Australian National Audit Office

[17:46]

CHAIR: Welcome. I thank the office for providing the committee with summaries of recent performance audit reports in advance of the hearing. Mr McPhee, do you wish to make an opening statement?

Mr McPhee : No, thank you.

Senator WONG: On the efficiency dividend from which you are not exempted, there is the additional 0.25 per cent imposed in this budget. What is the impact of that going to be in terms of dollars, staff and services?

Mr McPhee : In terms of the additional cost of the 0.25 per cent, it is over four years: $1.668 million.

Senator WONG: Presumably you have taken savings to date already.

Mr McPhee : Yes. Correct.

Senator WONG: You can clarify on notice. I am just trying to flick through the questions. I assume you have already sought a range of non-staff efficiencies? Is that right?

Mr McPhee : I will ask Mitch Frost to help me. Just to get the complementary effect of the 2.25, that was $7.6 million. In total, the impact of the efficiency dividend on the office across the four years is $9.3 million. It will have an impact on staffing and operational costs over that period.

Senator WONG: I assume that to date you have taken a range of savings already to deal with previous ED decisions?

Mr McPhee : Correct.

Senator WONG: In terms of this decision, what sort of impact on staff are you anticipating? Or are you not at the point where you can assess that?

Mr McPhee : We have shorter term view and a long-term view. The short-term view is that we will be able to get through the budget year without any reduction in staff numbers, but we are already, as you would expect us to be, managing to our forward estimates. We have been very cautious about the decisions we make to allow us flexibility to be able to live within the forward estimates should we be required to do that across the full term of the forward estimates. I need to say—and I have said it elsewhere—that there is no doubt that the pressure increase is on the out years.

Senator WONG: Sure, because of the compounding effect?

Mr McPhee : Yes.

Senator WONG: Have you published a current forward work schedule?

Mr McPhee : We have got a work schedule already made public, but we are updating it currently and we will produce the new one very early in July. We will make it public then.

Senator WONG: Is the additional ED likely to constrain your ability to deliver this schedule?

Mr McPhee : I have reduced slightly the number of performance audits across the forward years to reflect my expectation in terms of the numbers we will be able to deliver. In the current year, for instance, we are doing 50. By the end of the third of the forward years we will be, under current estimates, 47. It is a reduction. It is within a range that I think is not concerning but we are keeping our eye on it.

Senator WONG: That is still their scrutiny.

Mr McPhee : Yes, correct. The other thing I need to mention is on the financial statement side we also have to keep an eye on the consequences of changes in government entities. There have been some reductions which, on the face of it, will be a positive for the office but, equally, bodies like the new National Disability Authority will potentially add to the demands on the office. We are keeping an eye on the potential impact on our financial statement work as well.

Senator WONG: I turn to the National Commission of Audit. I understand that the final report recommended that your mandate be expanded, is that correct?

Mr McPhee : It encouraged us. We currently have the ability to audit performance indicators. There is provision in the legislation for us to do that. I have always said that we would not formally take on that role unless we were properly resourced for it, because it would be a new function and a new responsibility. We have been doing a couple of pilot exercises. I have put two reports into the parliament on our pilot work in relation to KPIs. If there is a bottom line emphasis in those reports, it is to encourage the system to focus more on the impact of government programs. We feel more work is required there. The Commission of Audit came in behind that thought and felt that we, through our audit work, could assist and encourage a stronger focus on key performance indicators, particularly around the impact of government programs.

Senator WONG: That would require additional resourcing, as you said.

Mr McPhee : It would require additional resources, yes.

Senator WONG: Has the government indicated whether it is prepared to adopt that recommendation?

Mr McPhee : No, it has not. I have not asked for it. The other reason I have not asked for it is because, in the two reports I just mentioned that we put in the parliament around our pilot work and around doing the audits of KPIs, I have made the point that we would need to improve the framework and the guidance to agencies—it is a little hard to do an audit when you have got a fairly loose framework. We have been encouraging the government also to tighten up the framework, to be clear of what their expectations are and then that would provide a stronger basis on which to undertake a formal audit of KPIs.

Senator WONG: Have you considered doing an audit of the National Commission of Audit?

Mr McPhee : No, we have not.

Senator WONG: I have some questions about CPRs, Commonwealth procurement rules—previously CPGs. Were you aware that the head of the Commission of Audit was engaged using the Minister for Finance's executive power and the contract was not subject to the CPGs?

