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Thursday, 15 June 1989
Page: 4102


Senator WATSON(1.56) —The Senate is debating the Audit Amendment Bill. This is a Bill that the Auditor-General would like through the Parliament as quickly as possible so, if I may make a request of the Minister for Resources (Senator Cook), I have a few concerns about the amendments that have been put forward to clause 26. I seek an assurance that the guidelines that are to be issued by a Minister pursuant to regulations made under the proposed new section that shall be tabled in the Parliament and may be disallowed by either House will be subject to the Regulations and Ordinances Committee's scrutiny because, if that review were lost I would have difficulty in supporting the particular amendment.

It is not a regulation as such but it is similar to a regulation, and I think we need an assurance before the passage of this Bill that that second amendment to clause 26 will come within the ambit of the Senate Committee on Regulations and Ordinances review. If that is the case, I will be quite happy.

The second request of the Minister is that the Government proceed expeditiously to implement the recommendations of the Joint Committee of Public Accounts in report No. 296, The Reform of the Australian Audit Office, because again we are seeing a bandaid treatment here. I seek the permission of the Minister to incorporate in Hansard some comments that I have in relation to the Audit Office and the Audit Amendment Bill and the need for two separate Acts. I seek the leave of the Senate to incorporate those comments.

Leave granted.

The comments read as follows-

Audit Amendment Bill

The Senate is debating the Audit Amendment Bill which seeks to make various changes to auditing of Commonwealth bodies and to enhance the powers of the Commonwealth Auditor-General.

The amendments to the Audit Act are essentially to, first, define the role and condition of the Australian Audit Office, and to improve its efficiency; and, secondly, to consider the proper role of the Auditor-General and the accountability of government departments and agencies of the Parliament.

The Australian Audit Act is a very old statute dating back to 1901. In fact, the importance of the correct oversight of the public account is indicated by the fact that the Audit Act was the fourth piece of legislation passed by the new Federal Parliament.

Not only have accounting practices, principles, and statutes changed, but the role of the Commonwealth has significantly grown with a proliferation of statutory corporations, utilities, companies and other organisations coming under the public umbrella.

Most modern statutes covering these activities are in two separate Acts of Parliament-an Audit Act and a Financial Administration Act.

So it is surprising to discover in this Bill before the Senate that the Audit Amendments contain both administration and audit changes.

I therefore support the second reading amendment of the coalition, which states:

. . . in view of the archaic nature of the existing Audit Act, consideration be given to repealing it with two separate Acts, one relating to financial administration, the other to the activities of the Australian Audit Office.

Such an issue has become even more relevant because of the tabling during the last few weeks of the Joint Committee of Public Accounts report entitled-The Auditor-General: Ally of the People and Parliament-Reform of the Australian Audit Office.

Indeed, reform is well overdue because in recent years we have witnessed a proliferation of `Band Aid Amendments' to meet pressing necessity. In a world of rapid administrative change and the creation of new financial instruments on almost a daily basis, a new flexible Act to meet the needs of the next century is well overdue.

The coalition has realised this and that is why we are putting forward our second reading amendment. I hope that this might press the Government to act. It should, as a matter of priority, adopt the key recommendations in the Public Accounts Committee report on the Australian Audit Office.

I am pleased that the Government agreed to delay passage of this Bill until the Public Accounts Committee was tabled in each House and I hope that Cabinet will take serious note of our recommendations-especially in regard to a wholly revamped Audit Act and a new Financial Administration Act.

While I have been actively involved in the preparation of the Audit efficiency report, there are nevertheless still areas of concern which need to be addressed and these lie principally in the area of Financial Administration and activities relating to the Australian Audit Office.

I would like to refer to individual clauses in this Amendment Bill.

Clause 4

The amendment to section 21 of the Act which deals with the maintenance of bank accounts bearing the designation Commonwealth Public Account provides some flexibility with the addition of the words `agreements made under section 20' in that the Minister may agree with any bank for the conducting of business in respect of the Commonwealth Public Account.

The Drawing of Money from the Commonwealth Public Account

Clause 4 amends section 31 of the principal Act and provides that no money should be drawn from the Commonwealth Public Account except in the manner provided by this Act.

