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Auditor-General's reports Nos 39 (2009-10) to 15 (2010-11)

CHAIR (Mr Oakeshott) —I declare open today’s public hearing, which will examine the Audit report No. 9: Green Loans Program and Audit report No. 12: Home Insulation Program. I welcome representatives from the ANAO, the Department of Sustainability, Environment, Water, Population and Communities, the Department of Climate Change and Energy Efficiency, and Medicare Australia. Participants are asked to remember that only members of the committee can put questions to witnesses if this hearing is to constitute formal proceedings of the parliament and attract parliamentary privilege. If other participants wish to raise issues for discussion they should direct comments to the committee. It will not be possible for participants to directly respond to each other. Given the short time available, statements and comments by witnesses should be relevant and succinct.

Although the committee does not require you to give evidence under oath, I advise you that these hearings are formal proceedings of the parliament and warrant the same respect as proceedings of the respective houses. The giving of false or misleading evidence is a serious matter and may be regarded as a contempt of the parliament. The evidence given today will be recorded by Hansard and attracts parliamentary privilege. Before we proceed to questions, do any of you wish to present either a document to table or a brief opening statement to the committee?

Mr McPhee —I have a brief statement that I am happy to provide to the committee for both the Green Loans audit and the Home Insulation Program audit.

CHAIR —And that is different to what has been tabled?

Mr McPhee —No, it is the same.

Mr Bowles —I might make a brief opening statement. Just on a procedural matter, do you want to deal with these two reports separately or do you want me to talk about them both at the same time?

CHAIR —Both at the same time. We can multiskill.

Mr Bowles —I will make a brief statement about both the audits then. The department of climate change obviously welcomed the audit into the Home Insulation Program and the Green Loans Program. I will start with the Home Insulation Program. Minister Combet at the time asked the Auditor-General to have a look at that program. This followed another review by Dr Allan Hawke. The department supported that approach all the way through and participated in the audit with an openness to ensure that we could get the lessons learnt and to understand how we could actually move forward in remedying the program.

First of all, the responsibility for the new program was transferred to the Department of Climate Change and Energy Efficiency on 8 March 2010. Since that time the department has proceeded down a pathway of remedying the Home Insulation Program. The major issues within that were the development of the Home Insulation Safety Plan and the development of the Home Insulation Safety Program focusing on non-foil insulation.

To update the committee, we have undertaken approximately 125,000 inspections under the what has become known as the HISP. Under the Foil Insulation Safety Program, the FISP, across all of the elements of that program we have undertaken approximately 57,000 inspections across 43,000 homes.

We have also delivered industry assistance, and we have a comprehensive fraud and compliance strategy which culminated in some activity in recent weeks with the serving of 35 warrants on insulation companies and some 2,000 debt letters. I will not go into the detail of that. There are significant investigations under way in a range of these cases and if I go into the detail obviously it might compromise the outcomes.

On the Green Loans Program, the program itself has been subject to a number of reviews, not the least being the ANAO’s performance audit. We have also had a review by Patricia Faulkner particularly around the governance issues, and a series of other internal and external reviews. All of this activity has enabled the department to put in place the appropriate governance and other mechanisms required to effectively continue and develop the program. It should be noted that on 21 December 2010 Minister Combet announced that the Green Loans Program would close on 28 February. That date has passed. The Green Loans Program has now closed and the department is in the process of winding all that up and will continue to do so over the next few months.

Significant changes to the way the department operates is now in place where we now have a dedicated project management office. We have a whole range of different governance mechanisms now in place and we are also participating in some broader organisational reviews. One is the capability review conducted by the Australian Public Service Commission and another is a program portfolio management review called P3M3. So we are actually trying to challenge internally what we do to make sure that we can keep an eye on all of these issues going forward.

CHAIR —I imagine there will be a range of questions. I will start with one and I might come back again to it later. I am asking this question as much from a local member view as a chair of any committee. There are a lot of people who invested time, effort and money to be involved in these programs, including as employees but also as employers establishing small businesses. The on again, off again demand side management approach from government has left many of them exposed and uncertain about what on earth is going on in this area of government business and how they can contribute and protect their hip pocket in going about their business. What lessons have been learnt with regard to the experience of the last 12 to 24 months that will provide greater certainty in communities such as mine for those people who want to get involved in demand side management programs? What has been done at a departmental level to alleviate the impact not only on industry but in particular on small business and quite often on individuals who have been left fundamentally exposed as problems have emerged with these programs?

Mr Bowles —There has been a range of industry assistance programs that have been developed over the last 12 months since the Home Insulation Program closed on 19 February 2010. The department put forward an industry workers assistance package in the early part of last year to the tune of approximately $41 million and later developed a broader insulation industry assistance package of around $15 million to support business in inventory warehousing and the like. Those programs have proceeded and have now closed with the payment of funds under those programs.

