Introduction

This report outlines the results of the ninth audit of Financial Management and Accountability Act 1997 (FMA Act) agencies' compliance with the reporting requirements of the Senate Order for Departmental and Agency Contracts (the Senate Order). In brief, the Senate Order requires Ministers to table letters of advice that all agencies that they administer have placed on the Internet lists of contracts of $100 000 or more, disclosing certain information about the contracts, including the use of confidentiality provisions. The letters of advice are to be tabled by no later than two calendar months after the last day of the financial and calendar year. The Senate Order is set out in full in Appendix 1.

This audit examined contract details for the calendar year 2006 Senate Order Internet listing (2006 Internet listing). It was conducted in accordance with the Senate Order request for the Auditor-General to undertake an annual review of agency contracts listed on the Internet, and report whether there had been any inappropriate use of confidentiality provisions.¹

The Senate Standing Committee on Finance and Public Administration issued its second report on the operation of the Senate Order in February 2007 (the Senate Committee report)². Drawing on the ANAO's series of audits, the report summarised progress in agency compliance with the Senate Order over its five years of operation as follows:³

• most agencies are complying with the reporting requirements and have established appropriate systems and processes to meet the order's requirements;
• the number of confidentiality provisions in contracts has generally declined;
• the misuse of confidentiality provisions in contracts has also started to fall but still remains at a level for concern about the extent to which line staff understand the new accountability framework surrounding government contracting; and
• doubts hang over the completeness and accuracy of the information agencies are reporting to the Senate.

The Senate Committee report contained 13 recommendations to improve the operations of the Senate Order, and relating to its future direction. The Senate Committee recognised that the Department of Finance and Administration (Finance) was enhancing its AusTender⁴ system (AusTender 2) to provide better data, search and reporting capacity. Finance proposed that the system be used as a single procurement reporting mechanism. If this were the case, it could supersede both the Senate Order and the existing requirement for consultancies to be recorded in annual reports. In considering this option, the Senate Committee concluded:⁵

It (is) premature at this point to revoke the order. Compliance problems with the inappropriate use of confidentiality provisions in contracts, albeit declining but still significant, have continued. These indicate the need to retain an external oversight and scrutiny mechanism, reinforced with regular ANAO auditing, which the order provides.

The proposed new AusTender system promises to improve the completeness and accuracy of the information available on government contracts. But the history of large scale information projects, like the AusTender upgrade, cautions against sweeping change until new systems have proven themselves.

Audit objective scope

The audit objectives were to assess the appropriateness of the use of confidentiality provisions in Australian Government contracts and whether selected agencies had compiled Internet listings of contracts, as required by the Senate Order and agreed to by the Government.

The audit involved a detailed examination in seven agencies of the processes used to compile Internet listings of contracts, and the use of confidentiality provisions. It also involved a desktop review of the existence and timing of contract reporting for all agencies covered by the Senate Order.

The seven agencies selected for review were: the Australian Institute of Family Studies (AIFS); Australian Transaction Reports and Analysis Centre (AUSTRAC); Department of Communications, Information Technology and the Arts (DCITA); Department of Defence (Defence); Department of Transport and Regional Services (DOTARS); Geoscience Australia (GA); and the National Blood Authority (NBA).

Audit conclusion

The results of the audit for 2006 Internet listings show that agencies are continuing to better assess when to use confidentiality provisions in contracts. The ANAO identified only three per cent of contracts on the Internet listings of the audited agencies as containing specific confidentiality provisions, of which one per cent of contracts correctly included these provisions and two per cent incorrectly included these provisions. The audited agencies, therefore, had generally implemented the Government's policy to not treat contracting information as confidential, unless there was a sound reason for doing so.

Unfortunately, the Internet listings of the audited agencies did not reflect this standard of performance. Their listings typically over-reported specific confidentiality provisions, with 13 per cent of contracts reported as having specific confidentiality provisions.
Timing and coverage were also issues, as:

• Minister's letters were tabled in the Senate by the due date of 28 February 2007 for only 34 of the 94 agencies covered by the Senate Order, although a further 25 were tabled the following day; and
• Internet listings contained significant shortcomings, with three of the seven audited agencies incorrectly omitting 25 per cent or more of their eligible contracts.

The lack of compliance with key Senate Order reporting requirements is consistent with the findings from many previous ANAO audits on the Senate Order, which has been in operation since 2001. The results indicated a lack of training, quality control and general care. Agencies had not sufficiently utilised information available from Finance guidance, direct contact with Finance, and previous ANAO audit findings to assist in meeting the requirements of the Senate Order.

It is important that agencies provide accurate and complete Internet listings so that Parliament and others, can draw correct inferences about the use of confidentiality provisions in contracts, and make informed recommendations about the ongoing nature of Senate Order reporting.

Key findings

Confidential Provisions in Contracts (Chapter 2)

Audited agencies reported, on average, that 13 per cent of contracts had specific confidentiality provisions for 2006 Internet listings, compared to 17 and 18 per cent for the two previous years (see Figure 1).

Figure 1: Trends in contracts listed as containing specific confidential provisions

Sources: ANAO testing of contracts in 2006 Internet listings for selected agencies, and previous ANAO Senate Order reports.

