Audits examining governance

Audit Report No.1 2007–08 Acquisition of the ABRAMS Main Battle Tank
This audit examined the procurement of a major replacement capability for the Australian Defence Force by the DMO and Defence. The objective of the audit was to assess the effectiveness of Defence’s and the Defence Materiel Organisation’s management of this procurement. The audit was conducted under the themes of project management and governance.

The ANAO found that the project to acquire the ABRAMS tank capability has effectively reduced acquisition and development risks by procuring equipment that is part of a fully developed ‘military off-the-shelf’ US Government program In parallel, Defence did not vary the product performance specifications during the acquisition, which has served to ensure the delivery of the required capability on time, to budget, and to the required quality.

Audit Report No. 5 2007–08 National Cervical Screening Program—Follow-up Audit.
The National Cervical Screening Program (NCSP) aims to reduce morbidity and deaths from cervical cancer, in a cost-effective manner through an organised approach to cervical screening. The ANAO concluded that Department of Health and Aging (DoHA) has made progress against the recommendations of Audit Report No.50, 2000–01 directed to improvements in the administration of NCSP, with three recommendations implemented and one recommendation (recommendation 4) partially implemented.

Notwithstanding, the ANAO considers that DoHA’s implementation of all the recommendations from the earlier audit would have benefited from a more structured approach to planning and greater consideration of the risks to timely implementation. The ANAO also noted weaknesses in DoHA’s monitoring of implementation activities, which impacted upon the department’s ability to make informed decisions regarding the actions required to successfully implement the recommendations.

Audit Report No. 7 2007–08 The Senate Order for Departmental and Agency Contracts (Calendar Year 2006 Compliance).
This was the ninth audit under the Senate Order, which requires all Financial Management and Accountability Act 1997 agencies to place on the Internet, lists of contracts valued at $100 000 or more, that summarises the use of confidential provisions in each contract. The purpose of the audit was to examine compliance with the Senate Order in seven agencies and report on the appropriateness of the use of confidentiality provisions in contracts. The audit found there was a lack of compliance with key Senate Order reporting requirements which is consistent with the findings from previous ANAO audits on the Senate Order. The results indicated a lack of training, quality control and general care. Agencies had not sufficiently utilised information available from, or direct contact with the Department of Finance and Deregulation, nor previous ANAO audit findings to assist in meeting the requirements of the Senate Order.

Audit Report No. 9 2007–08 Australian Apprenticeships: Department of Education, Science and Training
DEST contracts Australian Apprenticeships Centres to promote, market and administer Australian Apprenticeships. These Centres act as points of contact between DEST and employers, apprentices and State Training Authorities. DEST has sound processes and procedures for the day-to-day management of these contracts.

Recognising the Department of Education Science and Training’s (DEST) national leadership role, there would be benefit in DEST consulting with the States and Territories to explore whether gaps in performance and financial information on Australian Apprenticeships may be addressed.

The Incentives Program administered by DEST is well utilised by employers for apprentices and trainees in occupations in national demand; and the large majority of employers are not abusing the Incentives Program by ‘churning’ apprentices and trainees. The cost-effectiveness of the program has remained broadly the same as it was in 1999-2000. Australian Apprenticeships has a non-completion rate of approximately 40 per cent. In light of this, performing a sensitivity analysis of incentives payments to employers compared with Australian Apprenticeships completions, is likely to assist DEST to better understand the influence of any potential policy variations on the cost-effectiveness of the Incentives Program.

Audit Report No. 10 2007–08 Whole of Government Indigenous Service Delivery Arrangements
This audit examined how four key departments were implementing the Indigenous Affairs Arrangements (IAAs) that were introduced by the Government in July 2004. The Government ‘mainstreamed’ its approach to indigenous affairs requiring departments to deliver services to indigenous people in a coordinated whole of government way. While implementation of the Government’s policy objective is progressing, it is apparent that there are opportunities to streamline the administrative arrangements supporting the delivery of services to indigenous communities and regions. The ANAO identified a number of areas for improvement including:

  • implementation of the IAAs and the role of a lead agency;
  • whole of government governance and accountability arrangements;
  • collaborative efforts to support effective service delivery including the development of joint funding agreements; and
  • program responding flexibly to Indigenous need.

