LEGISLATIVE ASSEMBLY OF QUEENSLAND

PARLIAMENTARY COMMITIEE OF PUBLIC ACCOUNTS

Implementation of the Public Finance Standards:Evidence taken at Public Hearings 25-27 May1992.

Parliamentary Committee of Public Accounts Report No. 19June 1992

REPORTS OF THE PARLIAMENTARY COMMITTEE OFPUBLIC ACCOUNTS

1 [Annual report] for the period November 23 1988 to June 30 1989 28 September 1989

2 The administration of drought relief by the Department of Primary 27 September 1989Industries

3 The annual reporting standards of the Queensland Industry Development 17 October 1989Corporation and other statutory authorities

4 Report of the sixth biennial conference of public accounts committees 17 October 1989Brisbane 17-19 May 1989

5 [Annual Report] for the period 6 March 1990 to 30 June 1990 1 August 1990

6 Timeliness in the tabling of the annual report of statutory bodies 5 September 1990

7 Financial administration of Aboriginal and Island Councils Report 1: 4 October 1990Regulatory framework

8 Financial administration of Aboriginal and Island Councils Report 2: 21 February 1991Effectiveness of councils, support for Councils, training

9 Accountability of government companies Transcript of proceedings 27 February 1991

10 Accountability of government companies 11 April 1991

11 [Annual Report] for the period 1 July 1990 to 30 June 1991 18 July 1991

12 Review of the Auditor-General's second report on audits for the year ended 22 August 199130 June 1990:1. Department of Education No. 3 Expenditure Account2. Queensland Ambulance Transport Brigade Committees

Ij Kevlew of the Auditor-General's second report on audits for the year ended 3 October 199130 June 1990: Matters concerning the Department of Family Services andAboriginal and Islander Affairs

14 Review of the Auditor-General's second report on audits for the year ended 3 October 199130 June 1990: Matters concerning the Queensland Treasury Corporation

15 Management of solicitors' trust accounts funds Transcript of proceedings 9 October 1991

16 Management of solicitors' trust accounts funds Transcript of proceedings 2 24 October 1991

17 Management of funds earned on solicitors' trust accounts 5 December 1991

18 Review of the Auditor-General's second report on audits for the year ended 19 March 199230 June 1990: Matters concerning 'Water and Drainage Boards, etc.'

All reports are available free of charge from the Committee's office at Parliament House(Telephone: (07) 226 7670).

PARLIAMENTARY COMMITTEE OF PUBLIC ACCOUNTSOF THE FORTY-SIXTH PARLIAMENT

Dr J G Flynn MLA 1 Toowoomba NorthChairman

Mr J A Elliott MLA CunninghamDeputy Chairman

Ms L R Bird MLA Whitsunday

Mr K H Davies MLA2 Townsville

Mr K W Hayward MLA3 Caboolture

Mr P A Heath MLA4 Nundah

Mr J Pearce MLAs Broadsound

Mr T J Perrett MLA Barambah

Mr J H Sullivan MLA6 Glasshouse

Dr D J H Watson MLA Moggill

1 Appointed 17 April 1991Chainnanfrom 10 March 1992

2 Resigned 11 March 19923 Chainnan from 8 March 1990

Appointed a Minister of the Crown 16 December 19914 Resigned 9 April 19915 Appointed 10 March 19926 Appointed 11 March 1992

, CHAIRMAN'S INTRODUCTION

As part of its inquiry into the implementation of the Public Finance Standards, theParliamentary Committee of Public Accounts conducted public hearings at ParliamentHouse on 25 - 27 May 1992 at which evidence was taken from representatives of thefollowing organisations:

MONDAY 25 MAY 1992

Queensland TreasuryDepartment of Resource IndustriesDepartment of Justice

TUESDAY 26 MAY 1992

Brisbane Girls' Grammar SchoolDepartment of Primary IndustriesDepartment of Employment, Vocational Education, Training and Industrial RelationsQueensland University of Technology

WEDNESDAY 27 MAY 1992

Queensland RailUniversity of Southern QueenslandQueensland Corrective Services CommissionDepartment of the Premier, Economic and Trade Development

In accordance with Standing Order 205 the Committee is pleased to present the transcriptof proceedings of the hearings.

PARLIAMENTARY COMMITTEE

OF PUBLIC ACCOUNTS

MEMBERS: Dr J. G. FLYNN (Chairman)

Mr J. A. ELLIOTT (Deputy Chairman)

Mrs L. R. BIRDMr J. PEARCEMr T. J. PERRETT

Dr D. J. H. WATSON

IMPLEMENTATION OF THE PUBLIC FINANCESTANDARDS

TRANSCRIPT OF PROCEEDINGS

(Copyright in this transcript is vested in the Crown. Copiesthereof must not be made or sold without the written authorityof the Chief Reporter, Parliamentary Reporting Staff.)

MONDAY, 25 MAY 1992

The Committee commenced at 9.04 a.m.

The CHAIRMAN: I declare open this public hearing of the Parliamentary Committee of PublicAccounts. This public hearing is being held pursuant to the Public Accounts Committee Act 1988. TheCommittee has convened this hearing today to hear evidence in relation to the Committee's inquiry into theimplementation of the Public Finance Standards in the Queensland public sector. I would like to inform membersof the media and the public that tape-recording of these proceedings is not permitted.

Before you commence to give evidence, I am obliged to inform you that the proceedings here today arelegal proceedings of the Legislative Assembly and the Committee requires that your evidence be given on oathor affirmation.

HENRY ROBERT SMERDON, swom and examined:

GRAHAM JOHN CARPENTER, sworn and examined:

ROBERT ALEXANDER SHEAD, sworn and examined:

MICHAEL JOHN BOSWELL, sworn and examined:

The CHAIRMAN: Mr Smerdon, could you state your full name and the title of the position you hold?

Mr Smerdon: Henry Robert Smerdon, Under Treasurer and Under Secretary, Treasury Department.

The CHAIRMAN: Mr Carpenter, could you state your full name and the title of the position you hold?

Mr Carpenter: Graham John Carpenter, Assistant Under Treasurer, Financial Management andSystems, Queensland Treasury.

The CHAIRMAN: Mr Shead, could you state your full name and the title of the position you hold?

Mr Shead: Robert Alexander Shead, Director, Financial Management Policy, Queensland Treasury.

The CHAIRMAN: Mr Boswell, could you state your full name and the title of the position you hold?

Mr Boswell: Michael John Boswell, Director, Program Management.

The CHAIRMAN: The Parliamentary Committee of Public Accounts is an all-party Committee of theQueensland Parliament whose purpose is to scrutinise and provoke reform of the financial administration of thepublic sector and to ensure that Executive government is accountable to Parliament. The Committee conductsits business in accordance with the Public Accounts Committee Act and the Standing Rules and Orders of theLegislative Assembly relating to select committees.

The Committee is presently conducting an investigation into the implementation of the Public FinanceStandards in departments and statutory bodies. These standards are issued under the Financial Administrationand Audit Act and commenced operation on 1 July 1990. The Committee has a particular interest in therequirements of the standards relating to financial management practice manuals, position assessments,systems appraisals, program management, internal audit, and the move to general purpose financial reportingby business undertakings and statutory bodies. The use of private consultants in implementation of thestandards is also of interest to the Committee.

I inform you as witnesses that you are reqUired here today to answer all questions relevant to thesubject matter of this inquiry. The Committee would like you to answer its questions frankly, and to provide it withan accurate and clear view of your organisation's position on the issues canvassed. All members of theCommittee will be asking questions. We will direct them all to you, Mr Smerdon. You are free to answer and inviteany of your colleagues to answer, as well.

Mr Smerdon: I will probably pass to the two people on my left, who have most detailed knowledge. Iwill endeavour to answer where I can.

The CHAIRMAN: That is fine.

Mr Smerdon: In the interests of assisting the Committee, I think that those people are the mostfamiliar with the detail and would be better able to provide the answers that you seek.

The CHAIRMAN: We will direct the questions to you and you can pass them on to wherever you thinkthey should go. The Committee understands that the Public Finance Standards replaced the Treasurer'sInstructions and Minister's directions. Could you tell us why this change occurred?

Mr Smerdon': I think it goes back to what the Treasurer's Instructions had become. They wereintended as guidelines, but they became almost law in themselves. They were very detailed and veryprescriptive in what they set down. While they were intended to be all-embracing, in fact there were quite anumber of exceptions issued in them in regar.d to particular departments. At the same time, we were looking atbudget processes and endeavouring to elevate Treasury's overall role in the budget process to a higher plane so

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B SheadtM Boswell

that departments had much more responsibility and accountability for their own activities. What we tried to dowas to develop a system of standards so that departments or entities could operate within those broadstandards and leave it to the line managers to develop the detailed application of those standards in their ownorganisation. While we endeavoured to include a lot of accounting information, we also felt that in terms ofoverall management, accounting by itself was not sufficient. So we brought in things such as strategic planning,internal audit and a range of other matters which we felt were relevant to financial management practices in thisState. At the same time, we also included the practice statements, practice statements being areas where therewas a general application of the standards and where it would have been helpful for the guidance of departmentalaccountable officers and accounting people in their day-to-day activities. We intended to keep the practicestatements to a minimum and only where we thought it was necessary to do that sort of thing.

The CHAIRMAN: In general terms, the application of these standards in fact allows more flexibility todepartments?

Mr Smerdon: It allows more day-to-day flexibility for the departments. Being the person whodeveloped the concept, to some extent, I looked at the way the Australian accounting standards wereformulated. If you apply those to normal business practices, the idea is to provide a standard by which entitieswould comply. It is then left for auditors and others to determine whether or not those standards had beencorrectly applied. It gave managers more flexibility to comply with what we believe to be quite high standards. Infact, we believe we have regained the lead in financial management practices in the public sector as a result ofthese Public Finance Standards.

The CHAIRMAN: In what key ways do these Public Finance Standards differ from the formerTreasurer's Instructions? You have touched on that already.

Mr Smerdon: I think they are less detailed than the previous instructions. They talk more aboutconcepts and standards that should apply. They do not get down to the nitty-gritty as the old Treasurer'sInstructions used to. There is not a specific standard by which to dispose of the director-general's car, orsomething like that. They are more about what is best practice.

The CHAIRMAN: The Public Finance Standards apply to both departments and statutory bodies, andthe structure and operations of departments and statutory bodies are quite different. Could you tell us what therationale is in developing a single set of standards with common application to both departments and statutorybodies?

Mr Smerdon: From my point of view, I think, while they are different in structure, the principles shouldbe very much the same. It is all about accountability and good financial management practices. I do not think weshould distinguish between a body's particular structure in terms of applying sound financial managementpractices. That is why the concept applied both to departments and to statutory bodies.

The CHAIRMAN: When the standards were initially drafted, did Treasury consult other public sectorbodies?

Mr Smerdon: The initial consultation process was in two stages. In the first stage, there were avariety of people who we had regular dealings with-I am going back now to the time that they were beingdeveloped, in their very embryonic stage-people like Graham Henry from Arthur Andersen and other peoplewho we had dealings with who we believed were experts in this field. So the concepts were passed by thesesorts of people in the development. It then went through the second stage where there was a much more formalconsultation process which led to their issue as a draft set of standards. I must admit that I lost track of thedetail beyond the embryonic stage. Perhaps Mr Carpenter might want to comment about the process beyondthat second stage.

Mr Carpenter: As Mr Smerdon has indicated, an exposure draft was released and comments wereinvited from a wide range of interested parties. Treasury received 34 responses-three from Ministers, 11 fromdepartments, 11 from statutory bodies, three from professional bodies, four from accounting firms and twoothers. They were then collated into a working paper on the responses. The respondents showed strong supportfor these standards as then being developed. A seminar-cum-workshop was held with departmental officers andmeetings with other interested parties were also arranged and held. There was obviously a range of amendmentsmade to the previous draft. Then the revised draft was issued to a selective audience, including the PublicSector Management Commission, the. Premier's Department, Administrative Services, the Auditor-General, theInstitute of Internal Auditors, Suncorp, Queensland Railways and, am I right in saying, Public AccountsCommittee?

Mr Shead: i am not sure.

Mr Carpenter: Perhaps I had better be clear on that. Further amendments were made to that andthen the Public Finance Standards were approved and promulgated in the Gazette in mid-1990, and shortly after

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that a forum was held for senior officers on 19 July 1990. So that is, in broad terms, the process that wasadopted.

Dr WATSON: There was no compulsion for departments or bodies to respond to that initial invitation?It was an invitation to comment on the standards but not a compulsion to answer?

Mr Carpenter: No. As I understand it, it was an invitation to provide comments and response.

Dr WATSON: Thirty-four out of how many potential? Would you have any idea?

Mr Carpenter: We had a different structure then, so I will turn to Mr Shead.

Mr Shead: I would say it would be a couple of hundred.

Dr WATSON: Thirty-four out of a couple of hundred, perhaps?

Mr Shead: Yes.

Mr Smerdon: Within that 200 there would have been a range of quite small bodies who were given anopportunity to comment but who probably mc;ly not have had the resources, for example, to provide a significantcomment.

Mr ELLIOTT: Of those larger bodies, what sort of percentage responded, do you think?

Mr Carpenter: We would have to provide that to you separately. I do not have that level of detail herewith me.

Mr Shead: I think most of the major ones-Suncorp, OIDC, the TAB and so on-have all responded.

The CHAIRMAN: Is there any process in place now to allow for further amendments to the PublicFinance Standards? Is there any ongoing process?

Mr Carpenter: Yes, there is an ongoing process. A set of amendments was processed in mid-1991and a further set of amendments is with the Treasurer--

Mr Shead: They were approved last week.

Mr Carpenter: They have now been approved by the Treasurer, late last week.

The CHAIRMAN: How did that come about? What is the process? Who starts it?

Mr Shead: I suppose the impetus comes from various sources, whether it is from new Australianaccounting standards which come out, responses from departments, the feedback that we get in various forumsfrom departments, or initiatives that Treasury has undertaken such as the corporate card and the new bankingtender and so on. For most of those, particularly where they are of significance, we have a consultative processand get feedback from departments at the time. We do not duplicate the consultative process with theaccounting bodies, we have already been through that in terms of an accounting standard, for example, butbasically there is a consultative process we go through, and they are drafted within Treasury and then afterinformally consulting with the Audit Office we formally seek the Auditor-General's concurrence. After that, theygo to the Treasurer for approval and promulgation.

Mr Smerdon: The concept of standards was to ensure that they were in place and remain relativelyunchanged. We would hope that the development was of such a rigorous nature that you would not want regularchange to the standards-by "regular" I mean every few months-which was a problem with the old Treasurer'sInstructions. Where they are changing is when there has been some significant development, as Mr Shead said,like the State corporate card, which needed to be incorporated in it.

The CHAIRMAN: From what date did the Public Finance Standards become operative? Has atransition period been allowed for public sector bodies to comply with any particular provisions of the standards?

Mr Carpenter: Yes, 1 July 1990 was the date of application. Yes, there are transitional periods. I willcertainly outline two, and I will look to Mr Shead if there are further. One relates to business units of departmentsand for significant statutory bodies to prepare general purpose financial reports and comply with Australianstatements of accounting concepts and Australian accounting standards. That transition period was throughuntil the financial year that commences basically on 1 July 1992. There is a clarification of that period in relationto entities that do not have a reporting year that ends on 30 June, where the 1993 calendar year will apply, whichis one of the amendments that went through last week. The other area is in terms of program evaluation, wherethere is a three-year transitional period. I will ask Mr Shead if there are other transitional periods.

Mr Shead: No, that is it.

The CHAIRMAN: That means the bodies that are required to comply with the general purposefinancial statements must have that in their report at the end of the financial year?

Mr Carpenter: That is correct.

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The CHAIRMAN: At the end of the 1992-93 financial year, they will have to have been complyingduring that year, and that next financial report should actually comply?

Mr Shead: That is correct. The bodies with the 31 December year-the educational institutionsparticularly would be a 1993 calendar year.

Mr Carpenter: That is one of the amendments that the Treasurer signed last week.

The CHAIRMAN: Public Finance Standard 501 deals with annual financial statements, and thetransitional arrangements provide that any "necessary changes shall be effected as early as practicable duringa transitional period up to and including the financial year ending during 1992-93." Basically, there has beensome confusion, but I think you have just clarified it. There has been some confusion in a number ofdepartments as to when they were going to have to comply. Do you think that confusion is still about?

Mr Carpenter: We hope not. We became aware of that confusion in about August/September lastyear. At that stage there was communication to agencies of the intention to clarify the Public FinanceStandards. That was held in order to put a series of amendments through this month. As I said, there was someconfusion with the previous wording in relation to, for example, those with a calendar year reporting period. Webelieve that the amendments last week clarify that.

The CHAIRMAN: Our Committee has sought advice from Ministers as to which of their departmentalfunctions and statutory bodies will be regarded as business undertakings for the purposes of preparation of theirannual financial statements. The Ministers have made varying interpretations as to what constitutes a businessundertaking. Do you think that further guidance should be provided to various departments to clarify this?

Mr Shead: Possibly, although I think in a lot of cases it is up to the Minister to determine theobjectives of a body if the body is to be treated as a commercial undertaking or a business undertaking. I am notsure if it is always up to Treasury to make the decision. At the same time, there is a whole continuum of activitieswithin departments. At one extreme, for example, it would be ridiculous to require general purpose financialstatements from some small user-charging activity. So there must be a subjective decision made in thatrespect. If we feel there are any anomalies or gross anomalies in the system, there would be no problems with usissuing guidelines. We will be carrying out a review of annual reports at the end of this financial year, aroundOctoberlNovember, to do a post mortem on how things are going. From that, we might pick up that sort of need.

The CHAIRMAN: At this stage you would leave it to the Ministers to make their own decisions and,basically, if you find any glaring anomalies you would consider any guidelines at that time?

Mr Shead: In a lot of cases, those things come out of recommendations, for example, of the PSMC,and become Government policy in terms of commercialisation and so on, as to what bodies are to be set up asbusiness undertakings.

Mr Smerdon: The Government-owned enterprise legislation will shake out some of the businessundertakings and give a much clearer picture of what is and is not a business undertaking once the GOElegislation becomes law.

The CHAIRMAN: Schedule B of the Public Finance Standards lists various statements of accountingconcepts and Australian Accounting Standards and their applicability to the public sector. Certain standards arelisted as being applicable to business undertakings. For example, AAS 4 relates to depreciation of non-currentassets and AAS 10 relates to accounting for revaluation of non-eurrent assets. Should not all entities preparingaccrual accounts and not only business undertakings comply with those standards?

Mr Shead: Those applicability statements are derived from the standards themselves. We have notattempted to give them any wider application than they have under the tenor of the Australian AccountingStandards. There are certain problems there, and I think that is built into the process under which they areissued by the Public Sector Accounting Standards Board. If they decide to widen their application, for example,to all reporting entities, I expect that we would follow that lead. But currently, we do not have any broader orwider application than they have under their own process.

Mr Carpenter: In that regard, the Public Sector Accounting Standards Board has an exposure draftout at the moment in regard to Government departments. That is one of the items on the agenda of the board. Asto the issue of the standards application, as Mr Shead has indicated, we are basically in line with the currentposition with regard to reporting as regards the distinction between Government departments and the statutorybody area.

Mr PERRETT: I would like to ask some questions about system appraisals. The Public FinanceStandards require that departments and statutory bodies formally appraise all of their financial systemsannually. Could you tell us the purpose of performing system appraisals?

.Mr : I guess the system appraisal is to ensure that within each of the agencies there is a

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review obviously at least once per annum to ensure that the agency systems and the information that flows fromthose systems can be met on a timely basis, and clearly also that those systems will safeguard against losses,fraud, misappropriation and corruption. Obviously, the systems within an agency includes a range, and not justEDP systems, to ensure that the support is provided for the program management within each of the agencies. Akey element of systems appraisal is the risk analysis that is taken within each agency.

Mr PERRETT: What level of detail and content should the system appraisal contain?

Mr Carpenter: I guess that issue has been the subject of some discussion as to what theappropriate level is. I guess it would depend upon the nature of the organisation and its complexity. However, asa central agency, we are aware of some confusion. We will be seeking to develop some guidelines in that area.We are aware of some confusion in the service-for example, the amount of detail that is required in systemsappraisal.

Mr PERRETT: How would you envisage an organisation would go about completing a systemappraisal?

Mr Carpenter: I guess you have to start from the role of the agency, looking at the strategic plan ofthe organisation and the key objectives within the program management framework. From my perspective, itwould be driven from information needs within the agency. Then you would have to assess whether the keypeople are receiving the information in order to manage within the organisation. Obviously, there are otherelements to that. There are a number of requirements in the Public Finance Standards of meeting the variousfinancial requirements, or indeed also the Act. Obviously there are some broader issues and some detailedassessments as to whether the systems provide the appropriate internal controls within that agency.

Mr Shead: There are two facets that I see to systems appraisals. The first one is in terms of ensuringthat accounting systems, financial information systems or information systems generally are producing reliableinformation for management decision making. The second one focuses on the performance of those systems,looking at the outcomes and outputs. I suppose this is really to take up the slack where the Treasurer'sInstructions concentrated on procedures step by step within a system relating to what has to be done. Now, thefocus is more on the outcomes of the system to ensure that the system is delivering in terms of what is expectedof it. I think that links in quite closely with program management in terms of concentration on outputs rather onwhat the system actually does in a procedural sense

The CHAIRMAN: Whose job would it be-and obviously that would vary too, I suppose-who wouldbe doing the system appraisal in general terms?

Mr Shead: We hope that it would be line managers taking responsibility for their systems, both theperformance of the system and the internal control structure built into the system. We are aware of someagencies who have given it to internal audit, and that was certainly an option left open when the Public FinanceStandards came down. It was certainly our preference that line managers take responsibility for their owndecisions, and formally report on that to the accountable body, whether it is the accountable officer or thestatutory body, once a year

The CHAIRMAN: Does it need to be put together in one report from all of the line managers or is it justa matter oHf various people are reporting that their area is okay, that is adequate? Does there need-to-be-<il:l--------­more formal reporting process?

Mr Carpenter: We believe that it would need to come together at the corporate level. So that would beour view.

Mr Shead: Yes. We have not prescribed any form or anything like that. As Graham said, it dependson the system, whether you have got a small accounting system within a Magistrates Court or a largeraccounting system, a complex one, within say, OIC.

Mr PERRETT: For the system appraisals to be performed effectively, would it be necessary for anorganisation to have its systems and procedures documented in its financial practice manual.

Mr Carpenter: The financial management practfce manual needs to provide the framework withinwhich the organisation is operating. There needs to be a very strong manual.

Mr PERRETT: It is this Committee's interpretation that a formal process would need to be followedwhen performing each system appraisal and that the results thereof be documented. Is that what the standardsrequire?

Mr Carpenter: No, they do not go to that degree of prescription, although obviously there would needto be some documentation of the systems appraisal process.

Mr PERRETT: Should all branch officers undertaking accounting functions, or in control of assets,etc., be included in the parent agency's annual systems appraisal process.

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Mr Shead: Generally, I would say yes. If the person in charge of that branch, office, or whatever, hasresponsibility for the operation of the financial systems, then they should be involved in the process.

Mr PERRETT: Are there any arguments for not being involved in that process?

Mr Shead: I did not see any immediate-possibly-no, I cannot see any.

Mr PERRETT: Public Financial Standard 610(3) requires that internal audit determine whether or notsystem appraisals have been properly undertaken, submitted and acted upon. Bearing this in mind, would it beappropriate for the internal auditor to actually do the system appraisals?

Mr Carpenter: Our view is that it is up to management to determine the most appropriate framework,or the process for the systems appraisal, as has been indicated by Mr Shead. We are aware of some caseswhere internal auditors have been involved, but in other cases where an internal audits role is reviewing what hasbeen done.

Dr WATSON: I just ask a question, because a couple of these have come back a couple of timeswhere you have said that it is up to the line manager, and you have said that there could a fair bit of diversity inwhat is actually undertaken.

Mr Carpenter: Yes.

Dr. WATSON: What leads you to believe that there ought to be this diversity across the publicsector, and how would you tell whether the diversity is too great or whether people are just trying to, if you like,not implement the systems correctly?

Mr Carpenter: Obviously, we are dealing with a diverse range of organisations. So that is going tolead to some diversity in itself. As I said earlier, the risk analysis is what we believe to be the driving force behindthe process adopted within the agencies. So an assessment of the risks in terms of the systems, and thatobviously covers a range of risks--

Dr WATSON: Who is doing the risk analysis, though, here? It is those same managers, is it?

Mr Carpenter: Yes, We believe that part of the role of the manager is to effectively manage the risks,including those related to the systems within the organisation.

Mr Shead: I think the underlying principles are always going to be the same. The principles of internalcontrol as set out in the auditing practice statements and so on, but the design of the systems, the types ofrisks being undertaken by an organisation are going to vary, depending on its activities.

Mr Smerdon: Could I just ask Mr Shead and Mr Carpenter to comment on the role of external audit inthis process? It might be helpful.

Mr Carpenter: Obviously the role of an external audit, we would hope-and we are aware that itdoes-is to review the management within the organisations. Obviously, one of the requirements in terms ofcompliance with Public Finance Standards is to ensure that position assessment and systems appraisals arebeing adequately undertaken. So it would be, I would expect, appropriate for the external auditors to be able toassess the process adopted within the organisation, given that the role of an external audit, obviously, is basedon a risk assessment as well.

Mr Smerdon: I am sorry, but I saw a line of questioning that suggested that we should not be allowingfreedom to line managers to carry out these appraisals, but I wanted to reinforce the point, I think, that there is acheck and balance in the system which can allow freedom, but at the same time keep a good overview of what IS

happening.

Dr WATSON: You have got a role for an external auditor, you have also got a role for Treasurypresumably, in terms of developing the systems and making sure that the systems are, if you like, consistent, orwhatever, across it. My line of questioning was basically how you can determine whether or not the diversity IS

too great versus appropriate.

Mr Shead: I think Treasury has no great role in terms of specifying system across the public sector,except where we have a lead agency role, for example, with the QGFMS system, In terms of systems set upwithin individual agencies, whether it is a university, a marketing board, or whatever, that is not-we do not see itas our role.

Mr Smerdon: And we would see some difficulty with an external audit relationship. If we were to movein as a policeman-type 'thing with these system-I think we see it clearly as an external audit function. Ifsomething is drawn to our attention, or we become aware of it through other means, we will certainly act. But wedo not see ourselves as being the second policeman in the process.

Mr SULLIVAN: In answer to a question a little earlier, Mr Shead said the option was left open in thestandards for an internal audit to perform the systems appraisal and standard 610(3) indicates that an internal

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audit must determine whether those appraisals have been done properly. Do you not see any conflict there inthat internal audit could form the appraisal and then certify that it has been done properly?

Mr Shead: That is certainly the reason why we strongly prefer that line managers take responsibilityfor it, but I think that it is a weakness in the explanatory overview where it left it open and that we will be movingto rectify that.

Mr SULLIVAN: To make an amendment that should be made regularly?

Mr Shead: Yes.

Mr SULLIVAN: Thank you.

Mr PERRETT: Mr Smerdon, to whom, in your opinion, should the results of the completed system ofappraisals be reported?

Mr Smerdon: In general terms, it should eventually get to the top level of management, but MrCarpenter may want to comment more on that.

Mr Carpenter: The appropriate reporting line is through the accountable officer, who hasresponsibility for the management of the agency.

Mr CHAIRMAN: There is no need to go outside the agency, except as, I suppose, an external auditcheck?

Mr Shead: No, we see it as purely an internal management tool.

Mr PERRETT: Of what benefit are system appraisals to management?

Mr Carpenter: Well, we would hope that it would be an important element of the management of theorganisation to ensure that systems support the strategic direction of the organisation and provide support tothe direction as outlined in the corporate plan. Obviously, that in turn should fall in line with the program structureand the priorities laid down by the Government and, of course, satisfy compliance with the laws and regulationsof the State as well.

Mr PERRETT: Would it be practicable to issue a standard format for public sector bodies to followwhen completing their system appraisals?

Mr Carpenter: As I indicated earlier, it is our intention to carry out some further work in response tocomments from agencies, and we are looking at carrying out some workshops on that, and also drafting someguidelines, but that is as far as we see that we will go.

Mrs BIRD: I have some questions. The Public Finance Standards require the departments andstatutory bodies to complete their position assessments. They are required to be prepared quarterly, and insome instances annually. Just so that we are all on the same level, could you just give us an example and tell uswhat is a position assessment?

Mr Carpenter: The Public Finance Standards, as you will have noticed, are structured on the basisthat agencies are managing assets, liabilities, revenue and expenses as well as the equity issue, which isprimarily a statutory body or business undertaking concept. So, in terms of the position assessments, thePublic Finance Standards require agencies to assess their finanCIal position. Now, that in a number of agencieswill have already been provided through monthly reports to the board or to the accountable officer, but clearly, inothers, it is introducing some concepts for the first time, in particular for departments to have better informationon all assets and liabilities as well as the revenue and expense reporting.

Mrs B IRD: The departments have in the past been required to update periodic budget andexpenditure reviews, and statutory bodies have followed this in the process. The Committee has noted thatmany bodies regard such budget reviews as being their position assessments, and I think Mr Smerdon touchedon that earlier. Is this an appropriate attitude, or is more required by the Public Finance Standards?

Mr Carpenter: Clearly, that is part of the position assessment. The Public Finance Standards alsorequire-and I guess this is a change in particular for budget dependent agencies who work within what ispredominantly a cash-based appropriation accounting system-that cognisance be paid to the assets and,where appropriate, liabilities that are being managed within the agency, so that is a change in past practice interms of the management and in line with the structure and framework of the Public Finance Standardsthemselves.

Mrs BIRD: Well, what level of detail should, do you think, the position assessment contain?

Mr Carpenter: Again, it is obviously going to depend upon the agency that is concerned and thefinancial structure of the department or statutory body. That is obviously going to depend upon the key issues interms of the financial performance of the organisation. Perhaps I might move that to Mr Shead. Mr Shead has

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been heavily involved in a series of workshops that have been held in recent months in that particular area.

Mr Shead: We have had a series of 17 workshops early this year, covering about 200 people fromvarious departments and statutory bodies. We have walked them through the position assessment processusing a set of guidelines or a pro forma approach. Our intention was not to tell them this is what Treasury thinksthey should be doing, but to give them some sort of guidance, given that this is a new concept, and to help themthink about the issues they should be looking and should be managing. At the same time, I think those proformas did not just concentrate on financial information. I think ideally there should be a link with theperformance indicators of the organisation, particularly for Government departments where the bottom line is notjust a dollar figure; it should be the cost of their operations as well as their performance indicators and meetingsocial objectives and so on, and ideally the two should be linked together in a position assessment, butobviously that is going to take a while to develop.

Mr Smerdon: If I could just add a more general comment to that. One of the dangers that we have isgoing back to the same problem we had with the Treasurer's Instructions-being asked to prescribe formats,prescribe detail. What it is about is managers getting information out of the system that helps them managebetter, and by leaving the format somewhat open, by leaving the specification information somewhat open,hopefully managers, if they are worth their salt, will be looking at the sort of information, both financial and non­financial, that they need to manage the business enterprise of the department they are running. I have a greatfear that if we start prescribing things overly, we will end up getting only the information that is prescribed, and Ithink that will leave the question of whether that is the right information quite open in a number of cases. I think itis very important to stress that point.

Mrs BIRD: Given those points that you raised, how do you see organisations going about completingthe position assessment if they do not have some sort of guidelines or some--

Mr Smerdon: I will pass it back to Bob. I will just raise some general comments first.

Mrs BIRD: Did you handle that in those 17 seminars that you had?

Mr Shead: Yes, we circulated the pro formas, and in a lot of cases it was obvious that people had notconsidered a lot of issues, particularly in relation to asset management. As you were saying, a lot of the focushas been on the appropriation system and managing in terms of the cash outlays. The objective is to broadenthe focus of departmental managers in particular in terms of looking at the assets holdings and so on, andmanaging the whole picture.

Mrs BIRD: What was your advice to them on how they could complete a position assessment, or whatwas the outcome?

Mr Shead: The outcome, based on our evaluation, is that they all considered it was very successful.There was quite a high rating on the evaluation forms. The outcome was not, as I said, us telling them what to do;it was really getting them to think about the core issues, and these I think were spelt out fairly well in the proforma guidelines that we circulated at the workshops.

Mr Smerdon: Could I just follow on from that? There is a very important point that I would like tostress with the Committee. This position assessment should not be seen as a little discrete entity on its own. Itneeds be to be seen in the bigger picture of what an organisation is about. That is the reason we have MikeBoswell here today, and that is looking at strategic planning for.an organisation: what is the organisation onabout, what does it need to do, what are assets under its control, how best are those assets or funds going to beused to meet the organisation's objectives? I think a position assessment needs to be fitted into that broadcontext of seeing where a department is going, how it is managing its assets, how it is managing its budget, howit is controlling the risks, the liabilities and so forth. I would like systems appraisal position assessments to beseen in the context of the organisation as a whole-what is the big picture for the organisation--rather thantrying to focus unnecessarily on the detail of position assessments.

