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External scrutiny

Audit

The Audit Committee met six times in 2010-11. Its work included reviewing the Treasury’s financial statements and a range of internal and external audit reports.

The Audit Committee’s Financial Statements sub-committee met three times. The sub-committee comprises members from the Treasury, the ANAO, the Treasury’s internal audit service provider and an external representative of the Treasury Audit Committee. The sub-committee monitors production of the financial statements and helps resolve issues.

The Treasury engaged KPMG to develop the 2011-12 internal audit program. KPMG works with the Audit Committee to continuously improve audit services by regularly reviewing the audit program and scrutinising internal audit recommendations, as well as relevant ANAO reviews.

Internal audits

The Treasury completed nine internal audits/reviews during 2010-11.

Goods and services tax processes

This review assessed the Treasury’s controls and business processes in place to capture goods and services tax information and assist in the accurate preparation of business activity statements, in accordance with better practices principles issued by the ANAO. The Treasury has agreed to implement three recommendations to further improve its control environment.

Fringe benefits tax processes

This review assessed the Treasury’s controls and business processes in place to capture fringe benefits tax (FBT) information and to assist in the preparation of FBT returns in accordance with FBT legislation. The Treasury has agreed to implement three recommendations to further improve its control environment.

Network user access management

This review is conducted annually to provide assurance that the Treasury’s current network user access management processes are in line with organisational requirements and are appropriate to prevent unauthorised actions and/or access to data. The review found a significant improvement in processes and controls since the previous review, and raised one minor recommendation where controls could be further improved, which the Treasury has agreed to implement.

Risk management

This review assessed the Treasury’s risk management framework for consistency with the current Australian/New Zealand standard and made recommendations to maintain best practice and further embed risk management in the Treasury’s work processes and culture. A new risk management framework has been approved by the Treasury Executive Board.

Single points of failure in the Treasury network

This review assessed to what extent the Treasury is exposed to discontinuity of service due to a single point of failure and whether the current Information and Communications Technology Disaster Recovery Plan appropriately considers single points of failure risk. The Treasury has agreed to implement three recommendations to further reduce risks to the Treasury network.

Business continuity arrangements

This review assessed whether recommendations in a 2007-08 review to improve the Treasury’s business continuity arrangements had been implemented appropriately and whether any additional changes were required to accord with better practice principles for business continuity. The Treasury has agreed to implement the two business improvement recommendations made by the review.

Commonwealth payments to states and territories

This review tested key controls over the arrangements for Commonwealth payments to the states and territories and provided a risk assessment of the federal financial framework estimates process. The review made two recommendations to further improve the control environment for the estimates process, which the Treasury has agreed to implement.

Credit card arrangements

This review assessed the effectiveness of controls in place for the use and management of departmental credit cards to mitigate the risk of inappropriate and/or unauthorised expenditure. The review found that controls and procedures were appropriate to manage risks and made no recommendations for improvement.

Compliance with Freedom of Information Publication Scheme

This review assessed the business processes developed by the Treasury to implement the Information Publication Scheme, which requires agencies to take a proactive approach in publishing information so that greater openness and transparency in government is established. The review found that the Treasury was sufficiently prepared to adopt the new disclosure requirements for the Information Publication Scheme from the official starting date of 1 May 2011.

Australian National Audit Office reports

In 2010-11, the ANAO did not conduct any performance audits that related to the Treasury’s operations.

Other audit reports

Other ANAO reports relevant to the Treasury in 2010-11 were:

Report No. 7: Senate Order for Departmental and Agency Contracts (Calendar Year 2009 Compliance)

Report No. 11: Direct Source Procurement

Report No. 14: Capitalisation of Software

Report No. 22: Audits of the Financial Statements of Australian Government Entities for the Period Ended 30 June 2010

Report No. 20: Administration of the Wine Equalisation Tax

Report No. 27: Restoring the Balance in the Murray-Darling Basin

Report No. 31: Administration of the Superannuation Lost Members Register

Report No. 33: The Protection and Security of Electronic Information Held by Australian Government Agencies

Report No. 38: Management of the Certificate of Compliance Process in FMA Act Agencies

Report No. 45: Administration of the Luxury Car Tax

Report No. 49: Fuel Tax Credits Scheme

Report No. 54: Interim Phase of the Audit of Financial Statements of Major General Government Sector Agencies for the year ending 30 June 2011

The Audit Committee follows ANAO better practice guidelines by actively reviewing relevant matters raised in audit reports, and overseeing follow-up action. Details of audit reports are available at www.anao.gov.au.

