DE RE, Mr Sacha, Assistant Secretary, Defence Investments, Commercial Investments Division, Commercial and Government Services, Department of Finance

LOUIS, Mr Edward, Assistant Secretary, Program Management and Governance, Department of Defence

GRZESKOWIAK, Mr Steven, Deputy Secretary, Estate and Infrastructure Group, Department of Defence

HALL, Ms Stacie, First Assistant Secretary, Commercial Investments Division, Commercial and Government Services Department of Finance

HEHIR, Mr Grant, Auditor-General, Australian National Audit Office [by video link]

IOANNOU, Dr Tom, Group Executive Director, Performance Audit Services Group, Australian National Audit Office

JACKSON, Mr Barry, Managing Director, Defence Housing Australia

JORDAN, Mr Ross, General Manager, Governance, Defence Housing Australia

MELLOR, Ms Rona, Deputy Auditor-General, Australian National Audit Office

Committee met at 09:01

CHAIR ( Mrs Wicks ): I now declare open this public hearing of the Joint Committee of Public Accounts and Audit for its enquiry into governance in the stewardship of public resources. I would like to thank all witnesses for being here today. Firstly, management of Defence Housing Australia. With reference to audit report No. 31, Management of Defence Housing Australia, I now call representatives of the Audit Office, Department of Defence, Defence Housing Australia and the Department of Finance.

I advise that these hearings are formal proceedings of the parliament. The giving of false or misleading evidence is a serious matter and may be regarded as contempt of the parliament. Evidence given today will be recorded by Hansard and attracts parliamentary privilege. Would any representatives like to make an opening statement before we move to questions from the committee? ANAO?

Ms Mellor : The ANAO has provided an opening statement. I'm happy to have it tabled.

CHAIR: Department of Defence?

Mr Grzeskowiak : We have no opening statement.

CHAIR: Defence Housing Australia?

Mr Jackson : We have no opening statement.

CHAIR: Department of Finance?

Ms Hall : No opening statement from Finance.

CHAIR: We will kick off with some questions. For my understanding, DHA was established in 1987-88—is that correct?

Mr Jackson : That is correct.

CHAIR: I was interested in the question about whether DHA has been effective in improving ADF member retention, and the benchmarking around that. I invite any comment in response to the observation.

Mr Grzeskowiak : It's a great question. If you go back through the history of DHA over the 33 or so years, one of the reasons for it being created originally was because, at that time, Defence was responsible for investing in housing for Defence members and managed that itself. If you look back at the quality of some of the properties that we put people in at that time, it was, by any standard, appalling. In fact, we'd reached a point where the housing quality for members with dependants was actually an incentive for people to leave the Australian Defence Force. It was working as a disincentive for people to stay. If you read through the records of the creation of DHA, that comes through very strongly.

Over the 30-odd years of DHA's existence we've seen a remarkable improvement in the quality of housing that we make available to our ADF members with dependants. We track through surveys, particularly things like exit surveys—we call it the YourSay survey—what people are thinking about why they might stay or why they might leave the ADF. We know through those surveys that the quality of housing, the location of housing and the configuration and size of properties we provide for people makes a difference in people's lives—I'm talking ADF people, of course.

We require a mobile ADF workforce. Many people in the ADF would be posted on a two-year cycle—not everybody, of course. We post about one-third of the ADF every year, and many of those moves require geographic moves. The ability to know that, at the place you're moving to, particularly if you have a family, there'll be a good quality property available is a significant incentive for people to stay with us through what is really quite a difficult process. Anyone who has moved house knows it's traumatic. If we're making some people in particular do that every two or three years over a long period, we need to provide good quality not just housing but also services that wrap around that whole removal process which DHA manage for us.

We've grappled with this issue of 'is there a metric you can track that inexplicably links or definitely links the quality of a house that might be provided and the service through DHA with a quantifiable retention metric?' I don't actually think there is, but if someone has an idea we're happy to look at it. We're scratching our heads looking at that at the moment. At the moment, we've been using survey data; people's expressed views. The CDF in October 2019 wrote an open letter to the whole Australian Defence Force which was in the broad about seeking opinions on allowances and conditions of service in general, in part to inform a project that's running in Defence at the moment around what we call the offer modernisation, but looking at bringing the terms and conditions of employment up to date. A strong number of responses—and there were a lot of responses across the Australian Defence Force—were about housing and in relation to housing. Obviously there were a whole range of views expressed in those responses, but what it tells you is that housing is definitely a key factor in people's lives, and therefore it's a key factor in retention if we get it right.

CHAIR: You made some really interesting observations, particularly around an assessment around housing quality. You then indicated, if I'm correct in hearing you, that a lot of work has gone into improving the quality over the last 30-odd years.

Do you agree with or do you have a comment in relation to page 8 of the audit report, which noted:

… no work has been done to assess the effect of DHA's services on ADF member retention, which was a major reason for creating DHA.

I ask that in light of your answer around the surveys you have been doing and the question around whether there is a mechanism that you can quantify or qualify around this. I'm just wondering what your response is to the ANAO's note there?

