Appendix 2: Our framework for assessing environment, systems, and controls
This appendix outlines the framework we use for assessing environment, systems and controls in the entities we audit.
Environment, systems, and controls
As part of the audit process, we separately examine, assess, grade, and report on central government entities' environment, systems, and controls for managing and reporting financial and service performance.
Our auditors recommend improvements to ensure that there are effective internal controls for sound management and good governance, and to help entities to manage risks (such as errors and potential fraud).
This is the sixth year we have used our current assessment framework to support entities in their effort to strengthen systems and controls and to report more meaningful information on their financial and non-financial performance. Accordingly, we assess these three aspects:
- the management control environment;
- financial information systems and controls; and
- service performance information and associated systems and controls.
If auditors identify deficiencies in any of these aspects, they will recommend improvements. The grades reflect the recommendations for improvement as at the end of the financial year (see Figure 31).
Fluctuations in grades can occur from year to year –: for example, because of changes in the operating environment, organisational structure, good practice expectations, or auditor emphasis. How an entity responds to an auditor's recommendations is more important than the grade change from year to year. Consequently, the long-term trend is a more useful indicator of progress than year-to-year changes.
Figure 31
Grading scale for assessing public entities' environment, systems, and controls
| Grade | Explanation of grade |
|---|---|
| Very good | No improvements are necessary. |
| Good | Improvements would be beneficial and we recommend that the entity address these. |
| Needs improvement | Improvements are necessary and we recommend that the entity address these at the earliest reasonable opportunity. |
| Poor | Major improvements are required and we recommend that the entity urgently address these. |
We report our assessments to the entity, the responsible Minister, the relevant select committee, and relevant monitoring agency. We also advise the central agencies: the Treasury, the State Services Commission, and the Department of the Prime Minister and Cabinet.
Given that our assessments and grades are focused on encouraging improvements, we do not grade entities that are, or will subsequently be, disestablished.
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