- Committee comment and recommendations
- Acting with probity and demonstrating ethical behaviour is a legal requirement of public sector officials. Officials are obliged by a myriad of frameworks (including legislation, regulations, rules, policies, codes and guidelines) to pursue high standards of professionalism; to do the right thing at the right time; to be ethical, impartial and accountable; to demonstrate complete and confirmed integrity, uprightness and honesty in their work; and to comply with the intent and the letter of the law. Narrow compliance—that is, complying with the letter of the law or rule while ignoring its intent in order to deliver outcomes—does not cut it.
- In its submission to the inquiry, the Australian National Audit Office (ANAO) told the Committee its ‘audits provide evidence that the Australian public sector regularly falls short of complying with both the intent and the requirements of its regulatory frameworks and lacks effective accountability for performance’. During the course of this and previous inquiries, the Committee has received ample evidence that this is too often the case.
- In this inquiry, the Committee examined audit reports that showed public officials were running procurements not in accordance with the Commonwealth Procurement Rules (CPRs); that grant programs were administered contrary to the Commonwealth Grants Rules and Guidelines (CGRGs); and that Australia’s financial regulators could improve their probity management.
- Agencies, when asked how they could provide assurance that their officers were acting with probity and ethically, were largely unable to provide satisfactory responses. Most often witnesses or agencies defaulted to administrative and process metrics on such things as the number of employees who had completed conflict of interest declarations, whether performance management agreements were in place, ensuring arrangements to prevent fraud and corruption were implemented, or requiring staff to complete mandatory training. While these integrity metrics are important, they provide inadequate insight as to whether officers are actually discharging their duties with probity.
- Independent audits, such as those conducted by the ANAO, are an important aspect of accountability. However, it is neither possible nor desirable to subject agencies to rolling audits or to audit everything. What stands between the law and the achievement of outcomes in a manner that demonstrates probity and ethical behaviour, the Committee concluded, is culture. Agencies have much work to do to develop metrics by which organisational culture can be more accurately measured and assessed.
- The Committee concurs with the Auditor-General’s observations regarding a lack of accountability within and across the system. Cultural metrics are critical to help provide assurance that officers are in fact acting with probity. There is also much to do to ensure senior officers are accountable for lapses in probity, and in particular that agency heads are accountable for the culture of their agency, as well as its performance. It is not acceptable that entities are found by the ANAO to be repeatedly breaching finance law, yet there remains no accountability for leaders or officers involved. Policy owners, also, must take greater responsibility for the system-wide outcomes of policies they own and in particular for compliance by entities with finance law.
- In essence, the Committee has identified three critical and interdependent aspects of the system necessary to foster an Australian Public Sector that acts with probity and integrity:
- Frameworks—the myriad of legislation, regulations, rules, policies, codes and guidelines which set the requirements of entities and officers, including but not limited to, finance law.
- Culture—‘the way we do things around here’ will rightly vary across entities depending on their missions, but within the limits set by cross-government frameworks; the tone is set by governments and the Parliament, while entity culture is overwhelming set by senior leaders.
- Accountability—of individual officers for their actions; of senior leaders and accountable authorities for their entities; and of policy owners for outcomes of and compliance with their policies.
- The key, however, to ensuring the public sector acts with probity and integrity is overwhelmingly not the rules per se—it is ethical leadership: the ‘golden thread’ that binds and animates the system in a positive direction. Evidence received over numerous inquiries indicates that perhaps 80 per cent of organisational culture is set by the behaviour of leaders—at all levels, but starting at the top.
- The following contains the Committee’s views on each part of the preceding report and makes recommendations which, if implemented in good faith by the relevant entities, will go some way to dealing with the accumulated concerns the Committee has about probity and ethics in the Australian public sector.
- It should be noted that during the course of the inquiry, the Committee did not undertake an exhaustive re-analysis of the audit reports considered—the findings of these reports speak for themselves. Instead, it examined a select number of reports and issues raised by the ANAO as case studies. These had insights and value in their own right, and also helped to identify key themes and recommendations for systemic reform. Where necessary, specific comment and recommendations on individual reports are provided at the end of this chapter, following the systemic conclusions.
Frameworks
6.11Public sector probity and ethics obligations are established, operationalised and assessed through a range of cascading frameworks. The Public Governance, Performance and Accountability Act 2013 (PGPA Act) sets the governance, accountability and performance framework for Commonwealth entities and establishes the general duties of public sector officials. Public sector officials have a duty of care and diligence; a duty to act honestly, in good faith and for a proper purpose; a duty not to improperly use their position or information gained through their position; and a duty to disclose interests.
6.12The PGPA Act requires the accountable authority to, amongst other things, govern the entity in a way that promotes the proper (efficient, effective, economical and ethical) use and management of public resources.
6.13Probity and ethics in the APS are legislated in part through finance law. Finance law is defined in the PGPA Act as: the PGPA Act, the rules, any instrument made under the PGPA Act (including the Commonwealth Procurement Rules and Commonwealth Grants Rules and Guidelines), or an Appropriation Act. The PGPA Act states ‘to avoid doubt, the finance law is an Australian law …’ for the purposes of the APS Code of Conduct (CoC), which is contained in the Public Service Act 1999 (PS Act).
