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Joint Committee of Public Accounts and Audit
14/02/2018
Auditor-General's reports Nos 61 (2016-17) and 9 and 12 (2017-18)

BALMANNO, Ms Rachel, First Assistant Secretary, People, Communications and Parliamentary Division, Department of Health

HEHIR, Mr Grant, Auditor-General, Australian National Audit Office

JACKSON, Ms Deborah, Executive Director, ANAO

KONTI, Ms Bettina, First Assistant Secretary, National Cancer Screening Taskforce Division, Department of Health

McCABE, Mr Daniel, Acting Chief Operating Officer, Department of Health

WANN, Mr Charles, Acting First Assistant Secretary, Financial Management Division, Department of Health

[10:56]

ACTING CHAIR ( Mr Hill ): The second part of the hearing is about ANAO report 61, Procurement of the National Cancer Screening Register. I now call representatives from the Australian National Audit Office and the Department of Health. Thank you for being here to give evidence today. Although the committee does not require you to give evidence under oath, you should understand this hearing is a formal proceeding of the Commonwealth parliament. Giving false or misleading evidence is a serious matter and may be regarded as a contempt of parliament. I remind all witnesses that in giving evidence to the committee they are protected by parliamentary privilege. This hearing is public and is being Hansard recorded. It is also being broadcast live. Did anyone wish to make a brief opening statement?

Mr McCabe : The Department of Health would like to. I will table this once I have done it. I would like to take a moment to outline to the committee what the department has done to address the audit recommendations and what we have done to strengthen and improve against the audit findings in this report. The audit recommended that actual, potential and perceived conflicts of interest records are to be maintained up to date and addressed appropriately. Senior executive employees declare in writing at least annually their own and immediate family's financial and other interests. The department has introduced an online declaration form, which is mandatory for all of our senior representatives. This is triggered every 12 months or when an officer changes role. We have updated our guidance and policy to ensure officers have an understanding of what may constitute a conflict. All conflict of interest declarations must be actively discussed between an officer and their immediate manager.

The department has also updated our guidance materials for procurement. Specifically, we have implemented a number of actions to improve our organisational adherence to procurement policies and procedures and we have provided additional guidance on active management of probity during procurement processes. A revised procurement framework was released last year, which included several improvement actions. Additional guidance was developed on the management of risk within procurements, which includes examples of procurement risk and examples of possible consequences and treatments for conflict of interest situations. Procurement delegates are now supported through a delegate checklist. Once completed, this provides additional assurance that procurement processes have been carried out appropriately and that probity risks have been considered and documented. The department also has updated our contract management framework to include detailed guidance to staff on ethical behaviour, potential conflict of interest and how to implement and maintain a probity plan during the life of a contract. Finally, the audit found that in conducting the procurement, the Department of Health complied with the Commonwealth Procurement Rules, effectively managing an open tender process and considering value for money.

ACTING CHAIR: Thank you. Auditor-General?

Mr Hehir : I included some comments in my statement on the previous audit.

ACTING CHAIR: I might kick off with a couple of question areas. To start with, so we can understand the context as to where things are at now, the register and the new screening procedures that were part of the reforms had a start date of 1 May, 2017. That was to be for cervical and the bowel cancer?

Mr McCabe : I might get Bettina Konti, who is dealing with that, to come to the table to comment on where we're up to.

ACTING CHAIR: I have done some reading on this, because it has been vented in other forums of the parliament. The contract was rushed through soon after selection and signed a few days before the caretaker period. The legislation was then pushed through the Senate with declarations of some urgency by the department and the then minister. Yet, the 1 May date has in no way been met. Could you give us an update where we are at?

Ms Konti : I think your question was, was the original date of 1 May for bowel as well? There was a date slightly prior to 1 May 2017 for the delivery of the bowel cancer register transition. On 1 December 2017 we implemented the National Cancer Screening Register to support the renewal of cervical screening. The National Bowel Cancer Screening Register planning will recommence at a point in time when we have fully delivered the registered services for cervical.

ACTING CHAIR: So the bowel cancer is still lost in a dark place and you don't have a go live date?

Ms Konti : No.

