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3.3 Public sector accountability and performance

The Commission’s Phase One report emphasised the importance of clear fiscal rules and frameworks as a way of strengthening the nation’s finances. It also highlighted the positive role the regular Intergenerational Reports play in raising awareness of the budgetary challenges of our ageing population and the role that the Parliamentary Budget Office could play in assessing progress against fiscal rules. The Commission made a number of recommendations to strengthen these arrangements.

Improved budget performance also needs to occur at the coal face of government – through improved performance and accountability at the individual programme level. These issues are discussed below.

Improving performance information

The availability of good information on the performance of programmes and activities is crucial to ensuring taxpayer funds are well spent and government held to account. High quality information is essential to answering basic questions such as what was the money used for, what was the policy objective and was it achieved?

As well as a means of accountability to citizens and Parliament, performance information strengthens the evidence base available to ministers and their advisers for decision-making, including as part of the annual Budget process.

Access to robust information also better enables the government to assess the policy merits of different programmes and prioritise expenditure.

The Commission has been asked to identify options for improving the assessment of government activities and reporting of their performance with a view to increasing transparency and accountability. These are the hallmarks of responsible government.

The quality and usefulness of current reporting of performance in budget-related documents such as portfolio budget statements varies markedly.

While a large volume of performance information is currently available there is no easily understood performance framework. Current arrangements make it difficult for the community to determine whether money is being well spent, whether spending programmes are delivering on their objectives and how efficiently and effectively the public sector is performing.

Outcomes and programmes framework

Over the last 25 years, the Commonwealth Government’s budget reporting framework has moved from a narrow focus on reporting financial inputs — money being allocated to programmes — towards an approach intended to provide greater information on results and outcomes achieved by the expenditure of public funds.

Despite this, most performance information is focussed on financial accountability – particularly whether the money was actually spent or spent on time. While this is important, it does not demonstrate if programmes are achieving their policy objectives.

The Commonwealth introduced the ‘Outcomes and Outputs’ framework for the Budget in 1999-00. Under this framework, all departments and agencies were required to identify explicit outcomes intended to define the desired impact of the government’s activities and programmes on society.

These identified ‘outcomes’ formed the legal basis for appropriations approved by the Parliament.

In each department’s portfolio budget statements, agencies are required to identify the ‘outputs’ to be produced and the administered items to be delivered on behalf of the government which contribute to the previously identified ‘outcomes’.

The 2009-10 Budget introduced a variation to this approach with the introduction of the current ‘Outcomes and Programmes’ framework. This approach differs from the ‘Outcomes and Outputs’ framework in so far as it is intended to provide more information on programmes and what they contribute to achieving government outcomes over the Budget and forward years.

The Constitution requires that all revenues or monies raised or received by the Executive Government of the Commonwealth be placed in one Consolidated Revenue Fund.

The Constitution also provides that there must be an appropriation, made by law, for the purposes of the Commonwealth, before money can be drawn down from the Consolidated Revenue Fund.

Under current arrangements departments and agencies receive funding through the Commonwealth’s annual Appropriation Acts which provide funds to deliver specified ‘outcomes’ the government is seeking to achieve.

Specific government programmes contribute to these outcomes. Often several programmes will contribute to the achievement of one outcome. A summary of the Outcomes and Programmes framework is outlined in Figure 3.1 below.

Figure 3.1: Outcomes and programmes framework

This figure shows the Outcomes and Programmes framework, with funds being appropriated from the Consolidated Revenue Fund at the outcome level before flowing onto the programme and programme Expenses levels.

Source: National Commission of Audit.

The Annual Budget Statements provide information on how the government intends to appropriate taxpayers’ funds.

Presented with the Appropriation Acts, portfolio budget statements are intended to provide additional information on government expenditure, both of a financial and non‑financial nature, at the portfolio and agency level.

Information on each programme contained in the portfolio budget statements should outline:

  • associated deliverables (for example, the benefits or services intended to be provided, or the transfer payments to be made); and
  • annual performance reporting on the delivery of programs and achievements against a set of key performance indicators.

The level of programme detail currently provided in portfolio budget statements varies considerably, with some entities providing only high level information, while others include information that is more useful and relevant to gauging performance for policy purposes.

As an example, Figure 3.2 shows the level of information presented for programme 3.1 ‘Employment Services’ within the Department of Education, Employment and Workplace Relations’ Portfolio Budget Statement.

