Adele FergusonInvestigative journalist and columnist reported recently in the AFR:
The AFR can reveal that in early 2018, Martin Hoffman, then secretary for the Department of Finance, Services and Innovation (DFSI) and a director of SIRA, engaged EY to undertake a health check into icare. Treasury was consulted as part of the process.
Poor governance and risk management.— April 2018 EY Health Check of icare
The April 2018 EY report identified issues around icare’s profitability, insufficient premium rates, with the expected premium below the breakeven rate (partly due to under collection and partly due to issues with icare's new policy system) expense ratios, including service charges, which were high, relative to other jurisdictions, and operational issues in particular in the transition to the new IT system.
EY noted that icare withdrew $500 million cash more than budgeted during December 2017 and said the implication was icare had “cashflow problems due to lower than expected premium collection.”
In terms of governance, the EY report said icare failed to comply with DFSI protocols in regard to the build of its IT system, which it described as demonstrating “poor governance and risk management”.
It highlighted issues with icare’s decision to move from multiple insurance agents for handling claims management to a single agent EML, including under-resourcing and lack of claims management experience.
“All this points towards a poorly executed and implemented IT project that will begin impacting on the levels of claims management and customer service in the scheme,” EY said.
It was referring to the fact that icare hadn’t adhered to the standard Cabinet-endorsed ICT Assurance Framework – the government’s key oversight and governance process for major IT projects costing over $10 million.
Note from Ferguson's story above that in early 2018, Martin Hoffman, then secretary for the Department of Finance, Services and Innovation (DFSI) and a director of SIRA, engaged EY to undertake a health check into icare.
Hofman's "health check" appears to have coincided with a close to 10 fold rise in the grant from the Crown in the 2018-19 financial year, from $ 128,496,000 in the 2017-2018 financial year to
$ 1,163,496,000 in the 2018-2019 financial year (see page 205 of the 2018-2019 iCare Annual Report).
The grant is provided pursuant to the Net Asset Holding Level Policy. NSW Treasury has defended its grant to iCare (or rather iCare managed funds) of $ 2 Billion in the 2019-2020 financial year , sighting:
• Lower than expected returns from investments resulting from the COVID-19 market downturn
• Existing and anticipated historic abuse claims
• COVID-19 presumptive legislation that creates a presumption in favour of workers who contract the disease
• Shutdowns from COVID-19 resulting in payouts for business interruption.
• Costs from the summer bushfires
• Increases in medical costs and psychological claims in the workers compensation portfolio
These are not factors that were present in the pervious 2018-2019 financial year and it does not explain the 10 fold jump in the 2018-2019 financial year.
How NSW Audit and the Auditor General Margaret Crawford missed these fairly obvious warning signs is hard to comprehend, but as this writer has noted, Ms Crawford and her department to seem to have a tendency to ignore information, especially that which is in the public domain regardless how relevant or prominent. That tendency has helped the NSW Government and its departments to create annual reports which are detached from reality.
TO BE READ WITH
Note from Ferguson's story above that in early 2018, Martin Hoffman, then secretary for the Department of Finance, Services and Innovation (DFSI) and a director of SIRA, engaged EY to undertake a health check into icare.
Hofman's "health check" appears to have coincided with a close to 10 fold rise in the grant from the Crown in the 2018-19 financial year, from $ 128,496,000 in the 2017-2018 financial year to
$ 1,163,496,000 in the 2018-2019 financial year (see page 205 of the 2018-2019 iCare Annual Report).
The grant is provided pursuant to the Net Asset Holding Level Policy. NSW Treasury has defended its grant to iCare (or rather iCare managed funds) of $ 2 Billion in the 2019-2020 financial year , sighting:
• Lower than expected returns from investments resulting from the COVID-19 market downturn
• Existing and anticipated historic abuse claims
• COVID-19 presumptive legislation that creates a presumption in favour of workers who contract the disease
• Shutdowns from COVID-19 resulting in payouts for business interruption.
• Costs from the summer bushfires
• Increases in medical costs and psychological claims in the workers compensation portfolio
These are not factors that were present in the pervious 2018-2019 financial year and it does not explain the 10 fold jump in the 2018-2019 financial year.
How NSW Audit and the Auditor General Margaret Crawford missed these fairly obvious warning signs is hard to comprehend, but as this writer has noted, Ms Crawford and her department to seem to have a tendency to ignore information, especially that which is in the public domain regardless how relevant or prominent. That tendency has helped the NSW Government and its departments to create annual reports which are detached from reality.