Audit Report No. 11 2007–08 Management of the FFG Capability Upgrade Project
The audit reviewed the performance of the Guided Missile Frigate System Program Office (FFGSPO) management of the Guided Missile Frigate (FFG) Capability Upgrade Project. It focused on the delivery and acceptance of HMAS Sydney and the arrangements in place for upgrading the remaining three FFGs. The audit also included an examination of the implementation of the SM-I Missile Replacement Project and the delays in the FFG Upgrade Project.

The FFG Upgrade Project has experienced extensive delays in meeting the contracted capability upgrade requirements specified in the late 1990s. The number of FFGs to be upgraded has been reduced from six to four, and the scheduled acceptance of the fourth and final ship has been delayed by four and a half years to June 2009. Since the last ANAO audit in 2005, the project delays are attributable to a range of underwater warfare system; and electronic support system performance deficiencies. Considerable risk remains to the delivery of contractually compliant capability to Navy, given the maturity of these systems. The FFG Upgrade Prime Contract is less robust than more recent Defence contracts in terms of providing Defence Materiel Organisation with adequate opportunity to exercise suitable management authority over the project’s acceptance test and evaluation program. Nevertheless, FFGSPO has monitored the Prime Contractor’s performance and provided extensive feedback aimed at achieving improved visibility into the project’s engineering development, testing procedures and test results. But the overall result has been long-running design review, test program and requirements completion verification difficulties.

Audit Report No. 13 2007–08 The Australian Taxation Office’s Approach to Managing Self Managed Superannuation Fund Compliance Risks
The Tax Office’s management of compliance risks has been influenced by its initial approach to regulating and registering Self Managed Superannuation Funds (SMSF). A previous ANAO audit report identified that the Tax Office could have taken steps to improve the collection and assessment of registration data, and fund income tax and regulatory return data, prior to issuing SMSFs with complying fund status.

Since 2003–04 the Tax Office has sought to resolve SMSF non-compliance through a combination of educational strategies and increased active compliance activity. However, low Tax Office compliance audit coverage and the Tax Office’s discretionary use of the SMSF penalty regime has resulted in few funds in breach of the Superannuation industry Supervision Act 1993 (SISA) being subjected to remedial measures.

The ANAO considers the implementation of Simplified Superannuation reforms and the additional resources provided to the Tax Office will impact on the Tax Office’s management of SMSF compliance risks in the future. Notwithstanding the increase in compliance activity associated with these reforms, the ANAO considers that the Tax Office has significant potential to establish more effective processes for identifying and mitigating SMSF compliance risks. Until it does so, it will not be in a position to provide adequate assurance that its compliance approach is effective and that SMSF’s are complying with their obligations.

Audit Report No. 16 2007–08 Data Integrity in the Child Support Agency
The audit examined the integrity of electronic records stored on the Child Support Register—a database called ‘Cuba’—and to report on the effectiveness of the Child Support Agency’s (CSA’s) management of the data. In particular, the audit examined the CSA’s electronic records and data management practices for: accuracy and completeness; reliability and internal consistency; and adequacy of controls and procedures to ensure a high quality of data capture and recording.

Based on its analysis of an extensive extract of CSA records, the ANAO concluded that the majority of records in ‘Cuba’ are sufficiently accurate, complete and reliable to support the effective administration of the Child Support Scheme. Where the ANAO detected anomalous records, these usually accounted for a relatively small proportion of all records in the database. Nevertheless, the presence of erroneous records in the database indicates a weakness in effective control systems for data entry and recording.

