Introduction

The Financial Management Act 2006 governs financial accountability of most State government entities while the Auditor General Act 2006 governs the activities and role of the Auditor General.

The Auditor General is required to issue an opinion to the Parliament through the responsible Minister for each State government entity audited. Entities include the audit opinion in their annual report.

The opinion relates to the financial statements and, depending on each entity’s enabling legislation, may also relate to controls and key performance indicators (KPIs):

• financial statements – assurance that the financial statements and supporting notes are materially complete, accurate, reliable and comply with relevant legislation and applicable accounting standards
• controls – assurance that the internal control systems and procedures are adequate, and ensure that financial transactions comply with legislative requirements
• KPIs – assurance that the KPIs are relevant, appropriate, based on reliable data, and fairly present the performance of the entity in achieving its desired outcomes.

It should be noted that the audit opinions relate to historical information reported in the financial statements and KPIs, and are not predictive of future expectations.

Summary of audit opinions

At 4 November 2020, we had issued audit opinions for 143 State government entities, primarily with financial periods ending on 30 June 2020. Appendix 1, commencing on page 57, is a table of all the audit opinions issued since our last audit results report on 12 May 2020.

Audit opinion issued on	Type of entity	Number
Financial statements, controls and KPIs	Departments Statutory authorities	33 82
Financial statements only	Annual Report on State Finances Corporatised entities Subsidiary entities Request audits	1 12 14 1
TOTAL NUMBER OF AUDIT OPINIONS ISSUED		143

Source: OAG

Table 1: Number and type of audit opinions issued between 4 May 2020 and 4 November 2020

Other audit services

In addition to entity opinions, we also issued 85 financial certifications.

Appendix 2 details the 14 certifications we issued on the financial and statistical information produced by entities to discharge reporting obligations for Australian Government grants or under other legislation. The certifications for 71 Royalties for Regions program grants issued up to 4 November 2020 are listed in Appendix 3.

An agreed upon procedures engagement for the regulatory financial statements of the Electricity Networks Corporation for the years ending 30 June 2018 and 30 June 2019 was also completed. These reports were prepared for submission to the Economic Regulation Authority.

Qualified opinions

We issue a qualified opinion on an entity’s audited financial statements or KPIs if we consider it is necessary to alert readers to inaccuracies or limitations. If we issue a qualified opinion on controls, it is because we consider a financial control deficiency makes the entity non-compliant with legislation.

Seven entities received qualified opinions:

Department of Communities
Qualified opinion on controls

We identified significant weaknesses in the payroll controls implemented by the Department. These weaknesses could result in salary errors such as overpayments or payments to individuals who are not entitled to receive payment. Consequently, controls to prevent invalid and inaccurate payroll payments were inadequate.

We also identified significant weaknesses in the procurement controls implemented by the Department. Our testing showed controls were inadequate to sufficiently demonstrate that the ordering of goods or services was approved prior to ordering. This increases the risk of erroneous or fraudulent payments, and ordering of inappropriate or unnecessary goods or services.

For procurements without a purchase order, the Department does not evidence that goods or services were received by someone independent of the incurring officer. Rather, the incurring officer fulfils the receiving function at the time of incurring. This is inadequate segregation of duties and contrary to the requirements of Treasurer’s instruction 304 Authorisation of Payments. It also increases the risk of erroneous and fraudulent payments.

Department of Local Government, Sport and Cultural Industries
Qualified opinion on controls

We identified significant weaknesses in the Department’s control procedures for:

• payroll system, processes and leave management which could result in unauthorised access to the Department’s payroll system, and salary errors such as overpayments, payments to individuals who are not entitled to receive payment and overstated leave balances. Consequently, controls to prevent invalid and inaccurate payroll payments were inadequate.
• procurement where purchase order processes are not effectively restricted, goods and services are ordered prior to necessary approval, procurement without a purchase order and no evidence that goods or services were received by someone independent of the incurring officer. These weaknesses and inadequate segregation of duties increase the risk of erroneous or fraudulent payments or ordering of inappropriate or unnecessary goods or services.
• general computer authentication controls and privileged access rights reported in our qualified opinion last year which had not been adequately addressed throughout 2019‑20. This access could be used to override management controls that prevent fictitious or fraudulent transactions and could undermine the integrity of data. However, our audit testing did not detect any inappropriate or fraudulent transactions.

The weaknesses indicate some capability gaps for the Department. With an OAG performance audit underway and local government entities’ audits currently in progress, we will be monitoring for any further gaps which may impact on outcomes for the local government sector. The Department is responsible for regulating and supporting this sector.

