Ross Hart (Bass, Australian Labor Party) Share this | Link to this | Hansard source

I speak in connection with the report of the Joint Committee of Public Accounts and Audit, Report 463: Commonwealth financial statements—inquiry based on Auditor-General's Report 33 (2016-17). The work of this committee, as people know, is to scrutinise the governance, performance and accountability of Commonwealth entities and companies. It reviews whether public money is expended in an appropriate manner. Public money ought to be used in an efficient, effective, economical and ethical manner. The function of the committee accordingly is to promote and support effective public administration.

The committee obtains its power from its own legislation, the Public Accounts and Audit Committee Act 1951. It has, as a consequence, a close relationship with the Auditor-General for the Commonwealth, and in particular it examines the reports prepared by the Auditor-General and determines, as the case may be, to conduct inquiries based upon the reports prepared by the Auditor-General. In the conduct of its inquiries, the committee will consider the public interest, the significance of the programs or issues raised in the report, and any response raised by the agencies that are the subject of the report.

The subject matter of this report is based upon the Auditor-General's Report 33, which, in turn, is the audit of the Commonwealth financial statements. As I indicated in my outline, the work of this committee is to support efficient and effective public administration. The Auditor-General's financial statements audits play a very important role in providing accountability both to the parliament and to the Australian public with respect to the expenditure of public money. Every Australian receives independent assurance that the information within the financial statements is accurate. That assurance extends to the financial management of Commonwealth entities. The work of the committee, particularly having regard to the important role of the committee in the maintenance of standards of effective and efficient public administration, has a long history of bipartisanship.

The Commonwealth financial statements report affects 246 Commonwealth entities. This resulted in 245 findings being reported to the entities as a result of the audits undertaken. There were 32 findings categorised as 'moderate' and 209 'minor' findings. The National Disability Insurance Agency and the Department of Education and Training both had 'significant' audit findings, and the Department of Defence and the Australian Taxation Office both had multiple 'moderate' audit findings.

The work of the committee in some respects is to amplify and support the work undertaken by the Australian National Audit Office in the reports issued by the Auditor-General. Thus any issues identified by the Auditor-General may be highlighted or further explored—teased out, as it were—in order to ensure that appropriate remedial action can be facilitated. Given that the statements relate to 246 entities, there are additional important opportunities for the sharing of information, modification of behaviour and, where appropriate, legislative reform.

I wish to speak today about a number of general issues of principle which have arisen in the context of the report, as well as a number of specific issues which relate to the findings as to particular Commonwealth entities. The first issue has been explored as a result of the inquiry undertaken by the committee, which the committee considered is a matter of vital public importance in the area of transparency. That is the issue of remuneration of executives within Commonwealth entities.

In my view, the committee's attention to this issue highlights the complementary but independent role of the committee and its function to amplify the material within the Auditor-General's report. In this particular instance, the previous practice required all Commonwealth entities to disclose details of senior executive remuneration. The practice was discontinued as a result of aligning the new Public Governance, Performance and Accountability Act 2013 financial reporting rule with international and Australian accounting standards.

The committee noted and acknowledged that the requirement is to comply with Australian accounting standards, as set by an independent body, but nevertheless considered that the accountability requirements of the parliament and the Australian public demanded that additional requirements and/or disclosures would be appropriate based upon the practice adopted and/or required by the Australian Securities Exchange.

The committee further recommended that, consistent with previous practice, there should be a formal requirement for more transparent disclosure of senior executive remuneration, including by salary bands, with this requirement reflected in relevant legislation and guidance and published in entity annual reports rather than on entity websites. In its report—in particular, paragraph 2.21—the committee expressed some concerns about the mechanisms used to reinstate the previous practice of disclosing senior executive remuneration.

The Minister for Finance wrote to the chairs of government business enterprises and the Future Fund Management Agency in February 2017 requesting that senior executive remuneration be disclosed in a manner consistent with that for listed companies. The committee notes that, as a result, the government business enterprise guidelines will be updated. Entities have been requested, both through secretary correspondence and guidance, to reinstate the previous practice. However, it is of concern to the committee that this is optional by request rather than a formal requirement in accordance with previous practice. The proposal was that this information was to be published on entity websites and updated annually but not published in entity annual reports, consistent with previous practice. There may have been issues with consistency across entities in terms of website publication of relevant information as well as transparency and accessibility issues.

The committee has not received details of how the PGPA rules and resource management guides will be amended to reflect the change. A fragmented response, which appears to have been characterised by resistance within the Australian Public Service, is in my view inappropriate. The public interest, which is sought to be maintained and promoted by the committee, should not be subverted by a misplaced sense that, in the pursuit of simplification of reporting requirements, the reporting of executive remuneration is somehow too onerous. In the strongest terms, the committee considers that, in the interest of maximum transparency and accountability, disclosure of senior executive remuneration should be a formal requirement. There is no warrant for it to be optional by request. This requirement should be the subject of legislation and guidance to ensure that it should not be relaxed without proper consideration.

