Chapter 4
Limitations of program review mechanisms
4.1
The government referred to several audit and review mechanisms in an
attempt to assure the community that P21 projects obtain value for money.
However, on the evidence provided, the committee majority is concerned that the
audit and review mechanisms have serious limitations. These are discussed
below.
Accountability issues under the partnership model
4.2
The committee majority understands that under the partnership model,
state governments are responsible for P21 project implementation, including
ensuring that value for money is achieved. Despite this, as noted by the ANAO,
DEEWR also has a responsibility on behalf of the Commonwealth to assure the
Commonwealth parliament that state education authorities achieve value for
money.[1]
4.3
The Auditor-General, Mr Ian McPhee, gave evidence to the Finance and
Public Administration Committee that:
It is a very contemporary issue. We see it in other areas,
too. Obviously it is an issue in Commonwealth-state relations, but it plays out
to some extent in, say, defence procurement, where the Commonwealth is
acquiring equipment from major defence suppliers. It is a question of who is
responsible for what in some of those areas. That is why we have raised this
issue—perhaps it is time to look at the Auditor-General’s mandate to be clear
about this. I think we see the benefits of a partnership arrangement, where the
responsibilities are clear. I accept your point that it does not absolve a
Commonwealth department from getting some level of assurance around value for
money—we accept that.[2]
4.4
Mr McPhee also said:
...On my understanding of some of these projects, it is not as
though the Commonwealth money was solely used for a building. In some cases my
understanding is that the education authority supplemented that funding with
funding of their own, and put additional money in to build something which made
a whole lot more sense....it is an example, though, of how, if you are trying to
put the value for money responsibility back on the Commonwealth for the
Commonwealth component of a larger project which is being funded by an
education authority, it gets even more cloudy. Someone may have got a grant for
$800,000, or $1 million dollars, and they have supplemented it with $2 million
more. Who is responsible for getting value for the $3 million? The answer is:
the education authority because that is where the responsibility lies.[3]
4.5
The Auditor-General advised that, notwithstanding the transfer of the
responsibility for the implementation of the P21 projects to the states, there
remains a residual responsibility on DEEWR to ensure value for money is
achieved by the Commonwealth:
...if you plan to allocate responsibility to another party, you
need to have confidence in the ability of the other party to manage the risks
in terms of their own responsibilities; otherwise, the problem comes back to
the Commonwealth. We see that in some other areas. If the Commonwealth seeks to
offload risk in some areas—quite reasonably—but the other party does not manage
to effectively mitigate the risk, then there is no question that it will
probably come back to the Commonwealth.[4]
4.6
He also stated that the issue of residual Commonwealth responsibility is
becoming more important given the increasing use of the partnership model:
...We certainly raised it as an issue. I have to say that it
has not up until recently been a matter unduly concerning me, but the way the Commonwealth-state
relations are going with the expectation that there is a partnership in place,
with one party providing the funding and the other responsible for delivering
outputs or outcomes, it does become a more topical matter for consideration.[5]
4.7
The committee majority notes a response from the Auditor-General to the
Finance and Public Administration References Committee during its inquiry into
COAG reforms relating to health and hospitals. Questions were also raised
during this inquiry about accountability arrangements in response to federal
public administration developments. The Auditor General responded:
...Broadly, our submissions suggest that there would be
benefits in extending the Auditor-General's mandate to allow the ANAO to
'follow the money trail' in certain circumstances; particularly where, in the
opinion of the Auditor-General, following the money trail would be significant
in the context of an audit of a Commonwealth entity...[6]
Committee view
4.8
Whilst acknowledging that much work has been undertaken to develop the
partnership model, the committee majority notes that responsibilities and
accountabilities under the partnership model need greater clarification. The lines
of accountability to the federal parliament under the model are not
sufficiently clear. This lack of clarity has significant implications for the
P21 program, and for other Commonwealth programs, for example, the government's
new healthcare funding approach.
4.9
The committee majority strongly endorses the Auditor-General's proposal
to extend the mandate of the Auditor-General to allow the ANAO to 'follow the
money trail'. This will assist in ensuring that inadequate accountability
mechanisms for state expenditure of Commonwealth money are significantly
enhanced.
