Introduction

1.1 This report provides an overview of the Senate Finance and Public Administration Committee's (the committee) examination of annual reports for the 2005–06 financial year. This is the committee's second report for 2007. Copies of this and other committee reports can be obtained from the Senate Table Office, the committee secretariat or online at the following address: www.aph.gov.au/senate_fpa.

Terms of reference

1.2 Under Senate Standing Order 25(20) the annual reports of departments and agencies stand referred to committees in accordance with the allocation of departments and agencies in a resolution of the Senate. Each committee is required to:

examine each annual report referred to it and report to the Senate whether the report is apparently satisfactory;
consider in more detail, and report to the Senate on each annual report which is not apparently satisfactory, and on the other annual reports which it selects for more detailed consideration;
investigate and report to the Senate on any lateness in the presentation of annual reports;
in considering an annual report take into account any relevant remarks about the report made in debate in the Senate;
if the committee so determines, consider annual reports of departments and budget-related agencies in conjunction with examination of estimates;
report on annual reports tabled by 31 October each year by the tenth sitting day of the following year, and on annual reports tabled by 30 April each year by the tenth sitting day after 30 June of that year;
draw to the attention of the Senate any significant matters relating to the operations and performance of the bodies furnishing the annual reports; and
report to the Senate each year whether there are any bodies which do not present annual reports to the Senate and which should present such reports.

Allocated portfolios

1.3 The Senate last amended the continuing order relating to the allocation of departments and agencies to committees on 8 February 2007.[1] In accordance with that resolution, the Finance and Public Administration Committee has responsibility for the oversight of the following portfolios:

Parliament;
Prime Minister and Cabinet;
Finance and Administration; and
Human Services.

Annual reports referred

1.4 In accordance with Senate Standing Order 25(20)(f) this report must examine those annual reports presented to the Senate in the period 1 November 2006 to 30 April 2007.

1.5 During that period two annual reports of departments of state, five reports of statutory agencies and/or authorities, three reports of prescribed agencies, and two reports of Commonwealth companies were received.

Method of assessment

1.6 Annual reports, together with the estimates process, provide a mechanism for parliamentary (and public) scrutiny of the operations of government. As the official Commonwealth guidelines state:

The primary purpose of annual reports of departments is accountability, in particular to the Parliament.
Annual reports serve to inform the Parliament (through the responsible Minister), other stakeholders, educational and research institutions, the media and the general public about the performance of departments in relation to services provided. Annual reports are a key reference document and a document for internal management. They form part of the historical record.[2]

1.7 To meet the parliament's accountability requirements, annual reports 'should provide sufficient information and analysis for the parliament to make a fully informed judgement on departmental performance'.[3] To this end, there are guidelines, outlined below, which mandate what information must be included in the report and how the information should be presented.

1.8 Senate Standing Order 25(20) requires that the committee examine reports referred to it to determine whether they are timely and 'apparently satisfactory'. In forming its assessment, the committee considered whether the reports comply with the relevant legislation and guidelines for the preparation of annual reports. The principal Acts which apply to departments, statutory agencies and authorities, and Commonwealth companies are:

Public Service Act 1999;
Parliamentary Service Act 1999;
Financial Management and Accountability Act 1997 (FMA Act); and
Commonwealth Authorities and Companies Act 1997 (CAC Act).

1.9 Statutory authorities report under their respective enabling acts, for example, the Australian Electoral Commission reports under section 17 of the Commonwealth Electoral Act 1918.

