APPENDIX 4—SUMMARY OF REPORTS TABLED IN 2010–11

This appendix summarises the main issues raised in reports tabled in 2010–11 (including performance audit reports, an assurance report on major Defence projects and our report on the audits of financial statements of Australian Government entities). The summaries are grouped by portfolio.

Agriculture, Fisheries and Forestry portfolio

Audit Report No.53 2010–11, Drought Assistance

The objective of the audit was to assess the effectiveness of the Department of Agriculture, Fisheries and Forestry’s (DAFF’s) administration of exceptional circumstances (EC) measures and the implementation of the pilot of new drought reform measures.

DAFF’s administration of the EC programs was generally sound. In particular, EC applications from the states and territories were assessed and reviewed by DAFF and the National Rural Advisory Council (NRAC) in a timely and consistent manner. The assessment and review processes took into account expert advice and appropriate data, and involved stakeholder consultation. There was sufficient information provided to allow the minister to make an informed decision on whether to declare an area as experiencing EC. DAFF has published the rationale underpinning the minister’s recent decisions on its website, providing stakeholders with more information as to the reason(s) for the success or otherwise of a state or territory government’s EC application.

Following recent rainfall, the percentage of Australia’s agricultural land that is EC declared has reduced from a peak of 69.2 per cent in 2008 to 0.3 per cent in 2011. At the same time, Australian and state and territory governments have been considering the results of several evaluations that have been generally critical of the appropriateness and delivery of the current EC drought policy. In light of these reviews, a shift in policy direction from crisis management to risk management to help farmers and farm businesses plan and prepare for a more challenging climate is currently being tested in a pilot program in Western Australia.

The implementation of future drought policies in Australia will continue to require a collaborative effort and partnerships that involve governments and their delivery partners. Based on this audit, and the lessons learned from evaluations undertaken during the past decade, focusing on the following areas will assist DAFF to oversee the delivery of drought assistance now and in the future:

• monitoring key aspects of the performance of DAFF’s delivery partners that provide EC payments, including state and territory government–based rural adjustment authorities and Centrelink
• building on DAFF’s evaluation work with a view to establishing key performance indicators that can better inform decision makers about drought assistance outcomes on a more timely and regular basis.

Attorney-General’s portfolio

Audit Report No.4 2010–11, National Security Hotline

The objective of the audit was to assess whether:

• the Attorney-General’s Department (AGD) effectively manages the National Security Hotline (NSH)
• the Australian Federal Police (AFP) and the Australian Security Intelligence Organisation (ASIO) have effective procedures in place to deal with incoming referrals from the NSH.

The NSH is an important means by which members of the public can pass information to the Government or receive assurance about national security issues. Since its inception, the NSH has received more than 140,000 calls.

The ANAO concluded that the AGD effectively manages the operation of the NSH. The NSH was conceived, designed, constructed and implemented in a short period of time in 2002. Since then, the NSH has worked to improve the IT system, institute sound arrangements for ‘surges’ and contingencies, and develop innovative and effective staff training. The ANAO identified some opportunities for administrative improvement which were adopted by the AGD.

Each of the three audited organisations responded promptly to issues that arose during the audit. Most significantly, the NSH quickly rectified a technical issue in the NSH database that was preventing ASIO from receiving all calls, and ASIO instituted a daily reconciliation process to ensure that all calls received are assessed. The AFP also reviewed its processes and implemented a weekly quality control process to ensure that officers properly document all calls received. The changes made by each agency will enhance the NSH’s usefulness and contribute to making sure that no call is overlooked.

Audit Report No.29 2010–11, Management of the Implementation of New Policy Initiatives

The audit examined the effectiveness of the AFP’s approach to its management of the implementation of new policy initiatives (NPIs).

Overall, the AFP has been generally effective in updating its broad governance structures and enhancing its policy development and advising capabilities to meet new challenges. However, while the broad strategy developed in 2008 to improve project management and oversight in the AFP was sound, its implementation has not been effective. As a consequence, the measures taken to improve organisational project management capability have had little effect and the AFP still lacks the processes, controls and structures necessary to assure the commissioner and the Government that new policy initiatives are being delivered in accordance with the Government’s time, quality and cost expectations.

In particular, implementation planning has been generally poor, with no consistent approach to, or clear policy on, project management across the organisation; and coordinated executive reporting on NPI implementation has been neither comprehensive nor rigorous.

Audit Report No.32 2010–11, Northern Territory Night Patrols

The purpose of the audit was to assess the administrative effectiveness of the AGD’s management of the Northern Territory Night Patrols program, with a particular focus on implementation arrangements to manage the expansion of the program under the Northern Territory Emergency Response (NTER). The audit focused on program design and planning, management of service providers, operations in communities, and linkages between performance indicators, activities and outcomes.

The AGD quickly implemented a new service delivery model which enabled the department to establish and support night patrol services in an additional 50 remote communities across the Northern Territory. There are now night patrol services operating in 80 communities, including in urban areas. In one year of operation, between July 2008 and June 2009, night patrols assisted 75,220 people on a range of community safety matters.

The department has made some adjustments to program administration. There is potential for further modification to allow increased flexibility and responsiveness to local circumstances, as well as a greater focus on referrals to other community services.

Audit Report No.43 2010–11, Australian Federal Police Protection Services

The audit objective was to examine whether the Uniform Protection (UP) and Close Personal Protection (CPP) services provided by AFP Protection are being managed effectively.

The ANAO concluded that the UP and CPP services provided by AFP Protection are being managed effectively. The functional integration of the former Australian Protective Service into the AFP has largely been completed, with key elements such as recruitment, training and human resource management delivered and monitored through AFP-wide systems. AFP Protection has in place an administrative framework that enables it to effectively manage, monitor and deliver its services across the diverse sites at which it operates. In particular, it has established sound planning and risk management arrangements, which underpin its service delivery. It has also put in place effective arrangements to monitor and manage its UP and CPP workforces on a day-today basis, strengthened its training arrangements for new and existing protective service officers and CPP officers, and developed adequate guidance for staff.

While management oversight and service delivery are generally sound, there are a number of weaknesses in the supporting administrative arrangements that have the potential to impede effective decision making and allocation of resources. In particular, there would be benefits to both AFP Protection and its clients in increasing the transparency of the cost-recovery arrangements, strengthening the arrangements for reporting to clients, and improving performance information for both the protection function as a whole, and for individual UP clients.

Management has been active in dealing with integration issues such as differences in employment conditions and career and training opportunities. However, staff surveys found that AFP Protection staff have lower job satisfaction and feel a sense of disengagement from the rest of the organisation, which indicates that there is still work to be done to achieve greater functional and workforce integration into the AFP.

Broadband, Communications and the Digital Economy portfolio

Audit Report No.28 2010–11, Management of the Australian Broadband Guarantee Program

The objective of the audit was to assess whether the Department of Broadband, Communications and the Digital Economy had effectively managed the Australian Broadband Guarantee (ABG) program, and the extent to which the program was achieving its stated objectives.

The ABG program has provided subsidised access to broadband services for more than 103,000 residences and small businesses in regional, rural and remote areas of Australia. The number of underserved premises in Australia fell from more than 925,000 at the start of the program to 160,000 in July 2010. This reduction primarily resulted from the rollout of commercial broadband services into previously underserved areas.

The policy settings for the ABG program are matters for the Australian Government to determine, based on advice from its department and any other sources. There has been a six-fold increase in the minimum data allowance for the ABG threshold service over the life of the program, but little improvement in the minimum download speed. Since 1 July 2010, the monthly data allowance for the threshold service has been more closely aligned with the Australian average amount of data downloaded per month. However, the entry-level service, which accounts for about 77 per cent of ABG connections, has not changed over the three years of the program. On average, prices paid by ABG customers, while lower than would have been the case without the subsidy, have exceeded the prices paid for equivalent broadband services (in terms of speed and data allowances) in metropolitan areas. For reviews of the service levels and subsidies completed in 2008, 2009 and 2010, there was a lack of documentation to support the department’s recommendations to the minister, and the underlying rationale for changing (or retaining) program elements was not readily apparent.

To administer the program and its interface with customers and providers, the department has established an effective management framework. However, the audit identified a number of shortcomings in the department’s regime for the technical testing of the quality of broadband services delivered by providers, the conduct of telephone audits of ABG customers, and site audits of ABG providers. The department has taken steps to address these matters.

The department has not reported against the program’s key performance indicators and performance targets outlined in its Portfolio Budget Statements whether program objectives have been achieved and what outcomes can be attributed to the program’s intervention. Performance reporting has largely been activity based and does not include key program elements, their results and impacts, or trends over time. This type of information would give greater transparency to the operation of the program, better inform management and policy decision making, and provide context about the environment in which the program is operating.

Defence portfolio

Audit Report No.17 2010–11, 2009–10 Major Projects Report

This third major projects report progressed the development of an annual reporting program for the Defence Materiel Organisation (DMO). It focused on improved transparency and accountability for performance relating to budgeted cost, schedule and progress towards delivering the key capabilities of defence major projects. The report builds on the data analysis introduced in the 2008–09 Major Projects Report, and provides a basis for greater longitudinal analysis of project performance in future years.

The formal conclusion from the review of the project data summary sheets (PDSSs) was that, except that project expenditure history was not expressed in base-date dollars for 19 major projects and the prime contract price was not expressed in base-date dollars for four major projects, nothing came to the attention of the ANAO that caused us to believe that the information in the PDSSs (within the scope of the review) has not been prepared in all material aspects in accordance with the PDSS guidelines.

The ANAO’s analysis indicated that maintaining major projects on schedule remains the major challenge for the DMO and industry contractors, affecting when the capability is made available for operational release and deployment. DMO data indicated that at 30 June 2010 the total time for the 22 major projects to achieve their final operational capability date was expected to be almost one-third longer than was originally planned.

The program is well placed to incorporate a further six new projects in the 2010–11 major projects report, to bring the total number of major projects reported on to 28.

Audit Report No.37 2010–11, Management of Explosive Ordnance Held by the Air Force, Army and Navy

The audit examined the effectiveness of the management of explosive ordnance by the Department of Defence (Defence), focusing on the effectiveness of the arrangements for the oversight and physical control of explosive ordnance once it has been issued to Australian Defence Force (ADF) units.

Explosive ordnance merits stringent monitoring, oversight and control. However, some ADF units relied on inconsistent guidance for recording and managing their explosive ordnance, using stand-alone computer-based spreadsheets and manual stock-recording systems. The arrangements varied between and within the Air Force, Army and Navy.

