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2010-2011
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
AUDITOR-GENERAL AMENDMENT BILL 2011
SUPPLEMENTARY EXPLANATORY MEMORANDUM
Amendments to be moved on behalf of the Government
(Circulated by the authority of the Special Minister of State,
the Hon Gary Gray AO MP)
AUDITOR-GENERAL AMENDMENT BILL 2011
OUTLINE
These amendments implement a number of recommendations in the report of the Joint
Committee of Public Accounts and Audit Inquiry into the Auditor-General Act 1997 (the
JCPAA report) that require legislation. The JCPAA report (report No. 419) was tabled on
22 December 2010.
The recommendations of the JCPAA report that would be implemented by these
amendments are set out in the table in the Notes on Amendments below.
Financial impact statement
The amendments will have no financial impact.
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AUDITOR-GENERAL AMENDMENT BILL 2011
Government amendments
NOTES ON AMENDMENTS
Amendment 1 would omit the Schedule to the Auditor-General Amendment Bill 2011 and
substitute a new Schedule.
All of the items in the Schedule amend the Auditor-General Act 1997 (the Act) so as to
implement the Government's response to various recommendations in the JCPAA report
that require legislation. The first column in the table in the following pages sets out the
relevant JCPAA recommendations, the second column identifies the various items in the
Schedule that implement those recommendations, and the third column explains how the
amendments would operate.
In addition to the amendments to implement the recommendations of the JCPAA report,
the Schedule also contains amendments to change the arrangements for audits of
Government Business Enterprises (GBEs).
The Act currently provides that GBEs can only be audited by the Auditor-General if the audit
is requested by the JCPAA, the Minister responsible for the GBE or the Finance Minister.
The JCPAA recommended (recommendation 2) that the Act be amended to provide the
Auditor-General with the authority to initiate performance audits of Commonwealth
controlled GBEs.
Successive governments have taken the view that the Auditor-General should not have the
ability to audit GBEs of his or her own motion. GBEs are subject to competitive pressures
and disciplines that do not apply to other Commonwealth bodies and, to the greatest extent
possible, they should be subject to the same audit arrangements as their competitors.
The Government considers that audits or assurance reviews of GBEs should be requested by
the Parliament in response to genuine public interest concerns about aspects of their
operations, rather than as part of an annual work program. The JCPAA, which comprises
members from across the political spectrum and can conduct hearings in private, is the
appropriate body to consider whether a particular GBE should be audited. Accordingly, the
Government amendments would allow the JCPAA alone to request an audit of a GBE by the
Auditor-General. As is currently the case, the Auditor-General would be able to ask the
JCPAA to request an audit of a particular GBE.
The way that these amendments would operate is described in the table in the following
pages.
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JCPAA REPORT 419 - IMPLEMENTATION OF RECOMMENDATIONS REQUIRING LEGISLATION
JCPAA Recommendation Implemented by: Comment
Recommendation 1 Items 1, 3, 24, 25, In auditing terms, an assurance review involves an examination of one or
That the Auditor-General Act 1997 27, 28 and 32 more aspects of an agency's activities to provide a level of assurance that is
be amended to provide the less than that provided by a financial statement or performance audit. In
Auditor-General with explicit Item 28 also undertaking assurance reviews, the Auditor-General adopts the professional
authority to conduct assurance implements standards issued by the Australian Auditing and Assurance Board.
engagements. In circumstances recommendation 7
where such assurance The Australian National Audit Office (ANAO) currently undertakes a number
engagements have been identified of assurance reviews, particularly in relation to Defence acquisition projects.
as priorities by the Parliament, These reviews are undertaken using the Auditor-General's power in section
they should be subject to the same 20 of the Act to enter into audits by agreement. The JCPAA considered that
information-gathering powers that the Act should be amended to give the Auditor-General explicit authority to
pertain to performance audits conduct assurance reviews.
undertaken by the Auditor- The main provision implementing this recommendation is item 24, which
General. The Auditor-General inserts a new Division 2A into the Act. This Division will comprise new
should have the authority to section 19A which will allow the Auditor-General to conduct an assurance
determine arrangements, review of a Commonwealth agency, a Commonwealth authority or its
including reporting arrangements subsidiaries, or a Commonwealth company or its subsidiaries. New section
to the Parliament, to be followed 19A distinguishes between assurance reviews conducted of the Auditor-
in the conduct of these assurance General's own motion and `priority assurance reviews', that is, assurance
engagements. reviews identified by the JCPAA as a priority of the Parliament. The Auditor-
General can determine the arrangements for the conduct of an assurance
review, including reporting mechanisms, while reports of priority assurance
reviews must be tabled in the Parliament.