ACTING CHAIR: When you say 1 December for the cervical register, is that fully implemented—all aspects?

Ms Konti : The aspects that need to be supporting women to be able to undertake the test, the aspects are that require the pathology laboratories to report their test results in the new way and in the new form, are complete. The new MBS items have been implemented. The register call centre operations are up and running. The remaining register functions are being supported by the state and territory cervical screening registers. So between the Commonwealth and states and territories full register services are being provided today.

ACTING CHAIR: How many cervical cancers will have gone undetected, or women will have died, because of the delay from the 1 May start day?

Ms Konti : I'm not sure of the answer to the question. One of the things that might be worth while making sure we understand is the context. The screening program and the detection of cervical cancer is something that is fundamentally part of usual care arrangements in the health system. What the register does, and the cervical screening registers in the states and territories have done under the previous pap test regime, and what this National Cancer Screening Register is doing for the current cervical screening regime, is actually performing as a safety net function to ensure that women who have tests and who do have high-grade results on those tests are actually followed up and all of those functions are being performed.

ACTING CHAIR: I go to the explanatory memorandum to the bill which was introduced to support the register. The register in turn was seen to be an essential part of the new program. It said, 'Once implemented, the changes to the national cervical screening program are expected to prevent an additional 140 cervical cancers each year.' The announcement included a commitment to the register to meet the needs to support this new program. Mathematically, if that is the case, six to nine months delay would mean at least an additional 70, 90, 100 cancers.

Ms Konti : I would have to take that on notice.

Mr HILL: The minister's press release after the legislation was put through confirmed that delay would put the lives and wellbeing of Australians at risk.

Ms Konti : Sorry, was there a question?

Mr HILL: Are you concerned about the delay?

Ms Konti : There was a delay of seven months to deliver the National Cancer Screening Register to support the renewal of cervical screening. That was a delay from 1 May 2017 to 1 December 2017. In that interim period, the then Pap test regime was continuing and those tests were continuing to be performed. MBS items were changed to help the pathology laboratories be able to continue to perform the tests. So it's not like there wasn't a screening test regime in place in Australia for those seven months. There was a screening test regime. It was the previous Pap test regime.

Mr HILL: And the new arrangements are intended to be an enhanced regime that saves lives?

Ms Konti : They detect the presence of precancerous cells earlier, yes.

Mr HILL: You mentioned in your comments a function around the importance of reminders. Has the function to send women reminders been implemented as yet?

Ms Konti : This is part of the complexity of the transition. All of the reminder functions for tests conducted pre 1 December are being performed and continue to be performed by the state and territory registers. All of the reminders from the new test, other than the high-grade results, which are followed up very quickly, are due to start being sent in February, March, April—that kind of time frame this year.

Mr HILL: So those time frames will be met?

Ms Konti : Yes.

Mr HILL: There is no internal doubt or risks?

Ms Konti : No.

Mr HILL: I quote from the department's submission to the legislation from September 2016:

Without an operating register for the renewed NCSP, there will be no safety net for women participating in cervical screening, which risks their health and safety.

With regard to cost, because of the delays—

Ms FLINT: Sorry to interrupt. Could I just ask a follow-up question on that? I take it you are moving onto another area now.

Mr HILL: A related area.

Ms FLINT: May I just ask: could you outline the difference between the old or existing scheme, particularly the states and those registers, versus the new scheme? You did mention that the federal scheme is a safety net. So I am just concerned to make sure we have on the record how things currently work. As you've said, it's a safety net; it's not that testing was stopped or anything like that. There is a degree of personal responsibility, I think, involved in here with women managing their own health and working with their GP to make sure that the GPs also have those checks and balances in place.

Ms Konti : If I have understood your question, the state and territory cervical screening registers were put in place and continued to evolve over a period of 25 years to support the Pap test regime pre 1 December. They, too, performed a safety net function. This new register is intended to perform the safety net function for the new cervical screening test. At the moment, those elements of the National Cancer Screening Register that are required to support the new cervical screening test have been implemented. There are some reminder and follow-up functions still being done in the states and territories. Register operations between the Commonwealth and the states and territories—all of those functions—are being performed between the National Cancer Screening Register and the states and territories. I think it's important to note that there is no gap in service and there is no gap in register functions today. It will remain the case until the rest of the register functions come online to support that.

