The Auditor General’s Midterm Report

 

Her audit (though delayed) answered must be,
And her quietus is to render thee.

Sonnet 126

 

There were two interesting documents released this week referencing the administration of Indigenous policy. One was the Annual Report for the National Indigenous Australians Agency (NIAA), the first annual report since it was established as a separate agency. I plan to comment on that report in a separate post.

 

The second was a midterm report from the Auditor General, Grant Hehir (link here) which canvassed the full spectrum of Commonwealth administration. The Auditor General has a ten-year term, and usefully, he has decided to publish a report covering the first five years of his tenure.

 

In his Foreword, he makes some extremely important points about the importance of public sector audit. The following extracts are only part of what he has to say:

The Australian National Audit Office (ANAO) is a critical part of the accountability/integrity framework for the Australian public sector. A key underpinning of this is the independence of the Auditor-General and the ANAO. The importance of independence only became completely clear to me when, after 30 years in the public service, I became an Auditor-General. Although in the public service people talk about being apolitical and providing frank and fearless advice (and I always tried to act that way), what that looks like is, and probably should be, starkly different from the statutory independence of the public sector auditor. The public sector exists to serve the government, the Parliament and citizens. As a public auditor, the ANAO exists to serve the Parliament and citizens…

… In my experience the impact of audit on public sector performance is pervasive and positive. It is far more than the publication of a report. The mere existence of audit (both financial and performance) moderates public sector activities to be more consistent with the expectations set out in its legislative and regulatory framework…

…The analysis of evidence from performance audits supports the view that the Australian Public Service has strong capability in relation to policy development… 

On the other hand there is strong evidence, from both performance and financial audits, that the public sector’s approach to procurement regularly falls short of expectations set out in the regulatory frameworks…

…Regulatory activity is the second category recording a high proportion of negative audit conclusions. Like procurement, regulation is an important function of the Australian Government and high quality regulation (whether of the private, not for profit or public sector) is crucial for the proper functioning of society and the economy. … Too strong a focus on ‘red tape’ reduction, including through not utilising the full range of regulatory powers provided by the Parliament, can often be at the expense of effective outcomes.

Further effort in improving the implementation of regulation by government entities is required.

 

The Auditor General then went on to make the following comment related to Indigenous administration based on a statistical analysis of ANAO audits over the past five years:

Also of concern is that the analysis of both financial and performance audits indicate there is much that needs to be done to improve the delivery of services to Indigenous Australians. Indigenous programs in the Prime Minister and Cabinet portfolio have the highest proportion of negative conclusions from performance audits of any portfolio, while the Prime Minister and Cabinet portfolio had the highest number of findings from financial audits, overwhelmingly in Indigenous related entities.

Given the priority successive governments have given to Indigenous policy these findings are disappointing.

 

There are further specifics in the body of his report, particularly in paragraphs 4.1, 4.2, 4.19 and 4.20 although the report does not provide much detail of the substance of the negative conclusions and audit findings. Nevertheless, it seems significant that the Auditor General chose to highlight this fact up front in the Foreword.

 

Further, the quantum of negative performance conclusions and audit findings is not merely an indicator of lax financial governance and oversight. While the midterm report is not definitive, it appears that many of the negative performance conclusions relate to departmental programs, while most of the adverse financial findings relate to matters within statutory corporations within the portfolio. If correct, this reflects poorly on PMC in two ways: first for its management of key programs designed to address the needs of Indigenous citizens, and second, for its oversight of the quality of the financial management within portfolio corporations. In other words, in relation to the PMC Indigenous function, the Auditor General is pointing to both program effectiveness and implementation failures and to regulatory failure in terms of the required oversight by the portfolio department and ultimately the Minister.

 

The takeout from such a conclusion is that the quality of the services provided to Indigenous citizens by the Department and its portfolio agencies has been less effective than it could and should be. Yet it is not clear that there is any specific process from here for taking this issue up.

 

Or as the Auditor General wrote in his Foreword (in relation to public administration generally):

The public sector operates largely under a self-regulatory approach. Policy owners [such as Finance in relation to resource management; the APSC in relation to human resources]  … establish the rules of operation and then largely leave it to entities’ accountable authorities to be responsible for compliance. There are almost no formal mechanisms in these frameworks to provide assurance on compliance. Often the ANAO is the only source of compliance reporting and our resources mean that coverage is quite limited…

 

There is much more in the midterm report of more general interest, including a restrained but direct defence of the role of public sector audit; a warning that cyber-security standards across the APS are not up to scratch; and a call for greater transparency and engagement within public sector contexts.

 

It seems to me that the import of the Auditor General’s midterm report for Indigenous public policy and administration is that there needs to be a greater focus on transparency, openness, on explanation, on risk-based monitoring and evaluation and importantly on ensuring that the actions of public sector agencies are making a substantive difference.

 

I plan to flesh these issues out in a little more detail by taking a closer look in my next post at some of the loose ends in the NIAA’s recent Annual Report. It is worth noting at this point that neither the most recent NIAA Annual Report, nor any of the predecessor PMC Annual Reports give any indication that the management of Indigenous programs and financial management of portfolio bodies is comparatively weak.

 

Finally, the fact that the Auditor General has chosen to highlight the financial management deficiencies of the Indigenous portfolio is significant. The fact that it based on the evidence of a statistical analysis of five years’ worth of reports reinforces its significance. This suggests that a prudent Minister and NIAA CEO would take note, initiate a process of some kind to ascertain the reasons for the poor performance, and devise an action plan to ensure that the next report in five years has a different message. The NIAA Audit and Risk Committee would similarly be wise to give the Auditor General’s conclusions consideration; and so too might the agency Evaluation Committee. Both these entities include a number of independent members.

 

Whether or not the Minister or NIAA initiates such a response will be an indicator of the Government’s commitment to high quality public administration in its management of Indigenous policy, and to its commitment to delivering effective programs and services to Indigenous citizens.