The objective of the audit was to examine the effectiveness of the Australian Government Reconstruction Inspectorate, supported by the National Disaster Recovery Taskforce, in providing assurance that value for money is being achieved in respect to Queensland reconstruction projects.

Summary

Introduction

1. During the 2010–11 Australian spring and summer seasons, the eastern states were subject to widespread flooding and Queensland was also impacted by a number of tropical cyclones. The then Prime Minister announced on 27 January 2011 that preliminary estimates indicated that the Australian Government would need to contribute $5.6 billion to the rebuilding of flood‑affected regions, to be funded under the existing Natural Disaster Relief and Recovery Arrangements (NDRRA). The majority of expenditure was expected to be on rebuilding essential infrastructure.

2. The Prime Minister subsequently announced new oversight and accountability measures to ensure value for money would be obtained in the rebuilding of flood affected regions. Features of the new governance arrangements included an Australian Government Reconstruction Inspectorate to provide assurance to the Australian Government concerning value for money, a Secretaries’ Steering Committee and the National Disaster Recovery Cabinet Sub-committee, the appointment of the Minister Assisting on Queensland Floods Recovery and, for Victoria, the Minister for Regional Australia, Regional Development and Local Government having an oversight role in respect of recovery. In addition, Queensland established the Queensland Reconstruction Authority (QRA, with two Commonwealth appointments to its Board1), with the primary objective of delivering the reconstruction program within timeframes.2 These various governance arrangements are in addition to the existing oversight, acquittal and audit requirements of NDRRA, and they do not alter States’ obligations under those arrangements.

3. Separate National Partnership Agreements3 (NPAs) were signed with the Queensland and Victorian state governments in February and May 2011 respectively.4 The NPAs outline that the Inspectorate had been established to oversee reconstruction activity to provide assurance that value for money is being achieved in the expenditure of funds during the reconstruction phase. This was principally to be achieved by the Inspectorate undertaking value for money reviews of reconstruction projects.5 In February 2013, a new NPA was signed by the Australian and Queensland Governments, which covers Queensland flood and cyclone events that occurred between November 2010 and January 2013.

4. The Inspectorate is supported by the National Disaster Recovery Taskforce (the Taskforce) located within the Department of Infrastructure and Regional Development (DIRD, formerly within the Department of Regional Australia, Local Government, Arts and Sport, or Regional Australia). The Taskforce is responsible for Commonwealth engagement with Queensland and Victorian reconstruction agencies and for the implementation of the additional oversight requirements contained in the NPAs.

5. Value for money review processes are undertaken by both state and Australian Government agencies – such reviews had not previously been adopted for disaster recovery and reconstruction projects either in Queensland or by the Commonwealth. For its part, QRA reviews all project submissions from local government and state delivery agencies for eligibility and/or value for money, as part of its progressive review of projects as they proceed from initial estimates to delivery and acquittal. By the end of March 2013 (the latest information available at the time of the audit fieldwork), QRA had approved 1553 project submissions with a combined approval value of $4.31 billion.6 Once QRA has approved project submissions, the Taskforce examines (on behalf of the Inspectorate) a sample of projects using a three-tiered review process (see Figure S.1). The reviews are structured so as not to delay the normal progress of reconstruction projects.

Figure S.1: Three tier review process

Tier One: desktop review

Where a project has been selected for a Tier One review, the project analysis may include:

  • comparison of projects against benchmarks (calculated using industry standards and other similar projects);
  • examination of the project file provided by the state reconstruction authority;
  • comparison of estimated and actual expenditure (where projects have commenced); and
  • stakeholder surveys.7

In instances where, in the Inspectorate’s view, it is unclear or unlikely that a project will achieve value for money, it will be transitioned to the next tier. Some projects will progress to Tier Two and Tier Three even where they have been assessed as value for money at Tier One.

