The Administration of Contracting Arrangements in relation to Government Advertising to November 2007
The objective of the audit was to assess the effectiveness of the procurement and contracting associated with:
- the design, development and delivery of government advertising campaigns by Commonwealth departments; and
- the operation of the Central Advertising System (CAS).
Advertising is a legitimate element of government communication and information strategies. It provides a mechanism for governments to connect directly with citizens, informing them about new and existing government programs, providing advice about rights and responsibilities and conveying important information.
The strategies that guide government communications, including advertising, are often formulated as a part of the policy development and delivery process. Departments employ a wide variety of delivery channels to advertise, ranging from the publication of mandatory notices in the press and Government gazette to building a presence on YouTube. While many Government departments maintain a substantive internal communications capacity, the demands of modern media techniques and markets results in more sophisticated advertising campaigns drawing heavily on the expertise of private sector service providers. Accordingly, in delivering both day-to-day and more substantive campaign advertising, departments develop and rely upon an array of contracts with market researchers, advertising agencies, public relations consultants, media buyers, and content production and delivery firms.
Between July 1995, when the ANAO reported to Parliament on the general administration of government information and advertising1, and November 2007, when the governance framework for the administration of Government information and advertising campaigns was significantly revised, more than $1.8 billion was expended on government advertising.2 Nearly half of these outlays occurred in the last four years.
The annual cost of advertising rose in real terms from $116 million (2007-08 prices) in 1995-96 to $289 million in 2007-08, an increase of 150 per cent (see Figure 1).3 Advertising for the 2007 calendar year totalled $368 million. This growth saw government advertising outlays overtake those of major commercial interests such as the Coles Group and Telstra.4 In 2007, the Commonwealth was Australia's largest advertiser.
The extent of government advertising activity and the potential benefit such advertising might provide to incumbent governments has been the subject of ongoing debate and inquiry. The ANAO examined aspects of taxation reform advertising in Report 12 of 1998-995 and recommended that the Government adopt guidelines to govern the development, content and presentation of government advertising. In September 2000 the Joint Committee of Public Accounts and Audit (JCPAA), after examining Report 12 of 1998-99, also recommended the Government adopt guidelines for advertising, similar to those proposed earlier by the ANAO. The recommendations of the JCPAA were not taken up by the Government of the day.6
In 2004 and 2005, the Senate Finance and Public Administration References Committee undertook an inquiry into Government advertising and accountability, with the non-government majority report of December 2005 making a number of recommendations aimed at improving administrative processes and overall governance, including the adoption of guidelines based on those previously suggested by the ANAO and the JCPAA. A minority report from then Government Senators did not concur with the findings and recommendations of the majority. The then Government tabled an interim response in the Senate on 7 December 2006, noting that “the government response is being considered and will be tabled in due course”.7 No final response to the Committee's report had been tabled in the Parliament at 26 June 2008.8
Also in 2005, the then Government's advertising in support of proposed workplace relations reform legislation was challenged in the High Court of Australia.9 The plaintiffs10 contended that expenditure of public money on advertising to provide information about, and promote, the Government's workplace relations reform package was unlawful because there was no "appropriation made by law" which would authorise the drawing of money from the Treasury of the Commonwealth to pay for that advertising and the Appropriation Act (No 1) 2005-2006 (the Appropriation Act), from which the advertising campaign was being funded, did not cover such drawings. The Court, in a majority verdict, found the expenditure was authorised by the Appropriation Act and declined to issue the declarations or injunction sought by the plaintiffs.
The administrative framework prior to November 2007
Prior to the November 2007 Federal Election, the Government's information activities were coordinated by the Special Minister of State (SMOS). The Minister chaired the Ministerial Committee on Government Communications (MCGC), which took key decisions relating to major and sensitive information campaigns (including advertising campaigns) undertaken by Australian Government departments and agencies.11 Support for the MCGC was provided by the Government Communications Unit (GCU), located in the Department of the Prime Minister and Cabinet (PM&C).12
Although responsibility for the initiation and administration of advertising and related procurement activities lay primarily with Portfolio Ministers and departmental Chief Executives, in practice the administration of advertising involved three main parties:
- departments, who had responsibility for the financial and operational management of campaigns, including the preparation of research and communications strategies and briefs, the conduct of tender processes and the short-listing of consultants for MCGC consideration, the general authorisation of campaign expenditure13, the entering into and administration of contracts, the placement of advertising and the conduct of campaign evaluations;
- the MCGC, which took key decisions relating to major or sensitive information activities including approving strategies and briefs, the selection of certain consultants (generally based on shortlists prepared by the department and the GCU), and the approval of final creative materials and media plans14; and
- the GCU, which provided secretariat support and advice to the MCGC, advised departments on campaign development, administration and delivery (including the development of briefs, strategies and plans), maintained a register of consultants, assisted departments to develop lists of potential consultants for MCGC consideration and administered the Central Advertising System (CAS).15
The (then) Government's general administrative requirements in relation to the management of information campaigns were set out in Guidelines for Australian Government Information Activities - Principles and Procedures, February 1995 (Appendix 1). These arrangements required that all major and/or sensitive16 information activities be approved first by the responsible Minister and then brought before the MCGC for approval and sought to ensure that departmental information programs met the Government's priorities and objectives, and used appropriate techniques of communication.17
Under this model, the MCGC, which had specialist experience in government campaign advertising, exercised considerable discretion as to the extent of its involvement in particular campaigns. At a minimum, the MCGC provided formal approvals and clearances at key points of campaign development and delivery. At times, the MCGC took decisions that completely reshaped campaign strategy and timing, extensively edited creative materials, and set requirements for the frequency of advertising.
