Senate debates

Thursday, 11 May 2017

Committees

Foreign Affairs, Defence and Trade References Committee; Report

4:30 pm

Photo of Alex GallacherAlex Gallacher (SA, Australian Labor Party) Share this | | Hansard source

I present the report of the Foreign Affairs, Defence and Trade References Committee on the management of credit and other transaction cards by the Department of Defence, together with the Hansard record of proceedings and documents presented to the committee.

Ordered that the report be printed.

I move:

That the Senate take note of the report.

I seek leave to incorporate my tabling statement.

Leave granted.

The statement read as follows—

Defence's management of credit and other transaction cards inquiry report

This unanimous report of the Foreign Affairs, Defence and Trade References Committee examined the Department of Defence's management of credit and other transaction cards.

The inquiry was triggered by the findings of the Australian National Audit Office's performance audit of Defence's management of credit and other transaction cards, presented to this parliament in May 2016.

That audit found that Defence did not have in place the systems and controls to effectively manage its credit and other transaction cards. (And Defence agreed!)

These cards are intended to enable Defence's large, diverse and dispersed workforce, (all 77,649 at current strength) to travel, and to buy the operational goods and services they need to facilitate their primary task of defending our nation and securing our national interests.

Now, by any measure, Defence upholds a unique role on behalf of our nation. They perform a role that we both admire and rely on. And we commend them for the way they perform that role.

But we do expect them to manage the books. And by that, we mean, to manage all the resources they draw on to perform their unique role. Defence is our biggest commonwealth entity. Its current total budget in 2016-17 is $32.337 billion – and is forecast to grow to 2 per cent of GDP by 2020! (Representing a growing investment of $195 billion over ten years, according to the 2016 Defence White Paper)

Now, this committee understands that credit cards can provide a straightforward means to buy the goods and services, to undertake the travel that a large, diverse and mobile workforce such as Defence, needs to do its job.

But the committee is also aware, that it can be too easy, sometimes, for the 'small stuff' - such as grabbing a taxi, jumping on a plane; paying the gas bills; buying the stationery and the fuel - to be overshadowed by the magnitude of Defence's investment in our defence capabilities.

The committee was in clear and consistent agreement, throughout the inquiry, that the money spent by Defence – a sum of $550million (dollars) in 2014-15 alone - on these day to day, operational costs, using cards, is a substantial amount of public monies. And with access to such privileges, also comes responsibility.

The committee is firmly of the view that irrespective of the size and scope of the task facing Defence in managing its resources, the principles of good governance, enshrined in this government's Public Governance, Performance and Accountability Act 2013 apply equally to Defence's management of credit and other transaction cards as it does to the substantial investments in the weapons platforms, the military facilities and other technology that build our defence capability.

It is precisely because of Defence's size and scale that Defence should be set the standard of excellence in financial management and accountability across Commonwealth entities (departments).

The evidence gathered by the inquiry pointed to the need for Defence to put in place systems to manage monies consistent with Defence's duties and responsibilities under the standards set by the Public Governance Act.

There were a number of matters which raised concern. I will not elaborate on all of them here. Primary amongst these included:

1. Reports of noncompliance with Defence policy – with evidence that defence officials used Defence purchase cards to pay for some 119 traffic infringements incurred by defence personnel between 1 July 2012 and 9 November 2015, contrary to defence policy and procedures – to the tune of some $75,138 on the purchase cards!1

2. Reports of non-compliance with AusTender, with contract values incorrectly reported; payments not reported or incorrectly blocked; and reporting outside the timeframes.

3. Evidence of a 'seasonality spike' in end-of-year financial payments – where defence officials sought approval to increase card limits for seemingly routine items in order to expend budget allocations at the end of financial year- behaviour which Defence could not explain satisfactorily to the committee and raised questions around the rigour of budget planning and the potential for waste;

4. There was evidence of irregularities in the way personnel use cards for taxis and car hire: of particular concern to the committee was Defence's inability to explain evidence of high use of specific individual taxis, multiple expensive taxi fares and 'small hours' travel.

5. The most significant concern for the committee however, was evidence of the irregularities arising from Defence personnel's access to cash advances – and the corresponding softness in acquittal processes - on both purchase and travel cards.

