Audit commissions - a review

In March 2012, Tony Abbott, then leader of the Liberal-National Party federal Opposition, promised that if elected his government would establish an audit commission:

Today, I announce a further commitment to reduce the cost and complexity of government through the swift establishment of a commission of audit that will examine the detail of what the Commonwealth government does and whether it could be done better and more cost-effectively.

He reiterated that promise in his May 2013 Budget reply speech and described the proposed commission of audit as a "once-in-a-generation" opportunity. The commission of audit will, according to Abbott, "identify savings and efficiencies in all areas of government" and deliver "better value for money and sustainable budget surpluses into the future." The proposed commission was part of the Coalition's election promises, so it can be argued that the Abbott Government now has a mandate for appointing such a body.

Accordingly, on 22 October 2013, six weeks after being elected, the Treasurer, Joe Hockey, and the Minister of Finance, Senator Mathias Cormann, jointly announced the appointment of a National Commission of Audit. The Commission is due to deliver its first report by the end of January 2014 and a second report at the end of March 2014. Clearly, the Commission's findings are expected to feed into the first Abbott Government's budget in May 2014, when the final report will also be made public.

The purpose of this article is to outline the history and roles of audit commissions and to suggest where they fit in the architecture of Australian government.

Definition, origin and history

Audit commissions are ad hoc, temporary bodies appointed by executive government with expert members from outside of government, predominantly from business, academia and sometimes former treasury officials, to review government budgetary systems, finances and programs. They sometimes seek submissions from the public and/or key stakeholders and in most cases their final reports are made public. Hence, they partially resemble other advisory mechanisms like public inquiries and to a lesser extent other advisory bodies such as the Productivity commissions processes are often not as detailed as the Productivity Commission or many public inquiries.

Audit commissions are a relatively new and very Australian phenomenon with the first one appointed by the incoming Greiner Coalition Government in 1988. Since then, including the latest one established by the Abbott Government, some 14 audit commissions have been appointed. All but one of these, the 2009 South Australian, Sustainable Budget Commission, have been established by non-Labor governments across all states and the Northern Territory and now two at the Commonwealth level.

However, although the Greiner Government established the first audit commission as we have come to know them there were other precedents.

There was the Royal Commission on Public Expenditure of the Commonwealth of Australia with a View to Effecting Economies headed by Sir Robert Gibson which sought budget savings. In 1973, the new Whitlam Labor Government, which had been out of office for 23 years, appointed Dr H.C. Coombs, former senior public servant and Governor of the Reserve Bank of Australia, to head the Taskforce to Review Continuing Expenditure of the Previous Government,which "recommended cuts in some expenditure programmes to make room for the new government's plans" (Spann 1979: 446). Then there was the Fraser Coalition Government's Administrative Review Committee appointed in December 1975 under Sir Henry Bland, a former senior state and Commonwealth public servant, to identify areas to "effect economies" and to avoid "unnecessary duplication." Its report was never released at the time and its impact appears to have been minimal (Wettenhall and Gourley 2009). In 1980 the Fraser Government established the Review of Commonwealth Functions ("Razor Gang") chaired by senior minister, Sir Phillip Lynch, to cut spending and restore functions to the states. It was seen as being too partisan, lacking a rigorous methodology and having little impact. Of these two bodies, Bland's committee is much more akin to the modern audit commissions that have been operating since 1988.

New audit commissions cometh

However, the new type of audit commissions pioneered by the Greiner Government were more public, released large reports and, from the way governments used those reports to justify cuts to government spending, corporatisation and later privatisation of public enterprises, increased outsourcing of government and a host of other managerial type changes to the public services, had more impact. This agenda, which was common to almost all the subsequent audit commissions, reflected what has been called the new public management (NPM).

Two eras of audit commissions have been identified.

In the first era from 1988 to 1996 seven commissions of audit were established: one in each of the six states, and one by the Commonwealth. The first was New South Wales, in 1988, followed by Tasmania and Victoria in 1992, Western Australia and South Australia in 1993, and Queensland and the Commonwealth in 1996.