Parliamentary committees

In 2010-11, officials from the Treasury appeared before the following Parliamentary Committees.

  • 21 October 2010 – Senate Economics Legislation Committee, Estimates (Supplementary Budget Estimates)
  • 26 October 2010 – Senate Legal and Constitutional Affairs Legislation Committee, Corporations Amendment (Sons of Gwalia) Bill 2010
  • 26 October 2010 – Senate Standing Committees on Legal and Constitutional Affairs, Corporations Amendment (Sons of Gwalia) Bill 2010
  • 3 November 2010 – Senate Economics Legislation Committee, Corporations Amendment (No. 1) Bill 2010
  • 22 November 2010 – Senate Select Committee on the Scrutiny of New Taxes, Inquiry into a National Mining Tax
  • 13 December 2010 – Senate Economics References Committee, Competition within the Australian banking sector
  • 15 December 2010 – Senate Economics Legislation Committee, Federal Financial Relations Amendment (National Health and Hospitals Network) Bill 2010
  • 9 February 2011 – Senate Economics References Committee, Augmented tax assessments
  • 24 February 2011 – Senate Economics Legislation Committee, Estimates (Additional Estimates)
  • 4 March 2011 – Parliamentary Joint Committee on Corporations and Financial Services, Inquiry into Small and Medium Business Access to Finance
  • 9 March 2011 – Senate Economics References Committee, Competition within the Australian banking sector
  • 9 March 2011 – Senate Economics Legislation Committee, Tax Laws Amendment (2010 Measures No. 5) Bill 2010
  • 10 March 2011 – Senate Economics References Committee, Impacts of supermarket price decisions on the dairy industry
  • 11 March 2011 – Senate Economics Legislation Committee, Tax Laws Amendmen
    t (Temporary Flood and Cyclone Reconstruction Levy) Bill 2011
  • 24 March 2011 – Senate Select Committee on the Scrutiny of New Taxes, Inquiry into a Carbon Tax
  • 12 April 2011 – Senate Economics Legislation Committee, Foreign Acquisitions Amendment (Agricultural Land) Bill 2010
  • 5 May 2011 – Senate Select Committee on Reform of the Australian Federation
  • 13 May 2011 – Senate Economics References Committee, State government insurance and flood levy
  • 1 and 2 June 2011 – Senate Economics Legislation Committee, Budget Estimates
  • 9 June 2011 – Senate Select Committee on the Scrutiny of New Taxes, Inquiry into a Carbon Tax

Fraud prevention and control

No cases of fraud were reported to the Australian Federal Police in 2010-11.

The Treasury’s Fraud Control Plan, reviewed in November 2010, accords with the Commonwealth Fraud Control Guidelines issued under regulation 19 of the Financial Management and Accountability Regulations 1997.

The Treasury has appropriate fraud control, prevention, detection, investigation and reporting standards in place, and collects and reports annual fraud control data.

Ombudsman comments, court decisions and administrative tribunal decisions

Ombudsman comments

There were no major issues raised by the Ombudsman during 2010-11.

Courts and proceedings

Competition and Consumer Act – Access to Services – Fortescue Metals Group Ltd

On 13 June 2006, Fortescue Metals Group (FMG) applied to the Australian Competition Tribunal for a review of the former Treasurer’s deemed decision under Part IIIA of the Trade Practices Act 1974 (now the Competition and Consumer Act 2010) not to declare BHP Billiton as the operator of the Mt Newman rail line.

In November 2007 and January 2008, a subsidiary of FMG, the Pilbara Infrastructure Pty Ltd, lodged three further applications for railway services in the Pilbara region of Western Australia. These railway services included the Hamersley and Robe River lines operated by Rio Tinto, and the Goldsworthy line operated by BHP Billiton. In October 2008, the Treasurer declared each of the Hamersley, Goldsworthy and Robe River railway services for 20 years. BHP Billiton and Rio Tinto subsequently applied to the Australian Competition Tribunal for a review of those declaration decisions. A review of the Hamersley, Goldsworthy and Robe River railway services declaration decisions was conducted in conjunction with the review of the Mt Newman decision. The Australian Competition Tribunal handed down its decision on these matters on 30 June 2010.

