Introduction

1. Airservices Australia is the Commonwealth statutory authority responsible for managing Australia's airspace in accordance with the Chicago Convention on International Civil Aviation.¹ Airservices Australia also has a role of promoting and fostering civil aviation in Australia and overseas.²

2. As part of the above roles, and in pursuit of increased commercial opportunities, Airservices Australia expanded its airspace management services in 1998 by contracting to manage the Solomon Islands and Nauru upper airspace.³ There have been two upper airspace management contracts with the Solomon Islands Government since 1998, with the current contract to conclude in 2013.⁴

3. Under the upper airspace management contracts, Airservices Australia manages the Honiara Flight Information Region (FIR) and acts as a collection agent of statutory air navigation fee revenue for the Solomon Islands Government (for which it receives a management fee).

Previous reviews of the Solomon Islands Government's upper airspace management contracts

4. On 5 May 2006, the then Minister for Transport and Regional Services requested that the Australian National Audit Office (ANAO) undertake a performance audit of Airservices Australia's administration of its upper airspace management contract with the Solomon Islands Government. This request arose from findings of a broader civil aviation audit conducted by the Solomon Islands Auditor-General, who had identified irregularities in the administration of air navigation fee revenue collected by Airservices Australia on behalf of the Solomon Islands Government.

5. ANAO Audit Report No.8 2006-07, Airservices Australia's Upper Airspace Management Contracts with the Solomon Islands Government (the 2006-07 Audit Report) was tabled in the Parliament on 18 October 2006. ANAO found that Airservices Australia's commercial interests overshadowed its responsibilities as a Commonwealth statutory authority, incorporated by an Act of the Australian Parliament for a public purpose.⁵

6. Of particular note was that Airservices Australia's administration of the Solomon Islands Government's air navigation fee revenue departed significantly from the approach specified in the upper airspace management contracts. More than $2.1 million (20 per cent of all payments) were paid outside the terms of the upper airspace management contracts. This amount comprised:

• 305 payments made to third parties between February 1999 and September 2003, totalling $2.1 million; and
• 17 cash advances and payments, totalling $28 558, made using Airservices Australia corporate credit cards.

7. ANAO made four recommendations relating to the development, administration and management of the upper airspace management contracts with the Solomon Islands Government and to provide greater clarity over its ability to enter into future, similar commercial arrangements with other countries.

Audit objective

8. The objective of the follow-up audit was to assess the extent to which Airservices Australia, and where relevant, the Department of Infrastructure, Transport, Regional Development and Local Government (DITRDLG⁶), have implemented the four ANAO recommendations contained in the previous audit report.

Overall audit conclusions

9. Airservices Australia has recently changed its strategic direction to focus on its core business activities and no longer aims to pursue new commercial revenue opportunities similar to the Solomon Islands upper airspace management contract. As a consequence, Airservices Australia has not entered, and advised it is not currently seeking to enter, into new commercial contracts with other countries of a similar nature to its Solomon Islands contract. In these circumstances, the likelihood of administrative irregularities reoccurring is reduced.

10. Airservices Australia has also significantly improved its processes and procedures for the management of the financial aspects of the existing upper airspace management contract with the Solomon Islands Government. As a result, in the period from 1 September 2006 to 31 March 2009 Airservices Australia had:

• remitted all air navigation fee revenue to the account specified in the current contract;
• not made any third party or cash payments in respect of air navigation fee revenue it collected on behalf of the Solomon Islands Government; and
• received payment for managing the Solomon Islands Government's upper airspace in accordance with the contract.

11. In summary, Airservices Australia and DITRDLG, where relevant, have substantially implemented the four recommendations of the 2006-07 Audit Report.

Key findings

Legislative compliance and strategic direction (Chapter 2)

12. Following a change in strategic direction, Airservices Australia has not entered into any commercial revenue contracts similar to the current contract since the 2006 07 Audit Report was tabled in Parliament. In addition, Airservices Australia advised ANAO that it is unlikely to pursue commercial revenue opportunities of this type in the future.

13. Airservices Australia has documented policies and procedures to provide itself, the Minister and DITRDLG with increased assurance that new proposed business opportunities comply with Airservices Australia's strategic direction and its Minister's Statement of Expectations, the Air Services Act 1995 (Air Services Act) and Australian Government policy. These policies and procedures provide a systematic approach for Airservices Australia to promote compliance with its operational, strategic, financial and legislative obligations.

