Public enterprises are common at both State and Federal levels in the Commonwealth of Australia. In view of the many differences between the six States - and the magnitude of the research involved - the present chapter is confined to public enterprises at the Federal level.
The first public enterprise established following Federation in 1901 was the Postmaster General's Department to which the existing State postal and telegraphic services were transferred. This initial body functioned in departmental form for three-quarters of a century until 1976 when two statutory authorities, viz the Australian Postal Commission and the Australian Telecommunications Commission, were established by legislation to take over the respective functions of the former department.
Although ministerial departments were the main form of governmental organisation in the early years of Federation, in 1912 the Parliament passed an Act to establish the Commonwealth Bank as a public enterprise to operate commercially in competition with privately-owned banks. This government banking initiative has continued in various forms, including a period following World War II when its role included the powers of a central bank in addition to those of a commercial bank, until the present time when it carries out fully commercial operations as the Commonwealth Banking Corporation.
By 1939 a modest expansion in the number of statutory authorities had occurred. These included departmental undertakings such as hotels in the Australian Capital Territory and other undertakings consonant with the establishment of a national capital city; also munitions factories, railways, several primary production marketing authorities, a broadcasting commission and an overseas communications company.
During World War II further growth and diversification of statutory authorities occurred as a result of resource mobilisation in support of the armed forces. In many instances the government had little option but to establish and operate public enterprises for the provision of wartime needs.
The trend towards public enterprises continued in the post-war years. Shortly after the end of World War II the entire shareholding in Queensland and Northern Territory Air Services Ltd (QANTAS) then a privately-owned company was acquired by the government and became Australia's overseas airline. The Australian National Airlines Commission also was established as a statutory authority to provide air transport services within Australia. Also established were marketing authorities to handle wheat, wool, dairy produce and other primary production; a government publishing service (as a departmental undertaking); a natural gas pipeline (as a separate authority); and other enterprises covering a wide range of activities. More recently, a merchant banking authority, the Australian Industry Development Corporation, has been established.
A detailed account of the growth in numbers and diversity of public enterprises over the past four decades is beyond the scope of the present. However, on balance, both ends of the political spectrum in Australia established public enterprises although some owed their existence more to the political philosophy of the government of the day than to any other cause. Other public enterprises have been established for developmental and/or entrepreneurial reasons. Accordingly, governments have provided services via the public enterprise form for those which the private sector has been unwilling or unable to supply. These public enterprise initiatives enabled services (particularly postal, telecommunications and air transport) to be extended to remote rural areas of Australia at much the same cost as paid by metropolitan consumers who thereby cross-subsidise isolated distant communities.
The following table shows the number of public enterprises in existence at the Federal level in Australia as at 30 June 1987. The categories used are those adopted in the Tokyo Declaration of 1985 (3rd ASOSAI Assembly and 2nd International Seminar):
The diversity of public enterprises may be seen by the following examples
Some public enterprises operate in full competition in the market place with private enterprise e.g. the Commonwealth Banking Corporation, Australian Shipping Commission and QANTAS Airways Ltd. Others are in a monopolistic - or partly monopolistic - situation in conformity with government policy, e.g. Australia Post, Telecom, Overseas Telecommunications Commission, Pipeline Authority and various marketing authorities including the Australian Wool Commission and Australian Wheat Board. Further, until a recent government announcement signalling the end of the existing two-airlines agreement, Australian Airlines operated in a regulated competition mode with a private sector airline.
Some public enterprises have been established as holding companies, but these are not common in the Australian public sector. QANTAS Airways Ltd operates as a holding company for a number of subsidiaries but is itself fully operational and revenue-producing. Some authorities have subsidiary companies, e.g. the Commonwealth Banking Corporation and Australian Airlines. Where the holding company form of public enterprise occurs, it is the practice to prepare annual accounts in consolidated form, although such is not a mandatory requirement of statutory authorities.
In those cases where a public enterprise in the form of a statutory authority or a company operates in competition with the private sector, there is no exemption from taxes, excise duties, stamp duties and similar imposts. In some instances, this obligation has always existed; in others, exemptions previously available under legislation have been withdrawn for reasons of full fiscal responsibility. However some exemptions remain among major authorities, e.g. while Australian Airlines is liable for income tax as if it were a company, Australia Post and Telecom continue to enjoy an exemption in this regard.
