THE FORMAT OF THE PORTFOLIO BUDGET STATEMENTS - SECOND REPORT
TABLE OF CONTENTS

CHAPTER 6 – CONCLUSIONS AND RECOMMENDATIONS

Introduction

In its 1997 report, the committee devoted some pages to considering where senators had found difficulties with the 1996-97 and 1997-98 PBS, which were on a cash accounting, program-based reporting format. It identified a number of issues: program structures (the reporting framework); the level of detail provided; standardisation across portfolios; cross-portfolio matters; Commonwealth-state funding; budgeting conventions; errors; performance information; relationship with the annual report; comparisons of expenditure over time; and where to find matters. Despite the changes to the 1999-2000 PBS, the committee notes that these issues still cause concern. In this report, the committee has sought to examine the areas in which modest change might be made to address the more significant of those concerns, without adversely affecting the integrity of the process.

The reporting framework

The reporting framework is a principal element of the changes to resource management. Instead of programs, sub-programs and components, we have moved, broadly speaking, to outcomes, outputs, or output groups then outputs. Outcomes, being `the results, impacts or consequences of actions by the Commonwealth on the Australian community' [1] are ministerially approved, while outputs are the departmental or agency attempt to achieve those outcomes. In some cases, the agency organisational structure lent itself, or had been engineered, to roll over, rebadged but basically unaltered, to meet the new framework. In other cases, wholesale change occurred, mainly to the reporting framework, however, and not to the organisational structure of the agency.

Individual senators and legislation committees had a number of problems with the changed framework. In many cases, discrete agencies and functions were absorbed into a broader framework and were no longer separately identifiable in terms of their funding and performance. There appeared, to some senators, to be no consistency and little logic across portfolios in the level of detail disclosed in the new frameworks and nor did they necessarily relate to agencies' organisational structure. And concerns were expressed that the new frameworks would change too frequently to allow for adequate parliamentary scrutiny.

The committee acknowleges that these concerns are real, but reiterates that portfolios are now too diverse to be straitjacketed into a single framework. One size does not fit all and nor has it done so for many years. With the devolution of a much greater level of responsibility to agency heads, agencies may elect to organise themselves as best suits them and the wider portfolio, within broad DOFA-generated guidelines. The end result is inconsistency, but the reality is that that inconsistency is not new. The committee notes a preference expressed for frameworks which reflect the agency organisational structure. The committee also notes that DOFA has signalled its intention of conducting an analysis of portfolio outcomes/outputs frameworks and will produce a best practice guide. The committee recommends (1) that DOFA publish and regularly update for as long as necessary a best practice outcomes/outputs framework guide on its web site.

The committee recognises that it make take some time for the reporting frameworks to become firmly established and urges patience from all PBS users while the best structure for each portfolio is devised. In the meantime, it expects each portfolio to explain clearly and prominently any framework changes in its PBS and to respond to the extent possible to any request for financial or performance disaggregations along the previous framework lines.

The financial tables and statements

The committee accepts that in their new format, the PBS provide a wealth of useful, detailed information which, if properly understood, would assist users to understand the Appropriation Bills in the broad. The committee mentions, however, that only a few of the present 76 senators for whom the PBS are intended have accounting qualifications and points to the need for continued assistance for senators in interpreting the financial information contained in the PBS.

The committee notes a clear preference on the part of senators for a more detailed breakdown of financial information. The committee is mindful of the tight timeframes in which the PBS are finalised, a fact attested to by the numerous and extensive corrigenda tabled to the 1999-2000 PBS. It makes the following recommendations cautiously, and would be prepared to accept the later provision of the disaggregated information, if agencies required additional time to provide it accurately. With the above provisos, the committee recommends (2) the disaggregation of appropriations to output level; it recommends (3) the itemising of administered items; and it further recommends (4) the inclusion of forward estimates for outcomes and outputs. It expects that DOFA and agencies will monitor the accuracy of the disaggregated information and if after a reasonable period of time it becomes apparent that the figures are so imprecise as to be meaningless, the committee will review its recommendation.

To further assist scrutinising senators, the committee encourages agencies to provide tables and appropriate explanatory notes regarding significant variations. Again the tight timeframes might militate against the provision of this information in the PBS tabled on budget night, but if it can be provided in the PBS or later, the committee believes it would be well received.

Not unexpectedly, the accounting changes associated with asset valuation, asset management, the handling of depreciation moneys and the introduction of a capital use change were not well understood and provoked much questioning in estimates hearings. While the committee accepts DOFA's assurance that it will follow up with material agencies cases in which their expenses or revenues are inconsistent with budget predictions or significantly different from comparative figures, it recommends (5) that this information should be disclosed in a suitable publicly available document. The committee is of the view that much greater use could be made of notes to the financial statements and in particular, it recommends (6) that the opening and closing asset values and amount and application of capital use charge expected should be explained here. The committee also suggests that DOFA may wish to consider a separate identification of CUC in its whole of government financial reports.