14. The 2006-07 Audit Report concluded that the absence of a shared understanding between Airservices Australia and the then Department of Transport and Regional Services (DOTARS) regarding Airservices Australia's ability to enter into commercial contracts to manage the upper airspace of other countries was not conducive to a sound governance framework for Airservices Australia's international operations. Airservices Australia and DITRDLG have discussed and resolved these inconsistencies such that the first recommendation of the 2006-07 Audit Report has been substantially implemented. However, there would be benefits in the shared understanding being more formally documented by senior officials in both entities (at present, the understanding is documented through an exchange of emails, with a relatively junior DITRDLG officer indicating that the department was ‘happy with the approach' suggested by Airservices Australia). In October 2009, DITRDLG advised ANAO that the department would be seeking an exchange of letters with Airservices Australia at the chief executive officer level on this matter.

Contract development, management and administration (Chapter 3)

15. Airservices Australia has sought to address many of the contract development and management issues identified in the 2006 07 Audit Report. Specifically, Airservices Australia has:

• introduced a revised corporate structure to develop and manage international contracts, which clearly specifies the roles and responsibilities of relevant contract management staff;
• improved the communication between those Airservices Australia areas responsible for various aspects of contract management including legal, finance and administration;
• developed documented practices, procedures and controls which address the findings of the 2006 07 Audit Report and subsequent internal reviews of the current contract⁷ ; and
• introduced a systemic approach to monitoring and reporting on completed international contracts.

16. Airservices Australia has also taken measures to improve the current contract. Specifically, Airservices Australia has amended the contract and the related Contract Management Plan to recognise the nature of the relationship between the Solomon Islands Government and Airservices Australia and its role as a collection agent on behalf of the Solomon Islands Government. There would be benefit in Airservices Australia improving the rigor of the Contract Risk Management Plan, in the manner advocated by its recently adopted Enterprise Risk Management Framework.

Accounting for collections, payments and the receipt of management fees (Chapter 4)

17. Following the development and execution of the 2007 amendment to the current contract, Airservices Australia has increased its awareness of its obligations and responsibilities under the Solomon Islands Constitution and the current contract. Specifically, Airservices Australia has:

• obtained assurance that the manner in which it is paid for the administration of the upper airspace of the Solomon Islands is compliant with the Solomon Islands Constitution;
• remitted all air navigation fee revenue collected on behalf of the Solomon Islands Government to the Aviation Special Fund, although this could be more timely⁸;
• not made any third party payments in respect of air navigation fee revenue collected on behalf of the Solomon Islands Government; and
• not made any cash advances or credit card transactions in respect of air navigation fee revenue collected on behalf of the Solomon Islands Government.

18. This is a positive response to the earlier issues arising from the management of the upper airspace management contracts with the Solomon Islands Government.

Agency responses

19. DITRDLG advised ANAO that it was pleased that the performance audit found that Airservices Australia and the department have substantially implemented the four recommendations of the 2006-07 Audit Report. Airservices Australia commented as follows:

Airservices Australia agrees with the outcome of the audit and is pleased, in particular, with the overall conclusion that recognises the significant efforts that have been made to improve processes and procedures that govern these types of contracts. Airservices Australia notes that there are no new recommendations arising from this report.

Footnotes

¹ Australia is a contract state of the Chicago Convention on International Civil Aviation.

² Airservices Australia Annual Report 2007 08 p. 6.

³ Upper airspace is defined as that space above a specific flight level, dedicated to over flight. The Solomon Islands upper airspace applies to airspace above 28 500 feet. Conversely, lower airspace is the space below that flight level, dedicated to airport approaches.

⁴ The first contract was made on 27 April 1998 (the original contract) and ran for a period of five years. The current contract commenced on 21 May 2003 (the current contract), and runs for 10 years.

⁵ ANAO Audit Report No. 8 2006-2007, Airservices Australia's Upper Airspace Management Contracts with the Solomon Islands Government, Canberra, 18 October 2006, para. 17.

⁶ Throughout this report, ANAO refers to the Department of Infrastructure, Transport, Regional Development and Local Government as DITRDLG. At the time the previous ANAO audit was undertaken, the transport function was included in the Department known as the Department of Transport and Regional Services (DOTARS). ANAO refers to the former department as DOTARS throughout this report.

⁷ Subsequent reviews include an internal audit (conducted by Airservices Australia's Audit and Assurance Division in April 2008) and external review (conducted by an independent consultant in August 2008) of Airservices Australia's implementation of the findings arising from the 2006-07 Audit Report.

⁸ Under the terms and warranties of the current contract, Airservices Australia must remit air navigation fee revenue to the Solomon Islands Government's Aviation Special Fund no later than 60 days after the air navigation fee revenue has been collected for the relevant month, in order to comply with the Solomon Islands Constitution (rather than remitting fees within 90 days as is the current practice).