V I C T O R I A Auditor-General of Victoria REPORT ON MINISTERIAL PORTFOLIOS MAY 1997 Ordered by the Legislative Assembly to be printed VICTORIAN GOVERNMENT PRINTER No. 48 - Session 1996-97 1997 ISSN 1033 2960 ISBN 0 7306 9291 4 ii Report on Ministerial Portfolios, May 1993 May 1997 The President The Speaker Parliament House Melbourne, Vic. 3002 Sir Under the authority of section 15 of the Audit Act 1994, I transmit my Report on Ministerial Portfolios. The Report also contains a section on the Parliament of Victoria as well as a section on matters of broad scope interest. This Report completes the cycle of my auditing activities in relation to the 1995-96 financial year. Yours faithfully C.A. BARAGWANATH Auditor-General Contents Foreword ix PART 1 EXECUTIVE SUMMARY 1 1.1 Major findings ............................................................................. 3 PART 2 PARLIAMENT OF VICTORIA 11 2.1 Parliament of Victoria ............................................................... 13 PART 3 AUDIT OF MINISTERIAL PORTFOLIOS 17 3.1 Education ..................................................................................19 Financial management in schools 21 Property management at the Royal Melbourne Institute of Technology 32 Management of grants in relation to adult, community and further education 45 Losses, thefts and irregularities 50 3.2 Human Services ........................................................................ 59 Private practice arrangements - follow-up 62 Delays in finalising Health Service Agreements 65 Losses, thefts and irregularities 72 Report on Ministerial Portfolios, May 1997 xxxxxxxxxxxxxxxxxxxxxxxxxxxxv CONTENTS xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx 3.3 Infrastructure ............................................................................83 Financial reporting in local government 86 Transfer of municipal electricity undertakings 93 Contaminated land sites 97 Divestment of retail development at Geelong 99 Public transport revenue protection, patronage levels and automated ticketing system 104 Contracting-out of the Melbourne to Warrnambool rail passenger service 113 Losses, thefts and irregularities 122 Urban Land Authority - Purchase of painting from project development fee 123 3.4 Justice ......................................................................................133 Country Fire Authority - Implementation of finance system 136 Losses, thefts and irregularities 147 3.5 Natural Resources and the Environment ............................. 151 Conservation and land management Asset holdings and recognition 154 Management of Crown land reserves 157 Reform of alpine resorts 163 Unaccounted water 167 Losses, thefts and irregularities 181 3.6 Premier and Cabinet ...............................................................191 3.7 State Development .................................................................197 3.8 Treasury and Finance ............................................................. 203 Department of Treasury and Finance Local Authorities Superannuation Board 209 Financial standing of WorkCover - update 213 Victorian electricity industry privatisation 222 Petroleum Resources Rent Tax dispute settlement 239 Reform of Victorian ports 254 State Revenue Office - Revenue collection 258 Thefts, losses and irregularities 261 vi xxxxxxxxxxxxxxxxxxxxxxxxxxxReport on Ministerial Portfolios, May 1997 CONTENTS xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx PART 4 BROAD SCOPE ISSUES 271 4.1 Corporate Governance in the Public Sector ........................ 273 4.2 Public Sector financial reporting .......................................... 279 4.3 State Government Corporate Card ....................................... 285 4.4 The Year 2000 issue - the Millennium Bug ........................... 299 4.5 Information Technology Security .......................................... 303 PART 5 REVIEW OF THE AUDIT ACT 1994 311 5.1 Submission by the Auditor-General of Victoria .................... 313 5.2 Response to Discussion Paper by the Auditor-General of Victoria .................................................................................449 INDEX 473 Report on Ministerial Portfolios, May 1997 xxxxxxxxxxxxxxxxxxxxxxxxxxxvii CONTENTS xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx viii xxxxxxxxxxxxxxxxxxxxxxxxxxxReport on Ministerial Portfolios, May 1997 Foreword My Report on Ministerial Portfolios contains a diverse range of public interest issues which have arisen from annual financial audits of the numerous public sector agencies I am currently required to audit. The major audit findings are summarised in Part 1.1 of the Report. REVIEW OF THE AUDIT ACT In November 1996, the Government announced a review of the Audit Act 1994 under the National Competition Policy. At the time, I found it of paramount importance to write to individual Members of Parliament conveying my concerns in relation to the review which I regarded as the greatest threat to the independence, and even the very existence, of my role and to the Parliament’s and community’s right to know. With the recent release by the Government of the review team’s report, it is highly appropriate that I now provide Parliament with my overall assessment of the report to assist its deliberations on any future proposals to amend the Audit Act. From my reading of the review team’s report, I see nothing therein which leads me to resile from the views I expressed in my letter to individual parliamentarians. However, unlike the thrust of the review team’s recommendations, I firmly believe that contestability principles can be responsibly and simply applied within the current legislative framework and in a manner which is acceptable to the Parliament. As I was denied an opportunity by the review team to see and comment on any drafts of its report, I am heartened by the fact that the Premier has announced that the Government is still considering the team’s recommendations in detail and that consultation will take place. Proposed elimination of Report on Ministerial Portfolios At the outset, I should emphasise that this Report on Ministerial Portfolios, which is produced and tabled in the Parliament under section 15 of the Audit Act, may well be the last such Report presented to the Parliament. In the review team’s report, it is stated that “It is unclear to the [review team] whether section 15 will be necessary under the proposed arrangements ...”. The team evidently has assigned little, if any, value to Parliament’s right to know and the unique public reporting feature of an Auditor- General’s financial audit function for which there is no equivalent in the private sector. I am staggered at the above comment by the review team and will be interested in the reaction of the Parliament and the community to the team’s proposed elimination of reports on financial audit issues by the Auditor-General in the Report on Ministerial Portfolios. During my term as Auditor-General, this Report has been externally assessed to be a highly effective accountability medium over the Government’s operations, serving the interests of the Parliament and the community. Existing audit model has served Victoria well Report on Ministerial Portfolios, May 1997 xxxxxxxxxxxxxxxxxxxxxxxxxxxxix FOREWORD xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Firstly, on a positive note, I am not surprised that one of the conclusions of the review team is that the current audit model has served Victoria well overall as 2 major independent evaluations of my Office commissioned by the Parliament over the last 5 years have formed highly favourable conclusions. In addition, the current Government’s Victorian Commission of Audit considered, as part of its deliberations, a number of alternative arrangements for external auditing in the Victorian public sector, including the greater use of the private sector. The Commission also concluded in its May 1993 report that the current system was working effectively and change was not warranted. Rejection of legislative objective Despite acknowledging that the current audit model has served Victoria well, the review team has proceeded to recommend a model which represents no more than an ideological experiment in terms of the structure for future public sector auditing in Victoria. The team’s preferred model revolves around its own view of what the objective of the Audit Act should be and which is automatically presumed in its report to be beyond question. In my March 1997 response to the team’s discussion paper (refer Part 5.2 of this Report), I indicated that the team had quickly dismissed the long-standing parliamentary view of the objective or purpose of the Audit Act. I informed the team that in my view the objective is clearly set out in the legislation which establishes the Auditor-General as the exclusive independent external auditor of government and its agencies on behalf of the Parliament and community. I also indicated to the team that the exclusivity of the Auditor-General as Parliament’s and the community’s external auditor was the sole legislative restriction on competition, has a negligible effect on the economy in general and has generated significant public benefits which far outweighed related costs. In rejecting the objective already enshrined in the legislation and proposing a new audit model based on its own objective, the review team has clearly devalued, without substantiation, the distinctive strengths to the Parliament and community of the current arrangements under which the Auditor-General