6.14The Public Service Act1999 (PSAct) specifies an APS employee, when acting in connection with APS employment, must comply with all applicable Australian laws. The PS Act also contains the APS Values, which relate to officers being committed to service; ethical; respectful; accountable; and impartial.
6.15The PS Act mandates that departmental secretaries are responsible ‘to manage the affairs of the Department efficiently, effectively, economically and ethically’ and to ‘implement measures directed at ensuring that the Department complies with the law’, amongst other things.
The unacceptable and erroneous ‘absence of malice’ defence
6.16Under the PGPA Act, officials have a duty to act honestly, in good faith and for a proper purpose. Evidence received by the Committee shows that even when officials are found acting contrary to finance law, reference is frequently made to a lack of malintent, to having acted in good faith, and delivering on decisions of government, as if that somehow excuses a breach of the law. The Committee’s firm conclusion is that any claim or view that it is acceptable for officers to breach finance law and fail to act with probity, but still be acting in good faith and for a proper purpose is clearly and unambiguously wrong.
6.17It is of value to reproduce the evidence discussed earlier in the report here. Deputy Secretary in the Department of Health and Aged Care (Health), Mr Wann, told the Committee there was a ‘very strong delivery focus’ to give effect to decisions of government and he ‘didn’t see any motivation of malintent, improper purpose or personal bias or any sense of trying to hide anything or lack of transparency and intent to hide’.
6.18Health repeated this in response to a question on notice:
[The department] acknowledges failures of process with respect to the recording of … CHHP grant assessments and funding recommendations. The department’s conduct at the time was not motivated by malintent, improper purpose or personal bias.
6.19The Committee was concerned and disturbed by the cultural signal this sent to the department and requested the Secretary of Health to appear and explore these issues further. It was appreciated that during a public hearing, the Secretary clarified his department’s stance, stating clearly ‘a lack of malintent is not an acceptable justification for not adhering to finance law’.
6.20A similar rationale was provided by DITRDCA First Assistant Secretary in the Office for the Arts, Mr Philip Smith, who stated:
I guess it comes back to the question about whether we think there was anything that was being done deliberately or with malice, and our answer is: no, we do not think so. We think anything that was not fully compliant was either a misunderstanding or just a lack of documentation, or not necessarily understanding the full process, which could go back to simple things like training or documenting things.
6.21When officers fail to comply with finance law, they are not fulfilling an obligation to act honestly, in good faith, and for a proper purpose, regardless of whether there was or was not malice. Similarly, a lack of corruption does not equate to acting with probity. The Committee recommends the Department of Finance issues guidance to this effect.
6.22The Committee recommends the Department of Finance issues guidance that makes clear to public officials that if they breach finance law, suggesting there was no malice or personal gain is not sufficient to fulfil their obligation under the Public Governance, Performance and Accountability Act 2013 to act honestly, in good faith, and for a proper purpose.
6.23While the PGPA Act sets the overarching governance, accountability and performance framework, and in so doing establishes public sector probity and ethics obligations, it is through subordinate frameworks that public sector entities implement and provide assurance on probity and ethics requirements—one such framework is an entity integrity framework.
Integrity frameworks and their limitations
6.24Throughout the Committee’s report, it has been emphasised that probity is more than narrow compliance; meeting mandatory requirements is not sufficient to demonstrate probity and ethics; and the law was never intended to be the maximum standard of behaviour. This is not just the Committee’s view, it is the view of the Auditor-General, the APS Integrity Taskforce, and the Australian Public Service Commission.
6.25It was discussed in chapter 4 that when entities were asked how they assessed whether they were acting in a way that is right and proper, and how they evaluated how officers were positively acting according to the intent of the law, they mostly provided their integrity frameworks.
6.26These integrity frameworks, drawing typically on the APSC’s Integrity Metrics Resource, suggest agencies measure their integrity through several of administrative and process-oriented metrics. These include human resource metrics like performance management data, unscheduled absences data, code of conduct reports and investigations, training completion rates, and compensable claims. The Resource also suggests declarations and self-reporting metrics dealing with conflict-of-interest declarations, and gifts and benefits; security metrics covering security clearances, breaches, access controls and reporting; and risk, fraud and corruption metrics.
6.27In all, the Integrity Metrics Resource contains 22 metrics. The Committee is not suggesting that agencies should not be monitoring the issues identified in the resource—they should be. The Committee’s concern is that these measures alone are necessary but not sufficient. The capacity of such metrics to provide insight into the actual behaviour of officers may be limited and not sufficient grounds for accountable authorities to be confident their officers are acting in a way that is right and proper.
6.28Probity is demonstrated through the behaviour of officers when they conduct their business to deliver outcomes for the Government of the day. The five entities that responded to the questions did not explain the mechanism by which they identified and educated staff regarding the intent of the laws they were required to follow, for instance with regard to procurement, and then the metrics to assess their organisational culture and whether officers were complying with the intent of the laws.
6.29Entities did put forward a range of internal assurance and audit programs, that while important, did not appear able to get at the heart of the issue—how to be confident officers are acting with probity and ethically. In its recent report into the Commonwealth Financial Statements, which examines more than 240 entities, the ANAO noted between 2020–21 and 2022–23, there had been a decrease in internal audits completed on procurement. Audits into grants management over this three year period for all entities was around fifty. In some entities, internal audits completed are falling, for instance between 2020–21 and 2022–23, APRA reduced its internal audit activity by between 40–49 per cent.
