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Auditor-General Audit reports for 2012-13 No. 23 Performance audit The Australian Government Reconstruction Inspectorate's conduct of value for money reviews of flood reconstruction projects in Victoria: Department of Regional Australia, Local Government, Arts and Sport


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T h e A u d i t o r - G e n e r a l

Audit Report No.23 2012-13 Performance Audit

The Australian Government Reconstruction Inspectorate's Conduct of Value for Money Reviews of Flood Reconstruction Projects in Victoria

Department of Regional Australia, Local Government, Arts and Sport

A u s t r a l i a n N a t i o n a l A u d i t O f f i c e

ANAO Audit Report No. 23 2012-13 The Australian Government Reconstruction Inspectorate's Conduct of Value for Money Reviews of Flood Reconstruction Projects in Victoria

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© Commonwealth of Australia 2013

ISSN 1036-7632 ISBN 0 642 81313 2  (Print)  ISBN 0 642 81314 0 (On‐line) 

Except for the content in this document supplied by third parties, the Australian National Audit Office logo, the Commonwealth Coat of Arms, and any material protected by a trade mark, this document is licensed by the

Australian National Audit Office for use under the terms of a

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Executive Director Corporate Management Branch Australian National Audit Office 19 National Circuit BARTON ACT 2600

Or via email: webmaster@anao.gov.au

 

   

ANAO Audit Report No. 23 2012-13 The Australian Government Reconstruction Inspectorate's Conduct of Value for Money Reviews of Flood Reconstruction Projects in Victoria

2

 

© Commonwealth of Australia 2013

ISSN 1036-7632 ISBN 0 642 81313 2  (Print)  ISBN 0 642 81314 0 (On‐line) 

Except for the content in this document supplied by third parties, the Australian National Audit Office logo, the Commonwealth Coat of Arms, and any material protected by a trade mark, this document is licensed by the

Australian National Audit Office for use under the terms of a

Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 Australia licence. To view a copy of this licence, visit http://creativecommons.org/licenses/by-nc-nd/3.0/au/

You are free to copy and communicate the document in its current form for non-commercial purposes, as long as you attribute the document to the Australian National Audit Office and abide by the other licence terms. You may not alter or adapt the work in any way.

Permission to use material for which the copyright is owned by a third party must be sought from the relevant copyright owner. As far as practicable, such material will be clearly labelled.

For terms of use of the Commonwealth Coat of Arms, visit It’s an Honour at http://www.itsanhonour.gov.au/coat-arms/index.cfm.

Requests and inquiries concerning reproduction and rights should be addressed to:

Executive Director Corporate Management Branch Australian National Audit Office 19 National Circuit BARTON ACT 2600

Or via email: webmaster@anao.gov.au

 

   

ANAO Audit Report No. 23 2012-13

The Australian Government Reconstruction Inspectorate's Conduct of Value for Money Reviews of Flood Reconstruction Projects in Victoria

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Canberra ACT 26 February 2013

Dear Mr President Dear Madam Speaker

The Australian National Audit Office has undertaken an independent performance audit in the Department of Regional Australia, Local Government, Arts and Sport with the authority contained in the Auditor-General Act 1997. I present the report of this audit to the Parliament. The report is titled The Australian Government Reconstruction Inspectorate's Conduct of Value for Money Reviews of Flood Reconstruction Projects in Victoria.

Following its presentation and receipt, the report will be placed on the Australian National Audit Office’s Homepage—http://www.anao.gov.au.

Yours sincerely

Ian McPhee Auditor-General

The Honourable the President of the Senate The Honourable the Speaker of the House of Representatives Parliament House Canberra ACT  

ANAO Audit Report No. 23 2012-13 The Australian Government Reconstruction Inspectorate's Conduct of Value for Money Reviews of Flood Reconstruction Projects in Victoria

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AUDITING FOR AUSTRALIA

The Auditor-General is head of the Australian National Audit Office (ANAO). The ANAO assists the Auditor-General to carry out his duties under the Auditor-General Act 1997 to undertake performance audits, financial statement audits and assurance reviews of Commonwealth public sector bodies and to provide independent reports and advice for the Parliament, the Australian Government and the community. The aim is to improve Commonwealth public sector administration and accountability.

For further information contact: The Publications Manager Australian National Audit Office GPO Box 707 Canberra ACT 2601

Telephone: (02) 6203 7505 Fax: (02) 6203 7519

Email: webmaster@anao.gov.au

ANAO audit reports and information about the ANAO are available at our internet address:

http://www.anao.gov.au

Audit Team

David Spedding Amanda Ronald Brian Boyd

 

ANAO Audit Report No. 23 2012-13

The Australian Government Reconstruction Inspectorate's Conduct of Value for Money Reviews of Flood Reconstruction Projects in Victoria

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Contents Abbreviations .................................................................................................................. 7 

Summary and Recommendations .............................................................................. 9 

Summary ...................................................................................................................... 10 

Introduction ............................................................................................................. 10 

Audit objective, scope and criteria .......................................................................... 12 

Overall conclusion ................................................................................................... 13 

Key findings by Chapter .......................................................................................... 18 

Summary of agency responses .............................................................................. 22 

Recommendations ....................................................................................................... 23 

Audit Findings ............................................................................................................ 25 

1.  Introduction ............................................................................................................. 26 

Background ............................................................................................................. 26 

Oversight and accountability measures .................................................................. 27 

Audit objective, scope and criteria .......................................................................... 30 

Report structure ...................................................................................................... 32 

2.  Development of Operating Protocols ...................................................................... 33 

Introduction ............................................................................................................. 33 

Protocols with key agencies .................................................................................... 34 

Victorian protocol development timeframe ............................................................. 38 

Matters covered in the Victorian protocol................................................................ 40 

Conclusions ............................................................................................................. 42 

3.  Scrutiny of Recovery and Reconstruction Projects ................................................. 44 

Introduction ............................................................................................................. 44 

Approach to identifying Queensland projects for review ......................................... 46 

Scope of review activities in Victoria ....................................................................... 48 

Victorian projects identified for review .................................................................... 52 

Reconstruction projects valued at greater than $5 million ...................................... 57 

Inspectorate’s terms of reference ........................................................................... 62 

Conclusions ............................................................................................................. 65 

ANAO Audit Report No. 23 2012-13 The Australian Government Reconstruction Inspectorate's Conduct of Value for Money Reviews of Flood Reconstruction Projects in Victoria

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AUDITING FOR AUSTRALIA

The Auditor-General is head of the Australian National Audit Office (ANAO). The ANAO assists the Auditor-General to carry out his duties under the Auditor-General Act 1997 to undertake performance audits, financial statement audits and assurance reviews of Commonwealth public sector bodies and to provide independent reports and advice for the Parliament, the Australian Government and the community. The aim is to improve Commonwealth public sector administration and accountability.

For further information contact: The Publications Manager Australian National Audit Office GPO Box 707 Canberra ACT 2601

Telephone: (02) 6203 7505 Fax: (02) 6203 7519

Email: webmaster@anao.gov.au

ANAO audit reports and information about the ANAO are available at our internet address:

http://www.anao.gov.au

Audit Team

David Spedding Amanda Ronald Brian Boyd

 

ANAO Audit Report No. 23 2012-13 The Australian Government Reconstruction Inspectorate's Conduct of Value for Money Reviews of Flood Reconstruction Projects in Victoria

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Appendices ................................................................................................................. 71 

Appendix 1:  Agency Responses ............................................................................. 72 

Appendix 2:  Australian Government Reconstruction Inspectorate Terms of Reference ........................................................................................... 85 

Appendix 3:  Role of the Commonwealth National Disaster Recovery Taskforce ............................................................................................ 87 

Appendix 4:  Inspectorate Protocol for Reviewing Victorian Reconstruction Projects ............................................................................................... 89 

Appendix 5:  Inspectorate Three Tier Project Review Process ............................... 94 

Index ............................................................................................................................. 99 

Series Titles ................................................................................................................ 101 

Current Better Practice Guides .................................................................................. 104 

Tables

Table 3.1 Requirements of the Inspectorate (as per terms of reference) .......... 63 

Figures

Figure 2.1 Timeline for development of Victorian protocol .................................. 39 

 

ANAO Audit Report No. 23 2012-13 The Australian Government Reconstruction Inspectorate's Conduct of Value for Money Reviews of Flood Reconstruction Projects in Victoria

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Appendices ................................................................................................................. 71 

Appendix 1:  Agency Responses ............................................................................. 72 

Appendix 2:  Australian Government Reconstruction Inspectorate Terms of Reference ........................................................................................... 85 

Appendix 3:  Role of the Commonwealth National Disaster Recovery Taskforce ............................................................................................ 87 

Appendix 4:  Inspectorate Protocol for Reviewing Victorian Reconstruction Projects ............................................................................................... 89 

Appendix 5:  Inspectorate Three Tier Project Review Process ............................... 94 

Index ............................................................................................................................. 99 

Series Titles ................................................................................................................ 101 

Current Better Practice Guides .................................................................................. 104 

Tables

Table 3.1 Requirements of the Inspectorate (as per terms of reference) .......... 63 

Figures

Figure 2.1 Timeline for development of Victorian protocol .................................. 39 

 

ANAO Audit Report No. 23 2012-13

The Australian Government Reconstruction Inspectorate's Conduct of Value for Money Reviews of Flood Reconstruction Projects in Victoria

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Abbreviations

AGD  Attorney‐General’s Department 

AGDRC  Australian Government Disaster Recovery Committee 

ANAO   Australian National Audit Office 

COAG  Council of Australian Governments 

DIT  Department of Infrastructure and Transport 

DPI  Department of Primary Industries (Victoria) 

EMA  Emergency Management Australia 

Finance  Department of Finance and Deregulation 

Inspectorate  Australian Government Reconstruction Inspectorate 

LGA  Local Government Authority 

NDRC  National Disaster Recovery Committee of Cabinet 

NDRRA  Natural Disaster Relief and Recovery Arrangements 

NPA  National Partnership Agreement 

PM&C  Department of the Prime Minister and Cabinet 

QRA  Queensland Reconstruction Authority 

RDA  Regional Development Authority 

Regional  Australia 

Department of Regional Australia, Local Government, Arts  and Sport (from 14 December 2011 - formerly Department of  Regional  Australia,  Regional  Development  and  Local  Government) 

SDA  State Departments and Agencies 

SOCG  Senior Officials Coordination Group (Victoria) 

Taskforce  National Disaster Recovery Taskforce 

VfM  Value for Money 

ANAO Audit Report No. 23 2012-13 The Australian Government Reconstruction Inspectorate's Conduct of Value for Money Reviews of Flood Reconstruction Projects in Victoria

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ANAO Audit Report No. 23 2012-13

The Australian Government Reconstruction Inspectorate's Conduct of Value for Money Reviews of Flood Reconstruction Projects in Victoria

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Summary and Recommendations

ANAO Audit Report No. 23 2012-13

The Australian Government Reconstruction Inspectorate's Conduct of Value for Money Reviews of Flood Reconstruction Projects in Victoria

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Summary and Recommendations

ANAO Audit Report No. 23 2012-13 The Australian Government Reconstruction Inspectorate's Conduct of Value for Money Reviews of Flood Reconstruction Projects in Victoria

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Summary

Introduction 1. The  eastern  states  were  subject  to  widespread  flooding  during  the  2010-11  Australian  spring  and  summer  seasons,  and  Queensland  was  also  impacted by a number of tropical cyclones. In this context, on 27 January 2011,  the Prime Minister announced that preliminary estimates indicated that the  Australian Government would need to contribute $5.6 billion to the rebuilding  of  flood‐affected  regions,  to  be  funded  under  the  existing  Natural  Disaster  Relief and Recovery Arrangements (NDRRA). The majority of expenditure was  expected to be on rebuilding essential infrastructure. 

2. On 7 February 2011, the Prime Minister announced new oversight and  accountability measures to ensure value for money would be obtained in the  rebuilding  of  flood  affected  regions.  Features  of  the  new  governance  arrangements included an Australian Government Reconstruction Inspectorate  to  provide  assurance  concerning  value  for  money,  a  Secretaries’  Steering  Committee and the National Disaster Recovery Cabinet Sub‐Committee, the  appointment of the Minister Assisting on Queensland Floods Recovery and,  for Victoria, the Minister for Regional Australia, Regional Development and  Local Government having an oversight role in respect of recovery. In addition,  Queensland established the Queensland Reconstruction Authority (with two  Commonwealth appointments to its Board). In Victoria, the state established  the Secretaries’ Flood Recovery Group and the Senior Officials’ Coordination  Group  (with  one  Commonwealth  member  on  the  latter).  These  various  governance arrangements are in addition to the existing oversight, acquittal  and audit requirements of NDRRA, and they do not alter States’ obligations  under those arrangements. 

3. Separate National Partnership Agreements1 (NPAs) were signed with  the Queensland and Victorian state governments in February and May 2011 

1 The NPA with Queensland relates to the reconstruction of communities that were affected by the 2010-11 floods and Tropical Cyclone Yasi. The NPA with Victoria relates to the early 2011 flooding in Victoria. NDRRA continues to apply to those natural disasters covered by the NPAs, with payments to

the states authorised by Emergency Management Australia (EMA) within the Attorney-General’s Department (which administers NDRRA).

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Summary

Introduction 1. The  eastern  states  were  subject  to  widespread  flooding  during  the  2010-11  Australian  spring  and  summer  seasons,  and  Queensland  was  also  impacted by a number of tropical cyclones. In this context, on 27 January 2011,  the Prime Minister announced that preliminary estimates indicated that the  Australian Government would need to contribute $5.6 billion to the rebuilding  of  flood‐affected  regions,  to  be  funded  under  the  existing  Natural  Disaster  Relief and Recovery Arrangements (NDRRA). The majority of expenditure was  expected to be on rebuilding essential infrastructure. 

2. On 7 February 2011, the Prime Minister announced new oversight and  accountability measures to ensure value for money would be obtained in the  rebuilding  of  flood  affected  regions.  Features  of  the  new  governance  arrangements included an Australian Government Reconstruction Inspectorate  to  provide  assurance  concerning  value  for  money,  a  Secretaries’  Steering 

Committee and the National Disaster Recovery Cabinet Sub‐Committee, the  appointment of the Minister Assisting on Queensland Floods Recovery and,  for Victoria, the Minister for Regional Australia, Regional Development and  Local Government having an oversight role in respect of recovery. In addition,  Queensland established the Queensland Reconstruction Authority (with two  Commonwealth appointments to its Board). In Victoria, the state established  the Secretaries’ Flood Recovery Group and the Senior Officials’ Coordination  Group  (with  one  Commonwealth  member  on  the  latter).  These  various  governance arrangements are in addition to the existing oversight, acquittal  and audit requirements of NDRRA, and they do not alter States’ obligations  under those arrangements. 

3. Separate National Partnership Agreements1 (NPAs) were signed with  the Queensland and Victorian state governments in February and May 2011 

1 The NPA with Queensland relates to the reconstruction of communities that were affected by the 2010-11 floods and Tropical Cyclone Yasi. The NPA with Victoria relates to the early 2011 flooding in Victoria. NDRRA continues to apply to those natural disasters covered by the NPAs, with payments to

the states authorised by Emergency Management Australia (EMA) within the Attorney-General’s Department (which administers NDRRA).

Summary

ANAO Audit Report No. 23 2012-13

The Australian Government Reconstruction Inspectorate's Conduct of Value for Money Reviews of Flood Reconstruction Projects in Victoria

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respectively.2 The NPAs outline that the Inspectorate had been established to  oversee reconstruction activity to provide assurance that value for money is  being achieved in the expenditure of funds during the reconstruction phase.  This was principally to be achieved by the Inspectorate undertaking value for  money reviews of reconstruction projects. The Inspectorate is to perform its  functions by: 

 working  collaboratively  with  any  reconstruction  agency  on  the  development  of  contractual  frameworks,  tendering  processes  and  project management systems used; 

 where necessary, undertaking scrutiny of requests for reimbursement  by local government for completed reconstruction projects; 

 undertaking  scrutiny  of  contracts  and  benchmark  prices,  to  ensure  value for money; 

 undertaking  scrutiny  prior  to  execution  for  complex  or  high  value  contracts; 

 monitoring achievement against agreed milestones; and 

 responding  to  and  investigating  complaints  or  issues  raised  by  the  public. 

4. The  Inspectorate  is  supported  by  the  National  Disaster  Recovery  Taskforce (the Taskforce) located within the Department of Regional Australia,  Local  Government,  Arts  and  Sport  (Regional  Australia).  The  Taskforce  is  responsible for Commonwealth engagement with Queensland and Victorian  reconstruction agencies and for the implementation of the additional oversight  requirements contained in the NPAs.3 This includes undertaking, on behalf of  the  Inspectorate,  value  for  money  reviews  of  individual  recovery  and  reconstruction projects. In relation to Victoria, it has been agreed through the  operating protocol between the Inspectorate and Victoria that value for money  reviews will only be undertaken on projects of $5 million or more. 

2 The existing NDRRA arrangements continue to apply to expenditure covered by the NPAs. These arrangements include the states and territories providing audited financial statements to acquit expenditure, including expenditure of advance payments.

3 Initially, the Taskforce was funded to operate until the end of 2012. The May 2012 Budget included additional funding to extend the operation of the Taskforce by one year. This was in response to the increased time granted to the Queensland Government for the completion of reconstruction projects.

ANAO Audit Report No. 23 2012-13 The Australian Government Reconstruction Inspectorate's Conduct of Value for Money Reviews of Flood Reconstruction Projects in Victoria

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5. The Taskforce is also responsible for: 

 providing secretariat support to the Inspectorate; 

 reporting  to  relevant  Ministers  and  providing  the  National  Disaster  Recovery  Cabinet  Sub‐Committee  with  monthly  progress  reports  on  state  plans  for  recovery,  including  updated  estimates  of  the  Commonwealth’s liability under NDRRA; 

 assessing spending on recovery and reconstruction efforts arising from  the  flooding  and  cyclone  events  so  as  to  ensure  consistency  with  NDRRA; 

 assessing  requests  for  Commonwealth  funding  assistance  outside  of  those automatically triggered by a NDRRA declaration; and 

 ensuring  that  a  strategic  approach  is  taken  to  reconstruction  and  recovery efforts. 

6. The Taskforce and the relevant state body completed reviews of the  Queensland  and  Victorian  NPAs  in  2012.  The  reviews  found  that  the  new  arrangements  were  largely  effective  at  coordinating  and  overseeing  reconstruction activity and did not recommend any changes to either NPA.  Nevertheless, the review of the Victorian NPA noted some areas relating to  Commonwealth‐state collaboration in emergency recovery that would benefit  from further consideration between the Australian Government and the states  for  future  events.  Among  other  matters,  the  review  suggested  that  the  appropriate cost threshold and methodology for value for money assessments  should be considered for discussion and clarification. A second review of each  NPA  is  scheduled  for  2013,  once  further  progress  has  been  made  on  the  reconstruction program. 

7. In January 2013, the Taskforce advised the ANAO that the Australian  Government  is  considering  the  extension  of  both  the  Taskforce  and  the  Inspectorate. 

Audit objective, scope and criteria 8. The  ANAO  is  undertaking  three  audits  of  key  aspects  of  the  NPAs  signed with Queensland and Victoria in relation to natural disasters over the  2010-11 Australian spring and summer seasons. 

9. The  objective  of  this  audit  was  to  assess  the  effectiveness  of  the  Inspectorate, supported by the Taskforce, in providing assurance that value for 

Summary

ANAO Audit Report No. 23 2012-13

The Australian Government Reconstruction Inspectorate's Conduct of Value for Money Reviews of Flood Reconstruction Projects in Victoria

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money  is  being  achieved  in  recovery  and  reconstruction  expenditure  in  Victoria. 

10. The  report  of  a  second  audit,  examining  the  effectiveness  of  the  Inspectorate in providing assurance that value for money is being achieved in  respect to Queensland reconstruction projects is expected to be tabled in the  2013 Budget sittings. 

11. Because  the  Australian  Government  will  meet  up  to  75 per cent  of  eligible  reconstruction  expenditure,  the  audit  focused  on  the  activities  undertaken  by  the  Inspectorate,  supported  by  the  Taskforce,  in  conducting  value  for  money  reviews  of  Victorian  reconstruction  projects.4  The  audit  criteria were based on the role of the Inspectorate as announced by the Prime  Minister  in  February 2011  and  subsequently  reflected  in  the  Inspectorate’s  terms of reference and the NPAs. 

12. The ANAO has also undertaken a separate but related audit assessing  the extent to which the disaster recovery work plans required under the NPAs  for  Queensland  and  Victoria  were  prepared,  and  appropriate  monitoring  reports provided, in accordance with the relevant NPA. The report on that  audit is being tabled in conjunction with this report. 

Overall conclusion 13. The flooding that occurred in Victoria over the 2010-11 summer was  widespread.  Reconstruction  was  expected  to  be  expensive,  with  the  latest  (December 2012) data available from Victoria estimating the cost to the state of  the resulting damage to be in the vicinity of $1 billion. A significant proportion  of  reconstruction  expenditure  is  expected  to  be  met  by  the  Australian  Government through the Natural Disaster Relief and Recovery Arrangements  (NDRRA). 

14. With the stated intention of ensuring recovery and rebuilding could  start as soon as possible, a significant advance payment was made in 2010-11  to Victoria ($500 million).5 The advance payment also assisted the Australian 

4 It also included examination of the level of scrutiny applied to the contractual frameworks, tendering processes and project management systems developed by Victoria, and to the rebuilding contracts, requests for reimbursement and benchmark prices.

5 Australian Government obligations under the NPA are forecast by Victoria to be less than the $500 million advance provided in May 2011.

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5. The Taskforce is also responsible for: 

 providing secretariat support to the Inspectorate; 

 reporting  to  relevant  Ministers  and  providing  the  National  Disaster  Recovery  Cabinet  Sub‐Committee  with  monthly  progress  reports  on  state  plans  for  recovery,  including  updated  estimates  of  the  Commonwealth’s liability under NDRRA; 

 assessing spending on recovery and reconstruction efforts arising from  the  flooding  and  cyclone  events  so  as  to  ensure  consistency  with  NDRRA; 

 assessing  requests  for  Commonwealth  funding  assistance  outside  of  those automatically triggered by a NDRRA declaration; and 

 ensuring  that  a  strategic  approach  is  taken  to  reconstruction  and  recovery efforts. 

6. The Taskforce and the relevant state body completed reviews of the  Queensland  and  Victorian  NPAs  in  2012.  The  reviews  found  that  the  new  arrangements  were  largely  effective  at  coordinating  and  overseeing  reconstruction activity and did not recommend any changes to either NPA.  Nevertheless, the review of the Victorian NPA noted some areas relating to  Commonwealth‐state collaboration in emergency recovery that would benefit  from further consideration between the Australian Government and the states  for  future  events.  Among  other  matters,  the  review  suggested  that  the  appropriate cost threshold and methodology for value for money assessments  should be considered for discussion and clarification. A second review of each  NPA  is  scheduled  for  2013,  once  further  progress  has  been  made  on  the  reconstruction program. 

7. In January 2013, the Taskforce advised the ANAO that the Australian  Government  is  considering  the  extension  of  both  the  Taskforce  and  the  Inspectorate. 

Audit objective, scope and criteria 8. The  ANAO  is  undertaking  three  audits  of  key  aspects  of  the  NPAs  signed with Queensland and Victoria in relation to natural disasters over the  2010-11 Australian spring and summer seasons. 

9. The  objective  of  this  audit  was  to  assess  the  effectiveness  of  the  Inspectorate, supported by the Taskforce, in providing assurance that value for 

Summary

ANAO Audit Report No. 23 2012-13

The Australian Government Reconstruction Inspectorate's Conduct of Value for Money Reviews of Flood Reconstruction Projects in Victoria

13

money  is  being  achieved  in  recovery  and  reconstruction  expenditure  in  Victoria. 

10. The  report  of  a  second  audit,  examining  the  effectiveness  of  the  Inspectorate in providing assurance that value for money is being achieved in  respect to Queensland reconstruction projects is expected to be tabled in the  2013 Budget sittings. 

11. Because  the  Australian  Government  will  meet  up  to  75 per cent  of  eligible  reconstruction  expenditure,  the  audit  focused  on  the  activities  undertaken  by  the  Inspectorate,  supported  by  the  Taskforce,  in  conducting  value  for  money  reviews  of  Victorian  reconstruction  projects.4  The  audit  criteria were based on the role of the Inspectorate as announced by the Prime  Minister  in  February 2011  and  subsequently  reflected  in  the  Inspectorate’s  terms of reference and the NPAs. 

12. The ANAO has also undertaken a separate but related audit assessing  the extent to which the disaster recovery work plans required under the NPAs  for  Queensland  and  Victoria  were  prepared,  and  appropriate  monitoring  reports provided, in accordance with the relevant NPA. The report on that  audit is being tabled in conjunction with this report. 

Overall conclusion 13. The flooding that occurred in Victoria over the 2010-11 summer was  widespread.  Reconstruction  was  expected  to  be  expensive,  with  the  latest  (December 2012) data available from Victoria estimating the cost to the state of  the resulting damage to be in the vicinity of $1 billion. A significant proportion  of  reconstruction  expenditure  is  expected  to  be  met  by  the  Australian  Government through the Natural Disaster Relief and Recovery Arrangements  (NDRRA). 

14. With the stated intention of ensuring recovery and rebuilding could  start as soon as possible, a significant advance payment was made in 2010-11  to Victoria ($500 million).5 The advance payment also assisted the Australian 

4 It also included examination of the level of scrutiny applied to the contractual frameworks, tendering processes and project management systems developed by Victoria, and to the rebuilding contracts, requests for reimbursement and benchmark prices.

5 Australian Government obligations under the NPA are forecast by Victoria to be less than the $500 million advance provided in May 2011.

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Government to secure the agreement of Victoria to the additional oversight  and  accountability  measures  announced  by  the  Prime  Minister  in  early  February 2012, which were then included in the NPA. 

15. The conduct of value for money project reviews by the Inspectorate  was expected to provide a greater level of oversight and assurance concerning  reconstruction  expenditure  than  would  have  occurred  relying  solely  on  NDRRA,  which  provides  for  the  Australian  Government  to  meet  up  to  75 per cent  of  the  cost  of  reconstruction.  This  is  because  NDRRA  generally  operates on a reimbursement basis, with the Australian Government having  little oversight of reconstruction as it occurs as there is no reporting from the  states until such time as they seek reimbursement, which is commonly some  years  after  the  disasters  occur.  In  addition,  limited  Australian  Government  oversight  at  the  conclusion  of  reconstruction  is  afforded  by  audited  claims  submitted by states and territories, with no project level information provided  in  these  claims.  NDRRA  also  does  not  include  value  for  money  assurance  arrangements. 

16. Monthly reports from Victoria to the Taskforce indicate that recovery  and reconstruction in flood‐affected areas is well underway.6 However, to date,  the creation of the Australian Government Reconstruction Inspectorate has not  provided the Australian Government with the expected assurance that value  for money is being achieved through Victorian reconstruction projects. This is  because,  as  at  December  2012,  no  value  for  money  reviews  have  been  completed in respect to any Victorian projects, and a review of one project had  only recently commenced.7 In this context, in November 2012, the Inspectorate  wrote to Victoria stating that: 

The Inspectorate is also troubled that, more than 18 months after the disaster  events, it has been unable to complete a value for money assessment on any  Victorian project. In comparison, the National Disaster Recovery Taskforce, on  behalf  of  the  Inspectorate,  has  completed  61  value  for  money  reviews  of  Queensland reconstruction projects.8 

6 In this context, the Inspectorate’s most recent four-monthly report to the Prime Minister noted that, by the end of August 2012, more than $464 million had been spent on recovery and reconstruction, representing 47 per cent of the estimated cost of damage.

7 See paragraph 29. 8 At the time of preparing this ANAO report, Victoria had identified to the Taskforce nine tenders with a

value over $5 million, it was not clear whether any of these projects would be the subject of a value for money review. See further at paragraphs 3.54 to 3.60.

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Government to secure the agreement of Victoria to the additional oversight  and  accountability  measures  announced  by  the  Prime  Minister  in  early  February 2012, which were then included in the NPA. 

15. The conduct of value for money project reviews by the Inspectorate  was expected to provide a greater level of oversight and assurance concerning  reconstruction  expenditure  than  would  have  occurred  relying  solely  on  NDRRA,  which  provides  for  the  Australian  Government  to  meet  up  to  75 per cent  of  the  cost  of  reconstruction.  This  is  because  NDRRA  generally  operates on a reimbursement basis, with the Australian Government having  little oversight of reconstruction as it occurs as there is no reporting from the  states until such time as they seek reimbursement, which is commonly some  years  after  the  disasters  occur.  In  addition,  limited  Australian  Government  oversight  at  the  conclusion  of  reconstruction  is  afforded  by  audited  claims  submitted by states and territories, with no project level information provided  in  these  claims.  NDRRA  also  does  not  include  value  for  money  assurance  arrangements. 

16. Monthly reports from Victoria to the Taskforce indicate that recovery  and reconstruction in flood‐affected areas is well underway.6 However, to date,  the creation of the Australian Government Reconstruction Inspectorate has not  provided the Australian Government with the expected assurance that value  for money is being achieved through Victorian reconstruction projects. This is  because,  as  at  December  2012,  no  value  for  money  reviews  have  been  completed in respect to any Victorian projects, and a review of one project had  only recently commenced.7 In this context, in November 2012, the Inspectorate  wrote to Victoria stating that: 

The Inspectorate is also troubled that, more than 18 months after the disaster  events, it has been unable to complete a value for money assessment on any  Victorian project. In comparison, the National Disaster Recovery Taskforce, on  behalf  of  the  Inspectorate,  has  completed  61  value  for  money  reviews  of  Queensland reconstruction projects.8 

6 In this context, the Inspectorate’s most recent four-monthly report to the Prime Minister noted that, by the end of August 2012, more than $464 million had been spent on recovery and reconstruction, representing 47 per cent of the estimated cost of damage.

7 See paragraph 29. 8 At the time of preparing this ANAO report, Victoria had identified to the Taskforce nine tenders with a

value over $5 million, it was not clear whether any of these projects would be the subject of a value for money review. See further at paragraphs 3.54 to 3.60.

Summary

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17. In addition, in January 2013 the Taskforce advised the ANAO that this  issue  has  been  the  subject  of  discussion  between  the  Attorney‐General’s  Department  (AGD)  and  the  Department  of  the  Prime  Minister  and  Cabinet  (PM&C), in the context of Victoria’s request for an extension of the timeframe  for  NDRRA  funding.  In  this  respect,  in  December  2012  the  Chair  of  the  Inspectorate  wrote  to  the  Minister  for  Regional  Australia,  Regional  Development and Local Government raising this issue and recommending that  any  extension  to  funding  arrangements  in  Victoria  be  contingent  upon  the  Inspectorate being provided with sufficient projects to be able to provide the  required level of assurance. The Minister responded in February 2013, advising  that he: shared the Inspectorate’s concerns about its ability to assess value for  money in circumstances where only one project had been identified for review;  strongly supported the Inspectorate’s recommendation that an extension to the  allowable period for reconstruction be contingent upon Victoria’s agreement to  increase  oversight;  and  had  written  to  the  Attorney‐General  recommending  this approach as responsibility for the extension request rests with Emergency  Management Australia. 

18. ANAO analysis is that the lack of value for money reviews of Victoria  reconstruction  projects  at  the  time  the  ANAO’s  audit  work  was  completed  reflects that: 

 the  Taskforce  initially  focused  its  work  on  developing  a  review  methodology  and  project  sampling  processes  for  Queensland,  given  this  is  where  the  majority  of  expenditure  will  occur.  There  was  relatively  little  attention  given  at  that  time,  or  subsequently,  to  developing a robust methodology for identifying projects to review in  Victoria  (proportionate  to  the  level  of  expenditure  expected  in  that  state); and 

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 the  parties  to  the  NPA  intended  that  the  Inspectorate  would  only  examine  reconstruction  projects  with  a  value  more  than  $5 million.9  Even allowing for this threshold, the Taskforce has not been active in  seeking to ensure that projects with a value greater than $5 million are  identified for value for money review. One project has been identified  for review, but it is not representative of the reconstruction program  and there is also some evidence that a number of other projects with a  value above $5 million have proceeded, without being referred to the  Taskforce for a value for money review. At the time of preparing this  ANAO  report,  no  formal  requests  had  been  made  to  Victoria  concerning Inspectorate reviews of these other projects.10 

19. The audit highlights the importance of greater attention being given to  oversighting  reconstruction  activity  in  Victoria.11  The  Taskforce  is  currently  funded  to  continue  operating  until  the  end  of  2013  (and  this  date  may  be  extended), thereby providing time for some value for money project reviews to  be undertaken in Victoria. However, as reflected in the protocol with Victoria,  in order to obtain the maximum benefit, it was intended that the Inspectorate’s  review  of  a  project  for  value  for  money  would  be  conducted  at  the  development  phase  of  projects,  although  they  can  also  be  undertaken  on  completion of the project. 

