Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
Auditor-General—Audit reports for 2014-15—No. 32—Performance audit—Administration of the Fair Entitlements Guarantee: Department of Employment


Download PDF Download PDF

The Auditor-General ANAO Report No.32 2014-15 Performance Audit

Administration of the Fair Entitlements Guarantee

Department of Employment

Australian National Audit Office

ANAO Report No.32 2014-15 Administration of the Fair Entitlements Guarantee

2

   

© Commonwealth of Australia 2015

ISSN 1036-7632 (Print)  ISSN 2203-0352 (Online)  ISBN 978‐1‐76033‐030‐9 (Print)  ISBN 978‐1‐76033‐031‐6 (Online) 

Except for the content in this document supplied by third parties, the Australian  National Audit Office logo, the Commonwealth Coat of Arms, and any material  protected by a trade mark, this document is licensed by the Australian National Audit  Office for use under the terms of a Creative Commons Attribution‐NonCommercial‐ NoDerivatives 3.0 Australia licence. To view a copy of this licence, visit 

http://creativecommons.org/licenses/by‐nc‐nd/3.0/au/. 

You are free to copy and communicate the document in its current form for  non‐commercial purposes, as long as you attribute the document to the Australian  National Audit Office and abide by the other licence terms. You may not alter or adapt  the work in any way. 

Permission to use material for which the copyright is owned by a third party must be  sought from the relevant copyright owner. As far as practicable, such material will be  clearly labelled.  

For terms of use of the Commonwealth Coat of Arms, visit the It’s an Honour website  at http://www.itsanhonour.gov.au/. 

Requests and inquiries concerning reproduction and rights should be addressed to:  

Executive Director  Corporate Management Branch  Australian National Audit Office  19 National Circuit  BARTON ACT 2600 

Or via email:  publications@anao.gov.au. 

 

         

 

ANAO Report No.32 2014-15

Administration of the Fair Entitlements Guarantee

3

 

Canberra ACT 23 April 2015

Dear Mr President Dear Madam Speaker

The Australian National Audit Office has undertaken an independent performance audit in the Department of Employment titled Administration of the Fair Entitlements Guarantee. The audit was conducted in accordance with the authority contained in the Auditor-General Act 1997. Pursuant to Senate Standing Order 166 relating to the presentation of documents when the Senate is not sitting, I present the report of this audit to the Parliament.

Following its presentation and receipt, the report will be placed on the Australian National Audit Office’s website—http://www.anao.gov.au.

Yours sincerely

Ian McPhee

The Honourable the President of the Senate The Honourable the Speaker of the House of Representatives Parliament House Canberra ACT    

 

ANAO Report No.32 2014-15 Administration of the Fair Entitlements Guarantee

4

  AUDITING FOR AUSTRALIA 

The Auditor‐General is head of the  Australian National Audit Office  (ANAO). The ANAO assists the  Auditor‐General to carry out his  duties under the Auditor‐General  Act 1997 to undertake performance  audits, financial statement audits and  assurance reviews of Commonwealth  public sector bodies and to provide  independent reports and advice for  the Parliament, the Australian 

Government and the community. The  aim is to improve Commonwealth  public sector administration and  accountability. 

For further information contact: 

The Publications Manager  Australian National Audit Office   GPO Box 707  Canberra ACT 2601    Phone:  (02) 6203 7505  Fax:  (02) 6203 7519  Email:  publications@anao.gov.au 

ANAO audit reports and information  about the ANAO are available on our  website: 

http://www.anao.gov.au 

 

Audit Team 

Tracey Angove  Renee Hall  Lachlan Fraser  Edel Kairouz 

 

   

ANAO Report No.32 2014-15

Administration of the Fair Entitlements Guarantee

5

Contents Abbreviations .................................................................................................................. 7 

Glossary ......................................................................................................................... 8 

Summary and Recommendations ............................................................................ 11 

Summary ...................................................................................................................... 13 

Introduction ............................................................................................................. 13 

Audit approach ........................................................................................................ 16 

Overall conclusion ................................................................................................... 16 

Key findings by chapter ........................................................................................... 19 

Summary of the Department of Employment’s response ....................................... 22 

Recommendation ......................................................................................................... 23 

Audit Findings ............................................................................................................ 25 

1.  Introduction ............................................................................................................. 27 

Purpose of the scheme ........................................................................................... 28 

Funding ................................................................................................................... 29 

How the Fair Entitlements Guarantee operates ...................................................... 30 

Audit objective, criteria and methodology ............................................................... 34 

2.  Managing Scheme Risks ........................................................................................ 36 

Introduction ............................................................................................................. 36 

Scheme activity ....................................................................................................... 36 

Timeliness of claims processing ............................................................................. 37 

Accuracy of payments ............................................................................................. 43 

Managing non-compliance ...................................................................................... 44 

Fraud control arrangements .................................................................................... 48 

Conclusion .............................................................................................................. 53 

3.  Stakeholder Engagement ....................................................................................... 55 

Introduction ............................................................................................................. 55 

Engaging with scheme claimants ............................................................................ 55 

Working with insolvency practitioners ..................................................................... 63 

Cooperation with other agencies ............................................................................ 65 

Conclusion .............................................................................................................. 66 

4.  Reporting and Evaluation ........................................................................................ 68 

Introduction ............................................................................................................. 68 

Monitoring program performance ............................................................................ 68 

Program reporting ................................................................................................... 69 

Scheme evaluation .................................................................................................. 76 

Conclusion .............................................................................................................. 77 

ANAO Report No.32 2014-15 Administration of the Fair Entitlements Guarantee

6

Appendices ................................................................................................................. 79 

Appendix 1:  Entity Response ................................................................................. 81 

Index ............................................................................................................................. 82 

Series Titles .................................................................................................................. 84 

Better Practice Guides ................................................................................................. 88 

 

Tables

Table 1.1:  FEG and GEERS appropriations to 2017-18 ..................................... 30 

Table 1.2:  Employee Entitlements covered by FEG and GEERS ....................... 33  Table 2.1:  Percentage of finalised claims processed within 16 weeks ............... 38  Table 2.2:  GEERS and FEG fraud related risks and treatments ......................... 49  Table 4.1:  FEG departmental output measures, 2014-15 .................................. 71 

 

Figures

Figure 2.1:  Claims received and processed since 2006-07 ................................. 37 

Figure 2.2:  Proportion of claims held each month, by age ................................... 42 

Figure 2.3:  Advances to employees and recovery from employers ..................... 52  Figure 3.1:  Complaints and feedback—May 2013 to September 2014 ................ 61  Figure 4.1:  Indicative timeframe for claims processing ........................................ 72 

 

   

ANAO Report No.32 2014-15

Administration of the Fair Entitlements Guarantee

7

Abbreviations

AAT  Administrative Appeals Tribunal 

ANAO  Australian National Audit Office 

ARITA  Australian Restructuring, Insolvency and Turnaround Association  (formerly the Insolvency Practitioners Association of Australia) 

ASIC  Australian Securities and Investments Commission 

ATO  Australian Taxation Office 

DEEWR  Department of Education, Employment and Workplace Relations  (department name from December 2007 to September 2013) 

DEWR  Department of Employment and Workplace Relations (department  name from November 2001 to December 2007) 

EESS  Employee Entitlements Support Scheme 

FEG  Fair Entitlements Guarantee  

GEERS  General Employee Entitlements and Redundancy Scheme 

IP  Insolvency Practitioner 

KPI  Key Performance Indicator 

PBS  Portfolio Budget Statements 

SEESA  Special Employee Entitlements Scheme for Ansett Group Employees 

TCF  Textile , Clothing and Footwear Industry 

ANAO Report No.32 2014-15 Administration of the Fair Entitlements Guarantee

8

Glossary

Advance  Financial assistance provided under the FEG Act on  account of employment entitlements. 

Applicant  An individual lodging a claim for support under FEG. 

Case  An insolvent business where assistance under FEG or  GEERS is sought. A case may comprise one or many  claims. 

Claim  Written request for assistance from an individual in a FEG  or GEERS case. 

The department  Since the commencement of FEG, the title of the  administering department has changed. This audit report  uses ‘the department’ or ‘Department of Employment’ to  denote all iterations. 

Effective claim  A claim for FEG assistance that meets the documentary  requirements of the department, and meets the rules  regarding prior claims and timing. 

Eligible claimant  An individual assessed as meeting FEG eligibility criteria.  

Governing  instrument 

The document that governs an employment arrangement.  This could take the form of an industrial award, collective  agreement, or contract of employment. 

Insolvency  practitioner (IP)  A person appointed to wind up the affairs of an insolvent  company or employer. 

ANAO Report No.32 2014-15

Administration of the Fair Entitlements Guarantee

9

Insolvency event  An insolvency event happens to an employer of a person:  (a) when a liquidator of the employer is appointed under  the Corporations Act 2001; or (b) when the employer  becomes bankrupt under the Bankruptcy Act 1966; or (c) if  the person is or was employed for a partnership by two or  more of the partners—at the first time an event described  in (a) or (b) happens, or has happened, to all of the  partners by whom the person is or was employed. 

Liquidation  Involves realisation of a company’s assets, cessation or sale  of its operations, distribution of the proceeds among its  creditors and any surplus proceeds among its  shareholders. This is also known as ‘winding up’. 

Operational  arrangements  Prior to the enactment of the FEG Act in 2012, the  operational arrangements defined how the scheme was to 

be administered. 

 

ANAO Report No.32 2014-15

Administration of the Fair Entitlements Guarantee

11

Summary and Recommendations

ANAO Report No.32 2014-15

Administration of the Fair Entitlements Guarantee

13

Summary

Introduction 1. Businesses face a range of challenges and each year a number fail as a  result, leaving their employees without employment and in some instances,  without  access  to  their  accrued  employee  entitlements.  In  2013-14,  the  Australian  Securities  and  Investments  Commission  reported  that  9 8221  companies  entered  external  administration.2  The  reasons  for  these  failures  were  commonly  attributed  to:  inadequate  cash  flow  or  high  cash  use;  poor  strategic management of the business; and trading losses3. Notwithstanding  the  reason  for  a  business  failing,  successive  Australian  Governments  have  recognised the vulnerability of employees when this occurs. It is in this context  that government has, since 2000, provided financial support to protect eligible  employees from losing their accrued employee entitlements, including unused  annual  leave,  long  service  leave,  redundancy  pay  and  wages,  where  the  employee cannot get payment from another source.  

2. The vulnerability of Australian employees to losing entitlements was  highlighted  in  the  late  1980’s  by  the  Harmer  Report.4  The  issue  came  to  prominence again in the late 1990’s following a number of significant corporate  closures  resulting  in  the  loss  of  affected  employee’s  accrued  entitlements.  Following  lengthy  public  discussion  about  protection  of  employees’  entitlements  and  consideration  of  a  number  of  options,5  the  Employee  Entitlements  Support  Scheme  (EESS)  was  established  in  early  2000.  As  a  safety‐net scheme, the EESS aimed to provide some assistance to employees,  but not necessarily to compensate them for all their unpaid entitlements.  

                                                      

1 ASIC, Australian Insolvency Statistics: Series 1A: Companies entering external administration by industry, July 2013-June 2014, Released August 2014, p. 2. 2 A company enters external administration when it is, or is facing, insolvency and cannot pay its debt. A liquidator, insolvency practitioner or external administrator is appointed under the Corporations Act

2001 to wind up the affairs of the employer. 3 ibid., p. 18.

4 This report was prepared for the Australian Law Reform Commission and tabled in December 1988. It was formally titled the General Insolvency Inquiry (Report No.45) and became known as the Harmer Report. A copy of the report is available at: < http://www.alrc.gov.au/report-45> [accessed 5/12/2014].

5 Government considered a range of options including legislation, a general entitlements scheme using consolidated revenue to fund it and an insurance scheme with business making contributions via premiums.

ANAO Report No.32 2014-15 Administration of the Fair Entitlements Guarantee

14

3. In  early  2001,  the  original  scheme  was  replaced  with  the  General  Employee Entitlements and Redundancy Scheme (GEERS). This scheme had  fewer limits on the assistance available and as result, higher payments were  generally  provided  to  affected  employees.6  The  GEERS  scheme  was  subsequently replaced by the Fair Entitlements Guarantee (FEG), which came  into effect in December 2012 with the passing of the Fair Entitlements Guarantee  Act  2012  (the  FEG Act).  Whereas  previous  schemes  were  delivered  through  administrative  arrangements,  this  legislation  established  for  the  first  time  a  legal obligation for government to provide support to eligible employees. The  explanatory  memorandum  for  the  legislation  described  the  need  for  the  scheme in the following terms: 

A scheme such as the one created by the Bill is necessary to fulfil a significant  community  need  to  protect  the  entitlements  of  Australian  employees  who  would otherwise stand to lose their entitlements if they lose their jobs due to  insolvency  of  their  employer.  While  alternative  measures  for  protecting  employee entitlements are available on a limited scale (for example, redundancy  trust  funds  in  the  construction  industry)  these  are  insufficient  to  adequately  protect employees.7 

4. The  scheme  is  administered  by  the  Department  of  Employment.8  To  access FEG assistance, affected employees who have lost their employment due  to insolvency and have not been paid their entitlements, must submit a claim for  support under the scheme—this process is not initiated automatically when the  insolvency occurs. During 2013-14, the department received 16 2469 claims for  assistance. Of these claims, 11 255 were assessed as eligible and the department  distributed  $197  million  to  these  claimants.  To  be  determined  as  eligible  for  support, the employee’s former employer must have experienced an ‘insolvency 

                                                      

6 With the collapse of the Ansett group in September 2001, a further scheme for affected Ansett employees was established. It was referred to as the Special Employee Entitlements Scheme for Ansett Group employees.

7 This document is available at: [accessed on 2/12/2014]. 8 Since the commencement of employee entitlements schemes in 2000, the administering department

has changed several times. Unless there is a need to specify the full name or the acronym, this audit report refers to ‘the department’ or ‘the Department of Employment’. 9 These claims related to FEG claims and a portion of claims under the previous GEERS scheme, as it was being phased out. In 2013-14, 89 per cent of claims were FEG related.

Summary

ANAO Report No.32 2014-15

Administration of the Fair Entitlements Guarantee

15

event’.10  The  department  relies  on  the  insolvency  practitioner  appointed  to  manage the affairs of the employer to verify the details of the claim and to assess  the  amount  payable  to  the  employee  in  the  form  of  an  advance11.  The  department will generally distribute the advance to the insolvency practitioner  who  makes  necessary  deductions  (for  example,  tax  deductions  and  superannuation payments) and distributes the  net payment to the employee.  The department then seeks to recover the amount advanced from the former  employer on behalf of the Commonwealth as part of the winding up process of  the employer’s business. 

5. The  role  of  the  insolvency  practitioner  in  an  insolvency  event  is  to  realise the assets of the employer’s business and to recover sufficient funds to  distribute these to creditors. These funds must be paid in the order of priorities  set out in the Corporations Act 2001. In Australia, employee entitlements are  ranked behind secured creditors and the costs and expenses incurred by the  insolvency practitioner in winding up the business, but are given priority over  the majority of other unsecured creditors.12 Once an advance has been paid, the  FEG Act provides the Commonwealth with the same rights as a creditor of the  company and the same right of priority of payment in the winding up of the  company as the person who received the advance would have had.  

6. Over the 14 years of the various schemes’ existence, government has  distributed  nearly  $1.5  billion  to  affected  employees.  Of  this  amount,  $1.1 billion was distributed in the last seven years of the schemes’ operation,  representing a three‐fold increase on the $379 million distributed over the first  seven years of operation. A key factor in the growth in demand for support  over the last seven years has been the impact of the global economic crisis,  which  in  2008-09  saw  an  increase  of  60  per  cent  in  the  number  of  claims  received.  

                                                      

10 An insolvency event happens to an employer of a person: (a) when a liquidator of the employer is appointed under the Corporations Act 2001; or (b) when the employer becomes a bankrupt under the Bankruptcy Act 1966; or (c) if the person is or was employed for a partnership by two or more of the partners—at the first time an event described in (a) or (b) happens, or has happened, to all of the partners by whom the person is or was employed. See FEG Act, section 5 Definitions, p. 6.

11 Advance is the term used to refer to the financial assistance provided under the FEG Act on account of employment entitlements. 12 Section 560 of the Corporations Act 2001 and section 109 of the Bankruptcy Act 1966 give employees priority in the winding up of their employer’s business.

ANAO Report No.32 2014-15 Administration of the Fair Entitlements Guarantee

16

Audit approach

Audit objective and criteria

7. The  objective  of  the  audit  was  to  assess  the  effectiveness  of  the  Department  of  Employment’s  administration  of  the  Fair  Entitlements  Guarantee (FEG). 

8. To conclude against the audit objective, the ANAO’s high‐level criteria  considered whether: operational elements of the scheme were well managed;  the  treatment  of  claimants  was  fair  and  equitable;  and  performance  of  the  scheme was effectively measured, monitored and reported.  

Overall conclusion 9. Employees  may  receive  little  notice  or  forewarning  when  their  employer’s business becomes insolvent or bankrupt and are generally not well  placed  to  manage  the  risks  associated  with  this  occurring.  As  a  result,  the  personal and social costs of business failure can fall heavily on employees and  it is for this reason the Australian Government provides, through its employee  entitlements scheme, a level of protection to employees when their employer’s  business fails. While the Government’s entitlements scheme may not cover all  of the entitlements an employee has accrued, it provides employees with a  safety‐net  that  can  cushion  the  impact  of  the  loss  of  employment  and  help  bridge the transition to new employment. In 2013-14, the Fair Entitlements  Guarantee (FEG) provided support to 11 255 employees from 1 536 insolvent  entities, approximately 16 per cent of the 9 82213 companies reported by the  Australian  Security  and  Investments  Commission  as  entering  external  administration  during  this  same  period.  Through  FEG  and  its  predecessor  schemes  the  Australian  Government  has  distributed  nearly  $1.5  billion  in  advances  since  January  2000.  Of  these  advances,  the  Commonwealth  has  recovered less than $200 million (13 per cent). 