Ms FLINT: Thank you.

Mr HILL: With regard to the cost impacts of the delay, the Auditor-General completed his report as of March 2017. I think the figure in the back of the report at that time suggested that the additional costs to government were at least $16.5 million. Is that correct?

Ms Jackson : Yes.

Mr HILL: Could we first off understand the components or the elements. What elements would you contribute as additional cost to government because of this delay?

Ms Jackson : That additional cost was related to the need to provide ongoing provision of cervical cancer screening services by the states and territories, largely to do with the need for pathology workforce retention. So that $16.5 million was largely related to that, and $3 million was related to the pathology workforce retention. We didn't estimate any further additional costs in that. That was provided by the department.

Mr HILL: If I understood it right, because it was quite technical, the transition from the old Pap smear test to the new enhanced test which would detect more cancers and save lives was going to require fewer pathologists doing this stuff because it is a more efficient, less intensive or less frequent test. Is that correct?

Ms Jackson : The Department of Health would be better placed to discuss the technicalities, but basically it is a shift to a different type of test. It is moving from a two-year to a five-year screening regime. So, yes, there would be different pathology requirements.

Mr HILL: But, therefore, the pathology industry had planned for their workforce to downsize at the 1 May start date which wasn't met. So the government had to effectively chuck cash at the industry to retain people and maintain that capacity. They had to make a payment—that might be a nicer way to put it!

Ms Konti : There was a $3 million assistance package provided to pathology laboratories to help them retain the cytology staff that they might need to continue under the old regime. The other element of the interim MBS items that were introduced in February was to allow the Pap test to also be undertaken as a liquid based cytology test. My understanding—and I am not a clinician of any sort—is that that test is faster, easier and able to be undertaken by different kinds of pathology staff. The rate of take-up of that liquid based cytology test by the pathology labs certainly suggests that it is a more efficient form of test.

Mr HILL: That was when the report was tabled in March 2017. Since then, have there been any additional payments to the pathology industry or support required?

Ms Konti : Not to my knowledge.

Mr HILL: Was there provision made in this year's budget for additional costs—

Ms Konti : No.

Mr HILL: to increase the level of the rebate?

Ms Konti : The new MBS items for the new cervical screening test came live on 1 December to support that regime.

Mr HILL: And the department provided extra resources in November 2016 for the implementation unit; is that right?

Ms Konti : I would have to take that on notice. That was before my time, sorry. Do you mean additional departmental resources?

Mr HILL: Yes. I am trying to get a sense of what the total additional costs would be from the delay and from the need to manage this seriously underperforming contract. If you can take it on notice, the components of interest would be the pathology industry, the additional MBS items and any additional resources deployed within the department to try to remediate this contract.

Ms Konti : Okay. I think we have answered the questions about the pathology industry. There was the $3 million assistance package. I think the remaining amount of what you quoted—the $13.5 million—was the introduction of the interim MBS items. I am happy to take on notice the departmental resourcing.

Mr HILL: If you could just confirm the time frames that would be good, because that $13.5 million would have gone for a period of time.

Ms Konti : It went from 1 May to 1 December.

Mr HILL: Okay, thank you.

CHAIR: My apologies if Mr Hill or others have asked this in my absence, but I want to turn to the issue of privacy and data protection. Page 36 of the annual report listed a variety of Commonwealth data protection plans and Telstra security plans that hadn't actually been completed. I was wondering if someone could give me an update in regards to the Commonwealth data protection plan and the Telstra security risk management plan and on whether or not the deed of confidentiality and privacy has been completed. You are obviously familiar with page 36.

Ms Konti : The Commonwealth data protection plan and the security risk management plan were completed and signed off before we went live with the National Cancer Screening Register on 1 December.

CHAIR: So you are now satisfied that the data and privacy concerns that the Auditor-General had identified are all—

Ms Konti : We are satisfied.

Mr HILL: Great.

Ms Konti : In fact, the independent reports of the system security elements of the NCSR were actually very positive.

CHAIR: Great. Could you provide us with some information on notice to elaborate on that evidence?

