Report No. 25 of 2012-13, Defence’s implementation of audit recommendations Auditor-general’s Reports

I rise to speak on the Auditor-General audit report no. 25 of 2012-13—Performance audit—Defence’s implementation of audit recommendations—Department of Defence; Defence Materiel Organisation. I move:

That the Senate take note of the document.

Yet again the audit office has demonstrated a remarkable deal of insight into the Defence organisation. I will start by highlighting some of the findings, not so much to beat up on the Defence force but to recognise that there are some issues and then to ask the question why.

What the ANAO found as they looked across the audit recommendations that had been laid out for DMO to implement was that almost half of the ANAO audits that had been recorded by Defence as being implemented were in fact not implemented, or at least not adequately implemented, which is a significant issue.

In terms of timing, the average time to implement and to record as implemented a recommendation was 400 days, which is on average 175 days past the original forecast implementation date. On 12 July, the Defence Audit and Risk Committee wrote to six of the group heads alerting them to the fact that there were audit recommendations more than 150 days late—as in not implemented by the recommended point. Half of them did not respond to that committee. And the committee, despite their charter requiring it, did not provide annual reports to the CDF and secretary outlining performance and the implementation of audit recommendations. Clearly, there are some problems there. The Audit Office has done a good job of highlighting that.

The question has to be asked: why is this? There are many talented, passionate and enthusiastic people working within Defence and the Defence Materiel Organisation. Why, then, when the ANAO highlight that they have good quality assurance processes and a well-established internal audit focus, do we get outcomes like this? The answer is partly explained in the Rufus Black review, which looked at management and accountability in the Defence Force. It talked about the matrix management structure of Defence, which has led to a large number of committees, with each of those committees representing an interface between different parts of the Defence organisation. Rather than having one person who is accountable for outcomes who can direct action using available resources, we have a whole range of interfaces and therefore inputs that are constrained.

There is a very good paper by Will Clegg, who used to work at ASPI but is now in the UK on a scholarship. In that paper, he looks at the Defence organisation in the context of the SRP program and the efficiencies that can be gained. One of the things that he highlighted was that where you have an input constrained organisation that will inevitably lead to long-term dysfunction but, if you have an output led organisation, you can manage and prioritise and reorder your constrained inputs to still deliver outcomes and have accountability.

What we see here is the ANAO picking up on a very powerful symptom of structural issues within the Defence Force. It is how they are structured that is the issue. That structure has come about over the last two decades because of short-term savings measures that governments of both persuasions have required Defence to put in place. Following reform after reform, we now see a very process driven organisation with a matrix structure and with great inefficiencies and in which it is very difficult, because of the number of interfaces, to give somebody responsibility and then hold them to account.

This is something that was picked up during the Senate Standing Committee on Foreign Affairs, Defence and Trade inquiry into Defence procurement last year. The recommendations of the main committee report called for Defence to consider changing the matrix structure of their organisation and to actually create an output led organisation by giving more power to the service chiefs. The additional comments that I made refined that model by asking how we could get alignment of best practice with accountability through having appropriate regulators.

I am disappointed to say that despite audits like this still giving clear indication of the problem a couple of years after Rufus Black brought down his report, the government response—which obviously was drafted by Defence—to that Senate report was: ‘Thanks for coming. That’s not the way we do business so we’re not going to change.’ Given that this audit report highlights that there are still areas of serious dysfunction, I would encourage the department and members and senators of both sides in this parliament to consider looking at how we can bring about reform in the Defence department that will increase the capital productivity of the money that the taxpayer invests in it in the long-term interest and for the security of this nation.

I seek leave to continue my remarks later.

Leave granted; debate adjourned.