At the unit level, the policies, procedures and guidelines for the management of explosive ordnance were incomplete and, in some cases, contained inconsistent advice. The gaps and inconsistencies extended from central policies and procedures down to unit-specific instructions. They also extended to Defence’s reporting, recording and investigation of explosive ordnance security incidents, limiting the department’s ability to detect, assess and mitigate its security vulnerabilities.

Defence has yet to achieve assurance that all its explosive ordnance is being effectively managed at the unit level. Defence’s limited oversight of ADF unit holdings was caused by:

• the frequent need for ADF units to manually process large volumes of explosive ordnance transactions
• the lack of
  • consistent and complete procedures and guidance to ADF units on recording explosive ordnance transactions
  • consistent guidance and instruction on the recording and reporting of explosive ordnance security incidents
  • an effective program of monitoring and review within the department.

More than three years after the ANAO conducted a performance audit of weapons, munitions and explosives security, Defence is only now achieving the improvements to policies and systems that are necessary to ensure that it can track and control explosive ordnance throughout its life cycle.

Audit Report No.40 2010–11, Management of the Explosive Ordnance Services Contract

The purpose of the audit was to assess whether Defence is effectively managing the Explosive Ordnance Services Contract (EO Services Contract). The audit focused mainly on Defence’s contract management framework, including the arrangements to monitor the contractor’s performance in delivering services. The audit also examined the processes used to develop the current version of the contract and the extent to which the revised contract, as negotiated in 2006, provides an assurance of better value for money when compared to the original contract signed in 2001.

Overall, Defence has established mechanisms to support the effective management of the EO Services Contract. Defence’s 2006 contract renegotiation resulted in better specified services, a performance management framework, and improvement and cost-reduction targets. Subsequently, increases in contract costs levelled off and there have been marked improvements in the timeliness of the contractor’s deliveries of explosive ordnance to ADF units. Nonetheless, Defence could obtain additional contract efficiencies. As part of Defence’s regular reviews of the EO Services Contract costs, the margins paid for some contract elements could be revisited. Defence could improve its forecasting of its explosive ordnance requirements.

In the course of its regular contract review process, Defence should also seek to incorporate a firm contract expiry date to allow for the services provided under the EO Services Contract to be market tested. There is currently no limit on the number of performance-based contract extensions available to the incumbent contractor: provided the contractor continues to meet contractually defined performance standards, the contract can potentially be extended indefinitely. For a long time, the Department of Finance and Deregulation (Finance) has advised agencies that such evergreen provisions are likely to limit competition, and do not provide the necessary assurance that the value-for-money requirements of the policy framework in the Commonwealth Procurement Guidelines will be met.

Audit Report No.41 2010–11, Maintenance of the Defence Estate

The audit examined the effectiveness of the management of maintenance of the Defence estate, taking particular account of planning and delivery.

In considering the ongoing management of the estate, the 2008 Audit of the Defence Budget (Pappas report) found that the estate was an ageing, complex and costly historical legacy, and that investment in maintenance of the estate had been decreasing since the 1980s. Providing sufficient funding for estate maintenance is an ongoing challenge because of competing demands for Defence funds, as well as external pressures such as urban encroachment and environmental and heritage issues.

The ANAO concluded that the management of estate maintenance has not been fully effective. Both planning and delivery of estate maintenance would benefit if Defence had in place authoritative, longer term plans for the estate, and condition assessments of estate facilities and infrastructure. Further, the funding currently applied to estate maintenance is not sufficient to preserve existing assets, which, in many cases, Defence will require for long-term use. In terms of the delivery of estate maintenance services to bases and other Defence establishments, performance is mixed; Defence has advised that it is pursuing initiatives to improve that performance in the longer term.

Audit Report No.57 2010–11, Acceptance into Service of Navy Capability

The objective of the audit was to report on the effectiveness of Defence’s approach to the acceptance into service of Navy capability, and to identify where better practice may be used by the Capability Development Group, DMO and Navy.

Defence is still some way from achieving its decade-old objective of seamless, well-developed processes and systems for the effective and efficient delivery of Navy capability. The overall picture is of a capability development system that has not consistently identified and responded, in a timely and comprehensive way, to conditions that adversely affected Navy capability acquisition and support. Opportunities to identify and mitigate cost, schedule and technical risks have been missed, resulting in chronic delays in Navy Mission Systems achieving Final Operational Capability. At the highest level, acquisition plans have not clearly set out the Government’s agreed scope, cost and schedule for each project at the time of each project’s approval. Consequently, compliance with government requirements, which is a fundamental responsibility of Defence, could not be confirmed by Defence.

The pathway to better capability outcomes is reliant on clear up-front agreements on capability requirements definition, verification and validation procedures, and configuration management. In all cases, the Capability Development Group, DMO and Navy would benefit from working more closely together during important phases of the development of major systems. At key stages of each project, all parties would benefit from having a definite agreed view of the risks that must be managed in order to achieve a successful outcome. Experience in the United Kingdom and the United States underscores the importance of the acquisition organisation and the navy working together to ensure that hand-offs do not become ‘voyages of discovery’ in the final stages of the project.

Without the application of greater discipline by Defence in the implementation of its own policies and procedures, the necessary improvements in acquisition outcomes will not be achieved. In some essential systems engineering, technical regulatory elements and capability integration management areas, there are insufficient numbers of qualified staff; this needs to be addressed as a priority. The ANAO made eight recommendations designed to improve Defence’s management of the acquisition and transition into service of Navy capability, including reducing delays in achieving operational release.

Education, Employment and Workplace Relations portfolio

Audit Report No.8 2010–11, Multifunctional Aboriginal Children’s Services (MACS) and Crèches

The objective of the audit was to examine the effectiveness of the administrative arrangements of the Department of Education, Employment and Workplace Relations (DEEWR) supporting the delivery of Indigenous childcare services through multifunctional Aboriginal children’s services (MACS) and crèches, including the approaches DEEWR uses to monitor the achievement of the budget-based funding sub-program objective.

The services covered in this audit are community-based childcare services provided in Indigenous communities across Australia, mainly in remote and very remote areas. During 2009–10, the Australian Government funded the operation of 268 Indigenous childcare services, including 33 MACS and 36 crèches.

The ANAO concluded that DEEWR’s management of Indigenous childcare services had improved since the department took responsibility for their administration in December 2007. DEEWR has developed a management framework supporting the provision of Indigenous childcare services, including operational guidelines, program guidelines, and a revised performance management framework. This has provided a basis for more consistent program management and has assisted service providers to better understand their roles and responsibilities as well as DEEWR’s administrative and reporting requirements. However, the ANAO identified several areas in which MACS and crèches could be better managed through further improvements to the management of the budget-based funding sub-program.

Audit Report No.25 2010–11, Administration of the Trade Training Centres in Schools Program

The audit examined the effectiveness of DEEWR’s administration of the Trade Training Centres in Schools Program. The audit’s major focus was on assessing the program’s administrative framework and whether its implementation had been well managed. The audit also considered the adequacy of the program’s performance information framework.

DEEWR’s approach to planning and its administrative framework for the program were generally sound. Nevertheless, DEEWR was not consistent in the implementation or documentation of application assessment processes; its oversight of compliance with funding agreements has been limited; and there is scope to further strengthen the program’s performance information framework.

As the program is based on a competitive process and does not have specific targets for the construction of trade training centres, it is difficult for stakeholders to assess the extent to which the program is successful in developing the trade training centre infrastructure which underpins the delivery of program objectives. At the individual project level, there have been time lags between projects receiving in-principle approval and contractual agreements being finalised (on average 240 days for rounds 1 and 2), in part due to the need for detailed planning and the close attention given by DEEWR to project costs.

There have also been delays in approved projects reaching specific construction milestone dates, with only 31 per cent of round 1 and 2 projects meeting milestone 2 (commencement of construction) and 27 per cent meeting milestone 4 (completion of construction) on time. DEEWR advised that construction delays were due to factors such as availability of subcontractors and building materials; weather conditions and other site issues; state and territory procurement requirements and lead times; and optimistic milestone proposals by schools having regard to planning, procurement and approval requirements.

Audit Report No.30 2010–11, Digital Education Revolution Program—National Secondary Schools Computer Fund

The objective of the audit was to examine the effectiveness of DEEWR’s administration of the Digital Education Revolution (DER) program, focusing on the major component of the program, the National Secondary Schools Computer Fund (NSSCF).

Overall, DEEWR’s administration of the DER program has been effective in supporting progress, through a partnership approach, towards the fund’s objective of increasing the computerto-student ratio for students in years 9 to 12. Some aspects of the department’s oversight of implementation could have been strengthened. While DEEWR worked with education authorities to collect preliminary survey data as a basis for allocating application round funding, and required education authorities to verify and provide assurances about the accuracy of the data, DEEWR did not perform simple checks on the data to provide assurance over data quality. Further, unlike agreements with government education authorities, agreements with the non-government sector do not require annual acquittal of the use of funds, nor reporting on education authorities’ or schools’ ongoing investment in schools’ information and communications technology.

More broadly, if education authorities had been required to establish one or two intermediate progress milestones based on their respective implementation plans, DEEWR and stakeholders would have been better able to gauge progress towards the program’s target computer-to-student ratio of 1:1 and to identify any delivery problems in time for remediation to occur.

Education authorities have reported solid progress in the installation of computers purchased using NSSCF funding, indicating during the audit period that about 268,000 computers had been installed from the three funding rounds. Under the DER timelines, following the conclusion of application round funding agreements, schools must transition to a computer-to-student ratio of 1:1 in a relatively short time. As at 30 September 2010, the reported computer-to-student ratio across Australia was slightly better than 1:2, with 15 months remaining for schools to install another 438,000 computers to reach a 1:1 ratio by 31 December 2011. Education authorities’ progress towards the computer-to-student ratio of 1:1 for students in their state or sector varied, ranging from about 1:1.3 to 1:2.5. In this context, the Australian Government agreed to education authorities committing program funds by 31 December 2011 and completing computer installation early in 2012.

Environment, Water, Heritage and the Arts portfolio

Audit Report No.9 2010–11, Green Loans Program

The objective of the audit was to examine key aspects of the establishment and administration of the Green Loans program by the then Department of the Environment, Water, Heritage and the Arts (DEWHA) and the program’s transition to the Department of Climate Change and Energy Efficiency (DCCEE).

