Funding and Disclosure Report - Election 1998: Part 6 Compliance Audits

Updated: 6 January 2011

Audit Coverage

6.1 Compliance audits were introduced to coincide with the commencement of the requirement for political parties to lodge annual disclosure returns from the 1992/93 financial year onwards. When annual disclosures were extended in 1995 to require detailed returns to also be lodged for associated entities, compliance audits were similarly extended to cover associated entities. The AEC has since responded to this increase in workload by doubling the resources available to four auditor positions.

6.2 Following the completion of the first audit cycle, the AEC has moved to a risk-based approach in planning subsequent audit coverage. Major 'risk' elements that the AEC takes into account include the total value of parties' transactions as well as parliamentary representation and the results of previous audits.

6.3 The risk assessments do not reflect parties' compliance with disclosure but, rather, are designed to allow the AEC to most efficiently undertake its audit responsibilities by focussing on those areas of greatest importance. This will, naturally, see the larger branches of the larger parties being audited more regularly than smaller parties. All parties will continue to be audited at least once in a three year cycle. The extent of coverage for individual parties, however, will be tailored according to the perceived risk associated with their disclosure responsibilities.

Scope of Audits

6.4 The AEC's objective is to have all annual disclosure returns ready to be released for public inspection each 1st of February. The integrity of these disclosures upon their public release, however, is reliant upon the diligence and competence of those who have lodged the returns. The limited resources of the AEC to conduct compliance audits and the fact that many political parties take the opportunity for a Christmas wind down means the AEC is not in a position to verify disclosures before their public release.

6.5 The purpose of compliance audits is to assess whether the annual disclosure returns lodged by political parties and associated entities are complete and accurate records. Compliance audits are routine and their scope is limited under the legislation. These audits are not able to become 'fishing expeditions' extending beyond the records that support the transactions required to be disclosed. To mount more detailed investigations, the AEC is required to operate under a separate provision of the Act and, must have reasonable grounds for believing that there may have been a contravention of the disclosure provisions of the Act. The AEC is not entitled by the Act to mount investigations simply on the basis of suspicion or hearsay allegations.

Conduct of Audits

6.6 The AEC overwhelmingly encounters cooperation from party and associated entity office holders, employees and volunteers when conducting its audits. Most parties and entities have now experienced at least one AEC audit and are familiar and comfortable with how they are conducted.

6.7 At the conclusion of each audit a report is presented to the party or associated entity and discussed with them. These reports canvass the observations of the audit team and advise of any amendments or corrective action that is necessary to ensure compliance with the disclosure provisions of the Act. These reports and the supporting working papers contain information that is not required by the Act to be disclosed and placed in the public arena. For this reason they are treated as being strictly confidential between the AEC and the party or entity and the AEC does not publicly release their contents.

6.8 Overall parties are more competently meeting their disclosure responsibilities than when the AEC last reported. Even so, a major concern remains in that political parties in particular are not always according sufficient priority to the task of disclosure. Most often this results in numbers of decentralised party units (such as local branches and campaign committees) not reporting their finances to the party's agent. This results in them not being incorporated into the return lodged for the party. In some cases individual party units may have receipts of tens of thousands of dollars which means that material disclosures are sometimes not being included in the returns lodged by parties. The lack of priority can also sometimes mean that the party's own central accounts are not always accurately reflected in the disclosure return.

6.9 Naturally, disclosure may not always be seen as a core function by a political party but it nevertheless must be seen as a core responsibility. Disclosure equals financial accountability to the Australian public and given the level of financial assistance provided to parties through public funding, that accountability is vital.

6.10 Political parties continue to voice concerns over the imposition placed upon volunteers, particularly party unit treasurers, by disclosure and audit. The AEC observes, however, that this concern is rarely backed up by any significant effort by the parties in supporting their volunteers by way of providing basic bookkeeping guidelines or training. Compliance with the Act demands only the simplest recording of cash in, cash out and debts and does not require bookkeeping knowledge or experience. The AEC estimates that financial disclosure reporting responsibilities could be discharged by a treasurer of all but the largest party unit in a matter of minutes even where only the barest records are maintained. The public responsibility accepted by party volunteers when taking on the role of treasurer is perhaps intimidating to some, but it is not onerous.

6.11 Some parties have expressed the worry that a consequence of these demands may be that volunteers will be discouraged from taking on positions of treasurer. While sympathetic should such a situation ever result, the AEC cannot see that any less can be expected from party treasurers if disclosure is to be effective. Taxpayers, whose taxes contributed almost $34 million in public funding at the 1998 elections, have a right to expect no less.