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Joint Committee of Public Accounts and Audit - 18/06/2015 - Development of the Commonwealth performance framework

RILEY, Mr Kevin Paul, Managing Director, Capital Training Pty Ltd

Committee met at 10:51

CHAIR ( Dr Southcott ): Good morning. I now declare open this public hearing of the Joint Committee of Public Accounts and Audit for its review into the development of the Commonwealth performance framework. The committee resolved to inquire into this matter on 26 March.

Although the committee does not require you to speak under oath, you should understand that these hearings are formal proceedings of the Commonwealth parliament. Giving false or misleading evidence is a serious matter and may be regarded as a contempt of the parliament. I remind you that the hearing is public and is being Hansard recorded. The hearing is also being broadcast live.

I will now invite you to make a short introductory statement. The committee will then proceed to questions.

Mr Riley : Certainly, thank you, Chair. I just wanted to cover off a couple of the key points in the submission that we made to the committee. The first is that we believe that the portfolio budget statement does need to be a primary accountability document to have appropriate information in it to support the appropriations. I am pleased to see that, following on from your earlier committee hearings, the Department of Finance has now incorporated that into their resource management guides.

I think there is still some potential confusion in some of the language and structure around the flow from appropriations through to funding and resourcing. We see the introduction of the term of 'purposes of an entity' through the new performance framework. Just where does that sit in terms of appropriations for outcomes and then purposes of the entity? I just think some clarification of that flow would enhance where appropriate performance information sits that supports appropriations for the parliament to make assessments, but can also support the detailed review of agency performance in the delivery of their outputs, programs and services. I am happy to take questions on that.

I think there is also a real challenge in structuring outcomes across a range of government programs and services and portfolio agencies, when there is not a high-level view of the outcomes that government is expecting across the board. In our submission, we highlighted, as an example, New South Wales 2021, where cabinet has determined 32 goals of the New South Wales government and that agencies then structure their bids for budget funding and their planning around how they contribute to those 32 priority goals. I think that can give an articulation to agencies as to the level that they should be pitching their own outcomes; also to try to stretch some agencies so that they do not fall back to easy to achieve or overly simplistic targets around programs.

The third point is about an active engagement around risk. Now that we have a Commonwealth risk management policy, one of the highest levels of risks that we see is that there are risks to the achievement of the results we are looking to have for the Australian community. Unless we are clear about what those risks are, right up-front, within the corporate plans that get signed off by ministers, I think there can be a misjudgement about the level of risk. How do we assess agencies where they have delivered services well, but risks of an external nature beyond their control have impeded the achievement of a desired outcome? I can see that, without that active management of risk and identification of potential risks, we could fall back to a very risk-averse culture that may not get any of the improvements that the performance framework is designed to try to achieve. They are the three key elements that we included in our submission. I am happy to take questions on any of those components.

CHAIR: I will ask you about the portfolio budget statements, because that is a key thing which has come up in the submissions. A very strong view was expressed by the ANAO that this was the opportunity for the information to be available to parliament, to be accountable to parliament. Would you like to expand on the portfolio budget statements?

Mr Riley : I think in the earlier submissions it was identified—and I think the representatives from the Department of Finance indicated—that we could have thousands and thousands of pages in support of appropriations and that sometimes that did not necessarily lead to meaningful information. I believe the example that was quoted in the previous hearing was the Great Barrier Reef authority, and the number of visitors was the key performance indicator. I entirely agree that that is probably not a good indicator but that there should be a focus on: what is the outcome that that agency is trying to achieve? The failure of the selection of the indicators should not say that we should not have a focus on outcomes at that level.

The outcome focus is not a new thing. From the 1999-2000 budget, the first accrual budget, while there was that immediate focus on moving from a cash based budgeting arrangement to an accrual arrangement, that first accrual budget also included the first outcomes-outputs frameworks. Concern about how we characterise outcomes, how we measure their performance over time, probably dates all the way back to that initial inception. I suspect there is always going to be room for improving the content of portfolio budget statements. I would not presuppose to guess what you and your parliamentary colleagues would like to see in those statements. I think the Auditor-General, in his submission at the time, posed that very question: what is it that parliamentarians would like to see as the information to support voting on an appropriation bill?

CHAIR: One of the things that has been raised in the submissions is the compliance burden of having it in both the corporate plans and the portfolio budget statements. In your view, are those concerns valid?

