Chapter 2
The National Commission of Audit's Processes
Introduction
2.1
The commission's terms of reference set out the following context for
the establishment of the commission:
It is almost 20 years since there has been a thorough review
of the scope, efficiency and functions of the Commonwealth government. During
this time the size of the Commonwealth government has expanded significantly,
as has the remit of some of its activities...
It is therefore timely that there should be another
full-scale review of the activities of the Commonwealth government...[1]
2.2
Given the 'full-scale review' which the commission is undertaking, it is
important that the commission's processes are transparent and that it has
sufficient time to undertake its significant task.
Lack of transparency
2.3
One of the major concerns which the committee has in regards to the
operation of the commission is a lack of transparency about the focus of its
work and its processes.
2.4
On the issue of transparency, Mr Shepherd informed the committee that 'transparency
will come through the government and parliamentary process'.[2]
2.5
The committee questioned the commission on several aspects of its work,
including:
- additional guidance or instructions, aside from the terms of
reference, provided by the government to the commission;
-
the commission's processes for analysing submissions and meeting
with key stakeholders; and
-
processes for identifying and addressing commissioner's conflicts
of interest.
Guidance from government
2.6
The committee sought to establish the parameters of the commission's
work, and in particular, whether there was any other material, apart from the
terms of reference that the government had provided to guide the work of the
commission.
2.7
In response to questioning from the committee chair, Mr Shepherd
emphasised that the commission is guided only by the terms of reference and
there had been no other instructions, correspondence or guidance from the
government:
CHAIR:...[I]s it safe to say that the terms of reference
is the central document guiding the work of the commission?
Mr Shepherd: Yes, that is our guide.
CHAIR: Do you have any other riding instructions from
government?
Mr Shepherd: No, we have no other riding instructions
from government. In fact, they have made it clear that we are to follow the
terms of reference and there are no no-go areas.
CHAIR: Do you have any correspondence from government
that may give effect to that?
Mr Shepherd: Other than the terms of reference, no.[3]
2.8
However, subsequent information provided by the commission during the
hearing caused the committee to doubt these assurances. Members of the
committee referred to a statement in a media article in which the Minister for
Finance (Minister), Senator the Hon Mathias Cormann, indicated that the
government's public sector jobs policy 'would now be handed to the Coalition's
commission of audit',[4]
and asked how this request was conveyed to the commission.
2.9
Mr Shepherd stated that the commission had 'not received a specific
request' from the Finance Minister to review the public sector.[5]
Mr Crone then drew the committee's attention to correspondence addressed to Mr
Shepherd from the Minister and the Treasurer:
I will just jump in there to clarify. I believe that, around
the time the Mid-Year Economic and Fiscal Outlook [MYEFO] was being
prepared, material came to light about the job losses associated with previous
government decisions about efficiencies, which established that there may be
something like 14,000. Subsequent to that, the Treasurer and the Minister for
Finance wrote to the commission, drawing that to our attention—[6]
2.10
A copy of the letter, dated 21 November 2013, was tabled by Mr Shepherd,
and is included at Appendix 3 of this report.
2.11
Initially, Mr Shepherd stated that he was 'not aware of that [letter]'.[7]
Subsequently, Mr Shepherd explained that he had not intentionally meant to
mislead the committee, but that he did not read the letter as a direction from
the government but as guidance on the government's approach to public sector
resourcing:
This was not a direction. It was drawing our attention to the
statement that was made at the time of MYEFO.[8]
...
I am not aware of any other correspondence [from the
government]. I did not regard that [letter] as a direction, but it had
completely slipped my mind and, if I had recalled it, I would have mentioned
it.[9]
...
It was about [the government's] approach rather than
providing guidance as to the approach that [the government] wanted us to take.
I saw that as providing guidance on their approach.[10]
2.12
On notice, the committee asked the commission to provide any other
correspondence from ministers or other members of the government that could be
read as instructions to the commission.
2.13
In its reply to questions on notice, the commission stated that it had
only received two letters from Ministers and members of the government.
