Chapter 2

Annual reports of statutory and non–statutory authorities and government companies

Defence portfolio

Defence Materiel Organisation

2.1        The annual report of the Defence Materiel Organisation (DMO) is contained in volume 2 of Defence's annual report. It was tabled in the Senate on 17 November 2009.

2.2        On 1 July 2005, the organisation became a prescribed agency under the Financial Management and Accountability Act 1997. It has a CEO with statutory responsibilities and authority under the Act. The CEO also has 'joint responsibilities to the Secretary and the Chief of the Defence Force under section 9A of the Defence Act 1903 and is delegated significant powers from the Secretary to manage and allocate staff resources under the Public Service Act 1999'. The majority of its funding comes from Defence under agency agreements.[1]

2.3        DMO is one of Australia's largest project management organisations. Its business 'is complex and involves purchasing, upgrading and maintaining a range of specialist military and other equipment. It is typified by high-end technology and highly complex project and systems integration, and demands a mature approach to risk management'.[2]

2.4        The Chief Executive Officer, Dr Stephen Gumley, noted that the achievement of Government's expectations for the DMO represents an enormous responsibility:

The ADF and the Australian community are entitled to expect the DMO to operate in a professional, transparent and accountable manner, and to continue to improve its performance in the delivery of Defence materiel.

I am pleased to report that in 2008–2009, the DMO made important progress in key projects and achieved its acquisition budget (which, in the absence of project cost increases, is a surrogate for on-schedule delivery); delivered a five per cent saving in the cost of ownership to the Government of existing fleets; implemented reforms that have improved both the transparency of our major projects and the way they are managed; progressed the professionalisation of our workforce; and supported important industry skilling and capacity building programs.[3]

2.5        Dr Gumley said that DMO's financial performance continues to be excellent, 'with unqualified accounts and a significant reduction of $635m in unearned revenue from Defence for sustainment and acquisition contracts over the last twelve months'.[4]

2.6        The Australian National Audit Office (ANAO) performed financial statement audits on all agencies for the period 2008–2009. The committee notes that in the audit findings for Defence and DMO, the Audit Office commented on the shared service arrangements:

A Share Service Agreement, between DMO and Defence, was signed in June 2006. This agreement was to be updated on an annual basis to reflect any changes or evolution in the activities or the environment of the respective agencies.

The ANAO continues to identify moderate risk issues regarding Bureau Service and shared services arrangements between Defence and DMO over key financial systems, the human resources management system (PMKeys), supply chain systems and processes and supporting IT general controls.

Current arrangements do not provide mechanisms that allow the DMO to obtain necessary assurance, from Defence, over the effectiveness and adequacy of controls in the financial management information system, the human resource management system and the supporting IT general controls, such as systems security and change management. The DMO requires assurance over the integrity of transactions process by these systems as they are reported in the DMO's financial statements.[5]

2.7        The committee looks forward to reviewing these results against next year's audit of financial statements.[6]

2.8        Dr Gumley noted that DMO was heavily involved in supporting and implementing a very intensive set of reforms. The reforms included contributions to the development of the White Paper, the Government-commissioned Defence Procurement and Sustainment Review (the Mortimer Review), the Defence Budget Audit (the Pappas Review) and the Strategic Reform Program (SRP) announced in June 2009, in response to the White paper.[7]

Both the Mortimer and Pappas Reviews acknowledged that significant reforms have occurred since the formation of the DMO, but also stressed that reform must continue. The Mortimer Review reforms followed two themes—imposing commercial discipline on Defence procurement and sustainment processes and making the DMO more businesslike, while the Pappas Review detailed strategies for improving efficiency, especially in sustainment and inventory.

In 2008–2009, we started implementing several of the Mortimer Reviews' recommendations, including establishing project charters to improve the accountability and authority of project managers, and establishing an office to find ways to improve the efficient delivery of sustainment.[8]

2.9        The committee finds that DMO's annual report provides a comprehensive coverage of the organisation's activities during 2008–2009. The committee considers that DMO fully met its respective reporting requirements.

Australian War Memorial

2.10      The Australian War Memorial Annual Report 2008–2009 was tabled in the Senate on 27 October 2009. The Australian War Memorial (AWM) is a statutory authority within the Veterans' Affairs portfolio and functions in accordance with the requirements of the Australian War Memorial Act 1980 and the Commonwealth Authorities and Companies (CAC) Act 1997.[9]

2.11      The purpose of the AWM is 'to commemorate the sacrifice of those Australians who have died in war'.[10]

2.12      In his report as Chair, General Peter Cosgrove AC MC (Ret'd), stated that the year 'was characterised, yet again, by the high standard of achievement that the Council has always been able to expect from the Director and staff of the Australian War Memorial'.[11] General Cosgrove stated further that:

Building on the great success of the Conflicts 1945 to today galleries, a further significant addition was made to exhibits in ANZAC Hall in November. The exhibition Over the front: the Great War in the air features five restored First World War aircraft. Most of theses had not been on display for some time, and their restoration is a tribute to the wealth of skill and experience possessed by the Memorial's specialist conservation staff.[12]

2.13      The committee notes that the Memorial's current major construction program is progressing well. The Chair explained:

The Memorial's current major construction program involves the creation of a new café facility, and an underground carpark with 200 parking spaces in the Eastern Precinct. This has moved on well past last year's planning phase, with the first sod being turned just after ANZAC Day. Construction and development of the site is now well underway...Progress to date on the Eastern Precinct has been excellent and completion early next year will enable the long-awaited National Service memorial to be built there. Its dedication is planned for late 2010.