1.10 The committee also assessed whether reports comply with the Requirements for Annual Reports: for Departments, Executive Agencies and FMA Act Bodies (the guidelines), June 2007, issued by the Department of the Prime Minister and Cabinet (PM&C) with the approval of the Joint Committee of Public Accounts and Audit. This is the authoritative source outlining the requirements for preparing and presenting annual reports.[4]

1.11 For bodies reporting under the CAC Act, compliance with the Commonwealth Authorities and Companies (Report of Operations) Orders 2005 was considered.[5]

Reports examined

1.12 The following 14 reports for the financial year 2005–06 were tabled or presented 'out of session' to the President of the Senate by 30 April 2007 and referred to the committee:

Executive departments

Department of Finance and Administration—Report for 2005–06—pursuant to section 63 of the Public Service Act 1999; and
Department of Human Services—Report for 2005–06—pursuant to subsection 63(2) of the Public Service Act 1999.

Statutory agencies or authorities

Australian Industry Development Corporation—Report for 2005–06—pursuant to section 9 of the CAC Act;
Australian Public Service Commission—State of the Service—Report for 2005–06—pursuant to sections 44 and 51 of the Public Service Act 1999;
Centrelink—Report for 2005–06—pursuant to section 40 of the Commonwealth Services Delivery Agency Act 1997;
Commonwealth Ombudsman—Report for 2005–06—pursuant to section 19 of the Ombudsman Act 1976 and section 38 of the Complaints (Australian Federal Police) Act 1981; and
Future Fund Management Agency and Future Fund Board of Guardians—Report for the period 3 April to 30 June 2006—pursuant to section 81 of the Future Fund Act 2006.

Prescribed agencies

Commonwealth Superannuation Scheme Board—Report for 2005–06—pursuant to section 161 of the Superannuation Act 1976;
Office of the Official Secretary to the Governor-General—Report for 2005–06—pursuant to section 19 of the Governor-General Act 1974; and
Public Sector Superannuation Scheme Board—Report for 2005–06—pursuant to section 28 of the Superannuation Act 1990.

Commonwealth companies, including government business enterprises

Health Services Australia—Report for 2005–06—pursuant to section 9 of the CAC Act; and
Telstra Instalment Receipt Trustee Ltd—Report for 2005–06—pursuant to section 9 of the CAC Act.

Other

Centrelink and the Data-Matching Agency—Data-matching program—Report on progress for 2005–06; and
Official Establishment Trust—Report for 2005–06.

1.13 The following reports were tabled in the Senate after 30 April 2007. These reports will be reviewed in the committee's first report on annual reports due to be presented to the Senate in March 2008:

Australian Political Exchange Council—Report for 2005–06; and
Australian River Co. Limited—Report for the period 1 December 2005 to 30 November 2006.

Non-reporting bodies

1.14 Standing Order 25(20)(h) requires that the committee inquire into, and report on, any bodies which do not present annual reports to the Senate but should present such reports.

1.15 The committee continues to approach this in two ways. First, the committee examined the Administrative Arrangements Orders (dated 21 September 2006) for the list of legislation administered by portfolio ministers and consequently, departments and agencies.

1.16 Second, the committee consulted the Department of Finance and Administration's List of Australian Government Bodies. The list identifies the agencies that are required to report and the Acts under which they report.[6]

1.17 Based on the above checks, the committee is not aware of any bodies that have neglected to furnish a report for presentation to the parliament.

Timeliness

1.18 Most reports are required to be tabled in parliament by 31 October each year unless another date is specified, for example, in an agency's legislation, charter and/or terms of reference. Organisations reporting under the CAC Act are required to provide an annual report to the responsible Minister by the 15^th day of the 4^th month after the authority's financial year. Where the authority's financial year ends on 30 June, the report must be furnished to the Minister by 15 October.

1.19 The committee notes that a number of agencies examined in this report are required to table a report 'as soon as practicable after 30 June'.[7] However, five of the reports did not meet their prescribed deadlines. They are listed here in order of receipt:

Telstra Instalment Receipt Trustee Ltd;
Future Fund Management Agency and Future Fund Board of Guardians;
Australian Industry Development Corporation;
Commonwealth Superannuation Scheme Board; and
Public Sector Superannuation Scheme Board.