The absence of effective governance by DEWHA during the program’s design and early implementation resulted in administrative deficiencies. Limited executive oversight and a lack of robust and executive-endorsed program management plans for procurement, risk management, IT and communications led to both:

• delays in implementing key program elements
• inadequate program delivery mechanisms (including mechanisms for demand management, monitoring, budgeting and financial management, procurement and stakeholder consultation).

The audit also found that the minister received incomplete, inaccurate and untimely briefings in relation to the program.

Since late 2009, the Green Loans management effort has not only had to deal with the ongoing management of the program but also had to manage the numerous administrative issues that adversely impacted on the effective implementation of the program. DEWHA and the DCCEE have devoted additional resources to improve the administration of the program. However, both departments have been inhibited by the entrenched nature of the legacy issues, the loss of corporate memory through staff turnover, and the generally poor standard of past record keeping.

The audit noted that, in response to program reviews, DEWHA and the DCCEE were taking steps to improve to program governance and the DCCEE was taking measures to address the program’s legacy issues.

Audit Report No.12 2010–11, Home Insulation Program

The audit assessed key aspects of the establishment and administration of the Home Insulation Program (HIP) by DEWHA and the transition of the program to DCCEE.

The $2.8 billion HIP was designed to generate economic stimulus and create jobs for lower skilled workers in the housing and construction industry, which was expected to be adversely affected by an economic downturn flowing from the global financial crisis. A secondary but important objective was to improve the energy efficiency of 2.7 million Australian homes and reduce greenhouse gas emissions.

There were a number of contributing factors that impacted on the successful implementation of Phase 2 of the program. These included:

• the very tight time frame in which the program was required to be delivered
• underestimation of key program risks
• under-resourcing of program administration
• the delayed introduction of an effective compliance and audit program
• inadequate governance arrangements and advice to the then minister.

DEWHA’s approach to the management of program risks was heavily influenced by the tight time frame associated with developing and implementing the HIP due to the program’s stimulus focus. Consequently, some of the controls and mitigation strategies which could have been expected to have been implemented as part of the HIP were not in place. In its risk assessment in April 2009, DEWHA identified 18 extreme or high-level risks that could adversely impact on the delivery of the program. While the department took steps to address some of those risks, treatments were inadequate and the department was subsequently required to implement a number of program changes in response to realised risks.

Under the HIP, some 1.1 million roofs were insulated at a cost of $1.45 billion and between 6,000 and 10,000 jobs were created. However, the jobs did not last as long as intended, because of the early closure of the program. There were energy efficiency benefits, but these were likely to be less than anticipated due to deficiencies in a significant number of installations. From 13,808 roof inspections conducted by the department, around 29 per cent identified some level of deficiency, ranging from minor quality issues to serious safety concerns. Funding for checking and rectifying installations was expected to cost $424 million. In addition, cases of potential fraud were identified.

The audit concluded that the HIP was a costly program for the outcomes achieved. There were key lessons for public administration arising from the HIP experience, in terms of both policy development and implementation.

Families, Housing, Community Services and Indigenous Affairs portfolio

Audit Report No.18 2010–11, Government Business Managers in Aboriginal Communities under the Northern Territory Emergency Response

The objective of the audit was to assess the administrative effectiveness of the management of the Government Business Manager (GBM) initiative by the Department of Families, Housing, Community Services and Indigenous Affairs (FaHCSIA), and the extent to which the initiative has contributed to improvements in community engagement and government coordination in the Northern Territory.

The NTER was a complex undertaking involving sensitive matters, and the Government required it to be established and implemented in a short period of time. In its role as lead agency for Indigenous affairs and the NTER, FaHCSIA rapidly recruited and deployed GBMs to support each of the NTER communities. As a result of its efforts during the initial stabilisation phase of the NTER and its ongoing management of the GBM initiative, FaHCSIA has established a stable presence in the NTER communities.

The audit concluded that FaHCSIA’s overall management of the GBM initiative was effective, noting that the emergency context surrounding Indigenous affairs in the Northern Territory had constrained the development of typical program management arrangements. Over time, GBMs’ coordination efforts have come to be hampered by the persistence of vertical, single-agency approaches to service delivery and by other agencies’ waning recognition of GBMs’ coordination role in communities. The development of local service delivery agreements could help to provide GBMs with strategic priorities and strengthen GBMs’ authority in communities. Improvements in the communication of community issues to people within FaHCSIA and other agencies will help to give practical effect to GBMs’ engagement efforts, while the ongoing development of systems to track agencies’ responses to issues raised by GBMs should provide an incentive for those agencies to better engage at the local level.

Audit Report No.19 2010–11, Army Aboriginal Community Assistance Program

The audit examined the strategic direction, planning and implementation of the Army Aboriginal Community Assistance Program (AACAP) and how the program contributes to the Australian Government’s broader objectives for environmental health in remote Indigenous communities.

AACAP is administered by FaHCSIA and implemented by the Australian Army. The aim of the program is to develop and upgrade environmental health infrastructure in remote Aboriginal and Torres Strait Islander communities, and to enhance the primary healthcare services and facilities available to these communities. Since 1997, the program has implemented projects in 20 discrete locations covering 35 communities in the Northern Territory, Western Australia, South Australia and Queensland. The main infrastructure focus of AACAP has enabled the building of housing and health clinics, and upgrades to roads and airstrips. The Army has also provided other services for communities—for example, removing old car bodies from the yards of houses, repairing school fencing and refurbishing local waste sites.

AACAP is a small program in terms of funding but represents a significant investment in small communities. Because of this concentration of investment, a high degree of management consideration has been required to achieve an appropriate balance between a community’s expressed needs, the ability of the program to cater for them and the capability of the Army to deliver the projects. In using limited resources, FaHCSIA has also had to find a balance between ensuring that the annual project processes are undertaken and strengthening the administration of the program.

Changes made to the program in 2009 to include health, housing and education initiatives have served to make AACAP consistent with the Council of Australian Governments (COAG) National Indigenous Reform Agreement priorities. AACAP now co-exists with other COAG initiatives and there is scope for it to become better integrated with other elements of the Government’s Indigenous program framework.

The ANAO identified areas where further improvements to the management of AACAP could be made. These include:

• making greater use of the AACAP steering committee as a forum to provide high-level strategic direction to assist both FaHCSIA and the Army
• developing an approach for reviewing and assessing the longer term performance and sustainability of infrastructure provided under AACAP
• reviewing the approach the program takes to managing grant funds to ensure that the arrangements fully reflect current legislative and policy requirements.

Audit Report No.21 2010–11, Indigenous Housing Initiatives: the Fixing Houses for Better Health program

The objective of the audit was to assess the effectiveness of FaHCSIA’s management of the Fixing Houses for Better Health (FHBH) program since 2005.

The audit concluded that between July 2005 and June 2009, on a modest resource base, the FHBH program was able to make key health-related improvements, as planned, to over 2,000 houses in 34 communities. These communities were geographically dispersed in mainly remote areas of five states and the Northern Territory. Performance information indicated that, while the extent of improvement in individual houses was subject to some variation, across the program there was an overall improvement in the way houses performed in being able to support what are known as the ‘healthy living’ practices.

FaHCSIA’s program management arrangements did not cater for the collection of data that provided a means of linking the improvements made to houses in communities under this program with changes in health indicators in those same communities. Because of this gap, it is not possible to draw links between the implementation of the FHBH program’s activities and its overall purpose of improving Indigenous health.

Some specific assessment of the FHBH program’s relative effectiveness would have allowed FaHCSIA to increase its knowledge of how different programs and interventions can contribute to desired outcomes. This will be an increasingly important matter for FaHCSIA given the significantly increased funding being provided for Indigenous housing under the National Partnership Agreement on Remote Indigenous Housing and the contribution that COAG expects the agreement to make to improving environmental health in communities.

Audit Report No.23 2010–11, Home Ownership of Indigenous Land Program

The purpose of the audit was to assess the administrative effectiveness of management of the Home Ownership of Indigenous Land (HOIL) Program by FaHCSIA and Indigenous Business Australia (IBA). In particular, the audit examined the administrative design of the program, its implementation and its progress in achieving the expected results.

The ANAO concluded that increasing the level of home ownership on Indigenous land has proven to be a significant challenge for FaHCSIA and IBA. The two agencies have been faced with a range of barriers affecting their ability to provide loans and home ownership incentives to Indigenous people on community-titled land. These barriers were primarily related to reaching agreement on land tenure, and have restricted the number of potential clients, with consequential effects on the number of loans, other financial incentives and training packages delivered to Indigenous people.

The initial four-year funding period for the HOIL program concluded on 30 June 2010. Against a target of providing 460 loans across eight communities, IBA has been able to provide only 15 loans. All of the 15 loans provided were for homes on the Tiwi Islands in the Northern Territory, with 14 provided in the community of Nguiu.

Foreign Affairs and Trade portfolio

Audit Report No.35 2010–11, Management of the Overseas Leased Estate

The audit objective was to examine the effectiveness of management of the overseas leased estate by the Department of Foreign Affairs and Trade (DFAT).

DFAT manages the majority of the Australian Government’s overseas leased property estate. The diversity and geographic spread of the estate pose management challenges for DFAT. The audit concluded that DFAT has been largely effective in the provision of leased property overseas, noting that the basic elements for leased office and residential property are working effectively.

DFAT has been working to strengthen some of the shared management elements of the overseas estates which were identified by a previous audit report (No.32 2009–10, Management of the Overseas Owned Estate) and this audit. The department has also identified other areas where it can strengthen its management arrangements.

The audit identified some elements of DFAT’s administration where improvements would strengthen the overall management of the overseas leased estate. These elements include reviewing the governance arrangements to better support the leased estate, with the intent of more clearly delineating roles and responsibilities within DFAT; and focusing on improved long-term planning for leased chanceries to better manage lease life cycles and changes to post requirements.

Audit Report No.44 2010–11, AusAID’s Management of Tertiary Training Assistance

The purpose of the audit was to assess the effectiveness of AusAID’s management of tertiary training assistance.

AusAID’s management of tertiary training assistance has been broadly effective. In designing tertiary training initiatives, AusAID targets assistance to the needs of aid recipients, and implements tertiary training initiatives in a way that is appropriate for local contexts. AusAID’s regular monitoring and review of the performance of initiatives is robust, and the outcomes of these reviews are a major influence on the design of future initiatives. AusAID has also made good progress in coordinating the delivery of tertiary training programs in the Pacific by establishing joint management arrangements with the New Zealand Government’s aid program. The assistance provided by AusAID is generally well regarded by aid recipients.