Following the 24 November 2007 Federal Election, the Government abolished the GCU and did not re-establish the MCGC. Responsibility for the administration of the CAS was transferred from PM&C to the Department of Finance and Deregulation (Finance) on 3 December 2007.18 A revised management framework, incorporating new guidelines for Commonwealth Government campaign advertising, was announced by the Government on 2 July 2008.
Audit scope and objective
The objective of the audit was to assess the effectiveness of the procurement and contracting associated with:
- the design, development and delivery of government advertising campaigns by Commonwealth departments; and
- the operation of the Central Advertising System (CAS).
The audit examined PM&C's role in relation to the development and delivery of advertising campaigns and the administration of the CAS. The audit also examined three completed advertising campaigns including:
- the second phase of the National Security Campaign, administered by the Attorney-General's Department (AGD) between 2003 and 2006;
- the Private Health Insurance Campaign, administered by the Department of Health and Ageing (Health) in 2007; and
- Workplace Relations Reform campaigns in 2005 and 2007, administered by the (then) Department of Employment and Workplace Relations (now the Department of Education, Employment and Workplace Relations (DEEWR)).19
The campaigns and administrative actions examined in the course of this audit were undertaken within the context of the administrative regime that applied prior to the 24 November 2007 Federal election. The audit has not examined the effectiveness of subsequent revisions to administrative arrangements and governance frameworks for government advertising, although the recommendations provided by the report are framed in the context of the new arrangements.20
Further, the audit did not examine the content of the advertising campaigns as the former government had not accepted the recommendations of the ANAO or the JCPAA to adopt guidelines governing the development, content and presentation of government advertising (see paragraph 5).
Governments of all persuasions have used advertising as a means of communicating directly with the public on matters of importance. While the scale of activity has risen and fallen over time, the cost to taxpayers and the perception that the government may gain a benefit from running substantial advertising campaigns has ensured ongoing parliamentary scrutiny and public debate. In such an environment, it is important that the administrative arrangements in respect of government advertising provide assurance that both statutory and government policy requirements are satisfied.
Overall, the audit found that departments faced significant challenges in effectively managing the procurement and contracting associated with government advertising campaigns under arrangements applying up until November 2007. The overall decision making framework for advertising campaigns, which was largely settled in the 1980s, was not well aligned with the requirements of the current financial framework.21 In particular it has become apparent that the responsibility for key decisions relating to advertising campaigns was fragmented between the MCGC and departments, creating uncertainty in clearly identifying the responsibilities and the limits of authority of participants in the decision making processes.
Decisions to approve the expenditure of public monies attract specific accountability obligations, including statutory requirements. In particular, the financial framework requires that the spending of public money not be approved unless reasonable inquiries have been undertaken that demonstrate that the proposed expenditure will make efficient and effective use of public money, and complies with any relevant Government policies. Departmental officials, in approving the expenditure of public monies, have a responsibility to ensure that they understand the full extent of the statutory obligations attached to such approvals.
In relation to those campaigns examined as part of this audit, departmental officials generally acted to approve the spending of public monies on campaigns, but did so in accordance with any decisions taken by the MCGC in relation to those campaigns. In practice, for the three campaigns reviewed, the MCGC made decisions concerning the appointment of consultants and in some other instances took decisions concerning the conduct of the campaigns. On the basis of the explanatory guidance materials generally available to departments at the time, and the record of the MCGC decisions relating to the campaigns examined, as set down in committee minutes, departmental officials regarded the MCGC decisions and directions to be binding on them, in some instances effectively removing their discretion to independently decide on spending proposals put before them.22 The AGS has advised the ANAO that in circumstances where prior ministerial consideration removes the necessary discretion from the departmental decision maker “the appropriate course would be for the Minister or ministerial committee to approve the spending proposal for the purpose of FMA Regulation 9.” Consequently on those occasions where the MCGC made decisions on aspects of the campaign that effectively limited the discretion of departmental officials, the AGS has advised that the MCGC could and should have been the recognised statutory decision maker concerning the expenditure of public money. In such circumstances, departments have a role in providing advice to the Minister or ministerial committee of statutory obligations associated with their decisions. In other cases, departments have a responsibility to understand their obligations where departmental delegates are approving the expenditure of public money.
The AGS has advised that when the MCGC should have been the approver under the financial framework for certain decisions relating to the expenditure of funds on advertising campaigns, this would have required the MCGC to have “considered and determined that the expenditure which would result from the decision it made would be in accordance with government policy and would make efficient and effective use of public money”. The limited documentation detailing the MCGC proceedings makes it difficult to be definitive regarding the extent of the committee's deliberations; however the evidence available to the ANAO suggests that the MCGC, in considering the campaigns within the scope of this audit, did not generally have regard to the full range of matters required to enable it to carry out the obligations and statutory requirements associated with approving the spending of public money. The AGS has advised the ANAO that, in such instances, it is unclear as to who the actual approver of expenditure for the purposes of FMA Regulation 9 was.23
Some former MCGC members have submitted to the ANAO24 that the MCGC was an advisory body, rather than an executive body, whose decisions had no formal binding or legal status. This contrasts with the description of the decision making role of the MCGC included in the majority report of 2005 Senate Finance and Public Administration References Committee inquiry into government advertising,25 which aligns closely with the views expressed by the departments included in this audit and is also consistent with key documentation examined by the ANAO (refer to footnote 22). The divergence of views between these former committee members and the audited departments (as explained in paragraph 20) is consistent with the audit finding that uncertainty existed in regard to the relative responsibilities and authority of participants in the review and decision making processes.
