COLEMAN, Mr Russell, Senior Director, Professional Services Branch, Australian National Audit Office

IOANNOU, Dr Tom, Group Executive Director, Performance Audit Services Group, Australian National Audit Office

McPHEE, Mr Ian, Auditor-General, Australian National Audit Office

McMILLAN, Professor John, Australian Information Commissioner, Office of the Australian Information Commissioner

[12:40]

CHAIR: I now welcome the Australian Information Commissioner and the Australian National Audit Office. I particularly thank the Auditor-General for, I gather, very nobly coming from some private time interstate to be here specifically for this. That is definitely acknowledged. If you have to go at any stage, just let us know—and go. But thank you for coming in.

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 parliament. The evidence given today will be recorded by Hansard and attracts parliamentary privilege. Given the number of witnesses, I would ask that everyone keep statements short and relevant. Do any of you wish to make a brief opening statement before getting into questions?

Mr McPhee : I will make a very brief statement. It is clearly important that the financial management framework applied to the Australian government public sector is sound, given that Australian government entities account for revenues and expenses of greater than $350 billion annually and hold assets and liabilities well in excess of these amounts. Our submission addresses a range of issues with the proposed legislation. Some of the new provisions are, in our view, significant improvements. There are other provisions where we consider some further improvement could be made before the proposed proclamation date of 1 July 2014 for the new legislation.

We would feel more comfortable with this legislation if the bill had been subject to a more open exposure process, given the number of entities and officials affected by it and because of the fundamental importance of the legislation, as indicated earlier. We have also had no visibility of the complementary rules which, together with the legislation, will establish the Commonwealth's financial management framework and contribute significantly to it. For these reasons, our support for the legislation is more measured than it may have been under different circumstances and with more time. I am accompanied today by my colleagues, who have considerable experience in this area. Thank you.

Prof. McMillan : I appear at the invitation of the committee principally to reflect on a similar transparency theme that I raised in a submission to the Commonwealth Financial Accountability Review following their publication of a discussion paper. My submission commended the discussion paper for the strong remarks it contained about aligning the objectives of this reform with broader open government initiatives that were underway in Australian government. The importance of drawing that link to broader open government initiatives is reinforced by the announcement this week by the Attorney-General that Australia will join the Open Government Partnership, which is a multilateral partnership of 57 nations that promotes transparency in government. One of the four eligibility criteria to join the international partnership relates to fiscal transparency, to be assessed according to criteria published by the International Budget Partnership.

My concern was that the strong references in the discussion paper to aligning financial accountability to transparency and open government principles have not been explicit in the later developments that have culminated in the bill before the committee. It may be that the link will be drawn at subsequent stages in the rules, for example. However, I draw the attention of the committee to the fact that there was no mention of the same themes in the second reading speech, the explanatory memorandum or, explicitly, in the provisions of the bill. To give one example where it would be helpful, subclause 35(2) says a corporate plan must be published by an agency in accordance with the rules, but there is no further mention of that subclause in the explanatory memorandum to foreshadow what publication requirements could be put in place. Here, there is good guidance internationally. For example, the US government modernisation act of 2010 lays down a very strong transparency framework requiring publication of searchable, machine-readable data on corporate strategic plans, performance, information and the like.

I conclude my introductory comments at this stage.

CHAIR: To capture the theme of both, it sounds like this issue of the detail and the rules not being available at this stage makes for a more measured response. If there were a level of comfort given by government at this stage that rules would be developed in line with international best practice, would that provide the cover to minimise any fears or unintended consequences? Or would you remain measured if that were the case without the exact details clause by clause?

Mr McPhee : I think the objectives of this project have been well established. A lot of people in Finance have put a lot of effort into getting to the end position. While your comments and that guidance would be helpful, we have some comments also about some of the proposed legislative provisions which, with time, can be resolved and, I think, would get a better result. It becomes a question of the priorities and what can reasonably be achieved at this time. Finance has consulted with us as an individual agency, and we very much appreciated that, but there are many other agencies out there. Some of these provisions will be of interest and will take some consideration by many other agencies who, at this stage, have not been consulted with respect to the bill and the proposed rules.

It is a difficult situation where the trade-off is as the legislation moves through the parliament—and Finance has said previously that it would be willing to entertain changes or considerations, and I accept their position on that. There is a tension, and at the end of the day it is an issue for the committee as well as to the level of support it can provide and how far down it can go with that.

