The Department for Environment and Heritage (DEH) is an Administrative Unit established pursuant to the Public Sector Management Act 1995.
DEH is responsible for:
managing the protection, conservation, enhancement and utilisation of South Australia’s natural resources and heritage within a framework of ecologically sustainable development;
developing recreation and sport services, programs and alliances to make a positive impact on the social, health and economic well being of the community;
promoting and supporting involvement of the community in volunteer activities.
The structure of DEH is shown in the following diagram:
In February 2000 a range of Government functions were restructured pursuant to the Public Sector Management Act 1995 and the Administrative Arrangements Act 1994. The impact of this restructure on this Department was to:
alter the title of the Department for Environment, Heritage and Aboriginal Affairs to the Department for Environment and Heritage;
transfer from the Department the activities and employees of the Division of State Aboriginal Affairs to the Department for Transport, Urban Planning and the Arts;
transfer to the Department the activities and employees of the Office for Recreation and Sport from the Department of Industry and Trade;
transfer from the Department certain water related activities and employees to the Department for Water Resources.
The above transfers were effective from 14 February 2000, except for the transfer of employees to the Department for Water Resources, which was effective from 1 March 2000.
Net revenue from the restructure of Government functions amounted to $47.4 million.
Total expenses increased to $180.1 million from $156.3 million, an increase of $23.8 million or 15.2 percent.
Non-current assets of $53 million relating to the Office for Recreation and Sport were transferred to DEH.
Amounts in the Accrual Appropriation Excess Funds Special Deposit Account with the Department of Treasury and Finance increased from $1.6 million as at 30 June 1999 to $19.2 million as at 30 June 2000.
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 1999-2000 specific areas of audit attention included:
revenue receipting and banking
accounts payable
salaries and wages
fixed assets
bank reconciliations
general ledger
imprest account reconciliations
inventory.
During the year Audit attended meetings with respect to all management letters issued. All audit management letters were forwarded to the Chief Executive. The main findings together with responses received from DEH are explained in ‘Audit Findings and Comments’ hereafter.
Effective from 1 July 1998, the Treasurer’s Instructions were reissued. The reissued Instructions require each Government department to develop, implement and document policies, procedures and systems which are sufficient to ensure the credibility and objectivity of the accountability process. These require that policies, procedures and systems are consistent with the prescribed principles set out in the ‘Financial Management Framework’ (FMF). Those prescribed principles are grouped into five components that cover control, transaction processing, asset and liability management, planning and analysis, and reporting.
Consideration of the FMF is highly relevant to forming an opinion on the adequacy of controls operating in departments and the issue of the control opinion. Consequently as a part of the 1999-2000 audit, Audit reviewed documentation with a view to obtaining an understanding of DEH’s status in relation to the implementation of the prescribed elements of the FMF.
In considering the status of implementation of the FMF in agencies it is important to recognise that 1999-2000 was the second year of its operation. Further, specifically in relation to DEH, it is highlighted that there were a number of critical matters such as the restructure of the Department during 1999-2000, the lengthy delay in appointing a permanent Chief Executive and implementation of the GST that were relevant to the capacity of DEH to settle some key matters associated with the FMF.
Broadly, Audit observed that DEH has achieved or has in progress a large number of actions that address or seek to address the prescribed elements of the FMF. Notwithstanding this observation, Audit formed the opinion that there are several key overarching elements that require further development and implementation.
The agency’s response was positive in that DEH agreed with the broad audit observation and indicated that the Chief Executive is strongly committed to improving the performance and accountability of the agency.
Key matters raised by Audit and DEH’s response to those matters are detailed below:
Audit observed DEH had not established a specific management process (ie project management) to implement and monitor the requirements of the FMF. Audit noted that a recently (June 2000) established Audit and Risk Management Committee may include in its terms of reference the evaluation of strategies for implementation of the FMF. However, it was not clear whether the Committee had assumed this role.
DEH’s response indicated that in 1999-2000 responsibility to co-ordinate planning and monitoring of the FMF was assigned to the Management Assurance Officer. Furthermore, management reporting would be expanded to include a broader range of organisational and functional aspects plus agreed time schedules for milestone reporting in 2000-01. The Draft Terms of Reference of the Audit and Risk Management Committee indicate that the Committee will receive quarterly reports on the implementation of the FMF.