The Employment Services programme is intended to achieve the outcome of ‘enhanced employability and acquisition of labour market skills ...’ In this example, $1.36 billion is projected to be spent in 2013-14 across six ‘programme expense‘ areas within the employment services programme.

However, information useful in decision-making, such as whether to expand, cease or reduce a programme is not apparent until the ‘programme expenses’ level, which includes for example, Job Services Australia, the Pacific Seasonal Workers Programme and the Productivity Education and Training Fund.

Relevant key performance indicators are also outlined. In terms of information that is available to assist in determining how successful the government has been in achieving its objectives, the quality of key performance indicators is relatively high in this example.

They include indicators such as costs per employed person and the proportion of job seekers off benefits at intervals of three and 12 months following participation in employment services.

However, the key performance indicators only relate to the performance of Job Services Australia and none of the other aspects that make up the programme, such as the Pacific Seasonal Workers Programme and the Productive Ageing Package. It is therefore difficult to determine whether these programmes are contributing effectively to the government’s objectives in this area.

Comprehensive performance measurements against all programme expenses would assist in both measuring the effectiveness of a programme in meeting its objectives and also in more informed budget decision-making.

Figure 3.2: Department of Education, Employment and Workplace Relations

This figure shows Programme 3.1 -Employment Services, of the Department of Employment and Workplace Relations within the Outcomes and Programmes framework.

Source: Department of Education, Employment and Workplace Relations, 2013.

In contrast, the information presented to Parliament within the Portfolio Budget Statement for Austrade’s Export Market Development Grants Scheme (Figure 3.3) is of limited usefulness in answering basic questions like what was the money used for? What was the policy objective? Was it achieved?

The information provided simply outlines that $125 million is budgeted to be spent. The key performance indicators are the number of grant applications and recipients. There is no information on the results of this spending.

Figure 3.3: Austrade

This Figure shows Programme 1.2 - Trade development schemes - Export Market Development Grant Scheme, of Austrade within the Outcomes and Programmes framework.

Source: Austrade, 2013.

Performance reporting

The change in the Budget reporting framework from 2009-10 to a ‘programme’ focus was intended to demonstrate more clearly the achievements against pre-defined programme objectives.

Commonwealth entities currently report against some 650 government programmes that are measured by some 3,500 key performance indicators.

However, as illustrated above, it is often difficult to get an accurate and comprehensive picture of government programmes and what they are achieving. The level of information available at the ‘programme’ level is inadequate to provide useful policy insights.

The Australian National Audit Office (the Audit Office) has undertaken several assessments of entity performance measurement and reporting.

It found entities continue to experience challenges in developing and implementing meaningful key performance indicators, and that the administrative framework supporting their development and auditing is problematic.

The challenges in ensuring sufficient transparency and accountability of government expenditure are demonstrated by the Department of Foreign Affairs and Trade’s Portfolio Budget Statement.

The objective of Programme 1.2 is ‘to advance Australia’s foreign, trade and economic, and security interests through participation in international organisations’.

The outcome for $258 million of associated expenditure is reported in one line. Similar reporting occurs within the Department of the Treasury’s Portfolio Budget Statement for payments to international financial institutions.

While it is recognised that the Department of Foreign Affairs and Trade and the Department of the Treasury do not have prime accountability for expenditure of these funds, which are ultimately deployed by international entities, it is reasonable to expect more information in the portfolio budget statements as the prime accountability document.

The inclusion of detail such as who the funds were provided to, for what purpose, and what outcome, would provide more relevant information. In some cases, more detail is provided elsewhere, for example within departments’ annual reports, which list organisations receiving funds.

The key performance indicators used to determine if the programme’s objectives were met are that ‘payments to international organisations are timely and within budget’. This reflects the current focus on financial performance rather than policy effectiveness.

Governments undertake a broad range of activities and some programmes are more suited to straightforward key performance indicators than others. Despite these challenges, the Commission considers more meaningful and measureable indicators should be developed and maintained.

Improving programme information for improved accountability and decision-making

Assessing public sector entities’ performance is a challenge given their goals are harder than those of private sector organisations to measure and communicate.

Private sector organisations exist primarily to maximise shareholder value, measured largely by financial profit or loss and share price. Businesses are paid for satisfying the customer. They are paid only when they produce what the customer wants. Customer satisfaction is the basis for performance and results in a business.

