Introduction

1.1 Norfolk Island is an external territory of the Commonwealth of Australia located 1676 kilometres northeast of Sydney. In 2016, Norfolk Island had a population of 1748⁸, and is one of three Australian external territories with a permanent population.⁹ The Australian Government administers Norfolk Island through the Department of Infrastructure, Regional Development and Cities (department).¹⁰

1.2 Norfolk Island was established as a penal colony in 1788, shortly after the First Fleet arrived in Botany Bay. The penal colony was closed in 1855.¹¹ The Pitcairn Islanders, descendants of the Bounty mutineers, were resettled on Norfolk Island in 1856 with assistance from the British Government. In July 1914, Norfolk Island became an Australian territory under the Norfolk Island Act 1913 (Cth).

1.3 Norfolk Island’s main industry is tourism, which generates 58 per cent of Gross Territory Product for the island.¹² A key tourist attraction is the Kingston and Arthur’s Vale Historic Area (KAVHA), which is the site of two separate British convict settlements between 1788 and 1855. KAVHA is a UNESCO world heritage site.

1.4 A map showing Norfolk Island and approximate distances from nearby cities is at Figure 1.1.

Figure 1.1: Norfolk Island and approximate distances from nearby cities

 

 

Note: Lord Howe Island has been part of New South Wales since 1855.

Source: Department of Infrastructure, Regional Development and Cities.

1.5 The Norfolk Island Act 1979 (Cth) established self-government on Norfolk Island, providing for a Legislative Assembly, Executive Council, and the Administration of Norfolk Island. The Norfolk Island Government had responsibility for delivering services across the local, state and federal tiers of government. The changes followed the 1976 Nimmo Royal Commission, which proposed the option of Norfolk Island being granted a degree of self-governance ‘over a trial period of at least five years before reviewing the situation’.¹³ The Norfolk Island Act provided for an Administrator appointed by the Governor-General and reporting to the responsible Australian Government Minister.¹⁴ While Norfolk Island legislation required the Administrator’s assent, the Australian Government’s direct influence over the Norfolk Island Government was limited during the self-government period.¹⁵

1.6 Under section 18 of the Act, Commonwealth Acts were not in force in Norfolk Island unless expressly extended. Norfolk Island was outside of mainland taxation, social security, immigration and biosecurity arrangements. The Norfolk Island Government did not receive regular funding from the Australian Government, although it was provided with grants, gifts and loans from time to time. The proposed review of self-government after five years did not occur.

Norfolk Island Road Map

1.7 In October 2010, the Norfolk Island Government sought ‘urgent financial assistance’ from the Australian Government for the ‘continued operation of the Norfolk Island Government and continued delivery of essential services’. The Norfolk Island Government also sought to explore the option of a phased extension of the Australian taxation system in exchange for Australian Government funding.¹⁶

1.8 In December 2010, the Norfolk Island Government and the Australian Government agreed to the first of a series of funding arrangements. In March 2011, the Australian Government Minister for Regional Australia, Regional Development and Local Government (hereafter referred to as the Minister) and the Norfolk Island Chief Minister agreed to the Norfolk Island Road Map. The Road Map set out a program of reform aimed at improving governance and economic and social conditions on Norfolk Island, including the introduction of the Australian taxation system and social security arrangements.

1.9 Annual funding agreements under the Road Map were signed each year until 2015–16, with funding tied to the Norfolk Island Government reaching reform milestones, some of which were not met (refer to paragraph 1.11). In total, the Australian Government provided $44.99 million in financial assistance to the Norfolk Island Government between 2010–11 and 2015–16.

Norfolk Island reforms

1.10 Prior to the 2013 federal election, the Coalition pledged to ‘conclude … negotiations on all outstanding issues arising from the roadmap process with the Norfolk Island Government’ and ensure that the integration of Norfolk Island with the mainland social welfare and taxation systems occurred ‘to the extent that this is agreed with the Norfolk Island Government’.¹⁷ On 25 March 2014, the Minister referred the inquiry into economic development on Norfolk Island to the Joint Standing Committee on the National Capital and External Territories (Joint Standing Committee), asking it to focus on positive action to encourage diversification and broaden the island’s economic base.

1.11 In October 2014, the Joint Standing Committee reported to Parliament on the findings of its inquiry into prospects for economic development on Norfolk Island.¹⁸ The report found that limited progress was being made on achieving the milestones laid out in the Norfolk Island Road Map and that economic and social conditions were worsening. It recommended that the Australian Government abolish self-government on Norfolk Island and transition to a local government-type body.¹⁹ The Australian Government released its response to the findings in February 2015 and in March 2015 announced comprehensive reforms²⁰ to governance and service delivery on Norfolk Island.²¹

1.12 The reforms included the:

• abolition of the Norfolk Island Legislative Assembly and Executive Council;
• the continuation of the Administration of Norfolk Island (ANI) to manage services for the 2015–16 transition year until local government services and Norfolk Island government business enterprises were transferred to a regional council;
• creation of a Norfolk Island Regional Council (NIRC), which would be responsible for local and municipal matters;
• application of New South Wales state law to Norfolk Island as Commonwealth law;
• creation of an interim Advisory Council to offer advice to the Administrator in the period between the abolition of the Legislative Assembly and the creation of the NIRC;
• integration of Norfolk Island into the mainland taxation system, with the exception that Norfolk Island would remain exempt from indirect taxes including the goods and services tax, excise duties and customs duties, in line with arrangements for Christmas Island and Cocos (Keeling) Islands²²;
• extension of the mainland social security system, including the Age Pension, Newstart Allowance, Disability Support Pension and Youth Allowance;
• extension of mainland health arrangements, including the Medicare Benefits Schedule, the Pharmaceutical Benefits Scheme and the Private Health Insurance Rebate; and
• extension of Commonwealth laws to Norfolk Island, including laws relating to immigration, biosecurity, the superannuation guarantee and employment.

Timeline

1.13 A timeline of key events in the design, transition and implementation of the reforms to Norfolk Island is depicted in Figure 1.2.

Figure 1.2: Timeline of Norfolk Island reforms, 2010–2018

 

 

Source: ANAO analysis of departmental information.

Commonwealth funding for Norfolk Island reforms and services

1.14 In the 2015–16 budget, the Australian Government provided $136.5 million for the reforms over the forward estimates.²³ This budget for Norfolk Island reforms included $62.9 million for the department’s delivery of services to Norfolk Island from 2016–17 to 2018–19. This estimate has been revised through the annual budget and Mid-Year Economic and Fiscal Outlook (MYEFO) processes, rising to $99.5 million after the 2018–19 budget (increasing total estimated funding over the period 2015–16 to 2018–19 to $173.1 million).²⁴

Rationale for undertaking the audit

1.15 There were significant risks involved with the Australian Government taking on additional responsibilities in a remote location where, similar to the Indian Ocean Territories, service delivery is complex and expensive. ANAO reporting for the 2015–16 financial statements audit reported two significant audit findings in relation the Administration of Norfolk Island, indicating that ‘At the conclusion of the 2015–16 audit, the finalisation of key governance processes and policies by the Administration remained outstanding.’ As Norfolk Island’s new governance and service delivery arrangements began on 1 July 2016, it was timely to undertake an audit focusing on the design, implementation and monitoring of reforms to services on Norfolk Island.

Audit approach

Audit objective and criteria

1.16 The audit assessed whether the department had designed and implemented appropriate governance and administration arrangements for the transition and delivery of sustainable reforms to services on Norfolk Island.

1.17 To form a conclusion against the objective, the audit examined whether:

• sound evidence informed the design of reforms for the delivery of services on Norfolk Island;
• appropriate arrangements were implemented to support the transition and delivery of reforms to services on Norfolk Island; and
• the arrangements in place for the delivery of services on Norfolk Island were subject to appropriate ongoing performance monitoring processes.

Audit methodology

1.18 In undertaking the audit the ANAO:

• reviewed and analysed relevant documents;
• reviewed submissions and interviewed stakeholders and key officials from:
  • the department;
  • past and present Administrators of Norfolk Island and the Indian Ocean Territories (IOT);
  • government and non-government entities providing services on Norfolk Island and in the IOT;
  • the Norfolk Island Regional Council, Norfolk Island Health and Residential Aged Care Service, and the Shire of Christmas Island;
  • the Norfolk Island community; and
• reviewed the department’s monitoring of progress implementing the reforms.

1.19 The audit was conducted in accordance with ANAO Auditing Standards at a cost to the ANAO of approximately $606,764.

1.20 Team members for this audit were Sandra Dandie, Judy Jensen, James Sheeran and Paul Bryant.

Was the department’s advice to government on reform design supported by sound evidence?

Assessment of Norfolk Island’s self-government arrangements

2.1 In October 2013, the Prime Minister requested a review of progress against the Norfolk Island Road Map (Road Map — refer to paragraphs 1.7–1.9) and options and priorities for the implementation of the Australian Government’s policy commitments. As the responsible Australian Government portfolio entity for the Road Map, the Department of Infrastructure, Regional Development and Cities (department) submitted an ‘interim report’ in response to this request in April 2014.

