The Auditor-General, Grant Hehir, delivered a presentation to the 15th Biennial Australasian Council of Public Accounts Committees (ACPAC) Conference held at Parliament House, Canberra, on 7 November 2019. The presentation was titled Maintaining Trust in the Parliamentary Process — PACs and Officers of the Parliament.

Introduction

The work of the Parliament involves making laws — including for the allocation of funds for government expenditure and scrutinising government activities — holding the government to account for its policies, actions and spending, and providing a forum for debate on national issues. The executive arm of government is accountable to Parliament for its use of public resources and the administration of legislation passed by the Parliament. In this parliamentary system, public accounts committees (PACs) and the work of the officers of the Parliament, play an important role in enabling the Parliament to carry out the oversight function effectively, making governments accountable.

The effective and transparent performance of this role is fundamental to maintaining trust in the parliamentary process.

The Joint Committee of Public Accounts and Audit (JCPAA) is the Australian Parliament’s PAC. The Committee scrutinises the governance, performance and accountability of Commonwealth entities, and has the power to inquire into all expenditure of Commonwealth money.1

The Auditor-General for Australia is an independent officer of the Parliament whose functions and powers are set out under the Auditor-General Act 1997 (the Act). The Auditor-General is assisted by the Australian National Audit Office (ANAO) in delivering against the mandate established by the Act. The ANAO scrutinises and provides independent assurance as to whether the executive is operating and accounting for its performance in accordance with Parliament’s intent.

The Auditor-General’s financial statement audits ensure accountability to the Parliament for the expenditure of public funds. In addition to the annual program of mandated financial statements audits, the ANAO undertakes a wide-ranging program of performance audits which touches on many aspects of government entities resource management, governance and performance.

All of these activities are carried out in the context of a legislative framework which sets out the financial and non-financial planning and reporting requirements of government entities.

In a 2015 inquiry report into the ‘Development of the Commonwealth Performance Framework’, the JCPAA noted that one of its key goals was to have general oversight of the overall financial management framework that underpins the operations of Commonwealth entities and working to ensure the Parliament has access to timely, clear, contextual and transparent information about the performance of agencies.2

This paper considers the roles the JCPAA and the Auditor-General have played in overseeing the development and implementation of reforms to the Commonwealth performance framework. In turn, demonstrating how an ongoing focus on improving public sector performance measurement and reporting contributes to maintaining trust in parliamentary processes.

These oversight roles are critical in ensuring that the executive, who are the lead authors of the framework, appropriately focus on the needs of the Parliament as primary users of the framework. To be effective, the framework needs to produce information which is legible to the Parliament. Without this oversight the incentives on the executive authors do not ensure such legibility.

Public sector management frameworks

Since the mid-1980s public sector management frameworks have emphasised the importance of measuring program performance. While the frameworks have changed over the years, the fundamental goals have remained largely consistent—to be able to measure and assess the impact of government programs.

The focus of this paper is on the Public Management Reform Agenda (PMRA), which started in 2010 with the Commonwealth Financial Accountability Review, leading to the implementation of the Public Governance, Performance and Accountability Act 2013 (PGPA Act). The PGPA Act consolidated into a single piece of legislation the governance, performance and accountability requirements of the Commonwealth, setting out a framework for regulating resource management by the Commonwealth and relevant entities. There were five principles guiding the development of the PGPA Act:

  1. Government should operate as a coherent whole;
  2. A uniform set of duties should apply to all resources handled by Commonwealth entities;
  3. Performance of the public sector is more than financial;
  4. Engaging with risk is a necessary step in improving performance; and
  5. The financial framework, including the rules and supporting policy and guidance, should support the legitimate requirements of the Government and the Parliament in discharging their respective responsibilities.3

The PGPA Act established the requirements for three key artefacts to strengthen strategic planning and linkages to the measurement, assessment and reporting of performance. The three key artefacts are: Portfolio Budget Statements (where entities receive appropriations from the Parliament); corporate plan; and annual report.

Portfolio Budget Statements, which are tabled in Parliament with the Appropriation Bills, provide budgetary information for programs and outcomes administered by the entity. They are used by Parliament in its consideration of the Appropriation Bills. They must be related to the entity’s corporate plan, and reported against in its annual performance statements.

The explanatory memorandum to the PGPA Bill outlined that the corporate plan is intended to be the entity’s primary planning document, and is required to include: the objectives to be pursued by the entity; the strategies of the entity to achieve its purpose in the coming year; forecast revenue and expenses; assumptions about the entity’s business environment, including risks; and non-financial performance targets.4 As a statement of planned performance, an entity‘s corporate plan is closely linked to its Portfolio Budget Statements and annual report. Corporate plans are not tabled in Parliament, but are required to be published.

