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Thursday, 22 September 1983
Page: 1221


Mr SPENDER(9.26) —This evening I wish to say something on the subject of accountability, efficiency and the future in relation to defence support and at the same time to say something about defence. On the subject of accountability, a newly formed department-the Department of Defence Support-came into existence in 1982 as a result of the report of the Defence Review Committee . That Department should be more susceptible to stringent control by the Minister for Defence Support (Mr Howe). The Minister will be aware that some very severe criticisms have been made by the Auditor-General of what has happened in the Department. I shall put some of those criticisms on the record. When we next come to consider the Estimates, if the Minister is still the Minister for Defence Support, I will want to note why these criticisms have not been met, if in fact he has not met them.

On page 61 of the Auditor-General's report one sees under the heading ' Munitions and Ordinance Factories' a number of criticisms. I will just touch on a few: Work in progress was not subject to verification or valuation. Standard accounting practices were not adopted in relation to depreciation; there was an absence of factory stockstaking of holding stocks; buildings were not properly verified; and expenditures were not brought properly to account. Under the heading 'Aircraft and Guided Weapons Establishments'-one can only just touch upon a few matters-one sees that once again depreciation was not taken into account in what seemed to the Auditor-General to be a satisfactory manner. The basis of insurance was on the original cost rather than present cost; it was not possible to verify the value of stock; and it was not possible to verify the existence and value of work in progress. Other criticisms also were made by the Auditor-General.

On the subject of the format and publication of financial statements within the Department, the Auditor-General made a number of very clear criticisms. He referred to the attitude of indifference on the part of factory management. In particular, he said:

The requirement for annual financial statements and the resultant section 41D determination originates from the 34th Report of the Joint Committee of Public Accounts which recommended, inter alia, that: there should be an obligation upon the factory to keep a 'profit and loss account and a balance sheet', the annual profit and loss account and balance sheet should be certified by the Auditor- General, and unless policy requirements are expressly to the contrary, the factories should prepare annual reports . . .

He went on to say:

The current arrangements do not accord with these recommendations. The final accounts are not presented in the form of a profit and loss account and balance sheet; nor is a report furnished to the Parliament.

It is, of course, perfectly plain that it is essential that there be proper financial accounts so that as a general proposition there should be no doubt that in the interest of accountability and the proper and efficient use of public funds the Auditor-General's criticisms of the format and publication of financial statements should be met, as should the criticisms made by him in relation to specific areas within the Department of Defence Support on which I have touched so very briefly. All financial statements should be prepared in accordance with accounting principles generally applied in commercial practice. All statements should be published. All statements should be prepared and furnished to the Auditor-General within three months of the close of the financial year, and not 12 months. All factories should prepare annual financial reports which are to be presented to Parliament for its scrutiny. The Minister will have adequate time between now and the next occasion when he sits at the table for the purpose of hearing the debate on Estimates to ensure that these criticisms are met. I hope that he acts to make sure that they are met.

I shall say something briefly on the subject of efficiency. Efficiency within the Department of Defence Support, as elsewhere, when one is in the business of manufacturing, may broadly be measured in terms of capacity to manufacture defence equipment within time constraints, quality control and cost effectiveness. Deficiencies in all these areas are illustrated by the saga of that ship which is ironically named the HMAS Success. The Auditor-General deals with the fate of the HMAS Success at pages 15 to 25 of his report. I shall refer briefly to what he had to say at page 25 of that report. He referred to the latest estimates which he said:

. . . indicate the ship will be completed approximately three years later than previously provided for in the 1979 ship construction contract. In six years, the approved project costs have increased by $114.1 million to $187.3 million. Audit is unable to state with certainty the extent of the real cost increase.

He also said:

Audit considers that the Department did not allocate sufficient or appropriately skilled resources to a major project that it knew would be complex and where the risks were clearly recognised in respect of such fundamental issues as design, production control and quality assurance.

We all believe, I think, that there should be a shipbuilding capacity in this country, but it is nonsense that these kinds of problems should be experienced in the manufacture of what is not really a tremendously sophisticated kind of vessel. The saga of the HMAS Success is an object lesson in what should be avoided. I hope we do not hear ministerial bromides in 12 months time as to the reasons why HMAS Success is still floundering along in the dockyard.

I shall now say something briefly about the future. Defence support is purely ancillary to defence. Its purpose is to provide optimum support for the defence forces during peace and war. Our task in this Parliament is to look to the future, to gauge our long term needs and to plan to meet those needs. The kinds of long term objectives which I believe we should plan for would include these: Firstly, to increase national self-reliance and progressively to enlarge our capacity to meet our defence requirements from our own industrial, technical and scientific resources, to increase Australian research and development and to do more design, development, engineering and production in Australia; secondly, in general to give preference to Australian industry for the manufacture of defence equipment; thirdly, to plan the future use of existing defence industry resources so that there is a high degree of use of those resources, thus promoting efficiency and cost effectiveness; fourthly, to keep under continuous review our defence industry resources with the aims of filling gaps in those resources on a planned basis, increasing efficiency, eliminating unnecessary duplication of capacity, and disposing of or liquidating government-owned projects whose functions can be more cheaply and efficiently carried out by the private sector; fifthly, to promote actively the overseas marketing of Australian defence equipment to selected countries, especially those within the South-East Asian and Western Pacific regions, and by this means to foster commonality in equipment with friendly countries, to expand the market for Australian defence equipment and to establish Australia as a defence resource centre for friendly countries within our region; and sixthly, where feasible to set up projects for the joint development and manufacture of defence equipment with friendly countries in our region. Such projects could be set up when we do not have the capability to develop or to manufacture a specific item of equipment or when we could do so only at an unacceptably high cost. In such cases joint projects would enhance Australia's defence industry capacity.

These are but some of the objectives, and I hope that these are the objectives which the Minister and all honourable members share. Success in achieving these kinds of objectives requires not just foresight-a capacity to plan ahead, determination and some originality in thinking-but that the Government should have a clear set of strategic priorities and one that will best serve Australia' s defence needs over the next 20 years, for it is over that kind of time span that we must plan. Unless defence policy is right, it is quite possible that our defence industry will develop along the wrong lines and resources will be misallocated for the simple and fundamental reason that the sole function of our defence industry is to service the needs of our defence forces.