10. Overall,  the  department’s  administration  of  the  scheme  has  been  mixed;  while  the  department  effectively  transitioned  its  delivery  of  the  previous  entitlements  scheme,  the  General  Employee  Entitlements  and  Redundancy  Scheme  (GEERS),  to  operate  in  accordance  with  the  new  FEG 

                                                      

13 ASIC, Australian Insolvency Statistics: Series 1A: Companies entering external administration by industry, July 2013-June 2014, Released August 2014, p. 2.

Summary

ANAO Report No.32 2014-15

Administration of the Fair Entitlements Guarantee

17

legislation in early 2013, a subsequent change initiated in August 2013—aimed  at aligning the claims assessment process with the new arrangements—was  poorly managed resulting in a significant backlog of claims and lengthy delays  for claimants in obtaining their FEG payment. The department has taken action  to reduce this backlog and advised that this work will continue to be a priority  in  2015,  however  there  are  also  opportunities  for  the  department  to  make  improvements  to  internal  procedures  to  provide  confidence  that  key  compliance risks are being effectively managed. In particular, improvements to  fraud control arrangements would address existing weaknesses and there is an  opportunity  to  give  greater  focus  to  fraud  prevention  and  detection.  There  would also be benefit in the department giving greater attention to periodic  analysis  and  evaluation  of  the  scheme’s  performance  and  how  the  scheme  integrates  with  other  government  initiatives  aimed  at  protecting  employees  and  regulating  business.14  This  work  would  support  advice  provided  to  government on relevant policy issues and improve external reporting.  

11. Work associated with the transition of GEERS to FEG largely occurred  over  2012-13,  extending  into  2013-14  as  the  flow  of  FEG  claims  gradually  increased. During this time, the department also embarked on a change to its  operating model, including in August 2013 the introduction of a new process  for assessing FEG claims. In preparing for this change the department gave  insufficient focus to the risks to its successful implementation, the potential  consequences  of  these  risks  and  the  development  of  strategies  for  their  management. In particular, there were limitations with the claims processing  system which lacked the functionality to manage, track and report the status of  individual claims and to provide visibility of the claim workflow to identify  processing bottlenecks. These limitations hampered the department’s ability to  identify and effectively respond to issues that arose during implementation of  the change. This, in turn, lead to a backlog of claims.  

12. As a consequence, by the end of 2013-14, the average time for claimants  to receive their FEG payment had doubled and the backlog of claims increased 

                                                      

14 The cause of business failure is not always limited to poor management or unforeseen circumstances; some businesses fail as a result of a company deliberately liquidating to avoid paying creditors and then carrying on the same or a similar business with the same ownership, via another entity. This is referred to as fraudulent phoenix activity. The Australian Securities and Investments Commission and the Australian Taxation Office have powers in relation to fraudulent phoenix activity. The Department of Employment does not have a direct enforcement role in relation to this activity; however, the department participates in the Inter-agency Phoenix Forum to share information and to design and implement cross-agency strategies to reduce and deter phoenix activity.

ANAO Report No.32 2014-15 Administration of the Fair Entitlements Guarantee

18

by 63 per cent to reach 8 297. The age profile of claims also deteriorated during  this period, with the proportion of claims older than 16 weeks increasing more  than  400  per  cent  to  reach  4 467  in  June 2014.15  Demonstrating  the  level  of  claimant frustration with these delays, 54 per cent of complaints received by  the department between May 201316 and September 2014 related to timeliness  issues.17  Better  planning,  including  early  identification  of  risks,  would  have  allowed  these  to  be  managed  and  mitigated,  and  better  positioned  the  department to undertake this change.  

13. Monitoring compliance with the FEG legislation and the conditions of  the scheme is a key element of the department’s administration of FEG. A sound  approach  to  fraud  control  is  an  important  component  of  the  compliance  monitoring framework and is fundamental to programs such as FEG that rely on  third parties to verify information and distribute payments. Notwithstanding  the  associated  risks  which  include  frequently  unavailable  or  poor  quality  documentation, and single payments to an individual approaching $300 000,18  the  department’s  fraud  risk  rating  for  the  scheme  is  assessed  as  low.  This  assessment reflects weaknesses with the scheme’s fraud risk assessment process  and  the  processes  for  identifying,  tracking  and  reporting  instances  of  non‐compliance and fraud.  

14. Furthermore,  the  department’s  fraud  control  framework  adopts  an  approach that emphasises the investigation of fraud after it has occurred, with  lesser  focus  given  to  prevention  and  detection.  As  part  of  this  framework,  responsibility for the fraud prevention and detection is largely devolved to  program staff and managers with only basic levels of fraud training and with  limited  active  support  from  fraud  specialists  to  assist  them  fulfil  these 

                                                      

15 Addressing the backlog was subsequently given priority by the department. During the last six-months of 2014, the department processed nearly 40 per cent more claims than the same period in 2013. Despite this higher level of productivity, the average time to process a claim was 26 weeks at the end of 2014, with approximately 59 per cent of unprocessed claims older than 16 weeks.

16 The department did not have a formal complaints management process for FEG until May 2013. 17 The impact on claimants during the period they are waiting for the outcome of their assessment and payment of their FEG advance varies; claimants may quickly find new employment, or may seek government income support and depending on the assets they hold, a waiting period of between one

and 13 weeks may apply. 18 Since the implementation of the increased redundancy cap on 1 January 2011 the highest payment made to an individual was $297 693. Over the period 1 January 2011 to 30 June 2013, there have

been 64 claimants paid redundancy entitlements of $100 000 or more under FEG and GEERS. A further 11 claimants were paid in excess of $100 000 for their redundancy entitlement over 2013-14. Refer to http://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Education_and_ Employment/Fair_Entitlements/Submissions> [accessed on 25/2/2015].

Summary

ANAO Report No.32 2014-15

Administration of the Fair Entitlements Guarantee

19

responsibilities.19  To  provide  confidence  that  fraud  risk  is  being  adequately  and appropriately managed, the department should improve its fraud control  framework  through  adoption  of  a  more  contemporary  risk‐based  approach  that places greater focus on the areas of fraud prevention and detection.20 

15. The  ANAO  has  made  one  recommendation.  Observing  that  the  department is taking action to the resolve the backlog of existing claims, the  recommendation is aimed at addressing identified issues associated with the  FEG fraud controls and strengthening the department’s management of fraud  risk by increasing its focus on fraud prevention and detection. 

Key findings by chapter Managing Scheme Risks (Chapter 2)

16. Facilitating timely access to entitlements by claimants was a significant  risk to be managed by the department as part of the transition to FEG and as  part of subsequent changes the department made to the FEG operating model.  In August 2013, seeking to better align internal processes with the expectations  of a legislative scheme (including changes to reflect the legislation’s focus on  individual claims, rather than on the business), the department implemented a  stage‐based approach to processing claims. Notwithstanding the significance  of this change and its potential to have an impact on the timely processing of  claims, the department did not, prior to proceeding, seek to identify, assess  and manage risks to its successful implementation. The department proceeded  with the change despite having only limited documentation defining roles and  responsibilities and describing the new processing activities and despite the  processing  systems not  having  the  functionality  necessary  to  manage,  track  and report the status of individual claims and to provide visibility of the claims  workflow to identify processing bottlenecks. As a consequence, a large backlog  of  claims  resulted  and  it  has  taken  longer  for  claimants  to  receive  their  payments.  

                                                      

19 The department sources fraud control services from the Shared Service Centre. The Shared Services Centre provides shared corporate services to the Department of Employment and the Department of Education and Training.

20 This approach is consistent with the better practice promulgated by government through its fraud control framework since 2011 and is also outlined in the ANAO’s better practice guide, Fraud Control in Australian Government Entities, which is available at: < http://www.anao.gov.au/Publications/Better-Practice-Guides/2010-2011/Fraud-Control-in-Australian-Government-Entities> [accessed on 15/12/2014].

ANAO Report No.32 2014-15 Administration of the Fair Entitlements Guarantee

20

17. In  addition  to  the  issues  with  claims  processing  mentioned  above,  weaknesses  were  identified  with  management  of  non‐compliance  (of  which  fraud is a component). There is limited guidance available to FEG processing  staff  regarding  how  to  distinguish  and  manage  the  different  types  and  severities  of  non‐compliance  and  the  administrative  and  legal  remedies  available for addressing non‐compliance. In addition, there is no single register  for  recording,  tracking  and  reporting  occurrences  of  non‐compliance.  As  a  result, this information is not readily available to inform the ongoing fraud risk  rating  for  the  scheme  and  to  inform  management  of  the  full  extent  of  non‐compliance  for  the  scheme  and  the  risk  this  poses.  Examination  of  the  department’s  overall  fraud  control  framework  indicates  a  strong  focus  on  investigation in response to fraud with limited emphasis on fraud prevention  and fraud detection. As such, the department’s fraud control plan delegates a  high  level  of  responsibility  for  fraud  prevention  and  detection  activities  to  program  managers  and  staff.  If  the  department  is  to  be  assured  that  compliance and fraud are being effectively managed, it is important that staff  are adequately supported in undertaking this task including through training  and guidance from qualified fraud control experts.  

Stakeholder Engagement (Chapter 3)

18. Information  for  stakeholders  on  the  core  elements  of  FEG  has  been  developed and made available by the department. However, information for  claimants on the timeliness of claims processing is limited. To better support  claimants to make decisions regarding their future financial and employment  options, there would be benefit in the department providing more information  to claimants regarding average processing times and the status of their claims. 

19. The department does not survey claimants to seek their views on the  FEG process or to seek feedback regarding areas of potential improvement.  The only means of gauging claimant satisfaction is through data collected as  part  of  the  scheme’s  complaints  and  feedback  process.  However,  the  department did not establish a formal complaints and feedback process until  May 2013, limiting the usefulness of this data for examining trends and the  impact of the recent period of change and disruption.  

20. Feedback  from  insolvency  practitioners  interviewed  by  the  ANAO  regarding  the  effectiveness  of  the  department’s  administration  of  FEG  was  largely  positive,  with  most  insolvency  practitioners  satisfied  with  the  information  available  about  the  scheme  and  their  interaction  with  the 

Summary

ANAO Report No.32 2014-15

Administration of the Fair Entitlements Guarantee

21

department.  While  generally  satisfied  with  the  department’s  overall  administration  of  the  scheme  and  the  transition  to  the  FEG  legislation,  insolvency  practitioners  raised  concerns  regarding  the  department’s  management  of  the  transition  to  the  new  stage‐based  claims  process,  highlighting that they had not been informed by the department of the change  and once delays occurred. In view of the importance of the role of insolvency  practitioners  as  part  of  FEG,  there  would  be  benefit  in  the  department  consulting  further  with  insolvency  practitioners  to  ensure  the  working  relationship is maintained.  

Reporting and Evaluation (Chapter 4)

21. When the department transitioned to a stage‐based processing model  in  August  2013,  the  scheme’s  focus  moved  from  processing  claims  at  the  company  level  to  the  individual  claim  level.  It  took  some  time  for  the  department  to  make  changes  to  the  processing  system  to  support  this  new  focus; however in June 2014 enhancements to the processing system allowed  for  the  tracking  of  individual  claims  as  they  progress  through  the  claims  process.  

22. In  both  reporting  on  FEG  in  its  annual  report  to  Parliament  and  outlining  the  proposed  allocation  of  resources  in  the  Portfolio  Budget  Statements,  the  department’s  reporting  focused  on  outputs  (referred  to  as  ‘departmental  outputs’),  rather  than  reporting  against  outcomes,  which  is  generally expected for government programs. The department has done this  because of the nature of the entitlements scheme and its primary aim to protect  employees  from  the  loss  of  their  entitlements.  There  is  scope  for  the  department  to  improve  the  individual  measures  for  FEG  to  ensure  they  provide  an  accurate  view  of  the  performance  of  the  scheme  and  the  effectiveness  of  the  department’s  administration.  The  public  sector’s  performance reporting framework is currently subject to change as a result of  the  introduction  of  the  Public  Governance,  Performance  and  Accountability  Act  2013. New guidelines in relation to performance reporting are expected to be  introduced  in  early  2015.  This  change  provides  an  opportunity  for  the  department to examine its reporting for FEG and to seek to align this with the  new reporting arrangements.  

23. Since the commencement of the various entitlements schemes in 2000  only limited focus has been given to evaluation and analysis of the scheme and  how  it  integrates  with  other  government  initiatives  aimed  at  protecting  employees and regulating business. More recently, the sustained demand and 

ANAO Report No.32 2014-15 Administration of the Fair Entitlements Guarantee

22

rising cost of the scheme has led to greater scrutiny of the design of scheme  components and highlighted the need for a better understanding of how the  scheme is contributing and operating alongside other government initiatives.  There  is  opportunity  for  the  department  to  undertake  periodic  analysis  to 

better position it to support policy making, assist in program management and  strengthen accountability.  

Summary of the Department of Employment’s response 24. The Department of Employment’s summary response to the proposed  report is provided below. The full response is provided at Appendix 1. 

The Department welcomes the report on the Department’s delivery of the Fair  Entitlements Guarantee programme. 

The  Department  is  modifying  its  fraud  control  framework  so  that  greater  support with specialised fraud and non‐compliance resources is available to  programme areas to prevent and detect fraud. The Department recognises the  need  for  timely  assistance  to  be  paid  under  the  programme  and  is  implementing a strategy aimed at addressing claims processing backlogs by  end of June 2015. The Department will also consider the other programme  enhancement suggestions identified by ANAO in the report. 

Recommendation

ANAO Report No.32 2014-15

Administration of the Fair Entitlements Guarantee

23

Recommendation

Recommendation No.1

Paragraph 2.43

To enhance the effectiveness of fraud controls for the Fair  Entitlements Guarantee, the ANAO recommends that the  Department of Employment strengthen its focus on the  areas of fraud prevention and detection. 

Department of Employment’s response: Agreed 

 

 

ANAO Report No.32 2014-15

Administration of the Fair Entitlements Guarantee

25

Audit Findings

ANAO Report No.32 2014-15

Administration of the Fair Entitlements Guarantee

27

1. Introduction

This chapter provides background information and context to the Fair Entitlements  Guarantee. The audit objective, scope, criteria and approach are also included. 

1.1 Since  2000,  successive  Australian  Governments  have  provided  a  safety‐net to help protect employees from losing all their accrued employment  entitlements,  such  as  wages,  unused  annual  leave,  long  service  leave  and  redundancy  pay,  due  to  the  insolvency  of  their  employer.  This  support  is  currently provided through the Fair Entitlements Guarantee (FEG). In 2013-14,  FEG  provided  support  to  11  255  employees  from  1  536  insolvent  entities,  approximately 16 per cent of the 9 82221 companies reported by the Australian  Security  and  Investments  Commission  as  entering  external  administration  during this same period.22  

1.2 The  first  government  scheme  of  this  nature  was  the  Employee  Entitlements  Support  Scheme  (EESS),  which  commenced  on  1  January  2000  following a number of insolvencies in the mining and textile industries that  resulted in the loss of workers’ entitlements.23 In response to the high‐profile  collapse of the Ansett group of companies, the then Government announced a  separate scheme specifically to assist Ansett employees known as the Special  Employee  Entitlements  Scheme  for  Ansett  group  employees  (SEESA).24  Coinciding with the establishment of the SEESA, the Government announced  replacement  of  the  EESS  with  the  General  Employee  Entitlements  and  Redundancy Scheme (GEERS).25 Each of these schemes was delivered through  administrative arrangements, imposing no legal obligation on government to 

                                                      

21 ASIC, Australian Insolvency Statistics: Series 1A: Companies entering external administration by industry, July 2013-June 2014, Released August 2014, p. 2. 22 A company enters external administration when it is, or is facing, insolvency and is unable to pay its debt. An external administrator is a general term for an external person being formally appointed to

manage a company or its property at this point. An external administrator is also referred to as an insolvency practitioner. 23 Under the EESS benefits were capped at $20 000 on a strict set of criteria. The Commonwealth only funded half the amounts assessed as payable to employees, with the state and territory governments

‘invited’ to fund the other half—although few did. 24 An audit of the SEESA was conducted by the ANAO in 2003-04. ANAO Audit Report No. 21 2003-04 Special Employee Entitlements Scheme for Ansett Group (SEESA). 25 GEERS applied to terminations that occurred on or after 12 September 2001. An audit of the EESS

and GEERS schemes was conducted by the ANAO in 2002-03. ANAO Audit Report No. 20 2002-03 Employee Entitlements Support Schemes.

ANAO Report No.32 2014-15 Administration of the Fair Entitlements Guarantee

28

make  an  advance  and  providing  government  with  discretion  regarding  a  claimant’s eligibility and the amount of any advance.26 

1.3 The  GEERS  was  subsequently  replaced  in  December  2012  with  the  passage of the Fair Entitlements Guarantee Act 2012. The FEG Act states it is ‘An  Act to provide for financial assistance for workers who have not been fully  paid for work done for insolvents or bankrupts, and for related purposes.’27  FEG applies to all claims relating to insolvencies that occurred on and after  5 December 2012. 

Purpose of the scheme 1.4 When the then Government introduced the FEG Bill to Parliament on  30 October 2012, it described the aims of the Bill as: 

to provide a scheme for the provision of financial assistance (called an ‘advance’)  to  former  employees  where  the  end  of  their  employment  is  linked  to  the  insolvency  or  bankruptcy  of  their  employer.  After  making  an  advance,  the  Commonwealth assumes the individual’s right to recover the amount that was  advanced through the winding up or bankruptcy process of their employer.28 

1.5 FEG was established with the aim of protecting employees’ access to  the work entitlements they are owed. It operates alongside other government  welfare programs designed to provide support to alleviate the financial and  personal  hardship  imposed  on  employees  as  a  consequence  of  losing  their  employment  such  as  income  support,  employment  services  and  financial  advice services.  