It was noted by Audit that an interim Audit and Risk Management Committee was approved during the year. Audit understood that the Committee may have an important role in establishing a focus for ongoing risk identification, mitigation and monitoring, and the implementation of internal audit processes aimed at providing an element of assurance on the control practices of the Department. At the time of review the terms of reference, membership of the Committee and reporting relationships were still to be finalised. The Committee met for the first time on 30 June 2000 and consequently was not considered by Audit in its assessment of the control framework for the Department in 1999-2000. Likewise no internal audit function operated during 1999-2000.
The response from DEH stated that approval had been provided for DEH to establish a single framework to cover, in a generic sense, the functions of risk management, internal control, prudential management and governance within DEH. The Risk Management and Audit Committee will have an important role in establishing a focus for ongoing risk identification, mitigation and monitoring, and the implementation of internal audit processes, and provide a level of assurance about the control practices of the Department.
Audit observed that for the 1999-2000 financial year information of a strategic nature was provided in a combination of the Budget Portfolio Statement, Corporate Overview 2000, Annual Report, individual divisional plans and a number of individual documents outlining specific longer term issues and directions. Best practice advocated in the FMF suggests that a single strategic plan that consolidates strategic information should be developed, with timeframes between three and five years as appropriate.
DEH’s response stated that the Executive is currently assessing the merit of publishing a suite of documents, including a forward-looking (3-5 year) ‘Corporate Plan’.
During the course of the audit it was observed that DEH does not have a consolidated risk management plan in a form as outlined in the FMF. Further it was noted that DEH had recently established a risk management policy statement and was in the process of developing mechanisms for risk identification and mitigation.
The response from DEH indicated that the design of a structured program to develop risk and change management skills in staff commenced in the last quarter of 1999-2000.
The Department operates a range of monitoring and reporting mechanisms, including monthly corporate reports to executive and quarterly performance agreement reporting. Audit observed that monthly corporate reports focused on financial information by expenditure type rather than relating to outputs as outlined in the Budget Portfolio Statement (ie outputs from a corporate perspective). However, it was noted that quarterly performance reports for Executives focussed on a range of matters and included performance relating to outputs. Audit observed that consideration of financial (dollar) information relating to outputs was, however, not included in the report.
In response, DEH indicated that a reporting and overhead allocation model that will include the outputs of the agency is currently under development and may be extended to cover Directors’ quarterly performance reports.
Over the past three years DEH has undergone significant changes, including departmental restructures and the implementation of accrual accounting. During the 1998-99 financial year DEH completed a significant asset recognition process in which assets with a written down value in the order of $121 million were recognised for the first time.
As reported in the 1998-99 Auditor-General’s Report to Parliament, Audit testing during the financial statement verification process revealed significant examples of incorrect data being included in the asset register, asset details not being recorded in the asset register, assets being miss-classified and incorrect depreciation rates being applied to assets. At that time these difficulties were considered to reflect a lack of quality assurance procedures, internal control and independent checking processes, which have resulted in a significant amount of additional audit verification work being required together with significant adjustments to the financial statements.
In May 2000 Audit completed a review to determine the progress being made in addressing the aforementioned concerns and in implementing a system to account for the Department’s fixed assets. That review revealed that progress in addressing the various issues surrounding the recognition and reporting of assets required further attention. Key Audit observations related to shortcomings with the:
integrity and timeliness of key reconciliations;
quality of information recorded in the asset register and related systems;
processes to ensure assets are revalued;
processes to ensure information recorded is complete and accurate;
planning and project management relating to achieving a fully operational, ongoing and robust process of accounting for fixed assets.
At that time, Audit considered that the controls over asset recording were not adequate and the records maintained were such that an efficient audit could not be conducted.
These concerns were relayed to DEH on 31 May 2000.
The response to these issues, dated 21 July 2000, acknowledged the importance of monthly reconciliation and independent checking processes. The response also indicated key reconciliations and other work would not be complete until mid to late July 2000. In addition DEH indicated that a Strategic Asset Manager had been appointed in July 2000 to oversee this area and that a comprehensive plan for the short term had been drawn up.
Information relating to fixed assets was not provided to Audit for review until mid-August 2000. Similar to the previous year, testing performed as part of the financial statement verification process revealed significant examples where the recording and processing of asset information could be improved. These are considered to reflect the lack of adequate controls, including independent checking and quality control processes, over the fixed asset system during the year and have resulted in additional audit verification work and adjustments being required to the financial statements.
