Chapter 5 Scrutiny of National Funding Agreements
This chapter discusses the adequacy of parliamentary scrutiny of
national funding agreements, noting that such agreements are typically
negotiated at executive-to-executive level.
Participants’ views on the adequacy of accountability mechanisms and the
level of transparency in place for national funding agreements will firstly be
presented. Comments relating to the sufficiency of parliamentary scrutiny will
follow and arguments for and against the current level of scrutiny will be
The chapter will then go on to outline the type and extent of
accountability and transparency provided through the work of the Council of
Australian Governments Reform Council (CRC). Also included, will be
participants’ views on the role of Auditors‑General in providing accountability
for funds expended under the new framework and insight to the parliament on the
outcomes of these agreements.
Taking into account the views presented, the chapter will consider the adequacy
of current scrutiny arrangements and pose suggestions to improve parliamentary
scrutiny as well as the supporting accountability mechanisms.
Accountability and transparency
Typically, all funding agreements under the Intergovernmental Agreement
on Federal Financial Relations (IGA FFR) are negotiated through the
Council of Australian Governments (COAG) at an executive‑to‑executive
level. Although this approach enables negotiations to occur in a speedy manner,
it can be at the expense of transparency.
The Committee received evidence to suggest that unlike the exposure of other
government policies to the parliament through legislation, democratic
accountability and parliamentary scrutiny of national funding agreements is
minimal. For example, the Centre of
Public Law from the University of New South Whales informed the Committee that,
funding agreements which do not require legislative implementation ‘will not be
subject to any parliamentary scrutiny’.
The Committee was particularly interested to gain insight from the
inquiry’s participants on the mechanisms available for parliamentary scrutiny
and oversight of national funding agreements including perspectives on the
adequacy of these arrangements.
High level accountability and transparency mechanisms
The balance between flexibility and accountability under the new federal
financial framework has been identified as an ‘ongoing challenge for all
governments’. Further, within a federal
system the CRC notes that the improvement of Australians’ wellbeing will
…strong public accountability to give the community
confidence that governments are on track to achieve results’.
Parliamentary access to clear and reliable information that ‘provides
insights to the success or otherwise’ of programs funded under national funding
agreements is essential. As stated by the Australian
National Audit Office (ANAO), measuring and assessing performance against
program objectives is at the core of public sector accountability.
The Committee was advised that under the current arrangements there were
a number of high level mechanisms in place for parliament to gain insight on
the operation of national funding agreements. The ANAO pointed to reporting to
the Parliament through portfolio budget statements and annual reports, as well
as information reported through the CRC.
The ANAO’s submission also noted that The Treasury’s (Treasury) Portfolio
Budget Statements (PBS) included the funding provided
for National Partnership (NP) agreements, with a link to the relevant agency’s
However, the ANAO raised a number of issues with these mechanisms
commenting that PBS reporting requirements and national funding agreements often
have a different focus and ‘do not intersect’. The ANAO’s submission
noted that while Treasury’s PBS include funding provided for NPs often there
…variability in whether agencies include performance
indicators for those programs in their own publications. As such, reporting is
often either at a very high level or, in some cases, is non-existent.
The ANAO identified that currently there is no guidance for agencies on
‘how to assess and report’ through these mechanisms on the performance of
programs funded under NPs. The ANAO suggested that
in this context current arrangements could be improved by:
n agencies being
required to provide clear and consistent reporting to Parliament on the
outcomes being achieved under national funding agreements…
In light of this, the Commonwealth Auditor-General in oral evidence to
the Committee noted that as part of the evolving arrangements, it is timely
that requirements for PBS and annual reports are reviewed.
Treasury also identified Budget Paper No. 3,
which presents information on the Commonwealth’s financial relations with
state, territory and local governments, and includes an overview of the federal
financial relations framework.
More broadly, Treasury advised the Committee that the mechanism for
money to be paid through national specific purpose payments allows for parliamentary
scrutiny. The base amount for each of the national specific purpose payments is
established in legislation. Treasury explained that
the Federal Financial Relations Act 2009 allows the Treasurer, ‘through
written determination, to credit amounts to
the COAG Reform Fund for making payments for NPs’
and that those determinations are tabled in parliament.
The Committee was advised that it is a requirement for the Treasurer to
gain parliamentary approval for the ‘maximum amount’
to be credited to the COAG Reform Fund and the Treasurer annually indexes those
amounts. From Treasury’s
perspective the parliament essentially sets the drawing right limits for the
amount of money that can be placed in the COAG Reform Fund
conserving the parliament’s role in approving Commonwealth expenditure.
State perspectives on accountability and transparency mechanisms
The general consensus from evidence given to the Committee by state
government representatives was that current accountability mechanism are
appropriate and that the new framework generally fostered improved
Commonwealth-level parliamentary accountability.
Representatives from the Victorian and Queensland governments
highlighted that the reform agenda, which centralises intergovernmental
transfers is both a major step forward in federal fiscal transparency
and an improvement in accountability in areas where different levels of
government share policy objectives.
The Victorian Government identified however, that a shared and critical
challenge for all jurisdictions is to clarify the ‘public and parliamentary
expectations of the accountability arrangements for intergovernmental transfers’.
