Claire Moore (Queensland, Australian Labor Party) Share this | Link to this | Hansard source

In accordance with the provisions of the Auditor-General Act 1997, I present the following report of the Auditor-General: Report No. 8 of 2006-07: Performance audit: Airservices Australia’s upper airspace management contracts with the Solomon Islands government.

Kerry O'Brien (Tasmania, Australian Labor Party, Shadow Minister for Transport) Share this | Link to this | Hansard source

by leave—I move:

That the Senate take note of the document.

I have only had a brief opportunity to look at this document. I do note that the four recommendations made by the ANAO have been accepted and agreed to by both the Department of Transport and Regional Services and Airservices Australia. However, it is not the acceptance of these recommendations that I wish to discuss; rather it is the fact that there was any need to investigate inappropriate payments made by a Commonwealth statutory authority.

The Auditor-General has been called in to examine a range of transactions made by Airservices Australia, which is a wholly owned entity of the Australia government. The fact that a Commonwealth statutory authority has paid more than $2.1 million outside the terms of a legally binding contract alone is of great concern. Airservices is responsible for the safety of Australian airspace and, after perusing this report, I certainly hope there is more attention paid to that job than there is to corporate governance.

I note that the Auditor-General has summarised over 400 transaction payments made by Airservices Australia, allegedly under this contract, between 1998 and 2003. Of the more than 400 payments made by Airservices supposedly relating to the contract, only 77 of these were made to the bank accounts specified in that legally binding contract.

The initial contract between Airservices Australia and the Solomon Islands government was to manage the upper airspace of the Honiara flight information region, to collect, on behalf of the Solomon Islands, air navigation fees from airlines entering their airspace and to pay fees, less Airservices’ charges, to the government. This arrangement commenced on 1 June 1998. What I find very surprising is that, almost immediately after the contract was in place, Airservices agreed to requests to make payments outside the terms of the contract and that these payments continued over a period of five years between 1998 and 2003. The ANAO says:

This was not only a departure from sound contract management practices but was not prudent given the number and variety of payment transactions.

Frankly, I think that is a very generous assessment by the Auditor-General. Other people may describe such a fundamental failing differently. For the record, in my opinion even a clerk of modest competence should have questioned the fact that payments were being requested outside the terms of the contract—especially so soon after the contract had been put in place. I note that, of the 400 or so payments summarised on page 65 of the report, well over 300 of these transactions were made outside the terms of the legally binding contract. With apologies to Oscar Wilde, one unauthorised transaction is unfortunate; over 300 is just plain careless.

Of these payments, 305 were made to third parties—that is, non Solomon Island government accounts: 36 for fees and expenses of an aviation adviser totalling over $500,000; 161 for education expenses totalling nearly $400,000; 42 for travel expenses totalling approximately $300,000; and a further 66, totalling over $800,000, simply listed as ‘other third-party payments’. There was also over $28,000 that comprised 17 transactions summarised as ‘credit card cash advances and payments’. I understand these were made on Airservices corporate credit cards. This is amazing; it is quite concerning.

This is not a one-off lapse in judgement or mistake; this is a methodical payment system that, over time, has come to be seen as normal. The Auditor-General refers to this in this comment:

... it could be argued that the parties had agreed to informally vary the contracts. This is despite the contract providing for variations to be made in writing.

I do not know how one could assume that one was concluding a contract had been varied when the contract was so specific about variation. I suggest there had been a systemic failure in the management of Airservices to deal with this issue appropriately well before the payments ceased in 2003.

The fact that there were four internal audits or reviews of the contracts and it was not until the final review in November 2005 that Airservices determined that improvements were required in relation to the management of money indicates to me that corporate governance in Airservices has been questionable. An Airservices internal audit concluded in July 2003:

... the contract appeared to be well managed and that, as well as ensuring a high standard of ongoing accountability, the management of the contract had promoted Airservices Australia’s and Australia’s interests with the Solomon Islands Government.

It simply beggars belief that the Auditor-General could report that this conclusion was coupled with:

...concerns were raised that the contract was not being managed strictly in accordance with its terms and conditions.

That is further evidence of a corporate culture that was divorced from reality. The ANAO has drawn a number of conclusions concerning the administration of this multimillion-dollar contract, and we should be thankful that one of these conclusions was that there was:

... no evidence to indicate that payments had been made by Airservices Australia to secure or retain the upper airspace managements contracts ...

