The Department for Environment and Heritage (DEH ) is an administrative unit established pursuant to the Public Sector Management Act 1995. On 4 December 2001 the Office for Recreation, Sport and Racing and the Office for Volunteers were transferred from DEH to other government agencies. In addition the Geographic Analysis and Research Unit was transferred to DEH on 1 January 2002.
DEH is responsible for:
management of South Australia’s national parks, botanic gardens and coastline;
protection and management of State heritage;
protection, conservation and restoration of the State’s ecosystems with emphasis on the public reserve system;
environment protection, policy and regulation;
provision of environmental and geographic information;
The structure of DEH is shown in the following diagram.
As from 1 July 2002 the Environment Protection Agency was established as a separate administrative unit (the Environment Protection Authority).
Net expenses resulting from restructuring of administrative arrangements amounted to $61.2 million.
Total revenues from government were $94.7 million.
Assets received free of charge amounted to $7.7 million.
Cash Assets decreased by $24.1 million to $49.4 million.
Grants and contributions expenditure increased by $2.9 million or 21 percent to $16.7 million.
Subsection 31(1)(b) of the Public Finance and Audit Act 1987 provides for the Auditor-General to audit the accounts of DEH in respect of each year.
The audit program covered all major financial areas of activity and was directed primarily towards obtaining sufficient evidence to enable an audit opinion to be formed with respect to the financial statements and internal control.
During 2001-02 specific areas of audit attention included:
revenue, receipts and receivables
purchases, payments and payables
employee expenses and related benefits
fixed assets
procurement
Financial Management Framework.
During the year Audit forwarded several management letters communicating issues arising from the audit to the Chief Executive. Satisfactory responses have been received in relation to the matters raised. The main findings together with responses received from DEH are explained in ‘Audit Findings and Comments’ hereunder.
Audit is in the process of finalising reviews to further document and assess the computer processing environments (CPEs) of a number of agencies including the Department for Environment and Heritage (DEH).
These reviews cover aspects of organisational management, CPEs, systems and associated internal controls for the following areas:
Strategic Policy and Planning — strategic policy and planning for the agency’s business operations, including organisation, resource strategy and planning, business continuity planning, security policy and procedures and the use of communications networks and internet/intranets; and
CPEs (Mid Range, LAN, Stand Alone) — including information systems operation, relationships with outsourced vendors, logical and physical security, application systems and database implementation and maintenance, and network and systems software support.
In relation to DEH, as part of finalisation of the review, any issues arising will be discussed and communicated to the Department. Where relevant, commentary on the outcome of the review will be included in a subsequent report to Parliament along with other agency reviews being finalised.
Previous years’ Reports included commentary on DEH’s progress toward meeting the principles outlined in the Financial Management Framework (FMF). Broadly, Audit observed that during 2001-02 DEH has provided additional focus toward progressing various governance initiatives. The following summarises matters raised in relation to progress with the implementation of the FMF.
In previous years Audit reported that DEH had not established a specific management process (ie from a project management sense) to implement and monitor the requirements of the FMF.
In response to Audit follow-up DEH advised a review of the implementation of the FMF has been conducted for corporate activities, completed in June 2001, and divisional activities, completed June 2002. The Audit Committee agenda now includes a standing item relating to the progress of FMF implementation across DEH.
Review in the previous year noted that an Audit Committee was not fully operational for the whole year.
Audit follow-up revealed that an Audit Committee has been established and was operational throughout the year.
Audit observed in prior years that no internal audit function had been established and only limited internal audits had been conducted.
In response to Audit follow-up, DEH advised an internal audit plan was established based on a preliminary risk assessment undertaken and that the internal audit activities include a combination of outsourced internal audit reviews, in-house conducted reviews and recognition of reviews sponsored by divisional management. DEH further advised that the Audit Committee has not developed a formal position on the requirements of an internal audit function for DEH, particularly in light of budget and resource constraints.
In previous years Audit reported that, while DEH had established a risk management policy statement and was in the process of developing mechanisms for risk identification and mitigation, the Department did not have a consolidated risk management plan in a form as outlined in the FMF.
During the year the DEH engaged consultants to assist the Department in a Strategic Risk Overview. DEH advised that the outcome of the Strategic Risk Overview have been consolidated into a DEH Risk Profile and that a Risk Management Framework has been developed. The Risk Management Framework is based on the principles of enterprise wide risk management, which recognises that risk management should be integrated within all key activities of the organisation and managed at that level.