Recommendation 5
4.10 The committee majority recommends strengthening accountability
mechanisms for oversight of state expenditure of Commonwealth money. This
should include enhancing the powers of the Auditor-General to 'follow the money
trail' to ensure value for money is achieved by the Commonwealth for state
expenditure of Commonwealth monies.
Limitations of ANAO oversight
4.11
On 25 June 2009, the Senate agreed to a motion requesting the Auditor‑General
investigate the implementation of the P21 program.[7]
4.12
Following publication of the ANAO Performance Audit Report, Building
the Education Revolution – Primary Schools for the 21st Century,[8]
Coalition senators raised questions about value for money with the
Auditor-General.[9]
The Auditor-General noted that, while the ANAO holds a mandate under the Auditor-General
Act 1997 to undertake performance audits of Commonwealth bodies, this
mandate does not allow an assessment to be made of the performance of
education authorities in managing the delivery of individual projects,
including procurement processes, in their respective jurisdictions.[10]
4.13
At the committee's public hearing in Canberra on 19 May 2010, the
Auditor-General explained to the committee the limitations of the ANAO
regarding examining value for money in detail:
There has been some interest in the question of value for
money in the individual projects being delivered to schools. The question has
also arisen of whether this audit should have considered this issue within its
scope. Several points need to be made in this context. Firstly, as mentioned in
the report, responsibility for expenditure on individual projects, including
achieving value for money for each project, rests with the education
authorities, including the state and territory education departments and block
grant authorities. My mandate, under the Auditor-General Act 1997, enables me
to undertake performance audits of Commonwealth entities, with the exception of
GBEs [government business enterprises]. That mandate does not allow an
assessment to be made of the performance of education authorities in managing
the delivery of individual projects, including procurement processes, in their
respective jurisdictions. Secondly, the scope of the audit was influenced by
the early state of the implementation of the program and the extent of the
information held by the department in relation to individual project costs.[11]
DEEWR's capacity to assess whether value for money is being achieved
4.14
The ANAO emphasised that while investigating value for money of
individual projects was outside its powers, DEEWR had a responsibility on
behalf of the Commonwealth to ensure that the BER implementation represents
value for money.[12]
4.15
In considering the Commonwealth's capacity to assess state governments’
ability to achieve value for money, the ANAO emphasised that DEEWR could have
taken greater account of the varying approaches that the education authorities
took when it defined its reporting requirements:
We were conscious that the 22 educational authorities each
had different approaches, to varying degrees, of how they were going to
implement it. As you would be aware from your briefings, some used a
centralised procurement approach and some had a decentralised to the schools
based approach. We were of the view that if the Commonwealth department could
have had a greater focus on the strategies employed by those respective
education authorities to be able to see whether or not they felt the
procurement approaches of large bodies or the decentralised ones were
effective, that would have informed them to ask, ‘Do we have confidence in
their arrangements in terms of optimising value for money?’ That would inform
them where to focus any subsequent detailed checking.[13]
4.16
The Auditor-General told the Finance and Public Administration Committee
during the May/June 2010-11 budget estimate hearings that the ANAO examined
reporting arrangements to the Commonwealth, starting with the implementation
plans that each education authority had to submit to DEEWR. However, the ANAO
stated that this:
...did not give a lot of insight in terms of the respective
implementation approaches. We also looked at the data that came forward in the
application process to see if we could look at some of the costing data and the
square metreage. Again, a lot of it was assumption driven and had inaccuracies
in it. So our ability to even form opinions there was limited.[14]
4.17
The ANAO also stated that it found 'no evidence' that DEEWR had
mechanisms in place to assure value for money from each of the education
authorities overseeing the P21 implementation, and that more should have been
done about this:
Senator MASON—All right; let me ask a direct question.
You are right, Minister. In the ANAO’s opinion, did DEEWR have adequate
mechanisms in place to assure itself that value for money is being achieved for
Commonwealth money by each of the 22 implementing education authorities?
