Why public sector corporations need an independent watchdog

By Stephen Easton

Monday February 22, 2016

After a lunchtime lecture on public sector reform at Parliament House last year, Finance Department secretary Jane Halton side-stepped a question from an audience member who sought her views on the need for a Commonwealth anti-corruption commission.

She told the man that much like Senate committee members, he would have to accept public servants don’t give opinions on government policy — but the idea that there are holes in the federal accountability landscape won’t go away.

Andrew Murray
Andrew Murray

Along with a federal crime and corruption watchdog, some Commonwealth public sector veterans believe there is a need for an independent regulator to oversee publicly owned corporate bodies, a role that currently belongs to the Finance Minister.

Former Western Australian senator Andrew Murray, who is currently presiding in the Royal Commission into Institutional Responses to Child Sexual Abuse, recommended just that in a detailed 2008 report he was commissioned to write as part of the now largely forgotten attempt to improve accountability and transparency, Operation Sunlight.

“Murray Review Recommendation 37:

“That the Government establish a Public Sector Regulator on matters relating to financial administration and management, with strong and comprehensive enforcement powers that promote an efficient regulatory system for the public sector.

“Persuasion, education and encouraging compliance through negotiation, settlement and adverse publicity should be the primary enforcement mechanisms. Prosecution resulting in civil or criminal penalties should be a last resort.”

The then Labor government rejected the idea, preferring to keep these powers in the domain of the Finance Minister rather than with a dedicated, independent body.

Directors’ duties

In her speech last year, Halton expounded on the respective “camps” inhabited by departments and statutory bodies before the recent Public Governance, Performance and Accountability Act brought them all under one legislative umbrella.

“It’s an improvement on the CAC Act but it still doesn’t actually make them accountable.”

When federally funded corporate entities operated under the Commonwealth Authorities and Companies Act, Halton said, “there were very few controls around how [they] managed and spent the money they held, even if it was appropriated by the parliament”.

“And there was little to remind these bodies that, independent though they were in many respects, they owed accountability to the parliament and the people about how they run their affairs,” the Finance secretary added.

Dawn Casey, who has spent a long and celebrated career serving in both camps, believes the old-fashioned concept of parliamentary oversight has become so “permeated by political considerations” that it is no longer fit to ensure good governance.

Dawn Casey
Dawn Casey

The PGPA Act applies general duties to all public sector staff and extra duties to directors of corporate entities (and departmental secretaries) that are “very similar” to those under corporations law, according to Halton.

“It’s an improvement on the CAC Act but it still doesn’t actually make them accountable,” Casey told The Mandarin. Without the will to penalise non-compliance, such administrative legislation is more like a set of guidelines.

The experienced public sector director argues there should be an independent regulator like the Australian Securities and Investments Commission and the many other similar watchdogs that oversee entities outside government, to enforce the new legislation without fear or favour.

She also sees an “urgent need” for a separate independent corruption watchdog for the Commonwealth, and believes the Australian National Audit Office should be more strongly independent of the Joint Committee of Public Accounts and Audit, to which it reports.

Case in point

Her belief in the importance of independent auditing and oversight stems from a range of experiences over a diverse public sector career, but was strengthened by her more recent experience on the board of the Indigenous Land Corporation.

“There is a definite accountability hole, particularly for Commonwealth public sector corporations.”

The ILC is still saddled with big debts from the disastrous purchase of Ayers Rock Resort through a subsidiary in 2013. Private interests did a lot better out of the deal than the ILC did.

The board chaired by Casey thought their predecessors might possibly have breached the CAC Act, which applied at the time, and had the transaction reviewed by independent consultants who found a range of serious governance issues, including evidence that only three of seven board members voted to take the deal. Casey wrote last year:

“The board I led has brought these issues to the attention of the Government and the appropriate regulators. To no avail. Instead, we have been maligned, attacked and most worryingly, the serious issues we have raised have been ignored.”

The ILC’s latest annual report — which was delayed for months until enquiries by The Mandarin prompted its sudden release — details the persistent attempts by the ILC’s former directors to have the government investigate the matter further.

Finance Minister Mathias Cormann agreed and referred the matter to Indigenous Affairs Minister Nigel Scullion (pictured top) but Scullion decided there was nothing more to be done about it. Casey’s board reports:

“Challenged to provide ‘new information’, the ILC once again examined all the records in its possession and in May 2015 wrote to the Prime Minister adding to the extensive information already supplied to the Government. The letter to the Prime Minister identified a range of relevant documents and detailed five particularly concerning features of the transaction process. No substantive response had been received at the time of preparing this report.”