Prof. McMillan : I, too, believe there is some scope for more explicit mention of these themes in the bill. For example, clause 15, which states the general duties of an accountable authority, could include a reference to transparency of government expenditure and performance. However, I do not press that point strongly. My immediate concern would be addressed if, for example, the introductory portion of the explanatory memorandum noted that Australia's framework for financial accountability should be linked to the 2010 declaration of open government to Australia's proposed membership of the Open Government Partnership, and perhaps even to documents like Principles on open public sector information, published by my office. That then moves to another debate on precisely what should be said in the rules, but at least it would fill what I see to be a gap where it is difficult for agencies such as my own to know whether their concerns connect with the reform going forward.

Senator MARK BISHOP: My question is to Mr McPhee and Professor McMillan. This is really an enormous bill. There are 520 paragraphs in the EM. I only received it on about Tuesday or Wednesday. I had the opportunity to read it on the plane last night coming over. I received a very useful background briefing from officials in the Department of Finance and Deregulation this morning and I passed on my thanks for that. They addressed seven or eight key concepts in the bill. Only one of those has been mentioned in passing this morning because of lack of time. You made a reference to the breadth of the coverage of the bill and the number of personnel, something like 200 agencies, and the hundreds of billions of dollars of outlays. But from the briefing I understand this bill goes to the improved performance of agencies, it imports some major concepts going to risk and it goes to cultural change and behavioural performance of employees—none of which have been discussed in detail because our time for examination of the department has passed. We now have the War Memorial and a few others to give us some advice. I heard your comments, Mr McPhee, having engaged with you for the best part of 10 or 15 years through a range of other committees, as very, very restrained, measured and moderate. In that context, do you say to us as a committee that we should be recommending to the government that the bill before the chair be passed in its current form, Mr McPhee?

Mr McPhee : Thanks, Senator, for putting me on the spot!

Senator MARK BISHOP: I would have liked to have had the time to ask the department of finance, but our time has expired.

Mr McPhee : Let me say two things. Firstly, in terms of the committee's role, this committee over many decades has been a source of advice and authority to the parliament on the public accounts. It is in your title. As a young public servant I read your reports into aspects of the financial management framework with great interest. They were reference material for aspects like the trust fund, the use of the advance to the minister for finance and important aspects of public administration. This legislation deals not only with that material but with much, much broader material. It deals with the whole Australian government public sector. I normally appear before this committee and give you a fairly high level of assurance with respect to the work of my office. I am saying today to you, as you have pointed out, that it is not that same high level of assurance. I am giving you what an auditor would call 'limited assurance'.

There are honourable objectives and some good improvements here. We are bringing one perspective in less than a week, having seen the legislation introduced into the parliament and the committee's cut-off date. There are a range of other important stakeholders—directors, CEOs et cetera—who may not have had the opportunity to see this. There are some areas where they will have questions and issues around the legislation. So I am saying to you that if the committee were to support the passage of the legislation I believe it would have to be on the basis that potentially there would need to be amendments to it within the next 12 months before it comes into effect. As you say, you would have to take on some sort of role in oversight of the rules as well to get comfort around that. It is a most unusual situation dealing with the financial management framework where historically the changes have been put out there so that agencies have had the opportunity to contribute broadly to Finance. It is a truncated period. I am saying to proceed by all means; that is your decision. Clearly it is the government's policy decision to introduce this legislation with its objectives and with its timing. I am also saying that, if circumstances were different, I would prefer to have more time and to allow the committee to have more time to consider this legislation in a little more detail before it put its weight behind it.

CHAIR: Professor McMillan?

Prof. McMillan : My comments are reasonably narrow, so I have no general comment to make.

Senator MARK BISHOP: Can I ask one further question?

CHAIR: Yes.

Senator MARK BISHOP: Mr McPhee, you and I have had a lot of discussions over the last 10 or 15 years on issues relating to risk, vice, scope and time within one portfolio area, and your own organisation has now done dozens and dozens of reports which are valuable resources to Finance and to government to reform that area. One of the core features of this bill, as I was briefed, addresses risk and making all officers responsible, sending it down the line and up the path, and there are consequences for not adhering to risk in employment practices and employment law. In your examination of the provisions and the objections relating to risk in the bill as applied to both senior and junior public servants across the board are they satisfactory, and are they going to achieve purposes, as I have outlined them to you, which, I understand, to be the purpose of the government?

