The Department is an Administrative Unit established under the Public Sector Management Act 1995.
The Government, through the Treasurer and the Department of Treasury and Finance, undertakes a number of distinct roles including:
setting economic and fiscal policy at the whole-of-government level;
purchasing goods and services on behalf of taxpayers, whether produced by government providers or by private sector providers;
owning a range of agencies and enterprises which in turn are providers of a wide variety of goods and services;
providing a whole range of direct whole-of-government services including asset and liability management, collection of taxes, and insurance and superannuation administration.
In turn the Department is a major service provider by:
collecting tax revenue and implementing taxation legislation through Revenue SA;
raising and managing the State’s debt funding through the South Australian Government Financing Authority (SAFA)
administering public sector superannuation through the State Superannuation Office;
managing and insuring Government risk through the South Australia Government Captive Insurance Corporation (SAICORP).
The Department administers but does not control certain funds on behalf of the Treasurer. These funds are not recorded in the Department’s Operating Statement or Statement of Financial Position, as the Department does not have any discretion to deploy the resources for achievement of its own objectives. Further details are provided in the Schedule of Administered Expenses and Revenues and Note 22 ‘Other Administered Accounts’ appearing in the Department’s financial statements.
The organisational structure of the Department and its relationship to the Treasurer and Under Treasurer is reflected in the following diagram:
A description of the functions and responsibilities of the respective branches, as they relate to Output Classes, is set out in Note 4 to the Department’s financial statements.
During the year the Department completed a significant restructure of its organisational and operating structure. This restructure process involved the commitment of significant resources and capitalised on the opportunity to review all systems and processes as a consequence of the introduction of the Goods and Services Taxation legislation.
The diagram above highlights the current organisation structure of the Department. In comparing structures between Report years, it is most notable that Finance Branch has undergone significant realignment to achieve the objectives outlined within their Business Plan 2000-01. In particular, Finance Branch now represents the amalgamation of three previously distinct branches, being Financial Management Branch, State Enterprises and Budget Branch. All areas were considered to contribute to the broad aims of the new branch which are to provide strategic whole-of-government services to support government decision making about fiscal strategy, resource allocation and investment and financial resource management.
Total Operating Expenses increased by $10.1 million to $58.8 million.
Total Operating Revenues increased by $8.3 million to $32.2 million.
Cash increased by $9.7 million to $16.9 million.
Subsection 31(1)(b) of the Public Finance and Audit Act 1987 provides for the Auditor-General to audit the accounts of the Department in respect of each financial year.
The audit program covered all major financial systems 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.
The scope of audit and audit approach reflected the dichotomy in the nature of the Department’s operations. The audit addressed those auditable areas which related to the coverage of the Department as an administrative unit and reporting entity in its own right and its role in furnishing the requisite financial information to ensure compliance with the Public Finance and Audit Act 1987. It also covered those areas where the Department assumes a position of influence and direction across the wider public sector and facilitates change processes, flowing from various policies and directives issued by the Treasurer.
As a result of this dichotomous aspect of the Department’s operations Audit appraises and monitors wider developments sourced from Department activities/initiatives. This is reflected in such areas as budget reform and whole-of-government financial reporting. Comment on some of these areas appears elsewhere in this section and also in Part A of this Report.
As discussed, the Department underwent significant organisational restructure as well as progressed the development and modification of a number of systems in order to further enhance their revised approach to service delivery. Of significant influence to the nature and extent of audit testing during the year was a consultancy in the Corporate Services branch — GST Systems & Process Improvement Project. The project report contained a number of recommendations for systems and process improvement, not only stemming from the introduction of the GST but in relation to improving general processes surrounding the systems themselves. A formal report was prepared in December 1999. Notwithstanding the potential improvement which may emanate from implementation of the recommendations highlighted in that report, there remained a requirement for Audit to review, assess and provide comment as to the adequacy of the internal control environment which operated for the financial year.