There has been some doubt in the mind of the Auditor-General arising from the overlap in the wording between sections 20 and 21 dealing with the conducting of banking business and the Commonwealth Public Account. The clause effectively clarifies the position of section 21 to make sure that bank accounts opened under that section are in accordance with agreements entered into under section 20.

Under proposed clause 7, the Minister for Finance may direct that all of the moneys appropriated for the performance of a particular function by a Commonwealth department may be transferred to another department to use in the same function area. With the proposed amendments the Minister is in a position to manage the funds as required.

I am pleased that such a change might lead to better accountability to Parliament of the expenditure of public money. However, my concern is with the interpretation of this clause and I seek a clarification from the Minister in charge of the specific effect clause 7 would have.

In clause 14, which repeals section 54 of the principal Act, some explanation is given of the difference between performance, efficiency and project performance audits.

It is, of course, essential for audits to be performed in order to scrutinise for inefficiencies in administration and thus improve management practices as in efficiency audits. It is also important to promote efficient use of resources on a large scale or small scale as in project performance audits. The question must still be posed: who is to perform these tasks due to the high numbers of people with proven auditing skills who are leaving the public service for the private sector?

Furthermore, are these tasks then to be tendered out to the private sector and, if so, are the auditing procedures compatible with the procedures already used, an improvement on the standard form of government auditing?

Who is to be ultimately responsible for the functioning of the department and for the carrying out of recommended improvements, Minister?

I know from personal discussions with senior personnel in the Australian Audit Office and accountants in private enterprise that the Audit Office is having a great deal of trouble keeping its staff and recruiting new graduates. Honourable senators will know that international accounting firms snap up the cream of new economics and commerce graduates because they can offer lucrative salary and benefits packages, which the Government Audit Office cannot.

This is a problem not only confined to the Commonwealth Auditor-General, but also is experienced by his state counterparts and by recruitment people in the Department of Finance, the Treasury and the Tax Office.

I suggest that the answer to attracting and keeping good staff is to review the conditions of work and the salaries and other benefits offered.

The Opposition believes it is vital that taxpayers' money is not only spent wisely and on worthwhile projects, but also that it is spent properly and efficiently.

Clause 6, in adding the words `shall not knowingly or recklessly cause or permit', softens the previous position which stated that `an officer shall not cause or permit the account to be paid except in accordance with section 34 1(b) and subsequent provision?'

Proposed clause 24 of the Bill deals with guidelines by Ministers and the proposal for an inclusion of a new section in the Act which will enable the regulations to authorise a Minister to issue guidelines on any matters for which that Minister is responsible (provided they are matters on which regulations may be given).

My colleague the honourable member for Dundas in the other place on 3 May asked: does this mean the Minister will issue the guidelines and, if so, where is the role of Parliament?

Anyone reading the Audit Act 1901 will know that accountability was at the forefront of the minds of our first legislative framers. If one turns to the recent report of the PAC, the same principle remains paramount. I am most concerned that the only time that Parliament will have a role is when the regulations are made to give the Minister power to make guidelines.

We ought not to be abrogating further the diminishing accountability of this Parliament and bolstering the already dominant executive.

I therefore ask the Minister in charge, is there to be no accountability between the Minister and Parliament?

The Joint Committee of Public Accounts recently reprimanded more than half the secretaries of Commonwealth Government Departments for breaching clear guidelines in the preparation of their annual reports.

Departmental secretaries are required to publish in their annual reports the actions they have taken in response to administrative issues raised by the Auditor-General or parliamentary committees.

In the light of clause 24, how are we as a Parliament supposed to respond to this survey which shows that half of the departmental secretaries have contempt for the guidelines laid down by the Prime Minister?

It would appear that managers are not accepting responsibility for their departments. Recent revelations about the employment of consultants give further weight to the diminished level of accountability that is being tacitly accepted.

The second amendment deals with the role of the Auditor-General, and whether he is to remain the key link in the chain from government enterprises and agencies to the Parliament.

Clause 21, audit of subsidiaries, is extrinsically involved in the projected future role of the Auditor-General.