2.14
The first of these was the letter from Minister Cormann tabled at the
15 January 2014 hearing, which has already been discussed.
2.15
The second was a letter dated 27 November 2013 to the commission from
the Minister for Health, the Hon Peter Dutton MP. This letter informed the
commission of the discontinuation of funding to the Alcohol and Other Drugs
Council of Australia, based on 'the duplication of roles of peak bodies in the
drugs and alcohol sector'.[11]
This letter was provided to the committee as part of the commission's answers
to questions on notice, and can be found at Appendix 4.
Commission processes
2.16
The commission's processes to gather and analyse information is another
area which lacks transparency. Therefore, the committee questioned the
commission on this work from which its recommendations will be developed.
Submissions
2.17
As noted above, the commission has received over 300 submissions 'from a
wide spectrum of the community'.[12]
In terms of who is reading the submissions, Mr Crone provided the
following information:
Various members of the secretariat [read the submissions]. I
read a large number myself. The five [Senior Executive Service] officers within
the Commission of Audit looked at them, and they were also farmed down to
individuals within the secretariat. They all went through them, so they have
had a good look. Some of them were provided to commissioners. Commissioners
asked for some of them. That has been the process.[13]
2.18
In terms of which submissions are provided to the commissioners, Mr
Crone stated:
In some instances, the commissioners have requested them
themselves; in others, a commissioner might have been oversighting a piece of
work in this area and it was of relevance to them. It was really a matter of
judgement for the senior officers involved.[14]
2.19
The committee also sought further information from the commission on its
processes for considering submissions:
Mr Shepherd: Each submission is evaluated and reported
on by the secretariat. We can then consider the ideas that come from that and
their value in terms of what we are considering.
CHAIR: What is the process the secretariat uses for
weighting particular submissions against others?
Mr Shepherd: They look at them carefully against our
terms of reference.
Mr Crone: The submissions tend to stand on their own
quality. There were some very, very good submissions, I would have to say...There
are some which, not unexpectedly—I will not mention them—really seem to stress
the self-interest or the particular interest. We appreciated that. Some good
ideas came up in some submissions. In a couple of instances, Mr Shepherd and I
had follow-up meetings directly—for example, with ACOSS [the Australian Council
of Social Services].[15]
2.20
In response to questions from the committee on what make a 'good'
submission, or what makes 'some submissions stand out from others', Mr Crone
noted:
I think the predominant issue is that a submission is
prepared to look at the national interest.[16]
2.21
Mr Crone referred to the fact that the commission has not published the
submissions that it has received, although some submissions are publically
available from other sources:
Some people who put their submissions in have subsequently
chosen to publish them on their website, which is fine.[17]
2.22
Mr Shepherd confirmed that there is no prohibition on an individual or
organisation releasing their submission and that it is 'entirely up to them'.[18]
2.23
The committee asked the commission whether it would consider listing all
the submissions it had received, aside from those submitters requesting
confidentiality, on the commission's website. Mr Shepherd conceded that this
was 'a fair question' and took it on notice to consider whether it is possible.[19]
2.24
In its answers to questions on notice, the commission provided a list to
the committee of 274 public submissions received, which included a note that a
small number of organisations had made more than one submission. This list is
at Appendix 5. However, the commission did not address the question on
notice to consider placing public submissions on its website.[20]
2.25
Criticisms of the commission's processes were raised in evidence to the
committee. The Australian Council of Trade Unions (ACTU) was concerned about
the lack of openness and transparency:
Commonwealth finances are a matter of concern to us all. How
we raise money and how we spend it is important to us all. If you are going to
