NSW Audit Office - Financial Reports - 2004 - Volume 4 - Compliance Review of Payment of Accounts

The Audit Office Of New South Wales

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Compliance Review of Payment of Accounts

The Public Finance and Audit Regulation 2000 and the Treasurer’s Directions require government agencies to pay their accounts promptly. Suppliers paid late may claim interest from the agency involved. To inform suppliers of this fact, agency order forms must contain specified information to assist them with the process.

In addition, annual reports legislation directs agencies to disclose in their annual reports details of their performance in paying accounts promptly and, if necessary, details of action taken to improve the performance in the future. If an agency pays interest to a supplier or contractor because of late payment, this must also be disclosed.

A Treasury Circular issued in 2001 requires each agency to provide its Chief Executive Officer (CEO) with a report each quarter on the status of outstanding claims. Each agency must also set targets to be achieved in the prompt payment of its accounts.

CONCLUSION Agency performance in complying with the various requirements regarding the paying of suppliers is still very poor. The reminder issued by the NSW Treasury in 2001 has not resulted in increased compliance by agencies. In addition, many agencies are not complying with the new requirements imposed at that time by Treasury. In arriving at this conclusion we have included the results of reviews at three Health entities.

Requirements relating to the payment of accounts are contained in the Public Finance and Audit Regulation, Treasurer’s Directions and the annual reporting legislation. The Department of Health advised us that Treasurer’s Directions do not apply to Health entities. It is unclear whether the other requirements apply to the operations of Health entities. The Department of Health and the Audit Office are attempting to resolve this matter. More information is contained in the Health Overview elsewhere in this volume.

KEY FINDINGS

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Accounts complaints officers are not being nominated by CEOs. Order forms lack required information. Late payments to suppliers are common. Only two of the sampled agencies have paid interest to suppliers. Internal reporting processes are not in place. Annual reporting processes are generally satisfactory.

RECOMMENDATIONS We recommend that: Treasury consider what other options are available to ensure agencies comply with the requirements of the Regulation, the reporting legislation and its own policies Treasury clarify whether the intention of the Regulation is that there be only one accounts complaints officer within an agency. Such a situation does not work well within large and/or decentralised agencies agencies should review internal procedures to ensure that all the requirements around the payment of suppliers are catered for and that the responsibility for them being carried out is assigned to an officer/s of the agency. In particular, agencies should ensure that the receipt of goods/services process is expedited so as to allow their finance section to pay suppliers within the period required. 10 Auditor-General’s Report to Parliament 2004 Volume Four

DETAILED FINDINGS

Compliance Review of Payment of Accounts

1. TheFinance and Audit Regulation 2000 Publicrequires the Head of an agency to do the following:

(i)Appoint an Accounts Complaints Officer  Theheads of the following agencies have not appointed a senior person as the accounts complaints officer:

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Centennial Park and Moore Park Trust Department of Corrective Services Department of Energy, Utilities and Sustainability Department of Infrastructure, Planning and Natural Resources NSW Police Royal Botanic Gardens and Domain Trust South Eastern Sydney Area Health Service Southern Area Health Service Sydney Cricket and Sports Ground Trust Sydney Olympic Park Aquatic and Athletic Centre Teacher Housing Authority Zoological Parks Board.

 Thisnumber represents 44 per cent of the population chosen for review. (ii)Ensure Use of Appropriate Order Form To alert suppliers to the fact that they can make a claim for interest and to facilitate making the claim, order forms are required to contain the following three pieces of information:

information for the supplier regarding the requirement to make prompt payment the telephone number of the complaints officer a statement by the head of the agency that penalty interest may be awarded if the payment is late.

In 67 per cent of agencies tested, there were instances where one or more of the pieces of information were missing from the agency’s official order forms, as follows:

All Three Missing

Two Missing

One Missing

Aboriginal Housing OfficeCentennial Park and MooreNSW Film and Television Park TrustOffice Department of CorrectiveChildren’s HospitalNSW Police Services Department of Energy, UtilitiesDepartment ofOffice of the Board of and SustainabilityInfrastructure, Planning andStudies Natural Resources NSW Aboriginal Land CouncilHistoric Houses TrustSydney Cricket and Sports Ground Trust Royal Botanic Gardens andSouthern Area Health ServiceSydney Olympic Park Domain TrustAquatic and Athletic Centre South Eastern Sydney AHS Teacher Housing Authority Waterways Authority

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Compliance Review of Payment of Accounts

2. ThePublic Finance and Audit Regulation 2000 and Treasurer’s Direction (TD 219.01) both require accounting officers to ensure that all accounts are paid on time.  Foreach agency in our review, we tested a sample of payments for the promptness of payment. We found instances of late payments in sixteen agencies, 59 per cent of the agencies in the review.  Thehighest levels of late payments occurred in the following agencies:

Southern Area Health Service South Eastern Sydney Area Health Service The Children’s Hospital NSW Aboriginal Land Council Waterways Authority Sydney Opera House Department of Energy, Utilities and Sustainability Sydney Catchment Authority Aboriginal Housing Office Attorney General’s Department

A single late payment was found in our sample in six other agencies.

