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TABLE OF CONTENTS

INTRODUCTION
EXECUTIVE SUMMARY
Part 1 - Executive and Legislature (106.4kb)
Part 2 - Ministerial Departments (407.6kb)
Part 3 - Statutory Authorities (555.4kb)
Part 4 - Miscellaneous Public Bodies (92.6kb)
Part 5 - Other Issues (77.0kb)

List of appendices

APPENDIX A: Qualified Audit Reports 299 (58.8kb)
APPENDIX B: Ministerial Portfolios 300 (58.8kb)

INTRODUCTION

Report No 1 was submitted to Parliament in September 1998 and dealt with the audit of the Public Account for the year ended 30 June 1998.

Report No 2 (this Report) deals with Ministerial Departments, State Authorities, Government Business Enterprises, Local Government Authorities, Port Corporations, and other public bodies together with special comments on various other issues. Unless specifically indicated, the comment in this Report is current as at 7 December 1998.

FORMAT OF THIS REPORT

This Report has been based on the administrative arrangements set out under the provisions of the Administrative Arrangements Act 1990 as at 30 June 1998 and I have classified entities as follows:-

This classification does not attempt to recognise any lines of responsibility that some Statutory Authorities have through Ministerial Departments to the appropriate Minister, however the Portfolio or Responsible Minister is shown in each case.

STATUS OF AUDITS

The majority of audits for the year ended 30 June 1998 have been completed with some exceptions as detailed in the preamble under each Part of the Report.

AUDITS DISPENSED WITH

In accordance with Section 41 of the Financial Management and Audit Act 1990 (FMAA), the following audits have been dispensed with after consideration of alternative accountability arrangements for the public bodies concerned. Two of the aspects considered were the materiality of the financial transactions involved and the most cost-effective means of conducting the audits.

Grants to Public Bodies

An organisation in receipt of a grant from the Consolidated Fund automatically becomes a public body as defined under the FMAA, and is required to meet certain accountability requirements in accordance with the Treasurer's Instructions. A recipient of a grant of $5 000 or more is required to provide the appropriate Head of Agency with:-

• a signed copy of the public body's financial statements, showing the receipt and manner of disbursement of each grant, together with an audit report signed by a suitably qualified person; or
• a Statutory Declaration made in accordance with the Evidence Act 1910, and signed by two office holders or members considered to be bona fide representatives of the public body, to the effect that the grant was received and disbursed for the purpose for which it was given; or
• a certificate signed by a suitably qualified person to the effect that the grant was received and disbursed for the purpose for which it was given.

In the course of the various Agency audits, Audit Office staff ensure that Heads of Agencies comply with the requirements of the Treasurer's Instructions.

Registration Boards

The audits of the following Boards have been dispensed with on the basis that an audit is undertaken by a suitably qualified person.

Board of Architects
Chiropractors Registration Board
Dental Board
Dental Mechanics Board
Medical Council of Tasmania
Nursing Board
Optometrists Registration Board
Pharmacy Board of Tasmania
Physiotherapists Registration Board
Plumbers and Gasfitters Registration Board
Podiatrists Registration Board
Psychologists Registration Board
Radiographers Registration Board
Surveyors Registration Board
Teachers and Schools Registration Board
Travel Agents Licensing Board
Valuers Registration Board

Other Public Bodies

The audits of the following public bodies have also been dispensed with on the basis that an audit is undertaken by a suitably qualified person:-

National Trust of Australia (Tasmania)
National Trust Preservation Fund (Hobart)
Drainage Trusts

Local Government Committees

Committees appointed under the Local Government Act 1993 are required to provide copies of their annual financial statements to the respective Council to enable the General Manager, or some other appropriate person, to perform an audit of those accounts.

Statements of Committees are normally consolidated in the financial statements of the respective Councils.

EXECUTIVE SUMMARY

The format of this Report is similar to the corresponding report in 1997. This Report contains operating statements and financial positions of ministerial departments, the more significant government business enterprises and statutory authorities. The Report continues to present summarised financial information for all councils. I hope that method of presentation provides a better overview of how these entities have fared without undertaking the futile task of reproducing all of the information that is available in the annual reports of these entities. The accompanying text sets out significant points, if any, arising from an analysis of the financial statements and in relation to the environment in which each operates.

The Report does not include many items arising from the audits that have been formally raised with the auditees. The rationale for inclusion or otherwise rests on my perception of the public interest in each point and the need to confine comments to those matters that have more than a managerial dimension.

Significant issues

Department of Community and Health Services (Part 2.1)

The Department has assessed its outstanding obligations in respect of specific purpose funding received as $24.895m at 30 June 1998. It had a maximum of $3m to fund those obligations. A qualified audit opinion was issued on the 1997-98 financial statements. The full text of the qualification is set out in Part 2.1 of this report.

