NSW Audit Office - Awareness - Issue 2003 06 - July 2003
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NSW Audit Office - Awareness - Issue 2003 06 - July 2003

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16 Pages
English

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AWARENESSccounting and Auditing Developments Issue 6 JULY 2003AUDIT OFFICE 1AUDIT OFFICE UPDATEUPDATEAUDITOR-GENERAL’S REPORT TO PARLIAMENT 2003, VOLUME TWOACCOUNTING 7The report was released on the 29 May 2003. Significant issues in this UPDATEvolume include:URGENT ISSUES 8GROUP UPDATECompliance Review of Commercial Activities in UniversitiesINTERNATIONAL 9Legislation requires universities to prepare guidelines for their commercial UPDATEactivities and maintain a register of these activities.OTHER ISSUES 11Two universities have not established registers of their commercial activities. The registers of all other universities are incomplete for a MISCELLANEOUS 12variety of reasons. Contrary to legislation, some of the guidelines allow PUBLICATIONSuniversities to omit activities from the register if the estimated value of the project is below a figure determined by the university. The Minister LEGISLATIVE 13has not approved any of the guidelines. CHANGES UPDATETREASURY 13UPDATECompliance Review of Credit Card Usage in UniversitiesWhile most universities have adequate policy and procedure manuals for PREMIER’S 14credit cards, some expenditure is contrary to policy and is not supported DEPARTMENT by appropriate documentation. Most universities have some cards with UPDATEunlimited credit.AUDIT OFFICE 15BETTER PRACTICEUniversity Companies, Joint Ventures etc – Repeat Finding GUIDESFor a number of years we have reported that universities ...

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AWARENESSccounting and Auditing Developments Issue 6 JULY 2003
AUDIT OFFICE 1AUDIT OFFICE UPDATE
UPDATE
AUDITOR-GENERAL’S REPORT TO PARLIAMENT 2003, VOLUME TWO
ACCOUNTING 7
The report was released on the 29 May 2003. Significant issues in this UPDATE
volume include:
URGENT ISSUES 8
GROUP UPDATE
Compliance Review of Commercial Activities in Universities
INTERNATIONAL 9
Legislation requires universities to prepare guidelines for their commercial
UPDATE
activities and maintain a register of these activities.
OTHER ISSUES 11Two universities have not established registers of their commercial
activities. The registers of all other universities are incomplete for a
MISCELLANEOUS 12
variety of reasons. Contrary to legislation, some of the guidelines allow
PUBLICATIONS
universities to omit activities from the register if the estimated value of
the project is below a figure determined by the university. The Minister LEGISLATIVE 13
has not approved any of the guidelines. CHANGES UPDATE
TREASURY 13
UPDATECompliance Review of Credit Card Usage in Universities
While most universities have adequate policy and procedure manuals for
PREMIER’S 14
credit cards, some expenditure is contrary to policy and is not supported DEPARTMENT
by appropriate documentation. Most universities have some cards with UPDATE
unlimited credit.
AUDIT OFFICE 15
BETTER PRACTICE
University Companies, Joint Ventures etc – Repeat Finding GUIDES
For a number of years we have reported that universities are involved
in certain companies, joint ventures, etc that are outside the Auditor-
General’s mandate to audit. As a result Parliament is not being informed
of audit findings on these entities.
Awareness is published by The Audit Office of New South Wales, 234 Sussex Street,
Sydney NSW 2000, GPO Box 12, Sydney NSW 2001 Telephone 9285 0155 Fax 9285 0001
Email Terry.Hogan@audit.nsw.gov.au Website www.audit.nsw.gov.au
CONTENTSUniversity Offshore Activities
Universities are actively pursuing revenue-raising opportunities offshore that pose financial and
operating risks. Universities should ensure mechanisms are in place to mitigate these risks.
Our audit of Insearch Limited (a controlled entity of the University of Technology Sydney) found
some inappropriate spending on gifts and entertainment.
University Funding
Universities continued to rely more on fees and charges as a source of revenue. Fees and
charges as a percentage of operating revenue increased from 23.4 per cent in 2000 and 26.1 per
cent in 2001 to 27.5 per cent in 2002.
Revenue from fee-paying overseas students represented 54.2 per cent of total fees
and charges in 2002, up from 48.6 per cent in 2001.