Most of the errors and weaknesses pose a minimal risk to the CSA’s overall administration of the Child Support Scheme. However, particular errors or anomalies on individual records can result in an inaccurate calculation of child support liability. For the families involved, the effects can be significant.

In addition to improving the quality of individual customer records, the CSA also has an opportunity to improve the overall management of data in Cuba through a more consistent enforcement of business rules and the further development of its Data Quality Improvement Program.

Audit Report No 17 2007–08 Management of the IT Refresh Program (Centrelink)
The IT Refresh Program (Refresh) is a five year $364 million program to modernise Centrelink’s Information Technology (IT) systems and improve customer access to Centrelink services that was announced in the 2003–04 Budget. The expectation was that Centrelink would achieve offsetting savings over five years of $304.9 million. The audit found that Centrelink had effectively met its commitments to the Government, including the savings commitments. However, the savings in administered expenses did not result from the originally envisaged technology improvements, but from reductions in customer payments as a result of additional data matching activities that identified increases in Centrelink customers’ asset values and income. Similarly, the Refresh program did not generate the expected savings in departmental expenses and Centrelink therefore had to find the savings from non-Refresh reallocations. The audit found that Centrelink’s management of Refresh has been effective, but there is scope for improvement in terms of benefits management, in obtaining the more active engagement of its business areas and in its management of the overall cost of the program. A challenge for Centrelink will be to ensure that the considerable experience and knowledge gained in terms of good program and project management (and which can be usefully applied to future programs and projects) is not dissipated as the Refresh Program Office is dismantled at the end of Refresh.

Audit Report No. 28 2007–08 Defence’s Compliance with the Public Works Committee Approval Process
This audit examined selected Defence public works projects to assess whether they had been submitted to the Public Works Committee in accordance with the Committee’s prevailing requirements for notification and review prior to entering into financial commitments for the works.

The ANAO found that Defence complies with the requirements of the Public Works Committee Act 1969, and largely complies with the requirements in the Committee’s Manual, when referring projects to the Committee for notification and review prior to entering into financial commitments for the relevant public works.

Audit Report No. 30 2007–08 The Australian Taxation Office’s Use of Data Matching and Analytics in Tax Administration
The ANAO examined the Tax Office’s strategic goals and governance arrangements for data matching and analytics, including compliance with privacy requirements and whether the Tax Office is achieving intended results, which include revenue collection, optimised compliance and provision of improved services to taxpayers. The audit found that the Tax Office is making use of its data matching and analytical capability in a more corporate and strategic way and as a consequence has reported improved compliance, better service delivery, and more efficient and effective use of resources. The improving capability has also allowed the Tax Office to better understand risks. The development of a strategic plan for acquiring and using external data would be a key step in further improving the management of the capability.

The Tax Office would also benefit from the consolidation of knowledge of the scope, achievements, lessons learnt and potential of data matching and analytics. Implementation of pre-filling; other online web based services; and the Easier, Cheaper and More Personalised Change Program; provides the potential for the Tax office to further reduce post assessment processing compliance activities.

Audit Report No. 31 2007–08 Management of Recruitment in the Australian Public Service
The audit assessed whether Australian Public Service (APS) agencies had sound approaches to recruitment that assist in providing the workforce capability to deliver government programs effectively. The achievement of agency objectives and staff satisfaction requires recruitment activities to be undertaken effectively, efficiently, and in a fair and transparent manner, consistent with legislative requirements. While ongoing APS employment increased in 2006–07, many positions remained unfilled, and most agencies reported having continued difficulty in recruiting people (other than for the graduate program) with the required skills. In this context, the audit found that three distinct challenges for the APS are: implementing more strategic approaches to recruitment; improving the quality of recruitment processes; and adopting APS-wide approaches to recruiting key occupations.