The Department had significant problems throughout the year with the quality and timeliness of data being provided to the Department of Treasury and Finance through the Treasury Financial Reporting System. These problems included having an over-drawn Operating Account and amounts withdrawn from the Treasurer's bank account exceeding expenditures incurred by the Department.

Department of Community and Health Services - Housing Services (Part 2.1)

The Director of Housing commissioned the Valuer-General to review the valuation of its Housing stock. The Valuer-General in his report identified adjustment factors based on specific stock type and location. The Housing stock was revalued as at 30 June 1998 using these factors which resulted in a reduction in dwelling stock values of $72.793m to $759.344m.

Department of Justice - Outstanding fees and fines - (Part 2.4)

Outstanding fees and fines owing to the Consolidated Fund at 30 June 1998 was $12.9m. The growth in outstanding fees and fines represents an increase of around 400% over the base year, 1992; and an average annual increase of 31% based on the immediately preceding year. However the rate of increase has slowed during the last 3 years. Outstanding fines include the case of where a person has unpaid amounts in fines and costs totalling $68 000 relating to some 400 offences involving exceeding parking meter limits yet no warrant has been issued to enforce collection of the $68 000.

Department of Premier and Cabinet (Part 2.6)

In June 1998 the Department made payments totalling $205 887 to 14 employees in lieu of them actually taking accumulated recreation leave. The payments ranged from $4 049 to $49 380.

Department of Treasury and Finance - State Debt (Part 2.9)

The net fair value disclosures in the financial statements segment of the Department's Annual Report to Parliament provide the first public reporting of any components of State debt and/or off-setting loans at their net fair values and comparative traditional accounting valuations. The comparison indicates that in terms of current market valuations the impact of the component of State debt administered by the Department of Treasury and Finance is some 10% greater ($172m) than the same debt reported on traditional valuations that disregard current market conditions.

Department of Treasury and Finance - Unfunded Employee Entitlements (Part 2.9)

A preliminary estimate for the total non-financial public sector is that unfunded employee entitlements total $1 881m as at 30 June 1998. It compares with the Net Debt of the total non-financial public sector of $3 100 m at the same time. Any long term strategic financial plan for the State that is to be judged as credible needs to set out arrangements for managing both the State's debt and the unfunded superannuation liability. The current level of funding is insufficient to prevent the unfunded liability from growing.

Tasmania must move to a more cost-effective superannuation framework in respect of future public sector employees as a matter of utmost priority. The Government is urged to finalise its reform package as soon as possible.

There has been a 4.5% reduction to $210m of the estimated liability for deparmental long service leave and recreation leave. This reverses prior years' trends and is probably due to:

• efforts by agencies to encourage employees to take regular leave and reduce excessive balances; and
• effects of the provisions of Section 14 of the Long Service Leave (State Employees) Act 1994 which require the reduction of employees' excessive leave balances to statutory levels within specified timeframes, the last of which expires in April 1999.

Workplace Standards Authority - Long Service Leave (Construction Industry) Fund (Part 2.13)

An actuarial review of the Fund as at 30 June 1998 recommended that the liability for long service leave entitlements be increased by $6.098m. The provision now stands at $21.8m a figure that is very conservatively stated.

Forestry Tasmania (Part 3.1.3)

Dividends paid or payable at 30 June 1998 totalled $6.6m. Total dividend and tax payments made to the State during 1997-98 was $13.4m (1996-97, $11.4m) and represents a return to the Consolidated Fund on equity of 1.5% (1.8%). Forestry Tasmania, however, believe that a better measure of performance is the Economic Rate of Return, as recommended by the Steering Committee on National Performance Monitoring of Government Trading Enterprises, which gives a substantially higher measure of performance.

The valuation of the Forest Assets, referred to as the Forest Estate, and comprising forest timber (including joint ventures), land and roads, increased in value by $232m to $827.7m.

Major reasons for the increase in value include:

• $131m increase as a result of the reduction in the discount rate from 4.56 per cent in 1996-97 to 3.51 per cent;
• $62m due to the inclusion of the deprival value of major roads;
• $52m increase due to changes in softwood rotation periods, average stumpage rates and expected annual pulp sales;
• $39m due to the exclusion of overhead costs, and
• $68m decrease due to a reduction of the harvestable area due to the Regional Forest Agreement.

Hydro-Electric Corporation (Part 3.1.4)

The accounts include provision for a special dividend payment, $40m, as documented in the former Premier's Direction Statement and announced on 10 April 1997. The normal dividend in accordance with the HEC's corporate plan was for payment of 50% of after tax profits. Total dividends and tax provided for in the accounts in respect of the year ending 30 June 1998, $96.0m, represents a return on equity of 4.7%.