The uncertainty relating to the relative responsibilities of the parties under the financial framework existed over an extended period due to the failure by PM&C and individual departments to inform themselves and advise ministers, and more specifically the MCGC, on the decision making practices in relation to government advertising. Irrespective of the responsibility the MCGC may have had to inform itself of any implications for its role of changes in the financial framework, PM&C (through the GCU) had primary responsibility for providing support and advice to the committee and, accordingly, carried the responsibility for advising the MCGC on the impact of the financial framework on its operations as and when appropriate.26
More broadly, there was a failure on the part of departments to ensure that procurement decisions were taken in a timely manner and were properly documented, resulting in an inability on their part to demonstrate that all of the requirements of the financial framework had been observed. Further, in some instances, departments did not follow processes required by its Chief Executive Instructions.
Departments also did not observe sound practices in entering into and varying contracts, leading to significant delays in finalising contracts for major elements of campaign development and creating unnecessary risks for the Commonwealth. The audit found that, of the twelve primary contracts executed in relation to the campaigns within the scope of this audit, none were executed prior to the consultant commencing work. The average delay in executing a contract was 81 days (nearly three months), with a minimum delay of 5 days and a maximum of 185 days (over six months); the value of work conducted prior to contract execution approached $11 million.
PM&C's administration of the tender processes leading to the appointment of the current Central Advertising System (CAS) master media placement firms was generally sound, although PM&C increased the financial and operational risks to the Commonwealth by not adequately consulting with client departments in developing its contracting plans, by not conducting timely and comprehensive due diligence of potential contractors and by not undertaking comprehensive transitional planning. The subsequent CAS contracts were not well implemented and were poorly managed by PM&C, particularly in regard to the contractual provisions relating to performance and remuneration, and the amendment and extension of the contracts.
This audit draws attention to some key messages for agencies in their administration of government programs. Firstly, it is critical that departments provide timely advice to government in relation to the operation of the financial framework where this has a bearing on decisions being taken – this issue has featured in other audit reports in recent years.27 Secondly, it is important that key decisions, particularly those that lead to the expenditure of public money, are appropriately documented in the interests of transparency and accountability. Finally, to protect the interests of the Australian Government (and taxpayers), departments need to ensure that contracts are executed in a timely manner, include appropriate safeguards to secure performance, and are actively administered. None of these matters are new but this audit highlights that agencies need to continually reinforce good practice in relation to government procurement.
Key findings by chapter
Chapter 2 - Campaign Advertising
The governance framework for campaign advertising created challenges for departments
The governance framework for campaign advertising was characterised by the MCGC taking key strategic and operational decisions in relation to advertising campaigns and taking decisions that were viewed by departments as binding in relation to associated procurement and contracting activity.28 The MCGC, which was established in 199629, generally continued the pattern of operation developed by the previous government's Ministerial Committee on Government Information and Advertising, which was formed in May 1983. As such, the operational arrangements for the MCGC were largely established under the framework provided by the Audit Act 1901 (Audit Act) and its subordinate legislation (including the Finance Regulations and the Finance Directions) which were in effect until 31 December 1997. The major changes to the financial framework from 1 January 1998 should have resulted in a review of this model of operation.
From 1 January 1998, the framework for the management of public money and public property was provided by the Financial Management and Accountability Act 1997 (the FMA Act) and associated regulations (FMA Regulations), and the Finance Minister's Orders. The changes from the framework that applied under the previous Audit Act included that Ministers were no longer empowered to issue a direction that prevented the Commonwealth from obtaining better value for the expenditure in all the circumstances.30 Instead, no spending proposals could be approved unless the approver (including a Minister or Ministers acting collectively) was, after making reasonable inquiries, satisfied that the proposed expenditure represented efficient and effective use of public money. 31
The changes made to the financial framework should have been a signal to review the respective roles of the MCGC and departments in relation to the approval of spending for government advertising campaigns. However, relevant departments32 did not provide advice to the MCGC on changes arising from the new framework; in particular that the committee would need to acknowledge limitations on their capacity to make decisions which were binding on officials and departments in relation to spending matters, or alternatively to recognise its responsibilities as an approver under the new arrangements. It would also have been open to the committee to have sought advice on the impact that such significant changes in the operating environment may have had on the ongoing operations of the committee, but there is no evidence to suggest that this occurred.
Accordingly, no changes were made to the operational model employed by the MCGC. Departments continued to operate on the basis that departmental delegates were approving all aspects of spending proposals in accordance with the requirements of the FMA regulations but without the discretion to approve or not approve those key elements of the spending proposal that the MCGC had already considered. Similarly, the MCGC continued to decide on key aspects of campaign advertising, effectively removing in some instances the discretion required by officials to properly approve expenditure, but not, in those instances, making the changes to its considerations and processes required for it to meet the obligations of an “approver” under the new framework.
There have been opposing perspectives put to the ANAO in relation to the role of the MCGC in making decisions in relation to the administration of campaigns (including the selection of consultants). Former members of the MCGC have emphasised the committee was only advisory but one whose specialisation in this area earned it due consideration from officials; and it is incorrect to suggest that the MCGC directed officials to undertake actions which they were not party to, and / or which they were reluctant to pursue. Further, reference was made to the participation by relevant Ministers (or their advisers)33 and their effective power of veto over campaigns before the committee. On the other hand, as noted in paragraph 20 above, departmental advice to the ANAO emphasises that they considered the MCGC took the final decision on many key aspects of campaign administration, with departments responsible for implementation. The manner in which MCGC decisions were recorded and conveyed to departments,34 along with the advice available to departments from PM&C, is consistent with this interpretation. The ANAO also considers that the attendance of the relevant Minister (or their representative) at MCGC meetings would not, of itself, address the requirements of the financial framework.