Mr McPhee : The references to risk are a positive contribution of the legislation. I think there is a separate issue around the duties of officials, which the bill introduces across the board, and I would have regard to what the Public Service Commissioner would have to say about the additional duties that are being imposed on Commonwealth officials; that is a separate issue. Let me be positive about the recognition of risk management. The issue is: will that in itself introduce cultural change. The short answer is: by itself it will not, but it provides a platform for both Finance and, importantly, chief executives, who are responsible for the agencies, to promote even more strongly the importance of risk management in terms of public administration.

Senator MARK BISHOP: So, in net is it a useful provision?

Mr McPhee : In net it is a useful provision. I am just taking a little bit of insurance out on the articulation of the duties on officials. Others will be better placed to comment on that.

Senator SMITH: Mr McPhee, thank you very much for your evidence. I am wondering if you could share with us, given your extensive experience, some of the limitations in the existing approach of having two pieces of legislation? Is this change to having one piece of legislation incorporating elements of both, from a policy perspective, the right way to proceed?

Mr McPhee : It is a very good question, Senator. I need to declare that I did have something to do with the establishment of the earlier two pieces of legislation. Clearly when you have two pieces of legislation you are able to tighten the lens a little more on the nature of the particular organisations. That is the strong positive.

Senator SMITH: Exactly.

Mr McPhee : The downside is that there are some umbrella issues, which are common to all Australian government public sector organisations, and this legislation seeks to deal with that. Let me give you one example of one of the issues when you try to take an umbrella approach to the legislation. At the moment under the CAC Act we have directors of statutory authorities or members of boards of companies. Under the new legislation, if I read it correctly, these directors will be called officials. So, we have many Australians of high standing on boards of Australian government entities who will go from being a director to an official. That is a consequence of the structure of this legislation which is seeking to apply generic provisions in many cases to the way Australian government entities work.

So there are some strong positives because of the umbrella approach that is being taken. But as with every organisational structure, in any organisation and in any set of legislation, while there will be positives, there can be negatives as well. The issue is: how do you compensate for some of the negatives to get the better outcome that the objective of the new legislation is seeking to achieve? We should not be surprised by that, but there is give and take in terms of trying to get this more cohesive model. And Finance does say 'as much as practicable', or words to that effect, because we are bringing together entities, who have their own boards et cetera, with officials in departments and applying the same framework.

I have not quite answered your question, Senator. But we accept that it is a government policy to move to this new world, and our comments are intended to seek the best outcome in that context. But if you press me I would say an alternative approach would have been to look at the individual legislation we have, which has become ragged over time—after 15 years of amendments. An alternative approach would have been to look at that to see whether some of these umbrella requirements could have been applied to both pieces of legislation to get the benefits of the new world, but—

Senator SMITH: And amending those two pieces of legislation that we already have, or incorporating into that framework those umbrella concepts, means that you might actually retain the focus and be able to respond more effectively to the individual natures or complexities of certain agencies. Have the risks of this new approach been properly considered or given attention through the consultation process so far, do you think?

Mr McPhee : That is essentially my point. By consulting broadly and openly, you flush out the issues, you understand where the risks are and you can deal with them. My concern with the more limited consultation process with respect to the draft legislation—not the earlier work that Finance has done—is that there are conceivably issues there that have not been highlighted and which desirably would be dealt with had we had more time.

Senator SMITH: Can we point to any empirical evidence, perhaps internationally, that demonstrates that this new approach will deliver better outcomes?

Mr McPhee : I am not aware of any particular evidence but I do accept that the current CAC and FMA legislation need to be modernised. There are some good concepts in here about performance measurement, referencing the risk and, certainly, upgrading the arrangements in respect of financial reporting. These are all strong positives and we need to acknowledge that. And the objective is a worthy one. It is just that, as you say, the fundamental question is: is this the best approach? Have we allowed sufficient time to de-risk the legislation sufficiently and to bring on board all of the key stakeholders within the Commonwealth family?

Senator SMITH: If there was a delay, if the parliament chose to consider this after October this year, are there any significant negative implications for the bureaucracy and for financial management across the Public Service?

Mr McPhee : As Finance has indicated, the expectations under the current framework would obviously be delayed. Equally, I think I am right in saying the explanatory memorandum says the current system is not broken but gets a bit creaky from time to time. And I think that is probably a fair comment as well. Our various submissions to Finance and our submission to the committee basically say the existing framework has served us fairly well. There are no glaring issues that I am aware of at the moment that absolutely need to be dealt with in the next few months, rather than in the next 12 months, but I will remind you of the Finance comment that the benefits of this new approach though would be delayed.

