The objective of Auditor‑General Report No. 6 (2018‑19), Army’s Protected Mobility Vehicle – Light, was to assess the effectiveness and value for money of Defence’s acquisition of light protected vehicles, under Defence project Land 121 Phase 4. However, with sections of the audit report omitted due to the issuing of a certificate under section 37 of the Auditor-General Act 1997, the Auditor-General was ‘not…able to prepare a report that expresses a clear conclusion on the audit objective in accordance with the Australian National Audit Office (ANAO) Auditing Standards’.
The Committee therefore was unable to inquire into the effectiveness and value for money of the Department of Defence’s (Defence) procurement processes. As the first time such a certificate has been issued, this inquiry provided an opportunity for the Committee to inquire into matters relevant to how the provision operates.
Committee conclusions; and
Committee conclusions and recommendations
Section 37 of the Auditor-General Act 1997 (the Act) provides for a balance to be reached between the public interest in not disclosing information and the broader public interest that is served by the Auditor-General’s reporting to the Parliament.
In considering the merits of these proposals, the Committee recommends these proposals be given detailed consideration on the next occasion when section 37 is utilised or on the occasion of the next review of the Auditor‑General Act. The Committee notes that periodic reviews of the Auditor‑General Act have taken place at approximately ten-year intervals and would expect the next review to take place during the course of the 46th Parliament.
The Committee notes that the Auditor-General agreed during the inquiry that section 37 of the Act permits the Attorney-General to issue a certificate, and confirmed that there is no suggestion that the Attorney-General’s actions went beyond the powers available to him. The Attorney-General’s Department described the power to issue a certificate under section 37(1)(b) as ‘discretionary and is an independent decision for the Attorney-General’.
The Attorney-General’s Department (AGD) submitted that section 37 operated as it was intended to when enacted. The Auditor-General argued that, ‘in its first use of section 37, the Executive has adopted an unexpectedly broad interpretation of this provision’.
There was agreement, however, that ‘particular information’, as described in section 37, is not limited to information obtained during the course of an audit, but can also apply to ANAO analysis or conclusions.
A key issue for the ANAO was the implications for accountability and transparency to the Parliament when its analysis or conclusions cannot be disclosed. The Auditor-General was unable during the public hearings to respond to questions relating to the effectiveness and value for money of this procurement. The inability to provide assurance to the Parliament on whether the procurement was effective and achieved value for money is an issue of concern to the Committee.
While the Committee was kept informed by the Auditor-General of key events during the course of the audit, consideration should be given to how a higher level of assurance and greater transparency could be provided to the Parliament in relation to future audit reports where a certificate is issued.
A range of matters that might strengthen the operation of section 37 were raised by the Auditor-General for the Committee’s consideration. Many of these proposals warrant consideration in future instances when section 37 is utilised.
The Committee agrees that it would be a matter of serious concern should section 37 be used by organisations in an attempt to simply prevent negative commentary, findings or conclusions from being publicly reported. The Committee notes in particular the Auditor-General’s statement that ‘the certificate creates uncertainty in all future audits of Defence acquisition and sustainment’ and that ‘any actual or perceived negative comment, will almost always be seen by the private partner as prejudicing their commercial interest’.
It emerged through the inquiry that no national security classified material was proposed to be published against the wishes of Defence. Instead the reason for issuing a certificate reliant on the ‘Defence, security and international relations’ head of power was because:
…the impact that the parts of the report over which [Defence] had concerns would have on that sovereign industrial capability and how that might relate to that broad concept of the security, defence and international relations of the Commonwealth and indeed the commercial interests of any party.
Defence advised that around ten sovereign industrial capabilities have been designated. The Auditor-General stated that ‘about half of the audits on our current-year program would be related to items that are within that category.’
The Auditor-General advised that ‘the work undertaken in this audit wasn’t unusual…nor were the conclusions drawn from it.’ The Committee would be extremely concerned if the application of section 37 as occurred in this instance established a precedent that prevents future robust scrutiny of defence acquisition or sustainment.
Auditor-General noted his concern that the issuing of a certificate in this instance ‘establishes a precedent which, if repeated, may affect Parliament’s scrutiny of the Executive by limiting the Auditor‐General’s independent public reporting to the Parliament on the procurement and sustainment activities of Commonwealth entities’.
The Committee notes, however, that the two agencies that have subsequently flagged potential use of section 37 have advised their reasons in correspondence to the Auditor-General. The audit process in one case is ongoing; the other was tabled in December 2018 with no certificate issued. Further, as of 21 November 2018, the Auditor-General advised that no additional notifications had been received.