The CHAIRMAN: Do you think many departments are focusing on trying to include this non-financialinformation in the position assessments-linking the two? As Bob has just said, it is a desirable thing. Aredepartments aware of that and striving towards it?

Mr Shead: Certainly some statutory bodies are. We have seen some very good ones in terms ofreporting to senior management on meeting their objectives, setting things out in graphical format and so on,rather than just a schedule of actual budget breakdown. In terms of the departments-we have not had much ofa chance to have a look at what they have been doing, but I expect its going to be a more difficult process forthem, and in a lot of cases it will depend on how they go with the strategic planning and developing operationalplans with performance indicators and so on. That is really th~ first step, I think.

Mr Boswell: Certainly in terms of the review that we have just done of the implementation of programmanagement, there are a number of departments who have made significant strides in that area. There is more

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work to be done, but there has been some good progress.

Mrs BIRD: The Public Finance Standards require revenue and expense position assessments toinclude a review of gains or losses arising from changes in the value of investments. This is required to be donequarterly. What would an entity with property investments need to do to satisfy this requirement?

Mr Carpenter: Has that already been specifically raised?

Mr Shead: That was one of the issues raised by the Public Trust Office in the workshops. Theyencountered some difficulties in that regard. It basically involved them looking at the market values of theirinvestment portfolio and monitoring that, at least on a quarterly basis.

Mrs BIRD: Public Finance Standard 251 deals with equity position assessments. Amongst otherthings it requires bodies that prepare general purpose financial statements to annually determine and assess"the return on equity or other appropriate base being achieved from operations". Of what relevance is thisinformation to a non-commercial statutory body?

Mr Shead: At this stage, not a lot. The return on equity is the bottom line in terms of the Government'spolicy on corporatisation, as well as other indicators. In terms of corporatisation and commercialisation return onequity, it is going to be an important factor. It is obviously not an important factor at all in a non-commercialactivity.

The CHAIRMAN: They still have to present it and show it.

Mr Shead: Or other appropriate base. Obviously, you would not know what your equity or capital baseis in terms of the current accounting set up.

Mr J. H. SULLIVAN: In relation to property again, and in relation to bodies holding property doingquarterly position assessments, are they going to have to appoint a valuer every three months to revalue theirproperties.

Mr Shead: No, there has been nothing prescribed in terms of how valuations are to be done. We arecurrently looking at a policy in terms of their recognition and valuation of non-current physical assets across theboard. That needs to link in with the work that I think Graham is involved in with GOE valuation Australiawide.There are a lot of different agendas going on around Australia in terms of asset valuations. We are currentlydeveloping a consistent policy to apply across commercial and non-commercial activities in the public sector inQueensland.

Mr J. H. SULLIVAN: So the answer is that they do not have to appoint a registered valuer everyquarter to provide a written evaluation?

Mr Shead: No.

Mrs BIRD: I get the feeling that you are suggesting that there needs to be some sort of flexibility inthe quarterly assessments.

Mr Shead: Yes, certainly.

Mr ELLIOTT: In the light of Westpac's latest move and looking at a way out, as far as some of itspotential market positions are concerned and as far as property is concerned, do you see some 01 yourstatutory bodies doing that sort of thing and looking at potential losses on property?

Mr Smerdon: I am not aware of a significant statutory body that will realise losses on property. Thebodies that I am associated with in another form regularly review the property values, not through a registeredvaluer process, but simply looking at what they are deriving from the investment they have in the building-whatis the revenue stream being generated and capitalising on that whatever the current cap rate happens to beThat is the quickest way to see whether the value in the books is the value of the property.

Mr ELLIOTT: As far as the financial management practice manuals are concerned, the PublicFinance Standards and Financial Administration and Audit Act require all departments and statutory bodIes tohave a financial management practice manual. Why is it important that organisations have a finanCialmanagement practice manual?

Mr Carpenter: There are two elements to that issue. They relate to some of our earlier commentsabout the program management framework because the financial management practice manual is not just, forexample, to cover accounting procedures. It is about the financial management framework within whichagencies operate. Prior to the Public Finance Standards there was a requirement under the FinancialAdministration Audit Act-since 1978-for accounting manuals so that the thrust as outlined earlier in terms ofwhere the Public Finance Standards are going at the broader level, is to ensure that the financial managementframework with an agency is outlined in the practice manual. Treasury also felt that the accounting manualstended to concentrate on detailed procedures, as indicated earlier, rather than the broader policy requirements.

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Of course, they were also deficient in that they tended just to concentrate on the accounting areas within theagency. We see the financial management practice manual as being an important framework, designedspecifically for each of the agencies to take account of their risk profile or their program managementframework, including their assessments of risks in terms of the management within the organisation. Accountingreporting framework is an element of the financial management practices within each of the agencies.

Mr PEARCE: I have a couple of questions on the practice manuals. Do you think it is necessary forvery small statutory bodies to have a practice manual, and why would you hold that view?

Mr Carpenter: In any organisation there needs to be some consistent practices in place. Obviously,developing a practice manual for a major Government department is going to be a very different exercise than fora small board of trustees of a small statutory body, but we would argue that, irrespective of the size of theagency, this does need to be brought together. Obviously there are other issues about how the appropriate staffare aware of the practices and policies within the organisation. We believe every organisation should have afinancial management practice manual.

Mr PEARCE: You would be aware of the general status of the practice manuals in departments andstatutory bodies. After looking through some of the correspondence that we have had, the Committee feels thatin many cases there is a lot to be done to bring them up to par. Would you agree with that?

Mr Carpenter: We would certainly agree with that. As part of assessing the then position with theimplementation of Public Finance Standards, we undertook a survey in September of last year and we noticed atthat stage around three-quarters of the agencies were at various stages of developing their manuals. The stafffrom within Mr Shead's area have also been working with a number of agencies who are seeking to developand/or upgrade their financial management practice manuals. We are aware that that is an area where a lot ofwork is taking place in agencies at the moment.

Mr PEARCE: I think that it is important that we come on line together across the system. Do you thinkthat the departments are keeping in touch or are some lagging behind? Is there a need to make sure that theyare up there, pushing in the same direction?

Mr Carpenter: Clearly, there are some that are further advanced than others. I am not sure if MrShead wants to add to that?

Mr Shead: We are aware of a fair bit of communication between departments developing FMPmanuals. It is certainly an issue that we have been encouraging to get them to talk to each other and show theirmanuals around. Some excellent manuals have been developed and we are encouraging them to share theirknowledge around the system.

The CHAIRMAN: What is the latest a department should have its manual completed if it is going to beready to fully comply with the standards next financial year? Do they need to have it before 31 July this year or30 June this year?

Mr Carpenter: Technically, they should have been in place prior to now. Obviously, moving from theprevious accounting manual framework to the financial management practice manual has meant that there hasbeen a great deal of work to be undertaken in most agencies. Our view would be that the sooner agencies canhave the practice manual in place, the sooner they will be protecting their own agency in terms of the programmanagement and the general development of financial management in the agency.

The CHAIRMAN: Could you actually put a date on when it is too late to be ready?

Mr Carpenter: We would hope that by the end of this calendar year most agencies would have itready.

Dr WATSON: Are they going to be into the process, though, by 1 July this financial year or nextfinancial year?

Mr Carpenter: It is when the financial management practice manual is available. Obviously, in anumber of agencies there are different component parts of that and some parts would be further advanced thanothers. One would hope that, although the component parts will be there and available within the agency earlier,my hope would be that by the end of this calendar year all agencies should have the manual together.

Mr Smerdon: That should not be an implication that somehow departments, because they have notgot a manual in place, are not complying with the spirit of the requirements. I think it is a case of somedepartments taking a view that it is a lower priority to document all this in its complete sense. Again, that doesnot mean to say that there is not substantial documentation of it already but not completed. I think there is a fairamount of work done in terms of the review process that has gone on in terms of accounting staff and other staffinvolved in the review process. I think that has delayed preparation of the manuals more than we would like. Wehave tried to take a reasonable view about resource requirements that might be required in putting these things

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together.

Mr PEARCE: That leads me on to the next question. Do you think there should be an adequate skillsbase within departments for financial management practice manuals to be prepared internally?

Mr Smerdon: Yes, in a general sense.

Mr PEARCE: Putting the Public Finance Standards aside, for how long have departments andstatutory bodies been required to have financial management practice manuals or accounting manuals, as theywere previously known?

Mr Shead: It was a requirement that came in when the Treasurer's Instructions or the FinancialAdministration and Audit Act came into force on 1 July 1978.

Mr PEARCE: We understand that public sector bodies have experienced considerable difficulty overa long period of time in preparing and maintaining up-to-date financial management practice manuals. Could youexplain why that has occurred?

Mr Shead: Originally, looking back through the old manuals that Treasury had from the late seventiesand early eighties, they were very detailed. In a lot of cases, departments were documenting everything thatmoved. That is certainly not an approach we are recommending. In many larger and complex organisations, theyare adopting a tiered approach, keeping in some places three levels or three components of the actual financialmanagement practice manual at the top level. It is best for laying high-level policies such as organisationalstructures and details of internal control systems, and putting the responsibility reporting arrangements in placeand delegations and, within that, working down the various desktop manuals or procedural manuals and so on.

Mr PEARCE: So there is a need to simplify the whole process?

Mr Shead: Certainly it is not our view that they should go out and document everything that takesplace, every flow of paper through an organisation. If it is going to be a useful tool for management, it has toconcentrate on the basics.

Mr J. H. SULLIVAN: I would like to ask some questions about internal audit. The PFS requires eachdepartment or statutory body with an internal audit function to develop an internal audit charter. Would it beappropriate to incorporate a standard audit charter in the standards and is anything being done about doingthat?

Mr Carpenter: On the issue of internal audit, as I am sure this Committee is aware, EARC hasprepared a report on public sector auditing and there are a number of recommendations in that report whichrelate to the role of internal audit. The Government, we expect, shortly will be looking at the response to theEARC report. I think I am right in saying that there is a specific recommendation in regard to internal auditcharters.

Mr Shead: That is right. EARC has recommended that the practice statements incorporate a standardinternal audit charter, which is not to say I do not think that it needs to be standardised across the entire publicsector. I think there is room for individual agencies to build on that as they like. But the intention certainly is thatthere is a core internal audit charter which ensures that internal audit focuses on the basics at least.

Mr J. H. SULLIVAN: In relatIon to that, you beheve that the Government's response to the EARCrecommendations will result in that kind of approach being taken?

Mr Carpenter: I do not think we are going to pre-empt the Government's decisions in regard to thatreport.

Mr Smerdon: As officers, it is a view to which we would subscribe.

Mr J. H. SULLIVAN: Some departments have merged their internal audit, program evaluation andother review functions. Earlier, we touched on this matter. The Committee is concerned that this type ofstructure could hinder the independence of internal audit and also that internal audit staff could be diverted fromthe internal function to perform other duties within the group, Do you think that these combined structures couldhinder the independence and effectiveness of internal audit?

Mr Shead: There is the potential there, I think, to do that. Certainly indications of experience of thelast 10 years are that some internal auditors have veered away from the intention of internal audit since it wasestablished in the eighties. On the other side, I do not think that it is necessarily something that should beprohibited. I can see advantages in it, particularly in smaller organisations. One of the reasons behind the EARCrecommendation on internal audit charter is to ensure that that unit, whatever it is called and whatever its extraresponsibilities are, does actually carry out internal audit functions as required under the Act.

Mr J. H. SULLIVAN: You would see perhaps an expansion of workload as meaning an expansion ofthat section, whatever it is called, rather than setting up separate sections as a viable possibility? Taking on

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functions such as systems appraisal by internal auditors will divert them away from the internal audit function,which itself is important?

Mr Shead: As we have said, we hope that internal audit sections do not get involved in doing systemsappraisals.

Mr Smerdon: As a general comment, if an organisation is big enough, it should have a separate,distinct internal audit function. It should not be confused in terms of what it does. Mr Shead was alluding to thefact that where organisations are small and may have a resource problem, it may be acceptable to have the twolinked together.

The CHAIRMAN: Whose job is it to find out ifthere is any problem in a department's internal auditsection being diverted by doing other tasks? Who identifies that?

Mr Carpenter: The accountable officer has responsibility and should address the question of theinternal audit charter being clarified. Obviously, the buck stops there with the accountable officer in terms of therole of the internal audit. Obviously, external audit has an interest in the work of internal audit-in fact, has aprofessional responsibility to consider the role of internal audit, and I guess that the Auditor-General has theopportunity to comment both to management and perhaps in public reports if he feels that internal audit is noteffectively carrying out the role that he believes is appropriate.

Mr ELLIOTT: As far as training and implementation are concerned, have many public sector bodiesasked your department to provide them with guidance in implementing the Public Finance Standards in theirorganisations?

Mr Smerdon: I think it would be "Yes", but I will ask Graham to comment in detail.

Mr Carpenter: Yes. Certainly that same survey to which I referred earlier last year was to identify theareas. As we indicated earlier, position assessments was an area that seemed to be a high priority for training,and we responded accordingly. We do also try to communicate with agencies. We do that in a number of ways.We have half-yearly departmental forums at which a number of issues, a good number of which are related toPublic Finance Standards, are the subject of discussions with senior departmental officials. There are the formalprocesses, as I said, such as position assessments and obviously ongoing interaction with a number of peoplein my division, primarily in the branch headed by Mr Shead. We have also recognised the need to not justconcentrate our efforts in Brisbane, and accordingly we have had visits outside of Brisbane and further plannedin the next couple of months.

Mr Shead: And this week.

Mr Carpenter: Right.

Mr ELLIOTI: Have these requests for guidance come from both departments and statutory bodies?

Mr Carpenter: Yes, they certainly have.

Mr ELLIOTT: Can you give us any particular instances in which any of those statutory bodies havebeen up and running faster than others, or is it pretty much line ball right across the whole scene?

Mr Carpenter: No, it is a mixed picture. For some agencies, for example in the area of generalpurpose financial reporting, a number of bodies have been reporting in line with the accounting standards for anumber of years. We, however, have others-QEC I guess is one example, and the electricity bodiesgenerally-who are moving to general purpose financial reporting from 1 July, and obviously there is a majormove there, whereas for other bodies such as the Port of Brisbane Authority, it is not such as big an impact.

Mr Shead: Other bodies such as universities and grammar schools have set up working parties tolook at the implementation in order to facilitate the implementation of the standards.

Mr ELLIOTT: What has your department done to identify areas where difficulties have beenexperienced by these public sector bodies in implementing the Public Finance Standards?

Mr Carpenter: Obviously, the survey that we undertook last year was an important process. We alsotried to move around and hear reactions, not just in my area but in other parts of Treasury as well. So we do try toget out of the Executive Building to hear views from agencies of areas of concern.

Mr PEARCE: Is there a general willingness there for people to come forward and want to talk to youabout it and invite you over to talk to them about it?

Mr Carpenter: A good number of agencies do. It does vary a bit. Some are quite willing and happy tohave us talking with them and working with them, Some others a.re not so keen,

The CHAIRMAN: What if somebody rings you up? Can you offer a full range of assistance? Ifsomebody rings you up and wants advice with the financial management practice manual or program

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management-if they ring you about anything and seek advice-can you offer appropriate help?

Mr Carpenter: We can put them on to someone at least to answer. There is obviously a limit to theresources that we have. We do not have a large branch in the Financial Management Policy Branch, andobviously there are a number of competing priorities there with different projects. But we do try to be responsive,as I am aware that the area headed by Mr Boswell is in terms of responding to issues of interest and concern.

Mr Shead: We can cover most things in-house. Program management queries, for example, we wouldpass on to Mike Boswell's area. Some questions which touch on areas such as corporatisation we would pass onto the GOE Unit. Basically, we can offer the full range of assistance. There is a limit to our resources.

The CHAIRMAN: You can provide some direct help or advice as to where to go or what to do?

Mr Shead: Exactly.

Mr Smerdon: I think our role is essentially advisory. We would be limiting our consultancy-type role.We are not resourced enough to undertake a consultancy-type role. We certainly provide as much help as wepossibly can.

Mr ELLIOTT: Does that apply to the statutory bodies just as much as it does to the departments?

Mr Shead: Yes.

Mr ELLIOTT: Or are they not as keen to come across and get involved?

Mr Shead: The only difficulty I suppose with statutory bodies are the country ones, and they are theones we try to target in our regional visits around Queensland.

Mr Smerdon: It would be fair to say, I think, that where a statutory body has had a relationship withTreasury that has been ongoing for a number of years, it is much easier for it to come forward and seek advice.But organisations we have rarely dealt with in our history may want to continue doing their own thing. It reallydepends a little bit on the history.

Mr ELLIOTT: In November last year, the Auditor-General reported to Parliament that the majority oforganisations were unsure as to what form system appraisals and position assessments should take. He alsosaid there was an uncertainty as to the desired level of content required and of the reporting processesnecessary to allow benefit to be gained by upper management. The Auditor-General stated that gUidance byTreasury on these issues was considered essential. Did you consult the Auditor-General on these matters whendeveloping your training modules?

Mr Shead: I suppose we did not see the important factor being the form of the assessments andappraisals. It is really about managing upwards within an organisation and encouraging managers to look at theresources that they control and so on and to report to the top management, the executive level, on how theseresources are being managed. For that reason, we have not consulted with the Auditor-General on things like theform of the requirements.

Mr Smerdon: It does come back to whether we should be prescribing formats and so forth, as weused to do with the Treasurer's Instructions, whether we should allow management to be proper managers. Ifthere was a view that we should go back to the prescriptive model, I for one would be sort of saying that I do notthink that is a very good move.

Mr ELLIOTT: Really, you would like to see them using their own initiative more within the framework?

Mr Smerdon: I would think so. I think part of the problem is that in terms of external audit, the moreprescriptive the process, the easier it is for the external audit to be undertaken. I think you have got to balanceup the two.

Dr WATSON: Is there not also an issue that while you do not want to be prescriptive, there has alsogot to be some kind of consistency across the public sector with respect to the amount of detail that is going tobe included-the level of the content, if you like? Some of the uncertainty that is associated with, let us say,departments and statutory bodies has to be somewhat related to how they perceive themselves vis-a-vis everyother department and how someone like Treasury, which may be concerned with resource allocation and stufflike that, views the appropriateness of the report.

Mr Smerdon: I think it comes back to the issue of practice statements being that sort of forum, andperhaps we have not been as good communicators as we might like to have been with some of the entities inexplaining the process to them. We have certainly taken steps to try to correct that.

Mr ELLIOTT: The Public Finance Standards became operative on 1 July 1990. Your department heldits first position assessment workshops in February and March 1992 and we understand that it will be conductingsystem appraisal training sessions during the latter part of this financial year. Why was there such a long delaybetween implementing the Public Finance Standards and conducting these training sessions?

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Mr Smerdon: I think it is essentially a resource issue. We were going through, at that period, a PublicSector Management Commission review. The capacity to put additional resources into that area was extremelylimited. That review showed that we needed to strengthen that area quite markedly. There was a time lapsebetween getting the resources in and then beginning this process of communication. We acknowledge that weshould have done it earlier, but I think the capacity to do it was not there at the time. Graham might have a moredetailed comment on that.

Mr Carpenter: The only comment I would make is that after they were promulgated, there was aforum held for senior officers. As the Under Treasurer has indicated, the review of Treasury by the PSMC andnow the creation of the division that I head and also the branch that Mr Shead heads were in response to arecognised need to do some more work in this area.

Mr ELLIOTT: To what extent have participants indicated that they have found the training sessionshelpful?

Mr Shead: Evaluations have been very positive. They have all marked us highly.

Mr PEARCE: So you are doing a good job, you reckon?

Mr Shead: I think so.

Dr WATSON: Are you saying you are resolving the uncertainty in those training sessions?

Mr Shead: I think we are helping them to think about how they need to manage upwards a lot better.

Dr WATSON: Who are "they"? What level are we talking about managing upwards, and where is thatuncertainty being resolved?

Mr Shead: We have had people, for example, the Public Trustee turn up. I do not think we have hadany accountable officers, but people the next level down-directors of corporate services, finance managersdown to accountants, subaccountants and so on.

Dr WATSON: So you have had no accountable officers turn up?

Mr Carpenter: We have not been targeting accountable officers. I think the reference to the PublicTrustee turning up is the style of operation of that particular person. But our target is to get I guess the middle tosenior management level within the organisation, and obviously also some of the operative levels have alsobeen involved.

Mr ELLIOTT: Have some participants of these training sessions been critical, and if so, in whatrespect? Have they found flaws or holes or made suggestions as to how this could be done better?

Mr Shead: We have had some good feedback on some problems with the standards and how they areworded. We have taken them on board. Some have been taken in in the current round of amendments, and Ithink some last year as well. We are constantly encouraging feedback in our forums. For example, around thecountry, we get quite valuable feedback and we take it on board where it is appropriate in terms of amending thestandards.

Mr ELLIOTT: What constraints has your department faced in assisting departments and statutorybodies in implementing the Public Finance Standards? Being Treasury as well, you have sort of--

Mr Smerdon: Unfortunately, I think Treasury is always the hardest upon ourselves, so we tend tounderresource the area. Certainly, having Graham and Bob on board has helped that. But that was what wasrecognised during that review process. We were a bit in limbo. It took us a little while to get the right sorts ofresources on board.

Mr Shead: I think that a second problem has been to reach the entire public sector. We found thatwith a lot of our workshops, forums and so on, the information goes to the people who are there and does notspread any further within the organisation. In many cases we rely on organisations to disseminate information.and that is not always successful.

Dr WATSON: Earlier, you talked about acting as a consultant in some of these things. In other areaspeople are hiring outside consultants. In Treasury, is there a fee for service there?

Mr Smerdon: The question is whether it is our real role to act as a consultant to departments. Ipersonally do not see it as our role to be a consultant. Essentially, I think it is a departmental matter, with usproviding advice and assistance where we can. But I have to say that I would be counselling against setting up aconsultancy service within Treasury to assist with that.

Dr WATSON: This is probably a Vf3ry naive question, but with these standards that are beingintroduced, Treasury does not see its role as providing-perhaps "consultancy service" is too broad-but what

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exactly is Treasury's role in the introduction of these kinds of standards right across the public service. Is therenot a role for Treasury in doing that, and therefore part of the education and consulting process, or am Imistaken?

Mr Smerdon: I hope that I did not say that we do not provide advice. Quite strongly, we provideadvice and assist in implementation issues. The point that I was addressing was the question of providing anactual consultancy-type arrangement where we did the work that the department was supposed to be doing. Weare certainly assisting with implementation. I am sure that Mike Boswell would vouch for that in the programmanagement area. He spends a lot of his time talking to departments about program structure, strategicplanning, and so on. Certainly Graham and Bob, from their side of things, would say that they are spending a lotof time-perhaps more than they would like to-assisting departments in interpretations: what does it reallymean; how do we go about it, etc.

Mr ELLIOTT: You may recall in the 1980-83 period, three people from Treasury came across fromNational Parks to assist us largely in looking at financial control. How does what you are doing now differ fromthe sort of thing that you used to do then?

Mr Smerdon: If I remember rightly, that National Parks one related to the internal operational auditservice, which was a separate entity within Treasury and which was in fact a consultancy organisation. It wasnot working with Treasury per se. It had to be located in the department, but its role was to assist theaccountable officer with operational audit issues.

Mr Carpenter: I know that we are concentrating on Public Finance Standards, but there is a separateissue with regard to the Treasury responsibilities as lead agency for Queensland Government FinancialManagement Systems. Another part of my responsibility is to see that we have available a suite of financialmanagement systems that are supportive of the direction in Public Finance Standards. In that particular area,specific consulting support is being provided, including on a cost-recovery basis.

Mr J. H. SULLIVAN: Could I take us almost back to the beginning when we spoke aboutconsultation in relation to amendments and the PFS. I understand that in March of this year some proposedamendments relating to program management were circulated by Treasury. I also understand that, in relation tothose amendments, comment was not sought from statutory bodies although it was sought from thedepartments. Whilst I appreciate what Mr Smerdon said about trying to set the standards without having toamend them all the time, I am a bit concerned about the apparent limited nature of the consultation. Could youtell me why there appears to be a limited rather than full consultation for amendments?

Mr Boswell: I do not remember that we did consult with statutory authorities.

Mr J. H. SULLIVAN: It is my understanding that they were circulated to statutory authorities butthat comment was not sought from them, although comment was sought from departments.

Mr Boswell: That was not my recollection.

Mr Smerdon: Could we take that on board and perhaps come back to you with some more specificcomment on that? Quite obviously there is some difference.

The CHAIRMAN: We are about to move on to program management, about which we have quite anumber of questions. Does anybody wish to comment on anything so far?

Mrs BIRD: I seek one point of clarification. You were talking about not being involved in consultation,but do you see yourselves in a role of perhaps providing some assistance in facilitation of the PFS?

Mr Smerdon: We have been consulting with departments very regularly. We are not into theconsultancy arrangement where a department engages us, for example, to write its manual of financialpractices. That is not our role. It is not our role to develop a specific program structure for them. We will certainlyassist and work with a department. But at the end of the day, they are big boys out there, and they get paidmoney to do certain things. We really do not want to be wasting our resources in doing the work that they shouldbe doing. We are happy to assist, but I am certainly not prepared to put in scarce resources and do the job forthe departments. There is an ownership issue here. Unless they own the end product, they are not going to abideby it in the way that we want them to. They have to put a lot of sweat and blood into that, and then they will own it.That is what we are really after. That is the way the system will work, when departments and entities out thereown this whole Public Finance Standards process.

Mr Shead: We are happy to give our advice on it. We are currently reviewing a number of manuals. Wehave given a lot of assistance-probably more than we should have-to a number of large departments. We arehappy to help to the limit that we can. At the same time, we need to make sure that it is their product.

The CHAIRMAN: As there are no iurther comments at this stage, we will adjourn and reconvene at10.45.

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The CQmmittee adjQurned at 10.27 a.m.

The CQmmittee resumed at 10 44 a m.

Dr WATSON: If we CQuid just gQ back tQ where we were ending Qff befQre. It seems tQ me-and I thinkmany Qf the CQmmittee members-that in the cQmmunicatiQn we have had frQm the departments and statutQrybQdies, perhaps they dQ nQt perceive Treasury as dQing as much as YQU as much as YQU perceive YQU are dQing.WQuld YQU like tQ comment? Do YQU think YQU could gQ further in YQur advice and prQcedures, Qr dQ YQU thinkYQU are dQing as much as YQU CQuid pQssibly dQ tQ help the implementatiQn prQcess Qr as much as isreasQnable.

Mr Smerdon: CQuid I make a general cQmment? I think the real issue is whether the departmentsthemselves are really trying. I mean, we believe that we are dQing as much as Qur reSQurces allQw. We arestQpping shQrt Qf actually dQing the WQrk fQr them. I suspect they are under the same SQrt Qf pressures aseverybody else. There is a whQle range Qf things they have tQ dQ. In terms Qf nQn-compliance, they're saying, "Ifwe had mQre help we could have cQmplied." I think it is very difficult fQr Treasury tQ sit here and say we believewe are nQt dQing enQugh; we believe the departments are right, we are nQt Qut there helping them. FrQm Qur pQintview Qf cQmmitment, we have dQne the right thing, as demQnstrated by the fact that we spent a IQt 'Of time withthe departments Qn the issues. If they had specific prQblems, I WQuid have hQped they WQuid start cQming tQ usand talking tQ us abQut the prQblems.

Mr Carpenter: I have nQthing tQ add tQ that.

Dr WATSON: There is a substantial cultural change, which YQU referred tQ earlier Qn, abQut gQingfrQm the prescriptive Treasury guidelines tQ the mQre general financial standards. DQ YQU think in that transitiQnperiQd, that prQcess, that that there needs tQ be a reasQnable amQunt Qf guidance Qr advice in terms Qf gettingpeQple Qver that cultural change that is Qccurring? DQ YQU see that as perhaps Qne Qf the prQblems thedepartments are facing?

Mr Smerdon: I think the cultural change is mQre generatiQnal. I dQn't think its sQmething that is gQingtQ take place in Qne year Qr tWQ years. I gQ back tQ the time when we changed the way we went abQut thebudgeting prQcess, fQr example. I think there are still SQme Qld stages Qut in the departments whQ are still backQn line item budgeting, which is sQmething that Treasury give away five years agQ. I think depends Qn thepersQnnel that are invQlved; it depends Qn the accQuntable Qfficer, whether he is a with-it accQuntable Qfficer Qra guy whQ is still very much bringing himself up tQ date with the whQle prQcess. SQ in terms Qf cultural change, Ithink it is gQing tQ take a IQt Qf time fQr that tQ take place. We have given a fair amQunt Qf time already-I mean,the Public Finance Standards were a cQuple Qf years in the making, SQ a IQt Qf cQnsultatiQn went Qn in thatprQcess. They were prQmulgated Qn 1 July '90 but there wQuldn't have been a departmental manager whQ wasn'taware Qf what was cQntained in thQse standards befQre they were released, given the cQnsultatiQn that tQQkplace. SQ I think generatiQnal changes is abQut culture.

Mr Shead: I suppQse I CQuid add that we are attempting tQ use a bit Qf leverage with Qur externalbQdies, such as a sQciety Qf CPAs and the variQus universities thrQughQut Queensland, tQ get them tQ develQpCQurses and SQ Qn and tQ prQvide assistance. There is currently a prQpQsal fQr the PSMC. They are IQQking atrunning a course in cQnjunctiQn with the CQmmQnwea~h Qn financial management as Qne Qf the mQdules in it fQrmid-level managers. We will be IQQking tQ feed intQ that SQrt Qf thing as a way Qf getting a bit Qf leverage intQ theprQcess.

Dr WATSON: I think we will nQW turn tQ the issue Qf prQgram management. Mr SmerdQn, by letter Qf 16April 1992, YQU infQrmed the CQmmittee briefly Qf what YQur department is dQing tQ assist public sectQr bQdies tQimplement the Public Finance Standards. That letter did nQt refer tQ prQgram management, which I think is amajQr part Qf the standards, and I understand that YQur department has been wQrking with Qther departments inthis area. WQuid YQU like tQ elabQrate Qn that, Qr was it a deliberate Qversight Qn YQur part, Qr perhaps YQU WQuidlike tQ CQmment further.

Mr Smerdon: I CQuid claim the letter was signed Qn my behalf. I guess that is cheating.

Mr Shead: I CQuid answer that. I suppQse the letter deals mainly with the prQblem areas that werethrQwn up in Qur survey Qf the things that we were targeting, and program management was nQt a big issue fQrdepartments in terms Qf the implementatiQn Qf the PFS.

Dr WATSO N: What is YQur department dQing with respect tQ assisting Qther departments in theimplementatiQn Qf the prQgram management?

Mr Smerdon' I refer you to Mr BoswelL

Mr Boswell: We have dQne a range Qf things. The first thing we have dQne is adapted a number QfmQdels Qf prQgram management tQ best suit the Queensland public service, and they have been taken frQm

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Federal sphere State administrations-Canada and New Zealand and the like. We have developed guidelinematerials on program management generally, developing performance indicators and evaluations. We have alsoproduced some pamphlets, for instance, on various aspects of program management, some training videos onprogram management, and we have delivered various seminars, workshops and the like. We have also assistedthe departments in their own internal training sessions, and we have participated with departments in some 20evaluations.

Dr WATSON: What about with respect to statutory bodies? Is there a difference in the orientation ofwhat you are doing for departments versus statutory bodies, or are they included? Have you done anything forstatutory bodies?

Mr Boswell: As I understand it-I am fairly new to the branch-we have had a very limited role withstatutory bodies. But we have intentionally focused on departments.

Dr WATSON: Have any of those statutory bodies requested assistance?

Mr Boswell: The only ones that I am aware of that we have had interaction with are the electricityauthority and Queensland Rail.

The CHAIRMAN: Is that limited response from statutory bodies because they are up with it orbecause they are unaware that they are supposed to be implementing the program?

Mr Smerdon: The program management, from a Treasury perspective, was essentially looking atbudget dependent agencies, hence, the program management branch of the departments in the budget division.So, it focuses more on budget dependent agencies rather than the public sector as a whole.

The CHAIRMAN: So it is not really your responsibility to worry or be concerned about the level ofawareness or compliance or otherwise in the statutory bodies?

Mr Smerdon: We will come back to the general level of compliance with the Public Finance Standardsgenerally. We do not see ourselves in the role of policemen in that area. Hence, our resources for that particularaspect has been concentrated on budget dependent agencies where there was a definite deficiency.

The CHAIRMAN: We should be worried about whether the statutory bodies are complying and areaware of what they need to do to comply. Is it just down to the boards?

Mr Smerdon: Essentially, it comes back to the boards who run the organisations. They are set up asstatutory bodies where they are free of independence and free of autonomy. I think it would be difficult for us tocome into a particular entity that had a board responsible for its management and say that we did not believe itsprogram management was being undertaken in the correct way. They would probably say to us, with somejustification, what our responsibility is and to go away and play with our own field.

Dr WATSON: The information that we have would probably go further than that. They would probablysay something like this to you: "We're an independent body. We do not believe we should have any of thisGovernment interference. Program management is a management technique which we do not think isappropriate." What are your comments on that? As part of the Public Finance Standards, is it appropriate toapply that to statutory bodies?

