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Joint Committee of Public Accounts and Audit
Auditor-General’s report No. 17 (2012-13)
- Parl No.
- Committee Name
Joint Committee of Public Accounts and Audit
CHAIR (Mr Oakeshott)
Briggs, Jamie, MP
Brodtmann, Gai, MP
- System Id
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Content WindowJoint Committee of Public Accounts and Audit - 19/06/2013 - Auditor-General’s report No. 17 (2012-13)
BANERJEE, Dr Subho, Deputy Secretary, Department of Resources, Energy and Tourism
BOYD, Mr Brian, Group Executive Director, Performance Audit Services Group, Australian National Audit Office
DIVALL, Mr Greg, First Assistant Secretary, Department of Resources, Energy and Tourism
MCPHEE, Mr Ian, Auditor-General, Australian National Audit Office
RICHARDS, Professor Gary, Assistant Secretary, Department of Resources, Energy and Tourism
SHIEL, Mr Michael, Senior Director, Performance Audit Services Group, Australian National Audit Office
Committee met at 11:55
CHAIR ( Mr Oakeshott ): Welcome. I declare open today's public hearing, which will examine the Auditor-General's report No. 17 on the Energy Efficiency Grants Program. I welcome representatives from the ANAO and the Department of Resources, Energy and Tourism. 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 contempt of parliament. The evidence given today will be recorded by Hansard and attracts parliamentary privilege. Does anyone wish to make an opening statement before we proceed to questions?
Mr McPhee : I have an opening statement but in the interests of time I am happy to table it. It essentially just summarises the audit report.
Dr Banerjee : Similarly, I am happy to table my opening statement. It really just makes the point that the department does welcome the opportunity to further improve its practice on the basis of the audit report. We have agreed with all the recommendations and we are seeking to implement them.
CHAIR: We will go straight to questions. Mr Briggs.
Mr BRIGGS: Can you give us a brief outline of how the procedures operated and how it played out from your perspective? We have had a private meeting about this previously and there was some concern about how these events played out. I am interested in your perspective on that.
Dr Banerjee : Specifically the assessment process?
Mr BRIGGS: Yes.
Prof. Richards : The department assembled an independent panel of three members to assist with the merit assessment process, which followed our gateway eligibility process for the individual applications. The members, as is normal, took applications for pre-reading and then came to a convened meeting with the departmental secretariat to deliberate, merit list and rank the applications. The department provided the secretariat and there was guidance from a probity adviser external to the department.
Mr BRIGGS: So the contention was that applications went missing?
Mr Divall : No applications went missing.
Mr BRIGGS: The assessment of them?
Mr Divall : I think there was an issue raised within the audit of material which was not retained. The material in question was effectively individual program advisory committee comment sheets that were completed during individual reading of the applications. I think that is the material you are referring to.
Mr BRIGGS: That is where the audit found there were deficiencies?
Mr Divall : Yes. I think record-keeping is another area that the audit focused in on. That has been recognised very clearly by the department as an area that needs to be improved, and it has been improved in the subsequent round.
Mr BRIGGS: How many further rounds have you had?
Mr Divall : One.
Mr BRIGGS: That has been finalised?
Mr Divall : Yes.
Mr BRIGGS: How many applications were successful in the second round?
Mr Divall : In the second round there were 18 successful applications.
Mr BRIGGS: And that was about the same as the first round?
Mr Divall : In the first round there were 28 applications.
Mr BRIGGS: Had many of those 18 applications been submitted in the first round?
Prof. Richards : There was certainly a lot of applications that came through. I would have to take on notice the number of applications. Some of the same organisations came back with different applications. Some were the same applications but with modifications.
Mr Divall : There were 175 applications in the second round.
Mr BRIGGS: And how many in the first round?
Mr Divall : 270. Again, the audit has identified as an issue the number of applications coming in.
Mr BRIGGS: In total the grants are $40 million. How much are you allocating per round?
Mr Divall : The total program is $40 million. In the first round we issued $20 million and in the second round it was around $14 million. The difference is the administration of the actual program itself.
Mr BRIGGS: How much is the administration component—$6 million?
Mr Divall : It is around that.
Mr BRIGGS: That is a pretty high number.
Mr Divall : It is a program that runs for three or four years. There are some start-up costs in terms of assessing that program. I think there were some comments made by the auditors in terms of benchmarking that. But it is not just a one-off. We have got to start this and we are actually managing this through. So we will manage that series of projects over the life of the projects.
Mr BRIGGS: Mr McPhee, are you satisfied that $6 million out of a $40 million program is appropriate for a program of this size and scope?
