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Thursday, 30 June 1994
Page: 2469

Senator MICHAEL BAUME (3.42 p.m.) —I move:

  That the Senate take note of the documents.

I would like to address Audit report No. 43, Parliament's Right to Know, which relates to legislation which will replace the Audit Act 1901. Of course, this matter will be debated on another occasion when the actual legislation comes before the chamber. I do not want to pre-empt much of that debate but I do want to say that there are some matters of concern expressed by the Auditor-General which I think ought to be matters of concern to the Senate. They are certainly matters of concern to me. I hope that the various committees in their work which will proceed before the legislation comes forward will make some moves which I believe are necessary if we are to have the sort of audit function that the parliament and the people of Australia deserve.

  One matter that was of major concern to me emerged from an extract by the Auditor-General in the report upon the financial statements prepared by the Minister for Finance for the year ended 30 June 1984, just 10 years ago. It was written by Mr K. F. Brigden and is included in this Auditor-General's report. I would like to quote a few sentences from it. What is really depressing is that 10 years further on we are not really progressing all that far in correcting a situation which is patently unsatisfactory. Mr Brigden's statement, among other things, says:

  Audit independence and audit effectiveness can amount to much the same thing. If an auditor does not enjoy independence from the bodies subject to audit it will be only a matter of time before some measure of control by auditees becomes apparent. When that happens, the effectiveness of the audit process will inevitably suffer. In practical terms, impairment of the auditor's independence is synonymous with impairment of audit effectiveness.

  It is timely to question whether the independence of the Auditor-General and the Australian Audit Office from the executive arm of government is not more apparent than real.

That is certainly the situation now in spades. Mr Brigden then went on to say something which I think is of major significance when we have to make decisions about the role the Department of Finance, a key element of the executive government, should have in determining the resources available to the Auditor-General. That is one area where I believe the government's response to the need to improve the audit situation falls down. This is what Mr Brigden said 10 years ago today:

  Among the agencies subject to audit are the Department of Finance and the Public Service Board.

The board does not exist anymore, but let us concentrate on the Department of Finance. Mr Brigden continued:

Under existing arrangements these bodies can, and do, effectively exercise a substantial measure of control over the operations of the Audit Office through the imposition of resource restraints.

These restraints are adversely affecting the capacity and capability of the audit office to fulfil its statutory obligations. It is against that background that I refer to pages 39 to 41 of this audit report where the Auditor-General points out:

One cloud on the horizon is the thrust of continuing erosion of the AAO's audit mandate through modification of the statutory requirement that public enterprises be audited by the Auditor-General.

That is quite apart from the question of whether departments which have an effective control over the Auditor-General are then in fact audited by the Auditor-General. Quite apart from that question is the question of the public enterprises to be audited by the Auditor-General. The Auditor-General states:

That, in turn, cannot be ruled out, given a perception by several auditees that audit by a company auditor would be less rigorous than audit by the Auditor-General.

It may well be that there could be some enthusiastic pressure to get rid of the Auditor-General as an auditor for these government agencies. In my view, the new arrangements—which, as I recall, require both houses of parliament to support the proposition—that government business enterprises should be audited only by the Auditor-General if both houses of parliament decide it, is an unwise suggestion. This brings me back to the key point made by Mr Brigden. The Auditor-General states:

Of even more concern is the lack of assurance that the AAO will be adequately resourced. This concern relates both to the overall level of resources, and to the problem of retention of experienced professionals in a salary structure grossly out of tune with the market.

The salary problem—

as the Senate will recognise—

relates particularly to senior executive and senior professional levels.

I think it is worth pointing out that the maximum salary of a director of audit is $43,000 a year, compared with salaries ranging up to and beyond $60,000 a year for audit managers doing similar jobs in large firms in the private sector. In other words, there is a definite need for the Auditor-General to have a level of flexibility in order to maintain a qualified and competent work force capable of examining matters in a way that the parliament would need.

  The Auditor-General makes the point that when the audit office sought to increase its capacity through technological upgrading, in order to carry out effective audits, the Department of Finance took a particularly negative view of the whole proposal, saying basically that if any technological improvements came in they should be offset by staff production. So there was to be no improvement, no expansion in the capacity of the Auditor-General to do his job in the face of restraints and constraints that have been proceeding over the last 10 years, particularly at the hands, it seems to me, of the Department of Finance. The Auditor-General said:

. . . there seemed little comprehension of the significance of the principle of the independence of the Auditor-General from the executive arm of government.

That relates not just to the Department of Finance but overall. As the Auditor-General points out:

For some three months during the lead-up to the Budget . . . officers of the Department of Finance persistently sought to have the AAO transform its information technology proposals into a cost-saving exercise such that staff cuts be made to an extent offsetting the recurrent costs of the acquisition. This was said to be in pursuit of a new policy, application of which to all computer acquisitions was mandatory, so that no exception could be allowed.