That this is the first certificate issued since 1997 suggests that the ANAO and audited entities have effectively negotiated thus far what information is included or excluded from an audit report in almost all audit reports during that period.
Further, the Committee expects that, in reaching a decision upon any application under section 37, the Attorney-General would request advice from departments and the Auditor-General so as to ensure his or her decision is fully informed.
In addition to periodic reviews of the Act, the Committee recommends that the JCPAA initiate an inquiry on every future occasion that a section 37 certificate is issued. While any such inquiry may not necessarily go to the information omitted from the report, it provides an opportunity for ongoing parliamentary scrutiny of the exercise of this legislated authority.
Further, the Committee considers it would be helpful if the Auditor-General could provide any observations, as appropriate, on the operation of section 37 during his regular appearances before this Committee and during Senate Estimates hearings.
While the Committee notes the Auditor-General’s concern that the lack of a statutory timeframe impacts on his obligation to table a report as soon as practicable, the Committee considers it is essential that any consideration of a certificate be conducted as thoroughly as possible. At the same time, the Committee sees merit in a statutory timeframe that includes a formal mechanism so that the Attorney-General can report that any request is under active consideration.
A self-executing provision to obtain additional time should a timeframe be unable to be met would appear to be an appropriate means to address any concerns about a statutory obligation. This is a matter that the Committee of the 46th Parliament could consider.
In its 1996 report on the independence of the Auditor-General, the Committee stated that ‘as a matter of broad principle, the Committee considers that the Audit Committee of Parliament should play a role in monitoring the exercise of any Executive direction to the Auditor-General’. The Committee is of the view that a statutory notification requirement could be considered. This might be modelled on processes that already exist for other parliamentary committees.
A notification requirement would serve the dual purpose of ensuring the Parliament is informed and allowing the Joint Committee of Public Accounts and Audit (JCPAA) to monitor the process as it proceeds. Should the Committee have concerns, it would be open to it to write to the Attorney-General if further information is required.
The Committee has previously expressed the view that where confidential documents that the Committee considers relevant to an inquiry are required, they can be made on a restricted and in-camera basis. The Committee maintains that confidential documents and briefings can be provided to the Committee.
In previous reports, the Committee has commented upon parliamentary privilege in the context of the Auditor-General’s responsibilities. For example, in its 2001 review of the operation of the Act, the Committee stated:
The audit process relies on a free flow of information on a continuous basis. The Committee recognises that the provision of Parliamentary privilege is an essential element in protecting the office of the Auditor-General from legal action so that it may provide a fearless account of the activities of executive government.
In that review, the Committee examined the application of parliamentary privilege to the Auditor-General’s working documents and commented:
The Committee, based on the evidence provided, accepts that until a court decides to the contrary, it is proper for the Auditor-General to proceed on the basis that Parliamentary privilege does apply to ANAO draft reports and working papers created for the purpose of prepared audit reports or financial statement audit reports.
The Committee notes more recent advice from the Clerk of the Senate about the application of parliamentary privilege to the Auditor-General’s working papers. In this advice, the Clerk stated that:
The question whether privilege applies to the Auditor-General’s working papers hinges on the extended definition of ‘proceedings in parliament’ in s 16(2) of the Parliamentary Privileges Act 1987; the proceedings include ‘acts done in the course of, or for purposes of or incidental to, the transacting of the business of a House’ [emphasis added]. This is a question of fact for courts to determine in deciding whether to allow material into evidence.
The Clerk summarised previous advice provided to the Senate Standing Committee of Privileges on this issue and noted that the long-standing view that working papers ‘created by the Auditor-General for the purposes of preparing audit reports or financial statement audit reports fall within the expression “proceedings in Parliament” as used in s16(2) of the Parliamentary Privileges Act’ was consistent with the recent decisions of the Federal Court in Carrigan v Cash  FCA 1466 and  FCAFC 86.
The Clerk further noted that ‘unless and until a court makes a decision in a relevant case, there will be a degree of uncertainty about the scope of privilege here’.
The Committee reaffirms the view of previous Committees in recognising that the provision of parliamentary privilege is an essential element in protecting the office of the Auditor-General. The Committee considers that the privileges committees should consider the matter in more detail, including the possibility of legislative amendments to seek to put the matter beyond doubt.
The Committee recommends that the Joint Committee of Public Accounts and Audit undertakes an inquiry on each occasion a certificate is issued under section 37 of the Auditor‑General Act.
