The objective of the audit was to assess the effectiveness of the Indigenous Land Corporation’s administration of the Land Acquisition Program.

Summary

Introduction

1. Improving Indigenous people’s access to land has been an element of successive Australian Governments’ approaches to reducing Indigenous disadvantage. The Indigenous Land Corporation (ILC), an independent Australian Government statutory authority1, was established on 1 June 1995 under the Aboriginal and Torres Strait Islander Commission Act 1989 (ATSIC Act) to acquire land that would not be otherwise available to Indigenous people—where Native Title has been extinguished, for example. Following the abolition of ATSIC in 2004, the then Australian Government maintained a focus on land acquisition and re-established the ILC under Part 4A of the Aboriginal and Torres Strait Islander Act 2005 (ATSI Act). More recently, the Council of Australian Governments (COAG) reaffirmed the importance of Indigenous land in efforts to reduce Indigenous disadvantage, noting that ‘access to land and Native Title assets, rights and interests can be leveraged to secure real and practical benefits for Indigenous people’ extending beyond economic opportunities, to also enable environmental, social and cultural outcomes.2

2. The ILC’s statutory purpose is to assist Indigenous Australians to acquire land, and manage Indigenous-held land, ‘so as to provide economic, environmental, social or cultural benefits for Aboriginal persons and Torres Strait Islanders’.3 To support this purpose, the ILC administers two programs: the Land Acquisition Program (LAP) and the Land Management Program (LMP) through which Indigenous organisations apply for assistance.4 The ILC receives annual funding from a special account, the Aboriginal and Torres Strait Islander Land Account (Land Account). The Land Account is a capital fund administered by the Department of the Prime Minister and Cabinet.5 The fund was created by the Government in 1995 to provide an income stream in perpetuity to the ILC to fund its activities. Capital contributions were made to the fund between 1995–96 and 2003–04. At 30 June 2013, the net assets of the Land Account were $1.968 billion, an increase of $29 million from the previous year.6 In 2012–13, the ILC received $65.9 million from the Land Account.7 Approximately 50 per cent of ILC annual program expenditure is directed towards land acquisition.

Land Acquisition Program

3. The LAP is designed to contribute to the outcome of ‘enhanced socio-economic development, maintenance of cultural identity and protection of the environment by Indigenous Australians through land acquisition and management’.8

4. The ILC administers the LAP by inviting Indigenous organisations to apply for assistance to acquire land9 under one of two streams. The first stream aims to deliver social or economic benefits to Indigenous people through acquiring land to enable the operation of such activities as health clinics, aged care facilities, supporting education, and delivering training and employment opportunities.10 The second stream of assistance delivered through the LAP—‘cultural and environmental values’—aims to assist Indigenous people to acquire land which has cultural or environmental benefits, including projects to re-establish or maintain Indigenous connection to land, preservation of important cultural sites, or preservation of environments of significance to Indigenous people.

5. Under both streams, the ILC uses an established framework and criteria to assess applications on the basis of the Indigenous benefits expected to be achieved, as well as assessing the organisation’s ability to hold title over the land and deliver benefits over the longer term. Upon approval of the proposed project, the ILC board directs the ILC to purchase the property at market value, after which the ILC becomes the title-holding body and enters into a lease with an Indigenous organisation, typically for a three-year period. Should the organisation demonstrate the expected management capability, title to the land is ultimately passed to the Indigenous organisation and the parties enter into a post-divestment phase to monitor that the project’s benefits continue to accrue. Section 191S of the ATSI Act establishes mechanisms protecting land acquired under the LAP from being dealt with or disposed without the ILC’s consent. The ILC also has the ability to re-acquire divested properties under some circumstances.

Strategic projects

6. The ILC defines strategic projects as projects that the ILC initiates to achieve significant Indigenous benefits, including employment and training. These projects usually involve collaboration with other Australian Government or State/Territory agencies or the private sector. Strategic projects are generally complex and long-term projects. A strategic project can involve the acquisition of land but this is not always the case and the ILC may facilitate its support through other programs such as the Land Management Program. Strategic acquisition projects are initiated by the ILC rather than through the normal assessment of applications under the LAP. If a strategic project involves the acquisition of land, the ILC expect divestment to occur over a longer period of time compared to acquisitions made through LAP. Strategic projects can include agricultural and tourism operations in regional and remote locations, as well as facilitating Indigenous businesses or Indigenous service delivery from premises in urban centres.

Audit objective, criteria and scope

7. The objective of the audit was to assess the effectiveness of the Indigenous Land Corporation’s administration of the Land Acquisition Program.