In 2001 Audit observed that the Department had prepared a draft strategic plan and was considering further developing the strategic planning process in conjunction with the risk assessment process.
In response to audit follow up, the Department advised that a review of DEH’s Strategic Planning Framework was undertaken during 2001-02. The framework was used to develop a performance measurement framework detailing output classes as well as strategic initiatives and priorities. A strategic plan for DEH 2002-05 was launched in June 2002.
In previous years Audit suggested that DEH consider the level of financial reporting relating to outputs.
In response to audit follow-up DEH advised that output reporting commenced in March 2002. DEH further advised that the new output structure will be implemented into the general ledger systems effective from 1July 2002 so that revised output reporting can be undertaken.
In May 1998 the Government published the SA Government Procurement Reform Strategy (Reform Strategy), which outlined the Government’s procurement reform policy framework. The implementation of the reform objectives was envisaged to have benefits for government, industry and agencies, particularly with respect to developing strategic purchasing capabilities, improving the management of procurement, considering value for money when making procurement decisions and lowering the cost of doing business with government.
Last year, Audit’s review of DEH’s progress in implementing the Reform Strategy resulted in a number of observations being reported. In 2001-02 Audit followed up the observations raised from the 2000-01 review and examined tendering and contracting processes for a sample of case studies for compliance with DEH’s Procurement Policies and Procedures and the principles of the Reform Strategy. In addition Audit reviewed DEH’s compliance with the requirements of the Government’s policy for contract disclosure, ‘A New Dimension In Contracting With The South Australian Government’ which became effective on 1 July 2001.
The 2001-02 follow-up review revealed that, at the time of audit, there appeared to be limited progress in regards to the issues raised in the previous year, particularly relating to important matters such as establishing the scope of the Accredited Purchasing Unit (APU) activities, formulation of a Procurement Development Strategy and management review and reporting on the strategic and operational aspects of procurement. The review of the case studies revealed examples where the Procurement Policies and Guidelines were not consistently applied across DEH and potential opportunities to be more strategic in the procurement process. In addition, a mechanism had not been implemented to ensure that DEH is complying with the Government’s policy for contract disclosure, ‘A New Dimension In Contracting With The South Australian Government’, and, at the time of review, DEH had not published details of any contracts on the prescribed website.
Audit considered that the observations arising from the follow-up, case studies and contract disclosure reviews reflect DEH’s decentralised approach to purchasing and also highlight a need for some degree of centralised procurement reporting and review (monitoring) processes directed toward procurement reform management, risk management, internal control compliance, and strategic purchasing. In this context, Audit noted that the APU was mainly engaged in operational processes (eg approving individual procurement activities) rather than the more strategic elements relating to procurement reform. Whilst, Audit was advised that DEH was considering and progressing a number of these matters relating to managing and progressing procurement reform, at the time of audit, there was limited documentation on DEH’s approach to these matters.
In addition to making specific recommendations pertaining to matters raised as a result of the audit, it was suggested that DEH review and document its approach (from a departmental perspective) to addressing the requirements and principles of the Reform Strategy.
DEH advised that matters relating to documenting DEH’s APU governance structure and production of a Procurement Development Strategy have now been completed. In addition, DEH advised that:
the operational responsibilities of the APU have been devolved to a subcommittee with the APU meetings focussing on the strategic procurement agenda;
in relation to management review and reporting on the strategic and operational aspects of procurement, DEH considered there is ‘… no evidence of significant risk or the failure to meet business objectives, however, this will be monitored as resources permit, centrally as well as at the Divisional level …’.
In addition, a pilot project to build and operate a contracts register has been established and all non-goods contracts will be recorded in another contracts register in Corporate Services;
an audit of a sample of procurement transactions to identify areas that should be targeted for closer scrutiny, business process review and/or training has been commissioned;
procurement profiling to identify contracts that may benefit from review as to value for money has been commissioned for the 2001-02 and 2002-03 financial years;
a report on the implementation of the Government’s policy for contract disclosure, ‘A New Dimension In Contracting With The South Australian Government’ is being prepared.
