DPIRD draws Auditor General’s finance red flag

The auditor general has issued an unprecedented opinion over finance controls at the Department of Primary Industries and Regional Development, following a deterioration of process last financial year.

The auditor general’s financial audit findings released today issued an adverse controls opinion against the department – the first ever issued by the state’s auditor against an entity.

Its opinion relates to the rollout of a finance and payroll system, Finhub, in August 2022 which was found to have led to underlying issues in the ongoing operations of the finance team at DPIRD.

The auditor general report found the DPIRD did not make progress to address underlying issues that led to three controls qualifications reported in the previous financial year.

“For a large portion of the financial year, there was no process in place to monitor cash balances to ensure that there is sufficient operational cash to meet operational payments,” the report said.

On one occasion, the Office of the Auditor General said one of DPIRD’s was overdrawn as a result of timing differences and funds being deposited into a different bank account.

“While this was rectified the following day as the balance of DPIRD’s other bank accounts covered this overdraft, it demonstrates inadequate cash control practices were in place,” the report said.

A decline was recorded in controls over fortnightly salary report reviews, while significant weaknesses either remained in general computer controls, or were addressed part-way through 2022-23.

The report also found the requirement for finance staff to deliver business-as-usual activities alongside new system implementation impacted regular process, including monthly reconciliations for cash, property, plant and equipment, accounts receivable, accounts payable and payroll.

“Of concern was that the bank reconciliation was not prepared at all for the period between October 2022 and March 2023,” it said.

“As this reconciliation ensures that all cash transactions are accounted for and recorded correctly, this significantly increased the risk of fraud and of material errors in financial records.”

The implementation of the new system also resulted in a weakness which allowed people to record commercial fishing fees without receiving payment.

Auditor General Caroline Spencer said it was important that government entities maintained routine process and that teams were resourced properly.

“An adverse opinion is significantly more serious than a qualified controls opinion, in that we believe that the impact of the weaknesses is so pervasive, it is not possible to conclude that controls were designed and implemented adequately,” she said.  

The report said DPIRD had worked diligently to largely address the shortcomings identified by the report, including a full reconciliation of all commercial fishing fees, and was addressing its underlying weaknesses.

“While there are reasons for this decline, it serves as an important reminder to ensure that routine financial management processes continue to be performed and resourced appropriately, including in times of significant change or stress in an entity,” Ms Spencer said.

In all, the report showed a decrease in the number of audit qualification matters at state entities, reversing a three-year trend of increases.

Last financial year the number of audit qualifications fell from 45 at 25 government entities to 37 at 19 entities.

The state also reported a 21 per cent reduction in the number of control, financial statement and KPI issues reported to management, according to Ms Spencer.

But the report also identified a number of challenging financial reporting, accountability and audit matters in the state sector, including those around climate change reporting, government trading enterprise reform, valuations and issues relating to combustible building cladding.

The auditor general highlighted the stewardship of restricted funds in special purpose accounts as an area of concern.

“Several entities need to substantially improve their practices to ensure that these funds are sufficiently quarantined and that payments are appropriately approved in line with underlying agreements and legislation,’ Ms Spencer said.