20. Notwithstanding advice from both the Taskforce and PM&C that it was  intended  that  the  NPA  place  restrictions  on  the  Inspectorate’s  ability  to  examine projects with a value below $5 million12, there were opportunities for 

9 This restriction is included in the operating protocol agreed to by the Taskforce with Victoria. The Taskforce advised the Inspectorate that this restriction also exists in the NPA, but the ANAO’s analysis did not support this view. (The NPA only applies a threshold in relation to Victoria being required to seek

the views of the Inspectorate on proposed project plans and strategies for projects over $5 million, which were to be included in the work plan developed in accordance with the NPA). Although it is not evident from the NPA agreed between governments, PM&C advised the ANAO in December 2012 that it was the clear intention of the Commonwealth at the time of drafting the NPA that no individual reconstruction projects in Victoria would be subject to value for money assessment by the Inspectorate unless the value of the project exceeded $5 million. By way of comparison, in Queensland, around one in three of the 91 projects selected for review by October 2012 was valued at less than $5 million. 10

The Victorian protocol states that the Inspectorate may also ‘propose’ to review additional projects to those identified by the state as costing more than $5 million. Up to the time of preparation of this ANAO report, no such project reviews had been proposed. 11

The Taskforce has advised the ANAO that it has provided meetings of the Australian Government Reconstruction Inspectorate with an overview of recovery and reconstruction progress in both Victoria and Queensland. 12

At the time of preparation of this ANAO report, the NPA had not been amended to reflect the intended (but omitted) restriction on the Inspectorate’s ability to examine projects valued under $5 million.

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 the  parties  to  the  NPA  intended  that  the  Inspectorate  would  only  examine  reconstruction  projects  with  a  value  more  than  $5 million.9  Even allowing for this threshold, the Taskforce has not been active in  seeking to ensure that projects with a value greater than $5 million are  identified for value for money review. One project has been identified  for review, but it is not representative of the reconstruction program  and there is also some evidence that a number of other projects with a  value above $5 million have proceeded, without being referred to the  Taskforce for a value for money review. At the time of preparing this  ANAO  report,  no  formal  requests  had  been  made  to  Victoria  concerning Inspectorate reviews of these other projects.10 

19. The audit highlights the importance of greater attention being given to  oversighting  reconstruction  activity  in  Victoria.11  The  Taskforce  is  currently  funded  to  continue  operating  until  the  end  of  2013  (and  this  date  may  be  extended), thereby providing time for some value for money project reviews to  be undertaken in Victoria. However, as reflected in the protocol with Victoria,  in order to obtain the maximum benefit, it was intended that the Inspectorate’s  review  of  a  project  for  value  for  money  would  be  conducted  at  the  development  phase  of  projects,  although  they  can  also  be  undertaken  on  completion of the project. 

20. Notwithstanding advice from both the Taskforce and PM&C that it was  intended  that  the  NPA  place  restrictions  on  the  Inspectorate’s  ability  to  examine projects with a value below $5 million12, there were opportunities for 

9 This restriction is included in the operating protocol agreed to by the Taskforce with Victoria. The Taskforce advised the Inspectorate that this restriction also exists in the NPA, but the ANAO’s analysis did not support this view. (The NPA only applies a threshold in relation to Victoria being required to seek

the views of the Inspectorate on proposed project plans and strategies for projects over $5 million, which were to be included in the work plan developed in accordance with the NPA). Although it is not evident from the NPA agreed between governments, PM&C advised the ANAO in December 2012 that it was the clear intention of the Commonwealth at the time of drafting the NPA that no individual reconstruction projects in Victoria would be subject to value for money assessment by the Inspectorate unless the value of the project exceeded $5 million. By way of comparison, in Queensland, around one in three of the 91 projects selected for review by October 2012 was valued at less than $5 million. 10

The Victorian protocol states that the Inspectorate may also ‘propose’ to review additional projects to those identified by the state as costing more than $5 million. Up to the time of preparation of this ANAO report, no such project reviews had been proposed. 11

The Taskforce has advised the ANAO that it has provided meetings of the Australian Government Reconstruction Inspectorate with an overview of recovery and reconstruction progress in both Victoria and Queensland. 12

At the time of preparation of this ANAO report, the NPA had not been amended to reflect the intended (but omitted) restriction on the Inspectorate’s ability to examine projects valued under $5 million.

Summary

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the  Taskforce  to  have  obtained  greater  insight  into  reconstruction  projects  being undertaken in Victoria. In particular: 

 the Taskforce was the lead Australian Government agency in terms of  developing  the  work  plans  with  Queensland  and  Victoria  but,  as  discussed in the related audit of the development of the work plans  with  these  two  states,  in  many  instances  the  work  plan  for  Victoria  identifies broad categories of work rather than specific reconstruction  projects; and 

 the operating protocol with Victoria was negotiated by the Taskforce,  but  this  did  not  require  the  state  to  provide  and  regularly  update  information on all reconstruction projects (which is the approach taken  in  Queensland).  This  would  have  enabled  the  Taskforce  to  identify  those projects costing over $5 million that the Inspectorate wishes to  review. 

21. The ANAO recognises that the majority of the expected expenditure  under  the  two  NPAs  relates  to  Queensland.  Nevertheless,  reconstruction  activity in Victoria was significant in absolute terms and relative to the amount  of  natural  disaster  assistance  expenditure  typically  experienced.13  Further,  additional oversight and assurance through Inspectorate reviews of individual  reconstruction projects was anticipated in the agreement reached between the  Australian and Victorian Governments. In this context, there was considerable  scope  for  the  Taskforce  to  have  more  actively  supported  the  work  of  the  Inspectorate. 

22. In addition, whereas the Inspectorate has endorsed the value for money  strategy  applied  by  the  Queensland  Reconstruction  Authority  (QRA)  to  projects in that state prior to a project being reviewed by the Taskforce, similar  work  has  not  been  undertaken  in  respect  to  Victoria.  These  different  circumstances  place  added  importance  on  value  for  money  project  reviews 

being undertaken by the Taskforce of Victorian reconstruction projects in the  remaining  lifetime  of  the  Inspectorate.  Accordingly,  the  ANAO  has  recommended  improved  arrangements  for  conducting  value  for  money  reviews of Victorian reconstruction projects. 

13 The average total annual payment to all states under NDRRA (and its predecessor the Natural Disaster Relief Arrangements) between 2001-02 and 2009-10 was less than $100 million.

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Key findings by Chapter

Development of Operating Protocols (Chapter 2)

23. The  Inspectorate’s  terms  of  reference  stated  that  it  would  develop  operating  protocols  with  the  other  Commonwealth  and  state  bodies  with  which it interacts ‘as soon as is practicable after its establishment’. In its role of  providing  support  to  the  Inspectorate,  the  Taskforce  was  responsible  for  developing operating protocols. 

24. The Taskforce did not initiate the process of developing an operating  protocol  with  Victoria  until  early  2012.  The  protocol  was  finalised  in  August 2012, more than 18 months after the Inspectorate was established, and  subsequently  endorsed  by  the  Victorian  Deputy  Premier  in  early  December 2012. The delay in developing the protocol adversely affected the  Inspectorate’s  ability  to  scrutinise  Victorian  reconstruction  projects.  This  is  because it  was decided that the protocol should be developed prior to any  information  being  provided  to  the  Taskforce  on  flood  recovery  projects  for  review.14 

25. The  Victorian  protocol  does  not  address  a  number  of  the  key  responsibilities  of  the  Inspectorate  set  out  in  its  terms  of  reference.  For  example,  it  does  not  outline  the  processes  by  which  the  Inspectorate  is  to  review  the  state’s  contractual  frameworks,  tendering  processes  and  project  management  systems.  It  also  does  not  address  the  sharing  of  relevant  information and documentation that would be necessary for the Inspectorate  to  track  the  use  of  NDRRA  funding  from  its  source  to  the  point  of  final  expenditure. 

26. In large part, those matters that are addressed by the protocol involve  restrictions  being  placed  on  the  way  in  which  the  Inspectorate  is  able  to  conduct its value for money project reviews. Of note is that possible projects  for Inspectorate review are to be identified by the state, rather than the state  being required to provide information on all reconstruction projects to enable  the Taskforce to identify a sample of projects for review (which is the approach  taken in Queensland, and was the approach originally envisaged for Victoria 

14 While the protocol was submitted by state officials to the Victorian Deputy Premier for approval, the Taskforce did not seek the Inspectorate’s endorsement or approval of the protocol.

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Key findings by Chapter

Development of Operating Protocols (Chapter 2)

23. The  Inspectorate’s  terms  of  reference  stated  that  it  would  develop  operating  protocols  with  the  other  Commonwealth  and  state  bodies  with  which it interacts ‘as soon as is practicable after its establishment’. In its role of  providing  support  to  the  Inspectorate,  the  Taskforce  was  responsible  for  developing operating protocols. 

24. The Taskforce did not initiate the process of developing an operating  protocol  with  Victoria  until  early  2012.  The  protocol  was  finalised  in  August 2012, more than 18 months after the Inspectorate was established, and  subsequently  endorsed  by  the  Victorian  Deputy  Premier  in  early  December 2012. The delay in developing the protocol adversely affected the  Inspectorate’s  ability  to  scrutinise  Victorian  reconstruction  projects.  This  is  because it  was decided that the protocol should be developed prior to any  information  being  provided  to  the  Taskforce  on  flood  recovery  projects  for  review.14 

25. The  Victorian  protocol  does  not  address  a  number  of  the  key  responsibilities  of  the  Inspectorate  set  out  in  its  terms  of  reference.  For  example,  it  does  not  outline  the  processes  by  which  the  Inspectorate  is  to  review  the  state’s  contractual  frameworks,  tendering  processes  and  project  management  systems.  It  also  does  not  address  the  sharing  of  relevant  information and documentation that would be necessary for the Inspectorate  to  track  the  use  of  NDRRA  funding  from  its  source  to  the  point  of  final  expenditure. 

26. In large part, those matters that are addressed by the protocol involve  restrictions  being  placed  on  the  way  in  which  the  Inspectorate  is  able  to  conduct its value for money project reviews. Of note is that possible projects  for Inspectorate review are to be identified by the state, rather than the state  being required to provide information on all reconstruction projects to enable  the Taskforce to identify a sample of projects for review (which is the approach  taken in Queensland, and was the approach originally envisaged for Victoria 

14 While the protocol was submitted by state officials to the Victorian Deputy Premier for approval, the Taskforce did not seek the Inspectorate’s endorsement or approval of the protocol.

Summary

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as well).15 In addition, the Queensland protocol provides for NDRRA funding  to be reduced where a project review concludes that value for money is not  being achieved, but the Victorian protocol instead provides for a process of  dispute resolution.16 Also in this respect, in January 2013 the Taskforce advised  the ANAO that: 

The  Inspectorate  still  retains  the  power  to  recommend  to  Senior  Commonwealth Ministers that NDRRA funding be reduced if it determines  that a project does not represent value for money. The decision as to whether  funding will be reduced ultimately resides with the Attorney‐General, who is  responsible for the NDRRA (as it does for Queensland projects). 

Scrutiny of Recovery and Reconstruction Projects (Chapter 3)

27. In  announcing  the  creation  of  the  Inspectorate,  the  Prime  Minister  emphasised that the focus of review activity would be on high value, complex  contracts.17 The Prime Minister further stated that any project that was being  funded under NDRRA would be under the oversight of the Inspectorate.18 

28. Both states have documented public sector procurement frameworks,  but the Australian Government’s decision to create the Inspectorate recognised  that reliance on existing procurement frameworks would not provide sufficient  assurance  that  value  for  money  was  being  achieved.  In  this  context,  in  response to the 2010-11 flooding, Queensland developed a value for money  strategy  that  was  subsequently  endorsed  by  the  Inspectorate.  That  strategy  involves pre‐approval review by QRA of each project against value for money 

15 The protocol states that the Inspectorate may also ‘propose’ to review additional projects to those identified by the state.

16 In its third report to the Prime Minister, the Inspectorate recommended that ‘the Commonwealth take a strong position on withholding funds under the Natural Disaster Relief and Recovery Arrangements for projects which the Inspectorate has determined do not represent value for money.’

17 The Hon Julia Gillard MP, Prime Minister of Australia, Australian Government Reconstruction Inspectorate, Media Release, Monday 7 February 2011.

18 The Hon Julia Gillard MP, Prime Minister of Australia, Transcript of press conference, Canberra, Monday 7 February 2011.

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criteria.19 It is only after QRA has completed its value for money review that  the  Taskforce  undertakes  its  own  value  for  money  review  of  a  sample  of  approved projects. There is no equivalent value for money strategy in place  under the arrangements adopted with Victoria; a situation that should have  increased the Taskforce’s focus on conducting its own value for money reviews  in that state. 

29. Against this background, reporting from Victoria to the Taskforce, and  reports subsequently prepared by the Taskforce from the Inspectorate to the  Prime Minister, have outlined that reconstruction is well advanced in Victoria.  However, notwithstanding that, by November 2012 (the latest report available  from Victoria), some $749 million in project expenditure had been reported,  there  have  been  no  value  for  money  reviews  completed  in  respect  to  any  Victorian reconstruction projects. In January 2013, the Taskforce advised the  ANAO that a value for money assessment of the first Victorian reconstruction  project has been underway since late‐October 2012 when the documentation  for Inspectorate review was received. It also advised that further information  has been requested and will be taken into consideration before the report is  completed. However: 

 this  $22.7  million  project  (the  relocation  and  reconstruction  of  the  Charlton Hospital) is not representative of the reconstruction program  in Victoria, where most of the funding relates to the reconstruction of  road and rail infrastructure by local government and state government  authorities. In addition, the Charlton Hospital project is not expected to  be completed within the (currently funded) lifetime of the Inspectorate;  and 

 the  Inspectorate’s  third  report  to  the  Prime  Minister  (provided  in  February  2012)  had  stated  that  review  of  reconstruction  projects  in  Victoria for value for money would begin ‘shortly’, with three initial  projects identified (including the Charlton Hospital project). However, 

19 As of January 2013, QRA was reporting that $1.7 billion in project submissions in Queensland had been assessed by the Authority as not eligible or otherwise returned to the relevant delivery agency, thereby avoiding $1.3 billion in cost to the Australian Government and $434 million in potential state costs. The

ANAO understands that these figures may include some submissions that have been returned on more than one occasion (thereby overstating the extent of any costs avoided) and that, in some instances, submissions initially returned are later approved. Pre-approvals of Department of Transport and Main Roads projects usually exclude value for money reviews, as these are not conducted until after tenders have been received.

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criteria.19 It is only after QRA has completed its value for money review that  the  Taskforce  undertakes  its  own  value  for  money  review  of  a  sample  of  approved projects. There is no equivalent value for money strategy in place  under the arrangements adopted with Victoria; a situation that should have  increased the Taskforce’s focus on conducting its own value for money reviews  in that state. 

29. Against this background, reporting from Victoria to the Taskforce, and  reports subsequently prepared by the Taskforce from the Inspectorate to the  Prime Minister, have outlined that reconstruction is well advanced in Victoria.  However, notwithstanding that, by November 2012 (the latest report available  from Victoria), some $749 million in project expenditure had been reported,  there  have  been  no  value  for  money  reviews  completed  in  respect  to  any  Victorian reconstruction projects. In January 2013, the Taskforce advised the  ANAO that a value for money assessment of the first Victorian reconstruction  project has been underway since late‐October 2012 when the documentation  for Inspectorate review was received. It also advised that further information  has been requested and will be taken into consideration before the report is  completed. However: 

 this  $22.7  million  project  (the  relocation  and  reconstruction  of  the  Charlton Hospital) is not representative of the reconstruction program  in Victoria, where most of the funding relates to the reconstruction of  road and rail infrastructure by local government and state government  authorities. In addition, the Charlton Hospital project is not expected to  be completed within the (currently funded) lifetime of the Inspectorate;  and 

 the  Inspectorate’s  third  report  to  the  Prime  Minister  (provided  in  February  2012)  had  stated  that  review  of  reconstruction  projects  in  Victoria for value for money would begin ‘shortly’, with three initial  projects identified (including the Charlton Hospital project). However, 

19 As of January 2013, QRA was reporting that $1.7 billion in project submissions in Queensland had been assessed by the Authority as not eligible or otherwise returned to the relevant delivery agency, thereby avoiding $1.3 billion in cost to the Australian Government and $434 million in potential state costs. The

ANAO understands that these figures may include some submissions that have been returned on more than one occasion (thereby overstating the extent of any costs avoided) and that, in some instances, submissions initially returned are later approved. Pre-approvals of Department of Transport and Main Roads projects usually exclude value for money reviews, as these are not conducted until after tenders have been received.

Summary

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the Taskforce did not request that the relevant documentation for two  of  these  projects  be  provided  for  review,  and  the  reviews  were  not  undertaken. Subsequent Inspectorate reports did not identify that these  reviews had not proceeded, or advise of the reasons for this situation. 

30. Commencing  in  late‐September  2012,  the  Taskforce  also  started  requesting  information  from  Victoria  on  projects  with  a  value  greater  than  $5 million20, and a list of all reconstruction projects underway or completed in  Victoria. At the time of preparing this ANAO report, Victoria had identified to  the Taskforce nine tenders with a value over $5 million.21 However, to date a  list of all reconstruction projects has not been provided and there has been no  agreement  reached  on  what  constitutes  a  ‘project’  for  the  purposes  of  the  Inspectorate’s value for money review activities. Although Regional Australia  has  informed  the  ANAO  that  it  has  been  advised  by  Victoria  that  a  list  of  reconstruction  projects  is  not  feasible,  delivery  agencies  hold  the  necessary  project level information and such data is being reflected, in aggregate, in the  monthly  progress reports being provided to the Taskforce in respect to the  flood work plan. Given that two years have elapsed since the disaster events  occurred, it is reasonable to expect that by now reconstruction projects arising  from those events should be identifiable. 

31. There has also been a general absence of the envisaged involvement by  the Inspectorate and the Taskforce in developing and reviewing contractual  frameworks, tendering processes and project management systems in relation  to flood reconstruction in Victoria. 

20 In January 2013, Regional Australia advised the ANAO that ‘the Inspectorate’s methodology for identifying projects to review in Victoria is straightforward: all projects valued over $5 million are subject to Inspectorate review.’ A decision to adopt such a methodology is not recorded in the minutes of the

Inspectorate meetings. The Taskforce had earlier advised Victoria that ‘only two or three Victorian projects may be selected for review’ (see paragraph 3.11) and the Inspectorate’s June 2011 first report to the Prime Minister had foreshadowed that a sampling approach to selecting projects for review would be adopted in both Queensland and Victoria (see paragraph 3.22). 21

These tenders over $5 million had already been identified by the ANAO.

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Summary of agency responses 32. The  proposed  audit  report  was  provided  to  Regional  Australia,  the  Chair of the Inspectorate, the Attorney‐General’s Department, the Department  of Finance and Deregulation, the Department of Infrastructure and Transport  (DIT), the Department of the Prime Minister and Cabinet, the Victorian Senior  Officials Coordination Group and the Queensland Reconstruction Authority.  Regional Australia, the Chair of the Inspectorate, DIT and the Victorian Senior  Officials  Coordination  Group  provided  formal  comments  on  the  proposed  report. These are included at Appendix 1. PM&C also provided a departmental  response on the recommendation. 

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Summary of agency responses 32. The  proposed  audit  report  was  provided  to  Regional  Australia,  the  Chair of the Inspectorate, the Attorney‐General’s Department, the Department  of Finance and Deregulation, the Department of Infrastructure and Transport  (DIT), the Department of the Prime Minister and Cabinet, the Victorian Senior  Officials Coordination Group and the Queensland Reconstruction Authority.  Regional Australia, the Chair of the Inspectorate, DIT and the Victorian Senior  Officials  Coordination  Group  provided  formal  comments  on  the  proposed  report. These are included at Appendix 1. PM&C also provided a departmental  response on the recommendation. 

Summary

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Recommendations

Set  out  below  is  the  ANAO’s  recommendation  and  the  responding  agencies’  abbreviated responses. More detailed responses are shown in the body of the report  immediately after the recommendation. 

Recommendation No.1

Paragraph 3.73

The  ANAO  recommends  that  the  Department  of  Regional  Australia,  Local  Government,  Arts  and  Sport  improve  the  arrangements  for  conducting  value  for  money  reviews  of  Victorian  reconstruction  projects  by  pursuing  amendments  to  the  operating  protocol  with  Victoria  to  require  that,  at  regular  intervals,  the  Taskforce  is  provided  with  information  on  all  reconstruction projects being delivered within the scope  of the National Partnership Agreement. 

Regional Australia’s response: Agreed in principle. 

Inspectorate’s response: Not agreed. 

PM&C’s response: Noted. 

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Audit Findings

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1. Introduction

This  chapter  provides  an  overview  of  the  assistance  provided  by  the  Australian  Government  under  the  Natural  Disaster  Relief  and  Recovery  Arrangements,  and  outlines the additional oversight and accountability mechanisms introduced in respect  to the significant financial assistance being provided to Victoria and Queensland in  response  to  widespread  flooding  in  those  states  during  the  spring  and  summer  of  2010-11. It also sets out the audit objective, scope and criteria. 

Background 1.1 Prime responsibility for the response to a disaster rests with state and  territory governments. Nevertheless, as natural disasters often result in large‐ scale  expenditure  by  state  governments  in  the  form  of  disaster  relief  and  recovery  payments  and  infrastructure  restoration,  the  Commonwealth  has  established arrangements to provide financial assistance to the states in certain  circumstances. 

1.2 The key mechanism for providing financial assistance is the Natural  Disaster  Relief  and  Recovery  Arrangements  (NDRRA),  which  is  a  Commonwealth ministerial determination. NDRRA assistance takes account of  a state’s/territory’s capacity to fund disaster recovery and is usually in the form  of partial reimbursement of actual state expenditure. Advance payments may  be  provided  through  NDRRA  if  the  relevant  Minister  is  satisfied  that  exceptional  circumstances  exist.  States  are  required  to  provide  audited  financial statements to acquit expenditure, including expenditure of advance  payments, and repay to the Commonwealth amounts not properly spent. 

1.3 The determination defines those natural disasters that are covered by  NDRRA, and identifies those measures that are eligible for NDRRA funding.  Subject to administrative rules set out in the determination, upon notification  of the natural disaster to the Commonwealth Attorney‐General by the affected  state,  Commonwealth  assistance  will  be  provided  in  respect  to  eligible  measures. In this context, there are four categories of assistance: 

 Category A — emergency assistance provided to individuals; 

 Category B — restoration of essential public assets, concessional loans  and counter disaster operations; 

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1. Introduction

This  chapter  provides  an  overview  of  the  assistance  provided  by  the  Australian  Government  under  the  Natural  Disaster  Relief  and  Recovery  Arrangements,  and  outlines the additional oversight and accountability mechanisms introduced in respect  to the significant financial assistance being provided to Victoria and Queensland in  response  to  widespread  flooding  in  those  states  during  the  spring  and  summer  of  2010-11. It also sets out the audit objective, scope and criteria. 

Background 1.1 Prime responsibility for the response to a disaster rests with state and  territory governments. Nevertheless, as natural disasters often result in large‐ scale  expenditure  by  state  governments  in  the  form  of  disaster  relief  and  recovery  payments  and  infrastructure  restoration,  the  Commonwealth  has  established arrangements to provide financial assistance to the states in certain  circumstances. 

1.2 The key mechanism for providing financial assistance is the Natural  Disaster  Relief  and  Recovery  Arrangements  (NDRRA),  which  is  a  Commonwealth ministerial determination. NDRRA assistance takes account of  a state’s/territory’s capacity to fund disaster recovery and is usually in the form  of partial reimbursement of actual state expenditure. Advance payments may  be  provided  through  NDRRA  if  the  relevant  Minister  is  satisfied  that  exceptional  circumstances  exist.  States  are  required  to  provide  audited  financial statements to acquit expenditure, including expenditure of advance  payments, and repay to the Commonwealth amounts not properly spent. 

1.3 The determination defines those natural disasters that are covered by  NDRRA, and identifies those measures that are eligible for NDRRA funding.  Subject to administrative rules set out in the determination, upon notification  of the natural disaster to the Commonwealth Attorney‐General by the affected  state,  Commonwealth  assistance  will  be  provided  in  respect  to  eligible  measures. In this context, there are four categories of assistance: 

 Category A — emergency assistance provided to individuals; 

 Category B — restoration of essential public assets, concessional loans  and counter disaster operations; 

Introduction

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 Category  C  —  community  recovery  (for  community  facilities)  and  clean‐up  and  recovery  grants  for  small  businesses  and  primary  producers; and 

 Category D — exceptional circumstances assistance. 

Oversight and accountability measures 1.4 The  eastern  Australian  states  were  subject  to  widespread  flooding  during  the  2010-11  spring  and  summer  seasons,  and  Queensland  was  also  impacted by Tropical Cyclones Tasha, Anthony and Yasi. In this context, on  27 January 2011,  the  Prime  Minister  announced  that  preliminary  estimates22,  following consultation with the Queensland Government, indicated that the  Australian Government would need to contribute $5.6 billion to the rebuilding  of flood‐affected regions, with the vast majority going on rebuilding essential  infrastructure. The Prime Minister also announced that, to ensure recovery and  rebuilding  could  start  as  soon  as  possible,  and  to  provide  certainty  to  the  Queensland  Government  and  local  authorities,  the  Australian  Government  had agreed to make an advance payment of $2 billion to Queensland. 

1.5 Subsequently, on 7 February 2011 the Prime Minister announced new  oversight and accountability measures to ensure value for money would be  obtained  in  the  rebuilding  of  flood  affected  regions.  Accordingly,  under  National Partnership Agreements23 (NPAs) signed with the Queensland and  Victorian state governments in February and May 2011 respectively: 

 a  Recovery  Work  Plan  was  required  to  be  developed  by  each  state,  outlining a set of projects to assist with reconstruction and/or recovery,  with each work plan to be agreed between the relevant state and the  Australian Government; and 

 the  Australian  Government  Reconstruction  Inspectorate  was  established  with  the  objective  of  providing  assurance  that  value  for 

22 Excluding the effects of Tropical Cyclone Yasi, which reached the mainland in the early hours of 3 February 2011.

23 NDRRA continues to apply to those natural disasters covered by the NPAs, with payments to the states made (through the Department of the Treasury) by the Attorney-General’s Department (which administers NDRRA). The stated intention of each NPA was to strengthen and complement the NDRRA

governance and accountability provisions.

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money  was  received  in  the  recovery  effort.  The  Inspectorate  is  to  perform its functions by:24 

 working collaboratively with any reconstruction agency on the  development  of  contractual  frameworks,  tendering  processes  and project management systems used; 

 where  necessary,  undertaking  scrutiny  of  requests  for  reimbursement  by  local  government  for  completed  reconstruction projects; 

 undertaking  scrutiny  of  contracts  and  benchmark  prices,  to  ensure value for money; 

 undertaking  scrutiny  prior  to  execution  for  complex  or  high  value contracts; 

 monitoring achievement against agreed milestones; and 

 responding to and investigating complaints or issues raised by  the public. 

1.6 Advance  payments  of  $500  million  for  Victoria  and  $2  billion  for  Queensland were made after finalisation of the respective NPAs. 

1.7 The  Inspectorate  is  supported  by  the  National  Disaster  Recovery  Taskforce  located  within  the  Department  of  Regional  Australia,  Local  Government, Arts and Sport (Regional Australia). The Taskforce is responsible  for  Commonwealth  engagement  with  Queensland  and  Victorian  reconstruction agencies during the recovery phase and is responsible for the  implementation  of  the  additional  oversight  requirements  contained  in  the  NPAs.25  It  was  also  the  lead  Australian  Government  agency  in  terms  of  developing the work plans with Queensland and Victoria. Its responsibilities  also include (as specified in its terms of reference and the Queensland NPA): 

 providing secretariat support to the Inspectorate; 

 reporting  to  relevant  Ministers  and  providing  the  National  Disaster  Recovery  Cabinet  Sub‐Committee  with  monthly  progress  reports  on 

24 As set out in the Inspectorate’s terms of reference, which were also reflected in the Queensland NPA. 25 Initially, the Taskforce was funded to operate until the end of 2012. The May 2012 Budget included

additional funding to extend the operation of the Taskforce by one year. This was in response to the increased time granted to the Queensland Government for the completion of reconstruction projects.

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money  was  received  in  the  recovery  effort.  The  Inspectorate  is  to  perform its functions by:24 

 working collaboratively with any reconstruction agency on the  development  of  contractual  frameworks,  tendering  processes  and project management systems used; 

 where  necessary,  undertaking  scrutiny  of  requests  for  reimbursement  by  local  government  for  completed  reconstruction projects; 

 undertaking  scrutiny  of  contracts  and  benchmark  prices,  to  ensure value for money; 

 undertaking  scrutiny  prior  to  execution  for  complex  or  high  value contracts; 

 monitoring achievement against agreed milestones; and 

 responding to and investigating complaints or issues raised by  the public. 

1.6 Advance  payments  of  $500  million  for  Victoria  and  $2  billion  for  Queensland were made after finalisation of the respective NPAs. 

1.7 The  Inspectorate  is  supported  by  the  National  Disaster  Recovery  Taskforce  located  within  the  Department  of  Regional  Australia,  Local  Government, Arts and Sport (Regional Australia). The Taskforce is responsible  for  Commonwealth  engagement  with  Queensland  and  Victorian  reconstruction agencies during the recovery phase and is responsible for the  implementation  of  the  additional  oversight  requirements  contained  in  the  NPAs.25  It  was  also  the  lead  Australian  Government  agency  in  terms  of  developing the work plans with Queensland and Victoria. Its responsibilities  also include (as specified in its terms of reference and the Queensland NPA): 

 providing secretariat support to the Inspectorate; 

 reporting  to  relevant  Ministers  and  providing  the  National  Disaster  Recovery  Cabinet  Sub‐Committee  with  monthly  progress  reports  on 

24 As set out in the Inspectorate’s terms of reference, which were also reflected in the Queensland NPA. 25 Initially, the Taskforce was funded to operate until the end of 2012. The May 2012 Budget included

additional funding to extend the operation of the Taskforce by one year. This was in response to the increased time granted to the Queensland Government for the completion of reconstruction projects.

Introduction

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state  plans  for  recovery,  including  updated  estimates  of  the  Commonwealth’s liability under NDRRA; 

 assessing spending on recovery and reconstruction efforts arising from  the  flooding  and  cyclone  events  so  as  to  ensure  consistency  with  NDRRA; 

 assessing  requests  for  Commonwealth  funding  assistance  outside  of  those automatically triggered by a NDRRA declaration; and 

 ensuring  that  a  strategic  approach  is  taken  to  reconstruction  and  recovery efforts. 

1.8 In January 2013, the Taskforce advised the ANAO that the Australian  Government  is  considering  the  extension  of  both  the  Taskforce  and  the  Inspectorate. 

1.9 In addition to the Inspectorate and Taskforce, other features of the new  governance arrangements included a Secretaries’ Steering Committee and the  National Disaster Recovery Cabinet Sub‐Committee, the appointment of the  Minister  Assisting  on  Queensland  Floods  Recovery  and,  for  Victoria,  the  Minister for Regional Australia, Regional Development and Local Government  having  an  oversight  role  in  respect  of  recovery.  In  addition,  Queensland  established  the  Queensland  Reconstruction  Authority  (with  two  Commonwealth appointments to its Board). In Victoria, the state established  the Secretaries’ Flood Recovery Group and the Senior Officials’ Coordination  Group  (with  one  Commonwealth  member  on  the  latter).  These  various  governance arrangements are in addition to the existing oversight, acquittal  and  audit  requirements  of  the  NDRRA,  and  they  do  not  alter  States’  obligations under those arrangements. 

Coverage of the NPAs

1.10 The NPA with Queensland relates to the reconstruction of communities  that  were  affected  by  the  2010-11  floods  and  Cyclone  Yasi.  The  NPA  with  Victoria relates to the early 2011 flooding in Victoria and outlined the three  priority areas the Victorian work plan was to target. It was to build on the  planning  work  undertaken  by  Regional  Development  Australia  committees  and local governments so as to ensure a strategic approach to reconstruction  and recovery efforts, incorporating the principles of local input and leverage.  In  addition,  the  Victorian  NPA  required  that  the  work  plan  for  that  state  provide information on Victorian procurement policies, outline a set of projects 

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to  assist  with  reconstruction  and  recovery,  and  outline  project  plans  and  strategies for projects over $5 million. 

NPA reviews

1.11 In  2012,  the  Taskforce  and  the  relevant  state  body  (QRA  and  representatives of the Victorian Secretaries’ Flood Recovery Group) undertook  reviews of the Queensland and Victorian NPAs. The reviews found that the  new  arrangements  were  largely  effective  at  coordinating  and  overseeing  reconstruction activity and did not recommend any changes to either NPA.26  Nevertheless, the review of the Victorian NPA noted some areas relating to  Commonwealth‐state collaboration in emergency recovery that would benefit  from further consideration between the Australian Government and the states  for  future  events.  Among  other  matters,  the  review  suggested  that  the  appropriate cost threshold and methodology for value for money assessments  should be considered for discussion and clarification. 

