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DEPARTMENT FOR FAMILIES AND COMMUNITIES

 

 

FUNCTIONAL RESPONSIBILITY AND STRUCTURE

 

Establishment of the Department

 

On 5 March 2004 the Governor, by proclamation, pursuant to the Public Sector Management Act 1995, established an administrative unit titled the Department for Families and Communities (DFC).  The proclamation provided that, for financial accounting and reporting purposes, the establishment of the administrative unit may occur on 1 July 2004.

 

In addition, on 11 March 2004, the Governor, by proclamation, transferred the Department for Aboriginal Affairs and Reconciliation (DAARE) from the Department for Administrative and Information Services to the newly created DFC.  The proclamation provided that, for financial accounting and reporting purposes, the transfer of employees under the proclamation may occur on 1 July 2004.

 

The assets and liabilities which are subject to the control of DFC as a consequence of the proclamations referred to above were transferred to the newly created Department on 1 July 2004.

 

On 14 October 2004, the Governor proclaimed the transfer of employees of DAARE from DFC to the Department of the Premier and Cabinet (DPC).  As a consequence the assets and liabilities of DAARE were transferred to DPC effective 31 October 2004.

 

Vision and Functions

 

The Department works with people in need who, through circumstance, may be poor, vulnerable, at risk of harm or isolated and disconnected.

 

The Department is responsible for delivering specific programs  to the public with respect to activities assigned to the Department under various Acts as delegated by responsible Ministers.

 

In addition, the Department provides services to other entities within the portfolio including the South Australian Housing Trust, the South Australian Community Housing Authority (SACHA), Aboriginal Housing Authority, HomeStart Finance and Disability Health Services.

 

The Minister of Health has delegated to the Minister for Disability and the Chief Executive certain powers under the South Australian Health Commission Act 1976 for three incorporated Disability Health Services.

 

Shared Service Arrangements

 

Shared services arrangements were entered into to facilitate the delivery of certain business services to DFC and the Department of Health (DH).  The services provided to DFC by DH include Financial Services and Legal Services.  Services provided to DH by DFC include Risk Management and Internal Audit Services, Purchasing and Fleet Management.

 

Structure

 

The structure of the Department for Families and Communities is illustrated in the following organisation chart. 

 

 

 

Changes to Function and Structure

 

Disability

 

The Minister of Health has delegated to the Minister for Disability and the Chief Executive certain powers under the South Australian Health Commission Act 1976 for the Intellectual Disability Services Council (IDSC), Independent Living Council (ILC) and the Julia Farr Services (JFS).  The financial activity of these disability health services are not incorporated in the Financial Statements of DFC as they are required to prepare and maintain separate accounts of their financial affairs.

 

In May 2006 the Minister for Disability announced proposed reforms to governance arrangements for the provision of disability services within the State.  In accordance with the new arrangements, on 29 June 2006 the Governor by proclamation, dissolved IDSC and ILC effective 1 July 2006. Pursuant to the proclamation the assets and liabilities of the incorporated disability health services were transferred to DFC on that date.

 

In regards to JFS, the Board (in June 2006) resolved to request the Governor to dissolve JFS on 30 June 2007 or such a later date as the Minister may consider administratively convenient. At the time of finalising this report JFS was not dissolved.

Housing

 

The Minister for Housing announced proposed reforms to housing governance arrangements including the restructure of the South Australian Housing System. To facilitate implementation of the reforms and the Government’s housing initiatives the South Australian Housing Trust, the South Australian Community Housing Authority and the Aboriginal Housing Authority have entered into service level agreements with the Department for Families and Communities for the provision of housing services on behalf of the entity Boards effective 1 July 2006.

 

AUDIT MANDATE AND COVERAGE

 

Audit Authority

 

Audit of the Financial Report

 

Subsection 31(1)(b) of the Public Finance and Audit Act 1987 provides for the Auditor-General to audit the accounts of the Department for Families and Communities for each financial year.

 

Assessment of Controls

 

Subsection 36(1)(a)(iii) of the Public Finance and Audit Act 1987 provides for the Auditor-General to assess the controls exercised by the Department for Families and Communities in relation to the receipt, expenditure and investment of money, the acquisition and disposal of property and the incurring of liabilities.

 

This assessment also considers whether those controls are consistent with the prescribed elements of the Financial Management Framework as required by Treasurer’s Instruction 2 Financial Management Policies.