Over the past three years Audit has commented on action taken in relation to the treatment of Crown lands for accounting purposes and the completeness and accuracy of information available on Crown lands. This has included consideration of the proposed approach by DEH for the recognition of Crown lands in DEH’s financial statements. The results of these audits concluded that there was insufficient information available to enable a broad appreciation of the impact the various types of Crown tenures may have on the accounting treatment for these lands. After consideration of these limitations DEH resolved to treat the Crown lands as administered rather than controlled.
In prior years Audit has also relayed to DEH concerns regarding the use of information from the Land Ownership and Tenure System (LOTS) for financial reporting purposes. These concerns relate to anomalies that adversely impacted on the completeness and accuracy of information relating to Crown lands obtained from LOTS. These concerns were also reiterated by an independent valuer’s report. In previous responses DEH advised that it considers the valuation and recording of Crown lands to be an issue that should be addressed from a whole-of-government perspective.
As a result of the aforementioned matters the Independent Audit Report on the Department’s financial statements for past years were qualified with respect to administered property.
In June 2001 DEH forwarded a minute to the Under Treasurer on this matter. At the time of preparing this Report, a formal response had not been received from the Under Treasurer.
Due to there being no resolution to the valuation of Crown lands the Independent Audit Report to the financial statements has been qualified with respect to the completeness and valuation of property plant and equipment included in the Schedule of Administered Items.
Accounting for Fixed Assets
The 2001-02 audit revealed continued improvement in methods and processes utilised to account for fixed assets. Whilst advances have been made there remain areas that could be improved, particularly in regard to the regular and timely review and analysis of fixed asset information. In addition the accounting processes may be improved by bringing forward the timing of review processes associated with the asset stock take program and capital works in progress.
DEH’s response provided details of action being taken or proposed to address all matters raised by Audit.
LOTS is primarily directed toward recording land information. Information from LOTS is provided to government and non-government users. Many users are charged for information provided, whilst others (eg other government Agencies, etc), are not charged. LOTS information is provided either by Internet access (Property Assist), by dial up/direct connection (LOTS Enquiries) or over the counter.
Audit noted that DEH had established various processes to manage the access and charging of customers. Notwithstanding these processes, there were areas where the controls over the completeness of LOTS revenue and the management of access to Property Assist and LOTS Enquiries could be improved.
In addition, the audit revealed that there were no processes in place for the review of the usage of non-charged clients to ensure enquiries were for bona-fide purposes. Consequently, there is the risk that the Government may be forgoing revenue through inappropriate use and dissemination of LOTS information. Audit suggested DEH review the level of control over the provision of LOTS information through Property Assist and LOTS Enquiries to users who are currently not charged.
DEH advised that a review of the risks to revenue and the procedures for user registration and management will be undertaken.
As part of the 23 October 1997 restructure of government agencies the functions, assets and liabilities of the Land Services Group (LSG) were transferred to the Department for Administrative and Information Services (DAIS).
Since that time, Audit has on several occasions corresponded with DEH seeking clarification of a number of outstanding issues regarding the transfer. Those communications highlighted the need to formally document the final negotiated position and establish formal service agreements between DEH and DAIS outlining the responsibilities, rights and obligations of each agency resulting from the transfer of LSG and resulting ITassets.
In response to Audit follow up of progress with respect to action being taken or planned to resolve outstanding matters, DEH advised an inter-agency working party was established to finalise outstanding arrangements and all business operations are covered by formal management arrangements over the next 12 months. In addition, the inter-agency working party will re-examine the functional alignment of land administration information systems and land management information systems between the two agencies.
Other Matters
Other matters raised by Audit related to:
Waste Depot Levies — Management reporting and quality review processes associated with waste depot audits undertaken by DEH.
Payroll — The extent of review by some managers of the information on the bona-fide report. The review and certification of this report is a key management control for ensuring that payroll payments are valid complete and accurate.
Accounts Payable — The documentation of policies and procedures, and internal controls over the system for recording and processing workers compensation payments.
Receipting and Banking — The documentation of policies and procedures, internal controls over masterfiles and the level of access controls.
A satisfactory response to each of the matters raised was received.
The following is an extract from the 2001-02 Independent Audit Report, which details the qualification to DEH’s financial report. A similar qualification was included in last year’s Independent Audit Report.
