Nick Sherry (Tasmania, Australian Labor Party, Shadow Minister for Banking and Financial Services) Share this | Hansard source

That will be in the committee stage—good. I should note that in the committee stage an amendment will be moved which is endorsed by both Senator Murray on behalf of the Australian Democrats and me on behalf of the Labor Party opposition. That is unusual, but once again the Democrats and the Labor Party are in agreement on an approach, which we will deal with in some detail in the committee stage.

Before I conclude my remarks, I want to touch on an area for the public record, given this is financial framework legislation. As I mentioned, relatively minor areas in respect of financial management are being updated across a range of different sectors. It is certainly not apparent to Labor why some of these would be included in an omnibus piece of legislation of this nature. Nevertheless, they are included, and that does not preclude us from supporting the legislation.

I suppose this piece of financial framework legislation concludes what has been a very sorry episode in terms of financial management and accountability for this government. I refer to the initial changes, made by this government on being elected, in 1997 with the passage of the Financial Management and Accountability Act 1997, the FMA Act. This act and the changes were touted as a major new initiative in the financial management of Commonwealth departments and agencies by the newly elected Liberal government. It was almost 10 years ago that we had the passage of this new act—how time flies. The basic purpose of the new act was to devolve large areas of financial management and accountability from the Department of Finance and Administration back to government departments and agencies. Much of the work being carried out by the department of finance at that time was devolved back to the individual departments and the offices within those departments.

This sounded like a good idea, at least in theory. But in practice what occurred as a consequence was an absolute shambles of the first order. I rarely pick on and name individual public servants, but in this case I am going to. It was presided over by the now infamous Dr Boxall. It was a political appointment, so I have absolutely no qualms at all in naming Dr Boxall as the person responsible for overseeing what became an absolute shambles in the department of finance.

As I said, theoretically at least, this sounded like a good approach—devolving everything back to departments. They take responsibility for special accounts and management oversight of expenditure in a devolved way. Of course, what happened was that the department of finance slashed hundreds of jobs. Hundreds of staff were either made redundant or moved into other government departments. Unfortunately, a number of the government departments were not well enough equipped to actually do the financial decision making that was being devolved back to them.

In retrospect, what should have occurred as part of this process was much closer management of government departments as they took up these additional responsibilities, by the department of finance. But basically it was a slash-and-burn approach by the department of finance. I have to say that many good officers either lost their jobs or were moved to other entities—hundreds of people were involved in this slash-and-burn approach. What should have occurred was much greater training, supervision and coordination of government departments to ensure that they were properly equipped to take up these devolved responsibilities.

There have been a number of critical Auditor-General reports of this process over a number of years, one of which I was reading only earlier this week in response to another issue. That was the Management of net appropriation agreements, Audit report No. 28 by the Australian National Audit Office on the authorisation arrangements for some areas of revenue and expenditure across government departments and agencies.

Firstly, I place on record my congratulations to the National Audit Office. It is one of the last bastions, if you like, of true, rigorous, independent oversight of this government—one of the last bastions. Thank goodness for it. We have seen an increasingly arrogant government, now it has control of the Senate, shutting down wherever it can areas of scrutiny and oversight. The Audit Office remains one of the last, fearless bastions of independent oversight.

This Audit Office Audit report No. 28 identified very serious breaches of financial management requirements by a number of departments and agencies. As I have indicated, the government’s Financial Management and Accountability Act 1997 devolved back to departments and their heads of finance, chief executives in some cases, responsibility for authorisation of a range of expenditure and a range of receipts. What this Audit Office report revealed was that there were widespread shortcomings in the administration of appropriation arrangements. In particular, it noted:

… there has been inadequate attention by a number of agencies to their responsibility to have in place … effective—

what are known as—

Section 31 arrangements that support additions made to annual appropriations and the subsequent expenditure of those amounts.

The Audit Office acknowledged:

While many of the issues raised by this audit—

but certainly not in all of the areas audited—

are quite technical (in a legal sense), there are important considerations of appropriate accountability, including transparency, to the Parliament.