Audit objective, scope and criteria 1.12 The  ANAO  is  undertaking  three  audits  of  key  aspects  of  the  NPAs  signed with Queensland and Victoria in relation to natural disasters over the  2010-11 Australian spring and summer seasons. 

1.13 The  objective  of  this  audit  was  to  assess  the  effectiveness  of  the  Inspectorate, supported by the Taskforce, in providing assurance that value for  money  is  being  achieved  in  recovery  and  reconstruction  expenditure  in  Victoria. 

1.14 The  report  of  a  second  audit,  examining  the  effectiveness  of  the  Inspectorate in providing assurance that value for money is being achieved in  respect to Queensland reconstruction projects, is expected to be tabled in the  2013 Budget sittings. 

1.15 The ANAO has also undertaken a separate but related audit assessing  the extent to which the disaster recovery work plans required under the NPAs  for  Queensland  and  Victoria  were  prepared,  and  appropriate  monitoring  reports provided, in accordance with the relevant NPA. The report on that  audit is being tabled in conjunction with this report. 

26 A second review of each NPA is scheduled for 2013, once further progress has been made on the reconstruction program.

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to  assist  with  reconstruction  and  recovery,  and  outline  project  plans  and  strategies for projects over $5 million. 

NPA reviews

1.11 In  2012,  the  Taskforce  and  the  relevant  state  body  (QRA  and  representatives of the Victorian Secretaries’ Flood Recovery Group) undertook  reviews of the Queensland and Victorian NPAs. The reviews found that the  new  arrangements  were  largely  effective  at  coordinating  and  overseeing  reconstruction activity and did not recommend any changes to either NPA.26  Nevertheless, the review of the Victorian NPA noted some areas relating to  Commonwealth‐state collaboration in emergency recovery that would benefit  from further consideration between the Australian Government and the states  for  future  events.  Among  other  matters,  the  review  suggested  that  the  appropriate cost threshold and methodology for value for money assessments  should be considered for discussion and clarification. 

Audit objective, scope and criteria 1.12 The  ANAO  is  undertaking  three  audits  of  key  aspects  of  the  NPAs  signed with Queensland and Victoria in relation to natural disasters over the  2010-11 Australian spring and summer seasons. 

1.13 The  objective  of  this  audit  was  to  assess  the  effectiveness  of  the  Inspectorate, supported by the Taskforce, in providing assurance that value for  money  is  being  achieved  in  recovery  and  reconstruction  expenditure  in  Victoria. 

1.14 The  report  of  a  second  audit,  examining  the  effectiveness  of  the  Inspectorate in providing assurance that value for money is being achieved in  respect to Queensland reconstruction projects, is expected to be tabled in the  2013 Budget sittings. 

1.15 The ANAO has also undertaken a separate but related audit assessing  the extent to which the disaster recovery work plans required under the NPAs  for  Queensland  and  Victoria  were  prepared,  and  appropriate  monitoring  reports provided, in accordance with the relevant NPA. The report on that  audit is being tabled in conjunction with this report. 

26 A second review of each NPA is scheduled for 2013, once further progress has been made on the reconstruction program.

Introduction

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1.16 These  audits  focus  on  the  performance  of  the  relevant  Australian  Government entities in discharging their responsibilities following agreements  reached with the Queensland and Victorian Governments by the Australian  Government. 

Audit scope and criteria

1.17 The  audit  focused  on  the  activities  undertaken  by  the  Inspectorate,  supported by the Taskforce, specifically in relation to its oversight of the flood  recovery and reconstruction effort in Victoria. It also included examination of  the  level  of  scrutiny  applied  to  the  contractual  frameworks,  tendering  processes and project management systems developed by Victoria, and to the  rebuilding contracts, requests for reimbursement and benchmark prices. The  extent  to  which  the  Inspectorate  directly  inspected  projects  and  monitored  progress against milestones was also reviewed. 

1.18 The  audit  criteria  were  based  on  the  role  of  the  Inspectorate  as  announced by the Prime Minister in February 2011 and subsequently reflected  in  the  Inspectorate’s  terms  of  reference  (see  Appendix  2)  and  the  Victorian  NPA.27 In this regard, the audit also examined the development and operation  of  the  protocol  with  Victoria  for  Inspectorate  review  of  recovery  and  reconstruction projects. 

1.19 The  audit  was  conducted  in  accordance  with  ANAO  auditing  standards at a cost to the ANAO of $265 000. 

27 The terms of reference for the Taskforce are at Appendix 3.

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Report structure 1.20 The audit findings are reported in the following chapters. 

Chapter Chapter overview

2. Development of Operating Protocols

Examines the development of the Inspectorate’s operating protocol with Victoria and other relevant government agencies. It also assesses the extent to which the protocol facilitates effective oversight by the Inspectorate, supported by the Taskforce, to provide assurance that value for money is being achieved in recovery and reconstruction expenditure in Victoria.

3. Scrutiny of Recovery and Reconstruction Projects

Examines the scrutiny of Victorian recovery and reconstruction projects by the Taskforce and the Inspectorate, as well as other elements of the Inspectorate’s role in providing assurance that value for money is being received in reconstruction expenditure.

 

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Report structure 1.20 The audit findings are reported in the following chapters. 

Chapter Chapter overview

2. Development of Operating Protocols

Examines the development of the Inspectorate’s operating protocol with Victoria and other relevant government agencies. It also assesses the extent to which the protocol facilitates effective oversight by the Inspectorate, supported by the Taskforce, to provide assurance that value for money is being achieved in recovery and reconstruction expenditure in Victoria.

3. Scrutiny of Recovery and Reconstruction Projects

Examines the scrutiny of Victorian recovery and reconstruction projects by the Taskforce and the Inspectorate, as well as other elements of the Inspectorate’s role in providing assurance that value for money is being received in reconstruction expenditure.

 

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2. Development of Operating Protocols

This chapter examines the development of the Inspectorate’s operating protocol with  Victoria and other relevant government agencies. It also assesses the extent to which  the  protocol  facilitates  effective  oversight  by  the  Inspectorate,  supported  by  the  Taskforce, to provide assurance that value for money is being achieved in recovery and  reconstruction expenditure in Victoria. 

Introduction 2.1 Any government entity created to perform a new role or function can  be  expected  to  take  some  time  to  establish  its  internal  processes  and  procedures,  as  well  as  its  processes  for  interacting  with  other  government  departments  and  external  agencies.  In  this  context,  the  Inspectorate  was  established  by  the  Prime  Minister  on  7  February  2011.  Clause  7  of  the  Inspectorate’s terms of reference state that: 

The  Commonwealth  will  develop  operating  protocols  for  the  Inspectorate,  setting out how the Inspectorate will interact with other Commonwealth and  State bodies involved in reconstruction activity, as soon as is practicable after  the Inspectorate’s establishment. 

2.2 Clause  32  of  the  Victorian  NPA  signed  some  three  months  later  adopted  the  same  wording,  except  that  it  also  specified  that  both  the  ‘Commonwealth  and  Victoria’  will  develop  the  operating  protocols.28  The  Victorian flood recovery work plan signed on 16 December 2011, seven months  after  the  NPA  was  finalised,  assigned  responsibility  for  developing  the  operating protocols for the Inspectorate to the Senior Officials Coordination  Group (SOCG). 

2.3 The SOCG includes Commonwealth representatives from the Taskforce  and Emergency Management Australia (Attorney‐General’s Department), and  Victorian  representatives  from  the  Departments  of:  Primary  Industries;  Premier and Cabinet; Treasury and Finance; Human Services; and Health. The 

28 By way of comparison, the Queensland NPA reflected the terms of reference in that it required (at clause 39) the Commonwealth to develop operating protocols for the Inspectorate. For that state, the NPA included a further commitment that ‘The Commonwealth will consult the states when developing the

operating protocols’.

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SOCG is chaired by a Victorian official and met monthly in 2011, but now  meets bi‐monthly. 

2.4 Against  this  background,  the  ANAO  examined  whether  effective  protocols were developed in a timely manner with Victoria and other relevant  Australian Government agencies. 

Protocols with key agencies 2.5 Both  the  Victorian  and  Queensland  NPAs  indicated  that  operating  protocols  for  the  Inspectorate  would  be  developed  setting  out  how  the  Inspectorate  would  interact  with  other  Commonwealth  and  state  bodies  involved in reconstruction activity. 

2.6 The Inspectorate interacted with a range of Commonwealth and state  bodies29 from soon after it commenced operations. Given the requirement of  the NPA for operating protocols, it therefore is reasonable to expect that early  attention would have been given to developing either an overarching protocol  or a set of individual protocols covering dealings with each agency and clearly  specifying respective roles and responsibilities. Up to the time of preparation  of  this  ANAO  report,  the  only  protocols  developed  have  focused  on  interactions with state entities in Queensland and Victoria. Specifically: 

 in  mid‐September  2011,  the  Queensland  Reconstruction  Authority  (QRA)  provided  the  Taskforce  with  a  protocol  it  had  developed  to  guide  the  process  (including  QRA  response  timelines)  by  which  the  Taskforce  was  able  to  request  information  to  inform  the  conduct  of  value for money reviews.30 It also set out the documentation that QRA  would provide and stated that the Taskforce would not be provided  with  any  documentation  from  external  organisations  that  may  be  commercial‐in‐confidence.  That  protocol  was  accepted  by  the  Taskforce, without change, in late‐October 2011; and 

 a protocol with Victoria for value for money reviews of reconstruction  projects  in  that  state  (see  further  at  paragraphs  2.20  to  2.33).  The  protocol states (at clause 6) that it: 

29 Including around 30 Commonwealth and state bodies, in addition to numerous local government entities. 30 This is the only protocol developed to date with Queensland, and it was not developed by the Taskforce.

This is notwithstanding the Queensland NPA requiring the Commonwealth to develop operating protocols for the Inspectorate, in consultation with the state (see paragraph 2.2).

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SOCG is chaired by a Victorian official and met monthly in 2011, but now  meets bi‐monthly. 

2.4 Against  this  background,  the  ANAO  examined  whether  effective  protocols were developed in a timely manner with Victoria and other relevant  Australian Government agencies. 

Protocols with key agencies 2.5 Both  the  Victorian  and  Queensland  NPAs  indicated  that  operating  protocols  for  the  Inspectorate  would  be  developed  setting  out  how  the  Inspectorate  would  interact  with  other  Commonwealth  and  state  bodies  involved in reconstruction activity. 

2.6 The Inspectorate interacted with a range of Commonwealth and state  bodies29 from soon after it commenced operations. Given the requirement of  the NPA for operating protocols, it therefore is reasonable to expect that early  attention would have been given to developing either an overarching protocol  or a set of individual protocols covering dealings with each agency and clearly  specifying respective roles and responsibilities. Up to the time of preparation  of  this  ANAO  report,  the  only  protocols  developed  have  focused  on  interactions with state entities in Queensland and Victoria. Specifically: 

 in  mid‐September  2011,  the  Queensland  Reconstruction  Authority  (QRA)  provided  the  Taskforce  with  a  protocol  it  had  developed  to  guide  the  process  (including  QRA  response  timelines)  by  which  the  Taskforce  was  able  to  request  information  to  inform  the  conduct  of  value for money reviews.30 It also set out the documentation that QRA  would provide and stated that the Taskforce would not be provided  with  any  documentation  from  external  organisations  that  may  be  commercial‐in‐confidence.  That  protocol  was  accepted  by  the  Taskforce, without change, in late‐October 2011; and 

 a protocol with Victoria for value for money reviews of reconstruction  projects  in  that  state  (see  further  at  paragraphs  2.20  to  2.33).  The  protocol states (at clause 6) that it: 

29 Including around 30 Commonwealth and state bodies, in addition to numerous local government entities. 30 This is the only protocol developed to date with Queensland, and it was not developed by the Taskforce.

This is notwithstanding the Queensland NPA requiring the Commonwealth to develop operating protocols for the Inspectorate, in consultation with the state (see paragraph 2.2).

Development of Operating Protocols

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...outlines  how  the  Inspectorate  will  interact  with  Victoria  and  other  Commonwealth bodies involved in reconstruction activity. 

2.7 However, this is not the case. The protocol with Victoria includes no  clauses  addressing  how  the  Inspectorate  will  interact  with  any  other  Australian  Government  agencies.31  Similarly,  the  Queensland  protocol  developed by QRA in relation to submission requests does not address the  Inspectorate’s  interaction  with  other  Commonwealth  bodies  involved  in  reconstruction activity. The only possible exception to this situation relates to  the  Attorney‐General’s  Department  (AGD),  where  procedures  (but  not  a  protocol)  have  been  agreed  in  relation  to  ensuring  there  is  only  partial  reimbursement for projects that the Inspectorate determines do not represent  value for money. 

2.8 In this context, there would have been particular benefits in protocols  being developed early in the life of the Inspectorate for interactions with key  agencies  such  as  Emergency  Management  Australia  (EMA)  and  the  Department of Infrastructure and Transport (DIT). The role of these entities is  outlined below. 

Emergency Management Australia

2.9 EMA has overall policy responsibility for the NDRRA Determination,  except for the elements assigned to the Taskforce and the Inspectorate through  the  administrative  arrangements.  In  effect,  EMA  has  responsibility  for  all  disaster events throughout the other states of Australia, and all disaster events  before and after those specified in the NPAs with Queensland and Victoria.  The Inspectorate and the Taskforce are responsible only for events covered by  the NPAs. 

2.10 EMA has responsibility for approving all claims for reimbursement or  acquittal  of  NDRRA  advances  (irrespective  of  when  the  disaster  event  occurred).  Under  the  Federal  Financial  Relations  framework,  payments  are  made through Treasury. 

2.11 The need for a protocol with EMA was identified by the Taskforce as  early as mid‐July 2011. However, to date, a protocol has not been developed. 

31 As noted at paragraph 2.5, both the Victorian and Queensland NPAs indicated that operating protocols for the Inspectorate would be developed setting out how the Inspectorate would interact with other Commonwealth and state bodies involved in reconstruction activity.

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In addition,  it  was  not  until  August  2012  that  EMA  started  attending  Inspectorate meetings (as an observer). Greater engagement with EMA from  early in 2011 would have facilitated discussion about areas of shared interest  and enabled the Taskforce to benefit from EMA’s knowledge of the NDRRA  framework  (including  issues  concerning  the  application  of  the  NDRRA  eligibility requirements).32 

Procedure for Queensland projects not representing value for money

2.12 There is no prescribed course of action in the NPAs with Queensland  and  Victoria,  or  the  Inspectorate’s  terms  of  reference,  in  the  event  that  the  Inspectorate determines that value for money is not being achieved. 

2.13 In early May 2012, the Taskforce wrote to QRA outlining actions to be  taken  where  the  Inspectorate  determines  that  a  project  does  not  represent  value  for  money.  In  mid‐May  2012,  the  Minister  Assisting  on  Queensland  Floods  Recovery  wrote  to  the  Attorney‐General  (as  Minister  for  Emergency  Management)  on  this  matter,  and  a  process  was  agreed  by  the  Attorney‐General in late‐July 2012. That letter cited advice from PM&C that it  was not necessary to seek the Prime Minister’s approval ‘on administrative  arrangements that have been agreed at departmental level’. 

2.14 The process (which has not been described as a protocol) applies to  Queensland  projects  only.  The  Inspectorate  may  recommend  to  the  Attorney‐General  that  the  Commonwealth’s  reimbursement  under  NDRRA  reflect the likely cost of the project had value for money been achieved, rather  than the actual project costs incurred. The process also includes provision by  QRA  of  project  identification  information  to  EMA  at  the  time  of  NDRRA  acquittal, to prevent the full reimbursement of funds for these projects. The  pre‐claim  audit  undertaken  by  the  state  Auditor‐General  is  expected  to  consider  the  Inspectorate’s  recommendation  regarding  value  for  money.  Queensland  has  also  agreed  that  the  project  or  part  of  a  project  not  representing value for money would be excluded from the claim submitted to  EMA in the first instance, thus negating the need to recoup funds from the  state.  However,  this  does  not  reflect  that  considerable  funds  were  paid  to  Queensland in advance. 

32 For example in this respect, in October 2012 in its fifth report to the Prime Minister, the Inspectorate noted that: ‘While the (NDRRA) Determination provides some broad definitions of what is eligible for funding, there is a lack of clarity about how these definitions should be interpreted. The Inspectorate is

working closely with (EMA) to ensure that a consistent approach is applied.’

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In addition,  it  was  not  until  August  2012  that  EMA  started  attending  Inspectorate meetings (as an observer). Greater engagement with EMA from  early in 2011 would have facilitated discussion about areas of shared interest  and enabled the Taskforce to benefit from EMA’s knowledge of the NDRRA  framework  (including  issues  concerning  the  application  of  the  NDRRA  eligibility requirements).32 

Procedure for Queensland projects not representing value for money

2.12 There is no prescribed course of action in the NPAs with Queensland  and  Victoria,  or  the  Inspectorate’s  terms  of  reference,  in  the  event  that  the  Inspectorate determines that value for money is not being achieved. 

2.13 In early May 2012, the Taskforce wrote to QRA outlining actions to be  taken  where  the  Inspectorate  determines  that  a  project  does  not  represent  value  for  money.  In  mid‐May  2012,  the  Minister  Assisting  on  Queensland  Floods  Recovery  wrote  to  the  Attorney‐General  (as  Minister  for  Emergency  Management)  on  this  matter,  and  a  process  was  agreed  by  the  Attorney‐General in late‐July 2012. That letter cited advice from PM&C that it  was not necessary to seek the Prime Minister’s approval ‘on administrative  arrangements that have been agreed at departmental level’. 

2.14 The process (which has not been described as a protocol) applies to  Queensland  projects  only.  The  Inspectorate  may  recommend  to  the  Attorney‐General  that  the  Commonwealth’s  reimbursement  under  NDRRA  reflect the likely cost of the project had value for money been achieved, rather  than the actual project costs incurred. The process also includes provision by  QRA  of  project  identification  information  to  EMA  at  the  time  of  NDRRA  acquittal, to prevent the full reimbursement of funds for these projects. The  pre‐claim  audit  undertaken  by  the  state  Auditor‐General  is  expected  to  consider  the  Inspectorate’s  recommendation  regarding  value  for  money.  Queensland  has  also  agreed  that  the  project  or  part  of  a  project  not  representing value for money would be excluded from the claim submitted to  EMA in the first instance, thus negating the need to recoup funds from the  state.  However,  this  does  not  reflect  that  considerable  funds  were  paid  to  Queensland in advance. 

32 For example in this respect, in October 2012 in its fifth report to the Prime Minister, the Inspectorate noted that: ‘While the (NDRRA) Determination provides some broad definitions of what is eligible for funding, there is a lack of clarity about how these definitions should be interpreted. The Inspectorate is

working closely with (EMA) to ensure that a consistent approach is applied.’

Development of Operating Protocols

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Department of Infrastructure and Transport

2.15 Almost three quarters of the reconstruction expenditure identified in  the Victorian work plan related to roads and rail infrastructure. There are two  particular areas where a protocol with DIT setting out how the Inspectorate  would  interact  with  the  department  may  have  benefited  both  agencies  and  facilitated the work undertaken by the Taskforce. Specifically:  

 sharing  information  to  manage  the  risk  of  any  ‘double  dipping’  of  claims  under  NDRRA  and  DIT  programs,  including  the  Nation  Building,  Roads  to  Recovery,  Black  Spots  and  other  infrastructure  funding programs; and 

 drawing  on  DIT’s  experience  in  overseeing  funding  for  road  construction and other infrastructure projects across Australia. 

2.16 In January 2013, DIT advised the ANAO that its view is that partnering  agencies do not always require formal protocols to produce expected outcomes  in an efficient, effective and economic manner and, as such, was confident that  the absence of operating protocols between the Taskforce33 and DIT did not  impede the flood recovery and reconstruction effort in any way. DIT further  advised that: 

It  should  be  noted  that  DIT  worked  closely  and  cooperatively  with  the  Taskforce during the Victorian flood recovery and reconstruction effort. This  included official attendance on the Australian Government Disaster Recovery  Committee  (AGDRC)  -  identified  as  the  committee  to  take  forward  the  Commonwealth’s coordinated recovery efforts, and the AGDRC’s Secretaries’  Group, chaired by the Secretary, Attorney‐General’s department. 

2.17 In November 2012, Regional Australia also commented to the ANAO  that: ‘The absence of formal protocols with other Commonwealth agencies has  had no demonstrable impact on the work of the Taskforce or the Inspectorate.’  Similarly, the Chair of the Inspectorate advised that: 

I  think  this  is  an  area  where  some  early  thinking  around  governance  was  essentially overtaken by the practicalities of getting on with the job. I do not  believe  that  the  absence  of  formal  protocols  with  other  Commonwealth 

33 The requirement under the NPAs was for operating protocols between the Inspectorate and other Commonwealth and state bodies involved in reconstruction activity, not between the Taskforce and these other agencies. ANAO analysis has been in respect to the requirement of the NPA.

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agencies has impeded the Inspectorate’s work in any way, nor do I believe that  this has had an impact on the outcomes that have been achieved to date. 

2.18 However, AGD advised the ANAO in November 2012 that it noted: 

... particularly the finding that the work of the Inspectorate may have been  better  supported  had  an  operating  protocol  been  developed  with  EMA  to  assist with the understanding and application of the Natural Disaster Relief  and  Recovery  Arrangements.  Nevertheless,  EMA  has  been  working  closely  with the Department of Regional Australia, Local Government, Arts and Sport  since the establishment of the Taskforce in early 2011 and will continue to do  so until its work is complete. As noted in the issues paper, EMA has also been  working closely with the Inspectorate. 

2.19 As noted at paragraph 2.5, it was a requirement specified in the NPA  that protocols would be developed. As indicated above, in light of this being  the approach decided upon by the parties to the NPA, the ANAO considers  that  protocols  with  EMA  and  DIT  would  have  been  beneficial.  However,  where  matters  have  been  agreed  between  governments  (in  this  case,  that  protocols would be developed setting out how the Inspectorate would interact  with  other  Commonwealth  bodies),  but  subsequent  experiences  or  circumstances suggest that the approach envisaged by the NPA was no longer  beneficial, then it is reasonable to expect that the responsible agencies would  agree a revised approach to achieving the desired result, and obtain ministerial  endorsement as required.34 

Victorian protocol development timeframe 2.20 The  operating  protocol  was  required  to  be  developed  as  soon  as  practicable after the Inspectorate was established. However, the Taskforce took  almost  twelve  months  to  initiate  the  process  of  developing  the  protocol  (see Figure 2.1). 

34 In May 2012, the Taskforce advised the SOCG in relation to the NPA review then underway that one of the key issues for the review identified during Commonwealth consultation was the need for ‘clarification of the division of responsibility of Commonwealth departments’. This suggests that the existing

arrangements were less than fully effective. Matters such as this could have been addressed in the envisaged Inspectorate protocol (see paragraph 2.5).

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agencies has impeded the Inspectorate’s work in any way, nor do I believe that  this has had an impact on the outcomes that have been achieved to date. 

2.18 However, AGD advised the ANAO in November 2012 that it noted: 

... particularly the finding that the work of the Inspectorate may have been  better  supported  had  an  operating  protocol  been  developed  with  EMA  to  assist with the understanding and application of the Natural Disaster Relief  and  Recovery  Arrangements.  Nevertheless,  EMA  has  been  working  closely  with the Department of Regional Australia, Local Government, Arts and Sport  since the establishment of the Taskforce in early 2011 and will continue to do  so until its work is complete. As noted in the issues paper, EMA has also been  working closely with the Inspectorate. 

2.19 As noted at paragraph 2.5, it was a requirement specified in the NPA  that protocols would be developed. As indicated above, in light of this being  the approach decided upon by the parties to the NPA, the ANAO considers  that  protocols  with  EMA  and  DIT  would  have  been  beneficial.  However,  where  matters  have  been  agreed  between  governments  (in  this  case,  that  protocols would be developed setting out how the Inspectorate would interact  with  other  Commonwealth  bodies),  but  subsequent  experiences  or  circumstances suggest that the approach envisaged by the NPA was no longer  beneficial, then it is reasonable to expect that the responsible agencies would  agree a revised approach to achieving the desired result, and obtain ministerial  endorsement as required.34 

Victorian protocol development timeframe 2.20 The  operating  protocol  was  required  to  be  developed  as  soon  as  practicable after the Inspectorate was established. However, the Taskforce took  almost  twelve  months  to  initiate  the  process  of  developing  the  protocol  (see Figure 2.1). 

34 In May 2012, the Taskforce advised the SOCG in relation to the NPA review then underway that one of the key issues for the review identified during Commonwealth consultation was the need for ‘clarification of the division of responsibility of Commonwealth departments’. This suggests that the existing

arrangements were less than fully effective. Matters such as this could have been addressed in the envisaged Inspectorate protocol (see paragraph 2.5).

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Figure 2.1

Timeline for development of Victorian protocol

 

Source: ANAO analysis of Taskforce documentation.

2.21 As also illustrated by Figure 2.1, once the process of developing the  protocol  commenced,  the  Taskforce  generally  provided  a  reasonably  timely  turnaround of responses during the negotiations thereafter. In this regard, the  majority  of  the  delays  in  2012  occurred  while  the  Taskforce  was  awaiting  actioning of changes by Victoria. 

2.22 At its 13 August 2012 meeting, the Inspectorate was advised by the  Taskforce that the SOCG and the Taskforce had agreed to the protocol, and  Victoria had sent the protocol to its Deputy Premier for his approval, prior to  its  implementation.  The  Inspectorate  was  provided  with  a  copy  of  the  protocol.35 However, while the Taskforce advised the ANAO that the Victorian  protocol was developed with the input of the Inspectorate, the Inspectorate  was  not  requested  to  endorse  or  approve  the  Queensland  or  Victorian  protocols,  and  has  never  been  provided  with  a  copy  of  the  protocol  with  Queensland.36 

2.23 In November 2012, the Taskforce advised the ANAO that the Victorian  protocol was agreed at the 24 August 2012 meeting of the SOCG. This was  more  than  18 months  after  the  Inspectorate  had  been  established.  In  December 2012, the Taskforce provided the ANAO with correspondence to it  from the SOCG dated 6 December 2012 stating that the Deputy Premier had  endorsed both the review of the Victorian NPA and the protocol. 

35 As an attachment to ‘Agenda Item 3 - Taskforce Update - For Noting’. 36 The Inspectorate’s meeting records do not indicate that it had any input into the development of the

protocol with Victoria.

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2.24 In view of the extended period of time before the Taskforce provided  the first draft protocol to Victoria, and the subsequent protracted negotiations,  the requirement to develop operating protocols as soon as practicable after the  Inspectorate’s  establishment  was  not  met.  The  delays  in  initiating  and  finalising  the  protocol  have  adversely  affected  the  Inspectorate’s  ability  to  scrutinise Victorian reconstruction projects. This is because the SOCG agreed  in early December 2011 that the protocol should be developed ‘prior to any  further work or information being provided to the Commonwealth’ on flood  recovery projects for review. 

Matters covered in the Victorian protocol 2.25 The five main elements addressed in the 21 clauses of the three‐page  protocol for reviewing Victorian reconstruction projects are the: background;  projects for review; review methodology; value for money assessment process;  and reporting and resolution of issues. A copy of the protocol is included at  Appendix 4. 

2.26 The protocol provides that possible projects for Inspectorate review will  be identified by the SOCG (discussed further in Chapter 3). It also confines the  Inspectorate to interacting solely with the SOCG, except that it may also meet  with delivery agents and funding recipients during site visits. The protocol  requires that any requests for relevant project documentation be made to the  SOCG and, where possible, the Inspectorate’s review of a project for value for  money is to be conducted at the development phase of projects. The protocol  further  provides  that  Inspectorate  review  of  a  project  is  not  to  delay  reconstruction progress. 

2.27 More broadly, the Inspectorate retains a comparatively greater degree  of independence in relation to conducting Queensland project reviews than is  provided for by the protocol with Victoria. In particular, for Queensland there  is no requirement to provide the state with a progress report at the conclusion  of each tier of the assessment process, nor to consult the state where a project is  deemed  to  require  progression  to  a  next  tier  review.  (The  Inspectorate’s  three tier value for money review process is outlined in Appendix 5). 

2.28 It  was  the  last  section  of  the  protocol,  covering  the  reporting  and  resolution of value for money issues that presented the greatest challenge in  reaching agreement with Victoria. In April 2012, Victoria proposed that, where  the Inspectorate makes a finding that value for money has not been achieved  for a particular project, this would not affect the provision of NDRRA funding. 

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2.24 In view of the extended period of time before the Taskforce provided  the first draft protocol to Victoria, and the subsequent protracted negotiations,  the requirement to develop operating protocols as soon as practicable after the  Inspectorate’s  establishment  was  not  met.  The  delays  in  initiating  and  finalising  the  protocol  have  adversely  affected  the  Inspectorate’s  ability  to  scrutinise Victorian reconstruction projects. This is because the SOCG agreed  in early December 2011 that the protocol should be developed ‘prior to any  further work or information being provided to the Commonwealth’ on flood  recovery projects for review. 

Matters covered in the Victorian protocol 2.25 The five main elements addressed in the 21 clauses of the three‐page  protocol for reviewing Victorian reconstruction projects are the: background;  projects for review; review methodology; value for money assessment process;  and reporting and resolution of issues. A copy of the protocol is included at  Appendix 4. 

2.26 The protocol provides that possible projects for Inspectorate review will  be identified by the SOCG (discussed further in Chapter 3). It also confines the  Inspectorate to interacting solely with the SOCG, except that it may also meet  with delivery agents and funding recipients during site visits. The protocol  requires that any requests for relevant project documentation be made to the  SOCG and, where possible, the Inspectorate’s review of a project for value for  money is to be conducted at the development phase of projects. The protocol  further  provides  that  Inspectorate  review  of  a  project  is  not  to  delay  reconstruction progress. 

2.27 More broadly, the Inspectorate retains a comparatively greater degree  of independence in relation to conducting Queensland project reviews than is  provided for by the protocol with Victoria. In particular, for Queensland there  is no requirement to provide the state with a progress report at the conclusion  of each tier of the assessment process, nor to consult the state where a project is  deemed  to  require  progression  to  a  next  tier  review.  (The  Inspectorate’s  three tier value for money review process is outlined in Appendix 5). 

2.28 It  was  the  last  section  of  the  protocol,  covering  the  reporting  and  resolution of value for money issues that presented the greatest challenge in  reaching agreement with Victoria. In April 2012, Victoria proposed that, where  the Inspectorate makes a finding that value for money has not been achieved  for a particular project, this would not affect the provision of NDRRA funding. 

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2.29 Such an approach would have significantly reduced the benefits from  the Inspectorate conducting value for money reviews. It was also markedly  different  to  the  approach  reflected  in  the  procedures  developed  for  Queensland  in  mid‐2012.  Specifically,  the  agreed  procedure  in  relation  to  Queensland projects (outlined in paragraph 2.14) requires the Inspectorate to  notify EMA of the details of projects deemed not to represent value for money  so that the appropriate amounts can be deducted from the NDRRA claim for  reimbursement. 

2.30 The  finalised  wording  in  the  Victorian  protocol  better  protects  the  Australian  Government’s  interest  than  that  first  proposed  by  the  state.  However,  whereas  the  Queensland  protocol  provides  that  the  amount  of  NDRRA funding will be reduced where the Inspectorate concludes that value  for money has not been achieved, the Victorian protocol replicates the dispute  resolution mechanisms set out at clauses 39 to 42 of the NPA. Specifically, the  protocol provides that: 

If the Inspectorate believes value for money may not have been achieved in  relation to a particular project, the Inspectorate will hold discussions with the  SOCG to seek resolution prior to making a final conclusion. The Inspectorate  may make a determination that a project does not represent value for money.  A copy of the Inspectorateʹs report will be provided to the SOCG Secretariat  prior  to  submission  to  the  Victorian  Deputy  Premier  and  Commonwealth  Minister for Regional Australia for decision as to the implications of such a  determination.  If  the  Ministers  cannot  reach  agreement,  the  issues  will  be  referred to the Premier and Prime Minister. 

2.31 In this context, in January 2013 Regional Australia advised the ANAO  that: 

The  Inspectorate  still  retains  the  power  to  recommend  to  Senior  Commonwealth Ministers that NDRRA funding be reduced if it determines  that a project does not represent value for money. The decision as to whether  funding will be reduced ultimately resides with the Attorney‐General, who is  responsible for the NDRRA (as it does for Queensland projects). 

Matters not addressed

2.32 The protocol focuses on value for money reviews of projects and does  not  address  a  number  of  other  important  aspects  of  the  Inspectorate’s  interactions with Victoria. In particular, it is silent in relation to state reporting  on  flood  recovery  progress  (including  in  relation  to  agreeing  the  format,  content and frequency of reports after the initial six months covered by the 

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NPA).37  In  addition,  the  protocol  does  not  require  Victoria  to  disclose  information in relation to complaints or issues raised by the public.38 

2.33 The protocol also provides no insights into how the Inspectorate will  work  collaboratively  with  reconstruction  agencies  to  develop  and  review  contractual  frameworks,  tendering  processes  and  project  management  systems. As outlined in Appendix 2, this was one of the primary purposes of  the Inspectorate. Further, the protocol does not address the sharing of relevant  information  and  documentation  to  allow  the  use  of  NDRRA  funding  to  be  tracked from its source to the point of final expenditure and/or final recipient.  This was a key shared role and responsibility outlined at clause 20(b) of the  NPA. 