1.20 The matter of timeliness was discussed in length in the committee's first report of 2007. A number of reports were tabled on 31 October 2006 in the House of Representatives, and at a later date in the Senate. Departments and agencies are urged to table annual reports in both chambers prior to the supplementary estimates hearings (which usually take place in late October to early November) to allow adequate time for their review prior to the hearings.

1.21 Where a department or agency cannot meet its deadline for reporting, it must apply to the minister for an extension. Where an extension is granted, the minister must table in the parliament a copy of the application together with a statement specifying the length of the extension and the reasons for granting the extension. As discussed in its first report for 2007, the committee is aware of two extensions during this reporting period:

Commonwealth Superannuation Scheme Board (received 6 November 2006); and
Public Sector Superannuation Scheme Board (received 6 November 2006).

1.22 The application from both agencies stated the reason for the extension was due to delays in the preparation of financial statements. On 6 November 2006, the Minister for Finance and Administration tabled the applications and a statement granting an extension until 31 December 2006. Both reports were subsequently tabled on 12 December 2006.

1.23 For each report referred to it, the committee recorded the following dates:

date submitted to minister;
date received by the minister; and
date tabled or presented to the President or a temporary chair of committees.

1.24 Appendix 1 shows these key dates (where available).

Assessment of reports

1.25 In determining whether a report was satisfactory, the committee applied the PM&C guidelines. In particular, to assess whether the reports adequately met reporting requirements, they were assessed against the checklist at Attachment F in the guidelines.

1.26 Where applicable, the committee paid particular attention to agencies reporting against outcomes as set down in their respective Portfolio Budget Statements and Portfolio Additional Estimates Statements. The committee notes that the majority of agencies report performance against outcome structures as set out in these documents.

1.27 The committee has found that all the reports are 'apparently satisfactory'. It notes that all financial statements included in the reports received an unqualified report from the Auditor-General, except, the Commonwealth Superannuation Scheme Board 2005–06 annual report which received a qualification from the Auditor-General. The qualification states that a licence breach occurred, concerning operational requirements under sub section 1017D(3) of the Corporations Act.[8]

Senate debate

1.28 Few annual reports are debated in the Senate, but many remain on the Senate Notice Paper for future consideration. The committee notes procedural changes adopted by the Senate on 11 May 2004 on the recommendation of the Procedure Committee: namely, that 'government documents tabled on any day of the week are to be carried over for consideration each day until they appear on the list for consideration under General Business on Thursday (Standing Order 61)'.[9] Annual reports fall into this category of government documents.

1.29 The committee is not aware of any Senate debate relating to the reports examined.

1.30 Annual reports are also often used by senators during estimates hearings. It is common practice for senators to use the reports to assist the examination of ministers and their officials in relation to the financial position and operations of departments and agencies. This is a key reason why departments and agencies should take care to ensure that annual reports are available on time.

Improving the transparency and specificity of Portfolio Budget Statements

1.31 As a component of examining the annual reports of departments and agencies the committee refers to the relevant Portfolio Budget Statements (PBS). The correlation between annual reports and PBS is an essential aspect of the committee's examination of the expenditure and performance of departments and agencies. As the guidelines state:

PBSs and annual reports provide the Government and the Parliament with detailed information about the actual performance of departments and forecasts of future needs and expectations. The 'clear read' between PBSs and annual reports is an essential part of the accountability system that compares budgeted targets and figures to those actually achieved, and places a strong emphasis on compatibility between the two documents regarding budget and performance information.[10]

1.32 As part of the accountability process, the committee seeks to determine whether funding for newly established programs has been correctly allocated in Appropriation Bill No. 2 (bill no. 2), and not in Appropriation Bill No. 1 (bill no. 1) which is for the ordinary annual services of government as specified in the criteria of the Compact of 1965.[11] This issue was discussed in detail in the committee's recent report: Transparency and accountability of Commonwealth public funding and expenditure.[12] The committee also discussed the content of PBS more generally and the difficulties in reconciling PBS with the relevant Budget Papers.[13]