Current studies are in hand with a view to the government freeing statutory authorities with a number of operational controls - a process known as deregulation. But just how far this will go, and the effect on the future public accountability of the enterprises concerned, is a matter of conjecture at present.
Public enterprises in the form of departmental undertakings operate within the structure of ministerial departments. Although these undertakings are under ministerial control, in practice the responsible Minister generally is not concerned personally with operational detail. Accordingly, such enterprises tend to be identifiable as separate organisational units within departmental organisational framework, i.e. departmental undertakings are not generally part of the divisional and branch hierarchy found in the departmental form of organisation.
The unit administering the departmental undertaking may be in the form of an "outrider", i.e. a manager is responsible to the Secretary (permanent head) of the department, but enjoys delegated powers to manage and operate the enterprise within agreed functions. The usual forms of central government staffing, budgeting and financial control remain in place although a degree of flexibility is generally permitted by passing transactions through a special ledger account known as a "trust" account. This is not a trust account operated in trustee form nor is it a separate bank account, but another name for a "revolving fund" account within the public accounting structure. Reporting for this form of enterprise to the Parliament takes place through the departmental head and the Minister.
Statutory corporations do not follow a set organisational pattern. The enabling legislation for the corporation commonly establishes the form of management control, (e.g. by a board or commission), defines the functions of the enterprise and the powers that may be exercised by management, any residual powers reserved for exercise by the Minister, and financial reporting and auditing arrangements.
This type of enterprise is freed from control by the head of the department, although the latter retains the power to advise the Minister on changes to the legislation i.e. legislatural or government policy, rather than administrative policy. The enterprise remains accountable to the Executive Government and to the Parliament through its Minister.
For enterprises operating in company form, there is further flexibility, although no government owned or controlled company is able to avoid the ultimate responsibility of answering to the Parliament through the relevant Minister. The thread of public accountability may be a little thinner at this point but it nonetheless remains firm.
For departmental undertakings the staffing arrangements applicable to the Public Service generally also apply to the undertaking. Pay scales common to the Public Service apply according to classification guidelines. Staff are recruited according to Public Service rules, Public Service Act conditions of service apply, and staff cannot be dismissed except in accordance with the standard in-service legislative provisions.
Staff training also conforms with the normal departmental arrangements. Such arrangements include opportunities for staff to attend external courses, overseas study fellowships, the Public Service executive development scheme, and interchange arrangements with the private sector. Provision exists for the reimbursement of fees paid to institutions for approved courses and a limited amount of study leave is granted.
Arrangements for the staffing for statutory authorities depends on whether the legislation establishing the authority requires that it be staffed in accordance with the Public Service Act. However, such a requirement does not apply to the major authorities operating in the market place. It is the general practice for such authorities to have full staffing autonomy except in regard to salaries paid to the chief executive and members of the board or commission. Salaries for such executives e.g. Governor of the Reserve Bank, and Chief General Manager of the Commonwealth Bank, are fixed by the Remuneration Tribunal, an independent body which determines salaries and allowances for Members of Parliament, the judiciary and senior public sector appointees.
Autonomy is also granted, subject to Arbitration Commission awards, in determining conditions of service - including recruitment and severance matters. Staff are recruited from the market place and from the public service, i.e the objective is to recruit the most suitable person available for the job. Training arrangements may, but not always, be on a similar arrangement with the public service.
In the case of government owned or controlled companies, much less control over the staffing matters is exercised. However, in one particular case (QANTAS Airways Ltd), the salary of the General Manager is subject to determination by the Remuneration Tribunal. Staff training is a matter for the companies themselves to decide. Most, however, recognise the value of formal training and exchange schemes for senior and specialist staff.
Departmental undertakings receive capital advances from the central budget. For operating expenses, the general approach involves costs to be recovered from goods and services produced by the undertaking, including the cost of servicing capital advances. The cost of fixed assets is also borne as a cost of operation by means of a depreciation charge. In some undertakings, such as the ACT Omnibus Service, government policy provides for fares to be charged to passengers at a market rate, but recognises that the total cost of operation cannot be recovered from users. A subsidy is provided from the central budget.
The financing arrangements for capital requirements of statutory authorities are not uniform across the board and may take the form of public debt raisings; loans or advances from the central budget; accumulated profits; and guaranteed overseas specific purpose loans (e.g. to finance aircraft purchases). Public debt raisings are controlled by the Loan Council and access to them is limited only to the Australian Telecommunications Commission (Telecom). More common, these days, is a government requirement that bodies operating commercially finance at least part of their fixed capital requirements from earnings. Tariffs are fixed accordingly.