Continuing the theme of public accountability, the committee considered that the parliament and the Australian public should be entitled to receive information about contracts, contractors and consultancies entered into by Commonwealth entities. This will be a matter for consideration as part of the independent review into the PGPA Act. In the committee's view, there are other matters for consideration in this review—in particular, the bringing forward of the delivery and publication of Commonwealth entity reports, the annual reports and the enhancement of the effectiveness of audit committees. As previously indicated, particular entities were the subject of significant audit findings. Following review of the evidence, including submissions and responses by those entities, it follows that particular attention would be given to monitoring any remedial action required by those entities.

Recommendations 1 and 2 within the report relate to the significant findings made with respect to the financial statements of the NDIA and the Department of Education and Training and the moderate audit findings made with respect to the Australian Taxation Office and the Department of Defence. The committee has recommended that these entities promptly report back to the committee on progress in responding to the findings should the ANAO audit to the present period result in any further significant audit findings and, in the case of the Department of Defence and the ATO, any significant or moderate audit findings. There is a similar recommendation with respect to the Northern Land Council regarding legislative breaches identified in the audit report. The committee wishes to receive positive confirmation from the entity on progress and response, including action taken by the audit committee of the entity.

In summary, this committee plays a very important public role in ensuring that the Australian parliament and the general Australian public receive positive assurance with respect to the performance and expenditure of public moneys by Commonwealth entities. The committee was very concerned to note that the intention of transparency with respect to the reporting of financial remuneration of senior executives had been subverted. The committee was concerned that in its dealings with the Department of Finance there was a sense that this would not be the subject of formal compliance; it would not be the subject of reporting in annual reports. The committee has expressed its strongest views, in strongest terms, that this should be a formal requirement, not something that is optional. Every Australian, and indeed every member of this parliament, has the right to see in a transparent and open manner the reporting of executive remuneration.

John McVeigh (Groom, Liberal Party) Share this | Link to this | Hansard source

As I rise to speak on the Joint Committee of Public Accounts and Audit report 463, Commonwealth financial statements: inquiry based on Auditor-General's report 33 (2016-17), I reflect that it has been a tremendous honour to be a member of the committee since being elected to this parliament just last year. This very important joint public administration committee scrutinises the governance, performance and accountability of Commonwealth agencies and has the power to inquire into all expenditure of Commonwealth money. Its work is therefore vital for the sound operation of Commonwealth agencies and for the necessary confidence that all Australians should have in our system of government.

As the report stresses, the Auditor-General's financial statement audits play a critical role in ensuring accountability to the parliament and to the Australian public for the expenditure of public funds. The audits provide independent assurance that this information is accurate and that the financial management of Commonwealth entities is effective. This Joint Committee of Public Accounts and Audit report No. 463, Commonwealth financial statements, sets out the findings of the committee's inquiry based on audit report 33, for the period ended 30 June 2016. The 2015-16 consolidated financial statements were prepared in accordance with the Public Governance, Performance and Accountability Act 2013 and the requirements of Australian accounting standards, and an unmodified auditor's report for the statements was issued on 28 November 2016. The Auditor-General issued auditors reports on the 2015-16 financial statements of 246 Commonwealth entities up until 9 December 2016, and all auditors reports were unmodified. Some 245 findings were reported to entities as a result of the audits, comprising four significant, 32 moderate and 209 minor findings.

As has been said, the National Disability Insurance Agency and the Department of Education and Training both had significant audit findings, and the Department of Defence and the Australian Taxation Office both had multiple moderate audit findings. In the interests of being diligent, and based on a desire to maintain a focus on issues associated with significant audit findings when they are handed down, the committee recommended that, if next year's financial statement audits for these entities resulted in any significant or moderate findings, they should report back to the committee on progress in responding to those findings. I am sure that this committee will remain very diligent in following up on those issues if required for further future reporting purposes.

Noting the two significant legislative breaches reported in the Northern Land Council during 2015-16, the committee also recommended that the council report back on the progress in responding to these breaches and any such breaches that might be reported next financial year. In terms of some of the key recommendations in our committee's report, during the course of the committee's inquiry the Department of Finance took a number of steps to reinstate the previous practice for all Commonwealth entities to disclose details of senior executive remuneration. This had been continued as a result of aligning the new PGPA financial reporting rule with international and Australian accounting standards. The committee therefore recommends that, consistent with previous practice, disclosure of senior executive remuneration should again become a formal requirement, with publication in entity annual reports rather than just on entity websites.