Mr Grzeskowiak : I think in the report the statement is completely valid because it's talking about quantifiable metrics. My view is that that's quite hard. We've done a lot of work over the years in terms of understanding the effect of the whole employment offer that we offer to the Australian Defence Force and adjusting it over time to account for a range of pressures in the Australian economy at large that might encourage people to stay or leave.

Housing is part of that mix. We look at it, as I said, through the various survey data and we're exploring, as part of one of the recommendations from the ANAO report, at the moment what other metrics we can use between ourselves and DHA. We're looking at this and, if we can discover a metric that would link definitely an investment in housing or an adjustment of the housing policy to a definitive retention, we'd be very happy to use that, but what we know from surveys—particularly exit surveys—of our ADF members is that there is always a range of factors that influence an individual's propensity to stay or leave the Australian Defence Force. Housing would be in there as one of those factors, but there is a whole range of factors that affect people's decisions.

CHAIR: To the ANAO and perhaps to the Auditor-General: I'm wondering if you'd like to make any further observations of that statement that was made in the audit report. From what has just been said. I understand that it is hard to be able to measure the effect on member retention. What is your view on that? Is there a pre-existing way to measure this that might be looked at?

Mr Hehir : I might hand to Tom Ioannou to answer in detail, but I think the point that we're making with regard to performance indicator isn't necessarily about having something that can quantifiably measure the impact but about having a framework that can house the key reason for the organisation to be established to be identified and reported on to parliament in particular to provide some assurance that what the entity's established for or the key reason for it is actually being achieved. But maybe one of my colleagues would like to add something in a bit more detail about what private things we're talking about.

CHAIR: Before they do, I will clarify something. Are you saying that [inaudible] is around the importance of frameworks for specific KPIs which would be developed as a result of those frameworks?

Mr Hehir : I think my comment was more about key performance indicators not, by their nature, all being quantitative. It's about providing an assessment and indicator framework which provides information to management and to the parliament about the success of the program. The framework that exists for public sector reporting is one which emphasises the importance of the qualitative as well as quantitative evidence and how that's reported on to parliament to give them assurance about performance of entities.

Dr Ioannou : We did a very conventional thing here. We observed that a major reason for creating the authority was to address low ADF member retention rates. We took the view that that had been a consistently expressed objective and we had a look at what had been done to help provide assurance that the entity's activities were actually contributing to that important reason for its creation. Basically, we invited the authority to help us understand what, if any, work had been done, and the audit findings are in the report and simply state that DHA and Defence could not provide any metrics or data that indicate the effect of housing adequacy on member retention or separation. That was an audit task. We didn't go on to do a consultancy on what should happen next. I think both the department and the authority understand their business well enough to try to think those issues through themselves.

Ms Mellor : We did make a recommendation for the department and the agency to agree key performance indicators that relate to and support the measurement of performance against all the objectives of the service agreement. Where the Auditor-General is going is that that's got to be in a framework of the outcome and purpose of the organisation. It completely accepts the evidence of my colleague from the Department of Defence. It's not easy, but the parliament has, through the objects of the act, asked for this organisation to be created with this purpose and so what we're looking for is whether there is some way in the performance reporting to address that purpose and give assurance to the parliament this this issue that the parliament has asked the agency to do is factored in. I think that in the submission from the agency there is indication that people are working together to try to bust that open.

CHAIR: Thank you. To a representative from the Department of Defence: is there any further comment? With reference to the submission that you did make, when will the work around providing some more detailed insight into retention impacts of ADF housing be completed? How will it be reported on?

Mr Grzeskowiak : We're working very well with DHA on all of the recommendations from the audit. We accepted all of the recommendations. It's been a very helpful audit for us in terms of stimulating our thinking. I think around the middle of the year is when we're aiming to have a new services agreement in place. We're working at the moment on how that will look in terms of KPIs and, as the auditor suggested, the framework around how we consider the service provided by DHA. That goes particularly to retention. So there should be some progress by the middle of the year. We already do have KPIs. In our existing services agreement there are eight KPIs, one of which is split into six component parts, but they tend to track the deliverables that we'd expect from DHA: the number of properties available, that they're available on the day they're supposed to be available et cetera. They don't go to the 'so what', as highlighted in the audit—whether that affects retention. That's the bit that will be the most difficult to grapple with.

I think in the end we'll be looking more at qualitative assessment through surveys that we do. We might look at adjusting one of the surveys that's done in a regular way within Defence to ask a more explicit question. That's what we are thinking about and looking at at the moment.

CHAIR: I'm conscious of time and I'd like to [inaudible]. This is a final question to Defence and perhaps DHA. I know you indicated a 30-year journey around housing quality, but I'm just wondering if the observations made around qualitative and quantitative assessment of the alignment of service to member retention the Auditor-General's Report is the first time that work has gone into this. But I'm just wondering: is this the first time that work has gone into the observations made in the Auditor-General's Report around qualitative and quantitative assessment of the alignment with service-to-member retention, or is this part of a continuing program of looking to enhance objectives? The query I have behind that is whether—I'm assuming that this would have been looked at before now—it has been looked at before now. Are there any other observations or comments you would like to make?

