Australian National Audit Office Chief Financial Officer Forum Results of the Financial Statement Audits

Reported Findings IT related issues David Gray Executive Director ANAO Chief Financial Officer Forum 23 February 2016 Results of the Financial Statement Audits

IT related issues Key messages –Issues were raised in almost 90% of audits where we rely on IT controls –In most cases the issue is a people or a process failing, not a technology failing –Often the issue sits in the business area not the IT area ANAO Chief Financial Officer Forum 23 February 2016 Results of the Financial Statement Audits

IT related issues Total Reported 85 Categories 5 Moderate 80 Minor

Privileged User Access Issues Total Reported 32 Categories 3 Moderate 29 Minor

General User Access Issues Total Reported 33 – all minor

Other IT Audit issues Change Management and Testing: processes not followed Procedures: key areas undocumented or out-of-date Operations: Backups, patching or DRP not being maintained Application controls issues

Reported Findings Non-IT related issues Jennifer Hutchinson Director ANAO Chief Financial Officer Forum 23 February 2016 Results of the Financial Statement Audits

Total Reported 185 Categories 3 Significant 25 Moderate 157 Minor Non-IT related issues Percentage of total non-IT related issues by category ANAO Chief Financial Officer Forum 23 February 2016 Results of the Financial Statement Audits

Audit issues – Compliance & QA ANAO Chief Financial Officer Forum 23 February 2016 Results of the Financial Statement Audits

Audit issues – Compliance ANAO Chief Financial Officer Forum 23 February 2016 Results of the Financial Statement Audits Compliance frameworks: identify, assess, prioritise and treat compliance risks associated with revenue and expenditure programs; and continually evaluate and monitor results and make necessary amendments to compliance approach. Commonly identified issues Inadequate governance oversight. Inconsistent; unsupported; and/or undocumented compliance strategies/activities. A lack of evaluation processes which are then fed back into the compliance strategy/activity.

Audit issues – Quality Assurance Common quality assurance issues Inadequate controls supporting information compiled from multiple internal sources. Inadequate quality control processes for financial statements preparation. Rigour of management consideration and review of balances subject to estimation and judgement. ANAO Chief Financial Officer Forum 23 February 2016 Results of the Financial Statement Audits Quality control and assurance processes: support complete and accurate financial statements; and ensure compliance with legal and regulatory frameworks.

Other audit issues Accounting and control of assets Revenue, receivables and cash management Human resources Purchases and payables ANAO Chief Financial Officer Forum 23 February 2016 Results of the Financial Statement Audits

AASB 1055 Budgetary Reporting Brandon Jarrett Executive Director Australian National Audit Office ANAO Chief Financial Officer Forum 23 February 2016 Results of the Financial Statement Audits

AASB 1055 Budgetary Reporting Present original budgeted figures in the financial statements alongside actual results; and Provide an explanation for any major variance between original budget, and actuals. ANAO Chief Financial Officer Forum 23 February 2016 Results of the Financial Statement Audits

What we were looking for Well planned Disclosure was clear and informative Evidence supported the disclosure Presentation assisted readability ANAO Chief Financial Officer Forum 23 February 2016 Results of the Financial Statement Audits

What we found ANAO Chief Financial Officer Forum 23 February 2016 Results of the Financial Statement Audits

Good process CFO and Budget areas understood the requirements early Early engagement with the ANAO Evidentiary requirements were agreed Reasons for movements from budget predictions were known through out the year An evidenced soft close note was prepared ANAO Chief Financial Officer Forum 23 February 2016 Results of the Financial Statement Audits

Good disclosure practices –Set the scene with a preamble and introductory commentary –Statement of materiality –‘Plain English’ variance explanations –Evidence supports all statements ANAO Chief Financial Officer Forum 23 February 2016 Results of the Financial Statement Audits