6.30As was noted in this report, both Artbank and Health were found not to be complying with the intent, and in some cases, the letter, of the law. Officers who were behaving contrary to finance law may well have completed conflict of interest declarations, undertaken fraud and corruption training, and have received positive performance assessments for having delivered on decisions of Government. But it is manifestly apparent in some instances they were not acting with probity or ethically, even where they may not have been breaking the strict letter of the law.
6.31Integrity frameworks in and of themselves are not sufficient to animate officers in a positive direction—that is the job of leaders who set the culture and signal what behaviours are acceptable within the frameworks. As the old maxim goes, ‘just because you can, doesn’t mean you should’. Similarly, frameworks are unable to get at whether, when they carry out their duties to achieve results, officers are acting with probity. That requires entities to assess culture, accompanied by robust individual and collective accountability mechanisms.
Culture
6.32The Committee concluded, having examined and reflected upon the submissions from entities, that organisational culture was the key element that sits between the law and the achievement of desired outcomes in an ethical manner. When it examined the APS Integrity Taskforce report, Louder than Words, the Committee found that while there were recommendations with regard to culture, there was no definition of a sound organisational culture, no metrics by which it could be monitored or assessed, and no guidance on how an agency could be accountable for its culture.
6.33To gather information on how the entities understood and nurtured their respective organisational cultures, the Committee asked each to provide their definition of culture and how it could best be built; identify metrics by which it could be measured; and specify how leaders should be accountable.
6.34The responses from entities were similar. Culture was defined as shared values, norms and expectations which was manifest through behaviours. In the simplest sense, culture is ‘the way we do things around here’.
6.35To build a positive culture, entities highlighted the importance of senior executives playing a key role and being accountable; clear communication of expectations to staff; the creation of a psychologically safe environment; following through on instances of misconduct; and creating broader integrity structures in entities.
6.36As to measuring culture, the majority of responses defaulted to some variation of the APSC Integrity Metrics Resource and the APS Employee Census. The capacity of the integrity metrics resource to provide an accountable authority with confidence officers are acting with probity and ethically is not clear; and as discussed in the chapter, while the employee census does measure important aspects of departmental performance and culture, there are no questions, for instance, that test the extent to which officers are aware of the legislative and regulatory frameworks in which they work and whether they and their leaders and colleagues act according to the intent not just the letter of the law.
6.37It is the case that workplaces are expected to be respectful and productive and officers should feel their contributions are valued (metrics assessed by the employee census). However, creating a workplace with these characteristics does not guarantee staff will operate with probity. Probity is not simply demonstrating an absence of conflicts of interest, fraud or corruption, or bullying and harassment, as important as these are. The integrity metrics are minimum requirements—they are not measures of probity.
6.38The audit into the CHHP program revealed a Deputy Secretary dismissed advice from Finance on Health’s general CGRG compliance and suggested ‘congestion busting’ was in order. Subsequently, internal performance awards to officials involved in the CHHP process were given on the basis of ‘congestion busting’. Officials may have been able to point to creating a positive team environment where there was clear communication, and where staff felt valued and rewarded for performance; there may have been a view that the approach was innovative; there were likely no conflicts of interest; there was no evidence of corruption or fraud; performance agreements were probably in place; there was very likely compliance with computer system access and cybersecurity requirements. The audit makes it abundantly clear, however, officials were not behaving with probity or ethically—laws were broken.
6.39Frankly, the Committee wishes that breaking finance law was indeed innovative and a new situation, but unfortunately the evidence in this and numerous other inquiries makes clear that it most certainly is not. What appears truly innovative in this instance, however, was that a corporate award was given for performance within a program where the law was deliberately broken.
6.40In retrospect, the provision of any award for administering a scheme where ultimately public money was paid without any legal authority, in defiance of legal advice, seems to be not just wrong, but a form of trolling that perverts the proper purpose of internal agency awards—to recognise good practice and desired behaviours within an organisation’s culture. It is difficult to see why the awards should stand in light of the damning audit report, although the Committee is mindful that junior officers involved in the delivery of these projects may well have had no insights or role into the actions of senior officers.
6.41The Committee recommends that the Secretary of the Department of Health and Aged Care formally reviews the appropriateness of the ‘congestion busting’ awards in light of the ANAO report, and considers whether the awards for this project should be revoked, in particular from senior officers involved.
Integrity metrics and culture
6.42The guidance material produced by the APSC, the Integrity Metrics Resource, does not measure probity, unless probity is equated with: having performance agreements in place; maintaining corruption and fraud controls; managing unscheduled absences, and overtime and leave balances; tracking code of conduct reports; monitoring compensable claims; ensuring conflict of interest declarations are completed; registering gifts and benefits; ensuring staff have appropriate security clearances; dealing with privacy breaches; and tracking public interest disclosures. As noted above, these are the minimum requirements of the law under which the public sector operates.