Mr Cahill—Our assessment was that their assurance
arrangements were focused on the individual projects. Did we find evidence that
they had done an assessment of the 22 different education authorities? Correct
me if I am wrong, but I think we found no evidence that they had done such an
assessment.
Senator MASON—So there was no evidence that value for
money was being achieved—sorry, that the Commonwealth could assure itself that
value for money was being achieved by the 22 education authorities. That is
correct, is it not?
Mr Cahill—Correct.[15]
Committee view
4.18
The Commonwealth Auditor-General's mandate should be extended to enable
it to investigate how state education authorities manage individual project
deliveries funded by the Commonwealth.
4.19
The committee majority is exceedingly concerned by the ANAO's finding
that 'DEEWR did not possess the oversight mechanisms to ensure that education
authorities were securing value for money'.[16]
4.20
The committee majority is alarmed that Commonwealth government instrumentalities
do not currently have the capacity to effectively monitor whether the $14
billion of taxpayers’ money for the P21 program is being spent so as to secure
value for money.
Concerns over state-based audit and review mechanisms
4.21
The ANAO noted that recent reform to federal financial relations:
...recognises that government Education Authorities are
accountable to their governments and parliaments for their service delivery
performance, including in respect to the delivery of programs for which the
Australian Government provides a financial contribution.[17]
4.22
As DEEWR had a direct relationship with the BGAs, questioning in Senate estimates
hearings revealed concerns relating to the capacity of state auditors-generals
to review those funds. It was clarified that the funds for the independent and
Catholic schools flowed through the state and territory treasuries but the
extent to which a state auditor-general was able to scrutinise this was
unclear.[18]
4.23
DEEWR provided the committee with a list of audits underway in the
states and territories just before this report was tabled.[19]
The committee notes, however, that the results of such audits may not be
available until P21 projects are well underway or completed.
4.24
The Stuarts Point Public School P&C noted:
DET has now agreed to undertake an audit of our project but
the basis of that audit is not clear though it is our understanding that the
audit will examine whether the proper processes have been followed, whether the
actual costs of the project are in line with the ECS, and whether the costs are
in line with ‘benchmarks’. We have tried in vain to find out the basis for
these ‘benchmarks’ but our current understanding is that they will be based on
similar BER projects. The audit has just added to our frustration because, as
far as we can ascertain, at no time will it address the fundamental question of
whether the building being constructed at Stuarts Point is worth $931,000.[20]
4.25
Miss Karina Daniels, President of Stuarts Point Public School's P&C
Association stated:
We have written to the director of the BER, Mr Angus Dawson,
and we initially asked him to particularly examine two line items in our
individual costing because we felt that they were totally off the wall and
totally inapplicable to our project. We asked to be audited and we wrote to him
twice. We finally got a response over the school holidays from an auditor, who
asked us to meet, I think, two days later. We did meet with that auditor over
the school holidays and we then found that we would not be getting an
individual cost for the project and that an audit would not find that out
either; an audit would just check that the individual project had cost
somewhere approximating the estimated cost.[21]
Committee view
4.26
Based on the evidence it has received the committee majority cannot
reassure itself that adequate audits are occurring in the states to effectively
address the question of whether individual P21 projects are achieving value for
money.
The BER Implementation Taskforce – how effective will it be?
4.27
On 12 April 2010, the Minister for Education, Employment and Workplace
Relations announced the establishment of a Commonwealth BER Implementation
Taskforce to investigate, where necessary, allegations of waste and failure to
achieve value for money in the program.
4.28
The BER Implementation Taskforce will also investigate complaints
involving individual school projects and will produce a six-monthly report
indicating the number and nature of complaints received and the actions taken
to resolve these complaints. Under its terms of reference, the taskforce is
required to:
1. receive, investigate and respond to complaints regarding
the full operation of BER, including individual school projects, in particular:
(a) by
referring complaints or evidence of potential breaches of the law, regulations
or guidelines to the appropriate authority for action; and
(b) ensuring
arrangements are in place between the Commonwealth and States and Territories
to minimise duplication of complaints handling processes.