Health and Ageing portfolio

Audit Report No.5 2010–11, Practice Incentives Program

The objective of the audit was to assess the effectiveness of the Department of Health and Ageing (DOHA) in planning, monitoring and reviewing the Practice Incentives Program (PIP) and, with Medicare Australia, ensuring that the PIP is delivered to general practices and their medical practitioners.

The program’s administration was broadly effective. As a result of the program, 67 per cent of general practices, covering 82 per cent of general practice care, achieved accreditation against the Royal Australian College of General Practitioners (RACGP) Standards for General Practice. However, PIP features made its management challenging. While general practice accreditation was the key program entry requirement, each incentive under the program had its own set of aims, requirements, and payment arrangements.

Accreditation was a barrier to participation, particularly by Aboriginal Medical Services and smaller practices, limiting access to incentives applicable to all general practices, such as eHealth. The means by which payments were calculated could also have unintended consequences, potentially impacting on the take-up of individual PIP incentives. Program planning for placing an incentive in PIP did not systematically take program design features such as accreditation requirements and the basis for payments into account.

Furthermore, the assessment of PIP achievements was limited by a lack of indicators with which to measure the success or otherwise of individual incentives. Government expected that general practice accreditation would ensure access to high-quality primary health care. However, the way that general practice accreditation was organised limited DOHA’s assurance over the quality and rigor of the accreditation processes—a key program entry criterion. As a result, DOHA was not in a position to fully inform government on the development and use of PIP for particular incentives, and the outcomes from accreditation and individual incentives.

Audit Report No.15 2010–11, Food Standards Australia New Zealand

The objective of the audit was to assess the administration by Food Standards Australia New Zealand (FSANZ) of certain functions specified in the Food Standards Australia New Zealand Act 1991.

Over time, the Australian and New Zealand governments have committed to reducing the regulatory burden on businesses within the food industry, without compromising public health and safety. Recent amendments to food legislation have focused on processing applications more efficiently to change or amend the joint Australia New Zealand Food Standards Code, while avoiding unnecessary compliance costs, and protecting consumers. In this environment, the role of FSANZ is to develop food standards (regulations) based on the best available scientific evidence provided by applicants or researched by FSANZ.

FSANZ is a relatively small agency operating in a complex multijurisdictional environment. It has met most of its key responsibilities and completed a large component of its annual work program using its available resources.

Although FSANZ actively engages stakeholders, there is a broad range of views as to the direction and appropriateness of food standards. Against this background, the audit found that FSANZ should be able to report more fully on its effectiveness in developing food standards. It could do this by:

• developing performance indicators to identify its contribution to its single Outcome—a safe food supply and well-informed consumers in Australia and New Zealand
• documenting how it takes its legislative objectives into consideration when it develops or amends food standards
• its approach to managing the processing of paid versus unpaid applications and proposals using its current resources (a recognised noncompliance issue).

Audit Report No.34 2010–11, General Practice Education and Training

The objective of this audit was to assess the administrative effectiveness of the management of two training programs by General Practice Education and Training Limited (GPET). The programs are Australian General Practice Training (AGPT) and the Prevocational General Practice Training Placements Program (PGPPP), the latter being a responsibility that GPET assumed in 2010.

GPET has successfully administered AGPT and successfully managed the transition and early implementation phases of the PGPPP. Overall, GPET’s delivery and review processes for both programs are sound.

Over time the Government has increased its expectations of GPET. These changing expectations and expanding functions have not been fully reflected in updated, clear and aligned statements of GPET’s objectives, strategies, priorities and performance information. The amendment of GPET’s constitution in December 2010 was an important step towards improving this and also presented opportunities for GPET to clarify its directions and the alignment of strategies and performance expectations across key corporate documents.

GPET would have had a better appreciation of health workforce issues and their relevance to GPET’s strategies if it had been able to access additional workforce data from DOHA. The ANAO recommended that GPET pursue arrangements with DOHA to gain access to this data. The department agreed and, in the latter part of the audit, advised that it was putting processes in place to provide this data to GPET.

Audit Report No.48 2010–11, Monitoring and Compliance Arrangements Supporting Quality of Care in Residential Aged Care Homes

The objective of the audit was to assess the effectiveness of monitoring arrangements (by the Accreditation Agency) and compliance activities (by DOHA) put in place to achieve residential aged care homes’ compliance with the Accreditation Standards and their other, related, responsibilities under the Aged Care Act 1997 and its associated instruments.

An effective monitoring and compliance framework is an important means of ensuring that the Government policy objective of ‘access to quality and affordable aged care’ is met. In this context, both DOHA and the Accreditation Agency have key roles:

• DOHA has the overarching regulatory role, monitoring compliance by approved providers with all their responsibilities under the Act, and imposing sanctions where appropriate.
• The agency has a more defined role, with responsibility for promoting high-quality care through its management of the accreditation process, including the monitoring of approved providers’ compliance with the Accreditation Standards and the delivery of education programs to industry.

While the strategies adopted by DOHA and the agency focus on promoting quality in individual accredited homes, there is less of a focus on sector-wide risks to quality and compliance. The development of a common risk profile for each accredited home that could be analysed at an aggregate level would contribute to an improved understanding of trends in compliance and noncompliance across the residential sector.

Stakeholder understanding of the separate but complementary roles of DOHA and the agency could be enhanced by the use of service charters. Stakeholder understanding of regulatory performance and its contribution to quality improvements in the sector could be improved by a more complete reporting framework focused on measuring the contributions of both organisations to the quality outcomes sought by government.

Audit Report No.51 2010–11, Administration of the Access to Allied Psychological Services Program

The objective of the audit was to examine the effectiveness of DOHA’s administration of the Access to Allied Psychological Services (ATAPS) Program.

ATAPS is an Australian Government initiative designed to improve access to mental health care. In recent years, it has increasingly focused on groups with historically poor access to and low usage of ‘mainstream’ Medicare-funded services.

Since commencing in 2002, ATAPS has facilitated greater consumer access, at low or no cost, to Australian Government–subsidised treatment in a primary care setting for people experiencing high-prevalence mental health disorders, such as depression and anxiety. By March 2011, more than 900,000 mental health sessions of care had been recorded under ATAPS to around 170,000 people with a diagnosed mental health disorder.

Although considered a mature program, ATAPS is at a point of transition, with policy and administrative challenges arising from:

• a substantial increase in program funding announced in the 2011–12 Budget
• the refocusing and targeting of the program, following a review released in early 2010, to better complement larger mainstream programs
• the implementation of four new ATAPS measures from the 2010–11 Budget
• the proposed transfer of responsibility for day-to-day administration from Divisions of General Practice to Medicare Locals
• the implications of broader reforms to the healthcare system in Australia.

While ATAPS is delivering valued services to those able to access mental health care under the capped program, the administrative arrangements established by DOHA have not consistently supported the achievement of program objectives. In particular there has been variable administrative performance, over the relatively long life of the program, in relation to a number of important program elements, including the allocation of program funding on the basis of identified need; monitoring of compliance with program requirements; and administration of new ATAPS initiatives.

Human Services portfolio

Audit Report No.10 2010–11, Centrelink Fraud Investigations

The objective of this audit was to examine the effectiveness of Centrelink’s approach to investigating and responding to external fraud.

Centrelink has recently undertaken key developments to improve its fraud control program. They include implementing the online Fraud Investigation Manual; using an intelligence capability to detect fraud; and restructuring the Business Integrity Network. However, the ANAO’s case reviews indicate that most of Centrelink’s fraud investigations did not comply with the Australian Government Investigations Standards or with Centrelink’s own internal policies and procedures.

Such noncompliance at key points throughout the investigation process contributed to deficiencies in case selection and prioritisation practices, and to shortcomings in managerial oversight of both the planning of investigations and the deliberations leading to critical decisions and investigation outcomes. The government’s legislated framework sets out procedural requirements for these key points, as do Centrelink’s own internal procedural controls, which were put in place to promote high-quality investigations and prosecution referrals, including through the collection of admissible evidence, while ensuring that cases of fraud are treated fairly and equitably.

Cases that are not referred to the Commonwealth Director of Public Prosecutions result in administrative remedies; this is the outcome of most Centrelink cases investigated. Irrespective of the manner in which cases are handled following investigation, the audit demonstrated that Centrelink would benefit from placing stronger emphasis on the quality and consistency of its case management practices by making the manual easier to use; providing regular refresher training in the use of the manual; and targeting customers most at risk of committing serious fraud.

Audit Report No.26 2010–11, Management of the Tender Process for a Replacement BasicsCard

The objective of this audit was to assess the effectiveness of DHS’s management of the tender process for a replacement BasicsCard to support the delivery of the income management scheme.

Overall, DHS effectively managed the tender process for a replacement BasicsCard to support the delivery of the income management scheme. DHS’s management of the replacement BasicsCard procurement allowed the tender to be conducted within the required time frame and budget. DHS demonstrated sound procurement and management practice and acted in a manner consistent with Finance’s operational guidance to agencies, as contained in the Guidance on the Mandatory Procurement Procedures. In planning and managing the procurement, including approaching the market, evaluating tender submissions and conducting contract negotiations, DHS also complied with the requirements of the Commonwealth Procurement Guidelines.

DHS’s approach to planning the replacement BasicsCard procurement responded to an important opportunity to address the existing criticisms of the BasicsCard, such as limited options for card users to make account balance inquiries and individual customers having a high number of transactions declined. Additionally, the lessons learned from the operation of the first BasicsCard informed the approach to the market for the card’s functionality and the level of operational performance that would potentially be required to support income management into the future.

Audit Report No.36 2010–11, Service Delivery in CRS Australia

The purpose of the audit was to assess the effectiveness of CRS Australia’s delivery of disability management services.

For some 70 years, CRS Australia has been providing vocational rehabilitation and employment-related services to help people with a disability, injury or health condition obtain and/or maintain sustainable employment. In recent years, the Australian Government has implemented a suite of reforms to the disability employment sector, including the introduction of competition. This has resulted in CRS Australia moving from being the sole provider of vocational rehabilitation services to being one of 66 providers of disability management services. The diminishing level of ‘guaranteed’ work and the need to compete have required CRS Australia to be flexible in its operations while maintaining a high level of customer service that provides employment outcomes for clients.

