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Wednesday, 1 December 2004
Page: 64

Senator CHRIS EVANS (Leader of the Opposition in the Senate) (2:24 PM) —My question is directed to Senator Hill, the Minister for Defence. Can the minister confirm that the Auditor-General has refused to endorse the Department of Defence's financial statements for the third year in a row? Isn't it true that this action was taken because Defence was unable to locate over $8 billion worth of public assets as well as being unable to account for over $1.2 billion worth of employee leave entitlements? Doesn't this demonstrate that financial management in Defence is worse than ever? Can the minister now provide a guarantee that the Auditor-General will approve Defence's financial statements next year? Will the minister offer his resignation if the Auditor-General is again unable to approve Defence's accounts next year?

Senator HILL (Minister for Defence) —There were gross exaggerations in the question—

Senator Chris Evans —No, it is a straight quote from the Auditor-General's report.

Senator HILL —No, it was not quoted from the Auditor-General's report, but it is true that the accounts are again qualified by the Auditor-General. In fact, the Auditor-General really adopted what the secretary said in relation to the accounts. The important thing is what is being done to remedy the deficiencies in Defence's accounting. I am pleased to advise that Defence recognises that outside assistance is necessary in this regard. Ernst and Young have been appointed to support the revision of Defence's financial principles, policies, processes and systems; the development of a rigorous reconciliation process; the implementation of Australian equivalent international financial reporting standards—because, of course, the standards continue to rise—and completion of due diligence for the accounting separation of the DMO from Defence. The Ernst and Young team is being headed by Mr Bruce Meehan, one of the senior partners of that firm that has done similar work for other major business and government entities. I have met with Mr Meehan. I am impressed with the plan he has in place. I am impressed with the fact that Ernst and Young already have a team working within Defence and intend to make considerable progress even before Christmas.

Senator HILL —Ernst and Young, apart from working internally with Defence and assisting Defence, will be reporting also to the minister for finance, who just got mentioned, and me on a quarterly basis.

Senator HILL —Secondly, Defence has agreed that the financial statements project board, which is really a steering committee, should also be enhanced by department of finance inclusion and outside assistance. Again, Ernst and Young are going to be represented on that steering committee, as will a senior representative of the department of finance.

Senator HILL —Thirdly, Defence has agreed to the introduction of a new financial control framework and the introduction of monthly business sheet reports for each of the 16 individual groups within the department—

The PRESIDENT —Order! Senator Conroy, your leader in this place has asked a perfectly legitimate question. He is trying to hear the answer, and I think he could do without interjections from you and Senator Sherry.

Senator HILL —As I was saying, fourthly, Defence has agreed to a series of defined remedial projects with strict time lines to address the following specific issues: stores, record accuracy, general stores, infantry pricing, supply customer accounts, explosive ordnance pricing, military leave records and property valuations. In relation to both the financial control framework implementation and those specific remedial statements, the steering group will also report to ministers on a quarterly basis. So, on the basis of this comprehensive program that Defence has now put in place to remedy the shortcomings of its audit, I am confident, as I said in my press release, that there will be significant improvement in the short term and, ultimately, the standard of performance that is required by government.

Senator CHRIS EVANS —Mr President, I ask a supplementary question. I thank the minister for his detailed response. It contrasts very markedly with his assurance last year that Defence's financial statements show significant improvements. He assured us that all was rosy. I note his admission now that the finance department and Ernst and Young have been called in to try and clean up the mess that he has presided over for the last three years. The core question remains: will the minister guarantee that the Auditor-General will not have to qualify the accounts next year? Will the minister take responsibility or will he now hide behind the finance department and Ernst and Young? Surely the CEO of the business, the minister, ought to take responsibility for the continued failure to meet those Auditor-General's requirements.

Senator HILL (Minister for Defence) —I did not know I was CEO. I think Mr Smith and General Cosgrove, as the diarchy, might have a different view on that. As I have said, I am confident that the program that we have put in place will lead to significant improvement. Senator Evans knows, or should know, that once the Auditor-General qualifies accounts it is actually very difficult to remove those qualifications. Defence has worked closely with the Auditor-General in putting in place this remedial program. I think that Senator Evans should also acknowledge that, despite these deficiencies, in terms of operations the logistics of the department have worked extremely well. In terms of budgeting there has been a significant improvement overall. In terms of cash management the accounts are not qualified in any way. So there are a lot of positives. Senator Evans, not surprisingly—he is in opposition and, I suspect, will be there for a long time—has concentrated on the negatives. While he wants to focus on the negatives, he also should focus on the positives, which have been a credit to Defence. (Time expired)