The PGPA Act also requires entity’s to prepare annual performance statements. Performance statements are an integral part of an entity’s annual report, and focus attention on improving the quality and reliability of performance information in the Commonwealth public sector. In this way, the annual report of an entity combines material information about an entity’s strategies and governance with a balance of both financial and non-financial performance information through including both financial statements and performance statements.

The expected benefits of the regulatory framework established by the PGPA Act included improved performance of the public sector and improved quality of information to Parliament to support its role in relation to Commonwealth expenditure.

Section 40 of the PGPA Act allows the responsible minister or the Finance Minister to request the Auditor-General to examine and report on an entity’s annual performance statements (in a similar way to reporting on financial statements). The Auditor-General could consider whether the statements meet the PGPA Act and rules, and whether the metrics used in assessing performance are relevant. While the Minister for Finance has recently requested the Auditor-General to undertake a program of pilot assurance audits of annual performance statements, to date no minister has otherwise requested this of the Auditor-General.

Oversight role of the JCPAA and the Auditor-General

Oversight of the evolution of the Commonwealth financial framework stems back to 1989, from an inquiry by the then Joint Committee of Public Accounts (JCPA) of the Audit Office that recommended that the Audit Act 1901 be replaced with separate acts to deal with auditing and financial administration.5 Assuming a start date in 1989, oversight of the framework has spanned 12 Parliaments6 and the terms of four Auditors-General.7

The growing maturity of Commonwealth entities’ annual financial statements can in part be attributed to the regular external audit scrutiny applied by the ANAO. Engagement with entities throughout a financial year provides the opportunity to resolve matters affecting the reliability of financial statements in real time. This approach, accompanied by the bi-annual reporting of significant and moderate audit issues to the Parliament, and the JCPAA review of these reports, has played a role in entities moving towards the more mature financial reporting processes observed today.

Comparatively, over time the ANAO’s audit observations and recommendations have consistently highlighted where entities’ non-financial performance information could be improved. This has been an indicator that greater incentive was required for entities to advance their performance measurement and reporting.

JCPAA oversight

The JCPAA has played an important leadership role in relation to the PGPA Act framework. The committee was closely involved in the development of the framework and is actively monitoring, on behalf of the Parliament, its ongoing implementation. The committee has a specific role to review all rules made under the PGPA Act before they are tabled in the Parliament, including a specific role in approving any changes to the annual report rule for the Commonwealth.8

The JCPAA has completed six inquiries into different aspects of the development and implementation of the PGPA Act.

With strong support from the JCPAA, the PGPA Act promoted the idea of a clear read of financial and non-financial performance information between portfolio budget statements, corporate plans and annual reports, with information also being consistent and comparable across entities and reporting cycles. Each of these documents is important in its own right to the transparency and accountability of government.

Other key areas of interest the JCPAA has had throughout the development of the framework include:

  • the integrity of the portfolio budget statements to ensure that performance information is adequately reported in the interests of transparency and assisting the process of Parliamentary consideration of the Budget;
  • the quality of performance information to focus on outcomes and strengthen accountability, including the establishment of clear criteria that performance information should satisfy;
  • performance measures that both foreshadow and subsequently assess the impact of government programs;
  • clear policy and guidance (including distinguishing between mandatory requirements and good practice terminology), in the context of principle based legislation;
  • bringing forward and formally legislating earlier annual report delivery and tabling dates in time for adequate scrutiny before October’s Supplementary Estimates hearings;
  • further enhancing the effectiveness of entity audit committees, to reflect their role in assurance of the appropriateness of performance reporting; and
  • driving high quality implementation of the framework, through ongoing monitoring of entity implementation.

The requirement for an independent review of the operation of the PGPA Act to be conducted after 1 July 2017 was included in the Act on the suggestion of the JCPAA.9 Two of the JCPAA inquiries related to the new performance framework since its introduction and recommended that the independent review look further at some of the issues that were identified in its work.10

Auditor-General’s oversight

The Auditor-General’s primary relationship is with the Australian Parliament, through key interactions with the JCPAA.

The Auditor-General plays a role in advising the Parliament, and the JCPAA, on the implementation of the reforms to the enhanced Commonwealth performance framework. One aspect of this role includes undertaking audits to provide feedback on, and influence the development, implementation and operation of, an effective performance framework.