They were not buying wheat, obviously. I think that this is a fortunate occurrence. This is of course in marked contrast to that other payment I referred to.

I note that Airservices has been at pains to assure the Auditor-General that the recent restructure and the implementation of a business improvement program, along with addressing deficiencies in internal audit procedures, has alleviated any problems. As mentioned, I have also noted that both the Department of Transport and Regional Services and Airservices have accepted the Auditor-General’s recommendations. Despite this, I would urge the Auditor-General to institute a complete performance audit of Airservices within the next 12 months. Assurances of improvement are all well and good but, given the quite basic problems uncovered in this situation, a full examination is a must. Labor welcomes the report. However, my initial feeling is that a deficiency of the report is that the parties to the irregular payments are not identified. And I am talking about well over 300 payments.

Yesterday in the other place my colleague the shadow minister for overseas aid and the Pacific Islands, Mr Bob Sercombe, discussed the worsening relations between Australia and a number of Pacific nations, not the least being the Solomon Islands. It would not do Australia’s credibility in the region any good for this report to be seen as some sort of a whitewash of the circumstances which took place over this period. When I have had more of an opportunity to examine the report, I may seek additional information from the Auditor-General and it would be pleasing to be more fully briefed about this matter. It is of concern that there were many payments made completely at odds with the way payments should have been made under the contract. I intend to follow this matter up further.

Jeannie Ferris (SA, Liberal Party) Share this | Link to this | Hansard source

There are a couple of points that need to be made in relation to those comments concerning this report. The first is that the report found no evidence of facilitation payments or any other illegality. As well, the Auditor-General noted that a separate investigation that was undertaken by the Australian Federal Police concluded that there was no evidence to support a charge of criminal conduct in any case. Most importantly, the report concluded that Airservices Australia employees, in acting on the authority of Solomon Islands government ministers and officials, did depart from sound contract management in making some payments under the contract.

Airservices Australia accepts these findings by the Auditor-General and has committed to a swift response to them. In fact, Airservices has already undertaken a range of reforms to its processes. The department has been asked to review the Auditor-General’s findings and to report on actions that might be taken to further strengthen the guidelines issued to Airservices Australia in relation to its overseas service contracts. Airservices Australia has already taken action to carry out some of these recommendations, including a thorough strengthening of corporate governance procedures in relation to offshore contracts through a revised contract management procedure that clearly segregates the duties of the contract manager and the contract administrator, requires contracts or variations to contracts to be endorsed by the general counsel and approved by the relevant general manage and/or CEO, incorporates a senior management review and oversight process, requires monthly reconciliation of bank accounts and requires monthly financial reporting to management by the relevant finance officer independent of the contract manager.

Notwithstanding the actions already taken by Airservices, the minister will be writing to the Airservices board asking them to review the Auditor-General’s report very carefully and to provide a written report covering all aspects of the findings. The report is expected to address not only the specific contract but also the implications for the administration of other Airservices contracts and that strategies be put in place to ensure similar shortcomings cannot occur in the future. Airservices Australia accepts the findings by the Auditor-General and has committed to a swift response to them and, as I said, has already undertaken a range of reforms to its processes.

Airservices Australia’s safety work is not confined to Australia. Significant safety issues in the Asia-Pacific region, including in the Solomon Islands, PNG and Indonesia, are being addressed through assistance from Airservices Australia. This assistance is being provided through standardisation of procedures, targeted training programs, the development of equipment and maintenance and radar realignment programs. The assistance is a very important issue for Australia, because over 80 per cent of international aircraft flying to and from Australia pass through Indonesian airspace.

Airservices Australia advised Minister Anderson’s office of the outcome of an internal audit of the Solomons Island contract in September 2003. This audit raised questions about whether some payments made by Airservices were in accordance with the contract. The minister’s office requested that RAMSI be informed. Internal and external investigations were conducted and they identified that Airservices Australia and its staff acted in good faith in administering this contract. The Airservices Australia chief executive informed Minister Truss in March 2006 of a Solomons Island government auditor-general inquiry into civil aviation in the Solomon Islands, which included the financial management of that Airservices contract.

I will conclude my remarks by saying again that this investigation found no evidence of facilitation payments or any other illegality. Links by comment by my colleague Senator O’Brien to wheat export contracts are unfortunate. In addition, the Auditor-General noted that a separate investigation by the Australian Federal Police concluded that there was no evidence to support a charge of criminal conduct. I seek leave to continue my remarks later.

Leave granted; debate adjourned.