1.6 Many claimants will, due to their personal circumstances, place priority  on  the  payment  of  the  FEG  advance  to  cushion  the  impact  of  their  unemployment and help them make the transition to new employment. While  some  employees  may  find  alternative  employment  quickly,  placing  less  reliance on the advance, others may require the financial support paid by FEG  to bridge any gap while they consider their financial and employment options.  These  circumstances  are  recognised  through  provisions  in  the  FEG  Act  designed  to  ensure  payment  of  entitlements  is  timely.  It  is  also  recognised                                                        

26 Advance is the term used to refer to the financial assistance provided under the FEG Act on account of employment entitlements. 27 [accessed 19/11/2014]. 28

4b5a7c6c33d3/upload_pdf/373626.pdf;fileType=application%2Fpdf#search=%22legislation/ems/r4908 _ems_70675beb-c292-48ef-bcc9-4b5a7c6c33d3%22> [accessed 19/11/2014].

Introduction

ANAO Report No.32 2014-15

Administration of the Fair Entitlements Guarantee

29

through the design principle of the scheme that avoids the need for employees  to wait until finalisation of the winding up of the employer’s business before  seeking any residual amount outstanding through FEG. 

1.7 The FEG Act sets out the trigger events for the advance, the criteria for  determining  eligibility  and  the  method  of  calculating  the  amount  of  the  advance.  The  FEG Act  also  provides  individuals  the  right  of  review  of  decisions  through  processes  undertaken  by  the  department,  or  by  the  Administrative  Appeals  Tribunal.29  Through  provisions  that  create  links  to  section 560 of the Corporations Act 200130 and section 109 of the Bankruptcy Act  1966,31 the FEG Act provides the Commonwealth with the same rights as a  creditor  of  the  company  and  the  same  right  of  priority  of  payment  in  the  winding up of the company as the person who received the advance would  have had. 

1.8 To  provide  the  department  with  access  to  information  necessary  to  assess  claims,  the  FEG Act  sets  out  the  terms  for  the  use  and  disclosure  of  personal  information  by  the  department,  insolvency  practitioners  (IPs),  and  other  intermediaries  involved  in  making  payments  to  former  employees.  It  also provides for the department to disclose personal information to certain  other  agencies.32  The  department  relies  upon  this  provision  to  share  information  with  the  Australian  Securities  Investments  Commission  (ASIC)  and the Australian Taxation Office (ATO). Once an advance has been made,  the department shares details of this advance with other government agencies  to allow necessary adjustments to be made if the claimant is the recipient of  other government support. 

Funding 1.9 Provision  is  made  in  forward  estimates  of  budget  expenditure  for  expected  payments  under  FEG  but  as  a  demand  driven  program,  actual  payments reflect the total number of eligible recipients in a given year. For  2013-14,  the  provision  for  payments  under  the  entitlements  scheme  was  

                                                      

29 This provision was not available under previous schemes; external review was provided through an appeal to the Commonwealth Ombudsman. 30 The Corporations Act 2001 sets out the law dealing with business entities in Australia. 31 The Bankruptcy Act 1966 sets out the law governing bankruptcy. 32 This arrangement facilitates the exercise of powers that other agencies may have in relation to the

Corporations Act 2001, the Bankruptcy Act 1966 or in relation to entitlements of current or former employees.

ANAO Report No.32 2014-15 Administration of the Fair Entitlements Guarantee

30

$192 million, with actual expenditure for this period reported as $197 million.  The amounts allocated to FEG for the period to 2017-18 are shown in Table 1.1.  

Table 1.1: FEG and GEERS appropriations to 2017-18

2014-15 2015-16 2016-17 2017-18

Allocation for advances and fees paid to insolvency practitioners $218m(a) $200m $201m $198m

Source: Data provided to ANAO by the Department of Employment.

Note (a): For the 2014-15 financial year only, the allocation includes outstanding GEERS advances and fees paid to insolvency practitioners relating to the remaining GEERS claims.

How the Fair Entitlements Guarantee operates 1.10 To be considered for an advance under FEG, an individual must qualify  as an eligible claimant. Directors of the company and their relatives are not  eligible for assistance. Contractors, including new employees that previously  worked as contractors, are also excluded. An eligible claimant under FEG is a  person: 

 whose employment has ended;33 

 who is an Australian citizen or the holder of a permanent visa, at the  time their employment ended; 

 whose  former  employer  suffered  an  insolvency  event34  on  or  after  5 December 2012; 

 who is owed certain employee entitlements by the former employer;  and 

 who has taken reasonable steps to prove those debts in the winding up  or bankruptcy of the employer. 

1.11 The claimant must also submit an ‘effective’ claim. An effective claim  uses the FEG claim form, is accurate and includes all mandatory information. It 

                                                      

33 The employment has ended due to the insolvency of the employer, or less than 6 months before the appointment of an insolvency practitioner for the employer, or occurred on or after the appointment of an insolvency practitioner for the employer.

34 An insolvency event happens to an employer of a person: (a) when a liquidator of the employer is appointed under the Corporations Act 2001; or (b) when the employer becomes bankrupt under the Bankruptcy Act 1966; or (c) if the person is or was employed for a partnership by two or more of the partners—at the first time an event described in (a) or (b) happens, or has happened, to all of the partners by whom the person is or was employed.

See the FEG Act, section 5 Definitions, p. 6.

Introduction

ANAO Report No.32 2014-15

Administration of the Fair Entitlements Guarantee

31

also includes supporting documentation that proves the claimant’s Australian  citizenship, or possession of a permanent or special category visa at the time  the employment ended. An effective claim must also be made before the end of  12  months  after  either  the  insolvency  event  or  the  end  of  employment,  whichever is later.35 

1.12 The  primary  source  of  information  needed  to  assess  outstanding  employment entitlements for eligible claimants is provided by the insolvency  practitioner  (IP),36  appointed  to  administer  the  employer’s  insolvency.37  The  department  relies  upon  the  IP  to  provide  information  from  the  former  employer’s books and records to verify claimant’s eligibility for a FEG advance  and the amount of any advance. The department also relies on IPs to distribute  FEG advances. There is no requirement for an IP to assist the department and  in some cases the IP may be unwilling to assist, for example where there are  insufficient funds to be realised from winding up the company. Where this  occurs, the department may engage another service provider to undertake this  work (generally a qualified accountant), or depending upon the circumstances  of the insolvency and the number of claimants involved, the department may  undertake  some  of  this  work  itself.  The  service  providers  are  also  able  to  distribute  payments  on  behalf  of  the  department38  and  may  also  assist  investigate  issues  associated  with  complex  claims,  or  suspected  fraud  and  non‐compliance. 

1.13 The department also relies upon information provided by the claimant  as  part  of  the  application  process,  including  details  of  their  employment  contract, terms and conditions of employment and entitlements they are owed  as well as an estimate of the value of these. There are circumstances where the  department may gather information from alternative sources to validate, or  supplement information provided by the IP and claimant, particularly where  the employer’s books and records are of poor quality, or are not available, or  the information provided by the IP and claimant is inconsistent. 

                                                      

35 See FEG Act, s14 (2). 36 The liquidator, administrator appointed under the Corporations Act 2001, receiver of property, or person who has control of property, or bankruptcy trust of the former employer. 37 Section 35 of the FEG Act allows the department to presume that the information provided by the IP is

accurate for the purpose of deciding a claimant’s eligibility and the amount of the advance. 38 The department currently does not have the internal capability to pay claimants directly.

ANAO Report No.32 2014-15 Administration of the Fair Entitlements Guarantee

32

1.14 A  claimant’s  employment  entitlements  are  determined  through  reference  to  the  governing  instrument39  in  relation  to  the  claimant’s  employment. The governing instrument sets out the terms and conditions of  each individual’s employment and can take the form of an industrial award,  collective  agreement,  or  contract  of  employment.40  Determining  the  appropriate  instrument  is  relatively  straightforward  where  an  agreement  applies to the former employer. However, where there are no agreements in  place this process is more difficult and relies upon an assessment of the type of  work  performed  by  the  claimant  and  the  nature  of  the  business  of  the  employer  at  the  time  the  employment  ended.  In  some  circumstances,  more  than one governing instrument may be applicable. 

1.15 As a safety‐net scheme, FEG does not necessarily compensate claimants  for all their unpaid employee entitlements. As such, the advance is determined  with reference to caps that limit the amount payable to claimants. Applicable to  all entitlements is the ‘maximum weekly wage’, which is used for calculating  entitlements where the weekly rate of pay, as set out in the relevant governing  instrument,  exceeds  the  maximum  weekly  wage  amount.41  The  entitlements  available under FEG and the caps applicable to each are described in Table 1.2.  

                                                      

39 Section 5 of the FEG Act defines a governing instrument for employment as any of the following that governs the employment: (a) written law of the Commonwealth, a State or a Territory; (b) an award, determination or order that is made or recorded in writing; (c) a written instrument; or, (d) an agreement (whether a contract or not).

40 In 2008, the Australian Industrial Relations Commission (succeeded by the Fair Work Commission) began a process to ‘modernise’ the industrial award system. This process has reduced the number of awards from over 1 500 to 122 and the transition to new awards is expected to be completed in 2015. Awards that had not commenced modernisation processes by 31 December 2013 were to be terminated by the Fair Work Commission. Fair Work Commission Annual Report 2012-13, p. 44.

41 At 1 July 2014, the maximum weekly wage was set at $2 451 (equivalent to approximately $127 000 per annum). Under the current arrangements this figure is indexed on 1 July each year and was last indexed in August 2013. As part of the 2014-15 Budget the government announced a freeze on the indexation of the maximum weekly wage rate until 1 July 2018. This change came into effect on 1 July 2014.

Introduction

ANAO Report No.32 2014-15

Administration of the Fair Entitlements Guarantee

33

Table 1.2: Employee Entitlements covered by FEG and GEERS

Entitlement Conditions (a)

Wages The person’s wages entitlement is the amount of wages the

person is entitled to under the governing instrument from the employer for work done, or paid leave taken, in the wages entitlement period. A cap of 13 weeks’ pay applies.

Annual leave The amount that the person is entitled to under the governing instrument and which has accrued at the end of employment but had not been taken.

Long service leave The amount that the person is entitled to under the governing instrument and which has accrued at the end of employment but which had not been taken, or on account of long service leave that, had the person’s employment continued until the person qualified for long service leave, would have been attributable to the period until the actual end of the person’s employment.

Payment in lieu of notice The shortfall in the period of notice of termination of employment. This is capped so that it does not exceed 5 weeks’ pay.

Redundancy (b) The amount an employee is entitled to under the governing instrument for the termination of the employment. This amount is

capped so that it does not exceed four weeks’ pay for each full year of service and pro-rated for less than a full year of service.

Source: ANAO.

Note (a): Applicable to all entitlements is the maximum weekly wage, which is used to calculate the amount of the entitlement where the employee’s weekly rate of pay exceeds the maximum weekly wage amount.

Note (b): Prior to January 2011, the GEERS scheme capped redundancy entitlements to 16 weeks. From this date, the then government increased the cap to four weeks per completed year of service.

1.16 Once  the  governing  instrument  has  been  identified  and  it  has  been  determined whether the maximum weekly wage applies, the basic amounts for  each  of  the  entitlements  can  be  calculated  in  accordance  with  the  guidance  contained  in  the  FEG Act.  Prior  to  authorisation  of  the  payment  by  the  departmental delegate, the department will verify the advance amount with the  IP  and  seek  their  agreement  to  it.  The  department  seeks  verification  of  the  advance with the IP to validate the basis for its calculation and because in the  event that funds can be paid to creditors at conclusion of the winding up of the  employer, the department can assume that this amount will be paid by the IP as  a dividend.  

1.17 The claimant is notified of the outcome of their claim through a letter  detailing  the  advance  amount  for  each  entitlement  and  the  basis  for  its 

ANAO Report No.32 2014-15 Administration of the Fair Entitlements Guarantee

34

calculation.  If  the  claimant  believes  there  has  been  an  error  in  the  determination  of  their  eligibility  or  the  calculation  of  their  advance,  the  FEG Act  provides  for  claimants  to  request  a  review  of  their  claim  by  the  department, or by the Administrative Appeals Tribunal (AAT). The FEG Act  also  provides  for  the  department  to  initiate  an  internal  review  where  it  identifies potential errors, or issues. 

1.18 The advance is paid by the department to an intermediary (generally,  the IP or bankruptcy trustee of the employer, or a third party nominated by the  department). The advance is then paid to the claimant by the intermediary  subject to any withholding or deductions required by law. Once the advance  has been paid, the government assumes the same rights and priority as the  employee in the recovery of the amount of the advance as part of the winding  up of the employer.  

Audit objective, criteria and methodology

Audit objective

1.19 The audit objective was to assess the effectiveness of the Department of  Employment’s administration of the Fair Entitlements Guarantee. 

Audit criteria

1.20 To  form  a  conclusion  against  the  audit  objective,  the  ANAO’s  high‐level criteria considered whether operational elements of the scheme are  well managed, the treatment of claimants, and whether performance of the 

scheme is effectively measured, monitored and reported. 

Audit methodology

1.21 The audit focused on the current employee entitlements scheme, the  Fair Entitlements Guarantee (FEG), under which claims have been processed  since  5  December  2012.  The  scope  of  the  audit  included  the  department’s  processing  of  FEG  claims,  from  lodgement  and  assessment  of  eligibility  through  to  payment  of  advances  to  eligible  employees,  with  particular  attention to the management of operational risks associated with processing  accuracy and timeliness; and fraud control measures. The ANAO examined  the appeals processes available to applicants and claimants seeking internal  review  of  their  case,  or  external  review  by  the  Administrative  Appeals  Tribunal,  and  the  department’s  procedures  for  recovery  of  advances  as  a  creditor in the winding up of the employer.  

Introduction

ANAO Report No.32 2014-15

Administration of the Fair Entitlements Guarantee

35

1.22 The audit methodology included examination of: business and system  processes and procedures associated with assessment of claims and payment  of  advances  as  well  as  the  recovery  of  entitlements;  scheme  related  documentation; scheme monitoring and reporting; processing systems used to  store information and process claims; and program monitoring and reporting. 

1.23 The  approach  also  involved  interviews  with  stakeholders,  including:  departmental staff and managers; insolvency practitioners and their peak body  association;  third  party  service  providers;  and  representatives  from  the  Australian Taxation Office, Australian Securities and Investments Commission  and Attorney General’s Department. The ANAO also met with representatives  of other government agencies with responsibility for administration of similar  payment initiatives to examine specific operational aspects including identity  proofing and fraud control. 

1.24 The audit methodology included drawing a sample of claims from the  department’s claims processing system. The sample was examined to assess  whether claims have been processed in accordance with the FEG Act. 

1.25 The  audit  was  conducted  in  accordance  with  ANAO  auditing  standards at a cost to the ANAO of $440,000. 

Report structure

1.26 The remainder of this report is structured as follows: 

Chapter Overview

Chapter 2— Managing Scheme Risks This chapter examines the key operational priorities in relation to administering the financial assistance provided

under FEG, and in the context of these priorities, the Department of Employment’s approach to managing risks to effective service delivery. This chapter also considers the recovery of advances as part of the winding up of the employer’s business.

Chapter 3— Stakeholder Engagement This chapter examines the effectiveness of the Department of Employment’s engagement with key stakeholders for FEG,

including claimants, insolvency practitioners and other agencies.

Chapter 4— Reporting and Evaluation

This chapter examines the Department of Employment’s framework for monitoring and reporting the scheme’s performance against the government’s objectives, focusing on program evaluation, the Portfolio Budget Statements and reporting in the department’s annual report.

 

ANAO Report No.32 2014-15 Administration of the Fair Entitlements Guarantee

36

2. Managing Scheme Risks

This chapter examines the key operational priorities in relation to administering the  financial assistance provided under FEG, and in the context of these priorities, the  Department of Employment’s approach to managing risks to effective service delivery.  This chapter also considers the recovery of advances as part of the winding up of the  employer’s business. 

Introduction 2.1 As  a  scheme  aimed  at  protecting  employees  who  have  been  made  unemployed as a result of the insolvency of their employer, timely processing  of FEG claims is a priority. This priority is balanced by the need to ensure that  advances  are  calculated  accurately  and  that  they  are  paid  to  the  right  recipients. This chapter examines the department’s recent performance against  these priorities. 

Scheme activity 2.2 The global economic crisis42 increased demand for support provided by  the then GEERS scheme. The department received 15 666 claims for assistance  during 2008-09, a 60 per cent increase on 2007-08. While it attempted to keep  pace with the demand—finalising 13 473 claims—the backlog of claims to be  finalised grew, reaching 4 291 (as at 30 June 2008), nearly double the previous  year. Demand for the scheme remained high between 2009-10 and 2012-13, with  the number of claims received averaging approximately 18 000 each year.43  

2.3 Providing some respite, in 2013-14, the number of new claims received  by the department dipped to 16 246, 9 per cent less than the previous year.  However,  during  this  year,  only  13 313  claims  were  finalised  by  the 

department—representing a 29 per cent reduction on the number finalised the  previous year. Claims received, finalised and unprocessed since 2006-07 are  shown in Figure 2.1.  

                                                      

42 The Reserve Bank of Australia considers the financial crisis to have emerged in 2007. Australian Bureau of Statistics, 2013, The Global Financial Crisis and Its Impact on Australia, viewed 16/10/2014. .

43 This is in contrast to 9 453 and 9 796 claims received in 2006-07 and 2007-08, respectively.

Managing Scheme Risks

ANAO Report No.32 2014-15

Administration of the Fair Entitlements Guarantee

37

Figure 2.1: Claims received and processed since 2006-07

 

Source: Department of Employment data.

2.4 Consistent  with  these  trends,  the  backlog  of  claims  to  be  finalised  gradually increased reaching 5 081 by the end of 2012-13 and 8 297 by the end  of June 2014—at that time, the highest level since the employee entitlements  schemes commenced in 2000. 

Timeliness of claims processing 2.5 The impact of the high levels of demand on the timeliness of claims  processing  is  demonstrated  by  the  timeliness  measures  reported  by  the  department for finalisation of FEG claims. Prior to 2013-14, the department  reported the scheme performance against an ‘ideal’ processing timeframe of  16 weeks.44 The proportion of finalised claims processed within the 16 week  timeframe  since  2007-08  is  shown  in  Table 2.1,  highlighting  a  gradual  deterioration in performance against this measure since 2008-09, and a sharp  decline in performance in 2013-14.  

                                                      

44 This measure was included in the relevant portfolio budget statements and the department’s annual report until 2012-13.