Performance audit coverage to date has included three audits on corporate planning by 17 entities, an audit on risk management in four entities, three audits that examined 10 entities implementation of the performance statements requirements, plus two audit insights products:

As part of this audit program, the ANAO has reviewed:

  • entities’ implementation of legal and policy requirements;
  • the maturity of internal processes used for planning and risk management;
  • the role played by senior leaders and audit committees;
  • the appropriateness of entities’ corporate plans and performance statements; and
  • the Department of Finance’s role in leading this sector-wide reform.

The JCPAA recommended in December 2017 that the ANAO consider conducting an audit of one complete Commonwealth performance reporting cycle, including whether a clear read of performance information has effectively been established, with consistent terminology and improved line of sight across performance reporting documentation.11 An audit of the Commonwealth resource management framework and the clear read principle is due to table this month.

The ANAO noted in its 2017 submission to the independent review of the PGPA Act that there are no obvious gaps in the regulatory framework and it has usefully brought a number of key matters into the foreground.12 These include risk management, corporate planning and performance reporting. These elements of the framework have the potential to facilitate improved risk and performance management and improved accountability to the Parliament and community.

The most recent audit report into the progress of the implementation of the annual performance statements in selected entities concluded that there has been improvement over time in the entities’ performance statements. They all largely comply with the requirements of the PGPA Act and accompanying PGPA Rule to publish performance information. However, the information presented in the performance statements continues to fall short of fully meeting the objects of the PGPA Act — to provide the Parliament and the public with meaningful information.13

The ANAO’s methodology for assessing performance statements is now broadly applied in all performance audits which include an examination of the measurement and reporting of the audited program’s performance. Through this approach, the ANAO’s coverage of entities performance statements is consistently embedded across the performance audit program.

Maturity of performance framework

The JCPAA acknowledged in its December 2017 inquiry the Auditor-General’s observation that moving towards a mandatory system of audits of performance statements similar to financial auditing will take time, to enable entities to build capability, and establish effective systems and processes. The committee sought to establish the framework, including through amendment of the relevant legislation, to enable this transition process to commence. The committee believed that taking this action was critical to implementing an effective Commonwealth performance framework for the future.

The Auditor-General has flagged to the JCPAA and the Parliament, the intention to position the ANAO to conduct annual audits of performance statements. This would provide a similar level of assurance to the Parliament and the public as provided by mandatory annual audits of financial statements. The JCPAA provided their support for this approach, and in Report 469: Commonwealth Performance Framework, released on 7 December 2017, recommended amending the PGPA Act in this context.14 The committee also referred this matter to the attention of the Independent Review of the PGPA Act.15

In the 2017 inquiry, the committee stated:

to build on momentum in the implementation of the Commonwealth performance framework, the provisions of the PGPA Act need to be amended to require the Auditor-General to conduct annual audits of performance statements. Mandatory audits will provide the necessary incentive in the system to ensure the quality of that reporting is of the required standard. The Parliament and the Australian public would then receive the same assurance on non-financial performance reporting as on financial reporting, where an independent audit is mandatory.16

The independent review of the PGPA reported in September 2018 that broadly speaking the Auditor-General and the JCPAA agree that the overall quality of published performance information is better than it was before the framework was introduced, but that progress has been uneven, and in some cases modest.17

The independent review recommended that the Finance Minister, in consultation with the JCPAA, request that the Auditor-General pilot assurance audits of annual performance statements to trial an appropriate methodology for these audits. The JCPAA would monitor the implementation of the pilot on behalf of the Parliament.

Following the Government’s in-principle agreement to the independent review recommendations in July 2019, the Minister for Finance requested the Auditor-General to undertake a program of pilot assurance audits of annual performance statements within the Commonwealth.

In considering the minister’s request, planning is underway for a pilot and the ANAO will be working with the JCPAA on its implementation. The experience gained from the series of performance audits already conducted will be built on.

Conclusion

The independent review into the operation of the Public Governance, Performance and Accountability Act 2013 and Rule (PGPA Review), commissioned by the Minister for Finance, notes:

Strong governance, performance and accountability practice drives enormous value for organisations. It helps secure outcomes, improve transparency and trust, and leads to better engagement with key partners and stakeholders…

The challenge for public sector organisations is more acute because of multiple stakeholders, intense public and political scrutiny, and the growing expectations of citizens…

Citizens have a right to know how their money is used and what difference that is making to their community and the nation - what outcomes are being achieved, how, and at what price.18

The JCPAA and Auditor-General have made considerable strides in providing transparency and accountability through their oversight of the evolving Commonwealth financial framework. Future advancements to performance measurement and reporting requirements will contribute to the joint role of the JCPAA and Auditor-General in maintaining trust in Parliamentary processes and holding the executive arm of government to account.