Conclusions 2.34 The  Inspectorate’s  terms  of  reference  stated  that  it  would  develop  operating  protocols  with  the  other  Commonwealth  and  state  bodies  with  which it interacts ‘as soon as is practicable after its establishment’. In its role of  providing  support  to  the  Inspectorate,  the  Taskforce  was  responsible  for  developing operating protocols. 

2.35 The Taskforce did not initiate the process of developing an operating  protocol  with  Victoria  until  early  2012.  The  protocol  was  finalised  in  August 2012, more than 18 months after the Inspectorate was established. The  time  taken  was  inconsistent  with  the  protocol  being  developed  as  soon  as  practical after the Inspectorate’s establishment. The delay in developing the  protocol  also  adversely  affected  the  Inspectorate’s  ability  to  scrutinise  Victorian reconstruction projects.39 However, while the protocol was submitted  by the SOCG to the Victorian Deputy Premier for approval, the Taskforce did  not seek the Inspectorate’s endorsement or approval of the protocol. 

37 Clause 22 of the NPA states that ‘reporting will operate monthly for a period of six months. The frequency and the form of reporting thereafter (is) to be agreed in the light of the milestones and the projects specified in the flood recovery work plan. Victoria and the Commonwealth acknowledge that the

circumstances of this agreement provide a clear need for reporting arrangements that are particular to this agreement.’ 38 That is, complaints made to or issues raised directly with Victorian state or local government entities in

relation to flood recovery and reconstruction. 39 This is because it was decided that the protocol should be developed prior to any information being provided to the Taskforce on flood recovery projects for review.

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NPA).37  In  addition,  the  protocol  does  not  require  Victoria  to  disclose  information in relation to complaints or issues raised by the public.38 

2.33 The protocol also provides no insights into how the Inspectorate will  work  collaboratively  with  reconstruction  agencies  to  develop  and  review  contractual  frameworks,  tendering  processes  and  project  management  systems. As outlined in Appendix 2, this was one of the primary purposes of  the Inspectorate. Further, the protocol does not address the sharing of relevant  information  and  documentation  to  allow  the  use  of  NDRRA  funding  to  be  tracked from its source to the point of final expenditure and/or final recipient.  This was a key shared role and responsibility outlined at clause 20(b) of the  NPA. 

Conclusions 2.34 The  Inspectorate’s  terms  of  reference  stated  that  it  would  develop  operating  protocols  with  the  other  Commonwealth  and  state  bodies  with  which it interacts ‘as soon as is practicable after its establishment’. In its role of  providing  support  to  the  Inspectorate,  the  Taskforce  was  responsible  for  developing operating protocols. 

2.35 The Taskforce did not initiate the process of developing an operating  protocol  with  Victoria  until  early  2012.  The  protocol  was  finalised  in  August 2012, more than 18 months after the Inspectorate was established. The  time  taken  was  inconsistent  with  the  protocol  being  developed  as  soon  as  practical after the Inspectorate’s establishment. The delay in developing the  protocol  also  adversely  affected  the  Inspectorate’s  ability  to  scrutinise  Victorian reconstruction projects.39 However, while the protocol was submitted  by the SOCG to the Victorian Deputy Premier for approval, the Taskforce did  not seek the Inspectorate’s endorsement or approval of the protocol. 

37 Clause 22 of the NPA states that ‘reporting will operate monthly for a period of six months. The frequency and the form of reporting thereafter (is) to be agreed in the light of the milestones and the projects specified in the flood recovery work plan. Victoria and the Commonwealth acknowledge that the

circumstances of this agreement provide a clear need for reporting arrangements that are particular to this agreement.’ 38 That is, complaints made to or issues raised directly with Victorian state or local government entities in

relation to flood recovery and reconstruction. 39 This is because it was decided that the protocol should be developed prior to any information being provided to the Taskforce on flood recovery projects for review.

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2.36 The  Victorian  protocol  does  not  address  a  number  of  the  key  responsibilities  of  the  Inspectorate  set  out  in  its  terms  of  reference.  For  example,  it  does  not  outline  the  processes  by  which  the  Inspectorate  is  to  review  the  state’s  contractual  frameworks,  tendering  processes  and  project  management  systems.  It  also  does  not  address  the  sharing  of  relevant  information and documentation that would be necessary for the Inspectorate  to  track  the  use  of  NDRRA  funding  from  its  source  to  the  point  of  final  expenditure. 

2.37 In large part, those matters that are addressed by the protocol involve  restrictions  being  placed  on  the  way  in  which  the  Inspectorate  is  able  to  conduct its value for money project reviews. Of note is that possible projects  for Inspectorate review are to be identified by the state, rather than the state  being required to provide information on all reconstruction projects to enable  the Taskforce to identify a sample of projects for review (which is the approach  taken in Queensland, and was the approach originally envisaged for Victoria  as well).40 In addition, the procedures approved by the Attorney‐General in  relation to Queensland provide for NDRRA funding to be reduced where a  project review concludes that value for money is not being achieved, but the  Victorian protocol instead provides for a process of dispute resolution. 

2.38 The  NPAs  required  protocols  to  be  developed,  but  agencies  have  advised the ANAO that they have worked closely, notwithstanding that no  steps were taken to develop operating protocols with other Commonwealth  entities  (such  as  Emergency  Management  Australia,  which  administers  NDRRA,  or  the  Department  of  Infrastructure  and  Transport,  which  administers the Australian Government funding for land transport projects,  including in respect to infrastructure that has been the subject of reconstruction  work). While there have been different views expressed about the benefits of  protocols, the Attorney‐General’s Department particularly noted the ANAO’s  finding that the work of the Inspectorate may have been better supported had  an operating protocol been developed with Emergency Management Australia  to assist with the understanding and application of the Natural Disaster Relief  and Recovery Arrangements. 

 

40 The protocol states that the Inspectorate may also ‘propose’ to review additional projects to those identified by the state.

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3. Scrutiny of Recovery and Reconstruction Projects

This  chapter  examines  the  extent  to  which  value  for  money  reviews  have  been  undertaken of recovery and reconstruction projects in Victoria. It also examines other  elements of the Inspectorate’s role in providing assurance that value for money is being  received in reconstruction expenditure. 

Introduction 3.1 The Victorian work plan reported that 56 LGAs were impacted by the  floods in early 2011, with 29 of those significantly impacted. It also identified  that, of the total estimated damage cost of $1.1 billion, the estimated gross cost  to the Victorian and Australian Governments as a result of the floods in late  2010  and  early  2011  was  expected  to  be  $766.7 million.41  As  indicated  in  Chapter 1, upon reaching agreement to the terms of the NPA, the Australian  Government advanced $500 million in assistance to Victoria under NDRRA. As at 30 November 2012, total project expenditure of some $749 million had  been reported to the Taskforce by Victoria. 

3.2 At the commencement of operations, the Inspectorate and the Taskforce  focused  their  attention  on  reconstruction  progress  and  projects  in  Queensland.42  This  reflected  that  the  majority  of  the  expected  expenditure  (and therefore risk) related to that state. Nevertheless, reconstruction activity  in Victoria was significant in absolute terms (as illustrated, for example, by the  $500 million advance payment) and relative to the amount of natural disaster  assistance expenditure  typically experienced.43 In this context, the Taskforce  has  advised  the  ANAO  that  it  has  provided  the  Australian  Government 

41 This estimate included damage arising from events outside the NPA (that is, flooding that occurred before early 2011).

42 In this respect, in June 2011, in its first four-monthly report to the Prime Minister, the Inspectorate stated that: ‘Current damage estimates from Queensland and Victoria indicate that the Commonwealth’s contribution to the reconstruction effort will be in the order of $5 billion. Over 90 per cent of that

expenditure will occur in Queensland. The focus of the majority of the Inspectorate’s work in this period has, therefore, been to establish appropriate frameworks in Queensland, where the majority of the risk lies.’ 43

The average total annual payment to all states under NDRRA (and its predecessor, the Natural Disaster Relief Arrangements) between 2001-02 and 2009-10 was less than $100 million. Category C and D assistance measures were added to the Arrangements in 2007.

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3. Scrutiny of Recovery and Reconstruction Projects

This  chapter  examines  the  extent  to  which  value  for  money  reviews  have  been  undertaken of recovery and reconstruction projects in Victoria. It also examines other  elements of the Inspectorate’s role in providing assurance that value for money is being  received in reconstruction expenditure. 

Introduction 3.1 The Victorian work plan reported that 56 LGAs were impacted by the  floods in early 2011, with 29 of those significantly impacted. It also identified  that, of the total estimated damage cost of $1.1 billion, the estimated gross cost  to the Victorian and Australian Governments as a result of the floods in late  2010  and  early  2011  was  expected  to  be  $766.7 million.41  As  indicated  in  Chapter 1, upon reaching agreement to the terms of the NPA, the Australian  Government advanced $500 million in assistance to Victoria under NDRRA. As at 30 November 2012, total project expenditure of some $749 million had  been reported to the Taskforce by Victoria. 

3.2 At the commencement of operations, the Inspectorate and the Taskforce  focused  their  attention  on  reconstruction  progress  and  projects  in  Queensland.42  This  reflected  that  the  majority  of  the  expected  expenditure  (and therefore risk) related to that state. Nevertheless, reconstruction activity  in Victoria was significant in absolute terms (as illustrated, for example, by the  $500 million advance payment) and relative to the amount of natural disaster  assistance expenditure  typically experienced.43 In this context, the Taskforce  has  advised  the  ANAO  that  it  has  provided  the  Australian  Government 

41 This estimate included damage arising from events outside the NPA (that is, flooding that occurred before early 2011).

42 In this respect, in June 2011, in its first four-monthly report to the Prime Minister, the Inspectorate stated that: ‘Current damage estimates from Queensland and Victoria indicate that the Commonwealth’s contribution to the reconstruction effort will be in the order of $5 billion. Over 90 per cent of that

expenditure will occur in Queensland. The focus of the majority of the Inspectorate’s work in this period has, therefore, been to establish appropriate frameworks in Queensland, where the majority of the risk lies.’ 43 The average total annual payment to all states under NDRRA (and its predecessor, the Natural Disaster Relief Arrangements) between 2001-02 and 2009-10 was less than $100 million. Category C and D assistance measures were added to the Arrangements in 2007.

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Reconstruction Inspectorate with an overview of recovery and reconstruction  progress in both Victoria and Queensland. 

3.3 Against this background, in August 2011, the Inspectorate wrote to the  ANAO  outlining  its  proposed  review  methodology,  including  the  use  of  sampling to identify those projects that would be selected for review. The focus  of the Inspectorate’s correspondence was arrangements that had been agreed  with  Queensland.  The  Inspectorate  noted  that  its  initial  focus  had  been  on  developing arrangements for that state, given the expenditure governed by the  Queensland NPA was expected to be significantly greater than that under the  Victorian NPA. The Taskforce also discussed the proposed methodology with  the ANAO, including advising that a similar sampling methodology and tiered  assessment approach would be used in Victoria, but that fewer projects were  expected to be examined, given the different scale of the natural disasters in  the two states. 

3.4 The  ANAO  provided  preliminary  observations  on  the  review  methodology  to  the  Inspectorate  (based  on  the  advice  provided  by  the  Inspectorate and the Taskforce, and recognising that performance audit work  had yet to commence). These preliminary observations included supporting  the: 

 benefits of a robust sampling approach being developed to select the  projects  to  be  reviewed  by  the  Inspectorate,  including  drawing  on  actuarial and other expert advice as an input to Inspectorate decisions  on sample size and methodology; 

 Inspectorate retaining the capacity to investigate the value for money of  projects that are not included in the sample, including those referred to  the Inspectorate by state or local government bodies or as the result of a  complaint  by  a  member  of  the  public,  as  well  as  to  expand  review  activities  should  the  findings  of  the  initial  work  provide  cause  for  concern; and 

 adoption of a tiered assessment process, with sampled projects that are  seen as being at greater risk of not representing value for money being  subject  to  a  more  detailed  review  than  those  where  initial  work  indicates value for money is likely to be achieved. 

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3.5 Against this background, the ANAO examined: 

 the  approach  developed  for  identifying  projects  for  review  in  Queensland  (as  this  was  where  the  Inspectorate  initially  focused  its  attention); 

 the extent to which a similarly robust process for selecting Victorian  projects for review has been put in place, including any evidence that  complex or high value projects have not been the subject of a value for  money review by the Taskforce; and 

 other elements of the Inspectorate’s role in providing assurance that  value for money is being received, as specified in its terms of reference. 

Approach to identifying Queensland projects for review 3.6 Based  on  actuarial  consultants’  advice  in  mid‐2011,  the  Taskforce  proposed, and the Inspectorate endorsed, the use of a Cumulative Monetary  Amount (CMA)44 sample for the projects to be reviewed in Queensland. At this  time, the expected value of the Queensland projects within the Inspectorate’s  mandate was $5.4 billion. 

3.7 As outlined in the Inspectorate’s second report to the Prime Minister,  the primary reason for adopting this sampling methodology was that it would  ‘provide  a  95 per cent  level  of  confidence  that  the  sample  results  can  be  extrapolated  across  all  reconstruction  projects’  in  that  state.45  A  further  consideration was that this methodology also favours the selection of higher  value projects over lower value projects. 

3.8 The CMA sample is supplemented by projects directly selected by the  Taskforce or the Inspectorate. The Taskforce has stated that the reasons for  direct selection include that the project: 

44 Under CMA sampling, the projects are listed in the order in which they were approved, a running total of the cumulative total value of the projects is maintained, and projects that cross a predetermined threshold are selected.

45 The Taskforce’s August 2011 correspondence to the ANAO (see paragraph 3.3) outlined a similar rationale for the approach adopted in Queensland.

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3.5 Against this background, the ANAO examined: 

 the  approach  developed  for  identifying  projects  for  review  in  Queensland  (as  this  was  where  the  Inspectorate  initially  focused  its  attention); 

 the extent to which a similarly robust process for selecting Victorian  projects for review has been put in place, including any evidence that  complex or high value projects have not been the subject of a value for  money review by the Taskforce; and 

 other elements of the Inspectorate’s role in providing assurance that  value for money is being received, as specified in its terms of reference. 

Approach to identifying Queensland projects for review 3.6 Based  on  actuarial  consultants’  advice  in  mid‐2011,  the  Taskforce  proposed, and the Inspectorate endorsed, the use of a Cumulative Monetary  Amount (CMA)44 sample for the projects to be reviewed in Queensland. At this  time, the expected value of the Queensland projects within the Inspectorate’s  mandate was $5.4 billion. 

3.7 As outlined in the Inspectorate’s second report to the Prime Minister,  the primary reason for adopting this sampling methodology was that it would  ‘provide  a  95 per cent  level  of  confidence  that  the  sample  results  can  be  extrapolated  across  all  reconstruction  projects’  in  that  state.45  A  further  consideration was that this methodology also favours the selection of higher  value projects over lower value projects. 

3.8 The CMA sample is supplemented by projects directly selected by the  Taskforce or the Inspectorate. The Taskforce has stated that the reasons for  direct selection include that the project: 

44 Under CMA sampling, the projects are listed in the order in which they were approved, a running total of the cumulative total value of the projects is maintained, and projects that cross a predetermined threshold are selected.

45 The Taskforce’s August 2011 correspondence to the ANAO (see paragraph 3.3) outlined a similar rationale for the approach adopted in Queensland.

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 represents particular interest or risk to the Commonwealth46; 

 provides greater stratification of location or delivery agent; 

 has been identified through the complaints process; or 

 has been identified by QRA as representing high risk. 

3.9 The  current  process  for  selecting  projects  is  that  QRA  provides  an  updated list of approved projects to the Taskforce approximately monthly. The  Taskforce  requests  access  to  the  project  files  in  the  QRA  database  for  the  projects it has selected (using the CMA sampling methodology or by direct  selection) and then downloads the relevant documentation. 

3.10 QRA  has  reported  that,  by  early  October  2012,  nearly  $4.5 billion  in  project submissions had been approved, with more than $2.9 billion paid by it  to LGAs and SDAs, including nearly $1.2 billion in NDRRA grant advances.  Similarly,  each  of  the  five  reports  provided  by  the  Inspectorate  to  the  Prime Minister between June 2011 and October 2012 has consistently reported  that there has been significant reconstruction progress, as evidenced by the  pipeline of works. 

3.11 As  at  early  October  2012,  the  Taskforce  had  selected  91 Queensland  projects47 for value for money reviews and intended to select at least another  51 projects. The estimated total cost of the 91 projects at the time they were  selected  was  $2.02 billion.  By  way  of  comparison,  the  Taskforce  advised  Victoria  in  mid‐June  2011  that  only  two  or  three  Victorian  projects  may  be  selected for review.48 

3.12 Consistent  with  the  expected  focus  of  the  Inspectorate’s  work  on  complex or high value projects, the value of the 91 Queensland projects already  selected for review represents some 45 per cent of the total value of projects  approved as at early October 2012. Reflecting the importance of the project  review population being representative, over 30 projects (about one in every  three projects selected) had an approved value that was less than $5 million. 

46 Such as: high value projects (over $20 million); delivery agents that have been identified as high risk from previous projects/programs; delivery agents operating significantly beyond their capital expenditure (three times greater than usual); projects that have or are likely to attract significant media attention; and

Category D projects. 47 Including 13 projects outside the CMA sample (as per paragraph 3.8). 48

However, at the time this advice was provided to Victoria there had been no Inspectorate decision regarding the number of projects it expected to review.

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Scope of review activities in Victoria 3.13 The  Prime  Minister’s  7  February  2011  announcement  of  the  Inspectorate’s  establishment  stated  that  the  Inspectorate  was  expected  to  ‘increase scrutiny and accountability of rebuilding projects’ and that: 

While the Inspectorate will be able to review any relevant project, it will have a  particular focus on high value, complex contracts. [emphasis added] 

3.14 The  Victorian  NPA,  similar  to  the  Queensland  NPA,  committed  the  Commonwealth to establishing the Inspectorate to ‘oversee the construction  activity to provide assurance that value for money is being achieved in the  expenditure  of  Commonwealth  funds  during  the  reconstruction  phase’  (at clause 31  of  the  Victorian  NPA).  Clause  32  further  provided  that  the  Commonwealth  and  Victoria  would  develop  operating  protocols  for  the  Inspectorate. 

3.15 Separate to clause 31 of the NPA, which outlines the establishment of  the Inspectorate and the scope of its value for money review activities, the  NPA included a $5 million threshold in relation to project plans and strategies.  In this respect: 

 clause 13 states that the Victorian Flood Recovery Work Plan would,  among other things, ‘outline project plans and strategies for projects  over $5 million’49; and 

 clause 36 states that ‘To assist the Inspectorate in providing assurance  that  value  for  money  is  being  achieved  in  the  expenditure  of  Commonwealth funds during the reconstruction phase, the Victorian  Government will seek the views of the Inspectorate on proposed project  plans and strategies for projects over $5 million’. 

3.16 Accordingly, and consistent with the Prime Minister’s February 2011  announcement,  the  NPA  does  not  overtly  restrict  the  scope  of  the  Inspectorate’s review activities to projects with a value greater than $5 million.  Rather, the wording of the NPA indicates that the provision of proposed plans  and  strategies  for  projects  over  $5 million  was  intended  to  assist  the  Inspectorate undertake its work. 

49 The ANAO's audit of the preparation of the natural disaster recovery work plans for Queensland and Victoria identified that the Victorian work plan did not outline the project plans and strategies that the state proposed to adopt for any projects with a value greater than $5 million.

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Scope of review activities in Victoria 3.13 The  Prime  Minister’s  7  February  2011  announcement  of  the  Inspectorate’s  establishment  stated  that  the  Inspectorate  was  expected  to  ‘increase scrutiny and accountability of rebuilding projects’ and that: 

While the Inspectorate will be able to review any relevant project, it will have a  particular focus on high value, complex contracts. [emphasis added] 

3.14 The  Victorian  NPA,  similar  to  the  Queensland  NPA,  committed  the  Commonwealth to establishing the Inspectorate to ‘oversee the construction  activity to provide assurance that value for money is being achieved in the  expenditure  of  Commonwealth  funds  during  the  reconstruction  phase’  (at clause 31  of  the  Victorian  NPA).  Clause  32  further  provided  that  the  Commonwealth  and  Victoria  would  develop  operating  protocols  for  the  Inspectorate. 

3.15 Separate to clause 31 of the NPA, which outlines the establishment of  the Inspectorate and the scope of its value for money review activities, the  NPA included a $5 million threshold in relation to project plans and strategies.  In this respect: 

 clause 13 states that the Victorian Flood Recovery Work Plan would,  among other things, ‘outline project plans and strategies for projects  over $5 million’49; and 

 clause 36 states that ‘To assist the Inspectorate in providing assurance  that  value  for  money  is  being  achieved  in  the  expenditure  of  Commonwealth funds during the reconstruction phase, the Victorian  Government will seek the views of the Inspectorate on proposed project  plans and strategies for projects over $5 million’. 

3.16 Accordingly, and consistent with the Prime Minister’s February 2011  announcement,  the  NPA  does  not  overtly  restrict  the  scope  of  the  Inspectorate’s review activities to projects with a value greater than $5 million.  Rather, the wording of the NPA indicates that the provision of proposed plans  and  strategies  for  projects  over  $5 million  was  intended  to  assist  the 

Inspectorate undertake its work. 

49 The ANAO's audit of the preparation of the natural disaster recovery work plans for Queensland and Victoria identified that the Victorian work plan did not outline the project plans and strategies that the state proposed to adopt for any projects with a value greater than $5 million.

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Limitation agreed to by the Taskforce on Inspectorate review activities

3.17 An initial draft of the operating protocol prepared by the Taskforce in  December 2011 stated that ‘The Taskforce will work with the SOCG to identify  relevant projects for review’. The Inspectorate had also reported in its second  report to the Prime Minister on 8 November 2011 that it ‘is continuing to work  with Victoria to identify relevant projects’ for review. 

3.18 However,  later  drafts  of  the  protocol  proposed  that  the  Taskforce  would  rely  on  the  state  to  identify  projects  for  review.  The  rationale  for  changing  from  a  joint  approach  was  not  documented.  Nor  was  there  any  rationale documented for the protocol not requiring the regular provision of a  list of projects for the Taskforce to sample from (as occurs with Queensland -  see paragraph 3.9).50 

3.19 Later  drafts  of  the  protocol  included  a  further  restriction  on  the  Inspectorate’s  ability  to  review  Victorian  reconstruction  projects.  In  this  respect,  a  January  2012  draft  proposed  by  the  Taskforce  provided  for  the  SOCG to identify possible projects for review, ‘especially those projects worth  more than $5 million’.51 

3.20 Victoria proposed revised wording to clause 10 of the protocol in mid‐ April  2012,  which  would  further  restrict  the  Inspectorate’s  scrutiny  to  only  those  projects  valued  at  more  than  $5  million.  The  revision  was  accepted  without  question  by  the  Taskforce.  As  a  result,  clause  10  of  the  finalised  protocol: 

50 In December 2012, the Taskforce advised the ANAO that ‘Victoria has advised that it is unable to provide a list of projects’. However, the Taskforce first requested a list of projects from Victoria on 24 September 2012, one month after the SOCG agreed to the protocol. Rather than Victoria being

‘unable to provide a list of projects, the response provided by Victoria on 14 November 2012 advised the Taskforce that ‘providing the Inspectorate with a complete list of projects undertaken, would be inconsistent with the spirit of the (Intergovernmental Agreement on Federal Financial Relations) and early discussions of the SOCG’. 51

This clearly countenances the possibility of examining projects valued at less than $5 million. At the same time, the Taskforce made an offer to Victoria to include in the protocol in relation to clause 36 of the NPA ‘something … about the Inspectorate seeing proposed project plans and strategies for projects over $5m’. (An offer that was not taken up by Victoria). This suggests that the Taskforce had a literal understanding of the clauses of the NPA at that time in relation to the Inspectorate’s ability to examine all projects, and to provide its views on project plans and strategies for projects valued at or above $5 million.

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 on a literal reading of the NPA, incorrectly52 links the identification of  possible projects to clause 36 of the NPA, with the $5 million threshold;  and 

 otherwise permits the Inspectorate to ‘propose’ to the SOCG additional  projects to review. 

3.21 In  addition,  notwithstanding  that  clause  10  of  the  protocol  provides  that the Inspectorate may propose additional projects for review, at the time of  preparing  this  report,  no  additional  Victorian  projects  (beyond  those  nominated  by  that  state)  had  been  put  forward  by  the  Taskforce  to  the  Inspectorate for review. 

Taskforce advice

3.22 In  its  June  2011  first  report  to  the  Prime  Minister,  the  Inspectorate  foreshadowed that a sampling approach to selecting projects for review would  be adopted in both Queensland and Victoria. Specifically, this report stated  that: 

A rolling work program will be developed for the Inspectorate that identifies  projects for examination and scrutiny on a quarterly basis. The work program  will  be  based  on  risk‐based  sampling  methodology  and  data  analysis  of  information supplied from State governments (in the first instance QRA) and  may also include projects that have been referred to the Inspectorate by state  or local government bodies or as a complaint by a member of the public. 

3.23 While  project  sampling  has  been  employed  in  Queensland  (see paragraphs 3.6 and 3.12), no sampling has been employed in Victoria.53  Rather, commencing with the November 2011 second report prepared for the  Inspectorate by the Taskforce, the Prime Minister has been advised that: 

52 As noted at paragraph 3.15, the $5 million threshold included in the NPA is an additional requirement (separate to the clauses relating to value for money reviews by the Inspectorate) to obtain the views of the Inspectorate on proposed project plans and strategies, but does not overtly prevent Inspectorate

review of projects (whether under or over $5 million) that have commenced or been completed. 53 In January 2013, Regional Australia advised the ANAO that ‘the Inspectorate’s methodology for identifying projects to review in Victoria is straightforward: all projects valued over $5 million are subject

to Inspectorate review.’ A decision to adopt such a methodology is not recorded in the minutes of the Inspectorate meetings, and the Taskforce had earlier advised Victoria that ‘only two or three Victorian projects may be selected for review’ (see paragraph 3.11).

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 on a literal reading of the NPA, incorrectly52 links the identification of  possible projects to clause 36 of the NPA, with the $5 million threshold;  and 

 otherwise permits the Inspectorate to ‘propose’ to the SOCG additional  projects to review. 

3.21 In  addition,  notwithstanding  that  clause  10  of  the  protocol  provides  that the Inspectorate may propose additional projects for review, at the time of  preparing  this  report,  no  additional  Victorian  projects  (beyond  those  nominated  by  that  state)  had  been  put  forward  by  the  Taskforce  to  the  Inspectorate for review. 

Taskforce advice

3.22 In  its  June  2011  first  report  to  the  Prime  Minister,  the  Inspectorate  foreshadowed that a sampling approach to selecting projects for review would  be adopted in both Queensland and Victoria. Specifically, this report stated  that: 

A rolling work program will be developed for the Inspectorate that identifies  projects for examination and scrutiny on a quarterly basis. The work program  will  be  based  on  risk‐based  sampling  methodology  and  data  analysis  of  information supplied from State governments (in the first instance QRA) and  may also include projects that have been referred to the Inspectorate by state  or local government bodies or as a complaint by a member of the public. 

3.23 While  project  sampling  has  been  employed  in  Queensland  (see paragraphs 3.6 and 3.12), no sampling has been employed in Victoria.53  Rather, commencing with the November 2011 second report prepared for the  Inspectorate by the Taskforce, the Prime Minister has been advised that: 

52 As noted at paragraph 3.15, the $5 million threshold included in the NPA is an additional requirement (separate to the clauses relating to value for money reviews by the Inspectorate) to obtain the views of the Inspectorate on proposed project plans and strategies, but does not overtly prevent Inspectorate

review of projects (whether under or over $5 million) that have commenced or been completed. 53 In January 2013, Regional Australia advised the ANAO that ‘the Inspectorate’s methodology for identifying projects to review in Victoria is straightforward: all projects valued over $5 million are subject

to Inspectorate review.’ A decision to adopt such a methodology is not recorded in the minutes of the Inspectorate meetings, and the Taskforce had earlier advised Victoria that ‘only two or three Victorian projects may be selected for review’ (see paragraph 3.11).

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The  Inspectorate  may  review  Victorian  reconstruction  projects  exceeding  $5 million in value. Any such reviews will be in addition to those Queensland  projects captured under the sampling methodology. 

... To date, there have been no approved Victorian projects which exceed the  $5 million trigger for Inspectorate  review. The Inspectorate  is continuing to  work with Victoria to identify relevant projects. 

3.24 The  third  report  (provided  in  February  2012)  stated  that  review  of  reconstruction projects in Victoria for value for money would begin ‘shortly’,  with three initial projects identified. However, this did not occur. Instead, in  the  June  2012  fourth  report,  the  Prime  Minister  was  advised  that:  ‘The  Inspectorate has received initial information pertaining to the first Victorian  reconstruction project to be reviewed, and assessment of this project will begin  shortly.’  No  explanation  was  provided  as  to  why  reviews  of  three  projects  foreshadowed in the February 2012 report had not been undertaken. 

3.25 In  addition,  commencing  with  the  fourth  report,  the  Prime  Minister  was  advised  that  the  NPA  limited  the  scope  of  the  Inspectorate’s  review  activities  in  Victoria.  Specifically,  the  fourth  report  and  the  October 2012  fifth report stated that: 

The National Partnership Agreement on Victorian Flood Reconstruction and  Recovery prescribes that the Inspectorate can only review projects for value for  money that are valued at more than $5 million. 

3.26 The fifth report further advised that: 

It should be noted that the Inspectorate’s visibility of project level activity in  Victoria is limited, due to the financial threshold for its review of projects that  is  prescribed  in  the  National  Partnership  Agreement  for  Victorian  Flood  Reconstruction  and  Recovery.  This  agreement  between  the  Victorian  and  Commonwealth Governments prescribes that a project must meet a $5 million  cost threshold for a detailed value‐for‐money assessment to be conducted by  the Inspectorate. To date, only one project in Victoria has met this criterion. 

3.27 The  advice  included  in  these  reports  does  not  reflect  the  actual  provisions  of  the  NPA.  Specifically,  the  NPA  does  not  include  any  overt  restriction  on  the  Inspectorate  reviewing  projects  valued  at  or  below  $5 million. 

3.28 In September 2012, the ANAO drew to the Taskforce’s attention that  the NPA includes no such restriction on the Inspectorate’s activities. Rather,  the $5 million threshold specified in the NPA relates to proposed project plans 

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and strategies and that it was through the operating protocol that a $5 million  threshold on value for money reviews was introduced. 

3.29 The  Taskforce  did  not  provide  the  ANAO  with  any  analysis  that  supported  its  perspective  that  the  NPA  restricts  the  Inspectorate’s  review  activities. Instead, the October 2012 report to the Prime Minister continued the  earlier practice of stating that the NPA ‘prescribes that the Inspectorate can  only review for value for money those projects that are valued at more than  $5 million’. 

3.30 In November 2012, Regional Australia advised the ANAO that both the  Victorian and the Commonwealth Governments: 

 ... clearly understand the Victorian NPA to contain a $5 million threshold for  projects  that  can  be  assessed  by  the  Inspectorate.  ...  it  is  evident  from  the  interactions of both Ministers and officials, both during the negotiation period  and  after  the  Victorian  NPA  was  signed,  that  this  was  the  interpretation  intended. 

3.31 PM&C  provided  similar  advice  to  the  ANAO  in  December  2012.  Specifically, the ANAO was advised that: 

It was the clear intention of the Commonwealth at the time of drafting of the  NPA that no individual reconstruction projects in Victoria would be subject to  value for money assessment by the Inspectorate unless the value of the project  exceeded $5 million. 

3.32 The  ANAO’s  September  2012  discussions  with  the  Taskforce  also  highlighted to the Taskforce that it was not obtaining any data from Victoria to  satisfy  itself  that  there  was  only  one  project  in  Victoria  (from  a  $1 billion  program of works) with a value greater than $5 million. The ANAO suggested  that the Taskforce should be obtaining regular reports on project applications  and approvals, similar to the approach that has been taken with Queensland.  Subsequently, the Taskforce prepared correspondence for the Inspectorate to  Victoria seeking ‘further details of projects being undertaken in Victoria or, at a  minimum,  a  list  of  tenders  in  excess  of  $5 million  that  have  been  let’  (see  further at paragraphs 3.54 to 3.60). 

Victorian projects identified for review 3.33 As noted in paragraph 1.10, it was a requirement of the NPA that the  Victorian work plan outline a set of projects to assist with reconstruction and  recovery in that state, and outline project plans and strategies for projects over 

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and strategies and that it was through the operating protocol that a $5 million  threshold on value for money reviews was introduced. 

3.29 The  Taskforce  did  not  provide  the  ANAO  with  any  analysis  that  supported  its  perspective  that  the  NPA  restricts  the  Inspectorate’s  review  activities. Instead, the October 2012 report to the Prime Minister continued the  earlier practice of stating that the NPA ‘prescribes that the Inspectorate can  only review for value for money those projects that are valued at more than  $5 million’. 

