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Thursday, 6 April 2000
Page: 15471

Mr CHARLES (5:02 PM) —On behalf of the Joint Committee of Public Accounts and Audit, I wish to speak to the committee's report No. 374, Review of the Financial Management and Accountability Act 1997 and the Commonwealth Authorities and Companies Act 1997, which was tabled in the last sitting week. The committee has found that, by and large, the acts are working well. The committee, therefore, has given the legislation a big tick. This is a credit to the original drafters who designed the provisions to cover the whole of the Commonwealth's public sector at the beginning of a period of significant change brought about by the Commonwealth's move to accrual accounting.

However, as with all overarching pieces of legislation, there are instances where anomalies or inconsistencies have arisen. During the review the committee's attention was drawn to two possible conflicts with other legislation: firstly, possible inconsistencies with defamation legislation regarding the definition of `lack of good faith'; and, secondly, with legislation in three states allowing employers to indemnify employees. The committee believes that in these two instances, legislative clarification is more desirable than awaiting future litigation to determine the issue. Accordingly, the committee has recommended that DOFA and the Department of the Treasury, as lead Commonwealth agencies in this matter, should consult with their equivalent state agencies with a view to addressing these possible inconsistencies.

Turning to the accountability arrangements following the recent financial management reforms, concerns were raised with the committee that the change to accrual budgets might diminish the parliament's ability to scrutinise appropriations. This was because appropriations are for high level outcomes rather than for line by line cash allocations. The committee notes that the portfolio budget statements, the appropriations, and the annual report are now in a common format. The committee, therefore, believes this will provide a clearer picture of the overall aims of government and the full accrual costs of achieving those aims. There is a refocusing away from process to outputs and outcomes. A consequence of this clearer overall view will, unfortunately, be a reduced ability to identify and influence spending on the actual process of government. This raises the risk that with less focus on the details of process there will be increased temptation to, as one witness put it, `push the boundaries' of what can be done beyond the limits of what should be done. The committee does not believe that the boundary is currently being pushed but believes that parliament is constitutionally required to remain vigilant.

The committee notes that the full cycle of accrual appropriation to annual report has yet to be completed and so it is too early to determine the effect on the ability of the parliament to undertake effective ex ante scrutiny of the executive. Nevertheless, already there is some concern among members of parliament about this issue. The committee therefore will, at a later date, undertake a survey of members of both houses seeking comment on the impact of the new budget format on their ability to scrutinise proposed government expenditure. In the meantime, the committee has recommended that DOFA review the accrual budget format to ensure that the change to full accrual accounting does not diminish the ability of parliament to scrutinise appropriations.

The other major mechanism of parliamentary scrutiny of agencies is via the annual report. Under Senate and House of Representatives standing orders, annual reports stand referred to particular standing committees. The committee advocates that standing committees of the parliament take advantage of standing orders to review annual reports. The committee believes examination of the content of annual reports of the FMA Act entities should include consideration of whether the information supports the section 44 requirement for chief executives to manage in a way that promotes the efficient, effective and ethical use of Commonwealth resources. For CAC Act bodies, emphasis should be on sections 22 and 23, which require directors to act honestly, exercise care and diligence and not use inside information to gain advantage or cause detriment. In the report the committee offers some suggestions as to how annual reports and chief executive officers could be examined for evidence of efficient, effective and ethical performance.

The financial statements contained within annual reports provide information which can be used to benchmark efficiency and enable comparisons between comparable entities. The committee first discussed this issue when it reviewed accrual accounting in 1995 and at that time drew attention to a booklet published by the then Department of Finance which described how data in financial statements could be analysed to measure performance.

The committee considers there is merit in such comparative performance information being made available to the parliament, as this would assist committees and others in evaluating the financial statements contained within annual reports. Accordingly, the committee has recommended that DOFA collect and table in parliament on an annual basis a consolidated series of charts and tables comparing the performance of all Commonwealth agencies against a range of key performance ratios. The committee has included as appendix E a series of performance ratios which could form the basis for such comparisons.

In conclusion, I would like to express the committee's appreciation to those people who contributed to the inquiry by preparing submissions and giving evidence at public hearings. Finally, I wish to thank the members of the sectional committee for their time and dedication in conducting this inquiry. I also thank the secretariat staff who were involved: the secretary to the committee, Dr Margot Kerley; sectional committee secretary, Dr John Carter; research officer, Ms Rebecca Perkin; and administrative officer, Ms Maria Pappas. I commend the report to the House.