Mr Grant Hehir
Auditor-General
Australian National Audit Office
GPO BOX 707
CANBERRA ACT 2601

By email only: grant.hehir@anao.gov.au

9 July 2021

Dear Mr Hehir,

We write to request the Australian National Audit Office (ANAO) undertake an audit of NBNCo executive bonuses for the 2019-2020 financial year and the legitimacy of the underlying targets to which the bonuses were linked.

Senate scrutiny has established NBNCo paid out $78 million in taxpayer-funded corporate bonuses for financial year 2020. This has become a topic of considerable public interest.

In response to recent questioning by Labor Senators on 26 May 2021, the ANAO advised that it does not have a specific role in auditing the appropriateness of performance targets to which NBN executive bonuses are linked and had undertaken no prior activities in this area¹.

We welcome the subsequent step to list the governance of bonuses as a potential ANAO audit item for 2021-21², and urge the ANAO to commit to this audit and examine NBNCo’s prior executive bonus decisions.

If senior executives and Boards of Government Business Enterprises do not believe the appropriateness and specific substance of performance targets will ever be subject to independent audit scrutiny, there is a risk taxpayers will fund unreasonable and excessive bonuses in exchange for average performance.

The cost of the multi-technology-mix NBN has increased from an original promise of $29.5 billion, to $41 billion, to $49 billion, to $51 billion and now $57 billion.

Clearly, Boards overseeing off-budget public entities will not foster a culture of efficiency if their Shareholder Ministers are repeatedly tolerating their cost blowouts.

These political distortions underscore problems with the bonus oversight framework that we respectfully consider should be addressed through independent audit scrutiny.

In the case of NBNCo, the entity might have an incentive to set and surpass artificially low targets to create the impression that an over-budget project is beating performance metrics.

If done for political and media optics, that is a judgment call for the entity, as they bear the risk of any subsequent media and parliamentary scrutiny.

However, if taxpayer-funded bonuses are also being linked to artificially low targets, this arguably becomes a matter pertaining to the use of public resources.

As an example, the following table is an index of NBNCo revenue targets from existing Corporate Plans:

We note the 2021 Corporate Plan revised down the revenue target for 2020-2021 financial year, despite adding nearly 300,000 new premises to the existing brownfield footprint on the curious claim that mapping data going into the final year of the rollout had missed these homes³.

As seen in the table, there is a recurring pattern of revenue targets being repeatedly revised down to levels which are highly unlikely to be missed, and then being surpassed⁴. Meanwhile medium-term forecasts are missed by sizeable margins.

We also note the inconsistent approaches taken by the Minister for Communications in dealing with bonuses and remuneration issues across NBNCo, Australia Post and the ABC in financial year 2019-2020, which are outlined in Attachment A. This underscores the lack of a reliable Shareholder framework in how these issues are approached.

In speaking with our constituents in Western Sydney and Victoria, it’s clear the arrangements do not provide the community with confidence that bonuses are commensurate with performance. There is also a broad awareness Government Business Enterprises often benefit from competitive and legal protections that reduce the level of business risk they take on.

In the interests of providing the Parliament and the public with greater assurance that taxpayer-funded bonuses deliver value for money and are linked to appropriately aspirational targets, we urge you to undertake an audit of NBN executive bonuses including the 2019- 2020 financial year, and look forward to your consideration of this request.

Yours sincerely

Michelle Rowland MP
Shadow Minister for Communications
Member for Greenway

Senator Kimberley Kitching
Shadow Assistant Minister for Government Services and the NDIS
Deputy Manager of Opposition Business in the Senate

ATTACHMENT A – INCONSISTENT APPROACHES FROM MINISTER FOR COMMUNICATIONS

NBNCo

The Australian Financial Review reported the NBNCo Chairman ignored the Minister’s “warnings” about restraint on bonuses, and proceeded to pay out a record $77 million in corporate bonuses during the middle of a recession⁵.

However, a subsequent report in the Guardian about NBN bonuses noted⁶.

“At the time the story was first reported, the minister for communications, Paul Fletcher, said he had reminded the NBN Co board that the government wanted to see constraints on salary increases and bonuses. A Guardian Australia freedom of information request seeking evidence of this reminder was refused by NBN Co on the basis there was no record of any communication, however the department told the
Senate this week it was limited to a phone conversation.”

Furthermore, these $78 million in bonuses were paid at the same time front-line NBN technicians and small business contractors had their payment rates reduced (by up to 30 per cent) through highly questionable and intimidating contracting practices, which culminated in nationwide protests and led to delays and missed appointments.

Australia Post

Testimony before the Senate is the Minister had an unusual level of involvement in Australia Post bonuses and made a secret agreement with the Chair about bonuses at Australia Post, which involved potentially linking them to political outcomes in the Senate⁷. The veracity of this testimony is yet to be tested but should be examined as part of any audit of governance and consistency.

ABC

In May 2020, the Minister for Communications sent the ABC Managing Director a firmly worded letter, demanding that a scheduled 2 per cent staff wage increase be deferred, then leaked his letter to the media⁸.

The Minister’s letter came after the ABC’s April 2020 decision not to make any bonus payments to senior executives or any salary at-risk payments that financial year, as well as after the ABC Managing Director’s decision to personally decline a 2 per cent pay increase as well as take a 5 per cent salary reduction from April until the end of September⁹.

¹ Environment and Communications Legislation Senate Committee, 26 May 2021 Estimates Hearings, p.34–35.

² Australian National Audit Office, Potential Audit: 2021-2022, Governance arrangements for Government Business Enterprise executive pay and bonuses.

³ It should also be noted the 2018 Corporate Plan removed 300,000 premises from the rollout footprint on the basis of bad mapping data. NBNCo has since used the re-addition of 300,000 premises to justify $600 million in cost increases (out of $1.5 billion) that were obscured in the 2021 Corporate Plan.

⁴ Michelle Rowland, Media Release – NBN Revenue Forecasts, 14 August 2018.

⁵ Australian Financial Review, NBN defied pandemic executive bonus warnings, 26 March 2021.

⁶ Guardian, NBNCo staff on salaries of $200,000 or more receive average bonus of almost $50,000, 26 May 2021.

⁷ Environment of Communications References Committee, Australia Post Inquiry, 13 April 2021, p. 14 – 17.

⁸ Guardian, ABC must freeze wages, Government warms, 20 May 2020.

⁹ Sydney Morning Herald, ABC Managing Director takes pay cut, 20 May 2020.