Mr McPhee : I think these are matters that are reflected in government decisions, at the end of the day, based on submissions from agencies. It is not something we generally have a view about.
Mr BRIGGS: Is it consistent with what the percentage would normally be? It strikes me as a fairly substantial amount.
Mr McPhee : I think we did make the point that the department was well resourced for the administration of this program. At the end of the day, these estimates are subject to review by the central agencies and government. I do not think the department was making the point that they were short of resources when it came to the issues that affected this program.
Mr BRIGGS: So the $6 million is partly to monitor the ongoing performance of the grants. What sorts of outcomes are you looking to achieve, what sorts of KPIs is this money trying to achieve?
Prof. Richards : We have two elements to the ongoing monitoring. The first is the contract monitoring of departmental staff, and most of the contracts have multiple milestones over several years. We also have an independent evaluation which looks at the influence of the program—if you like, the efficacy of the information generated—and whether that has influenced behaviour in the recipient businesses.
Mr BRIGGS: Is the money paid to the successful applicants over time? Presumably, they have had various amounts. From memory, the amounts they were given vary substantially.
Prof. Richards : The amounts vary—from small localised or sector specific programs to some larger national programs. The milestones that we use for monitoring are proportional to the scale and complexity of the contract. So the larger contracts may have more milestones in them—
Mr BRIGGS: Would they receive additional money at that point in time?
Prof. Richards : Effectively, a progress payment towards the achievement overall.
Mr BRIGGS: Of the original 28 that were awarded, how many are actually getting the money?
Prof. Richards : All of those contracted.
Mr BRIGGS: And is that the same with the second round?
Prof. Richards : No, the second round is in progress. We have made some letters of offer, but it is early stages post the assessment for that program.
Mr BRIGGS: How soon would you expect those grants be finalised or contracted?
Prof. Richards : We would look to within the next few weeks for that contracting. There is active negotiation with the recipients.
Mr BRIGGS: So the vast majority of the $40 million has been spent?
Prof. Richards : Committed.
Mr BRIGGS: And is the program continuing?
Mr Divall : It is just the $40 million for the one program. So the program will continue in terms of the life of the projects that are being—
Mr BRIGGS: Sure, I understand that. So this is just a one-off $40 million grant?
Mr Divall : That is the amount in the program.
Mr BRIGGS: Okay. In the first application round, there were deficiencies that the Auditor-General picked up in relation to record-keeping and information that was subsequently lost. How did that come about? As I said before, it seemed there was quite a high amount allocated to administration of the program, so it seems surprising that there were deficiencies in record-keeping and information in effect going missing. Could you take us through how that occurred.
Prof. Richards : One specific element was the resourcing of the secretariat function of the merit assessment and the support of the merit assessment committee. The department, in its response to the recommendations, clearly pointed to that as an area to be addressed, and our experience of allowing more time and more resources in that particular process in round 2 certainly led to a better product in terms of the records taken.
Mr BRIGGS: Right. What was the role of the minister's office in relation to the program? Was there contact with the minister's office about applications, about the guidelines—what was their input?
Prof. Richards : There was contact with the minister's office around the guidelines and, obviously, the ministerial approval of the guidelines. From the point of the opening of applications through to the making of recommendations, the minister's office was not involved.
Mr BRIGGS: At all? None of the advisers had any email contact with—
Prof. Richards : No.
Mr Divall : So the recommendations were provided to the office, and the office then made the decision in relation to the successful grants.
Mr BRIGGS: And they accepted all of the department's recommendations? There were no changes to what was recommended?
Mr Divall : That is correct. They did accept the recommendations—
Mr BRIGGS: Was that the same in the second round?
Mr Divall : Correct.
Mr BRIGGS: Thanks.
ACTING CHAIR: Thank you very much for the presentation. You just mentioned you have gone through the round 2 process. Picking up on the recommendations that were made in the audit report, can you walk me through how you have addressed each of those recommendations in the second round? You agreed to them; now, how have you actually implemented them?
Mr Divall : The key actions that have been taken—
ACTING CHAIR: If we can start with recommendation No. 1, point (a), about governance arrangements.
Mr Divall : Sure. The standard operating procedures and the probity briefing to clarify the relationship with the program advisory committee and to align with the Commonwealth financial frameworks have been put in place, so there is now clarity in terms of the role of the program advisory committee. We note that the Commonwealth Grants guidelines have been updated to provide greater clarity in that space, and the department welcome those updates.
ACTING CHAIR: How have the panel and committee members been informed? Because the key word here is 'informed'.