The submission stated that while it is appropriate that the Commonwealth Government,
through the Commonwealth Parliament, is accountable for areas it is directly
responsible for (including its decisions and agreements for the transfer of
public funds through the IGA FFR):
…Commonwealth Ministers and officials should not, however, be
asked to answer for the performance of State and Territory governments.
Dr Gary Ward, Assistant Under Treasurer and Government Statistician for
Queensland was satisfied with the current arrangements, however advised that he
could not comment on whether there was a need for a ‘broader oversight regime
or mechanism’. Dr Ward explained the line of accountability for the state of
The Ministerial Council for Federal Financial Relations
comprising the treasurers has the responsibility of oversight of the
intergovernmental agreement and the agreements that sit under the IGA. So there
is a direct connection between elected representatives and the oversight
process. Ultimately of course COAG is the body that signs off on the agreements
in the first instance and all reports from the work that we do at HoTs [Heads
of Treasuries] level ultimately ends up at either the Ministerial Council for
Federal Financial Relations and COAG.
The Committee went on to ask whether any processes were in place which
enabled the Queensland Government to report to its state parliament about the
achievement of outcomes from national partnership agreements.
While the Committee heard that there was a regime allowing the
Queensland Treasury to report upwards through the treasurer and premier to
parliament, there was:
…no specific process for individual partnership agreements to
be reported back to parliament. There is the review process through the estimates
The NSW Government’s views are largely in line with the Queensland and
Victorian Governments. While acknowledging room for improvement for
accountability arrangements, the NSW Government considers that ‘…a high level
of transparency and public accountability has already been achieved’.
The NSW Government’s submission provided specific examples to illustrate
its views. The My School and My Hospitals websites were described as providing
‘unprecedented transparency in the education and health sectors’.
The submission stated that:
My Hospitals provides information about bed numbers, patient
admissions and hospital accreditation, as well as the types of specialised
services each hospital provides. It also provides comparisons to national
public hospital performance statistics on waiting times for elective surgery
and emergency department care.
The Tasmanian Government’s submission concurred with the perspectives of
its state counterparts describing that under the Intergovernmental Agreement (IGA),
funding agreements were both ‘transparent’ and ‘publicly accessible’.
Additionally, that all funding agreements have clearly specified:
n defined roles and
The Tasmanian Government described these elements as enabling ‘enhanced
public accountability (and parliamentary scrutiny)’.
Other perspectives on accountability and transparency mechanisms
While the Committee heard that the states were generally satisfied with accountability
and transparency mechanisms available for national funding agreements, a number
of end-user peak bodies and academics were not. Although increased transparency
is a stated outcome under the new framework, some witnesses were concerned that
this has not been fully realised.
The Centre of Public Law at the University of New South Wales advised
that an inevitable outcome of the executive centric approach to developing and
implementing funding agreements is that the role of parliaments is sidelined
and democratic accountability is undermined.  The result is a ‘democratic
deficit’. The Centre of Public Law’s submission identified that these
weaknesses did not only relate to funding but were:
…instead part of broader accountability problems that exist
with respect to intergovernmental relations in Australia. These broader
concerns extend to the operation of COAG, and the processes for the making of
The Committee heard from other academics such as Associate Professor
Twomey who cautioned against a system with ‘everybody checking everybody all
the time’. Professor Twomey raised
concerns that to some extent, the burden of accountability is created by the
Commonwealth making commitments which can only be delivered by the states. For
example, by linking NP agreements to a Commonwealth election commitment, such
as the National Partnership Agreement for the Funding of Fort Street High
School Noise Insulation.
To increase transparency, Professor Twomey suggested an audit of all the
intergovernmental agreements entered into by the Commonwealth be undertaken
(not solely funding agreements), and all agreements placed on a database.
The development of this database would make a significant contribution to the
current level of transparency allowing parliamentarians, academics and other
stakeholders to have complete access. The Centre of Public Law
also encouraged the development of such a database.
Professor Brown, from Griffith University also suggested improvements to
current accountability mechanisms. Professor Brown drew on examples from the
Unites States of America such as the introduction of the False Claims Act into
their whistle blowing regimes. Professor Brown
suggested that the Committee consider whether as part of the new framework
there is a need to ‘strengthen and systematise those sorts of mechanisms’.
While the types of disclosure and accountability mechanisms did not necessarily
need to mirror those in the US, Professor Brown was of the opinion that they
were part of the answer to the Commonwealth’s level of confidence that funds
were being expended accountably.
The Independent Schools Council of Australia (ISCA) was also of the view
transparency needed to be addressed under the new framework. ISCA acknowledges
that a key feature of the funding reforms was increased transparency. In
practice however, transparency in Commonwealth funding for government schools has
diminished, reducing the capacity for scrutiny by the public and the parliament. 
ISCA’s submission notes that the Commonwealth Government funding for
government schools is now appropriated under the Federal Financial Relations
Act 2009 while funding for non-government schools continues under the Schools
Assistance Act 2008. Under these arrangements
and with the implementation of the National Education Agreement (NEA) it is ‘virtually
impossible to find a state/territory breakdown of Commonwealth funding for
government schools in any publicly available document’.