All statutory authority enterprises are expected to earn revenue sufficient to meet operating expenses, maintain existing capital and service borrowings. Most are expected to pay a portion of profits (determined in accordance with accrual accounting principles) to the Treasury. While the practice has not been universal, an enterprise has often been given a profit target. This practice is to become general in its application under policy guidelines recently announced by the Minister for Finance.
The larger enterprises readily obtain the authority of the Treasurer to enter into bank overdrafts in order to provide working capital to finance operations. By definition, this category of public enterprises does not obtain equity capital from the private sector. They operate within the financial powers provided in their enabling legislation, governing such matters as banking, investing and borrowing. If an injection of capital funds is agreed to by the government, the funds are appropriated by Parliament and paid to the authority by the associated department.
For government owned companies, similar financing arrangements apply. In this category it is common for the entire equity capital to. Ue provided by appropriation, or in the case of a subsidiary company, by the parent company or authority. Joint ventures with the private sector are rare.
Departmental undertakings operate under the same controls by the executive government as ministerial departments. Thus they are subject to Cabinet decisions and to ministerial directions. In practice, however, such decisions do not involve detailed day-to-day control but apply more generally to budgetary restraints and policy matters, including human resources, occupancy, and equipment.
A decision to establish a public enterprise in the form of a statutory authority is, in the first instance, made by the Cabinet on the basis of a proposal advanced by the initiating Minister. Cabinet will decide the extent of the powers to be exercised by the enterprise in discharge of the proposed functions. Legislation to establish the enterprise is drafted to give effect to Cabinet's decisions and submitted to Parliament. Few amendments are made by Parliament although such are not unknown.
Controls to be exercised by Ministers tend to vary according to the nature of the enterprise. Common controls relate to:
While a Minister may bring matters of major policy before Cabinet at any time, operational decisions are left to the board or commission. However, as laid down in the establishing legislation, certain matters (such as a request for additional fixed capital, or a proposed change of function or other amendment to the Act) must be referred by the responsible Minister to Cabinet for decision.
In relation to certain government business enterprises these controls have been removed in the interests of operational flexibility. Control of such matters rests entirely in the hands of the board of the enterprise. This element of freedom from ministerial controls was given in May 1988 to Australian Airlines, Qantas Airways, Australian National Line (shipping), Australian National (railways), Overseas Telecommunications Commission, and Aussat (satellite system). The Ministerial announcement said:
"The enterprises will not be subject to any other personnel, general or administrative policies not applying to the private sector, unless the government makes a specific decision that this should be so."
and
"The enterprise boards will be held squarely accountable for enterprise performance with the grounds for removal of board members to be expanded, accordingly, to include ongoing under-performance."
Government policy is that incorporation under companies law should generally be avoided, particularly because it is less satisfactory in terms of proper accountability to the Parliament. Corporations should only be established under companies law where there is a clear and specific statutory authorisation to do so or where ministerial approval is obtained and the matter reported to the Parliament within fifteen sitting days of the approval. In some cases legislation relating to a statutory authority makes specific provision for the authority to form subsidiary companies. The powers of a subsidiary should not be allowed to exceed those of the parent (unless specially authorised).
Day-to-day controls, financial or otherwise, are not exercised by the Treasury. That department normally only becomes involved in matters such as the borrowing or investment of moneys, and on questions relating to the payment of taxes and duties by the enterprise. Currently it is difficult to obtain exemptions from taxation - such exemptions, if granted, are provided for in the establishing Act. Companies are required to pay taxes and duties as if they were privately owned.
Few controls are now exercised by the Public Service Commission (the former Public Service Board being abolished in 1987 by Prime Ministerial decision and its functions, with the exception of certain residual functions, delegated to departments). Both departments and authorities previously subject to this form of staffing control now enjoy a significant degree of autonomy in relation to employment matters.
To the extent that residual controls remain there is now a tendency to deregulate or free statutory authorities from control. The general objective is to enable the board or commission to manage the enterprise along commercial lines. This philosophy is currently under examination by the government.
Although departmental undertakings have been defined as falling within the normal organisation structure of a department and subject to the directions of the department head (Secretary) and Minister, it is common practice to allow considerable operational flexibility to the manager of the enterprise. Such autonomy is achieved by the issue of substantial delegations under the legislation generally applying to departmental operations, on the basis that the manager will act responsibly, bringing major issues forward for advice or decision and ensuring that the Minister is briefed on matters likely to raise political issues and/or impinge on government policy.