In keeping with the auditing arrangements for GBEs that would come into
effect as described in the amendments to implement recommendation 2
below, assurance reviews of GBEs would be undertaken at the request of the
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JCPAA. The Auditor-General would be able to ask the JCPAA to request an
assurance review of a GBE.
Items 1 and 3 of the Bill insert definitions of `assurance review' and `priority
assurance review' into section 5 of the Act.
Item 27 would amend paragraph 23A(b) of the Act. Section 23A allows the
Auditor-General to share information with other persons if it would help in
the performance of an audit. This amendment would allow such information
sharing in the course of an assurance review.
Section 24 of the Act requires the Auditor-General to set auditing standards
for the various kinds of audits that can be performed under the Act. Item 28
would require the Auditor-General to set standards for the conduct of
assurance reviews. Persons conducting assurance reviews would be required
to comply with these standards in the same way as persons conducting
financial statement or performance audits must currently comply with
auditing standards set by the Auditor-General.
Item 32 amends section 31 of the Act to make it clear that the Auditor-
General's coercive powers are only available for priority assurance reviews.
Item 25 would amend section 20 of the Act to make it clear that it would
remain open for the Auditor-General and a GBE to enter into arrangements
for the conduct of assurance reviews or performance audits of the GBE (that
is, without a request from the JCPAA).
Recommendation 2 Items 8, 9, 10, 12, 13 Subsection 16(2) of the Act provides that the Auditor-General may audit a
That the Act be amended to and 14 GBE only at the request of the responsible Minister, the Finance Minister or
provide the Auditor-General with the JCPAA. Other Commonwealth authorities can be audited at the Auditor-
the authority to initiate General's discretion.
performance audits of
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Commonwealth controlled The Government does not agree to that recommendation. Instead, for the
Government Business Enterprises. reasons indicated in the Notes on Amendments above, the Government
proposes that the Act be amended so that GBEs could be audited only at the
request of the JCPAA. The Auditor-General could ask the JCPAA to make such
a request, as is currently the case.
Various provisions in the Act establish the framework within which GBEs may
be audited. Those provisions generally state that such audits can only be
instigated at the request of the JCPAA, the responsible Minister or the
Finance Minister, and that the Finance Minister must consult the responsible
Minister before requesting an audit. The items in column 2 amend those
provisions to remove references to the responsible Minister and the Finance
Minister.
Recommendation 3 Items 19, 20, 21, 22 The Act does not explicitly recognise the role of the Auditor-General in
That the Act be amended as and 23 auditing the appropriateness of an agency's performance indicators or its
necessary to enable the Auditor- reporting against those indicators.
General to review an agency's
compliance with its responsibilities These amendments will address that deficiency by providing explicit
for a sub-set of performance authority for the Auditor-General to assess the appropriateness of the
indicators. Proposed performance performance indicators of agencies and Commonwealth authorities and
indicators to be audited should be companies and the adequacy of their reporting against those indicators in
identified annually by the Auditor- terms of their completeness and accuracy. A report on an audit of performance
indicators may be included in the annual report of the agency or authority
General and forwarded to the
concerned to complement the report on the financial statements of the agency or
Parliament, via the JCPAA for
authority.
comment, in a manner similar to
the annual performance audit Recommendation 3 is primarily implemented by item 19, which inserts new
work program for the ANAO. section 18A into the Act. (Item 19 also inserts a new section 18B into the Act;
its purpose is explained in the comments against recommendations 11, 12
The Auditor-General should be
and 13 below.)
resourced appropriately to
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undertake this function. New section 18A would allow the Auditor-General to conduct audits of the
appropriateness of some or all of the performance indictors in an agency,
authority or company and its reporting against those indicators. These audits
could be conducted at any time, including in the course of preparing the
entity's financial statements. As with other audits conducted under the Act,
the Auditor-General would, if necessary, be able to exercise the full range of
statutory powers available to the office in conducting performance indicator
audits.