There was then a 12-year hiatus when no commissions were appointed, reflecting the dominance of Labor governments across Australia during that period.

Then between 2008 to 2013 another seven commissions of audit have been established: Western Australia in 2008; South Australia in 2009; Victoria and New South Wales in 2011; Queensland and the Northern Territory in 2012; and as noted the Commonwealth in 2013.

Of the states, only Tasmania (which has had a Labor government since 1998) did not establish an audit commission during this second period.

Why appointed?

There are several features about governments appointing audit commissions.

First, with the exception of the South Australia's 2009 body, all audit commissions have been established by incoming non-Labor governments.

Second, again with the exception of South Australia and of Queensland in 1996, and this is an extremely important point, the appointing governments had been out of office for considerable periods.

Third, in most, but not all cases (eg Queensland in 1996), the incoming non-Labor governments inherited poor or near calamitous budgetary situations.

Thus, audit commissions, composed as they were mostly by outsiders, often, but not wholly, from the business sector, were appointed by these new non-Labor governments: partly because they were suspicious of the public bureaucracy which they perceived as being politicised and also part of the problem; partly because of the perceived need for urgent action to address budgetary problems hence their tight timeframes; partly because cutting government reflected ideological preferences of non-Labor governments. However, on this latter point, although audit commissions can be seen to have an ideological mission, many of their proposals were also becoming mainstream remedies in public sector management regardless of who was in power.

Impacts

Audit commissions have heralded wide ranging changes, many now regarded as accepted good public sector management practices. Corporatisation of government owned business enterprises; accrual accounting; improved delivery arrangements; competitive tendering; improved budgetary processes; more flexible public service workplace arrangements and rationalisation of administrative arrangements are good examples of their achievements. They helped establish the budget honesty arrangements evident in the current election and adopted around Australia. Audit commissions have contributed to updating public sector organisational architecture across different jurisdictions, highlighting the number of agencies, poor reporting processes and contradictory governance arrangements.

It is also true they have made controversial recommendations reflecting a more economic rationalist agenda than some prefer on issues like purchaser-provider splits, privatisation, outsourcing, public service cuts and balanced budgets. Consequently, audit commissions have appeared to provide the rationale for cuts that a new government was already intent on making which some have seen as excessive and driven more by ideology than policy necessity – even when the cuts preceded commission reports as with the Kennett Government in 1992 and in Queensland in 2012.

Importantly, audit commissions do not always get their way. The Court Western Australian Government quietly parked many of its commission's proposals in the "too hard" basket. So too, did the Howard Government with recommendations of its 1996 National Audit Commission to hand over large areas of policy to the states to control and administer. So far, the Newman LNP Government has eschewed its commission's proposals about privatisation until they tested at a future election for want of a mandate.

Conclusions

Commission of audit have served legitimate roles. They have identified priorities among a new government's goals, provided policy coherence to election promises and promoted policy innovation lacking in tired previous administrations.

Nevertheless, audit commissions have not been without their critics who see them as ideologically driven bodies justifying an incoming government's desires that have questionable methodologies and say nothing new (see Quiggin 2012 for a critique of the Newman Government's Queensland Audit Commission). And of course the question of whether cuts were needed at particular times in particular jurisdictions has also been raised as have their methodologies (Hayward 1999; Hayward 2013). Others have also questioned whether audit commissions have had any impact as they were often overtaken by events and other pressing policy issues (Wanna et al 2000 regarding the Howard Government's commission). These are all legitimate questions and concerns. That some audit commission reports have not been released, as was the case with the Victorian Government's 2011 commission, have also not helped their cause.

The Abbott Government's National Commission of Audit has been generally well received by most commentators. However, some are less enthusiastic. Ultimately, the success of the latest audit commission will depend on the perceived independence of its membership, the rigorousness and transparency of its methodology and most importantly, the extent that its recommendations are implemented by the government.