have a process which involves setting policy for the future in a way that the
public has confidence in, you need to have not only an open and transparent
process but one in which more voices than just big business are heard. We have
been critical that, in essence, this commission of audit has involved an
outsourcing of public policy to very big business. They are important, but they
are not the only people who are entitled to a voice in these matters.[21]
2.26
The ACTU compared the lack of transparency of the commission's work to
other government processes such as the Henry Tax Review or inquiries undertaken
by the Productivity Commission where issues papers were put out for public
comment, resulting in 'feedback, comment and genuine debate about individual
proposals'. Mr Tim Lyons, Assistant Secretary, stressed that the processes
adopted by the commission do not involve the views of the community.[22]
2.27
This was supported by evidence given by Mr Ian McAuley, Adjunct
Lecturer, University of Canberra, who also referred to the processes of the
Productivity Commission and drew out not only what a good, consultative process
might look like, but also the dangers of a process that was too opaque:
...My observations of good process come from observing bodies
like the Productivity Commission, which will issue a discussion paper, call for
submissions and will have public inquiries. Those public inquiries are
extremely valuable because you will often hear that what looks like a good idea
at the time—say, the transfer of funding of health care to private health
insurance—until someone says, 'Hey, here are the unintended consequences.' The [productivity]
commission then issues a draft report which is public, and then a final report,
which is confidential, goes to government. Then it all gets released. Not
everyone is happy with the process, but at least people realise that they have
had their day in court; they have had their time to present their case. It has
credibility because it is seen to be apolitical. Some people criticise the
[productivity] commission, but it does outline its economic philosophy quite
plainly. That is what I would call good process, and it is likely to result in
the enduring change because it is seen to be legitimate.[23]
Committee view
2.28
The committee is concerned that this lack of transparency makes it
difficult for the public to find the information the commission is using in its
deliberations. The committee believes that the commission should publish all
submissions on the commission's website, unless confidentiality has been
requested.
2.29
Moreover, the committee notes that the commission's website has no
contact details for enquiries. This is a further obstacle to the public
accessing information on the commission and its processes.
Meetings
2.30
As noted in Chapter 1, Mr Shepherd told the committee he had met with
'several premiers and most departmental secretaries, among others'.[24]
Due to the commission's timeframes, the commission has not been able to meet
with everyone who has made a submission,[25]
however Mr Shepherd stated that, between the commissioners and the secretariat,
there have 'probably' been over 100 meetings.[26]
2.31
Mr Shepherd advised that he has met with Australian Council of Social
Services (ACOSS), ACTU,[27]
Australia Post and SBS.[28]
Mr Shepherd informed the committee that meetings had not been held with
Medibank Private, the Defence Housing Authority or the ABC.[29]
2.32
The ACTU told the committee about its meeting with Mr Shepherd:
Yes, we did meet with Mr Shepherd, and we did have a broad-ranging
discussion. But I do not think that absolves the process of the criticisms that
we mount. What we had was an at-large, in-principle discussion about the
circumstances of Commonwealth finances, but that is a very long way from a
process that robustly considers individual significant changes to either
revenue or expenditure. And the criticism we make is that if you are going to
have a real process you have one whereby not only in-principle views, if you
like, about the state of Commonwealth finances are considered but changes
themselves that might be proposed are debated and considered against the
evidence.[30]
2.33
The committee sought clarity on the commission's process for determining
which organisations or individuals it would meet with. Mr Shepherd informed the
committee that the process was 'not [a] mystery or a secret':
Firstly, agencies approach us and request a meeting.
Generally speaking, we do not reject that...
...
