Assessing and grading an entity's systems and controls

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For public entities in the central government sector (excluding schools), auditors use a particular framework to assess each entity’s environment, systems, and controls. As part of the audit, we separately examine, assess, grade, and report on each entities’ environment, systems, and controls for managing and reporting financial and service performance information. We call them "ESCO" grades.

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).

We have been using the current assessment framework since 2006 to support central government entities in their effort to strengthen systems and controls and to report more meaningful information on their financial and service performance. We assess:

  • the management control environment;
  • financial information systems and controls; and
  • service performance information and associated systems and controls.

If auditors identify deficiencies, they will recommend improvements. The grades reflect the recommendations for improvement as at the end of the financial year.

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 any change in grade from year to year.

Consequently, the long-term trend is a more useful indicator of progress than year-to-year changes.

Grading scale for assessing public entities’ environment, systems, and controls

Grade Explanation of grade
Very good We have made no recommendations for improvement.
Good We have recommended that some improvements be made.
Needs improvement We have recommended that major improvements be made at the earliest reasonable opportunity.
Poor We have recommended that fundamental improvements be made urgently.

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.

Page last updated: 28 July 2020