Senator RUSTON: I have one question following pretty much on the theme of Senator Smith's questions. In your opinion are there any frameworks that currently exist in any other jurisdictions that you would point to to say are best practice in your opinion?

Mr McPhee : I do not have that information. It is interesting that even this current framework is splitting out Commonwealth companies from the rest of the Commonwealth entities, for good reason, so in a sense it is not a global piece of legislation dealing with the accountability of Australian government entities; it is splitting out the entities that are companies separately for good reason. The short answer though is I am not aware of any global legislation but I am sure Finance would be better placed to respond to that question than I am.

Senator RUSTON: Sure. I suppose, to nut it out, the fact that we do not have enough information and the fact that we do not have any evidence based information and the fact that we have not actually modelled it on anything else make it extremely difficult to assess in a very short timeframe and we only got the documents in the last few weeks. So I suppose your comments on the lack of time to consider something so important would probably be the take-home message from today for us.

CHAIR: Before we wrap it up, Senator Bishop, you have a quick question?

Senator MARK BISHOP: Yes. Mr McPhee, taking that discussion that you were having with Senator Smith on the alignment of responsibilities of directors of companies and officials of departments, in terms of performance and the other purposes behind the bill, is it appropriate to align directors of GBEs and companies that compete in the market sector with those of the heads of agencies and heads of major departments?

Mr McPhee : Firstly, I was talking about the directors of statutory authorities. The companies are treated separately under the Corporations Act. So this proposal leaves them alone.

Senator MARK BISHOP: So in that context.

Mr McPhee : In that context I think it is a worthy objective to see whether it can be achieved and I think Finance has not done a bad job in terms of seeking to articulate the common objectives of CEOs of both departments and agencies and also the statutory bodies. As I say, to get there Finance has had to bring some duties which previously used to be in the CAC Act essentially across to also apply, as I understand it, to the FMA agencies as well. So there has been some give and take across the two previous sectors whereas in the past they have been kept quite distinct. So it is one of those judgements and it could be made to work. My only point is I would like the CEOs and the directors and others to have an opportunity to buy into that debate a bit more strongly to get confidence that it will work for them.

CHAIR: Just before we close this session and have a five-minute break I thought we would have a bit of a right of reply, on the full round of those questions and some of the statements made, from Finance.

Dr Helgeby : Thank you, Chair. I do not propose to respond to all of those and they represent the views of the Auditor-General and Professor McMillan. Can I make a couple of brief comments?

CHAIR: Sure.

Dr Helgeby : I will look at Professor McMillan's comment in relation to open government. We will take that out of today. We will look at that.

In relation to the Auditor-General's comments, can I draw the committee's attention to attachment E of our submission, which lists those bodies who were consulted about the bill specifically. The commentary really has been around exposure of the bill, as opposed to consultation on the broader issues. There are 56 entities, I think, listed in attachment E as having been consulted around the bill specifically. I just refer that to the committee.

Secondly, in relation to directors—and Mr McPhee clarified his comments there—enabling legislation takes precedence here. If someone is a director under their enabling legislation, they are a director. We use the concept of 'official' simply to bring together, if you like, the duties and responsibilities, so there is no risk of someone who thinks and is thought of as a director in those environments no longer being thought of as such.

Thirdly, I fully agree with the Auditor-General's comments about risk. Legislation can never do all the work that is needed around risk. It goes to culture and it goes to practice. We should not expect that legislation can cover all of those issues.

The last point is in relation to whether you can progress the ideas that are here by essentially making parallel changes to the two pieces of legislation. That is something we have canvassed and thought about over a period of time. We contemplated it and thought that, to start with, it is only a partial approach to dealing with the issues, and it does not get around the question and the concern we see so often, which is that people see the CAC Act as a regime, not just as a piece of legislation. They see the FMA Act as a regime, not just as a piece of legislation. Many of the issues we deal with, the boundary disputes and the concerns about whether an entity is this or that, actually go to this issue of the regime rather than to what the provisions are in the particular piece of legislation.

CHAIR: Okay, I think we can wrap it up there. Thank you for attending today and assisting the committee with its inquiry. I do not think there were any questions on notice from anyone. If any do come in, if you can get them back by close of business on Tuesday next week, with the short time frame we have, that would be greatly appreciated. Thank you all for coming in.

Proceedings suspended from 13:12 to 13:28