Agencies' Implementation of Performance Audit Recommendations
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The objective of the audit was to assess the effectiveness of agencies’ arrangements for monitoring and implementing ANAO performance audit recommendations.
1. The Australian National Audit Office’s (ANAO) performance audits are an independent and objective assessment of agency programs, policies and/or systems designed to inform the Parliament and to provide a stimulus for improved public sector performance and accountability. A performance audit can be undertaken in a single agency or as a cross-agency audit involving multiple agencies and a commonly performed function, or where more than one agency is involved in program delivery. Performance audits typically give consideration to the efficiency and effectiveness of agency administration and consistency with legislative and policy settings. In this way, performance audits can assist agency chief executives fulfil their responsibilities to promote proper use of resources when managing the affairs of the agency.1
2. In its performance audits, the ANAO identifies areas where administrative improvements can be made and, in most cases, makes specific recommendations to assist agencies improve their performance and to address risks to the delivery of outcomes. Recommendations made in cross-agency audits are often applicable to other agencies not subject to the specific audit. In those situations, while other agencies do not explicitly agree to implement relevant recommendations, there is an expectation that these agencies consider the recommendations and implement them as appropriate.
3. Once an agency has agreed to implement a recommendation, timely implementation in line with the intended outcome of the recommendation is important in achieving the full benefit of the recommendation. Implementation of recommendations should be treated by agencies in the same way as implementation of other program and business improvement initiatives. This would generally include having a clear process for assigning responsibilities, and systematic monitoring, so that reporting on implementation can provide sufficient assurance to agency management that the recommendation has been satisfactorily implemented. In general, responsibility for implementing recommendations will rest with the relevant business or program management area2 of an agency. Governance and oversight of agency responses to recommendations will generally involve an agency’s audit committee, supported by the agency’s internal audit function.3
4. The ANAO examined the governance arrangements established in four Australian Government agencies to monitor the implementation of ANAO audit recommendations. The ANAO also examined the implementation of recommendations from seven ANAO performance audits. Due to the inclusion of cross-agency audits, three to five audits from the sample of seven were applicable to each agency resulting in a total of 48 recommendations being assessed.
Audit objective, scope and criteria
5. The objective of the audit was to assess the effectiveness of agencies’ arrangements for monitoring and implementing ANAO performance audit recommendations.
6. The agencies included in the audit were the Department of Education, Employment and Workplace Relations (DEEWR); the Department of Families, Housing, Community Services and Indigenous Affairs (FaHCSIA); the Department of Finance and Deregulation (DoFD); and the Department of Infrastructure and Transport (DIT).4
7. To reach a conclusion against the audit objective, the ANAO assessed whether the selected agencies had:
- effective governance systems in place to monitor ANAO performance audit reports and provide oversight of implementation of relevant recommendations;
- reporting arrangements that were accurate and timely, with appropriate intervention mechanisms if required; and
- adequately implemented agreed ANAO recommendations.
8. Performance audits play an important role in improving the administration and management of public sector agencies. During the course of an audit, the ANAO establishes a relationship with agencies to provide opportunities for discussion of the audit findings, conclusions and potential recommendations. The benefit of this approach is that it ensures reports are accurate, evidence-based, and balanced. In this process, recommendations are developed to make improvements that are directed towards the efficient and effective implementation of government programs. Once agreed, audit recommendations become a management responsibility, and an effective system to implement recommendations will feature strong ownership within the agency and an outcome orientation, which promotes timely implementation and a focus on results. In this respect, the implementation of audit recommendations is similar to an agency’s successful delivery of its other responsibilities, relying heavily on agency leadership and the active support of those charged with oversight and implementation.
9. Overall, the four agencies included in the audit had developed systems to capture ANAO recommendations and to monitor and report on implementation where these recommendations were made in audits directly involving the agency. ANAO recommendations were clearly identified by the agencies’ internal audit functions and brought to the attention of audit committees on a regular basis. Reports to audit committees included information on the recommendation, the current status of implementation and the expected timeframe for completion, although in some cases, the status of ANAO recommendations was inaccurately recorded in agency monitoring systems.