Tier Two: secondary review

Projects that progress to a Tier Two review will be the subject of a comprehensive review by external experts. Tier Two analysis may include:

  • an expert cost opinion;
  • a site visit, which may incorporate meetings with delivery agents and funding recipients; and
  • examination of all key documentation including project plans and tender documents;

Tier Three: Inspectorate on-site review

Approximately three to five projects per quarter will be subject to an on-site review by the Inspectorate members. Tier Three analysis may include:

  • site visits by the Inspectorate;
  • meetings between the Inspectorate and relevant stakeholders; and
  • discussions with the state reconstruction bodies.

In instances where a project is assessed by the Inspectorate as not achieving value for money, the process agreed with Emergency Management Australia (EMA) for non-value for money projects will be triggered (see paragraphs 2.67–2.68).

Source: Australian National Audit Office (ANAO) analysis of Taskforce documentation and August 2011 correspondence from the Chair of the Inspectorate to the ANAO.

Audit objective and scope

6. The ANAO has undertaken three audits of key aspects of the NPAs signed with Queensland and Victoria in relation to natural disasters over the 2010–11 Australian spring and summer seasons.

7. The objective of the first audit (ANAO Audit Report No.24 2012–13) was to assess the extent to which the disaster recovery work plans for Queensland and Victoria were prepared, and appropriate monitoring reports provided, in accordance with the relevant NPA.

8. Against the background that the Australian Government will meet up to 75 per cent of eligible reconstruction expenditure, the objective of the second audit (ANAO Audit Report No.23 2012–13) was to assess the effectiveness of the Inspectorate, supported by the Taskforce, in providing assurance that value for money is being achieved in recovery and reconstruction expenditure in Victoria. The report on that audit was tabled in February 2013, in conjunction with the report of the first audit.

9. The objective of the third audit (the subject of this report) was to examine the effectiveness of the Inspectorate, supported by the Taskforce, in providing assurance that value for money is being achieved in respect to Queensland reconstruction projects.

Overall conclusion

10. The flooding that occurred in Queensland during the spring and summer of 2010–11 was widespread. Reconstruction was expected to be expensive, with the latest (February 2013) data available estimating the cost of the resulting damage to be more than $7 billion. A significant proportion of reconstruction expenditure is expected to be paid for through the Natural Disaster Relief and Recovery Arrangements (NDRRA), which provide for the Australian Government to meet up to 75 per cent of the cost of reconstruction.

11. Value for money review processes were an important element of the additional oversight and accountability mechanisms introduced, given the significant financial assistance that was expected to be provided to Queensland under NDRRA. In this respect, a reasonable start has been made on the Inspectorate’s planned program of 129 project reviews, with 81 projects selected for review and 70 Tier One reviews8 completed by the Taskforce as at the end of March 2013.9 However, many of the completed reviews are provisional assessments based on early project estimates, and further assessment will be required once tender results and project progress reports are available and/or projects are completed.

12. In addition, progress with the reviews has been slower than planned (as the aim had been to select the projects and complete all 129 reviews by 31 December 201210). This situation reflects some delays with the delivery of the reconstruction program by state and local government agencies, challenges that have been experienced by the Taskforce in obtaining and analysing project information, as well as some shortcomings in the Taskforce’s sampling procedures.11

13. The purpose of the value for money project assessments was to compile a representative sample that could be used to make judgements about the reconstruction program as a whole. Reporting by QRA and the Inspectorate has outlined that there has been significant reconstruction progress but the project level information obtained by the Taskforce has indicated delays across the reconstruction program. Queensland has been granted a 12 month extension to the allowable period under NDRRA in which to complete reconstruction work. There has also been little in the way of project progress reports provided to the Taskforce to enable it to monitor the delivery of the individual projects it has sampled. In these circumstances, and given the situation with the planned program of project reviews, it is too early to reliably extrapolate the findings to the reconstruction program.