% of Late Payments in Invoices Tested 92.7 91.6 72.7 71.4 28.6 27.3 20.0 14.3 11.6 9.5

Agencies claim that many of the delays in payment are caused by the time it takes for the paperwork to move around the agency, particularly the process of obtaining sign-off that the goods or services have been received prior to payment being made. In 2003-04, only the Sydney Catchment Authority and the Sydney Cricket and Sports Ground Trust actually paid any interest to suppliers. In both agencies the amounts in total were small. Suppliers either do not know that they can claim interest, or believe that it is not a wise commercial decision to do so. 3. AnnualReports legislation requires the disclosure of the details of the agency’s performance in paying accounts and where appropriate, actions taken to improve the performance in the future. If interest has been paid, details of the payment and the reasons it was necessary must also be disclosed. Our review looked at the 2003 annual reports, being the most recent available. Compliance with the first requirement was relatively high, with only two agencies being non-compliant. The Sydney Catchment Authority did not disclose its quarterly accounts payable balances or its quarterly payment targets for the year, while the Southern AHS disclosed no payment performance information at all. In addition, two other agencies did not disclose initiatives put in place to improve their payment performance in the future. Only one agency from those sampled actually paid interest to suppliers in 2002-03. The Sydney Catchment Authority paid $700, but no reasons were disclosed in its annual report. 4. TreasuryCircular 2001-12 provides for agencies to prepare quarterly reports to their CEO on the status of outstanding claims to enable the CEO to monitor payment performance.  Infifteen of the twenty-seven agencies sampled, no form of regular reporting to the Chief Executive that meets the circular’s intention was in place. The non-complying agencies were:

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Auditor-General’s Report to Parliament 2004 Volume Four

Aboriginal Housing Office Centennial Park and Moore Park Trust Department of Corrective Services Department of Energy, Utilities and Sustainability Department of State and Regional Development Historic Houses Trust Legal Aid Commission NSW Aboriginal Land Council

Compliance Review of Payment of Accounts

NSW Film and Television Office NSW Police Royal Botanic Gardens and Domain Trust Rural Fire Service Sydney Cricket and Sports Ground Trust Sydney Olympic Park Aquatic and Athletic Centre Waterways Authority

BACKGROUND In 2001, the New South Wales Treasury checked how well agencies were complying with the various requirements in relation to the prompt payment of accounts. The review found that ‘a number of agencies were not fully complying with the statutory requirements’.

Agencies wishing to comply with the regulation and Treasurer’s Direction on the prompt payment of accounts must:

appoint a complaints officer by position title

ensure their order form contains information for the supplier regarding the requirement to make prompt payment; the telephone number of the complaints officer and a statement by the head of the agency that penalty interest may be awarded if the payment is late

have procedures in place to ensure prompt payment of contracts.

The Treasurer imposed further requirements in 2001 following the review mentioned above. Agencies must disclose, in their annual reports, their payment performance against targets and CEOs must be active in monitoring the agencies performance in this area. To make this possible, agencies must provide their CEO with, as a minimum, quarterly reports on the status of outstanding claims.

We decided to review whether the performance of agencies had improved since 2001. The twenty- seven agencies included in our review were:

Aboriginal Housing Office Attorney General’s Department Casino Control Authority Centennial Park and Moore Park Trusts Children’s Hospital Department of Corrective Services Department of Energy, Utilities and Sustainability Department of Infrastructure, Planning and Natural Resources Department of State and Regional Development Historic Houses Trust

Legal Aid Commission NSW Aboriginal Land Council NSW Film and Television Office NSW Police

Office of the Board of Studies Public Trustee Royal Botanic Gardens and Domain Trust Rural Fire Service South Eastern Sydney Area Health Service Southern Area Health Service Sydney Catchment Authority Sydney Cricket and Sports Ground Trust

Sydney Opera House Sydney Olympic Park Aquatic and Athletic Centre Teacher Housing Authority Waterways Authority* Zoological Parks Board

*From 1 September 2004, Waterways Authority became the NSW Maritime Authority

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