Mr McPhee : I was not aware of the circumstances of the appointment.

Senator WONG: You were not.

Mr McPhee : No.

Senator WONG: If the CPGs were not applicable it means that there are no rules applicable, doesn't it, to the negotiation of the arrangement? Is that right?

Dr Ioannou : It is not unusual for the executive to appoint various eminent persons to various positions of this sort.

Senator WONG: I have questions about eminent persons; I will come to those. According to the answer to a question on notice asked by me, the appointment of the head of the secretariat of the National Commission of Audit was a decision made by government and was by ministerial appointment not subject to the CPRs. Were you aware of that?

Dr Ioannou : I was not aware of it, no.

Senator WONG: There was no tender method applied, no reporting was required and it is a non-procurement contract. Are you aware of that?

Dr Ioannou : No.

Senator WONG: In fact, the evidence is that the Prime Minister's chief of staff communicated with the head of the secretariat to confirm his appointment.

Dr Ioannou : Again, I have no knowledge of this.

Senator WONG: Do you know how much taxpayers' money was involved in this?

Dr Ioannou : No, there is no recent—

Senator WONG: I understand it is—and Senator Dastyari might know—about $150,000 plus for five months work without any transparent process associated with procurement. Does that strike you as unusual? I am not talking about the commissioners; I am talking about the head of the secretariat.

Dr Ioannou : The procurement rules relate to procurements. I do not know, to be honest, on what basis this engagement would have been made. If it was a non-ongoing basis or subject to the normal rules around executive level appointments, I have no detailed knowledge.

Senator WONG: Can I ask you to look at it, please? Because we have got—

Mr McPhee : Have you checked with the finance department in the first place who would be responsible?

Senator WONG: I will be checking with them, but I am asking you to look at it because we have a Department of Finance AusTender document which describes this as a limited tender. We then have a question on notice which no longer refers to limited tenders but says it is actually now a ministerial appointment. We have a previous indication that it was an eminent person's contract of employment, but that terminology has now been 'amended'. In other words, we have had a number of bases for this contract. Given your interest, I would have thought—and you have done some good work previously in relation to Commonwealth procurement—that it might be something the Audit Office could give us some evidence about—not tonight; I am asking you to take that on notice

Mr McPhee : I appreciate that.

Senator WONG: I can write to formally you, Mr McPhee, if you prefer.

Mr McPhee : I understand that. We would normally deal with this by approaching the finance department to explain that, on the face of it, there have been a number of rationales used to articulate the case for the approach taken and seek their perspective on it. I guess my shorthand answer to you is very much that Finance are probably able to tell you that pretty directly. We always seek to be helpful, so, if at the end of the day the committee want to ask me that, we will make some inquiries. The reason I am being a bit careful here is that we generally do not look at individual cases of this kind.

Senator WONG: But you do.

Mr McPhee : We generally look at systemic issues.

Senator WONG: Do you know what an eminent person's contract is?

Mr McPhee : I think—

Senator WONG: That is a systemic issue.

Mr McPhee : I understand how a government can make decisions of this kind with eminent people and come to an accommodation on the terms and conditions.

Senator WONG: Thereby avoiding any application of the procurement rules—correct?

Dr Ioannou : It is a longstanding practice of governments to appoint eminent persons to a variety of positions.

Senator WONG: Sure, but, again, you avoid the application of the Commonwealth Procurement Rules by classing someone as an eminent person. That is a matter of fact—if I am wrong, tell me so, but I do not believe I am.

Dr Ioannou : I am just cautious about the terms of engagement. The class of eminent persons is wide, of course. There is a class of persons ranging from statutory officeholders right through to persons appointed—

Senator WONG: Okay. Mr McPhee, I am happy to write to you. You looked at a previous contract at the urging of the opposition—I think CMAX—which was less money, from memory, than is under consideration here. We have two or three different bases on which this person has allegedly been appointed. We have the Prime Minister's chief of staff ringing him up to offer him the job or suggest to him he should have the job. We have no application of the Commonwealth procurement rules. I would have thought the Audit Office might be interested in it but, if you are not, I can howl it to you formally.

Mr McPhee : No, I am happy to take it on board. We can talk to finance. I am just saying we will follow it through and provide the committee with a response on what we learn.