 

Scope of Audit

 

The audit program covered major financial systems and was directed primarily to obtaining sufficient evidence to enable an audit opinion to be formed with respect to the financial statements and internal controls.

 

During 2005-06, specific areas of audit attention included:

 

·                     grant funding to non-government organisations (NGOs)

·                     administration of concessions

·                     financial operations of Families SA (formerly Child, Youth and Family Services)

·                     management reporting

·                     payroll

·                     accounts payable

·                     revenue

·                     fixed assets.

 

The work of Internal Audit was considered in planning the audit program and was relied on in assessing the effectiveness of the internal controls.  Specific areas of reliance included the review of the financial operations of Families SA.

 

 

AUDIT FINDINGS AND COMMENTS

 

Audit Opinions

 

Audit of the Financial Report

 

In my opinion, 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 Accounting Standards, other mandatory professional reporting requirements in Australia, the financial position of the Department for Families and Communities as at 30 June 2006, the results of its operations and its cash flows for the year then ended.

 

Assessment of Controls

 

In my opinion, the controls exercised by the Department for Families and Communities 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 raised in relation to Funding to NGOs, Administration of Concessions, Payroll, Accounts Payable and Financial Operations of Families SA as outlined under ‘Audit Communications with Management and Other Matters’, are sufficient to provide reasonable assurance that the financial transactions of the Department for Families and Communities have been conducted properly and in accordance with law.

Audit Committee and Internal Audit

 

The Department’s Internal Auditors conducted audits within the Department and in portfolio Housing agencies.  In addition to using Departmental staff, assignments have been undertaken by private sector firms as contractors.  Work undertaken by Internal Audit for the Department included:

 

·                     Suspicious Transaction Analysis

·                     IT Governance/General Controls Review

·                     IT Standards/Policies/Procedures Review

·                     Credit Cards

·                     Review of CYFS Accountability Project Outcomes

·                     Families SA - Advance Accounts

·                     NGO Follow-up

·                     Disability Services Funding and Performance Management.

 

Further commentary regarding Internal Audit’s review of Families SA - Advance Accounts is provided under the heading ‘Audit Communications with Management and Other Matters’.

 

Audit Communications with Management and Other Matters

 

Matters arising during the course of the audit were detailed in management letters to the Chief Executive.  Responses to the management letters were generally considered to be satisfactory.  Major matters raised with the Department and the related responses are considered herein.

 

Funding to Non-Government Organisations

 

Audit review of funding to NGOs considered whether arrangements implemented by the Department for the administration of grants supported appropriate accountability by the Department and the funded organisations.  Prior year audits of this area, when controlled by the Department of Human Services, identified a number of control weaknesses. 

 

In 2005-06 Audit found that the Department had made some progress in addressing issues raised in prior years.  In particular, Audit noted improvement in the processing of transactions through the Financial Grant Management System (FGMS).  Notwithstanding the action implemented by the Department and other proposed initiatives there remains significant scope to improve controls and address matters previously identified by Audit.  The more significant Audit observations were:

·                     the Department had not finalised the development and implementation of a new framework with related policies and procedures to ensure grant funding provided to organisations was aligned to the Department’s strategic objectives;

·                     the Department had not implemented a formal performance evaluation system;

·                     some funding agreements were rolled over from year to year without a documented assessment of the grant recipients performance;

·                     payments were made to grant recipients before funding agreements were executed;

·                     the Department had not developed and implemented arrangements to ensure unexpended funds are repaid or approval is obtained for recipients to retain the funds;

·                     Commonwealth Grant acquittals relating to funding received under the Home and Community Care program were not submitted to the Commonwealth on a timely basis;

·                     documented policies and procedures were not prepared for key areas of operation associated with the provision of grant funding;

·                     there was a need to develop a mechanism to ensure grant payments are costed to appropriate general ledger accounts on an ongoing basis;

·                     the Department has not prepared a documented action plan to address the areas of weakness in controls identified by Audit.

 

It is Audit’s view that documented policies and procedures covering the key aspects of providing funding to NGOs is an essential element of a sound internal control framework. 


Response

 

In response the Department advised that considerable work has occurred in a number of areas including developing a new framework and related policies and procedures.  This has included the release of the Delivering Community Value document in June 2006 which establishes a procedural and best practice guide for allocating grant funding.  Implementation of the policies and procedures will continue to occur in 2006-07 with planned training and education sessions for all grant program areas.