University Liquidity
The liquidity of one university is less than the lower benchmark guidance provided by the
Commonwealth Department of Education, Science and Training (DEST) and may result in a tight
cash flow situation. Two other universities have a liquidity greater than the upper benchmark.
Further information
Barry Underwood, Acting Director, Governance and Communications on 92850020 or barry.under
wood@audit.nsw.gov.au.
PERFORMANCE AUDIT REPORT - THE MILLENNIUM TRAIN PROJECT
The audit looked at the complex issue of value for money. It also looked at how well the project
was managed and if lessons learnt from the Tangara had been put into practice.
Large asset acquisitions – whether through construction or purchase – can involve complex
issues and significant risks that need to be carefully managed.
Each 4-car Millennium Train set has an estimated service operating life of 35 years. If all
purchase and maintenance options under the Millennium Train supply contract are exercised, a
billion dollars of capital and operating funds will be expended over four decades.
A project of this magnitude provides an ideal case study because it provides useful insights for
all those involved with managing major projects and those with interests in such matters.
2 3The Audit Office of New South Wales The Audit Office of New South WalesAudit Opinion and Key Findings
StateRail has made significant improvements since the purchase of the Tangara. It improved
measures necessary for handling contracts dealing with technically complex and innovative
projects, although some other problems have been encountered, with new lessons to learn.
We found that:
the Millennium Train has come at a considerably higher price than originally expected.
Since the Millennium Train contract was awarded in 1998 and the budget set:
ð contract (capital) costs have increased by $114 million or 24 per cent to $588 million
ð total project costs have increased by $98.4 million or 17 per cent to $658 million.
the Millennium Train is very late compared to the Government’s original announcements, as
the development/design took longer than planned. The 409 days delay in the Millennium
Train’s progressive delivery and entry into service caused discomfort and lack of service
quality to passengers, particularly during peak periods on some lines
the Millennium Train purchase represents reasonable value for money value, based upon
supporting evidence, if judged within the existing operational environment, and the
constraints imposed by the existing rail network.
However, it is now time to reconsider whether the existing service operating and infrastructure
arrangements will continue to serve us well into the future. There are clear signs that parts of
Sydney’s transport system are rapidly approaching, if not having already reached, saturation
point. Therefore from long-term perspectives future decisions to purchase new trains, and the
type of train and purchasing arrangements favoured, may have better value for money options
available for consideration if current operating and infrastructure constraints are altered.
the traditional procurement method of competitive tendering and contracting may give rise
to risks of a monopoly market being created in the Australian passenger rollingstock
industry
important elements of corporate governance were not always optimal
because governments cannot readily walk away from such projects, even if difficulties
arise, they necessarily carry significant risk for such projects. Contract provisions designed
to share risk with private sector providers thus need to be robust and enforceable should
the need arise. But as occurred with the Tangara, such financial penalties for late delivery
were available but were not activated. This was because the contract was in dispute over
time and cost issues
the ‘payment upon delivery’ approach for this contract did apparently manage product
risks. However, in turn it also created other risk exposures for StateRail
StateRail’s specification of the Millennium Train represented a significant improvement on
the Tangara but was still not as performance based a contract as would be preferred.
2 3The Audit Office of New South Wales The Audit Office of New South WalesRecommendations
The report recommended:
there be compiled as a matter of priority a long term (meaning at least a 20�30 year
horizon) strategic plan for the Sydney rail network
StateRail be required to expand the level of public reporting of the outcomes and
results achieved against the CityRail (Community) Service Agreement in order to increase
accountability, transparency and openness about the rail network’s performance
a number of improvements in future acquisition processes.
Further Information
Please contact Stephen Horne, Director Performance Audit on 02 9285 0078 or email: Stephen.h
orne@audit.nsw.gov.au.
The report was issued on 17 June 2003 and can be accessed at http://www.audit.nsw.gov.au/
reperf.htm
PERFORMANCE AUDIT REPORT: ROADS AND TRAFFIC AUTHORITY -
DELIVERING SERVICES ONLINE
The audit provides a strategic assessment of how well the Roads and Traffic Authority (RTA) is
managing the benefits and risks associated with a major element of its e-business. E-business is
the use of web-based and related communication technologies to deliver services to customers.
