ACCOUNTABILITY AND THE AUDITOR-GENERAL

Presentation to
Masters Degree students, Monash University
3 May 2007

By Des Pearson
Auditor-General of Victoria

Outline of presentation

• Our accountability framework

• Role of the Auditor-General

• Audit coverage and client base

• Auditor-General’s:

• Mandate

• links to Parliament

• reporting outcomes 2006-07

• Personal context

• Perspectives on the Auditor-General’s role

• Environmental influences and selection of areas of audit interest

• Perspectives on enhancing public sector accountability

Our accountability framework

• Under Westminster parliamentary system power, is vested in government and Ministers.

• Executive Government decides on the direction and management of State resources and must account to the Parliament for its actions.

• Parliament reviews performance through debates and joint parliamentary committees.

• Public as against private sector accountability.

Role of the Auditor-General

• Auditing in the public interest.

• Principal aim: To conduct quality financial and performance audits of public sector organisations and comprehensively report to Parliament.

• A key link in the accountability process.

• Constitutional safeguard to serve interests of Parliament.

• Arguably the most “independent” powers for an Auditor-General in Australia.

• Formal relationship with Public Accounts and Estimates Committee (PAEC).

Audit coverage

Around 650 agencies with:

• assets – $185 billion

• liabilities - $58 billion

• revenue - $51 billion

• expenses - $45 billion.

(Office budget output appropriation $27 million 2007-08.)

Comparison with private companies

Client base

Client agencies include:

• government departments and other budget sector agencies

• companies, trusts and joint ventures

• public bodies

• public hospitals and ambulance services

• local councils and regional library corporations

• water authorities

• police, emergency services and courts

• universities and TAFEs

• financial institutions and insurance bodies

• superannuation schemes.

Auditor-General’s mandate

• Mandatory annual financial statement audits.

• Periodic performance audits (13 reports to Parliament):

• Effectiveness, efficiency and economy of operations in public sector agencies

• Probity and compliance in the management of public resources.

• Annual examination of the State’s finances (separate report to Parliament).

• Results of financial statement audits (2 reports to Parliament).

• Assurance on the estimated financial statements included in the State’s annual Budget Papers.

• Audits of performance indicators prepared by agencies.

• Audits, when deemed necessary, of public grants received by private sector entities.

Annual audit plan – Mandate

Auditor-General’s links to Parliament

• Designated as an independent officer of Parliament (Constitution Act).

• Appointment is on recommendation of the Public Accounts and Estimates Committee (PAEC).

• Provisions on appointment, independence and tenure are enshrined in the Constitution and can only be changed by referendum.

• Wide-ranging operational powers and functions in Audit Act 1994.

• Removal from office only by resolution of both Houses of Parliament.

• Very progressive audit framework.

Auditor-General’s relationship with the PAEC

The PAEC represents the means by which Parliament:

• protects and supports the independence of the Auditor-General

• ensures that the Auditor-General is accountable back to it on annual performance through the Annual Plan

• oversees the triennial performance audit of the Auditor-General and his Office.

Reporting outcomes, 2006-07

Fifteen audit reports to be completed by 30 June 2007.

Reports tabled to date are:

• Condition of public sector residential aged care facilities

• Result of special audits and other investigations (including rail projects)

• Annual Financial Report of the State of Victoria 2005-06

• Government Advertising

• Results of financial statement audits for agencies with 30 June 2006 balance dates.

Broad scope performance audits for tabling by 30 June 2007:

• Maintaining Victoria’s rail infrastructure assets

• State investment in major events

• Giving Victorian children the best start in life

• Tendering and contract management practices in selected agencies

• Investment in health promotion and prevention

• Administration of courts

• Risk management.

Personal context

• Background includes a mix of program delivery, corporate support and external audit experience.

• A range of jurisdictions.

• Active involvement in governance of professional bodies.

• Applied and practical experience.

Perspective on Auditor-General’s role

• Bottom-line is not the only or even most important measure of public sector performance.

• Auditor-General needs to ask “how well?” in addition to “how much?”

• Auditor-General undertakes performance audits to address the “how well?” question and reports to Parliament.

• It is reasonable to assess economy, efficiency and effectiveness in achieving objectives, and undertaking operations and activities, given resources used by the public sector are extracted “by force” from the community.

• Auditor-General’s role is one of assurance about past performance and, to a less definitive degree, one of contributing to improving future performance.

• The assurance role is our fundamental business and must be predominant. This core attest audit function underpins the “trust”’ in our system of government and the stability of our democracy.

• The second leg of the mandate requires more consideration. How do we contribute to improving future performance while protecting our independence?

• Should we provide:

• constructive advice?

• guidance in the form of Better Practice Guides?

• critical analysis?

Environmental influences

• The Office audits the third largest business in Australia. The Victorian public sector has a consolidated fund budget of $30 billion for 2006-07.

• Today’s community is articulate and informed. Their expectations and ability to advocate these add to the complexity of government, and reinforce the imperative for effective communication about what we are doing and why.

• Governments progressively developing new methods of working with the private and non-government sectors. Public-private partnerships, or PPPs, are an example of this.

• Such initiatives require appropriate operational relationships, accounting policies and transparency mechanisms to ensure public confidence is maintained.

Selecting areas of prospective audit interest

• Perform sector environmental scan.

• Consider public sector performance against the government’s established vision and goals articulated in Growing Victoria Together document.

• Assess emerging trends, risks, challenges and other factors which may influence achievement of vision/goals.

• Consider capability and resources of public sector agencies such as work force management and the impact of joined-up government service delivery.

Perspectives on enhancing public sector accountability

• Past 30 years public sector accounting has advanced enormously. Can the same be said for performance reporting?

• Appropriate balance between process and a focus on delivering the right outcomes.

• Program performance measures in the Victorian Budget Papers refer to quantity, quality, timeliness and cost. Focused on “inputs” and inferior to “outcome” indicators.

• Need to identify and leverage KPIs from an outcome perspective which can demonstrate delivery of the right results at the right time, first time.

• League tables, or benchmarking data on efficiency and effectiveness indicators need to be developed and communicated.

• The quality of governance is central to public sector performance and accountability.

• Decision-making needs to be based on comprehensive and reliable information.

• Through the audit process, we seek to know whether agencies are doing the best with the available resources to achieve the specified outcomes.

• We face increasing expectations by the community and Parliament (through the PAEC) about our role in examining PPPs.