2.2 In the April 2014 interim report, the department assessed progress against the Road Map and also detailed:

• ongoing governance and financial problems in the Administration of Norfolk Island (ANI) and related entities;
• the poor state of critical infrastructure;²⁵ and
• gaps in the legal protections and services received by the Norfolk Island community compared to Australians living on the mainland.²⁶

2.3 In the interim report, the department advised that there was a need for comprehensive reforms on Norfolk Island. This advice was drawn from the department’s recent assessment of reform progress and the existing body of evidence on the effectiveness and sustainability of self-government arrangements on Norfolk Island.²⁷ Since Norfolk Island was granted limited self-government in 1979 there had been 12 parliamentary inquiries into various aspects of governance on Norfolk Island and more than 20 other reviews and reports (refer to Appendix 2 for an overview of key inquiries and reports). In response to the interim report, the Prime Minister agreed that comprehensive reforms should be further pursued.

Design of the overarching governance model

2.4 In designing the reforms to services on Norfolk Island, the department considered three governance models and presented these to the Australian Government in November 2014:

• Maintaining the ‘status quo’ arrangement of providing ongoing financial assistance to the Norfolk Island Government without changing governance arrangements.
• ‘Modified self-government’, where federal-level functions would be transitioned to the Australian Government and the Norfolk Island Government would maintain state- and local-type responsibilities.
• ‘Local government model’, whereby the Norfolk Island Government would be replaced with a local government authority and the Australian Government would be responsible for the delivery of all services either directly or through State and private partners, similar to the governance model in the Indian Ocean Territories (IOT).²⁸

2.5 Further detail on these models is provided in Table 2.1.

Table 2.1: Governance options proposed for Norfolk Island

Source: ANAO analysis of departmental information.

2.6 The Joint Standing Committee on the National Capital and External Territories’ (Joint Standing Committee) October 2014 report suggested the IOT, Lord Howe Island and regional authority models (similar to that utilised in the Torres Strait) as possible options to be considered. The report highlighted the challenges associated with the various models, but ultimately recommended the local government model for Norfolk Island. A comparison of arrangements in Norfolk Island, IOT, Jervis Bay Territory and Lord Howe Island is presented in Appendix 3. The Norfolk Island Government presented an alternative governance model to the Joint Standing Committee, which was considered but not taken forward by the department as an option.²⁹

2.7 The department’s proposed model for undertaking these reforms — the ‘local government model’, with a local government body replacing the Norfolk Island Government — was based on the model in the IOT.³⁰ In the IOT, Western Australian law is applied as Commonwealth law, most state-type services³¹ are delivered by the Western Australian Government and there are two shire councils operating under applied Western Australian legislation.³² The department planned for the Norfolk Island Regional Council (NIRC) to deliver a greater range of services than the two shire councils in the IOT and also for Norfolk Island’s judicial arrangements to continue.³³

Design of Australian Government service delivery

2.8 A November 2014 report commissioned by the department provided modelling of the economic impact of extending Commonwealth taxation, social security, superannuation and the minimum wage to Norfolk Island.³⁴ The modelling showed that if Commonwealth arrangements were implemented, the expected ‘higher level of economic activity, increased employment and wages combine to see (nominal) household consumption each year being some $20 million higher than otherwise.’

2.9 The department’s economic modelling did not include all elements of the Fair Work Act 2009, however the department worked closely with the former Department of Employment and Workplace Relations and the Fair Work Ombudsman in designing the gradual implementation of these arrangements, as well as the superannuation guarantee, with the aim of reducing the up-front impact on the Norfolk Island economy.³⁵

2.10 An interdepartmental committee³⁶ was formed in January 2014 (2014 IDC) and the department sought advice from this committee in preparing its reform design and cost estimates for the Australian Government’s consideration. While the Australian Government’s initial policy was to extend social security arrangements to Norfolk Island by March 2015 and taxation arrangements by September 2015, the department advised in its 2014 interim report to the Prime Minister that those timeframes were not feasible as the relevant entities had advised that ‘it would take a minimum of two years… to make the necessary legislative amendments and implement transition arrangements.’ It also advised against the policy of having separate commencement dates for social security and taxation, arguing that while this was technically possible, it created significant additional complexity for entities and Norfolk Island residents for limited benefit.

Design of state-type service delivery

2.11 The design and related costings for the delivery of policing, health, education and other state-type services were based on data from the Administration of Norfolk Island‘s (ANI) 2014–15 budget. ANAO financial statements audit results had raised significant rated findings in relation to the ANI’s corporate and financial controls, the ANI’s financial data was known to be of poor quality and there was a known gap in service standards between Norfolk Island and the mainland. The costings did not reflect inflation, the potential impact of the broader reforms (such as higher wages and regulatory costs) or the costs which would be associated with improving service standards in order to meet mainland standards.

2.12 The department’s costings for state-type services for 2016–17 to 2018–19 were substantially lower than what the Commonwealth Grants Commission found would be required in 2009–10 to provide state-type services on Norfolk Island to a comparable standard to mainland communities.³⁷ For example, for 2016–17 to 2018–19, the department’s expenditure for healthcare on Norfolk Island totalled $44.1 million³⁸, higher than the $18.7 million included in the reform costings for the same period.

2.13 As Table 2.2 shows, administered expenditure on state-type services to Norfolk Island — which includes local government grants and underwriting medical transport services to the mainland — was substantially higher than the initial estimates.

Table 2.2: Administered expenses for state-type services to Norfolk Island

Source: ANAO analysis of departmental information.

2.14 In February 2015, the department proposed phasing in state-type services to reduce upfront costs. Service delivery costings for the first year of state-type service delivery (2016–17) covered education and some healthcare. Funding for key related services such as patient travel to the mainland, payments for hospital services on the mainland and payments to NSW Government agencies for coordination of service delivery arrangements would not be phased in until 2017–18, noting that these services continued to be provided in the interim period. The department made no provision for child protection, childcare or road safety in its reform costings for 2016–17 on the basis that these would be phased in at a later date. This was despite the department identifying these services as among the highest risk areas in terms of state-type service requirements.³⁹

2.15 The department did not secure the NSW Government’s commitment to deliver state-type services during the design phase.⁴⁰ The Assistant Minister for Infrastructure and Regional Development (Minister) announced the reforms on 19 March 2015⁴¹, prior to receiving a formal response from the NSW Government confirming its in-principle agreement. Consequently, the department did not obtain the NSW Government’s advice on state-type service priorities, delivery risks, timeframes and anticipated costs before the reforms were announced. The department, in its advice to the Australian Government, did not adequately outline the risks or likelihood of being able to secure NSW Government as a partner or alternative plans should NSW not agree in whole or in part.

Design of local government service delivery

2.16 The department utilised data from the ANI’s 2014–15 budget to estimate the revenue streams and expenses of the proposed Norfolk Island Regional Council in order to design and establish the funding required to support the sustainable delivery of services. The department’s costings did not reflect planned increases in service standards to meet mainland standards (refer to paragraph 3.86). This meant that the cost of delivering services was under-stated.

Community consultation

2.17 A consultation period from October to December 2014provided opportunities for the community and stakeholders to provide feedback on the proposed reforms.

2.18 After the Joint Standing Committee⁴² tabled its report in October 2014, the Minister wrote to all Norfolk Island residents stating that he had asked the Administrator to undertake consultation with the Norfolk Island community to inform the Australian Government’s response to the Joint Standing Committee’s report including the governance⁴³ and service delivery reform recommendations. Consultation included:

• five community mail-outs;
• two public meetings in November 2014⁴⁴; and
• an invitation for written submissions.

2.19 The Administrator also met with members of the Norfolk Island Legislative Assembly, the Chamber of Commerce and the Council of Elders.⁴⁵

2.20 In his report to the Minister on the consultation process, the Administrator stated that ‘there is now widespread general agreement with the JSC recommendations.’⁴⁶ The Administrator’s report, which formed part of the submission to the Australian Government, included dissenting views and commentary from the public meeting for the Australian Government’s consideration.

Was an effective governance framework with roles, responsibilities, priorities and communication strategies established for the reform program?

3.1 In order to establish a governance framework for delivering the Norfolk Island reforms, the department developed the Norfolk Island Reform Implementation Plan (reform plan) in February 2015. The reform plan outlined the associated requirements for governance and oversight, roles and responsibilities, legislation, risk management and stakeholder engagement, including communication across government.