1.33 The primary function of the PBS is to assist members of parliament in the scrutiny of proposed expenditure. This is clearly outlined at the beginning of each PBS:

The purpose of the...PB Statements is to inform Senators and members of Parliament of the proposed allocation of resources to Government outcomes by agencies within the portfolio... A key role of the PB Statements is to facilitate the understanding of proposed annual appropriations in Appropriation Bills No. 1 and No. 2... The PB Statements provide information, explanation and justification to enable Parliament to understand the purpose of each outcome proposed in the Bills.[14]

1.34 In scrutinising the most recent PBS of the portfolios under the committee's purview, insufficient information appears to have been provided, making it unclear to which appropriation bill funding for new programs had been allocated. There were no listings for appropriations in bill no. 2 (with the exception of equity injections) across all portfolio areas. This may indicate that newly established programs (not considered to be ordinary annual services of government) had been inappropriately placed in bill no. 1.

1.35 Listed below are a number of programs or projects the committee identified that may have been inappropriately placed in bill no. 1. Departments and agencies have not identified in their PBS the bill in which the appropriation for a particular project or program occurs, so it is not possible to tell whether particular items are properly appropriated. Therefore the list below is somewhat uncertain and certainly incomplete.

Finance and Administration portfolio

Australian Government Online Service Point—establishment ($42.4 million over four years to develop 'australia.gov.au' as the primary online entry point to government for individuals);[15] and
Programme reviews—enhanced framework ($19.8 million over four years to establish an enhanced framework for the strategic review of government programmes).[16]

Human Services portfolio

Fraud and compliance—residency eligibility validation system for payments and concessions ($54.9 million to Centrelink over four years to develop a real-time link between Centrelink and the Department of Immigration and Citizenship to confirm residence and visa-related eligibility requirements before granting social welfare payments and concessions);[17] and
Community Pharmacy Agreement—implementation of programmes ($3.4 million over four years to Medicare Australia to fund the implementation of new programmes and services to enable the government to provide systems and support for pharmacies to deliver certain programmes and services).[18]

1.36 In addition to the lack of explanation for the allocation of appropriations in the PBS, the appropriation bills for each portfolio were highly aggregated, posing further difficulties for the committee in ascertaining whether funding had been correctly appropriated or not.

1.37 In only one instance was bill no. 2 disaggregated in a department's PBS. The Department of Human Services gave an explanation of the $61.6 million allocated for 'equity injections' in bill no. 2 in their PBS; $51.7 million for the Health and Social Services Access Card, and $9.9 million for Child Support Reforms. The committee commends this approach of disaggregating bill no. 2 to all departments and agencies.

1.38 The committee would like to draw attention to recommendation 13 of the committee's report, Transparency and accountability of Commonwealth public funding and expenditure:

The committee recommends that expenditure should be reported at the levels of programs in the budget documents, including in the schedules to the Appropriation Acts.[19]

1.39 The committee encourages all departments and agencies to consider the transparency and specificity of all budget documents.

Selected agencies and reports

Department of Finance and Administration

1.40 The Department of Finance and Administration's (Finance) report seems thorough and there are no obvious reporting shortcomings.

1.41 One feature that is worth positive comment is the inclusion of tabulations for each outcome of a summary of achievements against the relevant performance indicators, headed Performance Information for Outcome. This provides a 'clear read'[20] of the report against the PBS and Portfolio Additional Estimates Statements.

1.42 On a general note, while not criticising the department specifically, its outcomes are formulated at such a level that they could be shared with many other agencies. One would hope, for example, that every agency would aim for 'sustainable government finances' and, as for 'an efficiently functioning parliament', that outcome could be shared with the parliamentary departments. Of course, all is made clear in the formulation of the outputs, but the issue is that moneys are appropriated by the parliament according to outcomes, not outputs.