Senator WONG: As I said, we were told initially 'limited tender', which as you know has a particular set of meanings under the rules. We were then told it actually was not a limited tender; it was ministerial appointment, not subject to the CPRs. We were also told in a parliamentary question on notice that it was an eminent person's contract of employment, which is now also terminology the government has moved away from. I still do not quite understand on what basis this person was appointed and I do not understand on what basis $157,000 of taxpayers' money is paid to someone to act as a head of the secretariat without any merit based selection process or the Commonwealth procurement rules. If you can explain it to me, I would be most appreciative.

Mr McPhee : I think, if we roll forward to the end position, it is 'can executive government make decisions of this kind?' and in some cases they can. I am saying—

Senator WONG: Okay. I will give you some numbers and read them into Hansard. The AusTender document is CN1884191, Department of Finance. The question on notice is question No. 246. It is a chamber question on notice—I think a Senate question—and there is also a response to parliamentary question on notice 124. The three documents I have just outlined are not consistent. I am happy to put it to Mr Tune tomorrow or Wednesday, but I would not mind the Audit Office giving their views.

Mr McPhee : No, thank you. If you have time, I think it would be appropriate to put it to finance first, and then we can follow it through.

Senator WONG: I am putting it on notice now, so you can make a decision as to whether or not you answer it.

Mr McPhee : Thank you.

Senator WONG: I cannot recall which report you did this in, but you talked about the importance of not disaggregating a contract in order to get below the threshold. I am pretty sure it was picked up by the former government in the CPRs.

Mr McPhee : Yes. Order splitting is the short expression.

Senator WONG: I have read it in work you have done previously, and it is reflected in the procurement rules. We have five separate contracts between the Department of the Prime Minister and Cabinet and a particular entity for the purposes of recruitment services over the period February to June 2014, each through limited tender and each under the procurement threshold, but obviously cumulatively they would be over that. I will put this to them, but isn't this the order splitting that you cautioned against?

Mr McPhee : Yes; we would need to understand the circumstances, but it is probably a reasonable question to ask.

Senator WONG: What would you look at to determine whether or not there had been order splitting? What are the factual circumstances that you would look at? For example, if hypothetically there is a continuous arrangement you might think having three, four or five might be a little bit odd. Tell me what you would look at if you were auditing.

Mr McPhee : You would probably assess whether they had taken a reasonable approach to assess the requirements in the first place. Were there any special new factors that came into play as the inquiry developed to suggest a second matter that had not been considered originally had come into play—those sorts of things. As you recall, the CPRs do require a strategic approach to procurement by agencies in the first place. They are expected to have plans for procurement across the year and all of that sort of thing. So the encouragement is to take the broader view of the procurements that you need to make so as not to put industry or the community at large to expense to put in multiple tenders et cetera. We take into account all that and look at the circumstances and how reasonable each particular step of the way was.

Senator WONG: Mr Ioannou, did you want to add to that?

Dr Ioannou : I may have missed some of the material points you made. Were these appointments?

Senator WONG: No, these are recruitment services—well, I do not know what they are. The AusTender contracts talk about the provision of recruitment services over a very limited period which has been divided into three, four or five different contracts for the same party with the same requirement.

Dr Ioannou : Right. I think that suggest we would probably need more background information on this.

Senator WONG: Sure. I will explore it with PM&C and then might talk to you again. Thank you.

CHAIR: I have a few questions with regard to the audit report that was tabled on Thursday, 17 April. It was into the previous government's Building Better Regional Cities program. Can you tell me why you undertook an audit of this particular program?

Mr McPhee : I have Mr Boyd coming to the table to help me, so I might ask Brian to respond.

CHAIR: Please.

Mr Boyd : We actually undertook an audit of that program following an earlier audit we had done of another program in what is now the Department of Social Services which was looking at the Supported Accommodation Innovation Fund. We were requested to do that audit. The findings of that audit suggested to us that the department was falling some way short of the standard we expect in terms of administering grants programs; so, to see whether the findings there were of more widespread application across the department, we decided to undertake another audit of another grants program within another area of that same department.

CHAIR: You are a master of understatement by saying 'somewhat short'! Can you detail what you did find in the audit of this program?

Mr Boyd : I think the key finding for us in terms of this particular audit was that the department, in the way it administered the program and the way the funding was then allocated through the decision-making process, seemed to us not to give enough attention to actually making sure the program would deliver intended objectives, which were to provide a certain amount of assistance for housing support rather than simply allocating grant funding. From our perspective, the program had a target of achieving 8,000 additional new homes but, in terms of allocating the funding, the number of homes which were expected to be supported by that were less than half of that program target. Nevertheless, more than the full amount of program funding was then allocated to achieve less than half the desired target. That seemed to us not to be a good way of spending Commonwealth funding.

