Inquiries are used by committees of the Australian Parliament to ‘investigate specific matters of policy or government administration or performance’. 

The purpose of the ANAO is to support accountability and transparency in the Australian Government sector through independent reporting to the Parliament, and thereby contribute to improved public sector performance. In 2020-21 the ANAO made 165 recommendations of which 152 (92 per cent) were agreed across 42 performance audits.

Recommendations from parliamentary committees and the ANAO’s performance audits identify risks and shortcomings to the successful delivery of outcomes. Recommendations can specify actions aimed at addressing those risks and identify opportunities for improving entity administration. Tabling an agreed response to a recommendation in the Parliament represents a formal commitment by the government or entity to Parliament to implement the agreed action. The adequate and timely implementation of agreed recommendations is an important element of realising the full benefit of those recommendations, and serves to demonstrate the entity’s commitment to improving public administration. 

In recent years, the JCPAA and other parliamentary committees have expressed interest in the performance of Australian Government entities in relation to implementing audit and parliamentary recommendations. 

The ANAO has, since 2019, undertaken a series of performance audits focussed on the arrangements entities have in place to support the implementation of parliamentary committee and ANAO recommendations. Completed audits in this series are:

• Auditor-General Report No.34 of 2020–21 Implementation of ANAO and Parliamentary Committee Recommendations — Department of Defence (published 12 April 2021) ;
• Auditor-General Report No.46 of 2019–20 Implementation of ANAO and Parliamentary Committee Recommendations — Education and Health Portfolios (published 25 June 2020); and
• Auditor-General Report No.6 of 2019–20 Implementation of ANAO and Parliamentary Committee Recommendations (published 5 August 2019).

This edition of audit insights outlines a number of key messages from this audit series, as well as other recent ANAO performance audit reports examining prior year recommendations.

Key observations from ANAO audit activity include the importance of:

• Governance arrangements to respond to, monitor and implement recommendations. These arrangements include:
  • establishing processes and responsibilities for responding to recommendations;
  • clearly assigning responsibility for the progression of individual recommendations;
  • having systems in place to monitor and track the implementation of recommendations; and
  • reporting to and review by audit committees.
• Arrangements to support the effective implementation of recommendations. These include:
  • implementation planning;
  • establishing timelines for the implementation of recommendations;
  • providing assurance recommendations are implemented in full; and
  • effective records management.

Auditor-General reports examining the implementation of recommendations indicate mixed success in the implementation of recommendations where such arrangements are not fully established or operating as intended.

Effective implementation of recommendations is supported by governance arrangements to respond to, monitor and implement recommendations. These arrangements include:

• establishing processes and responsibilities for responding to recommendations;
• clearly assigning responsibility for the progression of individual recommendations;
• having systems in place to monitor and track the implementation of recommendations; and
• reporting to and review by audit committees.

Governance arrangements to respond to, monitor and implement recommendations

The governance arrangements in place to respond to, monitor and oversee the implementation of actions against recommendations should provide assurance that the intent of the recommendation has been met.

Successful implementation of agreed recommendations requires strong senior management oversight and monitoring. Effective governance arrangements for the implementation of parliamentary committee and ANAO performance audit recommendations involve:

• establishing processes and responsibilities for responding to recommendations;
• clearly assigning management responsibility for the progression of individual recommendations;
• having a system in place to monitor and track implementation; and
• providing the audit committee with sufficient appropriate information to enable the committee to provide the accountable authority with advice and assurance on the implementation of agreed recommendations.

The accountable authority also needs assurance that underlying risks and issues that have been identified are addressed.

The audits in this series have found that governance arrangements to respond to, monitor and implement ANAO audit recommendations were stronger than those relating to parliamentary committee recommendations. Entities typically had governance arrangements in place to respond to, monitor and implement agreed ANAO recommendations. Entities also typically had arrangements to respond to parliamentary committee recommendations but some had no or only partial governance arrangements in place to monitor and implement agreed recommendations from all parliamentary committees.