Mr Smerdon: I think we believe program management is an important management tool. Whether it isa budget dependent agency that we are looking at-which we generally do-or a statutory body, they wouldneed to have some process in place whereby they plan for what they are going to do and have an evaluation ofthat outcome.

Dr WATSON: So the answer is that you believe that they ought to be doing it?

Mr Smerdon: Our belief is that there are very good reasons for them doing it. I find it very hard to seea situation where they ought not be.

Dr WATSON: The Public Finance Standards require that a comprehensive evaluation of all programsbe performed within the three-year period ending 30 June 1993 and thereafter on a cyclical basis not exceedingfive years. What does a comprehensive program review involve?

Mr Boswell: There are things set down in the standards and the practice statements-I am sure youdo not want me to read those. They are substantially the things that have been done. They are fairly simplerequirements in the standards expanded upon in the practice statements of best practices. All of theevaluations that I have seen comply with those.

Mr Smerdon: Perhaps it may be helpful to the Committee if Mr Boswell went through the process weused for the evaluation that we become involved in-a joint evaluation with a department. I think it may help theCommittee's understanding of the process.

The CHAIRMAN: Yes.

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Mr Boswell: Firstly, a working party is formed which consists primarily of people from that operatingdepartment and not more than one person from Treasury. They go through a pre-evaluation phase where theyconsider the range of issues affecting that particular program. One of the difficulties sometimes is identifyingwhat the program is because of the tension between organisational structures and program structures within anagency; identifying the goals, the Government policies in the area and those kinds of major issues so it suits thepurpose of the program performance indicators to indicate the performance in those areas-internalmanagement processes. They are the starting points.

There is normally a steering Committee which guides the processes of the working party. Typically, theevaluation process lasts for about three months. They come up with a range of alternative goals which areappropriate to that program, alternative ways of meeting those goals and alternative ways of assessing theachievements against those goals. Sometimes there are fundamental changes and other times there arecosmetic changes, but they are less substantial changes.

Dr WATSON: Typically, who is involved in these reviews and what kind of resources are required tocarry out a review effectively?

Mr Boswell: It is pretty much full time for the people on the working party for, perhaps, the threemonths of an evaluation. Are you talking about the levels of people who are on-

Dr WATSON: Both. Take a department-what kind of levels are involved and what kind of skills arebrought to bear?

Mr Boswell: The levels of people would typically be between a class six and a class eight, so we aretalking about experienced managers. They would typically be somebody from the operating area, somebodyfrom the central corporate service area who may be from internal audit or the evaluation group or from the groupwithin a department charged with the implementation of program management. There would be a person fromTreasury who would be at that class six to class eight level. There is also quite a degree of involvement,normally, in the views of clients. Sometimes that is done by the people from the operating area and the thingsthat they know. Sometimes it is done by other external agencies who are conducting market research.

Dr WATSON: Basically, three or four people from the department for three solid months full time, plusodds and ends from other areas?

Mr Boswell: Yes, it could.

Mr Smerdon: It really does depend on the size of the program. A small program would not require thatnumber of people. The department may also decide to use external help with the review. Appeals that cannot putthe resources in for itself-we use external help. One thing that I am not sure that Mr Boswell stressed is that interms of the steering committee the two Ministers and the two chief executives that is the Treasurer, the Ministerand myself and the officer of the department representing the steering committee, represents a fairly high levelsteering committee in terms of overseeing the process.

Dr WATSON: The Committee understands at the moment a significant majority of departmentalprograms have not been reviewed. Realistically, do you think all the programs can be reviewed by the 30 June1993 deadline?

Mr Smerdcm: In all honesty it would be a mammoth task to carry out what is essentially an initialreview of every program, given that there are something like 90 programs.

Mr Boswell: One hundred and thirty programs.

Mr Smerdon: One hundred and thirty programs. The task was unrealistic to begin with. I would havehoped that we had departments operating on their own. It is their primary responsibility to do the programevaluations. We certainly assist in a number of specific instances, but ultimately, it must be the departmentitself that carries out the review. Obviously, the resource issue with departments is their capacity to do it. Theother thing that needs to be stressed is that the first review is always going to be the most difficult because it isgoing to be the most comprehensive. A review after that, once that first review has been bedded down, isnowhere near as resource intensive. We are still pushing departments-we need to have a deadline-toundertake the reviews. In terms of that commitment to complete them within three years, we have grave doubtsthat they will complete it. It does not mean to say that a lot of programs have not been looked at in an informalway as opposed to a formal way.

Mr Boswell: There have been something like 40 to 45 evaluations-from my recollection-andTreasury have been involved in something like 25 to 30 of them.

Dr WATSON: I will go into more detail on that aspect. What involvement has the Treasury got not onlyin carrying out the review but also in ensuring that all the reviews are completed by 1993? You can act as anadviser, but you also have a role, not as a policeman, but to encourage. How much emphasis is Treasury putting

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on that to make sure that departments follow through with the program?

Mr Smerdon: As much as we can, is the logical answer. In terms of actually doing it, it requiresdepartments to be pro-active. We cannot go out and do the evaluation on our own. That is not a very productiveway to operate. It comes back to the ownership issue. Unless the department is involved and owns the outcome,you will not get a satisfactory outcome. I do not believe that a Treasury-imposed outcome is the best outcomefor the service as a whole. It has to be a joint undertaking or, preferably, the department itself going through theprocess recognising the program has deficiencies, good points or whatever, and only then the outcome of that.

Mr Boswell: We have done a couple of things. Firstly, we have asked departments of their evaluationschedule, reminding them of these key dates and the like. We have been keeping a track of that. We have alsomade use of our knowledge in the involvement of the vast majority of these evaluations to revisit our guidelinesand standards to give some clarification and guidance on what constitutes a satisfactory evaluation and whatdoes not.

Dr WATSON: You mentioned that 40 or 45 had been done and that Treasury had been involved in 20or 30 of them. What is the difference? Why was not Treasury involved in the other 15 to 20? What is thedifference? Is there a difference in outcomes between Treasury's involvement and no Treasury involvement?

Mr Smerdon: For example, as a matter of principle, I do not see Treasury's role as being involved inevery evaluation that is being done. As I said, and I stress again, it is ultimately a department's responsibility toundertake these. Our role initially is as a training program. If we could work with departments on a programevaluation for the first one or two, then they would have an idea of what they should be doing to carry out theevaluations. Essentially, out task up front has been to assist departments in understanding what they should doto carry these out. If you ask me in five years' time where we will be, I would hope that we would be doing only avery small proportion of the evaluations and they will be more strategic than simply the ongoing review process.The departments will be carrying these out themselves.

Dr WATSON: The ones that you were not involved in-were you involved with training programs tobegin with in those departments?

Mr Smerdon: It may well be that this is the second or third evaluation that a department is doing. Itfeels that it has a handle on what it should be doing, anyway.

Mr Boswell: The other thing that we are doing is we have a hierarchy of roles from being representedon working parties and at the reference group, which is one down from the steering committee, and somerelatively low-level advice with those people who are actually conducting the evaluations. We have no formalinvolvement, but we are there to give them some feedback and advice on how they conduct themselves duringthe initial fact-gathering stage and how they might present their final report so that it is attractive to the decisionmakers.

Dr WATSON: The practice statements to the standards require the results of all reviews andassessments conducted be reported to the relevant Minister. The Committee is concerned about the possiblelack of follow-up action on the results of program reviews. What experience has there been to date of reform andinnovations as a result of the recommendations contained in such reviews?

Mr Smerdon: The earlier reviews we have followed up on to see if the recommendations are in factbeing carried out and, where they are not being carried out, as~ed them reasons why they are not being carriedout.

Dr WATSON: Can you give us an idea of the number in which they have not been carried out?

Mr Boswell: One. We have been back and revisited every evaluation that we have been part of andonly in one instance was there a less than satisfactory implementation of the results of that evaluation and thatwas in an area that the PSMC was reviewing at the time, so it was constrained as to the kinds of things that itwas able to do in the short term.

Dr WATSON: What about the other reviews that Treasury did not have anything to do with?

Mr Boswell: I am sorry, but I cannot answer for them.

Mr Smerdon: We would need to take that on board, but I would say that the intention is that we wouldfollow it up and ensure that the review process is in place, to be advised of what programs were reviewed andwhat mechanisms have been put in place to ensure the implementation, whether those recommendations hHdbeen accepted or not. There is a mechanism that is a checking mechanism more than anything else. As theseare budget dependent agencies normally, we are a fairly persuasive tool to find out this information.

The CHAIRMAN: Five years down the track when you hope that Treasury will not have muchinvolvement in participating in these evaluations, do you still see some role for Treasury in monitoring theimplementation of recommendations and evaluations?

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Mr Smerdon: I think so. I see our role as being, to quote Dr Watson's theme, of the policeman but notthe forceful policeman. It is our role as manager of the State's budget to ensure that those matters that impacton the budget are reviewed. Obviously a program evaluation does have some budget impact. So we will bereviewing how people are going about these evaluations.

The CHAIRMAN: Would Treasury basically look at every evaluation that is done? When anevaluation is completed, presumably it should be seen by the senior management in that department. WouldTreasury automatically want to see that evaluation at some stage?

Mr Smerdon: I would not give ~ an automatic right to see the outcome of the evaluation. I think wewould reserve the right to ask for the results. Again, we want to encourage in departments a view that this is amanagement tool that they have got hold of and they should be using ~ as a management tool. It is not a tool thatTreasury has put in place to beat departments about the ears in terms of budgets. If it was seen that way, itwould never be successful. This is not our tool; ~ is a management tool that the departments have got hold of.They ought to be able to take those results and produce a better outcome. If in five years' time ~ is not producingthat better outcome, I think we would have something to answer for in terms of whether that system is worthwhile.

Dr WATSON: We will move on to the issue of outcomes. The Public Finance Standards require thatperformance indicators be developed for evaluating program effectiveness and efficiency and that the programsbe reviewed at least annually against key performance indicators. I have a number of questions along thoselines. First of all, could I get your understanding of what is meant by the terms "efficiency" and "effectiveness"across the public sector, and perhaps differentiating between different aspects of the public sector such asdepartments, statutory bodies or GOEs?

Mr Smerdon: In terms of efficiency and effectiveness, as a broad defin~ion, efficiency tells you howwell you are carrying it out in terms of the cost per un~, so you can be very efficient in producing output but youmay have got the outcomes entirely wrong. Effectiveness is about how well you have done in meetinggoals-about how effective you are in producing the outcome that is desired. That in very simple terms is theway we define ~.

Dr WATSON: How do you see public sector bodies setting performance indicators in respect to thosetwo issues?

Mr Smerdon: I wish I had a very simple answer for that.

Dr WATSON: This is a complex but important issue.

Mr Smerdon: It must go back to what the program is all about, what has to be achieved in terms ofgoals and objectives. You must set performance indicators that relate to those issues. You cannot haveperformance indicators that relate solely to effectiveness. There has to be the whole issue of how efficiently youare carrying out the operation, anyway.

Dr WATSON: Do you see performance indicators as being idiosyncratic to a department or a body ordo you see that there should be some commonal~y across the public sector on some, if not all, performanceindicators?

Mr Smerdon: Generally ~ should be idiosyncratic, but there are some that relate to Public FinanceStandards in their own right and are a performance base that people could work to. Compliance w~h the Aud~or­

General's requirements is essentially a performance measure-how well are departments complying w~h PublicFinance Standards in particular programs? That is a very general deal. But, by and large, ~ has to be programspecific because you must relate performance indicators back to the goals of the individual program.

Mr Boswell: There are other programs where it is possible to develop certainly some genericcharacteristics. Corporate services is one that we intend to target and have started to target to develop genericperformance indicators. Policy areas would be another, and some of those areas where they process largenumbers of applications for leases and licences from the public would be other areas where there would certainlybe some generic characteristics of performance indicators.

Dr WATSON: Obviously, the Public Finance Standards have been developed to give the diversityand the flexibil~y that is required in the public service. From our viewpoint and from a parliamentary viewpoint,these things will be communicated eventually publicly-I will get on to that in a moment-to the Parliament. Inour pos~ion, we would be.looking at a couple of things: one is how an individual department or statutory body isperforming; another is a comparison about how the public service or the public sector is performing. What kind ofguidelines ought to be there to ensure tha.t there is, if yOL! like, not just intradepartment but interdepartment orinter statutory body comparisons available?

Mr Smerdon: I guess as you were talking I was trying to think of an example where there would be a

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cross-department performance indicator that needed to be developed, except in this corporate services areawhere you are looking at what proportion of admin costs are represented in terms of the program or how manystaff do they have, what is the resource output per staff. There is not a lot. I do not believe that performanceindicators are necessarily additive. I think they are very much a program-based measure. I think you run intogreat dangers in trying to add up performance measures across departments. That begs the question of whatshould happen in terms of the broad reporting to Parliament about the service as a whole. This comes back reallyto having meaningful performance indicators. The most meaningful one you can get is obviously financiallybased or just broad number based. How many staff does the public sector have on board is obviously oneindicator. How has it moved at the time? What is the mix of public service staff? In terms of the financialinformation, how well are the assets being utilised? But short of that, I am not sure how far we can go in a broadsense.

Mr ELLIOTT: This might be right off the question, but do you have any sort of input in terms of theoverall public service as far as the fact that 7 500 new public servants have come into play in the last few years?Does Treasury get asked in this overall efficiency area whether those public servants are really doing somethingand are they able to quantify what they are doing, why they are doing it and whether that is being efficient?

Mr Smerdon: We come back to the sum of the whole. In terms of the resource issues, at budget timewe are obviously looking at what resources are being utilised by departments for specific programs. It is veryeasy to be additive and add those together and say, okay, there is X number of people required. But decisionsabout requirement are really made first at the micro level and then looking at the macro strategy. In the publicsector, for example, if the budget cannot stand any increment to overall numbers, you ask yourself what are theimplications for all of those programs that are underneath, given that decisions have been taken on that. One ofthe strategies with the broad-based budget is to say that this is the resource level for the public sector or thebudget-dependent agencies; now, how best to divide that up in terms of achieving outcomes for theGovernment, and what does that mean in terms of people, capital investment, etc?

Dr WATSON: I will follow that up a bit more. In the financial management guidelines, one of theelements or purposes, if you like, for departments and statutory bodies in implementing the Public FinanceStandards is to ensure that resources are optimumly allocated across programs. Obviously, if all the outputindicators are idiosyncratic to programs, then how do you ensure that resources are allocated optimumly acrossprograms?

Mr Smerdon: I think the point I was trying to make before was that they are certainly idiosyncratic interms of the micro issues. As you move up the tree-and we have a hierarchical structure for programs-themore difficult it is to get really meaningful performance indicators. When you get into the policy area or programarea, the more difficult it is to get meaningful performance indicators. You fall back on broad issues like staffingnumbers and things like compliance with financial management issues. How well is the budget allocation beingutilised in the broader sense? I agree that it is extremely difficult to make decisions about resource allocation atthe very highest level because the perlormance indicators there are very broad by nature.

Mr Boswell: The standards talk about resource allocation across programs. To a degree, that canalso be interpreted to be within a department within a program area. So what we are trying to do is to encouragechief executive officers of departments to themselves do the training so that they ale not COIning back toTreasury asking for more resources for their department, but they can adjust the resource allocation within theirdepartment in accordance with their strategic plan. .

Mr Smerdon: I think Dr Watson's question was that that is comparatively easy to do, in invertedcommas. It is the cross-program area policy areas that becomes much more difficult, which we accept. It is anissue that we will have to address. I think you cannot address that until you have got the micro issues sorted outfirst.

Dr WATSON: So basically what you are saying is that you really see a hierarchy of performanceindicators, both financial and non-financial. The aggregation issue is a problem. But what Mike said was that youare going to have some indicators which allow you to compare programs within departments; it is much moredifficult to compare programs across departments, of course. Do you have any idea of the kind of non-financialperformance measures that you have got in mind for individual departments, or are they so idiosyncratic thatthey are going to differ from each and every department?

Mr Smerdon: I do not think that the non measures-eustomer satisfaction is a classic measure ofperformance, where you survey your clients and ask them how well is the service being provided. That is not afinancial performance measure but it is certainly a very important measure, the perspective of the entity in termsof delivering the service. That is a fairly safe one to say applies across most departments.

Dr WATSON: Going back to some of the earlier discussion-is it these kinds of uncertainties whichare associated with the problems that departments are having, why they might perceive that perhaps they have

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not got sufficient guidance or advice from Treasury?

Mr Smerdon: I think Mike should comment. I think it is really an issue of "it is a new concept". Theway we have undertaken program management in Queensland is slightly different to the way other jurisdictionshave undertaken it. I think it is just a general air of uncertainty with new things.

Mr Boswell: There is also an issue, I think, in resource allocation as to whether some programmanagers want to try to show their program in a good light, and would try to choose performance indicators whichdemonstrate that, or in a bad light. So there are strategies of their getting support for their program, whether theywant to be seen as doing well or doing badly, to be able to improve the services for their clients. It is not easy.

Dr WATSON: Should public sector bodies be required to publicly report achievements against theperformance indicators, say, in their annual report?

Mr Smerdon: My view clearly is yes.

Dr WATSON: Are they required at the moment to present that information?

Mr Shead: I think generally in terms of the annual reporting requirements, yes, they are; certainly notin detail.

Dr WATSON: That is the question. If you are going to have performance indicators that are quitemeaningful at whatever hierarchical level you are talking about, at some stage you have to have somecomparison of performance with those indicators.

Mr Carpenter: Certainly, we would support that. Obviously, we are not prescribing which particularones, but one would hope that all agencies will seek to link the resources used with a range of outputs andoutcomes and report at that appropriate level as part of their annual report.

Dr WATSON: Should these indicators be published as part of the strategic plan?

Mr Boswell: Yes, that is one of the proposed changes to the Public Finance Standards. A number ofthose authorities-I went to a seminar the other day on GOEs, and it seems as though there are a number ofthem which are comparative with interstate colleagues and there are some emerging standards, for instance, inthe electricity authorities of national best practice, world's best practice, and they have characterised somenumerical performance indicators, and a number of them are towards that goal.

Dr WATSON: So you expect those kinds of things to be brought into account-it does not matterwhether they are financial or non-financial performance measures-eomparisons, say, with like entities withinthe State, within the country and international.

Mr Boswell: Yes. I am not an economist, but as I understand it, a number of those bodies borrowmoney and the rating agencies-Standard and Poor's and the like-were making use of that kind of informationto adjust their credit rating, or if they are going to lose their credit rating.

Mr Smerdon: In terms of the Special Premiers Conference process, there was quite a move to getstandardised information for a whole range of Government-owned enterprises-electricity authorities, waterboards, port authorities and rail-so comparisons can be made. In terms of the performance indicators, one ofthe uncertainties may well be in some areas where people associate performance indicators with mathematical­type exercises. I think there is a great degree of uncertainty with departments where there are fairly subjectiveperformance indicators and just how many of those subjective indicators there are. What Mike has been doingwith some of the departments is stressing that it does not have to be rigorously measured necessarily; theremay still be some things that you can undertake, some surveys that you can undertake, which give you an ideaof performance but are not necessarily mathematical based.

Dr WATSON: What do you think of the benefits that departments will get from using the programmanagement principles set out in the Public Finance Standards?

Mr Smerdon: I think that Mike alluded to them, and I will let him continue on with it. Once adepartment has done a program evaluation, it realises just how well that program is performing or not performing,and it can then make good decisions about what to do about that program. Unless it is evaluating the program, itis really working in the dark-sort of seat-of-the-pants-type decision making. We do not believe that that is allthat good. Mike might wish to comment further on that.

Mr Boswell: I think that there is a range of very good things in program management. The uniformityof purpose is profound. I think that the ability to make use of program management principles for devolution anddelegation of authority is also quite profound, so people can see the contribution that they make to a higher level01 purpose. The nolion of making the managers manage by being accountable for those pieces Is comparablewith these finance standards and finance system standards; how do managers really get interested in what ishappening in their agencies. Those are the kinds of characteristics. The other one is client satisfaction and a

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strategic view.

Mr Smerdon: It is also a budget-related issue, but we have not tried to stress the budget issue interms of the program evaluation. Quite clearly, if a program is not performing the things that it should beperforming, there is an argument that funding should be withdrawn, reduced or whatever. We have tried to keepaway from that argument a little, because we want it to be seen as a management tool primarily. It certainly has abudget purpose and a budget relationship, but it is very important in terms of the overall public service to ensurethat the management of programs is an important part of day-to-day life.

Mr ELLIOTT: In all of these areas, have you been using this program to date to evaluate whether ornot-for arguments sake, those that went to Cabinet-where there has been assistance in terms of asking formore public servants for particular programs, have you been using any of these evaluations as a criterion todecide whether or not those various departments got the additional personnel that they were requesting?

Mr Smerdon: I would have to say that it is not as sophisticated as you are saying. There have beenadditional resources go into the public sector, but it is chiefly in areas such as hospitals, education and police,which have been priorities of the current Government. There have been significant additional numbers go inthere. In terms of public sector administrative staff-I know that you quoted a number before, but I think thatthere are problems with that number. But in terms of the administrative staff, there certainly has not been anysignificant increase i~ numbers at all.

Mr ELLIOTT: What about in Cabinet itself where it is reputed to have 85 people in that general area?Would there be some evaluation through the processes that we are talking about as to whether or not they wouldbe put on?

Mr Smerdon: In terms of the Office of Cabinet-a fair number of staff were taken out of the oldPremier's Department and regrouped. There were probably one or two additional staff. But in terms of a programevaluation, given that it was a new function per se, it is very difficult to carry out an evaluation of a function if it isnot there.

Dr WATSON: Going back to the benefits from the program, and going back to a comment that youmade about the strategic use of the program management-an economist might call it gaming-how does thataffect the use of it, the benefits that you can gain from it, and how extensive is it from your observations todate?

Mr Boswell: I am aware of a couple of programs which the managers of the programs, with thesupport of the people on the steering committee to which Mr Smerdon referred earlier, have implemented somefairly fundamental changes-the Fire Service is one-or in the process of implementing some fairly fundamentalchanges. Yes, it is happening.

Dr WATSON: You do not see any problem with people trying to enhance the outcomes or reduce theoutcomes in part of this program?

Mr Boswell: There is a need for objectivity and that is an important ingredient in the evaluationprocess. But is a cup half full or half empty? There are a variety of ways of presenting the information and itremaining factual and objective.

Mr Smerdon: In terms of the ongoing reporting of performance indicators, for example, we wouldhave a reasonable idea as to whether those performance indicators truly tell how well that program is performing.The gaming does go on, and it has gone on throughout the world. We will not be immune from the process ofbureaucrats trying to improve their position by putting up performance indicators that show that the program isgoing very well. It is a case of people with a bit of expertise and good sense getting behind some of thenonsense that goes on and making some informed decisions. That is part of the process where Mike and hispeople come in and say, "This performance indicator is nonsense. All it does is tell you that you have put outsome output, but your effectiveness is terrible."

Dr WATSON: Is that part of Treasury's role, or is it part of the review that you do?

Mr Smerdon: There are two issues. One is the public perception. If you start putting out glorifiedperformance indicators to try to boost up the way that you are operating a program, I think that your clients willvery quickly come back to you and tell you that it is all nonsense. We also have a role in terms of resourceallocation.

Mr Boswell: Within the budget division, for instance, we have program management, but for the mostpart we try to concern ourselves with the evaluation process. Then there are the expenditure and revenuebranches, which mostly concern themselves with the results of that evaluation and how they are interpreted inthe allocation of resources between policy and program areas.

Dr WATSON: From your observations to date, has program management been properly implemented

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by the departments so as to allow the benefits to be achieved? From what you said before, is the answer to that"Yes"?

Mr Boswell: When you say "properly"-are they on the right track-from my observations and myexperience in other administrations, I would say yes. But if you are asking me fully, then the answer is no, thereis still some way to go.

Dr WATSON: For example, you would not be concerned that there is token compliance rather thanactual compliance?

Mr Boswell: It is a bit hard to tell the difference sometimes.

Mr Smerdon: That is quite a serious comment that has to be taken for what it is. Token compliancemeans that there is actually somebody who has taken some time to read some documents and manuals, puttogether a program and looked at the operation of that program and the performance indicators. They might givetoken credence to it, but at least they have thought about it. Hopefully, when those thought processes havebeen bound in a bit more we might get some better results. A variety of people out there have a variety ofcommitments to program management. I have to be very honest with you and say that.

The CHAIRMAN: How do we know whether managers are believing in this as the management tooland therefore looking to get the gains that it offers, rather than just having to comply, and does that reallymatter?

Mr Boswell: I think it matters. I think we can go a long way towards compliance in practicallyencouraging people by sanctions to develop strategic plans and the like. How they use those strategic plansand how they develop those strategic plans at the end of the day is more important than the fact that they have astrategic plan. The kinds of ways we can make judgments is by the confidential survey which was conductedearlier this year. From memory, something like 80 per cent of the reasonably senior managers sampled withindepartments and the large statutory authorities said that they thought program management made a marginalpositive impact or significant impact on the ways in which the departments are now managed. I think that is apretty good indication.

The CHAIRMAN: Did you ask whether they believed in that as a management tool?

Mr Boswell: We asked for their own commitments to it and got substantially similar numbers.

Dr WATSON: There are problems with those kinds of surveys. We should not get into that, but ifsomeone is gaining on the one hand, they are also going to gain-- .

Mr Smerdon: That is why I make the comment. I think, in all honesty, there are people committed toit and who are doing a damn good job. There are a range of people out there who say, "This is something that wehave to comply with." They are the same sort of people who have Auditor-General's requirements, where they willsay, "It is a damn nuisance to do this", and they will have token compliance with what they are supposed to bedoing. They are the sort of people who eventually will be weeded out. There is a great degree of commitment to aprogram management process, not just here. I mean, we are not inventing something new. This is a world-widephenomenon. What we are trying to do is get the best practice in place. People are just going to have to acceptthe standard.

Dr WATSON: Thank you. Public Financial Standard 310 (3) requires that the program managers andpractice statements including Schedule A to the Public Financial Standards, "shall be incorporated in thesystems employed to the extent practicable by each statutory body." Could you tell us exactly what"incorporated ... to the extent practicable" means? In what circumstances may they not be practicable?

Mr Smerdon: I think in the broadest terms, it is really what it says, that where it is appropriate, it Will

be incorporated by each statutory body and where it is not appropriate, there may be very good reasons not topick it up.

Dr WATSON: Would you have an idea of the kinds of reasons that might be appropriate-legitimate. ifyou like, for not picking it up?

Mr Smerdon: The sort of entities I could think of would be that the river improvement trust has abudget of $30,000 or something. To comply with this sort of process, I think, is probably gilding the lily far toomuch.

Dr WATSON: So a materiality--

Mr Smerdon: I think materiality and common sense. After all, management is about common sense,and if a manager wants to get invoived in ali sorts of paperwork simply to try and compiy, i do not think he is agood manager. It think it is a case of adopting commonsense attitudes to these issues.

Mr Boswell: There may be other issues of confidentiality-eommercial in-confidence information, in

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the case of a number of the other ones.

Mrs BIRD: Could you give us an example?

Mr Boswell: I would think that the ways in which they borrow money might be one. I am not in thoseareas, but I understand that some people have concerns about the publication of strategic plans, for instance,and the publication of operational plans and where they impact with other commercial entities in s.imilar areas.That would affect our public level-

Mr Smerdon: One classic example is, say, if the Queensland Investment Corporation took astrategic decision to off-load a lot property. If they published that in the strategic plan and let the world at largeknow that that was the decision that they have taken, it immediately devalues their capacity to achieve amaximum price in the marketplace.

Dr WATSON: Can I ask you then just a bit further on the statutory body-how would you advisestatutory bodies seeking clarification as to the applicability of the practice statements to their organisation?

Mr Smerdon: How would I advise them to seek guidance?

Dr WATSON: If they were seeking clarification on this particular area. I mean, we have talked so farabout materiality, but what would you advise? Is it simply that? Is that the only issue involved? What if someonecame along and said, you know, "Am I exempted because I do not consider that it is practicaL"

Mr Smerdon: I think that it is an issue that they would take up with us and we would form a view as towhether it was practical or material. I mean, there are different interpretations on that. I think we would beprepared to take a reasonable view consistent with our overall belief that Public Finance Standards and practicestatements are very important for management of the public sector as a whole, not simply departments. Wewould take, as I call it, a commonsense view on these things.

Dr WATSON: Does this also mean that all statutory bodies have to do a comprehensive review of alltheir programs by 30 June 1993 to be able to meet this?

Mr Smerdon: I think that there is a range of public sector bodies out there who are probably moreadvanced than departments are, that have had some forms or some elements of program management review inplace. I could stand corrected by my colleagues, but I would have thought that there are some entities out therewhich have very well developed plans. I can think of SEQEB, for example. I mean, their style and quality ofmanagement is very good. They can teach us a thing or two in regard to these sorts of issues.

Mr SU LLiVAN: If I could revisit an earlier question about the appropriateness of programmanagement being imposed on all agencies. When we first started to discuss program management, it seemedto me that I was told that what might be quite a reasonable question to ask everybody, for example, "How muchmoney have you spent on consultants under program management?" becomes unanswerable. Now, agenciesare compelled to implement program management. You refer to it as a management tool. Treasury'sconcentration appears to be on budget dependent agencies. There has been expressed to us some resistancefrom agencies and, I guess, non-budget dependent agencies. We have also stressed the importance of theagencies having some ownership of the program management. Could you just revisit that question with us? Is itreally important that these agencies be compelled to implement program management or should they have theflexibility to use their own management techniques?

Mr Smerdon: I am a great believer in flexibility. I guess at the end of the day it comes down to whatParliament really wants, and I think Parliament really wants to have out of the public sector some consistency.Also there would have to be a good reason for an entity not to accept program management as a managementtool. I mean, program management should not be seen as a rigidly defined set of principles. I mean, there is adegree of flexibility and it just happens to have a name, program management.

Mr SULLIVAN: I mean, there are a number of management tools and this is one that they are notbeing given the opportunity to choose. This is one that they are being compelled to use.

Mr Smerdon: Well, no-one has approached us, as far as I am aware, to suggest that programmanagement, as we have conceived it, is not suitable or not appropriate for their entity. The issue is normallyabout what their programs are. There is a big issue with some entities in terms of the corporate servicesprogram. The theory says that corporate services should not be a program, it should simply be part of eachprogram that the entity has. We took a strategic decision in the first few years of program management that wewould separately identify corporate services. Some agencies have come to us and said, "We do not believe thatis right. We do not like the way you have gone about implementing program management", because theirmanagement process had corporate services areas spread amongst the programs-identified with eachprogram. I do not think that that is a major issue in terms of whether program management is right or wrong.

The CHAIRMAN: Moving on to a new topic, I have a question about public financial standard 103.

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Does anybody need a copy?

Mr Smerdon: We all came prepared.

The CHAIRMAN: Public Financial Standard 103 allows Ministers to grant exemptions from somesections of the standards subject to five nominated criteria being substantially satisfied. Criteria A and B are notparticularly clear to the Committee, so I would just like to ask what each of these means. I might just read thefirst one out. Criteria A:

"Membership of, registration with or service by a departmental instrumentality or statutorybody is limited to a small number of persons or entities who collectively have the capacity to directlyinfluence management of the instrumentality or statutory body."

Could you try and clarify what that means and maybe give an example, if you can?

Mr Shead: That criteria, I think, is to obviously differentiate the minor bodies who could be exemptunder various standards. As an example, say, a p. and c. committee; I think in that situation, there would be a lotmore effective accountability to the local members of the school community than there would be to Parliamentthrough some sort of formal reporting system with general purpose financial reports and audit by the Auditor­General and so on. I think we have got a small number of users of financial information who take an activeinterest in the body. They're the ones who can ensure a high level of accountability by the body, rather than thenormal accountability process with Parliament at the top-not to say that these bodies are not unaccountable toParliament, of course, but there is a lot more effective accountability where there is a small number of users-ap. and c. committee is one; a small water board would be another one, where a group of farmers have a veryactive interest in the operations of that body.

The CHAI RMAN: Criteria B, which is "a range of external persons or entities does not have asignificant economic involvement or interest in the instrumentality or statutory body".

Mr Shea d: Again, this is looking at outside bodies-I suppose creditors, banks, ratingsagencies-where there is not a range of those sort of bodies who cannot command the financial information thatthey need. A small, self-contained body which does not have a significant number of outside users of financialinformation-I cannot see there is a great need to impose general purpose financial reports on them.

The CHAIRMAN: Can you give a specific example?

Mr Shead: A similar range of bodies, I suppose. For example, a small water board might take out adebenture loan and it has to prepare information for the local bank where it gets the money from or from QTC. Itwouldn't have very many creditors at all, maybe local shopkeepers or something like that for repairs to its pumpor irrigation equipment. It really doesn't serve a lot of use to require a depth of financial information from a bodylike that.