The Committee recommends:
That detailed consideration be given by the Committee to the proposal that a statutory timeframe be legislated in which the Attorney‑General is required to make a decision in regards to a section 37 application, and included in this legislative amendment is a mechanism for the Attorney‑General to self-execute time extensions for this decision, subject to notification of the extension to the Auditor‑General and the Joint Committee of Public Accounts and Audit; and
That this proposal be examined on the next occasion a certificate is issued under section 37 of the Auditor‑General Act or at the next review of the Auditor‑General Act, whichever is the earlier.
The Committee recommends that the other issues raised by the Auditor‑General in his submission to this inquiry be referred for further consideration as part of the next periodic review of the Auditor‑General Act, including:
A provision for a confidential report to be provided to at least the Chair of the Joint Committee of Public Accounts and Audit along with relevant Ministers;
That the Joint Committee of Public Accounts and Audit be consulted on a confidential basis if a proposed certificate affects the audit conclusion or information not otherwise prohibited from disclosure;
To consider amendments to distinguish between types of certificates to at least require confidential consultation with the Joint Committee of Public Accounts and Audit before certificates are issued for non-national security matters; and
That substantive reasons be provided when a certificate is issued.
The Committee recommends the referral to the privileges committees of both the Senate and the House of Representatives the question of whether the draft reports and working papers of the Auditor-General are subject to parliamentary privilege.
Review of evidence
This section outlines the Committee’s review of evidence and comprises the following sections:
Certificate 2018: chronology of events; and
Operation of section 37 of the Auditor-General Act 1997.
Certificate 2018: chronology of events
The ANAO’s performance audit into Defence’s procurement of Hawkei protected mobility vehicles for the Australian Army commenced in March 2017. The audit report was expected to be tabled in December 2017.
Defence first expressed potential concerns about the audit to the ANAO in August 2017, with further correspondence in October 2017 after the ANAO provided preliminary report preparation papers to Defence.
Correspondence between Defence and the ANAO regarding the content of the audit report continued through the remainder of 2017. The ANAO also provided extracts of the proposed audit report to Thales Australia in November 2017.
On 5 January 2018, Thales Australia requested that the Attorney‑General issue a certificate under section 37(1)(b) on the basis that ‘publication of certain information in the ANAO Report Army’s Protected Mobility Vehicle – Light would unfairly prejudice Thales’ commercial interests within the meaning of s 37(2)(e) of the Act’.
On 29 January 2018, Thales Australia initiated proceedings in the Federal Court of Australia and obtained ex parte interim orders prohibiting publication of certain material in the report.
On 15 February 2018, the Attorney-General wrote to the Auditor-General requesting any further information to assist his decision making about Thales’s request. The Auditor-General responded on 23 February 2018.
On 19 February 2018, the Attorney-General sought further information from the Minister for Defence and the Minister for Defence Industry, ‘requesting information they thought was relevant to the decision-making process’. This response, providing additional information and requesting the Attorney‑General issue the certificate under s 37(1)(b), was received on 17 April 2018. The Defence Ministers stated that, in addition to the grounds identified by Thales, disclosure would be contrary to the public interest because ‘it would prejudice the security, defence or international relations of the Commonwealth (s37(2)(a))’.
The Attorney-General issued a certificate under section 37(1)(b) of the Auditor-General Act 1997 on 28 June 2018 on the grounds that the disclosure of certain information contained in the ANAO’s audit report would be contrary to the public interest for one or both of the following reasons:
it would prejudice the security, defence or international relations of the Commonwealth (s.37 (2)(a)); and
it would unfairly prejudice the commercial interests of any body or person (s.37 (2)(e)).
This was the first time since the Act took effect that a certificate under section 37(1)(b) of the Act had been issued.
The Auditor-General informed the Committee on 5 July 2018 that a certificate had been issued.
The Federal Court proceedings initiated on 29 January were dismissed with the consent of all parties on 9 July 2018.
As Defence’s procurement of light Protected Mobility Vehicles continued throughout 2018, the ANAO continued the performance audit engagement until July 2018.
Thales made a second application to the Attorney-General on 20 August 2018 for a further certificate under section 37(1)(b) of the Act in relation to additional information included in the draft report Thales received on 8 August 2018.
In response, the Auditor-General decided to remove certain information from the report as:
…it best served the interests of the Parliament for the audit report to be tabled as soon as possible and the Auditor-General did not wish to risk holding up the report’s tabling through a further extended consideration of an application under subsection 37(1)(b).
