22 November 2019

Senator Katy Gallagher
Shadow Minister for Finance
Shadow Minister for the Public Service
Manager of Opposition Business in the Senate
Senator for the Australian Capital Territory
By email: senator.katy.gallagher@aph.gov.au

Dear Senator Gallagher

I am writing in response to your letter of 25 October 2019 requesting I further examine government spending on external contractors and consultants, specifically raising three areas of concern, each of which are addressed below.

1. Whether agencies are currently reporting the value of consultancy and contractor contracts correctly and transparently and in line with the intent of PGPA Rule 17AG
   
   The PGPA Act Rule 17AG only requires annual consultancy expenditure to be reported. This information, which is contained in annual reports is not subject to audit. Some entities’ financial statements include a category within supplier expenses for ‘contractors and consultants’. Where this item is included, the Australian National Audit Office’s (ANAO) annual audit of entities financial statements will consider whether the amount allocated to this category is materially correct. To undertake a separate audit on all agencies would be cost prohibitive for the ANAO. The ANAO last examined consultancy expenditure in January 2006, when 73 government entities were examined, with a number of recommendations made for improving the accuracy of consultancy reporting in annual reports. It should be noted that PGPA Rule 17AG only applies to non-corporate Commonwealth entities.
    
2. The Department of Finance’s approach to defining a consultancy contract and its impact on the way agencies disclose their spending on consultancy services in annual report
   
   The ANAO conducted an audit on ‘Engagement of Consultancies’ in June 2001. This audit included a recommendation to the Department of Finance to develop ‘a clearer definition of contracts for services (consultancies) and contracts of service (contractors)’. Finance implemented this recommendation and has maintained that definition of consultancies since. The definition has been incorporated into annual reporting guidance.
   
   Further, the independent review of the PGPA Act recommended that:
   

   The definition of ‘consultancy’ should be clarified to ensure that spending on consultancies is reported consistently and accurately by non-corporate Commonwealth entities in their annual reports and other places where consultancy spending is reported. Non-corporate Commonwealth entities should provide the following information on expenditure on  contracts and consultancies in their annual reports:
   

   1. total aggregate expenditure on contracts and consultancies and the number of new and ongoing contracts in the reporting period (extending the current reporting requirements for consultancies to contracts in general); and
   2. details of all organisations and/or individuals that receive five per cent or more of the entity’s total expenditure on contracts and consultancies, respectively. Where this includes fewer than five organisations/individuals, the five that receive the greatest level of expenditure across all of their contracts with the entity, should be disclosed.

   The Department of Finance has advised the ANAO that it is in the process of developing a comprehensive Resource Management Guide on procurement publishing and reporting obligations. The Department’s intention is that the guide will assist procuring officials to understand their obligations for procurement and contract reporting, including consultancy reporting, and will summarise the various reporting obligations in the Commonwealth Procurement Rules and other government policies into one document.
    

3. The usability of Austender as a reliable platform capable of providing usable data about spending on external contractors and consultants

   As you are aware, the ANAO produced an information report for the Parliament in December 2017 that provided insights into Austender reporting, including commentary on potential errors in the data. The report was not an audit and did not make recommendations for improvement. An update to this report is underway and planned to be finalised in February 2020. Austender is a system designed to bring transparency and industry awareness to non-corporate Commonwealth tender processes. There is also an obligation under free trade agreements to report on contract values, and Austender is also used for this purpose. The system is not designed or intended to report on actual expenditure under contracts, so cannot be used to reconcile consultancy contracts issued with expenditure reported in annual reports.

Given the above activity already underway in the area of consultancy reporting, the ANAO has no current plans to undertake a further audit on consultancy spending and reporting, but I will consider sector wide risks in this area of reporting in developing the 2020–21 annual audit work program.

Yours sincerely

Grant Hehir
Auditor-General