Operational autonomy is constrained by the form of appropriations and the administration of expenditure oversight by the Department of Finance. But subject to broad budgetary restraints arising from economic conditions, departments are allowed a marked measure of independence in the administration of their budgets and programs. Such flexibility extends to enterprises in the form of departmental undertakings. However controls are very firm and complete over excess expenditures, pay and allowance rates, leasing of accommodation, major purchases of plant and equipment and forward expenditure obligations.
As indicated in paragraph 2.2 the tendency is to free up or deregulate enterprises in the form of statutory authorities. Nevertheless the extent of flexibility varies markedly and some degree of variation as between enterprises seems likely to remain. Autonomy exists with regard to powers conferred on each enterprise by law, subject always to accountability to the government and to the Parliament.
While the managements of some authorities show a tendency to minimise their adherence to public accountability concepts, it nevertheless remains true that none can escape parliamentary scrutiny should the Parliament feel it necessary to seek explanations in depth. This is done in several ways such as:
The operations of departmental undertakings are subject to ministerial control to the extent that the Minister of the department, in theory, may wish to exercise control. However, in practice, delegations to officials for the exercise of ministerial powers and delegations of powers exercised under legislation by the Secretary of the department, are normal.
In the case of statutory authorities, the legislation establishing each authority sets out the powers exercisable by the board of directors or commissioners. For enterprises operating in competition with the private sector these powers tend to be extensive; deliberately so to enable the enterprise to be conducted efficiently and along commercial lines. Only a few very significant powers are reserved for Ministers, and there are some important exceptions from the rule: these are referred to in section 2.1. Members of boards or commissions are generally appointed for fixed terms - usually five or seven years - and may be reappointed. Most appointments are made by the Governor-General on the recommendation of a Minister but some are made by the Minister involved. Suspension or termination of appointment before expiry of the term of office would be for reasons such as:
The appointment of a departmental officer as a member of a board or commission is not precluded, but such an appointment is not a widespread practice. Where it is done it is because the occupant of a particular post in a department has abilities and expertise likely to be of benefit to the authority and not as a means of departmental oversight or control.
Appointments of directors of a company are effected in accordance with the provisions of the companies legislation generally on nomination by the government or a Minister. Such directors act in accordance with a general directive of the Minister or government - or, in the case of subsidiary companies, consistent with the operational objectives and policies of the parent body.
It is a feature of the Australian parliamentary system that all agencies of the executive government - whether in the form of departments, statutory authorities or companies - report through the relevant Minister to the Parliament. Reports, supported by financial statements, are expected to be comprehensive in nature; extensive guidelines have been issued by the government specifying these requirements. Among these guidelines is a requirement that annual reports of enterprises will give an account of performance against previously established goals, including financial and operational targets, together with assessments of the cost of meeting "community service obligations" and observing any residual non-commercial central controls which may adversely affect their profitability.
Departmental undertakings and statutory authority enterprises are required to maintain accounting systems in accrual form and in accordance with established commercial accounting principles, practices and conventions. A directive titled "Guidelines for the Form and Standard of Financial Statements of Commonwealth Undertakings" and approved by the Minister for Finance in 1983 stipulate a number of important principles which should be followed unless an exemption from observing them is obtained. The Guidelines sought to establish a high degree of uniformity of accounting treatment as between enterprises and, in practice, this objective has largely been achieved. All major public enterprises have achieved a very high standard in the preparation and presentation of financial statements. Public enterprises in company form must follow the requirements of the companies legislation.
The general format of financial statements is subject to approval of the Minister for Finance - in practice by an officer of his department acting under delegated authority. The views of the Auditor-General are sought and taken into account before the Minister's (or delegate's) approval is given.
A further requirement is that reports of public enterprises must be tabled in the Parliament by the responsible Minister within 15 sitting days of receipt from the enterprise. As mentioned earlier, a period of six months is allowed for the preparation, audit and tablingof financial reports. If there isadelay, unavoidable or otherwise, the Minister may grant an extension of time but he must inform the Parliament of the reason.
