Monday, 18 February 2019
Joint Committee of Public Accounts and Audit; Report
On behalf of the Joint Committee of Public Accounts and Audit I present the following reports: Report 475: Defence First Principles Review, naval construction and mental health in the AFP: inquiries based on Auditor-General’s reports 31, 34 and 39 (2017-18); and Report 476: Australian government funding: inquiry based on Auditor-General’s reports 18 and 50 (2017-18).
Reports made parliamentary papers in accordance with standing order 39(e).
by leave—I will try to keep my remarks brief, but these two reports actually cover five separate Auditor-General's reports, and I do need to make a few remarks on each of them.
Firstly, chapter 2 of report 475, based on audit report 34, relates to the Department of Defence's implementation of the First Principles Review. This review was designed to ensure that Defence is fit for purpose and able to respond promptly to future challenges. It's an enormously important bipartisan endeavour to transform the operations of Defence in Australia.
The Australian National Audit Office assessed the effectiveness of Defence's implementation of the First Principles Review, finding that it had implemented a substantial number of the most important recommendations. However, a number do remain a work in progress and have yet to be implemented. The committee noted a number of issues, including the importance to maintain momentum in such a long-term endeavour. It particularly recommended creating a strong strategic centre for defence, and that Defence should ensure deficiencies arising from the review are measurable and quantified by implementing an evaluation framework. Ministerial engagement can continue to be improved. It was apparent ministers have not kept up their end of the expectations regarding formalised regular engagement. Further action is required to address workforce related issues and to demonstrate the intended outcomes regarding behaviour. Very importantly, the reform of the systems program officers is expected to continue and take until around 2023 to complete. The committee has made a number of recommendations, including that Defence work to improve its forecasting of financial expenditure.
Secondly, chapter 3 was based on audit report No. 39, which discusses Defence's mobilisation of naval shipbuilding construction programs in Australia. The audit report concluded—this sounds reassuring—that Defence is currently meeting scheduled milestones. However, it noted that Defence should determine the affordability of naval shipbuilding programs to provide funding advice to government. Just to unpick that and try and put it into English—the reports do tend to have a bureaucrat element of them, such is the nature of the audit committee—this is really giving a tick to the first 200 metres of a marathon. This is an $89 billion so-called shipbuilding endeavour which is going to last for many years—indeed decades. While it is reassuring there's been a tick given to the first couple of hundred metres, there are a number of warning signs, including language from the Auditor-General, about the high-to-extreme risk. So whilst we do welcome these initial phases, we also understand that there's a long way to go.
The recommendation around funding advice to government is because the Abbott government in the 2016 white paper on Defence outlined a range of fairly ambitious capability upgrades but then, surprisingly, released, only a year later, a shipbuilding program in 2017 that all of a sudden said we're going to do this stuff domestically. The simple point is it's going to cost more to make all this stuff domestically. There are good policy reasons to do so; that's not disputed. However, the Department of Defence has still not gone back to government in any transparent way and said 'here is the updated cost of this from the white paper'. Now, of course, if this is wrong, we are talking about $89 billion of acquisition, a fiscal time bomb for governments in years to come.
In the past, Defence has commonly underestimated sustainment costs. However, we note Defence's claims in this case to be confident that sustainment costs as currently forecast will be met within budget. We did hear evidence of the government rushing decision making, which risks an increase in sustainment costs, because they proceeded with one acquisition through to the next stage of tendering against the error and Capability Life Cycle manual. The Auditor-General's concern is this risk is effectively the government being screwed on price by the market.
We also noted that Defence is well overdue in releasing a workforce plan that is expected to address workforce size, skill levels and location of workers. We heard evidence that, whilst Defence are establishing their naval shipbuilding college to address some of the workforce needs, the first phase is now reported to cost $62 million, which was unexplained as an increase from the initial proposal for $25 million. The committee's recommendations include that Defence provide a copy of its workforce plan to the committee, and review its requirements around the quality of sustainment costing.
Chapter 4 is based on audit report No. 31, outlining the effectiveness of Australian Federal Police in managing employee mental health. This followed an Auditor-General's performance audit, which assessed the AFP's management and coordination of activities explicitly supporting mental health. That audit report made six recommendations, and the AFP agreed to all recommendations, stating that they recognise the need for enhanced mental health support. The extreme stress that the AFP is operating under and the serious risks which so many serving Federal Police officers go through in their work were apparent through the inquiry. The committee was at pains to commend the AFP for its work undertaken to improve its management of employee mental health, and acknowledged they had begun improvements prior to the ANAO audit. We also noted the AFP presented well. They were open about where they hadn't done well enough and about what they were doing. It could serve as a model for many other departments.