In contrast, the public sector aims to create public value; a direct but not always immediate benefit to society. Shareholder value is relatively easy to measure in monetary terms, public value is not.

‘Bottom line’ financial accountability data, while useful in acquitting the stewardship obligations of government in relation to public funds, is insufficient to measure public value or gauge public sector performance.

In order to improve programme information for accountability and decision-making, the Commission proposes changes be made to increase both the detail and quality of information presented.

In particular, information currently at the ‘programme’ level is generally too broad. In many cases, ‘programme expenses’ and key performance indicators and deliverables at this level would provide greater scope and depth. They would be more useful in making decisions whether to expand, cease or reduce activity.

The presentation of information within portfolio budget statements is the responsibility of agencies, utilising guidance provided by the Department of Finance. While this guidance is prescriptive, further improvements are needed to ensure both consistency in the type and quality of information across government.

At present there is no central register of government programmes at a detailed level (like ‘programme expenses’). The absence of a central register has been an impediment to the Commission in assessing government programmes - one likely shared with government when formulating the Budget.

The Department of Finance is currently redeveloping its Central Budget Management System, the information and technology system which supports financial and budget management for the Commonwealth Government.

In the new system, entities will enter financial data at a more detailed programme level, allowing information to be generated and centralised. This reporting will commence in late 2014, for the 2015-16 Budget.

The Commission encourages the continued development of this capability and its use within the Budget context.

To enhance the transparency of performance information there should be a ‘clear line of sight’ through all information sources, both forward looking through the portfolio budget statements and backward looking through annual reports. This would enable a programme’s progress to be followed, to allow a comparison of planned and actual performance.

The Public Governance, Performance and Accountability Act

Some of the concerns regarding the level and quality of performance information are intended to be addressed through new measures within the Public Governance, Performance and Accountability Act 2013 which is scheduled to take effect from 1 July 2014.

This Act will replace both the Financial Management and Accountability Act 1997 and the Commonwealth Authorities and Companies Act 1997 with a single piece of legislation governing the management of public resources and the performance of Commonwealth entities.

This change builds upon the findings of the Commonwealth Financial Accountability Review. The Review found that while the existing financial framework has a strong focus on financial accountability, there is little consideration given to the achievement of objectives of government programmes or the quality of performance monitoring and information.

These deficiencies have been acknowledged and one of the key principles underpinning the design of the Public Governance, Performance and Accountability Act is that ‘performance of the public sector is more than financial’.

Guided by this principle, the Act places a requirement on entities to properly measure, record and assess their performance and to report this within annual performance statements. These statements will form part of the annual reports that all agencies are currently required to prepare.

The annual performance statements are intended to provide a comparison of actual performance against planned performance as outlined in an entity’s corporate plan. Furthermore, these annual performance statements may be examined and reported on by the Auditor-General.

The requirements for annual performance statements are intended to rebalance the focus of entity reporting between financial and non-financial performance information. They should provide a more complete explanation of performance to determine what has been achieved.

The policy and principles underlying the Public Governance, Performance and Accountability Act have the potential to enhance accountability and transparency. However, much of the detail on the workings of the Act is yet to be settled.

An imperative will be to ensure that the rules and guidance material accompanying the Act — including the requirements for measuring performance — are designed in a way that is practical at the operational level.

To ensure enhanced transparency and provide citizens and Parliament with a better basis for scrutiny, there should be a clear ‘line of sight’ between all reporting mechanisms.

This needs to extend across budget appropriations, portfolio budget statements and the performance accountabilities provided in agencies’ annual reports. Published information should make it simple and easy to compare planned versus actual performance when it comes to government spending.

Role of the Australian National Audit Office

Under the Auditor-General Act 1997, the primary function of the Australian National Audit Office (the Audit Office) is to assist the Auditor-General.

The Auditor-General is responsible for auditing the financial statements of all Commonwealth entities operating under the Financial Management and Accountability Act 1997 and Commonwealth Authorities and Company Act 1997. The Auditor-General is also authorised to conduct performance audits and assurance reviews of Commonwealth entities.

The functions of the Auditor-General were extended in 2011 through legislative amendments to include:

  • auditing Commonwealth entities’ performance indicators; and
  • auditing Commonwealth Partners, which includes States and Territory bodies, that receive Commonwealth funding for a particular purpose – sometimes referred to as the ‘follow the money’ provisions.