CHAIR: You say less than half. The information I have confirms that the infrastructure grants were designed for the construction of 8,000 of what I would term 'affordable' homes but there were 2,969 lots or dwellings expected to be delivered by mid-2016. Is that correct?

Mr Boyd : Those figures are familiar from the audit report, yes. Less than half.

CHAIR: You could have said less than one-third. You are correct, but you are being very generous. I beg your pardon—it is more than one-third. It is less than three-eighths—a significant undersell.

Mr Boyd : The reason I said less than half was that, at the time funding was allocated, the expectation was about 3,875 additional affordable homes, which is just under half. What then happened was that, through the process in which the funding agreements were negotiated and then signed with the successful proponents, three of the original 17 successful proponents dropped out and were replaced by a further two. There were also come changes in the terms of what was contracted compared to what was approved, and the numbers slid down further. Over time, yes, it slid down further below 50 per cent, but our point was that at the point that a decision was made to allocate the funding, the best they could expect was that just under half of the target would be achieved. What is now contracted is even less than that. Our point was the key decision was the time that you decided to award the grants.

CHAIR: Your audit report found that there was an estimate of $12,500 per home in the project, but each subsidised lot or dwelling actually ended up costing, based on the less than half figure, $38,100 in grant funding. Is that correct?

Mr Boyd : That is one of the benchmarks we used to see whether the overall program achievement would represent value for money. If government was prepared to pay $100 million for 8,000 additional new affordable homes, that is $12,500 each. But what it was actually getting for what they allocated, about $113 million, was costing considerably more for each additional affordable new home.

CHAIR: What were the conclusions that you made as to how this cost blow-out came to be?

Mr Boyd : One of the key things for us was that the department, in assessing the applications, in some ways focused too much on the technical detail of scoring them against the assessment criteria and did not sit back and say, 'These might be the best applications we have received, but are they collectively good enough to proceed forward and spend money?' Certainly in their briefing to the minister, they did not draw attention to this issue.

CHAIR: The department did not highlight the deficiencies in this tender—the costings?

Mr Boyd : They highlighted the deficiencies in terms of how many of the applications were assessed as having shortcomings against each of the merit criteria. What they did not go on to say was that regardless of that, overall, if we allocate the money to even the best applications we have on the table, this program will not achieve a result anything near what government said it wanted to achieve here. Then it has to be put to the minister: 'What would you like us to do in the circumstances? Should we go ahead and continue to allocate funds? Should we not allocate the funds? Do we go back to the market again?'

CHAIR: I will characterise it in my language—there was no 'value for money' judgement made by the department for further consultation with the minister?

Mr Boyd : In terms of the overall program, as to whether what it was achieving made it worthwhile proceeding with—no, that was not something that was brought to attention, as we say it should have been.

CHAIR: Hence your recommendation to the Department of Social Services to 'emphasise the importance of obtaining value for money outcomes in the administration of grant programs and greater outcomes orientation in administering future programs' is a suggestion for them to adopt what further process that they did not adopt in this case?

Mr Boyd : The key thing here was that target of $8,000 was not only an internal target, it was also a public target which had been stated. It would seem to us that a key thing you would want to address before you say to a minister that you should allocate grant funding to these applications is, will these grant applications be expected to deliver, in total, the program target?

CHAIR: It does seem quite extraordinary. They know they are never going to meet the stated targets based on the documents they have received and the tender documents that have been put forward.

Mr Boyd : Correct.

CHAIR: And they decided not to draw that to the attention of the relevant minister.

Mr Boyd : We share your surprise in the sense that the shortcoming was not of a small magnitude. The other thing from our perspective—I gave you the brief history up front as to why we did this audit—is that the program we audited prior to this one had a number of shortcomings in terms of the technicalities of how they administered a grant program. But the one thing they did do well was draw attention to the fact that the recommended applications would meet the program target. From an auditor's perspective, the concern we have is that the department seems to be quite mixed in its performance. Across grant programs they are doing something well here, but the same thing poorly there. The thing they are doing poorly here, they are doing well over in this place. That is not the sort of thing we look for and expect.

CHAIR: Remind me, was it the same department that did both programs?