Mr Grzeskowiak : I can't recall this specific issue being raised in an audit before; that's not to say it hasn't been. I've been involved in working with DHA for about the last 12 years, initially in a personnel policy capacity within Defence and now as the service deliverer within Defence through a contract services agreement process. In 2007 we created a thing that was then called the New Housing Classification Policy, which took a decade to roll out. That was about adjusting the quality, if you like, of the offer that DHA provide through their houses that they provide to the ADF. One of the key focuses at that time was about ensuring that what we provided was contemporary and modern and therefore would serve to keep people attracted to staying in the Australian Defence Force when they're in a period of their life with partners and often with children and we're still moving them from place to place every two or three years. So I can assure you that within Defence it's always one of those parts of the conversation: how does the housing offer contribute to the overall employment offer package, which is all about retention? There's a little bit of attraction in there as well, but fundamentally people don't join the Australian Defence Force looking up at the pay scales and allowances; they join because they want to do something exciting and interesting and worthwhile for their country. But once people have been in a while then the whole offer that we put in place, including housing, is all about retention—keeping people in the ADF for as long as we can, because obviously the cost of retraining people, particularly highly skilled people, is high. Therefore we want to try and extend lengths of service as much as we can.

Mr Jackson : To add further to Mr Grzeskowiak's comments, we do have a KPI with Defence on member satisfaction with accommodation quality, cleanliness, readiness and the general service around that. They are surveys that are done quarterly and rolled up to an annual KPI. Certainly DHA has always consistently exceeded those minimum standards. So I think that also goes to the point of view where, perhaps 30 years ago, it was a significant problem. We actually have removed that problem from a retention or recruitment perspective, and people are satisfied with the houses that they are getting.

Ms Mellor : We have done a performance audit in Defence Housing in the past. This isn't the first one in 30 years. The ANAO tabled an audit report in 2003 about Defence Housing. In terms of your specific question about the observations in the current report compared to the previous report, the previous report was much more focused on the service delivery side—some of the aspects that both DHA and Defence representatives have just spoken about—and also board appointments and the governance. So, yes, some time ago that was tabled—in 2003.

CHAIR: Thank you. I appreciate that very much. Questions from the Deputy Chair?

Mr HILL: Thanks very much, Chair. That's a good place to start. I'll just set the context for my questions around governance. I'll read a handful of sentences from the audit report, which is not glowing:

… DHA has not established whether it has been effective in improving ADF member retention or benchmarked the efficiency of its main function—

as we've just discussed—

The DHA Board has not addressed specific enterprise-level risks in a timely manner.

…   …   …

The assurance provided to the accountable authority regarding value for money in purchasing arrangements more generally would be enhanced by improved management of financial delegations and powers of attorney.

…   …   …

Compliance checking … indicates multiple instances of non-compliance with procurement policy …

Furthermore, DHA has:

… established measures for assessing its operating efficiency …

There's a theme here:

The DHA Board has not established effective governance arrangements to support the provision of housing and housing-related services to ADF members and their families.

There's then a whole lot of detail. Concerningly:

… with one exception, there is no evidence that key policies were endorsed by or issued with the authority of the Board.

I'd put that as a question with a broad context. In light of the Audit Office's performance audit about the management of DHA—and we've heard the seriousness of the functions that it discharges in terms of the impact on morale, retention and conditions for our ADF personnel—there have been serious concerns raised about DHA's governance and the performance of the board. I'd like to talk for a moment about the skills and experience of the board members. With regard to the composition of the board, can you tell me what the capability matrix is for board directors? I don't mean the selection criteria in the act; I mean the capability matrix, which you didn't answer to Senate estimates.

Mr Jordan : That's probably one for me. As a starting point there are some competencies or skills listed in the act, especially for our commercial members. Four of the nine members of the DHA board are commercial members, and those skills are things like property, financial skills—

Mr HILL: Which are the four commercial members? I presume the printout I did from your website this morning is correct?

Mr Jordan : I hope so. I can list those four commercial members for you. The current commercial members of the DHA board are Mr Robert Fisher, Ms Andrea Galloway, Mr Ewen Jones and Ms Gai Brodtmann.

Mr HILL: Are these the correct members: Sandy Macdonald—

Mr Jordan : Yes, Mr Macdonald is the chair. I can run through the current membership, if you'd like.

Mr HILL: Barry Jackson?

Mr Jordan : Yes.

Mr HILL: Leigh Wilton?

Mr Jordan : Yes

Mr HILL: Simon Lewis?

Mr Jordan : Yes.

Mr HILL: Kate Louis?

Mr Jordan : Yes.

Mr HILL: Robert Fisher?

Mr Jordan : Yes

Mr HILL: He was a member of Tony Abbott's Commission of Audit, wasn't he?

Mr Jordan : He was.

Mr HILL: What a surprise. Andrea Galloway?

Mr Jordan : Yes.

Mr HILL: Ewen Jones?

Mr Jordan : Yes.

Mr HILL: He was appointed, what, five or six months after he lost his seat in Queensland for the Liberal Party?