Mr William Daniels, Executive Director from ISCA told the Committee that
it was the view of his organisation that ‘the greater the transparency, the
better’. Mr Daniels stressed that
all members of the public should be able to clearly see how much money the
Commonwealth government is providing for the funding of government and
non-government schools. For example, prior to
2009, the Green Report not only extensively
included details on funding provided to non-government schools from the
Commonwealth, but also the funding that was provided to government schools.
The ISCA outlined to the Committee that the Federal Financial
Relations Act 2009 has resulted in a loss of transparency at a number
n [f]irst, in the
already contested area of government funding assistance for schools it is no
longer apparent, by looking at the Schools Assistance Act, that the
Commonwealth government actually provides any funding to government schools;
n [s]econd, even if you
know where to look in the Federal Financial Relations Act to locate
Commonwealth government funding for government schools, it is very difficult to
find a state-by-state breakdown of that funding; and
n [t]hird, state and
territory government budget papers generally make no distinction between
Commonwealth and state school funding appropriations.
The Committee was interested in ISCA’s views on whether this decrease in
transparency was an inadvertent consequence of the new arrangements. ISCA
stated that it was ‘probably an unintended consequence of the financial
Transparency and accountability considerations within the new
intergovernmental arrangements and wider COAG system are directly linked to the
issue of parliamentary scrutiny.
Commonwealth perspectives on parliamentary scrutiny
As previously outlined, the Committee heard from Treasury that a number
of mechanisms were in place to ensure that the Commonwealth parliament is able
to scrutinise the financial arrangements of the new framework. Treasury
responded positively when asked by the Committee whether it was comfortable
with the level of scrutiny at the Commonwealth level. 
The Committee also raised questions regarding the entry point of the
public into the reform program. The Department of the Prime Minister and
Cabinet (PM&C) expanded on the mechanisms available to members of the
public to understand the operation of funding under the new framework.
In addition to a member of the public relying on
parliamentary scrutiny, other information is also available through the website
that includes the various agreements, and through CRC reports themselves.
Progressively, there are going to be more and more of those, including one
coming up quite soon on the overall progress under the new arrangements, both
in terms of the institutional arrangements and whether substantial policy
outcomes are being achieved.
State perspectives on parliamentary scrutiny
State government representatives’ evidence on this topic echoed their
sentiments regarding the adequacy of current accountability and transparency
mechanisms. Generally, the Committee heard that enhancements to Commonwealth
parliamentary scrutiny were not seen as necessary and participants argued that
current oversight arrangements were sufficient including the scrutiny of
funding under the IGA FFR through state parliaments and state
The Tasmanian Government for example was explicit in its view that
parliamentary scrutiny had been enhanced rather than reduced under the new
The NSW Government’s submission considered that despite the executive‑to‑executive
negotiation phase, the current level of scrutiny for funding agreements is
appropriate due to:
n agreements required
to be signed by Heads of Governments or delegated Ministers;
n state parliamentary
n activities of the NSW
n state and territory
Treasurers providing the Commonwealth Treasurer with annual reports from
acquittals of expenditure of National Agreement and National Partnership funds.
The submission also pointed to significant public scrutiny of
agreements’ content under the IGA FFR and jurisdictions’ performance.
Two main contributing factors were identified:
n the publishing of
signed agreements on the Ministerial Council for Federal Financial Relations’
website, noting the website also provides information on the funding,
performance reporting and accountabilities elements of the framework; and
n performance reports
released by the CRC on National Agreements and National Partnerships.
In summary, the NSW Government was of the view that ‘the addition of
another layer of scrutiny by the Commonwealth within States is not required,
Similarly, representatives from the Queensland Government noted the
‘direct connection between elected representatives and the oversight process’.
The Committee delved further into this claim inquiring as to the specific role
the Queensland parliament carried out regarding the sign-off of an agreement,
including the development and finalisation stages. The Queensland Government
informed the Committee that the parliament was not directly engaged at either
phase but there was a ‘connection’ in the lead-in phase:
When we draft agreements what generally happens is that we
assess the fiscal implications of those and indeed what it would mean to the
service delivery activity in Queensland and we would put a submission to the
budget review committee of cabinet or cabinet—depending on the magnitude of the
agreement that we are talking about—but not parliament as such.
The Committee queried the Queensland Auditor-General on oversight arrangements
and general community engagement. The Queensland Auditor-General advised that ‘public
engagement is in the programs that are being delivered—education, health,
Indigenous affairs…and so forth’. The state parliament is
‘heavily involved’ through audit reports and committee works in the programs
that are being delivered through the National Agreements (NA). The
Auditor-General went on to state that:
I am not sure that the state parliament is necessarily
interested in base level funding coming from the Commonwealth as a separate
In line with evidence from other state representatives, the Victorian
Government’s submission highlighted the state’s ‘independent regime of
parliamentary and institutional oversight of government actions’ 
and cautioned against defaulting to ‘mechanisms for additional
centralised oversight’. Key elements identified
within the state’s accountability regime were the Victorian Auditor‑General
and parliamentary committees such as the Public Accounts and Estimates Committee
and the Joint Investigatory Committee of the Parliament of Victoria.