I do realise that most people do not pick up these reports and read them, but they are very useful because of the shortcomings that they identify. What we have in this particular case, I think, is one of the most critical reports of this government’s financial management and the new system that was implemented. This report identifies truly massive failures by a range of government agencies and departments in the execution of their legal requirements under section 31 of the Financial Management and Accountability Act.

The Audit Office found that, of the agreements examined—bearing in mind they did not examine them all—157, or 68 per cent, were assessed as having been ‘effectively executed’; in other words, they met legal requirements. However, 42 agreements, or 18 per cent, were assessed as ‘ineffective’ and a further 32 agreements, or 14 per cent, on the basis of legal advice from the Australian Government Solicitor, the AGS, were assessed as ‘in doubt’. So, of the spot-checking that the Audit Office carried out, some 32 per cent of agreements were defective. That is a massive proportion of defects identified. And, to the extent that the amounts were identified as having been spent without an appropriation, section 83 of the Constitution was contravened.

We are not talking here about small change. If we look at the table on page 113 of this Audit Office report, we see there was defective authorisation—in other words, illegal expenditure or receipt of moneys—to varying degrees, in the hundreds of millions of dollars over a number of years. That is over a number of years, not just one year. Let me just give you a couple of examples. Under the heading ‘“Ineffective” Section 31 agreements’, the table shows that the Australian Bureau of Statistics, from 1 July 1999 to 6 March 2005, took illegal receipt of some $135 million, while ‘receipts spent’ totalled $128 million. The Australian Federal Police had some $623 million in ‘receipts affected’ and under ‘receipts spent’ some $443 million.

This is a whole table totalling ‘receipts affected’ of some $1.7 billion and ‘receipts spent’ of some $1.162 billion under ineffective section 31 agreements—in other words, illegal expenditure of receipts. That is not small change by anyone’s definition. This came about as a result of this devolved responsibility back to agencies and government departments with, unfortunately, a failure to equip those agencies and government departments with the appropriately skilled officers—with the appropriate training and oversight so they would be equipped to do that.

When this Audit Office report was released, I note that Senator Minchin was quoted in the Financial Review as saying, ‘These are technical breaches. They have been identified and action has been taken to address them.’ He described them as mere technical breaches. That is not the description that the Audit Office gave of these identified breaches. Some of them were acknowledged as technical breaches; however, many of them were serious in nature. As I referred to earlier in my contribution, the Auditor-General, Mr McPhee, noted a handful of annual reports tabled so far and that departments and agencies had contravened section 83 of the Constitution, which relates to appropriations. That is a serious issue. It is no mere technical breach; it is a serious issue in relation to many of the expenditures that occurred.

I am pleased to note that there was a reference in the Financial Review to this Audit Office report and I am pleased to note that the Clerk of the Senate, Mr Evans, was referred to as criticising the lack of spending transparency of government. It quoted him as saying:

… section 31 agreements reduced the parliamentary scrutiny of funding decisions. “The bigger issue is you’ve got government departments generating all this loot, which they don’t get parliamentary approval to spend.”

I believe that the Clerk of the Senate, Mr Evans, is spot-on in his criticism. It was not mere technical breaches, as the Minister for Finance and Administration would like to portray it. This was another example, and the legislation we are dealing with today is really the final nail in the coffin, if I could describe it as that, of this devolved financial accountability and management back to government departments and agencies.

The government has totally reversed that policy. It has never said it publicly. It does not want to admit just what level of problem did occur with this devolved approach, but effectively the government has totally reversed its policy as announced and implemented back in 1997, and it has taken most of what had been devolved to government departments and agencies back under the umbrella of the department of finance quite directly. It is interesting to note that, as a consequence, the department of finance has employed some extra hundreds of staff to do so. Hence my earlier critique of Dr Boxall, who sacked hundreds of staff when implementing this policy. It has now been almost fully reversed, and the department of finance has re-employed hundreds of staff to fix up the mess.

I did want to put those remarks on the record with respect to this financial framework legislation, because I think there should be appropriate scrutiny. We will deal with the specific amendment in the committee stage.