The completion of this project will realise the Memorial's current site master plan and result in a noble aesthetic, and cohesive landscape setting for the National Memorial and the Tomb of the Unknown Soldier.[13]

2.14      The Chairman stated that redevelopment and update of existing galleries in approaching the 2014–2018 period have a high priority:

This brings me to comment that the Memorial's funding base has changed owing to the evolution in asset depreciation policy and the need to absorb the efficiency dividend. The funding base will need to be strengthened. Reflecting the reality of current economic circumstances, the Memorial has had to leave some staff positions vacant and to make reductions in some programs. Because this is a memorial and national institution, some cost-saving and revenue-raising options are not open to Council. These include charging for entry and closing regularly on some days.

However, in facing the current economic demands I can report that the Memorial is fortunate in its high standards of corporate governance.[14]

2.15      The committee finds that the AWM's annual report provides a comprehensive coverage of the organisation's activities during 2008–2009. It is an informative and well–produced document, which allows the reader to access information easily. The committee concludes that this report complies with all reporting requirements for statutory authorities.

Other reports

2.16      Other Defence portfolio authorities, agencies and/or companies which had their annual reports examined by the committee, but were not otherwise commented upon in this edition, include:

Army and Air Force Canteen Service (trading as Frontline Defence Services)
Australian Military Forces Relief Trust Fund
Australian Strategic Policy Institute
Defence Force Remuneration Tribunal
Defence Force Retirement and Death Benefits Scheme
Defence Housing Australia
Military Superannuation and Benefits Scheme
Repatriation Medical Authority
Royal Australian Air Force Veterans' Residences Trust Fund
Royal Australian Air Force Welfare Trust Fund
Royal Australian Navy Central Canteens Board
Royal Australian Navy Relief Trust Fund
Veterans' Review Board.

2.17      The committee considers that all the annual reports of the above–mentioned organisations fully met their respective reporting requirements.

Foreign Affairs and Trade portfolio

Australian Agency for International Development

2.18      The Australian Agency for International Development Annual Report 2008–2009 was tabled in the Senate on 27 October 2009.

2.19      AusAID's role is to manage the Australian government's overseas aid program. It provides advice and support to the minister and parliamentary secretaries on development policy and plan and coordinate poverty reduction activities in partnership with developing countries. The objective is 'to assist developing countries reduce poverty and achieve sustainable development, in line with Australia's national interest. Australia's development assistance focus on poverty is guided by the Millennium Development Goals (MDGs), the internationally agreed targets for poverty reduction'.[15]

2.20      AusAID is an administratively autonomous agency within the Foreign Affairs and Trade portfolio. The Director General reports directly to the Minister for Foreign Affairs on all aspects of aid policy and operations and is responsible for the agency's financial and personnel management.[16]

2.21      In the Acting Director General's review, Mr Peter Baxter, stated that the past twelve months brought challenges in promoting progress towards the Millennium Development Goals and furthering stability in developing countries:

Increased and unstable food and fuel prices meant that many people in developing countries were trapped in, or fell into, poverty. The global recession exacerbated these problems as services provided by governments came under pressure as revenue declined.

AusAID acted decisively to help developing countries maintain progress towards the MDGs and position themselves for a return to growth and development. AusAID established a Global Recession Taskforce to coordinate a comprehensive aid response which reviewed existing aid programs and assessed needs. The taskforce developed an action plan which prioritises employment generation and the restoration of broad-based economic growth, supports basic service delivery and protects vulnerable communities.[17]

2.22        In its last report, the committee commented on the first Annual Review of Development Effectiveness, a product of the Office of Development Effectiveness, which was tabled in Parliament in March 2008. The second Annual Review of Development Effectiveness was tabled in August 2009.

The review found that AusAID has improved the effectiveness of its aid program and that the program is well managed and continues to attain good results. The review emphasised a need to protect progress made in reducing poverty, to update the aid program's operational framework to embed effectiveness principles, and to redefine how the aid program engages with civil society, in the context of the global recession and the planned increase in the aid program.[18]

2.23      The committee notes that AusAID continued its corporate reform during 2008–2009. The agency review, Building on the 2010 blueprint: a reform agenda for 2015, builds on the direction set by the AusAID 2010 Director General's blueprint in early 2007:

...[It] provides a clear reform road map towards and responding to the Accra Agenda, the Annual Review of Development Effectiveness, and scaling-up priorities. Following the review, an operational policy and management framework for the agency is being developed. AusAID is also strengthening its workforce planning approaches and professional development programs to ensure that it is well equipped to meet its aid objectives in accordance with best practice.[19]