Audits financial attestation procedures and review of internal controls were extended to the level required to satisfy the audit opinions expressed in respect of the financial statements and controls.
An outline of the major areas of audit coverage under the relevant Department branch/responsibility area is provided hereunder:
Expenditure (including purchasing, payment of accounts and salaries and related payments)
GST Implementation - Including whole-of-government perspective
Contract Management
Non-current assets
Revenue/debtors
Payments made under the Treasurer’s line of the Treasurer’s Statement
Central Accounting System
Accounting and financial management reporting
Information services.
Budgetary reform
Budgetary analysis
Whole-of-government reporting
Prudential Debt Management.
Tax Equivalent Regime.
Financial accounting and recording systems
Emergency Services Levy collection system
IT systems environment.
Further commentary in respect of these activities is included in the section of Part B of this Report covering the South Australian Government Captive Insurance Corporation (SAICORP).
Superannuation policy advice
Administration of superannuation schemes.
Further commentary in respect of these activities is included in the section of Part B of this Report covering State Super Office.
Further commentary in respect of these activities is included in the section of Part B of this Report relating to the unit.
Financial accounting and reporting
Compliance with appropriate legislation, Treasurer’s Instructions and the accounting standards promulgated by the professional accounting bodies.
Verification of the form and content of the Treasurer’s Statements. Refer to the Appendix to Volume III of Part B of this Report.
During the year various letters communicating issues arising from the audit process were forwarded to the Department. The main issues related to public sector financial reporting, debt management and general financial controls. Satisfactory responses were received. Further details relating to general financial controls are contained in ‘Audit Findings and Comments’ and are categorised under the relevant branches and areas of operation.
The overall internal control structure of the Department was assessed as satisfactory. Some instances of lapses in established controls were noted and audit suggestions were made to address those matters as the underlying principles were considered important. The following outlines some of the more salient issues.
Audit’s review also included attention to the matter of the Department’s application of the principles of the Financial Management Framework (FMF), which took effect from 1 July 1998. Audit was satisfied that the Department had implemented the core principles, notwithstanding that there were areas of policy development that still required further attention.
Some of the key features that demonstrate the Department’s commitment include:
the development of a corporate governance framework;
the development of a risk management plan;
the evaluation of key sub-committees of the Executive Management Group/(EMG) including the Risk Management and Audit Committee;
progress in development of key policies (eg Corporate IT).
During 1999-2000, Audit conducted a review into the progress and status of the Government Management Framework (GMF) and Budget Reform agendas. This review follows on from previous work and commentary in my Report over the last two years. This year’s review, however, represented the first time a management letter had been forwarded to the Under Treasurer for formal consideration of the issues raised. In previous years, Audit findings have been reported directly to Parliament in Part A of this Report.
Whilst the review was predominantly undertaken through the Department of Treasury and Finance (DTF), Audit considered it was relevant to also receive formal consideration from the Department of the Premier and Cabinet (DPC). This approach recognised that a number of issues raised as a consequence of the audit review transcended beyond just DTF responsibility and mandate, taking on a much wider whole-of-government perspective to financial, budgetary and managerial responsibility and control.
Of particular importance, Audit felt that the future role of DTF would be important to optimising the extent to which the initial reform agendas would permeate through to government agencies day-to-day management and operating practices. Audit sought to determine the role DTF should or will take in respect of a number of the reform agendas previously pursued, by the now defunct, GMF Board.
During 1999-2000, Audit understood that responsibility for progressing the aims of the GMF passed to the Senior Management Council and central agencies (DPC and DTF). Budget Reform comprised the key, if not sole, initiative of the GMF, that was sponsored centrally. As I commented in my last Report, Audit considered key gaps remained between what had been achieved to date with Budget Reform and the ultimate deliverables and aims of the GMF.