14. Notwithstanding this situation, it is evident that, for a relatively modest investment given the expected cost to the Australian Government of reconstruction activity12, the establishment of the Inspectorate with the support of the Taskforce to conduct value for money reviews has been effective in providing the Australian Government with greater visibility and more timely assurance concerning reconstruction expenditure than would have occurred under NDRRA. This is because NDRRA generally operates on a reimbursement basis, with the Australian Government having little oversight of reconstruction as it occurs as there is no reporting from the states until such time as they seek reimbursement, which is commonly some years after the disasters occur. In addition, limited Australian Government oversight at the conclusion of reconstruction is afforded by the audited claims submitted by states and territories, with no project level information provided in these claims. In this context, the experience to date of the project level scrutiny provided by the Inspectorate and the Taskforce (which have identified potential reductions in NDRRA claims from Queensland totalling more than $100 million13) is likely to be beneficial in informing the approach adopted by Emergency Management Australia in its ongoing administration of NDRRA in respect to natural disasters that occur in other states and territories.14 It also underlines for other Commonwealth agencies the potential benefits of closely considering arrangements for assuring information provided by the states and territories, where this information determines the amount of Commonwealth payments.

15. In addition to providing greater insights into the nature and estimated cost of reconstruction work, the Inspectorate’s value for money reviews have identified issues concerning the eligibility of estimated expenditure in a number of the projects that have been examined. In this respect, in July 2012 a process was agreed on the actions to be taken where the Inspectorate determines that a project does not represent value for money. Specifically, the Inspectorate may recommend to the Attorney-General that the Commonwealth’s reimbursement under NDRRA reflect the likely cost of the project had value for money been achieved, rather than the actual project costs incurred. As at the time of completing the audit fieldwork, there have been no projects that the Inspectorate has determined do not represent value for money although, for a number of projects, the Inspectorate has written to QRA identifying items of estimated expenditure that it considered should not be claimed under NDRRA. In addition, in March 2013 the Inspectorate wrote to QRA, the Auditor-General of Queensland, and EMA recommending that the state not be reimbursed for profit margins in respect to reconstruction projects undertaken by RoadTek, a state government entity.15

16. To increase the benefits that are derived from the program of value for money reviews, the ANAO has made four recommendations. The first two recommendations are aimed at the Taskforce obtaining information that allows the project reviews to examine the scope and cost of works actually being delivered (rather than early estimates) and improvements to the application of the sampling approach to make it more representative of the reconstruction program. The remaining two recommendations relate, respectively, to improvements in the approach taken by the Taskforce to: scrutinising the cost of delivering reconstruction projects; and stronger oversight of the timeliness of the delivery of reconstruction work.

Key findings by Chapter

Benefits from the Value for Money Review Processes (Chapter 2)

17. Value for money review processes are undertaken by both state and Australian Government agencies. In this respect, the Taskforce examines a sample of projects using a three-tiered review process, after the projects have been approved by the Queensland Reconstruction Authority. For its part, the Authority reviews all project submissions from local government and state delivery agencies, in accordance with a value for money strategy endorsed by the Inspectorate in July 2011 (although some practices set out in the strategy were subsequently modified by QRA).16 By the end of March 2013 (the latest information available at the time of the audit fieldwork), QRA had approved 1553 projects with a combined approval value of $4.31 billion.

18. Overall, QRA applies greater scrutiny to projects being delivered by local government than it does to state-delivered projects. Of particular note in this respect is that QRA employs a two-phase approval process for state‑delivered projects17 with 30 per cent of the submission value approved at Phase 1 where a phased approval is being undertaken. Under the phased approval process, QRA conducts a review of project eligibility but defers consideration as to whether the project represents value for money until such time as an updated submission with details of the tendered results is provided by the delivery agency (to inform the second phase review).

19. This situation has placed the Inspectorate and Taskforce in a difficult position of either having to delay a significant number of reviews until state‑delivered projects have passed both approval phases, or undertake reviews of projects that QRA has not yet approved as complying with the NDRRA provisions and as representing value for money. The latter approach has been adopted. Otherwise, the Taskforce would have fallen even further behind in its planned program of reviews, and there would have been little Australian Government scrutiny to date of state-delivered projects if the Taskforce had delayed its work until second phase approvals had been given.