CRS Australia’s operational processes and service delivery model allow it to effectively deliver services in accordance with the Disability Services Standards and requirements of the DEEWR memorandum of understanding. In doing this, CRS Australia has regularly met key service delivery milestones while achieving an operating surplus. To support service delivery, CRS Australia maintains a quality management system; has processes in place to obtain client feedback and to address client complaints; and adopts a planning framework that encompasses all levels of its operations. Notwithstanding the effectiveness of CRS Australia’s overall performance, there are areas where existing practices could be improved to achieve better on-site quality assurance, client feedback processes (including complaints) and performance reporting.

Immigration and Citizenship portfolio

Audit Report No.46 2010–11, Management of Student Visas

The audit objective was to assess the effectiveness of the management of the student visa program by the Department of Immigration and Citizenship (DIAC). Three key areas were examined in the audit: the processing of student visa applications; ensuring compliance with student visa conditions; and cooperation between DIAC and DEEWR.

Overall, the ANAO concluded that a number of DIAC’s key administrative structures and processes were not sufficiently robust to effectively meet the challenges involved in achieving the Government’s objective of balancing industry growth and program integrity. Fundamental to this objective is maintaining alignment between the student visa program and the contemporary international education environment. Visa processing arrangements and compliance functions, as well as the primary collaborative relationship with DEEWR, have not kept pace with the demands of this dynamic program environment.

There is scope for DIAC to strengthen its process for determining the risk-based assessment levels for countries and education sectors to better align student visa requirements with program integrity risks. DIAC should evaluate the client service and processing efficiency benefits of its eVisa lodgement facility for students, and maintain a regular program of audits and evaluation to assess whether agents are complying with the terms of their access to the eVisa facility.

The rapid growth of the program in 2009–10 placed significant pressure on DIAC’s compliance functions. DIAC’s integrity and compliance units were hampered because the department failed to update its national compliance priorities after 2008 or deal with a backlog of noncompliance notices for student visa holders. There are problems in enforcing the mandatory visa conditions and the enforceability of these conditions requires review.

There are strong interdependencies between DIAC and DEEWR that require close collaboration. While the relationship between the departments is effective at the working level, it lacks mechanisms to provide a shared strategic direction and agreed priorities to guide the interaction of the student visa program with the international education sector.

Audit Report No.55 2010–11, Administering the Character Requirements of the Migration Act 1958

The objective of this audit was to assess the effectiveness of DIAC’s administration of the character requirements of the Migration Act 1958. Visa applicants must satisfactorily demonstrate to DIAC that they meet the criteria specific to the visa for which they have applied, including the character requirements outlined in section 501 of the Act. Overall, DIAC has established a sound framework for identifying and processing visa applicants and visa holders of potential character concern, it has provided extensive relevant guidance to its staff and the department’s National Character Consideration Centre (NCCC) has implemented adequate arrangements to manage the assessment of section 501 cases.

However, there are shortcomings in the implementation of this framework. The character requirements necessitate consideration of a person’s documented criminal convictions as well as their associations and general conduct and the risk they might pose to the Australian community. In practice, DIAC’s assessment primarily focuses on documented criminal convictions. DIAC’s arrangements to receive information from internal and external stakeholders do not give it assurance that all relevant visa applications of character concern are being referred to the NCCC from visa processing centres, and that the information received from external stakeholders is reliable.

These shortcomings mean that the department’s ability to identify and assess the character of visa applicants and visa holders is constrained. Consequently, there is a small but potentially significant risk that persons of character concern may enter and remain in Australia.

Audit Report No.56 2010–11, Administering the Character Requirements of the Australian Citizenship Act 2007

The objective of the audit was to assess the effectiveness of DIAC’s administration of the character requirements of the Australian Citizenship Act 2007 (Citizenship Act).

To be approved for citizenship, the applicant must satisfactorily demonstrate to DIAC that they are of good character. Of the approximately 140,000 applications that DIAC finalises each year, only a small proportion (242 applicants in 2009–10) are refused citizenship on character grounds. While this number is relatively small, it is important that DIAC effectively administer the good character requirements to increase the likelihood that those granted citizenship are of good character, and to reduce the risk that persons of significant character concern are granted citizenship.

Overall, DIAC has established an appropriate framework for administering the character requirements of the Citizenship Act and reaching a conclusion as to whether an applicant is of good character. This framework includes clear roles and responsibilities that are understood by all stakeholders, comprehensive training for decision makers about the character requirements, and sound processes for recording citizenship decisions. DIAC also has satisfactory processes for identifying applicants of potential character concern.

However, there are aspects of the implementation of this framework that reduce its effectiveness. These include:

• variability in the application of processes for decision making by DIAC case officers, due to a decentralised decision-making model in which most decisions, including character decisions, are made by any one of around 150 junior officers with minimal input or review by senior officers
• the fact that the term ‘good character’ is not defined, for administrative purposes, in DIAC’s policy and guidance materials, allowing for considerable discretion by the decision makers applying the character requirements
• limited interaction between the areas within DIAC that administer the character requirements of the Migration Act 1958 and the Citizenship Act in relation to the processing and referral of cases concerning the same client.

Infrastructure, Transport, Regional Development and Local Government portfolio

Audit Report No.2 2010–11, Conduct by Infrastructure Australia of the First National Infrastructure Audit and Development of the Infrastructure Priority List

The objective of the audit was to assess the effectiveness of the conduct of the first national infrastructure audit and development of the infrastructure priority list.

The results of the national infrastructure audit were published in December 2008, together with the interim priority list. The national infrastructure audit identified a range of ‘challenges’ at the national level and location-specific levels, and Infrastructure Australia formulated seven themes in response to those challenges.

During November and December 2008, the Office of the Infrastructure Coordinator shortlisted 94 project proposals, with 28 projects being recommended as meriting further consideration. Consistent with its statutory role, the Infrastructure Australia Council (with the support of the Infrastructure Coordinator) took a different perspective, and included all 94 short-listed projects on the interim priority list for further consideration. This decision and its reasons were not documented in the records of the relevant council meeting.

The final priority list was published in May 2009. It comprised:

• nine ‘priority’ projects that had been assessed as meeting the tests outlined in the published prioritisation methodology, including having a benefit-to-cost ratio (BCR) greater than 1 such that the project offered net economic benefits
• 28 ‘pipeline’ projects, largely comprising projects which had not submitted a BCR for evaluation by the Office of the Infrastructure Coordinator or projects where the Office of the Infrastructure Coordinator’s evaluation had identified shortcomings in the BCR.

Infrastructure Australia’s published prioritisation methodology outlined a range of factors that would be taken into account, but stated that BCRs would be used as the ‘primary driver’ of decision making and did not contemplate that a project without a robust economic appraisal would remain a candidate for inclusion on the final priority list, or outline any criteria that would be applied to such projects in lieu of their BCR being used as the primary driver of decision making. Further, Infrastructure Australia did not maintain a clear record of the reasons for the council deciding which projects were to be included on the final priority list and which projects were to be excluded. Funding for seven (of the nine) priority projects and six pipeline projects was announced in the May 2009 budget, with funding for a further two pipeline projects announced in the May 2010 budget.

Audit Report No.3 2010–11, The Establishment, Implementation and Administration of the Strategic Projects Component of the Regional and Local Community Infrastructure Program

The objective of the audit was to assess whether the strategic projects component of the Regional and Local Community Infrastructure Program (RLCIP) had been effectively designed and administered.

The strategic projects component of the RLCIP was one of a number of programs introduced by the Australian Government in response to the global financial crisis. The Government initially announced funding of $50 million, but in January 2009 this was increased by a further $500 million so as to increase stimulus spending in local communities. Projects were to be allocated funding on a nationally competitive basis through an application process open to all local councils.

Soon after the RLCIP was announced, the Government approved and published guidelines for the strategic projects component of the program; however, no version of the program guidelines outlined the assessment criteria that would be used to select the successful applications. The actual criteria used were not published or otherwise advised to councils and other stakeholders. Further, there was no documented assessment of each application against these criteria outlining the extent to which each application had been assessed as satisfying each criterion, or the information relied upon in making the assessment; and there was no overall assessment and ranking of each competing application.

The published program guidelines stated that all councils were eligible to apply for funding towards the cost of a large strategic project and that funding would be allocated on a nationally competitive basis. In this light, while the total amount of funding provided a reasonable geographic spread and was largely consistent with the proportion of electorates held by the major parties and independent members, in terms of the number of applications, projects located in electorates held by the Australian Labor Party and independent members were more successful at being awarded funding than those located in electorates held by the Coalition parties.

The strategic projects component of the program has not provided the planned level of stimulus in the time frame that was budgeted for at the time it was introduced. Program expenditure to date is relatively low because a large proportion of the projects approved for funding were not ready to proceed, were planned to be delivered over a longer time frame than that necessary to provide timely stimulus, and/or involved high project delivery risks which have been realised.

Audit Report No.13 2010–11, Implementation and Administration of the Civil Aviation Safety Authority’s Safety Management System Approach for Aircraft Operators

The objective of the audit was to assess the implementation and administration of the regulation of aircraft operator safety management systems (SMSs) by the Civil Aviation Safety Authority (CASA).

Consistent with Australia’s international obligations, CASA is progressing with the regulation of operator SMSs. The relevant regulations have been changed to require regular public transport operators to use an SMS that has been approved by CASA. The regulatory changes came into effect in January 2009. There were two stages of CASA’s approval processes: documentation evaluation (pre-SMS approval) and capability assessment (post-SMS approval).

A total of 35 regular public transport operators submitted an SMS manual for assessment at the documentation evaluation stage. CASA approved the proposed SMS of each of the 35 operators on the basis of a desktop review of the SMS manual. Nevertheless, there were some shortcomings in the documentation assessment process, including instances where there was not a clear and consistent evidentiary trail to support CASA’s decision to approve an SMS manual. Furthermore, when CASA conducted a trial capability assessment of one operator during surveillance activities, the results highlighted the risks involved in granting an approval based solely on a desktop documentation evaluation. Specifically, the capability assessment found that important elements of the SMS manual approved by CASA were not being complied with and that SMSs had not been developed as planned.

Innovation, Industry, Science and Research portfolio

Audit Report No.47 2010–11, The Development and Administration of National Research Flagships

The objective of the audit was to assess the effectiveness of the development and administration of selected national research flagships by the Commonwealth Scientific and Industrial Research Organisation (CSIRO).