2. assess value for money aspects of individual projects,
including project oversight and administration;
3. investigate and assess at its own discretion areas of the
operation of BER, especially as they impinge on the outcomes of projects at
schools; and
4. make recommendations to the responsible authority about
changes to policy, contracts or projects required to ensure the objectives of
the BER are realised.[22]
4.29
Since the BER Implementation Taskforce was established additional
persons, including two deputy chairs with experience in the construction
industry and an expert advisory panel, have been appointed.[23] Questions
are emerging as to the effectiveness of this taskforce. The committee's
reservations about this matter are discussed below.
BER Implementation Taskforce – not
able to consider all contracts
4.30
The committee majority is concerned that the BER Implementation
Taskforce will not adequately review whether value for money is being achieved
in all P21 projects.
4.31
Based on the evidence given to the committee, the BER Implementation
Taskforce appears to only investigate contracts where a formal complaint has
been made to it. There is also uncertainty about whether the BER Implementation
Taskforce will compare the difference in the costs being incurred in the
government sector in contrast to similar structures in the non-government
sector.
4.32
The committee majority considers that a taskforce charged with the
responsibility of investigating allegations of waste and failure to achieve
value for money in the BER P21 program should have access to all costings and
should be able to examine all relevant contracts to enable it to properly
discharge its function to ensure the community that value for money is being
achieved.
Recommendation 6
4.33 The committee majority recommends that the BER Implementation
Taskforce be given access to all costings and be able to examine all relevant
contracts to enable it to properly discharge its function to ensure the
community that value for money is being achieved.
Release of funding
4.34
By August 2010, the Commonwealth will have paid $11.8 billion of BER
funding to the state education authorities.[24]
4.35
The committee majority notes that the Commonwealth is due to release the
next tranche of BER funding on 1 July 2010.[25]
It would be unconscionable for the Commonwealth to release this money before
the BER Implementation Taskforce reports its initial findings and
recommendations to the Minister for Education in August 2010 on the
improvements needed to ensure value for money is being achieved by the P21 program.
Recommendation 7
4.36
To ensure that further taxpayer money is not subject to waste and
mismanagement, the committee majority recommends that the release of any
further BER funding be delayed until the BER Implementation Taskforce
reports to the Minister for Education in August 2010.
Releasing the BER Implementation Taskforce
report
4.37
The BER Implementation Taskforce is due to report in August to the
Minister for Education.[26]
The committee majority notes, however, that there has been no commitment by the
government that the BER Implementation Taskforce report will be made public.
4.38
Given the significant number of concerns raised in relation to potential
waste and mismanagement in the P21 program and the significant community interest
in the outcomes of the BER Implementation Taskforce's work, the committee majority
considers that the BER Implementation Taskforce report should be made publicly
available when it is presented to the Minister for Education.
Recommendation 8
4.39 The committee majority recommends that the BER Implementation Taskforce
report be made publicly available when it is presented to the Minister for
Education.
Uncertainty in responsibility for determining value for money
4.40
The ANAO advised the committee that because of limitations in its mandate
under the Auditor-General Act 1997 it cannot assess how state education
authorities perform in the management of individual projects.
4.41
Whilst under the partnership model responsibility for value for money
appears to lie with the states, DEEWR cannot absolve itself of its
responsibility on behalf of the Commonwealth government to ensure that state
education authorities achieve value for money. The committee majority is
alarmed to note that the ANAO concluded in its report that DEEWR has not
sufficiently assured itself that value for money is being achieved.
4.42
The committee majority also notes the uncertainty surrounding the
effectiveness of the audits in respect of BER P21 projects currently being
undertaken in various states.
4.43
In relation to the BER Implementation Taskforce the committee majority is
disturbed that there continue to be serious questions over the taskforce's
ability to determine value for money given that it will not be looking at all
relevant contracts.
4.44
As a consequence of this uncertainty it is not possible for the
government to assure the Australian taxpayer that value for money is being
achieved by the P21 program. The committee majority therefore reinstates
the call for a judicial inquiry into the BER P21 program to fully investigate
whether value for money has being achieved.