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

20000

2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14

No of claims

Financial Year

received finalised not yet finalised

ANAO Report No.32 2014-15 Administration of the Fair Entitlements Guarantee

38

Table 2.1: Percentage of finalised claims processed within 16 weeks

2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14

93 93.6 91.7 88.6 79 81.4 36.3

Source: Data provided by the Department of Employment.

2.6 The introduction of the FEG Act in December 2012 and more critically,  the  move  to  a  new  claims  processing  model  commencing  in  August  2013  resulted  in  further  delays  in  finalising  claim  assessments.  In  its  2013-14  Annual Report the department summarised the challenges it faced as a result of  these changes as follows:  

During 2013-14, significant changes were made to the administration of claims  under  the  Fair  Entitlements  Guarantee  to  finalise  the  transition  to  the  legislative  arrangements  for  the  scheme  that  were  introduced  in  2012-13.  Business  processes  and  workflows  were  redesigned  and  business  systems  were reconfigured to increase the quality and efficiency of the administration  of  the  programme  and  achieve  stronger  programme  compliance.  These  changes to the operating environment resulted in transitional disruptions to  the  claims  workflow  and  delays  in  finalising  claims  assessments.  The  department  is  closely  monitoring  the  timeliness  of  claims  processing  and  ensuring that there are minimal delays for claimants.45 

Transition to a legislative framework

2.7 The FEG Act substantially replicates the administrative arrangements  under which the GEERS scheme operated; key changes include provision of a  more  transparent  process  for  determining  eligibility,  provision  for  the  department to initiate internal review of decisions and a statutory right for  claimants to seek review to the Administrative Appeals Tribunal (AAT).  

2.8 Overall, the department’s approach to the transition was effective. To  ensure the efficient transition from GEERS to FEG, the department commenced  preparatory work during 2012. This included: communication of the change and  its  impact  to  key  stakeholders,  including  insolvency  practitioners  (IPs)  and  potential claimants; training of staff; and development of new guidance material,  procedures, correspondence and application forms as well as changes to support  parallel  processing  of  FEG  and  GEERS  related  claims.  These  activities  were  managed by the department as part of a discrete project that was finalised in 

                                                      

45 Department of Employment, Annual Report 2013-14, Canberra, 2014, p. 38.

Managing Scheme Risks

ANAO Report No.32 2014-15

Administration of the Fair Entitlements Guarantee

39

early 2013.  During this time, the department gave  priority to external facing  elements of the transition to ensure stakeholders were informed of the change  and that potential claimants could access the new claims form, lodge their claim  and receive their FEG payment. Elements such as refinement of the processing  system, documentation and staff training, were given less priority, with the view  that these would be refined progressively as experience with the new scheme  developed and in  parallel with the  natural increase in the  number of  claims  expected to be received during the initial months.46 Phasing out of the GEERS  scheme and full implementation of FEG occurred over 2012-13, extending into  2013-14, as the flow of FEG claims gradually increased.  

2.9 To  inform  IPs  of  the  FEG  legislation,  the  department  circulated  an  information bulletin to each IP that had been involved with the scheme during  the preceding 12 month period. The department also discussed the legislation  with the IP representative body, the Australian Restructuring, Insolvency and  Turnaround Association (ARITA), and provided information for inclusion on  the  ARITA  website  and  quarterly  magazine.  The  IPs  interviewed  by  the  ANAO as part of this audit indicated that they were generally satisfied with  the department’s work to inform them of the FEG legislation and with the  guidance material provided by the department. Similarly, representatives from  ARITA also noted their general satisfaction with the department’s process for  implementing and consulting with them regarding the FEG legislation. 

Transition to a new claims processing model

2.10 While the transition of the scheme to a legislative base under the FEG Act  did  not  result  in  significant  changes  to  the  conditions  of  the  scheme,  or  the  manner in which claims are assessed, the legislation’s more precise expression of  the conditions and the evidence required to support decisions, removed some of  the flexibility, as well as complexity, of the previous arrangements. This placed  greater  emphasis  on  internal  processes  to  ensure  consistent  and  objective  decision  making  underpinned  by clear delegations, accurate information and  complete records.  

2.11 To  better  position  the  scheme  to  meet  these  expectations,  in  August 2013,  the  department  moved  to  a  new  stage‐based  model  for  processing  FEG  claims.  Prior  to  August  2013,  claims  were  managed  at  the 

                                                      

46 In 2012-13, 9.6 per cent of claims processed were claims made under FEG in contrast to 88.95 per cent of all claims the following year.

ANAO Report No.32 2014-15 Administration of the Fair Entitlements Guarantee

40

company‐level (referred to as a ‘case’), with a case manager responsible for  managing each case and the individual employee claims it comprised. The case  manager was responsible for all steps in the claims process from the initial  determination  of  eligibility,  through  to  assessment  of  the  entitlements  and  informing the claimant of the final decision (a decision‐maker with appropriate  delegation  reviewed  the  claim  determination  and  authorised  the  claimant’s  advance). This approach provided a number of benefits; case managers would  gain a high level of familiarity with each case and provide a single point of  contact for both the IP and the company’s former employees. However, this  approach required case managers to be knowledgeable and proficient across  all aspects of the claims process. In addition, the high volume of claims being  managed at any point in time made it challenging to track claims and ensure  the  quality  of  decision‐making  and  compliance  with  the  operational  arrangements.  

2.12 By  contrast,  the  new  claims  processing  model  involves  processing  claims in ‘stages’, with staff responsible for a set of common tasks associated  with each stage. This approach moved the focus from managing claims at the  company‐level to managing at the individual claim or employee level. This  aligns with the FEG legislation which expresses provisions at the individual  claim level, rather than the case level. The stage‐based approach also provides  greater flexibility in the distribution of work to staff, and for quality checking  and monitoring of claims as they progress from one stage to the next.  

2.13 This change was significant and high risk; every element of the claims  assessment process was affected, staff were required to learn and adjust to a  new way of operating and the claims processing system required significant  enhancements in order to fully support stage‐based claims processing at the  individual  claim  level  and  to  provide  the  visibility  necessary  to  monitor  workflow and report status. Notwithstanding, the department did not, prior to  proceeding,  seek  to  identify,  assess  and  manage  risks  to  its  successful  implementation. The department proceeded with the change despite having  only limited documentation defining roles and responsibilities and describing  the new claims processing arrangements. The department was also aware that  the  existing  processing  system  had  limitations  that  impacted  its  ability  to 

Managing Scheme Risks

ANAO Report No.32 2014-15

Administration of the Fair Entitlements Guarantee

41

provide visibility of the workflow of claims and to report on the status of the  claims assessment process.47  

2.14 In addition, the department did not formally communicate with IPs its  plan to undertake this change and the impact it would have on procedures  directly relevant to IPs. A number of IPs interviewed by the ANAO stated that  the change was not broadly communicated prior to its implementation, or once  issues  arose.  IPs  also  noted  difficulties  contacting  departmental  staff  responsible  for  the  claims  they  were  working  on—a  situation  made  more  difficult by the need for IPs to work with various staff depending upon the  processing stage of the claim, rather than a single case manager, as with the  previous arrangements.48  

2.15 The new processing model was implemented in August 2013. Between  October and December 2013, a relatively high number of claims were finalised  giving the impression that the new model was functioning well. However, a 

sharp  drop  in  the  number  of  claims  finalised  between  January  and  April 2014—coinciding with a gradual increase in claims received—led to a  rise in the backlog of claims, with the number of unprocessed claims increasing  by 34 per cent between January and June 2014.  

2.16 As a result of these issues, the average time to finalise a claim doubled  and the number of claims older than 16 weeks increased from 878 to 4 467  between July 2013 to June 2014. Increases in the proportion of ‘aged claims’ is  shown in Figure 2.2. 

                                                      

47 The claims processing system was designed to track and manage work at the case, rather than claim level. Until the system could be modified, the claims and workloads were managed manually using spreadsheets, which was cumbersome and time consuming for managers. It was not until June 2014 that the processing system was enhanced to allow for tracking the status of each claim and to generate the management information for reporting. 48 These issues were also noted by a number of IPs in their response to the department’s annual IP

satisfaction survey conducted in early 2014. Responding to this feedback, the department took steps to improve the arrangements for calls from IPs to be directed to relevant staff, via the FEG hotline.

ANAO Report No.32 2014-15 Administration of the Fair Entitlements Guarantee

42

Figure 2.2: Proportion of claims held each month, by age

 

Source: Compiled by the ANAO using data provided by the department.

2.17 A  key  contributor  to  this  backlog  was  the  department’s  decision  to  change the sequencing of processing activities at the same time it introduced  the new processing model in August 2013. As part of this arrangement, the  relevant governing instrument for each claim was identified by the department  prior to seeking information from the IP—this task was previously undertaken  by the IP as part of their role to verify the claimant’s data.  

2.18 The  department  has  extensive  knowledge  of  the  different  governing  instruments and considered it was in a better position than the IP to identify the  relevant governing instrument for each claimant. On this basis, the department  sought to streamline the process by identifying the governing instruments prior  to seeking claimant information from the IP and reducing its reliance on the IP to  complete this task. However, the department did not assess the risks associated  with the change and underestimated the complexity and time it would take to  perform the task. The sequencing change lead to a bottleneck occurring early in  the claim assessment process. The department’s failure to quickly identify and  address the issue contributed to the resulting backlog of claims.  

2.19 In  early  2014,  to  address  the  resulting  bottleneck,  resources  were  reallocated to improve the balance between the number of staff and workload  demands.  The  department  also  implemented  a  two  stream  processing 

0%

10%

20%

30%

40%

50%

60%

70%

Jul-2013Aug-2013 Sep-2013 Oct-2013Nov-2013 Dec-2013 Jan-2014Feb-2014 Mar-2014 Apr-2014May-2014 Jun-2014

Percent

1 July 2013 to 1 June 2014

0-8 weeks 9-16 weeks 17-24 weeks

25-32 weeks 33-40 weeks 41 and over

Managing Scheme Risks

ANAO Report No.32 2014-15

Administration of the Fair Entitlements Guarantee

43

approach  to  focus  on  clearing  the  backlog  of  older  claims.  Despite  these  changes a performance report prepared by the department for the December  2014 quarter showed that the backlog of unprocessed claims was continuing to  increase, reaching 9 153 by the end of December 2014. The proportion of claims  older  than  16  weeks  also  deteriorated  during  period,  increasing  from  approximately 50 to 59 per cent of all claims.  

2.20 The  transition  to  the  new  processing  model  could  have  been  better  managed by the department. The significance of the change and the risks it  posed warranted a higher level of management and oversight than initially  applied  by  the  department.  More  thorough  planning,  including  early  identification and ongoing management of risks would have better positioned  the department to undertake this change.  

Accuracy of payments 2.21 The accurate assessment of claim entitlements is important to ensuring  that claimants are not disadvantaged by receiving lower entitlements than they  are  due,  or  delayed  in  accessing  their  funds.  Equally  important  is  the  avoidance of overpayment of funds to claimants, particularly as it is less likely  that these will come to light as the result of an appeal by the claimant, placing  greater  reliance  for  detecting  these  errors  as  part  of  internal  checks  and  controls. Accurate claims assessment also contributes to greater efficiency by  reducing costs associated with reviews, re‐work and the pursuit of debts in  cases of overpayment. 

2.22 Interviews with departmental staff and managers involved with FEG  claims  processing  indicate  a  high‐level  of  awareness  of  the  importance  of  accuracy of payments and quality decision making is well‐understood by staff 

involved in the FEG claim process. This focus largely stems from the recent  transition  to  the  legislative  base  and  recognition  of  raised  expectations  associated  with  this  change,  particularly  in  regard  to  the  requirement  for  consistent, accurate and supportable decision‐making. However, with the FEG  scheme  in  place  since  December  2012,  it  is  timely  for  the  department  to  develop a more systematic approach to quality assurance underpinned by a  program  of  staff  training,  detailed  procedural  documentation  covering  all  aspects of the claims process and clearly defined roles and responsibilities.  

2.23 To support staff, an operations manual was developed at the time FEG  commenced  in  late  2012  and  this  document  has  been  regularly  updated.  A  central  knowledge  repository  has  also  been  established  and  is  regularly 

ANAO Report No.32 2014-15 Administration of the Fair Entitlements Guarantee

44

updated  and  accessed  by  staff.  A  number  of  the  processing  staff  have  also  developed their own guidance material covering their areas of responsibility.  There  would  be  benefit  in  centrally  coordinating  development  of  detailed  procedural  documentation  to  ensure  alignment  with  other  guidance  and  reference material, including the operations manual.  

2.24 To monitor and measure quality, the department currently refers to the  number  of  requests  from  claimants  for  review  of  decisions  relation  to  the  eligibility and advance amounts. While the level of accuracy reported by the  department is consistently high (above 98 per cent), there would be advantage  in the department adopting an approach to checking and monitoring quality in  real‐time.  This  would  provide  assurance  that  decisions  are  correct  and  that  information  supporting  decisions  is  accurate.  This  approach  could  include  establishment of quality controls at each stage of processing to monitor the  quality of tasks specific to the stage and periodic examination of a random  sample  of  finalised  claims  aimed  at  testing  the  accuracy  of  decisions  and  compliance with procedures and the legislation.  

Managing non-compliance 2.25 Non‐compliance49 is a particular risk for programs such as FEG which  involve the provision of direct financial assistance. To provide guidance on the  management  of  compliance  and  to  assist  departmental  staff  meet  their  responsibilities  under  the  department’s  fraud  control  plan,  the  department  developed a document, referred to as the Basics of Compliance50. This document  sets out responsibilities for compliance as follows: 

In  short,  all  employees  are  responsible  for  compliance.  Responsibility  for  management of compliance, particularly in establishing and implementing a  compliance programme, sits with policy, business or programme areas of the  department. Policy/program areas have a detailed knowledge of the relevant  programme, providers, services and/or policy which equip them to effectively  tailor a programme to ensure compliance. Only where non‐compliance may be  criminal in nature, should the matter be referred to the Investigations Branch  (which has expertise in conducting criminal investigations).51 

                                                      

49 The Australian Standard on Compliance Programs (AS 3806:2006) defines compliance as ‘adhering to the requirements of laws, industry and organisational standards and codes, principles of good governance and accepted community and ethical standards’. 50 Department of Employment, Basics of Compliance, Canberra, 2014. 51 ibid., p. 2.

Managing Scheme Risks

ANAO Report No.32 2014-15

Administration of the Fair Entitlements Guarantee

45

2.26 Non‐compliance  may  occur  because  of  a  lack  of  understanding  or  awareness of obligations or because of disregard, or carelessness. For fraud to  be  established  there  must  be  intent  to  commit  the  fraud.  Where  fraud  is  suspected the program area must consider whether it meets the department’s  fraud referral threshold, as follows:  

There has been non‐compliance (a breach) with a legally enforceable obligation  and it appears more likely than not that dishonesty is the cause (as opposed to  incompetence,  mistake  or  misinterpretation  of  contractual  or  legislative  parameters).52 

2.27 Suspected  fraud  is  referred  to  the  Shared  Service  Centre’s  (SSC’s)53  Investigations  Branch  which  then  assesses  the  circumstances  of  the  alleged  fraud to determine whether to proceed with an investigation. This assessment  is based on consideration of the following factors: 

 there is evidence of an offence against the Commonwealth; 

 the department has jurisdiction to investigate the matter (some cases  are  referred  to  the  State  or  Territory  police  or  other  agencies  if  appropriate, depending on issues of criminal jurisdiction);  

 there  are  reasonable  prospects  of  a  successful  prosecution  (if  an  investigation proceeds);  

 prosecution of the matter would have a stronger deterrent effect for  the programme than an administrative sanction; and/or  

 a costly investigation will result in the identification of vulnerabilities  for  the  department  (and  ultimately  continuous  improvement  of  the  department’s fraud control mechanisms).54 

2.28 Where  the  Investigations  Branch  does  not  proceed  with  an  investigation,  the  alleged  fraud  is  referred  back  to  the  program  area  for  resolution. This may include further investigation, or administrative or civil  sanctions.  Similarly,  issues  of  non‐compliance  that  do  not  meet  the  fraud 

                                                      

52 ibid., p. 3.

53 The SSC was established in December 2013 when the Secretaries of the Department of Education and Training and the Department of Employment entered an agreement for the provision of shared corporate services to both departments through the establishment of a shared services centre. The SSC was formalised through a Head of Agreement between the Secretaries of these departments in December 2013, establishing the framework for a memorandum of understanding to be developed specifying the details of these arrangements and the services to be delivered.

54 ibid., p. 4.

ANAO Report No.32 2014-15 Administration of the Fair Entitlements Guarantee

46

referral  threshold  (referred  to  in  paragraph  2.26)  are  also  managed  by  the  program area. 

FEG compliance strategy

2.29 There  is  no  single  approach  to  addressing  non‐compliance  and  it  is  generally  accepted  that  a  range  of  response  options  are  needed  that  are  proportionate  to  the  perceived  risk.  This  point  is  reinforced  in  the 

department’s  fraud  control  plan  which  notes  the  importance  of  having  a  ‘graduated and proportionate’ response to both non‐compliance and to fraud  that  does  not  warrant  investigation,  including  where  appropriate,  administrative sanctions.55  

2.30 The  department’s  Basics  of  Compliance  document  emphasises  the  importance  of  programs  having  a  compliance  strategy  and  provides  guidance—adapted from the relevant Australian Standard56—on the minimum  elements of a compliance strategy. These are summarised as:  

[The]  Compliance  Strategy  needs  to  identify  who  is  responsible  for  the  prevention,  detection  and  correction  mechanisms  for  that  programme  and  ensure that those personnel are aware, resourced and trained to fulfil those  responsibilities. The risk assessment assesses the risk and provides possible  treatments, but the compliance strategy mobilises staff, communicates how,  when and why and provides the plan for addressing risks identified.57  

2.31 The  FEG  compliance  strategy  is  outlined  in  a  document  titled,  FEG Programme Compliance Strategy58.  However,  the  strategy  outlined  in  this  document lacks the detail necessary to inform and equip staff to identify and  manage  non‐compliance.  The  document  is  high‐level  and  descriptive,  with  limited focus on the specific areas of compliance risk associated with the FEG  operating environment. Similarly, there is no cross‐reference to the FEG risk  assessment and the fraud or compliance risks identified as part of this process.  