Mr ELLIOTT: So it is just moving water to a group of farmers. If you just look at say theCommonwealth Trust, as they call themselves, they are basically just servicing those farmers. You wouldn'timagine there is much potential for doing anything other than servicing themselves--

Mr Shead: The users of financial information are going to be confined to a fairly small group who cancommand that information themselves.

Mr Carpenter: That, of course, is "needs to satisfy or continues substantially to satisfy" each ofthose-

The CHAIRMAN: I realise that.

Mr Carpenter: There are another three. There are going to be very rare circumstances that there willbe, other than the few examples mentioned by Mr Shead.

The CHAIRMAN: That was going to be my next question, really. Basically, it is our reading of thepublic finance standard 103 that there is very little scope for granting exemptions from the provisions of thestandards. You agree, obviously, that that is a valid reading. Do you think that there should be more flexibility,even now, or perhaps if you review the situation? .

Mr Carpenter: It will be continue to be monitored, and I guess we will hear in particular as we moveinto general purpose financial reporting as to whether bodies feel that they perhaps need not do that, andobviously the criteria as laid down there will need to be assessed by the Minister, and I expect we will be askedfor our views on those. It is a tricky area; it is the concept of a reporting entity. The accountability issue isobviously an important one, through reporting to Parliament. Obviously, that is there to cover those instancesthat hava baan touchad on a littia earHer, and we wiii continue to monitor that to see whether that is appropriate.

Mr Smerdon: As a matter of principle, I think we would have some reluctance to see any significantexemption of bodies. We think the standards have been drafted in a way that allows for flexibility and allows for

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small and large entities, and for complete exemption, I think we would be very, very reluctant to advise theTreasurer that he should grant such an exemption.

The CHAIRMAN: Just to carry on a little bit-standard 103 is very complex. Has there been anyconsideration, or do you think there is any need perhaps to simplify it without changing what it means?

Mr Carpenter: I guess we can always see if there is a better way of making sure the message getsover, so I guess we could have a look to see if we could make it easier to follow.

Mr Shead: We are always open to suggestions.

The CHAIRMAN: Are you aware of any exemptions being granted?

Mr Smerdon: I am certainly not.

Mr Carpenter: I am not either.

Mr Shead: No. We get a request for advice all the time on that question-­

The CHAIRMAN: So you have had a lot of requests for advice?

Mr Carpenter: Well, no, the issue of course is that it is the Minister who makes the exemption-and Iknow we have had contact from a number of departments on the issue in that particular area. I am not aware, andI suspect Mr Shead is not aware of any exemptions having been given at this stage.

Mr Shead: We do not keep any record of them, but we are asked for advice on things like what doescriteria A and B mean; how they would apply in practice.

The CHAIRMAN: If the Ministers have been granting exemptions, you wouldn't necessarily know atthis stage?

Mr Carpenter: We are not aware-there is no formal requirement to report through to the Treasureron that.

Mr Smerdon: It would be unusual, though, if a Minister acted in that way without some sort of informalconsultation with the Treasurer.

The CHAIRMAN: It is likely there hasn't been many exemptions at all, if you are not aware of any.

Mr Smerdon: We are not aware of any.

The CHAIRMAN: Is there an informal requirement-if the Minister was to grant exemptions, wouldthat need to be shown somewhere?

Mr Shead: It would become evident in the annual report of the body concerned.

Dr WATSON: Just a couple of questions, relating back to something Mr Carpenter touched on earlier,the Queensland Government Financial Management System. We understand that a pilot implementation of theQGFMS has been undertaken, and it took place in the Department of Primary Industries, in the Forestry Serviceand the Department of Administrative Services earlier this year. The Committee would like to know whether thesepilot implementations have been successful, and is the system now available for all budget sector agencies?

Mr Carpenter: I think you are referring to the asset module

Dr WATSON: The fixed asset management system, sorry.

Mr Carpenter: I would have to come back to you on the specific details, but certainly we are now outof the pilot phase, and a number of other agencies are now implementing the asset module, but I would need 10get back to you with details on where we are with that particular module.

Dr WATSON: If they are being implemented by other agencies, I guess the pilot program was qurtesuccessful.

Mr Carpenter: That is correct.

Dr WATSON: We understand the Treasurer has been developing a policy on the recognition ofrecording valuation reporting of non-current physical assets. Has the policy been finalised yet and distributed?

Mr Carpenter: No, the policy has not been finalised. As Mr Shead indicated earlier, a draft documenthas been developed; a lot of work has been put in. In the meantime, a committee has been established under theaegis of the national performance monitoring of GTEs following a decision out of the Special PremiersConference last year. I have a role on that particular subcommittee on asset valuation, and I guess we have heldback on the asset issue pending the finalisation of the guidelines from that exercise, which at this stage is likelyto be published next month. There is a great deal of similarity in the work of that committee and the work that hasbeen taking place in Mr Shead's branch. Our hope is that both the document at the national level and our owndocument will be available for comments in June. In fact, the document out of the national performance

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monitoring of GTEs, the Committee hopes, will be published for comments by the bodies concerned and thevarious jurisdictions for a two-month comment period commencing late in June.

Dr WATSON: What do you mean then by "jurisdiction"? Within Queensland, would that go to all thedepartments for comment, or what would happen?

Mr Carpenter: The document has been developed for GTEs. There are some 53 bodies Australia­wide, and I think there are seven or eight Queensland bodies amongst them. That would be available forcomment by those bodies; obviously by Queensland Treasury; Auditors-General will also be provided copies,and a number of academics will comment on that particular document.

Dr WATSON: The policy is going to apply to GTEs. Is that the limit?

Mr Carpenter: The document out of the national-it is hoped that that will be adopted by eachjurisdiction by application by GTEs. Our view is that an asset, whether it is managed by a department or astatutory body, has similar characteristics. It is an asset wherever it is controlled, so our hope is to see thatthere is some consistency in the policy that it developed in regard to asset management purposes.

Dr WATSON: Do you envisage it having application to those commercial operations of departmentsthat are required to prepare general purpose financial statements?

Mr Carpenter: Yes.

Dr WATSON: By 30 June 1993?

Mr Carpenter: That is our hope.

Mrs BIRD: I have some other sundry questions. You will probably identify some of these as beingclarified in previous comments. With respect to statutory bodies, are the Public Finance Standards moreprescriptive than previous requirements which applied to them? The Committee is thinking of things like theposition assessments, system appraisals and program management, etc.

Mr Shead: In relation to statutory bodies, the PFS replaces the old Minister's directions which, inmany cases, were based on the Treasurer's Instructions which were fairly prescriptive in terms of accountingprocedures and so on. Although these are requirements of the standards of position assessment and thesystem appraisal, the message today is that they are not prescriptive. We are not looking for those sorts ofprocedural details.

Mr Smerdon: In adding to what Mr Shead has said, the requirements that are being proposed throughthe public finance sector should not be seen as being something new or additional that most entities should nothave been doing in some way, shape or form previously. I think that if you are being told that this is a newrequirement costing lots of money and lots of resources, then I do not think the entity has been doing its jobpreviously. It would have just clothed it with some specific name to give it a framework and a concept.Essentially, they should be doing these sorts of things as part of everyday management. That is important tostress. It will vary from entity to entity.

Mrs BIRD: The Committee is interested in the move to GOE status by certain public sectorundertakings. In some organisations there seems to be an anticipation of an imminent move to company statusgenerating a view that full implementation of the standards would be wasted. Is it envisaged that any authoritieswill move directly to company status, such as Suncorp?

Mr Smerdon: In terms of the GOE program, the legislation will have it in two stages. One is acorporatised status in terms of a statutory body or some similar entity, and most entities will go through thatprocess. The second stage will be the company status. Depending on whether that is a statutory body orcompany there are going to be different requirements as a company-an ordinary corporate entity-is subject tothe Australian Securities Commission requirements. So there will be some change. It comes back to what thePublic Finance Standards are about. The Public Finance Standards are about good financial and othermanagement. I do not believe it can be claimed by anybody that implementation of standards are a waste oftime. That is just a furphy being dragged across the track by somebody. These are about what should be beingdone. The fact that the ASC monitors it or we monitor it through here should be irrelevant. It is about goodfinancial management practice.

Mrs BIRD: The Public Finance Standards require public sector bodies to ensure competitiveprocurement arrangements are in place including, where applicable, those required by the State purchasingpolicy approved by State Cabinet. Why was it decided to require statutory bodies to comply with Statepurchasing policy?

Mr Shead: That depends on the application in the purchasing policy itself. The requirements reallyjust pick up the State Purchasing Policy. That phrase "where applicable" refers to the sorts of bodies that thepurchasing policy itself covers.

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Mrs BIRD: What is the difference in the application? How might they vary?

Mr Shead: I am not sure of the details of the applicability of clauses in the State Purchasing Policy. Isuspect, for example, that it would not cover the entire public sector. I think it would mainly focus on the budgetsector.

Mr ELLIOTT: For tendering out vehicles for sale or taking them to a public auction-does it getinvolved in that type of thing as well or only in purchasing?

Mr Carpenter: I think on this area of the State purchasing policy we have obviously not comespecifically briefed on that and, indeed, it is the responsibility of another Minister. Whilst we have someknowledge of that document, there are obviously a range of policy issues and requirements in that document. Doyou want us to take on notice some questions on that issue?

The CHAIRMAN: No.

Mrs BIRD: It has been suggested to the Committee that the standards should contain definitionswhich can be unambiguously interpreted and applied for terms such as revenue and expense. This suggestionwould seem to have some merit. What is your view on this matter?

Mr Carpenter: The examples you have mentioned are not in the standards at the moment, nor in theamendments next week. Very shortly we will be picking up a recently issued statement of accounting conceptsNo.4 that has been issued by the accounting profession and that does pick up some specific definition andrecognition criteria for revenue, expenses, assets and liabilities.

Mr Boswell: In the area of program management those definitions are extremely difficult. So many ofthe terms are just part of common English, they could bring all manner of interpretation.

The CHAIRMAN: If there are no final questions from the Committee, are there any concludingremarks that any of you would like to make?

Mr Smerdon: We have appreciated the opportunity to be here and explain some of the things thatTreasury has been doing. We hope we have assisted the Committee in its deliberations.

The CHAIRMAN: Thank you, gentlemen, for coming today and thank you for your evidence. I thinkthe Committee does have a much clearer idea of Treasury's role in implementing these standards after havinglistened to you and talking with you this morning.

The Committee adjourned at 11.57 a.m.

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The Committee resumed at 1,30 p,m.

The CHAIRMAN: I will reconvene the hearing. Before you commence to give evidence, I am obligedto inform you that the proceedings here today are legal proceedings of the Legislative Assembly and that theCommittee requires that your evidence be given on oath or affirmation.

PAUL BRESLIN, affirmed and examined:

HAYDEN KEITH McLOUGHLIN, affirmed and examined:

The CHAIRMAN: Mr Breslin, could you state your full name, place of employment and the title of theposition you hold?

Mr Breslin: Paul Breslin, Director-General, Department of Resource Industries, 61 Mary Street,Brisbane.

The CHAIRMAN: Mr McLoughlin, could you state your full name, place of employment and the title ofthe position you hold?

Mr McLol.Ig hlin: Hayden Keith McLoughlin, Department of Resource Industries, 61 Mary Street,Brisbane, I hold the position of Assistant Director, Corporate Services Division,

The CHAIRMAN: The Parliamentary Committee of Public Accounts is an all-party Committee of theQueensland Parliament whose purpose is to scrutinise and provoke reform of the financial administration of thepublic sector and to ensure that Executive government is accountable to Parliament. The Committee conductsits business in accordance with the Public Accounts Committee Act and the Standing Rules and Orders of theLegislative Assembly relating to select committees.

The Committee is presently conducting an investigation into the implementation of the Public FinanceStandards in departments and statutory bodies. These standards are issue under the Financial Administrationand Audit Act and commenced operation on 1 July 1990. The Committee has a particular interest in therequirements of the standards relating to financial management practice manuals, position assessments,system appraisals, program management, internal audit, and the move to general purpose financial reporting bybusiness undertakings and statutory bodies. The use of private consultants in implementation of the standardsis also of interest to the Committee,

I inform you as witnesses that you are required here today to answer all questions relevant to thesubject matter of this inquiry. The Committee would like you to answer its questions frankly, and to provide it withan accurate and clear view of your organisation's position on the issues canvassed,

. Mr Breslin, both I and my Committee will direct all questions to you, but obviously you are free to answeror refer them to your colleague as you see fit, On 26 March and again on 15 April, the Committee wrote to youseeking information concerning the implementation of the Public Finance Standards in your department. Did youpersonally see the Committee's letters and did you personally review and authorise your department'sresponse?

Mr Breslin: Yes, I did.

Mr PEARCE: I am going to direct some questions to you on the financial management practicemanual. As we go through, I will just refer to it as the practice manual. The Committee considers the practicemanuals to be very important. They are to describe the practices and procedures and so on to be followed bystaff in the financial administration process in your department and they are a key element of the overallfinancial management policy and principles upon which the Public Finance Standards are based, In theCommittee's questionnaire, we asked you if your practice manual was up to date and your department'sresponse was that "the manual is currently under review by the internal auditor prior to directorate approval toupdates". The Committee does not fully understand your answer and we would like to know if the financialpractice manual is up to date or not.

Mr Breslin: The financial management practice manual is complete now and up to date. We havebeen reviewing the procedures in that document, but, as far as I am aware at the moment, it is fully up to date.

Mr PEARCE: Have you had any difficulties in getting it finalised?

Mr Breslin: Resource difficulties, and we are also wanting to have it reviewed by our internal auditor.We now have, as part of new procedures, an internal auditor, but being a small department, our internal auditor isonly a part-time position, We have asked that person to review our financial management practice manual, justto go through the procedures to make sure that the procedures we have in there comply with the procedures thatshe is actually auditing. '-lIe have got some corre~ation between her auditing procedures and our rnanuaL

Mr PEARCE: How long has the department had a practice or accounting manual? Do you find itdifficult to maintain it and keep it up to date?

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Mr McLoughlin: The manual has only recently been completed. It has been out of date for sometime. As Mr Breslin said, the manual is yet to be endorsed by the directorate or the senior directors of thedepartment. So until such time as that occurs, it probably is not appropriate that it is released for generalpurposes.

Mr PEARCE: There have been some difficulties in getting it all together, but you are quite happy thatit is ready to be approved now? .

Mr McLoughlin: Yes.

The CHAIRMAN: Do you think it is something that needed to be done, or has it been more of a chorethat it has had to be done?

Mr Breslin: It is my opinion that it does need to be done. We have found a number of practices and anumber of things that we are doing either to be outdated or not complying with procedures as they are now setdown. So we do need a manual to go through it. We need that manual so that our auditor has a guide to go by, aswell, when she is reviewing our procedures and so on.

The CHAIRMAN: So it has been quite a useful exercise, you think?

Mr Breslin: Yes, we see it as a necessary exercise and a necessary document. Sometimes, being asmall department, the resources that we have devoted to accounting and to setting up these sorts ofprocedures are not adequate to get them done quickly, but it is a necessary process, there is no question.

Mr PEARCE: Taking consideration of where it is at the moment, could you give us some indicationhow the manual will be distributed throughout the department and what access will the staff have to that manualwhen they want to refer to it?

Mr Breslin: How are we going to distribute them throughout the departments?

Mr PEARCE: Yes, how will they be distributed and will they be accessible to staff who may want torefer to them?

Mr McLoughlin: I would imagine that all administrative staff supporting divisions would have a copyof the manual-maybe multiple copies of the manual. Certainly our district office staff would have copies,because they are the people who generally require access to information on accounting fairly quickly, and themanual provides that mechanism to do so. I would think, too, that we would also conduct some seminars andpresentations in relation to the manual to explain to staff how to use the manual and where to find passages inthe manual relative to the areas that they work in. I am not sure whether they have been formalised as yet, but Iwould expect that that would occur once the manual has been endorsed by the department for use as anoperating document.

Mr PEARCE: I detect some uncertainty there, but that is probably because of the stage that you areat. Would you be receiving any advice from, say, Treasury as to what your requirements are there?

Mr McLoughlin: No, I do not think so. I think we would proceed to distribute the manual and instructstaff on how to use it. There is no point in producing something which has cost us some thousands of dollars notto have it used in a practical sense, and we would be looking to do that. I think Mr Breslin indicated that theinternal audit was currently looking to edit that document to ensure that everything in it complies with the PublicFinance Standards in the audit program. Once that is completed, I see no reason why it cannot be distributed.

Mr PEARCE: In your department's letter to the Committee, it was indicated that the department paid aconsultant the figure of $22,174 to assist with the preparation of your department's practice manual. TheCommittee would like some sort of feedback on why you hired a consultant rather than use departmental staff. Inasking that question, the Committee feels that your staff should possess a thorough knowledge of yourdepartment's financial administration procedure, where a consultant presumably would need to acquire theknowledge from scratch. Could you make some comment on that, please?

Mr Breslin: I think last year and this year we have seen considerable strain placed upon ouraccounting area in our department. We have had some concerns with the Auditor-General's reports and with ourown accounting procedures that we would want to get substantial improvement in our accounting in thedepartment. It has been quite difficult to keep people off the tasks that we have given them in generalaccounting, to take them off line and to have them preparing a manual of this sort. So we have considered thatthe best course of action to get the manual done, to get some movement on it, is to bring in an externalconsultant who is knowledgeable about the procedures which are required for the manual, and of course anoutside accountant who can bring procedures into our department that we are after. You are right in the sensethat it is the second-best solution. It would have been better to take some of our own people off line and havethem involved in this. But the situation in the department over the last 18 months with accountants has beensuch that we wanted to address our more immediate problems and get on top of those rather than taking key

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people off line to write the manual.

Dr FLYNN: You have explained that well. Are you confident that your department does have staff withsufficient expertise to prepare the manual if you are able to spare them for that job? .

Mr Breslin: Yes, I think we have a couple of people who could have worked on the manual in theaccounting area. Mr McLoughlin has a more intimate knowledge of them than I do, but it would be my opinion thatwe have.

Mr McLoughlin: I think the physical task of putting the manual together dictated that we should usesome external resources. We saw that it would be perhaps a three-month job for somebody. Our staff did provideinput for that task but the physical putting together of the manual seemed to be relevant for a consultant ratherthan internal staff who could focus their intentions more on the immediate accounting issues. So we chose thatcourse of action.

Dr WATSON: Where was the consultant from? What was his background?

Mr McLoughlin: I am afraid I would need to seek leave of absence from the Committee to find ananswer for that question because I am unaware of--

Dr WATSON: It was in the letter that came from the department. Perhaps you could get back to us ata future date.

Mr Breslin: If you let us take that on notice we will come back to you with his CV and the proposal thatwe had.

Dr WATSON: Was he an accountant, or don't you know?

Mr Breslin: I believe he was an accountant.

Mr McLoughlin: I understand he has accounting qualifications or an accounting background. Again,we would like to come back to you with a formal answer on that.

Mr PEARCE: In listening to your response-do you anticipate a need to continue using consultantson a regular basis in the future to upgrade or update the manual?

Mr Breslin: No, I would not expect so. I would expect that, having the base load of the work donenow, we would have updating and improvements brought about internally both between our own accounting area,our internal audit and perhaps the external audit--eomments from the external auditor as well. Between those,we would look to do our own updating to make sure that our procedures were all right. Having had the major partof that task done now, I would not see a need to go back to get outside consultants to help us any further.

Mrs BIRD: I am very anxious to find out if the preparation of this manual was creating a burden on thedepartment or whether it was in fact that it was just this time, at the time when it was intended to be prepared,that it was a very bad time to be doing that in the department. Is it just that it was a burden-an extra burden?Would it have meant that you would have had to get outside consultants at any time, or was it just that this was abad time?

Mr Breslin: It is my feeling that, last year and this year, we were putting a fair amount of pressure onour accounting area and basically with the gain in the number of areas to improve some of the work, we have hadsome criticisms from the external aUditor, and we had lost a few key people who had gone to other departments.I didn't feel it was reasonable to be putting so much pressure on them to improve three or four tasks on whichthey really had a fair amount of work to do and at the same time put together that manual. So we did go foroutside help on this occasion.

As to when the department is running normally, I think we would certainly try to do it internally. The waywe would probably do it would be to form an internal working party-somebody from accounts, maybe from one ortwo of the admin areas of the department; people administering the regional offices and so on-and we wouldprobably bring together a small task group of three or four officers and they would tackle it that way. That is thestandard way we have been tackling the reform process and new initiatives that we have had to bring in acrossthe department.

Mrs BIRD: So updating should not be-

Mr Breslin: We do not see updating a problem, no.

Mr J. H. SULLIVAN: Internal audit has had a few mentions already in the short time that we havebeen here. I have some specific questions about internal audit. I have noted that your internal audit function isstaffed by an external consultant on a 20-hour per week ba.sis. Why have you decided to use an externalconsultant for that audit function?

Mr McLoughlin: We never had an internal auditor prior to the current year, and we were unsure on the

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scope of work that needed to be done. Additionally, we have had some resource constraints, as Mr Breslin hasmentioned, in the department, so we chose initially to employ somebody on a part-time basis to consider thescope of the work and what needed to be done, and then on the basis of that we thought that we could review thesituation at some later date. I think this year we have considered the impact of that internal audit function on thedepartment and I think that we would be looking for a full-time consultant or a full-time person to do the internalaudit in the future.

Mr J. H. SULLIVAN: That answer leads me to a couple of the other questions. Firstly, could you tellme how much the consultancy costs and what the cost differential is compared to staffing the position from

. within the public service?

Mr McLoughlin: I think our total budget for the internal audit function this year was something in theorder of $30,000. I would rather not be quoted on this, but I think the figure-

Mr J. H. SULLIVAN: You are on the record.

Mr McLoughlin: I know. The figure would be in the order of about $55,000 to $60,000 for somebody inhouse on a full-time basis.

Mr J. H. SULLIVAN: Is your internal auditor a qualified accountant?

Mr McLoughlin: Yes.

Mr J. H. SU LLIVAN: You have suggested to us in an earlier answer that you feel that the internalaudit is not necessarily on a part-time consultancy basis able to fulfil all the obligations of the internal audit asprescribed in the Financial Administration and Audit Act and in the Public Finance Standards. Is that an accurateassessment of that earlier answer?

Mr McLoughlin: Yes, I believe it would be.

Mr J. H. SULLIVAN: I have noted also that the internal auditor is responsible for completing yourdepartment's system appraisals, and there is scope within the standards for that. But standard 610 (3) says thatthat person is also responsible for determining "whether or not the appraisals have been properly undertaken,submitted and acted upon". There seems to be some kind of conflict in that, and we are a bit concerned abouttoken compliance with the requirements. Would you have any comment on that?

Mr McLoughlin: I have not actually thought deeply about that issue, because the internal audit hasbeen in place for only one year. Initially, we did not see any problem with having that person undertake systemsappraisal, bearing in mind that performance assessments were required to be done on a quarterly basis. Therewas a systems audit role to be played, and we saw that as an issue for the internal auditor rather than someonefrom the department's staff.

Mr J. H. SULLIVAN: Do you monitor your internal audit progress against the internal audit workprogram? If so, to what extent have plans been achieved to date in that regard?

Mr Breslin: She has a work program that we agreed on when she first joined us. She reports directlyto me monthly, and we gauge her progress against her work program. There have been times when I have alsoasked her to look at some of the things off her program. So the program has not been followed religiously. Wehave had a few things come up dunng the year which I have asked her to look at more immediately rather thanleave them till the end of the queue. Generally she is following ~hat work program. She reports directly to me, sothat I am able to pass around some of her reports to departmental managers if we are getting some proceduresthat are not properly followed.

Mr J. H. SULLIVAN: In terms of those reports to you, and the program that is there-bearing inmind that there have been some changes because of special requests that you have made outside thatprogram-has that program virtually been met?

Mr Breslin: She is generally keeping up with her program, yes. We gave her a program at thebeginning of the year. She is generally keeping up with that. I believe that she is a little bit behind, but it is not ofconcern.

Mr J. H. SULLIVAN: Have you found the internal audit process beneficial to your management ofthe department?

Mr Breslin: Yes, I have. I suppose it is more important than I first thought. It was something that welooked at doing first of all in order to comply with procedures. Since she has joined us, she has been a goodauditor. She goes through things very systematically and methodically. She raises things in a very objective,clear way. She is a good resource for me in managing the departmental procedures. Where we suspect that weare having problems in our systems working properly or not being complied with in some way, it is good to havethe auditor to ask, "Will you have a look over here for us?" I am finding it to be certainly a very good resource.

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Mr J. H. SULLIVAN: As to the reports to yourself-you mentioned that you passed some of themaround amongst departmental heads. To what extent have recommendations made by your internal auditoractually be implemented in your department?

Mr Breslin: Her reports to me rarely end with an actual recommendation. She raises points of note, orthings to note, or things to be concerned about in a particular area. I am just trying to think if she has actuallygiven me a recommendation. I do not recall that. What happens is that, when she raises points of concern orpoints to note, I copy that to either the accounts area or one of the managers in charge of those procedures andget a report back from them. They nearly always come back and inform me that they are amending procedures orchanging procedures to fall into line with what the auditor has raised.

Mr J. H. SULLIVAN: Substantially the concerns are being addressed?

Mr Breslin: Yes, they are addressed as she raises them. I am not finding any problems with passingher reports around the department. In nearly all cases, because she has been in the area and been discussingthings with people, they are aware of what she is about to raise and they start to think, "We had better changethat." Invariably, when I send it through, people say, "Oh yes, we have actually got that in hand now." That is theway organisations work.

The CHAIRMAN: Can you give any specific examples of where the internal auditor has improved therunning of the department?

Mr Breslin: She generally has been working through one area at the time. I am just trying to think ofsome of the particular reports that she has made for us. The major things that we have changed over the pastyear actually came from the Auditor-General. Our part-time internal auditor mainly looks at things like systemsfor travel vouchers and systems for the way in which accounts are passed through, approved and put back intothe accounts section and paid. She has suggested some changes in the way that things like travel accounts areto be done and the way the system should work to make sure that they are properly filled in and moved throughthe process. In general, she has not brought about any major changes. The changes have been reasonablysmall and easy to incorporate in the existing departmental systems. They are of that order of magnitude: the waythat approval is given, say, for travel to make sure that it has a certain person's signature before it goes throughand the travel money is drawn, or something like that. Those are a couple of things that come to mind which shehas raised. They have generally been useful to us to make sure that our systems are working properly and arebeing used properly.

Mr J. H. SULLIVAN: Public Finance Standard 400 requires that the internal audit function beconsulted when computerised accounting systems are in the specification and development phases, and beforeimplementation. Is this practice followed in your department?

Mr McLough lin: Yes, we do ensure that the auditor is consulted in terms of any changes. In fact,there will be some changes resulting from the implementation of the review by the Public Sector ManagementCommission involving some accounting and system changes. The internal auditor will be participating in workingparties looking at those particular recommendations.

Mr J. H. SULLIVAN: Is your internal audit consultant ever called upon to perform non-audit-relatedduties within the department?

Mr McLoughlin: Not that I am aware of.

Mr Breslin: Now and again, when she gives me her report, she also tells me what she is going to do Inthe forthcoming months. If I have a particular concern about an area because I am not particularly happy aboutsome of the things which are occurring in the area, I will ask her to look at that. Sometimes it goes a little bIt

outside standard auditing functions, but she will look a bit more broadly at something for me in order to find outwhether we are using resources properly in an area. It might be a particular area using its vehicles in a particularway and I might not be that happy with that. I might say to her, "When you are there, would you look particularlyat the way that they are using the vehicles in that area, the way that the pooling is working, the way that peopleare taking them home?" etc. Not all of those would be strictly inside the auditing function, but they would beinside a review of the way in which an area in the department is using its resources.

Mr ELLIOTI: How would your existing staff who have been there for ages view her coming in as aconsultant? Would they see her as being put there perhaps by the PSMC rather than perhaps internally putthere, and do they feel threatened by that process?

Mr Bres Iin: I have not had any feedback from people who feel threatened by our internal auditor. Ithink that she has genera.lly got tha.t personality that she does not threaten people. She generally gets into doingher job fairly well and learning about what is going on in an area. I have had generally quite good feedback on her.I do not pick up that people feel threatened. There may well be an element of that amongst people. Butsometimes that is not such a bad for to feel that there is someone additional at what

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are doing. Now and again, if people know that she gets terms of reference that are slightly broader than justlooking at the books-for example, looking at the way that resources are used in an area-that is maybe not abad idea either.

Mr ELLIOTT: Do they see her as being put there because the PSMC has come into being andtherefore see her as a PSMC employee, or do they see her as someone you have instituted?

Mr Breslin: I find that difficult to answer. I have never had any direct feedback from the staff onwhich way they view her.

Mr McLoughlin: The question never entered my mind. So, I have not had any negative feedbackabout her as to her involvement in the process.

Mr Breslin: I do not think she is seen as a PSMC person. She is a part-time employee in thedepartment. She is doing some further study herself. I do not think that she is strongly associated with thePSMC. I think her monthly reporting directly to m~she is strongly associated with what I want her to be doing inthe department.

Mr ELLIOTT: You stated before that you would, for argument's sake, ask her to look at the use ofvehicles and the pooling system. Has that caused some heartburn within the department, do you think, thispooling system? In the old days people had cars and people looked after specific cars and drove them. Has thathad any impact upon the quality of those cars at the other end of the system, and whether they were worth moreor less money at the other end?

Mr Breslin: I think that there were savings there to be made, certainly, but it does cause people someangst when they lose this vehicle that they are used to having there, that they can hop into at any time. Insteadof doing that, they have to go and see some junior clerk somewhere and say, "Can I get a vehicle, please?", andthe junior clerk might say, "It will be half an hour", or something like that. They do not like that very much. Wealways have it that if a vehicle is ever needed for any emergency, it is ready immediately. In fact, the data on ourvehicle utilisation is such that it is still rather low and I still think that there are savings that we can make. Ibelieve that people's perceptions about how it affects their work are far, far greater than the actual way it affectstheir work.

Mr ELLIOTI: It is more an emotional thing.

Mr Breslin: It affects people's feelings about their morale and so on much more than it affects inreality the way in which they do their work. I think that the effect on work is trivial in real terms and, in fact,probably an improvement in the way we use our resources, a great improvement. The effect on morale has beenfar out of proportion with all that. That is something that we have to work with.

Mr J. H. SULLIVAN: If I can just draw all of my questions to a conclusion with this onequestion-from the evidence that you have given to us this afternoon, I gather that the appointment of aninternal auditor was to fulfil the requirements. You have had something of a conversion towards the function. Infact, you have virtually told us that there has been some suggestion now that this would need to become a full­time position, that the work of the internal audit function is a little behind, but that is because you give othertasks, and some of those other tasks are outside the ambit of the internal audit functions. I wonder if you thinkthat giving those tasks outside that function actually may weaken and curtail the internal audit function?

Mr Breslin: I probably ought to put that back into perspective, that the tasks that now and again areslightly outside are always related to something to do with the internal auditor. If it was vehicles, it might be theway vehicles were being used in a particular job, the way the time sheets are being kept for them, the way theyare being costed, and the way the petrol vouchers are being matched up and the mileage of the vehicles is beingmatched up. If there is a particular system for her to audit, there might be something outside that system wherewe look at some of the reasons why the cars are being used and what is being written on the sheets. Normally,an auditor would not go into them. As long as there was some legitimate reason down there-maybe looking atthings a little more broadly-and she can come up with a bit better report for me. You could say that 90 per centof what she will be doing would be looking at the way the vehicles are managed in an area, tied in with theexpenses related to those vehicles and the approvals for their use. I just do not want it to be confined by strictauditing at times-just to follow something through about the way we are managing the vehicles in the area. So, Ido not believe that in general we are, sort of, diverting her to any substantial degree from what she is there to do,and what she is supposed to do. I have come to value the auditing tasks quite considerably. We have anotherinternal review process in the department where we have a person who actually reviews the functions. It is moreof an efficiency audit in the way the department carries out a particular function. We are certainly not trying toduplicate the work with the internal auditor's work, but I do not see her work, or her work program, being delayed,or stalled, simply by me asking her to look at these in perhaps a little more depth or a bit more broadly than thepublic finance rules might have her do.

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Mr J. H. SULLIVAN: Thank you.

Dr WATSON: Mr Breslin, I would like to talk about program management for a little while. The PublicFinance Standards require that program achievements be assessed against appropriate performance indicatorswhich should link in with the department's strategic plan. Of course, part of those program achievements usuallydeal with program effectiveness and efficiency. Can you give me an idea of what you mean, or what youunderstand the term "effectiveness and efficiency" means with respect to the Department of ResourceIndustries?