The Tribunal decided to:

  • affirm the former Treasurer’s deemed decision not to declare the Mt Newman railway;
  • vary the Treasurer’s decision to declare the Robe River railway, reducing the period of declaration from 20 to 10 years;
  • set aside the Treasurer’s decision to declare the Hamersley railway; and
  • affirm (unvaried) the Treasurer’s decision to declare the Goldsworthy railway.

In August 2010, FMG applied to the Full Federal Court for review of the Tribunal’s decisions in relation to the Hamersley and Robe River railways. Rio Tinto also applied for review of the Robe River decision. On 4 May 2011, the Full Federal Court dismissed FMG’s appeals and allowed Rio Tinto’s, on the basis that the previous decision-makers had adopted an incorrect interpretation of one of the statutory criteria for declaration. Both FMG and the National Competition Council have lodged applications for special leave to appeal the Full Federal Court’s decision to the High Court. As of 30 June 2011, these applications had not been heard.

Corporations Act – Takeovers Panel Declaration of Unacceptable Circumstances under s657A and Orders under s657D – CMI Limited

On 22 February 2011, the Takeovers Panel made a declaration of unacceptable circumstances in relation to affairs of CMI Limited and orders vesting shares, acquired in CMI Limited by Tinkerbell Enterprises Pty Ltd as trustee for the Leanne Catelan Trust (Tinkerbell), in the Commonwealth for sale. On 10 March 2011, a review panel affirmed the initial panel’s decision.

On 5 April 2011, Tinkerbell applied to the Federal Court for review of the initial panel’s decision pursuant to s5 and 16 of the Administrative Decisions (Judicial Review) Act 1977 and section 39B(1A)(c) of the Judiciary Act 1903. On 31 May 2011, Tinkerbell amended its application to include a judicial review of the review panel’s decision.

The hearing of the judicial review was held on 20 September 2011.

Income Tax Assessment Act 1997 – Deductions Against Income From Youth Allowance – Commissioner of Taxation v Anstis

Symone Anstis claimed a deduction for $920 of work-related self-education expenses which she incurred while receiving Youth Allowance as a university student. The ATO denied the deduction in keeping with the view expressed in its Income Tax Ruling TR 98/9, that education expenses are not deductible against various Commonwealth educational assistance schemes.

Ms Anstis appealed against the decision in the Administrative Appeals Tribunal, which upheld the decision of the ATO. Ms Anstis appealed again to the Federal Court. On 1 April 2009, Ryan J held in Symone Anstis v Federal Commissioner of Taxation that Ms Anstis was entitled to a tax deduction for her education expenses.

The Commissioner appealed, and on 4 November 2009, the Full Federal Court upheld the decision of Ryan J.

On 23 April 2010, the High Court granted the Commissioner special leave to appeal against the decision of the Full Federal Court. A hearing took place on 29 July 2010.

On 11 November 2010, the High Court unanimously dismissed the appeal by the Commissioner of Taxation. The Court held that Youth Allowance payments amounted to assessable income under the Income Tax Assessment Act 1997, as they fell within the concept of ‘ordinary income’. As Ms Anstis’ entitlement to Youth Allowance arose from her undertaking full-time study, the Court considered the expenses claimed were incurred in gaining or producing her assessable income. The Court also held that the expenses were not of a private or domestic nature and were deductible under section 81 of the Income Tax Assessment Act 1997.

In response to the High Court decision, the Australian Taxation Office automatically amended the tax assessments of taxpayers that received Youth Allowance between 2006-07 and 2009-10 by providing them with a $550 deduction for each year they were eligible. The Government announced in the 2011-12 Budget that it would disallow deductions against all government assistance payments from 1 July 2011. Individuals that received Youth Allowance in the 2010-11 income year will be able to claim a deduction for self-education expenses if they have a record of their expenses.

Administrative appeals tribunal decisions

There has not been any decision of the Administrative Appeals Tribunal relating to the Treasury in 2010-11.