Effective use of these technologies promises improved and more efficient and accessible
services. E-business also presents significant challenges, particularly legal obligations relating
to security, privacy and integrity of information.
We selected the RTA as a case study to highlight important aspects of online service delivery.
We consider that the RTA’s e-business approach and achievements may be of benefit and
interest to other government agencies.
The RTA’s online services involve a number of components. We focused on the biggest one,
vehicle registration services.
Audit Opinion and Key Findings
A staged, systematic and careful approach and extensive business re-engineering effort
underpinned the RTA’s steady progress in providing customers with a range of reliable and
secure online registration services. The RTA’s consistent and disciplined pursuit of new and
challenging e-business opportunities is commendable.
The RTA is in its third year of implementing a five-year online migration strategy. A number of
online services are offered and many others are either in development or investigation stages.
All online services have shown a steady growth, but their take-up rates have varied. Take-up
rates for some services have exceeded expectations, while others have fallen short of meeting
original, and even revised, estimates. We found that the RTA:
4 5The Audit Office of New South Wales The Audit Office of New South Wales approaches the promotion of its new online services softly, which will likely delay the
achievement of benefits from some online services
has a well-defined strategic framework and governance arrangements, which provide a
sound foundation from which to drive performance and ensure accountability for online
services
has a sound and systematic approach to ensuring value for money can be achieved.
However, existing assessment tools lack rigour and may not provide reliable performance
information for decision-making
has researched customer needs, monitors customer experiences and acts on feedback to
improve online services. Some of the monitoring tools and approaches used, however,
may not be suited for an online environment and may not provide for effective analysis of
issues and trends
has an adequate security posture in its online business environment and uses several
security management practices that are considered good practice. Some policy gaps were,
however, identified
has a privacy management framework which is in line with legal requirements. Its data
sharing practices and privacy complaints management are generally consistent with privacy
requirements. However, the RTA has reported to the NSW Privacy Commission complaints
reviewed, not all complaints received. Further, agreements with a small number of
agencies that currently access RTA information have not been finalised
has significantly re-engineered systems and processes to deliver secure and reliable
business-to-business and business-to-customer online services. Improved data quality and
system availability are needed to share information better with key government
stakeholders, but the RTA alone cannot resolve this
has a change management framework and flexible staffing/work arrangements that
strengthen its position to manage short to medium term impacts of online services on staff,
but this position may not be sustained in the long-term
appears to have managed well key stakeholder relationships and has effective mechanisms
for ongoing communication and consultation with key strategic business partners.
Recommendations
The report contains a number of recommendations designed to enable the RTA to improve its
already strong position and be used by other agencies as an example of good practice in the
delivery of online services.
Further Information
Please contact Stephen Horne, Director Performance Audit on 9285 0078 or email stephen.horne
@audit.nsw.gov.au.
The report was issued on 11 June 2003 and can be accessed at http://www.audit.nsw.gov.au/
repperf.htm.
4 5The Audit Office of New South Wales The Audit Office of New South WalesPERFORMANCE AUDIT REPORT: NSW POLICE - POLICE ASSISTANCE LINE
The Police Assistance Line (PAL) is one of the largest government call centres in the State. It
operates 24 hours a day, 7 days a week handling reports of minor crime and other non-urgent
incidents that do not require police attendance.
This audit examined whether PAL has delivered benefits to NSW Police.
Audit opinion and key findings
Overall, PAL has contributed to improving the efficiency and effectiveness of NSW Police.
Through civilianisation of call taking, the cost of handling a minor crime report has been
reduced by an estimated 65 per cent, to around $21 per call. NSW Police also estimate that PAL
has contributed to the release of over 200 police to operational duties.
Customer service has also improved since PAL commenced, but performance is still outside NSW
Police’s goal of answering 80 per cent of calls within 27 seconds.
There are opportunities to improve efficiency and customer satisfaction through greater public
awareness and use of PAL.
At present, PAL captures about 46 per cent of crime reports relating to PAL criteria. Most people
who call PAL have already used the service or been referred by another source.
At an estimated cost of $21 to report a crime to PAL, compared to $60 to report the same crime
to a police officer, PAL could deliver further savings to NSW Police through capturing a larger
proportion of its market as well as releasing more police to operational duties.