20. The phased approval approach has also reduced the likelihood that state-delivered projects will be selected for Taskforce review, as the Taskforce samples on the basis of the initially approved project values (discussed further at paragraphs 3.5 and 3.41 to 3.45). Further reducing the oversight of state‑delivered projects, the Taskforce has not requested, or otherwise been provided with information on the timing, number or value of Phase 2 approvals, other than for some (but not all) of the projects that have been selected by the Taskforce for review. In addition:

  • very few works contracts have been obtained by the Taskforce, notwithstanding that the review of these contracts (after they are signed) was one of two standard risk treatments identified by QRA where a risk assessment was undertaken in respect to a local government project;
  • funding recipients were to be required to report against an agreed reporting program, including project progress (time) and financial performance but there was only one instance in the project documentation provided by QRA to the Taskforce where a reporting program had been specified;
  • no value for money outcomes reports have been obtained by the Taskforce, although these reports are required under the state value for money framework endorsed by the Inspectorate; and
  • the Taskforce is not routinely provided with copies of the assurance reviews undertaken by QRA for those local government projects that have been selected by the Taskforce for review, and as at 30 June 2013, only one assurance review had been commenced in respect of a single state-delivered project.

21. In August 2013, Regional Australia advised the ANAO that it would increase the number of projects being selected from state agencies, such as the Queensland Department of Transport and Main Roads (DTMR), given the level of risk presented in these projects. The department also advised that QRA decided in late-April 2013 to cease any further phased approvals of NDRRA project submissions.

Estimated savings from value for money reviews

22. The Taskforce has not yet reported on the savings that have resulted from its project reviews identifying estimated expenditure that is ineligible under NDRRA or otherwise does not represent value for money. Nevertheless, it is evident that, notwithstanding the predecessor state review process, a significant proportion of approved projects have included expenditure that is ineligible under NDRRA as well as instances where the project estimates did not represent value for money. As at March 2013, 23 of the 70 projects reviewed by the Taskforce had potential savings estimated at $41.0 million.18 Almost two thirds (15) of these were state-delivered projects. The Taskforce had identified (but not yet quantified) possible savings (or further potential savings) in relation to nine projects (six of which were included in the 23 projects mentioned above).

23. Overall, present indications based on the results of the Taskforce reviews completed at the time of the audit fieldwork are that one in three (and potentially almost one in every two) projects in the population will contain errors adversely impacting on the value for money delivered by the project. However, as noted at paragraph 15, there have been no projects that the Inspectorate has determined do not represent value for money.

Project Sampling Approach (Chapter 3)

24. Given the scale of the reconstruction task, the Inspectorate decided to review a sample of projects rather than examine all projects. The planned Cumulative Monetary Amount (CMA) sampling approach was robust, in that it:

  • was to provide a 95 per cent level of confidence that the sample results could be extrapolated across all reconstruction projects in Queensland; and
  • favoured the selection of higher value projects over lower value projects.

25. Consistent with the expected focus of the Inspectorate’s work on complex or high value projects, the value of the 116 projects selected for review by March 2013 represented some 39 per cent of the total value of projects approved as at 1 March 2013. However, the sample is not fully representative of the population of reconstruction projects. In particular:

  • the sampling approach has reduced the level of oversight of state‑delivered projects, and these projects are under-represented in the sample19;
  • the Taskforce decided to exclude all State Departments and Agencies (SDAs) except the Department of Transport and Main Roads from being sampled;
  • the Taskforce has not examined any Counter Disaster Operations (CDO) projects and, after initially examining a small number of restoration projects described by the state as ‘Emergent Works’20, has ceased examining any more of these projects. This was notwithstanding that it was recognised that some major reconstruction activities had been incorrectly categorised as Emergent Works, there was evidence of issues with the NDRRA eligibility of expenditure included in this category, and the significant funds involved—some $595 million in expenditure under this category has been approved for delivery by the state; and
  • the Taskforce usually reviews only a proportion of each project notwithstanding that it was intended that projects would be reviewed in their entirety (it is common for a ‘project’ to include works at different locations involving a variety of reconstruction activities).