8. To form a conclusion against the audit objective, the ANAO’s high level criteria included assessing the program management and delivery arrangements in place to acquire and divest land through LAP to the benefit of Indigenous Australians; and assessing the ILC’s systems for measuring and evaluating the benefits of ILC acquisition and divestment activities against program objectives.

9. The audit scope included the ILC’s land acquisition and divestment activities since 2008, although some file reviews, data analysis and site visits covered projects dating to the late-1990s, to understand changes to LAP delivery. The audit focussed primarily on the administration of the application-based LAP. In October 2013 the ILC’s purchase of the Ayers Rock Resort (ARR), which was undertaken as a strategic project, began receiving increased media attention due to issues surrounding its financial performance in 2012–13. The ILC board commenced a review in September 2013 to assess the short and medium term operational strategies available to the ILC in relation to ARR to improve its performance. This review was also tasked with informing the ILC board over the adequacy of the due-diligence undertaken in respect of the purchase of ARR. The review is expected to be completed in early 2014. The ANAO has given some additional coverage to the ILC’s purchase of the ARR in the light of Parliamentary interest but has not replicated the work being undertaken in the review.

Overall conclusion

10. Increasing Indigenous people’s access to land has been recognised by successive Australian Governments as an important mechanism to increase economic participation and to deliver social, cultural and environmental benefits for Indigenous people.11 The ILC has administered the Land Acquisition Program (LAP) since 1995 and has been active in acquiring land for, and subsequently divesting it to, Indigenous organisations representing Indigenous Australians. Since 2008, 22 properties have been acquired and 43 divested.12 LAP projects funded between 2008 and 2013, for example, ranged from $280 000 for protection of cultural and environmental values in western Victoria to the $8.6 million purchase of an Indigenous aged care facility in Perth, Western Australia.

11. Acquisition and divestment results are lower than the targets, including revised targets, set by the ILC over the period since 2008. Nonetheless, ILC has managed the LAP program to acquire a diverse range of properties. The timely and successful divestment of properties is recognised by the ILC as a recurring issue. More broadly, the ILC has reported that, since its inception, it has acquired a total of 246 properties, of which 170 have been divested, and made a contribution of over 5.8 million hectares to increasing Australia’s Indigenous estate. Since 1996, 12 properties have been disposed of by the ILC because the Indigenous benefits identified were not achieved or unable to be sustained.

12. In the 18 years that it has administered the LAP, the ILC has built up a detailed set of processes and practices to support program implementation in line with key requirements of the ATSI Act. These processes provide clear guidance in terms of decision making responsibilities and the required steps for the acquisition and divestment processes. ILC board proposals examined by the ANAO indicated that the required administrative steps were generally undertaken. In some cases, deeper and broader analysis of risks could be undertaken and provided to the board. Project monitoring and evaluation could also be strengthened in terms of analysing more robustly whether expected benefits have been achieved at a reasonable cost. This would better position the ILC to make more informed decisions about the cost effectiveness of LAP, and strategic projects, going forward.

13. The ILC’s evaluation activities for the LAP occur primarily at individual project level and are mostly undertaken just prior to divestment. Project level evaluations assessed by the ANAO were generally limited in their analysis of the achievement of benefits, however, the ILC has periodically undertaken more detailed and larger evaluations of acquisitions which have given greater consideration to assessing the achievement of benefits. An overall evaluation of the performance of properties acquired between 1995 and 2001 was completed in 2002, although a similar program-wide evaluation has not been undertaken since then. The wide variety and scale of projects funded and the different benefits expected from each project do not allow for ready comparison or aggregation of benefits, as these are specific to each project and generally have localised impact however strengthening current project evaluation approaches, at least for the more costly acquisitions, is important. The ILC could also consider undertaking a similar evaluation exercise to that completed in 2002 to obtain a program-wide assessment of the performance of acquisitions, using the findings of the 2002 evaluation as a baseline.

14. The ANAO has made two recommendations to improve the ILC’s administration of the LAP. The first is aimed at strengthening the effectiveness of the ILC’s current risk management approaches. The second is aimed at the ILC introducing activities into its project appraisal steps to assist in comparative assessments of potential projects and corresponding Indigenous benefits.

Key findings by chapter

Program Management Arrangements (Chapter 2)

15. The ILC has established systems to support management and delivery of the LAP including the development and implementation of a tailored information and management reporting system; and documented processes to guide the program. The ILC requires formal risk plans to be in place for its strategic projects, and regular review of risk occurs for ILC-held businesses. However a similar requirement for a continuous, whole of project-life approach is not consistently applied to all acquisition activities under the LAP. The ILC has embedded risk mitigating strategies into lease agreements, such as progress reporting requirements, but these alone do not identify or allow the ILC to monitor or remedy project-specific risks adequately through all stages of a project’s life-cycle. Consequently, the ILC is reactive to issues, rather than enhancing efficiency and delivery of Indigenous benefits through a consistent, forward-looking approach to risk management.