CHAIR: Order, Deputy Chair. I'll take that as a comment.

Mr HILL: No, it's a question, actually, Chair.

Mr Jordan : Yes, I think that is correct.

Mr HILL: How did that come about?

Mr Jordan : There was an appointments process where the responsible minister for DHA—which is usually the defence minister but at the moment is the Minister for Defence Personnel—will through an instrument of appointment appoint a board member when a vacancy becomes available.

Mr HILL: I get the procedure. How did they just select Ewen Jones as the most qualified person to sit on the DHA board?

Mr Jordan : I don't know that.

Mr HILL: Anyone? Who signs the paperwork? Does it come through you, Department of Defence?

Mr Grzeskowiak : When board appointments become available, the Department of Finance and the Department of Defence would look to see if there are candidates that they were aware of. I understand the Department of Finance—

Mr HILL: Failed Liberal politicians?

Mr Grzeskowiak : have lists of people who might be suitable. We would put in a view—

Mr HILL: So was Mr Ewen Jones on this list of suitable people that you or the Department of Finance came up with?

Mr Grzeskowiak : I don't know the answer to that question.

Mr HILL: Can you take that on notice? Perhaps it came from the minister.

Mr Grzeskowiak : I couldn't answer that question. I can take it on notice and have a look.

Mr HILL: Sure. That would be good. What are Mr Jones's qualifications?

Mr Jordan : I can probably have a stab at that, Deputy Chair.

Mr HILL: Sure.

Mr Jordan : He's obviously a former member of parliament, and he has—

Mr HILL: I think we established that bit.

Mr Jordan : experience in auctioneering.

Mr HILL: But what are his actual qualifications, not his experience? I'm curious, because every other member of your board at least has some kind of qualification. Most of them seem to have the company directors. If they don't—

Mr Jackson : Ewen has done the Company Directors Course.

Mr HILL: When did he do that?

Mr Jackson : Soon after joining the board.

Mr HILL: Did the board pay for it?

Mr Jackson : I believe DHA paid for it.

Mr HILL: That is a nice lurk, isn't it? You're not qualified, and then the board pays to get you up to speed.

CHAIR: Order, Deputy Chair.

Mr HILL: There's no order issue.

Mr Jackson : I think that's part of ongoing education and support to board members, which the AICD fully supports.

Mr HILL: Did he have any qualifications when he was appointed—

Mr Jordan : I'd have to check that.

Mr HILL: apart from losing his seat?

Mr Jordan : I don't know off the top of my head.

Mr HILL: It says he's an auctioneer and he runs a car dealership, so those are his qualifications. Anything else?

Mr Jordan : As I said, I do not know his formal qualifications beyond what's already been stated.

Mr HILL: How many board members are there now?

Mr Jordan : We have nine.

Mr HILL: Another former Liberal senator, Alan Ferguson, was on the board. When did he retire?

Mr Jordan : His term on our board finished in February 2021.

Mr HILL: So a couple of months ago?

Mr Jordan : Yes.

Mr HILL: When was Gai Brodtmann appointed?

Mr Jordan : Ms Brodtmann was appointed to fill the vacancy created by the departure of Mr Ferguson.

Mr HILL: So in the period of the audit, putting Ms Brodtmann aside, we have the chair, a former National Party senator; we have Alan Ferguson, a former Liberal Party senator; and we have Mr Ewen Jones, the car dealer and auctioneer, who was a failed Liberal Party member. That would be one-third of the board of DHA who were former Liberal or National politicians, with the little bonus that one of Abbott's commission of audit was thrown on like a cherry on top. Is that correct?

Mr Jackson : We can confirm that they are members of the board. As to the context you have put around it, we can make no comment.

Mr HILL: Sure. So a third of the board through the period relevant to the audit were former Liberal or National politicians, with a member of the commission of audit thrown on top. It's sounding a bit like Australia Post and ASIC—another 'jobs for the mates'—

CHAIR: Deputy Chair, that's a comment.

Mr HILL: I think it's a point that needs to be made.

CHAIR: Questions are fine, but commentary around it—

Mr HILL: It's a point that has been established, given the serious concerns running through this audit about governance capability and the experience of the board. We got a bunch of former Liberal or National politicians who have been done in yet again by an audit report. They haven't been bullied by the Prime Minister, at least yet. I suppose that's a good thing.

CHAIR: Deputy Chair, I just ask you for the sake of the committee to please withdraw the comment about the Prime Minister and just focus on questions.

Mr HILL: I think Christine Holgate said enough, so I'm happy to withdraw. I'd refer you to her comments. Could you provide the remuneration details for these board members?

Mr Jordan : Certainly. The board members are remunerated in accordance with the relevant job determination from the Remuneration Tribunal. From memory, I think the rate for the chair is about $140,000 per annum, and members are $57,000 or so, if they are eligible for remuneration.