Audit Report No. 32 2007–08 Preparation of the Tax Expenditures Statement (TES)
Tax Expenditure Statements (TES) were intended to form part of an integrated fiscal framework that provides for greater discipline, transparency and accountability in fiscal policy. However, due to methodological challenges, integration of the reporting of outlays and tax expenditures has not occurred, with the result that the detailed estimates of tax expenditures are reported in a separate TES document rather than integrated within the Mid-Year Economic and Fiscal Outlook (MYEFO) report.

In addition, better practice in controlling tax expenditures is considered to be at the policy development stage by ensuring that the Budget processes require that the cost of any new tax concession proposal (and any savings offsets) be examined in the same way as occurs for outlays. However, past practices in this area have been inconsistent. This has been compounded by shortcomings in the post-implementation measurement, monitoring and reporting (through the TES) of tax expenditures.

Six audit recommendations were made directed at improving the quality of information relating to tax expenditures over time so that the Government and the Parliament are better placed to be informed about the impact of relief provided from Australian Government taxes and charges, and to be positioned to make decisions relating to trade-offs between such relief and other Budget priorities involving outlays.

Audit Report No. 34 2007–08 Administration of the Pathology Quality and Outlays MoUs Department of Health and Ageing
A key objective of the current Pathology Quality and Outlays Memorandum of Understanding (MoU) is to manage Australian Government outlays for pathology services over the period 2004 to 2009. The MoU is based on an average annual rate of growth in pathology outlays of 5.3 per cent between 2004 and 2009. Over the first three years of the MoU, the number of Medicare funded pathology services increased from 77.7 million per year to 87.5 million per year and the average annual rate of growth of actual pathology outlays was 7 per cent. As at October 2007, adjustments to allowable Medicare outlays/benefits under the Pathology MoU had been increased by $530.57 million, bringing the revised total to $8.564 billion.

In examining the Department of Health and Ageing’s (DoHA’s) administration of the Pathology MoU, the ANAO focused on the MoU objective of most concern to the department, namely, to manage pathology outlays. Based on this analysis, areas for consideration by DoHA include: better managing the risks related to increasing pathology outlays; improving the timeliness in assessing claims submitted by the pathology profession; and reviewing the effectiveness of the MoU.

The MoU is the third in a series of MoUs designed to provide for stable growth in pathology outlays. It is due to end in 2009. The ANAO’s recommendation was framed to assist DoHA in the work it is already undertaking to ensure that any future arrangement incorporates the lessons learned.

Audit Report No. 36 2007–08 The Australian Taxation Office’s Strategies to Address Tax Haven Compliance Risks

The ANAO examined the Tax Office’s strategies to address tax haven compliance risks through an investigation of its risk management framework. The Tax Office has adopted a risk management framework for its compliance program where risks are identified and assessed, and in response treatment mitigation strategies are developed, implemented and evaluated. However, the main strategic body responsible for providing leadership and high level co-ordination for the tax haven risk was not meeting on a regular basis to fulfil its charter role. The Tax Office has a strong basis for informed risk identification and evaluation through the use of internal and external data sources. The audit found that the Tax Office can increase the uses of this information through trend analysis. The Tax Office is undertaking a variety of treatment strategies to mitigate the assessed tax haven compliance risks. The audit made three recommendations that are focused on improving the ability to measure the effectiveness of Tax Office strategies to address the tax haven compliance risk.

Audit Report No. 37 2007–08 Management of Credit Cards
The audit examined whether four agencies had effectively administered credit cards, including compliance with legislative and internal requirements. The agencies were: the Department of Human Services, the Department of Agriculture, Fisheries and Forestry, the Department of Broadband, Communications and the Digital Economy and the Australian Competition and Consumer Commission.

The selected agencies generally had sound controls over the issue and cancellation of credit cards and had all issued specific guidance on their use. However, the effectiveness of controls over the use of Commonwealth credit cards varied across agencies. Instances of poorly operating controls typically arose from: failure of the cardholder to obtain proper approval for expenditures and to retain sufficient supporting documentation; and inadequate credit card reconciliations, which were not completed correctly, supported by appropriate documentation and verified by the cardholder and independent reviewer.