Department of Primary Industries and Regional Development
Qualified opinion on controls 

Prior to April 2020, the Department did not have an effective process in place to regularly monitor restricted cash balances. Such controls are of heightened importance during periods where there may be an operating cash shortfall, which the Department experienced during 2019-20. However, controls over these restricted funds, including monitoring of their use, to ensure that restricted funds were solely used for their approved purpose for the entire reporting period, were inadequate. The Department advised that it was aware of the shortfall in operational cash early in the year and applied for supplementary funding at the earliest opportunity.

We also identified significant weaknesses in general computer controls which could result in unauthorised access to sensitive information and increased risk of information loss. The combined weaknesses expose the Department to vulnerabilities which can undermine the integrity of information in the Department’s finance, human resources and other business systems.

Health Support Services
Qualified opinion on controls

We identified significant weaknesses in remote access and network security controls implemented by Health Support Services. These weaknesses could result in a potential security exposure such as unauthorised access to sensitive information and an increased risk of information loss. The weaknesses exposed the network to increased vulnerabilities which could undermine the integrity of data across all systems, including the financial system.

Housing Authority
Qualified opinion on controls

We identified significant weaknesses in the procurement controls implemented by the Authority. Our testing showed controls were inadequate to demonstrate that the ordering of goods or services was approved prior to ordering. This increases the risk of erroneous or fraudulent payments and ordering of inappropriate or unnecessary goods or services.

For procurements without a purchase order, the Authority does not evidence that goods or services were received by someone independent of the incurring officer. Rather the incurring officer fulfilled the receiving function at the time of incurring. This is inadequate segregation of duties and contrary to the requirements of Treasurer’s instruction 304 Authorisation of Payments. It also increases the risk of erroneous and fraudulent payments.

Office of the Parliamentary Inspector of the Corruption and Crime Commission
Qualified opinion on KPIs

The Office did not maintain adequate records for the period October 2019 to March 2020 to enable reliable reporting on actual performance for their key efficiency indicators ‘average cost per investigation/case’ and ‘cost of the audit function as a percentage of total cost of operations’. We were also unable to confirm the actual performance by alternative means. Consequently, sufficient appropriate audit evidence was not available to determine if the key efficiency indicators were fairly presented.

Western Australian Greyhound Racing Association
Qualified opinions on financial statements

In prior years, grants the Association received from Racing and Wagering Western Australia to fund construction costs for the new Cannington track were not recognised as income in accordance with Australian Accounting Standard AASB 1004 – Contributions. Instead, these grants were recorded as ‘Non-Current Liabilities – Payables’, with income being recorded progressively over the life of the asset. This accounting treatment continued in 2019-20.

As a result, for the year ended 31 July 2020, ‘Non-Current Liabilities – Payables’ are overstated by $14,359,772 in 2020 and $14,837,879 in 2019. Retained Earnings are understated by the same amount for each respective year. In addition, ‘Grants and subsidies received from State Government’ in the Statement of Comprehensive Income is overstated by $478,108 for 2020 and $497,262 for 2019. We therefore issued a qualified opinion on the financial statements.

Matters of Significance in auditor’s reports

Where a matter in relation to the financial statements or KPIs is undisclosed or not apparent in the financial statements or KPIs, we may include a Matter of Significance paragraph in our auditor’s report to bring it to the attention of readers.

Entity	Details of Matter of Significance
Child and Adolescent Health Service, East Metropolitan Health Service, North Metropolitan Health Service, South Metropolitan Health Service WA Country Health Service	Our audit reports highlighted that the 4 metropolitan health services and WA Country Health Service have approval to not report emergency waiting times as an audited KPI. The Under Treasurer has continued his approval to remove the reporting of an audited KPI ‘Percentage of Emergency Department patients seen within recommended time’. The approval was conditional on unaudited KPIs being included in annual reports until implementation of a new Emergency Department data collection system. The Under Treasurer’s approval requires WA Health to reassess whether this indicator can be re‑instated as a KPI once a new emergency department data collection system has been implemented. There is currently no set timeframe for implementation of a new system. The existing systems are clinical management tools designed to assist with prompt and effective treatment of patients, but not necessarily for accurate recording of waiting time data.
Department of Primary Industries and Regional Development	The Biosecurity and Agriculture Management Act 2007 requires the Western Australian Agriculture Authority’s (WAAA) activities to be regarded as services under the control of the Department. Consequently, the Department has included WAAA’s income, expenses, assets and liabilities in its financial statements. We have highlighted this in the auditor’s report so that readers are aware of this arrangement, as the Department’s financial statements do not separately identify WAAA’s transactions.

Source: OAG

Table 2: Matter of Significance comments included in auditor’s reports

Effect of COVID-19 on KPI reporting – Exemptions from reporting selected KPIs

For a variety of reasons, mostly related to the COVID-19 pandemic response, some entities applied to Treasury for exemptions from reporting selected KPIs for 2020. Treasury approved most of these applications. Reasons included an inability to collect performance information such as survey data due to the COVID disruptions or to free up entity staff for operational purposes.