26. The aim was to select the projects and complete all 129 reviews by 31 December 2012. However, the Taskforce had selected only 81 projects as at March 2013 (a shortfall of 48 projects or some 37 per cent of the intended sample). A key contributing factor to this situation were various decisions taken by the Taskforce as to how to go about sampling projects from the data provided by QRA.21

27. There has also been slow progress in the conduct of reviews of sampled projects. Although the Taskforce planned to complete reviews of 129 projects by December 2012 (this work plan had been endorsed by the Inspectorate), it had completed only 45 reviews by March 2013. The majority of these are provisional assessments based on information (including estimates) made available to the Taskforce at a point in time. Further assessment is required when tender results, progress reports and completion reports become available. In August 2013, Regional Australia advised the ANAO that the intention is to complete assessments for the 2010–11 events by the next Inspectorate report to the Prime Minister (due in October 2013), but this amended timeframe will remain challenging for the Taskforce to meet. In September 2013, Regional Australia was requested to advise the ANAO whether the Taskforce was on track to meet this timeframe. However, a response to this request was not provided.

Cost of Reconstruction Work (Chapter 4)

28. Cost is the largest single factor taken into consideration by the Taskforce and Inspectorate when reviewing the value for money of sampled reconstruction projects. Through these reviews, the planned cost is examined (including by comparison to benchmark costs, where available), intermediate cost assessments are undertaken when tender results and/or progress reports become available for the project, and the actual total outturn cost can be assessed when the project is completed.

29. Demonstrating the benefit of the Australian Government having visibility, through value for money reviews, of the reconstruction projects being funded under NDRRA, the Taskforce and Inspectorate have identified a number of significant issues in relation to the cost of reconstruction projects, particularly in relation to whether estimated expenditure is eligible for NDRRA reimbursement. For example, an estimated $93 million related to NDRRA-ineligible profit-related fees have been included in the estimated costs of projects being delivered by the state-government owned entity RoadTek.22 In March 2013 the Inspectorate wrote to QRA, the Queensland Auditor‑General and the Attorney-General’s Department (AGD), advising that the RoadTek profit margin 'does not represent a state expenditure for the purposes’ of the NDRRA determination.

30. EMA advised the ANAO in July 2013 that it was assessing Queensland NDRRA claims for the periods 2009–10 to 2011–12 and that it was writing to Queensland seeking confirmation that ‘RoadTek profits margins for pre‑2010–11 summer floods and Tropical Cyclone Yasi have not been included in these claims’. However, this advice did not address the extent to which such profit margins were included in claims from earlier natural disasters that had already been paid by EMA.

31. It is also evident that there remain opportunities for further benefits to be derived from the project reviews being undertaken by the Taskforce and Inspectorate. This includes more careful scrutiny being applied to expenditure being claimed as NDRRA eligible.23

32. There has also been a high incidence where the information provided to the Taskforce for assessment affords insufficient visibility over the nature of costs for the sampled projects. A key area of risk relates to the frequency with which DTMR projects (and to a lesser extent Local Government Authority projects) include large and often vaguely described non-transparent ‘lump sums’, providing no visibility as to whether the amounts they represent are NDRRA eligible. Another area where there would be benefits from greater scrutiny relates to the development and application of benchmarking of costs. With the anticipated increasing availability of data on actual costs, there would be benefits in the Taskforce adopting a more pro-active approach to the systematic collection of appropriate benchmarking data, including by creating its own database with suitable cohorts, thereby reducing the reliance it places on QRA.

Quality of Reconstruction Work (Chapter 5)

33. Reflecting the importance of quality reconstruction in providing value for money outcomes, an assessment of work is an important element of the Inspectorate’s project review process. The project reviews undertaken to date have identified some significant issues in respect to the nature and scope of reconstruction work in respect to the 2010–11 Queensland flooding that is being funded through NDRRA.

34. In particular, issues with ineligible road widening works have been identified in a high proportion (around one quarter) of value for money reviews endorsed by the Inspectorate. Taskforce project reviews have also highlighted instances where the works proposed or undertaken are more extensive and expensive than that required to address the damage directly resulting from the disaster.