In last year’s Auditor-General’s Report to Parliament comment was made on the treatment of Crown lands for accounting purposes. In particular, it was considered 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. Further, Audit expressed 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. Notwithstanding these limitations the Department resolved to treat the Crown lands as administered rather than controlled. As a result of these aforementioned matters the 1998-99 financial statements of the Department were qualified with respect to administered property.
My 1998-99 Report also noted that DEH had secured funding to review Crown lands assets. That review was expected to meet the financial reporting requirements for assets in DEH and other agencies and result in the development of a robust Government property register providing reliable information for effective management and decision making, and the facilitation of departmental and whole-of-government reporting. In this regard, the Department of Treasury and Finance approved an additional appropriation of $530 000 to complete the project.
An important part of DEH meeting its management and accounting responsibilities is ensuring that information on land holdings is reliable for decision making and reporting purposes. In this respect the Financial Management Framework prescribes a number of elements that must be adhered to including that all assets are identified and accurately classified, used for authorised purposes only and proper authority is obtained before acquiring or disposing of assets. In addition, the Framework requires that information is obtained to allow the timely provision of relevant and reliable management information and preparation of external reports.
Audit follow-up in May 2000 revealed that the established project was not sufficiently progressed to facilitate the production of timely, reliable and complete information for inclusion in the 1999-2000 financial statements. In addition, Audit sought certain information and documentation with respect to the scope, management and status of the project.
The response from DEH, 21 July 2000, stated:
... that much of the work in the project proposal had been completed, in particular, major asset identification related to parks, valuation methodology for Crown land subject to leases and investigation of a robust process for accounting for State-controlled land.
The investigation of a process of accounting for State-controlled land has led to the development of a number of papers discussing issues that must be addressed in order for this process to be successful.
The response also provided a copy of a Valuer’s report, dated May 2000, into options regarding valuations of Crown lands. That report concluded that:
... at this point in time, given the errors in the database, we have not been able to develop a cost effective method of valuing the properties that we consider to be reliable or meaningful.
DEH indicated that it considered that the management of Crown lands should be addressed from a whole-of-government perspective and would be taking this matter up with other key Government stakeholders.
As detailed above, there are a number of shortcomings with the information maintained with respect to land holdings of the Crown. The work undertaken to resolve issues relating to the identification and valuation of administered property (ie Crown land) was not sufficiently progressed to facilitate the production of timely, reliable and complete information for inclusion in this year’s financial statements. Consequently the Independent Audit Report to the financial statements has again been qualified with respect to the completeness and valuation of property, plant and equipment included in the Schedule of Administered Items. An extract from the Independent Audit Report is provided later.
Change Processes
As a part of the fixed assets review, it was observed that there has been a change in key personnel in the fixed assets area with DEH setting up a process aimed at staff acquiring skills and knowledge rather than relying on contractors. Audit considered there are benefits to this approach and that, with proper planning and monitoring, together with the development of adequate documented policies and procedures, the accounting for assets could be improved.
Notwithstanding this observation, Audit considers that there have been occasions where the hand-over process could be improved when contractors/officers move on. Further, in consideration of the comments made above relating to fixed assets, Audit considered this observation may reflect the level of project planning and management control together with the level of documented and quality control processes in place.
Audit also observed in previous years that there has also been a high reliance on contractors in other areas (eg compilation/preparation of the financial statements) and that consistent with the previous observation there have been occasions where some of the skills and knowledge acquired by the contractors did not appear to have been transferred to departmental officers.
DEH’s Response
In response to these issues, DEH indicated they have recently created a new management position of Manager, Strategic Assets and Budgets and that this position has the responsibility for the operational unit that administers Masterpiece fixed assets and the strategic component of asset management. The response further indicated that, in relation to fixed assets, a detailed hand-over was provided to another contractor and that the original contractor would be available to provide a hand-over to the Manager, Strategic Assets and Budgets.
Land Services Group
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 the former Department for Environment, Heritage and Aboriginal Affairs (DEHAA, now DEH) seeking clarification of several outstanding issues regarding the transfer. Those correspondences highlighted the need for the Departments to formally document the final negotiated position and establish formal service agreements between DEHAA and DAIS (particularly relating to systems maintenance, revenue and accounts receivable), that outlined the responsibilities, rights and obligations of each agency resulting from the transfer of the LSG and associated information technology assets.
Previous responses to the matters raised indicated that the issue of ownership was difficult to resolve and acknowledged that formal service level agreements did not exist. The responses further acknowledged that agreements needed to be established to cover the new LOTS environment, systems maintenance responsibilities and services which are provided to LSG by DEHAA and that complementary agreements covering access to data and services provided by LSG to DEHAA also needed to be developed. However, the responses pointed out that work on these agreements could not progress far until matters arising from the ownership of LOTS are concluded.