3.2 The principal objective of the reforms was to provide a framework for ‘the sustainable economic and social development of the Norfolk Island community’. This was to be achieved through the reform of governance and legal arrangements and the extension of mainland social security, immigration, and health arrangements to Norfolk Island so that those Australians who live there ‘have the same obligations and receive the same access to benefits as other Australians’.⁴⁷

Roles and responsibilities under the reform plan

3.3 The reform plan outlined the various roles and responsibilities in the reform process, including for: the Assistant Minister for Infrastructure and Regional Development (Minister); the Norfolk Island Administrator (Administrator); the Norfolk Island Advisory Council (NIAC); the Administration of Norfolk Island Executive Director (ANI Executive Director); the Department of Infrastructure, Regional Development and Cities (department); wider Australian Government departments that would be involved in service delivery arrangements; and the Norfolk Island Regional Council (NIRC).

3.4 The Minister held overall responsibility for reform implementation. At the commencement of the transition period on 18 June 2015⁴⁸, the Minister vested or delegated his powers to the Administrator and the department.⁴⁹ Appendix 4 provides an overview of the vesting or delegation of the Minister’s powers.

3.5 After 1 July 2015, the Administrator was appointed by the Governor-General under Section 7 of the Norfolk Island Administrator Ordinance 2016. The Administrator had no legislative powers and reported to the responsible Australian Government Minister.⁵⁰ The Administrator was responsible for providing ‘strategic direction and lead engagement’ with the Norfolk Island community from the commencement of the transition period on 18 June 2015. The Administrator was to provide regular reporting to the department to keep stakeholders informed and to identify emerging risks. The Administrator also chaired the Kingston and Arthur’s Vale Historic Area (KAVHA) Advisory Committee (refer to footnote 70). The Administrator’s role after the transition year was to: continue to perform functions where the Minister had either vested or delegated his powers to the Administrator⁵¹; provide leadership and support to reform efforts including through engaging with the community; and being a conduit for feedback to the department and the Minister.

3.6 The NIAC, which was comprised of Norfolk Island community members appointed by the Minister, was commissioned in June 2015 to advise the Minister during the transition year on: a possible governance model for the NIRC within the framework of the Local Government Act 1993 (NSW); the restructuring of the ANI and its transition to operating as the administration of the NIRC within the NSW local government framework; priorities and preferences for introducing new laws to Norfolk Island modelled on NSW laws; and other matters referred to it by the Administrator for response on behalf of the Norfolk Island community.

3.7 The department appointed the ANI Executive Director and this was declared by the Minister under section 9 of the Norfolk Island Legislation Amendment Act 2015 (Cth) on 24 June 2015, together with a description of the role and delegated powers.⁵² In addition to being responsible for the daily operations of the ANI (including the implementation of the ANI Operational Plan 2015–16) the ANI Executive Director was to ‘review the Administration’s structure and operations and develop a plan to modernise and transition the Administration to a Regional Council model on 1 July 2016’.⁵³

3.8 The department was the lead agency for the reform program and had overarching responsibility for the delivery of the reforms and associated legislative program⁵⁴; coordinating the whole-of-government approach, and monitoring, evaluating and reporting on the implementation of the reforms. The department was responsible for state-type service delivery from 1 July 2016. This included health and education services being delivered through the Norfolk Island Health Residential Aged Care Service (NIHRACS) and the Norfolk Island Central School, supported by Service Delivery Schedules established with the State Government of New South Wales (NSW Government) (refer to paragraph 3.47). The department worked with the ANI to facilitate the transition of services previously delivered by the Norfolk Island Government. The department was directly responsible for the overall management of KAVHA, including its heritage management plan, with advice from the KAVHA Advisory Committee.

3.9 Other Australian Government departments became responsible for implementing key Australian Government services on Norfolk Island including mainland taxation, social security, immigration, biosecurity, customs and health services such as Medicare and the Pharmaceutical Benefits Scheme.⁵⁵

3.10 The department contracted the ANI, through a Service Delivery Agreement (SDA) on 24 June 2016, to provide state-type services including: environmental protection; courts and legal services; workers compensation; motor vehicle registrations; food safety; and ports management, including lighterage.⁵⁶ The ANI was replaced by the NIRC⁵⁷ on 1 July 2016, and took responsibility for these state-type services along with ‘responsibility for local government functions such as land planning, local roads and waste management’ and the operation of business enterprises including liquor supply, electricity generation, telecommunications, and the airport. Five members were elected as councillors for a four year term by the Norfolk Island community on 28 May 2016.

3.11 Table 3.1 provides an overview of the institutional responsibilities for the delivery of existing and proposed services on Norfolk Island in relation to Australian Government departments, the NSW Government, the NIRC, and the Office of the Administrator as at November 2018.

Business plans and prioritisation

3.12 The department developed a draft Planning Framework–NI Reform Implementation (framework) in July 2015 as a complement to the reform plan. The framework provided a more detailed blueprint for implementation of the reform process in the transition year.

3.13 In late November 2016, five months following the end of the transition year, the Administrator approved six high-level priorities developed by the department for the Norfolk Island reforms as part of the department’s 2016–17 Business Plan: Norfolk Island Branch (2016–17 business plan). The 2016–17 business plan priorities are listed below.

• Establish second tranche state-type legislative reforms either through a greater application of New South Wales legislation or adaptation of Norfolk Island laws.
• Establish second stage of state-type services with NSW, and review stage one to ensure it is meeting expectations.
• The Norfolk Island Regional Council provides contracted state-type services.
• Normal direct engagement on Commonwealth issues for communities rests with the appropriate Commonwealth agency.
• Implement the required capital works projects.
• Improving better practice regulation and program delivery by developing and/or updating key regulatory documents.

3.14 The department identified timelines for these reform priorities in internal traffic light reports according to three stages in the reform process — 30 June 2016 (stage one), 30 June 2017 (stage two) and 30 June 2018 (stage three). By the end of March 2017, the department reported in the internal traffic light reports that its priority to establish the second stage of state level services with NSW was on track to conclude by 30 June 2017.

3.15 For the 2017–18 Business Plan: Local Government and Territories Division (2017–18 business plan), the department reduced its priorities with respect to the Norfolk Island reforms to five, as listed below.

• To expand the range of Commonwealth programs and services delivered to Norfolk Island; and ensure normal direct engagement rests with the appropriate Commonwealth agency.
• To ensure appropriate arrangements are in place to provide state-type services to Norfolk Island according to contemporary standards.
• Encourage effective functioning of local government, including developing local capacity to improve the quality and efficiency of services provided.
• Support initiatives to diversify the Norfolk Island economy and drive economic growth.
• Manage and maintain Commonwealth assets based on better practice, focusing on risk, fiscal responsibility, operational performance and governance frameworks.

3.16 Timelines and milestones were not identified for any of these priorities within the 2017–18 business plan or elsewhere.

3.17 Appendix 5 provides a comparison of the department’s Norfolk Island priorities between 2016–17 and 2017–18. The department developed a numerical framework to prioritise the detailed deliverables associated with these priorities (Prioritisation Framework) which was approved in September 2017. The department indicated in September 2017 in its Norfolk Island Branch 2017–18 Business Plan Prioritised Deliverables report that securing an alternative jurisdiction to deliver state-type services was its first priority. There were no identified interim milestones or timelines associated with achieving this.

3.18 The department established a Project Office in September 2018 to support project management and planning for the implementation of reforms to services delivery. There was a delay in the department developing its business plan and associated six departmental priorities for reform for 2018–19, with the plan not in place until February 2019. The executive priorities relating to Norfolk Island are listed below.

• Implement Next Phase of Norfolk Island Reforms included in 2018–19 Budget to provide essential services and critical infrastructure — including relevant supporting legislation for establishing a child and family wellbeing system.
• Work towards a single jurisdiction to deliver all state-type services required for Norfolk Island exclusively under the laws of that jurisdiction.
• End-state service delivery model develops over time, based on consultation, to reflect the changing needs of the community and the changing capacity and capability of service delivery partners.
• Advice prepared for 2018–19 MYEFO and 2019–20 Budget for Norfolk Island including fully costed options of other essential services and business cases for major capital works projects, for example, new multi-purpose medical facility.
• Negotiate a new Norfolk Island Regional Council Service Delivery Agreement, including improved delivery of essential services, budgeting, financial management and reporting.

3.19 Timelines and milestones were not identified for any of these priorities within the 2018–19 business plan or elsewhere.

Communication strategy and engagement

Interagency communication strategy

3.22 The department developed a Norfolk Island Inter-agency Communication Strategy in December 2015. The objectives of the strategy were to provide Australian Government entities with guidelines when promoting the Norfolk Island reforms and assist entities to select the most effective means of engaging with the Norfolk Island community.

3.23 The department noted that: ‘This strategy is a working document and is for guidance only, and will be updated as the reforms are implemented to ensure it remains relevant’; and ‘This strategy should inform and assist the development of agency specific communication strategies and implementation plans’. The department updated the strategy at the end of February 2016.