6.43When probity (and a positive culture) is equated with integrity metrics, it allows officers to make a judgment that if they do not have a conflict of interest, if they are not engaging in fraud or corruption, if they have a positive performance review, if they do not take unexplained absences, if they have completed mandatory training, they are acting with probity. As a consequence, interpreting finance law in opportune ways and thus failing to act with probity, can be explained away as taking a problem-solving approach to deliver for the government of the day or senior officers, or rationalised as demonstrating efficiency in the achievement of an outcome. Even when a finding is made that officers contravened finance law, it is perplexing that entities keep trying to suggest there was no unethical behaviour.
6.44It is not necessarily problematic to subsume probity within the concept integrity (and to some extent this may seem intuitive); what is problematic is the metrics by which integrity is measured and the relationship these have to probity. How one measures honesty, care, diligence, and confirmed uprightness in an officer’s actual behaviour is a difficult question and no doubt imperfect. None of the entities, however, provided a seriously thoughtful or compelling response which accounts for how they could be sure that, or quantify or assess the extent to which, their officers were acting with probity. The discussion in chapter 1 of a series of audit reports provides evidence officers frequently fail to act with probity—whether intentionally or otherwise.
6.45As to the APS Employee Census, while important and an indicator of culture, there are no questions that test whether and to what extent officers are aware of the legislative and regulatory frameworks under which they work, and whether they and their leaders and colleagues act in a way that complies with the intent, rather than just the letter, of the law.
6.46During the course of the inquiry, Andrew Podger suggested the APS Employee Census could be strengthened through specific questions on sensitive issues such as those included in 2003 and 2004 on relations with ministers and their offices, or for example, questions on the confidence of staff that advice on grants administration fully follows the relevant criteria and Finance directions. The Committee agrees the APS Employee Census should be strengthened and makes a recommendation to this effect.
6.47The Committee recommends the APS Employee Census be augmented with questions asking officers of their level of confidence that agencies’ assessments, advice and decisions on issues such as procurement, grants, regulatory actions, and so on, comply with both the letter and intent of legislative and regulatory frameworks.
6.48The Committee notes there is a difference between having an expectation that something occurs, for instance, that officers are expected to have regard to the intent of the legislation, and being able to know whether this does occur. Accordingly, it makes two recommendations with regard to measuring and being assured officers are behaving with probity and ethically.
6.49As discussed above, the work of the Australian public sector is governed by a range of frameworks, including legislation, regulations, rules, policies, codes and guidelines. Some of these are common to all entities, such as the PGPA Act framework, the CPRs and the CGRGs; others are entity specific, such as those established in accountable authority instructions or an entity’s enabling legislation. It is the Committee’s view that entities should bring together in one place the elements of the governance and integrity frameworks within which they operate, and their assurance mechanisms, including:
- the relevant legislative, regulatory and policy frameworks through which the agency functions
- assessments of major integrity risks
- statement of the desired culture as it applies to officers demonstrating probity and acting ethically as they carry out their responsibilities
- assurance mechanisms of sufficient substance and scope, appropriate to the size of the entity and its risks, for accountable authorities to be confident officers are acting according to the letter and the intent of the frameworks
- robust accountability arrangements.
6.50The Committee recommends the Australian Public Service Commission develops clearer guidance for entities that contains a definition of culture, and metrics on building, measuring and assessing organisational culture as it applies to probity. Metrics for culture must be capable of providing insights and assurance of the extent to which officers are in fact behaving in a way that is right and proper, and according to the letter and the intent of the law.
6.51The Committee recommends the PGPA Act Framework be amended to introduce a requirement for entities to develop and maintain an overarching Integrity Framework that brings together:
- the relevant legislative, regulatory and policy frameworks through which the agency functions
- assessments of major integrity risks
- statement of the desired culture as it applies to officers demonstrating probity and acting ethically as they carry out their responsibilities
- assurance mechanisms of sufficient substance and scope, appropriate to the size of the entity and its risks, for accountable authorities to be confident officers are acting according to the letter and the intent of the frameworks
- robust accountability arrangements.
Accountable Authorities must report on their Framework, including culture, in their annual report and state they have evidence officers in their agency are acting with probity.
Accountability
6.52Accountability is critical in three distinct senses:
- individual officers are accountable for their actions and the manner in which they achieve outcomes
- accountable authorities are accountable for governing their entity in a way that complies with legislated obligations, regulation and government policies
- policy owners are accountable for the outcomes of and compliance with their polices.
- It was suggested during the inquiry that it is often only lower-level public servants and not the senior executive service that are held accountable for performance. It is concerning that senior leadership in departments does not seem to be held accountable for serious breaches of finance law or for maladministration. In fact, in response to specific questions, the APSC provided no examples where this had occurred.
- The Committee noted the frameworks governing behaviour in the public sector do not always seem to determine the behaviour of senior officers as they deliver outcomes, and asked the APSC how the activities it is undertaking impact behaviour. The APSC stated it had a focus on the ‘uplift of SES leadership behaviours,’ in addition to ‘mechanisms’ that can examine accountability and performance ‘which are the levers that foster a pro-integrity culture’. It stated that at the system level, ‘integrity frameworks and data on integrity will be key to holding accountable authorities across the system to account’. It also pointed to the APS Employee Census and APS Agency Survey. The limitations of integrity frameworks and the APS Employee Census were discussed above, and recommendations were made with respect to these mechanisms.