Mr Divall : They were informed through a probity briefing in the first part of the meeting. They were informed at that stage. So they were informed at the stage when they needed to act differently or be advised of the broader role. We have also ensured, as Professor Richard has indicated, additional resources provided to the secretariat. We have made sure that the merit assessment process includes assessment and commentary in relation to each evaluation criterion and ensured that flows all the way through the documentation, so the documentation is very thorough. A probity adviser now sits on all the governance committees, so the program advisory committee, and is there full-time and has been there full-time in the second round
Ms BRODTMANN: It is seamless?
Mr Divall : Yes, all the way through. Recommendation 2, we have updated our standard operating procedures to ensure accurate and adequate record-keeping of completeness and eligibility checks. In terms of recommendation 3, we have ensured that the guidelines provide clarity in relation to the processes around eligibility and merit assessment. We have implemented strategies to ensure that the volume of applications coming in could be catered for in the process we have put in place. We have received slightly fewer applications in the second round, but we had set up the processes and the arrangements so that we could handle that volume coming through. Recommendation 4—
Ms BRODTMANN: Again, it is on documentation. You have introduced rigorous and robust documentation that outlines clearly the thinking behind the decision-making.
Mr Divall : That is correct.
Ms BRODTMANN: The issue in the first round was the fact that you have minuted that and you have documented it well and you have also stored it safely.
Mr Divall : Correct.
Ms BRODTMANN: How are you storing it?
Mr Divall : It is stored on a paper file and also electronically.
CHAIR: I have three quick questions to wrap it up, and I appreciate this was always going to be a short public hearing. Basically I want to get on the record agreement that the destruction of the scoring sheets was: 'An unauthorised destruction of records and a breach of the Archives Act.' Is there agreement from the department that that is true?
Dr Banerjee : No. Our view is that it turns, as you would know, on what constitutes a record under the Archives Act. The matter of dispute or interpretation, if you like, is whether or not the working notes by individual panel members were a record under the Archives Act. The advice that we had at the time from the probity adviser and from our subsequent reading of what is known as normal administrative practice under the Archives Act is that they were working notes. They were working notes of committee members acting as individuals not of the committee as a whole. In that sense, we still do not think that they were records under the definition in the Archives Act.
CHAIR: So it was not accidental, but it was intentional?
Dr Banerjee : Yes, that is correct.
CHAIR: At what level of authority were the decisions made that the intentional decision, on the advice given, was within the bounds of the Archives Act?
Dr Banerjee : The senior executive officer who was responsible for the process made that decision. As I said, it was on the basis of advice received from the probity adviser and our general working understanding of what normal administrative practice would be under the Archives Act. Normal administrative practice talks about working notes, talks about working graphs, talks about things that are not final in that sense or not for decisions of the committee as a whole. On that basis, the interpretation was taken that these were working notes and destruction was authorised.
CHAIR: No sanctions or even conversations about future practice have taken place internally based on decisions over the destruction of the documents, because it is the department's view it was all done appropriately?
Dr Banerjee : I think that is fair. The department has absolutely accepted that the record-keeping was not up to scratch in the process. We have focused on improving the record-keeping for the committee as a whole. Mr Divall has explained a few of those things that have been put in place the second round. We absolutely accept unreservedly that that record-keeping was not up to scratch and we needed to do something about that.
We would continue to take the view that what constitutes a record under the auspices of the Archives Act is a matter of interpretation. Given the broader atmospherics of the process as it has played out, I think it is reasonable to say that, because the overall record keeping was not up to scratch, this has been caught up in all of that. But the decision that was taken to destroy those records was consistent with decisions that are taken all the time around working notes.
CHAIR: So would it be fair to say that, whilst you agree and will adopt all the recommendations from the ANAO report, you do not agree with all the statements made in the ANAO report?
Dr Banerjee : That is correct.
CHAIR: A fair right of reply from ANAO on that point in particular?
Mr Boyd : Chair, we cannot see these records now, so all we can look at—
CHAIR: A good point.
Mr Boyd : I suggest that the committee turn to page 100 of the audit report. We look at quite a few grant programs. If you look at the template there, you will see that it is quite a normal standard sort of template you see for recording assessment scores. In terms of them being working notes, we do not know and we cannot see what was actually recorded on these. But if you look at that template there—and that is actually required by the contract and the contract describes this template as an official record, as contract material—you will see that under the contract the panel members were required to complete these and hand them to the department.