That was obviously an absurd situation which was corrected. The problem is, as the Auditor-General says, that the whole situation seems to be a usurpation of the Auditor-General's statutory responsibility to determine the manner in which the audit function is exercised. That Department of Finance advice, the Auditor-General said:

. . . taken with the tenor of the budgetary proceedings, amounts to an attempt . . . to impose resource restrictions `which would constrain the (AAO's) exercise of its mandate' and which hence `would be an appropriate matter for report by the AAO to the legislature'. In conformity with those Standards . . . I address this issue in this Report.

These are basic matters of serious principle, in my view. As the Auditor-General says in the summary of his report:

Accountability to the elected representatives is the cornerstone of democracy and the Westminster system of government. The currency of accountability is information. The Parliament has long relied on the reports of Auditors-General as a source of apolitical, independent and objective advice. If an Auditor-General's capacity is limited by resource or other constraints, the Parliament is deprived of information on the performance of the public sector.

In March 1989—

that is more than five years ago—

. . . the Joint Committee of Public Accounts . . . in its Report 296 concluded that there were substantial weaknesses in the capacity of the Auditor-General and the Australian National Audit Office . . . as then constituted, to play their part in the process of accountability to the Parliament.

I commend my fellow senators, particularly Senator John Watson, for the remarkable amount of effort they have put into this matter of endeavouring to reform the whole system of the Auditor-General and his relationship with the executive when it should be the Auditor-General and his relationship with the parliament. The Auditor-General said:

The Committee said the ANAO, at a minimum, could be described as having major problems and, at a maximum, was in a state of crisis. This resulted from a dulling of the Parliament's capacity to perceive that the ANAO had difficulties and an ambiguous relationship with the Executive which had led to Parliamentary and Government neglect.

This was all five years ago. At last the government has come back with some recommendations, some of which I support strongly, and I hope they are carried into effect. But, contrary to the committee's recommendations and contrary to the concerns expressed by the Senate more recently, the bills do not address the following key issues which the Auditor-General has pointed out, in particular the position of the Auditor-General and the audit office as against the executive. According to the Auditor-General:

. . . the Committee recommended the Auditor-General be an Officer of the Parliament and the ANAO become a statutory authority with the authority to determine the terms and conditions of employment of staff. The Auditor-General Bill establishes the ANAO as a statutory authority, but does not provide the Auditor-General with authority to determine the terms and conditions of employment of staff. The statutory authority model proposed will provide few, if any, tangible benefits to the ANAO.

Another failure is that the Auditor-General recommended that the Auditor-General should be the sole external auditor of all Commonwealth agencies. As I said earlier, while this is true of the departments, the Auditor-General Bill enables the Auditor-General to conduct performance audits in government business enterprises only if both houses of the parliament, by resolution, request the audit, or at the request of the responsible minister.

  The other question of concern is missing out on implementing the recommendation of greater parliamentary involvement in the funding activities of the audit office through the establishment of an audit committee of the parliament. The report states:

the Auditor-General Bill makes no provision for an Audit Committee. The Government has proposed the Audit Committee be established by a resolution of the Parliament. This would not give the audit committee essential stability and permanence.

The other concern is that the parliament, as the client of the audit office, should bear the cost of all audit fees, ceasing the practice of individual auditees paying fees. The report states:

the Auditor-General Bill has the effect of continuing existing arrangements whereby individual auditees, except agencies, pay fees to the ANAO for all financial statement audits. While the ANAO supports an audit fee regime, the collection of audit fees by the ANAO should not determine future ANAO funding. The Parliament should fund the public sector auditor.

I believe that very strongly. It is clearly important to have the person paying the fee being the person who wants to have a thorough, proper audit report. That person is, of course, the parliament. The Auditor-General has welcomed the government's recognition of the need for an audit committee, even if it is not in the form it wants. I conclude by quoting from the Auditor-General's report:

The risks facing the public sector (and therefore the Auditor-General) have increased enormously since Report 296—

which, as I said, was five years ago—

but the ANAO has not obtained the assistance and support necessary to ensure it remains viable and effective in that changed environment. In not matching the risks seen in 1989, the Bills fall short of the legislative basis adopted in international and Australian state reforms which were seen by the Committee—

that is five years ago—

as necessary for a viable and effective Auditor-General. Overall the proposals miss the opportunity to set the standard for public accountability and model arrangements for the operation of the ANAO which would serve the Parliament, the Government and the community well into the 21st century. Ultimately, under such circumstances, the Parliament and the community will be the losers.

The Auditor-General's report then outlines the matters that he respectfully suggests require the parliament's consideration. I do hope the parliament will give proper and due consideration to those matters. I seek leave to continue my remarks later.

  Leave granted; debate adjourned.