Chapter 1 - Annual reports of departments

Department of Defence

1.1       The Defence Annual Report 2006–2007 was presented on 31 October 2007 and tabled in the Senate on 12 February 2008.

Military justice system

1.2       The committee draws attention to the chapter in Defence's annual report devoted to justice and fairness in Defence, particularly the section on military justice reforms. It notes the statement by Defence that significant progress has been made in the first eighteen months of the two–year implementation period of 'enhancements to the military justice system'. The changes are in response to the Senate Standing Committee on Foreign Affairs, Defence and Trade's 2005 Report into the Effectiveness of Australia's Military Justice System.

1.3       The two year implementation period sets out to deliver impartial, rigorous and fair outcomes through better oversight, greater transparency and improved timeliness. According to the Annual Report:

At 30 June 2007, 21 of the 30 agreed recommendations from the Committee's report had been completed. Action in respect of the remaining recommendations is well under way.

...

Work remains to be done to embed the changes, but the substantial progress achieved to date provides a strong base for making further reforms. Progress is being reviewed monthly by the Chiefs of Service Committee and reported six–monthly to the Senate Standing Committee on Foreign Affairs, Defence and Trade.[1]

Significant matters relating to the operations and performance of the department

Defence's financial statements

1.4       The committee is required to note any significant matters relating to the operations and performance of the bodies presenting their annual reports. The committee draws attention to the department's financial statements.

1.5       It is mandatory under section 57 of the Financial Management and Accountability Act 1997 for the annual report to include a copy of the audited financial statements and the Auditor–General's report thereon. Over recent years, Defence's financial statements have shown significant deficiencies.

A history of qualified financial statements

1.6       In 2001, the ANAO found that there were significant internal control issues which cast doubt on the accuracy of Defence's financial statements for the year ending June 2001. For the years ending June 2002, 2003 and 2004, the ANAO similarly reported that the Department's financial statements had significant internal control issues and contained qualifications. The Secretary and the Chief Finance Officer of Defence were not able to meet the financial reporting requirements of the Finance Minister's Orders in 2003–04.

1.7       In its review of the 2003–04 Defence annual report, the committee noted, with regard to the financial statements, that 'Defence and ANAO have accepted that while some of the problems might be quickly solved, others are more deeply entrenched and will take some years to resolve'.[2]

1.8       For the financial year 2004–05, the Secretary and the Chief Finance Officer of Defence were again not able to meet the financial reporting requirements of the Finance Minister's Orders. In their review, the Secretary and CDF stated that 'the Secretary and Acting Chief Finance Officer again concluded this year, as in 2003–04, that they could not attest that the overall statements were true and fairly stated'.[3]

1.9       Defence reported that it had resolved some audit findings in 2004–05, but enduring improvements may take some years.[4] The 2004–2005 report stated that the Defence Financial Controls Framework Project was set to a five year time frame which reflected 'the fundamental nature of the changes to be put in place'.[5]

1.10       The committee, in its report on annual reports no 1 of 2006, stated:

The committee appreciates that the Department needs time to redress the problems identified in its financial management and business systems and processes as well as the need for 'significant cultural and behavioural change' for staff working in these areas. Even so, the committee expects to see marked improvement recorded in next year's annual report. It urges Defence not to relax its endeavours to address the problems identified by ANAO.[6]

1.11       In their joint review of the year 2005–2006, Mr Warner, and Air Chief Marshal Angus Houston noted that they were pleased to be able to sign this year's financial statements on an 'except for' basis:

After two years of being unable to form an opinion, it is pleasing to see the significant effort and focus on financial management delivering a tangible result. Improving Defence's financial management has been a high priority for the organisation and we have made significant progress this year.

The 2005–2006 financial year represented a complex and extremely challenging year for Defence. Not only has there been extensive remediation work but the additional activity of the DMO demerger, and the introduction of the Australian equivalents to International Financial Reporting Standards (AIFRS) has seen Defence experience the most complex financial year in its history. [7]

1.12       The Secretary went on to explain that, with regard to Defence's accounts, the remediation work has delivered significant improvements in four key areas. He reported that improvements had been made in the reporting of military and civilian leave liabilities, the valuation and reporting of explosive ordnance, the introduction of a more rigorous asset capitalisation approach and, the completion of asset valuation work in information and communication technology.[8]

Financial statements for year ending 2006–2007

1.13       On 17 October 2007, the Auditor–General issued a qualified opinion on Defence's financial statements. The opinion stated that Defence's financial statements were true and fair with the exception of Inventories–General.