Establishing processes and responsibilities for responding to recommendations

Governance processes for managing the implementation of recommendations should begin with a clear arrangement for responding to recommendations. This ensures appropriate engagement with the recommendation, ensuring clarity of its intent, and acknowledgment of appropriate and achievable activities to address the identified risks. Recommendations included in reports from parliamentary committees and Auditor-General reports provide an opportunity for entities to improve administration in the areas examined.

• The Parliament’s Joint Committee of Public Accounts and Audit (JCPAA) has issued guidance for entities when responding to its recommendations, which has wider applicability. This guidance sets out that responses should:
• address the substance and intent of each recommendation and related report content;
• state whether the recommendation is agreed, agreed with qualification; or not agreed, and explain the rationale for this position; and
• outline action taken or planned, and a timeframe to implement each recommendation that is agreed. 

In the case of Auditor-General reports, entities are provided the proposed recommendations as audits are finalised, and have time to consider their position in response. As a consequence, disagreement is rare as entities and the ANAO work through issues before finalisation of a report.

Openness to criticism and learning plays an important role in building an effective culture, whether it be in supporting an innovative culture, a risk management culture or a compliance culture. Organisations that respond to external criticism defensively or dismissively (’we are already aware of the issue’, ‘we are already addressing the issue’, ‘the report needs to be read in context’, ‘the issues raised are not material’) put at risk their ability to build an effective governance culture and embed the characteristics of a learning organisation.

Agreeing to a recommendation acknowledges that things can be improved. The Parliament’s expectation is that the entity then makes those improvements which address the deficiency identified. Agreement should not be qualified. However, if agreeing to a recommendation ‘with qualification’ or ‘in part’ is necessary, responses should clearly set out what action(s) will be taken in response to the recommendation and what part(s) of the recommendation will not be implemented.

In some cases, the substantive effect of qualified agreement to a recommendation is that the entity disagrees with a recommendation. For example, in the ANAO performance audit of Anzac Class Frigates – Sustainment, the Department of Defence agreed ‘with qualification’ to the report’s fourth recommendation. The effect of Defence’s comments was to disagree with the recommendation.

Further, the effect of subsequent entity comments can be to disagree with a recommendation previously agreed to. For example, the effect of the Department of Defence’s response to the findings of a follow-up audit on its implementation of a recommendation first made in the performance audit of Defence’s Management of its Projects of Concern, was to disagree with the recommendation it had previously advised Parliament it had agreed to.

In response to the ANAO performance audit on the Award of a $433.3 Million Grant to the Great Barrier Reef Foundation, the Department of the Environment and Energy provided ‘noted’ responses to three of the six recommendations. ‘Noting’ recommendations is equivalent to disagreeing. That is, no commitment is made by the entity to implement any change to the area of deficiency identified through the audit process or the parliamentary inquiry.

In this case, the commentary supporting the department’s ‘noted’ response did not indicate that the entity intended to take any action in response to the recommendations.

When responding to parliamentary committee and ANAO recommendations, entities should clearly convey their intentions with respect to whether they will implemented the recommendation in full. By clearly indicating what actions will or will not be done in response to recommendations entities minimise the risk of ambiguity.

If entities initially agree to a recommendation and then subsequently do not intend to implement the recommendation as intended, entities should advise the relevant parliamentary committee or the ANAO respectively.

Clearly assigning responsibility for the progression of individual recommendations

Things get done when someone is responsible for doing them. Successful implementation of audit recommendations requires senior management oversight and implementation planning to set clear responsibilities and timeframes for delivering the agreed action.

Having systems in place to monitor and track the implementation of recommendations

Systems should be fit for-purpose, reflecting the size of the entity, the nature of its business and its governance structure. Entities should ensure there are sufficient controls in the system to maintain complete and accurate data. Effective monitoring requires an approach that accurately tracks progress and records the actions of the business area or individual responsible for implementation. The goal is that those with entity accountability can have a clear line of sight to the implementation of agreed recommendations.

The audits in this series have found that entities have typically performed better in terms of monitoring and tracking the implementation of ANAO recommendations as compared to parliamentary committee recommendations. In some entities, following provision of the government response, entities had not tracked recommendations to ensure they are implemented.