Mr Riley : I think there is certainly a potential for a degree of overlap. If they were structured well, what you would anticipate to see in the portfolio budget statement would simply be the extraction of information of a high level from a corporate plan. The timing of the release of the documents is a challenge, and I notice that was an earlier point of contention for the committee—seeing corporate plans much later, after budgets have been approved and after the financial year is started, can be a challenge. I suspect over time that time frame could be shortened so that corporate plans could be available from early within a financial year, but I do appreciate the concern about: how do you develop that documentation prior to the formal release of budget information? But, if it is well done by the agency, I do not think there is a potential for complete duplication. I would see the portfolio budget statement simply being an extraction of high-level strategic information about the agency but also information about those new programs and those new activities for which new funding is being sought in the budget process and the performance information about that.

Mr TAYLOR: Thank you, Chair. Thank you for coming in, Mr Riley, and I thought it was a great contribution. I was particularly happy with your point about New South Wales 2021, because I was in the room with the cabinet facilitating the process of developing those targets—

Mr Riley : Very good.

Mr TAYLOR: So I thought that was—but one of the interesting reflections on that process is: it is not easy—

Mr Riley : No, it certainly is not.

Mr TAYLOR: as you can imagine. And, even though I thought the outcome was reasonably good, I do not know how many governments around the world have really attempted this. I know the UK government has done some of this sort of work-and to some extent we modelled it on that. But have you got examples of governments that you think, beyond the New South Wales government, who done this really well? And can you just tell us a little about how they go about it? Because I do not think for a moment that we have got that absolutely right, even though I think it was not a bad outcome.

Mr Riley : Certainly. If I can go to the state I grew up in, Tasmania, the Tasmania Together Progress Board released a series of targets that also went through a developmental phase. I think in their final production they had 12 key goal areas supported by, I think, up to 150 different indicators in support of those 12 goals.

The number of indicators did tend to grow, and I think one of their challenges was to try to bring it back to a manageable number of indicators around those 12 goals. If you go to the country of my heritage, the state of Oregon had a similar progress board trying to drive towards—and I think their framework was called Oregon Shines and it went through a number of iterations. That too had the challenge of a growth of indicators. I think that that lasted for a period of about 15 years, from the late 1980s through to the early 1990s, but seems to have petered out of energy around 2004-05. So they are two examples that I have seen where there is that external focus—so both were boards which were independent of the executive arm of government, providing advice to the executive arm of government that was then used in structuring 'where do we devote resources through the budget process?'

Mr TAYLOR: Yes. One of the challenges that we talked about with someone else who has come in is that sometimes you nail the goal, the target, upfront. When we said we were going to deliver three free trade agreements and were going to stop boats, whatever you think of those indicators, it worked. But often you do not get them right upfront. The process of evolution of those goals—what is your—

Mr Riley : I suspect that one of the biggest challenges is that many of the easier problems of public service delivery have been solved, and we are left with the hard problems which tend to be either cross-jurisdictional, international, or multi-agency. How do you then structure those types of goals when there is more than one agency having to focus on that? I think that is why I preferred to see that whole-of-government perspective first, and then individual agencies seeing where do we fit it into—

Mr TAYLOR: Whole-of-government being cabinet?

Mr Riley : Yes.

Mr TAYLOR: Being driven by cabinet.

Mr Riley : Being driven by cabinet, yes. So you get those very clear statements, and I suspect some of those statements are not terribly far away from what you would find in party political platforms, but then seeing whether agencies then see their individual contribution to those.

But I entirely agree: it is evolutionary and it will be required as a refinement and a learning—sometimes the nature of the targets are so long run in nature that in fact you need to have not just the ultimate target in mind but some short- and medium-term targets to indicate that you are on the right track. If you are only ever looking to support a program by having a 10-year away target, I could imagine that in a time of constraints, the ERC committee would very easily say, 'Well, maybe we can defer that program for a year or two, because we've got those more immediate needs.' So a structure over time—some short, medium, longer term—could also then indicate: are we on the right pathway as that program is being rolled out?

CHAIR: Thank you. In submissions to the committee, some smaller agencies have talked about tiered reporting? I am just interested in lessening their reporting requirements. Do you think that such an approach would be feasible; and, if so, what reporting requirements should small agencies be exempted from?