3.30 In November 2012, Regional Australia advised the ANAO that both the  Victorian and the Commonwealth Governments: 

 ... clearly understand the Victorian NPA to contain a $5 million threshold for  projects  that  can  be  assessed  by  the  Inspectorate.  ...  it  is  evident  from  the  interactions of both Ministers and officials, both during the negotiation period  and  after  the  Victorian  NPA  was  signed,  that  this  was  the  interpretation  intended. 

3.31 PM&C  provided  similar  advice  to  the  ANAO  in  December  2012.  Specifically, the ANAO was advised that: 

It was the clear intention of the Commonwealth at the time of drafting of the  NPA that no individual reconstruction projects in Victoria would be subject to  value for money assessment by the Inspectorate unless the value of the project  exceeded $5 million. 

3.32 The  ANAO’s  September  2012  discussions  with  the  Taskforce  also  highlighted to the Taskforce that it was not obtaining any data from Victoria to  satisfy  itself  that  there  was  only  one  project  in  Victoria  (from  a  $1 billion  program of works) with a value greater than $5 million. The ANAO suggested  that the Taskforce should be obtaining regular reports on project applications  and approvals, similar to the approach that has been taken with Queensland.  Subsequently, the Taskforce prepared correspondence for the Inspectorate to  Victoria seeking ‘further details of projects being undertaken in Victoria or, at a  minimum,  a  list  of  tenders  in  excess  of  $5 million  that  have  been  let’  (see  further at paragraphs 3.54 to 3.60). 

Victorian projects identified for review 3.33 As noted in paragraph 1.10, it was a requirement of the NPA that the  Victorian work plan outline a set of projects to assist with reconstruction and  recovery in that state, and outline project plans and strategies for projects over 

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$5 million.  In  this  context,  the  work  plan  included  an  appendix  that  listed  41 proposed  reconstruction  and  recovery  initiatives  for  which  the  Victorian  Government  requested  Commonwealth  funding  (recognising  that  an  ‘initiative’ may comprise a number of projects). Some 21 of these initiatives  were  costed  at  greater  than  $5 million.  However,  in  many  instances,  the  initiatives  did  not  identify  specific  reconstruction  and  recovery  projects  but  related to general categories of work. In any event, for none of these initiatives  did  the  work  plan  outline  the  project  plans  and  strategies  that  the  state  proposed to adopt. 

3.34 Against  this  background,  a  draft  of  the  work  plan  provided  to  the  Taskforce  was  reviewed  by  the  Inspectorate  in  late‐August  2011.  Amongst  other matters raised by the Inspectorate in relation to the adequacy of the draft,  the Taskforce was directed to ‘suggest to Victoria that the work plan include all  projects, not just those in excess of $5 million’. The Taskforce was unable to  provide  the  ANAO  with  any  evidence  that  this  matter  was  raised  with  Victoria. In addition, although the directive was recorded as an action item  arising  from  the  August  meeting,  there  was  no  report  back  to  the  Inspectorate’s next meeting in relation to action taken.54 As noted above, the  signed work plan did not include the required information on projects. 

3.35 At the Inspectorate’s 13 October 2011 meeting, the Taskforce advised  that there had been no projects that exceed the $5 million threshold to trigger  Inspectorate involvement and that the Taskforce was working with Victoria to  identify any such projects at an early stage. Meeting records also stated that  ‘the  possibility  of  encouraging  Victoria  to  relax  the  $5  million  limit  if  no  projects over the threshold are identified was discussed’. 

3.36 Subsequently, on 26 October 2011, the SOCG identified three projects  for review by the Inspectorate: Charlton Hospital relocation (estimated $20 to 

54 However, the Taskforce’s update for the Inspectorate’s 13 October 2011 meeting advised in relation to ‘Victoria progress’ that the work plan was currently with the Minister for signature and that comments made by Inspectorate members on the work plan have been reflected in the document.

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$25 million)55;  Bridgewater‐Maldon  Road  ($495  000);  and  Hepburn  Springs  Reserve ($2 million).56 By early December 2011, Victoria had replaced the latter  two  projects  by  nominating  for  review  one  bundle  of  projects  totalling  $5.013 million (Regional Rail Network) and another bundle of projects totalling  $2.7  million  (Loddon  Mallee  arterial  roads).  Notwithstanding  that  on  21 December 2011 the Inspectorate formally agreed to review these projects  nominated  by  Victoria,  the  Taskforce  did  not  request  that  the  relevant  documentation for the two bundled projects be provided for review. In this  respect, the SOCG advised the ANAO in November 2012 that: 

At no stage, did Victoria agree to the bundle of projects being in the NPA  value for money review. Two possible bundles of projects were explored but  not agreed to by the SOCG and nor would the bundles undergo value for  money assessment as they would not be provided under clause 31 of the NPA.  SOCG minutes note no reviews were to be undertaken until the protocols were  developed and agreed to. Eight months had elapsed before the Taskforce had  provided a draft of the protocol to the SOCG since the signing of the NPA. 

There  was  also  no  advice  provided  to  Victoria  by  the  Taskforce  that  the  Inspectorate had formally  agreed  to  reviewing  the  two  possible  bundles  of  projects. 

3.37 While  the  projects  for  review  were  not  publicly  identified,  the  Inspectorate’s  third  report  to  the  Prime  Minister,  issued  in  February  2012,  disclosed that three reconstruction projects in Victoria had been identified for  review by the Inspectorate, and that ‘these will be conducted over the next few  months.’ However, as indicated in paragraph 3.25, the Inspectorate’s fourth  report stated that the Inspectorate can only review projects for value for money  that are valued at more than $5 million. It added that one project had been 

55 Charlton Hospital was identified in the work plan signed on 16 December 2011 as a Category B initiative estimated to cost around $2.45 million (this was for temporary facilities, relocation of beds and staff and other related costs pending repair or replacement of the building). However, in October 2011, EMA

provided Victoria with business case templates including the cost-benefit methodology required to be used for Charlton Hospital and several other projects that it identified as potential betterment proposals. At the time EMA reviewed the Charlton Hospital proposal, which comprised a business case for rebuilding the hospital in a new location, the estimated cost was $22.7 million. However, the work plan has never been updated to reflect this cost, notwithstanding that on 8 December 2011 the SOCG advised that ‘the work plan will be updated when planning for Charlton Hospital commences’. In this regard, the SOCG had already advised in October 2011 that ‘planning for the re-establishment of permanent health services has commenced’. 56

At this meeting the Taskforce also informed the SOCG that: ‘Due to the timing of betterment decisions, it was preferred not to have betterment examples to review, however, the Inspectorate has confirmed their interest with the Charlton Hospital’.

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$25 million)55;  Bridgewater‐Maldon  Road  ($495  000);  and  Hepburn  Springs  Reserve ($2 million).56 By early December 2011, Victoria had replaced the latter  two  projects  by  nominating  for  review  one  bundle  of  projects  totalling  $5.013 million (Regional Rail Network) and another bundle of projects totalling  $2.7  million  (Loddon  Mallee  arterial  roads).  Notwithstanding  that  on  21 December 2011 the Inspectorate formally agreed to review these projects  nominated  by  Victoria,  the  Taskforce  did  not  request  that  the  relevant  documentation for the two bundled projects be provided for review. In this  respect, the SOCG advised the ANAO in November 2012 that: 

At no stage, did Victoria agree to the bundle of projects being in the NPA  value for money review. Two possible bundles of projects were explored but  not agreed to by the SOCG and nor would the bundles undergo value for  money assessment as they would not be provided under clause 31 of the NPA.  SOCG minutes note no reviews were to be undertaken until the protocols were  developed and agreed to. Eight months had elapsed before the Taskforce had  provided a draft of the protocol to the SOCG since the signing of the NPA. 

There  was  also  no  advice  provided  to  Victoria  by  the  Taskforce  that  the  Inspectorate had formally  agreed  to  reviewing  the  two  possible  bundles  of  projects. 

3.37 While  the  projects  for  review  were  not  publicly  identified,  the  Inspectorate’s  third  report  to  the  Prime  Minister,  issued  in  February  2012,  disclosed that three reconstruction projects in Victoria had been identified for  review by the Inspectorate, and that ‘these will be conducted over the next few  months.’ However, as indicated in paragraph 3.25, the Inspectorate’s fourth  report stated that the Inspectorate can only review projects for value for money  that are valued at more than $5 million. It added that one project had been 

55 Charlton Hospital was identified in the work plan signed on 16 December 2011 as a Category B initiative estimated to cost around $2.45 million (this was for temporary facilities, relocation of beds and staff and other related costs pending repair or replacement of the building). However, in October 2011, EMA

provided Victoria with business case templates including the cost-benefit methodology required to be used for Charlton Hospital and several other projects that it identified as potential betterment proposals. At the time EMA reviewed the Charlton Hospital proposal, which comprised a business case for rebuilding the hospital in a new location, the estimated cost was $22.7 million. However, the work plan has never been updated to reflect this cost, notwithstanding that on 8 December 2011 the SOCG advised that ‘the work plan will be updated when planning for Charlton Hospital commences’. In this regard, the SOCG had already advised in October 2011 that ‘planning for the re-establishment of permanent health services has commenced’. 56

At this meeting the Taskforce also informed the SOCG that: ‘Due to the timing of betterment decisions, it was preferred not to have betterment examples to review, however, the Inspectorate has confirmed their interest with the Charlton Hospital’.

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identified for review and an initial assessment of the documentation was being  undertaken.  There  was  no  reference  to  the  other  projects  that  had  been  mentioned in the previous report. 

3.38 Accordingly,  although  the  total  estimated  cost  of  the  initiatives  identified in the Victorian work plan exceeded $1 billion, as of October 2012,  only  one  discrete  project  had  been  identified  as  exceeding  the  $5 million  threshold. 

3.39 In  early‐June  2012,  the Taskforce  commenced its  review of  the  draft  business  case  betterment  proposal  for  the  (then  estimated)  $22.7 million  Charlton  Hospital  relocation  project.57  However,  in  late‐July  2012,  the  Taskforce was informally advised that Victoria would not be proceeding with  its proposal for betterment funding for this project, but would instead seek  Category  B  restoration  funding  for  the  construction  costs  only.  The  Inspectorate  undertook  a  familiarisation  visit  to  the  Charlton  Hospital  in  mid‐August 2012 and the Taskforce was provided with project documentation  in late‐October 2012. In addition, the Charlton Hospital project is not expected  to be completed within the Inspectorate’s lifetime (noting that this date may be  extended).58 In January 2013, Regional Australia advised the ANAO that: 

The Tier One value‐for‐money assessment of the first Victorian reconstruction  project has been underway since October 2012 when the documentation for  Inspectorate review was received (the information previously received by the  Commonwealth  related  to  a  potential  betterment  funding  request  from 

57 On 4 May 2012, the Taskforce advised the SOCG that the Inspectorate will look at the value for money of the overall project but not necessarily the cost benefit analysis on betterment. The Taskforce was unable to provide the ANAO with the rationale for this approach when requested in November and again

in December 2012. On 15 June 2012, the Inspectorate was advised that the Taskforce will review the documentation provided and assess whether any further information is required prior to beginning the value for money assessment. In January 2013, Regional Australia advised the ANAO that:

The Taskforce does not have the authority to approve betterment applications under the NDRRA. Betterment proposals are submitted by the States to EMA and the decision as to whether to approve such applications is made by EMA and the Department of Finance and Deregulation. The Taskforce was therefore not reviewing the betterment application, but rather assessing whether the information contained within it was sufficient to allow a value-for-money review to begin.

However, the ANAO notes that the Taskforce is required under its terms of reference to assess requests for Commonwealth funding assistance outside of those automatically triggered by a NDRRA declaration (see 4 th

dot point at paragraph 1.7). This includes betterment applications (as well as Category D proposals). 58 The Inspectorate was advised in mid-August 2012 that Victoria was in discussions with EMA about an

extension to the end of 2014 for the Charlton Hospital project. On 18 September 2012, the Inspectorate was advised that a 24 month extension was expected. A formal application for extension was submitted by Victoria in November 2012.

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Victoria).  Further  information  has  been  requested  and  will  be  taken  into  consideration before the Tier One report is completed. 

3.40 The  advantages  of  conducting  value  for  money  reviews  as  early  as  possible in the project life cycle have been recognised by the Inspectorate. In  this  regard,  the  Victorian  protocol  states  that,  wherever  possible,  the  Inspectorate’s review of a project for value for money would be conducted at  the  development  phase  of  projects.59  The  Inspectorate’s  first  report  also  acknowledged that ‘retrospective examination reduces the effectiveness of the  Inspectorate function’. It also stated that: 

An ... emerging issue is the access to project information at an appropriate time  in  the  project  lifecycle.  The  Inspectorate’s  ability  to  perform  the  functions  described in the National Partnership Agreements — to provide assurance of  value  for  money  prior  to  funds  being  spent  —  relies  on  it  having  the  opportunity to scrutinise project applications before approval. This function is  limited  to  a  retrospective  examination  if  the  Inspectorate’s  involvement  commences after project approval or commencement. 

Inspectorate site visits

3.41 The  Inspectorate  has  conducted  three  visits  to  see  first‐hand  the  damage and progress in reconstruction in Victoria, and to discuss the factors  affecting  reconstruction  with  local  council  and  state  government  representatives. Specifically: 

 on  6  June  2011,  the  Inspectorate  visited  Grampians,  Loddon,  Mallee  and Campaspe Shires; 

 on 29 September 2011, it visited Mildura and Kerang; and 

 on  15  August  2012,  it  visited  Buloke  Shire  (including  the  Charlton  Hospital). 

3.42 However,  these  visits  supplement,  but  are  not  a  substitute  for,  the  Inspectorate’s three‐tiered value for money assessments of Victorian projects  described in the protocol. 

59 An independent consultant’s review of the Taskforce’s three tier value for money assessment process also highlighted the importance of early conduct of the reviews.

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Victoria).  Further  information  has  been  requested  and  will  be  taken  into  consideration before the Tier One report is completed. 

3.40 The  advantages  of  conducting  value  for  money  reviews  as  early  as  possible in the project life cycle have been recognised by the Inspectorate. In  this  regard,  the  Victorian  protocol  states  that,  wherever  possible,  the  Inspectorate’s review of a project for value for money would be conducted at  the  development  phase  of  projects.59  The  Inspectorate’s  first  report  also  acknowledged that ‘retrospective examination reduces the effectiveness of the  Inspectorate function’. It also stated that: 

An ... emerging issue is the access to project information at an appropriate time  in  the  project  lifecycle.  The  Inspectorate’s  ability  to  perform  the  functions  described in the National Partnership Agreements — to provide assurance of  value  for  money  prior  to  funds  being  spent  —  relies  on  it  having  the  opportunity to scrutinise project applications before approval. This function is  limited  to  a  retrospective  examination  if  the  Inspectorate’s  involvement  commences after project approval or commencement. 

Inspectorate site visits

3.41 The  Inspectorate  has  conducted  three  visits  to  see  first‐hand  the  damage and progress in reconstruction in Victoria, and to discuss the factors  affecting  reconstruction  with  local  council  and  state  government  representatives. Specifically: 

 on  6  June  2011,  the  Inspectorate  visited  Grampians,  Loddon,  Mallee  and Campaspe Shires; 

 on 29 September 2011, it visited Mildura and Kerang; and 

 on  15  August  2012,  it  visited  Buloke  Shire  (including  the  Charlton  Hospital). 

3.42 However,  these  visits  supplement,  but  are  not  a  substitute  for,  the  Inspectorate’s three‐tiered value for money assessments of Victorian projects  described in the protocol. 

59 An independent consultant’s review of the Taskforce’s three tier value for money assessment process also highlighted the importance of early conduct of the reviews.

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Reconstruction projects valued at greater than $5 million

Projects identified in the work plan

3.43 Although many of the initiatives listed in the Victorian work plan were  not specific projects, there were instances where the work plan identified a  project with a value of greater than $5 million. In particular: 

 flood warning system recovery—estimated at $7.14 million; 

 repair of Wilsons Promontory entrance road leading to Tidal River— estimated at $6.0 million60; and 

 Catchment  Management  Authorities—North  East  $5.34  million,  North Central $10.13 million and Melbourne Water $15.33 million. 

3.44 In  none  of  these  instances  has  the  Taskforce  sought  to  undertake  a  value for money review of the project. 

3.45 Further in this respect, a number of damage estimates were increased in  the  period  leading  up  to  and  following  the  finalisation  of  the  work  plan.  However, the Taskforce did not take any action to investigate when notified of  these  changes,  including  to  establish  whether  the  revised  estimates  now  included projects with a value greater than $5 million. 

Projects identified drawing from public information sources

3.46 At its December 2011 meeting, the Taskforce advised the Inspectorate  that  Victoria  was  having  difficulty  identifying  projects  over  the  $5  million  threshold. However, the Taskforce did not seek from Victoria any data that  would provide assurance that there were not projects above this threshold that  had not been brought forward for review. In this respect, in September 2012,  the ANAO suggested that the Taskforce request the SOCG to provide a list of  all Victorian reconstruction projects covered by the NPA and their estimated  value,  from  which  the  Taskforce  would  be  able  to  select  projects  for  Inspectorate review. 

3.47 Up to September 2012 the Taskforce had also not undertaken research  of  publicly  available  information  to  identify  possible  instances  of  projects 

60 According to the VicRoads website, on 4 September 2011, a contract for $1.9 million was awarded to Fulton Hogan (Construction) Pty Ltd to repair ‘flood damage to various sections of the Wilsons Promontory Road between Tidal River and Darby River’.

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above  the  $5 million  threshold.  The  ANAO’s  review  of  such  material,  and  subsequent  engagement  with  a  number  of  LGAs,  indicated  that  numerous  individual  tenders  and  contracts  exceeding  $5 million  in  value  have  been  awarded  for  flood  reconstruction  works  in  Victoria.  Some  examples  are  provided below. 

Single contract for works in close proximity

3.48 The  Taskforce  has  conducted  tier  one  reviews  on  a  number  of  Queensland projects that have involved a single contract for works that are in  close proximity. An example is the $4 million Department of Transport and  Main  Roads  project  DTMR.203.11  for  reconstruction  of  10  roads  in  the  Wide Bay/Burnett area (the contract was awarded to Neumann Contractors). 

3.49 By way of comparison, an essentially similar activity in Victoria has not  been  reviewed  because  it  was  not  specifically  designated  as  a  project.  Specifically,  on 28 November  2011,  VicRoads61  awarded  a  contract  for  $10.233 million (excluding GST) to a private contractor (Baulderstone Pty Ltd)  for flood reconstruction works in the Grampians National Park. Three roads  were to be repaired during the period January to August 2012; the Northern  Grampians  Road,  which  joins  the  Silverband  Road,  which  in  turn  joins  the  Grampians Road. The total cost of the project would be expected to exceed the  contract  price,  for  example,  where  indirect  costs  incurred  by  VicRoads  in  preparing the contract and managing the project are included. 

Series of works across a local government area

3.50 Information provided to the Inspectorate by QRA in December 2011  outlined that a: 

key  characteristic  of  the  reconstruction  program  across  the  73  LGAs  is  the  significant  variation  in  the  nature  of  the  projects.  While  there  have  been  instances of significant damage to large high profile assets, such as the ferry  terminals  and  river  walk  in  Brisbane,  the  vast  majority  of  reconstruction  projects across the LGA networks are multiple smaller projects, such as gravel  re‐sheeting of rural roads and straight forward pavement repairs. 

3.51 In this context, a commonly adopted approach in Queensland has been  the ‘bundling’ of required works across a local government area, especially 

61 VicRoads is a Victorian statutory authority that was established under the Transport Act 1983 and continued under the Transport Integration Act 2010. It employs more than 3100 people and its annual expenditure is over $2 billion. Source: Vic Roads Annual Report 2010-11.

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above  the  $5 million  threshold.  The  ANAO’s  review  of  such  material,  and  subsequent  engagement  with  a  number  of  LGAs,  indicated  that  numerous  individual  tenders  and  contracts  exceeding  $5 million  in  value  have  been  awarded  for  flood  reconstruction  works  in  Victoria.  Some  examples  are  provided below. 

Single contract for works in close proximity

3.48 The  Taskforce  has  conducted  tier  one  reviews  on  a  number  of  Queensland projects that have involved a single contract for works that are in  close proximity. An example is the $4 million Department of Transport and  Main  Roads  project  DTMR.203.11  for  reconstruction  of  10  roads  in  the  Wide Bay/Burnett area (the contract was awarded to Neumann Contractors). 

3.49 By way of comparison, an essentially similar activity in Victoria has not  been  reviewed  because  it  was  not  specifically  designated  as  a  project.  Specifically,  on 28 November  2011,  VicRoads61  awarded  a  contract  for  $10.233 million (excluding GST) to a private contractor (Baulderstone Pty Ltd)  for flood reconstruction works in the Grampians National Park. Three roads  were to be repaired during the period January to August 2012; the Northern  Grampians  Road,  which  joins  the  Silverband  Road,  which  in  turn  joins  the  Grampians Road. The total cost of the project would be expected to exceed the  contract  price,  for  example,  where  indirect  costs  incurred  by  VicRoads  in  preparing the contract and managing the project are included. 

Series of works across a local government area

3.50 Information provided to the Inspectorate by QRA in December 2011  outlined that a: 

key  characteristic  of  the  reconstruction  program  across  the  73  LGAs  is  the  significant  variation  in  the  nature  of  the  projects.  While  there  have  been  instances of significant damage to large high profile assets, such as the ferry  terminals  and  river  walk  in  Brisbane,  the  vast  majority  of  reconstruction  projects across the LGA networks are multiple smaller projects, such as gravel  re‐sheeting of rural roads and straight forward pavement repairs. 

3.51 In this context, a commonly adopted approach in Queensland has been  the ‘bundling’ of required works across a local government area, especially 

61 VicRoads is a Victorian statutory authority that was established under the Transport Act 1983 and continued under the Transport Integration Act 2010. It employs more than 3100 people and its annual expenditure is over $2 billion. Source: Vic Roads Annual Report 2010-11.

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where the works are similar in nature. Bundling works into one project, or in  many  cases  into  one  contract,  has  been  seen  as  beneficial  to  both  the  LGAs/SDAs and their contractors. It takes advantage of the economies of scale  and reduces administration costs associated with issuing, and responding to,  many  thousands  of  individual  contracts.  For  example,  Queensland  projects  reviewed by the Inspectorate included: 

 works  required  across  more  than  2100  sites  throughout  the  local  government area that were included in one $11.4 million project by the  Somerset Regional Council (SRC.2.11); and 

 Gladstone  Regional  Council  entering  into  a  contract  for  $23  million  with Golding Contractors Pty Ltd, packaging its $6.2 million GRC.4.12  project (covering 30 roads) with other works required across the region  involving restoration activities for some 250 roads in total. 

3.52 By way of comparison, in Victoria, the Hindmarsh Shire Council had  estimated  flood  damage  of  $24 million  included  in  the  work  plan  (subsequently  revised  to  $36.5  million  as  at  30  November  2012).  Three  contracts over $5 million have been awarded by Council for works across the  shire: two to Citywide Service Solutions in October 2011 and September 2012  for $5.735 million and $8.537 million respectively (excluding GST) and one to  Downer EDI Limited in June 2012 for $5.124 million (excluding GST).62 

3.53 Other similar examples were identified in relation to: 

 Hepburn Shire Council. The damage estimate shown in the work plan  for Hepburn Shire was $20 million. This had increased to $26.1 million  by 30 November 2012. In July 2011, Hepburn Shire Council awarded a  contract  for  $5.174 million  (including  GST)  to  Re  Civil  Pty  Ltd  for  gravel re‐sheeting of various roads across the shire; and 

 Gannawarra Shire Council, which has entered into several contracts in  relation to repairing its estimated $25.4 million in flood damage. These  included one contract in March 2011 for $7.3 million (excluding GST) to  Global  Contracting  Pty  Ltd  for  re‐sheeting  of  unsealed  roads  and  associated works across the shire. 

62 The contract values inclusive of GST are $6.3 million, $9.4 million and $5.6 million respectively. These figures do not include Council’s costs for preparing the tenders and managing the projects.

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Inspectorate request to Victoria for project information

3.54 Commencing in late‐September 2012, the Taskforce started requesting  information from Victoria on projects with a value greater than $5 million, and  a list of all reconstruction projects underway or completed in Victoria by dollar  value. In addition, in early November 2012, the Inspectorate wrote to Victoria  stating that: 

The Inspectorate is also troubled that, more than 18 months after the disaster  events, it has been unable to complete a value for money assessment on any  Victorian project. In comparison, the National Disaster Recovery Taskforce, on  behalf  of  the  Inspectorate,  has  completed  61  value  for  money  reviews  of  Queensland  reconstruction  projects.  I  understand  that  the  information  pertaining to the relocation and reconstruction of the Charlton Hospital has  been  provided  and  we  look  forward  to  commencing  our  value  for  money  assessment shortly. 

As  you  are  aware,  the  National  Partnership  Agreement  restricts  the  Inspectorate’s value for money assessments to those projects valued at more  than  $5 million.  To  date,  there  appears  to  be  only  one  project  in  almost  $900 million of reconstruction which fulfils that criterion. The Inspectorate is  concerned that this one project may not be sufficient to assure the Australian  public  that  value  for  money  is  being  achieved  across  the  Victorian  reconstruction program, and, if possible, would appreciate further details of  projects being undertaken in Victoria or, at a minimum, a list of tenders in  excess of $5 million that have been let. 

3.55 In addition, in January 2013 the Taskforce advised the ANAO that this  issue  has  been  the  subject  of  discussion  between  AGD  and  PM&C,  in  the  context  of  Victoria’s  request  for  an  extension  of  the  timeframe  for  NDRRA  funding. In this respect, in December 2012, the Chair of the Inspectorate wrote  to  the  Minister  for  Regional  Australia,  Regional  Development  and  Local  Government  raising  this  issue  and  recommending  that  any  extension  to  funding arrangements in Victoria be contingent upon the Inspectorate being  provided with sufficient projects to be able to provide the required level of  assurance. 

3.56 The Minister responded in February 2013, advising that he: shared the  Inspectorate’s  concerns  about  its  ability  to  assess  value  for  money  in  circumstances where only one project had been identified for review; strongly  supported  the  Inspectorate’s  recommendation  that  an  extension  to  the  allowable period for reconstruction be contingent upon Victoria’s agreement to  increase  oversight;  and  had  written  to  the  Attorney‐General  recommending 

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Inspectorate request to Victoria for project information

3.54 Commencing in late‐September 2012, the Taskforce started requesting  information from Victoria on projects with a value greater than $5 million, and  a list of all reconstruction projects underway or completed in Victoria by dollar  value. In addition, in early November 2012, the Inspectorate wrote to Victoria  stating that: 

The Inspectorate is also troubled that, more than 18 months after the disaster  events, it has been unable to complete a value for money assessment on any  Victorian project. In comparison, the National Disaster Recovery Taskforce, on  behalf  of  the  Inspectorate,  has  completed  61  value  for  money  reviews  of  Queensland  reconstruction  projects.  I  understand  that  the  information  pertaining to the relocation and reconstruction of the Charlton Hospital has  been  provided  and  we  look  forward  to  commencing  our  value  for  money  assessment shortly. 

As  you  are  aware,  the  National  Partnership  Agreement  restricts  the  Inspectorate’s value for money assessments to those projects valued at more  than  $5 million.  To  date,  there  appears  to  be  only  one  project  in  almost  $900 million of reconstruction which fulfils that criterion. The Inspectorate is  concerned that this one project may not be sufficient to assure the Australian  public  that  value  for  money  is  being  achieved  across  the  Victorian  reconstruction program, and, if possible, would appreciate further details of  projects being undertaken in Victoria or, at a minimum, a list of tenders in  excess of $5 million that have been let. 

3.55 In addition, in January 2013 the Taskforce advised the ANAO that this  issue  has  been  the  subject  of  discussion  between  AGD  and  PM&C,  in  the  context  of  Victoria’s  request  for  an  extension  of  the  timeframe  for  NDRRA  funding. In this respect, in December 2012, the Chair of the Inspectorate wrote  to  the  Minister  for  Regional  Australia,  Regional  Development  and  Local  Government  raising  this  issue  and  recommending  that  any  extension  to  funding arrangements in Victoria be contingent upon the Inspectorate being  provided with sufficient projects to be able to provide the required level of  assurance. 

3.56 The Minister responded in February 2013, advising that he: shared the  Inspectorate’s  concerns  about  its  ability  to  assess  value  for  money  in  circumstances where only one project had been identified for review; strongly  supported  the  Inspectorate’s  recommendation  that  an  extension  to  the  allowable period for reconstruction be contingent upon Victoria’s agreement to  increase  oversight;  and  had  written  to  the  Attorney‐General  recommending 

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this approach as responsibility for the extension request rests with Emergency  Management Australia. 

3.57 At the time of preparing this ANAO report, Victoria had identified to  the  Taskforce  nine  tenders  with  a  value  over  $5 million.63 Victoria  had  also  identified to the Taskforce that it considered a ‘project’ for the purposes of the  Inspectorate’s value for money review activities referred to a single piece of  infrastructure (for example, one road or one bridge). 

3.58 Should  this  definition  be  accepted  by  the  Inspectorate,  such  an  approach  would  be  problematic  in  the  context  of  the  new  oversight  and  accountability measures introduced through the NPA that were intended to  provide assurance concerning value for money in reconstruction expenditure.  In particular, the NPA required that the Victorian natural disaster recovery  work plan identify a set of specific reconstruction projects. If the definition set  out by Victoria had similarly been applied to the development of the work  plans, separately identifying each individual road and bridge in the work plan,  rather  than  consolidating  reconstruction  activities  into  projects  by  type  of  activity  or  collective  activities  at  defined  sites  or  localities,  would  have  presented significant challenges to all levels of government. 

3.59 The  definition  proposed  by  Victoria  was  also  inconsistent  with  the  approach  adopted  in  Queensland.  In  this  respect,  QRA’s  value  for  money  strategy (which has been endorsed by the Inspectorate64) defined a project as  including ‘works at single or multiple sites’. Consistent with this definition,  and as noted at paragraph 3.51, the more practical approach taken in respect to  identifying  Queensland  reconstruction  projects  for  the  purposes  of  the  Inspectorate’s value for money reviews recognised that flood reconstruction  projects  commonly  involve  a  number  of  roads  and  bridges,  sometimes  dispersed  across  geographic  areas  that  had  been  affected  by  flooding.  The  Queensland  approach  also  recognised  that  a  project  may  comprise  a  single  tender and contract, or a series of tenders and contracts, or be undertaken by  one or more work crews employed by the delivery agency rather than being  tendered and contracted. 

63 These were the same tenders over $5 million already identified by the ANAO. 64 See further at paragraph 3.64.

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3.60 In  addition,  the  information  sought  from  Victoria  related  to  tender  costs, rather than the expected out‐turn cost of the entire project. By way of  comparison, the QRA value for money strategy related to the ‘total outturn  cost’  of  reconstruction  projects,  which  was  defined  as  ‘the  total  NDRRA  eligible  cost  of  delivering  the  project,  including  design,  construction  and  management  costs’.  In  this  context,  as  is  evident  from  some  Queensland  projects  examined  by  the  Taskforce,  a  project  could  involve  more  than  one  tender  and/or  the  full  cost  of  a  project  (for  example,  including  project  management costs) is often greater than the value of work tendered. 

3.61 In  January  2013,  Regional  Australia  informed  the  ANAO  that  it  has  been advised by Victoria that a list of reconstruction projects is not feasible.  However, it was not evident that the Taskforce had fully explored the rationale  for  this  advice.  The  ANAO  notes that  delivery  agencies  hold  the necessary  project level information and such data is being reflected, in aggregate, in the  monthly  progress reports being provided to the Taskforce in respect to the  flood  work  plan.  In  this  respect,  for  land  transport  reconstruction  projects  (which  comprise  the  majority  of  estimated  expenditure),  the  work  plan  commonly referred to performance targets relating to the number of roads for  which  work  had  commenced  or  been  completed,  the  number  of  bridges  repaired or replaced, or the kilometres of rail line that had been repaired. Such  data  should  also  provide  the  basis  for  the  identification  of  reconstruction  projects for Inspectorate review. Given that two years have elapsed since the  disaster events occurred, the ANAO considers that it is reasonable to expect  that by now reconstruction projects arising from those events should be able to  be identified. 

Inspectorate’s terms of reference 3.62 Consistent with the Prime Minister’s February 2011 announcement of  the  Inspectorate’s  establishment,  section  5  of  the  Inspectorate’s  terms  of  reference  set  out  six  specific  requirements  expected  of  the  Inspectorate  in  undertaking its role of ensuring that there is proper accountability, scrutiny  and  value  for  money  being  received  in  the  expenditure  of  Commonwealth  funds  during  the  recovery  phase  in  Queensland  and  Victoria.  The requirements  and  a  summary  of  the  ANAO’s  assessment  of  their  implementation  up  to  the  time  of  preparation  of  this  report  are  shown  in  Table 3.1. 

