Chapter overview
4.1
The Committee’s inquiry into Auditor-General Report 39 (2019-20), Implementation of the Commonwealth Scientific and Industrial Research Organisation (CSIRO) Property Investment Strategy, found that CSIRO has made sound progress in implementing the recommendations made by the ANAO to improve the management of its property portfolio. While the Committee was concerned by some of the audit findings, including that CSIRO was not effective in establishing governance arrangements for its 2012 Property Strategy, the comprehensive responses provided by CSIRO indicate that the implementation of the 2019 Property Strategy should improve.
Background and audit findings
4.2
Chapter 4 examines the findings of the Joint Committee of Public Accounts and Audit (JCPAA) inquiry into Governance in the Stewardship of Resources, based on Auditor-General Report 39 (2019-20).
4.3
The objective of the audit was to assess whether CSIRO designed and is implementing its property investment strategy in a way that is delivering the intended benefits. The audit also examined how lessons learned from the 2012 Property Strategy were reflected in the newly developed 2019 Property Strategy.
4.4
CSIRO was established and operates under the Science and Industry Research Act 1949 (SIR Act). It is a corporate Commonwealth entity under the Public Governance, Performance and Accountability Act 2013 (PGPA Act). The Board is CSIRO’s governing body and accountable authority under the PGPA Act.
4.5
As Australia’s national science research organisation, CSIRO requires fit-for-purpose facilities to support its specialised science capabilities. In this way, CSIRO’s property strategy plays a key role in ensuring that its property portfolio, a public resource, is used efficiently and for its intended purpose.
4.6
This chapter focuses on:
Background and audit findings
Evolution of CSIRO’s property strategy
Measurement of CSIRO’s property footprint
Quantifiable performance targets
Evolution of CSIRO’s property strategy
4.7
CSIRO’s property portfolio, inclusive of 56 domestic sites, three international facilities and more than 950 buildings, is valued at over $1.6 billion. The operating cost of this portfolio is approximately $120 million per annum.
4.8
In 2012, CSIRO adopted a 10-year property strategy to consolidate its national property footprint, known as the 2012 Property Strategy. To ensure ‘financial stability and effective use of resources’, the property strategy considered CSIRO’s science priorities and sought to align this with infrastructure. The intended outcome of the property strategy was to ‘maximise the investment … into the research capability across the organisation.’
4.9
In 2019, CSIRO adopted a new 10-year property strategy (the 2019 Property Strategy).
Implementation of the 2012 Property Strategy
4.10
The 2012 Property Strategy had targets of a 26 per cent reduction in CSIRO’s property footprint and a reduction in the number of sites to 41. Contrary to this, the audit observed that:
the number of sites increased by five per cent from 2012–13 to 2018–19;
building footprint decreased by 10 per cent between 2013 and 2019, although CSIRO has not included some of its locations in its calculation meaning the aggregate reduction is less across the entire property portfolio; and
land holdings decreased by one per cent between 2013 and 2019.
4.11
The ANAO stated that while CSIRO had targets in place to reduce its property footprint, it ‘did not develop a comprehensive approach for monitoring and measuring its property portfolio over the ten year life of the 2012 Property Strategy.’ The audit additionally noted that planned divestments had been delayed or were no longer planned to take place.
4.12
CSIRO explained that it was unable to meet the targets in the 2012 Property Strategy due to ‘several challenges that delayed the footprint reduction and/or added to overall site numbers.’ In particular, it attributed the increase in total sites under the 2012 Property Strategy to the amalgamation, in 2015, of the National Information and Communication Technology Agency (NITCA) into CSIRO. Through this machinery of government change the research organisation gained five sites, including sites in Eveleigh, Sydney, and Docklands, Melbourne.
4.13
CSIRO further added that ‘several properties identified for divestment in the 2012 Property Strategy required extensive unforeseen environmental remediation works that delayed their preparation for sale.’
4.14
CSIRO confirmed that three sites had been divested between 2012 and 2019.
2019 Property Strategy
4.15
CSIRO stated that, during the development of the 2019 Property Strategy, it had reflected on ‘the experiences and lessons learned’ from its implementation of the 2012 Property Strategy. This included the consideration of ‘an adapted approach to enable better management of factors outside CSIRO’s control, such as the acquisition of sites through government changes.’