In conducting these independent reports, the Audit Office contributes to public sector accountability. Also, the Audit Office seeks to leverage knowledge and lessons acquired through its activities to improve performance across the public sector – for example through its better practice guides.

The Audit Office’s performance audits consistently demonstrate that many Commonwealth agencies fall short in developing and reporting performance measures that reveal the extent of progress against stated programme objectives.

Of the Audit Office’s 2011-12 and 2012-13 performance audit reports 48 per cent included recommendations that focussed on the need for better programme effectiveness measures.

Measuring the impact and effectiveness of government activity remains problematic. As is the relevance, reliability and meaningfulness of key performance indicators.

The Commission supports the expansion of the Audit Office’s mandate which enables it to examine the appropriateness of agencies’ key performance indicators and the completeness and accuracy of their reporting.

Improved programme performance measurement and assessment will contribute to increased efficiency and effectiveness of government and provide part of the information base for in-depth programme evaluations.

In this context, assessing whether programme key performance indicators are specific, measurable, achievable, relevant and timed — the so-called SMART criteria — will be important.

The Audit Office initiated a pilot project to audit key performance indicators in 2011‑12 which it continued in 2012-13.

The reports on the pilot project show that agencies continue to have difficulty developing meaningful key performance indicators that measure the effectiveness of a programme’s contribution to government outcomes. The Audit Office also noted that the pilot project confirmed implementation of performance measurement and reporting requires more focussed attention.

As outlined above, the introduction of the Public Governance, Performance and Accountability Act is expected to improve assessment and reporting of performance. In this context, the Audit Office will have an important role in focusing agencies’ attention on measuring and improving the effectiveness of programmes.

This is consistent with the Australian National Audit Office’s core function of providing auditing and assurance services to Commonwealth entities – providing an independent assessment of public sector financial reporting, administration and accountability.


Recommendation 9: Improving information on government programmes and public sector performance

Australians should have useful information about the objectives of government programmes, how much the government plans to spend, what it actually spends, and what it achieves. To improve information and drive better public sector performance, the Commission recommends that:

  1. all information on programmes be provided in portfolio budget statements with appropriate scope and depth;
  2. more meaningful key performance indicators be developed for each programme and be included in portfolio budget statements;
  3. the Australian National Audit Office undertake regular audits of each department's 'programme performance information' and its relevance, as contained in portfolio budget statements, including the efficacy of key performance indicators and the quality of the reporting against each indicator; and
  4. the Department of Finance develop and maintain a central register of all programme expenditure on a programme-by-programme basis to better inform ministerial decision-making.


Financial performance targets and reporting

The Commission’s Terms of Reference require it to report on a methodology for developing and implementing financial performance targets for Commonwealth departments and agencies.

The relevance of traditional financial performance targets is limited for budget funded agencies.

Budget funded agencies, which operate under the Financial Management and Accountability Act 1997, predominantly have non-commercial functions and undertake activities for public benefit rather than motivated by profit, as in the private sector.

However, it is expected that departments and agencies will manage their operations within budget.

Under current arrangements, agencies may not operate ‘at a loss’ unless prior approval is provided by the Minister for Finance. Actual operating losses must be reported to the Minister.

In these circumstances offsets may be required along with the drawing down of the agency’s cash reserves. Moreover, access to additional funding through appropriations is restricted to urgent situations which meet the limited legislative criteria provided for in the annual Appropriations Acts.

Accordingly, the ability of an agency to perform within its budget should provide an indication of an agency’s financial stewardship.

Of itself, this will not necessarily equate with effective performance. As discussed above, additional performance information beyond financial reporting is required to fully assess an agency’s effectiveness in delivering outcomes.

Financial reporting is, however, particularly important for commercial agencies, including government business enterprises.

Many of these entities undertake commercial activities and have a financial objective or profit target. Clear and accurate reporting against financial targets is an effective way to measure the performance of these entities.

The Department of Finance is responsible for setting policy on financial targets for government business enterprises. These settings are outlined in the Commonwealth Government Business Enterprise Governance and Oversight Guidelines.

Financial targets are based on commercial principles and the desire to earn an appropriate return. The aim of financial targets is to ensure that government business enterprises operate and price their goods efficiently, earn a commercial rate of return and operate in an environment which is competitively neutral with the private sector.