Mr Boyd : It was the same department and that is why we did this audit, because we had not done an audit of a grants program in this department for some time and we wanted to see if that first audit was an isolated instance of a grant program not being well enough administered or whether the department, systemically, had greater issues to deal with.

CHAIR: Clearly, it did systemically have some great issues. You had administrative procedures being followed in one case, even though there were perhaps some deficiencies in it, and in the same department the process was not being followed appropriately.

Mr Boyd : Indeed. In the first one I mentioned, the Supported Accommodation Innovation Fund, the target in that case was 150 new supported accommodation places and they kept a great focus on that throughout and they achieved slightly better than that. Here the target was 8,000 additional affordable new homes and the target was not something that was explicitly and clearly addressed throughout the entirety of the program, which meant you have a program that, when they allocated funding, was achieving less than half the target, spending actually 13 per cent more money than they planned to.

CHAIR: It is like an episode of The Hollowmen—just create a number and make a headline with it and it does not matter whether or not we deliver.

Mr Boyd : I guess that is the point we are trying to make here. When you administer grants programs it is important to have a good way of assessing applications and scoring. That is all important. But you cannot lose sight of the big picture at the same time. It is not a matter of just running the maths through and saying, 'These are the best and we will go with them.' The question here is that if the best of the applications we got collectively are not good enough against our program target you need to sit back and reflect on what you are going to do, and that did not happen.

CHAIR: What recommendations do you know the department has adopted, based on your report, to ensure that this lack of appropriate process is not repeated?

Mr Boyd : The key thing they are pointing to is a program management office, which they have put in place. The idea is to have a centre of expertise in grant administration that other parts of the department can draw upon. I can see that as a positive. But one of the things we flag in here is that they actually had, not the same thing, but some expertise in the department at the time they ran this process, but they were never consulted. The thing for us is that that is a good initiative to hear about, but I guess as auditors we are paid to be professional sceptics. You would expect we would probably come back once you have given the program management office time to be implemented and have some effect to see whether it is actually having the desired effect.

CHAIR: You are paid to be a professional sceptic. Civil servants are paid to be professional servants of the public interest and to implement government programs and policies in an appropriate manner. We would seem to have gotten an unprofessional approach to this process, with a heck of a lot of taxpayers money, that has failed to deliver on appropriate outcomes, because these professional civil servants could not be bothered adding up the consequences of their actions. That is the way it appears to me.

Mr Boyd : The concern from us going forward is that we know what the other things are in the audit report, because you mentioned to me the number 2,969, being less than half, which was where I started from. I said that was in the funding agreement negotiations. We also then go on to note in the report that the key date on which this program was to have everything finished passed a month or so ago. But when we finished our work, which was just before that, only eight of the 16 end contractor projects were actually expected to finish by that date. So you spent more money than you budgeted to get less than you targeted and it is taking longer than you wanted.

CHAIR: It appears to be an all too familiar tale from the last six years, in any number of areas. I do not expect you to comment on that. It does seem to be a repeat of the farcical administration of public money over the last six years. You mentioned the recommendation to have the centre of expertise, which they already had, but they just did not consult with them. Is this something for other departments to consider, as well?

Mr Boyd : They did not have the program management office before. That was something that pointed to us in terms of them bringing it into place. They did separately have grants administration experts, and, yes, we do see it in some other departments. That is the approach they are going to. It is to try to centralise things in terms of that level of expertise. But from our perspective we can see positives in that but we can always see the risks, and one of the risks their agencies have to manage is to make sure it does not just become an issue about professional grants administration—you do not lose the policy input. So if this was a housing program it might be very well done in terms of process but you would make sure that you are still going to focus on getting the policy outcome you desire.

CHAIR: Is it incumbent upon ministers to follow through the administration of these grants procedures, even if something is specifically not drawn to their attention—that there is a problem with it?

Mr Boyd : In this case the program target was originally 15,000 but then the program funding was halved to help pay for some of the flooding that happened at around the same time. But that change of target was something that was endorsed at a ministerial level, so there was already ministerial awareness of that target. It was not something that was set within the department.

CHAIR: That is the 8,000.

Mr Boyd : Yes.

CHAIR: That is the target.

Mr Boyd : So it would seem to us that just as the department knows it needs to adjust the target by advising its minister as to that, similarly the department needs to keep an eye on that and inform the minister when they are going up with their funding recommendations.