 

Administration of Concessions

 

The Department administers the provision of concessions to eligible recipients, for the Emergency Services Levy; water, sewer and council rates; electricity and  transport charges.  The value of concessions provided in the year to 30 June 2006 was $108 million ($142 million).  The following diagram depicts the arrangements for provision of concessions and the parties involved.

 

 

Audit review of the administration of concessions payments over a number of years has highlighted areas where controls could be improved. 

 

Audit review for 2005-06 found that the Department had addressed some of the issues raised by Audit.  It was noted, however, that there were a number of matters which had not been addressed and as a consequence it was considered that control over concession payments was unsatisfactory.  The following summarises the key observations:

·                     Formal Service Level Agreements have not been entered into with service providers who provide non-energy concessions.

·                     Not all energy customers were recorded in the system used to validate eligibility of concessions (ie CARTS).  Audit found that at the time of the audit approximately 3000 AGL customers were not recorded in CARTS and therefore were not validated.

·                     Arrangements implemented by the Department for validating energy concessions do not provide a comprehensive checking process which confirms that all claimants were entitled to the concessions provided by the electricity suppliers.

·                     Audit found that details of concessions provided by SA Water were matched against information contained in CARTS and Centrelink data by DFC who provided exception reports to SA Water for follow-up.  It was noted, however, that arrangements were not implemented to ensure all exceptions were followed up appropriately.

·                     The Department does not check that the amount invoiced by SA Water for concessions payments reconciles to the total value of records validated in the matching runs.  Audit noted that DFC pay SA Water on invoice, however, SA Water do not provide DFC with a breakdown of the amount invoiced (ie details of the customers paid concessions).

·                     Audit found the Department is invoiced for metropolitan transport concessions each quarter based on an estimate determined at the beginning of the year.  Audit noted, however, that no reconciliation was performed of the payments made (ie which were based on estimates) to the value of concessions provided by the service provider.

·                     The Department had yet to review, update and document policies and procedures covering all aspects of processing concessions (eg validation and reconciliation procedures).

·                     There was a lack of check to confirm whether applicants for energy concessions meet one of the required eligibility criteria.

·                     There was a lack of control to ensure amounts paid to various service providers (ie electricity retailers, SA Water and Councils and Revenue SA) were actually received by the customer.

·                     SA Water administers the council rate pensioner scheme on behalf of councils.  Audit review found the Department had not performed a reconciliation of amounts paid to SA Water for council rate concessions to the actual concessions paid by SA Water to Councils.  Audit noted that SA Water retained significant credit balances throughout the 2005-06 financial year which were not returned to DFC.  The review found there was a lack of formal agreement or documented procedures detailing reconciliation procedures and how surpluses/deficits are to be treated.

 

Response

 

In response to the Audit findings the Department advised it will implement interim solutions including executing Service Level Agreements with service providers and improving reconciliation procedures.  In the longer term the Department will develop options for reforming the program.   

 

Financial Operations of Families SA (formerly CYFS)

 

Audit review in prior years highlighted the breakdown of controls over financial transactions processed by FAYS (now known as Families SA).

 

In 2005-06 audit follow up of matters raised previously included review of Internal Audit’s work.  Audit review found that while many of the matters previously raised had been addressed, there was still scope to improve controls in some areas. 

 

CYFS Financial Accountability Project

 

Audit review found that the Department continued to make progress in addressing issues raised by the  CYFS Financial Accountability Project.  The following matters remain outstanding:

·                     An integrated case management system to record and monitor client payments in a reliable and consistent fashion across the Department has not been implemented.  District Centres were still using  spreadsheets in an ad-hoc and inconsistent way to monitor client payments.

·                     The review and revision of key policy documents (ie the Child Payments Manual and the Anti Poverty Manual) was not completed. 

 

The Department indicated Cabinet has recently approved funding for implementation of a new information system to support case management business processes.  In the interim a local solution is being developed as part of the existing Client Information System.