Regarding the Green Loans Program, the announcement of the closure was in December but gave companies a number of months to sort out their affairs, and at that time the department also was developing some assistance packages. One in the Green Loans space was a financial assistance package and the other was a training assistance package. The first was to help with uncontracted assessors. They are assessors who did some work, applied and were accredited but were never given work under the program. They are eligible to apply for the financial assistance scheme. It is open at the moment. It has been open since 1 March and will close on 2 May. Any uncontracted assessor has the ability to apply under that program.

Training assistance is about contracted assessors who want to upgrade their skills in this particular area. We have had a lot of consultation with the industry association on these sorts of issues, looking at upgrading skills because the industry associations believe this is a sustainable private sector business in the long term. So this package is designed to try to assist those contracted assessors who want to upgrade skills.

Regarding your other point about what the department has learned, there was some movement of responsibilities for this, as I said, from the then environment department to the climate change and energy efficiency department, which happened on 8 March last year. There were two reviews early in the piece—the one by Dr Allan Hawke and the other by Patricia Faulkner—followed by the two ANAO reports that we are talking about today. All of those reports highlighted a range of issues that both departments effectively could improve on. As we have moved forward we have been able to incorporate all of those lessons learned, if you like, from the programs into the development of our governance and management structures to ensure that these sorts of issues do not happen again.

It is about trying to understand, effectively horses for courses, what we need to run these particular programs. I think there are some significant lessons learned from the reports into this that will ensure that we make some good assessment around those issues before we embark on similar type programs.

Mr Thompson —Just to add to that, Mr Bowles has spoken about dealing with the legacy issues in terms of the first part of your question, Chair, for industry and small business and individuals who were affected by these programs. I think there has been widespread acknowledgement of the difficulties that these programs have caused for those individuals. Just for our department’s part, because we were the predecessor—our department managed these programs as well—there has been a legacy in terms of us improving our business. We had put in place a quite comprehensive business improvement agenda, as Mr Bowles mentioned, so even before the series of reviews were undertaken into these programs we had moved to improve management of them. And I think the ANAO’s reports both acknowledge those attempts by the department. But we released, at the time of the release of the Faulkner review into the Green Loans Program, a comprehensive agenda of things that we were already doing and intended to do to improve our business, and that work is continuing.

CHAIR —So is there an acceptance by all that there is a residual uncertainty and a residual frustration at a community level based on what has gone on in the last two years—despite lessons learned, that there continues to be a residual consequence based on what has gone on over these two programs? Is that accepted internally?

Mr Bowles —Absolutely. We have done a lot of work on this particular issue. We recognise that a significant number of both individuals and companies have gone through hardship over a period of time. The Home Insulation Program has been closed for over a year now, and we have been dealing with a range of issues over that period of time not only to assist companies but also to protect the Commonwealth’s interests in this, particularly in trying to find any fraudulent behaviour within that program and noncompliance more broadly. We have quite significant strategies, as I mentioned earlier. For instance, to demonstrate the strength of view, we have worked with the Australian Federal Police with warrants. We were targeting people who had done some unscrupulous things, obviously. Thirty-five warrants were executed; it was not 35 individuals, because we issue warrants for houses and cars and the like. So when we are talking about 7,500 companies or individuals who participated in the program, we have 35 in that high end, if you like, that we executed the warrants on.

CHAIR —I guess for this exercise I am less interested in the non-compliant. I think there is a process that is picking them up. I am more interested in those who were compliant, who did the right thing, who participated in a government program for all the right reasons and who are now left in a position of, if not financial exposure, certainly frustration and who are more likely to be less engaged with government programs in the future. I just want to make sure and get on the record that there is recognition that goodwill has been burnt on the ground over the last couple of years because of lessons hopefully learnt through these two programs.

Mr Bowles —That is accepted.

Mr Thompson —It is same for the department—on our side.

CHAIR —Thank you. Is there an acceptance on the back of that of that financial exposure? Is there an acceptance that there is a lingering financial exposure as well? I note your saying that there were some programs that are now picking up and creating opportunities. What is the internal view of the coverage of that? Is that going to pick up everyone or will there still be a financial exposure at a community level, despite the good work that might be being done through those programs?

Mr Bowles —I suppose both programs are different in their design and in what they were trying to deliver, so I will try and separate the two issues. From my perspective, there is an acceptance that there was hardship in these companies financially as well as in other ways. The design of the programs was of such a nature that they were designed for a short period of time to move things on. With the Home Insulation Program, the industry and workers assistance packages were designed to pick that up. Anyone who was eligible and who applied was paid. Some people were determined not to be eligible because of non-compliant behaviour or they did not actually meet the terms and conditions. So if anyone fitted the category, met all those criteria and applied, they were absolutely eligible. Likewise in the Green Loans Program, if anyone applies for the financial assistance and they meet the criteria, again in the two different programs that we are talking about—both financial and training—they will be accepted into that.

