ACTING CHAIR --Are there any questions?

Senator ROBERT RAY --I tried to do this with Treasury but they were a bit vague on it. You probably were not watching that; you were probably waiting here to come on. I was trying to establish under what authority the Secretary to the Treasury can commission you to do a review. Would you like to explain that to me? I know how an attorney-general, a Prime Minister or a Minister for Defence can. I was given an explanation which I think is right, but I would like to hear your version.

Mr McLeod --Mr Evans was facing a situation where there was a serious security breach within his department. There was at least a potential that some officers might be subject to disciplinary action, depending on what the circumstances were when they emerged. Essentially, in his role as departmental secretary under the Public Service Act, being responsible for all matters affecting that department, he was keen to appoint a person who was seen to be outside the Treasury and who was independent.

I think he was looking for someone who had experience in the conduct of inquiries into sensitive matters that bear on national security. But essentially he wanted someone who was seen to be competent to carry out an independent inquiry and to report to him in his role as head of the Treasury under the Public Service Act on the circumstances of the security breach as that investigating officer saw it, and competent to comment on what action the department should be taking in the future to ensure that a similar breach did not occur. Essentially, he approached me, I believe, because as a senior public servant with the kind of experience that he was looking for he believed that I filled the bill. Because I was outside the Treasury, I think he saw that giving an independence to the investigation. After clearing the matter with my portfolio, I agreed to undertake the inquiry.

Senator ROBERT RAY --So in effect you were not commissioned as Inspector-General?

Mr McLeod --No. In a sense that was immaterial. I was a senior citizen. I did not in any sense draw on my powers under the Inspector-General of Intelligence and Security Act.

Senator ROBERT RAY --It is not your fault, but that was made as clear as mud by way of Mr Evans's release. It read that he had commissioned the Inspector-General to do it. I concede that I cannot think of a more appropriate person than you, given the qualifications you have to do it, so I agree with that but, Minister, the original press statement was, to say the least, very unsatisfactory. Finally on this point, Mr McLeod, who bore the costs of your inquiry? Treasury?

Mr McLeod --Treasury did so for excessive costs that my office incurred in the conduct of the inquiry.

Senator ROBERT RAY --So all the add-on costs. So not your salary but all the add-on costs were charged to Treasury?

Mr McLeod --Exactly.

Senator ROBERT RAY --How much were they?

Mr McLeod --They have not been fully accumulated at the moment. All the bills are not in, but the costs would be quite small.

Senator ROBERT RAY --You know, this is your first and only chance to get square with Treasury!

Senator SCHACHT --I presume that the figure would be under $5,000.

Mr McLeod --I would think so. The only costs were in relation to obtaining from commercial sources some transcripts of radio interviews that were given by some of the journalists who were commenting on the material, a legal opinion from Attorney-General's, which was sought on the matter in the course of the inquiry, and the cost incurred by my staff of an overtime nature in transcribing transcripts of evidence.

Senator FAULKNER --May I ask about Mr Evans's press release? This might have been in his release, as I have not had the opportunity of reading it although it does not sound as if I missed much, but were there formal terms of reference?

Mr McLeod --Yes, there were.

Senator FAULKNER --Were they announced by Mr Evans in the release?

Mr McLeod --I do not believe that they were released in their totality.

Senator FAULKNER --Would there be a problem with those being released if I were to request them?

Mr McLeod --It is really a matter for you to pursue with Mr Evans. It was his inquiry, and I think it would be appropriate for him to decide whether the terms of reference should be released or not.

Senator FAULKNER --You, I am sure, would have seen the document headed Inquiry into unauthorised publication: follow-up, which was made available at the estimates committees today?

Mr McLeod --Yes.

Senator FAULKNER --I assume your inquiry effectively goes to the three documents. Is that right? I am referring to the 93-page document, the 39-page document and what I--for want of a better word--have described as the e-mail message from the Deputy High Commissioner in New Zealand. Is that right?

Mr McLeod --It dealt with the first two items.