 

Use of Advance Accounts – Review by Internal Audit

 

Prior reviews of controls over advance accounts and previous fraud investigations have highlighted weaknesses in controls over the use of advance accounts.  Internal Audit completed a review of internal controls over the use of advance accounts within Families SA and found that appropriate controls have been implemented.  The review also highlighted:

·                     40 percent of payments processed through the advance accounts were for payments disallowed by the Advance Account Policy.  Internal Audit noted contributing factors for the results and considered that there were appropriate controls to ensure accounts paid were valid and appropriately authorised;

·                     there was a need to revised the Advance Account Policy to reflect changes in positions and legislation;

·                     there was scope to improve training of administration officers in district centres.

 

External Audit recognises that the results of the internal audit were generally positive and indicate many controls weaknesses previously identified have been addressed. 

 

In response the Department advised of the circumstances causing the higher than expected use of the Advance Account and indicated that the use of the accounts is now monitored closely.  The Department also advised further specific training will be provided to administrative staff.

 

Management Reporting

 

The provision of relevant, reliable and timely information to the Department’s Executive and managers is considered by Audit to be a fundamental element in its control environment.  Audit review in 2004-05 of the Department’s management reporting practices found a number of areas where procedures and related controls could be improved. 

 

Follow up by Audit in 2005-06 found that the Department had made progress in addressing a number of matters raised in 2004-05 and identified areas where controls could be improved including:

·                     monthly management reports did not report against the Department’s key performance measures which limited their usefulness in assessing achievement of strategic objectives;

·                     the Department had not documented all aspects of its budget monitoring and reporting practices in a formal policy or procedure;

·                     there was scope to improve quality assurance processes.  The Department had not implemented a formal and ongoing quality assurance process over information contained in the report. 

 

Response

 

The Department advised of actions taken to address the issues raised by Audit. 

 

Service Level Agreements

 

Audit review in 2004-05 found that the Department had not implemented Service Level Agreements for 2004-05 with housing agencies for a number of areas.  It is Audit’s view that Service Level Agreements provide assurance that the roles and responsibilities of each party are clearly defined and agreed upon.

 

Audit review in 2005-06 revealed that the Service Level Agreements between the Department and other agencies were not executed on a timely basis.  Some agreements for 2005-06 were not signed until June 2006. 

 

In response the Department advised it will revise procedures related to establishing Service Level Agreements with associated entities. 

 

Payroll

 

From 1 July 2005, the shared service arrangement, for payroll services between the Department and the Department of Health ceased.  The Department now processes payroll transactions for  the Department and its employees assigned to the South Australian Housing Trust, the South Australian Community Housing Authority and the Aboriginal Housing Authority.

 

Audit review of payroll in 2004-05 identified weakness in controls over the processing of payroll transactions.  The audit follow up in 2005-06 included consideration of progress made in addressing issues raised as the result of the 2004-05 audit.

 

The 2005-06 audit found that while some progress has been made in addressing the control issues raised in prior years, there remains significant control weaknesses associated with the processing of payroll.  Audit formed the view that controls over the processing of payroll and leave by the Department were unsatisfactory.  The more significant observations made by Audit included:

·                     ineffective bona fide certification review processes;

·                     bona fide reports did not report all salary and wage payments; 

·                     the formalised Departmental policies did not address the variance reporting process used to identify and investigate variances in payments made to employees;

·                     position relationships within the payroll system, which define who is able to approve electronic leave applications, were not aligned with the Department’s HR delegations. 

 

The bona fide certification process represents a key element of the Department’s internal control environment and is relied on to provide the Department with assurance that payroll payments are made to bona fide employees, for work actually performed and at the correct rates and leave is correctly updated to the system.

 

It is considered that for this control to be effective the Department needs to achieve, as close as possible, full compliance with the Department’s bona fide policy on a consistent and ongoing basis. 

 

In response the Department advised of action taken to address the issues raised by Audit.  The Department indicated that outstanding audit issues, particularly Bona fide Reports and policies and procedures, are continuing to be addressed and scheduled for completion in 2006-07. 

 

Accounts Payable

 

The Department of Health processes accounts payable transactions for the Department.  Review of the Department of Health’s accounts payable function identified areas where controls could be improved, including:

·                     lack of formal review to ensure Manual Payments Vouchers were approved in accordance with the delegations of authority;

·                     the absence of regular review of access to the Online Purchasing System to confirm access is consistent with the Department’s approved delegations of authority;

·                     instances where requisitions were authorised according to the line amount rather that the total of the requisition;

·                     lack of documented polices for key controls and processes.

