General

Financial audit

Performance audit

General

Can we make management letters public?

Sometimes during our planning or interim audit visit, we issue interim management letters to the CEO and mayor/president/chairperson, to provide them early advice of our audit findings, to enable them to take timely remedial action.

We regard these as working documents until we issue them formally to the mayor, president or chairperson, the CEO and the Minister for Local Government as part of our final report. They are not suitable for other purposes.

As such, LG entities should not make interim management letters public unless specific urgent needs warrant their earlier release.

What is an audit report in relation to a local government financial audit and a local government performance audit?

It is important to know what an audit report is because LG entities have obligations under the Local Government Act 1995 relating to an audit report. Section 7.12A requires a LG entity to examine an audit report it has received and take action on any matters raised in the audit report, if required.

If the auditor has identified any matters as significant, the LG entity must prepare a report stating what action will be taken with respect to those matters. A copy of the LG entity’s report must be sent to the Minister for Local Government and published on the LG entity’s website as required by section 7.12A(5) of the Act.

For financial audits, an audit report includes:

  • the independent auditor’s report (which is to be included in the annual report)
  • interim and final management letters (which are not required to be published).

For performance audits, an audit report includes the reports tabled in Parliament for performance audits and focus area audits.

When conducting performance audits, we may send various documents to a LG entity including management letters, emerging or indicative findings, and summary of findings. We have determined that it is a LG entity’s responsibility to decide whether these documents are an audit report for the purposes of the Local Government Act 1995.

What is a significant matter in an audit report?

A significant matter is a matter clearly identified by the auditor as significant in an audit report (e.g. a management letter).

For the independent auditor’s report, a significant matter includes:

  • a matter included in the Basis for Qualified Opinion section
  • a matter (i.e. a deficiency) included in the Report on Other Legal and Regulatory Requirements section.

For performance audit reports tabled in Parliament, a significant matter includes the recommendations in the reports. We identify recommendations as significant matters by including the following paragraph in these reports.

Under section 7.12A of the Local Government Act 1995,  sampled LG entities are required to prepare an action plan addressing significant matters arising from the audit relevant to their entity. This action plan should be submitted to the Minister for Local Government within three months of the audit report being received by the local government, and published on the LG entity’s website within 14 days after giving the action plan to the Minister.

Financial audit

Can the OAG or its contract auditors do other work for local government entities?

For ‘other work’ at LG entities including internal audit, consultancy, preparation of financial statements, or advice about specific transactions, the general rule is that, for independence reasons the auditors cannot audit their own work. We recognise there may be instances in regional areas with limited access to other accounting firms in that area, where our audit teams may need to provide contained additional guidance. In these instances, we will need to apply additional safeguards to ensure the independence of those staff/contract firms performing the OAG’s audit.

Contract audit firms will generally be able to do other statutory/regulatory audit tasks such as grant acquittal certifications, including Royalties for Regions certifications. Using the same audit team typically has efficiencies, although it will not be mandatory for LG entities to use our staff or contractors for that certification work.

Will the OAG or its contract auditors be able to provide advice and training to local government entities that they are auditing?

Our contracted audit firms can provide LG entities with general advice and guidance. However, to maintain independence, our staff and contractors cannot provide detailed advice on how to perform a financial/accounting transaction that is specific to the LG entity they are auditing.

Performance audit

What are performance audits and why are they important?

The role of the Auditor General is not simply about ensuring public money is spent according to the rules – it is also about ensuring that the community receives value for its tax dollars. Our performance audits primarily focus on the effective and efficient management and operation of public sector programs and activities. Topics are selected by the Auditor General following a comprehensive topic selection process which may also include requests for audits from Parliament, the government or the broader community.

We table the results of our performance audits in Parliament and publish them on our website. These reports often receive media attention and are regularly referred to in parliamentary debate. This increases transparency and accountability of public sector activities and encourages all public sector entities (not just those audited) to pay attention to and act on the findings and recommendations of these reports.

Will all local government entities be subject to a performance audit?

The Auditor General has a comprehensive topic selection process in place to choose audit topics. While we would eventually like to involve every LG entity in a performance audit, this is not possible in the short term and may not actually be the most effective use of our resources. In choosing topics we consider factors such as risk, materiality and impact, which may lead to some LG entities being involved in multiple audit topics while others will be rarely involved.

Importantly, the findings and recommendations of our local government performance audits will often be applicable across the sector, and not just to those subject to the audit.

Who decides performance audit topics, and how?

The Auditor General decides the performance audit topics, and the entities to be audited, following a comprehensive topic selection process.

We welcome audit topic suggestions via our contact us page.

How does the OAG ensure performance audits are fair and balanced?

The Office of the Auditor General’s Audit Practice Statement provides a detailed description of the principles we apply in conducting our audits.

The five key principles that guide our audit work are:

  • all audits are conducted in accordance with auditing standards
  • the highest standards of ethical and personal behaviour are demonstrated
  • all audits are approached in a fair and constructive way
  • audits are conducted and reported in an impartial manner
  • matters of significance arising from audits are reported to Parliament.

We work closely with the entities we are auditing and have a ‘no surprises’ approach, which means they are made aware of potential audit findings as our work progresses and they are given the opportunity to respond and comment on the report before it is finalised. This approach helps ensure we end up with a report that is fair, balanced and accurate.

Who pays for performance audits?

Unlike financial audits, which are paid for by each entity to cover the cost of doing the audit, performance audits are funded by Parliamentary appropriation.

When will we find out if our local government entity is being audited as part of a performance audit?

If your entity has been selected to be included in a performance audit, your CEO will receive a formal letter advising of the audit objective and criteria. The audit team may also informally touch base before this.

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