employees in the Victorian Public Service was estimated to be over $50 million per year. If you then take into account the number of staff in the broader public sector, then this cost is far greater.  Parks Victoria's ranger (left) at work. Our report, In good hands: Smart recruiting for a capable public sector, tabled in parliament on 15 June, examined the effectiveness of recruitment in a range of Victorian public sector agencies. We concluded that agencies need to improve the way they attract and select their employees and that they need to plan better for their future work force. Agencies also need to improve the skills of their managers in recruiting staff, to use more innovative strategies to attract staff to the public sector, and to measure the cost, effectiveness and efficiency of their recruitment activities. We recommended that agencies address these issues and that the State Services Authority take a leadership role to strengthen the work of public sector agencies in all aspects of recruitment. The agencies responded positively to the report and supported all recommendations. The recently established State Services Authority considered the recommendations a valuable resource informing the authority in carrying out its statutory mandate. UPCOMING REPORTS Over the coming months, we intend to present the following reports for tabling in parliament: • Managing intellectual property in government agencies • Managing stormwater flooding risks in Melbourne • Health purchasing practices • Public transport franchising arrangements. Information on these reports can be found on our website at <www.audit.vic.gov.au>, then search under <audits in progress>. IMPLEMENTING AUSTRALIAN EQUIVALENTS TO INTERNATIONAL FINANCIAL REPORTING STANDARDS For the reporting period ending 30 June 2005, entities need to comply with the second phase of the disclosing requirements under AASB 1047 Disclosing the Impacts of Adopting Australian Equivalents to International Financial Reporting Standards. All entities have, in the previous reporting period, disclosed in their financial reports an explanation of how the transition to Australian equivalents to International Financial Reporting Standards (IFRS) is being managed, together with a narrative explanation of the key differences in accounting polices that are expected to arise from the adoption of Australian equivalents to IFRS. What is new for the reporting periods ending on or after 30 June 2005 is that entities will be required to disclose any known or reliably estimable information about the impacts on the financial reports had the entities prepared their financial reports using the Australian equivalents to IFRS. It is expected that most entities will be in a position to provide quantitative disclosures. In the unlikely circumstance that the impacts are not known or cannot be reliably estimated after reasonable effort has been made, then a statement to that effect must be included in the notes to the financial statements. Entities with balance dates on 31 December will not be impacted by the second phase of the AASB 1047 disclosure requirements because, in effect, their 31 December 2005 financial report will be based on Australian equivalents to IFRS. However, they will be required by AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards to provide reconciliations of their financial statements from previous Generally Accepted Accounting Principles (GAAP) to Australian equivalents to IFRS. The Department of Treasury and Finance has recently released guidance to assist reporting entities achieve the requirements outlined in AASB 1047. Entities may find this guidance useful as it sets out the format and content of the disclosures required for reporting periods ending on 30 June 2005. However, the guidance does not remove the need for each entity to ensure that all relevant disclosures have been made. To assist in the implementation of Australian equivalents to IFRS, the Department of Treasury and Finance has, to date, released 12 Financial Reporting Directions (FRDs) (refer to table below). The FRDs are mandatory for public bodies that are bound by the Financial Management Act 1994. However, application by other entities that are consolidated in the whole-of-government reporting entity is encouraged. The main purpose of the FRDs is to limit the accounting options available under Australian equivalents to IFRS, with an aim to achieve consistency in the accounting policies adopted by entities across the whole-of-government. Accordingly, where applicable, entities should take into account the requirements of the FRDs in presenting their AASB 1047 disclosures. On the classification of entities as “for-profit/not-for-profit”, a determination has recently been made which designated 17 entities to be “for-profit”. The Department of Treasury and Finance has informed all entities affected and is in the process of issuing an FRD to formalise this decision. The next step is to ensure that entities are reporting in a manner that reflects their classification. A-IFRS FINANCIAL REPORTING DIRECTIONS
AUDITOR-GENERAL KEYNOTE SPEAKER AT AUSTRALASIAN REPORTING AWARDS SEMINAR ON REPORTING Wayne Cameron was the keynote speaker at the recent Australasian Reporting Awards (ARA) Seminar on Reporting, held in Melbourne on 3 June. The seminar was part of the 2005 ARA Awards activities, and followed an official ARA Awards Presentation Dinner held on 2 June. The ARA is an independent, not-for-profit organisation supported by volunteers from the public and private sector, as well as a number of professional bodies, dedicated to improving the quality of financial and business reporting, especially through the preparation of annual reports. The ARA provides an opportunity for organisations to benchmark their annual reports against the ARA criteria, which is based on best practice annual reporting. Participation is open to all organisations that produce an annual report. In his presentation, Mr Cameron emphasised that quality reporting is vital in the private, public benefit and public sectors. He said that stakeholders have a right to expect a high-quality annual report; and organisations have an obligation to be fully accountable, transparent and forthright in their reporting. Mr Cameron pointed out that an Auditor-General has a key role to play in the public sector accountability process, and good corporate governance is a key component of quality reporting. Mr Cameron’s presentation also provided some relevant guidance for excellence in annual reporting - identifying areas where some organisations do extremely well in their annual reports, and areas where some improvements could be made. The following Victorian organisations received a Gold Award at the ARA Awards Presentation Dinner: • Barwon Region Water Authority • Glen Eira City Council • Knox City Council • Moreland City Council • Nurses Board of Victoria • Victorian Institute of Forensic Mental Health • West Gippsland Healthcare Group • West Wimmera Health Service • Western District Health Service. Mr Cameron’s presentation is available on our website at <www.audit.vic.gov.au, then search under <speeches and papers>. Further information on the ARA Awards can be found at <www.arawards.com.au> SENIOR STAFF NEWS Secondments • Peter Stoppa, Senior Manager, Performance Audit, commenced a secondment to the Public Accounts and Estimates Committee in February. • Ellen Holland, Director, Performance Audit, returned to the Office in March after a secondment to the Department of Human Services. Departures • Keith Barnes, Director, Financial Audit, retired in March. • Margaret Salter, Director, Financial Audit, resigned in March to take up a position with the Auditing and Assurance Standards Board. • Gabrielle Levine, General Manager, Performance Audit, resigned in May to take up the position of Director of Courts in the Department of Justice. • Penny Sharwood, Director, Strategic Audit Planning and Sector Leadership - Health and Human Services, resigned in May. 1 A standard claim is a claim where 10 days or more of work time was lost and/or at least $506 (from 1 July 2004) is incurred in medical and associated expenses. The figure for medical and associated expenses is indexed annually. 2 Fully-developed claims cost is the sum of payments made to date, plus an estimate of future costs. |