Mr HILL: It's a nice little lurk for people like Alan Ferguson with his parliamentary pension—a little bit on top. Well, that's good. Could you confirm those numbers. The audit found, as I said, that with one exception there was no evidence key policies were endorsed or issued with the authority of the board. There was a response to the question on notice provided to the Senate committee; I note that the board agreed with this finding. The response explained in detail that the accountable authority instructions were developed and approved by the board at its meeting of 18 June 2020 following the audit. So it's good to hear that you found the audit useful. The AAIs are written instruments issued by the board as the accountable authority under the act, establishing the systems of controls and the framework for officials to comply with finance law, and they act as the overarching framework by which all DHA policies then approved by the managing director are set. I note that the joint submission states:

The AAIs are designed to assist the DHA Board meet its duties under the PGPA Act … proper use … of public resources, … risk-based controls—

and all that material. Do the AAIs represent an appropriate delegation or devolving of responsibility from the board to management? It just seems peculiar that they've said, 'Our accordance with those policies is to let the managing director settle all the requirements.' Is that an appropriate delegation?

Mr Jordan : I think what the AAIs do is provide a framework on key areas of decision-making and policy, and then, from there, certain delegations can flow. For example, under the AAIs sits section 65 of the DHA Act, which relates to financial delegations that the managing director issues to the staff.

Mr HILL: Let me just understand. So the board says, 'We delegate, under section 65, the financial delegation powers to the managing director,' and the managing director then decides the rest. Is that correct?

Mr Jordan : The AAIs are an overarching framework and there is, under that, section 65 of the DHA Act.

Mr HILL: Who determines the financial thresholds of expenditure at different levels of the organisation, to take that example?

Mr Jordan : Under section 65, financial delegations, it's the managing director—within certain parameters.

Mr Jackson : To add to that, in effect, the board, as the accountable authority, does establish the policies, which are dictated through the accountable instructions. Those, as Mr Jordan has said, do include delegations. The board does set parameters about what level of expenditure needs to come back to the board. And, equally, there are some—

Mr HILL: But not where else in the organisation it sits, necessarily?

Mr Jackson : Sorry, I don't understand the question.

Mr HILL: There is a threshold over which things come back to the board, for example?

Mr Jackson : Correct.

Mr HILL: But, below that, it's up to the managing director?

Mr Jackson : That's correct. In effect, the act basically says the managing director is responsible for the operation of the business.

Mr HILL: True, although I've been mayor of a council, and we set delegations right through the levels. In every government department—I think the four or five that I've worked in—the minster signs off the delegations that set, quite specifically, where delegations sit within the authority. This is relatively peculiar.

Mr Jackson : We have very, very detailed delegations that sit right through the organisation about—

Mr HILL: Does the board have a line of sight to those? I'm trying to understand what the board does, because it seems a very peculiar set of delegations where they say, 'Here, managing director, you do everything.'

Mr Jordan : The board is the accountable authority, and the board is ultimately responsible, in accordance with their duties under the PGPA Act.

Mr HILL: Except they just had a damning report and no-one—I suppose one Liberal senator quit; maybe that's an improvement. Is this an abrogation of the board's responsibilities? Are you confident that it's consistent with their director's duties? Have you sought advice on that?

Ms Hall : Perhaps I can assist here. It's quite usual in the governance of organisations within the public sector, and certainly for GBEs such as DHA, for the board to establish systems of internal control, as is their responsibility as the accountable authority; to establish delegations for the managing director; and also establish the frameworks around the operation of the organisation, which includes what they require line of sight on and what they would like to approve. Then they will delegate the residual matters—everything else they want to delegate to the managing director, in this case, or the CEO in the case of other corporate entities—and then that individual will establish the delegations below them within the organisation under the broader authorities provided by the board through the accountable authority instructions, and that's quite usual practice.

Mr HILL: Is there any line of sight you would expect the board to have back to what the managing director has done with those delegations?

Ms Hall : That would ordinarily occur through regular financial and other reporting back to the board, governance and consideration—

Mr HILL: It's a concerning aspect of the audit report that you've had a board for years stacked with Liberal Party mates, a point that I've made, where there was no evidence of approval of the board actually doing its job. There are multiple governance failures that the Auditor-General has outlined, and for years the board just didn't seem to do its job. The response to that is, 'We'll sign some stuff to cover ourselves so the managing director does our job for us.'

Ms Hall : The board has put in place—

Mr HILL: Have you sought advice that the delegations, the instruments you've now put in place, do meet the directors' obligations?

Mr Jordan : In the creation of financial delegations and, indeed, the AAIs before them, legal advice was sought along the way to ensure that the delegations were (1) fit for purpose and (2) legally appropriate.

Mr HILL: That's good to hear, because, at a first pass, it does look like the board is washing its hands of its governance responsibilities and delegating most of it to management. I take your point, Ms Hall, that it does depend somewhat on the line of sight that the board has—I'm rephrasing your words—whether the regular reporting is occurring. Has that regular reporting occurred to the board?