Eddie Fry
Eddie Fry

The late annual report was released with an unusual rejoinder from the new chair, Eddie Fry, which confirms his board will toe the line and let the Ayers Rock Resort matter fade into history and says he’s “already established the basis of a new, open and productive relationship with the Australian Government”.

The unity ticket against independent oversight

Much like a federal anti-corruption commission, the major parties and senior public servants are not keen to see an independent regulator for corporate entities in the public sector.

Casey believes it should be mandatory, not optional, that such organisations always have independently chaired internal audit committees, and said as much in a submission on the development of the PGPA Act.

“Senior public servants never used to like the idea of independent audit chairs, years ago, but several of them now have them,” she said.

Casey also questions the independence of a later decision by the Commonwealth Director of Public Prosecutions to abandon criminal charges against another former ILC board member, Sam Jeffries, for allegedly leaking confidential documents.

And she finds it hard to fathom why the government rejected her board’s advice to manage the Aboriginal and Torres Strait Islander Land Account in the same way as the Future Fund in order to generate higher returns, which are used to fund the ILC, and allow the body to borrow from the Land Account at better interest rates than it can get from private lenders.

“We could have paid all that debt off quicker; there was no reason why not,” she argues. “Finance, at the officer level, were all on side with it and then all of a sudden the political heavyweights came in and Scullion didn’t want it to happen so it just stopped.

“See that’s just all politics. That’s not good policy, or good management.”

Eddie Fry says he is working with government to “forge a common approach to two particular issues of concern to the Board” — the Ayers Rock Resort purchase, which he has agreed to leave alone, and the above suggestion to maximise the ILC’s funding stream from the Land Account, which he intends to pursue.

 “The reality is that there’s a club inside the Commonwealth.”

The long and interesting saga has been covered in detail by the press — and those articles are said to have been used regularly by Australian Institute of Company Directors educators as a case study in poor governance — but there has been little interest from either major party.

While former Labor Ministers Penny Wong and Jenny Macklin tried to urge the ILC not to buy the resort, Casey suspects members of both Labor and the Coalition have links to former directors of the corporation and its subsidiary Voyages Tourism, and have since then decided to let sleeping dogs lie.

“I’m not saying ministers and the two major parties always do everything badly, but clearly politics is all about staying in power,” she said. “And therefore you can’t have any total independence around those government agencies currently in the federal scene.”

Casey argues the accountability framework of the federal government needs this major overhaul because it is designed for a more civilised era, when politicians were not so unashamedly tribal, combative and ideological, and public service leaders were stronger and more independent.

‘There’s a club inside the Commonwealth’

Another veteran of both corporate and non-corporate sides of the Commonwealth sphere who has intimate knowledge of the Ayers Rock Resort debacle, believes the auditor-general can too easily be prevented from initiating own-motion inquiries by the JCPAA.

“So, where something becomes political, and in particular, where both major parties for what ever reason may not want to see issues emerge, then in essence it becomes very hard for the auditor-general to pursue an issue,” they told The Mandarin on condition of anonymity.

The same person argues the Department of Finance does not undertake its role as public sector regulator “with any degree of focus, attention or openness” — pointing out this role is barely ever acknowledged publicly and not well known:

“I’m sure they’re prepared to pursue issues when it becomes politically expedient but the real test is: when it’s not politically expedient, are things going to be pursued?

“And certainly what the ILC found was that there was a transaction, it was not commercially astute transaction, and the board had grave fears as to what was really driving it. But would anyone look at this? No.”

“The real test is: when it’s not politically expedient, are things going to be pursued?

Our source has another slightly ominous warning for those who accept that in general, there just isn’t as much self-interested behaviour and corruption in the public sector:

“The reality is that there’s a club inside the Commonwealth. It starts with the secretaries, but extends through the senior echelons of the public sector. There’s quite a lot of permeability between the public service and the key statutory corporations, so everyone’s assumed to be part of the club.

“One of the things is that people can be disciplined by the club but they can also be protected by the club.”

The argument is compelling: corruption inside public sector corporations might well be investigated, but without an independent regulator there is no guarantee. The private sector watchdogs have their critics too, and can be weakened in various ways by the government of the day, but at least they are dedicated to the specific task, the anonymous commentator says.

“I absolutely share Dawn Casey’s view and believe that there is a definite accountability hole, particularly for Commonwealth public sector corporations involved in commercial or quasi-commercial operations.”

Halton said something similar when she spoke about the PGPA Act:

“The core philosophy in the PGPA Act is that public resources are public resources, no matter whose hands they are in.

“Believe it or not, this is a new concept in a Commonwealth government context.”

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