Community engagement strategy

3.24 To assist in transitioning the community to the new arrangements, the department facilitated multiple individual communication channels including the establishment of the NIAC. The NIAC undertook consultation, including with the ANI, and surveyed the Norfolk Island community to inform its advice, interim and final report to the Minister. Over a period of 12 months, the NIAC produced a number of reports on the outcome of its consultation and in its final report, made recommendations on the implementation of reforms on the island.⁵⁸ The NIAC’s published advice to the Minister was available on the NIAC website.⁵⁹

3.25 The department produced a reform newsletter, internet pages specific to Norfolk Island, a reform mailbox and established an information centre in Norfolk Island’s main shopping district for residents.

3.26 The Norfolk Island Reform Taskforce (refer to paragraph 3.33), coordinated a series of visits to the island by representatives from different Australian Government entities to facilitate the conduct of information sessions and the provision of advice to Norfolk Island residents at the information centre. There were 13 agency visits to the Island to meet with community stakeholders, scope future service delivery and to provide information on programs, services and initiatives.⁶⁰ This enabled the community to engage directly with Australian Government representatives.

3.27 Following the completion of the transition year (2015–16) the department ceased several of these communication channels and commenced utilising other channels including: fortnightly columns in the local Norfolk Island newspaper⁶¹; briefing the Minister and Administrator on activities to inform their communication with residents; and preparing letter drops around major local holidays to provide updates on Australian Government activities to the community.

3.28 There were also avenues available to Norfolk Island residents to provide feedback and complaints.

• Contact information for the Office of the Administrator was available on the department’s website to enable residents to provide feedback.⁶²
• Residents had access to a complaints and feedback mechanism for services funded and delivered by the NIRC, or state-type services funded by the Commonwealth but delivered by the NIRC⁶³ (refer to Table 3.1).
• The department’s agreement with NSW Health to deliver health services included procedures for dealing with patient complaints. The Education Schedule outlined mechanisms for handling complaints related to NSW and Commonwealth roles and responsibilities.

3.29 The department implemented a number of approaches for communicating with stakeholders, however, there was no overarching communication strategy for the period 2015 to 2017 to guide consistent communication. The department did not develop an overarching strategy until January 2018 in the form of the Communications Strategy - Norfolk Island Branch 2018 which ‘covers communications activities and materials relating to Ministerial, Administrator and Departmental functions on Norfolk Island, which includes ongoing state-level services, capital works and legislation’.

Were effective governance arrangements established for the implementation of Australian Government and state-type services?

Governance arrangements for the implementation of Australian Government services

Norfolk Island Governance Steering Committee

3.30 A Norfolk Island Governance Steering Committee (Steering Committee) was established by the department in October 2015. The Steering Committee’s membership included the ANI Executive Director, the Administrator and the department’s Territories Division Executive Director and it was accountable to the Secretary of the department. The Steering Committee’s initial role was to: discuss progress of the Norfolk Island reform project; identify key issues and priorities; and identify risks and mitigation strategies.

3.31 To support the second stage of the reform agenda (from 1 July 2016, post the transition year), the Steering Committee continued as ‘a forum oversighting, monitoring, reporting and providing direction on Government service delivery on Norfolk Island’. The Steering Committee had established terms of reference, meeting papers and recorded action items. The Steering Committee met monthly until September 2017.

3.32 Meetings between the Administrator and the department after September 2017 continued as ‘high-level discussions and … not formally minuted or recorded. Where actions requiring resolution are discussed, the General Manager [Norfolk Island Branch, Local Government and Territories Division] will raise these issues with the relevant [department] Director for action’ to ensure relevant issues are systematically addressed.

Interdepartmental governance committees

3.33 A Norfolk Island Reform Taskforce (taskforce) was formed in November 2014 by the department to coordinate implementation of the reforms related to extending Australian Government arrangements to Norfolk Island, including creating detailed implementation plans and coordinating legislative changes necessary to implement the reforms. The taskforce included senior officials from a range of Australian Government departments.⁶⁴

3.34 The taskforce met 25 times between December 2014 and August 2016 and successfully coordinated the implementation of most Australian Government Services. The department maintained meeting records including agendas for the meetings over this period. Action items were recorded for the first time on 9 September 2015 and then for a further 10 meetings.

3.35 Two working groups were established under the taskforce to coordinate Australian Government communications (communications working group) and information technology (ICT working group) requirements. Meeting papers and records of meeting outcomes were held for these groups, although the ICT working group did not have terms of reference.

3.36 The Norfolk Island Reform Reference Group (reference group), which included senior executives from the department and Australian Government central agencies⁶⁵, was established by the department in December 2014 to provide oversight of the reform process, monitor progress, and address and mitigate emerging risks.

3.37 The reference group convened four times between December 2014 and March 2015 prior to the transition year (which commenced June 2015). Agendas for the meetings were developed by the department but there were no meeting records kept on the proceedings of the reference group.

3.38 An interdepartmental committee (IDC) was established in September 2017 to report to the Australian Government on the progress of the implementation of the Norfolk Island reforms and to develop a submission to the Australian Government on funding the next phase of the reforms. The IDC met four times between September 2017 and January 2018.

3.39 The Norfolk Island Administrator held monthly meetings with Australian Government officers on Norfolk Island, although there were no records for these meetings or their outcomes.⁶⁶

3.40 There was no regular IDC convened to manage the development and implementation of Commonwealth legislation on Norfolk Island that remained outstanding when the taskforce ceased meeting in August 2016 until the IDC was reconvened in December 2018. Despite this, there were approximately 170 Commonwealth laws that were amended after 2015.⁶⁷ As at February 2019, there were six pieces of legislation which the Australian Government had planned to amend, including bankruptcy, corporations and telecommunications legislation.⁶⁸ As at February 2019, there were 20 pieces of NSW legislation applied⁶⁹ to Norfolk Island and over 1000 pieces of NSW legislation suspended.

Arrangements established for the delivery of Heritage Management

3.41 The department continued to be directly responsible, post the transition and reform implementation period, for managing KAVHA. Under the SDA (refer to paragraph 3.10) the NIRC was to carry out maintenance and operate the KAVHA museums and collections.

3.42 The KAVHA Advisory Committee⁷⁰ was established to provide advice to the department on heritage conservation issues including heritage protection, governance and community partnerships.⁷¹ The KAVHA Advisory Committee reported that ‘…governance arrangements on the site need greater clarity and further on site resourcing to achieve results as outlined by the five elements of the action plan’.⁷² In response to the concerns raised by the KAVHA Advisory Committee, the department considered governance reform options and developed a KAVHA Governance Reform timeline, including details around consultation with other Australian Government departments.

3.43 In September 2018, the Administrator announced the provision of additional funds from the department to the NIRC to provide services including ‘to boost the KAVHA maintenance crew under the Service Delivery Agreement. This included a full time KAVHA Team Leader and getting the skilled tradespeople back on site and fully employed in the upkeep of KAVHA’s buildings and grounds’.⁷³

Governance arrangements for the implementation of state-type services

3.44 The department advised the Australian Government in November 2014 that the NSW Government would deliver state-type services, with the possibility of some private sector involvement, from 1 July 2016. The advice to engage the NSW Government as a service delivery partner was associated with the planned application of NSW law to Norfolk Island as applied Commonwealth law⁷⁴ and two NSW Government entities were already assisting Norfolk Island to support service delivery.⁷⁵

3.45 Between September and December 2015 a Norfolk Island Bilateral Steering Committee was convened, with representation from the department and the NSW Government, to develop a single funding agreement to provide state-type services from 1 July 2016. The committee met monthly:

to develop a draft National Partnership Agreement with the purpose of efficiently facilitating delivery by the NSW Government of some state-type services to Norfolk Island. The over-arching Bilateral Steering Committee (BSC) will oversee separate sectoral working groups to work through the details of the application of state frameworks and the delivery of key state services by NSW to Norfolk Island.

3.46 On 23 March 2016, 19 months after initial discussions commenced and 13 months after formally being approached, the NSW Premier agreed to the Australian Government’s request for the development of an overarching Heads of Agreement and Service Delivery Schedules (SDSs), noting the NSW Government’s intention ‘to undertake the following activities in relation to Norfolk Island’:

• The NSW Ministry of Health will manage, deliver and regulate state-type health services for Norfolk Island.
• The NSW Department of Education (DoE) will supply teaching staff to the Norfolk Island Central School to deliver the NSW curriculum, consistent with the terms of the current MoU, for the remainder of the 2016 calendar year. DOE is preparing a fully costed transition plan so that from the commencement of the 2017 school year the school will receive full NSW public school equivalent service.
• The NSW Local Government Grants Commission (LGGC) will provide an annualised Financial Assistance Grant (FAG) assessment for the Norfolk Island Regional Council.

3.47 The NSW Premier and the Australian Government Minister for Projects, Territories and Local Government signed the Heads of Agreement on 29 June 2016. The Secretary of the NSW Department of Premier and Cabinet and a senior official from the department signed the SDSs for the delivery of health services (providing an oversight role for the NIHRACS), and education services (providing the curriculum and teachers for the Norfolk Island Central School) and the calculation of Financial Assistance Grants (FAGs) at the end of June 2016.