Australian National Audit Office reports

1.43 In its report on Annual Reports (No. 1 of 2006) the then Finance and Public Administration Legislation Committee reported on an Australian National Audit Office (ANAO) finding in Audit Report No. 28, 2005–2006: Management of Net Appropriation Agreements that the Finance's section 31 agreements, upon which the department was relying for an appropriation authority, were invalid. In the words of that committee:

As a result of the invalidity of the agreements, the department had no valid appropriation for the expenditure of some amounts (an inadvertent breach of section 83 of the Constitution) and the ANAO found that the accounts and records were not kept as required (a breach of section 48 of the FMA Act).[21]

1.44 In its 2005–2006 annual report, Finance responded as follows:

The audit acknowledged that two Finance Circulars issued by Finance prior to the tabling of the audit report will assist with the proper management of net appropriation agreements in the future. Consistent with the recommendations of the report, Finance is currently examining mechanisms to simplify the financial framework and anticipates that any steps taken towards simplification will have a positive effect in terms of the broader framework issues raised in the audit. All five recommendations in the ANAO report that were directed towards Finance have been, or are currently being implemented.[22]

1.45 In its performance reporting, Finance set as a target under Output 1.2.2: Financial Reporting that there should be 'no section 83 breaches on annual appropriations as a result of permitting drawdowns when appropriation coverage is not available'.[23]

1.46 The committee notes that Finance's annual report indicates that this target was achieved in 2005–06.[24]

Christmas Island Immigration Reception and Processing Centre

1.47 Finance reported under Outcome 2, Improved and More Efficient Government Operations, that the construction of this facility 'was progressed during 2005–06'[25] and that it was 'more than fifty percent complete at the end of June 2006'.[26]

1.48 Finance also reported in its 2004–2005 annual report that it was expected that construction would be completed in the fourth quarter of 2006. The estimated time of completion now is for the base buildings to be completed in the first quarter of 2007 with the commissioning of security and communication systems to take a further three months. The delay was attributed to weather conditions, finalisation of detailed design specifications and the breakdown of the main crane facility at the port.

1.49 Adverse weather and equipment failures are beyond Finance's control but, given the time that this project has been under way, the committee would have expected detailed design specifications to have been finalised some time ago. Finance might have provided additional information on that matter in their annual report.

Future Fund Management Agency

Timeliness of Annual Report

1.50 The Future Fund Management Agency's (Future Fund) Annual Report 2005–06 is the Future Fund's inaugural publication of an annual report. The Future Fund was created and commenced on 3 April 2006.[27] For this reason the Future Fund's Annual Report 2005–06 covers a relatively short period of time (3 April 2006 to 30 June 2006).

1.51 The Future Fund's annual report examines the performance of the three distinct activities provided for in the provisions of the Future Fund Act 2006. These are: the 'Future Fund' (also known as the Future Fund Special Account); the 'Future Fund Board of Guardians'; and the 'Future Fund Management Agency'.

1.52 The annual due date for the tabling of the Future Fund annual report is 31 October each year. The committee notes that the Future Fund's Annual Report 2005–06 was tabled late, firstly in the House of Representatives on 2 November 2006 and then in the Senate on 7 November 2006.

1.53 The Future Fund has subsequently provided an explanation for the reasons behind the lateness of its annual report. The reasons given include the inaugural nature of the report and the embryonic nature of the Future Fund.[28]

1.54 As previously discussed in this report (see paragraph 1.19) the committee notes that it is important that annual reports are furnished in the Senate on time so they can be examined by senators before supplementary budget estimates hearings.