Appearing before the Committee, the Victorian Government representative
highlighted that ‘there is no glaring gap in accountability and no need for
Commonwealth scrutiny of state spending of Commonwealth grants’.
Considering this statement, the Committee was interested in the Victorian
Government’s view on parliamentary scrutiny.
Mr Donald Speagle, Deputy Secretary, Department of Premier and Cabinet,
Victoria advised that while agreeing that there is a scrutiny role to be played
by the Commonwealth parliament and its committees, the appropriate
accountability for examining Commonwealth grants to states is through state
Other perspectives on parliamentary scrutiny
Several academics were not as content with or supportive of the current
level of Commonwealth parliamentary scrutiny. The power of the Executive to
negotiate and develop national funding agreements was a key area of concern
At one end of the spectrum, Mr Bryan Pape expressed the opinion that
‘there is no scrutiny’, maintaining that the Executive has been given the
freedom to spend ‘at will’ by the Commonwealth Parliament.
The Centre of Public Law was also critical of the effects of the executive
driven approach on the Commonwealth parliament’s ability to provide adequate
scrutiny. The Centre of Public Law explained that funding agreements will not
be subject to parliamentary scrutiny if they do not require legislative
implementation and that even when this is needed the impact of parliamentary
scrutiny is limited because the details of the agreement are presented ‘as a
As mentioned earlier, the Centre of Public Law described the sidelining
of parliaments in this process as a ‘democratic deficit’. The executive’s
accountability to the legislature is weak, therefore, reducing the practice of
‘responsible government’ a cornerstone of Australia’s Westminster system.
Further, valuable input from a variety of perspectives may not be capitalised
and potential for improvements may be absent from the process.
The Centre of Public Law’s submission identified that this deficit was
not exclusive to funding matters but extended to broader intergovernmental accountability
issues, such as COAG and the process of developing IGAs. COAG’s deliberations
for example are not open, with scarce details on decision making provided
through press releases or communiqués.
The Committee received a number of suggestions to improve COAG,
including the need for Constitutional recognition of the institution and a more
structured approach to its operation. Associate Professor Twomey told the
Committee that Constitutional reform to institutionalise COAG was possible.
Moreover, the Victorian Government considered that something as simple as
regular, twice-yearly meetings would be beneficial.
Similar to the sentiments of other witnesses the Centre of Public Law recognises
the important role the CRC has made to enhance ‘the public accountability of
governments for their performance against agreed objectives in funding
agreements’. However, the Centre of
Public Law argued that it is not the role of the CRC to provide democratic
Three reforms were suggested by the Centre of Public Law to improve the
existing arrangements for parliamentary scrutiny of funding agreements:
1. That a complete register of funding agreements be publicly
2. That all funding agreements be tabled in the parliaments
of affected jurisdictions; and
3. Reference of funding agreements to joint parliamentary
committees for review and report.
In oral evidence to the Committee, the Centre of Public Law expanded on
their first suggestion noting that the Ministerial Council for Federal
Financial Relations’ website includes the six NAs and the NPs.
The Centre of Public Law also acknowledged that this list was being kept up to
date on the website.
The Committee questioned the practicality of the Centre of Public Law’s second
reform that funding agreements should be referred to joint parliamentary
committees for review and report. The Centre of Public Law
conceded that it would slow the process down but maintained that it would
improve efficiency and effectiveness in the long term as parliaments would have
already considered the full implications of the agreement before it reached the
We are conscious of the practical difficulties but suggest
that, although the process would certainly be slowed by having parliamentary
involvement, one plus of that is the ability of governments to know what they
can certainly commit to.
The Centre of Public Law reminded the Committee that a previous House of
Representatives Committee has twice made a similar recommendation, indicating
that the parliament considers it a reasonable process.
In 2006 the House of Representatives Standing Committee on Legal and
Constitutional Affairs recommended that:
... the Australian Government raise, at the Council of
Australian Governments or other appropriate forum:
n The circulation of
draft intergovernmental agreements for public scrutiny and comment;
n The parliamentary
scrutiny of draft intergovernmental agreements; and
n The augmentation of
the COAG register of intergovernmental agreements so as to include all
agreements requiring legislative implementation.
With a view to
the implementation of these reforms throughout the jurisdictions.
In 2008 the House of Representatives Standing Committee on Legal and Constitutional
Affairs reinforced its position recommending:
The Committee recommends that the Australian Government
introduce the requirement for intergovernmental agreements to be automatically
referred to a parliamentary committee for scrutiny and report to the
Insufficient parliamentary scrutiny of national funding agreements was
also raised in the ACT Standing Committee on Public Accounts’
(ACT Standing Committee) submission. The ACT Standing
Committee suggested a number of avenues to improve or boost parliamentary
scrutiny of national funding agreements, including further exploration of the:
n reforms suggested by
the Centre of Public Law; and
n ACT Legislative
Assembly’s Standing Committee on Planning and Environment’s 2008 recommendation—dual
sittings of parliamentary standing committees regarding issues of ‘common
interest and importance’.
COAG Reform Council
As discussed in Chapter 4, the CRC is seen as playing a ‘pivotal role’
in providing transparency and accountability for the COAG reform agenda and is
integral to the workings of the reform agenda. The Committee heard that there
was general recognition that the CRC is enhancing the accountability and
transparency of governments’ performance under the reform agenda.
