Parliament

Public Accounts and Estimates Committee

August 14, 2019

Report on the Appointment of a Person to Conduct the Financial Audit of the Victorian Auditor-General’s Office

I am pleased to rise and speak on this Report on the Appointment of a Person to Conduct the Financial Audit of the Victorian Auditor‑General’s Office. The history of the Victorian Auditor‑General’s Office is deeply entwined with the history of Victoria. Both officially came into existence in 1851. Previously a part of New South Wales, the creation of Victoria began in 1840 with Henry Gisborne’s petition to separate the colonies. It would be 21 years before the idea of a Victoria independent from New South Wales would be realised. Coinciding with the 1851 foundation of the colony of Victoria and the appointment of Charles Ebden as the first Auditor‑General was the discovery of gold near Ballarat. Within a decade the small colony of some 70 000 people would swell to half a million, propelled by this gold economic boom. The history of Victoria could not have been successful without the appreciation and the application of prudent economic principles such as transparency and accountability—principles championed then by the Auditor‑General.

Initially the Victorian Auditor‑General was tasked with looking at the then independent colony’s finances, but this was later broadened to examine the public service, and later the entire public sector, and its use of public funds and resources. Today the Auditor‑General has an incredibly wide remit, covering some 550 public sector organisations, including this Parliament. These organisations include but are not limited to all major government departments; 170 companies, trusts and joint ventures; 99 public bodies; half a dozen public cemeteries; a dozen independent budget sector agencies; almost 90 public hospitals and ambulance services; 28 universities and educational institutions; 11 waste and resource recovery groups; 11 regional libraries; 30 water authorities and catchment management authorities; and no less than 79 municipal councils. This is a massive task requiring the application of very stringent rules and regulations. The financial health and integrity of Victoria’s entire public sector depends on this one organisation, which is why the effective auditing of the Auditor‑General’s Office is so critical.

Now I would like to refer to a couple of recent discussions out there in our community around—and I want to get this right—who watches the watchers of the watcher. So this relates to a lot of discussion that has been going on in our community for some time about the big four: KPMG, PwC, EY and Deloitte. These four major companies hold the reins on just about all audit and consulting activities across the world for multinational companies. These are the companies that are generally tasked with the role of auditing most of the big multinational companies. It is interesting to read how those companies have overseen some of the biggest audit failures in history.

Just recently in the Financial Times of London, Britain’s largest accounting firms, it has been suggested, should be broken up to avoid a string of serious audit failures like those that have taken place in the past and to restore some public confidence. What we have seen over a long period of time is that these companies have what they call 'Chinese walls’ within them. So on the one hand they are watching and auditing and fulfilling those tasks, but on the other hand, and within the same offices, there are a whole lot of people working for government, working for these companies, producing consultancy reports and giving detailed advice around a whole range of issues—financial issues, taxation issues—all of these things. I think the question is now being very seriously asked about whether that is an appropriate task and appropriate business model for those big companies when they are so critical in really determining good practice and good behaviour within companies. So we as a Parliament need to have every faith in the Victorian Auditor‑General’s Office and every faith in those tasked with holding VAGO to account. While this may be one of the driest issues to come before this Parliament, it is very important.

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