Will we actually pick up every single person? What we know already is that some companies have participated and moved on. They actually participated in this in a very small way as part of a larger business. We have a range of different companies who played in this space, who had no interest prior to these programs in either insulation or green loans in some cases and who developed a particular stream for their company. They have just moved on to do the rest of their business. I would suggest, though, there would be a group of companies or individuals out there who would fit into a category and who have probably not been assisted. We are still prepared to deal with all of those companies through the assistance packages that were there.

CHAIR —My final question is linked to the first question: whilst at a community level there is an acceptance of the burning of goodwill with regard to demand side management, what is the status internally of the goodwill towards the policy of demand side management? How much has that crashed, in your assessment of these programs? Government is, I would imagine, pretty reluctant to go near a home any time soon for the reason of fingers being burnt, politically. What is the view now of the department around demand side management? Linked to that, is there going to be, any time soon, work with households in owning issues around cost of living, electricity prices and how they can play a role in these broader issues around energy security and climate change?

Mr Bowles —I might kick off with that. Being the person responsible in the Department of Climate Change and Energy Efficiency for the energy efficiency side of the business, I do not get a sense that there is a lessening in view of those demand type or energy efficiency type programs. There is definitely a view that we need to manage them appropriately, and we need to look at proper mechanisms for the delivery of these programs. But my group is absolutely focused on a range of energy efficiency programs, and we will continue to be so. Some will involve households and some will involve broader issues. They will obviously also be looked at in the broader context of what might come next.

As for specifics on that, they are probably more decisions for government at this point. Clearly, as the person responsible I would suggest that there is no diminished view on these programs per se, but there sure as hell is a view on how we should do them, because in some cases we did not manage them well. That has been well accepted.

Mr ADAMS —I understand about 60 per cent of Australian households are insulated, according to the home insulation report. I want to make the point that there is still a substantial amount of houses in the country that could be insulated, which would deal with what the chair was talking about.

Mr Bowles —There are still a large number. I could not put a figure on them though. There are a number of houses out there that would fit into the retrofit insulation space, yes.

Mr ADAMS —The industry in this area, I understand, was a pretty divided industry and did not come together in any great sense to deal with training or the broader industry issues that deal with government. They were some of the issues that emerged from the increased activity in the sector. Has anything changed in that regard that you know of?

Mr Bowles —Prior to the Home Insulation Program the home insulation industry was effectively an unregulated industry. The division within the industry was largely based on product. The three main groupings of the product were cellulose, which is the paper pulpy stuff, polyester and glass fibre. Largely, it was divided along those lines. I would suggest it still is.

Mr ADAMS —You did not mention foil.

Mr Bowles —Foil is the other—there are four types. Obviously, foil is not being used as roof insulation at this stage. I mentioned that prior to the program it was a highly unregulated industry that was quite divided along product lines. Over the last little while we have been working with industry and regulatory bodies—Standards Australia, the ACCC and a range of other players—on how we could improve some of these things on the way forward, recognising that the Department of Climate Change and Energy Efficiency is probably not the right body to look at regulating that particular industry. But, given we were working in this space, particularly around the rectification issues, we have quite often and in some detail provided advice and information to assist these bodies in developing standards. There is a lot of work being done around downlight covers, for instance; there is lot of work being done around a standard for home insulation more broadly. That will continue well past and outside of any Commonwealth influence, but we have participated strongly in that.

Mr ADAMS —So it will be a better industry into the future?

Mr Bowles —I would like to think so. Obviously, that will be up to the industry ultimately, but what we have been able to do with the rectification program is introduce a whole lot of standards around training and around what you need to do to get into this industry. I would like to think that will be enduring.

Mrs D’ATH —Regarding both of the audit reports, I appreciate that when a program is introduced, irrespective of the detail of that program, the department is not necessarily going to have the full skills set needed straight up as far as the implementation is concerned. What I want to know, based on what we have learnt from these two reports, is not just whether you have the skills set to develop proper governance processes but whether you have the skills set to identify that you do not have the skills. The concern is that there was not some sort of internal audit process done at the beginning to determine whether you had the skills sets in place to handle the program. Do we have people with procurement guidelines experience and know how to apply them—people who can develop the proper governance processes and all of that? If that has not been done, do you now have the people and processes in place to do that internal audit and identify where the deficiencies are so that they can be raised with the appropriate executive or at the ministerial level?

Mr Thompson —It is a good question. The beginning of the answer goes to some of the changes our department put in place after the experience of the Home Insulation Program and the Green Loans Program. Part of it is about governance. Do you have governance which gives what I call a clear line of sight from the senior levels to the things that are happening in the parts of the agency where problems might emerge? We made a number of changes to our governance arrangements to ensure that the senior executive board was able to do that. That is not the only consideration as far as governance is concerned, but that is one of the important considerations.

The next set of questions is around whether, no matter what you do which might be new or novel in the implementation, people understand the frameworks and the guidelines that they are meant to work within anyway. Translated to our department, an was issue identified around training and making sure that people understood, importantly, the financial framework and the obligations under the Financial Management and Accountability Act, procurement guidelines, which you referred to, and all those sorts of things. We ramped up the requirements for mandatory training across the board on a number of those things.

