The Auditor-General, the budget and the future of government integrity

By Matthew Elmas

Friday October 9, 2020

budget
Projects that build human capital are near to the most valuable investment a government can make.(AAP Image/Mick Tsikas)

Resourcing constraints across key integrity agencies undermine accountability, threatening public trust and good governance, advocates argue.

It doesn’t pay to scrutinise government.

At least, that was the perception among integrity advocates this week when the national auditor budgeted a $14 million decline in its operational resources after a particularly impactful year running the ruler over taxpayer spending, causing numerous headaches for the Morrison government in the process.

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The Australian National Audit Office (ANAO), which sits within PM&C, estimates its resourcing will fall 12.4% to $98 million in 2020-21 as government contributions decrease $579,000 under the auspices of an efficiency dividend and “other savings measures”.

Unsurprisingly, there is no shortage of critics suggesting those measures are really about saving ministers from answering embarrassing questions about alleged pork barrelling, or why their department inflated the value of a plot of land owned by a company that’s donated to the Liberal Party.

“It’s an act of revenge with a view to strangling the effectiveness of the audit office,” Geoffrey Watson, director of independent think-tank the Centre for Public Integrity, tells The Mandarin.

Such are the optics when, in a budget that otherwise bolstered public service resourcing in response to the COVID-19 pandemic, funding for key accountability agencies did not entirely keep pace.

The Inspector General of Taxation, for instance, estimates a $238,000 budget bump against a cash splash for the Australian Taxation Office (ATO) that will see its resources swell by $73.3 billion in 2020-21. Just 35 public servants are now expected to cast an eye over the activities of an expected 18,368 ATO personnel.

The Commonwealth Ombudsman, meanwhile, has budgeted a $1.8 million decline in resourcing for 2020-21, primarily due to an estimated fall in external revenue, ahead of an expected $10.5 million injection over 2021-22 and 2022-23 related to the JobMaker program.

It all comes after $1.4 billion in cuts from integrity agencies across the federal government over the last 10 years, according to analysis published by the Centre for Public Integrity, which is governed by a group of former judges, senior academics and lawyers.

They’re calling it an integrity deficit, and there’s an implicit warning for senior public servants that progressive cuts to accountability across the federal government threaten public trust and the effective use of taxpayer funds.

‘Statutory independence’: Auditor-General makes his case

Against this backdrop, and as the country was digesting the federal budget on Wednesday, Auditor General Grant Hehir quietly published his mid-term reflections on five years as Australia’s reviewer-in-chief.

The timing aside, his comments came after the ANAO delivered just 42 of its targeted 48 performance audits in 2019-20, owing to resourcing constraints arising from more than $7 million in budget deficits over the last two years.

“Although in the public service people talk about being apolitical and providing frank and fearless advice (and I always tried to act that way), what that looks like is, and probably should be, starkly different from the statutory independence of the public sector auditor,” Hehir wrote.

“To be effective, public auditors cannot see their future as either individually or organisationally tied to the perceptions of, or reactions to, their work by government.”

Hehir, who several weeks ago revealed he wrote to Prime Minister Scott Morrison asking for $6.3 million to put the ANAO onto a more sustainable kilter, advocated for an overhaul of funding arrangements that would place the ANAO outside the purview of potential government scorn.

“Auditors-General should have fixed terms (preferably non-renewable), have complete discretion over what they audit and how they audit it, have their budgets set by the Parliament with a limited role for government and not be subject to administrative directions by the government,” he said.

Grant Hehir

In making this case Hehir joins a chorus of calls this week for structural reform, including some members of the Joint Committee of Public Accounts and Audit, which is currently undertaking a 10-year review of the ANAO and on Tuesday rather inconsequentially recommended the audit office receive a funding increase.

“The Auditor-General is also seeking an exemption from the efficiency dividend—to not apply to ANAO appropriations from 2020-21 onwards,” committee deputy-chair Julian Hill, a Labor MP, told parliament.

“The committee’s majority recommendation is that the ANAO not be exempt from this efficiency dividend … ultimately, this is a matter for the government to determine further.”

It was the committee’s ongoing ANAO review that Morrison defaulted to when asked this week why the auditor had missed out on a funding bump.

“There is a 10-year review currently underway, and,when the government receives the outcomes of that 10-year review, we will consider the resourcing for the ANAO,” he said.

But Monash University senior lecturer Yee-Fui Ng, an expert on accountability within government and a former advisor within PM&C, says there’s a good case for putting ANAO funding at arms length from the PM.

“In Canada and New Zealand, there is a well-articulated concept of the officer or agent of Parliament, where integrity bodies have a link to Parliament in terms of appointments, removal, budget-setting, salary, and staffing processes,” Ng tells The Mandarin.