In general terms, the key themes and findings from our review can be summarised as follows. Further commentary in relation to this area is made within Part A of this Report under ‘Public Governance: The Government Management Framework and the Budget Process’:
Audit concluded that Government agencies and their constituents, generally would benefit from the implementation of the GMF (and Budget Reform) agendas reviewed. In my past Reports to Parliament I have commented on the progress with those agendas and where I saw risks to the achievement of the benefits of the agendas. Importantly, it is perceived that there is a high degree of interdependence between critical elements of the reform agenda such that a breakdown in one area could have important ramifications for the approach as a whole - completing the accountability chain was therefore a particular Audit focus.
Audit understood that DTF and DPC (independently and/or collaboratively) had an important role in leading and inspiring the adoption of various aspects of the reform agendas. The audit findings sought to highlight a range of areas that Audit considered needed to be addressed in order to fulfil that role. In many instances, DTF has a mandate to support a directive approach if necessary. Clearly, however, DTF does not control all aspects of the issues raised. In such areas, in the absence of changing the mandated processes, further emphasis/persistence by DTF and DPC toward influencing change was considered the only course.
My Report last year included commentary on the outcomes from an Audit review of phase one in the development of the BFMS project and its key deliverables. The BFMS is regarded as an integral system to the operations of the Department, has a budgeted estimated cost of $2.9 million (including capital of $2.5 million) and is anticipated to be implemented by way of a staged approach over a three year period.
The review identified that a:
risk management strategy, in accordance with the Department’s Risk Management Approach be developed for future phases of the project. An integrated approach be taken with respect to documentation pertaining to the risk assessment and risk management processes;
post-project evaluation be undertaken at the end of each of the major project milestones to assess any implications arising from the remainder of the project.
Departmental response to the issues raised was positive in all respects.
A follow-up and review of the second phase of the project was undertaken during the year. The approach to this component of the review was principally to ascertain whether the BFMS project was adequately planned and managed so as to achieve specified outputs (objectives) within time and cost constraints. The review took into account the work performed and audit findings from 1998-99 and the interrelationships with the Finance Branch restructure and GMF(Budget Reform initiatives).
The review was conducted against the Government’s compliance framework for the management of information technology and systems development projects, internal DTF policies and procedures and better practice principles.
Again, Audit noted that some fundamental project management practices were not in place and that their adoption for future development of this and other IT projects would generally be expected to assist in project direction, implementation and management. In particular, Audit outlined that there would have been benefit in:
ensuring that projects had a well developed and integrated business case; analysing project cost and benefits, timeframes, evaluation alternatives, risk and sensitivity analyses etc;
ensuring that projects took on a corporate perspective by reporting key milestone progress to the DTF IT Steering Committee rather than only the existing specific project steering committee;
ensuring sufficient stakeholder involvement is engaged throughout the process;
that full project costing and budgeting be employed to reflect the total resources employed in IT and system development projects.
The Department acknowledged that a project of this size would normally have a documented business case, however, it thought that the most appropriate risk strategy for implementation of the 1999-2000 budget was to simply revert to a tested and proven solution. In addition, it considered that further agency consultation on the project would continue as the project evolves.
In respect of corporate reporting on IT matters, it was considered that the specific Budget and Financial Management Steering committee established for the BFMS implementation would report to the DTF (corporate) IT Steering Committee for time to time on progress.
In regard to the interpretation of the issues concerning project costing, budgeting and accounting, the Department has suggested that project costing reflects the nature of work being undertaken by staff and the source of funding, so the project stays within funding limits. In Audit’s view this does not meet the concerns raised with the Department regarding the need to reflect fully the system project costs in budget submissions, reporting and monitoring documentation.
As highlighted under Changes to Agency Organisation Structure, Finance Branch underwent significant organisational restructure during the year in order to more appropriately align its functions to the delivery of the objectives outlined within their Business Plan 2000-01.
In reviewing the progress with the delivery of GMF and Budget Reform agendas it was considered appropriate that the audit review consider both the branch restructure and process re-engineering concepts adopted because of the impact that such changes would have on whole-of-government initiatives sponsored through the Department.