The National Research Flagships Program has provided the basis for a significant realignment of the research activities in CSIRO over several years. This realignment has been supported by a large-scale organisational change program. Consequently, the flagship program has developed in an environment of ongoing changes to business processes, while acting as a key driver for the organisational change program. This approach contributed to the effective development of the program within CSIRO.

CSIRO’s approach to administering the flagship program has evolved as the program has matured. As part of this, CSIRO has used the experiences from the progressive rollout of individual flagships to inform the development and implementation of subsequent flagships. CSIRO has also used the organisational change process as a base to support the administration of the program. In that regard, the transition to a matrix-based management model has been a particularly challenging exercise. CSIRO has adopted a continuous improvement approach to administering the program and has actively refined and modified change initiatives related to the program to enhance organisational outcomes. This approach has provided a sound structural framework for administering flagship research.

Given the nature of the flagship program, in terms of its long-term goals, partnership arrangements and research paths, which are subject to external drivers that change over time, the evolution of the program and the individual flagships will necessarily be a continuous process. This process requires not only effective external engagement but also an ongoing focus on refining internal arrangements for managing complex multidisciplinary research activities in a matrix management environment. Within this context there are opportunities to improve the administration of the program, particularly around reporting on budget performance and performance management arrangements. More broadly, there are opportunities to improve the overarching governance, direction setting and internal coordination of the program.

The Prime Minister and Cabinet portfolio

Audit Report No.24 2010–11, The Design and Administration of the Better Regions Program

The audit objective was to assess whether the Better Regions Program had been effectively designed and administered. The audit examined all 106 Better Regions Program projects.

Overall, the Better Regions Program was effectively designed and has been well administered. Considerable effort was invested by the Department of Infrastructure, Transport, Regional Development and Local Government (and later the Department of Regional Australia, Regional Development and Local Government) to meet the Government’s stated commitment that the Better Regions Program would be designed and administered in a way that was consistent with the Financial Management and Accountability Regulations, the ANAO better practice guide on grants administration and recommendations from the ANAO audit of the Regional Partnerships program.

Because the program was established solely to fund various regional election commitments, neither department had a role in the selection of projects. Nevertheless, the obligation to assess the efficient and effective use of public money for a proposed grant exists regardless of how a project proposal comes before an approver and regardless of whether project proposals are assessed and ranked in comparison to one another. Accordingly, the published program guidelines and departmental administration of the program recognised that there was a requirement for both an assessment of whether each project would make efficient and effective use of public money and an assessment of whether any risk mitigation measures should be imposed. The department clearly and effectively communicated the results of its risk analysis and mitigation proposals to the relevant parliamentary secretary. However, the assessment briefings provided to the relevant parliamentary secretary did not similarly outline the basis upon which the department had assessed each project as representing an efficient and effective use of public money.

Most of the announced election commitments are proceeding in whole or part under a signed funding agreement, and the monitoring of project progress under the funding agreements has been effective. This has meant that the department has been aware of delays in the commencement and/or delivery of a significant number of projects. Consistent with better practice, project payments were structured to reflect actual progress rather than being made solely upon signing of a funding agreement. Additionally, progress payments have been withheld until project milestones have been met. As a result, there have been rephasings of the budgeted expenditure for the program, and the program may need to be extended for an additional year to enable projects to be completed. The Better Regions Program is not an economic stimulus program, and projects were not otherwise selected for funding on the basis of their ability to commence and be completed in a timely manner, so this situation does not reflect poor assessment practices or program management. Rather, it reflects the fact that some of the projects were at an early stage of planning and development when they were announced and/or that proponents have delayed progressing their projects.

Audit Report No.42 2010–11, The Establishment, Implementation and Administration of the Council Allocation Component of the Regional and Local Community Infrastructure Program

The purpose of the audit was to assess whether the council allocation component of the Regional and Local Community Infrastructure Program has been effectively designed, implemented and administered. The audit examined each of the three funding rounds, with a focus on the first round.

The audit report concluded that the program was appropriately designed to distribute funds across the nation. Funding allocations were set by a formula that was similar to that used in the long-running Roads to Recovery Program. The formula did not give any priority to particular geographic areas. Rather, it gave a preference to councils in growth areas and those with larger numbers of residents.

In the context of the emerging financial crisis and the need for a timely government response, the establishment of the council allocation component of the program meant that in the first round there was, necessarily, significant reliance on the ability of councils to identify community infrastructure projects that could provide the desired economic stimulus and to then deliver these projects in a timely manner. The rate of project delivery has been slower than anticipated, but progress is largely in the hands of councils once the department has approved projects and signed a funding agreement.

Project delays and slower than expected expenditure commenced with the first round and were, in large part, repeated in the second funding round. In addition, there were considerable delays in councils being able to identify and put forward eligible project nominations for the third funding round, even after the application closing date was extended by some two months. However, the need for, the allocation approach of and the optimal time frame with respect to expenditure of a further $100 million of economic stimulus through a third funding round were not addressed by the department in its advice to the incoming government.

Treasury portfolio

Audit Report No.6 2010–11, The Tax Office’s Implementation of the Client Contact– Work Management–Case Management System

The objective of the audit was to assess the implementation of the Client Contact–Work Management–Case Management system (CWC) by the Australian Taxation Office (ATO).The audit examined four key areas:

• progress of the CWC, as a component of the change program, against the endorsed business case
• improvements to the productivity and efficiency of tax administration as a result of the implementation of the CWC
• improvements to client experiences when dealing with the ATO as a result of the implementation of the CWC
• effects of the CWC implementation, including additional benefits achievable beyond the system’s current capacity to further improve tax administration.

The implementation of the CWC has improved and transformed key aspects of ATO activity that support tax administration. The integrated CWC system has provided a new approach to managing internal administration and communication arrangements with taxpayers, tax professionals and the community. The ATO now manages correspondence and work resulting from telephone calls on a national, enterprise-wide basis, rather than in a fragmented regional way.

The ATO’s implementation of the CWC has been generally successful when assessed against the original intent of the project, having achieved six of the eight objectives of the change program business case. The remaining objectives are expected to be achieved once the integrated core processing component of the overall change program is fully functional across the ATO.

Audit Report No.20 2010–11, Administration of the Wine Equalisation Tax

The purpose of the audit was to assess the effectiveness of the ATO’s administration of the wine equalisation tax.

The audit found that the ATO had generally administered the tax effectively, having implemented sound governance arrangements and administrative practices focused on assuring compliance by the larger taxpayers, and had responded reasonably to changes in taxpayer behaviour that heightened compliance risks regarding the wine producer rebate.

Interpretative assistance and advice provided via taxpayer alerts, determinations and private rulings helped to reduce the incidence of major wine tax minimisation arrangements. Greater timeliness in providing such information would have reduced uncertainty for wine industry participants.

The program of audits and risk reviews of Australian wine tax payers has been significantly expanded in recent years, and would benefit from improved intelligence through further sophisticated interrogation of existing databases together with better processes for selecting entities to review and audit.

The ATO should also resume discussions with Treasury about the definition of a ‘wine producer’, in order to resolve unintended outcomes regarding access to the producer rebate. Producers accessing the New Zealand producer rebate systems are required to meet more extensive administration and compliance arrangements than are required for the Australian rebate. The main opportunity for further assurance about compliance by New Zealand wine producers is for the ATO to check the accuracy of information provided by relevant Australian entities that indicates whether the wine tax has been paid, as this documentation forms the basis of claims by New Zealand producers for a wine producer rebate payment.

Audit Report No.31 2010–11, Administration of the Superannuation Lost Members Register

The audit objective was to examine the ATO’s administration of the Lost Members Register (LMR). In particular, the audit examined the ATO’s governance arrangements for the LMR; its strategies for managing data quality; and the provision of access to LMR data. The audit also considered how the ATO’s administration of the LMR has responded to recommendations made in an earlier ANAO review (Audit Report No.17 2005–06, Administration of the Superannuation Lost Members Register), relevant changes in funding and legislation supporting the LMR, and the ‘change’ program.

At 30 June 2010 the LMR contained information about 5.8 million superannuation accounts with an accumulated balance of some $18.8 billion. The ATO has been able to link 4.9 million of these accounts, through each account holder’s tax file number (TFN), to 3.7 million people identified in its tax administration systems. This leaves approximately 900,000 accounts, valued at some $1 billion, which are considered to be ‘unmatched’. These unmatched accounts represent the core of the lost superannuation issue that the LMR was established to address.

The way in which the ATO currently administers the LMR system requires a high-confidence identity match based on an individual’s TFN. This means that the ATO cannot reunite the 900,000 unmatched accounts with their owners through outreach activities carried out by the ATO or by using ‘self-service’ options such as its search facility.

There is scope for the ATO to make improvements in a number of areas. These include explaining more clearly to industry which of its LMR activities are funded by the financial services levy; providing improved tools to analyse LMR data and monitor its quality; enhancing the search capabilities of SuperSeeker; and evaluating the results of marketing campaigns to provide information that assists in selecting effective strategies in the future.

Audit Report No.45 2010–11, Administration of the Luxury Car Tax

The objective of this audit was to assess the effectiveness of the ATO’s administration of the luxury car tax (LCT), including aspects of the tax administered by the Australian Customs and Border Protection Service (Customs) on behalf of the ATO.

The LCT has been in place for almost 11 years. It is a mature tax that is well understood across the motor vehicle industry; is relatively concentrated in a small number of taxpayers; and contributes less than one per cent of total taxation revenue each year. The tax is relatively simple to administer, and both the ATO and Customs currently apply an overall low rating to the risk of taxpayers not complying with their LCT obligations.

The administrative arrangements for the LCT reflect its low risk rating and the low priority it is given against other administrative demands. There is scope to improve the coordination of governance arrangements for the LCT. No compliance strategy has been developed or implemented; rather, the ATO relies on compliance by the larger taxpayers, and identification of actual or emerging issues associated with the LCT through the compliance activities undertaken for other taxes. It also relies on specific intelligence about individual entities being reported to it.

While there are processes and mechanisms in place to administer this relatively small, low-risk tax, there is scope to better target and coordinate the ATO’s administrative arrangements for planning, operational, reporting and compliance purposes. This could be achieved through process review and without necessarily applying additional resources to administering the LCT.

To this end, in March 2011, the ATO advised that it is currently planning several changes to its future administrative arrangements supporting the LCT. These include transferring responsibility for managing LCT risks within the indirect tax business line; enhancing the documentation of LCT discussion at the GST Product Committee; conducting additional analysis of LCT revenue performance; and reviewing aspects of the arrangements with Customs.

