april 2009 ric de santi, deputy auditor-general

1. Tasmanian Audit Office Update

3. Issues faced � Volatility in defined benefit superannuation liabilities Valuation of contracts, including derivatives, by electricity businesses operating in the National Electricity Market Valuation of long lived infrastructure assets using either replacement cost or income based methodologies Impairment of assets, including investments Impact of movements in financial markets resulting in changes to the carrying values of investments held by State entities exposed to market conditions Restructures such as the regional restructure of water and sewerage from councils, with a common service provider. Matters we will need to address include values at which infrastructure assets will be transferred and how these will be accounted for The Tasmania Tomorrow reforms resulting in creation of the Polytechnic, Academy and Skills Institute with staff, assets and liabilities transferring from TAFE and the Department of Education Accounting for the sales of public sector entities Accounting for the acquisition of subsidiaries.

4. Audit Act 2008 Independence of Auditor-General Annual work plan Power to �follow the dollar� Confidentiality New terminology Deadlines Fees

5. Audit Act 2008 Accountable Authorities, State entities, subsidiaries and related entities Accountable Authority - Head of Agency the person or body (however described) having the general direction and control of, and the overall responsibility for, the operations of the State entity. of an audited subsidiary of a State entity is the person or body (however described) having the general direction and control of, and the overall responsibility for, the operations of the audited subsidiary of the State entity. State entity�� an agency a council a Government Business Enterprise a State-Owned Company a State authority that is not a Government Business Enterprise the council, board, trust or trustees, or other governing body (however designated) of, or for, a corporation, body of persons or institution, that is or are appointed by the Governor or a Minister of the Crown; and a Corporation within the meaning of the Water and Sewerage Corporations Act 2008.

6. Accountable Authorities, State entities, subsidiaries and related entities Subsidiary of a State entity�� (a) a company or body formed or incorporated under the Corporations Act or formed or incorporated under equivalent laws of a place other than a State or Territory�� (i) in respect of which the State entity has the capacity to control decision making, directly or indirectly, in relation to the financial and operating policies of the company or body; and (ii) that is not itself a State entity; or (b) a body, trust or other entity formed under written law or under equivalent laws of the Commonwealth or a State or Territory of the Commonwealth�� (i) in respect of which the State entity has the capacity to control decision making, directly or indirectly, in relation to the financial and operating policies of the body, trust or other entity; and (ii) that is not itself a State entity; or (c) a body that is declared under an Act to be a subsidiary of a State entity and is not itself a State entity; or (d) a body that is determined by the Treasurer, by written notice given to the State entity, to be a subsidiary of the State entity Related entities - if a State entity performs any of its functions�� (a) in partnership or jointly with another person or body; or (b) through the instrumentality of another person or body; or (c) by means of a trust�

7. Audit Act 2008 Deadlines An accountable authority as soon as possible and within 45 days after the end of each financial year, is to prepare and forward to the Auditor-General a copy of the financial statements for that financial year which are complete in all material respects. The Auditor-General is to determine whether the financial statements are complete in all material respects. �Complete in all material respects� means the financial statements must:: Be signed by the accountable authority at the time they are submitted. Comply with relevant legislative requirements governing the State entity being audited. Comply with Australian Accounting Standards. In the case of government departments, compliance with the Department of Treasury and Finance�s model financial statements will satisfy this requirement. Where a State entity, for example a subsidiary of a State-owned Company, wishes to prepare a special purpose financial report, this will be acceptable subject to appropriate disclosures in the report and the lack of users of the financial report who cannot demand information normally made available in a general purpose financial report.

8. Audit Act 2008 Deadlines Transitional provision - where, before the commencement of the Act, a State entity had not been required under any Act to forward financial statements to the Auditor-General within 45 days of the end of each financial year, the State entity is to comply with section�17 of the Act from the financial year commencing after 30 June 2010. Auditor-General must finalise his or her audit opinion for a State entity or an audited subsidiary of a State entity within 45 days of receiving financial statements from the accountable authority.

9. Audit Act 2008 Audit fees Auditor-General is to determine whether a fee is to be charged for an audit carried out by the Auditor-General and if so�� (a) the amount of that fee; and (b) the accountable authority liable to pay that fee. ����� If the amount of the fee is disputed by the accountable authority liable to pay the fee, the accountable authority may refer the dispute to the Government Prices Oversight Commission established under the Government Prices Oversight Act 1995 and that Commission is to determine the amount of the fee to be paid. ����� Any such fee for an audit is a debt due to the Crown and may be recovered as such in a court of competent jurisdiction by the Treasurer.

10. Audit Fees Fees are set for each client commensurate with the risks of the engagement. This will affect the mix of staff we assign to the job and therefore the overall fee. Staff will be assigned charge rates to be used in determining the allocation of work on the audit. There is an expectation that audits of similar risks will have a similar mix of staff. Charge rates are based on the principle of the office being able to recover its costs of operation. Charge rates comprise two parts, direct salary cost and overhead recovery. To base fees we add direct travel costs attributable to each audit. Other incidentals are covered by the overhead rate. Fees advised to the clients are all inclusive, though a breakdown will be provided. Fees incorporate financial disclosure and other specific audit related advice not resulting in material additional audit work. Additional audit, including the audit of grant acquittals and similar compliance or regulatory statements, will be discussed and negotiated with client financial management staff as required. Work performed will be in accordance with applicable auditing standards.