3.48 The expected oversight arrangements between the department and the NSW Government were not convened in 2016, although irregular meetings occurred between department officials and NSW Departments on subject-specific matters. From January 2017, an Oversight Committee was established and convened on a monthly basis to facilitate and coordinate services delivered by the NSW Government. There were also interagency working groups for: health, education, child wellbeing and capital works. Through the Oversight Committee, procedures were in place for decision making, formulating budgets and developing business cases for new services.

3.49 In April 2017, the Premier wrote to the Minister for Local Government and Territories, indicating that she was ‘currently considering the role of NSW in the provision of child protection services’, and that ‘NSW would not be in a position to consider any other additional services, given the complexity of services already being undertaken’. The Premier indicated that existing service delivery commitments on Norfolk Island would continue until 30 June 2021.

3.50 The Secretary of the NSW Department of Premier and Cabinet agreed on 28 February 2018 for NSW to develop a child protection framework for Norfolk Island (Norfolk Island Child Protection Schedule, signed April 2018), capable of operating under applied NSW child protection legislation. The NSW Government was funded, up to 31 December 2018, to provide an interim protection service by providing:

• advice and recruitment assistance to employ a child protection manager;
• guidance and support to the department in relation to applied NSW legislation, policy and the operational framework in NSW;
• advice on the design and development of a Commonwealth child protection framework.

3.51 In April 2018, the NSW Premier informed the Prime Minister that the NSW Government would continue to consider a role in an integrated child and family wellbeing system, with a view to making a decision by the ‘end of the financial year’.

3.52 The department established arrangements with a non-government provider in June 2018, for the period from 2018–19 to 2020–21, for the delivery of child protection and wellbeing services. These services included performing statutory child protection functions under the Child Welfare Act 2009 (NI).

3.53 The department had indicated to the Australian Government that it expected to have a state provider in place for child protection and childcare regulation in 2019–20.

3.54 The department was not able to obtain the NSW Government’s engagement to deliver all state-type services. As a result, the department was required to engage the NIRC through a Service Delivery Agreement (SDA) to deliver some state-type services outside the local government functions intended in the reform plan (refer to paragraph 3.10). These services included the management of ports, courts and legal services, workplace safety and workers compensation administration.

3.55 Appendix 6 shows the periods when oversight groups were convened for the delivery of Australian Government and state-type services.

Governance arrangements for the Norfolk Island Health and Residential Aged Care Service

3.56 The department became responsible for delivering health and residential aged care on Norfolk Island on 1 July 2016, and in accordance with section 7 of the Norfolk Island Health and Residential Aged Care Service Act 1985 (NIHRACS Act), the Norfolk Island Health and Residential Aged Care Service (NIHRACS) was established as a multi-purpose service (MPS).⁷⁶ As a MPS, the NIHRACS:

would be able to leverage funding from the DoH [Department of Health] for aged care services. With accredited equipment and health professionals it would be eligible for the MBS [Medical Benefits Scheme] and the PBS [Pharmaceutical Benefits Scheme].⁷⁷

3.57 The Minister has the power to apply general Australian Government policies to the NIHRACS and provide written directions. The Minister’s powers were delegated to the Administrator of Norfolk Island and the department. The Minister’s powers to provide written directions to the NIHRACS are also vested in the Director-General of NSW Health. In the event of any conflict, directions issued by the Minister (or delegate) prevail.

3.58 A Service Delivery Schedule (refer to paragraph 3.8) provides funding for the NSW Government to provide health management services to assist the NIHRACS manager to oversee the NIHRACS. A Service Delivery Agreement was also established between the department and the NIHRACS; and a Manager, appointed by the Minister under section 19 of the NIHRACS Act, is responsible for the management of the NIHRACS.⁷⁸

3.59 The NIHRACS was not established under Commonwealth legislation. The NIHRACS Act is a Norfolk Island continued law under section 16A of the Norfolk Island Act 1979 (Cth) and the NIHRACS was established under this legislation as a body corporate. The NIHRACS is not subject to the PGPA Act. The NIHRACS is controlled and funded by the Australian Government and considered to be a controlled entity of the Australian Government under the Australian Accounting Standard (AASB 10 Consolidated Financial Statements). The department reports on the NIHRACS in its financial statements under ‘Investments as a controlled entity’. All Australian Government administered investments⁷⁹, including authorities and companies, consolidated into the department’s financial statements operate under the PGPA Act, except for the NIHRACS.⁸⁰

3.60 The ANAO financial statement audit reporting for 2016–17 and 2017–18 for the NIHRACS noted that the PGPA Act does not apply and there was a moderate audit finding in relation to weaknesses in corporate governance.

Were there suitable arrangements for the establishment of a regional council and its delivery of services?

Transition from the Administration of Norfolk Island to the Norfolk Island Regional Council

3.63 At the commencement of the transition period on 18 June 2015, the Australian Government assumed control of the ANI. A funding agreement that outlined deliverables to underpin the transition process and related milestone payments was established between the department and the ANI for 2015–16. This provided funding for additional executive positions, including an Executive Director, within the ANI.⁸¹ Key deliverables were the development of strategic and operational plans; transitioning federal and state-type services to the Australian Government; and transitioning the ANI to the NIRC.

3.64 The ANI Executive Director advised the department soon after being appointed on 24 June 2015 that additional resources were required to meet the implementation timeframes. This led to the transition team increasing to include:

• a Transition Manager — responsible for all aspects of the ANI business not identified as core functions of a typical regional council; and
• an Operations Manager — responsible for aspects of the ANI business typically conducted by a regional council such as delivering local and municipal services including waste management, town planning and local infrastructure such as roads and community facilities.

3.65 One of the key tasks of the ANI Executive Director and transition team was to hold elections for the Norfolk Island Regional Council by 30 June 2016, consistent with the ANI 2015–16 Operational Objectives and Priorities. This process involved the ANI appointing a returning officer, establishing an electoral roll and completing nominee and candidate training.

3.66 A procurement process commenced in September 2015 to identify a suitable contractor to undertake a local government election using the NSW system. A commercial provider was selected in March 2016. A customised electoral roll was developed, the Administrator was delegated as the Election Manager by the Minister and the election was held on 28 May 2016 with five councillors declared elected on 3 June 2016.

Transitioning Norfolk Island government business enterprises

3.67 The Norfolk Island Government, through the ANI, operated 19 enterprises on the island for the purpose of service delivery in areas such as liquor supply, electricity, telecommunications and lighterage.⁸² These enterprises were referred to in ANI documentation as Government Business Enterprises (GBEs).⁸³

3.68 The department commissioned six reviews to assist the ANI in transitioning its operations to a Regional Council, including a 2014 study to assess the operational efficiency of Norfolk Island’s 19 GBEs.⁸⁴ The report showed that ‘GBEs had not been allocated the costs of significant shared services such as HR, IT, legal services and rent, nor had they accounted for asset depreciation, (which would double the operating costs of some businesses).’

3.69 The study also reviewed business level financial accounts for each of the enterprises. The report noted the challenges of the small community generating revenue and stated that some of the GBEs:

fall outside the regular functions and responsibilities of local governments, but need to be continued; and

Whether the NI GBEs (telecom, electricity, gaming) will be delivered by the Council or an alternative NI entity is complex and yet to be determined.

3.70 The department considered the proposed structure of the NIRC, and noted that ‘the activities of some GBEs will be absorbed into the Regional Council, while others will be divested or transitioned to another entity. It is expected that this process will need to occur over a number of years’.

3.71 The NIAC and the ANI Executive Director, over the transition year, recommended the divestiture of some GBEs occur in establishing the Regional Council. The department also noted in a briefing to the Minister that:

The implementation of reforms to the GBE structure will extend well beyond 2016, and an interim governance model will need to be established. [The Executive Director] is proposing some kind of community owned company or companies. This is being progressed by the Administration of Norfolk Island in consultation with the Department. The Advisory Council in particular, are strongly of the view that the operations of key GBEs such as telecom and electricity should not fall within the remit of the Norfolk Island Regional Council, which will lack the capacity and resources to ensure their effective transition.

3.72 The department further advised the Minister, on the basis of its commissioned report completed in late 2014, that:

Norfolk Island Telecom is a Norfolk Island owned monopoly and a part of the reforms of the government business enterprises will be trying to privatise these types of businesses where possible. Early reports by Deloitte indicate market interest is likely to be negligible given the small size of the market and poor state of capital. ⁸⁵

3.73 In response to the Advisory Council recommendations, the department indicated in June 2016 that work in this area was ongoing and that the responsibility for this and the management of government business activities and future operational structuring would be a matter for the NIRC.

3.74 The Administrator wrote to the Minister on 6 February 2019 providing an update on the progress of reforms and indicated that an alternative model for the management of some GBEs is under consideration.

