Julian Hill (Bruce, Australian Labor Party) Share this | Hansard source

Thank you, Member for Brand. I present Report 463: Commonwealth financial statements: inquiry based on Auditor-General's report No. 33 (2016-17) and Report 464: Commonwealth grants administration: inquiry based on Auditor-General's reports No. 25 (2015-16), No. 4 (2016-17), No. 12 (2016-17) and No. 35 (2016-17).

Reports made parliamentary papers in accordance with standing order 39(e).

by leave—The first report, Commonwealth financial statements, sets out the findings of the committee's inquiry based on Audit report No. 33: Audits of the financial statements of Australian government entities for the period ended 30 June 2016. It's not the most exciting stuff, but it is a critical part of the committee's annual role to oversee the Commonwealth's finances. The committee noted that the 2015-16 consolidated financial statements were prepared in accordance with the Public Governance, Performance and Accountability Act 2013 and the requirements of the Australian accounting standards, and that an unmodified auditor's report for the statements was issued on 28 November 2016. The committee also noted that the Auditor-General had issued auditor's reports on the 2015-16 financial statements of 246 Commonwealth entities, up until 9 December 2016, and that all auditor's reports were unmodified.

There were some 245 findings that were reported to entities as a result of these audits, comprising four significant, 32 moderate and 209 minor findings. Importantly, the National Disability Insurance Agency and the Department of Education and Training both had significant findings, and the Department of Defence and the Australian tax office both had multiple moderate audit findings. The committee noted progress by these entities in responding to the audit findings. However, we recommended that if next year's financial statements for these entities result in any significant or moderate findings, the entities should report back to the committee on their progress in responding to these findings. Noting the two significant legislative breaches reported to the Northern Land Council during 2015-16, the committee also recommended that the council report back on progress in responding to these breaches and any such breaches reported next financial year.

During the course of the committee's inquiry we paid particular attention to the rules and practice governing the disclosure of senior executive remuneration. This has been the subject of media comment and of interest to senators during in Senate estimates, triggered first by the Australia Post CEO controversy. It turns out that the previous reporting rule required all Commonwealth entities, including government business enterprises, to disclose senior executive remuneration by band. The reporting rule instrument that required this was signed by Senator Wong when she was finance minister. Unfortunately, this requirement for transparency was removed a few years ago by the current Minister for Finance. In doing so, the new PGPA Act financial reporting rule ditched the explicit requirements to mandate public reporting and aligned reporting with various externally devised accounting standards.

During the inquiry, quite contrary to their usual forthcoming and helpful nature, the Department of Finance was uncharacteristically coy in providing us with advice in response to questions as to the impact of these changes. We got a series of sterling Yes MinisterSir Humphrey-style non-responses to straightforward questions. From my time in the public service, I recall that there was a two-word term for this. It starts with 'smile' and ends in an unparliamentary word. Anyway, we toed-and-froed for a while, presumably while they or their minister was scrambling to bandaid the problem. During the inquiry, the Minister for Finance and the Secretary of the Department of the Prime Minister and Cabinet, however, took a number of steps to reinstate the previous practice for all Commonwealth entities, including government business enterprises, to disclose details of senior executive remuneration—in essence, writing a bunch of warm but relatively lame and tame letters asking entities if they could please go back to disclosing senior executive remuneration.

The committee concluded, however, the accountability needs of the parliament and the Australian public must continue to be met. It expressed concerns about some of the mechanisms being used to reinstate remuneration disclosure. The committee, therefore, recommended that, consistent with previous practice, more transparent disclosure of senior executive remuneration, including by salary bands, should be a formal requirement—not by request. This requirement should be duly reflected in the relevant legislation and guidance and the relevant disclosure published in entity annual reports, rather than on entity websites. Finance should also report back to the committee on options for strengthening remuneration disclosure requirements, giving consideration to the requirements for Australian Stock Exchange-listed companies. We further recommend that Finance develop benchmarks to enable entities to assess their own financial sustainability against agreed parameters over time. This is important in terms of the accountability needs of parliamentarians being met. Finance should also note the committee's proposal that more transparent reporting on contracts and consultancies, earlier delivery of annual reports and improved entity audit committees be considered as part of the independent review of the PGPA Act.

In conclusion, the Auditor-General's financial statement audits play a critical role in ensuring accountability to the parliament and the Australian public for the expenditure of public funds. The audits provide independent assurance that the information is accurate and that the financial management of Commonwealth entities is effective. The committee commends the Auditor-General for his work each year in auditing the consolidated financial statements and the Commonwealth entity financial statements. We also commend the Audit Office for its work in reviewing the progress of each entity and addressing any significant or moderate findings from the previous year's audit.

