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Tuesday, 8 February 2005
Page: 89

Senator MURRAY (5:58 PM) —by leave—I move:

That the Senate take note of the document.

I wish to make a few remarks on the Auditor-General’s performance audit report No. 22 on investment of public funds. I wish to do that now because I do not think there will be another opportunity before estimates and it is something I wish to put on the record. The Auditor-General’s performance audit report No. 22 concerned the very important topic of investment of public funds. The Auditor-General notes at 30 June 2004 that Commonwealth entities reported financial investments totalling $20.208 billion, which is a great deal of money. That belongs to all Australians. It means that the Commonwealth holds a great deal of investment on behalf of each and every Australian in Australia.

It is vital that public funds are prudently managed in accordance with the rules outlined by the parliament. The bureaucracy should not be free to simply invest Australians’ money in the manner they see fit. Anyone with experience in finance and in the financial industry will be able to explain that there is an inherent investment trade-off between returns and the risk of the investment. Quite properly, the Commonwealth, when holding public funds, has a low tolerance for financial risk, and investment activity should be limited to low-risk assets. The objective of the Auditor-General’s audit was to examine the investment of public funds by selected entities, their compliance with the relevant legislation, the value from the investment strategies and the subsequent reporting of the investment activities.

Six entities—three under the Financial Management and Accountability Act and three under the Commonwealth Authorities and Companies Act—were selected for the audit. The six entities audited owned $1.84 billion in investments—roughly 10 per cent of the total Commonwealth exposure. During the audit, it was found that $566 million in unauthorised investments were identified. So about $1 in every $4 were unauthorised investments. The conclusion of the Audit Office was that there had been shortcomings in the management of the investment of public funds. The report makes seven recommendations and states:

Implementation of the recommendations should collectively lead to a level of management and focus commensurate with the quantum of public funds under investment.

If you decipher that, that is a nice, fat slap on the wrist. The implicit conclusion is that the current standard of management is not commensurate with the $20 billion controlled by Commonwealth entities. As the report notes, there is no excuse for noncompliance. It states:

It is clearly important that entities comply with restrictions legislated by the Parliament. In addition, where departures by Commonwealth authorities are seen as prudent, the legislation provides a means of obtaining appropriate approval from the Treasurer.

This government—sometimes rightly, sometimes with a little bit of exaggeration—lays great claim to its economic management, and it should not pass by the Treasurer, the Minister for Finance and Administration or, indeed, the government as a whole, that this is not up to the standard that they would demand of government.

It was at least pleasing to see that all agencies concerned agreed, or agreed in principle, to all of the recommendations; however, from my perspective, the law was broken. If company directors disregard the Corporations Law or the Trade Practices Act, they can end up in jail. Perhaps it is time to remind the public sector that they need to be conscious that, if they break the law where the parliament has specified how matters should be dealt with, they can experience the full force of the law.

I hope that we and the Labor Party will be able to investigate these procedural failures during the Senate estimates process. I will be interested to know if there will be a follow-up procedural audit that can cover some of the other entities that were not selected in this audit. It appears that Treasury did not keep proper records of approvals of investments. If the Treasury experts, the guardians of the system, are acting negligently, how can other non-financial entities be expected to keep records prudently? The loose practice with financial management, as I have stressed previously in this chamber, is also encouraged by the vagueness of Treasury reporting, specifically the breach of accounting standards, by refusing to recognise the GST as a federal tax.

I believe it is timely that these issues are raised. The Commonwealth is currently in an extremely strong financial position but, as the Reserve Bank Chairman, Ian Macfarlane, commented recently, it is in the good times that important concerns should be addressed. These are not technical accounting matters; they are matters of legality and should be given an appropriately solemn and immediate response. Finally, I wish to congratulate the Auditor-General and the Audit Office on the seriousness with which this issue has been approached and the quality of the report prepared. I hope that the ministers responsible will act immediately to improve this situation. I seek leave to continue my remarks later.

Leave granted; debate adjourned.