However there would be a need to ensure that an increase in call volume would not cause
service levels to decline.
The goal of answering 80 per cent of calls within 27 seconds has not been consistently met and
there are no minimum service standards for PAL. Under current arrangements, any increase in
call volume or duration may result in further access problems for customers.
Other findings were:
a suite of key performance indicators is now used to monitor PAL performance
PAL has a quality assurance program to check the accuracy and appropriateness of
information provided to callers
on average, PAL answers only 53 per cent of calls in 27 seconds. The remaining calls (nearly
280,000 per year) take longer than 27 seconds to answer or are abandoned
the rate of abandoned calls is high, at over six per cent or around 37,000 calls per year.
Other call centres achieve an average of five per cent
PAL does not assess customer satisfaction with its services or obtain feedback from
customers on performance expectations, although it plans to run customer focus groups to
address this.
6 7The Audit Office of New South Wales The Audit Office of New South WalesRecommendations
The report contains a number of recommendations to improve customer service and the
effectiveness of PAL.
Further information: Jane Tebbatt, Principal Performance Auditor, on (02) 9285 0074 or at
jane.tebbatt@audit.nsw.gov.au. The report was issued on 5 June 2003 and can be accessed at
www.audit.nsw.gov.au.
ACCOUNTING UPDATE
ACCOUNTING INTERPRETATION AI 2 TRANSITION TO AASB EQUIVALENTS OF IASB
STANDARDS AND APPLYING THE HIERARCHY OF PRONOUNCEMENTS IN AASB 1001 AND
AAS 6
Where there is an AASB Standard or UIG Consensus View and an IASB Standard or Interpretation
on a topic, the AASB Standard or UIG Consensus View must be applied.
Where there is an IASB pronouncement on a topic and no Australian equivalent, an entity is not
required to apply the IASB pronouncement, but may have regard to its principles in selecting an
accounting policy. Any resulting change of accounting policy would be treated as voluntary and,
in accordance with AASB 1001 and AAS 6, the effects of the change would be recognised in net
profit or loss/result when the change is made.
IFRIS 1 ISSUED BUT AASB 1 DELAYED
IFRS 1 ‘First-time Adoption of International Financial Reporting Standards’ has been released
by the IASB. IFRS 1 contains requirements on how an entity should make the transition from
another set of accounting principles to international financial reporting standards.
The AASB cannot issue an Australian equivalent to IFRS 1, because of the copyright in IASB
Standards and impediments to making legislation that includes cross references to standards
that are not currently in existence. The AASB is trying to resolve these issues.
Early Adoption of AASB Equivalents
There are differences between the transitional requirements of individual IASB Standards and
the proposed International Financial Reporting Standards (IFRS) 1 on first-time adoption. AASB
members agreed to seek further information from the IASB before dealing with the differences
and announcing a policy on early adoption.
(Source GAAP Alert No 6, June 2003).
6 7The Audit Office of New South Wales The Audit Office of New South WalesDISCLOSURES OF DEFINED BENEFIT SUPERANNUATION PLANS
The Board strongly encourages any entity with a defined benefit superannuation plan to disclose
the extent of any underfunding of the plan as at the reporting date. Accounting Standard
AASB 1028 “Employee Benefits” requires disclosures in the financial reports of employers about
defined benefit superannuation plans that they sponsor. The AASB is concerned that accrued
benefit information determined as at the date of the most recent comprehensive actuarial
review may be out of date as at the current reporting date.
For more information, contact Ruth Picker, Acting Chairman of AASB on 03 9288 8620 or Angus
Thomson, Technical Director of AASB on 03 9617 7618.
(Source: Media Release AASB June 2003).
URGENT ISSUES GROUP UPDATE (UIG Action Alert 03-4)
Meeting 17 June 2003
1EMISSION RIGHTS AND RENEWABLE ENERGY CERTIFICATES
UIG members discussed the Draft Interpretation D1 “Emission Rights”, issued by the
International Financial Reporting Interpretations Committee (IFRIC) of the IASB. Members
were concerned that the Draft Interpretation concluded that renewable energy certificates
(RECs) were intangible assets without addressing the recognition of RECs by generators using
renewable sources of energy. Some members supported the use of cost-based measurement for
RECs recognised by generators, where feasible, whereas others supported fair values.