Qualification
Due to limitations with respect to the reliability and completeness of information maintained on property administered by the Department that have prevented the production of timely and appropriate information, I am unable to form an opinion on the completeness and reliability of values ascribed to the property, plant and equipment component of the Schedule of Administered Items. Recognising this property using similar valuation methodology to that used for other property in this financial report may have material effects, the amounts of which are uncertain, on the property, plant and equipment reported in the Schedule of Administered Items.
Qualified Audit Opinion
In my opinion, except for the effects on the financial report of the matters referred to in the qualification paragraphs, the financial report presents fairly in accordance with the Treasurer’s Instructions promulgated under the provisions of the Public Finance and Audit Act 1987, applicable Australian Accounting Standards and other mandatory professional reporting requirements in Australia, the financial position of the Department for Environment and Heritage as at 30 June 2002, its financial performance and its cash flows for the year then ended.
As required by subsection 36(1)(a)(iii) of the Public Finance and Audit Act 1987, the audit of the Department for Environment and Heritage included an assessment of the controls exercised in relation to the receipt, expenditure and investment of money, the acquisition and disposal of property and the incurring of liabilities. The assessment also considered whether those controls were consistent with the prescribed elements of the Financial Management Framework as required by Treasurer’s Instruction 2 ‘Financial Management Policies’.
Audit formed the opinion that the controls exercised by the Department for Environment and Heritage in relation to the receipt, expenditure and investment of money; the acquisition and disposal of property; and the incurring of liabilities, except for the matters outlined under ‘Audit Findings and Comments’, were sufficient to provide reasonable assurance that the financial transactions of the organisation were conducted properly and in accordance with law.
During 2001-02, certain functions (including assets and liabilities) were transferred out of and into DEH. As a result of these changes comparison of figures between financial years may not be appropriate. The analysis below highlights some observations from the financial statements.
The following diagram shows the DEH expenditure by output class
The proportion of expenditure for Recreation Sport and Racing is for the period 1 July 2001 to 4 December 2001. From 4 December 2001 this function was transferred to the Department for Administrative and Information Services. In addition, as explained in Note 35 to the accounts, the Environment Protection Agency within DEH was established as a separate administrative unit from 1 July 2002.
Net expense from restructuring amounted to $61.2 million. This expense comprised the transfer of the:
Office for Recreation, Sport and Racing to the Department for Administrative and Information Services on 4 December 2001 - recorded as a $63.4 million expense;
Office for Volunteers to the Emergency Services Unit - recorded as a $235 000 revenue;
Geographic Analysis and Research Unit to DEH from the Department for Transport, Urban Planning and the Arts on 1 January 2002 - recorded as a $187 000 expense;
Water related functions to the Department for Water Resources in February 2000. During the year a $2.1 million cash transfer was made from the Department for Water Resources to DEH as a result of finalising the transfer. This amount was recorded as revenue.
Note 15 to the accounts provides full details of transfers made.
Total expenses from ordinary activities increased to $167.1 million from $164.1 million. This increase was recorded even though a significant component of DEH’s activities (ie Office for Recreation, Sport and Racing) were transferred partway through the year. Major items effecting that movement were:
salaries and wages, which increased by $3 million (5 percent) to $68.6 million. The main contributing factor to the increase was Targeted Voluntary Separation Packages, which increased by $3.4 million to $4 million;
grants and contributions, which increased by $2.9 million (21 percent) to $16.7 million. Note 5 provides details.
Revenues from ordinary activities increased by $12.5 million to $63.7 million. Major items effecting that movement were:
assets acquired free of charge amounted to $7.7 million, an increase of $7.4 million over the previous year. These assets were primarily related to new parks being established;
grants and contributions increased by $2.6 million to $20.4 million.
The accrual appropriation was $4.1 million ($21.7 million). This amount was placed in a Special Deposit Account with the Department of Treasury and Finance. DEH’s balance in this account totalled $47.4 million ($40.9 million) as at 30 June 2002.
Cash assets decreased by $24.1 million to $49.4 million. The transfer of the Office for Recreation, Sport and Racing accounted for $14.1 million of the reduction. Of the $49.4 million balance at 30 June 2002, $47.4 million relates to accrual appropriation (refer above to appropriations).
The decrease in property, plant and equipment from $270.2 million to $218.8 million is due mainly to the transfer of the Office for Recreation, Sport and Racing (refer above). Other major factors influencing the written down value of property, plant and equipment was the depreciation expense of $25.5 million and additions of $26.9 million.