Delivery of Land Acquisition Projects (Chapter 3)

16. The ILC’s current program management arrangements generally support the consistent delivery of the LAP. Program delivery rests on a suite of internal guidance material which provides staff with a framework to manage a LAP project—from application assessment, project and lease management to the eventual divestment of a property. Additionally, for each annual funding round, the ILC publishes external program guidelines which provide applicants with information on both streams of funding, the assessment process, and the criteria to be used. Divestment plans for acquired properties were not completed consistently, and differed in the degrees of detail contained.

17. Processes to support the administration and delivery of the LAP are, for the most part, appropriate for the acquisition of the less complex, commonly purchased properties under the LAP. In relation to strategic projects, the ILC has undertaken a range of investigations and due-diligence activities although these have not necessarily reduced the risks involved in their purchases. For example, ARR, purchased for over $300 million following a decision of the ILC Board in October 2010, suffered an impairment loss in 2012–13 reducing its value to $250 million.13 While the ARR is owned by an ILC subsidiary and loan repayments are expected to be funded by revenue received through the operation of the resort, the ILC is ultimately responsible for making the loan repayments to the vendor14 if the subsidiary is unable to meet its debt obligations. The ILC considers that at least $20 million of approximately $35 million available each year to fund the ILC’s core legislated functions—land acquisition and land management—would be required to service the interest and principal debt obligations associated with the ARR acquisition.15

18. The ILC began work on the ARR acquisition in 2008. In the period leading up to the decision to purchase in October 2010, the then Minister for Finance and Deregulation and the then Minister for Families, Community Services and Indigenous Affairs, and their respective departments, engaged with the ILC with a particular focus on highlighting their concerns about the risks involved in the purchase, although these letters acknowledge the decision to purchase was a matter for the ILC board. On 5 November 2010, following the acquisition of ARR, the ILC Chair wrote to the Minister for Finance and Deregulation confirming the ILC’s participation in quarterly project meetings with the then Department of Finance and Deregulation and the then Department of Families, Housing, Community Services and Indigenous Affairs where financial and other performance matters affecting ARR were to be reviewed on a regular basis.

19. In December 2012, subsequent to changes in the membership of the ILC board, further review activities have been initiated. These included a review of board governance arrangements including relationships between the ILC and its subsidiary companies which was completed in January 2013.16 Furthermore, in September 2013 the board commenced a review to assess the short and medium term operational strategies available to the ILC in relation to ARR to improve its performance. This review was also tasked with informing the ILC board over the adequacy of the due-diligence undertaken in respect of the purchase of ARR. In proposing the acquisition to the board, the ILC supporting papers noted the inherent volatility of the tourism sector and its sensitivity to external influences. The papers identified a range of significant risks including that the purchase price paid over the five-year period would not remain commensurate with ARR’s value. This was considered as an extreme risk and likely to occur, however following the completion of various due-diligence activities, the papers noted that the risk had been reassessed as moderate and unlikely to occur. Minutes of the board meeting recorded that frank and interactive discussion occurred around the proposal and that following these discussions, the board ultimately agreed to proceed with the acquisition. The recent performance of ARR highlights the general importance of public sector bodies applying a sufficiently sceptical approach to assessments when decisions can have significant consequences.

Performance Reporting (Chapter 4)

20. The ILC has not met its annual targets for acquisition and divestment activities in most years between 2008–09 and 2012–13. Against a cumulative acquisition target of 30 the ILC has acquired 22 properties17, and divested 43 properties against a revised target of 57. The ILC’s performance against its targets would be enhanced by the ILC continuing to review and, where necessary, adjusting the methodology it uses to set acquisition and divestment targets and closely considering the risks to these on an annual basis as part of a broader program level risk assessment. This would allow the ILC to more accurately forecast and report against performance in relation to key LAP-related activities.

21. The Indigenous benefits framework has been developed by the ILC to outline the way in which the ILC defines, captures, measures and reports on the achievements of benefits delivered through the ILC’s activities. Under the framework, benefits data collected is intended to enable the ILC to report progress and communicate project and program effectiveness. The data collected also informs preparation of the ILC’s annual report, input to portfolio budget statements and responses to Ministerial or Parliamentary inquiries. Indigenous organisations provide data through six-monthly progress reports and data for ILC-operated businesses is obtained from property managers and training organisations. While the benefits framework seeks to ensure the collection and use of benefits data is accurate and consistent, the processes for achieving this are under-developed. The ILC has identified methods to support the collection and use of project and program data but has yet to develop systematic approaches for reviewing the accuracy and consistency of data.