Under existing guidelines, all government business enterprises are required to add to shareholder value in their operations. This requirement is considered to be achieved when an entity’s weighted average cost of capital is exceeded.

Alternatively for service-based entities, the principal financial target is return on equity, as set by the risk free rate plus a risk premium appropriate to the government business enterprise.

Using a weighted average cost of capital as the principal financial target requires government business enterprises to earn returns sufficient to cover the cost of debt and the required return on equity. Other financial targets, particularly in relation to optimal capital structure and dividend policy, are also set as part of the annual corporate planning process.

The Commonwealth’s equity investment in government business enterprises is not without risk. In the Phase One Report the Commission recommended that where the Commonwealth takes an equity position it should disclose the rate of return it expects to receive and how this compares to the risk-adjusted rate of return that a private investor would need to make on the same investment.

In this context, a weighted average cost of capital, or risk adjusted return on equity, can assist in identifying an appropriate allowance for the risk of Commonwealth investment by comparison with comparable risk returns applying in the private sector.

The Commission considers that these principal financial targets are appropriate for measuring the financial performance of government business enterprises.

Programme evaluation

The Commission has also been asked to identify options for continuous assessment of programmes, agencies and performance.

As a starting proposition, the Commission considers that improving government programmes and performance requires a sound evidence base.

For example, the Australian Capital Territory Government has released guidelines that outline a comprehensive and prescriptive approach to evaluating its programmes. Under these guidelines, evaluation refers to the process of measuring and assessing the impacts and merits of government policies, strategies and programmes.

Evaluation provides a means of determining the appropriateness, effectiveness and efficiency of government policies and programmes. It helps to answer questions such as:

  • Is the policy producing the intended outcomes or any unintended outcomes?
  • Has the policy achieved its stated objectives?
  • Are there better ways of achieving these outcomes and objectives?
  • Is the policy still aligned with government priorities, particularly in light of changing circumstances?
  • Should the current programme be expanded, contracted or discontinued?
  • Is there a case to establish new programmes?
  • Can resources be allocated more efficiently by modifying a particular programme or the mix of programmes?

As outlined above, the Commonwealth Government reviews policy settings and allocates funds to priority areas through the annual Budget process. However, the Budget focuses on incremental spending and savings decisions, with little systematic attention given to existing outlays.

In particular, insufficient attention is given to better prioritising existing spending.

This lack of transparency and scrutiny may result in less effective programmes that may not align with government priorities continuing for extended periods.

There is no systematic evaluation of expenditure programmes at Commonwealth level. The lack of an evaluation process is not to say that no reviews take place. As well as Productivity Commission inquiries, there are mechanisms like statutory reviews, parliamentary inquiries and ad hoc policy reviews.

However, evaluation is ad hoc, depending on priorities in individual agencies and the quality of information is variable.

For example, the Australian Aid Programme has included comprehensive evaluation for a number of years. Other agencies also undertake evaluations, but much of the resulting information is held in-house and not made widely available.

Conducting evaluations is not an end in itself. While they are useful for ongoing programme management, their limited visibility in the Budget process demonstrates those now undertaken are not used to potential.

Systematic and rigorous evaluation would improve the evidence base for future decision-making and contribute to improved government performance and transparency.

Linking evaluation to the Budget process has a number of advantages. It ensures relevant performance information is available at the point at which funding is committed. It also ensures ministerial decisions to expand programmes, or reallocate funds are better informed by evidence.

Evaluations do more than identify under-performing programmes to achieve savings. They also provide a mechanism to improve outcomes by identifying what has worked well, and determining how existing programmes can be more efficient and effective.

Integrating programme evaluations in the Budget process is a priority, but one which requires careful management.

Introducing a new, potentially onerous evaluation requirement into an already congested process would be counterproductive if agencies saw it as little more than a compliance exercise.

Ultimately, the success of an evaluation process depends on the appetite of ministers for rigorous assessments of programme effectiveness, and, importantly, their willingness to act on results.

A joint evaluation model, involving central and line agencies, operated in Australia between 1987 and 1997.

Under this process there was a formal requirement for all programmes to be evaluated every three to five years. Each portfolio was required to prepare an annual portfolio evaluation plan and all new policy proposals needed to include a statement regarding arrangements for future evaluations. The process was also intended to provide formal evidence of programme managers’ oversight and management of resources.

