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Finance and Public Administration Legislation Committee
17/10/2011
Estimates
PRIME MINISTER AND CABINET
Australian National Audit Office

Australian National Audit Office

CHAIR: Before I welcome Mr McPhee, I will put on record for the benefit of the Hansard that departmental officers dealing with the Department of the Prime Minister and Cabinet outcome 3, program 3.1 Sport and recreation, will not be required tonight, nor will the Australian Sports Commission. Those officers have an early mark.

I now welcome Mr Ian McPhee, Auditor-General, and officers. Officers called upon for the first time to answer a question should state their name and position for the Hansard record and should speak clearly into the microphone. Welcome back, Mr McPhee. Do you have an opening statement?

Mr McPhee : No, Chair, thank you.

Senator RYAN: The bill that was discussed in the chamber last week, the Auditor-General Amendment Bill 2011, which is still under consideration, gives new powers to you to audit private sector organisations that have contracts with the federal government or anyone in what you might call the 'money chain' from Commonwealth appropriation. The reason I ask about this is that a statement was read out on your behalf by Senator Bishop, I understand, in the chamber, which was with respect to a commitment regarding the audit of private sector contractors. There might be two or three sets of hands removed from a Commonwealth appropriation. Have you undertaken any scoping work as to how your workload might change if this bill were to pass, given the debacle of the BER which has provoked it?

Mr McPhee : Should we get these powers, I have said to the public accounts committee that we would not seek additional resources but would substitute other performance audit work that we currently do to allow us to follow the money audits where that was considered necessary.

Senator RYAN: So it would be fair to say then that there will be less audit work undertaken on Commonwealth government activity to facilitate your audit work on private sector activity?

Mr McPhee : Perhaps I could provide a bit of context. Our current audit focus is on Commonwealth entities, as you will appreciate. We have the powers to do performance audits of most Commonwealth entities. We often consult with the private sector on those audits. It is not unusual because, as you would appreciate, we want to get the private sector perspective, or third-party perspective, on the delivery of a Commonwealth program or some of the issues in dealing with the Commonwealth administration of programs. So the issue of being in touch with the private sector, or the non-government sector, is not uncommon. But what we have noticed across the years, of course, is that the nature of public administration has changed.

Senator RYAN: Could I interrupt. I am very cognisant of the bill and very cognisant of the reasons behind it, but we are particularly pressed for time. I understand you deal with the private sector. This, however, gives you the power to audit private sector contractors—a power you currently do not have. Making it clear you do not wish to ask for extra resources effectively means there will be a substitution effect, doesn't it—that if you undertake work on private sector contractors, you will necessarily be doing less work with respect to your public sector audits?

Mr McPhee : The very quick point I want to make is that the Commonwealth now works in partnership with private sector providers to deliver Commonwealth government outcomes. In the past our focus has been on the delivery by the Commonwealth entity, but in some cases the performance of the private sector entity impacts on the administration of the program and the delivery of the outcomes. So to get a more robust perspective on Commonwealth administration, which can include working in partnership with the private sector, you do need to have a wider perspective than we may have historically done and that would then require additional resources—your point—but it would also allow for a more comprehensive report on the way the Commonwealth is delivering on its outcomes.

Senator RYAN: We understood that with the BER it stopped at the Commonwealth shovelling the money out the door. We have had that discussion in this committee before. How far down the money chain do you intend to go? You may be aware of concerns that I and others have expressed with respect to an electrical subcontractor doing, say, $10,000 worth of work on a school hall suddenly being subjected to the might of the auditor's office. Under the powers of this legislation they could be subjected to an audit by the ANAO. What safeguards do you have in place to protect small business from an audit of that nature?

Mr McPhee : I would say as an auditor we tend to focus on the significant elements that go to the delivery of Commonwealth programs. We do not have the resources to look at incidental considerations but where, for instance, a private sector contract had a significant role in the delivery of a government program that potentially would be considered by an Auditor-General for audit coverage. It would need to be significant because, as you will appreciate from your background, if I can take the financial statement context, auditors focus on material or significant issues not the relatively minor matters. To translate that across to a performance audit involving a private sector contractor it would need to be a significant role or an important element of a particular audit.

Senator RYAN: Given the time, Chair, I am happy to end my questions there and put others on notice.

Senator BOB BROWN: I want to ask questions about the audit done through the Tasmanian Audit Office of Forestry Tasmania. Firstly, is there some reason why the National Audit Office acceded to that being done by the Tasmanian Audit Office and was there any need for review by the national office when the Tasmanian audit became available?