In keeping with the auditing arrangements for GBEs that would come into
effect as described in the amendments to implement recommendation 2
above, the JCPAA would need to request a performance indicator audit of a
GBE. The Auditor-General could ask the JCPAA to request such an audit.
Item 20 of the Bill replaces existing subsections 19(1) and (2) of the Act with
five new subsections. Together, these new subsections contribute to the
implementation of recommendations 3, 11, 12 and 13 of the JCPAA report
(how they implement recommendations 11, 12 and 13 is explained in the
comments against those recommendations below).
Briefly, section 19 of the Act requires the Auditor-General to give a proposed
(draft) audit report to the agency concerned. The agency has 28 days to
comment on the proposed report. Those comments must be taken into
account by the Auditor-General and included in the final report.
Item 20 would make section 19 of the Act apply to performance indicator
audit reports prepared under new section 18A (see new subsection 19(2A)).
Item 21 of the Bill inserts a reference to new section 18A into existing
subsection 19(3). This would allow the Auditor-General to give a copy of a
proposed audit report under new section 18A to any person, including a
Minister, who, in the Auditor-General's opinion, has a special interest in the
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report.
Items 22 and 23 would amend subsection 19(4) of the Act. These
amendments would reduce the period within which comments on a
proposed report of a performance indicator audit must be provided from the
standard 28 days to 14 days. This reduction in the period within which
comments must be provided would maximise the opportunity for reports of
performance indicator audits that are conducted concurrently with a
financial statement audit to be included in the annual report of the agency or
authority.
Consistent with the practice in relation to the Auditor-General's annual work
program, the Auditor-General would consult the JCPAA in selecting the
performance indicators to be audited.
Recommendation 4 Items 29, 30 and 31 Items 29, 30 and 31 amend section 30 of the Act.
That the Act be amended to make
clear that claims of legal Section 30 spells out the relationship between the Auditor-General's
professional privilege do not information gathering powers and other laws. While the Auditor-General
override the Auditor-General's infrequently uses these formal powers, agencies occasionally argue that the
information gathering powers. power to require the production of documents does not override legal
The Act should also be amended to professional privilege. The purpose of the amendment is to make it clear
make clear that access to that agencies are not able to decline to produce documents to the Auditor-
documents upon which legal General on the ground that they are subject to legal professional privilege.
professional privilege is claimed Item 29 converts existing section 30 into subsection 30(1), while item 30
does not amount to a waiver of replaces existing paragraph 30(b) with a new paragraph which would make it
such privilege. clear that the Auditor-General's powers to gather information under sections
32 and 33 of the Act are not limited by:
· any other law, unless that law expressly excludes sections 32 and 33 of
the Act, or
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· any rule of law relating to legal professional privilege, any other privilege
or the public interest.
Item 31 inserts a new subsection 30(2) which would ensure that the
production of a document or the provision of information to the Auditor-
General under section 32 or 33 would not amount to a waiver of any privilege
that might otherwise attach to the document or information.
Recommendation 6 Item 26 Item 26 amends section 21 of the Act, which allows the Auditor-General to
That section 21 of the Act be act as the auditor of companies established under the Corporations Act 2001
amended to reflect that the that are owned or controlled by the Commonwealth. Recent amendments to
Auditor-General is able to audit the Commonwealth Authorities and Companies Act 1997 have cast doubt on
any Commonwealth-controlled the Auditor-General's ability to be appointed as the auditor of subsidiaries of
entity including Commonwealth- Commonwealth companies. Item 26 would clarify the Auditor-General's
controlled companies and their abilities in this regard by inserting a reference to subsidiaries of
subsidiaries. Commonwealth companies in the list of Corporations Act companies which
the Auditor-General may audit.