A follow-up of the progress with respect to resolving the outstanding issues was conducted during the year. It was noted that even though it has been two and a half years since the restructure, agreement with respect to a number of areas still had to be achieved. That is, there have been difficulties involved in reaching agreement pertaining to certain aspects of LOTS due to the reliance on the system for the various businesses operations of both agencies.
The DEH response advised that overall agreement on business arrangements between DAIS and DEH is being formally negotiated and that ownership issues had been resolved. Further, in August 2000 DEH advised that a ‘Heads of Agreement in relation to Lands Administration’ was completed. That agreement requires that DEH and DAIS operate according to the principles of the agreement from 17 July 2000, with the agreement being reviewed by 31 December 2001.
The Heads of Agreement identified the requirement for clearly defined roles and stated that LSG is responsible and accountable for land administration functions including cost data confidentiality, integrity, security and revenue. Consistent with that accountability, LSG will specify the level and quality of outputs, funding applied to those outputs and measures to be adopted to ensure the confidentiality, integrity, security and control of data sets. To facilitate the achievement of these principles the Heads of Agreement indicates that both parties will ensure the completion of various other agreements including land administration functions, land administration data, agent arrangements and service provider arrangements.
Commentary regarding this matter has also been included in this Report under the Department for Administrative and Information Services. Audit will follow-up the progress in regard to these matters during 2000-01.
In prior years comment was made regarding the control environment surrounding the Water Licensing System. This activity was transferred to the Department for Water Resources in February 2000. Commentary in this Report regarding the Water Licensing System has been included under the Department for Water Resources.
Audit reviews over the past three years have commented that a structured mechanism to ensure that the information accompanying waste levy payments is reflective of the underlying waste disposals received by licensed waste depots was not in place. Audit further noted that the Department was attempting to address waste measurement problems through a Cabinet Submission. Due to the time lags involved in having the recommendations of the draft Cabinet Submission approved and implemented, Audit suggested other interim measures be investigated including random site inspections and changes to certain regulations to reflect the current waste environment.
During the year a follow-up audit was conducted which revealed that in May 2000 Cabinet approved the drafting of regulatory changes relating to waste measurement and payment arrangements aimed at ensuring a more accurate method of measuring waste disposals. Further, DEH had performed audits of waste returns.
Audit wrote to the DEH requesting information on the planned future developments (such as systematic audits) by the Department aimed at ensuring that levies collected are representative of the underlying waste activities.
In response, DEH agreed that audits of levies collected would be useful and that various options to implement this activity would be considered.
A key focus of Audit was the review of the application and monitoring of internal controls operating over the payment of salaries and wages. As with many computerised systems, the payroll system (Concept) is characterised by manual input of information upon which the system performs various processes to produce required output. Audit observed that over the past two years there had been an improvement in the level of internal control and that generally, the Department had established control procedures aimed at ensuring information processed through the system is complete, accurate and bona fide.
The audit identified some suggestions aimed at improving the level of control. These related to reconciliation processes, bona fide certificates and system access. A satisfactory response to these suggestions was received from DEH.
The audit focused on the application and monitoring of internal controls operating over the payment of accounts. The accounts payable system is characterised by manual preparation and input of information to produce payments and required information. Audit noted that generally, the Department had established control procedures aimed at ensuring information processed through the system is complete, accurate and bona fide.
The audit identified some suggestions aimed at improving the level of control. These related to the documentation of policies and procedures and the use and control of corporate credit cards. A satisfactory response to these suggestions was received from DEH.
Previous Reports have included comment concerning matters relating to sporting stadium management and financing arrangements.
The Government, over the years, has provided significant financial support for the construction and/or upgrade of sporting stadiums, whether through the direct provision of funds for development costs or by the provision of government guarantees for loan contributions to the development costs made by sporting associations.
During the latter part of 1997-98, Audit undertook a review of the management arrangements operating in relation to some of the major sporting stadiums. Audit focused on those arrangements where an external party to the Government manages the daily operations of the stadiums (usually a sporting association). These comprise the Hindmarsh Soccer Stadium, Mile End Netball Stadium and the Pines Hockey Stadium.
The Audit review revealed deficiencies with respect to management arrangements that did not meet adequate standards of accountability. The 1998-99 Report summarised action taken in response to the 1997-98 Audit review. The following provides an update on the more salient matters that were still to be progressed during 1999-2000.