The audit did not identify inappropriate expenditure or fraud in any of the audited agencies. However the ANAO considers that all selected agencies need to strengthen key controls over credit cards to further reduce the risk of misuse of credit cards.

The ANAO also considered there was merit in two agencies reviewing existing credit card arrangements to decide whether it is appropriate to continue with their current provider or assess the merits of approaching the market for the provision of credit card services.

Audit Report No. 40 2007–08 Taxpayers’ Charter—Follow-up Audit
The ANAO examined the Tax Office’s implementation of the nine recommendations of Audit Report No. 19 2004–05 Taxpayers’ Charter, having regard to any changed circumstances affecting the implementation of the recommendations. The audit found the Tax Office has progressed well in implementing the recommendations made in the first audit, implementing all recommendations in full or part. The Tax Office has undertaken two reviews of the Taxpayers’ Charter since its implementation, with the second in 2005–06 providing information to inform the management of the Charter, and in several cases the broader management of the Tax Office. The Tax Office’s commitment to the Charter is now being demonstrated through explicit references to the Charter in its strategic planning processes. New and updated practice statements provide staff with practical guidance on how to meet Charter commitments. In addition, processes are planned which will assist information and guidance products, as well as advice, issued by the Tax Office to comply with Charter principles. Complaints information is now analysed and coordinated between ATO Complaints and the Charter Team, to help identify issues relating to Charter performance. Further, the Tax Office now effectively monitors and reports on its performance against the Charter. The ANAO made four new recommendations to further improve the Tax Office’s management of its responsibilities under the Charter.

Audit Report No. 41 2007–08 Management of Personnel Security—Follow-up Audit
The audit assessed the effectiveness of personnel security arrangements in a number of Australian Government agencies including whether they complied with the requirements of the Australian Government Protective Security Manual. The audit followed up recommendations contained in recent ANAO audits and a JCPAA inquiry concerning the administration of personnel security clearances.

The ANAO concluded that while there has been a general improvement in the administration of personnel security since the previous reports, there remains considerable scope for some organisations to improve many key personnel security processes.

The ANAO made two recommendations designed to improve personnel security: conduct regular reviews of agency risk assessments to identify new or emerging risks or changes in risk ratings, and assess the effectiveness of risk treatments; and clearly specify security aftercare arrangements, and promoting these arrangements in security education and training activities.

Audit Report No. 43 2007–08 Performance Audit of Third Tranche Sale of Telstra Shares
The audit examined the Department of Finance and Deregulation’s (Finance’s) administration of the third tranche sale of Telstra shares, which occurred in November 2006. In relation to Finance’s sale coordination and management of the sale, the audit found that the transaction was completed in accordance with the timetable and within budget. However, the audit noted there was limited competitive pressure for some key adviser appointments and a need for improved accountability processes in relation to expenditure on marketing roadshow. In respect to overall financial returns, the audit found that Finance and its advisers developed and implemented an array of offer structure mechanisms that were successful in achieving a high level of demand for shares. In addition, the available evidence was that the offer was fully priced at $3.70.

Audit Report No. 46 2007–08 Regulation of Commercial Broadcasting
This audit examined whether the Australian Communications and Media Authority (ACMA) is, in respect of commercial broadcasting services, effectively discharging its regulatory responsibilities under the Broadcasting Services Act 1992 (BSA). The ANAO found that, for ACMA’s co-regulatory approach to commercial broadcasting services to operate effectively, more attention needs to be given to certain areas of ACMA’s and the commercial broadcasters’ systems, processes and procedures for handling complaints from television viewers, radio listeners and other industry stakeholders. While ACMA has adequately addressed the majority of complaints it has received, the timeliness of its response to these complaints has deteriorated in the last couple of years. ACMA’s management practices for investigating complaints could also be improved in a number of areas. ACMA has recently advised the ANAO that it is implementing a number of initiatives to improve its complaints and investigation processes.