The Auditor-General considered that the information excluded in relation to this second application did not have a material impact on the audit findings.
The public report was tabled on 11 September 2018. Information omitted from the final audit report was identified by a grey redaction square with the words ‘omitted – certificate – s. 37 (2)(a) and s. (37) (2)(e)’.
The Auditor-General also included a Disclaimer of Conclusion in the final report, which stated:
Because of the significance of the matter described in the Basis for Disclaimer of Conclusion section of my report, I have not been able to prepare a report that expresses a clear conclusion on the audit objective in accordance with the ANAO Auditing Standards. Accordingly, I am unable to express a conclusion on whether the Department of Defence’s acquisition of light protected vehicles under Defence project Land 121 Phase 4 was effective and achieved value for money.
In addition, a confidential report containing the information omitted from the public report was prepared under section 37(5)(b) and provided to the Prime Minister, Minister for Finance and the Public Service, Minister for Defence and the Minister for Defence Industry.
Operation of section 37 of the Auditor-General Act 1997
The Auditor-General ‘regularly’ considers matters relating to commercial interest, security interest or cabinet-in-confidence interest when forming an opinion on whether disclosure of information would be contrary to the public interest. The Auditor-General noted that:
We regularly make decisions along the way to exclude information, which are, effectively section 37 decisions made collaboratively through a process. That probably happens on 60 per cent of Defence audits, something like that, and on a lot of other audits as well.
The power to issue a certificate under section 37(1)(b) is a ‘discretionary’ and ‘independent’ decision for the Attorney-General.
The Attorney-General’s Department noted that section 37(1)(b) requires a balance to be achieved between two types of public interest:
…the specific public interest in not publishing particular information for the reasons set out in section 37(2), in a context where other parts of the Auditor‑General Act 1997 recognise the general public interest in the Auditor‑General disclosing performance audit findings and material which the Auditor‑General considers is relevant to those findings.
The Auditor-General argued that the operation of section 37 ‘lacks transparency’:
Section 37 does not include any process or timeframe for the Executive’s consideration of applications for a certificate, there is no requirement to consult with the Parliament or the Auditor-General in the Executive’s deliberations, and there is no process for Parliamentary scrutiny of the certification process other than strictly formal reporting to the Parliament as provided for under subsection 37(4) of the Act.
The Auditor-General put forward several suggestions for changes to the operation of section 37, including:
consultation with the JCPAA prior to the issuing of certificate in the following circumstances:
prior to a decision to issue a certificate for any of the reasons in paragraphs 37(2)(c) to 37(2)(e),
where a certificate affects the Auditor-General’s audit conclusion or requires the omission of information which is not otherwise prohibited from public disclosure;
a requirement to inform the Parliament and the Auditor-General of all applications for a certificate under section 37;
on receipt of any application, a requirement to ask the Auditor-General to first consider the public interest under paragraph 37(1)(a) and to advise the Parliament, the applicant and the Executive of the outcome;
placing a time limit on the Attorney-General’s decision making;
a requirement to provide substantive reasons to the JCPAA for the issuing a certificate;
where a confidential report is prepared, requiring the Auditor-General to provide the report to the JCPAA in addition to the Ministers listed in subsection 37(5); and
confidential briefings for the JCPAA on information relevant to any inquiry.
Evidence received by the Committee on these matters is discussed further below.
Consultation with the JCPAA
The Auditor-General made two suggestions for consultation with the Committee.
First, that consideration be given to distinguishing between disclosures that may prejudice defence and national security or involve the disclosure of Cabinet deliberations or decisions (paragraphs (a) and (b)) and the other matters contained in paragraphs (c) to (e), with the JCPAA consulted on a confidential basis prior to a decision to issue a certificate for any of the reasons in paragraphs (c) to (e).
Second, where the Executive considers issuing a certificate affecting any part of an Auditor-General’s audit conclusion, or requiring the omission of information which is not otherwise prohibited from public disclosure, for any of the reasons stated in paragraphs (a) to (e), the JCPAA be consulted on a confidential basis prior to a decision.
The Auditor-General explained the rationale for consultation with the JCPAA where a certificate affects audit conclusions:
…it is significant, because the conclusion of an audit is basically what we say against an audit objective, which is high level; it is not about specific information, it’s a conclusion…it’s advising the department of the audit office’s view with respect to something. So it’s actually quite a significant thing to have a certificate issued against it, because at the end, in the audit sense, it’s the most important part of an audit report. It seems to me, given this is a possibility, that the JCPAA’s involvement in the consultation would be a reasonable thing from it.