In addition to that, do you have mechanisms which improve the controls when those things are starting to roll out? As you appreciate, of course, the time between governments making decisions off the back of a design that you might have done and when they want to implement it is very short, so no-one is ever standing still. The issue is: do you have controls in place as things start to happen to identify the issues as they arise? Some of those controls, referring back to governance, include how functional your audit committee is, how much it is embedded in understanding the organisation’s work, how active your internal audit program is and those sorts of things.

Again, speaking for our department, we moved much more to an independent membership of our audit committee. So we now have an independent chair, two independent members and one departmental member. That has been in place for a little while now. We also appointed new internal auditors who have a very active program in the department. Taken as a whole, those are the sorts of things which never make you sanguine about getting it right, but hopefully they will identify and put up flags early enough so that you can deal with these things as you go.

Mr Bowles —Likewise, we have introduced very similar types of things within the Department of Climate Change and Energy Efficiency. Of particular note, we have done a lot of work on things like procurement. We have engaged and employed procurement expertise into the department. I suppose in some sense, given how our part of the world started, we had to get those sorts of things in very quickly. For instance, I only came into the department with the Home Insulation Program to do the remediation work. We brought people in quite specifically with the expertise, whether they were employed or contracted for periods of time, to do that. We have a comprehensive training program around that now and anyone who plays in this space must participate in that. So we have done a lot of work in that space.

I mentioned earlier that we have developed a project management office to start to monitor these things. We have a program management committee which reports directly to our senior management board, if you like, within the department. We have a whole range of project and program committees that report KPIs on where each of our projects and programs are up to. That gets fed up and when there are any problems we can have a look at those pretty quickly.

I will paraphrase something in the Home Insulation Program ANAO report. This is something that the ANAO touched on because we were well down the path of the rectification programs. I would just like to paraphrase a couple of little bits, if you do not mind. The report noted that the department was implementing strong governance—

CHAIR —Mr Bowles, there is a division and we have to go. If you stop there, as soon as we come back you can start at exactly the same point.

Proceedings suspended from 12.32 pm to 12.45 pm

CHAIR —We will resume.

Mr Bowles —I was going to reference something that was in the home insulation ANAO report. The ANAO had some time to look at the remediation work and indicated that the department was implementing a strong governance framework for the closure of home insulation and the delivery of its remediation programs, undertaking comprehensive risk assessments and employing appropriate mitigation measures for the programs themselves, and developing a strong fraud and compliance strategy. That is the tip of what we were doing at that particular point in time, but we have taken that even further forward. That is just an indication that, at that point in time, the ANAO could recognise that some of those activities were already underway.

Mrs D’ATH —You mentioned earlier that there was ongoing accreditation of assessors. I might have heard incorrectly. I thought there was mention of ongoing assessors, because there was a need in the private sector to continue to have assessors.

Mr Bowles —What I was referring to was the training assistance package that we have put together that it is looking at assisting those industry players in enhancing their skills—to basically upgrade their skills. The industry associations believe that there is a future for some private-sector assessors. We are not particularly engaged in that per se. The industry body, ABSA, is obviously actively engaged with all these assessors in their normal day-to-day work, which we are not engaged in. As part of our assistance package, we did look at how we could help some of those people with upgrading their skills.

Ms BRODTMANN —The thing that concerned me at the time—as a great defender of the bureaucracy and the Public Service—particularly regarding the media reporting, was the fact that the advice to the minister was so bad. What frustrated and angered me the most in reading it, as someone who does defend the Public Service, was the fact that the department did not seem to highlight the difficulties—not the difficulties of delivering to a certain time frame but basically saying how you were going to do it. From my reading of this, it was essentially: ‘We can’t do it in the time frame you want.’ That was government policy, that is what they wanted to achieve, and yet there was no reference to how you were going to achieve that; it was just, ‘Okay, we’re going to take it on.’ You did not provide any detail about the capability that you required. It was not in any way frank and fearless or enlightened. You did not let the minister know the reality of what you were dealing with and also what you needed to do to achieve the deadlines. That is my real frustration. That came out in the media reporting. Rather than going over that again, I just want to know what you have actually done. It seems to me that a cultural thing was happening. You were overly optimistic—I think that was the terminology used. That is all very well and good, but the thing is that there was no attempt to say, ‘Okay, Minister, these are the deadlines you want. This is how we are going to deliver it. This is what we need.’ You did not seem to have that. There was a can-do culture but it was an overly optimistic can-do culture. What is happening in terms of creating a can-do culture that is realistic and says, ‘You may want it by this deadline, but we need X, Y and Z to do that’? To me, that is a sign of good bureaucracy and a sign of a good public service.

Mr Thompson —Can I clarify? Are you talking mainly about the Home Insulation Program, about Green Loans or both?

Ms BRODTMANN —I am talking about both, essentially.

