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Internal Audit and Risk Management Arrangements

Internal Audit

Management Audit Branch, within the Inspector General's Division, undertook internal auditing in accord with a Defence Audit Committee-approved annual audit work plan and conducted other investigative tasks as required. This work provided managers with assurance, assisted them in performance improvement, and advised on the efficiency and effectiveness of Defence's resource management and corporate governance.

A risk-based (likelihood/consequence) approach was used to allocate internal audit resources to where they would be of most assistance. This mainly involved consideration of business and resource management risks over the medium term (three years). The medium-term analysis took account of Defence enterprise-level risks, Joint Committee of Public Accounts and Audit, Australian National Audit Office and Management Audit Branch reports, the views of Group Heads and advice from the Defence Audit Committee.

Within the medium-term framework, the annual audit work program was developed to take account of emerging risks, changed risk impacts and priorities. Throughout the year, Management Audit Branch reported against the program to the Defence Audit Committee.

Ethics Awareness and Fraud Control

Defence has a well-developed program of ethics awareness, which includes material such as videos, newsletters and a dedicated intranet site providing information and advice. During 2002-03, the Hon Danna Vale, Minister Assisting the Minister for Defence, launched a new ethics handbook for Defence, which was distributed widely throughout the organisation. Around 200 separate ethics awareness presentations were delivered to approximately 8,200 Defence personnel across Australia.

In line with the Commonwealth Fraud Control Guidelines, Defence undertook a new Defence-wide fraud risk assessment during 2002-03. This assessment provides the basis for developing the next Defence Fraud Control Plan (No 5) during 2003-04.

During 2002-03, 544 fraud investigations were registered within Defence and 399 investigations were completed. During the period, approximately one quarter of all outcomes from completed fraud cases involved criminal, disciplinary or administrative action. Of these, approximately half related to action under the Defence Force Discipline Act 1982.

The determined fraud loss for completed cases in 2002-03 was some $1.1m and, during the year, monies awarded and recovered amounted to around $0.8m. Over the last eight fiscal years, detected fraud in Defence has averaged an estimated $1.9m per year, within a range of $1.1m to $3.1m per annum.

Portfolio Evaluations

Portfolio Evaluation Strategy

The Defence Portfolio Evaluation Strategy is promulgated as a Defence Instruction (General). In accordance with the strategy, the Defence Committee authorised a schedule of portfolio evaluations covering 2002-03 and 2003-04. In calendar year 2002, the principal evaluation topics were:

The principal evaluation topics for calendar year 2003, in order of priority, are:

Topics foreshadowed for 2004 in the Portfolio Budget Statements 2003-04, in order of priority, are:

Schedule of Portfolio-level Evaluations for 2002-03

The following evaluation activities were completed in 2002-03:

Corporate Governance of the Defence Information Environment (Phase 1). This evaluation, which was to determine the methodology and measures to be used in Phase 2, was completed in September 2002.

Management of Accrual Accounting in Defence. The evaluation was endorsed by the Secretary and the Chief of the Defence Force in May 2003. The report found that:

Responsibilities for Doctrinal Development. The evaluation was presented to the Secretary and the Chief of the Defence Force in July 2003 and is presently under consideration.

Output Evaluation Program 2002-03

A rolling program of evaluation is conducted to provide the Minister for Defence with independent assurance of the effectiveness and efficiency of capability delivery by outputs and sub-outputs and that planned activities are aligned with Government and higher Defence guidance. The evaluations completed during 2002-03 were:

Sub-Output Report Forwarded to Minister
Special Forces October 2002
Maritime Patrol October 2002
Command of Operations November 2002
Defence Signals Directorate December 2002
Strategic Operations January 2003
Army Aviation March 2003
Airlift May 2003

Enterprise Risk Management

Development of risk management continued under the Defence Risk Management Implementation Plan 2002-03. The plan seeks to strengthen the commitment to sound risk management as part of governance at all levels throughout Defence.

To support the implementation plan, an extensive communications strategy was launched in October 2002. The focus of the strategy was promulgating information on Defence risk management through chains of command/line management and involved the Secretary and the Chief of the Defence Force writing to each SES and star-ranked military officer.

In addition, each Group reviewed its strategic risk assessments in 2002-03. The risk assessments and the development of management responses were then embedded into business planning as part of the development of organisational performance agreements for each group.

The enterprise risk management framework is to be reviewed in 2003-04.