The model was considered reasonably successful but had shortcomings. As well as being resource intensive, many agencies regarded it as an external impost rather than a tool to improve policy-making. The quality of evaluations also varied markedly.

This experience highlights two key challenges:

  • Evaluation is a highly resource-intensive activity, requiring an intimate knowledge of programme design and operation.
  • The need to ensure evaluations are rigorous.

Given their prime responsibility for the management of programmes, portfolio agencies are best placed to perform evaluations. Evaluation should be a normal part of day-to-day policy development and programme design. This includes determining up‑front how a new programme is to be evaluated, and ensuring appropriate data is collected to enable an assessment.

That said, portfolio agencies may lack a whole-of-government perspective on individual programmes they manage. They also need to manage the influence of vested interests and other stakeholders who would directly benefit from continuation of the programme.

As such, central agencies, such as the Department of Finance, have a key role in ensuring the success of a whole-of-government evaluation framework.

The evaluation process needs to be supported by all parties. It should not place an overly onerous burden on portfolio agencies, but should still meet whole-of-government performance objectives. Appropriate incentives, and also sanctions where necessary, should exist to encourage and support agency engagement.

Integrating programme evaluation into ministerial decision-making

The Commission considers there is a pressing need to improve programme evaluation practices at the Commonwealth level.

Greater scrutiny of programme performance and effectiveness and continuing appropriateness is achievable through three discrete measures:

  1. Incorporating new mandatory programme evaluation arrangements into the annual Budget processes.
  2. Revamping the system of strategic reviews of selected programmes.
  3. A new rolling process of comprehensive Portfolio Agency Audits of selected agencies.

New programme evaluations

The Commission proposes requiring portfolio ministers to produce an annual evaluation plan, covering existing and scheduled evaluation activity over a four-year period. These plans would not be large, but would include basic details describing programmes and setting out an evaluation timeline.

Evaluation plans would be part of portfolio budget submissions. Programme evaluations would be provided to the Department of Finance on completion. Ideally, this would occur well before portfolio budget submissions are submitted.

Portfolio ministers should report on the results of the evaluation activity — that is on the effectiveness of their programmes — in budget submissions.

The Department of Finance would play a key role by providing guidance material and assistance to line agencies. This would include developing and issuing detailed evaluation guidelines that outline how to assess the appropriateness, efficiency and effectiveness of programmes.

Where agencies consistently fail to produce sufficiently rigorous evaluations, the Treasurer and Minister for Finance may choose to subject the portfolio’s programme or the entire portfolio to a strategic review or a Portfolio Agency Audit (as detailed below).

Central agencies would continue to use standard budget and policy processes (such as briefing the Expenditure Review Committee) to advise ministers regarding the quality of evaluations brought forward and the implications of evaluation results for budget deliberations.


Recommendation 10: Programme evaluation – systematic reviews as part of the Budget process

There is no systematic evaluation of programmes at the Commonwealth level. The Commission recommends that new arrangements be introduced to ensure that existing programmes are routinely assessed as part of the Budget process by:

  1. the Department of Finance developing and publishing detailed evaluation guidelines which will help all agencies to assess the appropriateness, efficiency and effectiveness of government programmes;
  2. introducing a mandatory requirement as part of the annual Budget requiring agencies, in consultation with the Department of Finance, to prepare and submit evaluation plans in portfolio budget submissions, which are to include a schedule of planned and existing programme evaluation activity over the next four years;
    1. with final evaluation reports being provided to the Department of Finance on completion; and
    2. portfolio ministers reporting to Cabinet each year in their annual portfolio budget submissions on the results of the evaluation activity detailed in their evaluation plans, attaching completed evaluation reports.


Strategic reviews

Given the resource intensive nature of evaluating ‘base’ expenditure, the process outlined above is selective rather than a comprehensive assessment of all government expenditure.

Government activity continues to grow in complexity and breadth with some activities cutting across portfolio structures. Current examples include Indigenous policy and welfare reform.

A performance monitoring and evaluation system focused only at the entity level would not effectively assess cross portfolio activities and issues.

In such instances the Department of Finance could undertake a small number (around six) of strategic reviews each year, from a central agency perspective. While Finance would lead these reviews they would be conducted jointly with the portfolio agency, to draw on its programme specific knowledge and policy views.