Members concluded that the comments to be provided to IFRIC should question whether RECs
were sufficiently similar to emission rights that they should be addressed at all in the IFRIC
Interpretation.
REVIEW OF UIG ABSTRACTS FOR 2005
Members commenced their review of UIG Abstracts and International Interpretations to identify
differences between them. Members considered Abstracts 1 to 12 and agreed that the following
Abstracts should be formally withdrawn at the next meeting:
Abstract 2 “Accounting for Non-Vesting Sick Leave”
Abstract 6 “Accounting for Acquisitions – Deferred Settlement of Cash Consideration”
Abstract 8 “Accounting for Acquisitions – Recognition of Restructuring Costs as Liabilities”; and
Abstract 12 “Accounting for the Costs of Modifying Computer Software for the Year 2000”.
Awareness Issue 5 June 03 refers
8 9The Audit Office of New South Wales The Audit Office of New South WalesINVENTORY FINANCING ARRANGEMENTS
UIG members discussed Issue Summary 03/4 concerning arrangements under which inventory
may appear to be sold by an entity to a third party but the entity retains significant
involvement with the inventory.
Members agreed not to address this issue further at this time, in the absence of evidence of
significant diverse or unacceptable accounting practices.
The next meeting will be held on 7 August in Melbourne.
INTERNATIONAL UPDATE
IAASB PROPOSED INTERNATIONAL (ISQC) 1 “QUALITY CONTROL FOR AUDIT,
ASSURANCE AND RELATED SERVICES PRACTICES” AND A PROPOSED REVISION TO
INTERNATIONAL STANDARD ON AUDITING (ISA) 220 “QUALITY CONTROL FOR AUDIT
ENGAGEMENTS”
The purpose of the proposed ISQC 1 is to establish standards and provide guidance on a firm’s
system of quality control for its practices in the areas of audit, assurance and related services.
The proposed pronouncements are designed to clarify the overall quality control responsibilities
and related activities at both the firm and engagement levels.
The proposed ISQC is to be read in conjunction with Parts A and B of the IFAC Code of Ethics
for Professional Accountants (the IFAC Code). Additional standards and guidance on quality
control procedures for specific types of engagement are set out in other pronouncements of
the International Auditing and Assurance Standards Board (IAASB). The proposed revised
International Standard on Auditing (ISA) 220 for example, establishes standards and provides
guidance on quality control procedures for audit engagements.
Comments due by 31 August 2003.
INTERNATIONAL ACCOUNTING STANDARDS BOARD MEETING (IASB) ON 20 MAY 2003
Key matters from the meeting included:
Business Combinations (phase 11)-minority interests
the Board agreed that amounts attributable to the controlling interest should be disclosed
as income from continuing operations and discontinued operations. The Board also agreed
to require disclosure of the reconciliation of minority interests reported in equity
the Board agreed to adopt a 90-day comment period for the minority interests Exposure
Draft and also to propose that these Standards be effective for annual reporting periods
beginning on or after 1 January 2006, with early application encouraged.
8 9The Audit Office of New South Wales The Audit Office of New South WalesIAS 11 Construction Contracts
The Board agreed not to consider in the short-term convergence project differences between
IAS 11 and US GAAP in revenue recognition under construction contracts.
Amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets
The Board decided that the definitions of contingent assets and contingent liabilities should be
clarified so that only present rights and obligations meeting recognition criteria are recognised .
Improvements to IAS 32 Financial Instruments: Disclosure and Presentation
The Board decided to amend the wording to clarify in IAS 32 that a financial instrument that
contains a non-financial obligation, which must be settled if the entity fails to make payments
to the holder, should be classified as a financial liability
Improvements to IAS 39 Financial Instruments: Recognition and Measurement
The Board agreed not to proceed with the approach proposed in the Exposure Draft to
determine when a transfer of a financial asset qualifies for de-recognition. Instead they have
decided to revert back to the concepts in the original IAS 39 such as control and substantially
all the risks of ownership.
Other matters discussed included:
Financial Risk Disclosures
International Financial Reporting Standards (IFRISs) Issues
Leases
Reporting Performance
Revenue Recognition
Share-based payment.
10 11The Audit Office of New South Wales The Audit Office of New South Wales