Questions for accountability bodies ahead of indigenous merger

By Stephen Easton

Wednesday October 21, 2015

Four new directors and a new chair all took their places on the board of the Indigenous Land Corporation this week, as outgoing chair Dawn Casey used an unhappy saga they will need to confront in a call for major changes to oversight of Commonwealth-owned corporations.

Unfortunately for her, the defining feature of Casey’s tenure has been the financial and political fallout from the disastrous purchase of the Ayers Rock Resort complex, which was pushed through by three former board members prior to her appointment and continues to weigh heavily on the ILC’s bottom line.

Edward Fry
Edward Fry

Casey’s replacement is Indigenous Business Australia chair Edward Fry, with Lisa Gay moving up from director to deputy chair.

They will be joined by former senator for the Northern Territory Patricia Crossin and Wik businessman Bruce Martin, both four-year appointments as directors. Torres Strait Islander and Recognise campaign director Tanya Hosch was appointed a director for three years, as was chartered accountant and company auditor Anthony Ashby of the Gamilaraay-Yuwaalaraay people.

Announcing Fry’s appointment back in August, Minister Nigel Scullion said the IBA chair was “best placed to forge even stronger links” between the two organisations while this month he said Ashby, IBA’s deputy chair, would “be able to help increase collaboration” with the ILC. Another IBA director, Shirley McPherson, was the ILC chair at the time of the controversial Ayers Rock Resort purchase.

A merger may well still be on the cards, but there are serious doubts that it would be a good idea. A February 2014 review of the two entities by Ernst and Young, commissioned by Scullion, dismissed the idea of merging them for reasons of efficiency and convenience — as suggested by the National Commission of Audit — along with the suggestion of establishing a shared services arrangement for similar reasons. EY’s preferred option was a substantial reconfiguration of the separate bodies.

The ILC board at the time argued the two were “fundamentally different” and should be kept separate, and that it would be a good idea to “increase the number of Board members to broaden skill sets and lessen the burden on individual Directors, and reform appointment processes to ensure they are staggered and skills-based, rather than partisan or relationship based.”

Scullion didn’t find the “confused and ambiguous findings” presented by EY much help. He suggested the report gave support to amalgamation when it really rejected that idea, but kept an arguably quite similar idea on the table: abolish both and start again with a single entity from scratch. He also suggested he’d keep looking at a merger or other ways to link the work done by the two bodies.

Casey takes aim at federal accountability mechanisms

Dawn Casey
Dawn Casey

Leaving the board on Monday were deputy chair Ian Trust as well as directors Graham Atkinson, Neil Westbury and Olga Havnen, along with Casey, who delivered a final parting shot this week summarising what she has learned in her time on the board of a corporation owned by the federal government.

Writing at The Drum, Casey took aim at the core of the Commonwealth’s public sector accountability mechanisms:

“The institutions overseeing public-sector performance and accountability at the federal level are outdated and demonstrably ineffective. Parliamentary oversight is permeated by political considerations.

“The remit of the Australian National Audit Office is in key respects constrained and controlled by the Joint Committee of Public Accounts and Audit. The regulation of public-sector corporations is overseen not by an independent body such as the Australian Securities and Investments Commission (ASIC) but by the Department of Finance, and therefore effectively controlled by the government of the day.”

Casey says there is an “urgent need” for an independent anti-corruption body at a federal level and argues the Australian Securities and Investments Commission should take over from Finance as the regulator for public sector corporations.

She believes that in her time as chair, what she has witnessed is a capacity for the federal government to tolerate “poor process, poor accountability and fundamental conflicts of interest within the public sector” and argues the failure of public sector accountability threatens to undermine democracy itself.

A litany of problems with the acquisition have been reported widely, and are detailed in an independent report by McGrath Nicol for Casey’s board. Among her top concerns were that it appeared only three of seven directors ever voted in favour of it, and that it was clearly overpriced — and that was before a mysterious $30 million increase in the price at the last minute.

The ILC has sunk $60 million more in improvements to the resort, with about as much more to come. It is now valued at $248 million but was purchased for $317 million five years ago and has been far less profitable than the optimistic “due diligence” financial modelling provided to the former board by Grant Samuel, which was contracted without tender in a way that McGrath Nicol observed was unusual for the ILC and other Commonwealth entities.

CEO Michael Dillon attacked the decision to buy the resort from hotel group GPT, calling it “inexplicable and perhaps inexcusable” in a 2013 Senate estimates hearing. The ILC borrowed about $215 million to fund the purchase, with the lion’s share being vendor finance from GPT. This deal seemed to be linked with the sudden $30 million price increase, according to Casey.

Casey says the ILC’s day-to-day business assisting Indigenous people to acquire and manage land has been “substantially hamstrung” with financial consequences for at least another 15 years. The board was maligned and the serious issues Casey raised were ignored, she claims. “The losers here are the Indigenous interests the ILC was established to serve.”

Early this year, Finance Minister Mathias Cormann backed the need for a government inquiry into the extremely dubious transaction, to be run by Scullion, but it never happened. Cormann subsequently told The Saturday Paper he was: “satisfied that all the claims made by Dr Dawn Casey were fully investigated”.

Casey’s belief that the regulation of public sector companies like the ILC needs major reform is fuelled by the lack of interest from government despite an extraordinarily suspect transaction and the long, patient campaign she has led to bring it to the attention of government. As well as the role of Finance as regulator being handed over to ASIC — which itself is regularly accused of being a toothless tiger in the corporate field — she says parliamentary committees should be advised by independent lawyers and the ANAO’s independence needs to be strengthened.

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