I would suggest you look at that template. If it were only filled in as working notes, we would be asking the question: why was it only filled in in that way, given the contract actually required these things to be completed and returned to the department? It is only by completing a template of this nature that you can see not only what score was allocated—which is on the first page of the template, page 100—but the rationale for that. When it comes to grant assessment processes it should be not simply about recording what score is given to each application by the panel members but about the reasoning behind that score so that there can be some accountability and transparency around the basis on which panels provide recommendations to departments and departments provide recommendations to ministers so that we, auditors, parliament and other stakeholders can be confident that the most meritorious applications were identified and assessed on a basis consistent with the program guidelines.
In this case, through these templates, however they were completed, as rough working notes or correctly as per the contract, they were destroyed with the only other records existing being the records of the panel meetings which were very short—a page or a couple of pages at the most to record what were many hours of the meetings, combined with the only other record being a spreadsheet prepared by one panel member off his own bat, which the department told us was not an official record. That spreadsheet itself is not complete and actually, in some respects, it raises more questions than answers. To us, bringing those three things together, the destruction of whatever was recorded on these templates is quite a significant matter.
CHAIR: In the light of the clarity of the defence of your work in the report and in the light of what you have just heard that the department culturally does not see what you have raised as any sort of problem worthy of conversations or sanctions, do you want to take the chance to reflect on where this now seems to have ended up, which is no change whatsoever?
Mr Boyd : We would certainly suggest that if we were auditing the second round and the department did not require something similar to these templates to be completed in some fashion so that there is a record of what each application was scored against each criteria and the reasoning for that, we would be equally critical of the second round as we were of the first round. Ultimately, as we say in the audit report, the department cannot demonstrate to our satisfaction and we cannot independently see and provide any assurance to you that the most meritorious eligible applications were the ones identified and recommended for funding.
CHAIR: Even if the documents do or do not, by interpretation, fit into the Archives Act you would be requesting that the documents are kept?
Mr Boyd : Correct.
CHAIR: Is that accepted?
Dr Banerjee : Yes, it is. As Mr Boyd put it at the end: did the record keeping adequately back up the decisions that were made by the committee as a whole? I think we have accepted that it did not. Chair, when you were asking whether or not there has been change in practice in the department, absolutely there has been because that was accepted as not acceptable and the secretary made his views on that very, very clear to the senior officials involved.
We would certainly say that there has been a change in practice and we would also happily accept the test that Mr Boyd has just set, which is: does the record keeping fully justify the decisions made by the committee? I think that is an absolutely reasonable test to set. The distinction that we were then going into was whether or not records should be kept as a committee as a whole deliberation or whether you keep the deliberations of individual committee members. I would have thought that that is a matter of interpretation. There have been many processes that I have been involved in where formal processes maintain records for the committee as a whole. Individual committee members, for example, on selection committees take informal notes that are at their own property and own business. To cut it short, we would absolutely accept the test that Mr Boyd has set. I think that is the proper test and we have certainly been looking to change our practices.
CHAIR: We are five minutes over schedule. Auditor-General, for three years we have talked about this topic of grant application processes, from the broader view across all agencies and the lessons learnt. I throw you the opportunity to conclude on this topic of the processes around grant applications and to reflect on any of those broader lessons to learn.
Mr McPhee : As you know, what drives our audit coverage is to ensure that applicants, in this case small and medium sized business enterprises and community organisations, are treated equitably under the processes employed to assess the merit list for grants. That drives our coverage. It requires discipline approaches to make sure people are treated equitably and sound practices. The pleasing thing about this audit is that the department has not argued the toss at all on this matter and the matters of substance here.
The department did aspects of this program very well. But in the assessment area in particular there were some problems. The thing that continues to concern me is why we in the Australian government public sector do not learn the lessons of the prior experience as quickly as I would like.
I am sure the Department of Resources, Energy and Tourism have gained from this and, through the finance work on the guidelines themselves, our Better Practice Guide and our reports, we will continue to emphasise the importance of sound practices in this area. Arguably, there is some discretion in this space and we need to ensure that discipline practices are achieving the government's objectives and the parliament's objectives for the significant amounts of taxpayers' funds.
CHAIR: Thank you all for attending today and for assisting the committee with its inquiry. I was out of the room for a few minutes; were there any questions on notice taken? One. If we could have that back by mid-afternoon on Friday, because we are going to try to report to the parliament next week. That would assist the secretariat greatly. I am conscious that is a short time frame. If any members have additional questions, if you could also turn them around via the secretariat as soon as possible. On behalf of the committee, I would like to thank all of the witnesses who have given evidence to the public hearing today.
Resolved (on motion by Mr Adams):
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 12:23