The Commonwealth's Administration of the Dairy Industry Adjustment Package
The audit assessed the Commonwealth's administration of the two major elements of the Dairy Industry Adjustment Package; the Dairy Structural Adjustment Program (DSAP) and the supplementary Dairy Assitance Program (SDA). The audit addressed the implementation and delivery of the programs, governance arrangements and the management of the Dairy Structural Adjustment Fund.
The Dairy Industry Adjustment Package
The Australian dairy industry was deregulated by all States/Territories on 1 July 2000. This removed price guarantees and restrictions on inter-state sales. In response to requests from the industry, the Commonwealth established the Dairy Industry Adjustment Package, to assist dairy farmers to make the transition to a deregulated environment.
The Department of Agriculture, Fisheries and Forestry (DAFF) was responsible for advising the Government on establishment of the Package.
There are two major elements to the Package, established by the Dairy Industry Adjustment Act 2000.1 The first is the Dairy Structural Adjustment Program (DSAP), introduced in May 2000. This provides $1.63 billion in payments to dairy farmers. The second is the Supplementary Dairy Assistance Program (SDA), introduced in September 2001. This provides $120 million in payments to dairy farmers.
The Package is funded by a levy of 11 cents per litre on retail sales of milk.
DSAP and SDA are delivered by a new Commonwealth agency, the Dairy Adjustment Authority (DAA). The DAA was established in April 2000. The Australian Dairy Corporation (ADC) provided support to the DAA in making payments. The ADC also undertook development work for the Package prior to the DAA's establishment, at the request of DAFF.
The ADC was responsible for the Dairy Structural Adjustment Fund, from which payments are made to farmers. The ADC was privatised on 1 July 2003, and became Dairy Australia Limited (DA). DA continues to discharge the functions previously undertaken by the ADC, through contractual arrangements with DAFF.
The objective of the audit was to assess the Commonwealth's administration of the Dairy Structural Adjustment Program and the Supplementary Dairy Assistance Program.2
Planning for Implementation (Chapter 2)
DAFF's initial policy development activities in mid-1999 focussed on assisting the government to address the dairy industry's request for assistance. This resulted in the development of options for Ministers that had the support of relevant stakeholders, particularly those in the industry. DAFF developed a risk plan for the assistance package and identified key tasks associated with developing the required legislation. However, DAFF did not develop a detailed implementation plan nor identify key implementation risks at this stage.
Once the basic framework had been agreed by Ministers, DAFF developed legislative proposals, which had to address a number of complexities, and associated governing arrangements, in line with the Government's and industry's timetable. It also refined its risk and task plans, which focussed on the need for stakeholder management and the development of appropriate legislation.
However, these plans did not systematically address the challenges and obstacles to effective implementation of the assistance Package. For example, the planning did not set out in any depth the full range of necessary tasks, how these were to be implemented, potential obstacles, nor how these obstacles might be overcome.
DAFF considered these matters to be the responsibility of the ADC and DAA. However, the DAA was not formally established until 3 April 2000, some six weeks before application forms needed to be sent to farmers. 3 Accordingly, the ADC was expected to provide much of the preparatory work and delivery infrastructure for the Package. In response to a request from DAFF in October 1999, the ADC advised DAFF that it was assessing the extent of responsibilities involved and had commenced work on some tasks. However, DAFF did not negotiate a formal agreement with the ADC for the detail of preparatory work to be conducted, nor its cost. Neither did DAFF explicitly identify those tasks that the ADC could not perform, and how these might be performed without unduly hampering the implementation or timing of the Package.
In the event, DAFF underestimated the nature and scale of the delivery task. For example, it initially advised Ministers that the DAA would be a small expert body with no operational functions. In contrast, the DAA undertook key operational tasks that were originally envisaged for the ADC, such as processing of applications.
The expected cost of implementation grew substantially as the DAA determined how it would implement the Package. An initial budget estimate for 2000–01 of some $3 million, supplied by DAFF to the DAA, was revised upwards several times. The DAA's final budget for 2000–01 was $13 million; staff numbers peaked at around 100 in the same year. An additional $2 million was incurred by the other agencies for that year.
The initial Chair of the DAA resigned in late May 2000, noting that:
Whilst it might have been envisaged that the DAA board was to have operated essentially as an overseeing organ of a fully equipped management team, the actual circumstances has made it necessary that the board members undertake executive functions of the most pressing kind.4
The DAA advised the ANAO that the situation meant that the DAA had to plan on the run. It operated under ‘a huge time pressure on the Authority'.5
Overall, the above experience reinforces the value of development of policy approaches being complemented by a focus on actual or likely delivery challenges, and how these challenges can be identified and overcome. There were substantial risks associated with relying on a new agency, with a short start-up timeframe, to oversee delivery efficiently and effectively. As well, the delivery tasks required of the ADC were more substantial and complex that its previous experience.6
Earlier and more detailed analysis by DAFF of the delivery tasks would have offered the opportunity to better prepare the ADC and the DAA for the delivery responsibilities. It would also have provided greater assurance to Ministers that implementation would be timely and cost effective.
In contrast to this experience, the development and implementation of the SDA program one year later demonstrated a greater degree of planning for delivery by both DAFF and the DAA.
The Dairy Adjustment Authority's governance arrangements (Chapter 3)
The DAA developed a Business Plan, Financial Management Charter, Strategic Plan and Chief Executive Instructions.. Collectively, these documents provided an appropriate strategic and financial management and control framework for the DAA.
The DAA also established an Audit Strategy, including an audit charter, an internal audit plan, and an Audit Committee. The use of internal audit, and contracted legal advice, contributed to assurance that decisions were appropriate.
However, the Audit Committee did not follow better practice principles, which stress the importance of audit committees providing independent advice, and being seen to do so. The Committee comprised all DAA members; was chaired by the Chair of the DAA; and did not include an external independent member. It also made some operational decisions, which reflected its membership composition but not better practice to assist with sound governance.
The DAA advised that it adopted this approach because of the short timeframe to implement the Package. In response to the draft audit report, DAA advised that it has now restructured the Audit Committee to be more consistent with better practice.
The DAA established a robust risk management framework. This was based on a Fraud Control Plan, finalised in July 2000, which also functioned as an overall risk management plan. The plan guided, for example, the development of management systems and processes, as well as the audit program.
The DAA also established a number of objectives and associated key performance indicators (KPIs), which focussed on the delivery of DSAP. However, the ANAO found that the KPIs were not used consistently for internal and external reporting.
1 The package also includes: Dairy Exit Program payments to dairy farmers leaving the industry; and the Dairy Regional Assistance Program.
2 These programs account for some 96 per cent program payments from the Package.
3 To facilitate transition, future members of the DAA were appointed to an interim body, the Dairy Adjustment Panel, on 28 March 2000. Once the DAA was established, the members of the Panel then automatically became members of the DAA.
4 Resignation letter from W. Madgwick, 23 May 2000.
5 Dairy Adjustment Authority, Annual Report 2000-01, p. 1
6 The ADC had, for example, previously delivered the Domestic Market Support Scheme.