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Wednesday, 9 March 2005
Page: 57

Senator MARK BISHOP (1:29 PM) —Today as a matter of public interest, I wish to raise the time-honoured issue of public accounts within the Australian Defence Force and the Department of Defence. As the Senate knows from estimates over recent years, Defence end of year accounts have again been seriously qualified by the Australian National Audit Office. We all know, understand and accept that Defence is a massive organisation. We know that it has a massive budget and has been growing in recent years. We accept that its responsibility for the nation’s defence should be and is paramount.

Having said that by way of introduction, none of it is an excuse for the parlous state of Defence accounts. I use the word ‘parlous’ deliberately because that is the description used by the former secretary of the department, Dr Hawke. In fact, over the last five years we have had a series of mea culpas from successive departmental heads. Most recently was that of Secretary Smith some three weeks ago. The attitude seems to be that if you confess you will be forgiven. Unfortunately, while it is said that we in the Senate have considerable power, it does not include that. What we have, though, is a responsibility to make sure that taxpayers’ money is properly spent—that the money budgeted is for fit and proper purposes, which admittedly is often difficult. It also means, by definition, that there is proper acquittal. That is the particular issue in this discussion.

To shorthand the issues at stake then, the principal problem that Defence faces is the discipline of accrual accounting. Again, that is nothing new. It has been in the Commonwealth for at least the last five years and, prior to that, we had several years of notice that it was coming. What is more, in that period, we also experienced Y2K when most, if not all, computer systems within the Commonwealth were upgraded. Despite this background the excuses continue. To be fair to the current Secretary of the Department of Defence, we have had the mea culpa and we have had a detailed explanation given at estimates of the remedial plan being implemented. That is great. But at the end of it, having observed this saga and read the transcript over successive years, we on this side, at best, are not filled with confidence that the outcome sought will be achieved.

When we look at the issues they seem to be relatively simple. So let us look at a few. One common element required by accrual accounting is that at any one stage you know the total value of your business. That includes, by definition, the value of all assets. Defence claims that its assets are so massive that this is by definition an enormous task. The fact may be that Defence is the largest property owner in Australia, but so what? The property has been on the books in some cases for well over a hundred years. Further, successive governments over at least the last 15 years have been poring over that estate to see what could be sold off. Some has been sold off to the benefit of revenue. So in reality, it is hard to believe that the Defence estate is neither well known nor understood. The rather feeble excuse given at estimates was of some minor administrative hiccup with the Australian Evaluation Office. I must say, by way of observation, that that is a bit cute. The fact remains that the values should have been attributed many years ago.

Another item of value cited at estimates was that of car spaces for senior offices—apparently there are several hundred of them. So be it, but when you think about it, it does not seem to be a big deal. I concede, however, that when it comes to valuing other assets the task is more complex. The difficulty is the same though—this should not be a new problem. It should have been attended to years ago. As we have been told, it is not a problem of quantifying assets or identifying their location; it is a problem of properly calculating the depreciated value of the assets. For unique high-tech ordnance this might be understandable, especially where there have been or there are continuing upgrades. But for the great bulk of stock on hand, whether boots or battleships, there should have been a book value established long ago.

At the heart of the problem it seems are IT systems. The world of information technology, as we know, is inordinately complex. We all know that when a new system is designed it is obsolete before it is rolled out. Billions of dollars are wasted around the world every year on aborted systems of development. Every time a new development comes out, attempts are made to tack it onto the existing system. Compatibility is always an issue, particularly for data. Where there is a lot of data, there are always problems. We know that Defence employs a veritable army of IT contractors working on these integration problems alone. We also appreciate that in some cases the goalposts keep shifting. As I said, Y2K was a monster. Accrual accounting too brought the need for new systems. This is not something which can easily be taken off the shelf and just plugged in. We accept as well that there are new international accounting standards being applied. Compliance is therefore more complex and continues to be more complex.

Still, having entered those caveats, none of this is anything new or could not have been reasonably anticipated. There are plenty of other organisations with massive transaction loads which manage on an ongoing basis without these problems. True, they dispense cash and do not retain assets for great periods of time as Defence does, but there are people to be paid and leave systems to manage. In some public and indeed private companies tens of thousands of employees are on the books. Their wages have to be paid every week or fortnight and their entitlements and records have to be maintained. This again is not new. Every single organisation in the world has to manage a personnel system. So why is Defence so different that its records are in such a poor state? This problem is legendary.

In my capacity as shadow minister for veterans’ affairs I know, from the repeated correspondence I receive, what a bind it is for anyone wanting to access personnel records. Ironically, in this modern age, paper records seem to be the best. Electronic records are either all over the place, unable to be located or inaccessible. In the case of the RAAF, I recall that a significant volume of records stored on computer were lost. For at least the last five years we have been assured that the new system of health keys was the answer to our prayers, likewise with personnel records. But none of this has been completed. The answer clearly is allocation of resources, and that is the reason given by senior managers as well, even to the extent that the assertion is made that none of this should ever interfere with operational capability. In a nutshell, there will be no capability if there is no financial management—nor should we in the Senate ever let this come to pass.

With a burgeoning budget surplus and with increasing and regular levels of overseas deployment, something needs to be done as a matter of priority to get the problem fixed once and for all. Defence should not have to absorb extra operational costs from their administrative base. This is a theme to which we on this side will be returning frequently in the forthcoming months. We acknowledge up front that the intentions are good, but we note in passing that the same answers, the same reasons, the same intentions, have been put on the public record for many years, and we conclude by observing that action to date is both slow and inadequate.