Mr Breslin: I see those as actually coming back to value for money, for delivering a certain outcomefor a certain amount of money and, in fact, maximising your outcomes from the amount of money that we spend.Taking that back to an area which is possibly easier to visualise from outside the department, it is the rate atwhich we process mining leases for the industry. Looking at about 18 months ago, we had a very considerablebacklog of lease applications. In the intervening period, we sat down and we set up a task group to look at howwe were processing them, why we were getting backlogs, how we could improve that, allocating people to set thetasks, bringing people across from other areas and, in fact, from that very concerted effort, we have got rid ofthe backlog now almost totally. We now have a system in place to get those lease applications through within acertain amount of time. If not, alarm bells start ringing as to why they are not coming through. I saw that aseffective and efficient use of our funds for that program. In one case, we decided we needed to use someoutside consultants, just on an hourly basis, because we had a real bottleneck with a certain skill. We brought insome outsiders to help us with that skill. In most cases, it was a matter of organising and managing that work aswell. I was generally very pleased with our outcome. I think that we have delivered value for money from thatarea this year. They have worked very hard. If you look at the performance indicators, admittedly from a ratherlow base, they have increased their processing of mining leases by a factor of over 10, but that was from arather low base. Still, we are on the way to improving it. By applying performance indicators through thedepartment very carefully now in things like the safety area and things like lease processing and mining permitprocessing, and mine site rehabilitation, we are now starting to get a handle on what we are getting for our moneyso that we can start to set targets on those areas for the coming year and say, "Next year, we do need animprovement in that," and if we are not getting an improvement, we will be asking how the money is being used,and whether it is being used sensibly.

Dr WATSON: In your department's letter to the Committee, it was indicated that performanceindicators have been determined for each division of your department. Does your department's divisionalstructure mirror your department's program structure, and are the performance indicators directly linked to yourdepartment's programs?

Mr Breslin: They are linked to programs, yes. Our divisions are created such as to deliver a certainset of outcomes. We have an Energy Division, a Minerals Division, Geological Survey, Policy Division and aCorporate Services. We are looking for outcomes to do with, say, the minerals industry and, in delivering thoseoutcomes to do with minerals, we need our mining engineers, some geologists, some economists, someenvironmental scientists, some managers, some clerks, and this multi-disciplinary team is attempting to deliveran output for the minerals industry, not for their own discipline. We have brought them together. They used to bein what you might call program-related structures. One program might be the mine safety program; one programmight be the mine rehabilitation program. We have brought them into the same division as a multi-disciplinaryteam, delivering an outcome for the particular industry, not their discipline. There is a difference. We are askingthem to work as a team. Within those divisions, there are a number of programs, and they deal with things likegetting mining tenures through, rehabilitation, safety-they are the main sort of programs that we have runninginside those divisions. We want them to be collected into the minerals division so that their efforts and theiroutcomes are focused on their industry and on the people in their industry.

Dr WATSON: You have described the way that you have divisions and programs. Are those programswholly contained within a division, or are they cross-divisioned?

Mr Breslin: Actually, some of them go across divisions.

Mr McLoughlin: For external reporting purposes, we have three programs: one for minerals, one forenergy and one for geological survey. The costs of the divisions of policy and corporate services areapportioned across those three programs. Likewise, the costs of SIMTARS-Safety in Mines Testing andResearch Station-is apportioned across those three prbgrams. Fundamentally, we are servicing three groups,as Mr Breslin said-the mining industry, the energy industry and perhaps the exploration industry as far asgeological survey is concerned.

Mr ELLIOTT: You mentioned the environmental side of it. Do you have a unit within your departmentthat is really handling that side of things, and· under the new Nature Conservation Act, are you now required towork with our Commerce Department in respect of those areas, or will you still have a unit within your own

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department?

Mr Breslin: We actually have two un~s within the department. We have one to do with energy~r

coal and petroleum-and one to do w~h minerals.

Mr ELLIOTT: And rehabil~ation in particular.

Mr Breslin: That is to do w~h rehabilitation of mine sites and coal mines and petroleum s~es and gassites, etc. They do not report to the Environment Department; they report to our department. All of therequirements for mine s~e rehabil~ation and for environmental impact statements are under our Acts and ouradministration, so the mining industry and the energy industry's requirements for rehab. and EISs are all insideour portfolio; in fact, we provide something of a one-stop shop there. We will bring them on to adVisorycommittees and advisory panels when we do not believe we have the expertise, and in fact almost every time,we bring them on to an advisory panel about a major EIS, but we always have control of the process and how fast~ can go and when the decision points are.

As to the new Nature Conservation Act-there will be times under that legislation when we are jointadministrators of an area. In fact, that happens already in a number of areas which are DNOP reserves. Thereare a number of those around the State that have joint trusteeship between myself and the Director-General ofEnvironment and Heritage, and they have actually worked w~hout any problem. We have used that model, whichis a fairly old model in this State but is a very functional and useful one, for some of the resource reserves. Wedo not foresee problems w~h that at the moment.

The CHAIRMAN: Could you give me an example of one or two of the performance indicators in one ofyour programs-in the minerals division, for instance, or the program that that encompasses? I suppose that isgoing into a b~ of detail, but I am just curious.

Mr Breslin: I can give you qu~e a few examples, as ~ happens. In terms of mining leases, the numberthat are issued during a month, the average length of processing time for those that are issued, the numberwa~ing, the number rejected, and then there are maximum and minimum processing times. During the month, weput out a graph w~h all of those items on it. We can see from that graph whether they are clearing the backlog,whether they are processing more than they are getting and all those sorts of things. There is a similar graph forexploration perm~s and mineral development licences. On safety, we have a State-wide lost time frequency ratefor injuries that we can apply to our industry. We can compare it to previous years and other States to see howwe are faring in the year-to-date compared with previous years, both for coal and for metalliferous mines. We canactually look at it mine by mine as well on that database, and we do now have a performance indicator for mine­by-mine lost time frequency rates for accidents. Other performance indicators across the department relateto-well, you have to be a little bit careful about the way you define "performance indicators". They relate tooutcomes that we are achieving. Some of the things we measure are activity related, and they are more to dowith the number of geological maps and reports we are making available to the industry, and the number that wewere asked for during a particular month; the amount of assistance which can be measured in certain ways thatwe have provided to explorers in terms of using our databases and providing them w~h information.

The CHAIRMAN: That whole process of establishing your performance indicators is complete?

----------Mr Breslin: Not totally, no. That is an evolving process. In some areas, I have to say that gettlligperformance indicators is a b~ like getting blood out of a stone. You get rather a negative reaction from peopleThey have the attitude, "Why do we want to spend so many per cent of our time delivering you these statistics.when we ought to be getting on and doing our job? Just leave us alone and we will do it." We would have to gothrough something of an educative process in order to manage the processes, in order to know whether we haveenough resources in an area or we have not, in order to know whether we are getting value for money for ourresources. To do all those things, we simply have to have performance indicators, and if it takes you two or threeper cent of your working time to evolve and to produce decent performance indicators, that is acceptable Iwould have to say we are not there yet. We have got more of those performance indicators to develop. In somecases, we are just not getting the ones that we are want.

Dr WATSON: I just want to make sure we are clear. The practice statements to the Public FinanceStandards require that the programs are reviewed in these key areas every year. Are you saying that you are inthe process right now of reviewing all the programs in respect to key performance indicators, or where are youwith that?

Mr Breslin: For the purposes of the finance standards, we have adequate. For the purposes ofmanaging the department and forcing for further improvement in our department, no, I do not believe we haveadequate performance indicators. We do have performance indicators that we can judge our financialperformance by.

Dr WATSON: They are not just financial performance indicators. Performance is more than just

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purely financial, is it not?

Mr Breslin: Sure. That is the area where I would sincerely like to improve. I believe if you comparedus to quite a few other departments, you would find that we rely more heavily on performance indicators thanquite a few others actually do. We put out a monthly digest of all of the performance indicators, and they arediscussed with each division, and their performance against the performance indicators and the targets arediscussed every month. In fact, where we are getting problems, we go back into those problems and ask whyand ask whether we need to move resources in or whether the person can actually keep up to those jobs. We dorely upon them rather heavily. When I say I would like more, it is possibly because I am considered to be a touchfanatical about performance indicators and the improvements that they can deliver. I believe we do have furtherto go.

Dr WATSON: You are saying you do that monthly?

Mr Breslin: Yes, we do.

Dr WATSON: Could we have a copy of one of those reports?

Mr Breslin: I can give you one of my monthly management reports, in which each division putstogether all of their performance graphs, and we go through them, together with a set of their divisional notes.

Dr WATSON: That probably clears up something that was a bit questionable within the letter. Thedepartment's letter to the Committee stated that key performance indicators will be part of your department's1992-93 budget submission, which is being prepared on a zero-based approach. Would you explain for theCommittee the relationship between the performance measures for your programs and the budget process?

Mr Breslin: To put it simply, the performance indicators are what people are going to deliver for theirbudget. We do not have another way of measuring. In the public service, as you know, it is quite difficult tomeasure outputs. We do not have a bottom line, we do not have a share price and we do not have a way of tellinghow profitable we have been. You really have to spend some time on matters like performance indicators to knowhow well you are doing. They are our bottom line. When we look at our budget, if we are going for a certain budgetand I allocate part of the budget to a particular manager, the bottom line for that budget has to be what is going tobe delivered by the end of the year and what that manager and that group is going to deliver for that. If we saythat last year's performance is not quite good enough, we need better than that or we come to some al1l'Aelment

as to the performance indicators for the area, that is my way of seeing if we are getting the bottom line deliveredand if we are getting value for money in the area. If we are not, if the performance indicators are not as good orwe are getting a poor performance compared with the budget that that group has had, we have to start askingwhy and changing a few things. I do not see how you can run a budget without the performance indicators.

Dr WATSON: These things are basically for-eould I say-your intradepartment allocations forbudgetary process, or are you trying to also use these in competition for interdepartment allocations?

Mr Breslin: I believe that, in order for us to come to a Budget Review Committee and ask for money,we have to show what we are going to deliver for it. We have to have our deliverables ready. If we are looking formore money in a particular area or for a special or whatever we are looking for, we have to have ready as to whatwe are about to deliver-some improvement in the performance indicators. If we are going to put more moneyinto safety we have to show that we will get this much improvement in safety statistics this year otherwise whywould we get more money? When we are competing through the budget process the performance indicators, tomy mind, are essential. When we are looking at the performance of the different divisions within the department,again, they are our bottom line. They are how we know if an area is performing or not performing.

Dr WATSON: These would include both financial and non-financial performance indicators?

Mr Breslin: They are mostly non-financial. They are mostly things like the number of leasesprocessed; the number of plans of operations we have got through; and lost time injury rates. We have a numberof new ones set up, but we are not quite there yet. We do a whole series of them. Some of them are just internal;some of them are just looking at things like fleet utilisation in different divisions-whether we are utilising ourfleet well enough,

Dr WATSON: Have these been published or are they going to be published in a strategic plan? Wewere referring to them monthly.

Mr Breslin: We certainly publish some of them. We looked to getting them into our annual report. Lastyear we made a number of comments in our annual report about our performance as a department and where wewanted to improve it. We have just about set ourselves up to the fact that this year we will need to show ourperformance against those standards that we set ourselves. ~·iVe vV'ill need to S!;lOW U'le graphs of the performanceindicators. Thankfully, so far under things like leasing and processing, we have made vast improvements and wecan look back on last year's report and show that we have made very considerable improvements in the areas

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that we forecast we should do.

Dr WATSON: These indicators are basically going to be part of your strategic plan and part of theannual report and at least ex post if not ex ante information about the level of achievement in each of those--

Mr Breslin: Ex ante as well because in some cases people come looking for more money when youlook at their performance indicators to date and say, "You have to be joking on these performance indicators. Doyou think you can get more money?" Maybe they are good users of resources and they have had considerableimprovement.

Dr WATSON: You may have answered my next question because, basically, you would agree thatresources allocated and utilised are important as they provide the means or limitations for achieving desiredoutcomes but they, along with the performance indicators, should be a primary focus of the management for thedepartment? That is the argument that you have put forward over the last few minutes.

Mr Breslin: Yes, entirely.

Dr WATSON: The Public Finance Standards require that all programs should be comprehensiblyreviewed within the three-year period ended 30 June 1993. In your department's letter you told the Committeeyou had reviewed your corporate services information service programs which have since been merged to formthe corporate service division. This means that you have three programs to review-if I understand itcorrectly-geological survey program, minerals program and energy program. What has been done to ensurethat these programs will be reviewed by 30 June 1993?

Mr Breslin: The manager who is in charge of that area was involved in our PSMC review last year. Wewere reviewed by the PSMC from September last year. That manager who was involved in that review was adepartmental rep on that review team. Since that time she has been involved in setting up working groups toimplement the 148 recommendations from the PSMC review. So you could say that since September last yearshe has not done any of those internal reviews which is her usual job. As to when she will start again--

Dr WATSON: That was going to be the obvious follow-up question. When do you expect her tocommence?

Mr Breslin: She is in the thick of implementing PSMC review work and I find it difficult to see hergetting back on to a normal strategic review of particular areas before about July or August. I do not think wecould see her back on that before that time. I do not think that she will have those three programs done by anymeans by the middle of next year. I do not think that that is a feasible process at the moment.

Dr WATSON: It seems to me from the description that those programs are maybe some of the mostimportant or the larger programs run by your department therefore, presumably, more time consuming in terms ofreviewing and more resources. Are they going to be done by June? The answer to that is probably, "No".

Mr Breslin: Probably not. I find it difficult to see how that could be done. I also use this person moreand more-who is our strategic review manager-as our secretary, if you like, or secretariat to our executivemanagement team. This person has been working particularly hard on getting things like performance indicatorsgoing and has been going around bullying divisions to deliver those performance indicators and telling them howit should be done. This person has also been working on PSMC review work To be honest, the work that she isdoing now and will be doing for the next couple of months, I would see as more important for our department'sstrategic performance than reviewing those particular programs at the moment.

Dr WATSON: You refer to that person all the time in the singular. You talk about a person. Do you inthese reviews have more than one person?

Mr Breslin: This is a small department.

Dr WATSON: So you are saying you only have one person and that person has all the required skills?

Mr Breslin: No, in the case of the external auditor it is one. This person I am talking about now isagain a woman. She is a manager and she has about two or three people working for her. They are all on PSMCreview working parties. We have to set up a working party to implement, say, 20 or 30 related PSMCrecommendations. They might all deal with similar things. We need people to drive that process-people whohave got a strategic broad view of the organisation, and she has been involved in that a lot.

Dr WATSON: You are saying that the PSMC process has priority over this process?

Mr Breslin: Yes, it does. I believe it should do as well. We were given quite a few recommendations.Once they are accepted, of course, they become Cabinet decisions and we have to pursue them properly. Thestrategic review of different programs, you could say, is the background or base load work for this strategicmanagement area. But it is going to get pushed aside now and again for more important tasks like PSMC reviewimplementation.

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Dr WATSON: How long would you expect one of these strategic reviews to take place, for example,the geological survey?

Mr Breslin: That could take some time. I would expect a minimum of three and more like six monthson geological survey.

Dr WATSON: And the other programs?

Mr Breslin: The Minerals Division, even longer. That is our biggest single division and has our largestnumber of people. In fact, the most diverse range of work is in our Minerals Division. I would expect the MineralsDivision to be a minimum of six months and maybe a bit longer.

Dr WATSON: From that, without taking the third program, you are looking at well into 1993 or 1994before you finish?

Mr Breslin: Yes, we are.

Mr McLoughlin: I understand that the Treasury has an interest in joining with the department inevaluating the geological survey program. I expressed that previously. But I do not know what stage of thenegotiations has been reached as far as formalising it.

The CHAIRMAN: Were Treasury involved in that review of Corporate Services that has now beencompleted, or what is now Corporate Services, or was that a totally internal review?

Mr McLoughlin: No, that was internal.

The CHAIRMAN: So you have had little input from Treasury up till now on evaluation of yourprograms?

Mr McLoughlin: That is right.

Mr J. H. SULLIVAN: These reviews for the three programs that should be reviewed by the middle ofnext year, they are all going to be undertaken by the same team one after the other?

Mr McLoughlin: Yes.

Mr J. H. SULLIVAN: You did say it is a small department. There is no scope for them to happenconcurrently?

Mr Breslin: No. My internal review group, what we call the strategic audit, has a manager andnormally two or three people. They need to focus on one program at a time. We could not duplicate that, I do notbelieve. It would be rather difficult to duplicate.

Dr WATSON: Is your department's strategic plan generally available to everybody within thedepartment?

Mr Breslin: Yes.

Dr WATSON: Therefore, I guess that we can say that basically people in the department are aware ofdepartmental goals and how you want to achieve them. I presume that, because you are looking at this everymonth, they should be well imbued with these goals in the plan by now?

Mr Breslin: Yes. We do little things like put our mission statement on the bottom of all our memosinternally and have different ways of reminding people what we are here for and what we are about. The divisionalnotes-the executive management notes-are supposed to be 'circulated within all divisions and they include allthe performance indicators so the people can see how they are doing and how the division is doing as wellagainst their performance indicators.

Dr WATSON: I will reflect a little on the program management that you have carried out to date. Doyou think it has had a positive impact upon your department's operations?

Mr Breslin: Entirely positive.

Dr WATSON: Could you give us an idea of the benefits?

Mr Breslin: I find it very difficult to understand how you could manage without program management,without looking at what is being spent on a particular program or a particular set of objectives and then looking atthe performance indicators and seeing how they are being delivered; and putting priorities on different programswithin the department to see, if we do not- get our full budget or what we are after, how can we set priorities withinour programs to compare what we are delivering. We need to work from our strategic plan back through ourbudget as to what money we actually get, and then what we can deliver for our budget. Then, in the delivery ofthat outcome, ~ve use performance indicators to see if we are delivering value for our budget. So I see thoseelements entirely linked and dependent on each other. In fact, I personally do not know how you can manage apublic service department without them.

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Dr WATSON: Are there any negatives-disadvantages?

Mr Breslin: Not really. The negatives that people might give you might be that they spend too muchtime getting data together, setting priorities and writing things such as strategic plans. In fact, we have probablyfloundered around a little bit at different times without getting right to the crux and right to the answers of what weare doing. People in the divisions have probably done the same thing a couple of times before we have got there.So there has been a bit of feeling our way, I would say, this last year. That would be the negative. But really,compared to the management that you can then get over the department and the resources that you get andwhen you look at what you are delivering for the money you are getting, they are not really high costs. It is justlike in a private sector company the amount of time that is spent on gathering information about the profit or loss.

Dr WATSON: That is like my final observation. Earlier in your evidence you said something about 2 to3 per cent. Was that figure given off the top of the head or is that what you anticipate that you are spending onthis kind of process?

Mr Breslin: Yes.

Dr WATSON: From that, obviously you think that the answer is that it is worth spending that?

Mr Breslin: Yes.

Dr WATSON: Is 2 to 3 per cent enough for you?

Mr Breslin: Yes. It was off the top of the head. I would ask Mr McLoughlin if he had any feeling for thesort of time and effort that we have put into things such as program management performance indicator work andso on.

Mr McLoughlin: It is very difficult because a number of people have been involved. In terms of theevaluation of programs, it would cover a period of about six months for those two program areas that have beenexamined so far. Over the years, efforts have been made to bring our department more focused so far asprogram management is concerned. It is very difficult to determine the amount of time that has been spent onthat. I will add something to what Mr Breslin said about results of evaluations. It seems that having somebodyinternally looking at our performance indicators is a means of assessing those sorts of issues prior to us goingpublic with that information-and I have found it particularly useful to have an evaluation done with the CorporateServices Division because it gave some idea as to whether the indicators we were using were relevant to theresults that we were seeking to achieve. It also picked up a number of efficiency issues regarding the use of ourresources-human resources and equipment resources. I found it particularly beneficial to have that evaluationdone.

Mr Breslin: One of the other benefits that we have not drawn on much was that, in order to get somedecent performance indicators as to what impact we are having out there in our industry, we had a client surveydone last year, and from now on every year we will have a client survey done. It will not cost us as much as thefirst one; it will just be a renewal each year because all of the forms are done and we just send them out. By doingthat, we are able to build in the results of that client survey into our performance indicators and say that wewould like in the areas where we got the poor returns on our client survey to focus on them and say that that is aperformance indicator and that we want to see it increased above a certain level. That does focus people'sminds qUite well. I have found that that IS a way of getting targets for areas and using client surveys, which wewill continue to use.

Mr PERRETT: With regard to system appraisals, the Public Finance Standards require that all yourdepartment's revenue, expense, asset and liability systems be appraised each financial year to determine theproper functioning of controls and the appropriateness of the sort of procedures followed. Have all yourdepartments systems been appraised as required by the standards?

Mr Breslin: I do not believe we have as yet, no. We are certainly working towards that.

Mr PERREn: Would you have any idea how long it will take to have it all done?

Mr Breslin: I do not think we will have it all done by this financial year, but I think we will have themdone. To some extent, having our systems all looked at individually and brought together, you do that processwhen you are bringing together the manuals to make sure that all of our systems are in accordance with thefinance standards. We do that when we are doing our manual. But, in looking at them more individually and moreclosely, that will take a little bit longer.

Mr McLoughlin: In some earlier questions we responded to indicate that the internal audit functionwas involved inthe system appraisals. The reason why we have not been able to progress them as much as wewould like is because the function has been on a part-time basis. I think that in future we can do more of oursystem appraisals with the internal auditor than we have done in the past.

Mr PERRETT: If this has been a problem because the internal auditor has been in there only on a part-

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time basis, why was the responsibility for performing the system appraisals given to her rather than to personsresponsible for each of the accounting functions?

Mr McLoughlin: I think again from the responses we gave earlier, the resources available to us in thelatter years or so have been fairly restricted. With the number of changes that we have had to make in terms ofour organisation, in terms of the staff turnover in the accounting area, the upgrades to our accounting systems,it has been fairly difficult to progress those performance appraisals in house, so we have tended to rely a little biton the internal auditor to assist us with that work, with some input from departmental staff.

Mr PERRETT: Does your department have country or branch offices, and if so, are the systems andprocedures followed in those offices included in the system appraisal process each year?

Mr Breslin: The answer is yes and yes. We do have regional offices. In fact, by comparison withother departments such as Health or Education, they are rather small offices. They provide a shopfront for thedepartment, if you like, throughout the State, for the industry. They are generally small offices. There are up toseven or eight people in those offices, so they are not large. But the systems appraisal of course would mostcertainly include them.

Mr PERRETT: Does the internal auditor visit these offices to undertake these system appraisals?

Mr McLoughlin: I do not believe she has been out to the district offices.

Mr PERRETT: How are they being done?

Mr McLoughlin: I was going to indicate that the level of accounting work done in the district offices isfairly small by comparison with the accounting work done in head office. Primarily, the district offices have beenfor the processing of tenures essentially rather than the collection of public funds or the distribution of ourproducts. We are just starting to move into that area, so as such there has not been a great deal of work to bedone from an accounting point of view. It is essentially done in head office, so the internal auditors focusprimarily on the systems relating to those activities from a head office point of view. I would think that as weexpand our district office network and provide more services from those locations, there will be a need for theinternal auditor to spend some time at those offices checking the systems and the processes.

Mr PERRETT: Of what benefit do you perceive system appraisals are to the management of yourdepartment?

Mr Breslin: I presume you mean by "systems appraisals" financial or accounting systems?

Mr PERRETT: Yes.

Mr Breslin: I see them as essential. We just have to, in order to make sure that the systems arerelevant, provide the sort of checks that we need, approvals that we need on expenditure or revenue collection,and also ensure that they are not being too slow or rickety in keeping up with what we need as a department. Forexample, I see the internal auditor's subsequent review of systems to be very important in helping us manage.

Mr PERRETT: The Public Finance Standards require that the results of each system appraisal berecorded and submitted to the accountable officer or nominee who is then required to formally record on it anyaction required and follow up that action. Is this process followed in your department and is each completedsystem appraisal formally reported to you?

Mr Breslin: The internal audit is reported to me monthly. When the internal auditor completes theparticular whole system, she will make a report on that to me which I will then distribute to offices. We may wellraise it at, say, our executive management meetings if we are looking at a fundamental change in the way wecarry out some things. So far that has not happened, but I would envisage it in some of the areas that perhapsshe gets into, that we might want to look at fundamental change in the way we are approving a particularexpenditure or the way something is happening.

Mrs BIRD: We are going to talk about position assessments now. In your letter, you say that yourposition assessments are carried out quarterly. Are they fully compliant with the recommendations of the PublicFinance Standards?

Mr McLoughlin: I do not believe that, as yet, they are fully compliant because we have onlyundertaken one position assessment to date. My understanding of what was involved in that is that it wasessentially a test situation. We had no specific guidelines provided to us from Treasury in relation to the contentof the assessments, and worked our report from the Public Finance Standards and requirements set out underthose standards. I think that there is more that can be done to make those assessments more informative as faras a full explanation for variances from what we would see as being appropriate for expenditure of funds andwhat we would see as being appropriate for the collection of revenue. I would think that, over the passage oftime, we can improve on the quality of those documents.

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Mrs BIRD: What was included in them?

Mr McLoughlin: I just happen to have our position assessment here.

Mrs BIRD: Were they basically progressive budget reviews of receipts and expenditure?

Mr McLoughlin: There was a review between the budget for both receipts and expenditure for theConsolidated Fund. There were some statements about the expenditure from our Trust Funds and commentsabout the future of those funds-what should be done in relation to those funds. For example, one particularfund requires to be wound up as a result of the transactions being finalised. So that would be something that wewould take up as an initiative prior to the end of this financial year. There was a statement about our position asfar as our debtors are concerned, how we are handling our inventories, whether or not we have achieved a fullinventory check of items in the department. There was a position statement about staffing, cash balances in ourbank accounts and suspense accounts. But essentially it was information based rather than recommendationbased as far as change is concerned.

Mrs BIRD: When was that completed?

Mr McLoughlin: It was for the period to the end of 31 December. So it would have been completed inthe first quarter of this calendar year.

Mrs BIRD: Did your staff attend the position assessment training workshops run by Treasury?

Mr McLoughlin: I understand they did, yes.

Mr J. H. SULLIVAN: Your staff attended the workshops run by Treasury. Were they before or afteryou produced these assessments?

Mr McLoughlin: That is a hard question because I am not sure when the workshops were held. I thinkthey were after Christmas, this year. I will have to check on that for you.

Mr J. H. SULLIVAN: The reason that that occurred to me-your staff attended the workshops andon an earlier question your answer as to your assessments not being fully compliant was to do with lack ofguidelines from Treasury, and it would seem to me that we might be in a position here where if the workshopshave been held, there could be a problem there or there could be a problem with retention. Iwould be interestedto know which it was.

Mr McLoughlin: The comment made to me in relation to this issue was that the assistance fromTreasury was fairly limited in terms of the guidelines for the content of these documents and the person involvedin completing the position assessment felt that perhaps there should have been more advice provided in relationto completion of those documents and perhaps some workshops with other departments so that there was aconsistency in approach to completing these documents to avoid some duplication of effort.

Mr J. H. SULLIVAN: Do you feel that these guidelines should be hard and fast across the publicsector, or do you think that there should be some flexibility for individual agencies, departments and the like toobtain some ownership of what they do by developing it themselves?

Mr McLoughlin: I think it is a little bit of both. I think there needs to be some sort of guidelines on thebasic style for the completion of these documents. In looking at the document that we have produced, I do notthink that it provides a great deal of useful information on a quarterly basis just by reporting on issues that will beongoing. I think that workshops would be valuable so that a style can be developed that is fairly consistentbetween departments. I think the Treasury should allow departments to develop their own to some degree sothat they incorporate those issues relevant to the department itself. The only comment that I could make inrelation to this is that once a style is produced and there is some consistency through departments, it will be alot easier for these to be produced on a quarterly basis. At the present time, when you are starting off fromscratch and creating a position assessment that has not been done before, it is useful to have some guidance.We could have saved ourselves a bit of time if that was available.

The CHAIRMAN: Perhaps you could advise us who attended. I do not mean names, but whichofficers attended and did they find it useful?

Mr McLoughlin: I think that the manager, finance and accounting, attended. I think the assistantaccountant attended. I think the accountant also attended those workshops.

The CHAIRMAN: Did they find it useful?

Mr McLoughlin: I believe they did, yes. They felt that perhaps those workshops could have beenheld a little earlier to avoid some concerns about the style in which these were to be developed.

Mrs B IR0: Is that the only criticism that you have of the workshops? Could we have an honestappraisal.

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Mr McLoughlin: I am trying to be honest in terms of the information that has been given to me. I havenot been directly involved with the workshops. From the feedback, it seemed that the officers concerned wouldhave liked some more guidance and to have these workshops presented at an earlier date. I think it is good thatTreasury continues the workshop situation.

Mrs BIRD: I know that you are being kind to them.

Mr McLoughlin: Yes, but it will only improve the quality of these documents as far as being useful tothe Chief Executive.

Mr Breslin: We do not normally pass by an opportunity to be critical of Treasury if we can. But I do notthink that we can manufacture one if we have not got one.

Mrs BIRD: What type of assets does your department control?

Mr McLoughlin: Generally equipment, and some buildings, although a substantial number of thebuildings are controlled by the Administrative Services Department at the present time. It is essentiallyequipment. By far the most valuable of the assets of the department would be equipment that is held atSIMTARS.

Mr Breslin: That is the Safety in Mines Testing and Research Station. That is a scientific laboratoryarea. Other assets that we carry are things like motor vehicles and special purpose vehicles. At our core libraryat Zillmere we carry quite a number of stores. We carry a number of drilling cores from all around the State, butthey are very considerable, together with computer tape and so on of all the seismic work that has been done inthis State. In terms of other physical assets, they are not particularly great. They are mainly vehicles,computing, scientific equipment at Zillmere and Redbank Plains, and that would be basically it. We are mainly apeople-based department. Over 80 per cent of our budget is for salaries. A high proportion of our expenditure isfor salaries and wages, not equipment.

Mr McLoughlin: The assets that we do record essentially are the equipment assets. We do have anumber of databases which would be valuable if regarded as an asset within the real description of an asset, butat this stage we have not put a value on those databases.

Mrs BIRD: As part of the position assessment process, the Public Finance Standards require that anannual determination be made as to whether assets are being used in the best and most efficient way possible.What process does your department follow to satisfy this requirement of the standards?

Mr McLoughlin: I am not sure whether we have had a full report as yet on the utility of our assets,apart from those statements made in the quarterly position assessment. At present we are recompiling ourinventory and checking it against the physical assets. I am not sure about the stage of completion of thatparticular exercise, but I imagine that we would be attempting to finalise it by the end of June this year, becauseI understand that there is a need to report on our assets in our financial report.

Mrs BIRD: Did you say that you have done only one quarterly report?

Mr McLoughlin: Yes.

Mrs BIRD: The Public Finance Standards also require that a position assessment process include anannual determination as to whether suitable asset replacement programs have been approved and are inoperation. Is this done in your department? If so, what is the process?

Mr McLoughlin: I do not think we have a formal process as far as managing assets are concerned.Essentially, the responsibility for assets is taken by the individual divisions as part of their operational plans.They would consider a replacement program in the context of the budget. We do not have a formal corporateasset replacement program in place at this time.

Mr Breslin: Some of those requirements are applied to areas where they are almost a Government­owned enterprise, where they are using assets as a business function. In our case, the only area where assetsare used as a business function within the department is the State Gas Pipeline and some of SIMTARS workwhich is fee for service. In those areas, the performance indicators and the accounting are separated so that wecan make sure that we are getting proper returns on our assets that are employed in actual revenue earning. Inthe rest of the department, our assets are more to do with research, data gathering, data provision or justcarrying on the programs or our department. They are not what you would call assets that have a target rate ofreturn or a particular requirement over'them.

Mrs BIRD: Do you personally examine all position assessments completed in the department?

Mr Breslin: For the one that we have done, yes.

Mrs BIRD: What benefit are position assessments to the management of your department?

Mr Breslin: I think they can be very useful. We have not into a of

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expecting them to come along and use them, and looking for particular information in them. I could not say, forexample, as with performance indicators, that we have come to rely on them or use them a lot. We simply havenot. We have only had the one. I would expect them to be a very useful resource for us as we develop.

Mrs BIRD: Is it costly for your department?

Mr Breslin: Yes, it is rather.

Mrs BIRD: Can you elaborate on that?

Mr Breslin: How long did it take to produce that position statement?

Mr McLough lin: I think it was one week for a senior officer. Essentially it is one person month peryear.

Mrs BIRD: For that one?

Mr McLoughlin: Yes.

The CHAIRMAN: One person, one week?

Mr McLoughlin: One week, yes.

The CHAIRMAN: So, a month a year?

Mr McLoughlin: Yes.

Mr ELLIOTI: Will that be ongoing, or will it taper off as you get used to it?

Mr McLoughlin: It may be slightly less as we progress through these.

Mr ELLIOTT: Are you internally aware of any other ways that you could have done that which wouldhave been just as effective and yet less costly?

Mr McLoughlin: No. It needed to have a person with a fair grasp of the full range of accountingactivities and the implications of those through and across diVisions. It is not the sort of task that you wouldhand to a more junior officer. It does tie up a senior person.

Mrs BIRD: Would further assistance from Treasury have cut back on some of those costs?

Mr McLoughlin: If there was a set of guidelines established which departments were in the habit ofusing, and which could be drawn on-even another department providing an example of how they had goneabout this exercise-it certainly would have saved a bit of time. I believe that the staff involved in this attemptedto gather that sort of information. As I said, the feedback was such that it was not readily available. I am surethat the time frame for the completion of this first one could have been reduced if there had been some sort ofguidelines established.