In this context, the review highlighted that:
there may have been benefit in preparing a formal business case document for the Business Process Re-engineering (BPR) and the Finance Branch restructure. This would also provide a document for presentation to EMG for consideration of the wider impacts that such a process would take and set the context for the implementation program;
there was a need to have integrated some key outcome measures for both the BPR and branch restructure so that the degree of success to which such a change has contributed could have been measured;
there may have been benefit from applying more discipline in ensuring that the impacts and risks were appropriately identified and addressed for all projects (ie budgetary systems development, GMF and budget reform) operating concurrently with the DTF, BPR and Branch restructure. This would have necessitated an analysis of all processes, including prospective processes, within the branch;
both the strategic and detail levels of implementing GMF and Budget Reform have created risk for the overall achievement of the aims of those agendas.
The Department considered it had taken an appropriate degree of planning and reporting in relation to their restructure and re-engineering project. DTF contended that, the fact some processes were carried out through meetings, staff consultations and other daily management processes meant that the documentation did not fully reflect the extent or range of activities undertaken.
In respect of performance measurement, the Department suggested that there were very clear ideas of which areas of performance were expected to improve as a result of the process. The fact that these are areas were not typically capable of objective measurement reflects the nature of outputs.
Currently, the Treasurer and Under Treasurer are responsible for preparation of the whole-of-government financial statements. During the year, on their behalf, the Department of Treasury and Finance formally prepared and presented a complete set of whole-of-government financial statements in accordance with Australian Accounting Standards AAS 31 ‘Financial Reporting by Governments’. These financial statements were for the period ending 30 June 1999.
The whole-of-government financial statements are regarded as an essential component of the various information presented on the State’s finances and financial position and are considered useful to management, governing bodies and other users for making and evaluating decisions about the allocation of scarce resources.
However, as was commented in my Report last year, there is currently no legislative requirement for the preparation, audit or presentation of the whole-of-government financial statements. Until such time as relevant legislative provisions are passed that will provide for the audit of these statements, I am unable to issue a formal Independent Audit Report containing an audit opinion.
Nevertheless, despite the absence of a mandate to issue a formal audit report in respect of such information, it was considered valuable and within the ambit of wider public expectation that such financial information should be required to carry some form of independent commentary regarding their credibility and validity. Consequently, a management letter was forwarded to the Department of Treasury and Finance with a view to providing an indication of the important financial reporting considerations that would need to be addressed in order to receive an unqualified independent audit report should prospective legislative changes require the need to provide such an audit opinion. These include:
the whole-of-government financial statements have excluded certain entities that Audit consider should have been included;
limitations on the scope of our audit process as a consequence of unaudited health data being used to form part of the consolidation process;
uncertainty as to the carrying values ascribed to plantation forests;
uncertainty in provisions brought to account for contract losses.
The Department’s response was positive and advised that in respect of the absent legislative mandate for audit by the Auditor-General, amendments to the Public Finance and Audit Act 1987 have been scheduled. Further, the Department indicated that it would endeavour to find solutions to all other potential qualification issues.
Past Reports have commented on the areas of corporatisation and commercialisation, primarily in respect of adoption of competitive neutrality principles within the context of corporate and public governance.
In last year’s Report I commented on the Department’s recent initiative to review the Public Corporations Act 1993 and its application, as this is the accepted model for corporatisation in South Australia.
During the year Audit undertook a follow-up review with respect to the major initiatives and associated timetable being progressed by the Department with respect to these areas.
The review noted that there remained unresolved issues with respect to the application of the PCA following a review undertaken during 1998-99 which identified:
Lack of systematic and consistent application of PCA across Government.
Inadequate mechanisms for monitoring subsidiary corporations performance and compliance with PCA requirements.
Inconsistent quality of Charters and Performance Statements across agencies operating under the PCA.
Absence of an appropriate monitoring framework for those agencies operating under the PCA whose operations are not predominantly commercial.