Footnotes

1 Joint Committee of Public Accounts and Audit, Parliament of Australia, Report 463: Commonwealth Financial Statements (2017), p. 1. Available from: https://www.aph.gov.au/Parliamentary_Business/ Committees/Joint/Public_Accounts_and_Audit/CommFinancialStatements/Report_463.

2 Joint Committee of Public Account and Audit, Parliament of Australia, Report 453: Development of the Commonwealth Performance Framework (2015), p. 15. Available from: https://www.aph.gov.au/Parliamentary_Business/Committees/Joint/Public_Accounts_and_Audit/Performance_Framework/Report_453.

3 E Alexander AM and D Thodey AO, Independent Review into the operation of the Public Governance and Accountability Act 2013 and Rule, 2018, p. iii. Available from: https://www.finance.gov.au/sites/all/themes/pgpa_independent_review/report/PGPA_Independent_Review_-_Final_Report.pdf.

4 Public Governance, Performance and Accountability Bill 2013 Explanatory Memorandum, p. 32. Available from: https://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22legislation%2Fems%2Fr5058_ems_5771fa39-4fac-45d7-9699-75920976ba70%22.

5 Joint Committee of Public Accounts, Parliament of Australia, Report 438: Advisory Report on the Public Governance, Performance and Accountability Bill 2013, 2013, p. 5-6. Available from: https://www.aph.gov.au/Parliamentary_Business/Committees/House_of_Repres....

6 The 35th to 46th Parliaments. Timeline of Parliaments available from: https://www.aph.gov.au/Parliamentary_Business/Statistics/Senate_StatsNet/General/parliaments.

7 The timeline for Auditors-General of Australia is available at: https://www.anao.gov.au/about/the-auditor-general.

8 Duties and powers of the Joint Committee of Public Accounts and Audit (JCPAA). Available from: https://www.aph.gov.au/Parliamentary_Business/Committees/Joint/Public_Accounts_and_Audit/Role_of_the_Committee.

9 Joint Committee of Public Accounts and Audit, Parliament of Australia, Report 438: Advisory Report on the Public Governance, Performance and Accountability Bill 2013 (2013), p. 41. Available from: https://www.aph.gov.au/Parliamentary_Business/Committees/House_of_Representatives_Committees?url=jcpaa/accountability_bill/index.htm.

10 E Alexander AM and D Thodey AO, Independent Review into the operation of the Public Governance and Accountability Act 2013 and Rule, 2018, p. 12. Available from: https://www.finance.gov.au/sites/all/themes/pgpa_independent_review/report/PGPA_Independent_Review_-_Final_Report.pdf.

11 Joint Committee of Public Accounts and Audit, Parliament of Australia, Report 469: Commonwealth Performance Framework (2017), p. viii. Available from: https://www.aph.gov.au/Parliamentary_Business/ Committees/Joint/Public_Accounts_and_Audit/CPF/Report_1.

12 ANAO submission to the review of the Public Governance, Performance and Accountability Act 2013, November 2017. Available from: https://www.anao.gov.au/work/corporate/submission-review-public-governance-performance-and-accountability-act-2013.

13 Auditor-General Report No. 17 2018–19 Implementation of the Annual Performance Statements Requirements 2017–18, p. 9. Available from: https://www.anao.gov.au/work/performance-audit/implementation-annual-performance-statements-requirements-2017-18.

14 Joint Committee of Public Accounts and Audit, Parliament of Australia, Report 469: Commonwealth Performance Framework (2017), p. viii. Available from: https://www.aph.gov.au/Parliamentary_Business/ Committees/Joint/Public Accounts_and_Audit/CPF/Report_1.

15 E Alexander AM and D Thodey AO, Independent Review into the operation of the Public Governance and Accountability Act 2013 and Rule, 2018, p. vi. Available from: https://www.finance.gov.au/sites/all/themes/pgpa_independent_review/report/PGPA_Independent_Review_-_Final_Report.pdf.

16 Joint Committee of Public Accounts and Audit, Parliament of Australia, Report 469: Commonwealth Performance Framework (2017), p. 2. Available from: https://www.aph.gov.au/Parliamentary_Business/ Committees/Joint/Public_Accounts_and_Audit/CPF/Report_1.

17 E Alexander AM and D Thodey AO, Independent Review into the operation of the Public Governance and Accountability Act 2013 and Rule, 2018, p. 12. Available from: https://www.finance.gov.au/sites/all/themes/pgpa_independent_review/report/PGPA_Independent_Review_-_Final_Report.pdf.

18 ibid, pp. 1–11.