2. The future of the MPR
   1. As indicated in the interim report, further consideration of certain aspects of the Major Projects Report (MPR) guidelines and scope was to be undertaken by the Committee in the latter part of the inquiry.

Transparency

2.2The MPR guidelines prepared by Australian National Audit Office (ANAO) and the Department of Defence (Defence), and then endorsed by the Committee each year, require that detailed information on the included Defence projects to be made publicly available through an established Project Data Summary Sheet (PDSS) format. However, some of this information provided to ANAO can be withheld from publication on National Security grounds, which reduces the transparency of these audits for the Parliament.

2.3In the 2020–21 and 2021–22 MPRs, Defence made the decision not to publish certain schedule information in the relevant PDSSs (for fourprojects in 2021–22 and 12projects in 2022-23) due to National Security concerns.[1]

2.4The Committee explored the balance between the need for transparency through the MPR process and the requirement for certain information to not be published. Defence responded on notice to questions on this issue that it would be reviewing aspects of security and would make recommendations as part of its process of engagement with ANAO.[2] Defence further commented:

Consideration could also be given to the use of classified briefings for the Committee to facilitate a balance between public transparency and the need to keep certain information classified.[3]

2.5Defence stated in its primary submission to the inquiry that it welcomes the opportunity to ‘design a more contemporary and accessible report that meets the expectations for public transparency and presentation of information.’[4] Defence further remarked:

The MPR is the most detailed aggregate of performance information across a collective group of Defence projects in the public domain. As the MPR is externally reported, it must take into account national security considerations. This includes the ability of foreign actors to consolidate information in the public domain to gain insights into Defence capabilities and potential capability gaps. Defence considers that national security, balanced with the need for transparency, should be a key driver in a review of the classification and scope of the MPR.[5]

2.6The Auditor-General remarked on this issue at the public hearing on 19May2023 that:

The work that we do on the MPR is an assurance report, based on guidelines that are established by the public accounts committee. The public accounts committee guidelines set out that Defence should prepare the reports on the basis of how it thinks national security should be disclosed. We don't have a role in the MPR process of forming a judgement, really, about the view that they take, because that's how the guidelines are established.[6]

2.7In its supplementary submission to the inquiry, ANAO stated that ‘Defence’s decision to not disclose certain information in the 2021–22 and 2022–23 MPRs has reduced the transparency of the MPR and the level of public reporting and analysis available to the Parliament’.[7] ANAO further remarked:

Going forward, the level and nature of non-disclosure by Defence may lead the Auditor-General to not accept the assurance engagement… There may be limited benefit in the ANAO providing assurance over information that the Parliament as a whole does not get to see, and undertaking work with limited benefit may not be the best use of ANAO resources.[8]

2.8The ANAO commented also in this submission that ‘transparency supports entity accountability to the Parliament as a whole and through it to the community’,[9] emphasising that ‘public reporting is a means of informing the public sector and others of ANAO findings and contributes to improved public sector performance’.[10]

2.9The ANAO also proposed some options for improving transparency in situations where certain disclosures are not made by Defence in its PDSSs:

• confidential reporting by the Auditor-General to the JCPAA or other Parliamentary committee as a means of providing assurance to Parliament; and/or
• the provision of a confidential submission by the ANAO to the JCPAA.[11]
  10. The ANAO emphasised however that ‘The Act [Auditor General Act 1997] does not provide for confidential reporting to Parliament, or for the presentation of reports other than to Parliament as a whole’.[12] ANAO stated:

Subsection 37(5) of the Act provides for the Auditor-General to prepare a confidential report for Ministers, where the Auditor-General decides to not prepare a public report or omits particular information from a public report. Under subsection 37(2) of the Act the reasons for doing so include prejudice to the security, defence or international relations of the Commonwealth.[13]

2.11ANAO further commented that reporting publicly to Parliament is a cornerstone of its audit and assurance functions and that ‘it would be of concern if a precedent were set for reduced transparency to the Parliament as a whole in ANAO reporting assurance’.[14]

2.12ANAO stated however that the ‘provision of confidential ANAO submissions to committees of the Parliament is an alternative to confidential reporting’.[15] ANAO notes in this regard that:

… the Parliamentary Joint Committee on Intelligence and Security (PJCIS) has sought submissions, including confidential submissions, from six intelligence agencies and the ANAO as part of its annual review of administration and expenditure. The ANAO has made such submissions to the PJCIS, drawing on its audit work.[16]