Monitoring non-compliance

2.32 It is generally considered sound practice for all compliance decisions,  along  with  the  reasons  for  the  decisions  and  the  evidence  relied  upon  in 

                                                      

55 Department of Employment, Fraud Control Plan, pp. 20-22, section 6.2. 56 Australian Standard AS3806-2006 Compliance Program 57 Department of Employment, Basics of Compliance, Canberra, 2014, p. 2. 58 Department of Employment, FEG Programme Compliance Strategy, Canberra.

Managing Scheme Risks

ANAO Report No.32 2014-15

Administration of the Fair Entitlements Guarantee

47

reaching  the  decisions  to  be  documented.  This  supports  transparency  and  accountability,  particularly  where  a  decision  may  be  challenged  at  a  later  date.59  

2.33 Documentation providing details of actual and alleged cases of fraud  within FEG was sound where matters were accepted for investigation by the  SSC Investigations Branch. For these cases, the departmental executive and the  audit committee have visibility of the details of each case, and the status and  outcome of the investigation. However, the documentation of matters that do  not  meet  the  threshold  for  further  consideration,  or  matters  that  are  not  accepted  by  the  Investigations  Branch,  was  less  complete  and  reporting  processes less well defined.  

2.34 The department advised that the audit committee had visibility of the  fraud  risks  and  the  control  environment  (including  any  actual,  alleged  or  suspected material fraud—both internal and external). However in practice,  there  is  no  formal  requirement  for  the  program  area  to  regularly  report  non‐compliance and alleged fraud to the audit committee. Within FEG, there is  currently no single register that captures all incidences of non‐compliance and  alleged fraud and records details of their status and treatment. The department  advised  that  a  register  was  not  necessary  given  the  low  incidence  of  non‐compliance, the existence of the Tip‐off register60 and the arrangement for  referral of fraud issues to the Investigations Branch. While the incidence of  non‐compliance  detected  by  the  department  may  be  low,  it  may  also  be  a  consequence of the weaknesses in the FEG compliance strategy. The approach  adopted means that there is no single point of reference for managing and  monitoring the progress of all non‐compliance issues, for identifying the extent  and materiality of non‐compliance for FEG and importantly, for assessing the  non‐compliance risk for the scheme.  

                                                      

59 ANAO, Administering Regulation: Achieving the Right Balance - Better Practice Guide, Canberra, June 2014, p. 51. 60 The Tip-off register records non-compliance reported to the department by members of the public.

ANAO Report No.32 2014-15 Administration of the Fair Entitlements Guarantee

48

Fraud control arrangements 2.35 Sound fraud control61 is fundamental to programs such as FEG that rely  on third‐parties to verify claimant data and to distribute advance amounts to  claimants. For FEG, the fraud risk is further elevated as a result of frequently  unavailable or poor quality documentation to assess and determine advance  amounts, and pressures associated with the current high level of demand and  the large backlog of claims.  

2.36 Integral to the Australian Government’s risk based approach to fraud  prevention and detection is the fraud risk assessment process. It is through this  process  that  the  level  of  fraud  risk  exposure  for  initiatives  is  assessed,  management strategies developed and importantly, the fraud control plan is  tailored to address areas of potential fraud exposure.62 The department’s fraud  risk  assessment  process  forms  part  of  the  department’s  general  risk  management framework. As part of this arrangement departmental staff are  required to consider internal and external fraud risks as part of their regular  monitoring  and  review  of  risks  and  their  treatments.63  While  the  Commonwealth’s fraud guidance64 generally supports the integration of fraud  risks  within  the  entity’s  risk  control  framework,  it  cautions  that  where  a  program has an inherent risk of fraud due to the nature of its business—for  example,  revenue  collection,  payment  of  benefits  or  contract  procurement  activities—the  entity  should  consider  developing  a  fraud  risk  assessment  process that is specific to a particular policy or program area.65  

2.37 The  Commonwealth  fraud  guidance  emphasises  the  importance  of  having  access  to  specific  fraud  expertise  when  undertaking  risk  assessment  and fraud control planning: 

                                                      

61 Fraud control refers to the integrated set of activities to prevent, detect, respond to, and monitor fraud, and to the supporting processes such as staff training and the prosecution and penalisation of offenders. Effective fraud control requires the implementation and active management of these interdependent activities. ANAO, Fraud Control in Australian Government Entities - Better Practice Guide, Canberra, March 2011, p. 1.

62 Section 10(a) of the PGPA Rule specifies that a fraud risk assessment must be conducted on a regular basis and when there has been substantial change in the structure, functions or activities of the entity. Under section 10(b) of the PGPA Rule, fraud risk assessments must be followed by the development and implementation of a fraud control plan to manage the identified risks.

63 Department of Employment, Department of Employment Fraud Control Plan 2014, August 2014, p. 17. 64 Attorney-General’s Department, Resource Management Guide 201: Preventing, detecting and dealing with fraud, July 2014, Canberra 65 ibid., p. 12, paragraph 6.6.

Managing Scheme Risks

ANAO Report No.32 2014-15

Administration of the Fair Entitlements Guarantee

49

Risk  assessments  can  be  undertaken  using  in‐house  resources,  but  it  is  important to ensure that the risk assessment team has access to the range of  skills, knowledge and expertise necessary to provide coverage of the categories  of risk to be considered.66 

2.38 At the time of the audit, there had generally been little active support  provided  to  FEG  staff  to  access  relevant  expertise  and  notwithstanding  the  level of risk for FEG, the FEG fraud risk management plan identified only two  fraud related risks. Based on the treatments identified to mitigate these risks,  the residual risk67 for FEG was rated as ‘low’. The fraud risks and proposed  treatments are set out in Table 2.2.  

Table 2.2: GEERS and FEG fraud related risks and treatments

No. Risk Treatment

1 Provision of

misleading or fraudulent advice by external claimants

 Compliance provision in IP contracts to regulate behaviours.  Warning and processing errors configured in GOLD(a) to alert when multiple claims submitted for individual.  Identification documentation required for all claimants.  Future compliance work to be undertaken to enable ATO

data matching.(b)

2 Misappropriation of

funds by insolvency practitioners working in collusion with GEERS and FEG claimants

 Identity documentation provided by all claimants to establish effective claim.  Declaration of accuracy of information to be signed by claimants as part of an effective claim.  Separation of roles between DEEWR(c) and Insolvency

Practitioners to verify authenticity of claims.  Separation of roles between claim approver and paymaster.  Future compliance work to be undertaken to facilitate ATO

data matching.(b)

Source: Department of Employment.

Note (a): GOLD is the name given to the system used to process claims and store claimant information.

Note (b): In September 2014, the department confirmed that this work is at the initial scoping phase.

Note (c): Refers to the former Department of Education, Employment and Workplace Relations.

2.39 The  risks  are  broadly  defined  and  as  such,  encompass  a  number  of  important risks that under the circumstances, warrant separate identification  and  management;  for  example  the  department’s  process  for  proofing  the 

identity  of  FEG  applicants.  The  requirement  that  all  claimants  provide  identification  documentation  is  identified  in  the  FEG  risk  register  as  a  treatment  for  both  risks.  However,  the  department’s  reliance  on  certified 

                                                      

66 ibid., paragraph 6.11. 67 Residual risk is the risk that remains after controls are taken into account.

ANAO Report No.32 2014-15 Administration of the Fair Entitlements Guarantee

50

photocopies,  rather  than  originals  to  verify  the  claimant’s  identity  itself  presents a risk.  

2.40 The  department  advised  that  it  considered  the  existing  identity  proofing arrangements were reasonable and practical having regard to the size  and  nature  of  FEG.  However,  given  FEG  payments  are  a  single  one‐off  payment  and  the  amounts  paid  to  individual  claimants  can  approach  $300 000,68  there  would  be  benefit  in  the  identity  proofing  process  being  identified as a risk in order for it to be managed and mitigated, and for this  information to inform the overall risk rating for the scheme.  

2.41 Routine testing of the effectiveness of proposed fraud risk treatments  would strengthen the department’s approach for FEG and may result in the  reassessment of the scheme’s overall fraud risk. For example, the department  identified  the  ‘separation  of  roles  between  DEEWR69  and  IPs  to  verify  authenticity of claims’ as a treatment for the risk that IPs may collude with  claimants  to  misappropriate  funds.  The  department  is  reliant  upon  the  IP  administering  the  insolvency  of  the  employer  to  provide  and  verify  employment information which it then uses to calculate the advance amount  for eligible claimants. While the department and the IP have separate roles,  this  does  not  mitigate  the  risk  of  the  IP  misappropriating  funds,  as  the  department has no alternative source against which to verify the information  being provided by the IP—under circumstances where the IP was potentially  colluding  with  the  employer  or  employee,  information  provided  by  these  sources would be equally unreliable.  

2.42 The management of compliance and fraud for the FEG is influenced by  the department’s overall fraud control framework. This framework adopts an  approach reliant on conducting investigations after fraud has occurred, with  limited focus on the areas of fraud prevention and detection. As part of this  framework,  responsibility  for  the  fraud  prevention  and  detection  is  largely  devolved  to  program  staff  and  managers  with  only  basic  levels  of  fraud  training and with limited active support from fraud specialists to assist them 

                                                      

68 Since the implementation of the increased redundancy cap on 1 January 2011 the highest payment made to an individual was $297 693. Over the period 1 January 2011 to 30 June 2013, there have been 64 claimants paid redundancy entitlements of $100 000 or more under FEG and GEERS. A further 11 claimants were paid in excess of $100 000 for their redundancy entitlement over 2013-14. Refer to http://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Education_and_ Employment/Fair_Entitlements/Submissions> [accessed 25/2/2015].

69 Refers to the former Department of Education, Employment and Workplace Relations.

Managing Scheme Risks

ANAO Report No.32 2014-15

Administration of the Fair Entitlements Guarantee

51

fulfil  these  responsibilities.  At  the  time  of  the  audit,  staff  were  expected  to  complete fraud awareness training, however this training was not sufficient to  equip  staff  to  effectively  fulfil  the  responsibilities  outlined  for  them  in  the  fraud  control  plan.  If  the  department  is  to  be  assured  that  compliance  and  fraud is being effectively managed, it is important that the specialist nature of  fraud control be recognised along with the risks associated with delegating this  responsibility  without  adequate  training  or  appropriate  guidance  from  qualified fraud control experts.  

Recommendation No.1 2.43 To enhance the effectiveness of fraud controls for the Fair Entitlements  Guarantee,  the  ANAO  recommends  that  the  Department  of  Employment  strengthen its focus on the areas of fraud prevention and detection. 

Department of Employment’s response: 

2.44 Agreed.  The  Department  of  Employment  is  modifying  its  fraud  control  framework to introduce greater support around fraud and non‐compliance for specific  programme areas. 

Recovery of advances

2.45 Arrangements have always been in place to allow the department to  recover advances made to employees through insolvency processes. As part of  the liquidation of an insolvent company the liquidator winds up the company  and realises the company assets. If there are funds left over after payment of  the costs of the liquidation, and payments to other priority creditors (including  employees) the liquidator will pay these to unsecured creditors as a dividend.  Generally, the order in which funds are distributed is: 

 costs and expenses of the liquidation, including liquidators’ fees; 

 outstanding employee wages and superannuation; 

 outstanding employee leave of absence (including annual leave, sick  leave—where applicable—and long service leave); 

 employee retrenchment pay; and 

 unsecured creditors.  

2.46 Once  an  advance  has  been  made  to  a  claimant,  government  is  subrogated  into  the  position  of  the  employee  and  assumes  the  rights  of  the  employee as a creditor in the winding up of the former employer’s business. In 

ANAO Report No.32 2014-15 Administration of the Fair Entitlements Guarantee

52

the event that the company is able to realise sufficient funds, the government  recovers  the  amount  of  the  advance  and  employees  receive  amounts  outstanding  beyond  the  advance.  Notwithstanding  the  Commonwealth’s  priority creditor status as part of the winding up of the company, less than $200  million (13 per cent) of the $1.5 billion distributed since the various employee  entitlements schemes commenced in 2000, has been recovered—this is consistent  with the generally low rate of recovery for unsecured creditors; in 2013-14 the  Australian Securities and Investments Commission reported that in 97 per cent  of cases the dividend payable to unsecured creditors was estimated to be less  than 11 cents in the dollar.70  

2.47 The  amount  recovered  by  government  since  2000-01  against  the  amount paid by government in advances over this same period is shown in  Figure 2.3. While the increase in the amount advanced from 2008-09 to date,  may be attributable to the impact of the global economic crisis and the removal  of the cap on redundancy payments, the department has not undertaken any  analysis of this, or how it correlates to the proportion recovered each year.  

Figure 2.3: Advances to employees and recovery from employers (a),(b)

 

Source: ANAO compilation of data from the Department of Employment.

Note (a): The data does not include the advances relating to the special scheme for Ansett employees.

Note (b): Recoveries do not necessarily correlate to the year in which the advances were made due to the time lag between advances to employees and recovery from the employer’s liquidation.

                                                      

70 The ASIC report on external administration for 2013-14 is available at: [accessed 12/11/2014].

$ M

$50 M

$100 M

$150 M

$200 M

$250 M

$300 M

2000-01 2002-03 2004-05 2006-07 2008-09 2010-11 2012-13 Amount advanced and recovered

Financial Year

Amount advanced Amount recovered

Managing Scheme Risks

ANAO Report No.32 2014-15

Administration of the Fair Entitlements Guarantee

53

2.48 As a creditor in the winding up of the former employer’s business, in  addition to participating in dividends, government has the right to: participate  in  creditors’  meetings;  receive  reports  from  the  liquidator  about  the  liquidation; inform the liquidator about matters relevant to the affairs of the  company  in  liquidation;  and  raise  issues  with  ASIC  or  the  court  about  the  liquidator’s conduct in connection with their duties. In certain circumstances  where the company is without sufficient assets, creditors may agree to fund  the liquidator to take action to recover further assets. If this action is successful,  the  liquidator  or  creditor  can  apply  to  the  court  for  the  creditor  to  be  compensated for the risk involved in providing these funds.  

2.49 While the department is aware of its rights as a creditor and monitors the  progress of liquidations through reports provided by IPs, it does not generally  participate in creditor meetings, or provide funding to support recovery action.  In  the  past,  the  department  has  tested  a  more  active  role  in  the  recovery  of  advances through conducting a pilot litigation program (2006). However, the  pilot was discontinued after a year due to the low rate of return on investment.  The department could more to actively pursue recovery of insolvency related  debt, however it would need to consider the costs and benefits of this type of  action, as well as the time lags associated with recovery. The Department of  Employment  has  advised  that  it  does  not  have  the  agreement  of  the  then  Government or dedicated funding to pursue a more active debtor role.  

Conclusion 2.50 Changes initiated in August 2013 to align internal processes with the  FEG  legislation  were  poorly  managed  by  the department  and  resulted  in a  large backlog of claims and delays for claimants receiving their FEG advance.  This has been a significant setback for the department as it continues to place a  priority  on  addressing  the  high  number  of  unprocessed  and  aged  claims.  Issues that led to the backlog of claims could have been avoided or mitigated if  greater  focus  had  been  given  to  identifying  and  managing  risks  associated  with  the  change  to  the  new  processing  model.  However,  the  department  proceeded  with  the  change  despite  having  only  limited  documentation  defining the new roles and responsibilities and despite the claim processing  system not having the functionality necessary to manage, track and report the  status of individual claims and to monitor the claims workflow.  

2.51 In  early  2013,  when  issues  were  identified  with  the  new  claims  processing  arrangements,  action  was  taken  by  the  department  to  re‐assign 

ANAO Report No.32 2014-15 Administration of the Fair Entitlements Guarantee

54

resources and for staff to work overtime to focus on bottlenecks in the claims  process and to address the growing backlog of claims. The average time to  process a claim reduced from 32 to 18 weeks over the July to September 2014  quarter,  although  high  claim  volumes  during  this  quarter  resulted  in  this  extending to 26 weeks by the end of December 2014. The proportion of claims  older than 16 weeks also increased to 59 per cent of all claims by the end of  December 2014. 

2.52 As a scheme that makes payments to claimants based upon information  provided by a third party and sometimes with limited available documentation,  these  features  imply  an  elevated  level  of  non‐compliance  and  fraud  risk.  Notwithstanding,  the  department  has  provided  only  limited  information  to  instruct staff in the identification and management of non‐compliance. While  staff  are  required  to  undertake  fraud  awareness  training,  this  basic  level  of  training  is  not  sufficient  to  equip  staff  with  the  knowledge  to  meet  responsibilities  devolved  to  them  in  the  department’s  fraud  control  plan.  In 

addition, there is also no single register for recording, tracking and reporting  non‐compliance and no formal requirement that non‐compliance issues being  managed  by  the  program  areas  are  regularly  reported  to  the  departmental  executive  and  audit  committee.  As  a  result,  this  information  is  not  readily  available  to  allow  the  executive  and  audit  committee  to  make  an  informed  assessment  of  the  full  extent  of  non‐compliance  and  the  overall  fraud  risk  exposure for the scheme. There would be benefit in the department establishing  a more active approach to fraud control for FEG by strengthening its focus on  fraud prevention and detection. This could include as a practical step, increasing  the level of support currently provided to FEG staff in relation to fraud control. 

2.53 Arrangements  have  always  been  in  place  to  allow  the  department  to  recover advances made to employees through insolvency processes. The ANAO  examined the department’s work to recover advances from employers. Less than  $200 million (13 per cent) of the amount distributed by the government since the  commencement  of  the  entitlements  schemes  has  been  recovered.  While  the  department is aware of its rights as a creditor, it considers that it is currently not  resourced to fulfil this role more actively.  

ANAO Report No.32 2014-15

Administration of the Fair Entitlements Guarantee

55

3. Stakeholder Engagement

This  chapter  examines  the  effectiveness  of  the  Department  of  Employment’s  engagement  with  key  stakeholders  for  FEG,  including  claimants,  insolvency  practitioners and other agencies.  