4.16
The 2019 Property Strategy’s objectives are to:
Facilitate collaboration and network development;
Support and establish innovation hubs for SME engagement;
Enable a vibrant, safe and secure working culture;
Provide flexible property and facilities that can adapt to meet evolving and future science needs; and
Advance environmentally sustainable facilities that continue to lower our emissions and improve our environmental outcomes.
4.17
Alongside these objectives the five strategic priorities of the 2019 Property Strategy are to:
Align Infrastructure with Science: align CSIRO’s infrastructure and facilities with the current and future needs of the Business Units.
Leverage strategic infrastructure opportunities: capitalise on planned strategic infrastructure investment by other parties, including within the Commonwealth, state/territory and higher education sectors.
Consolidate our property footprint: consolidate to sites and locations that align to CSIRO’s future needs, improve the utilisation of properties, and optimise investment of limited funds in key sites.
Invest in maintaining key infrastructure: identify key infrastructure and maintain/upgrade these existing facilities to be fit for purpose.
Environmental Sustainability: invest where appropriate in minimising the environmental footprint of facilities and operations while supporting CSIRO’s own agenda to support leading environmental practice.
4.18
CSIRO advised that the new property strategy includes a planning framework that details the investment and divestment principles around making decisions about CSIRO’s property portfolio.
4.19
CSIRO confirmed that it has ‘met all commitments made in its responses to the five [audit] recommendations’ and assured the Committee that this new property strategy ‘incorporates activities, planning and reporting requirements’ in accordance with the recommendations.
Measurement of property footprint
4.20
Measurement of property footprint may comprise of land and building footprint information. The audit observed that CSIRO did not include a measurement of land in its property portfolio footprint, despite this being ‘central to its research activities.’ Accordingly it was recommended that CSIRO develop an approach that is consistent, transparent and effective for measuring the entirety of its property footprint.
4.21
CSIRO explained that while land footprint data is available, it was ‘not previously reported to the Board because the value of the data is skewed by land holdings, such as the Square Kilometre Array (SKA) in Western Australia which is 350,000 hectares of predominately vacant land.’ CSIRO confirmed that it has now commenced annually reporting to the Board on its land footprint in addition to its building footprint from 2019-20. It presents information on land footprint data in two parts to separately report on the SKA holding.
4.22
The ANAO highlighted the importance of having a consistent and effective approach to measuring property footprint in the context of governance, stating that:
The accountable authority, in this case the board, is responsible for the proper use of public resources, and in the CSIRO’s case property is a significant public resource for which it is responsible… As the officers have discussed, there were elements of the property portfolio … of significant value, which were not included in material that was presented to the Board. In that sense, the Board isn’t able to properly acquit itself of its responsibility, to give this stewardship, to actually fulfil their obligations under the PGPA Act.
4.23
The ANAO’s key message to CSIRO is to ensure that ‘the information going to the Board is clear, complete, transparent and covers the full elements of this important portfolio of public resources.’ This enables the Board to undertake its role as the governing body.
Governance arrangements
4.24
The audit concluded that ‘CSIRO was not effective in establishing governance arrangements to support the implementation of its 2012 Property Strategy.’ The ANAO further added in its submission that ‘there was a lack of oversight’ from CSIRO’s Board and that CSIRO was involved in activities that ‘may not have been consistent’ with its legislated functions.
4.25
On the importance of having good governance arrangements for the use of public resources, the Auditor-General explained:
One of the key issues with planning and strategies like this is that decision-makers are making decisions about the use of public resources on the basis of information that’s available to them and strategies to drive actions. In this case it was wanting to invest in new infrastructure and releasing resources from old infrastructure to do the reinvestment. As a result of that, lowering your operating costs was a component of the strategy, as well as building capability. If the end result of the strategy is that you get the expenditure without the benefit—that is, lowering cost and the divestment—would you have done that in the first place if you knew that was going to be the outcome?
4.26
The Auditor-General further emphasised that, ‘if you don't have good governance sitting over activities to ensure that you're delivering all of an integrated strategy, you can end up in a situation where you have all the costs but not all the benefits of it.’
Divestment projects
4.27
In the 2012 Property Strategy planned divestments were instrumental not only in reducing CSIRO’s property footprint, but also in financing capital investments required for proposed consolidations. Planned divestments were therefore expected to result in a greater proportion of CSIRO’s resources being directed to scientific and industrial research-related spending.