CHAIR: That is absolutely right, but is it common practice that when a policy decision of this nature is taken if you are not getting feedback as to the progress of it from your departmental secretary, or the department in general, is it incumbent on the minister to ask how we are progressing with the $100 million. Or does the fault lie fully with the department for not advising the minister appropriately?

Mr Boyd : To give you a little bit of colour here the briefing package that went to the minister was a very large briefing package with a lot of information at a project level. So there is always some risk there that if the department does not provide the information to support the detail but also provide an overview as to what this program will achieve based on that, sometimes there can be a risk that you can lose sight of things because so much material came forward. And the briefing package was extensive, as we said in the audit report. There was a lot of information but the key bit of information in same ways about whether the program will achieve its target was not included in there.

CHAIR: It is a case of where it is possible for any ministerial advisers or departmental civil servant to provide the information yet have it hidden so deeply that—

Mr Boyd : The only way the minister here would have known whether the target was being achieved is if the minister had personally gone through each of the applications that were recommended in the detail and found the relevant number within a two-page or three-page document on each application, generally, and added them up.

The other thing I should say here is that a feature of the program for us was that there were a number of changes in minister over the life of the program, although the program did not actually have a very long life, which meant that the minister who was in place at the time the decisions were being made about allocating the funding was not even the minister in place at the time decisions were made about the program target.

CHAIR: It sounds even more chaotic and dysfunctional than I suspected. It is alarming.

Mr McPhee : It underlines why it is so important for departments to focus on the government's program objectives—that is, what is the government seeking to achieve—and to be able to get a handle on that and provide advice to the minister whether a program is working effectively or whether it needs some adjustment to achieve its target. So this is a little bit like the message I was talking about earlier. The Audit Commission focused on the importance of government understanding the impact of its programs. We see it even in the procurement space, where people get so focused on the procurement rules and lose sight of the principles that government articulates about open and effective competition and value for money for the taxpayer. If public servants or officials keep in mind the government's objectives, as it gets through the details, government and administration will be in good shape. The problem is when officials lose sight of the government's actual objective and get into the detail and get lost.

CHAIR: I understand. So they need to apply some common-sense principles to the overall—

Mr McPhee : You must keep in mind the objective of government.

CHAIR: This report makes me a little bit more concerned that you are going to be reducing your audits in the years to come, and you have reasons for doing that. But I do think it is absolutely imperative that these sorts of very expensive errors do not occur in the future. That is what the ANAO plays a key role in.

Mr McPhee : To assist, in case you are not aware of it, we do a better practice guide that captures our experience with doing grants audit. It is a theme we do because of the issues across the years in grants administration. So we do the guide, which assists agencies to focus on the things that matter. We continue to update that guide from time to time as a way of assisting public administration.

Senator FAULKNER: I am keen to table some advice to me from the Clerk of the Senate entitled Use of the CCTV system in Parliament House: issues of parliamentary privilege. I flagged a little earlier that I would be happy to make that public and I have made a decision to table the Clerk's advice to me before the committee this evening. I would ask you to do that. The committee needs to provide leave.

CHAIR: The committee has had a brief consultation about this and we are happy for you to table this advice, so, consider it tabled.

Senator FAULKNER: I thank the committee chair and I commend the advice to anyone who cares about how this place works.

Senator XENOPHON: I have previously corresponded with you in relation to the former government's 'by boat no visa' advertising campaign. Do you consider that the safeguards contained in the caretaker convention were inadequate in relation to government advertising, given what occurred, the extent of that campaign, and the fact that it appeared clearly to be party political? I do not think there were too many people smugglers in Jakarta listening to 2GB or reading the Adelaide Advertiser in the outer suburbs of Jakarta.

Dr Ioannou : You are testing my memory now. My recollection is that we did offer you some correspondence at the time when we went through these issues. You may have it before you. I would be very happy to dig it out again, but you are testing my memory on some of these issues.

Senator XENOPHON: I will put questions on notice, but in broad terms, there are all these guidelines in place but they can easily be circumvented by the exemptions. Is that right?

Mr McPhee : They are executive guidelines, so they are available to be adjusted by government.

Senator XENOPHON: So, short of and legislative reform they are, from my point of view, pretty much meaningless, because while they are guidelines there are many exemptions the executive arm of government can override. Is that a fair summary?

Mr McPhee : There certainly are exemptions for executive government.