Mr Jackson : Yes, it has. I took over as managing director in May 2019, and since that time there has been significant work done with the board, assisted by the ANAO audit, on issues around accountable instructions and around the board audit and risk committee, enhancing the role that they play. Certainly my reporting through to the various committees, such as audit and risk, and the board is fulsome and transparent, to ensure that the board is fully aware of how I am running the business. Equally, where there may have been transgressions—and I'm pleased to say there are very, very limited and very minor transgressions—to delegations that do occur from time to time, they are openly and fully reported through to the board. We have implemented as part of that process very rigorous approval processes for expenditure around acquisitions, around the nature of the work we do, so I'm very comfortable. I can't speculate about what may have occurred before my time, but I'm very comfortable now that the operation between me and the board members and the various committees is fully meeting expectations.

Mr HILL: It sounds like they are very lucky to have you to help do their own job. Has any review been undertaken by the Department of Defence or the Department of Finance about the capability of this board, which so clearly failed in its responsibilities, stacked with Liberal Party mates? Did you actually go in and say, 'This is concerning; we'd better have a look at the capability of the board here,' given you're the shareholder departments? How do you assess whether the board has failed?

Ms Hall : If I can just provide a bit of background, the act provides some fairly detailed requirements in relation to the composition of the board and the capabilities of the membership. Section 12 of the act—

Mr HILL: That's the selection criteria which I referred to. It was answered in Senate estimates. I was curious as to whether there was a capability matrix, which I think Mr Jordan referred to.

Mr Jackson : Also we've recently—as we are required to—done a biannual review of the board. An external firm was brought in, called Directors Australia. They came in and did a review. As part of that, they have provided an updated skills matrix that they believe that the board should have. That report has been considered and accepted by the board. The board—I don't know if this has happened; Mr Jordan can help me—are then required to write to our shareholder ministers with a full copy of that board assessment.

Mr HILL: When did that happen?

Mr Jordan : That was conducted late last year, early this year. It was comprehensive. The chair of the board is about to sign off on that and send it to our shareholder ministers.

Mr HILL: That's a proper process, and that's good to hear. So the board commissioned that good self-evaluation practice. Have they assessed themselves as individuals against that new capability matrix?

Mr Jordan : During the conduct of the board review, the reviewer met, either in person or by telephone, with each director, and there was an assessment. I wasn't privy to those, for obvious reasons.

Mr HILL: So that assessment has been made. Can we receive a copy of that assessment?

Mr Jackson : We'd have to take that on notice, because, as Mr Jordan, I think, was about to say, the individual directors provided it to Directors Australia on an individual basis.

Mr HILL: They're paid by the taxpayer, and Directors Australia were paid by the taxpayer, and it's a multibillion-dollar entity, so—

Mr Jackson : I understand that. I just have to check, because they were de-identified as the reports that were put forward. We just have to make sure that we're not breaching anything there.

Mr HILL: I respect that. If we could receive a copy of that, that would be good. Sorry; you were saying you write to shareholder ministers?

Mr Jordan : Indeed, and include a copy of the board review. That hasn't happened yet. We're waiting for the chair to actually sign off on a letter when he's next in Canberra, but that is imminent.

Mr HILL: Do auctioneer and motor vehicle sales skills feature in the capability matrix?

Mr Jackson : Commercial acumen certainly does.

Mr HILL: I was just checking. At what point when you receive an audit report saying the board is failing in its responsibilities does the minister or the department say, 'This is a problem; we'd better have a look at that'? It just seems astounding that we've gone through this series of failures, the board is now assessing itself, and I'm not hearing anyone from the department. Has the minister asked any questions? Has the minister asked for or received a briefing?

Ms Hall : The finance minister was briefed by the department in relation to the audit report. The minister receives regular briefings from the department, as DHA witnesses have attested to, on an annual basis.

Mr HILL: Sure, but I'm talking about the capability of the board. Has the department provided any advice on the capability of the board to the minister or has the minister requested any such advice?

Ms Hall : If I could, I will finish my response. The department advises the minister on an annual basis when it receives the annual board self-assessment in relation to overall capability and performance and also in respect of upcoming vacancies. As Mr Jordan has advised the committee, when vacancies are imminent the chairs of all entities will write to the responsible ministers with their recommendations in relation to the filling of those vacancies. The department will also provide advice, including drawing from executive search processes that we refresh on an annual basis in relation to all GBE boards, and the ministers may themselves identify candidates. In respect of DHA, as I alluded to before, there are requirements in the act for the commercial members of the board of DHA to have certain qualifications, including, as Mr Jackson referred to, commercial experience, business management. Mr De Re could you run through—

Mr HILL: That's fine. I've seen it in Senate estimates.

Ms Hall : Every board member has at least one of those skill sets as required by the act.

Mr HILL: 'Former Liberal politician' is not a criterion in the act? That's just a bonus, is it?

CHAIR: I don't think that's—

Ms Hall : The criteria are defined under section 14 of the act.

Mr HILL: It was a question. You mentioned 'annual'; there was a word you said there which was new, which was 'annual'.

Ms Hall : There's a requirement in the governance and oversight guidelines for Commonwealth government business enterprises that the boards prepare an annual board plan and provide that to shareholder ministers for consideration.

Mr HILL: A board plan, not a self-assessment?

Ms Hall : It can and sometimes does include a self-assessment.

Mr HILL: Should it?