Senator FAULKNER --I see. Thank you for that. I suppose I am interested in understanding whether it generally covers the process for preparing, clearing and approving the briefs as well as, of course, the events surrounding what occurred in Cairns itself.

Mr McLeod --I am not wanting to be unhelpful, but I am placed in an awkward position in the sense that I was invited to carry out a particular inquiry, which I did, clearly for purposes directly relevant to the Secretary to the Treasury. The Secretary has seen fit to release certain material about that inquiry, but has not released other material. I think that, strictly speaking, it is not entirely appropriate for me to be responding to the committee in relation to matters that have not been made public by the Secretary to the Treasury.

I think I am not really giving too much away if, having listened to some of the questioning of the Department of the Prime Minister and Cabinet and the Office of National Assessments, I perhaps just clarify that my review was essentially concerned with seeking to ascertain the way in which the security compromise occurred, and what lessons there may be as a consequence of that, rather than to be concerned about the judgments about the appropriateness of the briefing material that was the subject of the compromise. Some of the earlier questioning by senators went to matters of process and I think that has been a fair representation of what my focus was: what were the processes that led to the loss of this material and what ought to be done about that in terms of ensuring the same problem does not arise in the future.

Senator ROBERT RAY --One of our major interests, forgetting the fact that the material disappeared at one end--and you have obviously done a pretty comprehensive job of tracking down all those details and making recommendations--is the risk of putting it in at the front end and why that was not picked up. I am not sure how much time we have spent on concentrating on the concerns: should that level of material have been put in at that end, was it classified correctly and, finally, if it was dangerous material, why wasn't it picked up and sifted out in the process by at least two senior departments of government--forgetting Treasury for one? Did you look at those sorts of questions? You may answer without necessarily going into all the details.

Mr McLeod --Again, I think you are really seeking to draw me on matters that were or were not covered in my inquiry, which I am somewhat reluctant to be revealing when in fact the contents of my report, in my view, are really a matter for the Secretary to the Treasury to decide what to release.

Senator ROBERT RAY --Treasury are so well informed that they could not tell us the date of the last intergovernmental meeting, the sixth one they had had. That is how well informed they are. That is our problem.

Senator SCHACHT --Taking up Senator Ray's point, I was at the estimates hearing covering Treasury this morning. I have to say that, during nearly an hour of questioning--whether by design or by accident on their part--a lot more information came forth that is in the extract of Mr Evans's documents, as Senator Ray has said. They could not tell us at that stage how many IDC meetings they had had. They had to take that question on notice. But PM&C said that there were six--and whether they got a tip-off over lunch and brought themselves up to speed, I do not know. About the dates, Senator Ray is absolutely correct.

But there is a lot more information. Whether it will subsequently change your mind, I do not know. But when the Hansard comes out for the Senate estimates committee for Treasury, I suggest you may care to read it--and I do not say that in a presumptuous way. Bit by bit Treasury has explained bits and pieces that were not covered in this document. That then gave a better understanding of what went wrong, and so on, particularly about the handling of the biographical details. It is clear now that individual officers of the IDC saw the biographical details but took no action, even though they may have had some view about them--and you may be interested to read that.

I just wonder whether you can comment on this: I presume the chair of that IDC--which in this case was Treasury--plays a more important function in setting the tone and the operation of that committee's work than the other members. From your knowledge, is that the case?

Mr McLeod --I think the point has been made that it was not a formal IDC in a strict sense; it was a working group of interested departments under the chairmanship of the Treasury.

Senator SCHACHT --Just stopping you at that point, you say that it was not strictly an IDC; it was a working group. With such a group--one that is handling sensitive information dealing with national security, vice, and so on--should there be a more formalised appointment then?

Senator Hill --This is getting back to issues relating to your report, isn't it? If you are telling us that how to maintain better security is at least part of your brief, then I would presume that that is part of the content of the report.

Mr McLeod --I think that whether to have a formal IDC or a working group which is more informal in its nature is really a matter for judgment by the department or departments concerned as to the best manner in which collectively a particular objective is achieved. I do not think there is any hard and fast rule as to which mode of collective effort is the desirable one.

