Why was a 40-year-old program, that doesn't work, never questioned?

By Stephen Easton

February 2, 2016

Despite mutual congeniality and goodwill, two government entities do not see eye to eye on whether a virtually unchanged four-decade program to support indigenous home ownership actually works.

For his part, Indigenous Business Australia’s CEO Chris Fry sees thousands of supported families from a highly disadvantaged segment of Australian society.

“Over the course of 40 years this IBA program has assisted over 16,000 households to enter home ownership, enabling these customers to accumulate more than $2 billion in personal wealth, while successfully growing the home loan portfolio by an average of 6% per annum to its current level of $943 million.”

The Auditor-General, sees differently. Grant Hehir sees a Commonwealth program that has continued along in more or less the same way for 40 years, but drifted away from its original purpose and needs to modernise service delivery and performance reporting, and re-align with its targets, or be replaced altogether.

ANAO’s recommendations cut right to the core of Indigenous Business Australia’s purpose, highlight an issue for lots of government agencies. Where private sector companies are often forced to constantly re-assess and re-visit their offerings to the market by the harsh winds of competition, the fickle winds of public accountability regularly leave public sector entities becalmed, with only an occasional gust of audit or evaluation to push them along.

The audit explains IBA’s Indigenous Home Ownership Program “was established and designed to meet the barriers to home ownership experienced by Indigenous Australians in 1975” and its products and delivery methods continue “largely unchanged” from this time.

After finding IHOP managed inefficiently and that “lending does not fully align with the program objective for which IBA is funded”, the Australian National Audit Office suggests to the government:

“After 40 years of operation, it is timely for the Australian Government to assess whether a government-funded end‑to‑end loan program remains the most effective mechanism for supporting Indigenous Australians into home ownership.”

The program issues plenty of home loans, but they are “not directed at low income earners” despite this group being “an important segment” of the Indigenous people IHOP is notionally targeted towards, according to the audit:

“Also, there is not a strong focus on targeting areas where there is high need for home ownership assistance. Instead, IBA has increasingly approved loans to medium and higher income earners and lower risk customers.

As market conditions have changed, the loan products offered by IBA have provided comparatively less benefit to Indigenous customers than products offered by mainstream lenders.”

In a recent response, Fry blamed “sharply rising house prices and the associated costs of home ownership” for the fact that the agency does not extend its discounted loans — intended for people who can’t get loans elsewhere — to people in “the lowest income bands”.

Chris Fry
Chris Fry

The audit report says “IBA has not provided evidence of analysis to support this position” although it notes that the lending environment has changed in recent years and suggests:

“In light of these conditions, IBA should evaluate whether it is able to continue to demonstrate to government value for money through the homes program in its current format and whether its current product suite is suited to its target customers and the barriers faced in achieving home ownership.”

While defending IHOP’s “consistent outcomes” over 40 years, Fry said the shift highlighted by the audit made it “timely to review the program’s business model”.

The auditors report IBA “does not generally verify that its customers cannot access mainstream finance” even though this is “a key loan eligibility criteria and threshold for entry to the program” and they confirm that since 2011-12, loans have gone increasingly to wealthier people:

“In 2011–12, 52% of loans were to customers earning over 100% of the IBA Income Amount. This percentage increased to 59% in 2012–13 and 57% in 2013–14.”

Fry says IBA has been “exploring alternative models” over the past 18 months to improve efficiency and “deliver modern banking products and services” to clients.

He also committed to addressing the audit’s recommendation to either re-align the program so that it supports low-income earners, or simply advise government to change the target population.

Time for a digital transformation?

Another key finding of the audit is that service delivery is not responsive to customer needs with a “largely paper-based, time consuming and duplicative” two-step application process for the loans. Perhaps a digital transformation is in order:

“The majority of customers interviewed by ANAO reported difficulties with the process and in particular with aspects of the paperwork required. IBA customers are not able to apply for a loan or access their account information online and after-loan care is generally limited unless a customer falls into arrears.”

IBA has plans for better online services on the drawing board, the report notes.

The ANAO suggests streamlining the process itself as well as moving ahead with online services and electronic processing and filing, increased promotional activities to raise awareness of the long-running loans program, and enhanced after-loan care.

The auditors also recommend doing less data input and analysis manually, taking other steps to improve data integrity, and producing more data to shed light on customer trends and the IHOP’s ongoing outcomes, as part of an effort to sharpen up performance reporting.

In the last financial year, it met two out of three key performance indicators but neither of two key deliverables, and the overall number of loans it issues has been dropping for three years. Part of the problem with IBA’s reporting is that it:

” … overstates the number of loans that have led to new home ownership outcomes against the program’s main key deliverable and the income figures reported do not reflect total customer income.”

And at the same time:

“IBA does not monitor the quality of service delivery or collect information to assess whether the program is meeting the needs of customers. The ANAO also identified some data quality issues and limitations in IBA’s performance measurement and reporting mechanisms which are likely to be reflected in both internal and external reporting.”

IBA says the work it is currently doing with the government means it is “well‐placed to develop and implement changes that will improve the efficiency and effectiveness of the program” but nonetheless, the ANAO’s work shows that times change and you have to change with them.

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