Ms Konti : Of course.

Ms BRODTMANN: Going back to the conflict of interest issue and the fact that you've got this automated system now in place to ensure that that's happening: you've got a 99.25 per cent compliance, so where has the 0.75 gone, and how does that happen? Also, who is doing the verification of the compliance?

Mr McCabe : I will answer that in two parts. The 99.2 was a reflection of a point in time when we were preparing the submission and we had a number of new officers starting in that department that week. We were trying to be very precise. We had a couple of people starting in the department that wouldn't have had a chance to complete their conflict of interest declaration. They have subsequently completed that, so we now have 100 per cent compliance. We have a central area in our HR area that looks after all matters pertaining to our senior executives and they follow up and review all conflict of interest declarations, notifying immediate supervisors if people haven't completed it according to the guidelines we put forward.

Ms BRODTMANN: How often are they updated? Do you go through a review process every six months or every 12 months?

Mr McCabe : The process is annually. All senior executives need to update their conflict of interest declarations, but, as I said before, we also require officers to reassess their potential conflicts if they change roles.

Ms Balmanno : There's also an obligation in the form and in the guidelines that, if their personal circumstances change, they need to update their conflict of interest declaration, for example, if they change their share portfolio or whatever it might be.

Ms BRODTMANN: Can you can give us an idea about what issues they do the conflict of interest training, or are there specific guidelines? What's covered in the guidelines?

Ms Balmanno : In terms of the conflict of interest policy, it looks at the financial interests of the SES officer and of their immediate family. We've made recent changes to extend it to make sure it looks at their associations—so organisations with which they're connected—whether that be a formal connection, for example a position on a board, or whether that be a less formal involvement as a member of an organisation—all of the sort of things that that could influence, or be perceived as influencing, their decisions and create a conflict.

Ms BRODTMANN: So that's paid and voluntary boards? It could be the P&C at the local school.

Ms Balmanno : Yes, anything that could be a conflict. The P&C tends not to be a big issue in the health department, but, obviously, involvement in health service delivery organisations and being on voluntary boards for those, for example, would be the sort of thing that would need to be declared.

Ms BRODTMANN: And how did you develop the guidelines? Did you base them on the Australian Institute of Company Directors guidelines? What was the template?

Mr McCabe : The Australian Public Service Commission has standard guidelines for all of the APS. We based our policy and our declaration process on that process.

Ms Balmanno : We've had our guidelines and our declaration process in place for quite a long time. The changes we have made in response to the audit recommendations is to create the online version of that, which improves the tracking and capture of that information and improves our ability to follow up if there are people who are not complying, as well as picking up on more recent guidance around expanding the sorts of conflicts that are captured—the associations that I mentioned—and putting in the additional requirement. That additional requirement will go live this month as part of the system: that the conflicts and management strategies to address them must also be discussed with the person's manager.

Mr HILL: That's prospective. With regard to what happened around probity and conflicts in the procurement, the Auditor-General identified nine officers involved in this procurement who owned Telstra shares and did not disclose this fact at the time of procurement. Is that correct from the department's point of view?

Mr McCabe : Yes, it is. In fact, in some instances we had individuals that didn't recall that they'd owned Telstra shares that they'd bought very small amounts of in the early nineties. A lot of the individuals in that nine were not specifically within the procurement itself but were external to the procurement doing advice on an ad hoc basis to the procurement.

Mr HILL: Nevertheless, the Auditor-General's word is involved that then identified one voting member of the project board who voted for Telstra as the preferred tenderer and who owned Telstra shares but did not declare it.

Mr McCabe : Yes, in that particular instance we had an officer that didn't recall that they owned Telstra shares of a small amount of money—I think it was about 2000—that they'd purchased back in the nineties. They didn't recall until the audit occurred, until the ANAO identified that ownership, hence they hadn't declared it in their overarching conflict of interest or their specific conflict of interest for this procurement.

Mr HILL: Was that an SES or a senior officer in the department?

Mr McCabe : It was a senior officer.

Mr HILL: What disciplinary action has been taken against that officer?

Mr McCabe : The officer has been asked to declare that formally and, I guess, been put on notice on making sure that doesn't occur again.