10. While the systems in place generally provided visibility over reported actions for audits directly involving the agencies, three of the four audited agencies’ monitoring and reporting systems did not feature a systematic approach to the capture of recommendations made in broader cross-agency audits, which may have relevance to the agency’s operations. At the same time, the ANAO observed that agencies had implemented a number of cross-agency recommendations which were not recorded in agency monitoring systems.
11. Monitoring and reporting are important activities, but do not necessarily guarantee the timely and adequate implementation of recommendations. The ANAO examined all ANAO performance audit recommendations marked as complete in agency monitoring systems from January 2009 to March 2013—a total of 216 recommendations. Approximately half (56 per cent) of these recommendations had been implemented within a year of the recommendations being made, and 74 per cent within 18 months. A relatively small proportion (seven per cent) of ANAO recommendations had taken 18 to 24 months to implement. For 19 per cent of the recommendations, however, implementation was still in progress after two years and in one case implementation had been ongoing for six years.
12. Each agency, regardless of its size or the number of recommendations it has been required to manage, has experienced difficulties with full implementation of recommendations. The ANAO undertook a detailed assessment of 48 recommendations, 14 of which were directed to individual agencies while 34 were cross-agency audit recommendations. Overall, 69 per cent of recommendations were assessed as having been implemented adequately, while 10 per cent were assessed as not being adequately implemented. Approximately 21 per cent of the recommendations examined were assessed as being partially implemented reflecting that actions had been taken in agencies, but these actions did not fully address the recommendation.
13. In general, limited supporting information was provided to the respective agencies’ internal audit function or audit committee in support of the closure of recommendations. Audit committees generally relied on assurances from program management areas and/or internal audit that recommendations had been implemented and therefore no longer needed to be monitored by the audit committee. While it would not be practical to undertake detailed assessments of implementation of all recommendations, there are benefits in agencies requiring senior management sign off prior to the closure of ANAO recommendations in audit systems. In agencies where this was a standard procedure, for example at Deputy Secretary level, the ANAO assessed a higher number of recommendations as having been adequately implemented, although this was also influenced by the relative complexity of different recommendations. There would also be benefit in periodic internal audit assessments of a sample of recommendations to provide strengthened assurance to audit committees in relation to implementation.
14. Other than DEEWR, none of the agencies included in this audit had developed structured implementation approaches in relation to implementation of ANAO recommendations. A more structured approach would support agencies to manage timeliness, completeness and adequacy of implementation, and allow progress to be monitored and assessed. This would also provide support for requests to senior management for sign-off on final implementation and closure.
15. Effective arrangements for the implementation of audit recommendations are an important part of realising the full benefit of an audit. The audit recommendations highlight actions that are expected to improve agency performance when implemented and assist to address risks to an agency’s delivery of its outcomes. In this context, ANAO performance audit recommendations are important opportunities, that have generally been agreed to by agencies, to achieve long term benefits. The ANAO has made two recommendations to support improved oversight and implementation of recommendations. The first recommendation relates to the inclusion of all relevant ANAO recommendations in agency internal monitoring systems. The second recommendation is designed to assist agencies in the introduction of a more systematic approach to better manage the implementation of ANAO recommendations.
16. The recommendations are based on findings from fieldwork at the audited agencies, and are likely to be relevant to other agencies. Therefore, all agencies are encouraged to assess the benefits of implementing these recommendations in light of their own circumstances.
Key findings by chapter
Governance Arrangements (Chapter 2)
17. As part of their governance arrangements, each of the four audited agencies had developed systems to capture external audit recommendations, monitor implementation and provide support to audit committees. The monitoring systems differed amongst agencies and this also influenced the style of reporting provided to the audit committees. Two agencies, DEEWR and FaHCSIA have developed an electronic database that tracks progress and records action taken in response to ANAO audit recommendations. The other agencies, DoFD and DIT, employ a system based on spreadsheets and tables, which are emailed to program areas for updating. While this latter approach provides for direct communication with the relevant program managers, it can limit the effectiveness of agency oversight and make it difficult to track continuity of actions for a particular recommendation because historical information may be stored in discrete spreadsheets.