The reviews would holistically examine groups of programmes, rather than achieve savings as a prime objective. For example, they could focus on areas not reviewed for a long period; ones with emerging policy issues; major or fast-growing expenditure areas; or those seen as needing reform.

As well as examining appropriateness, effectiveness and efficiency, the reviews would provide an opportunity to ensure programmes align with government priorities.

The strategic review process could build on, or re-visit, evaluations performed by the portfolio agency. As described above, this could include instances where evaluations by the responsible agency do not meet expectations for rigour and/or timeliness.

The strategic review process would also provide government with a level of assurance that a larger proportion of activity is regularly reviewed.

To ensure a whole-of-government focus, Cabinet could endorse the forward schedule of strategic reviews. The Minister for Finance would bring forward the results and any recommendations as part of the annual Budget process. To drive outcomes, agency heads would be responsible for implementing recommendations agreed by Government.

Government would still have the flexibility to commission discrete policy reviews of particular policy areas or programmes (for example through referral to the Productivity Commission).

Recommendation 11: Programme evaluation – rolling strategic reviews of major spending programmes

Government programmes continue to grow in complexity and breadth, with some activities cutting across portfolio structures. To strategically assess government activity the Commission recommends:

  1. the Department of Finance conduct around six rolling strategic reviews each year on existing government expenditure programmes, with:
    1. the reviews to be conducted jointly with responsible agencies;
    2. results and any recommendations to be brought forward by the Minister for Finance as part of the annual Budget process; and
    3. agency heads to be responsible for implementing recommendations agreed by government.

Portfolio Agency Audits

Australian Government agencies operate in a highly-devolved financial and management framework.

In the main, agencies employ and manage their own staff and their performance, commit Commonwealth funds through their own spending, as well as administer programmes on a day-to-day basis. Agencies have some flexibility to reallocate funds between programmes while still delivering high-level policy outcomes.

The Commission supports this ‘devolved’ model which ‘lets managers manage’ by making departmental secretaries and individual agencies responsible for their organisation’s mission.

However, the devolved model relies on ‘transparency about results’ – hence the emphasis on assessing and evaluating the performance of programmes (above).

To complement programme evaluation, the Commission recommends the Government implement a separate process to independently and comprehensively ‘audit’ the operations of selected portfolio agencies. The audits would improve performance by introducing external, objective scrutiny of an agency’s operations.

A Portfolio Agency Audit would differ in focus and scope from ongoing programme evaluations or strategic reviews. It would be a full-scale review, including a full assessment of the efficiency and effectiveness of a portfolio agency in achieving its mission.

As such it would take a detailed look at an agency’s departmental expenditure, the structure of its operations and its ability to achieve results. This may include examining its strategic focus, organisational capability, governance structures and risk management, as well as workforce planning, staff performance management and cost control.

It is envisaged that these agency audits will be led either by an independent person or panel or by the Department of Finance. Depending on the agency being audited this could include current or former senior public servants, external consultants and/or academics.

The results of the audits and any recommendations would be presented to both the relevant portfolio minister and the Minister for Finance. It should also be considered as part of the annual Budget process. To ensure improved performance, the head of the agency would be responsible for implementing recommendations agreed by government.

The Commission notes that the Government has committed to appoint a high-profile team to undertake a first-principles review of the structure of the Defence Department and all its major processes.

The focus of the review will be on achieving more streamlined and less bureaucratic decision-making. Key aims will be to bolster ministerial control, reduce waste, speed up decision-making and restore authority to the commanders responsible for delivering war-fighting capabilities.

A review along these lines for the Department of Defence would be consistent with the type of rolling agency audit that the Commission is proposing. As such, the Commission recommends that the Department of Defence could be the subject of the first Portfolio Agency Audit, led by a suitably qualified and independent person or panel.


Recommendation 12: Performance evaluation – rolling 'audits' of agencies

The performance of individual government agencies is central to delivering effective and efficient government. The Commission recommends:

  1. a small number of rolling Portfolio Agency Audits be undertaken each year, led by an independent person or panel, or the Department of Finance, to comprehensively assess efficiency and effectiveness across all aspects of an agency's operations, programmes and administration, with:
    1. results and any recommendations to be presented to the portfolio minister and the Minister for Finance, and considered as part of the annual Budget process; and
    2. agency heads to be responsible for implementing recommendations agreed by government; and
  2. that the Department of Defence be the subject of the first Portfolio Agency Audit, led by an independent person or panel.