4.45
The committee majority concludes that the partnership model provides a
means for avoiding appropriate scrutiny and accountability at the Commonwealth
and state levels. The P21 program example has shown that the model fails to
include appropriate oversight and assurance mechanisms at all levels, as
evidenced by DEEWR's inability to assure the parliament of value for money; the
lack of an ANAO mandate to follow the money trail; lack of appropriate
assurance that robust state‑based review mechanisms are in place; and the
committee's inability to access the information it requires to properly
evaluate spending under the program.
Recommendation 9
4.46 In order to fully examine the systemic failure of Commonwealth
oversight mechanisms, the committee majority recommends that a judicial inquiry
be established to inquire into whether the BER program has achieved value for money.
Further work for the committee
Maintenance of state spending
efforts
4.47
As set out in chapter 2 of this report, the committee is unable to
satisfy itself that states and territories have met their obligations to
maintain planned school infrastructure spending efforts in addition to
receiving the money allocated under the P21 program.
4.48
The committee majority notes with concern media reporting suggesting
that some state governments are using BER money inappropriately or using it to
cover state budget shortfalls.
4.49
The committee majority will continue to pursue production of the state
quarterly spending reports and other necessary information to enable it to
answer questions in relation to this issue.
Fees paid to managing contractors
4.50
As set out in chapter 3 of this report, the committee, to date, has not
received sufficient evidence to form conclusions about the concerns arising in
relation to fees paid to managing contractors and therefore the true costs of
buildings under the P21 program.
4.51
The committee will further investigate the issues surrounding managing
contractors and the fees paid to them by state governments. It will also
continue to pursue the release of accurate costings data.
Scrutiny of the BER Implementation
Taskforce
4.52
The committee will use its next report to review and scrutinise the work
and findings of the BER Implementation Taskforce, which is due to report to the
Minister for Education in August 2010.
4.53
It will be critical to determine whether the BER Implementation Taskforce
adequately addresses the questions over value for money.
Sanctions for failure to comply
with BER Guidelines
4.54
In future hearings the committee will seek clarification of the
sanctions available to government in the event that P21 projects do not comply
with the BER Guidelines and the willingness of the government to apply the
sanctions.
4.55
In answer to a question taken on notice during a 2009 estimates hearing
of the committee, DEEWR indicated that the bilateral agreements entered into
between the Commonwealth and the states/territories specifically require that
funding for BER projects be expended for the purposes of the program and in
accordance with both the bilateral agreement and the BER Guidelines. DEEWR also
stated:
The Bilateral Agreements allow the Commonwealth to withhold
or suspend payments to a state/territory if it has not fulfilled its
obligations under that Bilateral Agreement...Further, at the completion of the
Bilateral Agreement, any funds not spend in accordance with the Bilateral Agreement
or not acquitted to the Commonwealth's satisfaction must be repaid to the
Commonwealth within 20 days or as directed by the Commonwealth in writing...[27]
4.56
When subsequently asked what sanctions apply to BGAs who fail to comply
with the guidelines and agreements, DEEWR indicated that these bilateral
agreements allow the Commonwealth to 'withhold or suspend' payments. DEEWR also
noted that these agreements contain a 'further power' in the event that the
authority fails to comply with a requirement set out in the agreement, the
authority may be required to repay a specified amount of the funding
received.[28]
4.57
The answers given to the committee relating to sanctions have raised
issues that require further clarification. This applies particularly to the
possibility that there is a 'further power' in the agreements with the BGAs
that may not be in the agreements with the states and territories. Thus,
the Commonwealth might be lacking any real power to ensure that state and
territory education authorities are achieving value for money, as well as
lacking any real sanctions if they are not.
4.58
This issue of the 'further power' was the subject of discussion at
estimates hearings in June 2010.[29]
The committee is awaiting clarification from DEEWR on this matter.
Details of further hearings and
submissions process
4.59
Given the concerns raised in this report it is critical that this Senate
committee continue to scrutinise the BER P21 program. In due course, the
committee's inquiry website will list further details about the information
that the committee seeks, a new closing date for submissions and hearing dates.[30]
Senator Michaelia Cash
Chair
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