Mr Thompson —I will answer your question in two parts. One is to partly concede and the other is not to concede everything. I do not do that defensively. Clearly in the ANAO reviews, in the Hawke review of the Home Insulation Program and in the Faulkner review of Green Loans, all of those entities had access to all of the briefing that we provided. Some of those briefs, in particular in relation to the Home Insulation Program, have also been made publicly available through various means. In my view, some of those briefs did identify risks and identify issues to the minister for government consideration. I am not conceding everything that you raise there but I do concede that we should have done a better job in identifying those risks and raising them to the surface.

Ms BRODTMANN —You identified risks; that is one thing. But was that accompanied by a mitigating strategy?

Mr Thompson —I will change now to the forward-looking issue that you raised and that is how we have tried to treat it as well. We do have a more broadly based and substantive program management and program reporting approach across the department for our major projects. That will make your eyes glaze over but embedded within that are risk management, risk registers and risk identification systems that we think now are more robust. You are absolutely right—it is not just about identifying the risks and raising concerns about them but it is about the mitigating strategies you put in place. Those documents, taken as a whole, are designed to do that.

To come back to the chair’s opening questions today, I think one of the major legacies, a positive legacy, for our department is a much greater risk culture within the place—not risk in an arse-covering sense, if I can use that language, but risk in the sense of: we have issues here, so how do we go about identifying them, managing them actively and collectively and dealing with them? The best legacy of the experience of both of these programs is a much more active risk culture in the place.

Senator KROGER —I will follow up on the point that Ms Brodtmann made. When you speak about a far more comprehensive risk strategy, that could be code for greater bureaucratic processes as opposed to simpler, more comprehensive governance practices. What we are seeking here is an assurance that the lessons that have been learned through the Green Loans Program and the Home Insulation Program, as catastrophic as they have been, are about establishing appropriate governance practices. I am a little curious as to whether there is interdepartmental sharing about best practice. Do we have departments operating as silos that are not sharing ways in which we can improve governance practices? Whilst this has essentially been representative of two particular departments, I am concerned about what is happening across other departments and whether we are sharing best practice.

Mr Bowles —There has been significant work on a whole-of government approach to a whole range of service delivery issues, which maybe some of the others can talk about as well. In the home insulation report there was an exercise at the end that talks about lessons learned. That was the product of a get-together with a number of agencies that participated in one form or another in home insulation. That is where that actually came from. It was about this whole-of-government interaction. In addition to that, subsequent to all of the issues that came out in both of these reports, there has been a lot of work happening in the background about service delivery and how a policy position actually transitions from a policy all the way through to program design and delivery. There has been a significant amount of work on all of that, which I think has been led by the Department of Finance and Deregulation. There is quite a bit of work happening in that space.

Senator KROGER —On that point—and I will be brief because time is now getting away from us—a question I had while reading this was: what was the time frame between when the policies were announced to when they became operational in both the Green Loans Program and the Home Insulation Program?

Mr Bowles —I can give more detail about home insulation. With the Home Insulation Program we have got to also understand the context in which it was developed—the global financial crisis and a whole series of things happening about unemployment and other fiscal challenges that the world was facing. In February the discussions started. In essence the Home Insulation Program started on 1 July. There were interim arrangements prior to 1 July, but in essence the major phases of the program started on 1 July 2009 and it was closed on 19 February 2010.

Senator KROGER —And announced on 3 February?

Mr Bowles —Yes, I think it was 3 February.

Senator KROGER —So you had three months or so.

Mr Bowles —It was a number of months. As I said, there was interim activity up until July. The full-blown program did not start until 1 July. So there were a number of months in development, but due to the nature of the program it grew exponentially over the following months, which obviously put the pressure on the program itself.

Mr Thompson —For Green Loans—and I am just quoting from the ANAO report here—it was announced in the election campaign in late 2007. There was a budget allocation in the 2008-09 budget and the program itself was launched from 1 July 2009.

Senator KROGER —So we did have quite significant time to actually bed down a governance process for Green Loans. We did not have that time with the insulation program.

Mr Thompson —There are quite different stories behind each of these programs but what joins them is being administered by the same area within the then Department of the Environment, Water, Heritage and the Arts and the capacity pressures that were realised there.

Senator KROGER —Was any advice ever given to the minister that there were significant resource issues in the department being able to manage both of these programs simultaneously?

Mr Thompson —I cannot recall that. That is not a no; I genuinely cannot recall the nature of that advice.

Senator KROGER —I would appreciate it if you could take that on notice.

Ms SMYTH —My question is really a question about learning from the input of consultants and external experts engaged to advise in relation to both program delivery and evaluation. I note in the context of the Green Loans Program that the ANAO has made a few references to instances where the former department did procure the assistance of, in one instance, a consortium of universities in relation to evaluation and program assessment and also in terms of planning. Without looking specifically at the programs before us but more broadly, how do both of the departments here today think that we can best extract value for money for the public in terms of learning from the external advice that is provided? As someone who has been a consultant in a former life, I am aware of instances where the same advice is repeatedly provided and really it has not added to the organisation’s corporate knowledge. It seems to me that that would be a worthwhile thing for all departments to look at and certainly in the context of some of these programs it would be very useful to actively go back and look at the advice that has been provided and extract learning from it.