They ask for the meeting and we meet with them. That is fine.[31]
2.34
Mr Shepherd took on notice to provide details of meetings with
stakeholders. However, a full list of these meetings was not provided to the
committee, as requested. The reason provided by the commission was:
The Commissioners and members of the Secretariat have met
with a range of stakeholders. In light of its reporting deadlines, the
Commission considers that it would currently be an inappropriate diversion of
resources to compile this information for the Committee by the deadline for
responses.[32]
Reporting deadlines and timeframes
2.35
The commission of audit was announced on 22 October 2013. Its terms of
reference stipulate that it must hand an interim report to government 'by the
end of January 2014' and its final report 'no later than the end of March
2014'.[33]
This gives the commission just over five months in total to complete a
'full scale review of the activities of the Commonwealth government'.[34]
2.36
Mr Shepherd acknowledged the difficulties of meeting committee requests
to appear at hearings, especially considering the tight timeframes the
commission has been given and the significance and size of its work:
There is a risk. There is a twofold risk there, with due
respect to the committee and its request; the task that we have is very
significant and the time that we have is tight. We have indicated to the
Treasurer and the Minister for Finance that we may seek an extension, but we
are not looking for a substantial one. We are still targeting the end of the
month and we are working towards that, but we would rather get it right then
get it in on time, I will put it that way.[35]
2.37
Some submissions received by the committee see the commission's
timeframes as too ambitious.[36]
The ACTU suggested the commission should be given between
12 and 18 months to do its work, as five months is insufficient
to examine the size and scope of all of Commonwealth expenditure.[37]
The Australian Services Union noted that the 1996 Commission of Audit was also
hampered by a short timeframe in formulating its recommendations.[38]
2.38
The ACTU, as well as Ms Jennifer Doggett, Mr Ian McAuley and Mr John
Menadue AO, suggested that the work of the commission was too important to rush
– especially as its recommendation will affect the future health of the
Australian economy, as well as the economic security and wellbeing of all
Australians.[39]
2.39
Moreover, Ms Jennifer Doggett, Mr Ian McAuley and Mr John Menadue AO suggested
that the short time given for the commission to do its work opens up the
possibility for the commission's recommendations to be misunderstood or
perceived as illegitimate by the wider Australian community.[40]
Committee view
2.40
The committee believes the five months given to the commission to
complete its work is simply not sufficient to review the totality of
Commonwealth's expenditure, as well as to formulate
advice to government that will encourage solid, evidence-based policy
decisions.
Dealing with possible conflicts of
interest
2.41
Another aspect of the commission's work in which the committee believes
that there should be transparency is the declaration of any conflicts of
interest that the commissioners, or the secretariat, may have and how those
conflicts are dealt with.
Conflict of interest processes
2.42
The committee questioned the commission on its processes for dealing
with conflicts of interest. Mr Shepherd noted that the commission's process for
dealing with conflicts is outlined on its website. The process involves each
commissioner declaring the interests, in writing, to the Department of Finance,
as part of accepting the position with the commission.[41]
Further, Mr Shepherd stated:
That was one of the first things that I insisted that we do:
develop a process for dealing with conflicts of interest and make it public so
it is there for everybody to see.
...
The process is very much similar to what would be used in the
corporate world and in the public sector.[42]
2.43
Mr Shepherd took on notice whether the conflict declarations that the
commissioners have made will be made public.
2.44
In its reply to questions on notice, the commission stated once more
that its processes were in-line with corporate practice, although declining to
make these declarations public:
Declarations of Commissioners' interests are handled
according to the protocol set out on the National Commission of Audit website.
It is not appropriate to make these declarations public.
Members of the Commission are not elected officials or holders of public
office. The Commission has been tasked with providing a report to the Prime
Minister, Treasurer and Minister for Finance. Its handling of potential
conflict of interest matters is consistent with good practice.[43]
2.45
In terms of dealing with any actual or potential conflicts, Mr Shepherd
explained:
So you have identified a conflict, a matter comes up which is
in your stated area of potential conflict of interest—I should say these are
potential conflicts of interest—and then that is drawn to the attention of the
meeting. Of course, we are aware of each other's potential [conflicts]. Then
the commission decides whether that particular person can participate in the
discussion on that particular issue or should excuse themselves.[44]
2.46
Mr Shepherd took on notice whether there have been any instances where
members of the commission needed to exclude themselves because of conflicts of
interest.
2.47
The commission stated in its answer to questions on notice that to date
there had not been any instances of commissioners needing to be excluded
because of potential conflicts of interest. The commission indicated that:
Where potential conflicts of interest have been raised, they
have not been considered sufficient to require the respective Commissioners to
exclude themselves from discussions. Commissioners may exclude themselves from
decisions where a potential conflict of interest is identified.[45]
2.48
In particular, given that Mr Shepherd is currently the President of the
Business Council of Australia (BCA) and Mr Crone is currently on a leave of
absence from the BCA, the committee was interested in how any potential
conflict of interest would be dealt with. In terms of the handling of the BCA's
submission, Mr Crone stated:
I [have] not read it in detail. I had a quick flick through
it, and I suppose it does not surprise me that in some regards it lines up with
[the BCA's Action plan for enduring prosperity]. But that is immaterial.