35. Claiming NDRRA funding to restore or replace assets that were in poor condition prior to the disaster events, either because of a lack of routine maintenance or unrepaired normal wear and tear, has also been a common finding of Taskforce value for money reviews. In cases where the Taskforce considered it likely that roads were in a poor condition before the disaster event occurred, it has requested details of the maintenance histories for the relevant assets (for 11 projects). However, there have been few instances where the requested information has been provided. More broadly, the Taskforce has advised the Inspectorate that QRA has requested a contribution from some councils for works on roads for which the eligibility of the damage for NDRRA funding is disputed due to possible pre-existing damage, but this same process has not been applied to DTMR projects, where similar issues have been identified.

Timeliness of Reconstruction Progress (Chapter 6)

36. The Taskforce’s value for money project reviews have assessed the timeframe of 58 of the sampled projects. In all but one instance, the Taskforce’s assessment has been based on the suitability of the planned project timeframe rather than actual start and completion dates. Further in this respect, although more than two years have passed since the disaster events occurred, there has been little in the way of project progress reports provided to the Taskforce to enable it to monitor actual progress with the projects it has sampled. Specifically:

  • reports had been received for 22 of the 46 Local Government Authority projects with tier review reports issued as at March 2013. Progress reports had also been received for a further nine projects out of the 46 projects where tier reviews were underway, on hold or not started; and
  • only one progress report had been provided to the Taskforce in respect to any DTMR projects. This progress report, received by QRA in August 2012, was of limited utility as it contained aggregated costs for four DTMR projects, two of which were being reviewed by the Taskforce. None of the supporting documentation stated to be required by QRA was provided to the Taskforce (such as tax invoices, receipts or transaction reports extracted from DTMR’s general ledger). In October 2013, DIRD advised the ANAO that ‘The Taskforce has not received a disaggregated report’.

37. This situation contrasts with other data (mainly in relation to council projects) reported by QRA on the overall reconstruction program which indicates that projects have been completed but without progress reports being provided to the Taskforce to update its value for money assessments. Specifically, in relation to the 108 restoration projects24 being reviewed by the Taskforce, there were 68 projects where information was available (as at March 2013) to enable an assessment of the extent of any slippages in project completion timeframes. In respect to these 68 projects:

  • only 15 of the 37 projects (less than 41 per cent) initially scheduled for completion by March 2013 had been reported as completed. Further, six of these 15 projects were not completed on schedule; and
  • 43 of the remaining 53 projects (81 per cent) in progress as at March 2013 had already reported an extension in the expected timeframe for project completion. By way of comparison, only two projects had been reported as being expected to be completed earlier than initially scheduled.

38. This broader reporting has also included various anomalies in relation to the reported start and completion dates (such as sizeable projects starting and completing on the same date). There would be considerable benefits in the Taskforce more closely monitoring revisions to scheduled project completion dates, and raising issues and anomalies with QRA. This could be undertaken through conducting time-series analysis of QRA reports or QRA could be requested to highlight changes in project start and completion dates against the originally approved baseline dates for each project.

Summary of agency responses

39. The proposed audit report was provided to (the then) Regional Australia; the Chair of the Inspectorate; the Attorney-General’s Department; and (the then) Department of Finance and Deregulation. Extracts of the report were also provided to QRA; the Queensland Department of Transport and Main Roads; Local Government Infrastructure Services Pty Ltd; a consultant engaged by the Taskforce on behalf of the Inspectorate; and 24 Queensland Local Government Authorities (LGAs).

40. Formal comments on the proposed report were provided by the Department of Infrastructure and Regional Development25; the Chair of the Inspectorate; the Attorney-General’s Department; and the Department of Finance, and are included at Appendix 1. Australian Government agencies indicated their acceptance of the findings of the report and agreement or agreement in principle to the recommendations made by the ANAO.26

41. Formal comments on the proposed report were also provided by QRA; the Queensland Department of Transport and Main Roads; Local Government Infrastructure Services; and 14 LGAs. These are also included at Appendix 2. In a number of respects, the comments provided indicate a lack of support for the review approach taken by the Taskforce and Inspectorate (particularly in relation to reviews being undertaken based on preliminary estimates27) and/or disagreement with the findings of the Inspectorate’s and Taskforce’s value for money reviews. In this context, and having regard to the significant amount of Australian Government funding involved and that the benefits from the value for money reviews will not be fully evident until 2014–15, when final claims for the 2011 disaster events are due for acquittal to EMA, the ANAO will consider scheduling a further performance audit in this area to commence in 2014–15.