The accounting standards promulgated by the professional accounting bodies in Australia are not mandatory for government agencies unless made so by the government. The Guidelines issued by the Minister for Finance (referred to in section 3.3), prescribe the application of standards to departmental undertakings and statutory authorities. However before being so prescribed they are examined for applicability to public enterprises. Failure on the part of a public enterprise to follow a prescribed accounting standard is almost certain to result in qualification of the financial statements by the Auditor-General unless adequate reason for the departure is demonstrated and accepted.
Government owned companies are also required to follow accounting standards, viz those issued by the Australian Standards Review Board - a regulatory authority which reviews the pronouncements of the accounting profession and approves standards for mandatory application by companies operating under the companies legislation.
As indicated earlier, no specific legislation is enacted to establish departmental undertakings. Thus the legislation applying to departmental undertakings is the legislation which applies to the parent department, viz the Audit Act, Appropriation Acts, Public Service Act and associated legislation, including the Regulations and Directions made and issued pursuant to the Audit Act.
On the other hand a statutory authority is established by means of a particular Act or, in the case of a territorial authority, a particular ordinance. By this means the Parliament establishes the rules within which the particular authority exists and carries out its operations. Such rules vary according to the nature of the enterprise, and to the degree of control by the government thought to be appropriate. Public accountability is secured by the audit arrangements incorporated in the legislation and provisions for reporting to the Parliament through the Minister.
The powers of the Joint Committee of Public Accounts of the Parliament specifically empower that Committee to review the operations of statutory authorities at its discretion. A further control imposed by the Parliament is the exercise of its powers through committees of the Senate or the House of Representatives to examine specific matters referred to them. Some particular (and general) inquiries of significance have been made under these powers by the committees of the Senate in recent times with the objective of enforcing public accountability of an enterprise.
In the Australian parliamentary system the findings of the above types of parliamentary committees tend to be fully effective. Inquiries are open to the media and are therefore reported publicly by the print and electronic media. It is significant that such committees operate in a bi-partisan manner and, depending on the interest and capabilities of their members and the skills of their secretariat staff, have produced very worthwhile results leading to important reforms.
The Supreme Audit Institution of Australia is the Australian Audit Office (AAO) headed by the Auditor-General. Under the Commonwealth Audit Act 1901 the Auditor-General is personally responsible for the conduct of audits and the preparation of reports to ministers and the Parliament.
A long-standing convention has been that the Auditor-General is the external or legislative auditor for all public enterprises, although in May 1988 six public enterprises (see para. 2.1) were given the option to recommend the appointment of an auditor of their choice and not be confined to the Auditor-General as at present. For those enterprises under departmental control the Audit Act provides the audit mandate, while for statutory authorities the appointment of the Auditor-General is contained in the legislation relating to a particular authority. In such cases the legislation appoints the Auditor-General, grants him access to the papers and records he needs for the audit, and requires him to report on the accounts and records and the financial statements of the enterprise. The Auditor-General reports to the Minister who is obliged to table the financial statements and the audit report on them in Parliament within 15 sitting days. Although there are a few exceptions, convention also requires that the Auditor-General be appointed auditor under the Companies Act to audit the accounts of government owned or controlled companies.
An exception to the long standing convention occurred in 1986 when legislation was enacted enabling a number of statutory marketing authorities -enterprises established to market certain primary products such as wheat and wool on behalf of growers - to have a company auditor appointed as external auditor subject to certain conditions. These included the retention of the Auditor-General in an oversight role with the right to report separately to the legislature if thought appropriate; together with the requirement that the Auditor-General be satisfied as to the capacity of the company auditor and the further requirement that that auditor carry out the audit in conformance with standards laid down by the Auditor-General. The Auditor-General retained the sole right to carry out efficiency audits.
Only one such marketing authority has so far taken up the option.
The audits of public enterprises undertaken by the SAI fall into two broad types - regularity auditing including attestation of financial statements and compliance auditing, and performance auditing, including efficiency auditing. The Auditor-General is specifically empowered to carry out efficiency audits of statutory authorities and to report the outcomes directly to the Parliament.
As regards government owned or controlled companies, a limited power exists for the conduct of such efficiency audits of their operations - limited in that the relevant Minister must first request the audit. Largely because of this restriction, the Auditor-General has not yet undertaken efficiency audits of government owned or controlled companies. The accountability of such companies is weakened as a result.