Mr HILL: So nothing?

Mr McCabe : There are no specific sanctions on that officer.

Mr HILL: What kind of culture do you think that sets for your department—that you can have a senior executive sitting on a project board, owning shares in the company that he voted to give it to and not declaring that, and nothing happens?

Mr McCabe : We take it very seriously and, in fact, we are using that particular case study as an example for all of our senior executive about the pitfalls of not being conscious and aware of all of the conflicts that you might have, and that's part of the work we are doing on our active training for all of our senior executives.

Mr HILL: Auditor-General, I think from the briefing and the questions that I was trying to understand in relation to this part of the report, you identified this through inspecting the Telstra share registry.

Ms Jackson : That's correct.

Mr HILL: I think in relation to the changes that you've made for the department, you talked about the declaration of family shares and other things. Was any consideration given to whether families also owned shares?

Ms Jackson : At the time, it would not have been possible to identify that because we wouldn't have known the names of the family members. Basically, an auditor went and physically inspected the share register and tried to match names and addresses, and then we verified that with the department.

Mr HILL: Footnote 55 on page 34 relates to one of the officers who did the right thing and did remember that they owned Telstra shares, the probity auditors' recommended process would be to look at the materiality of the shares—ordinary shares, preference shares, the size of the shareholding and the likely value. Based on this sense of materiality, then there was advice given not to trade the shares during the period if they were a low amount of shares—as you have indicated, $2,000. Was that test of materiality applied to these nine executives, or we don't know?

Ms Jackson : It was not.

Mr HILL: So we don't really know whether any of the people involved had material interests or not. Do we know whether any of these nine people traded in shares during the procurement period?

Ms Jackson : When I say it wasn't tested—we have an understanding of how many shares they held because that was on the register, but it was a point-in-time situation about what names were on the register as opposed to what action there might have been.

Ms FLINT: This is to the department. In your procurement teams, I am assuming you have junior people who come up through the ranks and work within that specific area—or is it more on an ad hoc basis for certain projects or types of procurement?

Mr McCabe : If I understand the question correctly, in this particular instance, we had all types of advice being given to this particular project, whether it be procurement advice, budget advice or clinical advice. In terms of supporting it, it is quite wide ranging across the department.

Ms FLINT: Are you going to be doing training for your workforce more broadly in terms of conflicts of interest, identifying conflicts of interest, in procurement? Obviously, you've started with senior people, but what about for more junior people in the department?

Ms Balmanno : In parallel to changing the arrangements for the declaration process for SES officers, we've also consolidated our conflict-of-interest policy for all staff. There are still specific processes around declaring conflicts of interest in certain business situations, and procurements is one of those. Another, for example, would be to participate in a particular advisory committee giving advice to government; you need to declare any conflicts you may have in that advice-giving process. We also now have a more standard conflict-of-interest form for broader situations for staff of any level who may have conflicts, real or perceived, that need to be declared and made available. That similarly requires the sort of discussion and awareness-raising with the manager. We are also in the process of developing some fuller training for staff around conflict to make sure that there is that strong awareness. But at the moment the focus is very strongly on ensuring that SES officers fully understand the breadth of potential conflicts they need to declare and are routinely doing that as their roles and circumstances change.

Ms FLINT: Have you worked with the ANAO, for example, or other departments to create your internal processes?

Ms Balmanno : We have taken leave from the information Mr McCabe mentioned earlier, from the Australian Public Service Commission.

Ms FLINT: Right. Thank you.

CHAIR: Mr Hill.

Mr HILL: Is the department or the ANAO aware of any communication between Telstra, Health and VCS, the other second tenderer, during the tender period?

Ms Jackson : There would certainly have been any number of conversations between all of the parties during that period. I am not in a position to comment any further than that.

Mr HILL: Were any concerns raised with you specifically regarding such contact?

Ms Jackson : We received one submission that raised a concern or indicated that there was a concern about some conversations that went on in the early part of the period. We did an extensive document search of health systems, including emails, and nothing came to our attention that validated those concerns.