4.28
The audit found that while CSIRO established an effective capital investment program, it ‘did not establish effective arrangements to support its capital divestment program.’ Instead, planned divestments experienced ‘significant delays’ and some were cancelled.
4.29
Accordingly, the audit recommended that ‘CSIRO establish effective governance arrangements for the management of divestment projects including establishing a consistent framework and undertaking detailed planning.’
4.30
On this matter, CSIRO acknowledged that the governance of divestments was one area that needed to be strengthened. CSIRO has now extended the governance framework in place for investment projects ‘to include all divestment projects regardless of size.’ The Capital Management Committee, established in early 2019 to have oversight of capital investments, will now consider divestments. In addition to regular reporting to the Executive Team (ET) and the Board, a Project Board and Project Control Group have been assigned to each divestment project.
4.31
CSIRO provided more detail on how divestment projects would be managed, noting that:
The Project Team, comprising staff with significant experience in delivering capital projects around Australia are responsible for the delivery of any divestment project in accordance with the scope of works proposed. In the case of property disposals, the project is referred to the Divestments Steering Committee (DSC) for thorough identification of options for disposal and barriers to achieving a beneficial outcome for CSIRO, taking into account CSIRO’s obligations under the Commonwealth Property Disposals Framework, the extent of remediation, the commercial property market and the future requirements of the organisation.
4.32
CSIRO stated that the DSC ‘is responsible for the efficient divestment of sites surplus to organisational requirements and for ensuring divestments are consistent with the goals of achieving financial sustainability for the organisation’:
The DSC will assist the project team in preparing options, and will include providing direction as well as assisting in the procurement of professional financial, legal, commercial or other advice to assist in planning and the formulation of recommendations. The Committee will make a recommendation to the delegate who will direct additional approvals required under the established governance framework.
4.33
Once endorsed, CSIRO explained that the project would be managed in accordance with its internal project governance framework:
The Project Board has high-level responsibility for project delivery and ensures the project is delivered in accordance with the business case and the Project Control Group provides direction, management and monitoring of the project and is responsible to the Project Board. Any divestment is required to be tabled for approval at either the CSIRO Executive Team Committee or the CSIRO Board.
4.34
As CSIRO’s primary executive leadership body, the Executive Team Committee role is ‘to determine matters or make recommendations to the Chief Executive and through the Chief Executive to the Board’ related to the direction and operations of the organisation. The Board and Chief Executive work together ‘to determine the strategic direction of CSIRO.’
4.35
In relation to current divestment projects, CSIRO stated that there are ‘a number of actions…occurring this financial year and next financial year—within that original 2012 window—which were part of the 2012 strategy at the commencement.’ CSIRO also noted that, by way of example:
…we’re exiting a leased property at North Ryde at the end of [2021]. We’ve just commenced the planning process to relocate staff from our Aspendale site through to Clayton. They were indicated in the strategy and they are in that window but we’ve sort of reset those as part of our 2019 strategy.
Risk management
4.36
The audit noted that CSIRO ‘did not have a risk management plan in place for the 2012 Property Strategy and has not appropriately managed the risks to implementation including the risk to revenue from divestment projects not progressing as planned.’ The ANAO recommended that ‘CSIRO develop a property strategy risk management plan to monitor, assess and guide the mitigation of property strategy implementation risks.’
4.37
CSIRO stated that individual risk management plans are prepared for all investment and divestment projects, which enables it to ‘monitor, assess and guide the mitigation of property strategy implementation risks.’ However, CSIRO acknowledged the benefits of incorporating existing individual risk management plans into an overarching risk management plan for the property strategy.
4.38
CSIRO advised that it had undertaken an overarching strategic risk assessment and developed a risk management plan to complement the 2019 Property Strategy, further noting that:
The strategic risk assessment identified strategic risks and implementation risks that were considered appropriate to the implementation of the 2019-29 Property Strategy and each identified risk was assessed with key controls and treatment plans specified. The strategic risk assessment is to be reviewed annually to ensure that the risks contained are relevant and appropriate. The Risk Management Plan was approved by the CSIRO Executive Team and CSIRO Board in November 2020.
4.39
In addition to each capital project having its own risk plan and risk register, ‘risks are regularly reviewed, as part of the project governance arrangements.’ CSIRO also confirmed that risks associated with the 2019 Property Strategy have been included in its organisational risk profile, as ‘an inability to achieve the goals of the Strategy will impact adversely on the risk category “organisational resilience, safety and the environment”’.