Similarly, there is an option available to certain statutory marketing authorities, e.g. Australian Wheat Board, for a company auditor to be appointed instead of the Auditor-General. In such cases the company auditor must be assessed as suitable by the Auditor-General and must conform to auditing standards prescribed by the Auditor-General. The Auditor-General may, at his discretion, review the work of the company auditor involved and report independently to the Parliament.
In Australia, as elsewhere, the objectives of attest audits is to form an opinion as to whether the financial statements of an enterprise show fairly the state of affairs of an enterprise. Audits for compliance are required to be undertaken concurrently to establish whether breaches of legislation have occurred. While minor technical breaches need not, at the Auditor-General's discretion, be reported, actions of the enterprise management which fall outside the powers conferred by legislation are important and are reported to the Minister and the Parliament by the Auditor-General. This often involves a request by the SAI to management that a legal advising be obtained on the point at issue.
The objectives of an efficiency audit of an enterprise are to establish whether the enterprise is operating with regard to economy and efficiency, including the means by which management is able to inform itself that it is so operating. The findings and recommendations arising from such an audit are referred to the enterprise management for comment and those comments are taken into account in the report made to the Parliament by the Auditor-General.
In Australia it is generally accepted that internal audit serves an important function in that it forms part of internal control. As such its performance is regularly evaluated by the Auditor-General and weaknesses are reported to the enterprise management, to the relevant Minister and to the Parliament. In the main, the internal audit function is staffed by employees of the department, statutory authority, or company and operates under a defined audit charter which ensures operational independence.
Audit committees are common in the administration of major public enterprises. Although not required by legislation, such committees generally oversight the internal audit function and ensure that relevant reports receive proper attention. Some enterprises find it more convenient to contract with a firm of commercial auditors to carry out the internal audit function.
The Auditor-General may use the work of the internal auditor of a particular enterprise in determining the nature and extent of the external audit work necessary to provide sufficient evidence in support of his audit opinion. The reliance of the SAI on the work of the internal auditor is dependent on the former's assessment and evaluation of the internal audit function in each case.
The Auditor-General does not contract with commercial auditors to carry out audits on his behalf. The matter is not simply one of principle. The SAI has preferred to carry out his audit responsibilities by using staff under his direct control. But recent public statements have suggested a change in attitude such that, if resources for the purpose were available, the SAI would contract out selected audits while retaining final responsibility for the work.
The principal audit method employed by the SAI is systems-based auditing, covering performance audits in addition to regularity audits. This common approach is supported by techniques such as risk analysis, regression analysis and statistical sampling. Pre-auditing is not carried out - the philosophy of managerial responsibility is that the auditee is responsible for the proper design and operation of systems for revenue collection, production management, funds control and payments disbursements.
Appropriate action packages are employed in the attest audit of public enterprises. These emphasise audit review of key controls in auditee systems and the use of structured audit techniques for assessing materiality and risk. In appropriate cases there is less emphasis on systems based audit techniques.
Audit evidence gathered to support the audit opinion is recorded on properly structured audit working papers. Regular use is made of exit interviews and management letters to support audit findings and conclusions.
Close attention is paid during the audit to adherence by the auditee to accounting standards prescribed by the Department of Finance as applicable to public enterprises and to conformance with similarly prescribed formats for financial statements. Accounting practices of a creative kind, that is interpretative practises engaged in with the objective of contriving an operating result or balance sheet tailored to suit the short term interests of auditee management are of particular interest to the SAI.
Due to the extraordinary growth of computer systems among auditees - the accounts of government departments have been fully computerised now for two decades - it became necessary for the SAI to develop techniques designed to test the validity of data processing of masses of accounting transactions and associated information systems. Particular auditing attention is given to computer systems which underlie financial statement items such as revenues, debtors, payroll, and inventories.
The audit of an operational computer based system is undertaken to:
The SAI has developed, and is continuing to develop, computer assisted audit techniques (CAATs) by which file records of auditee accounting systems are examined by auditors. Many of these techniques are designed for use on micro computers; others, for the examination of larger auditee computer files, require the use of a computer bureau pending acquisition in 1988 of mainframe computer facilities and an enquiry network for the exclusive use of the SAI.
The SAI is organised on the basis that strategic audit planning, the assessment of audit priorities, the allocation of resources and the preparation of reports to ministers and the Parliament, are responsibilities of the Central Office Divisions located in Canberra. Field audit work is carried out by regional office staff under the broad oversight and direction of Central Office staff who also coordinate audits undertaken in two or more regions concurrently. However, larger and more complex efficiency audits are conducted by Central Office staff, supplemented where necessary by staff from the regional office involved.