Entities need to ensure that when they are absorbing additional functions as a result of machinery of government changes, parliamentary committee or ANAO recommendations that were made to the former holder of those functions become the responsibility of the receiving entity.

Reporting to and review by audit committees

Audit committees provide advice and assurance to an entity’s accountable authority. The Public Governance, Performance and Accountability Rule 2014 (PGPA Rule) requires that entity audit committees review the appropriateness of the accountable authority’s financial and performance reporting and systems of risk oversight and management and internal controls.

The Department of Finance model charter for audit committees suggests that accountable authorities ‘might look to their entity’s audit committee to perform tasks additional to those prescribed by the PGPA Rule. Any additional functions should be documented in the audit committee charter.’ The model charter states that accountable authorities might wish to include consideration of parliamentary committee reports, external reviews and evaluations. This would include the audit committee satisfying itself ‘that the entity has appropriate mechanisms for reviewing relevant parliamentary committee reports, external reviews and evaluations of the entity and implementing, where appropriate, any resultant recommendations’.

It is important that entities provide their audit committee with sufficient appropriate information to enable it to provide informed advice to the accountable authority regarding the implementation of individual recommendations. Audit committees should also understand the systems of risk oversight and management and internal controls as they relate to the implementation of recommendations. This positions the audit committee to be able to validate actions taken to address recommendations to ensure that they achieve the intent of the recommendation.

ANAO audit activity shows that effective implementation of recommendations is supported by:

• implementation planning;
• establishing timelines for the implementation of recommendations;
• providing assurance recommendations are implemented in full; and
• effective records management.

Effectively implementing recommendations

Implementation planning

Recommendations included in reports from parliamentary committees and Auditor-General reports focus on what needs to happen, not how to do it. That is a matter for entities to determine. Implementation of recommendations requires implementation planning to set clear responsibilities and timeframes and strong senior management oversight and monitoring to ensure delivery of the agreed action.

Successful implementation of recommendations requires fit-for-purpose implementation plans that clearly identify the intent of the recommendations and associated actions, set clear responsibilities and timeframes for addressing required actions and measures of success and/or outcomes to be realised. Implementation plans should involve key stakeholders. Where implementation plans are not prepared, evidence shows that actions are not always implemented to address the identified issue, or not implemented in a timely way, or not implemented at all.

Establishing timelines for the implementation of recommendations

Establishing timeframes for implementing recommendations, and meeting them, is an important way entities can ensure recommendations are ultimately implemented and that any risks or issues which led to the recommendations being made are addressed in a timely fashion.

In August 2019, following the tabling of the first report in this series of ANAO audits, the Secretary of the Department of the Prime Minister and Cabinet wrote to all departmental secretaries reminding them of their obligations to respond to parliamentary committee reports in a timely manner, as well as ensuring that agreed parliamentary recommendations are implemented.

Establishing processes for the provision of extensions to implementation plans is appropriate. However, care should be taken to ensure extensions are only granted in exceptional circumstances and approved by senior management. This audit series has found that in some entities many extensions were obtained and implementation was still not completed within the revised timeframe.

Providing assurance recommendations are implemented in full

Entities that are effective at implementing recommendations in full have processes to provide assurance that this has occurred. Entities will often undertake a quality assurance process before determining that a recommendation has been implemented and can be considered closed.

In some instances this process is not sufficiently robust and recommendations are closed when they have not been fully implemented, or are closed without adequate evidence of implementation being provided.

In some cases the ANAO has identified that previous recommendations have been fully implemented.

Some parliamentary committee recommendations include a statement to the effect that an entity should provide something to the committee or report back to the relevant committee. In some cases the recommendation will specify a timeframe to complete this activity. It is important that entities meet any such commitments provided to the Parliament.

Effective records management

Records are a critical part of robust knowledge management practices. They support transparency and accountability for past decisions and help inform future decision-making. Entities should ensure sufficient appropriate records are maintained to support all aspects of their responses to, and monitoring and implementation of, parliamentary committee and ANAO audit recommendations.