Finance now advises departments that a failure to consolidate the power to approve key elements of a spending proposal can lead to problems in clearly identifying the decision makers in particular instances. This in turn leads to difficulties in ensuring that decision makers are fully aware of their responsibilities and the limits of their authority. In such circumstances, departments should seek to adjust and consolidate the decision-making process.35
The lack of clear accountability and transparency inherent in the arrangements for administering government advertising prior to November 2007 reinforces the need for departments to ensure that, where officials rather than Ministers, are approving spending proposals, officials are aware of the statutory obligations associated with their decisions. In addition, while it is open to Ministers to take on the role of spending approver in relation to particular matters, departments should ensure that Ministers and others who are not approving spending in relation to those matters appreciate the statutory responsibilities placed upon the spending approver.
There was considerable scope for departments to have better managed contracting and procurement in support of campaign advertising
The lack of clear accountability and transparency in the framework for administering government advertising created significant challenges for departments. The approach to decision making, certainly in relation to the particular campaigns reviewed in the audit, constrained the ability of departments to effectively discharge their FMA responsibilities in relation to the approval of spending. The implementation and administration of contracts with service providers was also complicated by the MCGC (and at times the GCU) conveying selection and operational decisions directly to the service providers, sometimes in advance of departmental approval processes. Neither the MCGC nor PM&C were party to the contracts which were generally between the line department responsible for the campaign and the particular service provider.36 Departments often faced a tension between the need for a timely response to the priorities and decisions of the MCGC and the need to ensure that the department's procurement actions and associated contract management were consistent with the legislative framework and government procurement policy.
Notwithstanding the challenges inherent in the administrative framework, there was considerable scope for departments to have better managed the administration of contracts and associated procurement processes.
Departmental decision making in relation to the approval of spending was poorly documented. Departments did not generally maintain contemporaneous records of the considerations of the departmental decision maker, including the extent of reliance on the direction of the MCGC, in approving expenditure and were often unable to demonstrate compliance with the requirements of the financial framework. In many cases it is not clear, on the basis of records maintained by departments, that the requirements of the financial framework have been met. Some departments have relied upon records within their financial management system, or documents that form part of contracts, as the record of the terms of the approval of the spending proposal. These documents did not evidence the considerations taken into account by officials in regard to particular decisions nor demonstrate that approval was provided in a timely manner, prior to the Commonwealth entering into agreements under which public money was, or would become, payable.
In addition, departments frequently engaged contractors by informal agreement but delayed executing contracts until such time as the overall scope of work had been clarified. Given the dynamic nature of campaign development, particularly with the involvement of the MCGC, this practice saw significant delays in departments executing contracts and contract amendments. Of the twelve primary contracts executed in relation to the campaigns within the scope of this audit, none were executed prior to the consultant commencing work. The average delay in executing a contract was 81 days (nearly three months), with a minimum delay of 5 days and a maximum of 185 days (over six months). Some contracts were not settled until after all work had been completed and many contract variations related to work underway or completed at the time the variations were executed. At times, these delays saw significant payments made to contractors prior to the terms of the contract being formally agreed.
Moving to contracting models which allow the early settlement of broad contract terms and conditions but provide flexibility in terms of the commissioning of work would reduce delays in contract execution. It would also reduce the risks for the Commonwealth associated with the extensive work undertaken without either the Commonwealth or the contractor having the protection of a properly documented agreement. It would also reduce the high risk practice of making significant payments to contractors without formal contracts in place and provide an improved framework for subcontracting.37
Planning and reporting by departments were not well managed
Departments generally did not undertake effective procurement planning, with only one of the three campaigns examined being supported by a comprehensive procurement plan. A thorough planning process, which incorporated consideration of the risks, may have assisted departments to identify and address the risks to timeliness posed by traditional contracting models and to more effectively manage financial framework compliance where there was an urgent need for services to be provided.
While departments made extensive use of developmental research and concept testing in campaign development and tracking research in day to day campaign management, evaluation was generally not extended to broader matters such as whether the campaign's strategy effectively supported related policy goals or whether the targeted levels of community awareness were appropriate. While the broad governance framework gave the MCGC a defined role38 in considering campaign evaluations, in practice, when evaluations were undertaken by departments,39 they were not scrutinised by the MCGC. This is consistent with the advice from some former MCGC members40 that campaign evaluation was considered by the MCGC to be solely a departmental responsibility (although the MCGC might make informal evaluations of individual contractor performance).