Some of the detail of this particular recommendation includes the Department of Finance reporting back to our committee on options, firstly, to further strengthen remuneration disclosure requirements, giving particular consideration to the requirement for Australian Stock Exchange listed entities and/or the practice of the Australian Stock Exchange and, among other issues and recommendations, on what formal guidance and/or legislative instruments have been, or may need to be, updated to reflect such changes that this committee is very keen to see.

The committee further recommended that Finance develop benchmarks to enable entities to assess their own financial stability against agreed parameters over time. The committee also recommended Finance note that more transparent reporting on contracts and consultancy, early delivery of annual reports and improved entity audit committees be considered as part of the independent review of the PGPA Act.

As I said earlier, the Attorney-General's financial statement audits play a critical role in ensuring accountability to the parliament and to the Australian public for the expenditure of public funds. In conclusion, as a proud member of the Joint Committee of Public Accounts and Audit in this parliament, I, together with my colleagues, commend the Auditor-General and his office for their work each year in auditing the consolidated financial statements and Commonwealth entity financial statements.

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

I seek leave to make a short statement of maybe 10 minutes—we'll see how quickly someone else gets here—given I tabled the report.

Leave granted.

This is in one sense a dry report. It's not going to win any prizes for scintillating, stimulating reading—indeed, if one couldn't find a cup of chamomile tea or something stronger and had trouble sleeping, there'd be parts of this kind of report that could assist! But I think it is important that at least a short debate does occur in the Federation Chamber and that the parliament does pay some level of attention to this kind of work. It's a bit old fashioned, I know. I'm a conservative in that regard. Who knew? The work of the Joint Committee of Public Accounts and Audit is an important part of the work of the parliament. The committee has been in existence in one form or another since about 1911 or 1913, soon after Federation. It's one of the few committees of the parliament that exist by virtue of statute. It has significant powers and can initiate its own inquiries. It also has some clear statutory responsibilities, including to formally consider each and all of the Auditor-General's reports.

As part of the Auditor-General's annual work program, he conducts a formal report into the Commonwealth's financial statements. In effect, that's an assurance audit looking over all 246 entities. Importantly, and quite rewardingly, actually, for those of us on the committee—as you heard from the previous speaker, who's a member of the committee—this is generally conducted in a bipartisan fashion. Sure, we'll have our roles and we'll probe and prod and so on, and have a bit of fun along the way, but there's a very strong tradition for over 100 years of having just about all of the reports from this committee signed off and agreed by all members. Part of the fun of being an opposition member on that committee is that you get a bit of latitude to craft the words and negotiate them as long as you've got the evidence.

There were, as has been said, 245 findings by the Auditor-General conveyed back to agencies. Four were significant, 32 were moderate and 209 were minor findings. As you would expect, in its public hearings deliberations and the report the committee has paid particular attention to the significant and moderate findings. I'll turn my comments to two or three of those.

Firstly, to pick up on the remarks of the member for Bass and the previous speaker around the topic of senior executive salary disclosure: we spent quite some time on that matter during the public hearing. Somewhat surprisingly, actually, it turned out to be a little harder than it really should have been and occupied a fair part of the report. Put quite simply, under the previous Labor government, there's a thing called the financial reporting rule. It's, again, very dry. The finance minister is the custodian of this rule—this regulation; this requirement—imposed on all agencies and entities. Senator Penny Wong, when she was the Minister for Finance and Deregulation in the Labor government, signed the most recent version. It had a pretty simple requirement for transparency: that all entities and agencies, corporate and non-corporate—departments are non-corporate but there are corporatised entities with boards and so on—had to disclose their senior executive remuneration in their public documents by band. If you look at departments you can see, as with ASX listed companies, how many people are paid at this, that and the other level. We, or at least the Labor members, have felt consistently that that level of transparency has a range of benefits and is important to public confidence, maintaining scrutiny on decisions of boards and so on.

Unfortunately, this requirement was watered down in subsequent instruments signed by the current Minister for Finance, Senator Cormann. It had been suggested to us throughout, in a bit of tricky wording, I guess, by various presenters to the committee and submissions that this was only a result of aligning the requirements in the financial reporting rule with externally imposed accounting standards and the Australian Accounting Standards Board. That all kind of makes sense. It was a noble endeavour to simplify and streamline and align the requirements with accounting standards—that's fine. But it missed a couple of things, and I took time to go back to the explanatory memorandum—again, a non-fascinating document but an important one—that accompanied the tabling of the revised financial reporting rule. It was very clear in that explanatory memorandum. It wasn't just, 'Oh, well, we'll align it with the accounting standards—oh, we made a mistake; look, they kind of bundled them up', but that the impact of this change would remove that level of transparency by band. So, instead of being able to see who was paid $300,000, who was paid half a million and who was paid $2 million in that top echelon, how much we spend on executives was just aggregated into one big lump.