Introduction 3.1 Effective  engagement  and  communication  with  stakeholders  is  an  important  element  of  all  government  initiatives  and  should  form  a  key  consideration in their design, ongoing delivery and during periods of change.  Genuine  engagement  and  collaboration  between  the  department  and  stakeholders  helps  to  establish  a  sound  basis  for  delivering  services  under  FEG. 

3.2 With  the  aim  of  the  scheme  to  protect  employers  from  loss  of  entitlements,  scheme  claimants  are  the  department’s  primary  stakeholder  group  and  key  priorities  for  this  group  include:  availability  of  information  about the scheme; ready access; and timely payment. IP’s and other service  providers  are  crucial  to  the  delivery  of  the  government’s  employee  entitlements scheme in  that they verify claimant information and distribute  advances to claimants. In administering FEG, the Department of Employment  collaborates with a number of other Commonwealth agencies71, (including the  Australian Taxation Office (ATO) and Australian Securities and Investments  Commission (ASIC)) to assist these agencies in their responsibilities regulating  and overseeing company directors and IPs.  

Engaging with scheme claimants 3.3 In general, effective delivery of support to claimants rests on claimants  being aware of: 

 the scheme, their eligibility and how to apply; 

 approximate timeframes for processing claims; 

 the progress of their claim;  

                                                      

71 Section 45 of the FEG Act provides for this information to be shared to assist with the administration of particular functions related to the Corporations Act 2001, the Bankruptcy Act 1966, and administration of non-FEG entitlements that are being paid to current or former employees.

ANAO Report No.32 2014-15 Administration of the Fair Entitlements Guarantee

56

 the basis for decisions regarding eligibility and advance amounts; and 

 avenues for seeking a review or appealing a decision and for providing  feedback, and complaints. 

Awareness of the scheme

3.4 The FEG claims process is not initiated automatically when a business  becomes insolvent. Instead, it is initiated by the employee once the insolvency  event has occurred. In most cases, employees are informed of FEG by the IP  responsible for managing the insolvency or liquidation of the employer, who  will  generally  direct  them  to  the  FEG  website  or  FEG  hotline  for  further  information and to lodge a claim.  

3.5 IPs are well placed to inform employees about FEG; they are in contact  with the employees, are able to identify and contact affected employees and  are aware of the financial position of the business including whether employee  entitlements can be paid. As at January 2015, details of FEG were also included  on a number of websites likely to be visited by affected employees, including  the  Department  of  Human  Services  (DHS).  The  program  is  referenced  in  material available on the ASIC website, the Fair Work Ombudsman and the  Fair  Work  Building  and  Construction  Commission.  These  websites  provide  summary  information  and  direct  employees  to  the  Department  of  Employment’s website or FEG hotline for further information.  

3.6 The FEG hotline can be accessed via telephone or email. The hotline is  staffed  by  approximately  eight  departmental  staff  during  normal  business  hours  from  Monday  to  Friday.72  Guidance  provided  to  FEG  hotline  staff  emphasises  an  empathetic  and  informative  approach  when  dealing  with  employees in recognition of the difficult circumstances the claimant may be  experiencing.  In  2013-14,  the  FEG  hotline  received  41 093  phone  calls  and  18 791 emails—an average of 165 calls, 76 emails, and 52 claim forms each day.  

3.7 Examination of the FEG website shows it is easy to navigate and the  information  and  instructions  it  provides  are  clear.  This  information  is  supported by a number of facts sheets covering specific topics in greater detail, 

including eligibility, the claim lodgement process, certifying documents and 

                                                      

72 Weekend or after hours callers are provided with pre-recorded instructions to call back during business hours; to contact the department at one of the given email addresses; to visit the website for further information; or to leave a message.

Stakeholder Engagement

ANAO Report No.32 2014-15

Administration of the Fair Entitlements Guarantee

57

accessing online services. Information is also available describing the claims  assessment process and how to seek a review or appeal a decision.73 A copy of  the  FEG  legislation  is  also  linked  to  the  website.  Overall,  the  avenues  for  affected employees to be informed of the existence of the scheme are sufficient  and the information available to potential applicants is logical, complete and  easily understood. 

Claim lodgement

3.8 The department encourages the submission  of claims using the FEG  online facility and promotes this through the FEG hotline, website and IPs.  Approximately 70 per cent of FEG claims are currently lodged online.74  

3.9 Once  a  claim  is  lodged  online,  the  department  sends  an  email  acknowledging receipt and a claim reference number that can be used to track  progress of the claim through the online tracking facility. For hard copy claims,  the procedures indicate that the department acknowledges receipt via a letter  mailed to the applicant. If the claim is missing information or documentation is  not submitted correctly, the department will generally contact the applicant via  email  or  telephone  to  quickly  resolve  the  problem.  If  the  issue  is  more  fundamental  (for  example,  the  form  has  not  been  signed),  the  form  will  generally be returned to the applicant with a letter explaining the issue. 

Claim tracking and timeliness

3.10 While the department reports against timeliness performance measures  in its annual report, only limited information is provided to applicants and  claimants  regarding  timeframes  for  claims  processing.  The  department’s  website states that: 

We aim to assess your claim as quickly as possible; however, the actual time  taken to assess a claim will depend on the complexity of your claim (this may  include the complexity of your former employer’s business structure) and the  number of other claims on hand.75  

                                                      

73 Department of Employment, , [accessed 17/10/ 2014]. 74 While this approach facilitates ready lodgement of claims, it presents a fraud risk as the department relies on scanned or photocopied documents to verify the claimant’s identity and in turn, to determine

their eligibility (this issue is discussed further in paragraph 2.39). 75 Department of Employment, [accessed 27 October 2014].

ANAO Report No.32 2014-15 Administration of the Fair Entitlements Guarantee

58

3.11 Using their claim reference number, claimants can enquire about the  status of their application or claim with the FEG hotline and where necessary,  can be passed to the officer currently managing the claim. The standard scripts  for the FEG hotline instruct operators not to discuss delays in processing the  caller’s claim, or provide any commitment to applicants or claimants regarding  timeframes for finalisation of their claim. However, staff members can provide  the caller with the following general information: ‘We aim to process as many  claims as possible within 16 weeks, but claims may take longer to process due  to the large volume of claims being received by the department.’76  

3.12 The  department  provides  an  online  tracking  facility  that  allows  claimants to follow the progress of their claim. The information is presented as  a graphic showing six steps in the claims process with finalised steps labelled  ‘completed’ and the current step labelled ‘in progress’. Text accompanying the  graphic  provides  approximate  timeframes  for  completion  of  each  step  and  cautions that it may take longer in periods of high demand.  

3.13 An eligible FEG claimant, by definition, is an individual who has lost  their job due to events beyond their control. Individuals may face the financial  uncertainty of being without employment for some time. Knowledge of the  amount of their FEG advance and the timeframe for its payment would better  position  claimants  to  plan  and  prioritise.  There  would  be  benefit  in  the  department being more open and transparent regarding the time it takes to  process claims and factors that can impact this, including the current backlog  of claims, high demand and resource availability. This information could be  provided when claimants lodge their claim and when they inquire the status of  their claim through the FEG hotline.  

Special treatment of claims

3.14 There  are  some  instances  where,  due  to  its  complexity  or  other  circumstances associated with the insolvency or the claimant, the department  will  prioritise  the  processing  of  claims.  These  instances  are  categorised  as:  fast‐tracking, hot‐cases and complex‐cases. 

3.15 Claims are fast‐tracked to assist claimants who have particular needs,  or  those  facing  significant  financial  or  emotional  stress  as  a  result  of  their  circumstances. The need to fast‐track a claim can be identified by staff at any 

                                                      

76 Department of Employment, FEG Hotline Procedures Manual, p. 41.

Stakeholder Engagement

ANAO Report No.32 2014-15

Administration of the Fair Entitlements Guarantee

59

stage of the claims process and generally arises as a result of a discussion with  the claimant regarding their circumstances. The criteria for identifying claims  that should be considered for fast‐tracking and the process for requesting the  fast‐tracking of a claim are documented and available to all staff. The decision  to  fast‐track  a  claim  is  made  by  a  senior  officer  on  a  case‐by‐case  basis  to  ensure that claims are managed equitably and that fast‐tracked claims are not  prioritised at the detriment of other claims. These claims are tracked separately  and in some cases, claims for employees of the same company will also be  fast‐tracked.  

3.16 Hot‐cases  involve  businesses  that  may  have  a  large  number  of  employees, or where the company’s insolvency may have a particular impact on,  for example, the industry sector or region in which it is located. These cases tend  to involve the relevant Minister and are often reported by the media. In some  instances the relevant Minister may have made a commitment regarding the  timeframe for processing these claims and the department will need to work to  achieve this; although the approach to processing claims for these businesses is  the  same  as  all  other  claims.  As  soon  as  the  department  is  informed  of  the  businesses’ pending insolvency, it establishes a dedicated team to manage the  claims. The team works closely with the IP, who will generally prioritise the  provision of employee data from the company books and records. 

3.17 Hot‐cases may also include complex claims, which involve issues that  are more difficult for assessors to resolve. Complexities could involve detailed  arrangements  associated  with  the  sale  of  the  business;  the  involvement  of  contractor and sub‐contractor; limited supporting documentation available to  assess the claim; complex governing instruments; franchisee arrangement; and  the  transfers  of  the  business  or  associated  entities  (which  may  have  implications for the transfer of liabilities). 

Informing claimants of decisions

3.18 The FEG Act requires that the Department of Employment Secretary or  a delegated departmental officer must give an applicant written notice of the  decision regarding their eligibility and the decision regarding the amount of an  advance. The notice must set out: the terms of the decision and written reasons  for the decision.77 

                                                      

77 FEG Act, s. 36.

ANAO Report No.32 2014-15 Administration of the Fair Entitlements Guarantee

60

3.19 Examination of a sample of outcome letters sent by the department to  claimants  show  that  they  include  this  information,  are  clearly  written  and  contain sufficient detail to inform claimants of the basis for the decision. The  department  has  developed  standard  outcome  letter  templates  to  improve  consistency and reduce the ambiguity of information provided to claimants.  The letters also clarify that FEG advances are calculated as gross amounts, and  have not had taxes or other deductions removed and that the service provider  responsible for distributing the advance to the claimant (usually the IP), will  distribute the advance after deducting the appropriate amounts to cover tax  and  other  relevant  payments  (for  example,  child  support  payments).  The  department’s outcome letters also provide claimants with details of the review  and  appeal  processes  available  to  them  if  they  believe  the  department’s  assessment is incorrect. 

Review and appeal of decisions

3.20 The  FEG  Act  provides  for  the  department  to  initiate  reviews  of  decisions on its own initiative.78 The department may also initiate a review if it  has been provided with or becomes aware of new or additional information  that  may  alter  the  outcome  of  a  decision,  even  in  the  absence  of  a  formal  request  by  the  claimant.  This  provision  allows  the  department  to  respond  quickly if it identifies incorrect decisions.  

3.21 Claimants may also formally request review of a decision relating to the  claimants’  eligibility  or  the  advance  amount.  Such  a  review  must  be  made  within 28 days of the claimant being notified of the decision.79 To ensure the  review is impartial, all information relating to the claim is reconsidered by an  assessor that was not involved in the original claim assessment or with any  reviews that may have been undertaken by the department. The assessors will  also take into account any new information provided by the claimant that may  affect the decision.80 

3.22 If the claimant is not satisfied with the outcome of the internal review,  claimants  may  challenge  the  decision  through  the  Administrative  Appeals  Tribunal (AAT). Since the introduction of the FEG Act, nine FEG claims have 

                                                      

78 FEG Act, pt. 6, div. 2. 79 The Department of Employment Secretary (or their delegate) may extend this deadline. 80 Departmental reviews are initiated under section 37 of the FEG Act, while claimant initiated reviews are provided for by section 38.

Stakeholder Engagement

ANAO Report No.32 2014-15

Administration of the Fair Entitlements Guarantee

61

been referred to the AAT. To date, the AAT has not instructed the department  to vary any decisions. However in two instances, the department and claimant  negotiated  an  arrangement  that  saw  the  department  set  aside  or  vary  the  original decision and the claimants withdrew their appeals prior to a formal  AAT decision being made.  

Feedback and complaints

3.23 The  department  established  a  formal  complaints  management  and  feedback process for the scheme in May 2013. The process was implemented in  response  to  findings  of  an  internal  performance  audit  conducted  by  the  department in 2012-13. The number of complaints received by the department  between  May  2013  and  September  2014  is  shown  in  Figure  3.1.81  The  department recorded 772 complaints relating to FEG between 1 May 2013 and  30 September 2014, with 54 per cent of these relating to timeliness issues. 

Figure 3.1: Complaints and feedback—May 2013 to September 2014

 

Source: ANAO.

                                                      

81 The numbers of complaints recorded over this period may be understated due to staff not capturing all complaints in 2013. The low level of complaints recorded in late 2013 prompted a ‘refresher’ training of staff in February 2014, contributing to the rise in complaints from this time. Some of this increase may also be attributable to issues that arose due to the change to the new claims processing model in August 2013.

0

20

40

60

80

100

120

140

May-13Jun-13 Jul-13 Aug-13Sep-13Oct-13Nov-13Dec-13Jan-14Feb-14Mar-14Apr-14May-14Jun-14 Jul-14

Aug-14Sep-14

Timeliness Related Complaints Online Services Complaints Other Complaints Positive Feedback

ANAO Report No.32 2014-15 Administration of the Fair Entitlements Guarantee

62

3.24 The FEG complaints management and feedback policy requires staff to  respond professionally to complaints,82 and to record these in the processing  system  to  allow  for  monitoring  and  reporting.  Within  two  business  days  of  receiving the complaint, the complainant must be advised that their complaint  has been registered and the department’s procedures state that a response will  be  within  five  business  days  (this  correspondence  is  recorded  on  the  complainant’s  claim  record).  If  the  department  does  not  hear  from  the  complainant  within  ten  business  days  of  the  department’s  response,  the  complaint is closed. If the complainant indicates their ongoing dissatisfaction  with the response and the department is unable to reach a resolution with the  complainant,  they  are  advised  of  their  rights  to  take  the  complaint  to  the  Commonwealth Ombudsman.83 

3.25 Complaints and feedback are assigned a standardised code indicating  the  nature  of  the  complaint.  Details  of  the  complaint  are  captured  on  the  register and recorded against the claimant’s claim record on the processing  system.  A  consolidated  view  of  all  complaints  is  only  available  through  a  search to identify records with complaint codes in the open text field in the  processing  system.  There  would  be  benefit  in  development  of  a  reporting  facility to allow for the tracking and reporting of all complaints in a single  register.  

3.26 In  addition  to  responding  and  resolving  the  issues  raised  by  the  complainants, a key focus of the department’s management of complaints is to  identify the root cause of these issues. Recurring issues are identified and this  information is shared with the processing areas as part of information sharing  sessions to identify lessons learned and to implement changes to resolve these  issues.84 While this process appears to be working, there is limited focus by the  department on the complainant, the quality of the department’s response and 

                                                      

82 The policy defines a complaint as an expression of dissatisfaction or concern about the administration of FEG that requires a response, and is not part of a formal review process. It is differentiated from feedback, which is a comment about the administration of FEG that does not require a response from the department.

83 The Ombudsman has dealt with four complaints related to FEG, with all relating to the claims not being finalised in a reasonable timeframe. In each instance, the department finalised the claim and notified the claimant of the outcome shortly after the Ombudsman became involved. In three cases the payment decision was made prior to the department submitting their official response to the Ombudsman’s request for information, in the fourth it was made less than a week later. All four cases were closed by the Ombudsman without further investigation.

84 For example, based on the high number of complaints relating to the online status facility used by claimants to track their claim, changes were made to improve the design of this facility.

Stakeholder Engagement

ANAO Report No.32 2014-15

Administration of the Fair Entitlements Guarantee

63

whether this effectively responds to the issues raised. In particular, there is  currently no quality assurance or central oversight to examine how complaints  are addressed, including examination of: the response to the complainant to  ensure that it was appropriate; whether further escalation is required; whether  the complainant is satisfied with the response and outcome; and whether the  complaint should be closed, or requires additional follow‐up or monitoring.  

Working with insolvency practitioners 3.27 Insolvency  Practitioners  (IPs)  are  engaged  to  act  on  behalf  of  a  company’s  creditors  and  are  responsible  for  protecting  and  realising  a  company’s assets. IPs are governed by the Corporations Act 2001 and ASIC is  responsible for their regulation.85 All IPs are required to register with ASIC and  to meet specific reporting obligations associated with the work they undertake.  In  performing  their  work  IPs  have  access  to  the  books  and  records  of  the  insolvent  company  and  are  generally  the  primary  point  of  contact  for  employees  when  their  employer  becomes  insolvent.  As  such,  IPs  are  well  placed to assist the department with its administration of the FEG.  

3.28 The  department  relies  upon  the  IP  to  provide  information  from  the  former employer’s records to verify a claimant’s eligibility for a FEG advance  and the amount of any advance. The department also relies on IPs to distribute  FEG advances to eligible claimants. There is no mandatory requirement for IPs  to assist the department and in some cases the IP may be unwilling or unable  to provide assistance. Where this occurs, the department may engage another  service provider to undertake this work (generally a qualified accountant86), or  depending  upon  the  circumstances  of  the  insolvency  and  the  number  of  claimants  involved,  the  department  may  undertake  some  of  this  work  internally. The service providers are also able to distribute payments on behalf  of the department and may also assist the department with the investigation of  issues  associated  with  complex  claims,  or  suspected  fraud  and  non‐compliance. 

3.29 Once an effective FEG claim has been submitted, the department will  contact the relevant IP and seek details of outstanding entitlements and any  debts the employee may have to the former employer. On occasion the IP will 

                                                      

85 Insolvency practitioners include the following professionals: liquidators, administrators, receivers, controllers and bankruptcy trustees. 86 The department maintains a panel of service providers from which it sources these services.