Consistent with its revaluation policy of reassessing the service value of its assets at least every five years, the HEC recalculated the service value of its assets in the 1996-97 financial year.

The 30 June 1998 revaluation resulted in a decrement of $349m with reductions in Generation assets, $115m; Transmission assets, $88m; Distribution assets, $133m; and Other assets, $13m.

The increase in the discount rate from 6.7% at 30 June 1997 to 7.5% at 30 June 1998 is mainly responsible for the reduction in value. The impact of this reduction was to reduce the depreciation charge by $5.3m over that of the prior year to $56.0m.

Work in progress at year end increased by $26m over that of the prior year.

North West Regional Water Authority (Part 3.1.8)

The Authority undertook a full revaluation of infrastructure assets as at 30 June 1998. Prior to this revaluation the infrastructure assets were recorded at written down replacement cost. The effect of the revaluation was to reduce the value of infrastructure assets by $26.7m. This significant reduction was due to the actual capacity of infrastructure assets being in excess of the projected optimal capacity.

Rivers and Water Supply Commission (Part 3.1.11)

Schemes administered by the Rivers and Water Supply Commission continue to run at a loss (operating loss before tax of $1.98m in 1997-98) which is recouped from a government grant.

Tasmanian Public Finance Corporation (Part 3.1.17)

The net effect of the determination of market values for the financial assets and liabilities of Tascorp as at 30 June 1998 is a favourable increment of $72.7m relative to the carrying amounts in the financial statements.

Burnie Port Corporation Pty Ltd (Part 3.3.1)

During 1997-98 the Board appointed an independent Valuer to review the valuation of the Corporations's non-current assets. The Board adopted the valuer's report so the Corporation could reflect a more commercial focus to its activities in the first year of operations as a proprietary company. The valuation resulted in the non-current assets of the seaport being written down by $10m and the airport being written down by $2m. Of the total revaluation decrement $2.47m was recorded against the asset revaluation reserve with the balance being expended as an abnormal item in the Profit and Loss Statement.

Racing Tasmania (Part 3.4.7)

The Authority incurred a deficit of $2m in 1997-98 compared with a deficit of $1.2m in 1996-97. Accumulated funds and reserves at 30 June 1998 stood at $6.1m.

TT-Line Company Pty Ltd (Part 4.2)

Revenue from the trial of a Summer catamaran service between George Town and Melbourne ran at a loss on operations of $2.775m. A total of $16m was estimated to be injected into the Tasmanian economy as a result of the services with particular benefit flowing to the North East and East Coast regions of the State. A considerable amount of the expenditure arising from the trials related to the hire of the catamarans. Having reviewed the process in which the Company implemented the trials, I note that no tender process in relation to the hire of the vessels was adopted.

Strategic Employment Information System (SEIS) (Part 5.1)

This project has not advanced in terms of deliverables during the last year. For the SEIS to achieve its full data set, all agencies will have to implement their HR specific modules and collect and record the defined SEIS information. This information must be valid, accurate, on-time and in an electronic format.

I understand the Secretary of the Department of Premier and Cabinet wrote to all Heads of Agency and Chief Executive Officers in March 1998 reminding them of their commitment to provide the mandatory SEIS data in electronic format in accordance with Cabinet Decision 685 of November 1992.

According to the business plan this project should have been delivering all its stated objectives by 30 June 1998 but these project deadlines have not been met.

Timeliness and Quality of Financial Statements (Part 5.2)

There was a general lack of quality in the financial statements submitted for audit. The type of errors indicated a lack of internal checking mechanisms with GBEs and departments. A number of statements did not meet the statutory deadlines and some that purportedly did so were incomplete or contained numerous errors.

Common shortcomings were:

• a lack of signing-off by persons preparing material;
• a tendency for heavy reliance on just one person (particularly in smaller agencies) for preparation of virtually all workpapers;
• absence of systematic checking by another person or other structured quality assurance process;
• non-documentation of explanations for variations and major shifts in trends; and
• no systematic checking for compliance with Treasurer's Instructions and Accounting Standards.

Firearms (Part 5.3)

In accordance with Section 149(5) of the Firearms Act 1996 I have arranged for an independent audit of all firearms disposed. There have been 37 132 firearms destroyed in accordance with Section 149 (Disposal of Surrendered or Seized Firearms) of the Firearms Act 1996 and compensation of $19.65m has been paid out with a further $2.3m of claims outstanding for loss of business, and firearms and parts awaiting the outcome of legal proceedings.