Norfolk Island Regional Council

3.75 The NIRC⁸⁶ is comprised of five councillors and its responsibilities are broad ranging (refer to Table 3.1) compared to typical mainland councils and the two shire councils in the Indian Ocean Territories.⁸⁷ This is due to the NIRC retaining responsibility for GBEs and, in the absence of a fully engaged state partner, also delivering some state-type responsibilities.⁸⁸

3.76 The department funded the NIRC to deliver state-type services as outlined in the SDA. In addition to those functions mentioned in paragraph 3.54, the SDA section 5.1(e) requires the NIRC to ‘Also carry out regulatory monitoring and enforcement functions in relation to animal welfare, slaughtering, consumer protection, food safety, workplace safety and environmental protection’.

3.77 The department advised the Minister in January 2016 that:

the priority is for the establishment of a functioning Council on 1 July 2016. The complexity and diversity of the activities of the former Assembly and Administration are such that a thorough analysis and assessment of the most appropriate method of future service delivery will be compromised by adherence to the 1 July deadline.

3.78 The ANAO closing report for the Administration of Norfolk Island 2015–16 financial statement audit reflected that the NIRC’s business model:

does not clearly demonstrate a self-sustaining model that can fund capital expenditure in the future to maintain or upgrade facilities such as the airport. The level of revenue generated by rates and the GBEs are currently insufficient to both fund short term costs such as employees and suppliers. While the medium-term forecasts do provide for future balanced budgets, these assumptions are conditional on a significant increase in Commonwealth Financial Assistance Grant revenue and an increase in current operational fees and charges. The management of this by the NIRC will be central to the future success of the NIRC.

3.79 The closing report further noted that ‘significant financial and operational reform is still required to increase revenue and closely monitor expenditure in order to fund asset replacement and upgrade programs and achieve an accrual based surplus’. There were aspects of the reform program that were to be considered in the longer term, including reviewing the GBEs.

3.80 In December 2016, the NIRC noted in its long term financial plan that:

The transitional phase from the previous administration to the Council was not adequately planned and implemented. Critical transitional aspects such as the implementation of Civica⁸⁹ and the relocation of Council’s administration staff to the Bi-Centennial building did not occur as was originally planned. Council has needed to devote its limited resources to addressing these issues amongst many others that were left unresolved, whilst addressing the day to day business of the Council.

3.81 The NIRC’s delivery of local government services was financially supported by the payment of Financial Assistance Grants (FAGs). The calculation of annual FAGs for 2016–17 and 2017–18 was undertaken by the NSW Local Government Grants Commission (Commission), as noted at paragraph 3.46.⁹⁰ The Commission indicated that it could not make a comparative assessment for Norfolk Island but nonetheless used Brewarrina Shire Council (classified as ‘rural agricultural small’) as its model for calculating Norfolk Island’s FAGs.

3.82 For 2018–19, the funding calculations model was changed to better reflect Norfolk Island’s remote status and the resulting higher costs and revenue raising constraints, drawing on work undertaken by the Western Australian Government for the Indian Ocean Territories FAG calculation. This resulted in the FAGs for Norfolk Island increasing substantially. From a base of $1.89m in 2016–17, the FAGs increased by 30 per cent to $2.45m in 2017–18 and by 41 per cent to $3.46m in 2018–19.

3.83 Local government bodies also generally have access to additional funding for activities through grants provided by states and territories. For instance, grant programs that councils in NSW can access include the Youth Opportunities program⁹¹ and the Environment Trust program.⁹² There was no formal channel established by the department (responsible for state-type service delivery) for the NIRC to apply for this type of additional funding. The department should consider establishing a process for the NIRC to be able to apply for grant funding for activities that are generally funded by states and territories.

3.84 The NIRC 2017–18 annual report reflected improvements in financial sustainability, with five out of six financial performance ratios being met.

Were fit-for-purpose risk management arrangements in place and actively managed?

Managing risks to the achievement of the overall Norfolk Island reform program

3.85 The department identified fourteen risks⁹³ to the achievement of the Norfolk Island reforms in its advice to the Australian Government in February 2015. These were identified under the themes of: legislative risks (two); stakeholder risks (six); service delivery and financial risks (five), of which four related to NSW provision of state-type services; and community and economy (one).⁹⁴

3.86 The risk that the costs for the delivery of reform on Norfolk Island would exceed provisional estimates was rated by the department as medium on the basis of a ‘possible’ likelihood and a ‘moderate’ impact. The proposed mitigation action — that cost estimates were based on existing Norfolk Island budget data — was inadequate, particularly because, as noted in paragraph 2.16, the cost estimates were not updated or adjusted for increased service delivery standards and inflation.

3.87 The risk that the NSW Government did not agree to provide state-type services was rated as ‘low’ on the basis of a ‘possible’ likelihood and a ‘moderate’ impact on the reforms. Given that the reforms to the delivery of state-type services on Norfolk Island were dependent on securing a fully-engaged partner, the advice to the Australian Government on the rating of this risk did not reflect the significant impact that not securing a partner would have on the Australian Government achieving its reform objectives for Norfolk Island.

3.88 From October 2015, program risks associated with individual tasks were identified and updated in the department’s Norfolk Island Project Plan Register and considered by the Norfolk Island Governance Steering Committee.

3.89 A risk management plan for the overall reform program on Norfolk Island (2017–18 risk plan) was first implemented in September 2017, 14 months after the reform transition year and 17 months after the Minister announced the reforms. The 2017–18 risk plan was aligned with the departmental risk management plan, but excluded some risks not relevant and consolidated the previously identified 14 risks from the 2015 advice to the Australian Government down to eight risks (refer to Appendix 7). The 2017–18 risk plan did not identify risk owners or risk managers.

3.90 The department updated the 2017–18 risk plan on 15 November 2017. The plan was due to be further reviewed and updated on 14 February 2018 but the department advised that this was not undertaken.

3.91 The two risks identified in the 2015 advice to the Australian Government relating to resources or funding and the delivery of additional state-type services were also identified as risks in 2017–18 but the risk rating had increased to ‘severe’ for both risks on the basis of an ‘almost certain’ likelihood and a ‘major’ impact. The controls in place were not adequate for the mitigation of the:

• resources or funding risk, given the department did not reassess funding requirements using more current data; and
• the risk of an inability to deliver additional state-type services did not include the development of policy options for seeking an alternative partner jurisdiction. The department rated the risk as low after the application of treatments, despite the ongoing issues the department had experienced in securing a state partner.

3.92 The department subsequently advised the government in March 2018 on the risks to the Australian Government on not providing additional resources for the next phase of reforms, the NSW Government not delivering state-type services comparable with mainland services and the risk of not securing a new service delivery partner for state-type services on Norfolk Island.

3.93 In February 2019, the department revised its 2018–19 Territories Risk Register with three program risks, two organisational risks and one fraud risk.⁹⁵ There were four risks where, with respect to Norfolk Island, suitable risk controls were stated to be in place:

1. disruption to the delivery of essential services;
2. adverse program outcomes due to an unsustainable financial structure of the services;
3. unable to deliver review/reform commitments made by the Australian Government; and
4. failure to have adequate Work Health & Safety (WHS) systems in place causing an injury.

Managing risks in the delivery of key state-type services

3.94 The department and the NSW Government agreed to a Norfolk Island Health Services Risk Register, developed in February 2016, as part of the Health Service Delivery Schedule (SDS).

3.95 NSW Health provided updates to Oversight Committee meetings which included individual risks as they arose. However, there was no referencing of these risks to the SDS Health Services Risk Register (risk register) and therefore it was unclear whether risk management work, including: identifying new risks; assessing whether controls were effective; whether risks had eventuated; and treatments deployed for risks identified in the risk register were being undertaken and reviewed by the department.

Were there appropriate arrangements in place for monitoring reforms to service delivery?

4.1 The department has responsibility for monitoring, evaluating and reporting on the implementation of the Norfolk Island reforms.

4.2 The department is required to assess and report on its own performance under the Public Governance, Performance and Accountability Act 2013 (PGPA Act)⁹⁶ and monitor the progress of the delivery of services by other Australian Government departments. The department also has responsibility for state-type services which includes monitoring state-type services provided by the NSW Government, the NIRC and non-government organisations; and performing the role of the state government⁹⁷ in relation to the monitoring of local government services provided by the NIRC.

Monitoring and external reporting on performance under the PGPA Act

4.3 The principal objective of the reforms was to provide a framework for ‘the sustainable economic and social development of the Norfolk Island community’. This was to be achieved through the reform of governance and legal arrangements and the extension of many mainland social security, immigration, and health arrangements to Norfolk Island so that those Australians who live there ‘have the same obligations and receive the same access to benefits as other Australians’.⁹⁸

4.4 The department identified two performance criteria relating to the reforms within the Services to Territories program⁹⁹ in its 2016–17 and 2017–18 Portfolio Budget Statements (PBS) and these were mirrored in its Corporate Plans. The performance criteria were:

• ‘legal frameworks in place in the external territories and the Jervis Bay Territory that provide comparable rights and protections to citizens as the rest of Australia’; and
• ‘state-type services are delivered in the external territories and the Jervis Bay Territory similar to comparable mainland communities’.