However, the ANAO and the Centre of Public Law highlighted to the
Committee that the CRC is not accountable to the Australian Parliament, only to
The Committee directly asked the CRC whether there were mechanisms for
CRC reports to be tabled in parliament. The CRC informed the Committee that
currently CRC reports go directly to COAG. While there is no mechanism for CRC
reports to be tabled in parliament, the CRC outlined that the following steps
are undertaken in submitting reports to COAG:
n reports are submitted
to the individual first ministers; and
n reports are
distributed to COAG and the Prime Minister and at the same time to premiers and
The Committee was therefore interested whether the CRC thought that this
gap should be filled with these or other reports being made available to the Commonwealth
parliament. For example, the Prime Minister making annual reports to the
parliament which cover all six national agreements. The CRC stated that its
role is to report to COAG and for respective governments to respond, advising:
It is not our role or our area of remit to advise on whether
there should be other accountability mechanisms for those reports.
Despite the lack of accountability of the CRC to the parliament, the
Committee received positive comments in other aspects of the CRC’s operations.
For example, the robust independence of the CRC was reinforced to the Committee
through comments by PM&C.
Further, both the Tasmanian and NSW Governments
highlighted public access to the CRC’s reports. The CRC via its website
publishes and releases performance reports on national agreements and national reward
partnerships. These assessments enable the public to compare governments’
performances in delivering outcomes across key delivery areas such as health
and education. In September 2010 the CRC
publicly released its first report on progress towards the COAG reform agenda.
The ANAO also expressed that while the CRC is not accountable to
parliament, the CRC’s gathering and reporting of information on national
agreements provides the Commonwealth parliament with ‘insights’ as to the
overall progress of outcomes under national funding agreements.
Broader support and engagement by all jurisdictions with the CRC’s reports
was also raised as desirable by the Victorian Government. Their submission
noted remarks by the COAG Reform Council Chairman:
“… our heads of governments and key ministers have not done
enough to promote the agenda and the new governance approach”. 
The Auditor-General’s role
The Committee’s previous report, Report 419 Inquiry into the Auditor‑General
Act 1997 (Report 419),  considered the
assurance role of the Auditor‑General plays with regard to the scrutiny
of Commonwealth funds delivered to the states and territories. The Committee’s
report contained 13 recommendations including to empower the Commonwealth
Auditor-General with the ‘authority to follow the dollar’ where non‑Commonwealth
bodies receive Commonwealth funding to deliver agreed national outcomes.
In response to the Committee’s report, the Auditor‑General Amendment
Bill 2011 is currently before the Parliament and largely reflects the
The Commonwealth Auditor-General emphasised the importance these
proposed extended powers would play in providing transparency and
accountability of the new arrangements under the IGA FFR framework.
In light of the complexity of the ‘multijurisdictional delivery arrangements
underpinning the new framework’ the Commonwealth Auditor-General believes that
an enhanced capacity to follow the money for his office will ensure that:
…parliament has access to clear and reliable information that
provides insights to the success or otherwise of services delivered through
national funding agreements.
The ANAO’s submission highlighted the significance of the role of the
Auditor-General in providing the Parliament with independent assurance on
administrative effectiveness and efficiency on government programs and
entities. In line with the Committee’s recommendations in Report 419, the
ANAO’s submission reiterated that barriers to the Commonwealth Auditor-General’s
powers exist impeding the Auditor-General’s ability to carry out activities
which will help inform the Parliament on the ‘operations and outcomes of the
new arrangements’. The ANAO’s submission
expressed support for the ‘follow the money’ provisions in the proposed Auditor-General
Amendment Bill 2011. The ANAO argued that extending the power of the Commonwealth
Auditor-General is integral to addressing the limitations of the
Auditor-General to assess how Commonwealth resources are used.
The ANAO is aware that some state Auditors-General have the power to
follow funding expended by non-state recipients, this is limited to their own
respective jurisdictions. The arrangement did not ‘provide sufficient
information to the Australian Parliament on the Commonwealth’s role and the
outcomes being achieved’.
The ANAO therefore recommended that the current arrangements for
national funding agreements could be improved by:
…the Auditor-General being provided with an appropriate
mandate that allows the operation of the arrangements to be examined (this
would also entail the inclusion of explicit references to access and audit
powers in national funding agreements). 
The ANAO noted that the legislation currently before the Commonwealth
parliament would assist in transforming the Auditor-General’s mandate along
The Committee questioned PM&C regarding this tension between the roles
of the Commonwealth and states Auditors‑General. PM&C asserted that a
‘balance always needs to be struck’ and highlighted the need for consideration
of the jurisdictional separations and accountability of the Commonwealth and
state Executives to their own respective parliaments and Auditors-General.
Subject to the passing of the amendments to the Auditor-General Act 1997,
PM&C cautioned that the capacity of both the state Auditors-General and the
Commonwealth Auditor-General to follow the money will not automatically result
in the measurement of outcomes as a primary focus but rather:
…whether the money has been spent on stuff that relates to
the purposes for which the money has been passed over to the states.
