This edition of audit insights considers the approaches entities are taking to implement recommendations to improve public administration practices and outcomes.

In agreeing to a recommendation, whether made by the ANAO or by the Parliament, an entity is undertaking to the Parliament to improve the relevant area of administration. The governance arrangements in place to monitor and oversee the implementation of actions against recommendations should provide assurance that the intent of the recommendation has been met.

Introduction

The purpose of the ANAO is to support accountability and transparency in the Australian Government sector through independent reporting to the Parliament, and thereby contribute to improved public sector performance.

In 2018–19 the ANAO made 146 recommendations of which 131 were agreed across 48 performance audits. The Joint Committee of Public Accounts and Audit (JCPAA) made 67 recommendations across seven inquiries.

In August 2019, the Auditor-General tabled Implementation of ANAO and Parliamentary Committee Recommendations in the Parliament of Australia. This is planned to be the first in an ongoing series of audits which focuses on the arrangements in place to monitor the implementation of ANAO and parliamentary recommendations.

This edition of audit insights outlines a number of key messages from the implementation of recommendations audit report tabled in August 2019, as well as other recent ANAO performance audit reports examining prior year recommendations.

Audit observations

The implementation of recommendations audit found a strong correlation between the governance arrangements in place in entities to oversee implementation, with those that were successful in implementation. In other words, good governance increases the prospect of successful implementation.

The audit found that each of the four entities examined had processes in place to provide responses to recommendations made by parliamentary committees and requests. However, none of the four entities had governance arrangements in place to monitor the implementation of agreed recommendations from the JCPAA or other parliamentary committees.

The JCPAA has issued guidance for entities when responding to committee recommendations. This guide sets out that responses to committees should, in summary:

  • address the substance and intent of each recommendation and related report content;
  • state whether the recommendation is agreed or not agreed and why; and
  • outline action taken or planned, and a timeframe to implement each recommendation that is agreed.

This information can then be the basis for monitoring within the responsible entity whether the commitment is being delivered in the agreed timeframe and achieving the desired intent.

Observations from other Auditor-General reports examining the implementation of recommendations indicate mixed success in the implementation of recommendations, generally due to poor oversight.

Effectively implementing recommendations

Tabling an agreed response to a recommendation in the Parliament formalises government or entity commitment to the Parliament to implement recommendations.

While agreeing to a recommendation provides an undertaking to the Parliament, the implementation of a recommendation demonstrates a commitment to improving public administration.

The Secretary of the Department of the Prime Minister and Cabinet wrote to all departmental secretaries following the tabling of Implementation of ANAO and Parliamentary Committee Recommendations. The Secretary reminded them of their obligations to respond to parliamentary committee reports in a timely manner, as well as ensuring that agreed parliamentary recommendations are implemented.

To ensure entity objectives are delivered, effective governance arrangements should include clear responsibilities, reporting arrangements, timelines, and systems to provide the accountable authority with a clear line of sight of implementation. The accountable authority also needs assurance that underlying risks and issues that have been identified are addressed. This should also include fit-for-purpose implementation plans that clearly identify the intent of the recommendations and associated actions, responsibilities, timeframes and measures of success and/or outcomes to be realised.

Established processes for responding

Governance processes for managing the implementation of recommendations should begin with a clear arrangement for responding to recommendations. This ensures appropriate engagement with the recommendation, ensuring clarity of its intent, and acknowledgment of appropriate and achievable activities to address the identified risks.

Audit example

Implementation of ANAO and Parliamentary Committee Recommendations

Auditor-General Report No.6 of 2019–20

The Department of Agriculture has developed an internal protocol relating to ANAO performance audits, which outlines the roles and responsibilities of departmental staff through the stages of an audit. The protocol clearly outlines the ANAO audit process, and the role that departmental staff play in each phase. This includes requiring management engagement with preliminary audit findings and recommendations.

The protocol is supported by templates which are designed to assist business areas to respond to preliminary and final reports. This protocol outlines that monitoring arrangements for ANAO performance audits are embedded from commencement, which ensures that the business areas are actively engaged in the audit process. It also ensures internal audit oversight to support effective monitoring and reporting.