Performance against these criteria was reported on in the department’s Annual Performance Statements.

4.5 The characteristics used to assess performance criteria are relevance, reliability and completeness.¹⁰⁰ The audit assessed the department’s performance criteria against these characteristics. (Refer to Appendix 8 for detail on the characteristics of appropriate performance criteria and Appendix 9 for the assessment). A summary assessment is below.

• The performance criteria met the characteristics for being relevant, as the measures were focussed on the department’s purpose; were understandable with the beneficiaries being the Norfolk Island community; and the intended benefit to be delivered was comparable rights, protections, services, infrastructure and standards compared to their mainland counterparts.
• The performance criteria did not meet or partly met the characteristics of being reliable, as the information presented in the Corporate Plan did not adequately describe the method of assessment that was intended to be used to determine the results, nor was there a basis for measurement.
• The completeness of the performance criteria was assessed as partly met, as the targets were constant across the four years of the corporate plan with no indication of how incremental improvement would be demonstrated over time.

4.6 The department reported in its 2016–17 Annual Performance Statements that it had substantially met the two performance criterion. In its 2017–18 Annual Performance Statements, the legal frameworks criteria was assessed as met, and for the comparable services and infrastructure criteria the department stated that it ‘had not fully developed performance information’ to assess whether Norfolk Island had services and infrastructure that are comparable to similar communities. The department advised that it has not identified communities for comparison. There has been inconsistency in referencing remote, regional and mainland communities as comparable communities for Norfolk Island.

4.7 The department would benefit from further developing performance information¹⁰¹ to enable an assessment of the extent to which the reforms have been implemented, whether there has been any improvement compared to an established benchmark, and the extent to which services and infrastructure are comparable to similar communities — as identified in its PBS and Corporate Plans.

The department’s monitoring of the delivery of services by other government departments

4.8 In May 2016, the department commissioned a Monitoring and Evaluation Framework (Framework). The Framework contained a model outlining how inputs and activities would be linked to outcomes relevant to Norfolk Island, but did not include a monitoring strategy, any guidance for developing performance standards or suggest any key performance indicators (KPIs). The department has not performed any activities based on this Framework.

4.9 Outside of this Framework, reports on the general progress of reform implementation from a whole-of-government perspective were prepared from November 2015, firstly as monthly descriptive progress and exception reports and then through monthly status and priority reports with traffic light indicators, and these were reported to the Norfolk Island Governance Steering Committee.

4.10 The department’s 2017–18 Business Plan: Local Government and Territories Division included measures of success and outcomes. Progress against this plan was reported in December 2017 and updated in April 2018. The audit assessed the department’s measures of success (refer to Appendix 10) and found they were mostly focused, understandable and appropriately targeted although there was not an objective base for assessment for some measures and the measures were primarily focussed on the short term.

4.11 A departmental review of service implementation status in March 2018 stated that:

Eighteen months into the Norfolk Island reform program, Ministers have reported that access to federal services on-island has improved, services have largely been extended and reforms are progressing well.

There remains significant work to be done to ensure Norfolk Island services and functions are comparable to similar Australian communities.

4.12 Table 4.1 provides a high level summary of the status of selected services on Norfolk Island pre- and post-reform.

Table 4.1: Overview of selected services pre- and post-reform

Source: ANAO analysis of ANI, department and NIRC information.

4.13 The department phased the rollout of state-type services and as at November 2018 identified over 80 state-type services and regulations still to be implemented including: working with children checks, sex offenders registration, animal welfare, small business grants, community housing, consumer protection¹⁰², proceeds of crime legislation, health care complaints, transport of dangerous goods, marine safety and radiation safety.

4.14 Progress of the reforms was discussed at a reconvened interdepartmental committee (IDC) in December 2018 (refer to paragraph 3.40). Records from the meeting indicated that the Chair of the IDC noted the particular implications for health, education, and other services that rely on a state service provider, and that this may affect other Australian Government service delivery.¹⁰³

4.15 The department included measures of success and outcomes in its 2018–19 business plan developed in February 2019.

The department’s monitoring of the delivery of state-type services

4.16 The department had arrangements in place with the NSW Government to provide some health, education and financial assistance grant calculation services; and with a non-government organisation to provide child and family wellbeing services. The department also had an arrangement in place with the NIRC to deliver a range of other state-type services (refer to paragraph 3.76).

NSW Government — Health, Education and Financial Assistance Grant calculations

4.17 The oversight committee between the department and the NSW Government (refer to paragraph 3.48) met on a monthly basis to facilitate and coordinate services delivered by the NSW Government. The oversight committee’s terms of reference stated that NSW Government agency budgets for service delivery would be supported by an annual operating statement to assist the department with budgeting and value for money assessments, although the department did not request, nor did NSW Government provide, the annual operating statements.

4.18 The state-type services provided by the NSW Government are outlined in respective Services Delivery Schedules (SDS) for Health¹⁰⁴, Education and Local Government. The NSW Government (Department of Family and Community Services) also provided some child wellbeing services prior to 31 December 2018 (refer to paragraphs 3.50 to 3.52). The payments to the NSW Government, based on these SDSs, can be seen in Figure 4.1.

Figure 4.1: Service delivery schedule payments to NSW: 2016–17 to 2018–19

Source: ANAO analysis of data provided by the department.

4.19 The Health SDS stated that the NSW Government would work with the Norfolk Island Health and Residential Aged Care Service (NIHRACS) to develop a minimum set of reports to detail the performance of activities and that information would be provided ‘that contributes to the Commonwealth’s Monitoring and Evaluation Strategy’. The NIHRACS reports produced were: annual reports; annual income and expenditure reports; and data report which provided the NIHRACS financial information and health statistics. ANAO financial statement audit reporting for 2016–17 and 2017–18 identified deficiencies in revenue management and governance associated with this data, and there were no performance measures or indicators identified in the Health SDS to monitor service performance.

4.20 The South East Sydney Local Health District¹⁰⁵ (SESLHD) was engaged by NSW Health to provide management services to the NIHRACS. A Memorandum of Understanding was established between the SESLHD and the NIHRACS. The department, the NIHRACS, and the SESLHD met fortnightly. The SESLHD provided input to the NIHRACS’ six monthly data reports. The six-monthly report for July to December 2018 is yet to be produced (as at March 2019).

4.21 The Education SDS also provided for a minimum set of reports, an unaudited ‘financial report’ and a three year School Plan. There were indicators such as enrolments, attendance, NAPLAN¹⁰⁶ results, post-school destinations and workforce information reported. Monthly updates on the operation of the Norfolk Island Central School were provided through the Education interagency working group.

4.22 Under the Local Government SDS, the NSW Local Government Grants Commission (Commission) was to provide an annualised Financial Assistance Grant (FAG) assessment for the NIRC. The Commission prepared a FAG calculation for 2016–17 and 2017–18 based on a ‘rural agricultural small’ council model. For 2018–19, the Western Australian Government assisted with the FAG funding calculation based on the Indian Ocean Territories model which resulted in the NIRC’s FAGs increasing substantially. Refer to paragraphs 3.46, 3.81 and 3.82 for more information.

Child and family wellbeing services

4.23 The non-government service provider contracted by the department in June 2018 for the delivery of child protection and wellbeing services on Norfolk Island (refer to paragraph 3.52), was required under a services agreement to provide the department with quarterly Legislative Compliance reports and six monthly Quality Assurance and Outcomes Snapshots, both of which have been provided as scheduled in the subsequent period. There were KPIs identified in the services agreement, although the department in its review of the six monthly report noted that it would like ‘more information’ on how the KPIs were being met. The services agreement also required the provider to prepare a Project Plan which was delivered in September 2018. The department also had fortnightly teleconferences with the provider to monitor progress and issues.

Other state-type services — Norfolk Island Regional Council

4.24 The NIRC, through a Service Delivery Agreement (SDA) with the department, provides state-type services including: environmental protection; courts and legal services; workers compensation; motor vehicle registrations; food safety; and ports management (refer to Table 3.1 for services provided as at November 2018).

4.25 Performance standards for the delivery of state-type services were included in the three-year SDA. The NIRC were to provide half yearly performance reports and annual financial reports, with the first financial and performance report to cover the six months to December 2016 (quarter 1 and 2). The department assessed the report as ‘incomplete as the qualitative assessment of performance against the 16 service delivery areas¹⁰⁷ is in rudimentary draft form’. The department’s internal correspondence stated that it had assessed that the NIRC did not have ‘sufficient capacity to effectively deliver their obligations against the SDA in regard to administrative systems, staffing levels, governance and organisational culture’ and ‘the long term financial viability of the NIRC remains an active question’.