Departmental reporting of advertising performance was generally limited to the mandatory reporting of contracts and payments in the financial appendices of annual reports. Given the level of public and parliamentary interest, the significant public funds expended and the moves, at a whole of government level, to greater transparency in relation to government advertising, it would be appropriate for departments to consider opportunities for improving reporting on the level of activity and outcomes of advertising strategies and for ensuring that greater priority is given to accurate and timely reporting, including of the expenditure on individual campaigns.41
Chapter 3 – The Central Advertising System
PM&C's administration of the tender process was generally sound
PM&C's initial administration of procurement processes leading to the appointment of the current CAS master media placement firms was generally sound. However, PM&C did not effectively consult with client departments in the early definition of the business requirement or the tender planning, but did engage representatives of client departments to assist with the administration and oversight of the tender process. PM&C invested considerable effort in undertaking a generally thorough assessment of competing tenders although it did not include provision in its planning for due diligence checking of tenderers. Following adverse press speculation regarding the situation of one of the preferred tenderers, PM&C conducted limited checks in relation to that tenderer. No due diligence checking of other tenderers, including the successful tenderer for the non-campaign master media contract, was undertaken. In addition, PM&C undertook minimal transitional planning, placing a heavy reliance on the successful tenderer to develop appropriate strategies and secure Commonwealth interests.
CAS contracts were not well implemented and were poorly managed
PM&C's implementation and administration of the CAS contracts was poorly managed. In particular, PM&C included complex and onerous performance management arrangements in the contracts which it did not effectively implement or properly administer over time. PM&C did not, in a timely manner, develop and implement options to effectively address poor customer satisfaction, which declined steadily following early improvements and was consistently below agreed targets. The administration of performance-based payments was not well documented, with a failure to clearly agree performance targets in a timely manner. In addition, a number of performance payments were made without the level of performance assurance required by the contract being met and, in at least one instance, when the verified performance clearly fell short of the agreed standard.
PM&C did not adequately document the 2004 variation to the terms and conditions of the campaign master media placement agency contract. There was no clear and consolidated specification of the terms of the agreement between the parties, nor is the consideration of the efficiency and effectiveness of the proposed contract variations documented. The absence of properly documented terms complicated subsequent contract administration and made it difficult for PM&C to demonstrate compliance with either internal policy or the requirements of the financial framework.
The 2006 extensions to both CAS contracts were not supported by a thorough assessment of the costs and benefits of the proposed approach. PM&C's analysis concentrated largely on the costs of going to market rather than considering the potential benefits to the Commonwealth in the face of declining customer satisfaction with contractor performance. The delegate was not given sufficient notice for effective decision making – the department did not allow sufficient time for a thorough tender process to be conducted had the delegate chosen not to extend the existing contracts. The extensions also failed to address key exposures, such as ongoing performance payment arrangements for the campaign master media placement agency.
Ongoing defects in administration were recognised by PM&C in late 2007 but were not comprehensively addressed until early 2008, after responsibility for contract administration was transferred to Finance.
Following the November 2007 Federal election, considerable changes were made to the administration of government advertising. The incoming Government did not re-establish the MCGC or any other equivalent ministerial body to oversee campaign advertising, and the GCU was abolished with responsibility for the ongoing administration of the CAS transferred to Finance. New guidelines and arrangements were announced by the Government in July 2008 for the development and conduct of government advertising and information campaigns. The introduction and impact of the new arrangements was outside of the scope of this audit but will be considered in the context of the ANAO's forward performance audit work program.
Having regard to the new administrative arrangements the ANAO made four recommendations aimed at improving the administration of Government advertising.
Summary of responses
Formal responses to the draft audit report and its recommendations were provided by the Attorney-General's Department, the Departments of the Prime Minister and Cabinet, Finance and Deregulation, Employment, Education and Workplace Relations, and Health and Ageing and the Hon Gary Nairn, former Chairman of the MCGC from 2006 to 2007. These responses are set out hereunder.
PM&C notes the four proposed recommendations.
The Department considers that the proposed report is a timely reminder of the importance to all government agencies of robust, transparent and sound procedures for the procurement, management and evaluation of government contracts, particularly in the area of government advertising. Specific comments on the content of the report follow.
PM&C notes that, since November 2007, strengthened governance arrangements have been put in place to ensure that the issues identified in the report in relation to PM&C are not repeated in the future. PM&C further notes that following the revised administrative arrangements orders of 3 December 2007, the contract management responsibilities of the former GCU (which was abolished on that date) were moved to the Department of Finance and Deregulation (Finance). Finance also has responsibility for Commonwealth procurement policy and the move was expected to improve overall governance of the aggregate media buying contracts.
The report also notes that there may be benefit in PM&C taking steps to assure itself that existing controls operate to ensure that contract variations are being appropriately considered, approved and documented; and, where relevant, performance management and payment provisions are effectively administered (paragraph 3.98 refers). PM&C accepts this advice and notes that a number of internal audits are being undertaken for the 2008-09 financial year in the areas of procurement and knowledge management, which will examine and provide assurance on aspects of the department's contract management processes.
The Department considers that the report provides numerous insights into measures that may be taken at the central agency, departmental and program management levels to improve the efficiency of contract management. The Department notes that it already has in place control mechanisms and processes to address many of the issues raised in the audit report.
Since the conduct of the audit there have been fundamental changes in the Government's guidelines on campaign advertising including the involvement of the ANAO in examining agencies' compliance with the new guidelines. These changes address many of the challenges faced by agencies in meeting accountability requirements under the previous framework.
The Department of Education, Employment and Workplace Relations (DEEWR) appreciates the opportunity to participate in the performance audit on the administration of contracting arrangements in relation to Government advertising to November 2007.
DEEWR welcomes the ANAO's findings that departments faced significant challenges in effectively managing the procurement and contracting associated with Government advertising campaigns. As noted in the report, DEEWR's capacity to effectively discharge its FMA responsibilities was significantly constrained by the decision making model overseen by the Ministerial Committee on Government Communication (MCGC) and Government Communications Unit (GCU). For instance, the ANAO's report recognises that whilst DEEWR had a comprehensive plan for the proposed advertising campaign that would have enabled the department to discharge its FMA responsibilities, the MCGC took decisions that completely reshaped the campaign strategy and timing, edited creative material and set the requirements for advertising frequency for both the 2005 and 2007 workplace relations campaign.