Audit Report No.49 2010–11, Fuel Tax Credits Scheme

The objective of the audit was to assess the effectiveness of the ATO’s administration of the Fuel Tax Credits Scheme. Particular emphasis was given to the scheme’s governance and reporting arrangements, risk management strategies and compliance management program.

When the Fuel Tax Credits Scheme was introduced on 1 July 2006 as a replacement for the Energy Grants Credits Scheme (EGCS), it expanded eligibility provisions, refocused the fuel tax rebate system on the uses of fuel rather than on specific fuel types, and aimed to lower compliance costs for business.

In implementing the fuel scheme, the ATO was able to build on and refine the experience it had gained through administering the EGCS. Existing administrative processes, such as claiming credits through the business activity statement, provided a generally effective basis for the ATO to collect and analyse most of the information from participants that it requires to administer the fuel scheme, and to undertake risk analysis and compliance activity on a case-by-case basis, as required.

Overall, the ATO is effectively administering the fuel scheme. Governance, reporting and processing arrangements are generally sound. The fuel scheme’s risk management strategies are appropriate and the compliance program addresses identified risks and noncompliant practices.

Audit Report No.50 2010–11, Administration of Tax Office Shopfronts

The objective of the audit was to assess the effectiveness of the services delivered through ATO shopfronts to individual and micro-enterprise tax clients. Particular emphasis was given to the delivery of services to clients and planning and reporting processes for shopfront services.

Shopfronts were established in the late 1990s, to replace the ATO’s Enquiry Counters. The new-look, open-plan shopfronts facilitated easy access to ATO staff and publications, as well as providing direct links to ATO phone and web-based services. Over the past decade, however, the provision of face-to-face or on-site services has been overtaken by developments in service delivery capabilities and approaches, and influenced by whole-of-government initiatives.

On-site services such as those delivered through shopfronts may provide a more personalised environment, but are generally the most expensive means of delivering a service and are accessible by only the small proportion of ATO clientele who live or work in their immediate vicinity. Being available only during normal business hours, shopfronts do not provide the flexibility or range of services available through online options. While the personal circumstances of some people in the community preclude their use of online or phone services to conduct business with the ATO, the strategy underpinning shopfronts has not effectively identified the full extent and size of this client group, or developed a specific, targeted service to meet their needs.

The ATO proposes to close off-site shopfronts, where it is practical to do so, at the end of their lease, and is trialling alternative delivery programs designed to provide a form of shopfront or on-site service offer in these locations. The programs also seek to extend selected services to ATO clients across a wider geographical area, particularly to rural and remote locations. The approach adopted for these programs has been based on existing shopfront arrangements involving a model of service delivery utilising ATO staff, located in ATO premises, with direct access to ATO phone and web-based services through its computer systems.

Audit Report No.52 2010–11, Administration of Deductible Gift Recipients (Non-profit Sector)

The objective of the audit was to assess the effectiveness of the ATO’s administration of endorsements and associated arrangements for deductible gift recipients (DGRs).

The ATO has implemented appropriate arrangements to effectively administer DGR endorsements and associated tax concessions. The business planning and internal reporting of the Non-Profit Centre (NPC) are well integrated into the ATO’s broader business approach. The NPC also undertakes internal monitoring of its operations and, within the constraints of its resourcing and capabilities, takes action to address required improvements. However, scope exists for the ATO to improve the consistency of its decision making on DGR endorsement applications and to more effectively monitor compliance by organisations that are endorsed as DGRs.

To support consistency in decision making when assessing DGR endorsement applications, the ATO has implemented a two-stage quality assurance process that reviews results prior to, and following, finalisation of cases. However, the rate of disallowed decisions subject to objections which are subsequently overturned suggests that approximately 5 per cent of all decisions (300 decisions) in the three years to June 2010 were inconsistent. These inconsistencies relate to differences: across the locations of assessment teams; in the relevance of documentation on which the assessment was based; and in the level of scrutiny applied to an application, resulting in a decision at odds with the ATO’s contemporary view on the legislation.

The NPC’s work has primarily focused on the demand for DGR and tax concession endorsements, limiting the resources available to properly assess the compliance risks associated with the sector and to undertake an appropriate level of post-endorsement compliance review. There are concerns in the ATO that a proportion of the DGRs registered at the time of the introduction of DGR requirements in 2000–01 would not be endorsed if they were subjected to the scrutiny currently given to applicants.

The NPC’s compliance work is further limited by the lack of reporting required by most DGRs. The quantitative information that is available on DGRs is not collated and interrogated to identify organisations at risk of non-compliance that warrant further investigation. The Australian Charities and Not-for-profits Commission, to be established on 1 July 2012, may implement reporting requirements across the not-for-profit sector that may be of value in assessing DGR compliance risks in the future.

Cross-portfolio performance audits

Audit Report No.1 2010–11, Implementation of the Family Relationship Centres Initiative

The objective of this audit was to assess the effectiveness of the selection, implementation, operation and monitoring of family relationship centres (FRCs) by the AGD and FaHCSIA.

The FRC initiative was the centrepiece of the 2005 family law reforms. The initiative established 65 FRCs across Australia. FRCs were expected to provide an entry point into the family law system.

The AGD and FaHCSIA established a governance framework for the administration of the initiative, enabling the selection and rollout of the 65 FRCs through three tender rounds between 2006 and 2008. FRCs commenced operations within the expected time frames and overall funding parameters of the policy, with the centres from each round opening in July of the respective years. While the departments successfully established the 65 FRCs, there were some notable gaps in the selection, implementation, ongoing administration and performance monitoring phases. These gaps, particularly in the performance monitoring component, have limited the ability to assess the success, or otherwise, of the FRC network in achieving its objectives and delivering a value-for-money outcome.

Audit Report No.7 2010–11, Confidentiality in Government Contracts: Senate Order for Departmental and Agency Contracts (Calendar Year 2009 Compliance)

The audit objective was to assess the appropriateness of the use and reporting of confidentiality provisions in Australian Government contracts. This included assessing agencies’ compliance with the Senate Order for Departmental and Agency Contracts (Senate Order) and following up on the implementation of recommendations made in previous Senate Order audits.

Overall, the reported use of confidentiality provisions by audited agencies has decreased from 24 per cent of contracts in 2001–02 (when the Senate Order was introduced) to around 10 per cent of contracts over the 2007, 2008 and 2009 calendar years. Nevertheless, the benefit of the Senate Order as an accountability and transparency mechanism for Australian Government contracting activity is not being fully realised, because of the incorrect use of confidentiality provisions and inaccuracies in contract reporting.

Most agencies performed well in the area of compliance with the Senate Order contract listing requirements. This was reflected in the follow-up component of the audit, which showed that the four selected agencies had made significant progress in implementing previous recommendations related to contract listing accuracy and staff awareness of the Senate Order. Agencies made more limited progress in implementing recommendations focused on considered decision making about the appropriate use of confidentiality provisions.

Audit Report No.11 2010–11, Direct Source Procurement

The objective of this audit was to assess how well agencies had implemented the Commonwealth Procurement Guidelines (CPGs) and relevant legislation when undertaking direct source procurement. The audit examined direct source procurement procedures and practices in four selected agencies: the Australian Crime Commission, the Department of Families, Housing, Community Services and Indigenous Affairs, the Department of Innovation, Industry, Science and Research, and the Department of Veterans’ Affairs.

The CPGs establish procurement policy, including the principles that apply to all procurement processes. They promote ‘value for money’ as the core principle in all procurements. The other principles underpin the achievement of value for money. For covered procurements (generally those above $80,000), the mandatory procurement procedures limit the use of non-open approaches to the market, including direct source procurement, to a small number of specified circumstances. Direct source procurement involves an agency selecting one or more suppliers of its choice to make submissions, such as quotes or tenders, to provide property or services.

Overall, agencies were reasonably familiar with the Government’s procurement framework and the CPGs. However, in practice, key elements of the CPGs were not consistently followed across the four audited agencies when choosing and conducting direct source procurements. For most direct source procurements examined, from the circumstances of the procurement and/or procurement documentation it was not evident that one or more CPG obligations, requirements or specified sound practices had been met, including for higher value procurements.

In 74 per cent of the 248 direct source procurements examined, agencies were unable to demonstrate that the procurement gave them value for money. In the majority of cases there was a lack of evidence of any comparative analysis of the relevant costs and benefits of different procurement options to support the procurement decision. For 85 per cent of the 248 procurements, agencies approached only one supplier and either did not seek quotes, or sought only one quote, prior to procurement. For larger valued procurements (generally those above $80,000) it was not evident that 51 per cent of the direct source procurements examined met the limited circumstances in the CPGs that permit direct source procurement to be undertaken.

Agencies should strive to better balance the broader benefits of competitive tendering and streamlined procurement practices. Such a balance would see agencies give greater consideration to the scope of the potential procurement need at the outset of a procurement; more often seek opportunities to approach the market to enhance the potential to achieve value for money; and adopt more strategic approaches to procurement, such as greater use of panels and other standing offer arrangements. In general, procurement outcomes would be improved by a greater emphasis on earlier planning for procurement activities.

Audit Report No.14 2010–11, Capitalisation of Software

The objective of this audit was to assess whether entities properly accounted for software assets and adopted an integrated planning approach to inform decisions to invest in software assets.

Overall, each of the audited entities had properly accounted for their software assets. The entities’ approaches were generally underpinned by appropriate accounting policy and guidance; project governance arrangements supporting software capitalisation; and systems and practices that enabled the capture and reporting of relevant capital costs. Nevertheless, one agency needed to improve its approach to software asset valuation. More generally, each of the entities had only partially adopted integrated planning for software asset investments.

Two or more of the entities had implemented the majority of relevant recommendations in the ANAO’s 2002–03 performance audit on the capitalisation of software.

Audit Report No.16 2010–11, Centrelink’s Role in the Process of Appeal to the Social Security Appeals Tribunal and to the Administrative Appeals Tribunal

The purpose of the audit was to assess whether, in relation to appeals to the Social Security Appeals Tribunal (SSAT) and to the Administrative Appeals Tribunal (AAT), Centrelink undertakes its role effectively, so as to support the timely implementation of the tribunals’ decisions about customers’ entitlements.