6. There were two key issues of concern to the inquiry here:

i. the absence of adequate controls – and particularly the opportunity for independent verification of the integrity of transactions

ii. and the high interest generated by access to cash advances – a cost paid by the taxpayer,

o Underpinning this was the apparent disregard or disinterest of those responsible in Defence for these lapses in controls and unnecessary costs.

In one example the committee heard, a logistics officer purchased rations – a necessary activity, for a planned and predictable training exercise - at the cost of over $1million ($1.147 million dollars). We don't quibble over that.

But we do have concerns when we hear that, in making the decision to use a Defence purchase card to buy these rations rather than raising a purchase order as Defence policy advised, these transactions generated an ADDITIONAL COST to the COMMONWEALTH OF OVER $18,278 in INTEREST CHARGES, which, because of the choice of payment method, were treated as a cash advance.

And Defence's Acting Chief Finance Officer defended this during the inquiry's hearing with the explanation that this was simply 'a bad decision' and not fraud – as if that $18,000 in (unnecessary) interest did not matter.

Defence (even) agreed that had the ANAO audit not identified this irregular transaction, their own monitoring systems would not have picked it up.

To illustrate the scale of the problem we are talking about, according to the ANAO audit, the cost of advancing cash to Defence personnel for travel (using the Defence Travel Card) during 2014-15 was nearly $900,000 in interest charged to the Department (based on cash withdrawals totalling $50,761,587 in 2014-15 alone)2

That is an extra and unnecessary cost that the taxpayer has to carry.

So there are two critical issues here:

First

The committee did not find Defence's rationale for cash advances persuasive and believes that the cost to the Commonwealth is unacceptable.

The committee was not at all persuaded by Defence's argument that the interest generated by cash advances is justified because these cash advances are a condition of members' employment. This practice simply does not reflect best practice in the public and private sectors and should be re-examined.

Secondly

The committee is concerned by the number of examples which showed an official's use of a credit card was not consistent with Defence or Commonwealth policy.

Too often, irregularities in credit card use suggested either a disregard for, or intention to circumvent, Defence policy. Yet these irregularities did not trigger any 'red flags' in Defence's management systems.

Defence must find an appropriate balance between the unique operational parameters of a large, diverse and mobile workforce which requires ready and frequent access to cash, and the responsibility for ensuring those resources are used sensibly.

It's not all gloom and doom however.

The committee was encouraged by the steps Defence has taken to investigate and redress outstanding traffic infringements and improve fleet management, including reducing the risk of fuel fraud.

The committee commends the changes arising from the introduction of the new governance framework for credit card management, a response to the audit's findings. The committee acknowledges, however, that the evidence indicates Defence still has much work to do to strengthen the effectiveness of controls and fully implement the findings of the ANAO audit.

It is important that Defence ensures that its governance of credit and other transaction cards also aligns with the move to a stronger performance-oriented culture under the changes instigated through the One Defence business model.

The ANAO audit did not identify actual occasions of fraud. The audit did, however, find that in the absence of effective controls Defence remains vulnerable to the risk of fraud, especially in a payments environment which is moving increasingly towards the use of virtual cards. Despite evidence of convictions for fraud in military jurisdictions, the committee is of the view that this information is not readily available publicly. Any deterrence value across the Defence community arising from awareness of such convictions may therefore be limited.

The committee appreciates that there is a history to the devolution of responsibility placed upon individuals to account for actions. However, the extent of instances where the use of cards indicates either a disregard or ignorance of Defence policy and procedures also raised questions about organisational responsibility: it raises question about the effectiveness of education, training and communication across Defence.

The committee is of the view that Defence should be doing more to educate its workforce on its duties and responsibilities to manage relevant monies properly.

To this end, the committee made six recommendations to strengthen Defence's systems and controls to effectively manage its credit and other transaction cards.

So that this Parliament, and the community, can have confidence that Defence is managing the books sensibly - and can proceed with their primary task of defending our nation and securing our national interests.

These recommendations encompass:

            Public Governance, Performance and Accountability Act 2013

          I commend the report to the Senate.

          I seek leave to my continue my remarks later.

          Leave granted; debate adjourned.