DEEWR endorses all of the ANAO recommendations.
The department considers that the recommendations will ensure a more transparent approach to future advertising campaigns and also serve to reinforce the legislative obligations, and requirements for the administration of contracting arrangements for future Government advertising. To that end, DEEWR would highlight that since the department was formed in December 2007 it has integrated its purchasing and procurement systems and as a result has a strengthened system in place to ensure compliance with FMA Regulations. This system provides clear records of delegates' decision making.
In respect of the individual recommendations, DEEWR agrees with the ANAO recommendation on the need to improve the timeliness of settling contracts. The department notes the ANAO reference to its guide, Developing and Managing Contracts, in paragraph 74 of Appendix 5 that in some circumstances it may be necessary for a contractor to be engaged and for work to commence prior to having signed a written contract. DEEWR agrees with the ANAO that this is not the preferred approach and welcomes the ANAO's recognition of the significant practical difficulties the department faced in promptly executing contracts due to the rapid pace and the extent to which the MCGC oversaw the direction of both workplace relations communication campaigns and the engagement of consultants.
DEEWR agrees with the ANAO recommendation regarding the need for the department to evaluate any advertising campaigns. The department will follow the guidance which is expected to be shortly issued by the Department of Finance and Deregulation in its Business Planning Processes for Campaign Information and Advertising Activities. In regard to the need for the department to strengthen its reporting of campaign advertising in Annual Reports, DEEWR agrees, noting that biannual reporting will be required under the new Guidelines and that this will provide a suitable means for the department to report on campaign expenditure.
The Department of Finance and Deregulation (Finance) supports Recommendation 4 and makes the following comments with regard to that recommendation.
Finance is presently involved in a tender process relating to the Master Media agencies for campaign and non-campaign advertising. The current tender processes have gone though a comprehensive and consultative strategic planning process, including consultations undertaken with various government agencies.
A contract management plan is also being developed to assist with contract administration in accordance with the principles contained in Recommendation 4.
Inconsistencies in the operation of the special accounts have been addressed such that receipts and disbursements are properly aligned.
Response from the Hon Gary Nairn
The Hon Gary Nairn, former Chairman of the MCGC, in correspondence with the ANAO expressed the view that the ANAO had refused to accept the evidence that the MCGC was not a decision-making body, at least in relation to any FMA Act obligations; and emphasised that the MCGC had not directed officials to undertake actions which they either were not a party to, and/or which they were reluctant to pursue.
Mr Nairn noted that, when a department brought forward a proposed campaign, the relevant Minister (or their representative) was a fully participating member of the MCGC. He advised that the MCGC operated on a consensus model, meaning that the department's Minister effectively had a veto power over campaigns brought before the Committee and noted three instances where a project was suspended because of a failure to reach unanimity on the MCGC.
Mr Nairn further advised that the decisions of the MCGC were not binding. It was an advisory committee, but one whose specialisation in this area earned it due consideration from officials. Departmental officials, who were unhappy with any aspect about the decision of the Committee, could have advised their Minister accordingly and the Minister, if he concurred with his officials, could simply have opposed the majority view of the Committee or, if a decision had already been made, sought a re-committal of the decision at a subsequent meeting. Mr Nairn was not aware of this having happened and advised that the reason for this was that departments were always amenable to the final decisions of the MCGC because they had input at all stages of the process.
Mr Nairn concluded that the final decision was always made by the department or their relevant Minister. It was they who were appropriated the money and they who were ultimately responsible for the success or failure of the campaign. He reiterated that departmental officials were under no obligation to pursue any aspect of any campaign if they objected to the recommendation of the MCGC. Moreover, because it was their money and, ultimately, their decision to proceed with the campaign, it was up to them to evaluate the effectiveness and value for money of the campaign.
Mr Nairn expressed concern that the report made no attempt to determine if departmental officials believed that the contribution of the MCGC added value to the process of their communications campaigns. He considered this one of the most important questions to be dealt with in any inquiry into the MCGC process and noted that a failure to give this matter serious consideration would be a serious omission.
The ANAO has reflected Mr Nairn's comments in the final report to the extent considered appropriate. This resulted in revisions in the report with regard to, for example, the quantum of Government advertising expenditure (paragraph 1.12) and the potential impact of budgets and elections on the level of advertising expenditure (paragraphs 1.21 and 1.22). However, as explained in the report, in regard to the role of the MCGC in making decisions relating to the administration of campaigns (including the selection of consultants) there were opposing perspectives put to the ANAO. Mr Nairn's views reflect the perspective that the MCGC role was only advisory. As noted at paragraph 20, the explanatory material dealing with the role of the MCGC which was generally available to departments at the time, the minutes of the Committee's meetings, and advice from some departments reflects a different perspective, namely that the decisions of the MCGC were binding on departments. What is clear is that there was uncertainty relating to the relative responsibilities of the parties in terms of the financial framework under the arrangements that existed for campaign advertising to November 2007.
In response to the proposal that Ministers held a right of veto over MCGC campaign decisions, the ANAO has sought to distinguish the role of Ministers from that of their advisors, especially with respect to their responsibilities under the financial framework and their involvement in the MCGC process (paragraph 2.10).
As explained more fully in Chapter 2 of the report, it is the role of departments to ensure Ministers and committees such as the MCGC are appropriately informed of the operation of the financial framework where this has a bearing on decisions being taken.