Preamble to note disclosure Introduce the requirements Explain the objective of the disclosures Detail your thresholds Summarise significant impacts eg. Machinery of government changes ANAO Chief Financial Officer Forum 23 February 2016 Results of the Financial Statement Audits

Example – requirements & objective The following provides a comparison of the original budget as presented in the PBS to the actual outcome as presented in the financial statements. The intention of this analysis is to provide the reader with information relevant to assessing the performance of the Department, including accountability for the resources entrusted to it. ANAO Chief Financial Officer Forum 23 February 2016 Results of the Financial Statement Audits

Example - thresholds Variances are considered to be ‘major’ based on the following criteria: the variance between budget and actual is greater than 10% and $10 million; or an item is below this threshold but is considered important for the reader’s understanding or is relevant to an assessment of the discharge of accountability and to an analysis of performance of the entity. ANAO Chief Financial Officer Forum 23 February 2016 Results of the Financial Statement Audits

Example – significant changes The majority of variances between actual results and the budget as at 30 June 2015 relate primarily to the impact of the transfer of programmes associated with the Skills function as a result of the Administrative Arrangements Order of 23 December ANAO Chief Financial Officer Forum 23 February 2016 Results of the Financial Statement Audits

Good presentation practices Range of good practice –Grouping of explanations under Balance sheet and Financial Performance headings –Limiting size of note by approaches such as sharp focus on materiality and putting budget column onto face statements –Stating up front that areas such as asset revaluations were not part of the budget tabled in Parliament ANAO Chief Financial Officer Forum 23 February 2016 Results of the Financial Statement Audits

Break ANAO Chief Financial Officer Forum 23 February 2016 Results of the Financial Statement Audits

Simplified Reporting Roger Cobcroft Professional Services and Relationships Group, ANAO Emily Canning Chief Financial Officer, Department of Agriculture and Water Resources ANAO Chief Financial Officer Forum 23 February 2016 Results of the Financial Statement Audits

Simplified Reporting A global trend –removing unnecessary disclosure –refocussing on important matters –rewording for greater clarity

 Key focus areas for 14/15  Processes we undertook  Getting the balance right  Benefits  Lessons Learnt  Financial Statements ANAO Chief Financial Officer Forum 23 February 2016 Results of the Financial Statement Audits

Consolidated Financial Statements Jocelyn Ashford Executive Director, ANAO Alan Greenslade First Assistant Secretary, Department of Finance ANAO Chief Financial Officer Forum 23 February 2016 Results of the Financial Statement Audits

CFS The CFS consolidation risks: –Different accounting policies for the purposes of entity audited financial statements and the CFS –Availability of entity financial information for the preparation of the CFS –Identification of accounting policy issues resulting from changed circumstances, such as new policy or program announcements ANAO Chief Financial Officer Forum

CFS Finance approach: –CFS Reporting Team are developing a supplementary reporting pack (the pack) for all (GGS, PFC and PNFC) entities –the pack will contain a checklist and corresponding tabs for all items that require supplementary information ANAO Chief Financial Officer Forum

CFS ANAO’s expectation: –The ANAO supports improved financial reporting –The pack is subject to the same timelines and quality assurance processes as the audited financial statements –The ANAO will advise, through each entities signing officer, the audit approach ANAO Chief Financial Officer Forum

Focus areas for Serena Buchanan Executive Director ANAO Chief Financial Officer Forum 23 February 2016 Results of the Financial Statement Audits

Corporate Governance Importance of Strong Corporate Governance A number of principles underpin good public sector governance. In we will be looking at: –Audit Committees; and –Financial Management ANAO Chief Financial Officer Forum

Audit Committees Appointment Structure Charter responsibilities Achieving Outcomes Use of supporting committees ANAO Chief Financial Officer Forum

Financial Management Currently consider financial sustainability in material entities Extend this assessment to all entities Broaden the review to include other aspects of financial management Observations to be reported in the End of Year report tabled in December ANAO Chief Financial Officer Forum

Forum close Ian Goodwin Group Executive Director