Mrs BIRD: So, you are designing your own process as you go along?

Mr McLoughlin: Yes, essentially. To add to the comments that I made earlier to Mr Elliott-I think asthe department expands and becomes more complex, there will be some saving in the ongoing cost ofproducing-but more to look at and in greater depth to review, and I think that the week will continue on as beingthe standard time frame.

The CHAIRMAN: Are the general purpose financial statements prepared for the State Gas Pipelinefully compliant with the Public Finance Standards at this stage, or are they prepared under transitionalarrangements?

Mr McLoughlin: I understand that they are transitional arrangements, because they were notpublished as part of our annual report for last year. I would imagine that we would be looking at having thosepublished this year along those lines, but they would be general purpose financial statements.

The CHAIRMAN: Mr Breslin, do you have anything to do with statutory bodies under your Minister'sportfolio? I know that directly you have no responsibility.

Mr Breslin: For example, the Commissioner for the QEC reports directly to my Minister. He does notreport to me. The other three bodies-8IMTARS is part of the department which is run quite separately, and theyreport through me, as does the State gas pipeline report through me, but the Coal Board and the QEC reportdirectly to our Minister.

The CHAIRMAN: Obviously, you, then, would have no knowledge of how the implementation of thesestandards was going within those bodies?

Mr Breslin: No.

The CHAIRMAN: Just to finish up-in terms of contact in Treasury in relation to the implementationof the standards, you have had staff attending workshops about position assessments, and you are negotiating

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perhaps a program evaluation, a joint program evaluation with Treasury-­

Mr McLoughlin: Yes.

The CHAIRMAN: Have you had any other contact? For instance, in your strategic plan programmanagement?

Mr Breslin: See, in drawing our budget together this year and linking that in with our strategic plan,and basically the whole planning process for the department, we have two Treasury officers stationed in ourdepartment.

The CHAIRMAN: So there was quite a lot of contact in determining the strategic plan?

Mr Breslin: Yes, there was. One of the reasons for that was a comment within the PSMC review thatin drawing up our budgets in previous years, we have not had enough contact with Treasury and we have notused them, or got them to help us shape our budget. So this year we got two of their officers to come in and workwith us on our budget process and we have found that particularly useful.

The CHAIRMAN: There has been quite a bit of contact in some areas.

Mr McLoughlin: In terms of program management, we have also had Treasury staff givepresentations to our managers in terms of what is expected from program management, how to assessappropriate performance measures, and this was done as part of our review process last year. In setting upthose three Treasury programs, against which we report on an annual basis, there has been contact, and atofficer level there is continuing contact as well.

Mr PERREn: How would you rate your relationship with Treasury, say on a scale of 1 to 10?

The CHAIRMAN: In relation to the implementation?

Mr PERRETT: The general relationship. This is what we are all about-finding out how thosestandards are going.

Mr Breslin: We are just coming up into the budget process now-trying to win money at themoment-so I have to be a bit careful. In many ways, it is very good. The Treasury is a professional department,very professional indeed, and I would rate their relationship at the moment over 5-1 do not know, 7 or 8, orsomething.

Mr PERRETT: So you are reasonably happy?

Mr Breslin: In general, I would say so.

Mr McLoughlin: I would suggest about 8, as far as my relationship with Treasury is concerned. Ihave had no problems at all in making contact with officers at any level.

The CHAIRMAN: The last question, because I think we have just about run out of time-do you knowif your officers have sought help from Treasury in relation to system appraisal, internal audit, or precisionassessments? Have you specifically sought help or guidance on any of those areas-for information orguidance from your department to Treasury?

Mr McLoughlin: I am not aware of any formal request for guidance in those areas. It may have beendone informally at officer level, but I am not familiar with a formal letter that has gone to Treasury indicating thatwe want some support. The only support that we have formalised, I guess, has been in relation to officers joiningthe department for the implementation of the PSMC review recommendations relative to finance.

The CHAIRMAN: Thank you very much for your efforts. Is there anything you want to add? There isno need. Thank you very much for your evidence, Mr Breslin and Mr McLoughlin. I now adjourn this hearing. Wewill recommence at 3.20 p.m.

The Committee adjourned at 3.09 p.m,

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The Committee resumed at 3.22 p.m.

The CHAIRMAN: I will reconvene this hearing. There are just some formalities to commence with.Before commencing to give evidence, I am obliged to inform you that the proceedings here today are legalproceedings of the Legislative Assembly and the Committee requires that your evidence be given on oath oraffirmation.

BERNARD BARRY SMITH, sworn and examined:

WILLIAM NEIL MEREDITH, sworn and examined:

RODNEY VIVIAN NEWTON, sworn and examined:

The CHAIRMAN: Mr Smith, could you please state your full name, place of employment and the titleof the position you hold?

Mr Smith: My full name is Bernard Barry Smith. I am the Director-General of the Department ofJustice.

The CHAIRMAN: Mr Meredith, Could you please state your full name, place of employment and thetitle of the position you hold?

Mr Meredith: William Neil Meredith, Department of Justice, Director of Corporate Services.

The CHAIRMAN: Mr Newton, could you please state your full name and the title of the position youhold?

Mr Newton: My name is Rodney Vivian Newton. I am employed by the Department of Justice. I am theManager of the Finance Branch, Corporate Services Division.

The CHAIRMAN: By way of introduction, the Parliamentary Committee of Public Accounts is an all­party committee of the Queensland Parliament whose purpose is to scrutinise and provoke reform of thefinancial administration of the public sector and to ensure that Executive Government is accountable toParliament. The Committee conducts its business in accordance with the Public Accounts Committee Act andthe Standing Rules and Orders of the Legislative Assembly relating to select committees.

The Committee is presently conducting an investigation into the implementation of the Public FinanceStandards in departments and statutory bodies. These standards are issued under the Financial Administrationand Audit Act and commenced operation on 1 July 1990. The Committee has a particular interest in therequirements of the standards relating to financial management, practice manuals, position assessments,system appraisals, program management, internal audit and the move to general purpose financial reporting bybusiness undertakings and statutory bodies. The use of private consultants in implementation of the standardsis also of interest to the Committee.

I inform you, as witnesses, that you are required here today to answer all questions relevant to thesubject matter of this inquiry. The Committee would like you to answer its questions frankly, and to provide it withan accurate and clear view of your organisation's position on the issues canvassed. Mr Smith, the Committeeand I will direct questions to you but, obviously, feel free to refer them to whoever you think has the detailedknowledge to answer them. Mr Smith, on 26 March the Committee wrote to you seeking information about theimplementation of the Public Finance Standards in your department. Did you personally see the Committee'sletter and did you personally approve your department's response to the Committee?

Mr Smith: Yes, I personally saw the letter and I discussed it with Mr Meredith before the reply wassent.

Mr PEARCE: I have some questions on the financial management practice manual. The Committeeconsiders the practice manuals to be very important. They are to prescribe the practices and procedures etc. tobe followed by staff in the financial administration process in your department and are a key element of theoverall financial management policy and principles upon which the Public Finance Standards are based.

Your department's response to the Committee indicated that your new financial management practicemanual is approximately 40 per cent complete covering the financial aspects of the areas of expenses andrevenue. What staff resources have been allocated to prepare the manual and when do you expect it to becompleted?

Mr Smith: Staff resources-unfortunately, like every other department, we have had a series of otherpressing engagements since the standard first came out. It is a matter of determining priorities. It is with someregret that we say that we have not advanced past the 40 per cent. We have had some discussions aboutexpediting the completion of the documentation and, to some extent, that is in hand now. We would think that itwould take six to eight months for us to complete the documentation.

Mr PEARCE: Have you given any consideration to using consultants at all in that process?

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Mr Smith: It is all a question of money. The department, at this stage, has problems meeting itsbudgetary requirements in a couple of areas, particularly over those areas that we have no control, for example,juries and witness expenses. This year, for example, we have expended on juries $1 m more than we budgetedfor, that is, despite the fact that we have gone back and asked for some more money. We may get somethinglike $300,000. So all our spare resources, if there are any, have been allocated towards meeting those sorts ofcommitments. The more direct answer to your question--consultancies in the last six or eight months have justbeen, "No" on everything.

Mr PEARCE: When complete, will the manual also cover your department's asset and liabilitysystems as required by the Public Finance Standards?

Mr Smith: Yes, it will. But if you would like a further elaboration on that I would ask Mr Newton to help.

Mr Newton: The department is currently introducing the asset management module within the DBSGovernment accounting system. A manual has been prepared by our people from the evaluation and audit areain relation to that. It is my understanding that the formal process of identifying the necessary assets to go on tothis register will commence shortly. Notwithstanding that, I would like to point out that the department hascurrently a plant and equipment register. It is not as if we are starting from scratch. There is a register in placeand this is just proceeding on to the next step, to the next phase.

Mr PEARCE: Do you find that the practice manuals are difficult to maintain and keep up to date?

Mr Newton: I do.

Mr PEARCE: Could you explain that?

Mr Newton: Especially in times when there is a lot of change occurring within Government, withindepartments and guidelines coming from Treasury and from the Public Sector Management Commission. It is thetype of exercise where you do really need to have a fairly senior person in control of the manual and ensuringthat any change goes through that person. Yes, it is a difficult task.

Mr PEARCE: To move on from that, in the absence of a complete and up-to-date practice manual,how are your staff apprised of the practice and procedures they need to follow in performing their duties?

Mr Newton: There are a couple of different areas here. The department has in existence currently anaccounting manual. The existing accounting manual is based on the Treasurer's Instructions. As we are allaware, the Public Finance Standards replace the Treasurer's Instructions; they are more prescriptive rather thandescriptive. But there is an existing manual in place. In relation to those areas in the Public Finance Standardsthat were not specifically addressed in the Treasurer's Instructions-I am talking about things such as positionassessments and other areas-the department has issued other guidelines to cover those specific areas as aninterim measure until t~e financial management practice manual is complete and in place. We actually propose toprepare the financial management practice manual in segments and actually issue the segments-in otherwords, do not wait till the end but issue them as we go so at least we have got some segments in place.

The CHAIRMAN: Are there any ready yet? In the 40 per cent, are any of them ready to be issued atthis stage?

Mr Newton: We have two that are almost ready for issuing to the staff. I have a copy of those here.They are in relation to expenses and revenue. I would think that in the foreseeable future at least we will be ableto distribute the first two modules.

Dr WATSON: I just wish to clarify a point. When you said "prescriptive" earlier, you were referring tothe Treasurer's Instructions as being prescriptive, not the Public Finance Standards?

Mr Newton: That is right.

Mr PEARCE: How important do you think it is to have a complete and up-to-date manual in yourdepartment?

Mr Newton: It is extremely important. It is the guiding document covering not only the financialaspects of the departmental operations but it also goes into the non-financial aspects as well in areas such asfinancial management, human resource allocation and other areas as well. It is extremely important.

Mr PEARCE: If you had the resources and the time available, you would prefer to be in a lot bettersituation than what you are currently?

Mr Newton: I would prefer to have it issued and operational right now.

Mr PEARCE: Your department's letter suggested the development of the standard practice manualsfor use in all departments. How could these manuals be standardised given the fact that they need to define thedetailed financial administration practices, procedures and controls that are to be followed in each particularorganisation? Surely the activities and structure of each department would differ widely? Do you understand

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what I am asking?

Mr Newton: Yes. As to the Department of Justice-we are basically a service organisation. Maybewe are a bit luckier than some other Government departments. Most of our accounting-type operations arecentralised, not decentralised, which allows for a bit more ease of operation and control. I would not see that asbeing a great problem because of the fact that the department in its non-eourt sense is basically in Brisbane andin the one location, which is only a recent innovation. There would have to be some parts of the manual thatwould need to be structured to specific-type operations, for example, in the courts relating to jurors. Obviouslyjurors are only in one area; they are within the courts. So there would have to be a specific section in relation tojurors. But I would think generally in relation to the areas within the standards, they could be standardisedacross.

Mr PEARCE: What about flexibility for each department? Do you think that has to be taken intoconsideration, or do you think that that should be a little more rigid?

Mr Newton: I do not know whether flexibility would be a problem within the structure of the departmentas such, if I am getting the question right.

Mr ELLIOTT: In regard to the accountability of all those sections, you have talked about the centralsituation that you have now in justice. With courthouses where you have some part-time ones, do they operateon the same basis as far as accountability is concerned as they did before? How do they operate?

Mr Smith: Can I say that we have not got any part-time courthouses, nor will we be having them. Wedid advertise for some of the positions to be part-time. There are still one or two around the place in which we aremaintaining a presence there until the Government establishes its agencies. Once those have been establishedand are up and running, we will close some of the others which are currently running on a part-time basis. One ofthe things in relation to the practice manual is that obviously it will contain some other facets apart from thefinancial management referred to in the Public Finance Standards. For example, we are currently going back to azero-based budgeting methodology for the next financial year. Because we have had such a shakeup in thedepartment, it is no longer applicable that we say, "Well, this particular section will get what it got last year plus 3per cent or minus 3 per cent." Now that we are structured and almost fully operational, we are saying to thesenior staff, "We will go back now and you prove to us exactly what you want in terms of money to run thedepartment as it is now restructured and your programs as you have now put them to us." This will be alsoincorporated in the practice documents.

Mr J. H. SULLIVAN: I have some questions relating to internal audit. Your letter in response to thequestionnaire indicates that you have established an evaluation audit branch out of the old operational auditbranch and replaced it. The staff is seven and it effectively commenced in February. What qualifications do thestaff hold? For example, are they accountants?

Mr Smith: Yes, they are to the best of my knowledge, but Bill could tell you exactly. I am sure they areall qualified.

Mr Meredith: Yes, they are all qualified.

Mr Smith: I am sorry, I think there is one, Mark Tyszkiewicz, who has a degree in psychology and iscurrently studYing law. I think that he IS three-quarters of the way through that degree. Apart from him, I think allthe others are qualified.

Mr J. H. SULLIVAN: Does the branch undertake duties other than normal audit activities, forexample, program reviews? If they do, what is the balance between audit and other evaluations?

Mr Meredith: It is an evaluation and audit branch. So there is a mix of duties there. If you asked meto make a judgment, I would say probably 35 to 40 per cent evaluation and the rest would be audit. Occasionallythere are special investigations if there is some concern about fraud or something like that that may take up 5per cent. So, as a rule of thumb-

The CHAIRMAN: Are the officers within that division specialised? I mean, do some people always doaudits and do other people do the other evaluation work, or'will all of the staff do whatever is required in thoseareas and interchange?

Mr Meredith: At this stage, we have employed people so that we are capable of undertaking all theresponsibilities. So at this stage they are fairly well dedicated, but certainly the long-term plan is that they becapable to carry out any of the activities, and they are probably already capable of doing that. We have drawnpeople from the Australian National Audit Office, from the Auditor-General's Department and some from theprivate sector. The flexibility is there now, but they are fairly well focused at the moment based on theirbackgrounds.

The CHAIRMAN: So somebody would be working as an auditor full time?

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Mr Meredith: Currently, yes.

Mr J. H. SULLIVAN: Mr Smith, have you found that the internal audit process is beneficial to themanagement of your department?

Mr Smith: This new team has only been established since about February and the first lot of reportsare just about to reach my desk. About half a dozen have been completed and have been given to theoperational managers to comment on. I will then have a look at them and, if necessary, I will refer some of themto our audit committee. I am hoping that they will be very beneficial, but compared to the audits that I have seenin the past, they would have to be better in terms of information to me than what the process was in the past.

Mr J. H. SULLIVAN: The letter indicates that there were three special investigations at the directionof the director-general completed since February 1992.

Mr Smith: Yes.

Mr J. H. SULLIVAN: Have you had those as distinct from the other reports that have been done?

Mr Smith: Yes, I have.

Mr J. H. SULLIVAN: Perhaps I can ask you in relation to those, other than the ones that you havenot yet had a chance to peruse, to what extent have recommendations made by internal audit actually beenimplemented in the department?

Mr Smith: At this stage, none. The three special investigations were allegations of impropriety, to .putit loosely, on behalf of staff. In all three instances, they were matters which ultimately should have been andultimately were referred to the CJC. But having received the reports, I spoke to the particular staff myself whothen resigned, and I suppose to that effect it has been beneficial in that we have not had to undergo the traumaof investigations by the CJC and the costs associated with those investigations. So they were three problemareas which were investigated, and they were, I would say, areas which amounted to dishonesty and they weredealt with on the spot.

Mr Meredith: In respect of some of the reports that are forthcoming now, there are a number ofsuggested activities which have been introduced. Some are relatively low level, and you would do thoseautomatically before in fact the report surfaced at the DG's level. Some things have happened.

Mr J. H. SULLIVAN: Pre-emptive striking.

Mr Meredith: I think you make the judgment. If you see something that is wrong and quite clearlyshould be fixed up, you fix it up.

Mr J. H. SULLIVAN: Public Finance Standard 400 requires that the internal audit function beconsulted when computerised accounting systems are in the specification and development stages and beforeimplementation. Is this practice followed in your department?

Mr Meredith: Currently, it is happening. I would feel it probably happened in the past, certainly withany substantial systems. Some of course come to us as a matter of course-like the HRMS system or the DBSsystem, which has no doubt been discussed with the Auditor-General. I do not know whether Mr Newton has anythoughts there. The auditors actually, in the past, did some of the work themselves in designing system change.

Mr J. H. SULLIVAN: From one of your earlier answers and because you have the evaluation andaudit branch as distinct from audit, I suppose, you indicated that right now the functions are dedicated. Some doaudit, some may do other evaluations. But I got the impression that you were alluding to the point of view thatthey will become multidisciplinary officers in future. I wonder if you feel that doing those two functions maycurtail and weaken the effectiveness of the audit function.

Mr Meredith: I know that some dyed-in-the-wool auditors would say that, but I guess the answer tothat is to have the time frames of any auditors who did some original work so far apart that they are notimmediately auditing the work that they may have been involved in, or reviewing the work that they may havebeen involved in. I think there is a time separation there.

Mr Smith: Can I add to that and say that because we are a very decentralised organisation, scatteredfrom Thursday Island to Coolangatta and out as far as Mount Isa, it is not very cost effective to send twodifferent people to look at the offices. Historically, that was the case. The audit team would go out and thensome evaluation team would go out. In loaking at cost-effective methods to make the department more efficient,we determined that one person should have the capacity to both look at the systems and the processes and atthe same time look at the audit practices.

Dr WATSON: In your department's letter to the Committee, you indicated that you had a strategicplan that covered a five-year period. Just to clarify that, is that 1991 to 1996 or 1992 to 19917 I see it wasapproved by Cabinet at the end of 1991.

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Mr Smith: It is 1991 to 1996. It is a five-year period.

Dr WATSON: Is that strategic plan available to your staff and are they kind of imbued with the goalsof the department and the part they are supposed to play in achieving this?

Mr Smith: This is our second attempt in terms of the strategic plan. We had one in 1990 in which therewas a fairly wide debate and discussion about the strategic plan. The one in 1991, the one that was approved byCabinet, has not had that breadth of disclosure to all the staff. That has been a matter which has been left to thevarious directors as to how far down the line they go with that. But in terms of the operational detail following thenext line down, staff have had a more meaningful development on the day-to-day operation of that particularscheme. I have looked at the strategic plan much along the lines often quoted by James Strong. He says thathis experience was that the bag handlers he was dealing with could not tell you a thing about the strategic planand they did not wake up in the morning thinking about the strategic plan. What they were thinking about washow they could do their little bit of the operations more efficiently and more effectively. They would be aware thatthere is a strategic plan because newsletters and things like that go out. But as to getting comment on it, theanswer would be no, it is not as widely disbursed as it should be or could be. But one wonders then about thepurpose of distributing it as widely as that. It is not a secret document, but one wonders about the benefit of it.

Dr WATSON: It is not secret, but the lines of communication do not go all the way down to the bottom.

Mr Smith: That is right.

Dr WATSON: The principles of program management as set out in the Public Finance Standardsrequire resource management systems which focus on outputs, that is, the goods and services provided by thedepartment, and outcomes-the results you want-as a primary concern. Resources allocated and utilised areimportant as they provide the means or limitations for receiving desired outcomes but they should not be theprimary focus for management. Are your department's management and information systems structured in sucha way that they provide regular reports by program to management to monitor not only the financial andbudgetary matters but also information to measure progress towards the achievement of particular or desiredprogram goals?

Mr Smith: In a word, yes. But in terms of measuring the efficiency of the program, one would have tosay no to that. It is very easy to get a report from divisions in terms of what they are doing and how efficient theythink they are at performing those tasks. But until we actually develop some criteria or critique for measuringthat efficiency against some common standards, one will never know how efficient the operation is, and we arenot at that stage yet of having developed that sort of process. On a management level, we know what is going onaround the place, but there is no way of telling how efficient that operation has been, at least for the time being.

Dr WATSON: I will explore this issue in a moment. One of the important principles of programmanagement is the need to have an appropriate set of performance indicators which should link in with thestrategic plan. The practice statements to the Public Finance Standards require that programs be reviewed interms of key performance indicators annually and at such other times as appropriate. Your department's letter tothe Committee stated that performance indicators for evaluating program effectiveness and efficiency arecurrently being formUlated. Firstly, what do you understand by the terms "effectiveness" and "efficiency" as theyrelate to the Department of .Justice?

Mr Smith: I think I will have to call on my colleague to help me.

Mr Meredith: As far as effectiveness is concerned-that is about doing the right things to achievethe objective. Efficiency is more so about how well you are doing it, as in value for dollar input/output ratio. Thatis the efficiency. The effectiveness is: are you really achieving your goals? I guess that goals are in question,too.

Dr WATSON: I understand the terminology, but particularly as they relate to the Department ofJustice, how do you see those two terms? They could be described as performance indicators, measures, goalsor whatever. How do you see them applying to the Department of Justice?

Mr Meredith: Embodied in the corporate plan are some clear goals. In preparation for this hearing, wemerged the questionnaire and our answers, and added a considerable amount of further information. In thatdocument we restate the goals that are in the strategic plan-the goals of the particular programs. I guess thatis what you would view in the effectiveness area. I hasten to say that we do not have all the mechanisms in placeyet to really test those. The corporafe plan or strategic plan was blessed in November. I daresay that we areheading for surveys of clients to test the effectiveness of those goals.

Dr WATSON: One of the things that was noticeable to the Committee when the letter came back wasthe fact that you indicated that the performance indicators are being finalised. The Committee was interested inhow you have been assessing the achievements and outcomes of your department's programs without thosethings having been formalised. Given what I perceive at the moment as some question mark on exactly how

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efficiency and effectiveness apply to your department, how do you measure whether or not you are achievingthe outcome that you desire.

Mr Smith: Can I just correct one thing? I think the answer to the question was that they are currentlybeing formulated. Again, we have some draft reports in terms of the operational development of each divisionwithin the office. They will set out the various criteria. They are only at the draft stage at this point. There areabout six or eight documents in existence. Once again, they have not been finalised. Time is against us. We justhave not finalised that part of the operation. When we said that they had been formulated-as Bill suggests-thegeneral overview is in fact contained in the corporate strategy for the whole of the department. They are verygeneral, philosophical approaches. For example, in public interest: achieve when the public perception is thatthe marketplace is operating fairly and the division is maintaining accurate public registers. That is very general.Of itself, that would indicate that we would need to do a public survey to see whether or not clients were satisfiedwith the service that we were providing. One of the small departments that I took over some 12 months ago hadin place measures for its effectiveness and efficiency. If one were to read those, you would claim that this littlesection was the most efficient and most effective organisation around the place. But in fact, it just was not. I donot think that there was a true measure ever made. I think the figures were-and I use this wordadvisedly-doctored to make the report look good. In a service organisation, it is very difficult to measure eithereffectiveness or efficiency, except perhaps by a public survey: are we in fact providing a service that issatisfactory to you? If the answer is no, obviously we are neither effective nor efficient. Until we finalise thoseoperational plans, we cannot measure how well or how badly we are performing.

The CHAIRMAN: I appreciate the difficulty in coming up with performance indicators. At this stage,you have not reached the stage at which any particular program or any part of the department has managed toidentify what you need to measure; you are one step back by the sound of things, where you are defining thegoals and making those statements, but you have not got to the next step of actually working out what it is youhave to measure.

Mr Smith: The only document that we have that does that is the Corporate Services Division. It is themost advanced document that we have. This is in Bill's own particular area. It is not in its final stages yet. It is allbut finalised. It has some criteria to measure that effectiveness. But the others, which are not as advanced,have no indices at all.

The CHAIRMAN: Have you sought or had any assistance from Treasury in respect of trying todevelop performance indicators?

Mr Smith: Unless Bill sought some assistance from the Corporate Services Division, I would have tosay no to the others.

Mr Meredith: I do not think that there was any specific contact. Treasury has periodically hadseminars, which we have all listened to, and we have had guest speakers from throughout Australia. But notspecifically. I guess that one has had some exposure to this. There are two levels of indicator. The operationalplan, which is the one that we are referencing, has lower level indicators more at an operational level. So thereare the two levels. There is the strategic level, which is about those program goals, and then there is theoperational level, which is more relating to the internal activities. We have more in place from the internalactivities than we have in place at the strategic level. At the strategic level there is likely to be surveying clients.as Mr Smith said. But that just has not happened yet.

Dr WATSON: Earlier today, we were talking about Treasury and they were talking about a hierarchy ofactivities from programs through to the strategic level. Are you saying that you have well-developed ideas downto a micro-program level, but not at the strategic level?

Mr Meredith: As far as measures are concerned, I think the performance indicators against which wewill measure are there. The mechanisms are there-not totally-but they are further towards being developed al

the lower levels. The ones for the upper level are probably something that we may turn to consultants for-and Iam probably verging on Mr Smith's area. We may need them for surveys.

Dr WATSON: I can understand the problem, as the Chairman has said, about developingperformance indicators and service organisations. I mean, accountant firms, legal firms and universities havesimilar kinds of problems, and some in the private sector may have "a bottom line". Can I just get something morespecific? For example, Mr Elliott was referring earlier to the courts. Say the clerk of the court,which has gonethrough a fair bit of change at the moment-how do you evaluate the effectiveness of those courts that you aretalking about in terms of efficiency and effectiveness if those criteria have not yet been established and youhave get major change going en in those areas?

Mr Smith: It will not be determined until the courts area settles down for a start. For example, we did avery comprehensive public survey on the court service system in the middle of last year. We wanted to find out

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what the clients thought of the courts then, and what they might think of it in three years' time. In the interim, theSupreme Court of Queensland Act has been brought down, which is going to change quite radically the processwithin the court structure itself. So, the exercise that we undertook to see what people thought about theefficiency of the courts in 1990 is worthless, because the whole system is going to change, I would say, laterthis year or early next year. We would then be comparing two different systems. It would not make a differencewhether we are more efficient now or more efficient then. We would not be looking at the same bag of applesbecause they are going to be completely different. I believe, until the courts area settles down and there arethese changes in place which, as I believe, are going to be fairly substantive, we will not be able to measureeffectively in a meaningful way how efficient the court process is.

Mr ELLIOTT: When you look at parameters to measure the efficiency of the courts, do you purelyand simply look at yourself as a department and say, "This is costing us X, Y and Z amount of money", or are yourequired to look at the effect that that has on the public? Let me take an example. For argument's sake, if youtake a central area like Ipswich, Toowoomba, Rockhampton, or somewhere like that, and you have to takepeople into those bigger centres for court processes and, therefore, that would require-as I would understandit-perhaps calling in the police who are involved, witnesses who are involved, and the person who is going to beput up, maybe charged, not charged, or whatever, are you required to look at the cost of all of those otherdepartments, or only at your own cost-it is your department's concern?

Mr Smith: Only as far as our department is concerned.

Mr ELLIOTT: Without going into the policy-and I understand that you are not in a position, really, totalk about policy-in terms of actual cost to the community at large, is it not a fact that perhaps some of theseprocesses could cost the community at large more money, even though they might save your departmentmoney?

Mr Smith: Unquestionably.

Dr WATSON: I have more questions that I could ask along those lines because I think the letter thatwas sent back to the department stimulated some interest in the Committee in respect of a couple of thosethings. At any rate, the Public Finance Standards require a comprehensive review of all programs that have beencompleted within the three-year period ending 30 June 1993. Which of your department's programs have beenreviewed, and which are yet to be done?

Mr Smith: I have already mentioned that the first one we selected was the courts and thiscomprehensive valuation, which included testing witnesses, juries, judges, solicitors, barristers, clients,prisoners, staff in the court system, and even though it was completed in November last year, it was notreleased until just recently by the Minister as a pUblic document. The reason it was not released was that thatwas the phase we were going through in setting up the Supreme Court of Queensland Bill. According to ourprogram, the next will be fair trading, consumer affairs, and then corporate services. They will be the three areasthat we have selected to undertake to survey to 30 June 1993, but as I said, we have to go back and do thecourts once again, unfortunately, because the ball game has changed a little.

Dr WATSON: Can I ask then about that survey: does it give you baseline information?

Mr Smith. Yes.

Dr WATSON: So, presumably, one could catch another lot of baseline information and potentiallythen have some judgment on the impact of the change?

Mr Smith: Yes, it could do that. It would help in other areas. For example, no matter what system is inthe court service, I would imagine the public who use the court service will continue to be confused,bamboozled, and unsure when they go to court because it is a strange environment. One of the issues thatcame out of that was the need to educate people one way or another before they go to court-talk to them,discuss issues with them, settle them down, make them feel more comfortable before they go into court. So,irrespective of what the court system is going to be, that will be one area that we will have to look at and try toimprove in the immediate future. So there will be some matters to come out of that.

Dr WATSON: Before you did that survey, did you not have developed then your ideas, or yourperformance measures?

Mr Smith: No.

Dr WATSON: My research background is now starting to come forward. How can you ask a set ofquestions in a questionnaire to provide baseline information if you do not understand what your performance is,or where you are aiming? I mean, as a researcher, I always used to like to know the question I was asking beforeI developed a questionnaire to get information.

Mr Smith: This was an unusual survey. The courts have been a mystery for so long. There was

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I')othing there. There was no-

Dr WATSON: But, excuse me, I thought that we were doing the survey to judge somehow-it has tobe rated back to your department's performance.

Mr Smith: Yes. But what I am saying is that there were no statistics, there was no basic information inthe courts, or available from the courts at all. It may have been putting the cart before the horse, but what wethought we should find out was what, in fact, the public, as a general view, and the users as a general view-howthey perceived the courts, what they wanted from the courts, what was wrong with the courts, from the judgesdown, or from the users up to the judges down, as the case may be. I realise that we had no criteria to measurethat service, but again at the same time, we had no facts and figures. All the questions we asked were of ageneral nature, trying to find out some criteria that we could find, or locate in the courts. We just had nothing,absolutely nothing. There was no case loads, there was no measure of times, there was no measure of how weprocessed juries. There was nothing there. You have to get some base to start with before you can startmeasuring it.

Mr ELLIOTT: It was an historical system.

Mr Smith: Yes, there was nothing there and before you can start measuring, you have got to knowsomething about the service, what it provides, what it does not provide, and then in due course down the line,you could measure, you could put into place certain activities and then you can start measuring those activitiesagainst certain standards.

Dr WATSON: In other words, the performance indicators that you are talking about are really comingout of that survey-at least in the courts area.

Mr Smith: They will come out of that survey.

Dr WATSON: What about the other areas?

Mr Smith: We hope to have something in place, because we know something about fair trading andconsumer affairs. Before we go out in the marketplace and do some sort of testing in relation to those particularareas, we will have some standards in place.

Dr WATSON: Some idea of what the performance indicators are going to be?

Mr Smith: Yes.

Dr WATSON: The corporate services is the most advanced in any case?

Mr Smith: Yes, it is the most advanced, even though we will be doing it last.

The CHAIRMAN: Are they the three programs?

Mr Smith: Yes.

Dr WATSON: Realistically, are you going to be able to complete those reviews by 30 June 1993?

Mr Smith: No.

Dr WATSON: Do you have any idea what might be completed by then, and when you might be able tocomplete them?

Mr Smith: First of all, in order to get two out of the three, we may have to change the order around. Wemay have to do corporate services before anything else. All we can do is attempt to complete them by 1993, butI cannot see us doing that.

Mr ELLIOTT: Obviously your problem has been related, to a great degree, to all of the witnesses andso on in all of the cases that have been running. Is that load going to gradually taper off, or will you have a hugeload running before you for a long time yet?

Mr Smith: A huge load in relation to what?

Mr ELLIOTT: In relation to your costs. You said you were over budget by $1 m in that particular area,of which you have only been given $300,000, as I understood it.

Mr Smith: Yes, that is right.

Mr ELLIOTT: Do you have that as a continual thing that you can see for the next one, two or threeyears, or is that something that is starting to taper off already?