Assurance

2.13The MPR provides a limited assurance review by ANAO of the major projects at Defence that have been included in the audit. As explained by ANAO in this regard:

The procedures performed in a limited assurance engagement vary in nature and timing from, and are less in extent than those performed for, a reasonable assurance engagement (an ANAO performance audit is typically a reasonable assurance engagement).[17]

2.14The Auditor-General’s identical concluding remark in his Independent Assurance Report for both the 2020-21 and 2021-22 MPRs is that:

I do not express a reasonable assurance opinion on whether the PDSSs and the Statement by the Secretary of Defence are prepared in all material respects in accordance with the Guidelines.[18]

2.15The ANAO further explained the reason for this as follows:

The ANAO’s work is appropriate for the purpose of providing an Independent Assurance Report in accordance with the ANAO Auditing Standards. However, the review of individual PDSSs is based on a limited assurance approach and is not as extensive as individual performance audits and financial statement audits conducted by the ANAO, in terms of the nature and scope of issues covered, and the extent to which evidence is required by the ANAO.[19]

2.16Defence provided supplementary evidence to the Committee in response to questions on assurance issues that arose from the 2020–21 and 2021–22 MPR reviews, stating in that submission that ‘there is a robust reporting regime on Defence major projects, allowing for external assurance through a variety of mechanisms including by the Parliament and more broadly by the public’.[20] Defence further remarked:

Defence reports on the performance of major projects in accordance with parliamentary requirements and at the direction of Defence portfolio Ministers.[21]

2.17Defence further expressed its views in this same submission that current frameworks provide a robust external assurance regime for its activities through a variety of mechanisms including:

• Defence Annual Report, Portfolio Budget Statements and Portfolio Additional Estimates Statements
• External audit and assurance activities facilitated through the MPR and individual ANAO project performance audits
• Parliamentary oversight and broader consideration of Defence’s performance and planned activities via the:

• Parliamentary Standing Committee on Public Works, to which Defence is required to present proposals for new and upgraded facilities at Defence establishments
• Senate Estimates processes and
• Other Parliamentary Committee inquiries.[22]
  18. Defence comments in its submission to the inquiry that the scope and evidence requirements of the MPR, as a limited assurance activity, are worthy of re-evaluation:

As a Limited Assurance Activity, the MPR combines elements of a number of auditing approaches. Defence would welcome Committee consideration of the scope and evidence requirements and mapping of information for assurance, to ensure the MPR meets the intent of a Limited Assurance Activity. Defence acknowledges the complexity of Defence programs and would welcome consideration of the role of any specialist assurance practitioners in the MPR.[23]

International comparisons

2.19The Parliamentary Library was asked by the Committee to conduct a comparison of international comparison of major military project audit reports from Canada, New Zealand, the United Kingdom and the United States. There are considerable differences between these countries and Australia in the conduct of these audits as summarised below in Table 1.

Source: Parliamentary Library (see Appendix A)

Committee comment

2.20The Committee concludes that the MPR is an important accountability mechanism that should continue for the foreseeable future, albeit with some potential adjustments. In reaching this high-level conclusion, the Committee acknowledges that there are external accountability and assurance mechanisms in place to scrutinise Defence activities other than the MPR. However, the MPR provides a structured level of scrutiny and granularity across major capability projects that would not be provided through these other processes. In addition, over many years evidence and advice provided to the Committee suggest that the discipline of the MPR has had positive impacts on Defence’s internal management of major projects, notwithstanding the inherent administrative and reporting burden.

2.21With regard to the future scope of the MPR, the Committee has not reached firm conclusions at this stage. There are few useful international comparators that provide the rigour of public, independent assurance via a national audit institution. There is some attraction to the idea of reporting on a wider suite of capability projects at a less detailed level, or a hybrid approach which could slightly reduce or limit the number of projects included in the annual MPR that are subject to detailed PDSS preparation and assurance review by the ANAO accompanied by additional higher-level reporting on a wider suite of projects. Insufficient evidence was received, however, as to whether such changes are feasible or would then warrant the involvement of the ANAO which the Committee continues to see as valuable and desirable.

2.22The Committee also notes that as Defence’s project management systems and software continue to mature and improve then there should be further efficiencies to be gained by increasing the amount of automation of the preparation of the PDSSs and reducing the administrative overheads on Defence.

