Why isn’t the Annual Financial Report bound by the normal rules, asks VAGO

By David Donaldson

Wednesday November 25, 2015

The Victorian Auditor-General’s Office has reached a sort of truce in its ongoing troubles with the state’s Department of Education and Training by offering to step in and help it fix its accounting deficiencies.

But there’s a role also for the Department of Treasury and Finance to fix inconsistent reporting rules.

Over $16 billion worth of assets at Victoria’s DET were not properly accounted for in the state’s annual financial report, warns VAGO.

It’s not the first time the department has been told off by the VAGO over record keeping and data integrity, with similar problems being identified as high-risk and in need of immediate resolution in the two preceding financial years.

Acting auditor-general Peter Frost voiced disquiet about the department’s financial reporting in his report on the state’s Annual Financial Report.

“Our observations and concerns around data integrity and other issues over asset recording at DET are not new, and are a further area of concern for this office coming on the back of our recent performance report on strategic planning at that department,” he said.

Last month the VAGO criticised what it called a culture of complacency, defensiveness and siloing at the department.

DET secretary Gill Callister’s response to the report released this week accepts there are issues, and commits to addressing and resolving them: “An important program of work has commenced to improve the department’s financial management and reporting processes, systems and controls.”

Frost has in turn committed that within the bounds of its independence, the VAGO will work closely with DET to provide feedback and advice as it works to resolve these issues.

The auditor also noted that the Annual Financial Report is not bound by the same rules and standards as the entities included in the report are, meaning it does not disclose some information required by other financial reports, such as related parties and executive remuneration information.

To counter these reporting discrepancies, the VAGO recommends the Department of Treasury and Finance apply the same governance, oversight and better practice financial reporting principles to the AFR as apply to public sector entities reporting under the Financial Management Act 1994.

The auditor also recommended departments review the resources and capability of their finance teams and ensure they have the skills and experience to produce accurate and compliant financial statements in a timely manner.

In addition, the VAGO’s review highlights that the annual report fails to recognise the state’s obligation to return $1.5 billion of federal government funding for the cancelled East West Link road project, even though the memorandum of understanding and legislation under which the funding was provided are both clear in the requirement to return funding if a project is cancelled.

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