- The Committee agrees with Andrew Podger that the performance management of secretaries has to be serious and rigorous, and will watch with interest the implementation of the next round of APS reforms to see evidence of greater accountability on secretaries. These reforms, according to the APSC, are to include measures to hold senior leaders to account including: the merit-based appointment and performance of secretaries and agency heads; and new own motion powers for the APS Commissioner to initiate reviews and investigations into CoC breachers by current and former agency heads.
- Accountability does not apply only to individual officers and accountable authorities; policy owners should also hold some accountability for how their policy frameworks are operationalised. This does not of course mean a policy owner is responsible for every individual action taken pursuant to a policy. The Committee agrees, however, with the Auditor-General that while agency heads must be responsible for compliance within their organisations, policy owners at the least should have processes in place to identify the level of compliance across the sector and be willing to modify their regulatory approach if it is not working.
- During the hearings, Finance told the Committee it did not believe ‘the framework’ administered by Finance was fundamentally broken, instead what was causing problems was practices that were inconsistent with the framework. With respect to Finance, it is a statement of the obvious that practices are inconsistent with the framework! The problem which is apparent is that this continues to be the case, repeatedly across many frameworks, yet policy owners generally have limited systemic data on what is actually happening and inadequate measure or assurance mechanisms.
- Indeed, the Auditor-General noted policyowners rarely undertake any action to assess whether the frameworks they own are effective—they do not collect data. Accordingly, the Committee recommends policy owners establish metrics to understand how their policies are used and satisfy themselves and the Parliament, objectively, on the effectiveness of the frameworks they administer.
6.59The Committee recommends the Department of Finance and the Australian Public Service Commission each develop an approach, including robust metrics, to provide reasonable assurance that the policy frameworks they administer are effective. An update is to be provided to the Committee within six months, including timelines to complete this work.
6.60In summary, the Committee appreciates the complexity of the issues grappled with in this report and that genuine efforts are being made by senior leaders and across the Australian public sector to build a system that operates with integrity, promoting and ensuring probity and ethical behaviours.
6.61Notwithstanding these genuine efforts, the Committee considers there remains a way to go and that the public sector is yet to find a way to effectively bring together policy, funding and outcome delivery in a manner where entities can demonstrate they have delivered what has been paid for and done so in a manner that demonstrates probity and ethics.
6.62From the thousands of words given in evidence to this inquiry, and the experience of the Committee in other inquiries and fora, we are confident in our conclusion that the ‘golden thread’ necessary to bind and animate the system toward probity and ethics is ethical leadership. Leadership happens at all levels of the Australian public sector, however, accountable authorities and senior leaders bear the greatest responsibility for implementing frameworks and building ethical cultures and must be accountable for the results.
6.63Frameworks, culture and accountability do not sit in some kind of hierarchy, they form a mutually interdependent triangle. Ensuring entities can act with probity and ethically requires ethical leadership to ensure the faithful implementation of frameworks, the building of a strong and ethical culture, and accountability for performance.
Figure 6.1Framework for probity and ethics in the Australian Public Sector
Key findings of case studies
Artbank
6.64Probity in the context of procurement is, according to the Department of Finance, ‘evidence of ethical behaviour, and can be defined as complete and confirmed integrity, uprightness and honesty in a particular process’. That the ANAO found Artbank’s approach to acquiring, managing and leasing Australian contemporary art has ‘not been appropriate’ suggests practices and procedures at Artbank may not demonstrate probity.
6.65The ANAO report into the Artbank program found several shortcomings including: there was no overarching strategy to support the direction of the program and measure its success; Artbank’s approach to acquisitions had not been in accordance with the CPRs; the management of the collection was insufficient to ensure its integrity; and the approach to leasing was not appropriate.
6.66Artbank is administered by the Department of Infrastructure, Transport, Regional Development, Communications and the Arts (DITRDCA). Specifically, key shortcomings in Artbank’s acquisition of artworks were: there was no open or competitive process; value for money was not documented or demonstrated; and there was limited public reporting. It was not clear, according to the ANAO, how acquisitions aligned with Artbank’s purpose and objectives because acquisition decisions deviated from the program’s own collection plan.
6.67Deficiencies found in the management of the collection included the fact conservation activities were not consolidated, prioritised, committed and reviewed against a planned, wholistic schedule; records of deaccessioning were unreliable; and deaccessioning was not undertaken in a timely manner.
6.68Further, the Committee read with concern the fact Artbank had in its collection 15 duplicate copies of 14 digital artworks, and had leased the duplicate copies to six separate clients across 22 agreements. One was rented as recently as June 2022. As noted in chapter 2, the Committee had trouble reconciling DITRDCA’s rationalisation for what was essentially pirating videos, with the manner in which they were described internally. Legally, DITRDCA stated its view prior to 2019 was that permission to duplicate video artworks could reasonably be implied based on a broad interpretation of the licence terms under the relevant Acquisition Agreements. However, these same copies were described in August 2022 as ‘rogue’ by the Director of Artbank, and as noted above, one was rented as recently as June 2022.