18. The ANAO assessed the implementation by the four agencies of 48 recommendations made in seven ANAO audit reports. ANAO analysis shows that the status of 25 of the 48 recommendations was not accurately recorded in agency systems. The four agencies subject to this audit have had recommendations either marked as complete in their monitoring systems that were either partially implemented, or not adequately implemented in the ANAO’s assessment. The analysis also shows that in some cases, applicable recommendations from cross-agency audits including those that have been adequately implemented, were not being monitored in agency systems.
19. Information on the status of recommendations and their completion was in all cases provided to internal audit having first been cleared through the relevant program management area of an agency. In DEEWR, ANAO recommendations are considered by program area governance committees, which are chaired at the Associate or Deputy Secretary level. DEEWR and DoFD both require finalised status reports to be endorsed at the Deputy Secretary level, prior to consideration by the audit committee. In FaHCSIA and DIT, updates are entered into monitoring and reporting systems having been signed off at program manager (senior executive service) level. None of the audited agencies’ audit committees required supporting documentation from program areas to support the closure of recommendations. Most of the recommendations (13 out of 15) that were assessed by the ANAO as partially implemented or not adequately implemented, had been either marked as complete in the respective agency monitoring systems, or were not monitored at all. This underlines the need for agencies to strengthen the controls over implementation of ANAO recommendations to obtain sufficient assurance that the risks initially identified by ANAO audits are appropriately controlled and managed.
20. The most significant difference in the governance arrangements observed across the audited agencies was in the approach to ANAO cross‑agency audits. Cross-agency audits offer a unique perspective on government arrangements and processes, and recommendations are intended to be useful for all agencies. Three of the four agencies, FaHCSIA, DoFD and DIT, did not have a systematic way of capturing the recommendations of cross-agency audits, although this did not necessarily mean that cross-agency recommendations are not addressed by the agencies. For example, in the sample of recommendations assessed by the ANAO, three cross-agency recommendations have been adequately implemented in FaHCSIA while in DIT, four cross-agency recommendations were adequately implemented. However, there is no record of whether the respective audit committees were informed of the audit reports, their recommendations and the risks each was intended to address.
Implementation of ANAO Audit Recommendations (Chapter 3)
21. As noted in paragraph 18, the ANAO undertook detailed assessment of 48 recommendations, of which 14 were directed to specific agencies and 34 were cross-agency recommendations. Agencies had demonstrably taken action in relation to 57 per cent (8 of 14) of direct recommendations and 74 per cent (25 of 34) of cross-agency recommendations. While the ANAO has assessed these actions to adequately address the recommendations, in 7 per cent (1 of 14) of direct recommendations and 12 per cent (4 of 34) of cross-agency recommendations, very limited action had been taken by agencies or the action taken did not adequately address the recommendation. In a larger number of cases, 36 per cent (5 of 14) of direct and 15 per cent (5 of 34) of cross‑agency recommendations actions by agencies had generally sought to address the recommendation but implementation was less than complete.
22. Recommendations vary in their complexity, and the time taken to implement ANAO recommendations is expected to vary across and within agencies. However, if implementation is not progressed in a timely manner and identified risks remain untreated, the full value of the audit is not being achieved. DEEWR had one recommendation that had been outstanding for 45 months and DIT had two (part) recommendations marked as ongoing in its monitoring system for six years. The reasons provided by the relevant program management areas for the length of time taken to implement these recommendations do not set out a comprehensive explanation as to why this was the case. It is important that internal audit and the audit committee keep the agency chief executive informed on progress with implementing recommendations that are complex, difficult or are overdue.
23. Other than DEEWR, none of the agencies included in this audit had developed a structured approach to the implementation of ANAO recommendations, involving planned implementation dates, and the allocation of responsibilities to guide the program management area and for reporting to audit committees. FaHCSIA assigns a risk rating to the implementation of ANAO recommendations. FaHCSIA’s risk rating system links to planned implementation dates, which is a systematic way of taking into account the complexities involved and ensuring the time being taken to implement ANAO recommendations is reviewed by internal audit and the audit committee at regular intervals. Implementation of recommendations by agencies would be improved by a broader adoption of structured implementation approaches. This would generally include identifying a clear process and timelines, clear allocation of roles and responsibilities at each stage and appropriate senior management sign-off arrangements.