Outcome and output group structure

1.55 The embryonic nature of the Future Fund is also a factor to be taken into account when examining the Future Fund's outcome and output structure. The Future Fund's annual report stated only one outcome designed to give overall strategic direction and purpose to the activities of the Future Fund:

Enhanced capacity for the Australian Government to offset its unfunded superannuation liabilities.[29]

1.56 Although output groups are listed in a table together with 'Outcome 1', including a description of Outcome 1, the Future Fund's annual report states that the detail of output groups is 'to be advised'.[30] More than 10 months later, in the 2007–08 Budget Papers the output groups for the Future Fund were also still 'to be advised', with the exception that the descriptive text of Outcome 1 was redefined as an output group.[31] Apart from the redefining of an outcome as an output group, the Future Fund is yet to publish any output groups relating to its operations.

1.57 The reasons and explanation for the need to adopt output groups is explained in Finance's guidelines: The Outcomes and Outputs Framework. The guidelines state that output groups serve a purpose to 'generate the impacts on outcomes that give rise to crucial effectiveness indicators'.[32] Furthermore the guidelines state that output groups should be 'specified so that the agency's organisational structure and management systems can be mapped to its outputs (in practice this may be achieved over time)'.[33]

1.58 The committee acknowledges the short time frame in which the Future Fund has been operating and statements made by the Future Fund that this is why the organisational structure and performance indicators should be measured against its ongoing process of organisational development.[34] Nevertheless, the committee expects that the Future Fund will develop and publish a range of comprehensive output groups in time for the publication of its second annual report, before 31 October 2007.

Financial performance

1.59 The Future Fund identified the transfer of 'seed capital' of $18 billion dollars, on 5 May 2006, into the Future Fund Special Account. The Future Fund reported an investment return that was slightly above its annual benchmark return of 5.88 per cent. It is important to acknowledge that the performance of the Future Fund, as outlined in its annual report is only based on 2 months of investment activity, and that the Future Fund is still in the process of setup and transition.[35]

1.60 Mr David Murray, the Chairman of the Future Fund Board of Guardians, reported that the short term benchmark return of 5.88 per cent was lower than the long term benchmark outlined in the Future Fund's 'Investment Mandate'. Mr Murray clarified the performance of the Future Fund stating that the results presented in the report are not indicative of the expected returns of the Future Fund into the future.[36]

Department of Human Services

1.61 This is the department's second annual report, with 2005–06 being its first full financial year. The report reviews the performance of the core department, Commonwealth Rehabilitation Services Australia and the Child Support Agency (CSA), while Centrelink, Medicare Australia, Australian Hearing and Health Services Australia publish their own annual reports.

1.62 The department's report addressed the reporting criteria as stipulated in the PM&C guidelines. The report was well presented and gave a broad overview of the department's performance and financial statements structured around its three outputs. The report held a particular focus on new initiatives and enhancements made to services offered by the department, such as the proposed Access Card, the Job Capacity Assessment program, and making Family Assistance services available at Medicare Australia offices.

1.63 The committee notes that the report has conveyed a similar level of transparency as the department's report for 2004–05. The committee is disappointed that the department did not adjust its reporting methods based on the committee's comments from its review of the department's 2004–05 annual report:

The committee believes there needs to be more transparent performance reporting with more explicit information provided on areas where outcomes have not been achieved or where the department has found there is scope for improving its operations and performance.[37]

1.64 For example, when reporting on shortcomings identified by the ANAO's 2005–06 annual financial statement audit, the department's explanation was brief and vague. In the chapter on output 1 (the core department) it was noted under 'External Scrutiny' that the ANAO report had found 'four "B" findings related to CSA'.[38] In the chapter on output 2 (CSA), the agency addresses two other ANAO reports relevant to the agency's performance, and only makes mention that there was an ANAO 2005–06 annual financial statement audit.

1.65 The agency received four moderate risk or 'B' findings in the ANAO report, one of which had carried over from the ANAO's financial audit of 2004–05:

Provision for doubtful debts on administered child support receivables;
Disaster recovery plan;[39]
Data classification and security clearances; and
Access management—CUBA.[40]

1.66 The committee is concerned that these issues were not mentioned in the department's report, nor were strategies to overcome these risks explored. The committee does note however, that CSA has given a more detailed explanation for other areas of internal and external scrutiny.[41] In future, the committee expects issues raised by the ANAO to be given more detailed coverage and explanation in order for the committee to properly carry out its scrutiny role.