Instances where agencies had not submitted draft Cabinet submissions for the establishment of subsidiaries under the PCA to the Treasurer and Prudential Management Group.
All issues raised concerns regarding the Government’s exposure to business risks associated with Government Business Units (GBUs).
The implications of competitive neutrality principles is achieved not only by application of the PCA but also through implementation of CRP.
Audit noted that three GBUs had been identified for implementation of CRP principles during the year, but as the time of writing to the Department, no such CRP Model had yet been developed.
Audit noted that with respect to the corporatisation and commercialisation issues, following a review of documentation within the 1999-2000 Budget Papers, DAIS appeared to have an interest with respect to Government Business Unit’s (GBUs) in that one of their output strategies for the Government Business Group (GBG) was:
to review ownership options for GBUs;
establish a GBU performance monitoring and improvement framework.
Audit therefore sought clarification to ensure the GBG and Finance Branch have clearly delineated and co-ordinated their respective roles and responsibilities in this area.
Departmental Response
The Department indicated that it has since finished development of a database with baseline information about each entity covered by the PCA and the responsibilities of the Treasurer and Minister shareholder under the PCA.
The Department referred to progress which had been already made in output costing and pricing by the Budget Reforms and State Enterprises areas of Budget Branch, however, reiterated the importance to continue building upon this work. This commitment was further supported by the creation of a specialist Pricing Position to co-ordinate and monitor this work. Further, Finance Branch intends to co-ordinate its activities with the inter-agency National Competition Policy Reference Group and the Office of Government Enterprises to develop detailed procedures for Government Business Enterprises to follow when implementing the CRP Model.
As a consequence of a Departmental review, recent approval had been received from Cabinet for the gazettal of more than a dozen business activities to be included in the category two list of ‘other significant business activities’. The Department is preparing a plan for implementation of Competitive Neutrality principles
Roles and Responsibilities
The Department indicated that it recognised the potential for overlap of activities to occur and have since held discussions to ensuring each agency has a clear understanding of their key functions and objectives, in particular, recognising that each entity has a separate but complementary roles.
Refer to commentary in Part A of this Report in the section ‘State Debt’.
In my Report last year, I commented on the structures and processes at a corporate level governing the planning, monitoring and reporting of Information Technology (IT) activities within the Corporate Services area of the Department. As discussed earlier, the Department has undergone significant restructuring during the year. Part of this process was to amalgamate the previous separate functions of administration and information services, which is now managed within corporate services under the ambit of responsibility of the newly appointed Director, Corporate Information.
As a consequence of the audit review in this area over the past two years, the positive approach to Audit comments in the past and the recent restructuring of the division, the review this year was limited to a preliminary follow-up of the progress made to date. It is intended to undertake a more comprehensive review upon the settling of organisational changes.
In particular, in relation to outstanding matters raised in prior years, the following observations were made:
The absence of a comprehensive and well structured Corporate IT Strategic Plan was the subject of comment last year. In particular, the absence of a formal planning document which included risk level appraisals, clear alignment with the Department’s business plans; a definition of core systems; and consistent format and structure with respect to tactical and operational planning in relation to systems identified.
In response to audit findings the Department indicated that a review and redevelopment of this document was a priority responsibility of the IT Steering Committee.
In May this year the Department finalised the preparation of its ‘Information and Communication Services (ICS) Strategic Directions Plan: 2000-03’. This plan is a high level document that served to articulate the approach to Information and Communication Services management throughout the Department. It is intended to link this document to other key management plans throughout the agency and in particular the Corporate ICS Action Plan. However, it will be the Business Unit ICS plans that will drive ICS development actions at a discrete level.
The issue regarding the structure and basis for approval and communication of corporate IT policies and procedures were the subject of Audit comment over the past two years.