Summary of agency response

22. A summary of the ILC’s response to the audit is as follows:

The ILC acknowledges the ANAO’s positive findings regarding the well developed administrative processes we utilise to support the land acquisition program. We have to date, acquired 246 properties and increased the Indigenous estate by almost 6 million hectares. The ILC’s Land Acquisition program has been refined over the years as the ILC takes a continuous improvement approach to program delivery. We therefore welcome the ANAO’s recommendations for further improvements.

The Land Acquisition and Land Management program delivery arrangements are currently under review and the ANAO’s recommendations will be considered as part of revised program arrangements from 2014.

Recommendations

Recommendation No.1

Para 2.32

To improve risk management, the ANAO recommends the Indigenous Land Corporation regularly monitors and reviews risk for all stages of a project’s life, including post-acquisition and post-divestment phases.

ILC’s response: Agreed.

Recommendation No.2

Para 3.23

To better balance competing opportunity costs across diverse land acquisition activities, the ANAO recommends the Indigenous Land Corporation develops approaches to including comparative assessments of relevant projects benefits in its project appraisal steps to assist with the assessment of potential projects and their corresponding Indigenous benefits.

ILC’s response: Agreed.

Footnotes

[1] As a statutory authority, the ILC is also subject to provisions of the Commonwealth Authorities and Companies Act 1997 (CAC Act). The Public Governance, Performance and Accountability Act 2013, whose operative provisions commence 1 July 2014, will replace the CAC Act for these provisions, and other governance, performance and accountability responsibilities. The ILC is governed by a board.

[2] Council of Australian Governments (COAG), National Indigenous Reform Agreement (NIRA) (Closing the Gap), February 2011 updated agreement, p. 6.

[3] Section 191B, Aboriginal and Torres Strait Islander Act 2005 (ATSI Act). The ATSI Act does not explicitly define the nature of ‘benefit’. The ILC describes ‘benefits’ as ‘long-term improvements in Indigenous wellbeing’: ILC, Annual Report 2011–12, p. 128.

[4] The ILC can also initiate acquisitions itself without receiving a formal application.

[5] Until September 2013, the Land Account was administered by the Department of Families, Housing, Community Services and Indigenous Affairs (FaHCSIA).

[6] FaHCSIA, Annual Report 2011–12. p. 335; Annual Report 2012–13. p. 299.

[7] FaHCSIA, Annual Report 2012–13. p. 298.

[8] FaHCSIA portfolio, Portfolio Budget Statements (PBS), 2013–14, p. 263.

[9] Land includes works and improvements made to land, such as buildings, sheds, cattle yards and other assets fixed or attached to land.

[10] Section 191F(1) of the ATSI Act requires the Indigenous Land Corporation (ILC) to act in accordance with sound business principles whenever it performs its functions on a commercial basis.

[11] Council of Australian Governments (COAG), National Indigenous Reform Agreement (NIRA) (Closing the Gap), February 2011 updated agreement, p. 6.

[12] Several of the 43 properties divested in the period were acquired prior to 2008.

[13] The impairment loss $62.25 million is based on an assessed carrying amount (non-financial assets) for the resort of $312.25 million, assessed in August 2011: ILC, Annual Report 2012–13, pp. 26, 109, 168, and 199.

[14] ARR was purchased through a vendor-finance arrangement.

[15] At a Senate Finance and Public Administration Legislation Committee meeting on 22 November 2013, the ILC advised that in the absence of a fundamental turnaround in the tourism market, the ARR acquisition is expected to impact for at least 15 to 20 years on the ILC’s ability to fulfill its core statutory functions—land acquisition and land management. The ILC also advised that servicing the interest and principal payments associated with the acquisition of ARR would consume at least $20 million of the approximately $35 million available each year to fund the ILC’s core functions. See: Senate of Australia, Finance and Public Administration Legislation Committee estimates, Proof Committee Hansard, 22 November 2013, pp. 26–27.

[16] The review reported in February 2013: Deloitte, Board Governance Arrangements, available from: <http://www.ilc.gov.au/Publications/~/media/ILC/ILC%20Website/Content/Publications/Corporate%20Documents/Governance%20Review%20Report.ashx> [accessed 23 July 2013]. Overall, the review concluded that there had been a lack of cohesion at the board level; that board governance arrangements reflected the approach of the ILC prior to its expansion into larger-scale tourism ventures and that further strengthening of governing frameworks was required at the group level.

[17] Including some properties acquired as strategic projects.