Risk of exceeding authority
4.40
CSIRO has 37 leases and 125 occupancy arrangements with third parties, where the majority identify as paying full commercial rates. In 2018-19, CSIRO received $3.2 million in rent from investment properties valued at $52 million, including from tenants in a North Ryde shopping centre, Sydney.
4.41
The ANAO found that CSIRO was involved in activities ‘that may not have been consistent’ with its legislated functions.
4.42
The audit noted that:
The CSIRO Executive is considering leasing more of its sites, including Parkville (which had been identified for divestment) because ‘there remains concerns that the continued divestment of sites is not sustainable (i.e. we will run out of things to sell) and there are other options that may be more financially sustainable’.
4.43
During the audit, the ANAO additionally observed that CSIRO’s Executive ‘had not sought advice’ on the extent to which the SIR Act authorises leasing of CSIRO sites, such as leasing a shopping centre for financial return. CSIRO assured the Committee that it has ‘sought external legal advice in relation to that particular finding.’ According to the provided advice, Section 8 of the SIR Act implicitly allows CSIRO to undertake such activities within its ability to acquire hold and dispose of land. Section 9 further provides CSIRO with the ‘general power to do all things necessary or convenient to be done in connection with the performance of its functions’, therefore confirming that CSIRO is undertaking such activities within its power.
Board reporting
4.44
The audit concluded that CSIRO’s reporting to its Board on progress with the implementation of the strategy had ‘not been appropriate’—reporting has not been ‘regular, has not contained information requested by the Board and has not reported on delivering the aims of the 2012 Property Strategy including the realisation of costs and benefits.’
4.45
The ANAO recommended that CSIRO’s ‘Executive report at least annually to its Board on the progress in implementing its property strategy and the realisation of benefits.’
4.46
In response to this recommendation, CSIRO stated that it had committed to report on the progress of ‘implementing the property strategy and the realisation of benefits to the Board twice a year’, with the first report presented to the Board in December 2020.
Quantifiable performance targets
4.47
As discussed in Chapter 1, the PGPA Act requires Commonwealth entities to measure and assess the qualitative and quantitative performance of the entity in achieving its purposes.
4.48
The audit observed that the ‘2019 Property Strategy did not include any associated quantifiable targets to measure CSIRO’s performance, including against its priorities’ and recommended that ‘CSIRO establish quantifiable performance targets for its 2019 Property Strategy.’
4.49
CSIRO advised that ‘quantifiable performance targets for the 2019-29 Property Strategy’ and a supporting implementation plan were ‘approved by the Board in August 2020.’
We’ve included financial performance against operating costs—leasing costs, maintenance costs and overhead costs—that relate to property portfolios. We do provide reporting of a capital nature against our projects already; we will continue that. Of course, at the highest level, the CFO of CSIRO provides overarching financial performance across the total budget performance on a regular basis.
Perth Precinct Project
4.51
CSIRO is undertaking the Perth Precinct Project, as part of its 2019 Property Strategy. After referral to the Parliamentary Committee on Public Works, this project was deemed expedient in March 2021 to be carried out.
4.52
With an estimated cost of $18.72 million (excluding GST), the Perth Precinct Project is aimed at providing ‘efficient, fit-for-purpose and consolidated accommodation for CSIRO’s Perth staff.’ This is to be achieved by moving staff from the ‘underutilised and aging’ Floreat site to the Kensington and Waterford sites.
4.53
Aligned with the 2019 Property Strategy, the Perth Precinct Project objectives are:
Increased CSIRO collaboration through co-location – providing a property solution that supports our scientists to work better together.
Better utilising existing infrastructure for compatible uses – Using the building stock we have in the most efficient way.
Deliver improvements in information and communication technology to meet the needs of the next ten to twenty years.
Deliver efficient allocation of workspaces and resources with the flexibility to adapt and modify these spaces to support the needs of CSIRO over the coming years.
Support staff health, safety and well-being by providing modern, safe and fit for purpose world class facilities.
Deliver a cost effective, value for money property solution.
Reduce operation and maintenance costs by moving out of aging and unsuitable building stock.
4.54
CSIRO confirmed that the Perth Precinct Project will be implemented in a way that delivers the intended benefits and reflects the lessons learned from the previous strategy:
…learnings from other projects have been assessed for applicability and incorporated to ensure constant improvement in process and design.
