- Introduction
Background
Commonwealth Performance Reporting
1.1An effective system of measuring and reporting performance is essential for Government to achieve its goals in a transparent and accountable manner. Financial performance is a longstanding component of this which is reported publicly and critiqued by the Australian National Audit Office. However, the Public Governance Performance and Accountability Act 2013 (PGPA Act) emphasises that financial information alone is not sufficient to determine if publicly funded programs are achieving their objectives and outcomes.
1.2The Commonwealth Performance Framework (the Framework) is a set of rules and guidelines that promote transparency and ensure government entities are held accountable for their performance. The Framework includes the PGPA Act, the Public Governance, Performance and Accountability Rule 2014 (PGPA Rule), and guidance from the Department of Finance (Finance). The Framework aims to improve the transparency between what was intended and what was delivered by government entities and demonstrate to the Parliament and the public that public resources are being used efficiently and effectively.
1.3The Commonwealth Performance Framework requires entities to:
- set out the entity’s purposes, key activities and results it plans to achieve in a corporate plan
- create performance measures and targets to measure an entity’s performance in achieving its purpose, and
- publish statements about the annual performance of the entity in achieving its purpose, which are included in the entity’s annual report.
Public Governance, Performance and Accountability Rule 2014
1.4The PGPA Rule is a legislative instrument and a key aspect of the Commonwealth Performance Framework. The PGPA Rule establishes the requirements and procedures to give effect to the PGPA Act. This includes details on the requirements and processes relating performance reporting. A key section of the PGPA Rule is section 16EA which provides details what entities’ performance measures and their reporting should look like. Section 16EA requires that a government entity’s performance measures:
- relate directly to one or more of the entity’s purposes or key activities
- use sources of information and methodologies that are reliable and verifiable
- provide an unbiased basis for the measurement and assessment of the entity’s performance
- where reasonable comprise a mix of qualitative and quantitative measures
- include measures of the entity’s outputs, efficiency and effectiveness if appropriate, and
- provide a basis for an assessment of the entity’s performance over time.
Auditing Performance Reporting
1.5The introduction of performance statements audits is the most significant change to auditing in the Commonwealth public sector in 40 years, since the introduction of performance auditing.
1.6Section 15 of the Auditor-General Act 1997 sets out the functions of the Auditor‑General, including the option to audit the annual performance statements of Australian Government entities for compliance with the PGPA Act. Currently the Australian National Audit Office (ANAO) can only conduct audits of performance statements at the request of the Finance Minister or the responsible Minister, and this cannot be initiated by the Auditor‑General. The requesting Minister must then present the Auditor‑General’s report on the entity’s performance to Parliament.
1.7The Committee has strongly supported the ANAO’s intention to audit performance statements to improve accountability of government entities. In 2017 the Committee recommended amending the PGPA Act to allow mandatory audits of annual performance statements to provide high-quality information for parliamentary accountability. With the Committee’s support and approval from the Finance Minister the ANAO began its pilot program of performance statements audits in 2020, with the audits of the Attorney-General’s Department, Department of Social Services and the Department of Veterans’ Affairs.
1.8The ANAO’s pilot program showed improvements in the quality of performance statements throughout the audit, indicating that audits can improve the reliability of performance reporting to Parliament. In the 2021–22 budget ANAO was provided additional funding to support a rollout of performance statements increasing from the three entities audited in the pilot program to 24 in 2025–26.
1.9The ANAO has stated that this program of performance statements audits aims to ensure that Parliament receives the same level of assurance for non-financial performance information as it currently does for financial information in entity financial statements.
Audit findings and conclusions
1.10The ANAO conducts its performance statements audits under the ANAO auditing standards that adopt the Australian Standard ASAE 3000: Assurance Engagements Other than Audits or Reviews of Historical Financial Information. In accordance with this standard, the ANAO can issue an unmodified audit conclusion or a modified conclusion. This modified conclusion can be:
- a qualified conclusion stating the performance statements are largely compliant but there are matters of non-compliance that are material but not pervasive
- a disclaimer conclusion stating the ANAO was unable to obtain sufficient and appropriate evidence to base the conclusion, or
- an adverse conclusion stating that matters of non-compliance are material and pervasive to the performance statements.
- In addition to the audit conclusion the ANAO also raises audit findings in response to potential risks to an entity’s performance statements preparation. The ANAO classifies these findings as significant, moderate or minor.
Audits of the 2021-22 performance statements from six Commonwealth entities
1.12The ANAO’s audits of the 2021–22 performance statements was the first year implementing its ongoing program of performance statements audits. The ANAO audited six entities:
- Attorney-General’s Department
- Department of Social Services
- Department of Veterans’ Affairs
- Department of Agriculture, Water and the Environment
- Department of Education, Skills and Employment, and
- Department of the Treasury.
- The ANAO found that the six entities’ annual performance statements were largely effective in meeting the requirements of the framework and accurately reporting the performance of the entity. However, there were some exceptions where entities did not have appropriate processes to prepare the statements, methodologies or assurance over the completeness and accuracy of results. This included the notable exception that seven of the then Department of Agriculture, Water and the Environment’s performance measures for its agriculture objective did not meet the requirements of the PGPA Rule, and as a result did not enable the reader to form an accurate assessment of the department’s performance.
- The Auditor-General issued qualified audit conclusions for three (Department of Agriculture, Water and the Environment, Department of Social Services and Department of Veterans Affairs) of the six entities audited.
- Similar to the ANAO’s approach to findings from financial statements audits, in its performance statements audits the ANAO raises audit findings in response to potential risks to an entity’s performance statements preparation. The ANAO classifies these findings as significant, moderate and minor. The ANAO identified 31 findings across the six audited entities in the 2021–22 performance statements audits, 21 of which were considered significant or moderate.
- ANAO also identified areas of better practice as well as areas for improvement across the three entities. This includes examples of better practice in the timeliness and quality of supporting information for performance measures and the use of strong methodologies when using surveys.
Conduct of the inquiry
1.17The Committee adopted the inquiry into the Annual Performance Statements 2021‑22 on 9 March 2022. The inquiry received 10 submissions and 11 supplementary submissions (see Attachment A). A public hearing for the inquiry was held in Canberra on 28 July 2023 (see Attachment B).
Areas of focus in the inquiry
1.18Noting the previous inquiries and work done by the Committee on the Commonwealth Performance Framework and performance statements, the Committee has focused its report on key issues identified in the report, as well as the ANAO’s ongoing approach to performance statements auditing.
1.19The Committee has taken this approach considering all evidence, including the submissions from all entities whose performance statements were audited by ANAO.
1.20Chapter two of the report focuses on the key issues identified in ANAO’s report including:
- the methodologies and supporting information used to report against performance measures
- inability to report on performance measures
- Machinery of Government impacts on performance reporting
- effectiveness of performance measures
- performance measures for the Government’s agriculture objective.
- Chapter three of the report assesses the ANAO’s approach to performance statements auditing as the first year implementing an ongoing program of work.