6.69In its leasing of the collection, Artbank failed to meet targets. There was no recorded basis for how the pricing methodology for individual artworks was established, and undocumented deviations from the methodology meant it was not clear how the majority of rental prices and discounts were set. The full breadth of the program’s purpose had not been a focus of the leasing activity; there was no reporting to provide assurance the approach to leasing supported artists or the reputation of contemporary Australian art.
6.70More generally, the audit found multiple instances where data and records were unreliable or non-existent, including a lack of documentation for some key decisions and approvals, processes, assessments and agreements. This has been a long-running issue in the Artbank program, with concerns about records and documentation of decisions raised in an earlier 2006 audit.
6.71The Committee was concerned to read about the Artbank acquisition (procurement) process and its failure to comply with its own department’s procurement requirements and the CPRs. In particular, Artbank was found to have failed to ensure an open or competitive process or to demonstrate and document value for money. Procurement is a core function of the Artbank program and the CPRs are the basic compliance framework for entities undertaking procurements; the rules are part of finance law—entities do not have a choice as to whether they comply with finance law.
6.72That Artbank is a small program, with a procurement budget of around $400,000 annually, is not a mitigating factor in its failure to meet basic obligations to ensure the proper use and management of public resources, where proper means efficient, effective, economical and ethical. Public sector compliance with the law must not depend on the price tag. It must not kick in where a spending threshold has been reached; regardless of the value of a program, there is a legal requirement that finance law is followed.
6.73It is notable that while DITRDCA claimed the audit had made no finding of unethical behaviour, it did not agree with the ANAO’s recommendation that it develop a fit for purpose procurement framework consistent with the CPRs, including open and transparent opportunities for artists to submit their artwork, and clear records made at each step throughout the procurement processes employed.
6.74DITRDCA informed the Committee it would continue to rely on an exemption in the CPRs to conduct limited tender acquisitions (Division 2, Rule 10.3(d)(i)), which the ANAO stated was intended for collecting institutions seeking to acquire a particular work of art. The ANAO reminded DITRDCA the Artbank was not a collecting institution; it was a program established to support contemporary Australian artists.
6.75The Committee highlights—as should be well known by departmental officers who told the ANAO they understood the CPRs and were committed to complying with them—that the use of the exemption in Division 2 of the CPRs does not negate the requirements in Division 1 of the CPRs, under which procurements must demonstrate value for money; encourage competition; be conducted in an efficient, effective, economical and ethical manner; and demonstrate accountability and transparency. Competition is a key element of the Australian Government’s procurement framework and effective competition requires non-discrimination and the use of competitive procurement processes.
6.76Evidence from the Department showed it had not committed to undertake a comparative assessment of artworks to demonstrate competition, and it would not formally assess works not considered appropriate for procurement. It was suggested by Artbank ‘it would not be possible to document every work reviewed by the team.
6.77The Committee reiterates compliance with finance law is not optional and DITRDCA should consider whether its preferred approach to acquisitions, where staff examine catalogues, visit galleries, attend art fairs and biennales, and look at contemporary art journals to make undocumented decisions on works not suitable for acquisition, then only provide a rationale for works they wish to acquire is an appropriate acquisition approach that complies with the CPRs. It should consider whether staff ‘voting’ on whether they agree an artwork is suitable for purchase is a robust strategy that satisfies the CPRs. As noted by the ANAO, Artbank is not a collecting institution, it was established to support contemporary artists by acquiring and leasing out their work, and its approach to collection management has not appropriately supported artists or the reputation of Australian contemporary art.
6.78The Committee therefore recommends DITRDCA provides an explanation as to how its acquisition process for the Artbank program complies with all the requirements of the CPRs and the Artbank Charter of Operations. In pushing this point and making this recommendation, the Committee is not seeking to be ‘difficult’ or proposing unrealistic burdens on a small program. Rather, the Committee considers there is no alternative but to ensure compliance with finance law, even for small programs. There is ample flexibility available withing the CPRs—the point is that officers must turn their minds to the issue and appropriately document an adequate rationale.
6.79The Committee recommends the Department of Infrastructure, Transport, Regional Development, Communications and the Arts provides an account of exactly how its approach to acquisitions satisfies the requirements of the Commonwealth Procurement Rules, including the requirement that procurements encourage competition; and explain how its acquisitions, collection management and leasing approaches satisfy the four purposes outlined in Artbank’s Charter of Operations.
6.80Although it claimed to have refined its acquisition process to require explicit documentation of value-for-money considerations, when asked for the methodology, DITRDCA did not provide this.
6.81The Committee recommends that the Department of Infrastructure, Transport, Regional Development, Communications and the Arts provides to the Committee Artbank’s specific methodology for determining value for money in the context of its procurement decisions.
6.82The Committee was pleased to hear the Department had begun work on an overarching strategic plan, but notes it had undertaken to commence this work in 2006. Evidence presented to the Committee indicated the strategic plan and integrity framework would be implemented in early 2024. The Committee does not understand how the preparation of a strategic plan could take 18 years. The Committee recommends accordingly that DITRDCA completes these documents (if it has not done so already) within three months of this report being tabled, and provides these documents to, and continues to, update the Committee on the implementation of the strategic plan and integrity framework.
