SOUTH AUSTRALIAN HOUSING TRUST

 

 

FUNCTIONAL RESPONSIBILITY AND STRUCTURE

 

Establishment

 

The South Australian Housing Trust was established by the South Australian Housing Trust Act 1936 to administer the Act.  The Trust also administers the Housing Improvement Act 1940.

 

The South Australian Housing Trust Act 1995 repealed the South Australian Housing Act 1936 and amended the Housing Improvement Act 1940.  The Act provides for the continuation of the Trust as the principal provider of public housing in the State.

 

Functions

 

The functions of the Trust include the following:

·                     The ownership of houses and units for tenant occupation.

·                     The construction and purchase of houses and other properties.

·                     The management of tenancy arrangements for Trust properties including the assessment of rents and provision of reduced rents, and the raising and receiving of rent and other monies from tenants.

·                     The management of costs associated with ownership of Trust properties including the maintenance of those properties.

In addition, the Trust manages a range of programs related to housing on behalf of the Government with respect to which the Trust receives direct capital and recurrent grant funding.  The range of grant programs managed is detailed in Note 10 to the Trust’s financial statements.

 

Structure

 

The structure of the South Australian Housing Trust is illustrated in the following organisation chart.

 

 

 

Changes to Function and Structure

 

In May 2006 the Minister for Housing announced a decision to reform 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 Board has entered into a service level agreement with the Department for Families and Communities for the provision of housing services on behalf of the Board effective 1 July 2006.

 

AUDIT MANDATE AND COVERAGE

 

Audit Authority

 

Audit of the Financial Report

 

The South Australian Housing Trust Act 1995 (the Act), subsection 27(2), requires the Trust to keep proper accounting records and to produce financial statements, in respect of each financial year.  Section 31 of the Public Finance and Audit Act 1987 and subsection 27(4) of the South Australian Housing Trust Act 1995 requires the Auditor-General to audit the accounts and financial statements.

 

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 South Australian Housing Trust 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 audit opinions to be formed with respect to the financial statements and internal controls.

 

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

 

·                     revenue, including rent raising and recovery

·                     accounts payable

·                     staffing costs

·                     maintenance expenditure

·                     council and water rates

·                     borrowings

·                     fixed assets, including rental properties

·                     inventory

·                     fixed asset and inventory work in progress

 

In addition, system operations and activities undertaken by the Department of Health and the Department for Families and Communities on behalf of the Trust, which included corporate related services, payroll and aspects of accounts payable processing, were reviewed as part of the audit of those Departments.

 

The work of the internal auditor was considered in planning the audit programs.  Where appropriate reliance was placed on the work of internal audit in assessing the effectiveness of the Trust’s internal controls.  Internal Audit coverage in 2005-06 included:

 

·                     Review of Maintenance Works Systems Implementation - Controls Assessment

·                     Review of Capital Work in Progress

 

 

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 and other mandatory professional reporting requirements in Australia, the financial position of the South Australian Housing Trust 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 South Australian Housing Trust 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 fixed asset and inventory work in progress, accounts payable, council and water rates, and rent as outlined under ‘Audit Communications with Management and Other Matters’, are sufficient to provide reasonable assurance that the financial transactions of the South Australian Housing Trust have been conducted properly and in accordance with law.

 

Audit Communications with Management and Other Matters

 

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

 

Inventory and Fixed Asset Work in Progress

 

The Trust’s arrangements for management and control of Capital Projects and particularly accounting for work in progress have been the subject of review and comment by Audit in previous years. In prior years External Audit has identified a number of weaknesses in controls over accounting for capital projects work in progress. Internal Audit has also reviewed controls over work in progress and has made a number of observations regarding weaknesses in procedures, systems and reconciliations.