...due to pricing and system related issues there is uncertainty in relation to the reported balance of Inventories–General of $1.974 billion (2005–2006 $1.797 billion). Inventories–General is a component of the reported balance of Inventories totalling $4.702 billion (2005–2006 $4.017 billion). Consequently, I have not been able to obtain all the information necessary to be satisfied as to the balance of Inventories–General... This constitutes a limitation on the scope of the audit.[9]

1.14       The ANAO's results of the Audits of Financial Statements supported the views expressed in the 2006-07 annual report. In the 'financial overview' section, the report concluded:

Defence's financial management continues to meet improvement targets and significant progress has been made in financial reporting and financial controls management.

The financial statements are once again signed off on a 'true and fair except for' basis. The level of uncertainty surrounding the financial statements balances is now contained to $1,974m of general stores inventory. During the year, uncertainty around repairable items and not–in–catalogue issues was removed. Plans are now in place to deal with the remaining uncertainty surrounding general stores inventory.

The financial controls framework is now fully established and has allowed Defence's Chief Financial Officer (CFO) to be able to attest that a sound and effective system of internal control exists across all significant financial areas...The financial reform agenda achieved positive results during the year and Defence is now within striking distance of producing unqualified financial statements.[10]

Summary

1.15       The committee was pleased to note the department's progress outlined in the section entitled 'financial overview'. The section provides the reader with an excellent overview of the department's financial operating environment without requiring any technical expertise.[11]

1.16       This annual report presents the activities of the Department in a clear, concise manner, which helps the reader to locate any issue or subject of interest with a minimum of effort. The committee finds Defence's annual report to be both an informative and a well produced account of the Department's activities over the past year and that it meets all the requirements for departmental annual reports.

Department of Foreign Affairs

1.17       The Department of Foreign Affairs and Trade Annual Report 2006–2007 was presented on 31 October 2007 and tabled in the Senate on 12 February 2008.

1.18       In the Secretary's review, Mr Michael L'Estrange stated that 'in 2006–2007 the department advanced Australia's interests against the background of a fluid and challenging international environment':

...We contributed significantly to whole of government efforts to strengthen bilateral relations with key partners, promote regional and global cooperation, enhance Australia's security, strengthen Australia's economic prosperity, respond expeditiously to crises involving Australians, and project Australia and its values internationally.[12]

1.19       The Secretary stated that DFAT's international agenda was broad and complex, and cited as examples the Government's objectives in international counter–terrorism and security and good governance in our region:

We advanced the Government's international counter–terrorism objectives by implementing well–targeted and effective activities focusing on regional initiatives to address the ideological dimensions of terrorism and preventing access by terrorists to chemical, biological, radiological and nuclear weapons. To this end, we hosted the Asia–Pacific Seminar on Combating Nuclear Terrorism. We also accorded priority to Australia's counter–proliferation efforts, including by managing Australia's policy response to the proliferation challenges of Iran and North Korea.

...

We promoted security and good governance in our region by coordinating the Government's response to the situation in East Timor. We led international initiatives promoting good governance and sustainable development in the South Pacific, with particular focus on Solomon Islands, Papua New Guinea, Fiji and Tonga. Our contributions in this context were concentrated on Solomon Islands, through the Regional Assistance Mission to Solomon Islands, and Fiji in response to the military coup, and Tonga in the aftermath of civil unrest in 2006.[13]

1.20       The committee notes that the department continued to respond to 'the shifting demands of its operating environment' and the need for 'innovative and flexible staffing arrangements, underpinned by sound management and corporate governance structures'.

...The skills of our staff and our adaptable structures enabled us to establish discrete taskforces to address priority and emerging issues such as consular crises. In 2006–2007 we created a temporary Fiji task force (in response to the military coup) and the Japan Free Trade Agreement Task Force to advance bilateral FTA negotiations. In July 2006 the department reshaped its internal structure by creating new divisions to sharpen the focus on key policy, advocacy and service functions and to ensure greater alignment with the Government's foreign and trade policy priorities.[14]

1.21       Finally, the report noted that DFAT, in conjunction with the Australia–Indonesia Institute, will sponsor the establishment of the Elizabeth O'Neill Journalism Award. It will be an annual award to sponsor two journalists—one Australian, one Indonesian, to provide them with opportunities for cross–cultural visits. The aim is to help foster a stronger appreciation of contemporary issues facing each society.

1.22       The award honours the memory of Elizabeth O'Neill, OAM, Counsellor (Public Affairs), from the Embassy in Jakarta, who died in the crash of Garuda Airlines jet at Yogyakarta airport in Indonesia in March 2007.