Recommendations

Set out below are the ANAO’s recommendations and the responding agencies’ abbreviated responses. More detailed responses are shown in the body of the report immediately after each recommendation.

Recommendation No.1

Paragraph 2.78

The ANAO recommends that the Australian Government Reconstruction Inspectorate and the National Disaster Recovery Taskforce seek to maximise the benefits from their value for money review activities by obtaining more timely and comprehensive information on project progress and completion from the Queensland Reconstruction Authority, to enable the preliminary value for money assessments to be finalised based on the scope and cost of works that were actually delivered (rather than estimates).

DIRD’s response: Agreed in principle.
Inspectorate’s response: Agreed.
AGD’s response: Noted.
Finance’s response: Agreed.

Recommendation No.2

Paragraph 3.70

In order to maximise the envisaged benefits from the Inspectorate’s program of value for money reviews, the ANAO recommends that the National Disaster Recovery Taskforce improve the application of the sampling approach to make it more representative of the population of projects within the Inspectorate’s remit.

DIRD’s response: Agreed.
Inspectorate’s response: Agreed.
AGD’s response: Noted.
Finance’s response: Agreed.

Recommendation No.3

Paragraph 4.85

In order to further build on the value for money review work being undertaken by the National Disaster Recovery Taskforce (on behalf of the Australian Government Reconstruction Inspectorate), the ANAO recommends that the Taskforce:

(a) apply greater scrutiny to project cost data, particularly in circumstances where the data provided for review includes lump sums; and

(b) develop the capacity to independently benchmark actual cost data for Queensland reconstruction projects.

DIRD’s response: Agreed in principle.
Inspectorate’s response: Agreed.
AGD’s response: Noted.
Finance’s response: Agreed.

Recommendation No.4

Paragraph 6.47

To strengthen its oversight of Queensland reconstruction progress, the ANAO recommends that the National Disaster Recovery Taskforce:

(a) monitor revisions to scheduled project completion dates, and raise with the Queensland Reconstruction Authority any issues and anomalies, as appropriate; and

(b) adopt a more pro-active approach to requesting timely progress and completion reporting documentation from the Queensland Reconstruction Authority according to planned and reported actual completion dates.

DIRD’s response: Agreed.
Inspectorate’s response: Agreed.
AGD’s response: Noted.
Finance’s response: Agreed.

Footnotes

[1] Legal advice obtained by the Taskforce in March 2011 was that the responsibilities of the Commonwealth appointees are no different to those of the other Board members.

[2] Reconstruction projects are delivered by state departments and agencies and councils, not by the Authority.

[3] The NPA with Queensland relates to the reconstruction of communities that were affected by the 2010–11 floods and Tropical Cyclone Yasi. The NPA with Victoria relates to the early 2011 flooding in Victoria. NDRRA continues to apply to those natural disasters covered by the NPAs, with payments to the states authorised by Emergency Management Australia (EMA) within the Attorney-General’s Department (which administers NDRRA).

[4] The existing NDRRA arrangements continue to apply to expenditure covered by the NPAs. These arrangements include the states and territories providing audited financial statements to acquit expenditure, including expenditure of advance payments.

[5] The Inspectorate is chaired by former Federal Finance Minister, the Hon. John Fahey AC, assisted by Mr Martin Albrecht AC, the former Managing Director and Chair of Thiess, Ms Robyn Cooper, Principal at Crowe Horwath, and Mr David Tune PSM, Secretary of the Department of Finance.

[6] In October 2013, QRA advised the ANAO that, in addition to the disaster events that form the scope of this audit, delivery agents in Queensland are undertaking $2.7 billion of works for disasters prior to 2011 and a further $4.3 billion for events in 2012 and 2013.

[7] No stakeholder surveys have been conducted for any Queensland reconstruction projects.

[8] Comprising 45 within the sample and 25 selected in addition to the sample.