11. Audit Fees Assumptions: The current accounting systems will be operating throughout the year with a satisfactory appraisal of internal control No errors or issues requiring significant additional audit work will be encountered The standard period-end general ledger reconciliations will be available at the commencement of our year-end audit Assistance from your staff will be provided with respect to reasonable requests for additional schedules and analysis throughout the audit; The agreed timetable will be met within reason, particularly with regards to the preparation of the financial statements The financial statements presented for audit are complete and do not require ongoing changes/adjustments Additional work (including new standards or issues associated with key risks and other matters arising) will be billed separately if it cannot be absorbed into the existing fee The nature of the Entity�s business and scale of operations will be similar to that of the previous financial year

12. Audit Fees Setting fees: Transactions Complexity Risk Time needed to undertake audit Staff mix required Travel and other direct costs Market testing and benchmarking Accounting and Auditing standards Indexation Separate fees for audit and acquittals

13. Audit Fee Scales

14. Audit Fees Variation to fees: Changes to assumptions including: scope increased risk or complexity quality Fees may be adjusted beyond the above in the following circumstances Changes to the size and nature of the entity and its operations. Changes to accounting and auditing standards requiring greater effort on our part. Unavoidable increases in costs of maintaining the Office. Minimising fees: Strength of controls Quality of financial statements Preparation of leadsheets/overall analytical reviews Internal audit TAO efficiencies

15. Recent Reports 2008 April - No 72 - Public sector performance information 2008 June - No 73 - Timeliness in the Magistrates Court 2008 June - No 74 - Follow up of performance audits April � October 2005 2008 June - Report No 1 - Local Government Authorities, Superannuation Funds and Other Public Bodies 2008 September - No 75 - Executive termination payments 2008 November - No 76 - Complaint handling in local government 2008 November - No 77 - Food safety: safe as eggs? 2008 November - Report No 2 Government Departments and Public Bodies 2007-2008 - (Executive and Legislature and Government Departments, Government Businesses, Superannuation Funds and Other Public Bodies) 2009 March � No 78 - Management of threatened species www.audit.tas.gov.au (under publications)

16. TAO Reports � in progress Financial audit: Government Departments and Public Bodies, Report 1, 2009 Financial analysis Operating Margin Underlying Result Ratio Self Financing Ratio Own Source Revenue Current Ratio Capital expenditure/depreciation Hydro hedges Examines processes for approving currency and interest hedges. Profitability, and economic benefits to Tasmania, of Forestry Tasmania Evaluates Forestry Tasmania�s long-term financial and economic performance. Contract management Examines the effectiveness of contract management processes of a number of selected contracts. Follow-up of previous performance audits Examines the degree of implementation of recommendations in selected performance audits tabled in 2006. Speed detection devices Evaluates Tasmania�s speed detection devices enforcement program looking at the efficiency and effectiveness of the program. Communications by the Government Evaluates whether government expenditure on communications is for political purposes and whether the current guidelines are adequate. Hydro hedges Examines processes for approving currency and interest hedges. Profitability, and economic benefits to Tasmania, of Forestry Tasmania Evaluates Forestry Tasmania�s long-term financial and economic performance. Contract management Examines the effectiveness of contract management processes of a number of selected contracts. Follow-up of previous performance audits Examines the degree of implementation of recommendations in selected performance audits tabled in 2006. Speed detection devices Evaluates Tasmania�s speed detection devices enforcement program looking at the efficiency and effectiveness of the program. Communications by the Government Evaluates whether government expenditure on communications is for political purposes and whether the current guidelines are adequate.

17. TAO Reports � in progress Performance audit: Hydro hedges Profitability, and economic benefits to Tasmania, of Forestry Tasmania Contract management Follow-up of previous performance audits Speed detection devices Communications by the Government Other reviews: Local government rating Local government investment policies Pensioner Rate Remissions

18. 2007-08 Audit Findings The area with the greatest proportion of issues at 24% was in relation to employee expenses (2007: 18%, non-current physical assets). The majority of Employee expenses issues were in relation to the preparation and disclosure of annual and long service leave. Non-current physical assets rated second at 18% (2007: Information Systems 14%). Once again the most common matter raised within this category was in relation to appropriate and timely valuation of non-current physical assets. In my Report No.1�April�2007 I detailed my concerns regarding accounting for long-lived property, plant and equipment. I continue to urge each public sector entity to carry long-lived assets at fair value, thereby enabling better assessment by users of the effectiveness by management in managing these assets. Conducting full re-valuations with sufficient regularity is the best means to ensure that the carrying amount of assets does not differ materially from that which would be determined using fair value. Equal third were issues in relation to Revenue & Receivables and Expenditure & Accounts payable at 14% (2007: Revenue & Receivables and Employee Expenses, 12%). Revenue matters related to control weaknesses, revenue recognition and procedures relating to debtors and provisions for impairment. Future reports will continue to consider trends in audit findings and actions taken by management to address concerns raised.The area with the greatest proportion of issues at 24% was in relation to employee expenses (2007: 18%, non-current physical assets). The majority of Employee expenses issues were in relation to the preparation and disclosure of annual and long service leave. Non-current physical assets rated second at 18% (2007: Information Systems 14%). Once again the most common matter raised within this category was in relation to appropriate and timely valuation of non-current physical assets. In my Report No.1�April�2007 I detailed my concerns regarding accounting for long-lived property, plant and equipment. I continue to urge each public sector entity to carry long-lived assets at fair value, thereby enabling better assessment by users of the effectiveness by management in managing these assets. Conducting full re-valuations with sufficient regularity is the best means to ensure that the carrying amount of assets does not differ materially from that which would be determined using fair value. Equal third were issues in relation to Revenue & Receivables and Expenditure & Accounts payable at 14% (2007: Revenue & Receivables and Employee Expenses, 12%). Revenue matters related to control weaknesses, revenue recognition and procedures relating to debtors and provisions for impairment. Future reports will continue to consider trends in audit findings and actions taken by management to address concerns raised.

19. Questions