The committee is concerned about the significance of the ANAO's findings in relation to the AFP's governance and risk management arrangements, monitoring and evaluation, and support services for employees. It was recognised through the inquiry that the AFP knows that 66 per cent of AFP employees will experience a potentially traumatic event at some stage during their career. Shockingly, four AFP officers have killed themselves in their own workplace in the last two years. The committee noted that the AFP's Phoenix review, looking at psychological support and mental health, identified staff concerns about a reduction in resources for psychological support services, including a reduction in FTE and resources for psychological support services from 23 FTE to now nine in the past decade. This is not an academic matter; it has direct consequences, as we heard through the inquiry.
At the public hearing, the AFP stated that it was 'seeing discussions around budget reduction and staffing number reduction having an impact on members' morale'. This morale then flows through to mental health. The committee noted evidence provided by the AFP Commissioner in Senate estimates that staffing and resourcing at the AFP has fallen in recent years, including a prediction that the AFP will lose 567 personnel as a result of the 2018-19 budget. In response to the ANAO audit findings and recommendations, the AFP Commissioner explained:
As an organisation, we acknowledge that the AFP needs to change in order to meet the growing demand and complexity of the environment in which the AFP operates. Even within current staffing levels, the AFP is working under immense pressure and ongoing activity at current operational tempo will increase health risks for its staff.
The Phoenix review reported that feedback from staff at all levels indicated that the responsibility and demands placed on the psychological services were simply too high given their limited resources. This is clearly a serious issue that requires more attention by the government. The first step, of course, is to stop the funding cuts to stem the fall in morale and the impact on mental health.
The committee's recommendations included that the AFP continue to implement all the previous reviews' recommendations—it's clear what needs to be done but the resources are needed—and improve governance arrangements for employee mental health across the organisation.
In the second report that I'm presenting, chapter 2 of Report 476, based on Auditor-General's report No. 18, outlines the Department of Education and Training's administration and monitoring of Australian government schools funding—needs based funding, if you like. The committee noted the audit report's conclusion that the arrangements established by the Department of Education and Training have not delivered the level of accountability envisaged under the Australian Education Act 2013. There was clear evidence presented to the committee as part of its inquiry at the public hearing and in the related submissions that there was not sufficient assurance that the education department even monitors the compliance of Australian government school funding in accordance with the legislative framework. That's polite language. If anyone is interested at looking at the hearing transcripts they'll see a total stuff-up. At the first hearing, the evidence from the department of education was so appalling that we scheduled a second one to try again and go over exactly the same ground. It was clearly a train wreck.
At the moment, to reduce it, the government clearly failed to obey federal laws in relation to monitoring needs based funding. There was also a concerning pattern, as evidenced across the department, where lots of data is collected but no analysis is actually done on it. Quite appallingly, in a number of instances, the government's response to this was, 'Well, we're reducing regulatory burden,' which apparently means compliance with legislation then becomes optional.
The committee's recommendations included that the act be amended to include a specific legislative requirement for the education department to actually monitor compliance. You'd think that wouldn't be necessary, but, given the evidence we heard and the lack of interest from ministers, it's become necessary. I note that this is a government controlled committee, so these recommendations were adopted unanimously and provide assurance that school funding is delivered in accordance with the act.
Finally, chapter 3 of Report 476, based on Auditor-General's report No. 50, outlines the Department of Health's implementation and administration of primary healthcare grants under the Indigenous Australians' Health Program, the IAHP. The audit report found that Health was limited by the currency of data to effectively monitor and manage primary healthcare grants. We noted throughout the inquiry, of course, the importance of Aboriginal controlled health organisations for the health and wellbeing of Aboriginal and Torres Strait Islander people. The committee also noted that Health acknowledged the finding in the audit report about how the quality of the IAHP primary healthcare value-for-money assessments is in need of improvement. Their advice to the committee is that they're currently working to address this.
The committee's recommendations included that Health continue to prioritise the implementation of the planned funding models for the IAHP, which is four years behind schedule, and develop a revised national key performance indicator framework.
The committee thanks officials from all of the agencies involved for assisting the committee in its inquiries. I'd like to extend my thanks to all committee members for their assistance and deliberations. I move:
That the House take note of each report.