[9] In addition, 11 of these projects had proceeded to a Tier Two review as a result of the Tier One review findings, and two projects had been designated to undergo Tier Three reviews.

[10] In August 2013, Regional Australia advised the ANAO that, in May 2013, the Inspectorate endorsed a revised work plan under which all project assessments for the 2010–11 events are to be completed by the October 2013 Inspectorate report to the Prime Minister.

[11] For example, projects being undertaken by state departments and agencies and some types of reconstruction work have been under-represented in the sample selected by the Taskforce.

[12] Initially, the Taskforce was funded $11.5 million to operate until the end of 2012. The May 2012 Budget included additional funding of $2.6 million to extend the operation of the Taskforce by one year. This was in response to the increased time granted to the Queensland Government for the completion of reconstruction projects. In February 2013, the then Government announced that the Taskforce would continue until 30 June 2015. Additional funding of $8.9 million was included in the May 2013 Budget.

[13] This figure includes potential savings for 23 of the 70 projects reviewed by the Taskforce as at March 2013 (see paragraph 22) as well as potential savings related to ineligible profit-related fees (see paragraph 29).

[14] Until December 2012, NDRRA did not include value for money assurance arrangements but the current Determination now provides that, for disasters that occur after December 2012, EMA can conduct assurance activities prior to or after a state submits a claim or acquittal.

[15] See paragraph 29.

[16] Including the introduction by QRA of the two-phased approval process after the Inspectorate had endorsed the QRA value for money strategy (which did not countenance phased approvals), the lack of project-specific risk assessments for DTMR projects, and the lack of defined and regular project reporting schedules.

[17] Only three relatively large local government projects have received phased approvals.

[18] This figure includes $23.4 million that is also included in the estimate of $93 million discussed in paragraph 29.

[19] As noted at paragraph 21, in August 2013 Regional Australia advised the ANAO that it would increase the number of projects being selected from state agencies given the level of risk presented in these projects.

[20] Emergent Works are required by the state to be completed within 60 days of the date of the declared disaster event. They include works necessary during the course of a disaster to protect eligible public assets or to restore essential services and maintain public safety, and immediate post-disaster repairs to an eligible asset to enable it to operate/be operated at a reasonable level of efficiency (for example, clean up costs, removal of silt and debris, and so on, and temporary repairs).

[21] One particularly significant factor was that shortly after it commenced the process of selecting projects for review, the Taskforce switched from using the submission value of approved projects to using the approved value. In doing so, however, the Taskforce did not adjust the ‘running total’ for the CMA sample where QRA subsequently withdrew project approval, or reduced or increased the previously advised approved amount of a project, including for Phase 2 approvals. This meant that only 30 per cent of the value of projects subject to phased approvals was included in the ‘running total’. It also meant that potentially up to $2.475 billion would be excluded from sampling consideration (or up to $3.85 billion based on the latest DTMR total estimate of $5.5 billion). In this respect, it should have been evident from the outset that the number of projects available to be selected under the CMA sample would fall well short of the 129 required by the Inspectorate if the Taskforce adopted a practice of only including the Phase 1 approved values of projects.

[22] As a government-owned organisation, any profits made by RoadTek are paid to the Queensland Government as dividends.

[23] For example, the Taskforce has examined a number of projects that have involved significant realignment of roads but has not been consistent in examining whether such works have enhanced the relevant assets beyond their pre-existing standard such that the costs are not eligible for NDRRA funding unless and until a ‘betterment’ application is received and then approved by EMA. The NDRRA determination requires that betterment applications only be approved where the Commonwealth is satisfied with the cost-effectiveness of the proposal and that the increased disaster‑resistance of the asset will mitigate the impact of future natural disasters.

[24] This analysis excludes projects defined by QRA as ‘Emergent Works’.

[25] Which includes relevant functions from the former Regional Australia.

[26] AGD ‘noted’ the report recommendations.

[27] As noted at paragraphs 11, 12 and 19, reviews have been primarily based on early project estimates, and this reflects some delays with the delivery of reconstruction projects, and challenges experienced by the Taskforce in obtaining information on projects that have proceeded to tender (where tendered) and delivery.