 ANAO Audit Report No. 30 1994-95, Commonwealth Government Information and Advertising, June 1995.
 Reporting arrangements in place over this period have made it difficult to be certain of the extent of Federal Government outlays on either individual campaigns or on advertising generally. The most widely available time series data has been the consolidated Central Advertising System expenditure figures, published by the Department of the Prime Minister and Cabinet in its annual reports and, from time to time, reported to Parliament. As discussed at paragraph 1.13, this omits certain elements of government expenditure on advertising while, at the same time, including elements of non-discretionary advertising expenditure and advertising expenditure by certain non-Commonwealth bodies (paragraph 1.15).
 In nominal terms (that is, not adjusted for changes in prices), advertising outlays rose by 240 per cent over this period, from $85 million in 1995-96 to $289 million in 2007-08.
 Adnews, Special Report Australia's Top Advertisers, March 2008
 ANAO Audit Report No. 12 1998-99, Taxation Reform - Community Education and Information Programme, October 1998.
 On 2 July 2008, the Rudd Government announced guidelines to govern the development, content and presentation of Government advertising. The new guidelines are broadly consistent with those recommended by the JCPAA in September 2000 and, in Report 12 of 1998-99, by the ANAO.
 Senate Hansard 7 December 2006 p. 115.
 Senate Hansard 26 June 2008 p. 3565.
 Combet v Commonwealth  HCA 61; 224 CLR 494; 80 ALJR 247; 221 ALR 621 (21 October 2005)
 Mr Greg Combet, who was at the time secretary of the Australian Council of Trade Unions, and Ms Nicola Roxon, a member of the House of Representatives and (then) Shadow Attorney-General.
 As at 1 November 2007, the membership of the MCGC consisted of the Hon Gary Nairn MP (chair, Special Minister of State), Mr Petro Georgiou MP, the Hon Ms Sussan Ley MP, the Hon Mr Andrew Robb MP, the Hon Mr Tony Smith MP and Mr Tony Nutt (PMO). The Minister responsible for the matter under consideration by the MCGC (or their representative) was invited to join the MCGC as a member for the duration of that consideration.
 On 21 October 1998, responsibility for the coordination of Government communications and advertising, including the provision of support to the MCGC, was moved from the then Department of Finance and Administration to the Department of the Prime Minister and Cabinet. Responsibility for information coordination and services within Australia, including advertising, was transferred to the then new Department of Finance and Administration on 9 October 1997 following the abolition of the Department of Administrative Services <http://www.naa.gov.au/records-management/publications
/AAOs.aspx> [accessed 11 December 2008].
 Senate Finance and Public Administration References Committee, Government advertising and accountability, December 2005, pp. 61-62.
 Senate Finance and Public Administration References Committee, Government advertising and accountability, December 2005, p. 61.
 The CAS is a centrally administered procurement arrangement to consolidate government advertising expenditure, with a view to securing optimal media discounts on Commonwealth-wide negotiated media rates. Under the CAS, the Commonwealth maintains contracts with two media specialists who assist in media planning, placement and rates negotiations with media outlets. At the time of the audit, Universal McCann handled all campaign media planning and placement, and hma Blaze placed all non-campaign advertisements, such as job vacancies, tenders and public notices.
 The Guidelines defined "Sensitive" as including issues which might offend sections of the community or may produce negative reactions from the community group being addressed or its opponents.
 Approval was required to be sought for all information activities for which it was proposed to engage the services of outside consultants, and was required regardless of whether or not the proposed activity included paid advertising.
 The Department of Finance and Administration was renamed the Department of Finance and Deregulation by the Administrative Arrangements Order issued following the November 2007 Federal election. The Department is referred to as Finance throughout this report.
 The Department of Education, Employment and Workplace Relations was established by the Administrative Arrangements Order issued following the November 2007 Federal election. It replaced the former Department of Education, and of Employment and Workplace Relations. The Department is referred to as the Department of Education, Employment and Workplace Relations (or DEEWR) throughout this report.
 Information on the new arrangements is provided by the Department of Finance and Deregulation at <http://www.finance.gov.au/Advertising/index.html>.
 Including the Financial Management and Accountability (FMA) Act 1997 and associated regulations and guidelines - such as the Commonwealth Procurement Guidelines. Of particular relevance to the operation of the MCGC, under the new framework (which came into effect on 1 January 1998):
- the FMA Regulations were drafted so that they explicitly govern all decisions of the Executive Government to spend public money, whether these decisions are made by a Minister, Ministers collectively (such as in Cabinet), officials acting under the authority of a Minister or other persons authorised by legislation to make such decisions (approver is defined by FMA Regulation 3);
- FMA Regulation 11 states that officials are unable to approve a proposal to spend public money unless they have been authorised by a Minister or Chief Executive, or by or under an Act, to approve the proposal; and
- Ministers are no longer empowered to issue a direction that prevents the Commonwealth from obtaining better value for the expenditure in all the circumstances (as was possible under former Finance Regulation 44B(c)(ii)). Instead, FMA Regulation 9 requires that no spending proposal may be approved unless the approver (including a Minister or Ministers acting collectively) is, after making reasonable inquiries, satisfied that the proposed expenditure represents efficient and effective use of public money
 For example, the following key documents examined as part of this audit indicate that the MCGC was the final decision maker in relation to many key aspects of campaign advertising procurement:
- The formal advice to departments by PM&C outlining the MCGC and its processes stated that for campaigns within the MCGC's jurisdiction “The MCGC makes the key decisions relating to major and/or sensitive information activities”, “The MCGC selects the successful consultant” and “Finally, the MCGC approves the creative material and the media plan before it is placed in the media”<www.gcu.gov.au/code/about/index.html> [accessed 26 June 2007];
- The Guidelines for Australian Government Information Activities – Principles and Procedures – February 1995 issued by the Australian Government stated that “all major and / or sensitive information activities ... are to be approved first by the responsible Minister and then ... brought before the MCGC for approval”;
- The submission of PM&C to the Senate Finance and Public Administration References Committee in 2005, notes that “The MCGC makes the key decisions relating to major and/or sensitive information activities”; and
- DEEWR advised the ANAO on 10 September 2008 that, in respect of the Workplace Relations Reform Campaigns, “there was no real scope for the department to do anything other than directly implement MCGC decisions on the key aspects of both campaigns.”