Dr Ioannou : I would add that the previous government's advertising guidelines appear to have been withdrawn and some interim guidelines currently appear on the Department of Finance website. There are aspects of those guidelines that overlap with financial framework requirements, which are in fact legal requirements. So, to the extent that there is any overlap between those guidelines and financial framework requirements obviously the law will apply in the normal way.

Senator XENOPHON: Referring to your very lengthy letters to me of 1 August 2013 and of 14 August 2013, is there any update in relation to that campaign, how much was actually spent and whether there are any further opinions you have in respect of that campaign?

Mr McPhee : We do not have that information.

Senator XENOPHON: On notice.

Mr McPhee : We could consult with Finance on that.

Senator DASTYARI: I will be brief and there are a few things I will put on notice. In your financial statements you say that your own-source revenue is $1.7 million for audits by arrangement and building sublease income. How much of that $1.7 million is for the audits by arrangement? And how much of that is the building sublease income?

Mr McPhee : My memory is that the sublease is $200,000 a year.

Senator DASTYARI: So, it is $1.5 million for—and I have not come across it before, but are the audits by arrangement effectively a corporate service such that I can hire your office to do private sector work?

Mr McPhee : Yes. For instance, some of the clients we have, where there is a statutory requirement to do an annual audit, ask us to do a six-monthly audit of their financial statements, so we would say that we were happy to do that as part of the service; the legislation allows for that, and there is a separate charge for that.

Senator DASTYARI: But you do not go out and provide a service that people can pay you for—

Mr McPhee : No, it is not an advertised service. It is in response to providing what would seem to be a normal audit service to many of the Australian government entities. That is what it is about.

Senator DASTYARI: And perhaps you could take this on notice, and this will be my last question. In your agency resource statement you talk about the charging of the audit fee for financial statement audits of Commonwealth authorities, companies and their subsidiaries subject to the Commonwealth Authorities and Companies Act 1997 and then go on to say that revenues from these audit fees are paid into the official public account and are not available to the ANAO. I am just trying to get my head around how that process actually works, because I am looking at table 3.2.7—

Mr McPhee : Yes, I know the issue, and I am happy to take it on notice. It is a straightforward answer, but I am happy to take it on notice.

Senator McKENZIE: Does the Auditor-General have any current roles on international auditing or accounting bodies?

Mr McPhee : Not at the moment.

Senator McKENZIE: The Australian National Audit Office is not a part of any international auditing or accounting bodies?

Mr McPhee : We are a member of the International Organization of Supreme Audit Institutions, which is a global organisation.

Senator McKENZIE: 'Supreme'—it almost sounds like you have a secret handshake!

Mr McPhee : Yes. It means national, of course—national auditors rather than state auditors-general. But in the past, for instance, I have been a member of the International Auditing and Assurance Standards Board, which is the global body that sets professional auditing standards for the public and the private sector. But my term of six years completed and it is non-renewable, so—

Senator McKENZIE: When did that term complete?

Mr McPhee : That term probably finished about four or five years ago.

Senator McKENZIE: My understanding is that there are a few more international organisations that we play a role in. Perhaps you could take on notice to give that to us.

Mr McPhee : Yes.

Senator McKENZIE: How do we actually engage in those roles internationally?

Mr McPhee : We are on a few subgroups of the INTOSAI grouping of auditors-general.

Senator McKENZIE: Such as?

Mr McPhee : We have just had a meeting in Canberra on environmental auditing, so that is one area. And we were on one that is involved in the information technologies. I can get you the official name. So, we try to be a good global corporate citizen in areas where we can make a contribution and keep involved.

Senator McKENZIE: Will that sort of being a good corporate citizen go to producing the climate change report—the audit on climate change report? Will we have a significant impact into that?

Mr McPhee : We participated in that a couple of years ago. Canada was the chair of that.

Senator McKENZIE: Has the auditor undertaken any international travel for official business in 2014 to date?

Mr McPhee : Yes. I have been to a Commonwealth auditors-general meeting in Malta, and I went to Jakarta, because we have a special relationship with the audit board in Indonesia, and we have a senior staff member in Indonesia.

Senator McKENZIE: So, when I asked earlier about current roles in international auditing or accounting bodies, are there any other bodies you are involved with?

Mr McPhee : Just to complete the picture, INTOSAI is international, so most of them are global public sector auditors-general. Then there is a Commonwealth-countries equivalent, and there is an Asian-area equivalent. Every third year they will have a meeting, so, sequentially I would attend one of those once a year, because they are cycling every three years. And there can be the occasional other trip as well. But generally speaking three trips a year would be the most.