 

Deciding the entity’s position on recommendations

Recommendations included in Auditor-General reports and reports from parliamentary committees provide an opportunity for entities to improve administration in the areas examined.

In the case of Auditor-General reports, entities are provided the proposed recommendations as audits are finalised, and have time to consider their position in response. As such, disagreement is rare as auditors and entities work through issues before finalisation of a report.

Openness to criticism and learning plays an important role in building an effective culture, whether it be in supporting an innovative culture, a risk management culture or a compliance culture. Organisations that respond to external criticism defensively or dismissively (’we are already aware of the issue’, ‘we are already addressing the issue’, ‘the report needs to be read in context’, ‘the issues raised are not material’) put at risk their ability to build an effective governance culture and embed the characteristics of a learning organisation.

Agreeing to a recommendation acknowledges that things can be improved. The Parliament’s expectation is that the entity then makes those improvements which address the deficiency identified.

Agreement should not be qualified. Qualification sometimes occurs in the entity’s description of its agreement. For example, stating that a recommendation is agreed, and then following it up with dismissal of the action required, could be read as disagreement. As reported in Anzac Class Frigates – Sustainment, the Department of Defence agreed to the audit’s second recommendation and agreed with qualification to the third:

Recommendation no. 2

Paragraph 2.48

In the context of developing its transition plan for the ANZAC class life-of-type extension, Defence review the capital and sustainment funding required to maintain the ANZAC class frigate capability until 2043, and advise the Government of the funding required to meet the Government's capability requirements for the class or the capability trade-offs to be made.

Department of Defence response: Agree.

Recommendation no. 3

Paragraph 3.10

Defence review the key performance measures for the ANZAC class frigates' sustainment to ensure they are reliable and complete.

Department of Defence response: Agree with qualification.

The effect of Defence’s comments against these recommendations was to disagree, as no additional action was intended:

Furthermore, Defence is continually assessing options to optimise sustainment funding for the ANZAC Class Frigates to ensure operational availability and effectiveness continues to be met. The Warship Asset Management Agreement (WAMA) has seen the implementation of greater cost oversight and improved performance based measures that encourage collaborative behaviours and a solutions focus within the industry partners.

In response to the Award of a $433.3 Million Grant to the Great Barrier Reef Foundation audit, the Department of the Environment and Energy provided ‘noted’ responses to three of the six recommendations. Noting recommendations is equivalent to disagreeing. That is, no commitment is made by the entity to implement any change to the area of deficiency identified through the audit process or the parliamentary inquiry.

For example, the commentary supporting the department’s ‘noted’ response did not indicate that the entity intended to take any action in response to the recommendations:

Recommendation no.2

Paragraph 3.21

The Department of the Environment and Energy include performance targets in program guidelines for Reef Trust grants to assist it to decide whether funding proposals represent value for money having regard to the quantum of funding that is being sought.

Department of the Environment and Energy response: Noted. Program outcomes and performance targets were appropriately specified in the grant guidelines, in line with the outcomes of the Reef 2050 Plan.

Where the Department of Agriculture agreed to the recommendations considered in Implementation of ANAO and parliamentary committee recommendations, it provided a clear indication of the actions the department intended to take, and these actions formed the basis of monitoring and reporting processes.

 

Clearly assign responsibility

Things get done when someone is responsible for doing them. Audit recommendations focus on what needs to happen, not how to do it. That is a matter for entities to determine. Successful implementation of audit recommendations requires senior management oversight and implementation planning to set clear responsibilities and timeframes for delivering the agreed action.

Audit example

Implementation of ANAO and Parliamentary Committee Recommendations

Auditor-General Report No. 6 of 2019–20

The Department of Agriculture had clearly assigned responsibility for progress against each of the individual ANAO recommendations to a specific senior individual, with overarching management accountability assigned to the deputy secretary responsible for the function. The senior individual was required to provide updates on the progress of implementation, with the deputy secretary providing final approval.