It is clear, in some instances, the decisions of the MCGC accorded with detailed advice and recommendations provided by agencies and, accordingly, subsequent decisions of officials aligned with the initial departmental assessment of the efficiency and effectiveness of resource usage. However, even in such instances, the decision of the MCGC was communicated to the department as a final and authoritative decision.
 The AGS advised the ANAO on 8 July 2008 that:
It seems that the former MCGC could and should have been the approver for the purposes of FMA regulation 9, of at least some of the decisions, particularly … where the MCGC appears to have selected the successful tenderer and the Department had no discretion whether to conclude a contract.
However, the MCGC could only have been regarded as approving the spending proposal under FMA regulation 9 if it had considered and determined that the expenditure which would result from the decisions it made would be in accordance with government policy and would make efficient and effective use of public money.
 The Hon Gary Nairn and Senator the Hon Eric Abetz (both former chairs of the MCGC) and Mr Petro Georgiou MP (former member of the MCGC) provided the ANAO with comments and views on 16 December 2008. The Hon Gary Nairn provided a formal response to the draft report on 10 February 2009.
 See paragraphs 2.3 and 2.4 for further information relating to the Committee's views on the MCGC's decision making role.
The ANAO notes that responsibility for the provision of advice and support to the MCGC was transferred from the (then) Department of Finance and Administration to the Department of the Prime Minister and Cabinet on 21 October 1998.
 ANAO Audit Report No.14 2007-08, Performance Audit of the Regional Partnerships Programme, ANAO Audit Report No.39 2006-07, Distribution of Funding for Community Grant Programs.
 The MCGC's practice of documenting only the decisions of its meetings, and not the proceedings, means that, the basis for decisions which were inconsistent with or not supported by departmental advice is not apparent.
 Department of the Prime Minister and Cabinet, Annual Report 1998-99, p. 72.
 Specifically, the FMA Regulations omitted any provision in the nature of the earlier Finance Regulation 44B(c)(ii) which allowed a person to enter into a commitment to spend public money that did not obtain the best value for money for the Commonwealth in circumstances where they were complying with a direction by a Minister (although in such circumstances officials were required to certify that they had obtained the best value that was possible while complying with that direction). Instead, all spending proposal approvals under the FMA Regulations must both be in accordance with the policies of the Commonwealth and make efficient and effective use of public money.
 ANAO Audit Report No.14 2007-08, Performance Audit of the Regional Partnerships Programme: Volume 2 – Main Report p.51.
 Primary responsibility for providing support and advice to the MCGC was moved from the Department of Finance and Administration to the Department of the Prime Minister and Cabinet on 21 October 1998. However, departments engaging with the MCGC in relation to the administration of campaigns also had an obligation to provide advice to the MCGC if the decision making model impacted on the ability of those departments to effectively discharge their responsibilities under the prevailing financial framework.
 As part of its analysis, the ANAO examined the complete records of 63 of the 66 MCGC meetings held in respect of the campaigns that were part of this audit and extracts of the records of the remaining three meetings. The ANAO found no evidence that portfolio Ministers attended MCGC meetings. While the three record extracts did not contain information on attendance, for 62 of the remaining 63, the portfolio Minister was represented by an advisor. For one meeting, neither the ministerial advisor nor the departmental representatives were present when campaign decisions were made.
 The ANAO's review of the MCGC meeting Minutes noted that decisions were always recorded in a standard format, eg Decision: The Committee selected XYZ (PR) and ABC (advertising) – 31 March 2004, or Decision: The Committee considered the proposals and selected XYZ (creative agency) – 9 August 2005.
 Finance Circular No. 2008/06, paragraph 39.
 Other than contracts relating to the CAS, which were held by PM&C on behalf of the Commonwealth.
 At times, subcontractors were engaged, provided their services and were paid, in advance of the primary contract, which defined the circumstances under which subcontracting was permissible, being executed.
 The 1995 Guidelines on Advertising state that “The MCGC will also scrutinise the formal evaluation of each campaign.” (Appendix 1 paragraph 3.3.2)
 The ANAO notes that not all campaigns examined in the audit were subject to a comprehensive departmental evaluation.
 Paragraph 22 refers.
 Two of the three select tender processes undertaken in support of the 2005 workplace relations advertising campaign were reported in departmental annual reports as being open tenders. PM&C advised the Senate Finance and Public Affairs Legislation Committee in October 2005 that the short listing of public relations and advertising consultants was undertaken by PM&C and DEEWR, whereas departmental records and advice from DEEWR confirms that no short listing was undertaken for the public relations consultant selection and, for the advertising consultant, the MCGC effectively undertook this role.