It was also suggested, 'Oh, well, we've kind of got to go with the standards,' which is a nonsense. The parliament and the government have every right to impose whatever transparency and accountability requirements we want on the public sector. Of course it's good, by default, to align them with externally imposed standards. That makes sense; it's easy. Staff understand that they can look them up and be trained, but there are particular needs for the public sector. Public confidence is important. Transparency is important. It has a higher value in the public sector—dare I say, quite rightly—than in the private sector. We feel that it was a mistake to do this.

It became a matter of some public controversy due to the Senate estimates circus around the Australia Post CEO's salary, and then there were a series of fishing expeditions—which would not have had to have happened had the previous Labor government's rule around transparency been in place—to figure out by band what other agencies were paying. During the inquiry, we thought, 'This is pretty straightforward. Let's ask the finance department for the impact of this and how many agencies it applies to.' We got one of those Sir Humphrey-style gobbledegook series of responses which made no sense. Eventually we got enough, I guess, to make a clear recommendation—which I'm pleased the committee signed up to unanimously in a bipartisan fashion—that, in effect, the government should just change the rule back by a regulation to what the previous Labor government had and restore transparency in senior executive salary disclosure.

Along the way, as has been pointed out, and we did dot-point this in the report, there was a series of coincidences—I think some of them were Deirdre Chambers-style coincidences—where the finance minister wrote to some GBEs and said they had to disclose their salaries. Then when we raised it in the public hearings and wrote to the Department of Finance, somewhat magically—I think it was about two days later—the secretary of Prime Minister and Cabinet wrote to a much wider range of agencies and said: 'Please? Would you mind? It would be kind of really good if you popped this back on the website.' So we're inching in that direction, but the simple fix is just to put in place a regulatory rule which requires full disclosure and transparency to be done with it—importantly, in the annual reports and not buried on some page on the website.

So Labor, I'm pleased to say, has signed up to this. Our shadow finance minister has signed up to this, actually, in response to a bill that Senator Hanson has put forward in the Senate. It's a bit of a stunt, really, to require the Remuneration Tribunal to be able to set salary—

Brian Mitchell (Lyons, Australian Labor Party) Share this | Link to this | Hansard source

Who knows!

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

I know! Who would have thought? Who would have thought to require the Remuneration Tribunal to mandate the salary of Australia Post, I think, and another entity. It's politically tempting; it would be a bit of fun but it's not the right thing to do from a proper governance point of view.

Transparency generally will do the trick. You're going to moderate these excessive salaries in the public sector if there is transparency, and we do believe, from the point of view of good corporate governance, that boards appointed to run organisations should have a say and influence over the salaries, terms and conditions of their senior executives. Who knew?

I have a couple of brief comments in relation to the other significant issues. The NDIA is a new entity, obviously, and will be of some interest in coming years to the Auditor-General—quite rightly. There were a couple of significant findings. The ANAO found there was no documented compliance activities for payments made to self-managed participants. This is a critical part of putting choice in the hands of recipients in the NDIA's service design. The participants can choose to self-manage their plans if they want, and so it's critical that the lack of an audit framework and so on doesn't become an excuse by the NDIA, as has been alleged in some quarters of the sector, to move away from that part of the care if that's what people want. And so we turned some attention to that, and the NDIA will do some more work on that finding to make sure they have a robust framework in place and don't use it as an excuse to ditch an important part of the scheme.

We also paid some attention to a slightly concerning finding about the Australian tax office, that there were weaknesses or flaws in their estimation allocation process for revenue and expenses. Of course, that sounds dry and boring, but it's a critical part of government that the revenue and estimating processes, running to hundreds of billions of dollars, are going to be right for the budgeting process.

In closing, I thank members of the committee and the Auditor-General and his staff. I would point out, of course, that this audit report and the work underneath it reflects on the financial performance of the Commonwealth. Quite rightly, that's a heavily audited area; we know where every dollar goes. But a new frontier of work for the committee is working with the Auditor-General in complement to look at how we can do assurance audits for the parliament on the non-financial performance—the outcomes and the indicators—and start to move towards a system where we have the same level of rigour, integrity and confidence that parliamentarians and the public can have about the financial performance. I commend the report. Thank you.

Steve Georganas (Hindmarsh, Australian Labor Party) Share this | Link to this | Hansard source

The debate is now adjourned and the resumption of the debate will be made an order for the next sitting.