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3.60 In  addition,  the  information  sought  from  Victoria  related  to  tender  costs, rather than the expected out‐turn cost of the entire project. By way of  comparison, the QRA value for money strategy related to the ‘total outturn  cost’  of  reconstruction  projects,  which  was  defined  as  ‘the  total  NDRRA  eligible  cost  of  delivering  the  project,  including  design,  construction  and  management  costs’.  In  this  context,  as  is  evident  from  some  Queensland  projects  examined  by  the  Taskforce,  a  project  could  involve  more  than  one  tender  and/or  the  full  cost  of  a  project  (for  example,  including  project  management costs) is often greater than the value of work tendered. 

3.61 In  January  2013,  Regional  Australia  informed  the  ANAO  that  it  has  been advised by Victoria that a list of reconstruction projects is not feasible.  However, it was not evident that the Taskforce had fully explored the rationale  for  this  advice.  The  ANAO  notes that  delivery  agencies  hold  the necessary  project level information and such data is being reflected, in aggregate, in the  monthly progress reports being provided to the Taskforce in respect to the  flood  work  plan.  In  this  respect,  for  land  transport  reconstruction  projects  (which  comprise  the  majority  of  estimated  expenditure),  the  work  plan  commonly referred to performance targets relating to the number of roads for  which  work  had  commenced  or  been  completed,  the  number  of  bridges  repaired or replaced, or the kilometres of rail line that had been repaired. Such  data  should  also  provide  the  basis  for  the  identification  of  reconstruction  projects for Inspectorate review. Given that two years have elapsed since the  disaster events occurred, the ANAO considers that it is reasonable to expect  that by now reconstruction projects arising from those events should be able to  be identified. 

Inspectorate’s terms of reference 3.62 Consistent with the Prime Minister’s February 2011 announcement of  the  Inspectorate’s  establishment,  section  5  of  the  Inspectorate’s  terms  of  reference  set  out  six  specific  requirements  expected  of  the  Inspectorate  in  undertaking its role of ensuring that there is proper accountability, scrutiny  and  value  for  money  being  received  in  the  expenditure  of  Commonwealth  funds  during  the  recovery  phase  in  Queensland  and  Victoria.  The requirements  and  a  summary  of  the  ANAO’s  assessment  of  their  implementation  up  to  the  time  of  preparation  of  this  report  are  shown  in  Table 3.1. 

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Table 3.1

Requirements of the Inspectorate (as per terms of reference)

Requirement Met? Summary comments

Work collaboratively with any reconstruction agencies to develop and review contractual frameworks, tendering processes and project management systems

No

No involvement in the development and review of contractual frameworks, tendering processes and project management systems in Victoria.65 By way of comparison, some generic proforma contracts have been reviewed in Queensland.

Where necessary, scrutinise requests for reimbursement by local government for projects completed for the purpose of reconstruction

No

No requests for advance payments or reimbursements have been scrutinised in Victoria. By way of comparison, over 90 project submissions have been reviewed in Queensland. A number of these were for completed projects, or where progress payments had been made or progress reports submitted.

Where necessary, scrutinise rebuilding contracts and benchmark prices, to ensure value for money No

No rebuilding contracts have been scrutinised and no benchmarking of prices has been undertaken in Victoria.

66 By way of comparison, selective benchmarking has been undertaken on a number of Queensland projects reviewed to date and selected benchmarking information commissioned by QRA has been examined.

Directly inspect projects, if required, to ensure they are meeting progress milestones

Yes, for one project.

One project has been directly inspected in Victoria.67 By way of comparison, several Queensland projects have been directly inspected by the Inspectorate and the Taskforce.

65 Except that VicRoads provided a short presentation to the Inspectorate on its procurement approach in July 2011.

66 In January 2013, Regional Australia advised the ANAO that ‘the Inspectorate is currently assessing the costs of the Charlton Hospital against industry standards, including those in Rawlinsons’ Australian Construction Handbook 2012.’ However, the benchmarks being used for conducting a review of an

individual reconstruction project is different from the broader benchmarking of prices envisaged in the terms of reference which, as noted in Table 3.1, is being undertaken by QRA in respect to the Queensland reconstruction program. 67

In January 2013, Regional Australia advised the ANAO that ‘the Inspectorate not only visited the old site of the Charlton Hospital, but also inspected the new site. State government officials provided a detailed briefing on the planned design and process of the new hospital to the Inspectorate members.’

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Requirement Met? Summary comments

Examine high value or complex projects prior to execution, that is, scrutinise contracts before they are signed No

No high value or complex projects have been examined in Victoria and no contracts have been scrutinised before being signed. By way of comparison, many high value projects have been reviewed in Queensland (but no contracts in that state have been scrutinised before being signed).

Respond to and investigate complaints or issues raised by the public, relating to value for money N/A

No complaints or issues have been raised by the public in relation to Victorian reconstruction.

Source: ANAO analysis of Inspectorate terms of reference and Taskforce records.

State value for money assurance strategies

3.63 The Inspectorate’s project review process developed by the Taskforce  places  reliance  on  there  being  a  soundly  based  pre‐approval  review  of  the  project against value for money criteria by the relevant state reconstruction  agency. As noted in Appendix 5, the Taskforce applies its three‐tiered review  process only after projects have been reviewed and approved by the state. 

3.64 In this regard, the Taskforce received a value for money strategy from  QRA in April 2011. After Inspectorate members agreed that they needed to be  much  more  involved  in  the  crucial  stages  of  defining  the  value  for  money  concept, QRA convened a workshop with the Inspectorate and Taskforce on  20 April 2011 to work through a number of issues in relation to the strategy.  Following the engagement of consultants with construction and procurement  expertise to assist in reviewing the strategy, the Inspectorate wrote to QRA  outlining  enhancements  on  25  May  2011.  The  Inspectorate  subsequently  endorsed the Queensland value for money strategy on 26 July 2011. 

3.65 This approach was not adopted for Victoria. Unlike for Queensland, the  Taskforce did not request that Victoria provide a value for money framework,  strategy or methodology for review and endorsement by the Inspectorate. In  this respect, the Victorian work plan makes no reference to value for money.  The  whole‐of‐Victorian‐Government  risk  assessment  at  Appendix  4  of  the  work plan states that: ‘Standard procurement processes require demonstration  of  value  for  money’;  while  also  noting  that  it  is  the  Inspectorate  that  is  responsible  for  assessing  value  for  money.  However,  the  requirement  for  standard  procurement  processes  to  demonstrate  value  for  money  does  not  address issues such as whether the expenditure: 

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Requirement Met? Summary comments

Examine high value or complex projects prior to execution, that is, scrutinise contracts before they are signed No

No high value or complex projects have been examined in Victoria and no contracts have been scrutinised before being signed. By way of comparison, many high value projects have been reviewed in Queensland (but no contracts in that state have been scrutinised before being signed).

Respond to and investigate complaints or issues raised by the public, relating to value for money N/A

No complaints or issues have been raised by the public in relation to Victorian reconstruction.

Source: ANAO analysis of Inspectorate terms of reference and Taskforce records.

State value for money assurance strategies

3.63 The Inspectorate’s project review process developed by the Taskforce  places  reliance  on  there  being  a  soundly  based  pre‐approval  review  of  the  project against value for money criteria by the relevant state reconstruction  agency. As noted in Appendix 5, the Taskforce applies its three‐tiered review  process only after projects have been reviewed and approved by the state. 

3.64 In this regard, the Taskforce received a value for money strategy from  QRA in April 2011. After Inspectorate members agreed that they needed to be  much  more  involved  in  the  crucial  stages  of  defining  the  value  for  money  concept, QRA convened a workshop with the Inspectorate and Taskforce on  20 April 2011 to work through a number of issues in relation to the strategy.  Following the engagement of consultants with construction and procurement  expertise to assist in reviewing the strategy, the Inspectorate wrote to QRA  outlining  enhancements  on  25  May  2011.  The  Inspectorate  subsequently  endorsed the Queensland value for money strategy on 26 July 2011. 

3.65 This approach was not adopted for Victoria. Unlike for Queensland, the  Taskforce did not request that Victoria provide a value for money framework,  strategy or methodology for review and endorsement by the Inspectorate. In  this respect, the Victorian work plan makes no reference to value for money.  The  whole‐of‐Victorian‐Government  risk  assessment  at  Appendix  4  of  the  work plan states that: ‘Standard procurement processes require demonstration  of  value  for  money’;  while  also  noting  that  it  is  the  Inspectorate  that  is  responsible  for  assessing  value  for  money.  However,  the  requirement  for  standard  procurement  processes  to  demonstrate  value  for  money  does  not  address issues such as whether the expenditure: 

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 was necessary in the first instance; 

 was the best available option for like‐for‐like restoration or replacement  of  the  damaged  asset  to  its  pre‐existing  condition  in  all  the  circumstances; and 

 met all the eligibility criteria for NDRRA funding. 

3.66 These  are matters that  were  addressed  by  the  Queensland  value  for  money strategy that has been endorsed by the Inspectorate. 

Conclusions 3.67 The expected cost to the Australian Government under NDRRA for the  Victorian  flooding  covered  by  the  relevant  NPA  is  much  less  than  that  expected  in  respect  to  Queensland,  but  the  amount  nevertheless  remains  significant ($500 million was advanced). It is in this context that the NPA with  Victoria  outlines  that  the  Inspectorate  was  established  to  oversee  reconstruction  activity  to  provide  assurance  that  value  for  money  is  being  achieved  in  the  expenditure  of  funds  during  the  reconstruction  phase.  This  was principally to be achieved by the Taskforce, on behalf of the Inspectorate,  undertaking value for money reviews of reconstruction projects. 

3.68 Both states have documented public sector procurement frameworks,  but the Australian Government’s decision to create the Inspectorate recognised  that reliance on existing procurement frameworks would not provide sufficient  assurance  that  value  for  money  was  being  achieved.  In  this  context,  in  response to the 2010-11 flooding, Queensland developed a value for money  strategy  that  was  subsequently  endorsed  by  the  Inspectorate.  That  strategy  involves pre‐approval review by QRA of each project against value for money  criteria.68 It is only after QRA has completed its value for money review that  the  Taskforce  undertakes  its  own  value  for  money  review  of  a  sample  of  approved projects. There is no equivalent value for money strategy in place  under the arrangements adopted with Victoria; a situation that should have 

68 As of January 2013, QRA was reporting that $1.73 billion in project submissions in Queensland had been assessed by the Authority as not eligible or otherwise returned to the relevant delivery agency, thereby avoiding $1.3 billion in cost to the Australian Government and $434 million in potential state

costs. By way of comparison, the Taskforce has not quantified any savings achieved from its conduct of value for money reviews of Queensland reconstruction projects that have been approved by QRA.

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increased the Taskforce’s focus on conducting its own value for money reviews  in that state. 

3.69 Reporting  from  Victoria  to  the  Taskforce,  and  reports  subsequently  prepared by the Taskforce from the Inspectorate to the Prime Minister, have  outlined  that  reconstruction  is  well  advanced  in  Victoria.  However,  notwithstanding that the total estimated damage cost in Victoria is $1.1 billion  and  that,  by  November  2012,  some  $749 million  in  project  expenditure  had  been  reported,  there  have  been  no  value  for  money  reviews  completed  in  respect  to  any  Victorian  reconstruction  projects.  Some  work  has  been  undertaken  in  respect  to  the  review  of  only  one  project  (estimated  to  cost  $22.7 million). This situation has arisen because: 

 the  Taskforce  initially  focused  its  work  on  developing  a  review  methodology  and  project  sampling  processes  for  Queensland,  given  this  is  where  the  majority  of  expenditure  will  occur.  There  was  relatively  little  attention  given  at  that  time,  or  subsequently,  to  developing  a  robust  methodology  for  identifying  a  representative  sample of projects to review in Victoria (proportionate to the level of  expenditure expected in that state); and 

 the  parties  to  the  NPA  intended  that  the  Inspectorate  would  only  examine  reconstruction  projects  with  a  value  more  than  $5 million.69  Even allowing for this threshold, the Taskforce has not been active in  seeking to ensure that projects with a value greater than $5 million are  identified for value for money review. One project has been identified  for review, but it is not representative of the reconstruction program  and there is also some evidence that a number of other projects with a  value above $5 million have proceeded, without being referred to the  Taskforce for a value for money review. At the time of preparing this 

69 This restriction is included in the operating protocol agreed to by the Taskforce with Victoria (see paragraph 3.20). The Taskforce advised the Inspectorate that this restriction also exists in the NPA, but the ANAO’s analysis did not support this view. (The NPA only applies a threshold in relation to Victoria

being required to seek the views of the Inspectorate on proposed project plans and strategies for projects over $5 million, which were to be included in the work plan developed in accordance with the NPA). Although it is not evident from the NPA agreed between governments, PM&C advised the ANAO in December 2012 that it was the clear intention of the Commonwealth at the time of drafting the NPA that no individual reconstruction projects in Victoria would be subject to value for money assessment by the Inspectorate unless the value of the project exceeded $5 million. By way of comparison, in Queensland, around one in three of the 91 projects selected for review by October 2012 was valued at less than $5 million.

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increased the Taskforce’s focus on conducting its own value for money reviews  in that state. 

3.69 Reporting  from  Victoria  to  the  Taskforce,  and  reports  subsequently  prepared by the Taskforce from the Inspectorate to the Prime Minister, have  outlined  that  reconstruction  is  well  advanced  in  Victoria.  However,  notwithstanding that the total estimated damage cost in Victoria is $1.1 billion  and  that,  by  November  2012,  some  $749 million  in  project  expenditure  had  been  reported,  there  have  been  no  value  for  money  reviews  completed  in  respect  to  any  Victorian  reconstruction  projects.  Some  work  has  been  undertaken  in  respect  to  the  review  of  only  one  project  (estimated  to  cost  $22.7 million). This situation has arisen because: 

 the  Taskforce  initially  focused  its  work  on  developing  a  review  methodology  and  project  sampling  processes  for  Queensland,  given  this  is  where  the  majority  of  expenditure  will  occur.  There  was  relatively  little  attention  given  at  that  time,  or  subsequently,  to  developing  a  robust  methodology  for  identifying  a  representative  sample of projects to review in Victoria (proportionate to the level of  expenditure expected in that state); and 

 the  parties  to  the  NPA  intended  that  the  Inspectorate  would  only  examine  reconstruction  projects  with  a  value  more  than  $5 million.69  Even allowing for this threshold, the Taskforce has not been active in  seeking to ensure that projects with a value greater than $5 million are  identified for value for money review. One project has been identified  for review, but it is not representative of the reconstruction program  and there is also some evidence that a number of other projects with a  value above $5 million have proceeded, without being referred to the  Taskforce for a value for money review. At the time of preparing this 

69 This restriction is included in the operating protocol agreed to by the Taskforce with Victoria (see paragraph 3.20). The Taskforce advised the Inspectorate that this restriction also exists in the NPA, but the ANAO’s analysis did not support this view. (The NPA only applies a threshold in relation to Victoria

being required to seek the views of the Inspectorate on proposed project plans and strategies for projects over $5 million, which were to be included in the work plan developed in accordance with the NPA). Although it is not evident from the NPA agreed between governments, PM&C advised the ANAO in December 2012 that it was the clear intention of the Commonwealth at the time of drafting the NPA that no individual reconstruction projects in Victoria would be subject to value for money assessment by the Inspectorate unless the value of the project exceeded $5 million. By way of comparison, in Queensland, around one in three of the 91 projects selected for review by October 2012 was valued at less than $5 million.

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ANAO  report,  no  formal  requests  had  been  made  to  Victoria  concerning Inspectorate reviews of these other projects. 

3.70 In  January  2013,  the  Taskforce  advised  the  ANAO  that  a  value  for  money  assessment  of  the  first  Victorian  reconstruction  project  has  been  underway since late‐October 2012 when the documentation for Inspectorate  review  was  received.  It  also  advised  that  further  information  has  been  requested and will be taken into consideration before the report is completed.  However: 

 this project (the relocation and reconstruction of the Charlton Hospital)  is not representative of the reconstruction program in Victoria, where  most  of  the  funding  relates  to  the  reconstruction  of  road  and  rail  infrastructure by local government and state government authorities. In  addition, the Charlton Hospital project is not expected to be completed  within the (currently funded) lifetime of the Inspectorate; and 

 the  Inspectorate’s  third  report  to  the  Prime  Minister  (provided  in  February  2012)  had  stated  that  review  of  reconstruction  projects  in  Victoria for value for money would begin ‘shortly’, with three initial  projects identified (including the Charlton Hospital project). However,  the Taskforce did not request that the relevant documentation for two  of  these  projects  be  provided  for  review,  and  the  reviews  were  not  undertaken. Subsequent Inspectorate reports did not identify that these  reviews had not proceeded, or advise of the reasons for this situation. 

3.71 Commencing in late‐September 2012, the Taskforce started requesting  information from Victoria on projects with a value greater than $5 million70,  and a list of all reconstruction projects underway or completed in Victoria. At  the  time  of  preparing  this  ANAO  report,  Victoria  had  identified  to  the  Taskforce nine tenders with a value over $5 million.71 However, to date a list of  all reconstruction projects has not been provided and no agreement has been  reached on what constitutes a ‘project’ for the purposes of the Inspectorate’s 

70 In January 2013, Regional Australia advised the ANAO that ‘the Inspectorate’s methodology for identifying projects to review in Victoria is straightforward: all projects valued over $5 million are subject to Inspectorate review.’ A decision to adopt such a methodology is not recorded in the minutes of the

Inspectorate meetings. The Taskforce had earlier advised Victoria that ‘only two or three Victorian projects may be selected for review’ (see paragraph 3.11) and the Inspectorate’s June 2011 first report to the Prime Minister had foreshadowed that a sampling approach to selecting projects for review would be adopted in both Queensland and Victoria (see paragraph 3.22). 71

These tenders over $5 million had already been identified by the ANAO.

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value for money review activities. Although Regional Australia informed the  ANAO that it has been advised by Victoria that a list of reconstruction projects  is not feasible, delivery agencies hold the necessary project level information  and such data is being reflected, in aggregate, in the monthly progress reports  being provided to the Taskforce in respect to the flood work plan. Given that  two years have elapsed since the disaster events occurred, it is reasonable to  expect that by now reconstruction projects arising from those events should be  identifiable. 

3.72 There has also been a general absence of the envisaged involvement by  the Inspectorate and the Taskforce in developing and reviewing contractual  frameworks, tendering processes and project management systems in relation  to flood reconstruction in Victoria. 

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value for money review activities. Although Regional Australia informed the  ANAO that it has been advised by Victoria that a list of reconstruction projects  is not feasible, delivery agencies hold the necessary project level information  and such data is being reflected, in aggregate, in the monthly progress reports  being provided to the Taskforce in respect to the flood work plan. Given that  two years have elapsed since the disaster events occurred, it is reasonable to  expect that by now reconstruction projects arising from those events should be  identifiable. 

3.72 There has also been a general absence of the envisaged involvement by  the Inspectorate and the Taskforce in developing and reviewing contractual  frameworks, tendering processes and project management systems in relation  to flood reconstruction in Victoria. 

Scrutiny of Recovery and Reconstruction Projects

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Recommendation No.1 3.73 The ANAO recommends that the Department of Regional Australia,  Local Government, Arts and Sport improve the arrangements for conducting  value  for  money  reviews  of  Victorian  reconstruction  projects  by  pursuing  amendments to the operating protocol with Victoria to require that, at regular  intervals,  the  Taskforce  is  provided  with  information  on  all  reconstruction  projects  being  delivered  within  the  scope  of  the  National  Partnership  Agreement. 

Regional Australia’s response: 

3.74 Agreed  in  principle.  The  Department  of  Regional  Australia,  Local  Government, Arts and Sport (‘the Department’) agrees that, in accordance with the  intent of the National Partnership Agreement (‘the NPA’), the Victorian Government  should  submit  enough  reconstruction  projects  for  assessment  by  the  Australian  Government  Reconstruction  Inspectorate  (‘the  Inspectorate’),  for  it  to  provide  an  assurance of value for money over the entire reconstruction program. 

3.75 The Department and the Inspectorate have advised the Victorian Government  that a single project will not allow a judgement to be made on the value for money of  the  reconstruction  program  and  are  working  to  identify  further  projects  for  value‐for‐money assessment by the Inspectorate. 

3.76 The Victorian Government has recently sought an extension to the timeframe  for the reconstruction program and in conjunction with this we will work with the  Victorian  Government  to  improve  reporting  of  project‐level  information  to  identify  further projects for Inspectorate value‐for‐money review. 

Inspectorate’s response: 

3.77 Not agreed. The Australian Government Reconstruction Inspectorate notes the  Australian National Audit Office’s (ANAO) recommendation, but does not believe  that seeking an amendment to the operating protocol would be of any practical benefit.  The  Inspectorate  does  not  agree  with  the  ANAO’s  interpretation  of  the  National  Partnership Agreement for Victorian Flood Reconstruction and Recovery (‘the NPA’)  concerning the projects that may be reviewed for value for money by the Inspectorate.  It has always been the Inspectorate’s understanding that the intent of the NPA - and  the intent of both parties in agreeing to the NPA - was to limit the Inspectorate’s 

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review to those projects valued at more than $5 million.72 The Inspectorate was not  involved in the negotiation of the Commonwealth’s interests in the NPA; that was  undertaken by the Department of Prime Minister and Cabinet.73 The Inspectorate was  presented with the document in May 2011 once it had been signed by both parties. 

3.78 The Inspectorate is currently reviewing the only reconstruction project that  has been identified as crossing the threshold for Inspectorate review. The Inspectorate  acknowledges that at this point in time, it does not have sufficient information to make  an  assessment  of  whether  value  for  money  can  be  achieved  in  the  Victorian  reconstruction program and I have written to both the Victorian Government and the  Minister for Regional Australia, Regional Development and Local Government on this  issue. However, reconstruction in Victoria is far from complete, and the identification  of projects for Inspectorate review continues to be a point of discussion with Victorian  officials. 

PM&C’s response: 

3.79 Noted. 

Ian McPhee 

Auditor‐General 

Canberra ACT 

26 February 2013 

72 ANAO Comment: The report recognises (see paragraphs 18 and 3.69) that the ANAO has been advised that the parties to the NPA intended that a $5 million threshold apply to Inspectorate value for money reviews of Victorian flood reconstruction projects. The report also outlines that this threshold on

project reviews was not included in the NPA but is reflected in the operating protocol (see paragraphs 4 and 3.13 to 3.21). 73 ANAO Comment: Records provided to the ANAO by PM&C show that the Taskforce was consulted in

the development of both NPAs, with briefings on progress provided to the Inspectorate at its meetings.

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review to those projects valued at more than $5 million.72 The Inspectorate was not  involved in the negotiation of the Commonwealth’s interests in the NPA; that was  undertaken by the Department of Prime Minister and Cabinet.73 The Inspectorate was  presented with the document in May 2011 once it had been signed by both parties. 

3.78 The Inspectorate is currently reviewing the only reconstruction project that  has been identified as crossing the threshold for Inspectorate review. The Inspectorate  acknowledges that at this point in time, it does not have sufficient information to make  an  assessment  of  whether  value  for  money  can  be  achieved  in  the  Victorian  reconstruction program and I have written to both the Victorian Government and the  Minister for Regional Australia, Regional Development and Local Government on this  issue. However, reconstruction in Victoria is far from complete, and the identification  of projects for Inspectorate review continues to be a point of discussion with Victorian  officials. 

PM&C’s response: 

3.79 Noted. 

Ian McPhee 

Auditor‐General 

Canberra ACT 

26 February 2013 

72 ANAO Comment: The report recognises (see paragraphs 18 and 3.69) that the ANAO has been advised that the parties to the NPA intended that a $5 million threshold apply to Inspectorate value for money reviews of Victorian flood reconstruction projects. The report also outlines that this threshold on

project reviews was not included in the NPA but is reflected in the operating protocol (see paragraphs 4 and 3.13 to 3.21). 73 ANAO Comment: Records provided to the ANAO by PM&C show that the Taskforce was consulted in

the development of both NPAs, with briefings on progress provided to the Inspectorate at its meetings.

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Appendices

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Appendix 1: Agency Responses

Department of Regional Australia, Local Government, Arts and Sport 

In 2010—11, Victorian communities suffered extensive and prolonged flooding. The  cost of recovery and reconstruction in the state is estimated to be more than $1 billion,  although a portion of this will be recovered through insurance arrangements. To assist  with  reconstruction,  the  Australian  Government  provided  a  $500  million  advance  payment to the Victorian Government, which is to be acquitted against claims under  the Natural Disaster Relief and Recovery Arrangements (‘the NDRRA’). 

In conjunction with this advanced payment, the Australian Government negotiated a  National Partnership Agreement with the Victorian Government (‘the Victorian NPA’)  to include enhanced arrangements for oversight and reporting of reconstruction (in  addition  to  the  existing  NDRRA  framework).  The  Victorian  NPA  provides  for  the  Australian Government Reconstruction Inspectorate (‘the Inspectorate’), announced by  the  Prime  Minister  in  February  2011,  to  assess  value  for  money  in  the  Victorian  reconstruction program. 

While  the  Victorian  NPA  shares  some  components  with  Queensland’s  National  Partnership Agreement, there are important differences between the two. Notably, the  Victorian NPA was finalised in May 2011 after several months of negotiations between  the  Australian  and  Victorian  Governments  and  reflects  decisions  made  by  the  Victorian Government on how it would administer its reconstruction program. 

The method of administering disaster recovery and reconstruction is decided by the  state or territory government with regard to the specific needs of its communities after  each disaster. There is no standard response. In this case, the Victorian Government  decided not to establish a centralised approval and coordination body, as it had in the  aftermath of the 2009 bushfires. It instead decided to rely on existing state agencies and  administrative arrangements already in place. 

Similarly,  the  Victorian  Government  decided  to  use  its  existing  procurement  and  contract  management  frameworks,  rather  than  establish  disaster‐specific  arrangements. The Victorian Government has provided advice on these arrangements 

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Appendix 1: Agency Responses

Department of Regional Australia, Local Government, Arts and Sport 

In 2010—11, Victorian communities suffered extensive and prolonged flooding. The  cost of recovery and reconstruction in the state is estimated to be more than $1 billion,  although a portion of this will be recovered through insurance arrangements. To assist  with  reconstruction,  the  Australian  Government  provided  a  $500  million  advance  payment to the Victorian Government, which is to be acquitted against claims under  the Natural Disaster Relief and Recovery Arrangements (‘the NDRRA’). 

In conjunction with this advanced payment, the Australian Government negotiated a  National Partnership Agreement with the Victorian Government (‘the Victorian NPA’)  to include enhanced arrangements for oversight and reporting of reconstruction (in  addition  to  the  existing  NDRRA  framework).  The  Victorian  NPA  provides  for  the  Australian Government Reconstruction Inspectorate (‘the Inspectorate’), announced by  the  Prime  Minister  in  February  2011,  to  assess  value  for  money  in  the  Victorian  reconstruction program. 

While  the  Victorian  NPA  shares  some  components  with  Queensland’s  National  Partnership Agreement, there are important differences between the two. Notably, the  Victorian NPA was finalised in May 2011 after several months of negotiations between  the  Australian  and  Victorian  Governments  and  reflects  decisions  made  by  the  Victorian Government on how it would administer its reconstruction program. 

The method of administering disaster recovery and reconstruction is decided by the  state or territory government with regard to the specific needs of its communities after  each disaster. There is no standard response. In this case, the Victorian Government  decided not to establish a centralised approval and coordination body, as it had in the  aftermath of the 2009 bushfires. It instead decided to rely on existing state agencies and  administrative arrangements already in place. 

Similarly,  the  Victorian  Government  decided  to  use  its  existing  procurement  and  contract  management  frameworks,  rather  than  establish  disaster‐specific  arrangements. The Victorian Government has provided advice on these arrangements 

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to the Inspectorate, which considers them to be appropriate to the task and able to  deliver value for money in the reconstruction program.74 

The arrangements put in place in Victoria in the aftermath of the 2011 floods provide  for significantly greater visibility and oversight than has ever been the case for disaster  recovery in that State. The National Disaster Recovery Taskforce (‘the Taskforce’) and  the Inspectorate have been active participants in interagency and intergovernmental  meetings  on  reconstruction,  reviewing  progress  reports  and  data  on  progress,  and  undertaking site visits with front line staff, community members and local government  agencies. 

It  should  be  noted  the  reconstruction  program  is  far  from  complete  and  the  Department will continue to assess projects to assure that value for money is achieved  across the reconstruction program.75 

The Department notes that, while the $5 million threshold for Inspectorate value for  money review of reconstruction projects is not explicit in the drafting of the Victorian  NPA, it was the intent of the Commonwealth and the Victorian governments that the  Inspectorate  focus  on  and  review  projects  valued  at  more  than  $5 million.  The  Department of the Prime Minister and Cabinet - the agency responsible for drafting  the  agreement  and  for  concluding  the  negotiations  with  Victoria  -  supports  the  interpretation applied by the Inspectorate and the Taskforce. 

Against this background, the Department believes that the ANAO’s assertion that it is  the operating protocol that limits the Inspectorate is misleading.76 

As  the  ANAO  has  identified,  the  operating  protocol  was  agreed  by  the  Victorian  Government  in  December  2012.  The  Department  does  not  consider  that  the 

74 ANAO comment: An important matter examined in project value for money reviews is the project delivery approach. As outlined at paragraphs 2.39 to 2.43 of the related report on the preparation and delivery of the flood recovery work plans, the Victorian procurement policies outlined in the work plan did

not apply to important elements of the recovery and reconstruction effort. Further, in the context of this audit of value for money reviews of Victorian flood reconstruction projects, ANAO engagement with councils (to assess the extent to which reconstruction projects greater than the $5 million threshold exist) indicated that the documented procurement framework may not be being consistently applied. This situation was drawn to the Taskforce’s attention during the course of the audit. 75

ANAO comment: The Inspectorate’s third report to the Prime Minister (provided in February 2012) had stated that review of reconstruction projects in Victoria for value for money would begin ‘shortly’, with three initial projects identified (including the Charlton Hospital project). However, the Taskforce did not request that the relevant documentation for two of these projects be provided for review and the reviews were not undertaken. Subsequent Inspectorate reports did not identify that these reviews had not proceeded, or advise of the reasons for this situation. 76

ANAO comment: The report recognises (see paragraphs 18 and 3.69) that the ANAO has been advised that the parties to the NPA intended that a $5 million threshold apply to Inspectorate value for money reviews of Victorian flood reconstruction projects. The report also outlines that this threshold on project reviews was not included in the NPA but is reflected in the operating protocol (see paragraphs 4 and 3.13 to 3.21).

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development  period  had  any  material  impact  on  the  Inspectorate  conducting  value‐for‐money  assessments.77  The  project  currently  being  assessed  by  the  Inspectorate  was  identified  while  the  protocols  were  being  developed.78  The  substantial documentation required for the review could not be assembled until late  2012 as the design phase was still underway. 

The  Department  disagrees  with  the  ANAO’s  view  that  the  Taskforce  and  the  Inspectorate have not been active in seeking projects for review and specifically that  the Taskforce only ‘started requesting information from Victoria on projects with a  value greater than $5 million’ in September 2012 (see paragraph 3.71). The Department  notes that paragraph 3.35 indicates that discussions on this matter occurred as early as  October 2011.79 

The ANAO has identified a number of advertised tenders which it believes should  have  been  the  subject  of  review  by  the  Inspectorate.  These  are  currently  under  consideration  by  the  Taskforce,  however  advice  provided  in  2012  by  the  Victorian 

77 ANAO comment: As noted at paragraphs 24, 2.24 and 3.36, the Taskforce and Victorian officials agreed the protocol should be developed ‘prior to any further work or information being provided to the Commonwealth’ on flood recovery projects for review.

78 ANAO comment: As noted at paragraph 3.36, the Charlton Hospital project was identified for Inspectorate review in October 2011, several weeks before the Taskforce commenced the initial draft protocol provided to Victoria in late-January 2012 (see Figure 2.1).

79 ANAO comment: Prior to September 2012, the Taskforce action had been limited to raising with Victoria that no projects above the $5 million threshold had been submitted for review. However:

 the operating protocol did not require any reporting from Victoria to allow the Taskforce to be satisfied that there were no projects above $5 million (which was the advice to the Taskforce from Victoria) and the Taskforce did not examine other sources of information (such as public information on tenders and Council websites) to identify projects that had not been reported to it by Victoria;

 a definition of the key term ‘project’ was agreed at an early stage with Queensland, but similar action was not taken in respect to Victoria. An inconsistent approach has been adopted, with the result being reduced accountability and oversight. Specifically, Victoria has advised the Taskforce that it considered a ‘project’ for the purposes of the Inspectorate’s value for money review activities referred to a single piece of infrastructure such as one road or one bridge but, for the flood recovery work plan (which the NPA required include a list of specific reconstruction projects) individual roads and bridges were not identified. Rather, in many instances, the work plan identified general categories of work (for example, the work plan included a $121.5 million initiative titled ‘Repair of Flood Damage to Arterial Roads’ but did not provide any details as to which particular arterial roads required repair or reconstruction, or at what estimated cost); and

 when projects were put forward by Victoria for Inspectorate review, the Taskforce did not pursue the documentation to allow a review to commence, such that these reviews did not proceed, even though it had been reported to the Prime Minister in February 2012 that reviews would commence shortly (and later reports to the Prime Minister did not address this situation).