“All integrity bodies should be provided with independence from executive interference, including institutional protections such as having statutory protections in terms of tenure and removal, as well as operational freedom such as the power to conduct ‘own motion’ investigations, and having a statutorily-protected budget to fulfil their mandate or budget approval processes through a parliamentary committee.”

While the Auditor-General is already considered an independent officer of the Parliament, key arrangements, including funding, are still largely within the purview of government.

Death by budget? How faltering integrity could cost the APS

It would be a mistake to think the affect of inadequate funding for the ANAO and other accountability agencies is merely less scandals for the government to deal with, Watson argues.

“The fact is, the audit office is working hard day in day out, actually investigating things which might not catch public attention, but which are absolutely critical for the way we can improve how our money is spent,” Watson says.

“It looks at waste, and that’s going to get lost in the wash with budget cuts.”

The most recent decline in ANAO resources will have a direct impact on scrutiny of government programs, with expected audits falling to 40 in 2021-22 and to 38 by 2023-24 — a 20% fall on the 2019-20 target.

Meanwhile, the number and value of government programs —particularly those that involve private sector procurement in the context of the recession— will increase; policies such as JobKeeper and the public service’s digital transformation are already on the ANAO’s radar.

Crucially, the ANAO has repeatedly identified procurement as a weak spot for the APS, making a series of recommendations over the last year about how senior decision makers can improve practices.

“There is strong evidence, from both performance and financial audits, that the public sector’s approach to procurement regularly falls short of expectations set out in the regulatory frameworks,” Hehir wrote this week.

“This is of particular concern given that procurement is a core activity of government and fundamental to the delivery of many of its services.”

APS review: Integrity integral to trust, crucial for effective government

Integrity advocates aren’t the only ones recognizing the importance of adequate accountability institutions to the success of the public service.

Integrity was identified by the independent review into the APS last year as integral to turning around falling rates of trust in government institutions and departments.

While Australia scored higher than two-thirds of countries on the global Corruption Perceptions Index in 2018, its ranking has fallen from 7th to 13th in recent years, behind Westminster counterparts like New Zealand (2nd) and Canada (9th).

Over the same time, trust in government has plummeted, declining 22% over the last two decades, a trend that’s been observed across the western world.

Source: ANU, 2016 (retrieved: APS review).

The review —which cited ANAO reports more than 20 times—  found turning around this trend by bolstering integrity across the APS would be vital to ensuring government agencies maintain their ability to engage with public and business stakeholders.

“The APS needs to foster a culture in which people do not merely comply with rules and promote shared values, but ensure their combined actions result in a public service which is trustworthy,” the review concluded.

The government, too, has routinely professed a desire for more effective spending across federal portfolios.

In his budget commentary about the APS this year, outgoing finance and public service minister Mathias Cormann underscored the importance of an APS that’s capable of spending taxpayer funds effectively.

In fact, the government has created a new procurement panel within finance to address some of the prevalent criticisms from the Auditor-General and others about government practices.

“A hallmark of a professional and modern public service is openness and transparency in its operations,” Cormann said.

Curious case: The Commonwealth Integrity Commission

The APS review also supported the establishment of a Commonwealth Integrity Commission (CIC), a body promised by the Coalition before last year’s election.

But while advocates were expecting the 2020-21 budget to outline funds to get the commission moving, there was scant mention to the prospective integrity organization in the government’s policy plan this year.

While $700,000 was handed to the Australian Commission for Law Enforcement Integrity (ACLEI) to continue its activities until “subsumed” by the CIC, no details were provided about when this would occur, or how.

Nevertheless, the commission did show up in budgeting for average staffing levels in the Attorney General’s department; estimated at 76, the figures suggest an intention to staff the CIC at levels comparable to the High Court.

While staffing estimates typically correspond to financial estimates made in portfolio parliamentary budget statements, the CIC was seemingly missing from the Attorney General’s 2020-21 disclosures.

A spokesperson for the Attorney General’s department said the staffing level estimates were published in error, but were consistent with measures published in the 2019-20 budget.

“ACLEI will be subsumed by the CIC when the CIC is established by legislation. The Government has committed to releasing exposure draft legislation to establish the CIC for public comment at an appropriate time after more immediate priorities concerning the management of the COVID-19 recovery have been addressed,” the spokesperson said.

Last year’s budget allocated $104.5 million to the CIC, and the department said the the commission will be included in portfolio budget statements once it has been established in legislation.

Advocates fear the body has been put on the back burner, but Yee-Fui —who has previously criticised the proposed CIC model as inadequate— says the delay is nevertheless an opportunity for the government to make structural changes to bolster the commission’s likely effectiveness, including public hearings and autonomy to initiate investigations.

“The bar for CIC investigation is too high, requiring a reasonable suspicion of corruption amounting to a criminal offence before an investigation can even begin,” the academic argues.

“This is a difficult hurdle to clear. Lessons from the state anti-corruption commissions show evidence of corruption has been unveiled through investigations based on allegations, rather than before an investigation begins.”

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