6.83The Committee recommends the Department of Infrastructure, Transport, Regional Development, Communications and the Arts provides the Committee with Artbank’s strategic plan and integrity framework and their implementation schedule, and reports on a six-monthly basis for the next two years to the Committee on progress to implement the strategic plan.
6.84The Committee also notes DITRDCA’s silence on its compliance with a procurement-related recommendation (recommendation 3) of the 2006 audit of the Artbank program, despite claiming it had implemented the recommendation. The recommendation was that direct submissions by artists should have a documented assessment against the Artbank acquisition criteria. The Committee therefore recommends the Department explains how it implemented this recommendation. If the Department does not intend to implement the recommendation then it should explain why rather than simply ignore the issue or commit again to do something but not do it.
6.85The Committee recommends the Department of Infrastructure, Transport, Regional Development, Communications and the Arts explains to the Committee how it has implemented recommendation 3 of the 2006 Artbank audit that submissions by artists should have a documented assessment against the acquisition criteria. This should demonstrate how the Department has complied with the intent of the recommendation that there be a documented assessment regardless of whether a decision to acquire the artwork has been made. If the Department does not intend to implement the recommendation then it should explain why.
6.86The Committee notes with significant disappointment the ANAO’s observation that contrary to usual behaviour, there was no observable changes in Artbank’s approach to the acquisition, management and leasing of artworks during the course of the audit.
6.87Notwithstanding the Committee’s frustration with the administration of the Artbank program, the Committee appreciates that officers in the Artbank Directorate are there primarily for their particular professional expertise in the creative industries and that they are passionate and genuine about their work—this came through at the public hearings. Officers in the Artbank unit are presumably not employed primarily because they are experts in the CPRs or public administration. The Committee makes the point that the broader Department—including senior leadership above the Director and relevant corporate area—need to accept responsibility for the longstanding administrative shortcomings in Artbank and work to sort out the remaining concerns. The Committee does not wish to reach the 20th anniversary of the 2006 audit report with recommendations still not actioned!
Community Health and Hospitals Program
6.88The ANAO found the Department of Health and Aged Care’s (Health) administration of the Community Health and Hospital’s Program (CHHP) was ineffective, and fell short of ethical requirements.
6.89Officials are required to administer grants programs in accordance with the CGRGs, and other relevant obligations including those specified in the Public Governance, Performance and Accountability Act 2013 (PGPA Act) and Public Service Act 1999 (PS Act). The requirements are not particularly complex or onerous, and the documents themselves are not impenetrably worded. It can hardly seem an unreasonable expectation that public officials are familiar with the requirements established to ensure the proper use and management of public resources. Compliance is a legal requirement—finance law is not optional.
6.90A range of concerning behaviours were identified in the evidence before the Committee. Some of the most egregious examples found in the audit included a senior executive deliberately breaching finance law on at least three occasions—a decision that was discussed at an Executive Board meeting. These breaches were not reported until prompted by the ANAO.
6.91The Committee notes Health took a number of actions to address this situation, including establishing a mandatory performance expectation in all senior executive agreements that officers familiarise themselves with their obligations under finance law and comply with it all times. It is not clear why up until that point compliance with the law was not part of Health’s performance expectations for its senior executives.
6.92It is notable Health was unable to provide to the ANAO records for some grants demonstrating CGRG compliance, including documented grant assessments, financial viability assessments, and the basis for assessments of value with relevant money. In the small sample of grants examined by the ANAO in detail, there was documented assessment against the assessment criteria for only 11 of 16 grants. In five of these 11, Health assessments stated there was insufficient information to support the assessment but assessed the proposal as suitable for funding. Health assessed as ‘suitable’ projects with proposed activities that were inconsistent with the requirements of the grant opportunity guidelines.
6.93Notwithstanding these shortcomings, the ANAO found Health officials involved in the assessment and development of funding recommendations to government formally certified that they had agreed to be bound by the requirements of the assessment plan and CGRGs, though it must be acknowledged Health did not provide staff training in accordance with its assessment plans following a decision to ‘simplify’ the assessment process.
6.94The ANAO found Health advised the minister ‘there were 11 projects where the Australian Government Solicitor (AGS) identified there would ‘likely be no lawful authority for the expenditure’. The written advice to the minister did not accurately reflect the AGS opinion that for six of the grants there was no legislation that could reasonably be relied upon to authorise expenditure.
6.95Despite this, Health advised the minister could execute the agreements, noting this approach might attract adverse commentary from the ANAO and any parties opposed to the expenditure. The suggested actions to mitigate the legal risk were plainly nonsense. Finance law is clear, there must be legal authority to support a grant—it is not possible to mitigate unlawfulness, and the idea it might be done by obtaining more information from recipients in grant milestone reports, as suggested by Health at the time, is fanciful.
6.96Evidence before the Committee suggested Health officials drew on the rationale ‘decisions of government’ when disregarding advice from the Department of Finance or when acting contrary to the CGRGs. The Committee reiterates decisions of government remain subject to the CGRGs, which are part of finance law.
6.97It was Health, in a submission to the Committee, that acknowledged ‘the principles of probity and ethical conduct are essential to building trust with both Government and the Australian people and are central to the core values of the Australian Public Service’.