The AGD questioned the purpose of this consultation, noting that the issuing of a certificate is a ‘personal, discretionary decision’ of the Attorney‑General:
The question is: what would a future Attorney-General do with the views of the JCPAA? It’s an opportunity to inform the JCPAA and have a discussion, but an Attorney-General, at the time an application were to be made, would have to come to their own conclusion as to where the public interest lay and whether any of the particular elements of 37(2) were invoked, for example.
However, there was agreement that there would be no reason why the JCPAA could not be informed of an application for a certificate at the time of the application.
The Auditor-General’s consideration of public interest
The Auditor-General suggested that it would be ‘good practice’ if when an application is made, it is considered by the Auditor-General before a decision is made by the Attorney-General.
The ANAO made the following points:
it would be appropriate for the Parliament and Auditor-General to be informed in a timely manner of all applications for a certificate,
the Auditor-General should be asked to first consider the public interest under 37(1)(a) and to advise the Parliament, the applicant and the Executive of the outcome, and
the Executive should only consider issuing a certificate after the Auditor-General has had an opportunity to consider any application.
In support of this proposal, the ANAO argued:
The Auditor-General is best placed, in the first instance, to consider any claims for the omission of information from a public audit report, drawing on audit evidence collected by the ANAO and having regard to any legal or other prohibitions applying to the public disclosure of particular information.
The ANAO has a well‑established history of engaging with agencies and departments to negotiate sensitive issues throughout the audit process. The Auditor-General expressed concern during the inquiry about the potential precedent this particular instance may have created, stating:
It would be of concern if this certificate set a precedent for government to regularly suppress elements of an Auditor-General’s conclusion and ANAO analysis in a public report, particularly where the conclusion and analysis contained information that is not otherwise protected from public disclosure.
The Auditor-General expressed concern about the lack of a time limit for the Attorney-General’s consideration of an application given the Auditor‑General’s statutory obligation to table an audit report as soon as practicable after completing the report. The Auditor-General observed that the process ‘has an open end to it, and that probably isn’t in the interests of the parliament’.
In a letter to the Auditor-General dated 26 January 2018, the Attorney‑General stated that his decision would be made ‘without unreasonable delay’. The Attorney-General noted that as the first instance in which an Attorney-General had had to consider issuing a certificate under subsection 37(1)(b) he would be ‘following a deliberative process that will take the required amount of time for me to reach a considered decision on this matter’.
However, as AGD argued, determining a set timeframe for the Attorney-General’s decision-making process is difficult given that each application would involve different relevant facts and contexts.
In the event that a time limit was established, AGD argued that it should also include some form of self-executing, but transparent, mechanism by which the Attorney-General can have more time if required.
Reasons for a certificate
Section 37(2) of the Act does not require that the Attorney-General provide the Auditor-General with the substantive reasons for a certificate’s issue.
The Auditor-General argued that ‘there is limited transparency to the Parliament regarding the substantive reasons for issuing the certificate’. The ANAO highlighted that:
…after having worked through all the national security issues with the Department of Defence in the course of the audit, the Auditor-General remains unaware as to why the reasons set out in paragraph 37(2)(a) of the Act–relating to prejudice to the security, defence or international relations of the Commonwealth–apply to the information that the certificate requires to be omitted from the report to Parliament.
The Auditor-General explained his concerns about the lack of substantive reasons:
The primary issue is around: if there’s a decision being made by the executive to prevent the parliament from seeing something in an audit report which has been prepared for its purpose, then the answer being ‘because of part A’ doesn’t really provide much transparency for why the parliament shouldn’t see that piece of information. It seemed to me, when we were considering this, that, if there was a requirement under the legislation for more substantive reasons as to why the Attorney-General made those decisions, that would help the transparency of the process.
In addition, the Auditor-General noted that the provision of substantive reasons would assist him in administering subsection 37(1)(a) of the Act, and ‘in making decisions going forward when I’m faced with similar matters’.
Provision of confidential report to the JCPAA
As the Committee has noted previously, confidential documents can be provided to the Committee where required.
The ANAO was of the view that:
Transparency and accountability to the Parliament would be further strengthened if the Auditor-General were required to provide a confidential report to the JCPAA, in addition to Ministers. This approach would also ensure unfettered reporting from the Auditor-General to the Parliament.
1 April 2019