The IT Steering Committee has seen the development and approval of some 21 policies: including matters concerning Asset Management, Audit, Contracts, Data Management, Information Technology, Internet, Security. The IT Steering Committee is an advisory committee to the Executive Management Group and the Under Treasurer.
The Department’s historical difficulty in dealing with the appropriate recording, accounting and reporting of non-current asset information has been the subject of much commentary in past Reports.
In particular, the absence of appropriate internal control mechanisms over the Fixed Asset Register and the resulting recording and accounting for non-current assets has significantly contributed to delays and difficulties in the completion of the year-end audit.
It is pleasing to report that significant attention and resources have been directed towards improving the general stewardship controls over departmental assets during the year. In particular, Audit noted that the Department had finalised an accounting policy with respect to the capitalisation of IT systems development costs. This is particularly important to the Department in view of certain branches that have considerable investment in IT assets (ie Revenue SA). Notwithstanding this policy development, concerns remain over the absence of sufficient work to begin identification and capitalisation of such assets; both to be consistent with their own accounting policy as well as more completely reflecting the total expenditure invested in such assets within the Department.
It is intended to undertake a more comprehensive review of IT development, management, recording and accounting in the 2000-01 financial year.
During the year Audit undertook a review of the RevenueSA internal control environment and application of system controls over:
administration of State taxation and levies
Commonwealth Replacement Grants for Business Franchise Fees
compliance and recovery operations
cash receipting and banking
management reporting and budgetary control.
In particular, Audit included an in-depth review of the Emergency Services Levy - Fixed Property (ESL) system, comprising review and assessment of the system environment and processing controls as well as certain aspects of systems project management.
The results indicated that while the overall system in internal controls were satisfactory, there were a number of issues which warranted further action by management. The more salient of these issues relate to the need to:
evidence the undertaking of key reconciliations associated with the collection and banking of Land Tax and ESL revenue;
complete the Debtor Management functionality of the ESL system in order to improve collection of outstanding debts;
undertake a review of ESL over-payments on a more regular and timely basis.
The Department’s response was positive indicating that since the audit review it had completed or commenced revision to procedures and system modifications and development.
During the year Internal Audit continued to provide services to the Department and its associated branches.
The work performed by Internal Audit is predominantly sourced from external providers and findings emanating from their reviews are reported to the Under Treasurer and Risk Management and Audit Committee. All reports were the subject of formal management responses.
Reviews conducted during the year by Internal Audit, specifically relating to the Department included:
GST Implementation
Contingent Liabilities
Financial Management Framework.
Audit reviewed the relevant reports and correspondence from the Department, noting actions taken or otherwise proposed by the Department to address issues raised. In accordance with Auditing Standard AUS 602 ‘Using the Work of Another Auditor’ for selected areas of operation, Audit reviewed detailed working papers supporting Internal Audit coverage, where there was a prospect that Audit may rely on the work performed by Internal Audit in determining the extent and nature of Audit procedures to be adopted.
As required by subsection 36(1)(a)(iii) of the Public Finance and Audit Act 1987, the audit of the Department of Treasury and Finance 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 of Treasury and Finance in relation to the receipt, expenditure and investment of money; the acquisition and disposal of property; and the incurring of liabilities, were sufficient to provide reasonable assurance that the financial transactions of the organisation were conducted properly and in accordance with the law.
Total operating expenses increased by 21 percent or $10.1 million. The main reason for the increase can be attributed to increased Employee costs of $4.6 million and an increase in Administration and other expenses of $5.0 million. In both instances, the increased costs have principally reflected the additional employees and administrative activity associated with the first full year operations of the Emergency Services (Fixed Property) Levy Unit by Revenue SA. In addition, as a consequence of the restructure of the Department, within Finance Branch was the formation of a new Business Development Unit which also contributed to the increased costs.
Operating Revenues increased by $8.2 million from the previous year to $32.2 million. Reference to Note 9(a), highlights that the reason for the increase can be attributed to the Emergency Services Levy where the Administration costs are recovered from the Attorney-General’s Department.