6.98It is the Committee’s view that departmental officers were not acting with probity and ethically in their administration of the CHHP. The Committee makes no specific recommendations for Health in relation to its administration of CHHP. It is notable, that in comparison to Artbank, Health accepted all the recommendations of the ANAO’s report, and further, during the course of the audit, Health made a number of policy, governance and process changes to address shortcomings in its administration of the CHHP program.
6.99The Committee welcomed the evidence to the Committee by Secretary of Health, Mr Blair Comley who stated unequivocally:
The audit into the Community Health and Hospitals Program, known as CHHP, found that the department's administration of the program was ineffective and fell short of ethical standards … the department has accepted these findings and recognises the seriousness of their nature and the need for a strong response … I would like to emphasise there are no circumstances in which a deliberate breach is acceptable.
6.100The Committee reiterates officers should be sufficiently familiar with the legislative and regulatory frameworks under which they are legally obligated to operate that inadvertent breaches should be vanishingly rare.
6.101The Committee examined, briefly, the role of the AGS in providing advice to agencies and government. The Committee acknowledges that Constitutional Risk Assessments (CRAs) have a degree of inherent uncertainty and that it can frequently be difficult to advise with a high degree of confidence in the absence of judicial decision. In the case of other types of legal advice, however, the Committee considers that the AGS should reflect on circumstances where advice provided to agencies and senior officials should be less equivocal.
6.102The Committee understands that New Policy Proposals subject to full Cabinet process would, as a matter of course, be subject to a CRA, however, decisions taken outside or pursuant to a Cabinet process may not require these ordinary disciplines. This includes decisions taken with authority provided by the Prime Minister, Treasurer or Minister for Finance via correspondence, which is an accepted part of ordinary government decision-making.
6.103While not seeking to unduly constrain such decision-making with mandatory CRAs and such requirements in all instances, the Committee considers it would be worth Finance reviewing the protocols and practices regarding such approvals to determine if any further guidance or safeguards are necessary.
6.104The Committee is compelled to state what should be obvious: that writing a letter to your boss—whether the Prime Minister or Secretary or Deputy Secretary—is not a magic spell that can cure a lack of lawful authority to make a decision let alone blatant illegality.
6.105The Committee recommends the Department of Finance reviews the protocols and common practice whereby officials supporting Ministers seeking routine approval for expenditure decisions via correspondence outside full Cabinet processes ensure there is a reasonable balance struck between efficiency and rigour in such decision-making, and that agency advice is robust and appropriate.
The financial regulators
6.106As noted in chapter 4, the audits into the financial regulators were not the type of performance audits performed on the Artbank Program and CHHP. The audits into the Australian Securities and Investments Commission (ASIC), Australian Prudential Regulatory Authority (APRA), and the Australian Competition and Consumer Commission (ACCC) examined ‘probity management’ and followed a standard methodology. They assessed whether there were effective administrative arrangements in place to address nine selected probity risks, and whether these were enforced and effective.
6.107The nine selected probity risks were: code of conduct; probity in procurement; management of public interest disclosures; management of senior executive remuneration; management of conflict of interest; oversight of credit card expenditure; management of gifts, benefits and hospitality; identification and management of fraud risks; management of key regulatory risks (regulatory capture risk and financial trading).
6.108At this point, the Committee notes acting with probity is not synonymous with addressing the ‘probity risks’ examined by the ANAO, though managing these risks is part of acting with probity.
6.109While the findings of the reports were broadly positive, the Committee is of the view ‘largely effective’ is not a standard that is appropriate for Australia’s key financial regulators, APRA and ASIC. Further, ‘partly effective’ is not an acceptable standard for the ACCC.
6.110The reports commented on the extent to which regulatory capture was identified and addressed; there were shortcomings in gifts and benefits policies; compliance with internal policies and procedures in procurements was not universal; the administration of some credit card transactions was non-compliant with entity requirements; and in the case of APRA and ASIC, neither had senior executive remuneration policies.
6.111The Committee was pleased to hear from each of the regulators that they accepted the recommendations of the ANAO and were implementing the recommendations, in addition to addressing the opportunities for improvement identified by the ANAO.
6.112The Committee agrees with the OECD that ‘strong governance strengthens the legitimacy and integrity of … regulator[s], supporting the high level policy objectives of the regulatory scheme and … lead[ing] to better outcomes’.
6.113With regard to gifts and benefits, the Committee supports the ANAO’s insight, ‘for officials of a regulatory entity, there is a risk that accepting any gift, benefit or hospitality from a regulated entity could be perceived as a conflict of interest’. And further, ‘the perception of a conflict of interest can be just as important as an actual conflict of interest’.
6.114The Committee urges the regulators to consider the advice of the ANAO that an entity’s gifts and benefits policy sets the tone for an organisation. And further:
If you have a gifts policy and an expectation … that people don't accept gifts, do you expect people to report gifts offered and declined? That is a really strong signal to gift givers, because it will be public that a gift was offered and declined. It is a very strong signal to the organisation that leaders get offered a gift and say no. When we look at the policies, we look at what impact that policy might have, flowing through the culture of an organisation.
Again, pay for your own coffee. Have a meeting. Take notes. If it's a meeting, it's a meeting.
Mr Julian HillMP
Chair19 June 2024