Summary of agencies’ responses
24. The proposed audit report was provided to the Departments of Education, Employment and Workplace Relations; Families, Community Services and Indigenous Affairs; Finance and Deregulation; and Infrastructure and Transport. All agencies provided a formal response to the proposed report and to the recommendations. The audited agencies’ summary responses to the audit are provided below. The agencies’ responses to the recommendations are contained in the body of the report following the relevant recommendation. Formal responses from the agencies are included at Appendix 1.
25. DEEWR acknowledges that there are benefits and efficiencies to be gained across the department in leveraging from evidenced based recommendations and lessons learnt contained in ANAO performance audits. DEEWR has made decisions, in line with better practice, to engage the Executive in monitoring audit recommendations to ensure the implementation of audit recommendations is timely and there is cross cluster transparency of these recommendations.
26. It is pleasing to see after audit scrutiny, the ANAO has concluded that overall, DEEWR’s governance arrangements for the implementation of ANAO recommendations are effective and appropriately targeted. Furthermore, the use of the Audit Recommendations dnet site (ARds) was considered by the ANAO as an appropriate initiative to gain efficiencies in managing the implementation of ANAO performance audit recommendations. The ANAO also highlighted that DEEWR had developed a structured approach to the implementation of ANAO recommendations, involving planned implementation dates, and the allocation of responsibilities to guide the program management area and for reporting to audit committees.
27. FaHCSIA agrees with the two recommendations in the report.
28. The Department of Finance and Deregulation agrees with both recommendations.
29. The Department of Infrastructure and Transport (DIT) welcomes the assurance provided by the ANAO that in relation to the governance arrangements over the implementation of ANAO performance audit recommendations, the underlying processes employed by DIT are sound. DIT acknowledges a higher level of support could be provided to the Audit Committee with some improvement in process and documentation. DIT agrees to both recommendations.
The recommendations are based on findings from fieldwork at the audited agencies, and are likely to be relevant to other agencies. Therefore, all agencies are encouraged to assess the benefits of implementing these recommendations in light of their own circumstances, including the extent to which each recommendation, or part thereof, is addressed by practices already in place.
To better support the application of relevant recommendations, the ANAO recommends that agencies establish, or review existing procedures for assessing the relevance of recommendations from ANAO cross-agency audits, and subsequent monitoring.
DEEWR’s Response: Noted.
In order to support timely and complete implementation of ANAO performance audit recommendations, the ANAO recommends that agencies establish, or strengthen implementation approaches, including documenting intended actions, timelines and setting out clear responsibilities for the outcome.
DEEWR’s Response: Agreed.
 Part 7 of the Financial Management and Accountability Act 1997 (FMA Act) sets out the ‘special responsibilities’ of agency chief executives, which include a requirement under section 44 to ‘manage the affairs of the Agency in a way that promotes proper use of the Commonwealth resources for which the chief executive is responsible’.
 Program management area is used to refer to ‘line’ areas of departments that are responsible for the administration of Government programs, and also where applicable, corporate support areas in agencies.
 The functions of audit committees are set out in FMA Regulation 22C. They include: advising the chief executive about the audit plans of the agency; coordinating work programs relating to internal and external audits; reviewing the adequacy of the agency’s response to audit reports; and reviewing the content of audit reports with a view to advising the chief executive on good practice, significant matters of concern and opportunities for improvement.
 The Department of Infrastructure and Transport (DIT) was included in the audit at the request of the Joint Committee of Public Accounts and Audit (JCPAA). In May 2012, the JCPAA conducted a review of ANAO reports. The Committee report (Report 430, Review of Auditor-General’s Reports Nos. 47 (2010‑11) to 9 (2011–12) and Reports Nos. 10 to 23 (2011–12), Canberra, May 2012 p. xviii) recommended that the ANAO include DIT in the (then planned) performance audit ‘Agencies’ Implementation of ANAO Audit Recommendations.