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[ letterhead: Auditor-General for Australia ]

INDEPENDENT AUDIT REPORT

To the Minister for Defence

Matters relating to the Electronic Presentation of the Audited Financial Report

This audit report relates to the financial report of the Department of Defence for the year ended 30 June 2003 included on the Department’s web site. The Department of Defence’s Chief Executive is responsible for the integrity of the Department of Defence’s web site.

The audit report refers only to the statements named below. It does not provide an opinion on any other information which may have been hyperlinked to/from the audited financial report.

If the users of this report are concerned with the inherent risks arising from electronic data communications they are advised to refer to the hard copy of the audited financial report to confirm the information included in the audited financial report presented on this web site.

Scope

I have audited the financial statements of Department of Defence for the year ended 30 June 2003. The financial statements comprise:

The Department of Defence's Chief Executive is responsible for the preparation and presentation of the financial statements and the information they contain. I have conducted an independent audit of the financial statements in order to express an opinion on them to you.

The audit has been conducted in accordance with the Australian National Audit Office Auditing Standards, which incorporate the Australian Auditing Standards, to provide reasonable assurance as to whether the financial statements are free of material misstatement. Audit procedures included examination, on a test basis, of evidence supporting the amounts and other disclosures in the financial statements and the evaluation of accounting policies and significant accounting estimates. These procedures have been undertaken to form an opinion as to whether, in all material respects, the financial statements are presented fairly in accordance with Accounting Standards and other mandatory professional reporting requirements in Australia and statutory requirements so as to present a view which is consistent with my understanding of the Department of Defence's financial position, its financial performance and its cash flows.

The audit opinion expressed in this report has been formed on the above basis.

Qualification

The Department's Statement of Financial Position as at 30 June 2003 reports:

Assets

Owing to inadequacies in the Department’s inventory procedures, the effects of which are described in Note 7G, I have been unable to form an opinion on the reported value (net of obsolescence provisions) of general stores and explosive ordnance, as it has not been possible to validate, $610 million (2001-02 - $1.88 billion) and $1.2 billion, (2001-02 - $1.74 billion) respectively of the $3.83 billion referred to above.

Owing to inadequacies in the Department’s repairable items system, the effects of which are described at Note 7F, I have been unable to form an opinion on an amount of $550 million (2001-02 - $2.77 billion) included in the repairable items amount of $2.54 billion referred to above.

The audit opinion on the financial report relating to the previous year was qualified in respect of the above matters, namely, inventory, including explosive ordnance, and repairable items.

Liabilities

In addition, owing to inadequacies in the Department’s Military employee personnel recording systems, primarily relating to the lack of integrity associated with the capture and recording of data within those systems, the effects of which are referred to at Note 9A, I have been unable to form an opinion on an amount of $732 million for the Australian Defence Force employee leave provisions of the $1.07 billion referred to above.

As a consequence of the inadequacies in the Department’s Military employee personnel recording systems referred to above, I also have been unable to form an opinion on the amounts reported at Note 14 on Executive Remuneration to the extent that it includes accrued leave for Military personnel.

Summary and Financial Statement Impact

For the reasons given, the effects of the inadequacies described above, with respect to:

on the Statement of Financial Performance, Statement of Financial Position and associated Notes to and Forming Part of the Financial Statements are not able to be measured reliably, thereby limiting the scope of the audit.

In summary, because there are uncertainties with material balances relating to inventory, repairable items and leave liabilities, the corresponding movements with those account balances also impact the Statement of Financial Performance.

Qualified Audit Opinion

In my opinion, except for the effects on the financial statements of any adjustments as might have been required had these limitations on the scope of the audit not existed, the financial statements:

  1. have been prepared in accordance with Finance Minister's Orders made under the Financial Management and Accountability Act 1997; and
  2. give a true and fair view, in accordance with applicable Accounting Standards and other mandatory professional reporting requirements in Australia and the Finance Minister's Orders, of the financial position of the Department of Defence as at 30 June 2003, and its financial performance and cash flows for the year then ended.

Other Statutory Matters

As described at Note 28, the Department has breached section 48 of the Financial Management and Accountability Act 1997.

Australian National Audit Office

[ original signed ]
Oliver Winder
Acting Auditor-General

Canberra
24 October 2003

GPO Box 707 CANBERRA ACT 2601
Centenary House 19 National Circuit
BARTON ACT
Phone (02) 6203 7500 Fax (02) 6273 5355
Email pat.barrett@anao.gov.au