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development  period  had  any  material  impact  on  the  Inspectorate  conducting  value‐for‐money  assessments.77  The  project  currently  being  assessed  by  the  Inspectorate  was  identified  while  the  protocols  were  being  developed.78  The  substantial documentation required for the review could not be assembled until late  2012 as the design phase was still underway. 

The  Department  disagrees  with  the  ANAO’s  view  that  the  Taskforce  and  the  Inspectorate have not been active in seeking projects for review and specifically that  the Taskforce only ‘started requesting information from Victoria on projects with a  value greater than $5 million’ in September 2012 (see paragraph 3.71). The Department  notes that paragraph 3.35 indicates that discussions on this matter occurred as early as  October 2011.79 

The ANAO has identified a number of advertised tenders which it believes should  have  been  the  subject  of  review  by  the  Inspectorate.  These  are  currently  under  consideration  by  the  Taskforce,  however  advice  provided  in  2012  by  the  Victorian 

77 ANAO comment: As noted at paragraphs 24, 2.24 and 3.36, the Taskforce and Victorian officials agreed the protocol should be developed ‘prior to any further work or information being provided to the Commonwealth’ on flood recovery projects for review.

78 ANAO comment: As noted at paragraph 3.36, the Charlton Hospital project was identified for Inspectorate review in October 2011, several weeks before the Taskforce commenced the initial draft protocol provided to Victoria in late-January 2012 (see Figure 2.1).

79 ANAO comment: Prior to September 2012, the Taskforce action had been limited to raising with Victoria that no projects above the $5 million threshold had been submitted for review. However:

 the operating protocol did not require any reporting from Victoria to allow the Taskforce to be satisfied that there were no projects above $5 million (which was the advice to the Taskforce from Victoria) and the Taskforce did not examine other sources of information (such as public information on tenders and Council websites) to identify projects that had not been reported to it by Victoria;

 a definition of the key term ‘project’ was agreed at an early stage with Queensland, but similar action was not taken in respect to Victoria. An inconsistent approach has been adopted, with the result being reduced accountability and oversight. Specifically, Victoria has advised the Taskforce that it considered a ‘project’ for the purposes of the Inspectorate’s value for money review activities referred to a single piece of infrastructure such as one road or one bridge but, for the flood recovery work plan (which the NPA required include a list of specific reconstruction projects) individual roads and bridges were not identified. Rather, in many instances, the work plan identified general categories of work (for example, the work plan included a $121.5 million initiative titled ‘Repair of Flood Damage to Arterial Roads’ but did not provide any details as to which particular arterial roads required repair or reconstruction, or at what estimated cost); and

 when projects were put forward by Victoria for Inspectorate review, the Taskforce did not pursue the documentation to allow a review to commence, such that these reviews did not proceed, even though it had been reported to the Prime Minister in February 2012 that reviews would commence shortly (and later reports to the Prime Minister did not address this situation).

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Government is that a number of these are substantially funded by insurance and are  therefore out of scope.80 

The Department does not consider that a separate protocol governing the interactions  of  the  Inspectorate  and  other  Commonwealth  bodies,  particularly  Emergency  Management Australia (‘EMA’), is necessary or impacts on current effective working  arrangements.81 Interactions between EMA and the Department occur using the same  framework as all other Commonwealth agencies, including inter‐agency meetings, the  use of seconded officers and the Cabinet coordination process. As recognised in the  ANAO’s report, EMA and the Inspectorate do not agree that an operating protocol is  needed for an effective working relationship between the two bodies. 

As recognised in the ANAO’s report, EMA and the Inspectorate do not agree that an  operating protocol is needed for an effective working relationship between the two  bodies.82 

There has been and continues to be close dialogue between EMA and the Department  on  matters  arising  from  the  Taskforce  and  Inspectorate’s  oversight  of  the  reconstruction programs in Victoria and Queensland. Therefore, the Department does  not agree with the ANAO that it did not access advice from EMA on disaster recovery  arrangements or emerging issues identified by the Inspectorate. These were addressed  in a timely manner. 

 

80 ANAO comment: The department has not indicated how many of the nine projects have insurance offsets and has not quantified the insurance offsets (and whether this has been budgeted insurance, which has often not been achieved according to Victorian reporting, or actual insurance recoveries). In

any event, similar to the absence of any agreed definition of a reconstruction project, there are no clauses in the NPA or protocol indicating that the value of projects for the purposes of applying the $5 million threshold excludes the amount of any insurance recovery. 81

ANAO comment: In May 2012, the Taskforce advised the SOCG in relation to the NPA review then underway that one of the key issues for the review identified during Commonwealth consultation was the need for ‘clarification of the division of responsibility of Commonwealth departments’. This suggests that the existing arrangements were less than fully effective. Matters such as this could have been addressed in the envisaged Inspectorate protocol (see paragraph 2.5). 82

This comment was repeated in the department’s formal response.

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Chair

Mr Ian McPhee PSM  Auditor‐General  Australian National Audit Office  GPO Box 707  CANBERRA  ACT  2601   

Dear Mr McPhee 

 

I refer to the letter of 14 December 2012 from Ms Barbara Cass seeking comment from the  Australian  Government  Reconstruction  Inspectorate  (‘the  Inspectorate’)  on  the  proposed  audit report on The Australian Government Reconstruction Inspectorate’s Conduct of Value for  Money Reviews of Flood Reconstruction Projects in Victoria, and on the revised version sent on  28 January 2013. 

I  note  that  changes  have  been  made  to  the  report  since  the  issues  paper,  particularly  in  providing a broader context.  I continue, however, to have the concerns that I expressed in my  initial response and in my subsequent conversation with Ms Cass.83 

The  Inspectorate  does  not  agree  with  the  Australian  National  Audit  Office’s  (ANAO)  interpretation of the National Partnership Agreement for Victorian Flood Reconstruction and  Recovery (‘the NPA’) concerning the projects that may be reviewed for value for money by  the Inspectorate.  It has always been the Inspectorate’s understanding that the intent of the  NPA - and the intent of both parties in agreeing to the NPA - was to limit the Inspectorate’s  review to those projects valued at more than $5 million.  The Inspectorate was not involved  in the negotiation of the Commonwealth’s interests in the NPA; that was undertaken by the  Department  of  Prime  Minister  and  Cabinet,  which  confirms  that  the  Inspectorate’s 

83 ANAO comment: The Issues Papers were discussed with the Chair of the Inspectorate prior to his written comments being provided to the ANAO. The Inspectorate’s comments during the course of the audit resulted in changes being made to the proposed report to:

 recognise the action that was taken in November 2012 by the Inspectorate to write to Victoria advising that it was ‘troubled that, more than 18 months after the disaster events, it has been unable to complete a value for money assessment on any Victorian project’ (see paragraphs 16 and 3.54); and

 reflect the Inspectorate’s perspective that the absence of formal protocols with other Commonwealth agencies (as had been required by the NPA) has had no demonstrable impact on the work of the Taskforce or the Inspectorate (see paragraph 2.17).

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Chair

Mr Ian McPhee PSM  Auditor‐General  Australian National Audit Office  GPO Box 707  CANBERRA  ACT  2601   

Dear Mr McPhee 

 

I refer to the letter of 14 December 2012 from Ms Barbara Cass seeking comment from the  Australian  Government  Reconstruction  Inspectorate  (‘the  Inspectorate’)  on  the  proposed  audit report on The Australian Government Reconstruction Inspectorate’s Conduct of Value for  Money Reviews of Flood Reconstruction Projects in Victoria, and on the revised version sent on  28 January 2013. 

I  note  that  changes  have  been  made  to  the  report  since  the  issues  paper,  particularly  in  providing a broader context.  I continue, however, to have the concerns that I expressed in my  initial response and in my subsequent conversation with Ms Cass.83 

The  Inspectorate  does  not  agree  with  the  Australian  National  Audit  Office’s  (ANAO)  interpretation of the National Partnership Agreement for Victorian Flood Reconstruction and  Recovery (‘the NPA’) concerning the projects that may be reviewed for value for money by  the Inspectorate.  It has always been the Inspectorate’s understanding that the intent of the  NPA - and the intent of both parties in agreeing to the NPA - was to limit the Inspectorate’s  review to those projects valued at more than $5 million.  The Inspectorate was not involved  in the negotiation of the Commonwealth’s interests in the NPA; that was undertaken by the  Department  of  Prime  Minister  and  Cabinet,  which  confirms  that  the  Inspectorate’s 

83 ANAO comment: The Issues Papers were discussed with the Chair of the Inspectorate prior to his written comments being provided to the ANAO. The Inspectorate’s comments during the course of the audit resulted in changes being made to the proposed report to:

 recognise the action that was taken in November 2012 by the Inspectorate to write to Victoria advising that it was ‘troubled that, more than 18 months after the disaster events, it has been unable to complete a value for money assessment on any Victorian project’ (see paragraphs 16 and 3.54); and

 reflect the Inspectorate’s perspective that the absence of formal protocols with other Commonwealth agencies (as had been required by the NPA) has had no demonstrable impact on the work of the Taskforce or the Inspectorate (see paragraph 2.17).

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interpretation  of  the  NPA  is  correct.  The  Inspectorate  was  presented  with  the  NPA  in  May 2011 once it had been signed by both parties.84 

In line with this, I note that the report continues to state erroneously that the Inspectorate’s  Operating Protocol bound the Commonwealth to the $5 million limit for Inspectorate value‐for‐ money reviews (see for example paragraph 3.20). This needs to be corrected.85 

The Inspectorate is currently reviewing the only reconstruction project that has been identified  as crossing the threshold for Inspectorate review. The Inspectorate acknowledges that at this  point in time, it does not have sufficient information to make an assessment of whether value  for money can be achieved in the Victorian reconstruction program, and I have written to both  the Victorian Government and the Minister for Regional Australia, Regional Development and  Local Government on this issue.  However, reconstruction in Victoria is far from complete,  and the identification of projects for Inspectorate review continues to be a point of discussion  with Victorian officials. 

The National Disaster Recovery Taskforce provides regular reports to the Inspectorate on its  active discussions with the Victorian Government on the identification of further appropriate  projects for Inspectorate review, that is those projects valued at more than $5 million and  funded  by  the  State  and  Commonwealth  under  the  Natural  Disaster  Relief  and  Recovery  Arrangements (‘the NDRRA’).  I am hopeful that a resolution to this issue can be reached in  the near future. 

The  audit  report  attempts  to  identify  further  Victorian  projects  valued  at  more  than  $5 million,  including  21  initiatives  in  the  Flood  Recovery  Work  Plan;  these  initiatives,  however,  are  comprised  of  multiple  projects  across  the  State,  such  as  the  reconstruction 

84 ANAO comment: Records provided to the ANAO by PM&C show that the Taskforce was consulted in the development of both NPAs. In respect to the Queensland NPA, the minutes of the Inspectorate’s 15 February 2011 meeting reflect that the Inspectorate had been provided with a copy of the draft NPA,

and offered the opportunity to provide comments. The records of the 1 March 2011 and 12 April 2011 Inspectorate meetings outline that the Taskforce briefed the Inspectorate on progress with the Victorian NPA. The records of the 20 May 2011 meeting outline that the Inspectorate was advised by the Taskforce that a NPA had been finalised with Victoria but that ‘it differs from the NPA between the Commonwealth and Queensland, particularly in relation to the scope of the Inspectorate and the threshold for projects which will come under the Inspectorate’s Governance’. 85

ANAO comment: The report recognises (see paragraphs 18 and 3.69) that the ANAO has been advised that the parties to the NPA intended that a $5 million threshold apply to Inspectorate value for money reviews of Victorian flood reconstruction projects. The report also outlines that this threshold on project reviews was not included in the NPA but is reflected in the operating protocol (see paragraphs 4 and 3.13 to 3.21).

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programs of the Catchment Management Authorities.  They are not appropriate projects for  Inspectorate review.86 

The  Victorian  Government  has  recently  sought  an  extension  to  the  timeframe  for  the  reconstruction  program.    I  have  written  to  the  Minister  for  Regional  Australia,  Regional  Development  and  Local  Government  suggesting  that  any  agreement  to  extend  this  date  should  be  conditional  on  the  Victorian  Government  providing  a  sufficient  number  of  reconstruction  projects  -  or  bundles  of  projects  -  for  value‐for‐money  assessment.    The  Inspectorate would then be in a much stronger position to fulfil its mandate in providing  value‐for‐money assurance in the Victorian reconstruction effort. 

This has been a new and challenging exercise, but one that has already delivered clear and  significant benefits for the Australian community.  By its nature, the Inspectorate has needed  to be flexible in dealing with unforeseen issues and in ensuring that we avoid duplication of  effort or placing an unnecessary administrative burden on front‐line agencies. 

I have attached some specific comments on the recommendation for inclusion in the audit  report.  I would be happy to discuss these issues with you in person, if you would like any  further information. 

 

 

Yours faithfully 

The Hon John Fahey AC  31 January 2013

86 ANAO comment: The associated audit report on the preparation and delivery of the flood reconstruction work plans outlines (at paragraphs 2.44 to 2.53) that many of the ‘initiatives’ listed in the Victorian work plan do not identify specific reconstruction and recovery projects but relate to general categories of work.

Neither at that time, nor subsequently, did the Taskforce seek information from Victoria that identified each specific project included within these ‘initiatives’. Nevertheless, as outlined at paragraphs 3.43 to 3.45 of this report examining project reviews of Victorian flood reconstruction projects, there were instances where the work plan identified a project with a value of greater than $5 million but in none of these instances has the Taskforce sought to undertake a value for money review of the project. In addition, although the Inspectorate’s third report to the Prime Minister (provided in February 2012) stated that review of reconstruction projects in Victoria for value for money would begin ‘shortly’, with three initial projects identified, this did not occur. Instead, in the June 2012 fourth report, the Prime Minister

was advised that: ‘The Inspectorate has received initial information pertaining to the first Victorian reconstruction project to be reviewed, and assessment of this project will begin shortly.’ No explanation was provided as to why reviews of three projects foreshadowed in the February 2012 report had not been undertaken.

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programs of the Catchment Management Authorities.  They are not appropriate projects for  Inspectorate review.86 

The  Victorian  Government  has  recently  sought  an  extension  to  the  timeframe  for  the  reconstruction  program.    I  have  written  to  the  Minister  for  Regional  Australia,  Regional  Development  and  Local  Government  suggesting  that  any  agreement  to  extend  this  date  should  be  conditional  on  the  Victorian  Government  providing  a  sufficient  number  of  reconstruction  projects  -  or  bundles  of  projects  -  for  value‐for‐money  assessment.    The  Inspectorate would then be in a much stronger position to fulfil its mandate in providing  value‐for‐money assurance in the Victorian reconstruction effort. 

This has been a new and challenging exercise, but one that has already delivered clear and  significant benefits for the Australian community.  By its nature, the Inspectorate has needed  to be flexible in dealing with unforeseen issues and in ensuring that we avoid duplication of  effort or placing an unnecessary administrative burden on front‐line agencies. 

I have attached some specific comments on the recommendation for inclusion in the audit  report.  I would be happy to discuss these issues with you in person, if you would like any  further information. 

 

 

Yours faithfully 

The Hon John Fahey AC  31 January 2013

86 ANAO comment: The associated audit report on the preparation and delivery of the flood reconstruction work plans outlines (at paragraphs 2.44 to 2.53) that many of the ‘initiatives’ listed in the Victorian work plan do not identify specific reconstruction and recovery projects but relate to general categories of work.

Neither at that time, nor subsequently, did the Taskforce seek information from Victoria that identified each specific project included within these ‘initiatives’. Nevertheless, as outlined at paragraphs 3.43 to 3.45 of this report examining project reviews of Victorian flood reconstruction projects, there were instances where the work plan identified a project with a value of greater than $5 million but in none of these instances has the Taskforce sought to undertake a value for money review of the project. In addition, although the Inspectorate’s third report to the Prime Minister (provided in February 2012) stated that review of reconstruction projects in Victoria for value for money would begin ‘shortly’, with three initial projects identified, this did not occur. Instead, in the June 2012 fourth report, the Prime Minister was advised that: ‘The Inspectorate has received initial information pertaining to the first Victorian reconstruction project to be reviewed, and assessment of this project will begin shortly.’ No explanation was provided as to why reviews of three projects foreshadowed in the February 2012 report had not been undertaken.

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Australian Government

Department of Infrastructure and Transport

Secretary

Ms Barbara Cass Group Executive Director Performance Audit Services Group Australian National Audit Office GPO Box 707 CANBERRA ACT 2601

Dear Ms Cass

Audits for Australian Government Reconstruction Inspectorate and Preparation and Delivery of the Natural Disaster Recovery Work Plans for Victoria

Thank you for providing an extract of the proposed audit report to me for comment.

I note the audit findings of relevance to the Department of Infrastructure and Transport (DIT) centre around the perceived lack of operating protocols between the Australian Government Reconstruction Inspectorate (the Inspectorate) and DIT. It is postulated that the development of such protocols may have benefited the work undertaken by the Taskforce, specifically in relation to managing the risk of "double dipping" and facilitating a sharing of information and experience.87

I take the opportunity to provide a formal comment on the audit findings detailed above, to be published in the final audit report.

87 ANAO Comment: Paragraph 2.5 outlines that it was the NPAs that required the operating protocols between the Inspectorate and other Commonwealth and state bodies involved in reconstruction activity. The NPAs were jointly agreed by the Australian Government and the governments of Queensland and

Victoria respectively.

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It should be noted that DIT worked closely and cooperatively with the Taskforce during the Victorian flood recovery and reconstruction effort. This included official attendance on the Australian Government Disaster Recovery Committee (AGDRC) - identified as the committee t o take forward the Commonwealth's coordinated recovery efforts, and the AGDRC Secretaries' Group, chaired by the Secretary, Attorney Generals' Department.

Additionally, this Department, through its Flood Response Working Group, was in regular communication, through a significant number of phone calls and meetings, with the Taskforce and other partnering Agencies to provide information and expertise toward assisting in the oversight of the reconstruction projects. Through clear cooperation, the Department was able to provide expert information on the management of large scale infrastructure projects, in particular reviewing project cost estimations and delivery expectations. Officers of this Department involved in the Nation Building Infrastructure Investment (NBII) Program monitored closely the delivery of the projects to minimise the risk of "double dipping".

Lastly, I draw to your attention paragraph 2.18 and the references it make to the Attorney General's view of the relationship between Emergency Management Australia and the Department of Regional Australia, Local Government, Arts and Sports. As there is no relevance to the working relationships of my Department, I believe this commentary should be removed or placed under a more appropriate heading.

For the reasons I have outlined here, it is the view of the Department that partnering agencies do not always require formal protocols to produce expected outcomes in an efficient, effective and economic manner. As such, I am confident that the absence of operating protocols between the Taskforce and DIT did not impede the flood recovery and reconstruction effort in any way.

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It should be noted that DIT worked closely and cooperatively with the Taskforce during the Victorian flood recovery and reconstruction effort. This included official attendance on the Australian Government Disaster Recovery Committee (AGDRC) - identified as the committee t o take forward the Commonwealth's coordinated recovery efforts, and the AGDRC Secretaries' Group, chaired by the Secretary, Attorney Generals' Department.

Additionally, this Department, through its Flood Response Working Group, was in regular communication, through a significant number of phone calls and meetings, with the Taskforce and other partnering Agencies to provide information and expertise toward assisting in the oversight of the reconstruction projects. Through clear cooperation, the Department was able to provide expert information on the management of large scale infrastructure projects, in particular reviewing project cost estimations and delivery expectations. Officers of this Department involved in the Nation Building Infrastructure Investment (NBII) Program monitored closely the delivery of the projects to minimise the risk of "double dipping".

Lastly, I draw to your attention paragraph 2.18 and the references it make to the Attorney General's view of the relationship between Emergency Management Australia and the Department of Regional Australia, Local Government, Arts and Sports. As there is no relevance to the working relationships of my Department, I believe this commentary should be removed or placed under a more appropriate heading.

For the reasons I have outlined here, it is the view of the Department that partnering agencies do not always require formal protocols to produce expected outcomes in an efficient, effective and economic manner. As such, I am confident that the absence of operating protocols between the Taskforce and DIT did not impede the flood recovery and reconstruction effort in any way.

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The contact officer in the Department is Roland Pittar, whose details are:

Mr Roland Pittar General Manager North West Roads Department of Infrastructure and Transport GPO Box 594 CANBERRA ACT· 2600

Telephone: 02 6274 6424 Email: roland.pittar@infrashucture.gov.au

Yours sincerely

29 January 2013

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Department of Primary Industries

24 January 2013

Ms Barbara Cass Group Executive Director Performance Audit Service Group Australian National Audit Office GPO Box 707 Canberra ACT 2601

Dear Ms Cass,

Proposed Audit Report on the Performance Audit of the Australian Government Reconstruction Inspectorate’s Conduct of Value for Money Reviews of Flood Reconstruction Projects in Victoria

In early 2011, Victoria experienced some of the most extensive and damaging storm events in its history. A partnership approach by the Victorian and Commonwealth Governments to provide recovery and reconstruction funding, together with appropriate governance and coordination mechanisms, have been instrumental in enabling communities to recover and rebuild.

The flood events experienced by Victoria in 2011 and the governance and coordination arrangements established to guide reconstruction are significantly different to those relating to the Queensland floods. These differences were noted by Victoria's Deputy Premier, the Hon. Peter Ryan MP, in his letter to the Commonwealth Minister for Regional Australia, Regional Development and Local Government, the Hon. Simon Crean MP, in March 2011. Deputy Premier Ryan noted that Victoria was not establishing a separate authority to undertake recovery and reconstruction, consistent with its aim to keep the agreement as simple as possible and not create an unnecessary administrative burden. He also stated that given the large number of relatively small projects, procurement would not be centralised and for projects over $5 million Victoria will seek the view of the Australian Government Reconstruction Inspectorate.

Following agreement to this approach by Minister Crean in April 2011 these arrangements were reflected in the intent and content of the National

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Partnership Agreement for Victorian Flood Reconstruction and Recovery (NPA), the Victorian Flood Recovery Work Plan and the Protocol for Reviewing Victorian Reconstruction Projects (the Protocol) agreed to between

Victoria and the Commonwealth.88

Victoria notes that consistent with the foregoing, the Department of Prime Minister and Cabinet, the Commonwealth National Disaster Recovery Taskforce, Australian Government Reconstruction Inspectorate and Victorian agencies all share the view that the NPA and the Protocol reflects that no reconstruction projects in Victoria would be subject to value-for-money assessment unless the value of the project exceeded $5 million. Victoria notes that only the ANAO has a different interpretation.89

Victoria is confident that the existing procurement policies and practices employed by State agencies and Local Governments in Victoria, together with the requirement under the Natural Disaster Relief and Recovery Arrangements (NDRRA) to provide financial statements audited by the Victorian Auditor-General to support any claim under the NDRRA, will enable effective reconstruction and value-for-money for the community.90

Victoria will continue to meet its obligations of the NPA. Victoria's view is that consistent with the NPA and Protocol, there has been a common understanding between Victorian and Commonwealth agencies that a project in this circumstance refers to a single piece of infrastructure (a road, a bridge, etc.) rather than a tender (which could be a group of projects).91 This is evidenced in past discussions with the Taskforce where only one reconstruction project, the Charlton Hospital, was identified as exceeding the $5 million threshold. However, Victoria will continue to work with the Commonwealth Taskforce to ensure an efficient and effective approach in identifying appropriate reconstruction projects for value-for-money review, consistent with the NPA and the Protocol.92

88 ANAO Comment: See footnote 85. 89 ANAO Comment: See footnote 85. 90

ANAO Comment: As noted at paragraph 1.5, Inspectorate value for money reviews of individual reconstruction projects were one of the oversight and accountability measures introduced in addition to the existing procurement policies and practices documented for Victoria that was designed to ensure value for money would be obtained in the rebuilding of flood affected regions. As noted at footnote 19, QRA has reported achieving significant cost reductions in that state from its activities. To date, no similar benefits have been reported in respect to the Victorian reconstruction program. 91

ANAO Comment: See the second dot point of footnote 79. 92 ANAO Comment: See footnote 75.

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Department of Primary Industries

24 January 2013

Ms Barbara Cass Group Executive Director Performance Audit Service Group Australian National Audit Office GPO Box 707 Canberra ACT 2601

Dear Ms Cass,

Proposed Audit Report on the Performance Audit of the Australian Government Reconstruction Inspectorate’s Conduct of Value for Money Reviews of Flood Reconstruction Projects in Victoria

In early 2011, Victoria experienced some of the most extensive and damaging storm events in its history. A partnership approach by the Victorian and Commonwealth Governments to provide recovery and reconstruction funding, together with appropriate governance and coordination mechanisms, have been instrumental in enabling communities to recover and rebuild.

The flood events experienced by Victoria in 2011 and the governance and coordination arrangements established to guide reconstruction are significantly different to those relating to the Queensland floods. These differences were noted by Victoria's Deputy Premier, the Hon. Peter Ryan MP, in his letter to the Commonwealth Minister for Regional Australia, Regional Development and Local Government, the Hon. Simon Crean MP, in March 2011. Deputy Premier Ryan noted that Victoria was not establishing a separate authority to undertake recovery and reconstruction, consistent with its aim to keep the agreement as simple as possible and not create an unnecessary administrative burden. He also stated that given the large number of relatively small projects, procurement would not be centralised and for projects over $5 million Victoria will seek the view of the Australian Government Reconstruction Inspectorate.

Following agreement to this approach by Minister Crean in April 2011 these arrangements were reflected in the intent and content of the National

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Victoria also welcomes the opportunity for further discussions between the Commonwealth and States and Territories on future reforms for Commonwealth-State collaboration in emergency recovery.

Yours Sincerely

Jeff Rosewarne.

Chair, Senior Officials Coordination Group

Secretary, Department of Primary Industries, Victoria

For more information about DPI visit the website at www.dpi.vic.gov.au or call the Customer Service

Centre on 136 186

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Victoria also welcomes the opportunity for further discussions between the Commonwealth and States and Territories on future reforms for Commonwealth-State collaboration in emergency recovery.

Yours Sincerely

Jeff Rosewarne.

Chair, Senior Officials Coordination Group

Secretary, Department of Primary Industries, Victoria

For more information about DPI visit the website at www.dpi.vic.gov.au or call the Customer Service

Centre on 136 186

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Appendix 2: Australian Government Reconstruction Inspectorate Terms of Reference93

Function of the Inspectorate

1. The  Australian  Government  Reconstruction  Inspectorate  has  been  established to oversee the reconstruction activity to provide assurance  that  value  for  money  is  being  achieved  in  the  expenditure  of  both  Commonwealth  and  State  funds  during  the  recovery  phase  in  Queensland,  New  South  Wales94  and  Victoria.  The  Inspectorate  will  ensure  that  there  is  proper  accountability,  scrutiny  and  value  for  money, with a particular focus on high value, complex contracts. It will  not replicate the function or responsibilities of decision‐making bodies  such as the Queensland Reconstruction Authority. 

Term of Operation

2. The Inspectorate will report directly to the National Disaster Recovery  Committee  of  Cabinet  (former  Australian  Floods  Cabinet  Sub‐ Committee), chaired by the Prime Minister.95 

Membership

3. The  Inspectorate  will  be  chaired  by  the  Hon  John  Fahey  AC.  Other  members  will  include  Mr  Martin  Albrecht  AC,  former  Managing  Director of Thiess Pty Ltd, Mr Matt Sheerin96, partner at consultancy  firm Deloitte, and Mr David Tune PSM, Secretary of the Department of  Finance and Deregulation. 

4. The Inspectorate will be supported as necessary by others with expert  knowledge  of  relevant  fields,  for  example,  quantity  surveying;  construction management; and contract law. 

93 Source: Australian Government Reconstruction Inspectorate First Report February to June 2011, Attachment A.

94 At the time NSW was included here, it was anticipated that an NPA may also be signed by that state. However, this did not occur.

95 This clause does not specify the term of operation of the Inspectorate. See footnote 3 regarding the initial and extended term.

96 Mr Sheerin resigned from the Inspectorate on 7 March 2012. At the time of preparation of this ANAO report a replacement member of the Inspectorate had not been appointed.

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Terms of Reference

5. The purpose of the Inspectorate will be to: 

 work collaboratively with any reconstruction agencies to develop and  review  contractual  frameworks,  tendering  processes  and  project  management systems; 

 where  necessary,  scrutinise  requests  for  reimbursement  by  local  government for projects completed for the purpose of reconstruction; 

 where necessary, scrutinise rebuilding contracts and benchmark prices,  to ensure value for money; 

 directly  inspect  projects,  if  required,  to  ensure  they  are  meeting  progress milestones; 

 examine  high  value  or  complex  projects  prior  to  execution,  that  is,  scrutinise contracts before they are signed; and 

 respond to and investigate complaints or issues raised by the public,  relating to value for money.97 

6. The  roles,  responsibilities  and  powers  of  the  Inspectorate  will  be  incorporated into the terms of the national partnership agreement or  other  agreement  which  delivers  reconstruction  funding  from  the  Commonwealth. 

7. The  Commonwealth  will  develop  operating  protocols  for  the  Inspectorate, setting out how the Inspectorate will interact with other  Commonwealth and State bodies involved in reconstruction activity, as  soon as is practicable after the Inspectorate’s establishment. 

Secretariat

8. The  Inspectorate  will  be  supported  by  the  Department  of  Regional  Australia,  Regional  Development  and  Local  Government  [now  the  Department of Regional Australia, Local Government, Arts and Sport]. 

97 In August 2011, the Commonwealth granted Queensland a twelve-month extension to the allowable expenditure period under NDRRA. At the request of the Australian Government, the Inspectorate accepted the additional responsibility of monitoring project scope to guard against scope expansion.

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Terms of Reference

5. The purpose of the Inspectorate will be to: 

 work collaboratively with any reconstruction agencies to develop and  review  contractual  frameworks,  tendering  processes  and  project  management systems; 

 where  necessary,  scrutinise  requests  for  reimbursement  by  local  government for projects completed for the purpose of reconstruction; 

 where necessary, scrutinise rebuilding contracts and benchmark prices,  to ensure value for money; 

 directly  inspect  projects,  if  required,  to  ensure  they  are  meeting  progress milestones; 

 examine  high  value  or  complex  projects  prior  to  execution,  that  is,  scrutinise contracts before they are signed; and 

 respond to and investigate complaints or issues raised by the public,  relating to value for money.97 

6. The  roles,  responsibilities  and  powers  of  the  Inspectorate  will  be  incorporated into the terms of the national partnership agreement or  other  agreement  which  delivers  reconstruction  funding  from  the  Commonwealth. 

7. The  Commonwealth  will  develop  operating  protocols  for  the  Inspectorate, setting out how the Inspectorate will interact with other  Commonwealth and State bodies involved in reconstruction activity, as  soon as is practicable after the Inspectorate’s establishment. 

Secretariat

8. The  Inspectorate  will  be  supported  by  the  Department  of  Regional  Australia,  Regional  Development  and  Local  Government  [now  the  Department of Regional Australia, Local Government, Arts and Sport]. 

97 In August 2011, the Commonwealth granted Queensland a twelve-month extension to the allowable expenditure period under NDRRA. At the request of the Australian Government, the Inspectorate accepted the additional responsibility of monitoring project scope to guard against scope expansion.

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Appendix 3: Role of the Commonwealth National Disaster Recovery Taskforce

Paragraphs  40  and  41  of  the  National  Partnership  Agreement  for  Natural  Disaster  Reconstruction  and  Recovery  (Commonwealth  and  Queensland,  February 2011) state that: 

40. A  Commonwealth  National  Disaster  Recovery  Taskforce  (the  Taskforce)  will  be  established  and  located  in  the  [Department  of  Regional Australia, Local Government, Arts and Sport]. Its work will be  guided  by  a  steering  committee  chaired  by  the  Secretary  of  the  [Department of Regional Australia, Local Government, Arts and Sport],  and  include  Secretaries  of:  the  Attorney‐General’s  Department;  Department  of  Infrastructure  and  Transport;  Department  of  Finance  and Deregulation; the Treasury; and the Associate Secretary, Domestic  Policy, Department of the Prime Minister and Cabinet. 

41. The Taskforce will have as its sole focus the oversight and coordination  of  Commonwealth  interests  in  relation  to  the  recovery  and  reconstruction efforts regarding the flooding events that took place in  late 2010 and early 2011 and Cyclone Yasi. The Taskforce will: 

a) provide support, including Secretariat services, to the Inspectorate; 

b) report  to  the  Minister  Assisting  the  Attorney‐General  for  Queensland  Flood  Recovery  and  the  Deputy  Chair  of  the  Australian National Disaster Recovery Cabinet Sub‐Committee; 

c) provide  the  Australian  National  Disaster  Recovery  Cabinet  Sub‐ Committee  with  monthly  progress  reports  on  State  plans  for  recovery,  including  updated  estimates  of  the  Commonwealth’s  liability under NDRRA; 

d) provide the secretariat function for the Business Leaders Taskforce; 

e) assess spending on recovery and reconstruction efforts arising from  the  flooding  and  cyclone  events  to  ensure  consistency  with  NDRRA; 

f) assess  requests  for  Commonwealth  funding  assistance  outside  those  automatically  triggered  by  a  declaration  under  NDRRA  (including all Category D requests) consistently with the Principles  Related to Proposals for Additional Natural Disaster Assistance set 

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out  in  a  Schedule  to  this  Agreement,  and  advise  the  Commonwealth Government on these requests; and 

g) ensure  that  a  strategic  approach  is  taken  to  reconstruction  and  recovery  efforts,  incorporating  the  principles  of  local  input,  and  leverage efforts across all three tiers of government and the private  and not‐for‐profit sectors. 