ANAO performance audit

2.24      The committee draws attention to a recent ANAO audit report on AusAID's management of Australia's aid program. It identified program running costs as an important area of the aid program's funding that 'is not yet transparent'. The audit suggested that over the last decade AusAID has 'increasingly funded staff and other administration costs using the administered appropriation, on the basis of their proximity to aid'. This practice was based on AusAID's interpretation of government guidelines. The audit found that:

AusAID's approach to classifying expenses is not in line with conventional practices, and the extent of use of aid funds in this matter is not transparent. It is, therefore, difficult for external stakeholders to hold AusAID to account on the costs that it controls.[20]

2.25      It concluded:

Clarifying the classification of AusAID's expenses would improve transparency and accountability of aid program expenditure, in a way that maintains the integrity of the budget system.[21]

2.26      To improve transparency and accountability for aid program expenditure, the ANAO recommended that AusAID:

• obtain clarification from the Department of Finance and Deregulation on its use of administered expenses for departmental purposes; and
• if the current approach to classifying administered expenses is to be continued, disclose, in its annual report, details of the program, role and cost of Australian Public service and locally engaged staff funded from the administered appropriation, as well as travel, accommodation, information technology and other administration costs paid from this source.[22]

2.27      AusAID agreed with this recommendation and the Department of Finance and Deregulation supported it. In this regard, the committee looks forward to a change in practice consistent with the ANAO's recommendation.

2.28      The committee finds that AusAID's annual report provides a comprehensive coverage of the organisation's activities during 2008–2009. As usual the committee considers it to be generally of high quality: it is informative and well produced. The committee concludes that this report complies with all reporting requirements for non–statutory authorities.

Australian Trade Commission

2.29      The Australian Trade Commission Annual Report 2008–2009 was tabled in the Senate on 27 October 2009.

2.30      The Australian Trade Commission (Austrade) is a statutory authority established by the Australian Trade Commission Act 1985 and is responsible to the Minister for Trade and the Australian Government. On 1 July 2006, following amendments to the Australian Trade Commission Act 1985 and the Export Market Development Grants Act 1997, Austrade became an agency under the Financial Management and Accountability Act 1997 and the Public Service Act 1999 and is managed by a Chief Executive Officer.[23]

2.31      The annual report states that Austrade's mission is 'to contribute to national prosperity by promoting productive two-way investment and assisting more Australians to succeed in export and international business'.[24]

2.32      The Chief Executive Officer, Mr Peter O'Byrne, in his 'year in review', noted that during the year the global economy experienced a dramatic change:

...moving rapidly from a period of synchronised growth to where many economies were in, or were close to, recession. There was a significant fall in global exports in the second half of 2008 and in early 2009.

Australia has withstood the worst of this global downturn. Our export results in key sectors have remained resilient. Australia has been further assisted by foreign direct investment (FDI).

In 2009, the Government reinforced its support for the exporter community, providing $50 million in additional funding for the Export Market Development Scheme (EMDG), helping exporters defend market share and support jobs during the downturn. Demand for the EMDG scheme continued to be high, with 4,105 grants worth $185.9 million paid in 2008–2009. The Government also provided additional funding for Austrade to help Australia businesses achieve a greater share of the international clean energy market.[25]

2.33      Mr O'Byrne explained that Austrade worked with over 15,600 Australia businesses in 2008–2009, with 5,908 of these businesses acknowledging Austrade's support in achieving international and investment outcomes.[26]

2.34      The committee notes that in July 2008, Austrade resumed responsibility for attracting and facilitating foreign direct investment into Australia, restructuring its activities to deliver an integrated trade and investment service.[27]

2.35      Mr O'Byrne also stated that, as part of the whole–of–government approach to trade and investment development, Austrade liaised closely with other government agencies on competitiveness issues, market-access barriers and restrictions:

During 2008–2009, Austrade provided market information on the impact of multilateral and bilateral trade agreements and worked with the Department of Foreign Affairs and Trade to promote the gains from new free trade agreements with ASEAN and Chile. Cooperation with state and territory governments included supporting the Council of Australian Government (COAG) Ministerial Council on International Trade, chaired by Minister for Trade, the Hon Simon Crean MP.[28]

2.36      The committee is satisfied with Austrade's tables which describe its performance and outcomes for the year and its descriptions of accountability and corporate governance requirements.[29]

2.37      The committee finds that Austrade's annual report provides a comprehensive coverage of the organisation's activities during 2008–2009. The committee concludes that this report complies with all reporting requirements for statutory authorities.

Other reports

2.38      Other Foreign Affairs and Trade portfolio authorities and/or agencies which had their annual reports examined by the committee but were otherwise not commented upon in this edition, include:

Australian Centre for International Agricultural Research
Australian Safeguards and Non–Proliferation Office
Export Finance and Insurance Corporation.

2.39      The committee considers that all the annual reports of the abovementioned organisations fully met their respective reporting requirements.

Senator Mark Bishop
Chair

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