 

In addition Audit noted that problems were encountered in the implementation of the BasWare system used to scan and electronically approve invoices.  These problems which included technical problems, staff and procedural issues, mistakes made in the implementation strategy had lead to delays in the payment of accounts.

 

Further commentary on these matters is provided under the Department of Health section of this Report (under the heading ‘Audit Communications with Management and Other Matters’).

 

Disability Service Governance Reforms

 

As indicate under the heading ‘Changes to Function and Structure’ the Government has proposed reforms to the governance arrangements associated with the provision of disability services within the State. 

 

In accordance with the new governance arrangements the Intellectual Disability Services Council and Independent Living Council Boards were dissolved and their assets and liabilities were transferred to DFC.

 

In relation to the Julia Farr Service (JFS), in June 2006, Cabinet approved:

 

·                     the transfer of community based housing assets totalling $6.85 million (including $2.4 million cash committed to finalising the purchase, renovation and upgrade of these assets) from JFS to the Julia Farr Housing Association (JFHA);

·                     the provision of a once off non-recourse grant of $8 million by DFC to JFHA for the provision of disability services;

·                     a commitment to transfer housing stock of $21 million from the South Australian Community Housing Authority (SACHA) to the JFHA. The assets are to be managed by the JFHA under a community housing funding agreement with SACHA which will hold debentures over the assets.

 

Audit noted that in accordance with the Cabinet approval, in June 2006:

·                     DFC paid the JFHA a non-recourse grant of $8 million.

·                     Community based housing assets (totalling $6.85 million) were transferred from Julia Farr Services to JFHA.

 

The JFHA is an incorporated body under the Associations Incorporation Act 1985 and operates as a Community Housing Association under the South Australian Co-operative and Community Housing Act 1991.

 

The objectives of the JFHA, as settled in its constitution are to:

 

·                     provide housing accommodation for persons whose ability to live independently is temporarily or permanently impaired or in jeopardy as a consequence of an acquired brain injury or a degenerative neurological condition or a physical condition resulting in permanent disability and who may be receipt of low income;

·                     operate according to the principles of equity and fairness.

 

Audit found that no agreement was entered into with the JFHA detailing the nature of disability services to be provided. It is noted that the JFHA constitution provides for the delivery of housing accommodation to persons with disability, however, it does not specifically provide for the provision of other disability services.

 

It was also noted that the community based housing assets were transferred from JFS to JFHA unencumbered.

 

Commentary on Computer Information System (CSI) Environments

 

Information and Communication Technology Management and Control

 

During the year, Audit reviewed the Department’s Information and Communications Technology (ICT) strategic planning and management controls.  The review noted that:

 

·                     the DFC portfolio has a mixture of Department, business unit and statutory authority IT governance structures, arrangements and skill levels and that a DFC ICT Council had been established to provide guidance and advice to the Chief Executive;

·                     DFC did not have a comprehensive ICT Strategic Plan and not all DFC business units and statutory authorities had up to date ICT Strategic Plans;

·                     the Department has not developed, tested and implemented business continuity plans.

 

The need to develop and implement effective planning and risk management practices was emphasised by the Department’s commitment to develop significant ICT projects including systems for Case Management and Congregate Care.

 

The Department considered the matters raised by Audit and advised the following:

·                     It had established a planning framework and the Divisional and Departmental business plans, along with the DFC strategy document ‘Connecting to the Future’, aligns ICT activities to the business directions and together comprised an ICT Strategic Plan.  Business plans were due to be finalised in the third quarter of 2006.

·                     Testing, training and implementation of business continuity plans would be finalised in the last quarter of 2006.

 

The matters relating to strategic planning and disaster recovery planning will be the subject of further review in 2006-07.

INTERPRETATION AND ANALYSIS OF FINANCIAL REPORT

 

Highlights of Financial Report

 

 

2006

2005

Percentage

 

$’million

$’million

Change

INCOME

 

 

 

Rent, fees and charges

86

67

28

SA Government appropriations

594

571

4

Commonwealth Government grants

237

227

4

Other

39

30

30

Net result from restructure

-

71

n/a

Total Income

956

966

(1)

EXPENSES

 

 

 

Employment expenses

196

170

15

Supplies, services and other expenses

76

65

17

Grants, subsidies and client payments

688

675

2

Total Expenses

960

910

5</