That is just one of many submissions. And, as I said...the commissioners have
their views. This is the commission's report—
...
Submissions came in. I do not recall the particular details,
but what typically happens is that a submission comes in and someone within the
secretariat lodges that a submission had been received. I do not recall how
[the BCA submission] made its way to me—whether someone printed it off and
said, 'Here's a submission'; it may have been, 'Here's five submissions that have
come in today.' As I said, the [BCA] was not precluded from making a
submission. But to tell you the truth, it was really a matter of: I do not need
to look at it; I have a sense of where they are coming from; that is one view.
I had probably been focusing on meeting with ACOSS or something around that
time.[46]
2.49
Mr Crone argued he did not see any need to exempt himself from
consideration of the BCA submission because 'personally I do not see there
being a conflict of interest'.[47]
Evidence to the committee was that at that point Mr Shepherd had not seen the
BCA submission.[48]
2.50
Mr John Grant, First Assistant Secretary, National Commission of Audit
Secretariat, emphasised the role of the public servants in the secretariat in
this situation:
Mr Crone heads up the secretariat. Five senior executive
service officers work there. If we thought that Mr Crone was giving favouritism
or something like that, it would be our responsibility to raise that with him
and none of us have done that.[49]
2.51
When speaking with officers from the Department of Finance about this
issue, Ms Rosemary Huxtable, Deputy Secretary Budget Group, explained:
I guess conflicts of interest can arise in a range of
situations. Within the Commonwealth there is a fairly standard approach to
dealing with conflicts of interest that includes the declaration of those
conflicts. It is the declaring of the conflict. It is about being mindful of
the conflict.[50]
2.52
Ms Huxtable noted that, in her experience, when dealing with issues that
impact on future policy directions 'generally you are dealing with almost
everyone around the table having some direct interest in the outcome of that
process' because those people have 'experience, skills and something to offer'.[51]
Addressing perceived bias
2.53
The committee sought an explanation from Mr Shepherd as to how his
personal views would impact the commission's report. Mr Shepherd emphasised
that although he has previously expressed publicly his personal views on issues,
such as raising the rate and broadening the base of GST, he came to the
commission's process with an open mind and the report would be from the five commissioners:
I have said that [that consideration should be given to
raising the rate of the GST] in the past, but that does not mean that this
commission will recommend that.
...
This is five independent people coming together, looking at
the evidence and making their minds up.
...
I have come with an open mind.[52]
2.54
Mr Shepherd added:
We are taking advice and seeking advice, to the extent that
we think we need it to arrive at a conclusion on any issue, and we are
constantly testing our assumptions. We have five independent commissioners, all
with very strong characters and points of view which they bring to the table.[53]
2.55
The other commissioners confirmed that Mr Shepherd does not have undue
influence on the decision-making of the commission:
Senator BUSHBY: Is there any evidence to justify
conspiracy theories that the BCA is shaping or filtering the work of the
commission?
Mr Fisher: I think we can all say that, if there is a
secret agenda, it is secret from us.
Senator BUSHBY: In the end, the report that is
delivered to government will have input from all five of you?
Mr Shepherd: Absolutely.
Mrs Vanstone: Absolutely.[54]
Acceptance of commission recommendations
2.56
In his opening statement, Mr Shepherd referred to the commission's
'broad remit to examine the scope, efficiency and productivity improvements
across all areas of Commonwealth expenditure and to make recommendations'[55]
and that there are 'no no-go areas'.[56]
2.57
However, in press conferences and media interviews on the day the
commission was announced, the Treasurer, the Hon Joe Hockey MP, indicated that
the government would be keeping its election promises and that the government's
election promises were 'insulated' from the work of the commission.[57]
2.58
More recently, Mr Hockey stated that although the government intended to
adopt 'the great majority' of the commission's recommendations:
Not everything they recommend we will accept, but we want to
be in a position where we are able to proceed with, hopefully, the great
majority of recommendations.[58]
2.59
The committee infers from the Treasurer's statements that although the
commission may have 'no no-go areas', the government is committed to
disregarding any of the commission's recommendations which may be contrary to
the government's election promises.