ANAO Report No.32 2014-15 Administration of the Fair Entitlements Guarantee

64

conduct this work as a cost of the winding up process. However, in most cases  there are insufficient funds available to compensate the IP for this work and  the  department  procures  the  paid  services  of  the  IP  through  a  formal  arrangement.87 The cost of these services is determined through reference to an  agreed  fee  model  setting  out  the  amount  the  department  will  pay,  per  claimant,  for  both  verification  services  and  distribution  services.88  The  fee  model was first introduced in February 2009, at which time the fee structure  was supported by the IPs. At that time, the department notified IPs that the fee  model would be reviewed on an annual basis. Accordingly, a revised model  came in effect from March 2010. The model has not been reviewed since.  

3.30 In  2012-13,  the  department  paid  IPs  a  total  of  $7.8 million  for  verification  and  distribution  services.89  In  an  effort  to  reduce  this  cost,  the  department implemented changes to the process for seeking verification data  from  IPs.  Rather  than  seeking  this  data  for  all  employees  of  the  insolvent  company (regardless of whether the employee had actually applied for FEG  support),  the  department  now  only  seeks  this  data  as  eligible  claims  are  received.  This  change  reduced  the  cost  of  IP  services  by  36  per  cent  to  approximately $4.9 million in 2013-14.90 While this change has resulted in a  significant reduction in the cost of IP fees for the department, the new process  results  in  delays  and  additional  work  for  departmental  staff  as  they  are  required to make and track multiple requests for employee information from  IPs  (on  each  occasion  revising  the  contractual  arrangements  with  the  IP  to  reflect this change in scope and cost). The change also imposes additional work  on IPs, as the ad‐hoc nature of the requests does not permit the IP to benefit  from efficiencies gained from processing all employee data in a single batch.  The IP is also unable to focus resources on this task at a single point in the  insolvency process, allowing these resources to then focus on other priorities.  Instead,  staff  must  be  taken  from  other  tasks  to  re‐visit  the  calculation  of  entitlement data in response to each new data request from the department.  

                                                      

87 The services to be delivered by the IP are set out in a deed of undertaking signed by the IP. This deed of undertaking and a letter of acceptance from the department form the agreement for the provision of services to the department. The department is able to procure these services directly without approaching the market as the relevant IP is the only one able to provide the services required.

88 The matrix works on a sliding scale, with the cost of each service reducing as the number of employees per case/request increases. 89 This increase correlates to the increase in the number of claims received over this period. 90 The department also sought and received agreement, through the 2014-15 portfolio budget process,

for IP fees to be drawn from administered funding. This change was implemented from 1 July 2014.

Stakeholder Engagement

ANAO Report No.32 2014-15

Administration of the Fair Entitlements Guarantee

65

3.31 In view of the important role of IPs in supporting the department in its  administration of FEG, there is scope for the department to work with IPs to  streamline the process for requesting employee data and in doing so, reduce  the red tape burden on IPs, particularly given the importance of the ongoing  relationship with IPs to the efficient processing of claims. 

Cooperation with other agencies 3.32 The  department  has  established  a  number  of  inter‐entity  cooperative  arrangements to facilitate sharing of insights and information in areas where the  work  of  these  agencies  intersect.91  Protocols  have  been  established  for  the  department  to  share  information  with  the  ATO  and  Fair  Work  Ombudsman  (FWO) to assist in identifying company directors who should be brought to the  attention  of  ASIC  on  matters  relating  to  compliance  with  the  Corporations  Act 2001.  

3.33 The  department  also  maintains  information  exchange  arrangements  with ASIC. As part of this arrangement, the department provides ASIC with  details of IPs and the details of company directors who have had more than  one  insolvency  event.  This  information  is  provided  on  a  quarterly  basis  to  inform ASIC’s intelligence gathering and risk‐based compliance activity. The  department  also  shares  information  with  ASIC  regarding  investigation  of  potential fraud that involves IPs or company directors. Meetings are held twice  a year between senior representatives of the Department of Employment and  ASIC  to  discuss  general  trends  and  patterns  in  insolvency  practitioner  performance.92  The  department  is  also  a  member  of  the 

Inter‐Agency Phoenix forum. The forum brings together a number of State and  government  agencies  to  share  intelligence,  data  and  experience  aimed  at  deterring fraudulent phoenix behaviour.93 

                                                      

91 Section 45 of the FEG Act authorises the disclosure of personal information to certain agencies for the administration of particular functions. This authority allows for information to be shared with other agencies for the purpose of facilitating the exercise of powers or functions that these agencies have in relation to Corporations Act 2001, the Bankruptcy Act 1966, or entitlements of current or former employees.

92 Claimants are also referred to ASIC when their former employer’s company appears to be abandoned, as ASIC is empowered to wind-up abandoned companies to allow employees with unpaid employment entitlements to make a claim under the FEG Act.

93 Fraudulent phoenix activity is where a company deliberately liquidates to avoid paying creditors and then carries on the same or a similar business with the same ownership, via another entity.

ANAO Report No.32 2014-15 Administration of the Fair Entitlements Guarantee

66

3.34 When  a  claim  is  finalised,  the  department  provides  details  of  the  advance amount to DHS to allow adjustments to be made to the claimant’s  entitlements payments. For example, the information may be used by DHS to  adjust government income support payments received by the claimant.94 

3.35 The department also benefits from access to  information  provided by  other agencies. For example, the FWO provides the department with access to  the agency’s knowledge management system to provide the department with  access to information regarding employee entitlements, awards and agreements.  The  department  also  takes  advantage  of  information  provided  through  the  Department of Immigration and Border Protection Visa Entitlement Verification  Online system to check visa entitlements and status information.  

Conclusion 3.36 The government’s employee entitlements scheme has been functioning  for almost 15 years and over this period, the department has had opportunity  to establish core elements of the customer‐facing aspects of the program, but  this can be improved. With the deterioration in timeliness of claims processing  since  early  2014,  the  department  has  not  communicated  directly  with  stakeholders regarding the cause of these issues or provided regular updates  regarding  their  resolution.  During  2014,  the  department made  a number  of  enhancements to the claims processing system that have improved its ability to  monitor  and  report  the  status  of  claims.  There  is  opportunity  for  the  department  to  use  this  information  to  provide  more  timely  and  regular  updates  to  stakeholders  regarding  average  processing  timeframes.  This  information  would  assist  claimants  to  plan  and  prioritise  as  they  make  decisions regarding their finances and future employment options.  

3.37 While  the  department  has  made  limited  attempts  to  gauge  claimant  satisfaction with FEG service delivery, there is an annual process in place to  seek  feedback  from  insolvency  practitioners.  Insolvency  practitioners  interviewed  by  the  ANAO  regarding  the  effectiveness  of  the  department’s  administration of FEG were generally positive and this view was confirmed by  the results from the department’s most recent annual survey of IPs. However, 

                                                      

94 Once the claimant receives a FEG advance, the employee’s income support payments will be paused, as the advance is treated as income and must be drawn down before the income support payment can recommence—for example, a ten-week redundancy payment would result in pausing of the unemployment benefit for a ten-week period.

Stakeholder Engagement

ANAO Report No.32 2014-15

Administration of the Fair Entitlements Guarantee

67

the questions contained in the annual survey are limited and do not seek IP’s  views on key elements of the department’s relationship with IPs. Additional  comments provided by a number of IPs that responded to the survey identified  issues relating to: the current arrangements for procuring IP services; lack of  communications with IPs regarding operational changes; and the additional  impost associated with ad‐hoc rather than batch arrangements for requesting  claimant  details.  In  view  of  the  important  role  of  IPs  in  supporting  the  department in its administration of FEG, there is scope for the department to  streamline the process for requesting employee data. 

ANAO Report No.32 2014-15 Administration of the Fair Entitlements Guarantee

68

4. Reporting and Evaluation

This chapter examines the Department of Employment’s framework for monitoring  and reporting the scheme’s performance against the government’s objectives, focusing  on  program  evaluation,  the  Portfolio  Budget  Statements  and  reporting  in  the  department’s annual report.  

Introduction 4.1 In addition to the provision of financial assistance to eligible employees  and the recovery of advances, the department has a broader responsibility for  managing and monitoring the ongoing delivery of the FEG program. In this  regard, important activities for the department are monitoring of the overall  performance  of  the  program  and  reporting  to  government,  Parliament  and  public  on  the  program’s  effectiveness  and  its  progress  in  achieving  the  government’s identified outcomes.  

Monitoring program performance 4.2 Sound monitoring and reporting arrangements need to be in place to  monitor the overall performance of the FEG program. Relevant activities at the  program level for the department include: assessment of its own performance;  monitoring of the claim assessment process; seeking feedback to understand  the experience of stakeholders; and evaluating the effectiveness of FEG.  

4.3 The department has—since enhancements made to FEG’s processing  system in June 201495—periodically monitored FEGs’ operational performance,  with a particular focus on program demand and claims processing. Quarterly  reports  provide  the  department’s  Secretary  with  detailed  management  information covering key aspects of the program, including: claims activity,  claim age, performance of insolvency practitioners, review and appeal activity,  FEG hotline activity and complaints and the performance indicators included  for FEG in the PBS and risks.  

4.4 The commentary in this report also includes a detailed assessment of  the  current  status  of  the  scheme  and  in  particular,  progress  being  made  in 

                                                      

95 Although the department transitioned to the new claims processing model in August 2013, it was not until June 2014 that enhancements to the processing system provided the functionality required to monitor workflow and generate management information for reporting.

Reporting and Evaluation

ANAO Report No.32 2014-15

Administration of the Fair Entitlements Guarantee

69

addressing  the  claims  backlog  and  improving  the  timeliness  of  claims  processing.  The  availability  of  this  information  also  provides  for  improved  visibility of the flow of claims through the claims assessment process, allowing  for identification of potential bottlenecks, and facilitating re‐allocation of staff  and effort to respond to these.  

Program reporting 4.5 The government’s reporting framework requires entities to identify and  report  against  the  programs  that  contribute  to  each  of  the  government’s  identified outcomes over the Budget and forward years with the aim of clearly  demonstrating  the  achievements  against  program  objectives.  Central  to  this  framework  is  the  development  of  clearly  specified  outcomes,  well  defined  program objectives, deliverables and appropriate key performance indicators  (KPIs)  to  assess  the  impact  of  the  program.  The  reporting  framework  is  currently  subject  to  change  as  a  result  of  the  introduction  of  the  Public  Governance, Performance and Accountability Act 2013. New guidelines in relation  to  performance  reporting  are  expected  to  be  introduced  in  early  2015.  This  change provides an opportunity for the department to examine its reporting  for FEG and to seek to align this with the new reporting arrangements. 

4.6 The  Portfolio  Budget  Statements  (PBS)  for  the  Employment  Portfolio  show that FEG contributes to Outcome 2: Facilitate jobs growth through policies  that promote fair, productive and safe workplaces. Three programs contribute to  achievement  of  this  outcome,  with  FEG  identified  as  an  ‘administered  item’  under Program 2.1—Employee Assistance. The 2014-15 PBS states the objective  for  Program  2.1  as:  ‘This  programme  is  directed  at  protecting  employee  entitlements in certain circumstances’96 and describes the FEG as: 

Fair Entitlements Guarantee—established under the Fair Entitlements Guarantee  Act  2012  to  provide  financial  assistance  for  certain  unpaid  employment  entitlements  when  an  employee  loses  their  job  through  the  liquidation  or  bankruptcy of their employer on or after 5 December 2012.97 

                                                      

96 Australian Government, Portfolio Budget Statements 2014-15, Employment Portfolio, Commonwealth of Australia, Canberra, 2014, p. 43. 97 ibid.

ANAO Report No.32 2014-15 Administration of the Fair Entitlements Guarantee

70

Measuring performance

4.7 The department does not define deliverables and KPIs for the programs  contributing to Outcome 2, explaining this inconsistency with the reporting  framework  with  the  statement  that,  ‘Data  is  not  provided  for  deliverables  because the administered items address legal or administrative issues rather  than advancing major government initiatives’.98  

4.8 Instead the department provides the following ‘effectiveness indicators’  to  demonstrate  the  contribution  of  the  programs  to  the  achievement  of  Outcome 2: (a) the federal workplace relationship system supports improved  productivity outcomes (represented by a measure for productivity growth and  the ABS Wage Price Index); (b) low incidence of industry action (represented  by a measure for working days lost); and (c) collective bargaining is widely  used  by  employers  and  employees  to  negotiate  pay  and  conditions  (represented by the number of current enterprise agreements under the Fair  Work  Act  2009).  There  is  no  attempt  by  the  department  to  assess  the  effectiveness of the program in protecting employee entitlements. 

Departmental outputs

4.9 The department’s reporting for FEG focuses on the timeliness of claims  processing, the accuracy of claims processing and stakeholder satisfaction. These  measures  are  referred  to  in  the  annual  report  as  ‘departmental  outputs  performance information’. These performance indicators were specified in the  original operational arrangements for GEERS in 2001 and the department has  consistently reported against these measures since this time, although targets for  these measures have varied. While the output measures remain relevant for the  scheme,  there  are  some  improvements  that  could  be  made  to  the  individual  measures to ensure they continue to provide an accurate view of the status of the  scheme and the effectiveness of the department in administering it. The current  performance measures included in the 2014-15 PBS are shown in Table 4.1: 

                                                      

98 Australian Government, Portfolio Budget Statements 2014-15, Employment Portfolio, Commonwealth of Australia, Canberra, 2014, p. 47.

Reporting and Evaluation

ANAO Report No.32 2014-15

Administration of the Fair Entitlements Guarantee

71

Table 4.1: FEG departmental output measures, 2014-15

Measure Target

Timeliness of processing claims Timeliness 1: 90 per cent of requests for verified entitlement data are initiated within 2 weeks of claim receipt or liquidation date (whichever is

later).

Timeliness 2: 90 per cent of eligibility and advance decisions made within 4 weeks of receiving verified entitlement data.

Accuracy of processing claims 90 per cent of eligibility and advance decisions are accurate having regard to the information available when making the decision.

Stakeholder satisfaction

80 per cent of stakeholders (insolvency practitioners) are satisfied with the administration of FEG.

Source: 2014-15 Portfolio Budget Statements for the Department of Employment.

4.10 In addition to these output performance measures the department also  includes  in  annual  reports  the  total  amount  of  FEG  or  GEERS  advances  recovered  from  liquidated  companies.  During  2013-14  more  than  $16.48 million  was  reported  as  recovered  through  creditor  dividends  in  the  winding  up  process.  These  recoveries  related  to  advances  made  within  or  before 2012-13. 

Timeliness

4.11 Since the employee entitlements scheme commenced, the department  has reported against two timeliness performance measures. The first of these  measured achievement against a target timeframe of 16 weeks for completing 

each claim (16 weeks from receipt of the claim to the point where the decision  regarding the advance amount was made). The second measure focused on the  final segment of the process and the point at which the final decision is made  following receipt of verified entitlement data from the IP. 

4.12 With increased demand for support from the scheme in recent years the  department has found it increasingly challenging to meet the targets for these  measures  and  this  has  resulted  in  their  gradual  easing.  In  2010-11,  the  department defined the timeliness measure as ‘90 per cent of claims processed  within 16 weeks of receipt’.99 The department fell just short of achieving this  target, with 88.6 per cent of claims processed in the 16 week timeframe. While  the PBS stated that the target was 90 per cent in that year, the department’s  2010-11 annual report reported the target as 80 per cent, giving the impression 

                                                      

99 Australian Government, 2010-11 Portfolio Budget Statements, Department of Education, Employment and Workplace Relations, Commonwealth of Australia, Canberra, 2010, p. 135.

ANAO Report No.32 2014-15 Administration of the Fair Entitlements Guarantee

72

the target had been exceeded.100 The target was reduced to 80 per cent in the  subsequent 2011-12 PBS. 

4.13 With the introduction of the FEG legislation in 2012-13, the department  stopped  reporting  performance  against  the  16  week  processing  timeframe  replacing this measure with a new performance measure that covers only the  initial  segment  of  the  claims  process.  The  second  timeliness  performance  measure  remained  unchanged;  however  the  target  for  its  achievement  was  reduced from 98 per cent to 90 per cent, notwithstanding that the department  had consistently met the 98 per cent target. The key steps in the claims process  and points at which the current performance measures apply are shown in  Figure 4.1. 

Figure 4.1: Indicative timeframe for claims processing

 

Source: Developed by the ANAO.

                                                      

100 Refer to Department of Education, Employment and Workplace Relations, Annual Report 2010-11, DEEWR, Canberra, 2011, p. 131.

Reporting and Evaluation

ANAO Report No.32 2014-15

Administration of the Fair Entitlements Guarantee

73

4.14 The department’s aim in redefining the performance measures was to  focus on segments of the claims process over which it has control. As Figure 4.1  illustrates,  the  current  performance  measures  only  cover  the  first  and  final  segments of the claims process—both areas of the process where the department  has greater control. However, the middle segment of the process is now not  subject  to  any  performance  reporting  and  it  is  in  this  portion  that  the  more  complex processing activities take place and where issues and delays are most  likely to occur. While some of the factors that cause delays during this stage of  processing are outside the direct control of the department (for example, where  IPs  may  experience  delays  in  providing  data  and  verifying  a  claim),  responsibility for FEG ultimately rests with the department and as such, it is  important that the department’s performance is measured and reported across  the entire claims process.  

4.15 The department’s performance against the two new indicators has been  well below the target, with the department’s 2013-14 Annual Report, showing  that only 52.8 per cent of requests for verified data within two weeks (against  the target of 90 per cent). 

Accuracy

4.16 Accuracy in assessing claims is important to ensure that public money  is spent appropriately and to avoid the time and cost associated with review of  claim assessments and rectification of errors. The accuracy of claims processing  is  currently  represented  by  the  proportion  of  correct  assessment  decisions  achieved each year, with the target currently set at 90 per cent of decisions.  

4.17 For the purpose of calculating this measure, an inaccurate or incorrect  assessment decision is one that has been varied based on a review101 and the  review did not involve consideration of new information. Conversely, accurate  decisions are those that have not been subject to a review; that have not been  changed as a result of a review; or that have been changed on the basis of new  information considered as part of a review. 

                                                      

101 The FEG legislation provides for three types of review; one initiated by the claimant and a second that is initiated by the department when new information comes to light or an error was identified. The FEG legislation also provides for review of the decision by the Administrative Appeals Tribunal. Under GEERS claimants could seek a review by the department of the decision (this was referred to as an appeal).