It is argued that where the Government has an interest in an entity the Australian Audit Office should have a central role. An impression is given of an attempt to retain the mandate of the Auditor-General by the inclusion of 70bb. However, on closer examination the role of the Auditor-General is becoming increasingly redundant. This assumption may have been made by inserting the proposed new section 70bb. The role of the Auditor-General to report on financial statements and inspection of audits of the accounts and records of subsidiaries would in fact be tightened and reinforced.

Furthermore, it is to be mandatory for subsidiaries to be audited as well as the parent company. The proposed section is to apply to subsidiaries acquired after the commencement of the section but does not disturb any present arrangements for the Auditor-General to audit and report on `relevant' subsidiaries or authorities. This means that a subsidiary cannot unilaterally dismiss the Auditor-General.

How is the last statement to be understood, as when subsidiaries become corporations, incorporated under the Companies Act 1981, the need for the Auditor-General will not be crucial in relation to its operations, as the corporation will no longer be subject to any review by the Auditor-General?

A corporation, for instance the Snowy Mountain Engineering Corporation, since becoming a public company accountable to its shareholders, will put its auditing to tender and a private sector auditor will be used, and the audit will be conducted according to the relevant companies legislation. The company code sets out the necessary requirements for the appointment of auditors and the form and content of reports to shareholders.

Where does this then leave the role of the Auditor-General? Quite clearly the Auditor-General's role will be excluded, not enhanced.

It has been envisaged that the Auditor-General will nevertheless carry out both the Audit Act and company legislation requirements concurrently. How will this be so?

In normal circumstances, it is not expected that an auditor other than the Auditor-General would be appointed to report under the companies legislation. In a sense, in this provision the Auditor-General is seeking to restrict access to outside auditors in relation to subsidiaries that are established in the future.

Considering that, as I have already said, the number of auditors in the government services is dwindling, who then is to assist the Auditor-General to carry out the important task of audits?

In addition, since there appears to be an increase in the numbers of subsidiaries, statutory bodies and agencies run at arms length to Government departments it will be near to impossible for an audit to be carried out on many of these bodies due to the fact there is not enough personnel to complete the necessary tasks.

The issue is one of the instrumental elements of the Public Accounts Committee report that will require attention from the Minister and the Government.

This is a major difficulty that will have to be addressed-converting what are in effect standard private sector audit and accounting techniques in a way that would prove useful to meeting the requirements of Parliament and the issue of accountability of public money.

In the other place, the shadow Treasurer, Dr Hewson, quoted Professor Bob Walker writing in New Accountant. The quote is very apposite and worth repeating here in the Senate:

The interest of Parliament and the normal checks and balance that might be appropriate in the private sector may prove to be insufficient when one is auditing government expenditure or funds allocated through government. When taxpayers funds are involved, the form of accountability to Parliament could be quite different . . . it cautions the profession on the extent to which it has rushed into the idea of public sector auditing . . . little concerns seem to be given to insulating an auditor from pressure.

One wonders whether the Auditor-General is to have a role as a `watch-dog' over any private sector auditors involved.

The role of the Auditor-General is further examined in clause 22, indemnity insurance of Auditor-General.

This raises the question of whether the Auditor-General should be required to take an indemnity insurance so that he is put on an equal footing when competing with private sector auditors.

The amendment is based on legal advice that such indemnity is appropriate although it seems that at present there are no specific circumstances that necessitate this amendment. Actions taken for damages against Auditor-General counterparts overseas have occurred.

The independent status of the Auditor-General calls for a suitable indemnity provision in the legislation such as now proposed.

Regretfully, this provision is thought necessary because of what has happened in other countries where government auditors have been sued in civil action and so it is right and necessary that our own Auditor-General and his staff are indemnified against such a liability when carrying out their statutory tasks.

I would be very grateful if the Minister could answer the many questions that I have posed on particular clauses of this Audit Amendment Bill. The coalition does not oppose the Bill but I fervently hope it is the last such piece of legislation we ever see in this place.

If the recommendations of the PAC report to write wholly new audit and financial administration Acts is adopted by the Government, we will leave these band aid Bills which really only prop up a `horse and buggy' principal Act and bring Australian audit legislation into the modern era.

In closing my remarks I support the second reading amendment moved by the Opposition and look forward to the Minister's responses to my questions.