A Priorities Review Committee (PRC) meets quarterly to review resource allocations and to determine which audits should receive attention and when. The committee consists of the Auditor-General, the Deputy Auditor-General and the heads of Central Office Divisions.
The audit reports on the financial statements of many public enterprises are usually signed by a Division Head on behalf of the Auditor-General. However the practice has been for the latter to personally sign reports on all major enterprises. Recently a decision was made to devolve responsibility for planning, execution and reporting on a number of small auditees to managers of the main regional offices thus allowing the work to be carried through to completion entirely within the regional office.
Management of audits includes a requirement for adherence by audit staff to proper auditing standards. The SAI has determined and issued standards for both regularity and performance audits, and requires professional staff to observe these standards in the conduct of audits.
The Auditing Standards of the SAI are structured along the lines observed by the INTOSAI Auditing Standards Committee. There is, therefore, considerable convergence between the two sets of standards. The Auditing Standards of the SAI also incorporate, to the extent seen as applicable, the Auditing Standards and the Auditing Practice Statements developed by the Auditing Standards Board of the Australian Accounting Research Foundation - a body sponsored jointly by the two professional accounting bodies in Australia, viz. the Australian Society of Accountants and the Institute of Chartered Accountants in Australia.
The standards developed by the profession are not, and cannot be binding on the Auditor-General, whose mandate is established by law and not the profession. However such standards tend to be persuasive and most elements are seen by the SAI to apply to the audit of public enterprises. But the standards of the profession do not cover the public sector with regard to the special accountability concepts which apply in the public sector. The Auditing Standards of the SAI are designed to bridge this gap.
The implementation of Auditing Standards on their own are insufficient to ensure the highest quality audits, audit opinions, findings and recommendations. The SAI has therefore adopted the practice of reviewing completed audits on an in-house peer review basis. An internal audit unit may also carry out such reviews. Reviews of this kind, which are additional to normal supervisory arrangements, are considered essential if high-quality auditing work is to be maintained.
The frequency of regularity audit of large public enterprises is ongoing in that audit staff may be on the auditee's premises the year round. But as reports on financial statements are required to be made each financial year, the work is usually broken up into an interim audit and a final audit - the former being carried out during the year, and the latter after the close of the year and focusing on the financial statements of the enterprise.
Performance audits are not related to a financial year as their nature does not lend itself to an accounting period. Such audits are carried out at the discretion of the SAI through the mechanism of the PRC which approves the amount of resources to be allocated to each such audit.
Audit reports on financial statements (regularity audits) are in short form (statements of audit opinion) and are based on the Audit Act requirement that the Auditor-General state whetherthe accounts of the enterprise 'show fairly' the state of affairs. They also report significant departures from relevant laws and qualifications arising out of material breaches of applicable accounting standards (see section 3.4 above). Finally, they contain a statement that the audit
was conducted in accordance with the Auditing Standards of the SAL Such reports are generally addressed to the Minister, unless the enterprise is in the form of a company, in which case the report is to the chairman of directors. But the report to the Minister is copied to the board of the public enterprise and that made to the company chairman is copied also to the Minister.
Reports in short form are much the same and vary in wording only slightly according to whether they are on the accounts of a departmental enterprise, a statutory authority or a company - although in the case of the latter conformance to the requirements of the applicable companies legislation determines the actual wording.
Reports on the audit of accounts and records are prepared in the form of a letter addressed to the Minister responsible for the enterprise. Such reports include matters of concern to the Auditor-General which do not warrant a qualification of the financial statements, commercial-in-confidence matters and the like. A summary of the accounts and records reports, confidential matters excluded, is then incorporated in the Auditor-General's half-yearly report to the Parliament.
Performance audit reports are prepared in narrative form. They contain a good deal of analytical detail and can be lengthy. Further detail may be included in appendices to the main body of the report. Reports of this kind state the objectives of the audit, a description of the auditee functions or program under audit, the audit findings and conclusions, and recommendations for improvement.