The states did not agree that the Commonwealth Auditor-General’s powers
should be extended to follow the dollar. The Victorian and NSW Governments
maintained that the current oversight arrangements under the new framework and
the work of state Auditors-General provided sufficient and appropriate scrutiny
of payments via national partnerships.
The Victorian Government argued that at the most fundamental level
applying the terminology of ‘Commonwealth money’ to intergovernmental transfers
Associate Professor Twomey also supported the Victorian Government’s
views on misconceptions regarding ‘Commonwealth money’. Professor Twomey
strongly disagrees with the emphasis the Commonwealth places on ownership of ‘Commonwealth
money’. Professor Twomey argued that it is the ‘taxpayer’s money’ as it is:
…money collected from the taxpayers that should be
distributed in such a way as to ensure that all functions of government, be it
state, Commonwealth or local, are capable of being fulfilled in a sensible way.
In this context, the Victorian Government explicitly argued against the
view that Commonwealth agencies remain accountable to the relevant Commonwealth
Ministers and Commonwealth parliament for funds transferred to the states under
the IGA FFR.
The Victorian Government’s submission highlighted that institutional
oversight of intergovernmental financial transfers is maximised by state
Auditors-General exercising their mandates rather than ‘access clauses in intergovernmental
funding agreements, or be extending the investigative authority of the
The Committee made further inquiries about the Victorian Government’s
position noting the current frustrations of the Commonwealth Parliament being
able to discern whether policy objectives are being achieved through funding to
the states. The Victorian Government identified to the Committee that adequate
scrutiny could be delivered by the Commonwealth requesting through national
partnership agreements that state Auditors-General undertake additional
Further, the Victorian Government was of the view that as state Auditors‑General
are authorised to audit the expenditure of Commonwealth grants by a state,
there is ‘no strong case for the Commonwealth to duplicate that role’.
The NSW Auditor-General believed that where government dollars are
expended it is the role of an auditor-general to provide accountability.
However, consideration as to which auditor-general, state or Commonwealth, is
to be given within the context of each situation.
The NSW Auditor-General expressed that where the Commonwealth provides funding
in areas of state responsibility such as health, there is a stronger case for
the state Auditor-General to review this expenditure.
Constitutional, legal and operational implications
Specific commentary on the proposal to bestow additional powers and
functions on the Commonwealth Auditor-General was provided by the Victorian
Government within a constitutional context. The Victorian Government’s submission
outlined a number of issues. Enabling the Commonwealth Auditor-General to audit
a state agency receiving Commonwealth funding was raised as ‘inconsistent with
the basic constitutional structure of the Australian Federation’.
Difficulties regarding the practical and legal consequences resulting
from extending the Auditor-General’s powers were also raised including:
…questions about the extent of the Commonwealth’s
constitutional power to enable the Commonwealth Auditor-General to perform such
functions, and the interaction with any State legislation.
The Victorian Government’s submission also raised the potential for ‘administrative
inefficiencies’ with the extension of the Auditor-General’s powers and the risk
of ‘confusing accountability at the entity level’.
While state governments and state Auditors-General cautioned against the
extension of the Commonwealth Auditor-General’s powers to ‘follow the dollar’
they were generally supportive of changes to enable collaborative audits
between the Commonwealth and states and territories.
The Queensland Auditor-General was of the view that the best way for the
parliament to gain greater assurance is through collaborative audits. According
to the Queensland Auditor-General this approach would ‘harness the capacity of
state audit offices to increase the level of assurance for both state and
However, witnesses identified a number of concerns. One area was resourcing.
The Queensland Auditor-General cautioned that, if the Commonwealth
Auditor-General were to undertake performance audits of states, territories and
local government agencies this would involve either a ‘diversion of audit
effort from Commonwealth agencies or require a significant increase in the
capacity of the ANAO’.
Further, as discussed in chapter two and three, state Auditors-General
called for clarity of objectives, outcomes and assurance requirements. The
Queensland Auditor-General emphasised the need for the Commonwealth to provide
clear direction as to what they want and why.
The NSW Auditor-General felt that collaborative audits ‘could well be
the way forward’ and did not feel that
such audits would unduly take up his resources. However, he advised that the
framework for collaborative audits would need to be carefully considered to
... that there can be no misunderstanding, no breaches of
trust and, obviously, once all of that is established, good trust.
The Committee asked if collaborative audits were normal practice in
other countries and, if so, were there advantages or disadvantages to the
process. The NSW Auditor-General confirmed that collaborative audits are used
in a number of other countries, citing Canada and a collaboration between numerous
South Pacific countries. Overall, the NSW
Auditor‑General considered that collaborative audits had produced good
results in these countries but warned that reporting requirements can prove a
problem, as each Auditor-General obliged to report to his/her own parliament.
He used the example of the seven South Pacific countries involved in a
collaborative audit to illustrate the difficulty:
They had to time the tabling of their report because they had
different countries. It would be a lot easier if it was in the one country with
different states. I think they had to go to a fair bit of effort to make sure
those performance audits were tabled at the same time.
The main barrier to collaborative audits raised by state Auditors-General
is the secrecy provisions contained in audit legislation across both
Commonwealth and state and territory jurisdictions. The Committee inquired
whether the proposed amendments to the Auditor‑General Act 1997
are sufficient to enable successful collaborative audits or whether other
legislative changes would also be required. The states told the Committee that
without changes to Auditor‑General Acts across the board the success of
such audits will be constrained.