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out  in  a  Schedule  to  this  Agreement,  and  advise  the  Commonwealth Government on these requests; and 

g) ensure  that  a  strategic  approach  is  taken  to  reconstruction  and  recovery  efforts,  incorporating  the  principles  of  local  input,  and  leverage efforts across all three tiers of government and the private  and not‐for‐profit sectors. 

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Appendix 4: Inspectorate Protocol for Reviewing Victorian Reconstruction Projects

Background

2. The Victorian and Commonwealth Governments signed the National  Partnership  Agreement  for  Victorian  Flood  Reconstruction  and  Recovery  (the  NPA)  in  May  2011,  to  provide  a  framework  for  cooperation  and  oversight  of  the  significant  flood  recovery  effort  required. 

3. The  Australian  Government  Reconstruction  Inspectorate  (the  Inspectorate) was established to oversee the reconstruction activity by  Queensland  and  Victoria  and  to  provide  assurance  that  value  for  money is being achieved in the expenditure of Commonwealth funds  during the reconstruction phase. 

4. A  Commonwealth  National  Disaster  Recovery  Taskforce  (the  Taskforce) was established to support the Inspectorate. 

5. The Senior Officials Coordination Group (the SOCG) promotes good  coordination between Victoria and the Commonwealth to achieve the  objectives  and  outcomes  described  in  the  NPA.  The  secretariat  responsibilities  for  the  SOCG  lie  with  the  Department  of  Primary  Industries (DPI). 

6. Clause  32  of  the  NPA  states  ‘The  Commonwealth  and  Victoria  will  develop operating protocols for the Inspectorate, setting out how the  Inspectorate will interact with other Commonwealth and State bodies  involved in reconstruction activity, as soon as is practicable after the  Inspectorate’s establishment.’ 

7. This protocol outlines how the Inspectorate will interact with Victoria  and other Commonwealth bodies involved in reconstruction activity. 

8. This protocol supports the NPA for Victoria and will not supersede the  clauses of the NPA. 

9. Clause  31  of  the  NPA  states:  ‘The  Commonwealth  will  establish  an  Australian Government Reconstruction Inspectorate (the Inspectorate)  to oversee the reconstruction activity to provide assurance that value  for  money  is  being  achieved  in  the  expenditure  of  Commonwealth  funds during the reconstruction phase. The Inspectorate will: 

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a) report to the Prime Minister; 

b) work  closely  with  the  established  processes  within  Victoria  and  provide  an  additional  level  of  check  and  balance  for  the  expenditure of funds; and 

c) not replicate the function or responsibilities of decision‐making or  statutory bodies.’ 

10. Clause 36 of the NPA states: ‘To assist the Inspectorate in providing  assurance that value for money is being achieved in the expenditure of  Commonwealth funds during the reconstruction phase, the Victorian  Government will seek the views of the Inspectorate on proposed project  plans and strategies for projects over $5 million.’ 

Projects for Review

11. Possible projects for Inspectorate review for value for money will be  identified by the SOCG, as per Clause 36 and will be submitted by the  Taskforce  to  the  Inspectorate.  The  Inspectorate  may  propose  to  the  SOCG additional projects to review, including those projects that are  funded under Category D of the Natural Disaster Relief and Recovery  Arrangements (NDRRA) as per Clause 31. 

Review Methodology

12. Where  possible,  the  Inspectorate’s  review  of  a  project  for  value  for  money will be conducted at the development phase of projects. 

13. Inspectorate review of a project will not delay reconstruction progress. 

14. The Taskforce will submit a request for relevant project documentation  to the SOCG. This may include project plans, milestone reports and any  other relevant documentation. 

Value for Money Assessment Process

15. Projects selected for review will undergo a three‐tiered value for money  assessment  and  as  per  the  NPA  the  assessment  will  recognise  state  practice and Victorian standards for procurement. The three tiers are: 

Tier One: Desktop Review

Where  a  project  has  been  selected  for  a  tier  one  review,  the  project  analysis may include: 

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a) report to the Prime Minister; 

b) work  closely  with  the  established  processes  within  Victoria  and  provide  an  additional  level  of  check  and  balance  for  the  expenditure of funds; and 

c) not replicate the function or responsibilities of decision‐making or  statutory bodies.’ 

10. Clause 36 of the NPA states: ‘To assist the Inspectorate in providing  assurance that value for money is being achieved in the expenditure of  Commonwealth funds during the reconstruction phase, the Victorian  Government will seek the views of the Inspectorate on proposed project  plans and strategies for projects over $5 million.’ 

Projects for Review

11. Possible projects for Inspectorate review for value for money will be  identified by the SOCG, as per Clause 36 and will be submitted by the  Taskforce  to  the  Inspectorate.  The  Inspectorate  may  propose  to  the  SOCG additional projects to review, including those projects that are  funded under Category D of the Natural Disaster Relief and Recovery  Arrangements (NDRRA) as per Clause 31. 

Review Methodology

12. Where  possible,  the  Inspectorate’s  review  of  a  project  for  value  for  money will be conducted at the development phase of projects. 

13. Inspectorate review of a project will not delay reconstruction progress. 

14. The Taskforce will submit a request for relevant project documentation  to the SOCG. This may include project plans, milestone reports and any  other relevant documentation. 

Value for Money Assessment Process

15. Projects selected for review will undergo a three‐tiered value for money  assessment  and  as  per  the  NPA  the  assessment  will  recognise  state  practice and Victorian standards for procurement. The three tiers are: 

Tier One: Desktop Review

Where  a  project  has  been  selected  for  a  tier  one  review,  the  project  analysis may include: 

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 comparison  of  projects  against  benchmarks  (calculated  using  industry standards and other similar projects);   examination of the project file provided by Victoria;   comparison  of  estimated  and  actual  expenditure  (where  projects 

have commenced); and   stakeholder surveys. 

Based  on  these  elements  the  likelihood  that  the  project  will  achieve  value  for  money  will  be  assessed.  Where  a  project  is  deemed  to  be  value  for  money,  a  report  will  be  prepared. In  instances where  it  is  unclear or unlikely that a project will achieve value for money, it will  be transitioned to tier two. 

Tier Two: Secondary Review

Projects  that  progress  to  a  tier  two  review  will  be  subject  to  a  comprehensive  review  by  members  of  an  expert  panel.  Tier  two  analysis may include: 

 an expert cost opinion;   a site visit, incorporating meetings with delivery agents and funding  recipients; and   examination of all key documentation including project plans and 

tender documents. 

At this stage, the project will receive a rating according to each of the  criteria:  time,  cost,  quality,  and  local  engagement.  Each  criterion  is  weighted  differently  and  a  project’s  overall  rating  will  be  translated  into a percentage score. Based on these scores each project will receive a  grade of ‘pass’, ‘marginal value for money’, or ‘fail’. These results will  inform whether projects are referred to tier three. 

Tier Three: Inspectorate On-Site Review

Tier three analysis may include: 

 site visits by the Inspectorate; and   meetings between the Inspectorate and relevant stakeholders. 

16. Projects will be assessed according to the criteria of time, cost, quality,  and local engagement. Each criterion will be weighted to provide an  overall value for money rating and will be consistent with Victorian  policy and standards for procurement and any obligations imposed on  Victoria  by  the  Commonwealth  Government  under  the  terms  of 

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funding. The overall rating a project receives will determine whether or  not a project is deemed to be value for money. The factors relevant to  each of these criteria are: 

Time:

 Project  commencement  date  versus  estimated  project  commencement date.   Date of practical completion versus estimated date of completion. 

Cost:

 Actual total outturn cost versus benchmark costs.   Adjustments will be made to take account of cost premiums which  are legitimately incurred and/or are unavoidable. 

Quality:

 Whether the construction is fit for purpose.   Whether the design matches current engineering or other relevant  standards in operation in Victoria.   Whether  the  project  has  been  completed  in  accordance  with  the 

scope outlined in the original submission documents. 

Local Engagement:

 Opportunities for local industry participation.   Opportunities for indigenous and apprentice labour.   Opportunities for local community consultation. 

Reporting and resolution of issues

17. To assist with responding to any inquiries about projects, the SOCG  Secretariat (DPI) will be the contact point for all of the projects. 

18. The SOCG, via the SOCG Secretariat, will be provided with a progress  report at the conclusion of each tier of the assessment process. Where a  project is deemed to require progression to a next tier review, Victoria  will be consulted via the SOCG Secretariat. 

19. Where  an  issue  is  identified  through  the  review  process,  the  Inspectorate will work with the SOCG to resolve matters quickly. 

20. If  the  Inspectorate  believes  value  for  money  may  not  have  been  achieved in relation to a particular project, the Inspectorate will hold 

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funding. The overall rating a project receives will determine whether or  not a project is deemed to be value for money. The factors relevant to  each of these criteria are: 

Time:

 Project  commencement  date  versus  estimated  project  commencement date.   Date of practical completion versus estimated date of completion. 

Cost:

 Actual total outturn cost versus benchmark costs.   Adjustments will be made to take account of cost premiums which  are legitimately incurred and/or are unavoidable. 

Quality:

 Whether the construction is fit for purpose.   Whether the design matches current engineering or other relevant  standards in operation in Victoria.   Whether  the  project  has  been  completed  in  accordance  with  the 

scope outlined in the original submission documents. 

Local Engagement:

 Opportunities for local industry participation.   Opportunities for indigenous and apprentice labour.   Opportunities for local community consultation. 

Reporting and resolution of issues

17. To assist with responding to any inquiries about projects, the SOCG  Secretariat (DPI) will be the contact point for all of the projects. 

18. The SOCG, via the SOCG Secretariat, will be provided with a progress  report at the conclusion of each tier of the assessment process. Where a  project is deemed to require progression to a next tier review, Victoria  will be consulted via the SOCG Secretariat. 

19. Where  an  issue  is  identified  through  the  review  process,  the  Inspectorate will work with the SOCG to resolve matters quickly. 

20. If  the  Inspectorate  believes  value  for  money  may  not  have  been  achieved in relation to a particular project, the Inspectorate will hold 

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discussions  with  the  SOCG  to  attempt  to  seek  resolution  prior  to  making a final conclusion. 

21. The  Inspectorate  may  make  a  determination  that  a  project  does  not  represent value for money. A copy of the Inspectorateʹs report will be  provided to the SOCG Secretariat prior to submission to the Victorian  Deputy Premier and Commonwealth Minister for Regional Australia  for  decision  as  to  the  implications  of  such  a  determination.  If  the  Ministers  cannot  reach  agreement,  the  issues  will  be  referred  to  the  Premier and Prime Minister. 

22. The Inspectorate will report to the Prime Minister on the outcome of  assessments of reconstruction projects for value for money. 

 

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Appendix 5: Inspectorate Three Tier Project Review Process

1. Conducting  project  reviews  is  a  primary  component  of  the  strategy  adopted by the Inspectorate and the Taskforce for providing assurance  that value for money is being achieved in recovery and reconstruction  expenditure in Queensland and Victoria. Other elements of the strategy  include  more  generalised  reviews  of  contractual,  procurement  and  project management frameworks and investigation of complaints made  to the Inspectorate. 

2. The overall importance of independently reviewing a selection of the  actual recovery and reconstruction projects was well recognised early  on, including as one of the key lessons learned from the Building the  Education  Revolution  Taskforce.98  The  main  benefit  of  reviewing  individual projects is the insight (and evidence‐based assurance) it can  provide into how well the collective NDRRA requirements, contracting  and  procurement  frameworks  and  other  associated  policies  and  procedures are actually being applied by LGAs and SDAs across the  reconstruction period. 

Three tier project review process

3. The  key  mechanism  underpinning  the  Inspectorate’s  assessment  of  whether  or  not  reconstruction  expenditure  is  delivering  value  for  money  is  the  three  tier  review  process.  The  methodology  for  conducting  project  reviews  was  developed  by  the  Taskforce  in  mid‐ 2011 and endorsed by the Inspectorate on 26 July 2011. Pilot testing was  conducted on two Queensland reconstruction projects in August 2011  and  some  refinements  were  made  based  on  this  experience.  The  weightings applied to the various assessment criteria were amended  and approved by the Inspectorate on 30 August 2011. Reviews of the  first three Queensland projects commenced in early September 2011.  An expert evaluation of the Inspectorate’s project review procedures  was subsequently undertaken in December 2011.99 

98 Building the Education Revolution Implementation Taskforce: Interim Report, August 2010; First Report, December 2010; and Final Report, July 2011.

99 The consultant’s report was issued as a draft, has not been finalised and has not been published.

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Appendix 5: Inspectorate Three Tier Project Review Process

1. Conducting  project  reviews  is  a  primary  component  of  the  strategy  adopted by the Inspectorate and the Taskforce for providing assurance  that value for money is being achieved in recovery and reconstruction  expenditure in Queensland and Victoria. Other elements of the strategy  include  more  generalised  reviews  of  contractual,  procurement  and  project management frameworks and investigation of complaints made  to the Inspectorate. 

2. The overall importance of independently reviewing a selection of the  actual recovery and reconstruction projects was well recognised early  on, including as one of the key lessons learned from the Building the  Education  Revolution  Taskforce.98  The  main  benefit  of  reviewing  individual projects is the insight (and evidence‐based assurance) it can  provide into how well the collective NDRRA requirements, contracting  and  procurement  frameworks  and  other  associated  policies  and  procedures are actually being applied by LGAs and SDAs across the  reconstruction period. 

Three tier project review process

3. The  key  mechanism  underpinning  the  Inspectorate’s  assessment  of  whether  or  not  reconstruction  expenditure  is  delivering  value  for  money  is  the  three  tier  review  process.  The  methodology  for  conducting  project  reviews  was  developed  by  the  Taskforce  in  mid‐ 2011 and endorsed by the Inspectorate on 26 July 2011. Pilot testing was  conducted on two Queensland reconstruction projects in August 2011  and  some  refinements  were  made  based  on  this  experience.  The  weightings applied to the various assessment criteria were amended  and approved by the Inspectorate on 30 August 2011. Reviews of the  first three Queensland projects commenced in early September 2011.  An expert evaluation of the Inspectorate’s project review procedures  was subsequently undertaken in December 2011.99 

98 Building the Education Revolution Implementation Taskforce: Interim Report, August 2010; First Report, December 2010; and Final Report, July 2011.

99 The consultant’s report was issued as a draft, has not been finalised and has not been published.

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4. It  has  been  the  Inspectorate’s  intention  that  Victorian  reconstruction  projects  would  be  subject  to  essentially  the  same  review  process  as  Queensland projects. 

5. In relation to Queensland projects, the Inspectorate’s three tier review  process is applied to projects only after QRA has completed its own  value for money assessment and advised the applicant that their project  has been approved.100 

100 Except for projects subject to QRA’s two-phase approvals process, which mainly applies to Queensland Department of Transport and Main Roads reconstruction projects.

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Three tier review process Tier one: desktop review Where a project has been selected for a tier one review, the project analysis may include:

 comparison of projects against benchmarks (calculated using industry standards and other similar projects);

 examination of the project file provided by the state reconstruction authority;

 comparison of estimated and actual expenditure (where projects have commenced); and

 stakeholder surveys.101 In instances where it is unclear or unlikely that a project will achieve value for money, it will be transitioned to the next tier. Some projects will progress to tier two and tier three even where they have been assessed as value for money at tier one. Tier two: secondary review Projects that progress to a tier two review will be the subject of a comprehensive review by external experts. Tier two analysis may include:

 an expert cost opinion;

 a site visit, which may incorporate meetings with delivery agents and funding recipients; and

 examination of all key documentation including project plans and tender documents; Tier three: Inspectorate on-site review Approximately three to five projects per quarter will be subject to an on-site review by the Inspectorate members. Tier three analysis may include:

 site visits by the Inspectorate;

 meetings between the Inspectorate and relevant stakeholders; and

 discussions with the state reconstruction bodies. In instances where a project does not achieve value for money, the process agreed with EMA for non-value for money projects will be triggered.

Source: ANAO analysis of Taskforce documentation.

101 At the time of the audit fieldwork, no stakeholder surveys had been conducted on any reconstruction projects in Queensland or Victoria.

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Three tier review process Tier one: desktop review Where a project has been selected for a tier one review, the project analysis may include:

 comparison of projects against benchmarks (calculated using industry standards and other similar projects);

 examination of the project file provided by the state reconstruction authority;

 comparison of estimated and actual expenditure (where projects have commenced); and

 stakeholder surveys.101 In instances where it is unclear or unlikely that a project will achieve value for money, it will be transitioned to the next tier. Some projects will progress to tier two and tier three even where they have been assessed as value for money at tier one. Tier two: secondary review Projects that progress to a tier two review will be the subject of a comprehensive review by external experts. Tier two analysis may include:

 an expert cost opinion;

 a site visit, which may incorporate meetings with delivery agents and funding recipients; and

 examination of all key documentation including project plans and tender documents; Tier three: Inspectorate on-site review Approximately three to five projects per quarter will be subject to an on-site review by the Inspectorate members. Tier three analysis may include:

 site visits by the Inspectorate;

 meetings between the Inspectorate and relevant stakeholders; and

 discussions with the state reconstruction bodies. In instances where a project does not achieve value for money, the process agreed with EMA for non-value for money projects will be triggered.

Source: ANAO analysis of Taskforce documentation.

101 At the time of the audit fieldwork, no stakeholder surveys had been conducted on any reconstruction projects in Queensland or Victoria.

Appendix 5

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Assessment criteria

6. The Taskforce’s project review process broadly involves reviewing the  selected projects against four main criteria: 

 quality (scored out of 6): 

 whether the construction is fit for purpose; 

 whether  the  design  matches  current  engineering  or  other  relevant standards; and 

 whether the project has been completed in accordance with the  scope outlined in the original submission documents. 

 cost (scored out of 10): 

 planned cost versus benchmark costs; and 

 planned cost compared to actual total outturn cost. 

 time (scored out of 2): 

 Suitability of the project timeframe; 

 project  commencement  date  versus  estimated  project  commencement date; and 

 date of practical completion versus estimated date of practical  completion. 

 local engagement (scored out of 2): 

 opportunities for local industry participation; 

 opportunities for indigenous and apprentice labour; and 

 opportunities for local community consultation. 

7. In relation to tier one reviews, the Inspectorate has endorsed a pass  mark of 65 per cent. Projects scoring between 55 and 65 per cent receive  a ‘marginal’ value for money rating. A ‘fail’ rating (below 55 per cent) 

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will cause the project to progress to the next tier of review.102 If a project  receives  a  score  of  zero  for  either  the  ‘cost’  or  ‘quality’  criteria,  that  project  will  be  deemed  not  to  be  value  for  money  and  will  automatically receive a ‘fail’ rating.103 

8. The  Taskforce  produces  internal  reports  for  the  Inspectorate  at  the  completion  of  each  tier.104  Where  a  project  has  been  determined  to  represent, or be likely to represent value for money105, the results are  reported  to  the  Prime  Minister.  One‐page  summaries  for  14  and  11 Queensland  project  reports  were  included  in  the  Inspectorate’s  fourth and fifth reports respectively.106 

102 However, the Taskforce’s Draft Value for Money (VfM) Assessment Procedures Manual states that project scores of ‘less than 65 per cent fail the VfM assessment and are referred to a Tier 2 VfM assessment’. The Procedures Manual was drafted during the latter half of 2011 and has not been

submitted for approval by the head of the Taskforce and subsequent endorsement by the Inspectorate. It contains a number of inconsistencies with current Taskforce practices and Inspectorate decisions or approvals. The Taskforce advised the ANAO in December 2012 that the manual is being updated. 103 To date no Queensland projects have received a score of zero for cost or quality. 104 In addition to these Tier review reports, in June 2011, the Inspectorate was advised that a ‘lessons learnt’ report would be issued by the Taskforce each quarter as part of the endorsed value for money review process. However, this did not occur. 105 For example, in many cases the Taskforce’s assessment is based on costing estimates as the project has not started, has not gone to tender or is underway at the time of the tier one assessment and actual costs are not yet known. A project may be deemed to be likely to represent value for money based on the project submission, assuming that the scope of works and actual costs do not change during the implementation phase. 106 There were 14 and 8 tier one reviews respectively, plus three tier two reviews (all in the fifth report).

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will cause the project to progress to the next tier of review.102 If a project  receives  a  score  of  zero  for  either  the  ‘cost’  or  ‘quality’  criteria,  that  project  will  be  deemed  not  to  be  value  for  money  and  will  automatically receive a ‘fail’ rating.103 

8. The  Taskforce  produces  internal  reports  for  the  Inspectorate  at  the  completion  of  each  tier.104  Where  a  project  has  been  determined  to  represent, or be likely to represent value for money105, the results are  reported  to  the  Prime  Minister.  One‐page  summaries  for  14  and  11 Queensland  project  reports  were  included  in  the  Inspectorate’s  fourth and fifth reports respectively.106 

102 However, the Taskforce’s Draft Value for Money (VfM) Assessment Procedures Manual states that project scores of ‘less than 65 per cent fail the VfM assessment and are referred to a Tier 2 VfM assessment’. The Procedures Manual was drafted during the latter half of 2011 and has not been

submitted for approval by the head of the Taskforce and subsequent endorsement by the Inspectorate. It contains a number of inconsistencies with current Taskforce practices and Inspectorate decisions or approvals. The Taskforce advised the ANAO in December 2012 that the manual is being updated. 103 To date no Queensland projects have received a score of zero for cost or quality. 104 In addition to these Tier review reports, in June 2011, the Inspectorate was advised that a ‘lessons learnt’ report would be issued by the Taskforce each quarter as part of the endorsed value for money review process. However, this did not occur. 105 For example, in many cases the Taskforce’s assessment is based on costing estimates as the project has not started, has not gone to tender or is underway at the time of the tier one assessment and actual costs are not yet known. A project may be deemed to be likely to represent value for money based on the project submission, assuming that the scope of works and actual costs do not change during the implementation phase. 106 There were 14 and 8 tier one reviews respectively, plus three tier two reviews (all in the fifth report).

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Index

Advance payments, 26, 28, 63  AGD. See Attorney‐Generalʹs  Department  Attorney‐General’s Department, 15, 

22, 33, 35, 43, 87  Australian Government  Reconstruction Inspectorate, 10,  14, 27, 45, 68-69, 72-76, 78-79, 

82-83, 85-87, 89 

Category. See NDRRA Category  Charlton Hospital, 20, 53, 55-56, 60,  67, 83  CMA. See Cumulative Monetary 

Amount  Contractual frameworks, 11, 18, 21,  28, 31, 42-43, 68, 86  Cumulative Monetary Amount, 46 

Department of Finance and  Deregulation, 22, 33, 85, 87  Department of Infrastructure and  Transport, 22, 35, 37, 43, 87  Department of Primary Industries, 

89 

Department of Primary Industries  (Victoria), 82  Department of Regional Australia,  11, 28, 38, 68, 80, 86-87  Department of the Prime Minister 

and Cabinet, 15, 22, 73, 87 

Department of the Treasury, 33, 35,  87  Department of Transport and Main  Roads, 58  DIT. See Department of 

Infrastructure and Transport  DPI. See Department of Primary  Industries 

Emergency Management Australia,  15, 33, 35, 43, 61, 75, 80 

Gannawarra Shire Council, 59  Gladstone Regional Council, 59 

Hepburn Shire Council, 59  Hindmarsh Shire Council, 59 

LGA. See Local Government  Authority  Local Government, 11, 23  Local Government Authority, 27, 

47, 58-59, 94 

National Disaster Recovery  Taskforce, 11, 14, 28, 60, 73, 77,  83, 87  National Partnership Agreement, 

10, 27, 51, 56, 60, 68-69, 72, 76, 83,  86-87, 89 

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Natural Disaster Relief and  Recovery Arrangements, 10, 13,  26, 38, 43, 72, 77, 83, 90  NDRRA. See Natural Disaster 

Relief and Recovery  Arrangements  NDRRA Category, 26, 55, 87, 90  NPA. See National Partnership 

Agreement 

Prime Minister, 10, 13-15, 19-20, 27,  31, 33, 36, 41, 46-50, 52, 54, 62,  66-67, 72, 85, 90, 93, 98  Project management, 11, 18, 21, 28, 

31, 42-43, 62, 68, 86, 94 

QRA. See Queensland  Reconstruction Authority  Queensland Reconstruction  Authority, 10, 17, 22, 29, 34, 85 

Sampling methodology, 45-47,  50-51 

Senior Officials Coordination  Group (Victoria), 33-34, 39-42,  49-50, 53, 57, 89-90, 92  Somerset Regional Council, 59  State Auditor‐General, 36, 83  State Departments and Agencies, 

47, 59, 94 

Terms of Reference, 13, 18, 28, 31,  33, 36, 42-43, 46, 62-63 

Value for money, 10-11, 13-14,  16‐17, 19-21, 23, 27-28, 30, 33-34,  36, 40-41, 43-48, 51-52, 54, 56-57,  60-62, 64-65, 67-69, 72-73, 85‐86,  89-91, 93-95, 97-98  Value for Money, 76  VicRoads, 58  Victorian Secretaries’ Flood 

Recovery Group, 30 

 

 

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Natural Disaster Relief and  Recovery Arrangements, 10, 13,  26, 38, 43, 72, 77, 83, 90  NDRRA. See Natural Disaster 

Relief and Recovery  Arrangements  NDRRA Category, 26, 55, 87, 90  NPA. See National Partnership  Agreement 

Prime Minister, 10, 13-15, 19-20, 27,  31, 33, 36, 41, 46-50, 52, 54, 62,  66-67, 72, 85, 90, 93, 98  Project management, 11, 18, 21, 28, 

31, 42-43, 62, 68, 86, 94 

QRA. See Queensland  Reconstruction Authority  Queensland Reconstruction  Authority, 10, 17, 22, 29, 34, 85 

Sampling methodology, 45-47,  50-51 

Senior Officials Coordination  Group (Victoria), 33-34, 39-42,  49-50, 53, 57, 89-90, 92 

Somerset Regional Council, 59  State Auditor‐General, 36, 83  State Departments and Agencies,  47, 59, 94 

Terms of Reference, 13, 18, 28, 31,  33, 36, 42-43, 46, 62-63 

Value for money, 10-11, 13-14,  16‐17, 19-21, 23, 27-28, 30, 33-34,  36, 40-41, 43-48, 51-52, 54, 56-57,  60-62, 64-65, 67-69, 72-73, 85‐86,  89-91, 93-95, 97-98 

Value for Money, 76  VicRoads, 58  Victorian Secretaries’ Flood  Recovery Group, 30 

 

 

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Series Titles

ANAO Audit Report No.1 2012-13  Administration of the Renewable Energy Demonstration Program  Department of Resources, Energy and Tourism 

ANAO Audit Report No.2 2012-13  Administration of the Regional Backbone Blackspots Program  Department of Broadband, Communications and the Digital Economy 

ANAO Audit Report No.3 2012-13  The Design and Conduct of the First Application Round for the Regional Development  Australia Fund  Department of Regional Australia, Local Government, Arts and Sport 

ANAO Audit Report No.4 2012-13  Confidentiality in Government Contracts: Senate Order for Departmental and Agency  Contracts (Calendar Year 2011 Compliance)  Across Agencies 

ANAO Audit Report No.5 2012-13  Management of Australia’s Air Combat Capability—F/A‐18 Hornet and Super  Hornet Fleet Upgrades and Sustainment  Department of Defence  Defence Materiel Organisation 

ANAO Audit Report No.6 2012-13  Management of Australia’s Air Combat Capability—F‐35A Joint Strike Fighter  Acquisition   Department of Defence  Defence Materiel Organisation 

ANAO Audit Report No.7 2012-13  Improving Access to Child Care—the Community Support Program  Department of Education, Employment and Workplace Relations 

 

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ANAO Audit Report No.8 2012-13  Australian Government Coordination Arrangements for Indigenous Programs  Department of Families, Housing, Community Services and Indigenous Affairs 

ANAO Audit Report No.9 2012-13  Delivery of Bereavement and Family Support Services through the Defence  Community Organisation  Department of Defence  Department of Veterans’ Affairs 

ANAO Audit Report No.10 2012-13  Managing Aged Care Complaints  Department of Health and Ageing 

ANAO Audit Report No.11 2012-13  Establishment, Implementation and Administration of the Quarantined Heritage  Component of the Local Jobs Stream of the Jobs Fund  Department of Sustainability, Environment, Water, Population and  Communities 

ANAO Audit Report No.12 2012-13  Administration of Commonwealth Responsibilities under the National Partnership  Agreement on Preventive Health  Australian National Preventive Health Agency  Department of Health and Ageing 

ANAO Audit Report No.13 2012-13  The Provision of Policing Services to the Australian Capital Territory  Australian Federal Police 

ANAO Audit Report No.14 2012-13  Delivery of Workplace Relations Services by the Office of the Fair Work Ombudsman  Education, Employment and Workplace Relations  Office of the Fair Work Ombudsman 

   

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ANAO Audit Report No.8 2012-13  Australian Government Coordination Arrangements for Indigenous Programs  Department of Families, Housing, Community Services and Indigenous Affairs 

ANAO Audit Report No.9 2012-13  Delivery of Bereavement and Family Support Services through the Defence  Community Organisation  Department of Defence  Department of Veterans’ Affairs 

ANAO Audit Report No.10 2012-13  Managing Aged Care Complaints  Department of Health and Ageing 

ANAO Audit Report No.11 2012-13  Establishment, Implementation and Administration of the Quarantined Heritage  Component of the Local Jobs Stream of the Jobs Fund  Department of Sustainability, Environment, Water, Population and  Communities 

ANAO Audit Report No.12 2012-13  Administration of Commonwealth Responsibilities under the National Partnership  Agreement on Preventive Health  Australian National Preventive Health Agency  Department of Health and Ageing 

ANAO Audit Report No.13 2012-13  The Provision of Policing Services to the Australian Capital Territory  Australian Federal Police 

ANAO Audit Report No.14 2012-13  Delivery of Workplace Relations Services by the Office of the Fair Work Ombudsman  Education, Employment and Workplace Relations  Office of the Fair Work Ombudsman 

   

Series Titles

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ANAO Audit Report No.15 2012-13  2011-12 Major Projects Report   Defence Materiel Organisation 

ANAO Audit Report No.16 2012-13  Audits of the Financial Statements of Australian Government Entities for the Period  Ended 30 June 2011  Across Agencies 

ANAO Audit Report No.17 2012-13  Design and Implementation of the Energy Efficiency Information Grants Program  Department of Climate Change and Energy Efficiency 

ANAO Audit Report No.18 2012-13  Family Support Program: Communities for Children  Department of Families, Housing, Community Services and Indigenous Affairs 

ANAO Audit Report No.19 2012-13  Administration of New Income Management in the Northern Territory  Department of Human Services 

ANAO Audit Report No.20 2012-13  Administration of the Domestic Fishing Compliance Program  Australian Fisheries Management Authority 

ANAO Audit Report No.21 2012‐13  Individual Management Services Provided to People in Immigration Detention  Department of Immigration and Citizenship 

ANAO Audit Report No.22 2012‐13  Administration of the Tasmanian Forests Intergovernmental Contractors Voluntary  Exit Grants Program  Department of Agriculture, Fisheries and Forestry 

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Current Better Practice Guides The following Better Practice Guides are available on the ANAO website. 

 

Public Sector Internal Audit  Sep 2012 

Public Sector Environmental Management  Apr 2012 

Developing and Managing Contracts - Getting the right outcome, 

achieving value for money 

Feb 2012 

Public Sector Audit Committees  Aug 2011 

Human Resource Information Systems - Risks and Controls  Mar 2011 

Fraud Control in Australian Government Entities  Mar 2011 

Strategic and Operational Management of Assets by Public Sector 

Entities - Delivering agreed outcomes through an efficient and 

optimal asset base 

Sept 2010 

Implementing Better Practice Grants Administration  Jun 2010 

Planning and Approving Projects - an Executive Perspective  Jun 2010 

Innovation in the Public Sector - Enabling Better Performance, 

Driving New Directions 

Dec 2009 

Preparation of Financial Statements by Public Sector Entities  Jun 2009 

SAP ECC 6.0 - Security and Control  Jun 2009 

Business Continuity Management - Building resilience in public 

sector entities 

Jun 2009 

Developing and Managing Internal Budgets  Jun 2008 

Agency Management of Parliamentary Workflow  May 2008 

Fairness and Transparency in Purchasing Decisions - Probity in 

Australian Government Procurement 

Aug 2007 

Administering Regulation  Mar 2007 

Implementation of Program and Policy Initiatives - Making 

implementation matter 

Oct 2006