Last year’s Report mentioned that Cabinet was to receive a comprehensive submission dealing with issues of the Hindmarsh Soccer Stadium debt and management of the Stadium. At the time of preparation of this Report these matters were still under consideration by the Government.
The Auditor-General, in accordance with a formal request received from the Treasurer in December 1999 pursuant to section 32 of the Public Finance and Audit Act 1987, is in the process of examining matters in relation to the Hindmarsh Soccer Stadium redevelopment project.
A formalised management arrangement between the Government and Hockey SA is still outstanding.
The Development and Funding Deed between the Government and the Association provided for the collection of levies on players using the Edward Park (Anzac Highway) courts. Levies were not collected as required for the 1998 year. In October 1999 Cabinet approved a recommendation from the responsible Minister to waive the 1998 levy collection.
As part of the 2000-01 financial year audit, it is again programmed to review aspects of the management arrangements covering sporting stadiums.
In the latter part of 1999-2000 Audit reviewed some aspects of the grants administrative arrangements applying in respect of the abovementioned program. Approved funding allocations to sport and recreation organisations for 1999-2000 approximated $6 million.
Matters arising from the review were:
Much of the policy and administrative framework and arrangements under which the Program operates is outlined in a policy based minute. Audit suggested as a matter of good administrative practice that the minute be referred to the responsible Minister for signing to evidence confirmation of the Program arrangements.
Program Funding Guidelines and Agreements provide for audit of grant recipients. In the context of entering the second cycle of grant allocations Audit suggested it may be appropriate to initiate some form of program of sample audits of grant recipients.
A Memorandum of Understanding (MOU) between the Office for Recreation and Sport (ORS) and the Department of Human Services (DHS) outlines the obligations of DHS in the provision of health promotion advice and support to grant recipients for and on behalf of ORS. The MOU for 1999-2000 was signed off by the respective parties.
It was considered that commentary in the recorded minutes of the Committee with responsibility for assessing grant funding applications could be enhanced to be more aligned to the stated criteria of the funding program.
The abovementioned matters were communicated to the Office for Recreation and Sport and a response received indicates action in progress consistent with Audit suggestions.
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 matter referred to in the qualification paragraph, 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, the financial position of the Department for Environment and Heritage as at 30 June 2000, the results of its operations 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 the law.
In February 2000, as part of a wider Government restructure, certain functions (including assets and liabilities) were transferred out of and into DEH. A description of these transfers has been provided earlier in this Report under ‘Changes to Organisational Structure’.
In addition, from 1 July 2000, the operating arrangements between DEH and the General Reserves Trust and the Board of the Botanic Gardens and State Herbarium changed. This change resulted in those bodies making a transfer of monies to DEH to contribute to projects and work undertaken by DEH in the National Parks and the Botanical Gardens. Previously those bodies funded these projects and work in their own right.
As a result of these changes, comparison of figures between financial years may not be appropriate. The analysis below highlights the major changes in the Financial Statements.
Total expenses increased to $180.1 million from $156.3 million, an increase of $23.8 million or 15 percent. Major items affecting those expenses were:
Salaries and wages, which increased by $10.7 million (20 percent) to $63.9 million.
Contractor expenses, which increased by $4.2 million (41 percent) to $14.5 million.
Computing expenses, which increased by $2.1 million (40 percent) to $7.3 million.
Depreciation and amortisation expense decreased to $26.4 million from $29.8 million, a reduction of $3.4 million or 11 percent. This decrease mainly comprised a reduction in infrastructure depreciation of $7.6 million which was offset by an increase in application software depreciation of $3.7 million.
The accrual appropriation was $17.6 million ($1.6 million). This amount was placed in the Accrual Appropriation Excess Funds Special Deposit Account with the Department of Treasury and Finance which totalled $19.2 million ($1.6 million) as at 30 June 2000.
Revenues as a result of a Government restructure of administrative arrangements amounted to $47.4 million. These comprised net amounts transferred from the Office for Recreation and Sport of $60.1 million and net amounts transferred to the Department for Water Resources and Department for Transport, Urban Planning and the Arts of $7.5 million and $5.2 million respectively. Refer to Notes 27 and 28.
This net revenue contributed the majority of the increase in accumulated surplus which increased by $48.2 million to $223.5 million.
Assets with a written down value of $53 million were transferred to DEH relating to the Office for Recreation and Sport.