Mr McPhee : The Tasmanian Auditor-General is quite separate from my office, as you will appreciate. He has his own legislation and own responsibilities and can determine his own audit program. So there was in fact no liaison that I am aware of between his office and mine in terms of him deciding his program.

Senator BOB BROWN: Forestry Tasmania, which is to be a substantial beneficiary of the current intergovernmental agreement between Canberra and Hobart on forests, ran at an $8 million loss last year according to this audit but it is an agency that sells millions of tonnes of a publicly owned resourced—that is, the forests—which it receives for nothing and yet ran at a loss. Do you think that is not a matter that should have been investigated more carefully in an audit like this with a view to the trajectory into the future and what is the underlying failure of strategy that a resource, which is free to that agency, is sold at a loss while recipient companies are running at a profit?

Mr McPhee : I do not have enough information to be able to give you an authoritative comment on that. I am not across the details of the audit. I have seen it come through, but I have not read it in detail. These are matters, of course, for the Tasmanian Auditor-General to decide.

Senator BOB BROWN: But the federal moneys—some $276 million—are now following some $240 million that were sent to the industry after the 2004 elections and that follows even larger amounts in previous times, so it is a matter of interest to the federal taxpayer. I wonder if you would be kind enough to look at that $8 million dollar loss for last year and see whether you corroborate the statements of the Tasmanian Auditor and whether or not there should be a review of that audit in the interests of the expenditure now coming from Canberra to Forestry Tasmania and the people associated with it.

Mr McPhee : I am happy to take that on notice and provide a response back to the committee.

Senator BOB BROWN: Thank you.

Senator ABETZ: How would you feel, Mr McPhee, if the Tasmanian Auditor-General thought it appropriate to have a review of one of your audits? That is basically what is being suggested to you and I am surprised that you have taken it on notice. I would have thought you would have rejected it as being not within your domain.

Senator BOB BROWN: The problem is you are not the auditor; you are a senator.

CHAIR: Senator Brown, Senator Abetz has put the question. We will allow Mr McPhee to respond.

Mr McPhee : I receive correspondence and questions on a range of issues from time to time from citizens and from others in the community. In some cases it may not be directly within my mandate or it may not be a priority for my office, but I will always endeavour to see if we can assist in some way. Sometimes it will be a case of raising the matter with the responsible Commonwealth department, seeking some information and providing that information to the person who has raised the matter with me. We do try to be helpful and it is in that sort of vein that I have said to Senator Brown that I am more than happy to see what we can do. The point that Senator Brown was making was that Commonwealth funds have been involved at some stage during the process here. I am not across the detail of that, so I am happy to take it on notice and understand further.

Senator ABETZ: I would just hate to see a headline saying that the Commonwealth Auditor-General is now going to be re-examining the work of the Tasmanian Auditor-General and other cheap headlines being obtained by certain senators.

Senator BOB BROWN: Why would you? What have you got to hide?

CHAIR: Do you have a question, Senator Abetz?

Senator ABETZ: No.

Senator RHIANNON: Mr McPhee, I have some questions about procurement. For the period 2010-15, a whole-of-government policy has been developed known as the Australian Government ICT Sustainability Plan, with ICT standing for information and communications technology. I understand it sets mandatory standards for the purchase of recycled copy paper. I understand the plan established the target that, by July 2011, agencies were required to source office copy paper for general use with a minimum of 50 per cent post-consumer recycled content. Has that target been met?

Mr McPhee : I am not aware of whether or not that target has been met. We are doing some audits in the procurements space, but we have not focused specifically on the ICT Sustainability Plan to this point.

Senator RHIANNON: So you do not have any audit or assessment reports associated with this?

Mr McPhee : No. I assume, without knowing the details, that the Department of Finance and Deregulation would be the responsible agency for assisting you on this matter.

Senator RHIANNON: I will go to some general questions about procurement and you may have similar advice. I am noticing that procurement is coming forward in different ways from different departments. We are not getting a whole-of-government approach. Are you able to quantify the additional costs and inefficiencies that having multiple procurement policies brings?

Mr McPhee : We encourage the finance department to have another look at some of the Commonwealth procurement guidelines. I am conscious from our own work that sometimes agencies lose sight of the forest for the trees, and we think some greater clarification could be made to the Commonwealth procurement guidelines. The other dimension here is that there is an attempt to get a whole-of-government approach to procurement activity. I am conscious of a number of departments who are working on panels in that respect. I do not know the details, but I do appreciate that work is going on, and any feedback you have would be most welcome on that.

Senator RHIANNON: Thank you.

CHAIR: There are no further questions, Mr McPhee. Thank you very much.