ANAO Report No.32 2014-15 Administration of the Fair Entitlements Guarantee

74

4.18 In  2012-13,  the  target  for  this  measure  was  set  at  98  per  cent  of  payments not varied after appeal.102 In 2014-15, the target for this measure was  reduced from 98 per cent to 90 per cent. This change was made despite the  department reporting that it achieved 98.7 per cent accuracy in the 2013-14  Annual Report.103 There is no record explaining the rationale for making the  change even through the basis for seeking an appeal remains fundamentally  unchanged and examination of past performance against this measures shows  that the department consistently achieved the higher target.  

4.19 Consistency in reporting is an important consideration and wherever  possible,  performance  targets  should  remain  consistent  across  reporting  periods  to  assist  with  monitoring  progress  and  achievements.  Accordingly,  any  decision  to  change  performance  measures  should  be  justifiable  and  consider  the  previous  years’  targets  and  the  department’s  progress  in  achieving  these,  taking  into  account  the  impact  of  changing  practices  and  conditions.  

Stakeholder satisfaction

4.20 Feedback  from  claimants  with  respect  to  satisfaction  with  the  department’s administration of the scheme has been limited. The department  conducted a survey of claimants in 2013-14 using an electronic survey tool.104  The  response  rate  to  the  pilot  survey  was  low  (at  17  per  cent)  and  the  department advised the ANAO that the data could not be used for reporting  purposes. The department has also advised that it will give consideration to  alternatives  approaches  in  an  effort  to  improve  this  response  rate  when  it  begins planning for the next survey of claimants in 2015.  

4.21  There is considerable merit in the department seeking feedback from  claimants regarding their experience with the scheme to help identify potential  areas of improvement in administration. It is important that the department  uses the lessons from the pilot and develops an effective approach to reliably  assess the views of claimants.  

                                                      

102 Reference to an ‘appeal’ relates to the arrangements in place prior to the introduction of the FEG legislation; claimant had one right of review of the original decision, and one right of appeal of the review decision.

103 See Department of Employment Annual Report 2012-13, p. 103. 104 Invitations to participate in the survey were sent to 924 claimants who had received FEG assistance during the year. The department received 158 responses (a 17 per cent response rate and below the response required to provide the appropriate level of statistical confidence).

Reporting and Evaluation

ANAO Report No.32 2014-15

Administration of the Fair Entitlements Guarantee

75

4.22 The  department  reports  on  the  level  of  satisfaction  of  IPs  (with  the  management of the employee entitlements support scheme) through an annual  survey. The results of the survey have consistently shown that IPs are ‘satisfied  or above’ with the department’s management of the scheme. The department’s  2012-13 Annual Report noted that the department had surveyed 163 IPs, with  91  per  cent  rating  the  department’s  management  of  the  FEG  scheme  ‘satisfactory or above’.105 

4.23 In  2013-14,  the  department  redefined  the  stakeholder  satisfaction  performance  measure,  adding  the  target  of  80  per  cent  of  stakeholders  (IPs)  satisfied  with  the  administration  of  FEG.  The  department  also  changed  its  approach to surveying IPs; in prior years, the department’s survey of IPs was  conducted by an external organisation106 and involved a census of all IPs the  department  had  worked  with  during  the  relevant  financial  year,  with  data  collected  via  telephone  interviews.  In  2013-14  the  department  conducted  the  survey for the first time in‐house, using an electronic survey tool. A total of  489 IPs were asked to participate in the survey, with only 26 per cent (126 IPs)  providing a response. The department confirmed that the number of responses  was just short of the 133107 required for the result to achieve the desired level of  statistical confidence. Despite this, the department used the results in its 2013-14  annual  report,  reporting  that  74.8  per  cent  of  IPs  responded  that  they  were  ‘satisfied or above’ with the department’s management of FEG and a further  18 per cent were ‘neutral’ and 7 per cent were ‘dissatisfied’.  

4.24 The department’s online survey included nine questions and asked IPs  to rate their satisfaction with: the availability of information; correspondence;  and  staff  professionalism.  The  survey  also  asked  IPs  to  rate  their  level  of  satisfaction  with  the  business  processes  and  documentation  used  to:  verify  entitlements,  request/pay  for  IP  services  and  for  distributing  payments  to  eligible claimants.108 Despite the results of the survey being used to report IPs’  level of satisfaction with the department’s administration of FEG, the 2013-14  survey  did  not  pose  this  question  directly  to  IPs.  Instead,  the  department 

                                                      

105 Department of Education, Employment and Workplace Relations, Annual Report 2012-13, DEEWR, Canberra, 2013, p. 89. 106 Prior to the change in 2013-14, the survey methodology and questions had remained consistent since at least 2008-09. 107 The response rate achieved by the department’s in house survey is low, particularly when compared

with the average response rate of 70 per cent achieved over the previous seven year when the survey was conducted by an external organisation using a different methodology. 108 The rating scale ranged from ‘very satisfied’ to ‘very dissatisfied’ with an option to answer ‘neutral’.

ANAO Report No.32 2014-15 Administration of the Fair Entitlements Guarantee

76

calculated the percentage of satisfied IPs based on responses to selected survey  questions. However, the questions included in the survey were limited and did  not cover key areas of the department’s relationship with IPs. Examination of  free text responses to the IP satisfaction survey showed a number of areas of  concern expressed by IPs relating to: changes made by the department to the  process  for  requesting  claimant  details;  difficulties  contacting  relevant  departmental staff; IP remuneration; and the delays in processing of claims. IPs  interviewed by the ANAO as part of this audit also raised concerns relating to  one or all of these areas. 

4.25 Refocusing  of  the  survey  questions  to  focus  on  all  aspects  of  the  department’s relationship with IPs will provide for a more accurate assessment  of  these  stakeholders’  satisfaction  with  the  department  and  allow  for  more  meaningful  feedback  to  be  provided  that  can  be  used  to  improve  the  department’s management of the scheme.  

Scheme evaluation 4.26 Since the commencement of the government’s employee entitlements  scheme in 2000, the department’s focus in relation to its administration has  been on the processing of claims. While an internal evaluation of the scheme  was conducted shortly after the scheme commenced in early 2001, no further  evaluations  of  the  scheme  have  been  undertaken.  Similarly,  only  limited  analysis has been undertaken by the department in relation to how the scheme  operates and the consequence of recent changes to its design. The department  informed the ANAO that in May 2006 a report was finalised by an external  consultant on behalf of the department assessing the feasibility of developing a  model to forecast demand for the GEERS. In 2014, the department commenced  a  new  research  project  focusing  on  insolvency  dynamics,  in  particular,  determinants of insolvency and linkages to FEG demand. The initial phase of  this research was completed by the end of 2014 and further work is continuing.  

4.27 Overall, the lack of analysis of the scheme has limited the department’s  ability  to  provide  advice  to  the  government  on  the  program’s  benefits— particularly for employees who lose their job when a business fails—and to  inform  policy  considerations,  particularly  in  relation  to  understanding  the  drivers for increasing demand for the scheme, connections between demand  and scheme cost and options to manage these issues. It has also constrained the 

Reporting and Evaluation

ANAO Report No.32 2014-15

Administration of the Fair Entitlements Guarantee

77

department’s ability to inform broader discussion, particularly in relation to  topical issues including moral hazard109 and phoenix activity110.  

4.28 With  the  intent  of  the  scheme  remaining  largely  unchanged  since  it  commenced in 2000 and with plans for the scheme to continue, there is scope  for the department to undertake periodic analysis and evaluation, including  consideration of the scheme’s design; the dynamics of demand and cost and  how  the  scheme  integrates  with  other  government  initiatives  to  protect  employees and regulate business. This information would better position the  department  to  advise  the  government  on  any  adjustments  to  the  scheme  design; to manage scheme performance; and to strengthen accountability.  

Conclusion 4.29 When the department transitioned to a stage‐based processing model  in August 2013, the FEG scheme’s focus moved from processing claims at the  company  level  to  the  individual  claim  level.  It  took  some  time  for  the  department  to  make  changes  to  the  processing  system  to  support  this  new  focus  and  it  was  not  until  June  2014  that  enhancements  where  made  that  provide  for  the  tracking  of  individual  claims  as  they  progress  through  the  claims process. Improvements to the processing system have also been made  relating to the availability of management information to monitor and report  on  the  status  of  the  claim  process,  including  development  of  a  number  of  regular reports for the use of staff and managers.  

4.30 In outlining the proposed allocation of resources in the Portfolio Budget  Statements and reporting on FEG in its annual report, the department’s focus  has  been  on  outputs  (referred  to  as  ‘departmental  outputs’),  rather  than  reporting against outcomes or key performance indicators, as is generally the  practice for large initiatives. The measures used by the department where first  set out in the operational arrangements for the original scheme in 2000. These  measures  have  remained  largely  unchanged;  however  the  targets  against  which achievements are measured have varied.  

                                                      

109 Moral hazard occurs where some employers accept a higher level of risk because of the existence of a government funded safety-net to cover their employee entitlement obligations. 110 Phoenix activity is defined as the evasion of tax and other liabilities, such as employee entitlements, through the deliberate, systematic and sometimes cyclic liquidation of related corporate trading

entities.

Australian Government (Treasury) 2009, Action against Fraudulent Phoenix Activity: Proposals Paper, p1.

ANAO Report No.32 2014-15 Administration of the Fair Entitlements Guarantee

78

4.31 While these output measures remain relevant for the scheme, there are  some improvements that could be made to the individual measures to ensure  they continue to provide an accurate view of the status of the scheme and the  effectiveness of the department in administering it. For example, the current  measure  used  to  demonstrate  the  timeliness  of  claims  processing  does  not  cover the full claims assessment process and the measure showing the level of  stakeholder satisfaction with the department’s administration of the scheme,  only reports on the satisfaction of insolvency practitioners and does not report  on the satisfaction of claimants.  

4.32 The public sector’s reporting framework is currently subject to change  as  a  result  of  the  introduction  of  the  Public  Governance,  Performance  and  Accountability  Act  2013  and  new  guidelines  are  expected  to  be  introduced  during 2015. In seeking to align with the new reporting arrangements, there is  opportunity  for  the  department  to  examine  its  reporting  for  FEG  and  give  consideration to the areas of improvement identified by the ANAO as part of  this audit.  

4.33 Since commencement of the various entitlements schemes in 2000 the  department’s focus has been on administering the claims assessment process,  with only limited focus on evaluation and analysis of the scheme and how it  integrates  with  other  government  initiatives  aimed  at  protecting  employees  and regulating business. There is opportunity for the department to undertake  periodic  analysis  to  better  position  it  to  support  policy  making,  assist  in  program management and strengthen accountability. 

 

Ian McPhee  Canberra ACT 

23 April 2015 

 

ANAO Report No.32 2014-15

Administration of the Fair Entitlements Guarantee

79

Appendices

ANAO Report No.32 2014-15

Administration of the Fair Entitlements Guarantee

81

Appendix 1: Entity Response

 

ANAO Report No.32 2014-15 Administration of the Fair Entitlements Guarantee

82

 

 

ANAO Report No.32 2014-15

Administration of the Fair Entitlements Guarantee

83

Index

Administrative Appeals Tribunal, 29,  34, 38, 60, 73  Australian Restructuring, Insolvency  and Turnaround Association, 39  Australian Securities and Investments 

Commission, 29, 35, 53, 55, 56, 63, 65  Australian Taxation Office, 29, 35, 55,  65 

Department of Human Services, 56, 66 

Effective claim, 30  Eligible claimant, 30, 50, 63, 75  Employee Entitlements Support  Scheme, 13, 27 

Fair Entitlements Guarantee Act, 14,  15, 28, 29, 33, 35, 38, 39, 59, 60  Fair Work Ombudsman, 56, 65  Fast‐track, 58 

G  General Employee Entitlements and  Redundancy Scheme, 14, 17, 27, 33,  36, 38, 39, 70, 76  Governing instrument, 32, 33, 42, 59 

Hot cases, 59 

Insolvency event, 15, 30 

M  Maximum weekly wage, 32  Moral hazard, 77 

Phoenix activity, 17, 65, 77  Phoenix forum, 17, 65  Public Governance, Performance and  Accountability Act 2013, 21, 69, 78 

Recovery of advances, 34, 51, 68 

Safety‐net, 77  Shared Services Centre, 19, 45, 47  Special Employee Entitlements Scheme  for Ansett group employees, 27 

ANAO Report No.32 2014-15 Administration of the Fair Entitlements Guarantee

84

Series Titles

ANAO Report No.1 2014-15  Confidentiality in Government Contracts: Senate Order for Departmental and Agency  Contracts (Calendar Year 2013 Compliance)  Across Agencies 

ANAO Report No.2 2014-15  Food Security in Remote Indigenous Communities  Department of the Prime Minister and Cabinet 

ANAO Report No.3 2014-15  Fraud Control Arrangements  Across Entities 

ANAO Report No.4 2014-15  Second Follow‐up Audit into the Australian Electoral Commissionʹs Preparation for  and Conduct of Federal Elections  Australian Electoral Commission 

ANAO Report No.5 2014-15  Annual Compliance Arrangements with Large Corporate Taxpayers  Australian Taxation Office 

ANAO Report No.6 2014-15  Business Continuity Management  Across Entities 

ANAO Report No.7 2014-15  Administration of Contact Centres  Australian Taxation Office 

ANAO Report No.8 2014-15  Implementation of Audit Recommendations  Department of Health 

Series Titles

ANAO Report No.32 2014-15

Administration of the Fair Entitlements Guarantee

85

ANAO Report No.9 2014-15  The Design and Conduct of the Third and Fourth Funding Rounds of the Regional  Development Australia Fund  Department of Infrastructure and Regional Development 

ANAO Report No.10 2014-15  Administration of the Biodiversity Fund Program  Department of the Environment 

ANAO Report No.11 2014-15  The Award of Grants under the Clean Technology Program  Department of Industry 

ANAO Report No.12 2014-15  Diagnostic Imaging Reforms  Department of Health 

ANAO Report No.13 2014-15  Management of the Cape Class Patrol Boat Program  Australian Customs and Border Protection Service 

ANAO Report No.14 2014-15  2013-14 Major Projects Report  Defence Materiel Organisation 

ANAO Report No.15 2014-15  Administration of the Export Market Development Grants Scheme  Australian Trade Commission 

Audit Report No.16 2014-15  Audits of the Financial Statements of Australian Government Entities for the Period  Ended 30 June 2014  Across Entities 

ANAO Report No.17 2014-15  Recruitment and Retention of Specialist Skills for Navy  Department of Defence 

ANAO Report No.32 2014-15 Administration of the Fair Entitlements Guarantee

86

ANAO Report No.18 2014-15  The Ethanol Production Grants Program  Department of Industry and Science 

ANAO Report No.19 2014-15  Management of the Disposal of Specialist Military Equipment  Department of Defence 

ANAO Report No.20 2014-15  Administration of the Tariff Concession System  Australian Customs and Border Protection Service 

ANAO Report No.21 2014-15  Delivery of Australiaʹs Consular Services  Department of Foreign Affairs and Trade 

ANAO Report No.22 2014-15  Administration of the Indigenous Legal Assistance Programme  Attorney‐General’s Department 

ANAO Report No.23 2014-15  Administration of the Early Years Quality Fund  Department of Education and Training  Department of Finance  Department of the Prime Minister and Cabinet 

ANAO Report No.24 2014-15  Managing Assets and Contracts at Parliament House  Department of Parliamentary Services 

ANAO Report No.25 2014-15  Administration of the Fifth Community Pharmacy Agreement  Department of Health  Department of Human Services  Department of Veterans’ Affairs 

ANAO Report No.26 2014-15  Administration of the Medical Specialist Training Program  Department of Health 

Series Titles

ANAO Report No.32 2014-15

Administration of the Fair Entitlements Guarantee

87

ANAO Report No.27 2014-15  Electronic Health Records for Defence Personnel  Department of Defence 

ANAO Report No.28 2014-15  Management of Interpreting Services  Department of Immigration and Border Protection  Department of Social Services 

ANAO Report No.29 2014-15  Funding and Management of the Nimmie‐Caira System Enhanced Environmental  Water Delivery Project  Department of the Environment 

ANAO Report No.30 2014-15  Materiel Sustainment Agreements  Department of Defence  Defence Materiel Organisation 

ANAO Report No.31 2014-15  Administration of the Australian Apprenticeships Incentives Program  Department of Education and Training 

ANAO Report No.32 2014-15  Administration of the Fair Entitlements Guarantee  Department of Employment 

 

 

ANAO Report No.32 2014-15 Administration of the Fair Entitlements Guarantee

88

Better Practice Guides

The following Better Practice Guides are available on the ANAO website: 

Public Sector Financial Statements: High‐quality reporting through  good governance and processes  Mar. 2015 

Public Sector Audit Committees: Independent assurance and advice for  Accountable Authorities  Mar. 2015 

Successful Implementation of Policy Initiatives  Oct. 2014 

Public Sector Governance: Strengthening performance through good  governance  June 2014 

Administering Regulation: Achieving the right balance  June 2014 

Implementing Better Practice Grants Administration  Dec. 2013 

Human Resource Management Information Systems: Risks and  Controls  June 2013 

Public Sector Internal Audit: An Investment in Assurance and Business  Improvement  Sept. 2012 

Public Sector Environmental Management: Reducing the Environmental  Impacts of Public Sector Operations  Apr. 2012 

Developing and Managing Contracts: Getting the Right Outcome,  Achieving Value for Money  Feb. 2012 

Fraud Control in Australian Government Entities  Mar. 2011 

Strategic and Operational Management of Assets by Public Sector  Entities: Delivering Agreed Outcomes through an Efficient and  Optimal Asset Base 

Sept. 2010 

Planning and Approving Projects - an Executive Perspective: Setting the  Foundation for Results  June 2010 

Innovation in the Public Sector: Enabling Better Performance, Driving  New Directions  Dec. 2009 

SAP ECC 6.0: Security and Control  June 2009 

Business Continuity Management: Building Resilience in Public Sector  Entities  June 2009 

Developing and Managing Internal Budgets  June 2008