Elizabeth O'Neill was a respected and admired diplomat. She served with distinction in Indonesia and built bridges of understanding between the two countries. She rose to the often imposing challenges asked of her, responding magnificently and selflessly to the aftermath of both Bali bombings, the Jakarta Embassy bombing, the helicopter crash on the island of Nias and the Indian Ocean tsunami. ...DFAT is immensely proud of her contribution.[15]

1.23       Once again, for ease of reporting, the report of the Department of Foreign Affairs and Trade (DFAT) has been divided into two volumes. Volume 1, which is examined in this chapter deals with the Department of Foreign Affairs and Trade, while volume 2 reports on the Australian Agency for International Development (AusAID).

Reporting public diplomacy

1.24       The Department has produced a report that presents its activities in a clear, concise manner allowing the reader to locate almost all issues or subjects of interest with a minimum of effort. The committee notes, however, that some witnesses to the committee's inquiry into Australia's public diplomacy raised concerns about the quality of reporting on DFAT's public diplomacy programs. Based on the committee's reading of DFAT's annual reports up to 2005–2006 and the comments by a number of witnesses, it found that DFAT's annual report:

...does not provide the information required to actually measure the effectiveness of its public diplomacy programs. In most cases, the report lists and describes activities without providing any indication of the direct outcomes from these activities. There appears to be an untested assumption that these activities produce positive outcomes. There is no indication in the Annual Report that DFAT measures the immediate effect of its public diplomacy programs or the long-term contribution they make to the department's foreign policy objectives.[16]

1.25       The committee understands that its report on public diplomacy, tabled in August 2007, was produced too late to offer any guidance to DFAT in preparing their current Annual Report. Furthermore, the committee has not received the government's response to the committee's findings. Nonetheless, the committee takes this opportunity to remind DFAT of criticism of its Annual Report and of the committee's findings about inadequate information in its Annual Report on DFAT's public diplomacy programs.

Summary

1.26       Overall, the committee finds that the report has been prepared in accordance with the guidelines and finds that DFAT has met the reporting requirements for a departmental report.

Department of Veterans' Affairs (DVA)

1.27       The Department of Veterans' Affairs Annual Report 2006–2007 was presented on 22 October 2007 and tabled in the Senate on 12 February 2008.

1.28       The annual report for Department of Veterans' Affairs also includes the annual reports of the Repatriation Commission, the Military Rehabilitation and Compensation Commission (MRCC); and the National Treatment Monitoring Committee (NTMC). The Secretary of the Department is also the President of the Repatriation Commission and Chair of both the MRCC and the NTMC.[17]

1.29       In the President/Secretary's overview, Mr Mark Sullivan stated that 2006–2007 was another year of both internal and external challenges. Focusing on the department, Mr Sullivan commented that...

2006–2007 was the first full year of oneDVA, the department's reorganisation that replaced state office divisions with a national model organised by function. I am pleased to report that the veteran and defence force communities have not noticed any changes in the way the department interacts with them. Indeed, in many important areas, DVA has been able to improve the level of services it has provided its clients, much to the credit of its staff.

The department, nevertheless, continues to face significant challenges, including the need to decrease the department's size commensurate with the decline in the veteran population and the workloads they generate whilst at the same time ensuring that service levels do not fall. [18]

1.30       The committee notes that in the year under review, the department has improved much of its delivery of services, doubling its range of contracted private hospitals, and extending the services provided under its transport, rehabilitation appliances, preventative health and optical programs.[19]

1.31       In previous reports on annual reports, the committee has taken an interest in DVA's efforts to streamline and improve its information technology infrastructure. The committee notes the department's telephone service is undergoing reform.

Over the last ten years, the telephone has become the most common method for contacting the department among the veteran community: nearly three–quarters of the four million calls DVA receives each year are from veterans or their families. To ensure that the department continues to provide an accurate, comprehensive telephone service, DVA has introduced the veterans service centre, a telephone handling service operated by staff with the skills and experience to answer most calls as they arrive. Where these calls cannot be answered immediately, they are transferred to the relevant business area.[20]

1.32       The government's introduction of a new health and social services access card is of particular interest to the committee. The Secretary explained that the access card 'is another important project for the department, particularly to ensure that veterans' needs are taken into account in its development'.

DVA is working with the Department of Human Services to ensure the implementation of the access card will not affect DVA's standards of service delivery to the veteran community.[21]

1.33       In conclusion, the committee finds that the Department of Veterans' Affairs has submitted a comprehensive and well designed annual report that meets all the reporting requirements for a Commonwealth department.

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