Where KPIs were not reported, we included a Matter of Significance paragraph with the audit opinion, to inform users of the reason why entities had not reported the KPIs. The audit opinion in each entity’s annual report will provide readers with further information on the following KPIs not reported for 2020:

Entity	KPI not reported
Aboriginal Affairs Planning Authority	Customer satisfaction survey indicator
Animal Resources Authority	Customer survey key effectiveness indicator
Botanic Gardens and Parks Authority	Customer satisfaction survey indicator
Department of Biodiversity, Conservation and Attractions	Visitor satisfaction in national parks and other lands and waters
Department of Mines, Industry Regulation and Safety	Stakeholder satisfaction survey indicators
Disability Services Commission	Key efficiency indicators for average cost per service
Gascoyne, Goldfields-Esperance, Great Southern, Kimberley, Mid West, Peel, South West and Wheatbelt Development Commissions	Client survey KPI effectiveness indicators for each entity
Mental Health Commission	Key efficiency indicators for average cost per service
Public Transport Authority of Western Australia	Customer satisfaction index for country passenger rail and road coach services
Rottnest Island Authority	Visitor satisfaction index at Rottnest Island
School Curriculum and Standards Authority	Key efficiency indicator for average cost per student for NAPLAN testing, as tests were not conducted
Zoological Parks Authority	Customer satisfaction indicator

Source: OAG

Table 3: Entities with exemption from reporting KPIs for 2020

Emphasis of Matter paragraphs in auditor’s reports

If a matter is appropriately presented or disclosed in the financial report but, in our judgement, is of such importance that it should be drawn to the attention of Parliament, we may include an Emphasis of Matter paragraph in our auditor’s report. The following list describes the more noteworthy matters that we highlighted through Emphasis of Matter paragraphs.

Entity	Description of Emphasis of Matter paragraphs
Annual Report on State Finances	Contingent liability relating to a claim of $28 billion made against the State in respect of a legal dispute between the parties to a state agreement and the Western Australian Government. This is recognised in the financial report of the Department of Jobs, Tourism, Science and Innovation.
Department of Jobs, Tourism, Science and Innovation	Contingent liability disclosed in the financial report recognises a claim of $28 billion made against the State in respect of a legal dispute between the parties to a state agreement and the Western Australian Government. The claim is still current.
Electricity Generation and Retail Corporation (Synergy)	The contingent liability note in the financial report describes the status of the investigation by the Economic Regulation Authority into the Corporation’s pricing in balancing submissions made in the Western Australian Wholesale Electricity Market.
Gold Corporation	The events occurring after the reporting period note to the financial statements disclosed that elements of Gold Corporation’s risk assessment process in respect of responsible sourcing require strengthening, and that a corrective action plan is being implemented.
Insurance Commission of Western Australia	The notes to the financial statements describe an event occurring after the reporting period relating to the liquidation settlement scheme arrangements agreed between the Bell Group companies and their creditors, the Supreme Court of Western Australia orders approving the settlement, and receipt of the $665 million settlement.

Source: OAG

Table 4: Selected Emphasis of Matter paragraphs in auditor’s reports

Prior year qualified opinion removed in 2019-20

Rottnest Island Authority – qualified opinion on controls removed

During 2019-20, the Authority improved controls by regularly reviewing system logs recording changes to rates, refunds and discounts for its records of accommodation, bike and equipment hire and other miscellaneous revenue. Consequently, the qualification from 2018‑19 and 2017-18 relating to these controls has been removed.

2019-20 financial statement audits not undertaken

Three entities were not audited for the 2019-20 year.

We dispensed with these audits under section 14 of the AG Act because the operations of the entities have ceased or there was insufficient activity to justify undertaking an audit. We dispensed with the audits after consultation with the Treasurer.

Entity	Reason why audits dispensed
Landcare Trust (inactive since 2004)	The Trust ceased to operate in 2004 and holds no funds. Legislation to repeal Part VA of the Soil and Land Conservation Act 1945, which created the Trust, is required. The Department of Primary Industries and Regional Development now administers this legislation.
State Supply Commission (inactive since 2009)	The Commission’s functions and records were transferred in June 2009 to the Department of Finance. The State Supply Commission Act 1991 has not been repealed.
Western Australian Building Management Authority (inactive since 2009)	The Authority ceased to operate in 2009 and is awaiting repeal of its legislation, Part IA of the Public Works Act 1902. The Department of Finance holds the Authority’s records.

Source: OAG

Table 5: 2019-20 audits dispensed under section 14 of the AG Act

Since the entities ceased operation, we have completed audits every 3 years. The latest audit was for the 2017-18 financial year. If these entities are not abolished in this year, we will perform an audit for 2020-21, as required by section 14(5) of the AG Act.