Senator SCHACHT --In costs you mention that you sought a legal opinion from A-G's. Was that a legal opinion about whether charges could be laid against anybody?

Mr McLeod --Again I believe that you are leading me in circumstances where I think, if information of that nature is to be made available to the parliament, it is appropriate for the Treasury to make that judgment.

Senator SCHACHT --I will go back and refer that to Mr Evans and see what he chooses to do with it. In Mr Evans's report today on page 3, he speaks of the number of reproductions of the report, which number was 35 copies, being seven more than should have been--but even 28 was still a large number of copies. Do you find that a large number of reproductions of a report that clearly contained very sensitive information?

Senator Hill --That is another one of these questions as to whether or not there was adequate security, isn't it?

Mr McLeod --Yes.

Senator SCHACHT --I asked this of other witnesses and you did not jump in then; neither did you jump in at the other place.

Mr McLeod --Perhaps one contribution I could make is that there were in excess of 20 members of the Australian delegation who participated in the forum discussions and the bilateral discussions. So it was a large delegation of senior ministers and senior officials.

I think it was clearly the intention of the Treasury not to have an excessive number of copies available beyond the needs of the fairly large delegation. The issue though was more about control of the copies that were actually reproduced than whether or not the number of spares was excessive.

Senator ROBERT RAY --How many copies of the document did Treasury take to Cairns?

Mr McLeod --I think I would prefer not to answer that. I think that really goes to the heart of the nature of the compromise. While clearly that is a matter that was covered in my report--

Senator ROBERT RAY --We know that Treasury took a certain amount of documents to Cairns unspecified. We know that Foreign Affairs took a certain amount of documents to Cairns.

Mr McLeod --Foreign Affairs were represented on the delegation, yes.

Senator ROBERT RAY --We know that, but they also took that document to Cairns. You would have established that.

Mr McLeod --If you work through the members of the delegation and you seek my response, you will have the answer you are seeking.

Senator ROBERT RAY --No, I am not seeking the number of the documents. The trap is not there; you will have to find the trap elsewhere because that is not the one I am laying. Foreign Affairs came out and said in the press that Foreign Affairs could account for all the numbers of the document. So they had the document in multiple numbers unnamed, didn't they?

Mr McLeod --That is a reasonable assumption.

Senator ROBERT RAY --And we know that PM&C, from evidence today, had at least two copies of the document that went to two of the officers--

Senator FAULKNER --But only one in Cairns.

Senator ROBERT RAY --and only one of those went to Cairns; we know that. So we are not going to get an answer as to how many Treasury had in Cairns; we do not know that.

Mr McLeod --A small number.

Senator ROBERT RAY --Minister, this raises the question yet again: with all of these documents and all this expertise in government, no-one from PM&C or Foreign Affairs picked up the fact that some of the material in these documents could be dynamite if it leaked out. All the pressure was on ONA and Treasury as though the others were just spectators and tourists going along for the ride. I find incredible that the two most senior departments did not pick any of this up. And then you got the hatchet job of interdepartmental leaking--and you have to admit that it occurred--where ONA and Treasury copped the lot in the neck and Foreign Affairs distanced themselves brilliantly within a day. Admiration, is all I can say--`We were not Nazis in Germany. We were in the resistance.'

Senator SCHACHT --It is published in Mr Evans's report that there were 35 copies. Did Treasury produce the copies for the other departments?

Mr McLeod --Yes.

Senator SCHACHT --So PM&C and Foreign Affairs did not produce, as far as you are aware, copies? They all came from the production run inside Treasury?

Mr McLeod --That is correct.

Senator SCHACHT --Mr Evans makes the remark at the third dot point that some of the spare copies were not adequately secured upon arrival in Cairns thus allowing them to be removed from the delegation and placed on the table. That is clearly where the security compromise occurred. There were probably too many reports lying around and someone, and the best interpretation is, inadvertently picked them up and plonked them on the table. That is what I consider to be the best interpretation. The penalty that Mr Evans outlined was disciplinary counselling for the junior officers--that does not mean they are under 18, but they are SOGB or SOGB minus one or something; they are not at the SES level--

Senator ROBERT RAY --They do not get a free car.