Mr Thompson —It is a good question and a big one, so my answer is probably not going to satisfy you. I think there are a couple issues here. Often we turn to external advice because we do not have the capacity at the time, either in expertise or in resources and time. Because of the pressures the Department of the Environment, Water, Heritage and the Arts was facing at the time in implementing these programs, that manifested itself and had to be dealt with through the use of external expertise. They are obviously good questions you raise about how we commissioned that advice and that assistance and whether it was effective or not. For the department in the post energy efficiency programs period, we did commission an internal review, using not much external assistance, of the way in which we manage our information, including information that comes to us from external sources through consultants et cetera. The implementation of those review findings is now trying to address the very question that you raise. I do not have a lot more detail on that at this time, but it is a live question for us and one that we are trying to work through.

Mr Bowles —For the Department of Climate Change and Energy Efficiency, it is absolutely a good question. How do you actually integrate some of these things into the business that you are in? What we have been trying to do internally at the moment is understand where we do not have the expertise and where we need to buy it in through some sort of consultant or contract, and at the same time we are trying to look at how we actually then pass that knowledge on. For instance, we are looking at a whole range of things in the project management space where we have used consultants in the past. We have also got our own staff now that we are actually trying to upskill as we go forward because there is a broader need in the department around those sorts of skills. If we are procuring something that we only need for a month, we do not want to actually employ staff. We should probably always go out and procure that particular piece of advice. The challenge then is that we can continue to go out and procure that piece of advice, but what the department needs to do is make sure it is the informed buyer, so we actually know what we are doing. We have been doing procurement training across all of our staff that are actively engaged in any of these program areas to try to upskill them a little bit, be a little bit more informed about what these people are providing and see if we can do it in different ways going forward. That is what we are trying to do at the moment around some of those issues.

Ms SMYTH —Thank you.

Ms O’NEILL —I am a new member of the House and I remember that in the very first meeting we had here I realised how much I had to learn. I came with the assumption that, if the government decided they wanted to implement a program, they would just say, ‘Okay, you guys go and do it,’ and you would say, ‘Right, we are ready to do it, but we cannot do this part because we don’t have this ready.’ All of a sudden it would be happening but you would be very quick in identifying a failure point. A few of the responses that I have heard in this committee have given me some insight about the incapacity to give that response. This is perhaps the best example of that.

I am buoyed by your comments about governance changes and risk management practices that are going to change. But the thing that still concerns me is that today I have not heard about the cultural response. In my view, if the culture was in search of excellence rather than governance management—tick the box and compliance—this problem would not have arisen because the culture would have already been in place for everybody to immediately see that it is their job. I still have concerns that middle management have been blamed here. As I said, I am buoyed by your line-of-sight-governance that you explained. But is there really the shift in culture that is required to have everybody saying, ‘Excellent delivery of this is my job at every level of the process—rather than someone else’s responsibility.’ Because somewhere in the middle of this somebody said, ‘It’s not my job; I’m not worried about that.’ The thing that was most concerning to me in everything I have read is the section on page 140 to page 151, which was misleading to the minister about compliance with the program. That is very concerning to me. It is a pretty broad question: can it happen again? Have you really undertaken the whole change that needs to be undertaken?

Mr Bowles —Culture is made up of a whole lot of things, obviously, and governance is part of that and inculcating that organisationally is part of that. Also developing service delivery skills and program delivery type skills has been what we have been trying to do for the last 12 months in Climate Change and Energy Efficiency. You are absolutely right, we can put all the rules and regulations around it and people will find a way to break them if they really want to. My experience over the last 12 months in dealing with what have been some reasonably challenging issues is that the staff that have been playing in this space are extraordinary. They actually have a really positive view about what they can contribute. They are not frightened of actually speaking up. Culturally, that world has shifted quite dramatically. I see that in some of our staff satisfaction work we do. Some of these areas which you think have been beaten to death, to be frank, are scoring the highest scores in our staff feedback about how they are involved in processes, how they are dealing with the very difficult issues that they face day to day. Some of these people are, quite frankly, abused from morning until night on some of the issues they deal with. In the most recent staff survey they came, I think, second out of the whole grouping of the department in how they respond to customers, how they deal with colleagues and how they see the culture of the department has moved. So I am buoyed by that as well.

From our perspective we have seen a shift from a ‘head on a platter’ mentality, which is what drives some of those poor behaviours, to an inclusive culture. People are not frightened to say, ‘Hang on a second, there is a problem here; we need to address it.’ I have a lot of staff forums and I am challenged on a regular basis on a range of issues. That is the culture I like because I do not know everything about everything involved in these programs, but the people we have working in them do, when we put it all together. As long as we operate that way in a cultural sense, we are going to get the proper answer. I am quite confident that that is where we have moved to.

