Independence of NSW integrity agencies threatened by state government’s role in funding arrangements, audit finds

By Shannon Jenkins

Wednesday October 21, 2020

NGOs providing emergency support services to asylum seekers and temporary visa holders will be eligible for a share in $5.5 million state funding. (Image: Adobe/ Keitma)

A lack of transparency and independent advice regarding funding arrangements for the New South Wales corruption watchdog is threatening the agency’s independence, state auditor general Margaret Crawford has found.

Crawford’s latest audit report considers the financial arrangements and management practices of four integrity agencies — the Independent Commission Against Corruption, the NSW Electoral Commission, the NSW Ombudsman, and the Law Enforcement Conduct Commission.

NSW Treasury and the Department of Premier and Cabinet currently play a key decision-making and management role in the funding process of integrity agencies. The report notes that the current funding arrangements in general, including the involvement of the executive government, can compromise the integrity agencies’ ability to fulfil their duties.

“The audit found that the current approach to determining and administering annual funding for the integrity agencies presents threats to their independent status,” the report says.

“[The current approach] is less appropriate for integrity agencies because it does not provide additional protection against the risk that funding decisions could be influenced by previous or planned investigations by the integrity agencies.

“This risk has the potential to limit the ability of the integrity agencies to fulfil their legislative mandate.”

Aspects of the financial management mechanisms used to administer funding could also “create tensions with their independent status”, the audit found.

For example, a point of contention has been the ability of the Treasury and DPC to administer efficiency dividends, budget savings and reform measures which prevent the integrity agencies from accessing the full funding approved by parliament, Crawford notes.

“There are two competing interpretations of appropriation legislation that lead to different conclusions about whether there is a clear legal basis for doing this,” the report says.

“NSW Treasury and DPC focus on the fact that the Appropriation Act provides funding for the integrity agencies to a premier, rather than the agency, and does not state that a premier must provide the full amount of funding approved to the agency. This interpretation leads to the view that a premier can restrict access to appropriation funding that was approved by parliament.

“An alternative interpretation of the Appropriation Act would consider factors specific to the integrity agencies that differentiate them from other agencies subject to these measures. These factors include that the integrity agencies are independent of ministerial control, accountable to parliament for performing specific legislated functions, and some may conduct investigations that involve a premier, or DPC or NSW Treasury.

“If this alternative interpretation is used, then the reduction of the integrity agencies’ access to appropriation funding approved by Parliament could diminish the independent status of the integrity agencies and limit their ability to fulfil their legislative mandate.”

DPC has given additional funding to three of the integrity agencies in recent years in response to their requests. The department told the audit office that it believes the risks are “more theoretical than real”.

Read more: Funding model for NSW corruption watchdog ‘unlawful’, says barrister leading cruise ship probe

The state’s main integrity agency, ICAC, has recently reignited debate about integrity in government with its very public investigation into disgraced Liberal MP Daryl Maguire.

Earlier this year, barrister Bret Walker in a special report said the “undesirable” and “unlawful” aspects of ICAC’s funding model must be addressed, stating the funding mechanisms put the agency at risk of “inappropriate influence”.

Walker argued the “dependence that is created and wielded by senior public servant involvement in influencing the work programs of ICAC by means of restricting its funding” could risk ICAC’s ability to be independent.

“With the best will in the world, the senior public officials engaged in the dealings made necessary by the current arrangements for funding ICAC cannot avoid a substantial risk of appearing to be capable of exerting, by the power of the purse string, inappropriate influence over ICAC’s operations from time to time,” the advice stated.

“A crude, hypothetical but not fantastic example would be DPC’s refusal of supplementary funding sought to enable extra effort by ICAC in conducting an investigation, where a possible outcome of the investigation might reflect adversely on the government.”

In her latest audit, Crawford notes that ICAC has submitted budget proposals seeking more funding in several recent years so it can expand its workforce in line with increases in the volume and complexity of its work.

“Some of these proposals were rejected without reasons being provided,” the report says.

“There are no formal mechanisms available to ICAC to question or challenge these decisions.”

The audit found there is “no transparency to Parliament about the reasons for decisions made about ICAC’s budget” as well as a lack of independent advice to Cabinet on ICAC’s funding requirements.

“The absence of these safeguards in the current financial arrangements creates a threat to ICAC’s independence and have the potential to limit its ability to fulfil its legislative mandate,” the report says.

In December ICAC warned the state government that without increased funding it would have to make 31 full-time employees redundant — roughly a quarter of its workforce — reducing the agency to its smallest size in its history.

In his response to the audit findings, ICAC chief commissioner Peter Hall said that while a new funding model for his agency is needed, DPC and NSW shouldn’t be involved in implementing that funding model.

“The commission’s position is that, because the involvement of Executive Government in funding arrangements for the commission is incompatible with its independence, such involvement is unlawful,” he wrote.

Read more: Peter Hall to lead the new ICAC structure he doesn’t support


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