Financial loss is something entities clearly work hard to avoid, but if it does happen, entities can learn from their experiences and allow us to share common insights and advice with others.
Those entities that are proactive – and look at reporting losses as more than just a compliance exercise – can better future-proof their business. When losses do happen, entities need to report them to the Queensland Audit Office (QAO) as soon as possible. The more we know, the more we can help you, and work with you to prevent them occurring again.
Who must report losses and when?
Departments and statutory bodies are required to report losses to the Auditor-General under s.16 of the Financial and Performance Management Standard 2019 (FPMS). Local governments must report losses to the Auditor-General under s.307A of the Local Government Regulation 2012 (LG regulation).
Under both the FPMS and the LG regulation, the losses entities need to report to the Auditor-General are those that:
- relate to the property of a department or statutory body, or an asset of a local government. This includes both physical assets, cash, and other financial assets.
- are material. For departments and statutory bodies, a loss of property is material where it is a loss of more than $500 cash, or loss of other property valued at more than $5,000. For local governments, a loss of an asset is material where it is a loss of more than $500 cash or, a loss of another asset valued at more than $1,000. When assessing if a material loss has occurred, entities should not consider whether they can recover all or part of the loss through insurance.
- may be the result of a criminal offence or corrupt conduct. For example, fraud, theft, collusion, or misappropriation.
What are the exceptions?
There are some cases where entities don’t need to report losses to us. These include:
- immaterial losses
- losses caused by accidental damage or due to natural disasters/severe weather
- losses arising from normal business operations, such as bad debts, or losses on sale/disposal of assets.
However, it is important that entities still record these types of losses for their own internal purposes.
How do I report a material loss to QAO?
Entities should report material losses to the Auditor-General via our website: www.qao.qld.gov.au/losses. You will need to provide the following information:
- entity details
- date the loss occurred
- a summary of the loss, including what evidence the entity has
- the dollar value of the loss
- any action taken, and the outcome.
We are currently looking at how we can make this process easier, so watch this space for updates.
Does it matter when the loss is reported?
The sooner a loss is known about, the quicker action can be taken.
Both the FPMS and LG regulation require entities to report losses as soon as possible, but no longer than 6 months after they are discovered.
Entities must also report losses to either the police or the Crime and Corruption Commission (CCC). Early reporting allows the relevant agency to appropriately investigate the loss. Reporting it to us at the same time allows us to analyse the underlying cause faster.
The case study further down shows that early reporting of losses has given us the opportunity to provide advice that has prevented fraud occurring.
What happens once I file a report?
At QAO, we consider reported losses at the entity level (as part of our financial audit process) and on a collective public sector basis to understand emerging risks facing the public sector.
At the entity level, we consider the financial impact and the adequacy of the entity’s response to the loss, including whether the entity requires changes to key internal controls and processes.
Each year, we ask chief executives to provide QAO with management representations about the preparation and disclosure of their financial statements. This includes confirming whether they have communicated information related to fraud and suspected fraud to the auditors. This should align with the information entities have reported to us as losses arising from fraud during the financial year.
In future years, we plan to develop a system that clearly links these annual representations to the material losses reported to us.
We use losses reported across the public sector to identify trends or systemic issues to:
- point to areas where we could conduct audits aimed at improving or strengthening public sector performance, efficacy, and accountability
- identify opportunities where we can provide advice and assistance to prevent further loss at the reporting entity
- avoid similar losses at other public sector entities.
|Case study: fraudulent bank account scam|
In the 2015–16 financial year, multiple public sector entities reported losses to us resulting from a fraud scheme targeting both the private and public sectors. Scammers used fraudulent documents to change an existing supplier’s bank account details and divert payments to illegitimate bank accounts. By analysing these losses, we were able to provide advice and assistance to other public sector entities at both the state and local levels, helping them to avoid also falling victim to the scheme.
What we did
Once made aware of the scheme, we asked the targeted entities to provide us with relevant information, including copies of the fraudulent documents submitted to them. By examining this evidence, we were able to identify common features of the fraud scheme that other entities could use to check if they were being targeted.
We asked chief financial officers to independently verify their supplier bank account details, and also recommended entities exercise increased vigilance over new requests to change these details.
In the local government sector alone, we identified 9 councils the scheme targeted, with the scammers netting $744,000 in fraudulent payments.
We helped stop further payments of approximately $3.2 million by advising council staff to perform appropriate checks, in combination with councils’ respective banks managing to recover funds diverted to fraudulent accounts.
By choosing to put the spotlight on a loss and reporting it as soon as possible, entities can give themselves the best chance of avoiding history repeating itself. It also allows us to quickly share key learnings to stop the same thing happening to others.