2.60
Mr Shepherd indicated that the commission will focus on the terms of
reference and make 'whatever' recommendations are suitable regardless of the
fact that the government has made clear it will not be accepting any
recommendations which are contrary to its election promises.[59]
2.61
When questioned by the committee on the apparent contradiction of the
commission making recommendations it believes to be in the national interest,
only to have the government not consider those recommendations, Mr Shepherd
stated:
That is entirely up to the government. That is what we are
doing. We have been asked to report—to conduct an audit, an audit that is complete
and across the board. It is what areas we think we need to look at and to
report on to government. It is up to government what they do with the report.[60]
Conclusion
2.62
The work of the National Commission of Audit has the potential to result
in significant savings and benefits for the Australian community, as well as
the potential to do great harm to ordinary Australians.
Representation
2.63
The committee's first concern is representation on the National
Commission of Audit. It believes that additional commissioners from a broader
range of backgrounds, such as health and welfare groups, are necessary to
reflect a much wider range of perspectives in the process.[61]
Recommendation 1
2.64
The committee recommends that the government include broader
representation on the National Commission of Audit in order for a wider range
of perspectives to be included in the process.
2.65
While the committee acknowledges that the commission is motivated by a
sense of fairness and is mindful of the consequences of its recommendations,[62]
the committee also believes that because of the importance of the commission's
work it should be open to scrutiny in relation to the terms of reference setting
out the framework of the audit and the commission's processes for the conduct
of the audit.
Transparency of commission
processes
2.66
The committee believes that the information provided by the commission
during the public hearing, and in response to questions on notice, has provided
greater transparency on the commission's processes.
Submissions
2.67
Although there is no prohibition on people and organisations making
their submissions available, submissions received by the commission are not
available in one place, as they are for Senate inquiry submissions. The
committee believes that the commission should make submissions available on
their website unless confidentiality has been requested.
Recommendation 2
2.68
The committee recommends that the National Commission of Audit make
public all submissions it has received, with the exception of those where a
request has been made for confidentiality.
Meetings
2.69
The commission's process around meetings with stakeholders to receive
further information appears to be ad hoc, with meetings being held if one is
requested. As the committee is not aware of any public hearings, in the
interest of transparency the committee believes a list of these meetings should
be made public.
Recommendation 3
2.70
The committee recommends that the National Commission of Audit make
public a full list of meetings that the commission or its secretariat has been
involved in. The list of meetings should include the names of the attendees at
the meeting, the date of the meeting and who requested the meeting.
Conflict of interest
2.71
The committee believes that the commission should make public the full
declarations of conflicts of interests signed by the commissioners, and also a
full list of the times the commissioners have had to be excluded from
discussions or receiving submissions due to conflicts of interest.
Recommendation 4
2.72
The committee recommends that the National Commission of Audit
make public the full declarations of conflicts of interests signed by the
commissioners, and the times when commissioners were excluded from discussions
or receiving submissions due to conflicts of interest.
Reporting deadlines and timeframes
2.73
The committee is very concerned that the commission is working to
reporting dates that are too tight to make appropriate, meaningful and well-considered
recommendations on the whole of Commonwealth expenditure.
2.74
The committee is critical of the timelines stipulated by the government
in the commission's terms of reference. Government should realise that it is
important not to rush such a significant undertaking, but to take the time to
get it right. This is important, as the commission's recommendations will have
far-reaching consequences, both for the future economic prosperity of Australia
as a nation, and for the wellbeing and security of all members of the public.
2.75
The committee believes that the short time given to the commission
prevents it undertaking its task while observing due process. It does not have
time for appropriately rigorous analysis of the size and scope of all current
government expenditure. Its ability to formulate good advice for government to
use for solid, evidence-based policy decisions is compromised. The inadequacy
of these processes may affect the community’s understanding of the commission's
task and ultimately undermine the legitimacy of its recommendations.
Recommendation 5
2.76
The committee recommends that the government adopt a longer timeframe
for the National Commission of Audit to complete its work, in the interests of
comprehensive stakeholder consultation, more rigorous analysis, and so that the
Australian community understands the commission's recommendations and the
context in which they are made.
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