Mr HILL: That validated the—

Mr Hehir : In our document search. If someone raises a concern with us in our audit work, depending on the nature of it, we will always have a look to see whether we come across anything which would lead us to do further investigation. In this case, we did extensive searches of the documents held by the department, and on the basis of that we decided that undertaking any more work wasn't required, wasn't evidenced by the—the evidence didn't generate to us a reason to pursue that.

Mr HILL: What was the nature of the concern which was raised?

Mr Hehir : I think it was a concern around conversations. I am hesitant to start releasing submissions that people give to us in the context of our work. I am concerned about the precedent of doing that. Can I just have a quick conversation before going there, if that is okay?

Mr HILL: Sure.

Mr Hehir : It would be fair to say that the concerns relating to probity in the process—we looked at that and didn't find any evidence of it. I wouldn't like to go into details of it again because the submission and evidence that we get is in confidence and I would prefer—I would find it difficult to start releasing that. But it—

Mr HILL: Sure. We can respect your judgement. We can reflect on that. Is it fair to say that one aspect of the concern, without going in any way to a submission that you might have received specifically, is that Telstra may have known that they were going to be the preferred tenderer before the period finished?

Mr Hehir : When we go through and look at auditing processes, we always try to investigate whether there are any breaches of good procurement practice, and particularly with respect to probity. That is how interactions between entities operate. So, through our document search and looking at the evidence on the record of the department, we didn't come across anything in that context that led us to have concerns with respect to those types of issues.

Mr HILL: And, in looking through the department's records, were you looking for evidence of dialogue between tenderers? Or some kind of slippage—to be kind to Telstra—that they may be the preferred tenderer?

Mr Hehir : It's difficult for us to look at dialogue between tenderers. We didn't designate those entities and go in and search their systems. We searched the departmental systems. It would have to be on the departmental systems for that. Certainly, we look at the engagement between the tendering agency but, in this case, we looked at the evidence on the record between health's engagement with the tendering parties during the procurement process. We feel we did quite an extensive search of the evidence, in that respect.

Mr HILL: And, of course, those notes don't capture all verbal discussions. Did you search any records in relation to the minister's office?

Ms Jackson : To the extent to which the emails would have been coming into or out of the department from the minister's office, yes, they would have been captured, but we looked at domain—health.gov.au—names. It wasn't the minister's offices. We didn't search the minister's offices per se.

Mr HILL: So there was no search, from what you are saying of the communications, from the minister's office to any tenderer or external party. It was simply anything that would have been recorded in the department.

Ms Jackson : Correct.

Mr Hehir : We needed to have evidence to chase down things like that, to extend our search beyond the designated entity. We tended only to do that if there was something that looked like it needed us to do it.

Mr HILL: In relation to any specific evidence that was provided or any assertion about specific contact, was any effort made to verify whether that contact occurred?

Mr Hehir : Our work was based upon, as I said, extensive searching of the records of the department.

Mr HILL: Which would, presumably, not capture any contact between tenderers.

Mr Hehir : No.

Mr HILL: Does your office have the power to reach in to tenderers' communications between them?

Mr Hehir : Under our act we can designate any partner with the government and access their records. That's the 'follow the dollar' power. I would need to get specific advice of whether we can do that for someone who hasn't been awarded a contract. Sorry, I don't know the precise answer to that.

Mr HILL: Perhaps if we can hold that, and I know you said you have an important meeting—I've got, I reckon, another hour of stuff of related matters.

CHAIR: We'll consider whether or not it is necessary to reconvene this at a later date.

Mr HILL: If I can just telegraph for the Hansard the areas we haven't yet had any time to explore, they include the broader progress, the deliverables, interrogation of privacy security, the entire selection process, risk assessment and structure of the approach to market. And, indeed, there is further exploration to be done on the department's submission, in relation to the number of lives lost or cancers that could have been prevented had the contract started on time. I refer, specifically, to the third paragraph in the department's submission, dated September 2016, to the legislation.

CHAIR: So be very well prepared should we call you again! I thank you very much for making time to attend the hearing and give evidence to the committee today. The secretary will be in contact if the committee has any further questions. I now close this public hearing. The next meeting of the committee will be at 8.30 am this Friday, 16 February 2018.

Committee adjourned at 10:33