The Committee asked if steps are being taken to address this issue and
change state and territory legislation. The Queensland Auditor-General informed
the Committee that the Queensland parliament currently has a bill before the
parliament to amend the Auditor-General Act. If passed, the new legislation
will allow the Queensland Auditor-General to undertake joint or collaborative
audits with other state Auditors-General or the Commonwealth Auditor-General if
it is the belief of the Queensland Auditor-General that these other
jurisdictions have an ‘interest in that audit’.
The Queensland Auditor-General explained that even with the passing of
this legislation this would only enable the Queensland Audit Office to share
some information with the Commonwealth Auditor‑General, however the
Commonwealth Auditor-General would still not be able to reciprocate.
The Victorian Government told the Committee that the Victorian
Department of Treasury and Finance and the state Auditor-General are currently
examining the legal and operational issues which currently prohibit
collaborative audits. The NSW Auditor-General
was reluctant to comment on NSW government policy but was not aware of any
changes currently being contemplated.
The public often uses the parliament as the main point of entry to
follow the triumphs or otherwise of government policy. The Committee is acutely
aware of the significant role the Commonwealth Parliament plays in facilitating
the public’s visibility of public policy outcomes.
The Committee acknowledges the tensions between Commonwealth
accountability and state/territory flexibility and understands the importance
of striking the right balance within Australia’s federal structure. However, while
the Committee is conscious that the accountability and transparency principles
underpinning the new framework are sound, in reality the public often holds the
Commonwealth directly to account for the expenditure of taxpayers’ money.
Therefore, the Committee maintains that efforts must continue to obtain
satisfactory scrutiny of national funding agreements and ensure value for money,
including through transparency and accountability, for the Australian people.
The Committee is conscious that high level accountability and
transparency mechanisms exist for the parliament and the public to gain
insights into the operation and progress of the reform agenda. For example,
initial scrutiny of national funding agreements is possible through approval of
the budget and through national funding agreements which require legislative
implementation. The Committee notes however, that while the parliament’s role
in approving Commonwealth expenditure has been preserved under the IGA FFR,
there are a number of weaknesses with these high level mechanisms.
Overall the Committee is of the view that more can be done to facilitate
parliamentary scrutiny of national funding agreements, in particular at the
implementation stages. Increased parliamentary scrutiny will help ensure value
for money is achieved for Australian taxpayers, and that a clearer picture of
the success or otherwise of the national funding agreements is obtained. Parliamentary
scrutiny can be enhanced through parliament having:
n ready access to a
more holistic picture of key national funding agreements - in particular through
the related CRC progress reports; and
n a mechanism to
routinely review the CRC reports and progress against the agreed outcomes
within the national funding agreements.
The Committee is of the view that the CRC reports are a critical missing
piece of the puzzle for parliamentary scrutiny. The initial budget and related
legislative approvals provide parliament with a starting point for scrutiny,
but need to be coupled with the CRC reports to allow full parliamentary
engagement. While CRC reports are publicly accessible, the CRC itself is not
accountable to the Commonwealth Parliament and the CRC reports are not tabled
in Parliament. Furthermore, the Committee feels that the Productivity
Commission’s reports investigating the impacts of the reforms are also
necessary for Parliament’s effective oversight.
Therefore, the Committee recommends that CRC reports are tabled in the
Commonwealth Parliament one month after submission to COAG, in line with their
public release and that relevant Productivity Commission reports are tabled as
soon as practical. This links with the
Committee’s recommendation in chapter 4 regarding the public release of the
Government’s response to the CRC reports in a timely manner.
To further give the Parliament a more holistic picture of national
funding agreements, the Committee recommends that signed NPs are tabled in
Parliament, along with a complementary Ministerial Statement. This will help
increase the Parliament’s visibility regarding the number and type of NPs being
entered into and inform the Parliament whether new NPs are targeted and
appropriately align with the intention of the IGA FFR.
Additionally, the Committee recommends that the Prime Minister make an
annual Statement to the House giving the Government’s perspective on the
contribution of these national funding agreements to the improvement of the
well-being of all Australians, and progress towards the objectives of the
agreements. This statement should also summarise the number of current, new,
upcoming and expired NAs and NPs.
With regard to the development of a mechanism whereby the parliament can
routinely review progress against the reform’s agenda, the JCPAA recognises the
Senate Select Committee on the Reform of the Australian Federation’s recommendation
that a dedicated new Joint Standing Committee be established. 
The JCPAA sees that committee review should be the main mechanism to enable the
parliament to routinely scrutinise and review progress against the reform
agenda’s stated outcomes. Therefore, the Committee recommends that once CRC
reports are tabled in the parliament, they are automatically referred to an
appropriate Joint Standing Committee for review and report.
Further, the Committee acknowledges the recommendations made by previous
parliamentary committees which called for the referral of draft intergovernmental
agreements to a parliamentary committee. The JCPAA is aware of the Government
Response to these recommendations and that such a referral would place
additional time delays and complexity to the process. The Committee also notes
that the appropriateness of a parliamentary committee reviewing
intergovernmental agreements while in the negotiation stage is questionable and
would hence need further investigation before such a change could be fully
considered and implemented.