 

Audit review in 2005-06 found that the Trust had made progress in addressing some of the issues raised previously by External Audit and Internal Audit. Audit review found that the Trust implemented a Project Accounting System (PAS) in February 2006 and made improvements to certain reconciliation processes. Audit also noted that the Trust undertook a detailed review of work in progress account balances (ie substantiation process) to ensure work in progress balances were reliable.  It is considered, however, that controls over work in progress for the year were unsatisfactory. Specifically, audit review found that there was scope to improve:

 

·                     Review and reconciliation processes over work in progress account balances. For instance, a number of reconciliations and review processes which support the integrity of management reporting were not performed throughout the financial year.

·                     Systems in place to monitor and review actual versus budget results for individual projects.

·                     The automation and integration of systems used to manage and control work in progress account balances.

·                     The implementation and promulgation of documented policies and procedures.

 

Audit noted that the Trust was developing a business case to further develop current systems and processes to manage and account for work in progress balances.

 

In response the Trust advised that implementing the enhancements to the current Capital Projects Database system to enable greater integration of systems is not a short term project and will require significant work and investment. Further development and enhancement of the PAS system will continue during 2006-07 and Internal Audit will assist management in further improving efficiencies and controls.

 

Accounts Payable

 

Prior year audits of the Trust’s purchasing, approval and accounts payable processes highlighted areas where controls could be improved.  In the current year the audit of the accounts payable function found:

 

·                     a significant proportion of accounts payable transactions were not processed through the Online Purchase Order System;

·                     instances where payments were not processed through the Online Purchase Order System in accordance with the Trust’s Purchasing Policy;

·                     monitoring and reporting on the use of the Online Purchase Order System could be enhanced by reporting instances where non-exempt transactions were processed using manual payment vouchers;

·                     there was scope to improve controls to ensure manual payment vouchers are authorised in accordance with the Trust’s Levels of Authority;

·                     authority levels within the Purchasing System were not consistent with the Levels of Authority approved by the Board.  Audit communicated the view that the Levels of Authority were not expressed in a manner which enables them to be efficiently and effectively administered; and

·                     control procedures to be followed in circumstances where system administrator intervention is required to override Deskbank system transaction limits were not documented.

 

The Trust responded to the issues raised and advised of measures to address the issues. In regards to the use of use of the Online Purchase Order system the Trust advised it has implemented a process of monitoring and reporting the use of manual vouchers and has provided training to staff which has resulted in an increase in the use of the Online Purchase Order system.

Water and Council Rates

 

Water and Council Rates expenditure processed through the Water/Council Rate system represents a significant expenditure ($51 million in 2005-06) item for the Trust. Audit review in 2004-05 found that there was scope to improve controls in a number of areas.  The audit of this area in the current year found some matters were not addressed by the Trust. The more significant observations made by Audit were:

 

·                     Audit was unable to locate evidence that Council and SA Water rate payments were authorised in accordance with the Trust’s Levels of Authority;

·                     there was scope to improve the segregation of duties associated with the processing of Water and Council rates;

·                     no check was performed to ensure that the Trust had received bills for water rates and water usage for all Trust owned properties and there was scope to improve controls to ensure that the Trust received Council rate bills for all Trust owned properties; and

·                     reconciliations of data transferred from the Water/Council Rates system to Accounts Payable system were not always performed on a timely basis.

 

In response the Trust advised of proposed actions to address the matters raised.  The actions included:

 

·                     developing an authorisation procedure to ensure compliance with the Trust’s Levels of Authority;

·                     developing a strategy to improve segregation of duties;

·                     investigating the possibility of developing an exception report detailing Trust properties not billed; and

·                     ensuring reconciliations between the Water/Council Rates system and the Accounts Payable system are performed on a timely basis.

 

Rent

 

Audit review of the Rent Management System used to raise and collect rent highlighted areas where controls could be improved. Specifically the review found:

 

·                     There was scope to improve controls to ensure all Trust tenants who receive rent rebates are subject to ongoing benefit review processes. Audit noted a significant number of tenants were not subject to proof of income processes to confirm their ongoing entitlement to rebates for periods ranging from three months to three years.

·                     There was a lack of control to ensure all exceptions recorded on the Income Confirmation Service exception reports are investigated and appropriately actioned.

