Address by The Hon Lindsay Tanner MP
Minister for Finance and Deregulation
24 February 2010
Good Morning and thank you for that introduction. It’s a pleasure to be able to join you this morning for the launch of the Institute of Internal Auditor’s Policy Agenda.
The Institute has long been a vocal proponent of the quality internal audit processes needed to ensure strong governance and this Policy Agenda is another step in the right direction.
I would like to take this opportunity to commend the Institute for their work in attempting to raise the standard of governance in this country. I recognise that it is not always easy work, that everyone is not always amenable to the principles you are trying to promote, but I encourage you to keep at it.
I share similar challenges in my role as Minister for Finance and Deregulation.
Trying to improve the efficiency of the way government operates, developing strong governance frameworks and ensuring the public service is compliant with our own guidelines is rarely the stuff that sends the press gallery into a flurry of excitement.
Some people will try to push it to the side, citing other priorities.
Similarly, I don’t imagine internal control plans and transaction sampling are the types of issues that will usually get people too excited at parties – aside perhaps from some of those currently within these four walls that is – and in the workplace you may even find active resistance to them.
But, if we want our public, private and not-for-profit sectors to be successful in this country, then it is absolutely vital work.
In my own ministerial role I see governance issues on my desk on a daily basis - in the context of Australian Government operations of course.
While there are obvious differences between the operational issues that are prevalent within the public sector and those that you would encounter when auditing a private organisation, there are some fundamental challenges that all organisations face. The Australian Government is obliged to think about the design of its own business operations, its internal governance and regulatory framework, its accountability and reporting structures just like anybody else. We must also consider how we manage risk.
Risk management has become a hot topic in the last 18 months. Nearly everyone has had a say about how various companies and institutions managed themselves through the Global Financial Crisis.
I don’t intend to add to that debate today except to say that I have little doubt that one consequence of this global crisis will be some fairly profound reflection on corporate governance and regulatory issues.
It should be a matter of pride for all of us that Australia’s reputation on this front has emerged intact, possibly even enhanced. Comparatively we have done very well.
But we now face a new challenge.
With other countries looking at how they can improve their own corporate governance and regulatory frameworks, we need to ensure that our own comparative advantage is preserved.
Maintaining good governance settings is a continuing task. I want to speak to you today about some of the ways through which the Australian Government is pursuing that task.
The principles contained in the Institute’s Policy Agenda align neatly with the work that has been undertaken by the Rudd Government since being elected in 2007. They go to the heart of why we have spent considerable time and resources on improving the operations of government.
I have long advocated that a cornerstone of good governance in the public sector is openness and transparency, and this is one of the basic tenets of the Rudd Government.
Since we came to office more than two years ago, this Government has pursued a reform agenda in this area, aiming to improve the efficiency, transparency and accountability of government.
One of the policies in this area that I have a particular interest in is the reforms we have initiated to the Government grants program.
Any of you that do some work with the Federal Government will probably be familiar with the Commonwealth Grant Guidelines that took effect on 1 July last year.
The need for these guidelines became apparent in an Auditor General’s report into the previous government’s Regional Partnerships program, or as you may have heard it referred to – the ‘Regional Rorts’ program.
The report found the program had been wildly debased. Grants were approved by Ministers before formal applications had been submitted. Ministers overruled departmental advice and gave grants for no apparent reason other than the money would be spent in a Coalition seat.
I don’t want to go into detail on this but it’s safe to say the program mismanagement that occurred would have had any internal auditor worth their salt running for the hills in despair.
The new framework we have implemented promotes consistent and transparent administration of government grants, with clear procedures and processes in place.
Something as simple as having the grant approver – whether it is a Minister or official –recording the basis for approving a grant is now a requirement. As is demonstrating the payment of the grant is an efficient, effective and ethical use of Government resources.
At the centre of our agenda to improve transparency and accountability has been Operation Sunlight.
I initiated Operation Sunlight while we were still in Opposition because of the need to improve the transparency of Government budget and financial reporting and to increase public accountability.
Since coming into Government we have made significant progress in doing that with reforms including:
One aspect of the Operation Sunlight reforms that I would like to pay particular attention to this morning is the Certificate of Compliance process.
As set out in the CAC and FMA acts – that is the Commonwealth Authorities and Companies Act and Financial Management and Accountability Act – government entities are each required to have their own internal controls, audit committees and governance frameworks.
It is up to agency heads to establish these audit committees and adhere to the financial management regulations and policies of the Commonwealth. This includes certifying that they have complied with government regulations relating to the commitment and expenditure of monies, and to the maintenance of accounts and records.
This form of internal auditing that we employ is carried out through the Certificate of Compliance process, which is administered by my Department.
In the first year the process was in place, 2006/07, close to 12,000 instances of non-compliance were recorded across the public service.
These issues ranged from non-compliance with formal procedural requirements for approving the expenditure public money through to issues relating to agency banking.
When agencies introduced systematic identification and remediation in the program’s second year, more than 30,000 instances of non-compliance were reported. The closer agencies looked, the more issues were identified.
As agencies bedded down their internal systems and control frameworks were refined to improve governance arrangements in the last financial year, we saw the instances of non-compliance drop back to nearly 15,000.
These figures show the Government is improving its internal operations, but with 15,000 instances of non-compliance in a year, we still have a long way to go.
I note this judgement was echoed late last year by the IIA. The research of a Canadian expert, which I understand was commissioned by the Institute, found the internal audit practices in the Australia public sector were “patchy and inconsistent.”
It is for that reason that I am pleased to be here at the launch of the IIA’s policy agenda.
The advocacy of the principles that are contained in this agenda is crucial to improving the quality of governance of organisations in all sectors.
Across the public sector that advocacy has resulted in real changes to the way agencies go about their auditing.
Currently, in addition to the support provided by my department, guidance on internal auditing within the Federal Government is provided by the Australian National Audit Office. In the ANAO’s Better Practice Guides and the supporting internal audit toolkit, the IIA standards are applied.
The work of the Institute in promoting these standards has already influenced a number of Commonwealth agencies to employ strategies that are directly in line with the principles and recommendations in this Policy.
Across the public service agencies are putting in place the controls and systems to appropriately manage their risks. At the same time they are employing internal functions well to provide assurance to executives.
A growing number or agencies are also appointing independent members to audit committees – including my own Department.
Since the Rudd government has come to office we have focused on raising the standard of accountability and transparency across all our operations, setting high expectations for compliance and good governance.
It is very pleasing to see the IIA release a Policy Agenda with similar intentions.
In the aftermath of the global financial crisis it is very timely for there to be a renewed focus on strengthening internal audit functions and good governance in the private sector.
But equally as importantly is the adoption of these principles in the public sector.
On a whole, the internal audit practices in this country are quite sound. Australia’s relatively strong performance throughout the global financial crisis has been due to a number of factors, not least of which is corporate Australia has generally accepted the principles set out in this Policy Agenda.
But as with all issues relating to governance, more can be done.
The Policy Agenda being released today is another step in the right direction. It can only improve the quality of risk management and audit committee functions, assisting to permanently raise the standard of governance in Australia.
It may not necessarily grab the headlines, but if we are serious about improving the quality of organisations across all sectors in Australia, it cannot be ignored.| Media Contact: | Website: |
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| Nardia Dazkiw - 0418 144 690 | www.financeminister.gov.au |