Mr Thompson —It is a hard thing to track. You can look at the organisation through two lenses. One is through what I call the built lens—the architecture, the governance. The other lens is the organisation as an organic thing, which is about the people. In a sense the challenge was more difficult for our department after the energy efficiency programs left because there could have been a tendency to say, ‘Well, that was an isolated experience and when the energy efficiency programs left, the problems left.’ I strongly believe that the senior executive in our department did not accept that story and said that there are lessons that need to be learned which we need to retain. The story that we tell ourselves cannot be that those problems are gone now. We really need to deal with them.

I talked before about some of the architecture sorts of things—governance and training and those sorts of things—but there has been, accompanying that agenda, a change management process and a communication process throughout the organisation about what happened and what the lessons learnt were and how we need to apply them. In the department’s most recent strategic plan, which was developed and released in the first quarter of this calendar year, we have articulated about nine characteristics of our approach, which include: a proactive attitude in all we do; delivering to high standards; rigorous and balanced policy advice—keeping each other honest in terms of the advice that we give to ministers, which goes to the point that I think you were raising in that particular ANAO report; and accepting personal responsibility for things that we are responsible for. So, again, I cannot deliver a piece of evidence that fully addresses your question, but I think we are completely alive to it.

Ms O’NEILL —That is a very frank response. I appreciate that. In terms of the structural changes that you have put in and the attempt to address these cultural issues as well, if another economic crisis of the type that we have just gone through arrived and the government were to ask you to enact service delivery programs, would you be able to say now that you have tested the robustness of these and could you assure me today that the minister would be properly informed and that you are capable of making the prompt changes to your practices to deliver it? Can you assure me of that? What testing have you done of the things that you have put in place?

Mr Thompson —I will have a first crack at this. I think we are stress-testing them all the time. No, we have not had another global financial crisis, but we have had a machinery-of-government change since the last election, which has meant that some new functions have come to us. Some of those are quite challenging. We are stress-testing as we go. The government’s agenda on environment, on water, is continually challenging and stress-testing us. I think part of the answer to the question is not just about how well our governance arrangements, our other arrangements or our people would stand up but about whether the government as a whole—so public administration across the board—has learnt anything. I think Mr Bowles’s answer before touched on some of the things that the government collectively, or public administration, is trying to learn, very much helped by reports like the ones that the ANAO have produced, which are a very public sharing of lessons learnt. That is the response I would make.

Mr Bowles —As for our side, I suppose we are in a different spot because we really came into being after the event, if you like, with the transfer from the old DEWHA into Climate Change. Something happened. We had the opportunity then to develop the remediation of, for instance, home insulation. So we had that to actually start to develop a new way of doing business. It probably made some of that a little easier. As for stress-testing, the development of the Home Insulation Safety Program and the Foil Insulation Safety Program in particular, I think, stress-tested a lot of those things, because there is significant pressure—both political and media pressure—around those particular programs. How we respond under really difficult circumstances to all of those issues was tested on a regular basis. I would like to think that, if another global financial crisis happened and we were thrown some of these things, we would handle it in a fundamentally different way. I think we have learnt a whole lot of lessons through this. The development of FISP and HISP, I think, has positioned us to understand more deeply how we would need to respond to similar types of programs going forward. There are always risks in these issues. As long as we understand what those risks are, I think we can at least try and put the mitigation strategies in place that might pick them up a little bit more quickly.

Ms O’NEILL —My last question is to Ms Skippington, Ms Golightly or Ms Bird. One of the concerns is that these lessons become siloed. In what ways would you say the findings and the changes in processes that we have been talking about today have been implemented in your sector?

Ms Golightly —I think some of the comments that both Mr Thompson and Mr Bowles mentioned earlier go straight to this point. Across the whole of the Public Service there has been a renewed emphasis on involving service delivery issues right at the beginning of policy thinking, and various options with their associated risks, benefits and strategies are becoming more the norm, as cross-departmental-agency discussions are becoming more the norm. So I am of the view that things are being taken into account, not just within our own agency, which is a service delivery agency and part of the Human Services portfolio, but across the whole policy spectrum. Certainly, within the Department of Human Services and its various agencies, all of the sorts of things that have been canvassed so far about governance arrangements—project management, capability, recognition and then skilling—have been re-examined and are being improved for the whole portfolio.

Ms O’NEILL —Do you feel you have the capacity to respond quickly now?

Ms Golightly —Yes. Certainly the portfolio’s response in the Queensland floods, Cyclone Yasi and everything else that was happening at the time I think was evidence of that.

Ms O’NEILL —Excellent. Thank you very much.

CHAIR —I will ask one final question. I think everyone on the committee has come from a similar angle—that is, culture and legacy issues. Hopefully that message is loud and clear; it sounds like it is. The committee will more than likely be doing some more work around the procurement guidelines from some other work done by the ANAO, and I think we will be looking to pursue that across a range of agencies. Just backing up what Deb said in regard to cultural change via silo, I think we will be looking to do some broader work there.