Each year, Centrelink makes millions of decisions relating to customer entitlements; only a small number of those decisions are appealed. Nonetheless, the effective operation of the review and appeal process is an important feature of the Australian social security system. Centrelink customers are entitled to expect that decisions about their entitlements are correct and, in cases where they believe incorrect decisions have been made, have access to appropriate review and appeal mechanisms.

Centrelink has an established framework for managing its role in the review and appeal process, which supports the achievement of Centrelink’s external requirements and organisational goals. These arrangements have helped it to implement tribunal decisions more quickly. Between 1 July and 30 December 2008, the time taken by Centrelink was 28 days for SSAT decisions and 31.8 days for AAT decisions. Between 1 January and 30 June 2010, this time had decreased to 22.7 days and 14.1 days respectively.

Nevertheless, Centrelink could improve its practices to better meet the needs of stakeholders, particularly customers. Areas for improvement include the clarity, relevance and completeness of information provided to customers and the tribunals; and the capture of insights from tribunal decisions that affirm Centrelink decisions. Most importantly for customers, current business practices could be amended to allow tribunal decisions to be implemented more quickly.

Audit Report No.22 2010–11, Audits of the Financial Statements of Australian Government Entities for the Period Ended 30 June 2010

This report provides a summary of the final audit results of the audits of the financial statements of all Australian Government entities, including the Consolidated Financial Statements for the Australian Government. For the 2010–11 financial year, the Auditor-General and senior staff delegated to issue audit opinions issued 255 unqualified audit opinions and two reports containing other legal and regulatory requirements.

The total number of significant and moderate audit findings in entities decreased from 69 in 2008–09 to 49 in 2009–10, a reduction of almost 30 per cent. This result is consistent with the trend in relation to the results of our audits in recent years. Issues common to a number of entities identified in our final audits included controls in entities’ IT environments, such as user access and the segregation of duties; asset management processes, including accounting for assets under construction, asset stocktakes and the integrity of asset registers; and business system processing controls.

The report noted a high level of compliance in relation to requirements for accounting for annual appropriations, special appropriations, annotated appropriations, special accounts and the investment of public moneys.

The report also noted that, consistent with previous years, the large majority of entities’ financial statements were completed within three months of the end of the financial year. This reflected positively on the priority entities gave to meeting their financial reporting responsibilities and on the financial stewardship of the public sector generally.

Audit Report No.27 2010–11, Restoring the Balance in the Murray–Darling Basin

The objective of the audit was to assess whether the processes of the Department of Sustainability, Environment, Water, Population and Communities for purchasing water entitlements were well administered, and whether sound arrangements were in place to support timely and effective decisions by the Commonwealth Environmental Water Holder (CEWH) on the use of available water.

The $3.1 billion Restoring the Balance (RtB) program is one of a number of initiatives under the Australian Government’s overarching policy for water reform called Water for the Future. The RtB is the largest program of government purchases of water entitlements ever to be conducted in Australia. It is part of a broader set of water reforms aimed at providing the sustainable use of water resources in the Murray–Darling Basin.

Overall, the department has established adequate arrangements to administer the RtB program. Decisions on the locations at which entitlements should be bought have been made on the best information available at the time. The department developed and documented a clear approach to identifying and assessing value for money, and meeting other procurement principles. The decision to use discriminatory price tenders as the principal purchasing mechanism took appropriate account of the department’s obligation to provide open and fair treatment of potential sellers, while also providing a good basis on which to assess and select the best value offers.

The department has established, and generally followed, standard processes to assess applications and transfer legal ownership to the Commonwealth. The tenders were conducted in accordance with the applicable purchasing strategy, guidelines and evaluation criteria endorsed by an internal project board and approved by the minister.

As the manager of the Commonwealth’s water entitlements, the CEWH plays a vital role in ensuring that tangible environmental outcomes are achieved through the significant expenditure incurred under the RtB program and other ‘water for the future’ initiatives. The internal arrangements that the department established to support timely and effective decisions by the CEWH were mostly adequate. The main exception was the variable quality of information used in making water decisions; the department has recognised the need to improve this aspect of the decision-making process.

Overall, the CEWH’s processes provided reasonable assurance that allocated water was delivered as specified. As well, sufficient monitoring information, albeit of variable quality, was obtained to indicate whether intended ecological responses were being achieved, at least in the short term.The monitoring information provided the basis for the CEWH’s outcomes report for 2008–09. This report and other measures have helped to make Commonwealth watering actions in the basin more transparent.

Audit Report No.33 2010–11, The Protection and Security of Electronic Information Held by Australian Government Agencies

The audit objective was to assess the effectiveness of Australian Government agencies’ management and implementation of measures to protect and secure their electronic information, in accordance with government’s protective security requirements. The four agencies included in the audit were the Australian Office of Financial Management, ComSuper, Medicare Australia, and the Department of the Prime Minister and Cabinet.

The audit concluded that the agencies’ measures to protect and secure electronic information were generally operating in accordance with government protective security requirements. The agencies had established information security frameworks; had implemented controls to safeguard information, to protect network infrastructure and to prevent and detect unauthorised access to information; and had controls in place to reduce loss, damage or compromise to ICT assets.

However, the audit suggested that the audited agencies could improve their security measures by:

• making sure that information security policies and procedures are complete and up to date
• making sure that third-party software applications are regularly assessed for the availability of patches, and that patches are applied accordingly
• using suitably complex password configurations for administrator accounts and service accounts
• making sure that emails using public web-based email services are blocked on agency ICT systems.

Audit Report No.38 2010–11, Management of the Certificate of Compliance Process for FMA Act Agencies

The objective of the audit was to assess the effectiveness of annual certificate of compliance (certificate) processes for Financial Management and Accountability Act 1997 (FMA Act) agencies. The audit examined annual certificate processes within four selected agencies: the AGD, the ATO, the Commonwealth Grants Commission and the Office of the Commonwealth Director of Public Prosecutions. The audit also reviewed Finance’s management of the certificate process, including support provided by the department to agencies in relation to the certificate.

Overall, the certificate process for FMA Act agencies has been effective notwithstanding the inherent limitations of the self-assessment process employed. The certificate process has resulted in: establishment and/or further development of agency arrangements for assessing compliance with the financial management framework; improvement in officials’ understanding of financial management requirements; and strengthening of agencies’ financial management procedures in support of compliance.

As the central government department responsible for administration of the certificate, Finance has provided sound high-level guidance for FMA Act agencies on the certificate process. This has included articulation of reporting requirements and establishment of reasonable confidence as the basis of chief executive certification.

In general, the audited agencies’ certificate processes were appropriate in light of each agency’s size, financial activities and financial management arrangements. Key aspects of these agencies’ certificate processes were self-assessments of compliance by responsible officials and/or business areas; internal audit activity covering compliance with the financial management framework; audit committee involvement; and targeted remediation activities to address identified noncompliance.

The main area for improvement identified by the audit concerned the need for more targeted quality assurance activity by agencies in regard to compliance with the financial management framework. Self-assessments by agency officials are unlikely to consistently provide a high level of assurance to an agency’s chief executive, and audits undertaken by the ANAO show there can be misunderstanding of the requirements of the framework by agency officials.

Audit Report No.39 2010–11, Management of the Aviation and Maritime Security Identification Card Schemes

The audit assessed how effectively the Department of Infrastructure and Transport (DIT) and the AGD have managed the aviation security identification card (ASIC) and maritime security identification card (MSIC) schemes.

The successful implementation of the ASIC and MSIC schemes has meant that, with some specific exceptions, all persons who legitimately enter and remain in a secure area of an airport, seaport or offshore facility must now have been assessed as meeting the criteria for an ASIC or MSIC, including having their background checked, and must display their identification card appropriately. The arrangements put in place by DIT’s Office of Transport Security (OTS) and AusCheck, a branch of the AGD, to administer the schemes reflect legislative requirements and facilitate the timely issue of security cards.

However, some risks associated with the current delivery model could be better managed by OTS. These risks primarily relate to issuing bodies and visitor management and are inherent in the devolved nature of the schemes.

OTS has been working with industry stakeholders on a range of strategies to manage some of the vulnerabilities identified by this audit and previous reviews. These include changing the frequency of background checks, changing the cancellation provisions for ASIC-issuing bodies, and tightening eligibility rules for visitors. As these changes are still to be bedded down, their capacity to mitigate these risks to the schemes’ effectiveness is yet to be demonstrated. While recognising that a balance needs to be struck between the impact of regulation on industry and the achievement of the Government’s security objectives, the ANAO suggests that continued management focus on these identified vulnerabilities is warranted.

Audit Report No.54 2010–11, Interim Phase of the Audit of the Financial Statements of Major General Government Sector Entities for the Year Ending 30 June 2011

This report provides details of the results of the interim phase of the 2010–11 financial statement audits of all portfolio departments and other major general government sector (GGS) agencies. The 27 agencies covered by the report collectively represent some 95 per cent of total GGS revenues and expenses.

The results of the interim phase of our 2010–11 financial statement audits identified that, generally, the effectiveness of controls over finance and accounting processes in the majority of agencies supported the production of reliable financial statement information. In 2010–11, there were 34 significant or moderate audit findings compared with 55 in 2009–10, reflecting a continuation of the reduction over recent years in the number of significant and moderate risk audit findings. This reflects the general maturity of agencies’ control environments and actions taken by agencies to address prior year audit findings. The report noted that the ongoing responsibility of agencies to monitor the effectiveness of their systems and related controls to be confident of the integrity of the financial information reported to management and in their financial statements will underpin a continuation of this situation.

Our audits continued to identify control weaknesses in some areas, particularly the management of inventory and assets, including stocktakes; controls relating to business systems; the management of user access to key financial systems; and business continuity management. In respect of IT controls, our audits noted an overall improvement in agencies’ incident and problem management. However, our audits identified a need for improvement in the management of business continuity in human resource management information systems; and in the management of user access, particularly in relation to the logging and monitoring of user activities for privileged uses.

The results of our interim audits are reported to agency management, and summary reports are provided to relevant ministers.

The report noted that the most significant development in relation to Australian auditing standards in 2010–11 was the application, for the first time, of revised standards in ‘clarity format’ for most ANAO financial statement audits. This follows the release of revised and redrafted International Standards on Auditing (ISAs) in 2009 by the International Auditing and Assurance Board, and the Australian Auditing and Assurance Standards Board’s subsequent issue of revised Australian auditing standards, in line with the ISAs, that are operative for audits of financial statements in Australia for reporting periods beginning on or after 1 January 2010.