1.67 Whilst the committee appreciates a review of the department's achievements, the inclusion of challenges foreseen or currently being addressed enables a higher level of transparency as 'the primary purpose of annual reports of departments is accountability, in particular to the Parliament.'[42]

1.68 The committee undertakes to examine the level of transparency in the department's future annual reporting methods. In particular, the committee expects the department to provide a detailed and balanced review of performance and expenditure of the proposed Access Card in its 2006–07 annual report.

Health Services Australia

1.69 Health Services Australia (HSA) is a government business enterprise established in 1997 with the primary function of providing occupational health, safety, travel and medical assessments.[43]

1.70 HSA's 2005–06 annual report addresses the criteria stipulated in the Commonwealth Authorities and Companies (Report of Operations) Orders 2005 (CAC orders). The report provides a good introduction to the organisation, its structure, shareholders and core services. The committee notes two recurring themes throughout the report, HSA's staff appreciation, and improved performance and financial gain during the 2005–06 financial year.

1.71 HSA places a high level of value on attracting and retaining capable staff, particularly in the health care industry where there is a nationwide skills shortage. The committee commends the organisation for the mechanisms it implements to train and invest in its staff, such as the staff survey used to identify areas of improvement, and involving staff in community grants.[44]

1.72 The committee also notes that HSA has expanded its service delivery, and opened six new clinics across Australia in Queensland, Victoria, South Australia and New South Wales. Further, the committee notes that all business lines exceeded budget targets and achieved record profits, culminating in revenue of $95.5 million.[45]

Internal and external audits

1.73 Whilst the report provided an overview of the governance structure and review processes of HSA, it did not explore the outcomes of internal or external audits conducted in the financial year. For example, it outlines the responsibilities of the Board Audit and Risk Committee (BAR committee) and the Board Remuneration Committee (BR committee), however, there is no indication of what these committees identified or achieved in the financial year.

1.74 The committee notes the organisation's stated commitment to transparency and accountability:

The HSA Group is committed to good corporate governance through the implementation of appropriate structures and mechanisms to ensure discipline, integrity, transparency, fairness and accountability in all its operations and actions.[46]

1.75 However, the committee suggests that the organisation's annual report could be better utilised to improve transparency and accountability to its shareholder ministers and to the parliament. The CAC orders suggest the statement of governance include:

the directors' approach to identifying areas of significant business risk and to putting arrangements in place to manage such risk.[47]

1.76 Considering the BAR committee met four times during the year, and the BR committee three times, the committee believes that there would be benefit in the inclusion of a brief report from these committees in future annual reports, and not just an outline of their responsibilities. The committee also recommends any comments from external audits should be included in future reports.

Recommendation 1

1.77 The committee recommends that the Health Services Australia Group include comments from external audits in all future annual reports.

Procurement

1.78 Concerns have been raised over HSA's procurement arrangements. During the 2007–08 Budget Estimates hearings the committee heard that a contract valued at $250 000 per annum for 2 to 3 years and a second contract worth $1 million for 3 years had been granted to Digital Health Screening.

1.79 The committee heard further evidence that HSA's Managing Director and the owner of Digital Health Screening were former colleagues and had sat on the board of an imaging company together from 1998–2002. The committee heard that the first contract was approved by an executive meeting, without going to the board. Further, the Managing Director was of the view he did not have a personal interest and so did not exclude himself from the decision.[48]

1.80 As a means of increased transparency, the committee recommends HSA include a detailed account of the organisation's contracts and consultancies which is easily identified within future annual reports. The committee reiterates the recommendations in its report on Annual Reports (No. 1 of 2005):

Given the substantial sums of monies paid to consultants by the Government a uniform reporting mechanism is essential for scrutiny and accountability. At a minimum, agencies should be required in their annual reports "to list, separately, all new consultancies let and all ongoing consultancies, with expenditure reported against accordingly. That is, the total value reported when a consultancy is let, as well as the expended total of that consultancy in any given reporting period".[49]

1.81 This recommendation applies equally to all other Commonwealth departments and bodies.

Recommendation 2

1.82 The committee recommends that all Commonwealth departments and bodies include a detailed account of the organisation's contracts and consultancies which is easily identified within their annual report.