Mr Riley : I suspect that one aspect of the smaller agency is that typically the smaller agency will have a much clearer, almost single-purpose goal to achieve. While there could be a process to follow, I think in many cases the small agencies have it a little easier, because they are there for a very clearly defined purpose and the indicators that might support that are not going to be as voluminous as you might find in Human Services, Social Services or Defence. I appreciate their desire to have an efficient process. I think if it were clearly laid out what the elements of the framework were and how the development of a well-documented corporate plan could support elements that go into a portfolio budget statement but then reside in the corporate plan for possibly longer term planning beyond the appropriation cycle—I would not imagine that that would be so overly cumbersome for agencies that they would need to go to a very deliberate two-tiered system. I have not been in those smaller agencies, so I appreciate that some of the pressures that they feel may not be as clearly evident to me, but I think their focus on a single purpose is probably going to make their life a little easier.

Mr WYATT: Let us come back to the whole process that government agencies face. Whilst there is a set of goals around appropriation and expectations of the cabinet and the business of delivering that element, some other pressure points for agencies are the COAG and MINCOs, where bilateral decisions are made, even though they tend by nature to be of the lowest common denominator. They impact on agencies. The other area is their own systemic priorities and goals. Then you have program goals because of partnerships that exist with external agencies—for example, the work that is done between Health and the Heart Foundation. Then you have priority focuses that a secretary of a department or an agency believes are things that should be done, given some of the community responses to areas where they undertake a review of their performance and their agency's service delivery in particular fields. How do you align all of those, given that those are the realities that face not only the large agencies but also the small agencies? An example of that would be not so much the Great Barrier Reef agency but, say, an Aboriginal affairs agency which is required to deal with every issue across a broad gamut of matters.

Mr Riley : One of the models for developing objectives and performance indicators—and I believe it has come up in some of the earlier hearings—is a model called the balance scorecard. That is used widely from a corporate perspective. What happens in large corporates that may have a range of different operating subsidiaries is that they will have a centrally determined view of objectives and then they interpret those at each of those lower levels— where that entity contributes, if at all, to some of those higher level objectives. I think this is about structuring your performance arrangements starting from a corporate perspective. What are those externally appropriated objectives that we need to achieve in terms of outcomes? How do they articulate down? Starting from the top—it is often called an outcome hierarchy—might be useful here for agencies. That is, while there may be a very high-level outcome that is expressed in an appropriation bill and a portfolio budget statement, that outcome may only become relevant for a particular program manager or team delivering the service by teasing out, two or three levels down, what it is about that outcome that they directly contribute to.

I believe that a number of years ago this committee talked about actually seeing outcome hierarchies within portfolio budget statements so that there was some articulation of how you get from a very high level down to where the program is actually being delivered into a community. That need not necessarily be in the portfolio budget statement, but I would see that being an important internal tool for an agency to make those linkages. The benefit is also to the individuals who are running those projects and teams who are out there in the community delivering those services. Sometimes for them it is very hard to see how the work they do on a daily basis contributes to the overarching goal that they see on letterhead and in corporate documents. The outcome hierarchy can be useful in saying, 'If I focus on this goal, this specific objective in this community, this feeds into higher level objectives across the organisation.' It is complex, and often it is because sometimes the nature of the organisations have come about not necessarily because of a clear goal—they may have come about because of machinery-of-government changes or indeed other rationalisations, and you find that you sometimes have competing objectives even within an entity. I do not think there is a perfect solution to your question. I think it is going to be—

Mr WYATT: Sorry to speak over you. One of the challenges in that, then, is the expectation on government agencies, in the form of reporting, particularly annual reports, where even halfway through a financial year you receive a cabinet minute that directs you to undertake the whole-of-government approach on a particular issue. If we take my colleague's example of free trade agreements, then there is an expectation of potentially redefining your goals as to achieve what is required by government, even though the appropriation process still requires you to deliver on the basis of appropriation, but you now you have this additional challenge with no additional resources.

Mr Riley : Often that is able to be accommodated within the current framework, because the nature of the outcomes that sit at the appropriation level are often so broad that change that might come midstream of the year is able to be accommodated within the outcome. But, without the additional funding it leaves either the secretary of the department or others within the agency to then work out: 'How do we redeploy resources to now take on this additional task, and what are those things that we are now going to abandon?' I think that is a very difficult test. What are those indicators that might say this program is not achieving its intended goals? We have reviewed it significantly. We have retried new things. It is now time to look for another solution and redeploy resources to another area. I think that is a very difficult challenge.