Such a report is drafted promptly after completion of field work, and discussed with auditee management at an exit interview in order to verify facts and tentative conclusions arising from the evaluation of evidence. A final draft of the report is sent to the auditee for comment and those comments are summarised, whether or not they are in agreement with audit conclusions, in the report tabled in the Parliament. Reports are tabled without being channelled through a Minister, by means of a direct letter of transmission from the Auditor-General to the Presiding Officers of the Parliament. Parliament does not debate the reports but refers them to the Joint Committee of Public Accounts or another committee for follow-up enquiry (see section 4.2 above)
Audit findings, whether in the form of a qualified report on financial statements or in the form of conclusions and recommendations in a performance audit report, are taken seriously by the auditee management, the executive government and the parliamentary committee involved in follow-up work. Many findings are dealt with satisfactorily by auditee management before the reports are tabled. A few may be argued before the committee involved, with the committee recording its views in its own report to the Parliament. Occasions on which no action is ultimately taken are fairly rare, thus illustrating the underlying high quality and effectiveness of the audits.
As a general rule the SAI does not schedule follow-up audits in order to see whether previously reported deficiencies have been corrected and recommendations adopted. In the normal course of events this kind of information tends to become available to audit officers, and matters remaining uncorrected for a time are generally noted in the following year's report on the financial statements of the enterprise. If a fundamental difference of view remains as between the SAI and auditee management, it is generally resolved by ministerial pressure on, or direction to, the auditee.
Follow up action on matters raised in audit reports is taken by the Department of Finance on behalf of the executive government.
In Australia the form of the financial statements of public enterprises is not subject to the approval of the SAI. With very few exceptions, the Minister for Finance is the general authority who approves the form of each public enterprise's financial statements. However the SAI is invited by the Department of Finance to comment on the proposed form of the financial statements before the Minister is invited to approve them. The Minister therefore is able to have regard to independent expert opinion prior to the exercise of his authority to approve.
The SAI does not participate in the preparation of financial statements. This is the responsibility of the public enterprise concerned, irrespective of its type.
While the independence of the Auditor-General in relation to his professional responsibilities, from deciding which audit tasks to carry out through to including whatever he deems appropriate in reports to ministers and the Parliament is fully respected, some problems have emerged recently which may impinge on the Auditor-General's ability to carry out his duties to the full extent that by law and convention he may deem appropriate. One problem relates to controls over human and financial resources applied by the government to the SAI in times of severe financial restraint. Issues raised by such restraints centre around an important principle of audit, i.e. that the auditor should not be placed under restraint by the auditee as to his ability to carry out an audit. Since the accounts and systems of executive departments are being audited for the purpose of giving Parliament an assurance as to the managerial and fiscal accountability of those departments, resource restrictions imposed by the government cut across this important principle. This perceived limitation may involve a re-examination of the relationship of the Auditor-General and his Office with the government and the Parliament.
While this issue of resource restrictions has engaged the attention of audit management, a further issue of some significance to public accountability has also surfaced. It has been argued that the process of freeing up public enterprises from government controls should include providing an option to the management of an enterprise as to the choice of external auditor. It was contended by the SAI that the services of the Auditor-General are in no way a control or restriction on the ability of managers of public enterprises to make business-like decisions. To the contrary, the Auditor-General serves to preserve the accountability of the public enterprise to its
owners - the people of Australia. Proponents of the option clearly have a preference for commercial auditors for reasons such as the alleged ability to obtain "cheaper" audit services as a result of calling tenders; the supplementary services in terms of accounting advice said to be available from a commercial audit firm; a greater empathy with management through an alleged better understanding of the commercial role of the enterprise; and a preference for avoiding the consequences of public reporting by the Auditor-General in his public accountability role. None of these reasons, however, pays sufficient regard to the significance of the greater accountability of public enterprises to the owners than exists in the private sector.
Notwithstanding these considerations, and as mentioned in para. 2.1, in May 1988 a significant change of policy occurred. A statement by the Minister for Transport and Communications on the Government's plan for reshaping the transport and communications government business enterprises (GBEs), announced the removal of a number of detailed controls, typically the following:
The statement recorded the conclusion of the government that such detailed controls amounted to second guessing many managerial decisions and diverted enterprise resources from more productive activities, interposed considerations unrelated to the purposes of the enterprise into decision making, reduced responsiveness to external conditions and client n&eds and undermined the responsibility of enterprise managers for the results of their activities.
As part of the new arrangements certain public enterprises were given the option to recommend the appointment of an auditor of their own choice and not to be required to accept the services of the Auditor-General as at present. The Ministerial Statement included no specific comment on this decision but it is understood that the reason for it was related to the fact that these GBEs were in full competition with private enterprise and the Government wished them to compete on equal terms with their competitors.