Transparency of outcomes flowing from the funding provided under the new
framework is essential and the Committee considers the Commonwealth Parliament’s
visibility to this information of high importance. The Committee recognises the
need for agencies to provide clearer and more consistent reporting to the
Commonwealth Parliament on performance and outcomes of programs under NPs.
The Committee sees the merits in the Commonwealth Auditor-General’s suggestion
that the requirements of portfolio budget statements and annual reports to be
reviewed, with particular regard to enhancing reporting of the performance and
outcomes of programs under NPs.
Further, the Committee supports and notes a recommendation in a recent
Auditor-General report that Finance ‘develops more expansive policy guidance
for entities on how to reference performance reporting for programs delivered
through national agreements’.
The Committee appreciates the states’ overall support for the current accountability
and transparency mechanisms, including scrutiny provided through state
legislatures and auditors-general. However, the Committee also acknowledges
that a number of witnesses identified gaps in parliamentary scrutiny at both
the Commonwealth and state level.
In this regard, the Committee is of the belief that increased
accountability of funding flowing to the states and other key institutions
under national funding agreements is needed through Commonwealth
Auditor-General reports to the Commonwealth parliament. The Committee supports
the legislation before the parliament to extend the Commonwealth Auditor‑General’s
powers in the area of federal-state financial relations and reinforces its view
expressed in Report 419 that the Commonwealth Auditor-General should be:
n able to easily access
information relating to recipients expenditure of Commonwealth funding; and
n empowered to assess
the performance of bodies receiving Commonwealth funding.
The Committee is aware of constitutional questions raised in the past
and during this inquiry regarding the extension of the Commonwealth Auditor‑General’s
powers in this way. However, due to the
significance of the funding flows and subsequent national impacts in key areas
such as health and education, it is important that these auditing and oversight
powers be granted. In the Committee’s view there is no other mechanism that will
provide the necessary rigour and overall accountability picture needed of these
significant national issues.
As a complement to extended powers for the Commonwealth Auditor‑General,
the Committee recognises the role collaborative audits may play in strengthening
existing accountability and assurance arrangements under the new framework. The
Committee recognises that the main barrier to successful collaborative audits
is the secrecy provisions embedded within auditors-general legislation across
all jurisdictions. The Committee is aware of one state’s move to lift these
restrictions and encourages individual jurisdictions to introduce amendments to
their own auditors-general acts so that information can be more easily shared
across current boundaries. The Committee notes the restrictions on
collaborative audits between the states/territories and the Commonwealth in the
absence of similar amendments to the Auditor‑General Act 1997 and
flags this as an area to be considered and addressed in the future.
The Committee welcomes the work of the Ministerial Council for Federal
Financial Relations in publishing a comprehensive and easily accessible list of
NAs, NPs and Implementation Plans online. However, the Committee recognises the
importance of the transparency of intergovernmental agreements more broadly and
the merits of developing an online database which includes all
intergovernmental agreements. The Committee encourages the Australian
Government to review and extend its communication concerning COAG initiatives
generally. The Committee notes the recent recommendation by the CRC that COAG
provide an overview of their agenda, including a summary of the institutional
framework, an explanation of the themes and a description of the content and
timeframes for key reform activities.
The Committee recognises that reform to the IGA FFR is ongoing. The
Committee notes that similar themes and recommendations have been made across
this JCPAA report and the recent CRC report. Evidence to the Committee suggests
that the HoTs Review confirmed many of the same findings. The Committee also
notes that a range of reports are due for release in late 2011 and early 2012
evaluating the impact of the IGA FFR. The Committee is of the
view that it is timely for the Commonwealth Government to take consolidated action
to address the issues identified in all of these reports.
Therefore, the Committee recommends that the Commonwealth Government
take this opportunity to correct the identified problems and ensure that the
IGA FFR fulfils its potential. With these changes Australia will be well
positioned to continue on the reform pathway in the coming decade.
The Committee recommends that the Prime Minister table COAG
Reform Council reports in the Commonwealth Parliament one month after submission
to COAG, and that relevant Productivity Commission reports are tabled as soon
Once tabled, these reports should be automatically referred
to an appropriate Joint Standing Committee for review.
The Committee recommends that signed National Partnerships
are tabled in Parliament, along with a complementary Ministerial Statement.
The Committee recommends that the Prime Minister deliver an
annual Statement to the House:
n outlining the Commonwealth Government’s perspective on the
contribution of national funding agreements to the improvement of the
well-being of all Australians; and
n summarising the number of current, new, upcoming and expired
National Agreements and National Partnerships
The Committee recommends that the Department of the Prime
Minister and Cabinet and central agencies investigate steps so that Portfolio
Budget Statements and annual reporting requirements provide a more
comprehensive picture of the performance and outcomes of programs under
national partnerships across government.
The Committee recommends that, in light of the range of
review activity currently underway, the Commonwealth Government take this
opportunity to institute and deliver on the Intergovernmental Agreement on
Federal Financial Relations’ full potential.
With these changes Australia will be well positioned to
continue on the reform pathway in the coming decade.