Mr WYATT: The additional challenge, then, is your corporate plan, because you have a corporate plan that is public, defines the activity which an agency undertakes and provides either a degree of breadth of scope or narrow scope, but then you are having to adjust your corporate plan to accommodate changes.

Mr Riley : I believe that it is identified by the Department of Finance that they would view the corporate plan as being that live document. How do we track those changes in the corporate plans as they are recycled? How do we track where things were realigned because of changing priorities or changing circumstances?

Mr WYATT: What makes it challenging for a committee like this is that, for example, it is charged with responsibility for giving consideration to corporate plans, portfolio budget statements and annual reports, but it is not in a position to know where those changes have occurred throughout the or, if they are reflected in detail, whether the goals were achieved and whether the outcomes and outputs were also equally achieved.

Mr Riley : To some extent, even without a change mid-year, some of the evidence is that we lose that line of sight as the performance indicators change. So if we see in one budget round that we are going to use this particular indicator and then we report on that, and in the next budget round we use a second indicator for the same outcome, again you will lose that visibility.

Mr WYATT: The other challenge for an agency, then, is the audit process.

Mr Riley : Yes.

Mr WYATT: An external auditor would not fully appreciate that a cabinet minute some six months ago gave different direction that may not be reported fully within the corporate plan, but they could be questioned in terms of the outcome—although you get the opportunity to explain the reasoning. To a committee like this, that is something that is not evident until it is made known to us.

Mr Riley : Maybe it requires us to identify, if the nature of the change is a material one in either performance or funding, that there would need to be some form of tracking within the reporting process so that the reader of those documents, over a period of time—and often when we are trying to assess performance it is over a number of years—can track where those changes have been.

Mr WYATT: Particularly if there are procurement processes and if there are substantial contracts that are entered into that were not within the scope of the appropriation but are now required because of a free-trade agreement.

Mr Riley : I have not considered that option, although I could imagine that that may be an example of where you see that change.

Mr WYATT: Thank you.

Senator KETTER: Mr Riley, we were talking about the downward articulation of high-level goals into the lower areas within various departments, and you have indicated that the New South Wales 2021 plan was an example of where consistent high-level performance targets were set. I was just wondering about the downward articulation of those high-level performance targets into the various departments that were affected—how was that achieved? Where I am going with this is looking at how, if that was done well in that situation, we get the benefit of best practice across other jurisdictions for that.

Mr Riley : My understanding of the New South Wales framework is that, in going through the budget process, agencies are required to look to align to or demonstrate how a program or initiative will contribute to one or other of those strategic goals. Over the time of the implementation of New South Wales 2021, the New South Wales Treasury are also transforming their framework. My understanding is that they are looking to incorporate that into their definitions around the outcomes and program objectives of agencies, but I believe that that is still in some form of development at this stage. They are also reviewing their legislation, I believe. So they are going through some change, similar to the Commonwealth just a year or two ago.

Senator KETTER: Is this the only example you have come across where there is this translation of high-level goals into bite-sized pieces that departments can—

Mr Riley : I think the Tasmania Together model is another. It is no longer being utilised in that way, but that too did contribute to the budget development process. As an agency was looking to make a bid for funding, their budget process required them to identify, and their budget expenditure review committee considered, how these bids contributed to one or a number of the Tasmania Together goals. It does seem that, wherever these types of whole-of-government initiatives arise, there is a deal of energy behind them initially, but the energy tends to wane as either they become ingrained in the state's thinking—and both the examples I have quoted are state jurisdictions—or there are new challenges that emerge. I have not seen those models where they have lasted for a significant period of time. It seems to be that 12- to 15-year cycle and then something new seems to tend to happen.

Senator KETTER: Are you familiar with any international examples that we could have a look at?

Mr Riley : The state of Oregon in the United States did have an independent Progress Board. Some of the research that I have seen was analysis of that reporting back to an OECD conference around program budgeting. But again that highlighted that it came with a good degree of energy, as that particular state evidently found themselves in some difficult circumstances: 'How do we energise the community and have a single view of what we are trying to achieve on behalf of the citizen of the state?' Once that seemed to get underway, there seemed to be some waning of the energy. That seemed to last for a 12- to 15-year period.

Senator KETTER: Thank you.

CHAIR: Any further questions? I would like to thank you very much for appearing before the committee today, and for giving evidence. The secretariat will be in contact, if the committee has any further questions.

Mr Riley : Thank you very much.

CHAIR: Thank you.