Funding and Disclosure Report - Election 1996: Part 5. Compliance Audits

Updated: 5 January 2011

Legislation

5.1 The Political Broadcasts and Political Disclosures Act 1991 tasked the AEC with the conduct of audits of annual disclosure returns of political parties and third parties' election returns. That responsibility has since been extended to audits of the annual returns of associated entities.

Audit Coverage

5.2 With the commencement of compliance investigations, the AEC was allocated funding for two auditor positions. Within the constraints of these resources the AEC developed a three year audit cycle to cover all State branches of all registered political parties. That program is now complete.

5.3 For future coverage the AEC is moving to a risk-based approach. This will mean that, although all parties will continue to be audited, the frequency and depth of individual audits will depend upon identified risk factors such as the results of the first audit round and levels of financial activity. This approach will allow the AEC to focus on areas of greatest importance and will help cater for new responsibilities, such as auditing associated entities.

Conduct of Audits

5.4 Compliance audits are conducted similarly to financial statement audits, familiar to incorporated bodies. Their purpose is to express an opinion as to whether the returns lodged are complete and accurate records of disclosable transactions. Apart from this strict compliance aspect, for the initial cycle of audits the AEC had an additional objective of advising and educating parties and party units on their disclosure responsibilities.

5.5 The AEC provides parties with up to eight weeks notice of an impending audit. This lead time is not only in keeping with the cooperative nature of the audits, but also is designed to provide a party with ample time to negotiate a re-scheduling if the time or venue proposed cannot be accommodated.

5.6 The AEC reports its findings in detail to the party or organisation at the conclusion of each audit. These reports set out any amendments or corrective action that are required to ensure full disclosure. To provide the best possible service, the AEC also takes the opportunity in these reports to offer suggestions on improving current record keeping practices and the efficiency of compiling disclosure returns. Where serious deficiencies are identified, the AEC schedules a smaller, follow-up audit to check that improvements are being made.

Findings

5.7 The overall conclusion reached on the basis of audits conducted to date is that all political parties are attempting to comply with the disclosure provisions. The standard to which that compliance has been achieved, however, varies considerably, the audits having uncovered significant omissions and errors in some returns lodged by political parties. While the Act prohibits the AEC in this report from detailing the findings of its audits apart from instances where it believes that an offence has, or may have been, committed, some general findings are discussed below.

5.8 The AEC found that, despite the delay in the introduction of the new scheme and the provision of detailed information sessions and an explanatory handbook, many parties were unprepared for detailed disclosure, with only a small number having made a comprehensive attempt to prepare for the new scheme. The lack of preparation was generally a result of one or more of the following factors: a lack of appropriate administrative skills; inadequate resources being devoted to the task; and a lack of control over party units (e.g. local branches, fundraising committees, campaign committees).

5.9 Accounting systems are also often inadequate, a situation that might be alleviated if parties were incorporated and were, therefore, subject to financial controls laid down under other legislation. Apart from enhancing the disclosure system, this would have the added advantage of protecting party finances.

Prosecution for Non-compliance

5.10 As stated above, the AEC's approach wherever possible is to assist parties to meet their disclosure responsibilities. In the event that a party or party official fails to meet these obligations, the Act makes provision for penalties. It also specifies that a person can only be prosecuted for 'knowingly' committing an act of omission or misstatement in a return. In effect, this means that claimed ignorance of the law would constitute a defence in most if not all cases. Given that the current scheme provides considerable benefits (in terms of public funding) in return for disclosure responsibilities, there remains a question as to whether the present legislative basis for potential prosecutions is adequate. The AEC will continue to monitor the situation and report to Parliament if legislative change is viewed as being desirable.