2.23The Committee invites Defence and the ANAO to continue to propose sensible adjustments to the form and scope of the MPR when presenting the annual guidelines for the Committee’s consideration and approval and/or via annual inquiries into future MPRs.

2.24With regard to questions of confidentiality and withholding of certain information from publication, the Committee accepts that national security considerations may at times necessarily prevent the publication of certain information in the Project Data Summary Sheets. Ill-considered open-source information can provide potential adversaries with insights into potential capability deficiencies and vulnerabilities,

2.25The Committee also accepts the ANAO’s advice that it has an underlying duty to the Parliament to provide adequate transparency and regards this as a cornerstone of its activities. The ANAO’s concerns about continuing to provide assurance over information that cannot be published are reasonable. Transparency in public sector performance fosters public confidence in the activities of Government, particularly when expending very large sums of public money.

2.26The issue then is how to satisfactorily resolve the inherent tension between accountability and continuing to publish a robust and useful report, and the need to protect sensitive information.

2.27The Committee considers that given the need for ongoing scrutiny by the Parliament in the current strategic environment the best approach would be to supplement the published MPR with a confidential submission from the ANAO and related briefings with Defence where information cannot be published.

2.28In reaching this conclusion the Committee is mindful that:

• Defence and the ANAO must continue to maximise the information published in the MPR, as the availability of confidential mechanisms to brief certain Parliamentarians via the Committee process must not be used as a device to reduce transparency to all Parliamentarians and the public or media scrutiny.
• The preference of the Committee is to adopt the Auditor-General’s proposal to make a confidential submission to the JCPAA to supplement the MPR, as opposed to amending legislation to enable a confidential version of the MPR report or diverting consideration of the MPR to the new Joint Statutory Committee on Defence (JSCD). The ability of the JCPAA to oversight procurement and public administration to the maximum extent reasonably possible should continue. This will require further dialogue with Defence and the ANAO and potentially the Minister for Defence regarding distinctions between ‘confidential’ and ‘classified’ information and appropriate handling procedures.
• If highly sensitive issues arise in future MPRs that raise classification issues cannot reasonably be dealt with by the JCPAA, only then would such issues be referred to the new JSCD to explore in a classified setting.

2.29The Committee recommends that for future inquiries into Defence Major Project Reports the Australian National Audit Office provide a confidential submission regarding information required to be withheld from publication in Project Data Summary Sheets due to national security with appropriate handling procedures, and the Department of Defence organise confidential or classified briefings as required.

Footnotes

[1]Australian National Audit Office (ANAO), Supplementary Submission 2.4, p. 1.

[2]Defence, Supplementary Submission 1.2, p. [21].

[3]Defence, Supplementary Submission 1.2, p. [21].

[4]Defence, Submission 1, p. 3.

[5]Defence, Submission 1, pages 3–4.

[6]Mr Grant Hehir, Auditor-General, ANAO, Committee Hansard, Canberra, 19 May 2023, p. 2.

[7]ANAO, Supplementary Submission 2.4, p. 3.

[8]ANAO, Supplementary Submission 2.4, p. 3.

[9]ANAO, Supplementary Submission 2.4, p. 3.

[10]ANAO, Supplementary Submission 2.4, p. 3.

[11]ANAO, Supplementary Submission 2.4, p. 4.

[12]ANAO, Supplementary Submission 2.4, p. 3.

[13]ANAO, Supplementary Submission 2.4, p. 3.

[14]ANAO, Supplementary Submission 2.4, p. 4.

[15]ANAO, Supplementary Submission 2.4, p. 4.

[16]ANAO, Supplementary Submission 2.4, pages 4–5.

[17]Auditor-General Report No. 13 2021–22, 2020–21 Major Projects Report, (hereafter, 2020–21 Major Projects Report), p. 5, footnote 7.

[18]2020–21 Major Projects Report, p. 114; Auditor-General Report No.12 2022–23, 2021–22 Major Projects Report (hereafter, 2021–22 Major Projects Report), p. 115.

[19]2020–21 Major Projects Report, p. 19.

[20]Defence, Supplementary Submission 1.9, p. 2.

[21]Defence, Supplementary Submission 1.9, p. 2.

[22]Defence, Supplementary Submission 1.9, pages 2–3.

[23]Defence, Submission 1, p. 3.