Mr Jackson : To assist, every second year it's done by an external organisation—

Ms Hall : That's right.

Mr Jackson : and the alternate year is a self-assessment process.

Mr HILL: Given the audit report goes back over a number of years, could we receive the self-assessments and all of the detail for each of the last eight years?

Ms Hall : We will take that on notice, Senator.

Mr HILL: Thanks.

CHAIR: Deputy Chair, I just have a couple of questions.

Mr HILL: Chair, I'll cede to you. We've had about equal time; that's fine. I'll just flag, and it might be something you're going to pick up, that I thought it might be interesting if you have a look at paragraph 10 of the report. You go first, but I thought it might be good to get some responses to the three specific dot points and hear from the Audit Office.

CHAIR: Firstly, a question to the Department of Finance regarding your submission, where it was noted that the Department of Finance is currently reviewing the Commonwealth GBE governance and oversight guidelines and 'incorporating key lessons from the audit report'. My question is: when will this review be completed and what specific changes might you be able to advise us of that might be made to the guidelines to reflect the audit findings and to ensure better practice?

Ms Hall : We've commenced a review of the guidelines. We commenced it in 2020, and it got overtaken by COVID and a range of other pressures. We are kicking off consultation process now with relevant stakeholders, including the GBEs, joint shareholder departments, the ANAO, the Institute of Company Directors, other responsible ministers, and states and territories who also have similar frameworks in place. We envisage that that work will be completed through the course of 2021 and an updated version of the guidelines will be issued. It will take into account a range of factors, including ANAO audits, not limited to this one, that have made a range of recommendations going to things like the application of the Commonwealth Procurement Rules, for example, to GBEs. It will take into account developments in contemporary governance practice, including some of the findings, for example, out of the royal commission into banking misconduct, and a range of other relevant matters.

Ms Mellor : I can add, Chair, that the ANAO, as you know, compiles audit insights that are based on a compilation of our findings and views from thematic audits. In May 2019 the Auditor-General released an audit insight into board governance which was based on a series of audits, and that's been sitting there on the public record to help inform the community, including not only the community of GBEs—the single-digits number of GBEs—but the corporations and companies as well. That is all based on some significant work that we did in four entities, informed by other audits around the history of the journey of boards, including the royal commissions, and comments along the way. So, in any event, there is an artefact of the Auditor-General sitting out there that can assist boards in the meantime, while Finance turns its mind to the guidelines.

CHAIR: Thank you. Finance, do you have any observations in relation to that last comment? Is that part of your process?

Ms Hall : Yes, that will be one of the range of documents and investigations that we'll be having regard to in updating the guidelines.

Dr Ioannou : Chair, I was just going to add that, while this DHA audit was not an audit specifically into board governance, obviously the work we'd done in the previous set of audits on board governance and the Audit insights product that the Deputy Auditor-General just mentioned did inform our thinking on the way through as we observed various issues of the sort that have been discussed.

CHAIR: Thank you. I'll just flag that I will put some questions on notice to follow up a little bit more in relation to some of those comments. I'm conscious that it is almost close to 10 o'clock, and the deputy chair had indicated he had a further question.

Mr HILL: I just thought it might be interesting to cover off. There were three specific dot points in paragraph 10. Each of these was asked at Senate estimates, on notice, and a response was given. I thought perhaps we could just briefly put them on the record and check whether there's anything else that you wanted to add, because they were quite short-paragraph responses, and see if there was any response from the Auditor-General, because I thought they were issues we'd probably want to touch on in our report. The first one was: 'Why did the DHA board take four years to finalise a new business model assessing risks to business sustainability?' The response was, 'The board couldn't implement a new business model until the impacts of the Australian Accounting Standards Board's new ruling on leases on DHA's operation were fully understood. AASB was released in February 2016 and came into effect for reporting periods commencing on or after 1 January 2019.' Is there anything else that DHA wanted to add to that? It is a pretty succinct answer.

Mr Jackson : I think that was the overarching piece of work that was required. Prior to that there had been considerable work done by DHA, in conjunction with Finance and Defence, in looking at its operating models and, in particular, the impact around our focus on the development work. Certainly in the corporate plan that we provided to shareholder ministers in June 2019, which was my first corporate plan, we highlighted that there was a need for a dramatic shift. We haven't seen the impact of AS 15 and 16 and, given we have some 16,000 leases, it was a huge job to design a system to allow us to do it. We identified in that corporate plan that we needed to make a change. The ministers wrote back to us on 30 August agreeing that we needed to make that change, so that is the letter the ANAO is referring to. They quite rightly said that they would like this settled by 18 November. We actually provided it on 14 November, which has instigated the new operating role that we are now dealing with.

Mr HILL: Is there anything the Audit Office wanted to comment on that?

Dr Ioannou : Not really. We tabled in April last year, and at that point this was a work in progress. So there is not much more we could add at this point.