Recommendation 7 Item 28. See also Item 28 would amend section 24 of the Act, which currently allows the
That the Act be amended to comments on Auditor-General to set auditing standards for financial statement audits
require the Auditor-General to set recommendation 1 conducted under Division 1 of Part 4 of the Act, performance audits
auditing and assurance standards. conducted under Division 2 of Part 4, audits conducted by the Independent
Auditor conducted under Part 7 of the Act and audits conducted under
section 56 of the FMA Act. Persons performing audits of the kind specified
must comply with these auditing standards.
The effect of the amendment to be made by item 28 would be to allow the
Auditor-General to set auditing standards that are to be complied with by
persons conducting assurance reviews.
Recommendations 11 - 13 are the Items 2, 4, 5, 7, 11, These recommendations are primarily implemented by item 19.
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`follow the money' 15, 17, 18, 21, 33
recommendations and are and 34 Item 19 would insert a new section 18B into the Act which would allow the
discussed as a group. Auditor-General to conduct an audit of a `Commonwealth partner'. A
Commonwealth partner is defined in new subsection 18B(2) to mean a
Recommendation 11 person or body which has received Commonwealth money to achieve a
That the Act be amended as Commonwealth purpose.
necessary so that the Auditor-
General may conduct a The main features of new section 18B are that:
performance audit to directly · A `Commonwealth partner' can be a state and territory government, an
assess the performance of bodies entity controlled by them, and other persons or bodies, including
that receive Commonwealth contractors and grantees (subsection 18B(2));
funding in circumstances where · If the entity that is to be audited is a state or territory government or an
there is a corresponding or entity controlled by them, the audit must be requested by the
reciprocal responsibility to deliver responsible Minister or the JCPAA (paragraph 18B(1)(a)), but the
specified outcomes in accordance Auditor-General can ask the Minister or the JCPAA to request such an
with agreed arrangements if a audit (subsection 18B(9));
Minister or the Joint Committee of · The purpose of the audit of a Commonwealth partner must be limited to
Public Accounts and Audit assessing the extent to which the operations of the partner contributed
requests the audit. to the achievement of the purpose for which it received the
Commonwealth funds (subsection 18B(3));
The Auditor-General may ask a
· An audit of a Commonwealth partner can be conducted as part of an
Minister or the Joint Committee of
audit of a Commonwealth agency or authority (subsection 18B(4));
Public Accounts and Audit to make
· The audit report must be tabled in the Parliament, either as a standalone
such a request.
report (subsection 18B(6)) or as part of a report of an audit of a
Recommendation 12 Commonwealth agency or authority (subsections 18B(6) and (7)).
That the Act be amended so that
the functions performed by Item 33 would amend section 33 of the Act (`Access to premises etc') to
entities including private ensure that the Auditor-General would have the same power to enter the
contractors on behalf of the premises of a Commonwealth partner, examine and make copies of relevant
Commonwealth in the delivery of documents as are currently available in respect of the premises and
documents of the Commonwealth or a Commonwealth authority or
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government programs can be company.
subject to direct audit by the
Auditor-General. Item 34 would insert a new section 56A into the Act. New section 56A is
intended to address possible Constitutional limitations on the
Recommendation 13 Commonwealth's powers to audit state and territory governments and
That the Act be amended to entities controlled by them. This Constitutional `safety net' would make it
ensure that when a decision is clear that, if any provision in the Act could be interpreted as being to some
made by the Auditor-General to extent beyond the Commonwealth's legislative power, it is the Parliament's
conduct an audit of a non- intention that the provision is not to be interpreted that way, but is instead
Commonwealth body, the reasons to be given every interpretation that is within the Commonwealth's power.
for that decision should be
disclosed in the publication of the The remaining items facilitate the implementation of the `follow the money'
report. recommendations by:
· Inserting definitions of `Commonwealth partner' (item 2), `responsible
Minister' (item 4) and `senior manager' (item 5) into section 5 of the Act;
and
· Requiring copies of proposed and final reports to be given to `senior
managers' of Commonwealth partners (items 7, 15, 11, 17, 18, 20 and
21). These amendments would ensure that Commonwealth partners
would have the same opportunities to consider and comment on
proposed reports that relate to their operations, and to receive copies of
final reports, as are afforded under the Act to Commonwealth agencies,
authorities and companies.
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