I have a statement to make in relation to the second report that I have tabled, in relation to Commonwealth grants administration. This inquiry examined Commonwealth grants administration with a focus on the Auditor-General's findings and recommendations for multiple audits, being the 20 Million Trees Program, the Living Safe Together Grants Program and the Indigenous Advancement Strategy. The committee was concerned that granting departments are not consistently applying the requirements of the Commonwealth grants framework, which all departments are obliged to follow. It was disappointing that, despite multiple audit reports, too often the exact same problems keep recurring—often in the same department. The committee was concerned that significant shortcomings remained in the departments' processing of grant applications, as well as their assessment practices. Eligibility requirements were not clearly set out in program guidelines, applicants were treated inconsistently in relation to the eligibility requirements, and eligibility assessments were not conducted in a transparent or timely manner. The committee highlighted a range of instances where ineligible applications had proceeded through to merit assessment and, in some cases, were ultimately funded. We view this as an important public administration issue. Quite simply, grant applications that do not meet policy objectives, as expressed in eligibility criteria, should not receive funding.

Without reading all of the words in front of me, I also point members towards our acknowledgement of the importance of some positive initiatives across departments, including grants hubs, created as part of the whole-of-government streamlining grants administration initiative. We did make a range of comments and recommendations around those.

The committee also recognised the importance of accurate and complete advice to ministers to make decisions to either approve or reject funding recommendations. Ministers, and shadow ministers should they one day be ministers, all have a shared interest in ensuring the advice they get is correct and comprehensive. However, the evidence presented revealed that the issues were not just systems or process related but also cultural. The committee considered the need for departments to instil cultural change, drawing attention to training as one of the fundamental features in influencing a department-wide cultural shift. We made a number of recommendations, including that the three program departments actually measure the number of staff in their departments formally trained with regard to the grants policy framework and quickly rectify gaps to retain sufficient expertise and ensure policy compliance.

Regarding written advice to decision-makers, the inquiry pursued the ANAO's recurring audit finding of inaccurate record keeping. The committee highlighted that departments must maintain detailed contemporaneous records to support funding recommendations to provide adequate assurance regarding those specific projects or activities that have been approved and the terms of that approval.

This is an important point when it comes to the expenditure of public funding and the impact of grants. We examined departments' approaches to evaluating grants programs, which is a key part of implementing effective granting processes. We were also concerned that departments are not taking a strong early focus on formulating an evaluation strategy. In some cases, evaluation frameworks are not formalised and/or implemented until years after a program commences. The committee was particularly concerned that the Department of the Prime Minister and Cabinet still could not point to a formal overall evaluation strategy for the $4.8 billion Indigenous Advancement Strategy nearly three years after commencement. To be fair, we did acknowledge that in February 2017 the minister announced $40 million to strengthen the evaluation of various bits and pieces. It was an amazing Deirdre Chambers-style coincidence that he happened to do that on the very same day that the Auditor-General released his report with critical findings. Anyway, there's room to improve evaluation.

Ms Madeleine King interjecting—

Deirdre Chambers, yes. The committee stressed the importance of departments actively collecting, sharing and acting on lessons learned, and encouraged communities of practice, to share information and good practice across the department, and the development of model guidance documents. The committee noted that, while it is prudent to disseminate learnings, audits and other evaluation activities across the department and listen to speeches like this and read the reports, that is not enough. Departments and public servants actually have to change their behaviour, not just write memos, if we're to see improvement.

The committee strongly supported the Auditor-General's recommendations across the whole suite of reports and many others, and recognised that full implementation is essential if continued shortcomings are to be rectified. So we recommended that the three program departments report on progress against the Auditor-General's respective recommendations, including clearly indicating whether they have actually implemented them.

Grants, of course, will continue to be used as a common approach to deliver government funding and achieve government outcomes and objectives. Based on the committee's findings in this inquiry and given the new whole-of-government arrangements, the committee flagged, and we will be maintaining focus on this, that future scrutiny of grants administration will pay attention to whether departments understand their underlying culture—it's not just the words on the page; it's what's done—and whether departments have made a conscious effort and achieved any of the necessary cultural shifts so that the risks, in some cases serious risks, that have fed into these prior deficiencies are mitigated and full alignment with the government's overarching grants policy framework occurs.

In closing, I'd like to extend my thanks to all members of the committee, including the member for Brand, a fine contributor, for their deliberations during these inquiries. I commend the reports to the House, and I move:

That the House take note of Report 463: Commonwealth financial statements: Inquiry based on Auditor-General's report 33 (2016-17).

Question agreed to.

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