Senator SCHACHT --The people who do not get a free car, the junior officers, got disciplinary counselling and a senior officer, whom Mr Evans admitted was at SES level, also suffered by losing his performance bonus for up to a couple of years and all officers have a mark in their files. Did Mr Evans discuss with you the appropriate penalties for the people he has identified, obviously based on your report, as being guilty even inadvertently of security breaches?

Mr McLeod --No, not in any sense at all. He saw my report as being concerned with trying to establish the facts. While my report does cover shortcomings that I believe could be identified on the part of various officers, we did not have discussions at all about the further processes that he intended to follow within Treasury following the receipt of my report.

Senator SCHACHT --In view of the seriousness of this breach, do you believe that the range of penalties available to the secretary to the department and the government are adequate and flexible enough to deal with such a serious breach? It looks like you either have to hang the bloke or give him a slap on the wrist.

Mr McLeod --I would not believe that is entirely true. I think the disciplinary provisions, which are available in the Public Service, are more than adequate to deal with a situation of this kind, providing as they do for a range of penalties from an admonition or a censure up to dismissal. There is a capacity for the head of the department to make a judgment as to the appropriate level of penalty commensurate with the offence.

Senator SCHACHT --On the issue of penalties, did you have put before you any evidence that the journalist who picked the document up off the table may have been in breach of rules, laws, et cetera?

Mr McLeod --I think that is really going to the nature of the contents of my report which I really do not feel I am at liberty to divulge.

Senator FAULKNER --Can I ask you the question I asked ONA, which you would have heard, about the classification of the document being `Confidential' but containing material that was stamped `Confidential AUSTEO'. I think you might have heard the question I asked Mr Heydon about whether this was a normal occurrence that, in effect, the releasability indicator AUSTEO is contained in part of the document but I gather not on the cover. That is how I read the extracts of the report that Mr Evans has provided us with. Could you comment on that?

Mr McLeod --The normal principle I believe with the classification of a document or a file is for the cover sheet of that document or file to have an accurate indication of the security status of the highest classified document within that file or document. The purpose of that is fairly obvious of course because it immediately draws the attention of a person who observes the document or file merely from the cover sheet to the nature of the sensitivity of the material contained within that document or file.

Senator FAULKNER --That is fundamentally what I understood to be the case. I assume this document cover bears the national security classification `Confidential'. It says that, so would that be accurate? I take you to page 3, second paragraph. It says, `The outer cover of the documents removed by the journalists for the national security classification confidential.' The word `confidential' appears on the outer cover and only the word `confidential'. Is that right?

Mr McLeod --I think it follows from what I just said in relation to the previous question that I would believe that the appropriate practice is for the cover of a document to clearly identify the highest level of national security classification of material within that document. It would follow from that that the front cover, in my view, should have had `Confidential--AUSTEO' on it.

Senator FAULKNER --That was the point I was getting to. I appreciate the point you make. I think on this we happen to be on the same wavelength. It seems a fairly logical conclusion to draw that the releasability indicator AUSTEO ought to be on the front cover. Of course it was not. Senator Ray asked a little earlier, I think, whether journalists or anyone would know, unless you had some experience of these classifications and indicators, what in fact AUSTEO meant. Australian eyes only, AUSTEO, is not something they would come across in the ordinary course of events. I think you would appreciate that that is the case. The word `confidential' is pretty common terminology. Confidential documents are being leaked all the time, aren't they?

Senator ROBERT RAY --Are they?

Senator FAULKNER --It certainly was in this case. Are you saying to me that you identified this as a significant problem? I take you to the first page, which says:

The McLeod report is classified confidential--

I hope that is not significant--

in keeping with its contents and cannot be published in full. With Mr McLeod's agreement, however, I am presenting below the executive summary and his recommendations in full.