4.26 In March 2017, the performance report format was re-developed by the department and the NIRC. The Consolidated Performance Report for July to December 2016 was prepared in March 2017 in the new format to include a review against the standards and KPIs for each service as well as a description of performance. There were 17 service delivery areas identified.¹⁰⁸ Subsequent performance reports were not prepared on a timely basis. The NIRC did not provide a six monthly report to December 2017 but did provide a 2017–18 report to the department in February 2019.

4.27 Payments against the SDA were not tied to the attainment of milestones or agreed key performance indicators. The department advised that more detailed performance reporting against agreed key performance indicators will be refined in future years to ensure SDA services become more clearly defined and costings are more transparent. The department should consider incorporating the characteristics of performance information in terms of relevance, reliability and completeness to improve transparency and accountability.

The department’s monitoring of the delivery of local government services

4.28 One of the department’s state-type service delivery responsibilities is to provide oversight of the NIRC under the applied Local Government Act 1993 (NSW). The department’s July 2015 Planning Framework identified that the department would monitor performance of the NIRC in accordance with NSW Government standards and practices. The NIRC adhered to the NSW Government’s Integrated Planning and Reporting Framework¹⁰⁹ and within six months produced a Community Strategic Plan, Delivery Program, Operational Plan and Resourcing Strategy.¹¹⁰

4.29 The NIRC provided its annual reports to the department, which included a summary of activities to deliver¹¹¹ against the Operational Plan. The NIRC also provided its Long Term Financial Plan, which included an assessment of its financial performance based on standard financial indicators, although there were no service delivery performance indicators or standards in this plan. The department and the Minister periodically discussed operational matters with the NIRC.

Was a sound approach to evaluating the reforms to service delivery established?

4.30 In 2016, the department developed an Evaluation Resource Booklet 2016–21 to provide high level guidance for evaluations. The Norfolk Island Reform was listed under Evaluation activities — Strategies on the basis that a Monitoring and Evaluation Framework (Framework) for Norfolk Island had been drafted in 2016 (refer to paragraph 4.8).

4.31 The Framework identified reform outcomes, outputs and measures of success. The Framework recommended a broad evaluation approach that included:

• an effectiveness evaluation of the implementation of the reform plan (in 2019); and
• ‘on track’ evaluations every three years (commencing in 2022) that adopt a themed approach with a selection of key contributory outcomes being targeted at each evaluation.

4.32 The Framework did not specify any baseline data sources and the department has not formally identified data sources or collected baseline data. No evaluation activities or analysis based on this Framework has been performed by the department.

4.33 The department commissioned an Economic Development Strategy (strategy) in 2015 that identified areas that could be used to indicate ‘measures of success’ for the reforms. These included: growth in tourism numbers; increase in the number of cruise ships; increase in the number of businesses; improvement to water quality on the Island; and improved environment, waste disposal and heritage protection measures. However, the department did not systematically gather the relevant data to action this strategy.

4.34 The department advised that it had not performed activities to support an evaluation and had primarily relied on the NIRC’s reporting on economic indicators such as: tourist numbers; car registrations; and building approvals when briefing the Minister or preparing other communication on performance.

Was sound reporting and advice provided to the responsible Minister on the performance of the new arrangements?

4.37 The department regularly provided information and briefings to the responsible Minister on reform progress and issues from a whole-of-government perspective. Updates included progress on the implementation of arrangements, for example, the interim child care fee relief arrangements, updates on specific issues such as the importation of ruminants¹¹² and horses, and planned legislation, including transitioning to the national workplace relations system and the Fair Work Act 2009.

4.38 In April 2017, the Minister for Local Government and Territories (Minister) received correspondence from the NSW Premier stating ‘NSW was not in a position to consider any other additional services’. There is no evidence that the Minister was briefed on potential responses to this issue for five months. In September 2017, the department advised the Minister that it would develop an options paper for alternative jurisdictions.

4.39 In October 2017, a briefing to the incoming Minister did not include advice on the need for options for a state service provider and instead stated that the ‘department is continuing to work with the NSW Government on legislative and service delivery issues’. The next incoming Minister was briefed in February 2018 and authority from the Australian Government to approach an alternative jurisdiction was obtained in May 2018 — over one year after the NSW Government advised that it would not consider further services. Over this period, the department negotiated and established an arrangement with a non-government service provider to deliver child protection services (refer to paragraph 3.52). Other state-type services are still to be delivered (refer to paragraph 4.13).

4.40 In July 2018, the Prime Minister sent a letter to the ACT Chief Minister regarding partnering with the Australian Government to provide state-type services to Norfolk Island. In November 2018, the ACT Chief Minister publically indicated that it would be ‘highly unlikely’ that the ACT would become involved although it would ‘keep an open mind’. The department provided advice to the Minister in December 2018 suggesting approaches for further options for the delivery of state-type services on Norfolk Island.

4.41 In the period 1 July 2014 to 31 March 2017 the Norfolk Island Administrator provided updates and a report to the Minister in accordance with his Charter letter¹¹³, which requested that the Administrator ‘continue the practice’ of providing the Minister with regular written reports. The current Administrator, appointed 1 April 2017, provided an initial report in May 2017 and advised that he provided several verbal briefings to the Minister, although none of the meetings had briefing papers. In September 2018, the department requested the Administrator recommence regular reporting. In February 2019, the Administrator prepared a report for the December quarter 2018.

Appendix 1 Department of Infrastructure, Regional Development and Cities response

 

 

Appendix 2 List of inquiries and reports into Norfolk Island

Source: ANAO analysis of departmental and publically available information.

Appendix 3 Comparison of Norfolk Island, IOT, Jervis Bay Territory and Lord Howe Island

Appendix 4 Overview of vesting and delegation of the Minister’s powers

 

 

Source: ANAO analysis of departmental information.

Appendix 5 Executive priorities

Source: Department of Infrastructure, Regional Development and Cities 2016–17 and 2017–18 Business Plans.

Appendix 6 Norfolk Island reform governance committees

 

 

Note a: Bilateral Steering Committee.

Note b: Interdepartmental Committee.

Source: ANAO analysis of departmental information.

Appendix 7 Norfolk Island Branch Risk and Controls Assessment 2017–18

Appendix 8 Characteristics of appropriate performance information

1. To undertake an assessment against the Department of Finance’s Quick Reference Guide–RMG 131 Developing good performance information, the ANAO has applied the following audit criteria. This criteria has been applied for audits of performance information since Auditor-General Report No. 58 2016–17 Implementation of the Annual Performance Statements Requirements 2015–16. The assessment characteristics and explanations have been updated over time to reflect the ANAO’s methodology development.

2. In applying the ‘relevant’ criterion, the ANAO assessed whether the entity’s performance measures under review:

• clearly indicated who benefited and how they benefited from the entity’s activities;
• were focused on a significant aspect/s of the entity’s purpose/s, via the activity/ies, and the attribution of the entity’s activities to it is clear; and
• were understandable, that is, it provided sufficient information in a clear and concise manner.

3. In applying the ‘reliable’ criterion the ANAO assessed whether each of the selected entities’ performance measures under review were accompanied by sufficient information to be:

• measurable, that is, it used and disclosed information sources and methodologies (including a basis or baseline for measurement or assessment, for example a target or benchmark) that were fit-for-purpose; and
• free from bias, allowing for clear interpretation and an objective basis for assessment of the results.

4. In assessing the selected entities’ performance criteria for completeness, the ANAO considered whether the performance criteria present a basis for a collective and balanced assessment of the entity against its purpose. In particular, the ANAO considered whether the selected entities’ performance criteria:

• collectively address the entity’s purpose through the activities identified in the corporate plan (collective);
• provide a basis for assessment of the efficiency and effectiveness of the entity in fulfilling its purpose either directly or through the use of proxies (balanced);
• relied on a mixture of quantitative and qualitative measurement bases (balanced); and
• assess a mixture of short, medium and long term objectives (balanced).

Table A8.1: Criteria for the assessment of the appropriateness of performance information

Source: Auditor-General Report No. 17 2018–19 Implementation of the Annual Performance Statements Requirements 2017–18.

Appendix 9 Assessment of the department’s performance criteria

1. The scale used to rate the performance measures was:

• displayed all of the characteristics of the criterion (Yes);
• displayed most of the characteristics of the criterion (Mostly);
• displayed in part the characteristics of the criterion (Partly); and
• did not display the characteristics of the criterion (No).

2. As as a whole, the performance measures were assessed as being partly complete.

Note a: ANAO’s assessment of the performance criteria.

Source: Department’s Portfolio Budget Statements and Corporate Plan 2016–17 and 2017–18. The results were sourced from the Performance Statements in the Annual Reports 2016–17 and 2017–18.

Appendix 10 ANAO assessment of the department’s measures of success