Mr HILL: The second point was on DHA's scope of power. 'Concerns about the DHA scope of power questions were originally raised in 2008, and the board obtained legal advice then.' This is your response to that second dot point. 'Following questions from the ANAO during the fieldwork phase, the board got updated legal advice. This advice was finalised in December 2019, which confirmed that DHA's activities were consistent with its scope of power.' It sounds a bit like good luck, not good management, but is there anything else to add there?

Mr Jackson : I wouldn't agree with good luck, good management, obviously. But DHA did seek legal advice on this matter in 2005; 2008, as referenced; 2012; 2013; and 2018. The legal advice was always consistent, but it was repeatedly done to ensure that some of the larger projects were still fitting into the broader analysis.

Mr HILL: Right, that makes sense.

Mr Jackson : The final piece of work was really to close out the argument, and the AGS were very, very helpful in providing us with a matrix, almost a decision-making tree, to go through when we can play the role of developer and when we shouldn't. It was very helpful.

Mr HILL: Lawyers are never 100 per cent black and white, so you've got to check the big thinks. Is there anything else to add on that?

Dr Ioannou : Putting the specifics to one side, one of the issues that arose in the course of the audit—and it's explored both in chapter 2 and in that final chapter—is that we were very conscious that this was a statutory authority, which obviously has to operate within its defined remit under its enabling legislation and also, of course, within constitutional power. We set out to highlight where we observed uncertainty around legal positions and where it would be useful for the avoidance of doubt for the authority to try to settle some of this. I'm not sure we have a lot more to add. We reported on the state of play at the time that we tabled.

Mr HILL: That makes sense. Can you help me reconcile this? The Audit Office has said that DHA had not sought assurance from DHA management stating compliance with state and territory residential tenancy legislation, yet DHA said in response to the Senate question, 'The DHA board has received updates from management on the progress to ensure DHA's lease was compliant with state and territory legislation since July 2017.' Is that just a timing difference, or is there something I'm missing thing there? On the face of it, you're saying two different things.

Dr Ioannou : I'm not sure I followed that completely. I don't think I've had the benefit of seeing the responses. All we were saying was that there was a body of work underway around state and territory residential tenancy legislation. I think the world had changed a bit over time. There were different state and territory provisions that the authority was grappling with. It was the same point I made a moment ago: we believed that some of this should be settled as far as it could be, and also, of course, the final paragraph of the report says that this is the sort of issue of high-audit governance and legal authority that the board should be taking an interest in.

Mr Jackson : Certainly the board did ask the then managing director to raise it as an emerging risk through the risk register, which was done. We did engage Ashurst at the time in 2017 to assist with the process. They worked on it up until, I think, 2019, at which time the work was transferred to the AGS. The reason for the transfer was that, again, this work involves constitutional issues, which the AGS are placed to do. Mindful of the fact we have some 17,000 leases out there across multiple jurisdictions, we are comfortable in saying now that version 7 of the lease does comply with the various territories and states that it's operating in, and that has involved a significant piece of work in separating the lease agreements with some of DHA's operating practices, which we probably haven't got time to go into.

Mr HILL: No. That's alright.

Mr Jackson : But we then had the issue of washing through some 16,000 legacy leases to try and bring them up to speed. You can imagine that not all of our lessees are interested in changing a lease midterm, so we have to wait until the end of the lease and wash through it.

Mr HILL: I understand. It's a risk that you'll wash through. That makes sense.

Mr Jackson : We are managing that very closely through our operational requirements.

Mr HILL: That's it, Chair. I'll just stress that I'm not going to have another set of political points. I'll just make the point in more neutral terms that I think the committee should be interested in this broader issue. I'll take the politics out of it for a second; I've made my points about the composition of this board and the queries over Mr Jones, and we've got questions there. But it is an interesting point: when there are questions raised about the performance of the board—and you've answered some of them; I think others speak for themselves—what's the process by which ministers or government then say: 'We're the shareholders. There's something not right here'? What's the capability review? How do they get briefed on that? Who triggers that? Is the active bureaucrat in the department who's the shareholder minister worrying about this? I have, in previous lives, had a little bit of that with authorities and that. It's not an easy thing, but it's a legitimate question about the system by which the shareholder departments and the minister take an interest in that capability issue ongoing. And when more serious questions are raised, why is the board left to just do self-assessments by itself? How are those actively considered? I think those last eight years of assessments would be interesting, but I'd invite you to provide any further comment on those matters in a sensible fashion for us. Thank you.

CHAIR: I'll just flag that the deputy chair's comments will be taken as comments and indicate to our witnesses that it's 10 o'clock. I've got probably about 15 questions that I'd like to ask. I indicate that I will be putting those questions on notice. I know there are other members online. Would any other members present like to ask any other questions or flag any intention to place questions on notice?

Senator O'SULLIVAN: I'm all good.

CHAIR: Thank you very much for that. I flag that I will be placing some additional questions on notice, with reference to some of the deputy chair's questions as well. I'd like to thank all representatives for their time and their attendance here this morning. With reference to questions on notice undertaken during this public hearing or with reference to any additional information, we request that your responses be forwarded by Wednesday 28 April 2021 and indicate that any further questions outside the context of this time will be sent to you in writing through the secretariat. We now have an additional report to look into with additional witnesses.