·                     Rent calculation overrides processed by Benefit Review officers were not independently reviewed.

·                     Instances where credit notes were not appropriately authorised.

 

In response the Trust advised of action taken or proposed to address the matters raised including:

 

·                     there is a batch job which assists in identifying customers requiring benefit review. A request has been made to produce a regular control report to make the process more transparent. Also, the system was modified to ensure that exceptions from the ICS process are included in subsequent reviews.

·                     a system change has been requested to increase automation of follow-up of ICS exceptions. Also, a risk analysis will be undertaken to identify whether it is cost effective to pursue a manual follow up process in certain circumstances.

 

Maintenance

 

The Trust manages the costs associated with ownership of Trust properties including their maintenance. Audit review in the current year found areas where controls could be improved including:

·                     there was a lack of reconciliation between the Contracts Register Database and the Maintenance system;

·                     there was a lack of an independent check to ensure all manual adjustments processed in the Maintenance system are valid and correctly processed; and

·                     no self assessment was performed of the Trust’s Maintenance Centre (Comskill) in 2005-06.

 

In response the Trust indicated that it would implement actions to address the issues raised.

 

Service Level Agreements

 

Audit review in 2005 found that service level agreements between the Trust and service providers were not entered into for a number of key areas of the Trust’s operations.  Audit considers service level agreements ensure roles and responsibilities are clearly defined and agreed to by each party to the agreement.

 

Audit review in the current year found that the service level agreement with the Department for Families and Communities for 2005-06 was not executed on a timely basis.

 

In response the Trust advised that the service level agreement for the 2006-07 financial year was executed prior to 1 July 2006.

 

Affordable Housing Innovations Fund

 

Audit review in the current year included a review of the accounting arrangements for the Affordable Housing Innovations Fund. The review found that there was scope to improve documentation regarding the operation of the Fund and improve certain accounting and reconciliation procedures. A feature of the operation of the fund is the retirement of Trust debt.  Audit found debt retirement arrangements had not been finalised with the Department of Treasury and Finance (Treasury).

 

In response the Trust advised it would develop documented polices and procedures and will implement measures to improve accounting and reconciliation processes. The Trust also indicated it would comply with debt retirement arrangements once finalised with Treasury.

 

Payroll

 

The Department for Families and Communities was responsible for processing payroll transactions for staff assigned to the Trust in accordance with a service level agreement. Audit review of the Department’s payroll function revealed that internal controls over the processing of the payroll transactions were ineffective in key areas including:

 

·                     bona fide certificate processes;

·                     leave recording and management processes; and

·                     policies and procedures relating to variance reporting and investigation processes.

 

Further commentary on these matters is provided under the Department for Families and Communities section of my Annual Report under the heading ‘Audit Communications with Management and Other Matters’.

 

 

INTERPRETATION AND ANALYSIS OF FINANCIAL REPORT

 

Highlights of Financial Report

 

	2006	2005	Percentage
	$’million	$’million	Change
INCOME
Rent	203	195	4
Commonwealth Government grants	36	35	3
State Government grants	151	164	(8)
Other	52	44	18
Total Income	442	438	1
EXPENSES
Staffing costs	43	39	10
Borrowing costs	42	43	(2)
Maintenance	74	67	10
Council rates and water charges	51	49	4
Land tax equivalent	116	97	20
Depreciation	58	56	4
Other expenses	67	69	(3)
Total Expenses	451	420	7
Net Result before Income Tax	(9)	18	n/a
Income Tax Equivalent Expense	-	(8)	n/a
Net Result After Income Tax	(9)	10	n/a

 

	2006	2005	Percentage
	$’million	$’million	Change
NET CASH FLOWS	4	13	(69)
ASSETS
Current assets	190	176	8
Non-current assets	5 786	5 293	9
Total Assets	5 976	5 469	9
LIABILITIES
Current liabilities	54	60	(10)
Non-current liabilities	767	786