I guess there is one question that has not been asked and which is at the pointier end of some internal change management through this whole process. I have been asked this by constituents on several occasions and it goes back to that residual frustration point about: ‘I am out here with a small business, all exposed. I bet no-one in government loses their job, whilst I am out here hanging.’ For the record, what can be said in regard to this sliding scale of practice, from corrupt practice—and I hope there is none internally—through maladministration, through lack of understanding of procurement guidelines, through to a pursuit of best practice, on a spectrum of what we are trying to do here; alongside an almost parallel one where the consequence would be jail, for the most extreme, I would imagine, through to dismissal, through to Public Service Commissioner, through to internal change management training and alongside the best practice changes? What has happened as a consequence of these two programs? Where on both of these scales does it sit culturally? We have talked a lot about culture today. Is it considered maladministration or is it more considered—I would hope it is not considered corrupt—in the maladministration area or are we drifting more into the less than best practice and as a consequence no direct action has happened to any staff other than training—that has been mentioned many times today. Or has action been taken internally? Here is your chance to get it on the record.

Mr Bowles —I will talk about some of the issues that we have been dealing with. A lot of the issues that created the environment that allowed this to happen were about square pegs being put in round holes. There was not a lot of mal-intent. Generally speaking, the public servant does not come to work to do something really stupid and put that out there. There were some square pegs in round holes, though. That is definitely something that I have been dealing over a period of time—making sure that we can get the right people in the right jobs, people who understand all of the different things that they need to understand. That is one of the lessons that we have learnt as a public service more broadly. In the Terry Moran review, there was a focus on service delivery issues. It said that we need to make sure that we can get appropriate skills if and when we require them. That is definitely something that we have been dealing with.

As for other action being taken, I do not want to particularly go into some of the issues that we have dealt with other than to say that we have taken action regarding some individuals. I would not want to go any further than that. I stress the point that culturally this has to be accepted at all levels of the organisation. It cannot be seen as a ‘head on a platter’ outcome, because that will just drive things underground and all sorts of weird and wonderful things will happen to organisations. It is in my view about getting round pegs in round holes and square pegs in square holes at the right time for the right reason. If you can do all of that, you will get the best outcome for the program that you are trying to deliver. Culturally, that is where we have definitely moved in the Department of Climate Change and Energy Efficiency. My background is in delivery, and therefore that is the culture that we are trying to bring into our programs these days. It is working, but culture change is hard. It takes a long time. It means that if I do something stupid tomorrow, someone is going to see that and therefore things will not change. So it has to be driven over a long period of time.

CHAIR —I want to give everyone the opportunity to get on the record anything to do with that as well. I do not think that Medicare Australia has an issue here. In this case, you get glowing ticks from the Auditor-General.

Ms Golightly —We have the smaller part of the pie puzzle.

CHAIR —Does anyone wish to add anything?

Mr Thompson —To add to that, this comes in the context of the machinery of government change that saw the energy efficiency programs go to the Department of Climate Change and Energy Efficiency. Pretty much all the staff went with them as well.

Senator KROGER —I do not want to let this go. I was a bit surprised to hear, Mr Bowles, that you did not want to discuss the issues of concern. I feel that I have to direct you to the Auditor-General’s opening statement, where he indicates on page 2 that there were cases of potential fraud identified. I am interested to know if that is what you were alluding to when you said that there were things that you did not want to discuss. I presume that those cases, if there have been cases of potential fraud identified, have been referred to the appropriate authorities, such as the police, for instance, for investigation.

CHAIR —To help everyone else, where is the reference? Is it to internal fraud?

Senator KROGER —It is in the statement in relation to the Home Insulation Program.

Mr Bowles —That relates to fraud within the program, which I referred to before in the context of our work with the AFP and the execution of 35 warrants. That is not a staff related fraud issue.

Senator KROGER —I appreciate that.

Mr Bowles —It is a totally separate issue altogether. In my previous response, I was referring to how we dealt with staffing issues and all those sorts of things. This specifically relates to the fraud within the program and not within the people who developed, implemented and delivered the program.

Senator KROGER —Sure. Thank you.

Mr Thompson —Before we wrap up, I took on notice a question from Senator Kroger, but I did so unadvisedly, because we do not have access to any of the briefing papers now. With the machinery of government change, they went with the function to the new department. So I am not in a position to answer that on notice. I apologise—I took that on notice incorrectly.

CHAIR —Are you satisfied with that?

Senator KROGER —I will take it up another time.

CHAIR —Thank you for attending today and assisting the committee with its inquiry. If the committee does have additional questions, I hope everyone is able to get responses to the secretariat as quickly as possible. Is it the wish of the committee that the tabling statements from ANAO be accepted as evidence and authorised for publication? There being no objection, it is so resolved.

Resolved (on motion by Senator Kroger):

That this committee authorises publication, including publication on the parliamentary database, of the transcript of the evidence given before it at public hearing this day.

Committee adjourned at 1.26 pm