Figure 1 also shows the continuation of substantial over-reporting of confidentiality in contracts in agencies' Internet listings, whereby agencies have reported a contract as having specific confidentiality provisions, but the contract contains no such provisions. ANAO testing indicated that reporting errors represented 12, 12 and 10 per cent of sampled contracts in 2004, 2005 and 2006 respectively. In comparison, agency judgement errors, in which specific confidentiality provisions were incorrectly included in contracts, represented 1, 4 and 2 per cent of sampled contracts in 2004, 2005 and 2006 respectively.

The results of this audit also indicated that agencies had some confusion about the difference between the provisions in a contract that specifically identify confidential information and contracts containing other requirements of confidentiality, such as privacy. This finding was reflected in the recent Senate Committee report. Associated with changes to the AusTender reporting regime, Finance is currently enhancing its guidance about the use of confidentiality provisions in contracts, and compliance with the Senate Order.

Compliance with Senate Order Requirements (Chapter 3)

For the 2006 reporting period, 94 FMA Act agencies were covered by the Senate Order. The ANAO's desktop review of these agencies' Internet sites found that 88 of the 94 agencies had posted a listing of contracts. This review also showed that Ministers had tabled letters in the Senate by the due date of 28 February 2007 for only 34 of 94 agencies for 2006, although a further 25 were tabled the following day. As of 1 August 2007, letters relating to 17 agencies within two portfolios had not been tabled in the Senate for 2006 reporting. These two portfolios subsequently tabled these letters.

The Senate Order requires FMA Act agencies to list all contracts valued at $100 000 or more on their Internet listing. ANAO testing found that none of the seven agencies had complete 2006 Internet listings, and the level of completeness ranged from 64 to 96 per cent (see Figure 2). This situation is consistent with the problem noted in the Senate Committee report, of significant under-reporting of contracts on Internet listings.

Figure 2: Completeness^a of audited agencies' 2006 Internet listings

Note: (a) Completeness refers to the ‘number of contracts included in Internet listings' as a percentage of (the ‘number of contracts included in Internet listings' plus the ‘number of contracts incorrectly omitted from Internet listings'). Findings for Defence are discussed below.

Source: ANAO testing of contracts in 2006 Internet listings for selected agencies.

Defence, as a large user of contracts, has not been able to assure the completeness of its Internet listing. Indications are that it is two-thirds or more complete, thus also affecting the completeness of its disclosures in relation to confidentiality provisions in contracts. Defence advised the ANAO that it ‘will fully comply with Finance guidelines for reporting contracts according to the Senate Order by 30 September 2007'.

There was no evidence to indicate that those contracts excluded from agencies' Internet listings were more (or less) likely to include confidential provisions. Rather, they were generally omitted because they were types of contracts that agencies were not aware should have been included, or, in the case of Defence, not supported by existing information technology infrastructure to enable them to be cost-effectively included in the Internet listing.

The total estimated cost of all agencies complying with the Senate Order, as derived from agencies' 2006 Internet listings, was approximately $900 000, which included Defence costs of $632 500.

Processes for Compiling Internet Listings (Chapter 4)

The many errors identified by the ANAO, relating to the identification and reporting of confidentiality in contracts and the completeness of Internet listings, suggest that there was a lack of effective staff training, quality control, and overall care in the compilation of all audited agencies' 2006 Internet listings.

Consistent with previous audits, the ANAO considered that reporting processes and quality controls could be strengthened in some agencies by reconciling the Senate Order Internet listing with contract information contained in Financial Management Information Systems (FMIS) and reported in AusTender.⁶

AusTender 2 has the potential to better support agencies to compile future Senate Order listings. However, the effectiveness of the system will largely depend on the quality of information input to it.

Examples of better practice for compiling Internet listings identified as part of the audit were:

• DOTARS supplied each departmental officer with two A4 laminated sheets which provide an overview of procurement, delegate responsibilities, confidentiality of contractor's information and a confidentiality decision-making flowchart;
• DCITA established a formal linkage between its contract register and FMIS; and
• DCITA included the Senate Order as a topic within the department's intranet guidance on reporting requirements. This guidance included proforma documents and links to Finance's procurement guidance.

Agencies' responses

All agencies agreed with the recommendation. Where provided, agencies' additional responses to the recommendation are included in the body of the report, and agencies' general comments are included at Appendix 4.

Footnotes

1 In this regard: specific confidentiality provisions can protect all or part of the contract itself by making specific information contained in the contract confidential; while other requirements of confidentiality provisions refer to information obtained or generated in performing the contract, and are often in the form of standard confidentiality provisions of a general nature.

2 Senate Standing Committee on Finance and Public Administration, February 2007 Departmental and agency contracts: Second report on the operation of the Senate order for the production of lists of departmental and agency contracts (2003–06).

3 ibid., p. 10.

4 AusTender is the Australian Government's central location for the publication and reporting of information relating to procurement activity. It is mandatory for all Australian Government agencies under the Financial Management and Accountability Act 1997 to advertise publicly available business opportunities on AusTender. The AusTender 2 project is a comprehensive redevelopment of AusTender to improve reporting functionality and contract disclosure coverage, and will be progressively implemented from September 2007.

5 Senate Standing Committee on Finance and Public Administration, op. cit., p. 42.

6 All agencies subject to the Financial Management and Accountability Act 1997 are required by the Commonwealth Procurement Guidelines to publish on AusTender contracts and standing offers with a value of $10 000 or more.

7 All agencies subject to the Financial Management and Accountability Act 1997 are required by the Commonwealth Procurement Guidelines to publish on AusTender contracts and standing offers with a value of $10 000 or more.