The level of detail provided

No PBS, of whatever size, could accommodate all the information demands placed upon it. Some senators use the estimates process to pursue individual or constituent interests of a highly specific kind, which could not be expected to be contained in explanatory memoranda for Appropriation Bills. Others are highly aware of the type of information available and know to ask specifically for more than is provided.

It may well be preferable for the PBS to be relatively succinct but accurate documents, supplemented by specific material provided for pre-hearing briefings of legislation committees. To counter the suggestion that this subverts the transparency of the estimates process, the committee suggests that any such briefing material be published in the legislation committees' additional information volumes and, in cases in which the information is transmitted electronically, be made available on the committees' web pages.

Standardisation across portfolios

Consistency in budget documentation has not been a reality since line item appropriations were discontinued, but it is nevertheless a desirable quality in the eyes of senators. As Senator West lamented in the Health and Aged Care portfolio estimates, `I am looking at about four or five ... PBS and not one of them is the same'. [2] As noted above, with the principle of devolution in action, and the outcomes/outputs framework being generated within broad parameters at portfolio level, framework consistency has gone for good, it would seem. This committee believes that this is a belated recognition of the diversity of portfolios and is one issue on which the clock should not be turned back.

In other areas, however, the PBS do consistently follow the DOFA guidelines. Broadly speaking the same table structure appears in each; outcomes and outputs are described in each at a level appropriate for each portfolio and the performance indicators by which progress is to be assessed are outlined and will be reported on in annual reports.

The highlighting of budget measures early in the PBS has been in response to requests from legislation committees in the past and, as it is well liked, the committee is pleased to see it continue, duplication with Budget Paper No. 2 notwithstanding.

Performance information

In reporting at this time, the committee is aware that the 1999-2000 accountability loop has not been closed and will not be closed until the 1999-2000 annual reports are tabled. It notes that some portfolios only produced generalised indicators although most provided specifics along the lines suggested by the DOFA guidelines. The committee has noted concerns expressed about some of the performance indicators provided and will examine both the reporting against them and their examination in the additional estimates round before it reports again on this theme.

The committee recommends (7) that, in the short term, the ANAO consider the development of a `best practice' performance information guide and in the longer term – but no later than 2002-2003 – the ANAO consider across-the-board performance information audits.

Conduct of estimates hearings

While the mechanics of accrual budgeting is not fully understood by senators, the committee encourages the continuation of the practice of pre-hearing budget estimates briefings, addressing technical matters, of legislation committee members by portfolio representatives. The committee notes that not all committees and not all members avail themselves of these excellent briefings but encourages portfolios to continue to offer them, as there will eventually be new committee members who may wish to avail themselves of the offered assistance.

The committee recommends (8) that any explanatory briefing documentation proferred at legislation committee pre-hearing briefings for budget estimates be incorporated in the relevant legislation committee's additional information volumes and published on the committee's web site, if relevant.

And the committee recommends (9) again that legislation committees continue to report in each budget estimates report on the adequacy of the PBS provided for their use and in each additional estimates report on the performance information examined.

DOFA's role

While the committee believes DOFA is to be congratulated on the successful implementation of the 1999-2000 accrual budget in an outcomes/outputs framework, it notes that the process was not without a number of teething troubles. Agencies cited in particular conflicting advice and the late provision of advice. DOFA has acknowledged that it can do more to facilitate best practice financial reporting and has indicated to the committee that it intends to establish a `centre of excellence' in accounting advice, to facilitate agency discussion on PBS and accrual budgeting matters, and to provide an analysis of the outcomes/outputs frameworks. [3] The committee notes too DOFA's commitment to make the PBS guidelines available to agencies six months before the budget.

The committee welcomes these moves, which should assist agencies in their PBS production. Ultimately, however, as DOFA has reiterated, responsibility for the achievement of outcomes and the management of performance against outputs rests with agencies themselves.

Continuing scrutiny

In view of the evolving nature of both the reporting frameworks and the accrual information provided in the financial tables, and in view of the fact that the first accrual budgeting cycle has not been completed with the tabling of the 1999-2000 annual reports, the committee indicates its intention to maintain a watching brief over the PBS and to report again after every budget estimates round, for as long as the need persists.

Warwick Parer

Chairman

Footnotes

[1] DOFA, Specifying Outcomes and Outputs, 1998, p. 13.

[2] Senate Community Affairs Legislation Committee, Hansard, 31 May 1999, p. 7.

[3] Senate Finance and Public Administration Legislation Committee, PBS Submissions, p. 134.