Mr Smith: What we are trying to do is devolve systems which will reduce that burden in that particulara.rea, It is difficult to explain; you would have to 'Nork in the courts. For the first time in the history of thedepartment, we have some of the judges talking to us at an administrative sort of level. The District Court havebeen talking to us. Judge Fitzgerald is talking to us, and also Judge Moynihan, the Senior Court Administrator, isnow talking to us. Before that, we were never able to communicate with the courts. The courts were

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independent. They refused to give any information or gave very little information to the department, because itwas their independence which was being challenged. It still is thought by a lot of the judges that the bureaucracyis becoming involved in the independence of the judiciary, but we are not. Be that as it may, for the first time, weare getting the statistics. In relation to this jury problem-one of the main streams that the Litigation ReformCommission is looking at is jury service. Independently of that, we are talking to the judges as to ways andmeans of reducing the costs. For example, public servants are often called to be members of the jury. Whenthey are called and appear, they are paid the appearance fe9-$16 a day or whatever the dollar value is. Theythen have to give that to their departments.

Mr ELLIOTT: That is a nonsense, isn't it?

Mr Smith: It is a nonsense. Quite frequently, juries are empanelled and the accused pleads guilty atthe last moment. So there is a jury empanelled, and for what reason? You just pay them the money and they gohome, having done nothing. There is a case before the court at the moment in which a jury was empanelled fortwo weeks and did nothing, and then the judge dismissed the case. No-one knew about that information before. Isuppose somebody knew about it, but no-one was prepared to discuss it with the department. We are nowdiscussing these things for the first time, trying to get a handle on these issues so we can set up somemeaningful criteria against which we can measure performances.

Dr WATSON: I might come back to that in a moment. I presume there has to be a review of theprograms we are discussing by 1993. What will be the composition of the team that will be reviewing theprograms? Do you have that laid out?

Mr Smith: No, I have not.

The CHAIRMAN: Presumably, you would use that internal audit and valuation branch?

Mr Smith: More than likely.

Mr Meredith: We have a team about to be set up for a segment of the program, and we are involvingan officer of the Treasury. That is in its preliminary stages, and that is certainly destined to involve the DG, thedirector involved in the particular area and, you are right, an officer from the evaluation and audit area. Thatwould probably set the pattern of the way we would go.

Dr WATSON: Obviously, someone from Treasury might be able to help you through the reviewprocess itself. Do you see any value in having anyone else, external to the department, involved in thatprocess?

Mr Smith: In the particular area that Bill is describing, the answer is, no; I do not think that would be ofvalue to us. However, in terms of our audit and evaluation process of particular sections of the department, Ithink the answer to that is, "Yes". For example, when we are starting to evaluate the Magistrates Court and lookat the reports regarding the Magistrates Court-I have already asked a solicitor who operates in the MagistratesCourt to be a party to the exercise as an independent person. When we are looking at fair trading, my concept isthat I will be asking somebody from a trading organisation to come and be a part of that. In the particular reviewthat Bill is mentioning, which is to do with the State Reporting Bureau, it is very technical and I do not think itwould be advantageous to have somebody from the outside involved in that process.

Dr WATSON: How long do you think one of those reviews will end up taking?

Mr Smith: Three months.

Dr WATSON: Three months?

Mr Smith: Well, we have allowed that for this particular one.

Dr WATSON: This is only a segment of it, though. What about the complete program?

Mr Smith: I believe if it is done properly, it would take you five months.

Dr WATSON: By the time you multiply that by three programs, you are looking at a minimum 0115months to do it properly?

Mr Smith: Yes.

Mr Meredith: Can I say, it really does depend on the complexity of the program. Corporate serviceswould be relatively easy, whereas the courts, as you have already heard, is really quite complex.

Dr WATSON: What do you think is the effect of this program management on the operation of yourdepartment so far? I realise that you have only talked about some of the problems to date, but are there anybenefits?

Mr Smith: Yes. I believe it makes not only myself but also the directors and the managers of thevarious areas focus on their areas of responsibility. I have no doubt about that. I think there are a lot of

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advantages. For the operations of the department, there are unquestionably advantages.

Dr WATSON: Are there any negatives?

Mr Smith: Yes. They are very time-consuming; they consume a lot of manpower, not only for theindividual or the individuals concerned, but up and down the line. Everybody becomes accountable. If they aredone properly, a number of staff at various levels would be interviewed, and I think it takes staff at various levelsaway from their day-to-day responsibilities. Nevertheless, it also makes them focus, and I think that is probablymore important than the time that might be wasted in looking at the various undertakings they are involved with.

Dr WATSON: It is too early, obviously, to talk about whether you would be able to meter anyefficiency or effectiveness change since you do not have the indicators yet. In terms of costs, so far do youhave any idea of the cost with proportion to the department's budget? Is it 1 per cent or 2 per cent? Would it bethat order of magnitude?

Mr Meredith: In the use of consultants in surveys, most of the work has been internal as in utilisationof people's time.

Dr WATSON: There is a cost associated with that?

Mr Meredith: It is a cost. I would hazard a guess and say 7 per cent or 8 per cent of our time at theupper levels. As it gets to the lower levels of staff, if they put 1 per cent in, that would be-they all have aninput-very rule of thumb.

Dr WATSON: I appreciate that.

Mr PERRETT: With regard to system appraisals, your department's letter informed the Committeethat all your department's revenue, expense, asset and liability systems are subject to annual appraisal asrequired by the Public Finance Standards. How are these system appraisals performed? Do you follow a formalor standard process?

Mr Meredith: In the absence of any particular guidelines in the earlier stages, systems appraisalswere certainly undertaken, but it really was a very general case of, "Here is what is set out in the Public FinanceStandards", and seeking responses. It was undertaken in respect of the last financial year. For this financialyear, we have developed a standard set of work sheets-that might be the best way of describing it-and it doesidentify what should be looked at, what are the risks of controls not being in place, etc., and then seeks acomment. We have, in fact, developed our own work sheets. I hasten to say that it was not from scratch. Wehave drawn from the Australian National Audit Office, but we do now have a document, and we will follow thatformat for this year.

Mr PERRETT: That, in itself, will be subject to appraisal in the future, I would take it-that particularsystem that you have devised yourself?

Mr Meredith: It will be reviewed, yes.

The CHAIRMAN: Was that work sheet developed by your audit and evaluation branch?

Mr Meredith: Yes.

The CHAIRMAN: So it has just recently been done?

Mr Smith: Very recently. It is only a matter of a couple of weeks old.

Mr Meredith: It took a little while to work out.

Mr Smith: It is quite a comprehensive document. I do not know how many pages it goes into, but it isquite comprehensive.

Mr PERRETT: Are all country and branch offices, for example, courthouses, subject each year to thesystem appraisal processes implemented in your department?

Mr Meredith: I cannot answer for too far into the past, but it is probable that we will be faced withtaking a slice through the organisation. There are some 90 courthouses. By and large, their systems should bethe same. We would be working towards a slice of them and making judgments that way. In time, we would coverthe lot.

Mr PERRETT: Fair enough. Are system appraisal results from the numerous sections, branches andoffices within your department collated and reported to management?

Mr Meredith: Yes, they are. The onus rests with the directors. Their managers do a lot of the work inlooking at the various systems. Through their director, the report goes to the director-general. Concurrently, acopy of the report goes to the evaluation and audit branch. As part of their general audit and review practices,they check to see that the appraisals were done correctly and, also, that corrective action has been taken.There is a catch there just to make sure it does happen.

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Mr PERRETT: Your department does not yet have a complete and up-to-date financial managementpractice manual in which the practices, procedures and internal controls to be followed in your department arelaid down. Your department's letter also indicates that the process by which system appraisals are undertakenis not documented. In these circumstances, how are you able to effectively perform system appraisals in yourdepartment? What reference guides are used to ensure that all procedures and internal controls are functioningas intended?

Mr Meredith: I have probably more or less answered that question by painting the picture now as towhat will happen. Despite a lot of turmoil in the department, by and large my observation is that quite a goodattempt was made to genuinely look at the systems. It was reported upon for the previous financial year; it wasbrought together. There were issues definitely raised. They were all addressed; they were not all resolved lastfinancial year. They were carried forward into this year's appraisal. That is all I can say. It will happen-just theamount of detail in the past-I am not sure because there were no clear guidelines.

Mr PERRETT: Have you found the system appraisal process beneficial to your department?

Mr Meredith: My view is, yes. There are issues that were raised out there and they were addressedand corrective action taken.

Mr PERRETT: Would you like to elaborate any further on how you have found it beneficial?

Mr Meredith: The fact that you do identify some shortcomings in internal controls obviously allowsyou to forthwith, fix it up.

Mr PERRETT: Has the requirement to undertake annual system appraisals created extra costs foryour department?

Mr Smith: What we are trying to do in this regard, once we get into place the magistrates courtservice, which is the most decentralised of our organisations, we then propose to allocate an area ofresponsibility to the senior clerks of the court so that, for example, the clerk of the court in Toowoomba will thenhave under his or her jurisdiction a number of courts on the downs. That clerk of the court will have to be trained,first of all, because to date the orientation towards clerks of the court has been towards legal qualifications, notmanagerial qualifications. So we have to retrain and develop the expertise for the clerks of the court. We arehoping that by sending the senior clerks of the courts to the various smaller centres throughout the State theywill be able to undertake a lot of the auditing process which has to be included in the systems appraisal. Again, itis going to be a retraining exercise so far as they are concerned. If we can do that, the cost should be minimalbecause they will also be undertaking other responsibilities at the same time. That will be one of theresponsibilities that we will be assessing-in particular the clerk of the court-as to how effective he or she hasbeen in determining these issues in other court areas.

Mr ELLIOTT: Is this part of the PSMC area where these people have all been required to reapply fortheir jobs-this may not just apply to justice, obviously? Have you started on that process to a large degree yet?

Mr Smith: We changed the emphasis on the clerks of the court to managers rather than legal officers,even though most of the senior level are in fact legally qualified. It was done with the approval of the PSMC, butin terms of regional ising these activities of these clerks of the court, no, that is not incorporated in the PSMCreport. It IS a matter we have determmed smce that report came down.

Dr WATSON: Given that you do not know what it !Mans to be efficient or effective, why would youchange the direction from legal qualifications to managerial qualifications for clerks of the court?

Mr Smith: There is a recognition that what is required out there in those centres are managers. Thereis just no doubt about that.

Dr WATSON: Even in a small country town like Normanton where you have the clerk of the court anda secretary?

Mr Smith: He is there today, but he is in a place tomorrow with four or five staff and he has tounderstand those managerial requirements. Not only that, you will find that a person in Normanton is not legallyqualified anyhow. Very few in fact are qualified at that level. They may be studying law but they are not lawyersas such. What we have also done in order to change direction for all the clerks of the court-we are sendingthem to courses. There are some courses in New South Wales that have been developed for registrars or clerksof the court to become managers rather than lawyers. We have sent a total of five to those courses from theclerks of the court system.

Dr WATSON: Let me give you a counter example. In a company such as BHP, you start off as anengineer and become a manager. You do not appoint managers straightaway. At IBM you start off as a computerperson and become a manager. Given your earlier response to the effectiveness and efficiency issues, I wasinterested why you would change your orientation.

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Mr Smith: Even though it was very fleeting, my examination of most of the courts that I visitedthroughout Queensland showed that they were not being properly managed, even down to the smallest thing. Forexample, at some of the courthouses that we visited we found that the staff were continuing to order the samequantity of stock each year. You would open up a press and there would be 25 bottles of Clag glue which hadbeen sitting there for the last 10 years; there would be that much carbon paper which had been collected in thelast 10 years. There were no management issues at all and no thinking process in terms of what I need, where Ishould be going, what about service, how can I develop my staff, what sort of training do I and my staff need.Everything was oriented towards a legal issue rather than a management issue. The other thing that we mustremember-at least, I have to realise this-within a very few years there will be very, very few lawyers in theMagistrates Court service. Fewer and fewer are doing their training. It will be only a matter of time when there willbe virtually no lawyers in the Magistrates Court service and we will be looking for experienced managers tomanage our courts.

Mrs BIRD: Are the quarterly position assessments undertaken in your department fully compliant withthe requirements of the Public Finance Standards?

Mr Smith: Yes, to the best of my knowledge.

Mrs BIRD: Can anyone give us any assurances on that?

Mr Newton: The initial quarterly position assessments compiled by the department were based on aquestionnaire format relating back specifically to the questions in the Public Finance Standards. The reason forthat initially was that there were no guidelines in relation to how you should perform those assessments.Notwithstanding what it is saying there, a lot of the items within the position assessment category are items thatwould have been performed previously, anyhow. You would have done a lot of those items in a normal course ona monthly basis. To answer the question, yes. What the department has been trying to do with Treasury is to askthem to provide more specific guidelines and pro formas to departments. Treasury, of recent times in the monthsof February and March, did hold a number of workshops with departments-I attended one myself-where theyspecifically went to each of the items and did supply additional information and pro formas. The intention of thedepartment for the last quarter of the current financial year is to modify what has been provided in the past tobring it into line with later information that we have been able to ascertain through Treasury. But, yes, they dofollow that.

Mrs BIRD: I will return to workshops in a minute. Do your position assessments entail a progressivebudget review of receipts and expenditure?

Mr Newton: Yes, they do. In the normal course as part of the items, the different areas are providedwith financial reports out of the DBS system and based on that information. For instance, one report that comesout will provide information on what they have expended in the current month against what the cash flow is forthat current month. It will also provide information on what they have expended to date as against their cash flowto date. It also allows them to do an assessment or an analysis of what they estimate they will expend in thecurrent financial year against the budget. Once that information is provided, it then allows us to take what actionis necessary in relation to their costs.

Mrs BIRD: When was your first quarterly position assessment completed?

Mr Newton: The first one was in October 1990. But, as I said, it was on the original questionnaireformat, just answering questions from the Public Finance Standards.

Mrs BIRD: As part of the position assessment process, the Public Finance Standards require that anannual determination be made as to whether assets are being used in the best and most efficient way possible.What process does your department follow to satisfy this requirement of the standards? I think we touched onthat earlier.

Mr Newton: We have touched on it a little bit. I guess it depends on what type of assets you aretalking about. If you are talking more of monetary assets, obviously the department does not have anyinvestment process involved; it is all done through Treasury. In relation to more physical assets, each area aspart of the position assessment-I am sorry, you are talking about the annual assessment here?

Mrs BIRD: Yes.

Mr Newton: Our process currently is that each quarter they would look at those assets. Most of ourassets, I suppose you could say, other than the human asset side of things, are basically plant and equipmenttype items.

Mrs BIRD: Propeiiy?

Mr Newton: No. We have no property, no land, no buildings, no heavy machinery such as they havein Queensland Railways. We are more service oriented, so they are more operational physical type assets of a

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lower value, along that line.

Mrs BIRD: Did you find the workshops beneficial? Can we have an honest assessment of any reportsthat you have had back from those workshops?

Mr Newton: As I said, I personally attended the workshop at Treasury and I did find it beneficial. Iguess it is good to sit around and discuss issues that are relevant to all Government offices to see how otherareas are handling those particular types of matters and to be able to talk about it and throw around ideas in aworkshop fashion instead of leaving departments to their own resources. I guess if I have a criticism of theintroduction of the Public Finance Standards, it was really the lack of workshops and guidelines from Treasury. Ithink the legislation itself was assented to in July 1990, and even though departments were given some warning,the actual guidance in relation to them has come a fair way down the track.

Mrs BIRD: So you developed your own as you went along.

Mr Newton: Initially, and then just modijied as you gain additional information or through discussionswith other areas, that type of thing.

Mrs BIRD: Was that costly for the department?

Mr Newton: Yes, I would say it was costly because the helpful part about setting down the guidelinesin certain cases-it probably does not apply in every case-is that you do get consistency across departmentsas well. We are all talking about the same thing. We are all doing our reports and knowing that we are talkingabout the same things.

Mrs BIRD: What benefit are position assessments to the management of the department?

Mr Newton: They are a benefit. As I said before, some of the items in there you would have alwaysperformed. If you are looking at bad debts, for instance, they are an item that you do need to look at on amonthly basis. I know that it says in the Public Finance Standards or that it is mandatory within the PublicFinance Standards that you should do that, but in a normal accounting sense you would do it, anyhow. I guesswhat I am saying is that the position assessments make items mandatory. You must look at them; you mustreport on them and therefore you will get the benefits out of looking at those items on a regular basis. In otherwords, it allows you to take remedial action. It allows you to look at your operations in a timely manner, so theyare beneficial.

Mr J. H. SU LL IVAN: If I can go back to the previous question where you spoke about lack ofguidelines, at least initially, and the fact that guidelines would provide more consistency, to what extent inrelation to PFS do you think Treasury should be involving itself in each of the individual departments andstatutory bodies?

Mr Newton: I think in the key areas in the Public Finance Standards-and I am talking about areaslike systems appraisals and position assessments and probably some other areas there-I believe thatworkshops or seminars do allow all the Government departments to get together and to talk about the issues andto, I guess, obtain Treasury's thinking in relation to items that are within the Public Finance Standards. ThePublic Finance Standards as such have gone, as you probably realise, a little bit more to the commercialbusiness-type sense. In relation to the Department of Justice, we are not a business entity as such So some ofthe terminology within the Public Finance Standards would not be words or terms that you would come across ina normal governmental sense.

Mr J. H. SULLIVAN: You are really not asking them to involve themselves within the department assuch but to playa stronger or a more proactive role in encouraging you to develop your own?

Mr Newton: Yes. I am basically saying a proactive role. I think departments, and with the expertisethey have in those areas, with some guidance can then build on what they have and what they glean out of theworkshops and seminars and that type of thing. In some areas, though, which are fairly standard, I believe thatTreasury could have saved departments time and money in relation to the implementation of Public FinanceStandards.

Mr J. H. SULLIVAN: Am I correct in saying that I am getting the impression that you think thediscussion or contact between the departments is also helpful in developing what might occur within yourdepartment?

Mr Newton: Yes, that is what I am saying.

Mr J. H. SULLIVAN: Is that not possible without the intervention of Treasury with workshops andthe like?

Mr Newton: It is possible. There are one or two groups that do meet on a monthly basis in relation toother areas within, say, financial matters or other matters in relation to the department. I am thinking of the

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Government accounting group, for instance. So there are some other avenues available.

Mrs BIRD: But Treasury clearly has an advisory role to play in connection with position assessmentsand other things. Do you think they should be going beyond that? Would it be helpful if they went beyond that toperhaps a facilitation process or even as far as a consultancy?

Mr Newton: I think in some parts of the Public Finance Standards they could have gone further, andmaybe I can give you an example in relation to the Financial Management Practice Manual. Most of the practicesin relation to I guess what you would call the bread and butter items-things like paying accounts and receivingrevenue and other aspects-eould have been done on a Government-wide basis, and actually it may have beeneasier or more cost effective for either consultants to be engaged Government-wide or through Treasury andactually come with some sort of consistency across departments in some of those areas rather thandepartments having to go out and use their own resources to I guess basically start from scratch.

Mrs BIRD: So the outcomes would have come through Treasury?

Mr Newton: Yes.

Mrs BIRD: Rather than be owned by each department?

Mr Newton: I am only talking about more I guess what I would call basic-type accounting functionsrather than some of the others. Obviously, everything within the Public Finance Standards does not apply to allGovernment departments, for instance. A lot of the Public Finance Standards areas do not apply to theDepartment of Justice, for instance. .

Mr Meredith: Also, we suggested that Treasury does not travel alone, that it does glean informationfrom the departments in developing an area.

The CHAIRMAN: I think I would like to conclude with perhaps one or two more questions about therole of Treasury. We have covered most of it. On those bread and butter issues like position assessments andso forth which seem to be getting addressed now, did the department make any approach seeking guidance fromTreasury earlier?

Mr Newton: There has been correspondence between the department and Treasury at certain timesin relation to the implementation of the Public Finance Standards and the department generally asking Treasurythat we believe that you should provide a more lead-agency role in relation to the Public Finance Standards. Sothere has been contact between the department and Treasury through correspondence.

The CHAIRMAN: We have touched on most other issues. What about the role between thedepartment and Treasury in terms of program management? Have you received much assistance or has therebeen much interaction between the department and Treasury there?

Mr Smith: Not a lot. I think when you ask Treasury Office-and most probably one of ourshortcomings is that we most probably have not asked often enough for assistance, I think once asked they willoffer--

The CHAIRMAN: They have got a program management division. So they have not been to see youand you have not been to see them as yet in terms of trying to--

Mr Meredith: There have been quite a series of seminars conducted by the division and manydepartments had many people there. So it was not that we were devoid of any contact at all.

Mr Smith: But in terms of addressing our own particular need, it has been more a general approachrather than a specific one. I think that's where our shortcoming may have been.

The CHAIRMAN: I think that concludes the Committee's questions. Are there any final points youwould like to make?

Mr Smith: The only thing I would like to leave with you is an update on many of the issues which youhave raised and further explanations in terms of our correspondence of 15 April. I would like to table thatdocument, which sets out in some detail some of the activities which might explain in a more comprehensivemanner what we replied to you. I would like to table that document.

The CHAIRMAN: Thank you very much. Thank you Mr Smith, Mr Meredith and Mr Newton for yourevidence. You are now discharged. That concludes the Committee's hearing. Thank you Hansard.

The Committee adjourned at 4.50 p.m.

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PARLIAMENTARY COMMITTEE

OF PUBLIC ACCOUNTS

MEMBERS: Dr J. G. FLYNN (Chairman)

Mr J. A. ELLIOTT (Deputy Chairman)

Mrs L. R. BIRDMrJ. PEARCEMr T. J. PERRETT

Dr D. J. H. WATSON

IMPLEMENTATION OF THE PUBLIC FINANCESTANDARDS

TRANSCRIPT OF PROCEEDINGS

(Copyright in this transcript is vested in the Crown. Copiesthereof must not be made or sold without the written authorityof the Chief Reporter, Parliamentary Reporting Statt.)

TUESDAY, 26 MAY 1992

The Committee resumed at 9.02 a.m.

The CHAIRMAN: I declare open this public hearing of the Parliamentary Committee of PublicAccounts. This public hearing is being held pursuant to the Public Accounts Committee Act 1988. We haveconvened this hearing today to hear evidence in relation to the Committee's inquiry into the implementation ofthe Public Finance Standards in the Queensland public sector. I would like to inform members of the media andthe public that tape-recording of these proceedings is not permitted.

Before you commence to give evidence, I am obliged to inform you that the proceedings here today arelegal proceedings of the Legislative Assembly and that the Committee requires that your evidence be given onoath or affirmation.

JOHN ALBERT PIETZNER, sworn and examined:

The CHAIRMAN: Could you please state your full name and the title of the position you hold?

Mr Pietzner: My full name is John Albert Pietzner. I have a dual appointment within the school. I amsecretary to the board and business manager of the school.

The CHAIRMAN: Of Brisbane Girls Grammar School?

Mr Pietzner: Of Brisbane Girls Grammar School.

The CHAIRMAN: Just by way of introduction to explain what we are doing-the ParliamentaryCommittee of Public Accounts is an all-party Committee of the Queensland Parliament whose purpose is toscrutinise and provoke reform of the financial administration of the public sector and to ensure that ExecutiveGovernment is accountable to Parliament. The Committee conducts its business in accordance with the PublicAccounts Committee Act and the Standing Rules and Orders of the Legislative Assembly relating to selectcommittees.

The Committee is presently conducting an investigation into the implementation of the Public FinanceStandards in departments and statutory bodies. These standards are issued under the Financial Administrationand Audit Act and commenced operation on 1 July 1990. The Committee has a particular interest in therequirements of the standards relating to financial management practice manuals, position assessments,system appraisals, program management, internal audit, and the move to general purpose financial reporting bybusiness undertakings and statutory bodies. The use of private consultants in the implementation of thestandards is also of interest to the Committee.

I inform you as a witness that you are required here today to answer all questions relevant to thesubject matter of this inquiry. The Committee would like you to answer its questions frankly, and to provide it withan accurate and clear view of your organisation's position on the issues canvassed. We will all take it in turn toask you some questions.

Mr PEARCE: The Public Finance Standards and the Financial Administration and Audit Act requirethat statutory bodies have a financial management practice manual. Has your school ever had a practice manualor accounting manual, as they are also commonly known?

Mr Pietzner: I will talk collectively. The grammar schools got together, I would say, about two tothree years ago to develop such an accounting manual. We do have manuals In draft, but we stopped pursuingthose manuals to finality when we heard about the Public Finance Standards being introduced. So the stepshave been taken. We stopped, but we restarted recently in conjunction with some guidance from the Departmentof Education and Queensland Treasury officers.

Mr PEARCE: You have said in your letter to the Committee that you were moving along those lines inconjunction with the Department of Education. Could you tell the Committee who is writing this manual and doyou know when it is due to be issued?

Mr Pietzner: There was a meeting of the grammar schools with the Department of Education on 14April this year. I was not able to attend that meeting, but the minutes of that meeting show that Mr Don Barrettfrom Ipswich Grammar School and Mr Stan Pascoe from the Ipswich Girls Grammar School have taken on thatresponsibility. Generally speaking, all the requirements of that meeting have asked for a 30 June date. I do notbelieve it would be a completion date for those two people, but it would be, I would say, a getting together at thattime for a progress report on their achievements so far.

Mr PEARCE: You have got two representatives from grammar schools there. What other role are theother schools going to play in the process?

Mr Pietzner: We have split a number of the other responsibilities, like position assessments, whereeach school has been given certain responsibilities to look into and produce a result on behalf of the otherschools. Brisbane Girls Grammar School, for example, has produced information on our end of year financial

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accounts. We introduced accrual accounting practices in 1990, so we are a little bit further ahead than most.

Mr PEARCE: It is good to see that that involvement is there. When the manual is actually issued, willit need to be modified to suit the particular systems, practices, procedures and internal controls operating atyour particular school?

Mr Pietzner: Yes, I think the general feeling within each school is that there will be a base document,but it will have to be modified to suit the operations of each individual school.

Mr PEARCE: Do you consider it important to have that flexibility?

Mr Pietzner: I think so. Every school has got its own systems, its own demands, and its own staffingarrangements, so I think it is important that we do have that flexibility.

Mr PEARCE: Without a practice manual, how are your staff apprised of the practices, proceduresand internal controls that they are required to follow in undertaking their duties?

Mr Pietzner: I think it is important to realise that each school in itself is not a large public department.For example, there is myself as business manager and I have an accounting staff of two. I have got a worksmanager who is responsible for certain stores and assets and that type of thing within the school. Largely, upuntil now, it is by word of mouth. We do put out in writing some practices which we require the teaching staff toperhaps observe. But I would see all those writings consolidated into the manual when it is produced.

The CHAIRMAN: Basically, at the moment, you are capable of personally supervising all of. thefinancial controls?

Mr Pietzner: Yes.

The CHAIRMAN: For instance, if a lot of people suddenly got behind in their fees and say, forargument's sake, there was a rise in money owing in outstanding fees, you would become aware of that?

Mr Pietzner: Definitely. Depending on questions later on-I might be pre-empting somethingnow-we have a finance committee within the board of trustees, and they meet once a month and probably, say,on average about 10 times a year. We look at the school's accounts on a month-to-month basis, and theoutstanding debtors are taken into consideration at that time.

Nil' PEARCE: What benefit will the practice manual be to your school, and how important do you thinkit will be personally?

1\111' Pietzner: I guess that the benefit is-if you could look at it as if we had a large turnover ofstaff-the manual itself would provide a base document for staff to have recourse to. But we do not have a largeturnover. I guess it will simplify some administration if we can make reference to standard writings. But we wouldneed to review those writings perhaps quite frequently, because there is always something changing, whether itis the result of computers coming to the school or a changeover from written records to something else. I will notsay that it has limited value. I would say that the work that each school will put into it-because we all have ourown finance committees and they all operate very similar to what we do-the work that we put into it may be outof proportion with the result that we will get.

The CHAIRMAN: It almost sounds as though you could manage without one, with that sort ofpersonal supervision component that is obviously not capable of being there all the time in larger organisations.

Mr Pietzner: I guess that would be my view. Whether my treasurer or chairman has the same sort ofview, I really have not spoken to them about it. But that is the way that we have been operating up until now, andI have not had any criticism or constructive comments come from either of those people.

Dr WATSON: How many staff are actually involved in the school? I guess that it is probably a betteridea to get the size. Obviously, the school in terms of student numbers is large.

Nil' Pietzner: Our budget provisions for 1992-we have a permanent full-time and part-time staffcomplement of around about 130. Of that, I guess that there would be in the order of about 80 teaching staff whoattend every day. We have 30 to 35 ancillary staff or support staff. We are also blessed at Girls Grammar by nothaving extensive ovals or extensive landholdings. We have a very, very confined site, so probably the controlarrangements that we have there are easier to look after than the bigger schools in terms of land size.

The CHAIRMAN: Just to finish this particular topic-you have told us that you have two people in theaccounting area at the school.

Mr Pietzner: Yes.

The CHAIRMAt~: Would those two people be the only people who basically deal with financialmatters, in terms of paying accounts, receiving money and issuing receipts?

Mr Pietzner: There are primarily those two girls who look after it. We do have part-time assistance

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from another girl within the school on accounts payable matters. You cannot deny the involvement of what I callour stores office, where we have a girl who is responsible for the receipting of stores into the school, gettingacquittances from departments, and that type of thing to make certain that the stores are being received. Butthat is part of the process that we have before we pay an account.

The CHAIRMAN: All up, you plus four other people are the only people who are really involved infinancial transactions?

Mr Pietzner: Primarily, yes. The financial practice manual that we are looking to develop will belargely based on the universities manual, which I understand is already in existence. We have been askedrecently to comment on the list of contents that has been extracted from one of the universities' books. Thatlooks very comprehensive. Whether we will follow in detail everything that is specified by the universities, whichare a much larger organisation, I do not know at this stage.

Mr J. H. SULLIVAN: I am sorry that I was not here right at the very beginning. I would like to askyou about the internal audit. Your school does not have an internal audit function, as indicated in your letter. Iwas wondering if that was a decision taken by the board of trustees.

Mr Pietzner: It certainly is a strong view taken by my Treasurer, and I would say that it is supportedby the board of trustees, because to introduce an internal audit function would also add an additional cost to theschool. We just do not have the resources in terms of manpower; that we have someone who is underutilised andwith the necessary experience even to be able to take on that sort of function.

Mr J. H. SULLIVAN: So it is a resource question?

Mr Pietzner: Yes.

Dr WATSON: I turn to some issues associated with program management, which you have alreadyanswered in the questionnaire. I would like to get some elaboration on it. The first issue that I would like toaddress is: you indicated that you have a strategic plan running for six years. I guess that we would like to knowthe nature of the school's strategic plan. For example, define the school's mission in life, its identify, its goals,its school aims and what it wants to achieve over the term. Could you elaborate on those kinds of issues?

Mr Pietzner: I could tell you the process that we follow. Again, it is a Brisbane Girls Grammar Schoolprocess. I cannot answer or comment on what is happening within the other schools themselves, but theschool's aims and objectives are spelt out to parents as part of the enrolment process. The enhancements tothat source document are determined by the principal in conjunction with the board of trustees. Those decisionsgenerally are recorded in the board minutes. As business manager, I then interpret as best I can those boarddecisions into a long-term financial plan. We have been very active in terms of keeping our financial plan up todate, because we believe that things are constantly changing, and we review and update our six-year plan twicea year. From my point of view, that is the financial commitment that we make to make certain that thedevelopments within the school are able to be funded without difficulty by the parents and the other incomecoming to the school. .

Dr WATSON: Does the strategic plan go beyond the financial plan? Does it embody more than howyou are going to refurbish science labs in three years' time, or put in another building, or whatever? Does it gobeyond that? Does it have the strategies, goals and direction In which you want to go?

Mr Pietzner: The major decisions are recorded in board minutes. There is no separate document assuch.

Dr WATSON: So there is not a separate document called the strategic plan for Brisbane GirlsGrammar?

Mr Pietzner: No. However, there is a six-year development plan, which is a financial plan, whICh IS

very formal. As I said, that is looked at twice each year. I do the best that I can to translate the board deCISIOnsinto that.

Dr WATSON: Would it then be fair to say that that school strategic plan is not, if you like, generallyavailable to staff and other people, or do they communicate it through other means so that staff and studentsand parents understand the goals of the school, etc? What we are trying to gather is how formal that strategicplan is, the decisions that are made and how they are communicated with the appropriate staff.

Mr Pietzner: Any major announcement on any board decision concerning the future of the school isusually notified to the staff by an announcement by the principal of the school. Also, every opportunity is takenat public occasions-like speech day, for example, where the chairman of the board will also makeannouncements as well as the principal of the school. We are also very active in keeping the parents andfriends' association informed of major decisions within the school, and their monthly meetings are attended bythe school principal.

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Dr WATSON: You indicated that your school has some programs. Could you tell us how the school'sprograms are structured and how they are separately identified?

Mr Pietzner: I speak in terms of the six-year plan as well. It is very difficult to do anything else in aneducational institution but to break down the costs into manpower, the operating costs of the school, the capitalinvestment side of the school-which means a commitment to the upgrading of plant and equipment and capitalworks-and the revenue or income side. There are obviously subsections within those major categories.

Dr WATSON: If I was thinking in terms of programs of the school, a "program" in a very broad sensemay be an academic program, a sporting program or a grounds program or something else. Did you have thatkind of breakdown? An academic program maybe broken down into a number of components, but do you havethat kind of structure at all?