4.55
To ensure that the intended benefits are delivered, CSIRO advised that it ‘has an established governance framework and processes for the effective management of major and significant projects’:
The project team are responsible for delivery in accordance with the scope of works. The CSIRO internal project governance structure includes a Project Board which has a high-level responsibility for project delivery and ensures the project is delivered in accordance with the Business Case, including the achievement of strategic objectives and realisation of benefits. Monitoring of a project to milestones, risk and budget as well as regular reporting is overseen by an internal project management office.
Committee comment
4.56
The Committee welcomes CSIRO’s advice as to the steady progress made in implementing the five recommendations made by the audit. While there were concerns around the implementation of the 2012 Property Strategy, related to the measurement of property footprint and governance arrangements, the Committee acknowledges the improvements that CSIRO has made to the management of its property portfolio under the newly adopted 2019 Property Strategy.
4.57
In relation to the audit finding on the measurement of property footprint, the Committee understands that CSIRO had not previously reported on its land footprint to the Board, on the basis that some of its land holdings would skew the portfolio data. However, the Committee agrees with the ANAO’s key message that information going to the Board should be ‘clear, complete, transparent’ and inclusive of all elements of this portfolio of public resources. This is important in ensuring that the Board can fulfil its obligations under the PGPA Act. The Committee notes that CSIRO has addressed this audit finding through its commitment to reporting annually to the Board on both its land and building footprint. To prevent portfolio data from being skewed, CSIRO advised that it would separately report on land holdings, such as the SKA.
4.58
Effective governance arrangements are instrumental in ensuring that Commonwealth entities are able to achieve their aims. The audit stated that CSIRO ‘did not establish effective governance arrangements for divestment projects’, with some projects cancelled and others experiencing significant delays. Notwithstanding this, the audit found that CSIRO had established an effective capital investment program. The Committee believes that CSIRO’s efforts to expand the governance framework for investment projects, to include all divestments, signals better management of its property portfolio. The Committee appreciates the comprehensive detail provided by CSIRO on how divestment projects will be managed.
4.59
With respect to risk management, the Committee was concerned by the audit conclusion that CSIRO ‘did not have a risk management plan in place for the 2012 Property Strategy and has not appropriately managed the risks to implementation including the risk to revenue from divestment projects not progressing as planned.’ In response, CSIRO advised the Committee that it had not only undertaken a strategic risk assessment, but also prepared a risk management plan to complement the 2019 Property Strategy, and that risks associated with the strategy have also been included in its organisational risk profile.
4.60
On a related matter, the ANAO pointed to a risk of CSIRO exceeding its legislative authority. The ANAO observed that CSIRO was involved in activities, such as third-party leasing of part of its property portfolio, ‘that may not have been consistent’ with its legislated function. At the public hearing, the Committee welcomed CSIRO’s advice that it had sought external legal advice on this finding, with CSIRO confirming it is confident that undertaking such activities is within its powers.
4.61
The Committee reinforces the importance of providing the accountable authority, the CSIRO Board, with sufficient information to enable it to monitor entity performance. The audit found that CSIRO’s ‘reporting has not been regular, has not contained information requested by the Board and has not reported on delivering the aims of the 2012 Property Strategy’. In response to this finding, the Committee notes that CSIRO has recently committed to reporting on the implementation of the property strategy and the realisation of benefits to the Board twice a year, and believes this commitment will enable the CSIRO Board to appropriately monitor the strategy’s implementation.
4.62
In relation to the 2019 Property Strategy, the audit found that quantifiable targets were not incorporated to measure CSIRO’s performance, including against its priorities. CSIRO confirmed to the Committee that it had implemented quantifiable performance targets for the property strategy, with a supporting implementation plan approved by the Board in August 2020. The Committee is of the view that clear, quantifiable performance targets will also assist the Board in overseeing CSIRO’s management of its property portfolio.
4.63
The Committee notes that CSIRO’s Perth Precinct Project has recently been examined by the Parliamentary Committee on Public Works, and was pleased to hear that the governance arrangements for the project have demonstrated that the 2019 Property Strategy is being implemented in a way that delivers the intended benefits and reflects the lessons learned from the past. From CSIRO’s overview of the governance arrangements and its positive response that applicable learnings are now being incorporated to allow for continuous improvements in process and design, the Committee observes that CSIRO has made sound progress in improving the implementation of its property strategy.
4.64
The Committee makes no recommendations for CSIRO.