The APVMA assigned overall management accountability for implementation to the Deputy CEO, but responsibility for implementation of individual ANAO recommendations was not always clearly documented. Where the responsibility for individual recommendations was more clearly assigned, those recommendations were implemented. This demonstrates the importance of assigning responsibility at the operational level to drive implementation, as well as to the management level to maintain oversight.

 

Develop implementation plans

Successful implementation of recommendations requires fit-for-purpose implementation plans setting clear responsibilities and timeframes for addressing required actions. Implementation plans should involve key stakeholders. Where implementation plans are not prepared, evidence shows that actions are not always implemented to address the identified issue, or not implemented in a timely way, or not implemented at all.

Audit example

Protecting Australia's Missions and Staff Overseas: Follow-On

Auditor-General Report No. 5 of 2017–18

The audit examined the status of 27 recommendations arising from an internal review. The status of these recommendations was reported to the departmental security committee.

The ANAO reviewed the status report and found that the Department of Foreign Affairs and Trade did not have a plan for implementing the recommendations. The ANAO assessed that only six of the 27 were fully implemented, with the remaining recommendations partially implemented, underway or not implemented. Committees that oversee the status of recommendation implementation should provide direction and require further follow-up when implementation is not meeting timeframes, or not meeting the intent of the recommendation.

 

Monitoring and tracking implementation

Effective monitoring requires an approach that accurately tracks progress and records the actions of the business area or individual responsible for implementation. The goal is that those with entity accountability can have a clear line of sight to the implementation of agreed recommendations. Three of the four entities included in the implementation of recommendations audit had an IT system to support monitoring and tracking. The fourth entity was able to track and monitor in another way, which was fit-for-purpose in that entity.

Audit example

Implementation of ANAO and Parliamentary Committee Recommendations

Auditor-General Report No. 6 of 2019–20

Systems should be fit for-purpose, reflecting the size of the entity, the nature of its business and its governance structure. This audit found that, within the AVPMA, an officer performs the coordination role for ANAO recommendations as well as other audit committee reporting.

APVMA's existing governance arrangements were also used to provide oversight of the implementation of recommendations by the executive leadership team. The entity had clear line of sight of the status of implementation of recommendations, the reasons for recommendations that had not been finalised, and the plans in place to finalise the two outstanding recommendations.

This report also outlined how the Department of Agriculture utilised eTrac — a specific recommendations tracking database — to track the progress of ANAO recommendations. Appropriate use of this system ensured that recommendations were monitored and implementation completed.

 

Reporting to and review by audit committees

Audit committees provide independent advice and assurance to an entity’s accountable authority on financial and performance reporting, risk oversight management and internal controls. The PGPA Rule requires that entity audit committees review the appropriateness of the accountable authority’s system of internal control.

The Department of Finance model charter for audit committees suggests that accountable authorities may wish to consider including other functions in their audit committee charter, such as consideration of parliamentary committee reports, external reviews and evaluations. This would include the audit committee satisfying itself ‘that the entity has appropriate mechanisms for reviewing relevant parliamentary committee reports, external reviews and evaluations of the entity and implementing, where appropriate, any resultant recommendations’.

Audit example

Domestic Passenger Screening – Follow-Up

Auditor-General Report No. 43 of 2017–18

The audit found that implementation of the ANAO's recommendations were being monitored by the Department of Home Affair's audit committee. The audit found that although reporting to the audit committee occurred, one recommendation that had been closed by the audit committee was subsequently reopened. This highlights the importance of audit committees validating actions taken to address recommendations to ensure that they achieve the intent of the recommendation.

Implementation of Audit Recommendations

Auditor-General Report No. 5 of 2015–16

The audit found that the Audit and Risk Committee for the Department of Veterans' Affairs had established an Audit and Integrity sub-committee to directly oversee the progress made by the department to implement internal and external audit recommendations. The sub-committee provides a standing report to the audit committee that includes proposals for endorsement in relation to relevant audit recommendations. This process is consistent with requirements in the PGPA Rule and facilitates the provision of assurance to the secretary as the department's accountable authority on audit matters.