The auditor general has warned smaller government agencies may only be audited once every 20 years due to Coalition cuts of $6.4m from its annual budget.
Grant Hehir, whose agency uncovered the $27m overspend on land at Western Sydney airport and proved partisan allocation of $100m in sports grants, gave the evidence to a parliamentary inquiry into the Australian National Audit Office on Friday.
ANAO officials revealed that the ratio of senior staff overseeing financial audits had dropped below industry benchmarks. Hehir said this had resulted in increased risk and he would be “uncomfortable” making further cutbacks on financial audits.
Hehir wrote to the Morrison government ahead of the October budget seeking funding to deliver 48 performance audits a year.
The budget contained no extra funding for the ANAO, and continued cuts that the ANAO estimate has amounted to a cut of $6.4m in its annual appropriation since 2013-14, or 8.5%. The number of performance audits is now expected to fall to 36.
Given general government expenditure has increased 68.3%, the ANAO found that its appropriation as a percentage of government spending has fallen by more than 50% over 10 years.
Hehir told the joint committee of public accounts and audit that the ANAO provides “bang for buck” but it was hard to quantify savings to government because audits improve performance across the whole public service.
“Often it is the prospect of an audit which is a driving factor in performance improvement,” he said in a tabled opening statement. Simply listing entities as potential targets for audit resulted in improvements in process, controls and governance.
“With a reducing number of performance audits, many smaller agencies may not be audited for extended periods of time, potentially over 20 years. This reduces the pressure to maintain performance and compliance.”
Hehir told the inquiry budget cuts harm the ANAO’s ability to “start up an audit” and “react quickly” to requests from parliament and anomalies it detects in agencies’ balance sheets.
The Western Sydney airport Leppington triangle inquiry was established after a large write-down in the value of the land was detected in regular financial auditing.
Hehir said fewer resources would result in the ANAO doing fewer audits, and a decreasing breadth and diversity of its work.
On financial audits, Hehir said the ANAO was still working within “acceptable” standards but had increased its tolerance for risk.
“We’ve increased our risk to a point that I’d be uncomfortable doing that any further.”
Senator Rex Patrick challenged Hehir about why he didn’t publicly advocate for funding to increase performance audits to 70 or 80 per year.
Hehir said the best “bang for buck” could be achieved by 48-50 performance audits and stronger oversight of agencies’ own performance statements.
“As auditors we’re never wishing to be extravagant, we’re always wishing to be reasonable.”
Asked if he believed the ANAO budget should grow proportionally with government spending, Hehir replied it need not go up proportionally but “it shouldn’t be going down” as the public sector is growing and becoming more complex.
After the latest round of budget cuts, Scott Morrison dead-batted a question in parliament by claiming the government would reconsider resourcing issues after the 10-year review being conducted by the audit committee.
The committee deputy chair, Julian Hill, noted at the hearing that the review was into the ANAO’s legislative framework so there was no reason to delay boosting its budget.
In its submission The Centre for Public Integrity noted that 13 new agencies have been added to the ANAO workload since 2017-18, with no additional funding made available.
Geoffrey Watson, a director of The Centre for Public Integrity, said the ANAO had “recently uncovered serious misspending of public money” and “needs greater independence and funding to do this work”.