I suppose the point I am getting to is that as I read it, but correct me if I am wrong, there is no recommendation that goes to the point that you have made to me and the committee in relation to a proper classification. In this document's case it would be `Confidential--AUSTEO'. Am I being fair to you in suggesting there is no recommendation in relation to that?

Mr McLeod --I think the construction that should be put on the report and the recommendations that I made is that in the course of the report there were a number of detailed issues that were referred to which I am sure the Secretary to the Treasury would be taking full account of. The specific recommendations that I made at the end of the report were couched at a more strategic level than to merely pick up a series of process faults.

Senator FAULKNER --You are saying effectively that the recommendations which have been released in full are fairly general and some of these other matters or specific matters may well have been detailed in those parts of the report that have not been released.

Mr McLeod --Exactly. I am sure there were other lessons of a more process oriented kind that would be apparent to the reader of the report.

Senator FAULKNER --In relation to the decision to determine a classification for a document, the department is responsible for clearing it. In this case Treasury would be responsible for determining that national security classification.

Mr McLeod --Yes. Treasury was responsible for the preparation of the brief. Clearly, it would have been influenced by the classification of other bodies of material which other bodies provided to the Treasury for inclusion in the brief. Ultimately, the final production and format of the briefing was with Treasury. It would have been their responsibility to ensure the document was appropriately classified.

Senator FAULKNER --Any minister worth his salt would have picked this up, wouldn't he?

Mr McLeod --I think I will pass that one.

Senator Kemp --I think we can thank you for the observation you made, Senator.

Mr McLeod --You did not give me an opportunity to answer the comment you made, Senator Faulkner, about the knowledge of the journalists as to the meaning of the AUSTEO caveat.

Senator FAULKNER --You will recall Senator Ray raised this in questioning ONA too. I was just referring to it.

Mr McLeod --The only comment I would make on that is that it is pertinent to note that some of the initial press articles that referred to the disclosure did not in fact talk so much about AUSTEO but talked about `for Australian eyes only' and used that caveat in its full meaning.

Senator FAULKNER --Which tends to indicate they might have known what AUSTEO meant?

Mr McLeod --I think that is a reasonable conclusion. The other comment I would make is that the journalists who initially broke the story and wrote about it at the outset were journalists who were familiar with international affairs. In the main they were specialist foreign affairs or international affairs writers. I would find it surprising if people of that stature did not understand the meaning of that caveat.

Senator FAULKNER --You could make the point that the word itself is not--

Mr McLeod --Not classified.

Senator FAULKNER --I think that would be reasonable. In relation to those words appearing on the front of the document, one assumes that would not be the responsibility of just a junior officer in Treasury. At some point someone with some level of responsibility for querying it must have made that decision about those classifications.

Mr McLeod --That is a proposition rather than a question, is it not, Senator?

Senator FAULKNER --Would you be more comfortable if I did not reword it with a question mark?

Mr McLeod --I do not think it is appropriate for me to be inferring--

Senator FAULKNER --That means you would be comfortable if I did not reword it, so I will not.

Mr McLeod --Thank you.

Senator ROBERT RAY --I have a final question for you, Mr McLeod. You have just answered questions here for 40 minutes on an area that is not strictly to do with Inspector-General solely on the basis that you did not charge Treasury full costs. So part of Inspector-General costs have gone towards this. Is the lesson you have learnt that the next time someone approaches you to do one of these reviews you will charge them fully and then we cannot ask you questions under your heading here?

Mr McLeod --I think I would have to take each situation on its merits first.

Senator ROBERT RAY --We appreciate what you have said to us.

Mr McLeod --If I can just add to that--

Senator ROBERT RAY --You have been trained well enough not to add to anything, remember.

Mr McLeod --I withdraw those comments.

Senator FAULKNER --They were the old days. Come on!

CHAIR --That finishes subprogram 6.3 and the Department of the Prime Minister and Cabinet. I thank Minister Kemp, the officers and Hansard.

Sitting suspended from 5.40 p.m. to 7.32 p.m.