Directors' remuneration

1.83 The committee notes a decrease in the level of transparency of the information provided regarding 'key management personnel disclosures' over the past financial year. As discussed during the May 2007 budget estimates hearings, there was an alteration between the 2004–05 and 2005–06 reports.[50] In the 2004–05 report, the number of directors with incomes in $10 000 brackets is displayed, along with the total remuneration paid or payable to directors.[51] By contrast, the 2005–06 report does not indicate the number of directors receiving certain income levels but simply aggregates the remuneration of all directors.[52]

1.84 In an answer to a question on notice, HSA explained that there had been a change in the way directors' and executives' remuneration are disclosed due to the adoption of the Australian equivalents to the International Financial Reporting Standards which came into effect in January 2005.[53]

1.85 The committee notes that this change was in adherence to the Australian Accounting Standards Board's (AASB) publication of Accounting Standard AASB 124: Related Party Disclosures. However, in outlining the reasons for issuing AASB 124, the AASB states, 'it is not intended that these changes diminish the quality and quantity of disclosures required from disclosing entities.'[54]

1.86 The committee is concerned that the 2005–06 report has indeed diminished the quality of disclosures of 'Key Management Personnel' information. In scrutinising the activities of HSA and other Commonwealth companies, it is no longer possible for Senate committees to understand the number of directors which fall within specified income brackets as a result of the framing of AASB 124. Of equal importance, this information is not available to shareholder ministers (unless it is provided through other channels) nor the general public.

1.87 The committee makes these comments as a generic point about the transparency of remuneration level of directors of Commonwealth companies. It is not singling out the disclosures of HSA which has simply followed the new requirements set down in AASB 124.

1.88 The committee notes that there is a range of items in AASB 124 that require a greater degree of disclosure than the international standard.[55]

1.89 In order for the level of transparency of directors' remuneration to be maintained, the committee recommends that the Australian Accounting Standards Board amend AASB 124 so that it includes a requirement for Commonwealth companies to disclose in their annual reports, the number of directors that fall within $10 000 income bands. This recommendation is set out below.

Executives' remuneration

1.90 In relation to executives' remuneration, the 2005–06 report provides slightly more information than its predecessor. The committee appreciates the inclusion of this additional information which details the total remuneration of HSA senior executives.

1.91 In this context, information was provided to the committee almost 12 months after HSA's tabling of its annual report in Parliament. In response to a question on notice that was put during the budget estimates hearings in May 2007 (received 3 September 2007) HSA stated that the increase was due to the creation of a Chief Operating Officer position, which increased the number of executives from five to six, as well as general increases in executive salary packages.[56]

1.92 The committee is of the view that annual reports of Commonwealth companies should include a break down in $10 000 income bands for senior executives, similar to that provided in the 2004–05 report for directors. This is a particularly important transparency issue for organisations such HSA where the total remuneration of senior executives is more than double that of the board of directors.[57] Accordingly, the committee makes the following recommendation.

Recommendation 3

1.93 The committee recommends that the Australian Accounting Standards Board amend AASB 124 so that it includes a requirement for Commonwealth companies to disclose in their annual reports, the number of directors and the number of senior executives that fall within $10 000 income bands.

1.94 As a minor improvement to future reports, HSA may also consider the inclusion of an index and glossary of terms.

Senator Mitch Fifield

Chair

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