Good morning everyone, as Mr Wildin introduced, I’m Carla Jago, Acting Deputy Auditor-General for the Australian National Audit Office (ANAO).

It has been a fascinating discussion so far on the challenges to SAI independence in the region. As we all know, the independence of our offices is the critical element enabling our role as auditors. The significance of SAI independence has been enshrined in the Mexico Declaration and the eight principles of the declaration are a strong foundation for SAIs. 

Earlier in the year, INTOSAI’s Global Stocktake report was released. The SAI Independence Index for 2023 provides an average score of 73 points across all eight principles of the Mexico Declaration and all SAIs. Comparing SAIs that responded to both the Global Surveys in 2020 and 2023 results shows a one-point decline in overall results. In the PASAI region, there are some positive indicators from the survey about improvements in SAI independence, particularly in relation to reported instances of executive interference. 

For the ANAO, the statutory independence of the Auditor-General is provided for in the Auditor-General Act 1997 and the Auditor-General is not subject to direction in terms of whether a particular audit is to be conducted; the way a particular audit will occur; and the priority of any particular audit matter.

However, the current legislative frameworks within which the ANAO operates also contain several challenges to the Auditor-General’s independence.

The public accounts committee conducted an inquiry into the Auditor General Act in 2022 and made 27 recommendations, 12 of which going directly to matters of strengthening independence. We are waiting on a government response into the review of the Act.

Much of the ANAO’s submission to the public accounts committee inquiry to this review covered the nature of our independence and this is what I would like to speak about with you today.

So what are the challenges to the ANAO’s independence?

Publication of material

At present, there are provisions in legislation which can enable the executive to prevent the publication of certain materials in Auditor General reports. These provisions have the potential to affect the Parliament’s scrutiny of the executive by limiting the Auditor-General’s independent reporting to Parliament.

Under section 105D of the Public Governance, Performance, and Accountability Act 2013, the Finance Minister may use written determinations to require modifications of material that relate to designated activities of intelligence or security agencies or listed law enforcement agencies. Further, paragraph 37(1)(b) of the Auditor General Act provides that the Attorney-General can issue a certificate to the Auditor-General preventing the Auditor-General from including particular information in a public report, if the Attorney-General is of the opinion that such disclosure would be contrary to public interest.

On 28 June 2018, the Attorney-General issued such a certificate, which required the omission of material from the performance audit report Army’s Protected Mobility Vehicle—Light. This was the first performance audit tabled by the Auditor-General of Australia with a disclaimer of conclusion. The issuance of a section 37 certificate presented one of the most significant challenges to the independence of the office of the Auditor-General in recent times, with the potential to affect the Parliament’s scrutiny of the executive by limiting the Auditor General’s independent reporting to Parliament.

Governance

For administrative purposes, the ANAO is an entity within the Prime Minister and Cabinet portfolio and subject to the Public Service Act 1999. This creates a challenge for the ANAO to accomplish its mandate to provide independent oversight of the Australian Public Service (APS), while fulfilling responsibilities as an entity operating under the requirements of that framework. Further, as members of the APS, the Deputy Auditor-General and ANAO staff are potentially subject to external direction under the framework.

Under the JCPAA’s review of the Auditor-General Act, there is a recommendation that the Australian Government consider amendments to administrative arrangements to establish the ANAO as a parliamentary department. Other jurisdictions in Australia, such as Queensland, have recently made this shift. While the independence benefits of being a parliamentary department largely relate to the appearance of independence, this is an important consideration as independence comprises both independence of mind and independence in appearance. With this model, ANAO staff would clearly not be members of the executive government. 

Budget

A conundrum for many audit offices is the nature of its budget, in terms of capacity to set and use budgets autonomously.

The ANAO provides the public accounts committee with a draft estimate of the ANAO’s expected budget requirement. The public accounts committee considers the ANAO’s draft estimates and makes recommendation to both houses of Parliament and to the Prime Minister outlining whether the Committee believes the ANAO has been given sufficient funding to carry out its functions.

The current system is effective when there are no changes to the ANAO’s budget, but there are risks when there have been late budget changes such as in 2018. In 2018 the Auditor-General was advised by the Treasurer that he was not able to inform the public accounts committee directly of the changes made to the ANAO’s budget after the draft estimates were provided to the public accounts committee.

The identified risk is that the executive government can reduce SAI effectiveness and independence by controlling the budget.

Other budget models, such as an entity fee paying model, modify the nature of the relationship between the ANAO and the auditee and brings with it potential threats to independence.

To preserve both the reality and perception of audit independence, the ANAO supports the current approach of having the ANAO funded by appropriations from the Parliament and maintaining the focus of the ANAO on auditing for the Parliament.

Independence is critical to enable SAI’s to effectively perform our audit functions. The ANAO has a strong legislative framework in place which supports its independence but will still face challenges as I have discussed today. In sharing these issues, as SAI’s we can work together to overcome threats to independence and ensure quality outcomes for the Parliament and citizens. Thank you.