Senator McKENZIE: So, for 2014 we have gone to Malta, Jakarta—anything into the future?

Mr McPhee : I have had an invitation from Papua New Guinea to visit there, but nothing else is planned at the moment. I generally just respond to invitations rather than pursue my own particular interests, although when I went to Malta I did go to visit the OECD, because we use a range of their work in our own audit work.

Senator McKENZIE: Just going to Senator Wong's line of questioning earlier, and the impact of the efficiency dividend, could you also comment on the effect that the reduction of the overall number of Commonwealth bodies as a result of the new government will actually have on the ANAO's workload? And have you factored that into your forward plans? You have obviously made no reductions this year, but obviously you have had some plans going forward. Also, perhaps you could comment on the structural changes to the shape of government as a result of the change in government and the consequent impact on your work. A quick comment and then more detail on notice would be great.

Mr McPhee : In the past, for significant reductions or increases in the number of entities in the public sector, our budget has been adjusted, upwards and downwards. Symmetrically, we cannot argue with that; I think it is appropriate. So we will have discussions with the finance department and the public accounts committee about the consequences of the reductions in the number of bodies recently and the potential impact on that, and we will see where we come out.

Senator McKENZIE: And the subsequent reduction in your workload.

Mr McPhee : Exactly. And it is quite reasonable to have that conversation.

Senator SMITH: Continuing on from Senator Bernardi's line of questioning, I am reminded of the audit report on the GP superclinics, I am reminded of the audit report on the health and hospital fund, and I have for another time the report on the AEC storage of ballot papers. I am wondering: over the course of the previous government, you would have undertaken close to 200 or 250 audit reports?

Mr McPhee : Yes, close to 50 a year.

Senator SMITH: So, as the Commonwealth's Auditor-General, were there any trends or themes in those audit reports that gave you increasing cause for concern or alarm?

Mr McPhee : To be constructive, it is very much about reinforcing the things that matter. It is about understanding government program objectives, what the government is seeking to achieve, and the department providing the best advice it can to the minister. I think ministers are entitled to rely on good service by their departments. And sometimes I think our reports show that that is not always the case. We have a few areas we keep an eye on. Clearly grants administration has been a problematic area for a long number of years. We look at the acquisition of major Defence projects—very complex projects—to emphasise the matters that make a difference in those. As you know, we seek to be constructive, and I am pretty optimistic, but just occasionally I get disappointed when I see the results of some of our audit work.

Senator SMITH: I agree—the number of times I see narrow interpretation written in your summary of conclusions, for example, which suggest to me that people might be trying to abrogate some of their responsibility, or, as the name suggests, take a very narrow interpretation of what their responsibilities are. Finally, Mr McPhee, you know I am a big fan of the audit office and that work that you and your staff do. I wanted to be satisfied—and we can perhaps make some inquiries at a later date at a different forum—that with the efficiency dividend that is being put across the audit office, and with your decision to go from 50 audit reports to 47 audit reports over the next few years you are doing everything in your power to reduce other costs in the Australian National Audit Office.

Mr McPhee : We are indeed. We are looking at all avenues to keep the lid on our costs. We are obviously looking to use more videoconferencing arrangements rather than travel et cetera. We run a pretty lean and mean shop already, so there is a limit to what we can do. But technology has helped us a lot across the years to get efficiencies, to get productivity improvements. We have done a lot in electronic record keeping et cetera. We can do more. We can always do better. We are putting a focus on project management in areas, just to try to refine our approach to delivery of certain audit services. So we will continue to do that.

Senator LUNDY: How many staff will you lose as a result of the efficiency dividend?

Mr McPhee : One thing the office does very well, if I can say so, is manage to the forward estimates position. So we always take a long-term view. We have known it is getting tighter, so we have built in a sort of contingent workforce. We have never staffed up to the level of our forward estimates positioning knowing that the trend was down. So we are in better shape than many other agencies because of the way we have managed the office, and it is a credit to everyone within the office that we have managed to do that. It is getting tighter. As I have said to the public accounts committee and elsewhere, we will get through this budget year okay, but I am keeping a close eye on the forward years.

CHAIR: Thank you, Mr McPhee. I thank the officers of the Australian National Audit Office.

Proceedings suspended from 18:41 to 19 : 59