TO BE READ WITH
Sunday, August 16, 2020
Good audit practise requires even the NSW Auditor-General & officers to review publicly available information about their audit subjects: iCare and other NSW Audit deficiencies explained
by Ganesh Sahathevan
This writer has previously asked:
iCare NSW: How did Margaret Crawford's NSW Audit miss the obvious problems
The problems mentioned were all in the public domain for at least the past two years, but finally came to prominence last month as a result of an ABC 4 Corners expose.
Referred to ICAC , iCare relies on statements by the NSW Auditor General Margaret Crawford to declare:"Our finances are in a healthy state"
The problem outlined above stems from the fact that Audit NSW ignored information in the public domain, a practise not uncommon within the NSW Public Service where even annual reports tabled in Parliament can be prepared to show exemplar performance regardless of what is reported by the media.
The practise has served the NSW Public service well, and has the added advantage of enabling public servants and politicians to maintain plausible deniability regardless of the circumstances.
Politics and auditing are however two different things, even for a public sector auditor like the NSW Audit Office and the Auditor General, Ms Margaret Crawford.Auditors are supposed to hold themselves to a higher standard(though it is noted that Ms Crawford is not an accountant, and not a member of any professional body of accountants and auditors.
The United States Public Company Accounting Oversight Board (PCOAB) provides guidance (which has been reproduced below) about the type of investigation of publicly available information auditors are meant to undertake when performing audits of public company audits. The concepts ought not be different for NSW public service entities. The case of iCare demonstrates what can happen when these basic concepts are ignored.
The iCare audited is not exceptional. For another example from NSW of where statutory board annual reports bear no resemblance to the public perception of the entity see:
TO BE READ WITH
Public Company Accounting Oversight Board (PCOAB)
This writer has previously asked:
iCare NSW: How did Margaret Crawford's NSW Audit miss the obvious problems
The problems mentioned were all in the public domain for at least the past two years, but finally came to prominence last month as a result of an ABC 4 Corners expose.
Regardless of that expose and the resignation of its CEO in the course of a parliamentary inquiry iCare has in its defence turned to its NSW Audit report:
Referred to ICAC , iCare relies on statements by the NSW Auditor General Margaret Crawford to declare:"Our finances are in a healthy state"
The problem outlined above stems from the fact that Audit NSW ignored information in the public domain, a practise not uncommon within the NSW Public Service where even annual reports tabled in Parliament can be prepared to show exemplar performance regardless of what is reported by the media.
The practise has served the NSW Public service well, and has the added advantage of enabling public servants and politicians to maintain plausible deniability regardless of the circumstances.
Politics and auditing are however two different things, even for a public sector auditor like the NSW Audit Office and the Auditor General, Ms Margaret Crawford.Auditors are supposed to hold themselves to a higher standard(though it is noted that Ms Crawford is not an accountant, and not a member of any professional body of accountants and auditors.
The United States Public Company Accounting Oversight Board (PCOAB) provides guidance (which has been reproduced below) about the type of investigation of publicly available information auditors are meant to undertake when performing audits of public company audits. The concepts ought not be different for NSW public service entities. The case of iCare demonstrates what can happen when these basic concepts are ignored.
The iCare audited is not exceptional. For another example from NSW of where statutory board annual reports bear no resemblance to the public perception of the entity see:
Her Excellency Gov Beazley has a duty to ensure her government's books accurately reflect Her Excellency's words, acts, legal rights and liabilities (especially when the claims are made by a stat body chaired by the Lt Gov, the CJ NSW Tom Bathurst)
TO BE READ WITH
Public Company Accounting Oversight Board (PCOAB)
AS 2110: Identifying and Assessing Risks of Material Misstatement
Obtaining an Understanding of the Company and Its Environment
Objective
.03 The objective of the auditor is to identify and appropriately assess the risks of material misstatement, thereby providing a basis for designing and implementing responses to the risks of material misstatement.
Performing Risk Assessment Procedures
.07 The auditor should obtain an understanding of the company and its environment ("understanding of the company") to understand the events, conditions, and company activities that might reasonably be expected to have a significant effect on the risks of material misstatement. Obtaining an understanding of the company includes understanding:
- Relevant industry, regulatory, and other external factors;
- The nature of the company;
- The company's selection and application of accounting principles, including related disclosures;
- The company's objectives and strategies and those related business risks that might reasonably be expected to result in risks of material misstatement; and
- The company's measurement and analysis of its financial performance.
11 As part of obtaining an understanding of the company as required by paragraph .07, the auditor should consider performing the following procedures and the extent to which the procedures should be performed:
- Reading public information about the company relevant to the evaluation of the likelihood of material financial statement misstatements and, in an integrated audit, the effectiveness of the company's internal control over financial reporting, e.g., company-issued press releases, company-prepared presentation materials for analysts or investor groups, and analyst reports;
- Observing or reading transcripts of earnings calls and, to the extent publicly available, other meetings with investors or rating agencies;
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