Mr Pietzner: No. It depends how far you want to go. It will be difficult in many cases. If you want toget down to the extent of apportioning teacher salaries towards a program, it would be a monumentaladministrative task for us to do that. It is much easier for me to set aside money for grounds and gardens type ofwork and tell the works manager that he has got $2,000 to carry out a certain commitment and keep an eye onthe expenditure trends. The apportionment of salaries and overheads is prohibitive, I believe.

The CHAIRMAN: This may be a bit philosophical, but from the principal's or board of trustees' pointof view, there is probably no real way of assessing whether the money they are spending on the students forsport is more cost effective than the money that is being spent on language or science.

Mr Pietzner: I am probably the wrong person to be asking that question as well. Mrs Hancock, theprincipal, would be best suited to respond to that question. Mrs Hancock has got an extensive network amongstthe teaching staff and also feedback from parents. She does rely on that source of information to judge themerits or otherwise of some new initiative. However, generally that is gone into very thoroughly beforehand aswell. I think that is alii can say about that. I did mention earlier before the meeting that the other guidelines thatwe use to look at the success or otherwise of the school is the demand for enrolments at the school. Ourenrolments are quite healthy, and our waiting lists are a good indication that parents seem to be happy with whatwe are doing.

Dr WATSON: That leads to my next question. You have already indicated that you really do not haveprogra~s. You suggested in your letter that you did not believe it was possible to evaluate effectiveness andefficiency of educational institutions other than through academic achievement results. I have made similararguments in different places. Let me ask you why you hold that view or why the school holds that view.

Mr Pietzner: I just do not see, quite frankly-I will start again. Trying to develop the effectiveness ofa program in a financial sense versus an educational achievement type sense is very difficult. I think that whilstI am more suited to argue in terms of a financial profit or loss sense, the principal of the school is probably, inmany cases, able to present the educational benefits, which are an intangible sort of thing which you cannot puta cost on.

Dr WATSON: In the Public Finance Standards, and I suppose generally in a financial control sense,there is usually a difference made between the terms "efficiency" and "effectiveness". Whilst one might arguethat educational results in an efficiency sense might be difficult to quantify, an alternative argument would bethat effectiveness measures are not that difficult to determine or measure. Do you have any response to that?

Mr Pietzner: No.

Dr WATSON: You have not actually thought about that within the school?

Mr Pietzner: I guess I see the difference in one sense, in that the finance committee may beconcerned about certain things at their monthly meeting, but when one gets into a board room, talking about thecollective benefits that might be accruing to the girls as students, there is another point of view.

Dr WATSON: For example, I would say that the waiting list measure was an effectiveness measure.Demand for enrolments-I suppose that is the same as waiting lists-is an effectiveness measure, notnecessarily an efficiency measure. What the Committee is trying to determine is how statutory bodies andGovernment departments go about doing this, and how it can be done within your school. You are really sayingthat Judith Hancock is the person to speak to on that issue.

Mr Pietzner: I think so. To talk about the other side of the ledger, I think you have to divorce in manycases and take heed of what the principal is trying to achieve for the girls. You have to be mindful of costs, but Ijust believe that in an educational institution of the size of the school with the resources that we have, it wouldbs very, very difficult to introduce some sort of program budgeting.

Mr ELLIOTT: Obviously everyone must be tremendously paranoid, particularly from a boarding pointof view at the moment, with the dramas that are out there with parents trying to keep kids at school. What sort of

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things are you putting in place or looking at to try to keep an eye on what is happening and where things aregoing and trying to contain those costs?

Mr Pietzner: I would have to say that the principal of the school is probably the focal point of thatsort of information that comes into the school. If I could give you another example of trying to keep the image ofthe school in front of everyone-we are conveniently located over the road from the CWA hostel in WickhamTerrace. Recently, the CWA ladies came to the school to ask if they could use the school facilities for aStatewide music competition. We recognised that word of mouth is probably one of the best forms ofadvertisement, so we cooperated fully with the committees that the ladies set up and made our facilitiesavailable to them at a very nominal cost. That is the most recent example that I can give you.

Mrs Hancock speaks to parents extensively within the confines of her office to glean not only as muchas she can from the parents about their daughter, but also how the parents got to know about the school, whythey are interested in the school and so on. She is very fair, I believe, in saying to parents if need be, "I don'tbelieve that your daughter is suited to this type of school, and, therefore, I think you should consider this sort ofthing as well." The principal is a very important link between the public and the success of the school.

Dr WATSON: I want to go back to some financial points. The practice statements to the PublicFinance Standards require that the results of program reviews and assessments be reported to the Minister andthat comments be included in your annual report. They also require all programs to be comprehensively reviewedby 30 June 1993. Your school has not done this and does not seem to have the programs. Do you believe itshould be required to meet those standards?

Mr Pietzner: It is one of the tasks-without referring to the minutes-that one of the schools hasbeen asked to look at and refer back on 30 June this year, when I expect there will be another meeting betweenthe Department of Education, Treasury officials and the grammar schools themselves, to look at what ispractical and what is not.

Dr WATSON: That relates to an additional question because the standard 310 (3) states that thepractice statements given in Part 3, Division 1 of the Schedule A to these Public Finance Standards, shall beincorporated in the systems employed by each accountable officer and to the extent practical by each statutorybody to which this Public Finance Standards apply. What do you understand by the "extent practical"? Do youthink it is practical from your viewpoint and from your school's viewpoint?

Mr Pietzner: Personally, I believe it is not practical. Again, some of the other grammar schools mightdisagree with me on that. I would see that if it is a collective view which is supported by the Department ofEducation, it may well be that we might seek exemption from that. It is probably premature for me to say muchmore than that until I see what the result is from the school that has been given the task to look into it.

The CHAIRMAN: I would imagine that probably some of the decisions related to programmanagement must be informally made at your school. When I say "informally" I mean-as you weresaying-input from the principal and the board of trustees. They must decide whether to build a new music block,expand the music program or expand the sporting side. I suppose that a lot of the material that is involved in thispartiCUlar management technique is being done in an informal way. Do you see any need to formalise that?

Mr Pietzner: Personally, I see it formalised where the concept goes back to the board minutes alld itis formalised in a financial sense in the development of the six-year plan and in the development of the annualbudget. As we all know, one of the biggest cost factors that we have-as in any institution-is manpower. Thedevelopment of a new education program within the school invariably involves manpower. You could say that theadditional equipment cost that might be there is a very small percentage of manpower cost. The program that Ihave developed is quite clear in looking at the growth in staff. That is then left to the finance committee and theboard of trustees to indicate whether they are comfortable or not with that program. We also take the view thatwhat we will try to do is develop a very flexible-type budget arrangement so that, if the need arises, we look atwhat we can drop out of our existing commitments to help offset the cost of any new development.

Mr PERRETT: I would like to ask some ques~ions on system appraisals. The Public FinanceStandards require that on an annual basis all revenue, expense, asset, liability and equity systems beappraised. This requires you to formally examine the clerical and other procedures followed to ensure internalcontrols are operating as intended and that systems and procedures followed are appropriate and sound. Thedocumented result is required to be referred to management. From your letter, it is unclear to the Committeewhether this is done at your school. It gives the Committee the impression that a monthly meeting of the financecommittee undertakes these appraisals. Would you please clarify this for us?

Mr Pietzner: We do not have any formal system of appraisal as such, apart from certain tasks that Itake on as a result of finance committee meetings. Finance committee meetings are quite probably one of thelonger meetings that the board members get involved in. We have two formal appointments from the board. The

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other members of the board are encouraged to attend if they feel inclined to do so or are able to do so. Thechairman of the board always attends because he wants to know what is going on. Mrs Hancock and I attendalso. We always have at least five people there. We look at virtually every line item within the school's chart ofaccounts. I have a spreadsheet arrangement where the variations from our budget projections are highlightedand I may be asked to comment as to the reasons why certain things are happening within the school. If it issomething which I am not able to answer-it might be a teaching-type question-Mrs Hancock is able to answerthose sorts of questions. If we are not able to answer the question, we leave that committee process and we doour own investigations within the school. We report back to the finance committee at the next meeting.

As a simple example, if our catering costs for the boarding house suddenly shows an extraordinary leapfor a reason that we are not familiar with, and it shows that we are going to overspend our budget or things look abit dicey, we will have a very close look as to the reasons why certain things have happened within theexpenditure figures. The same applies with everything else. I have gone to a great deal of trouble to try toidentify all the expenditure items which drive the school's operations. Where some institutions might have, let ussay, a bulk Rand M allocation, I will try to break down that allocation into plumbing, electrical and othercategories so that we can see precisely where our money is going.

Mr ELLIOTT: Is there a potential for the grammar schools collectively to form a buying group or dosomething like that? Do you already do something like that to get your costs down?

Mr Pietzner: It is not practical. Geographical differences are such that it does not work. We havelooked at that sort of thing from the bursars association to see if it could be introduced. Each school has its ownparticular requirements and their own needs for delivery lead time and so on. The closest we have got to it is withthe Brisbane Grammar School next door to us. I have extensive contact with my counterpart at the boys' schooland we look at things like the taxi fleet we are using at the moment for hirings. We not only have a cost decisionthere but we also have a security decision to make in terms of the students, particularly with the girls' school.We look at bus transport costs and we talk about contractors. We talk about procedures that we use for capitalworks developments, and so on.

Mr ELLIOTT: Do you have any of your own fleet operations at all in terms of small buses?

Mr Pietzner: No.

Mr ELLIOTT: Do you do all that by contract?

Mr Pietzner: So far, we have not had the need to, say, have in-house vehicles and we have gone tocontract which has proved worth while, but the activities of the girls are such now that we are looking veryclosely at buying a 16-seater bus, for example.

Mr PERRETT: What benefit do you perceive annual system appraisals are to the management ofyour school? Do you think they are necessary?

Mr Pietzner: If I can go back to the question of the school being relatively small in terms of adepartment and that I am able to oversee, in conjunction with the principal, a lot of the activities that areoccurring within the school, I believe that the systems appraisal within the school is ongoing, although not in aformal sense. It is there all the time. We are always looking to try to save a dollar and at the same time makecertain that the dollar saved is not going to necessarily mean a reduction in school fees. It is going to berelocated or redistributed somewhere else. For example, we.are looking at the introduction of costs centrebudgeting in 1994 so that the departments will be given, say, more money than they have at their disposal at themoment. It will cover things like telephone calls, photocopying, stationery usage, and so on. The idea is that ifthe departments are able to produce savings through their own initiatives, the money will not be taken back fromthem. They will be able to use that for some sort of special purpose that will be determined in conjunction with theprincipal. The time frame is 1994, but 1993 is the test year so that we can look at the processes that we need tocontrol that.

Mr PERRETT: Do you feel that the need to undertake system appraisals creates extra costs for theschool?

Mr Pietzner: I think that a formal system of appraisal, I guess, is always going to be worth while, butif I was to be asked by my chairman or by my treasurer, "What system appraisal should I be doing in the formalsense?", my answer would be that I do not believe there is any formal system appraisal as such at a specifiedtime of the year, unless someone else cian come up with something and tell me about it. I strongly believe thatexpenditure controls and the financial management that we have at the moment is a very good guide and I thinkalso that you have to look at the calibre of the staff that we have within the school. They are not backward incoming forward if there is some way that they believe we can achieve savings within the school. For example, wehave a very good girl in the stores office who has been able to save the school extensive moneys this yearthrough the printing of envelopes, strange though it may seem. Her alertness is such that I think she saved the

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school $3,000 this year, so that is going on all the time. There is another project which I have talked about withour works manager to look at whether we can get the students to do an energy audit within the school, not only tohelp them with part of the classroom and teaching side of things but also to help us on the administrative side ofthings.

Mr ELLIOTT: It sounds like a pretty smart idea, judging by a place like this and how much electricitygets wasted.

Mr Pietzner: Yes. I feel quite strongly about it, and I am able to demonstrate to the financecommittee, for example, that there has been a fairly gradual escalation of our energy costs. I think that, subjectto Mrs Hancock's approval, it has some worth. Recently, the works manager has also given some presentationsto groups of students on the costs of-strange as it may seem-pieces of plastic going down our seweragesystem and into our drainage system. He has been able to show them the pieces of plastic and the fact that itcosts the school $700 to get a drainage system cleared. We are trying to get the girls on our side as well to helpreduce the costs and I am certain that their parents would not object to that.

Mrs BIRD: To this time, the school has not done position assessments in accordance with publicfinance standards. However, the eight schools and the Education Department are looking at the content andextent of the requirements. What stage are you at with those discussions? Do you expect some determination tobe made in the near future?

Mr Pietzner: I will just take some information from the minutes of our meeting of 14 April which statethat three approaches to position assessments were discussed. There has been a determination of the best wayto proceed out of those three approaches. The Townsville Grammar School and the Rockhampton Girls GrammarSchool have been given the task of producing a position assessment for the quarter ending 31 March fordiscussion at the next meeting, and they have been asked to complete that by 30 June this year. Alii can say isthat the process has been addressed collectively by the grammar schools with the department and the Treasurypeople at the time. Perhaps post 30 June I will be able to give you more information as to where we stand there.

The CHAIRMAN: It would seem to me that the monthly meetings of the finance committee, if you areconsidering the whole range of data that are relevant to the school, such as expenditure, revenue and debtors,cannot be too far from a position assessment, can it?

Mr Pietzner: No.

The CHAIRMAN: A compilation into quarterly terms of that sort of data.

Mr Pietzner: That is our feeling within the girls' school. In fact, there has been discussion of whetherit would be more appropriate to just include in our commitment an outline of the roles and responsibilities of thefinance committees. They conduct these regular meetings to look at what you call position assessments andperhaps through these regular meetings and having the roles and responsibilities formalised, we would be able toaccommodate that.

The CHAIRMAN: You already have full accrual accounting?

Mr Pietzner: Yes.

The CHAIRMAN. Could you remind me of how long you have had that In your financial reports'?

Mr Pietzner: We started the calendar year ended 31 December 1990 and we introduced it at that timewith the encouragement of the Auditor-General. We have continued with that into 1991, again to the year ending31 December, and the format changed slightly in the intervening period. I expect that the format will keepchanging until the Auditor-General and us are happy with the presentation. What we have done at our school, aspart of the responsibilities I have from the meeting to which I have referred, is send copies of our submissions orour financial reports to each of the grammar schools so that they can look at what they can do in-housethemselves.

The CHAIRMAN: These monthly meetings must basically look at data in the same sort of format asyour accrual-your combined result?

Mr Pietzner: Yes. The policy in our school is that the finance committee looks at the cash position ofthe school. We believe that accrual accounting on a month-by-month basis would become very confusing. Wedevelop our budgets purely on a cash basis. Our monthly meetings look at the cash basis. We believe that, ifyou control the cash side, of things, the accrual side of things is a natural follow-on.

Mrs BIRD: The Treasury held some workshops on position assessments earlier this year. Did anyonefrom the grammar school attend those? Did you go?

Mr Pietzner: I did not attend, and no-one else attended, either, to the best of my knowledge.

Mrs BIRD: Were you aware of them?

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Mr Pietzner: No. I must admit that I cannot recall them. That does not mean to say that we were notnotified, but I cannot specifically recall them.

Mrs BIRD: I get the impression that you are not real confident that position assessments will be ofany assistance to the school.

Mr Pietzner: If I could repeat something I said before the meeting-the income for the school can bebroken down into three main sources. The State and Federal Governments provide per capita grants in the orderof about 13 per cent each towards the school's income from students. So the fees for our school are made up of26 per cent from per capita grants and 74 per cent from parents' income. We are extremely conscious of theneed to try to reduce the fees for parents, that we also have to be competitive with the other independent schoolsector. We are in a sort of a no-man's-land where we are not getting any per capita grants that are greater than orless than other independent schools. We do have some benefits in being under the Grammar Schools Act interms of our loan borrowings, but the competition for enrolments is such that you have to try to keep fees downbut at the same time offer value for money. The parents of the school are not backwards in coming forward andcomplaining if they see any waste or if they are not happy with some aspect of the school's operation. I thinkthat we are already open to public scrutiny through the parents and in that way we like to see ourselves as beingsqueaky clean in terms of what we do with their money. We do not aim to make a profit. We aim to turn the moneyback into education for the students' benefit as much as we can.

Mr ELLIOTT: What has been your experience as inflation has come down? Is that starting to bereflected in your own costs? Do you see that as a real indicator or is it still running above inflation as far as yourown costs are concerned?

Mr Pietzner: I guess the end of this year will be a better indication because it is only in recent timesthat it has occurred. It would be wrong for me to say that it is not going to help keep costs down. The things thatwe keep a close eye on are the salary and wage movements. When we develop what I call our preliminarybudget, it is usually well in advance of likely national wage increases and it is a fingers-crossed situation as tothe extent and the timing of those increases.

Mr ELLIOTT: What proportion of your overall costs would your wages and salaries be compared tofood and other items?

Mr Pietzner: We have not had a normal year in recent times so that I could give you an accuratefigure, but I would say it would be around about the 70 per cent mark.

Mr ELLIOTT: That has a big bearing on it.

Mr Pietzner: Also, we look very closely at not only the inflation side of things but the real growth thatis necessary within our fee structures. This is the benefit of the long-term plan that we put together because I dothat on two occasions. I do it when the preliminary budget is set in October of each year which is going to identifythe fees for the following year. I am a great believer in looking at the platform virtually for a particular year to seehow it is going to affect the subsequent six years. If the sympathies of the board are such that it would only liketo have a 5 per cent increase in fees, it may well be that I or its treasurer speaking on my behalf would say,"Look, if you make it 5 per cent now, you are creating a problem for the school in three or four years' time." Youreally have to make the hard decision now so that you spread the impact of fee increases right across the boardrather than impose it on a particular parent group in three or four years' time.

Mrs BIRD: Your financial statements are currently prepared on an accrual basis. Are they preparedunder the transitional arrangements of the Public Finance Standards or are they now fully compliant with thestandards?

Mr Pietzner: I believe that they are fully compliant. Catherine, the Auditor-General's representativehere today, could probably speak more about that, but that is my understanding.

Mrs BIRD: Do you have a comparative fee schedule with you?

Mr Pietzner: No. I can make that available to you, if you want it.

Mrs BIRD: I would like that.

The CHAIRMAN: In relation to the PUblic Finance Standards, in your letter you state that ''theimplementation together with the annual ongoing reviews is a costly exercise in respect of manpower andadministrative support" and that grammar schools are placed at a disadvantage to other independent schools.Can you quantify the cost of implementing the standards?

Mr Pie:!tzrle:!r: No. !t is just one of those things that the manpower~! think! can speak on behalf of al!the grammar schools-is tuned very finely, particularly on the administrative side. When you are looking at theextensive work which is involved with this type of thing, it falls virtually on one person within the school, that is,the to the boardlbusiness manager. A large department might be able to that or to make

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adjustments within its manpower to cover for that sort of commitment, but we look to delegate it somewhere andthere is nowhere within the school that we can do that. If the school is already busy and our activities are suchthat we are already working a full week, this sort of thing comes in and is superimposed on everything else; I .have some sympathy also for the schools that are not located in Brisbane which have travelling commitments,accommodation expenses and that type of thing to come to the city to attend the meetings.

The CHAIRMAN: Yet you say that you support the concept of the Public Finance Standards?

Mr Pietzner: Yes.

The CHAIRMAN: How do you think your school has benefited either so far or perhaps in future withfull implementation?

Mr Pietzner: We will get a collective benefit by the pooling of ideas that will occur with the grammarschools. You can always pick up on new ideas, whether I give them to someone else or they give them to me. Mybackground is such that I like to see things in writing so that there is no argument as to what needs to occur andwhen things should occur. So administratively it will help a number of schools overcome that sort of thing.Having strategic plans-not all schools-I will not say the grammar schools specifically-have had thosestrategic plans. We are lucky that we have had them for about six years or so at least. I can see the benefit thathas occurred to us and I can see that, once they get into developing their procedures to do that sort of thing, itwill be of the same benefit to the other schools as it has been to us.

The CHAIRMAN: The move to accrual accounting, which is a standard which it sounds like you haveeither fully or just about fully implemented-has that been beneficial to you in your financial management or yourplanning?

Mr Pietzner: No. I support the accrual accounting concept. If I can just give an example. I couldnever understand how a school could just present a cash-base system to its bankers, or the Department ofEducation in our case, and expect the department or the bankers to make a realistic judgment as to whether theschool is capable of meeting its commitments. Accrual accounting has gone a long way to identifying a lot of thecosts involved, and I cannot help thinking that that, combined with a strategic plan-which I know our bankerslook at very closely and question me on certain things of it-will all go to better financial management rightacross the board.

The CHAIRMAN: So you can see definite benefit there?

Mr Pietzner: Yes.

The CHAIRMAN: Your strategic plan-as a matter of course, you had that well before the standardscame in?

Mr Pietzner: Yes.

The CHAIRMAN: You were not prompted to do more in that planning process by the standards?

Mr Pietzner: I guess personally I felt comfortable with the fact that we had already introduced theprocess, and whilst other bursars said it was not necessary, my background is such that I believed it wasnecessary, and it was just a pleasure to me, I guess, to see that it did come in in a formal sense.

The CHAIRMAN: Have you had any contact with the Treasury Department concerning the PublicFinance Standards-advice?

Mr Pietzner: Yes. The two major meetings that we have had with the Department of Education haveboth had Treasury Department representatives there. They have been helpful as well.

The CHAIRMAN: They have been helpful in terms of explaining what the requirements are and whatyou should be doing?

Mr Pietzner: Yes, and I think making a judgment as to what is reasonable and being sympathetic tothe points of view that we have expressed.

The CHAIRMAN: Have you been able to get any advice that you need that way?

Mr Pietzner: I can only speak for myself about the first meeting that I attended, not the most recentmeeting. Probably at that particular meeting they were more interested in what we were doing ourselves, andparticularly with the girls' school long-term plan. The most recent meeting last month, I cannot answer as to whathappened in the nitty-gritty of the discussion of that day, but I am certain that the spirit that was there in Octoberlast year would have been there recently.

The CHAIRMAN: The Committee is also interested as to the process by which statutory bodies aremade aware of new requirements with respect to their financial administration. Could you describe for us thecommunication channels and consultation processes which occur when new requirements such as these

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standards or legislative changes have come in? Who tells you that it has happened?

Mr Pietzner: The Department of Education tells us.

The CHAIRMAN: So that is your prime communication channel?

Mr Pietzner: Yes. There also seems to be a network amongst the grammar schools that maybe theyhave read something somewhere or they have made some sort of inquiry themselves with a department, and wehave a practice that if we find something that could be of interest to the other grammar schools, we will let themknow. That is either in a formal letter sense or as part of the annual conference that the grammar schools haveeach year. In the main, it is through the Department of Education.

The CHAIRMAN: So you would have no complaint then that changes come and you hear about themages later?

Mr Pietzner: Not in recent times, no.

The CHAIRMAN: Thank you. Does anybody have any final questions? Thank you very much for yourevidence. I now adjourn this hearing. We will recommence at 10.45 a.m.

The Committee adjourned at 10.05 a.m.

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The Committee resumed at 10.43 a.m.

The CHAIRMAN: I reconvene this hearing of the Public Accounts Committee. Before commencing togive evidence, I am obliged to inform you that the proceedings here today are legal proceedings of theLegislative Assembly and that the Committee requires that your evidence be given on oath or affirmation.

JAMES GORDON MILLER, examined:

GEOFFREY THOMAS JOHNSON, examined:

JAMES JOSEPH HOWARD, examined:

ROSEMARY CLARKSON, examined:

RAYMOND NOEL SUTHERLAND, examined:

The CHAIRMAN: Mr Miller, could you please state your full name, place of employment and the titleof the position that you hold?

Mr Miller: James Gordon Miller. I work for the Queensland Department of Primary Industries. I am theDirector-General.

The CHAIRMAN: Mr Johnson, could you please state your full name, place of employment and thetitle of the position that you hold?

Mr Johnson: Geoffrey Thomas Johnson. I work for the Department of Primary Industries,Queensland Forest Service, and I am the General Manager, Forest Services Division.

The CHAIRMAN: Mr Howard?

Mr Howard: James Joseph Howard, Manager, Business Services and Systems, Department ofPrimary Industries.

The CHAIRMAN: Dr Clarkson?

Dr Clarkson: Rosemary Clarkson, Department of Primary Industries, Manager, Corporate Planningand Evaluation.

The CHAIRMAN: Mr Sutherland?

Mr Sutherland: Raymond Noel Sutherland, Department of Primary Industries, General Manager,Finance.

The CHAIRMAN: By way of introduction, I would like to read a preliminary statement. TheParliamentary Committee of Public Accounts is an all-party committee of the Queensland Parliament whosepurpose is to scrutinise and provoke reform of the financial administration of the public sector and to ensure thatExecutive Government is accountable to Parliament. The Committee conducts its business in accordance withthe Public Accounts Committee Act and the Standing Rules and Orders of the Legislative Assembly relating toselect committees.

The Committee is presently conducting an investigation into the implementation of the Public FinanceStandards in departments and statutory bodies. These Standards are issued under the Financial Administrationand Audit Act and commenced operation on 1 July 1990. I he Committee has a particular Interest in therequirements of the Standards relating to financial management practice manuals, position assessments,system appraisals, program management, internal audit, and the move to general purpose financial reporting bybusiness undertakings and statutory bodies. The use of private consultants in implementation of the Standardsis also of interest to the Committee.

I inform you as witnesses that you are required here today to answer all questions relevant to thesubject matter of this inquiry. The Committee would like you to answer its questions frankly, and to provide it withan accurate and clear view of your organisation's position on the issues canvassed.

Mr Miller, both I and the other Committee members will direct questions to you, I think, in the firstinstance. Obviously, you may answer them. Or if you wish to refer to one of the other witnesses, you may do so.On 26 March, the Committee wrote to you seeking information concerning the implementation of the PublicFinance Standards in your department. Did you personally see the Committee's letter and oversee yourdepartment's response?

Mr Miller: I saw the letter, but I was actually travelling in New Zealand at the time that the responsecame in, so I did not actually sign the response; it was signed by my Deputy Director-General, Tom Fenwick. ButI was aware of the questions, and I had discussed some of the answers.

Dr WATSON: Do you support the answers given?

Mr Miller: Yes.

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Mr ELLIOTT: The Minister for Primary Industries has informed the Committee that your department'scommercial forest and water delivery operations will be regarded as business undertakings for the purposes ofpreparation of their annual financial statements under the Public Finance Standards. A major issue inimplementing the requirements of the Public Finance Standards in your department is the need to prepareaccrual-based general purpose financial statements for the commercial forest and water delivery operations.The standards require that these financial statements be prepared on the accrual basis by no later than 30 June1993, which is little more than a year away now. Failure to comply with this requirement of the Public FinanceStandards would in all probability mean qualification of your accounts by the Auditor-General.

The Committee would like your department to be in a position to ensure that this does not occur. Yourdepartment's response to the Committee indicates that there are a number of very significant issues which yourdepartment needs to address to satisfy the general purpose reporting requirements of the standards. TheCommittee would now like to discuss these issues further with you. Your department's letter indicates that animportant issue is the "identification of which Government body controls certain assets vested in the Crown."Could you tell us more specifically what you are referring to in relation to that?

Mr Miller: I would like to refer that question to Mr Sutherland, who is our General Manager, Accounts.

Mr Sutherland: The assets that we really need to find out about who controls them are land-in thecase of Forestry, who owns the land on which the forests are grown. There are certain assets like sand andgravel which the Water Resources Commission controls on behalf of the Crown, so we need to determine whoowns the sand and gravel. I think they are probably the only two at this stage.

The CHAIRMAN: Has there been any progress in trying to resolve those issues?

Mr Sutherland: At this stage, from the point of view of the sand and gravel, it is an issue that wehave raised very recently. In fact, we have not approached Treasury on that particular issue at this stage. In thecase of land, there have been some approaches in the past to Treasury on that, but I am not quite sure of theend result. I would have to check that.

Mr ELLIOTT: Are these the only things that have been done to date to resolve this? How advancedwas the resolution of that matter?

Mr Sutherland: Again, I would have to seek further advice on that, but I know that there has beensome work done.

Dr WATSON: Who controls the assets, as distinct from ownership? Does your department control theuse of the assets?

Mr Sutherland: From our opinion, I suppose we do control the assets.

Dr WATSON: Do the Financial Standards not refer to control?

Mr Sutherland: Yes, they do. I think we really want to affirm that and ensure that we do the rightthing by the general purpose financial statement.

Mr ELLIOTT: I presume that separate general purpose financial statements will need to be preparedfor the forest operations and the water delivery operations. Is that correct?

Mr Sutherland: Yes. The question is whether, in fact, the rest of the Water Resources Commissionand the rest of Forestry-whether we need to prepare financial statements for those. In that respect, thereporting entity and what is a definition of "reporting entity" still have to be resolved in the case of WaterResources. I believe that we have resolution in the case of Forestry-that Forestry is a reporting entity.

The CHAIRMAN: As a whole, do you mean?

Mr Sutherland: That is our belief, and we would obviously have to have some segmentation forreporting.

Mr Johnson: I could make a few comments there, if I may. There are discussions currently withTreasury in relation to the commercialisation of the Queensland Forest Service and what comprises thecommercial entity. Presently, the entity is identified as the Queensland Forest Service, but there may be a needto separate policy regulatory functions into a department of State type of function and separate that from thecommercial operations of the service. So those negotiations are current with Treasury. I think that is the point Iwish to make.

Dr WATSON: But at the moment they are really the department's responsibility?

Mr Johnson" Yes.

Dr WATSON: I mean, something has to happen?

Mr Johnson: Yes. We have a group called the Commercialisation Action Group, which meets monthly

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and has agenda items relating to the commercialisation of the Service, on which Treasury is represented. Thatgroup is designed to address issues relating to that commercialisation issue.

Dr WATSON: Is that being expedited? Because you do have a deadline coming up in respect to thestandards.

Mr Johnson: We obtained Cabinet approval in relation to the target date set through the PSMG-anextension in relation to the complexity of issues relating to commercialisation. We are aware of the target date ofthe end of June 1993 for accrual accounting. I understand that Ray has action in hand to achieve that date.

Dr WATSON: It is a little more complex than that, though, is it not, because accrual accounts requireyou to have some opening balances as of 1 July.

Mr Johnson: We have trial profit and loss and balance sheets now. We are able to do that manually.The reason that we cannot develop it any further is the difficulty we are running into with asset valuation. Theaccounting profession is currently looking into the valuation of regenerative assets, and the standard has notyet been established, so the methodology is not clear. We are able to value our forest assets in a number ofways, including discounting cash flow analysis, including cost accumulation, including a market-based valuationapproach. However, it is yet to be determined which of those methodologies is the correct approach to valuingregenerative assets.

Mr ELLIOTT: Do you think you will reach some finality by 1 July? Basically you are going to have toopen up something on the books to say what those figures are, otherwise you will not have anything to work onby the time you get to the end of 1993.

Mr Howard: That would be a manual process rather than a computerised process for the openingbalances, which in turn allows some leeway in terms of accumulating further information. Quite clearly, inidentifying the commercial aspects of forestry, the boundaries of that, as to what is a commercial activity withina Government GOE possibility context, is very unclear. What they are doing is an across-the-board assessmentof the whole Queensland Forest Service so that we can tailor it.

Mr PERRETT: It seems to me to be a little bit odd that after all the years the Forest Service has beenin operation, you have not already arrived at some form of criteria to establish the value of the asset. Is thereany reason why you do not--

Mr Howard: Forestry had criteria for themselves, but as yet we do not know what the standard will befor the accounting profession, particularly in the area of regenerative assets.

Mr PERRETT: So it is a matter of applying the standard to the criteria that you have established?

Mr Howard: Yes.

Mr ELLIOTT: Another issue your department raised was that of identifying an economical accrualaccounting and reporting system for each area falling within the requirements of general purpose financialstatements. What has your department done about reflecting appropriate accrual accounts, and I guess wehave really touched on that right now, for its forest and water delivery operations? We have not touched on thewater delivery side of operations. What stage are you at now? I think we have touched on forestry there, butwhat about the water resources side?

Mr Sutherland: In the case of water resources, th.ere has been some work ongoing since aroundNovember last year in identifying what accounting policies we will use. We are also now into the phase of doingstocktakes on inventories, assets that the commission has so that we have some opening balances for 1 July1992.

Mr ELLIOTT: In that system, as in forestry, and probably more so in some instances, you would havea lot of equipment of some value, both in terms of assets in dams and also in mechanical hardware of varyingdegrees? Although you do use contractors a lot, you still have quite a lot of gear.

Mr Sutherland: Yes, we do.

Mr Howard: A lot of that equipment is already recorded on the system and has a valuation-­

Mr ELLIOTT: So it has a depreciation schedule on it already?

Mr Howard: Not a depreciation schedule.

Mr ELLIOTT: So you have got a plant register with a value against it?

Mr Howard: Yes.

Mr Sutherland: We have a number of registers. We have office equipment registers, computerequipment registers, and we are building the register with regard to the infrastructure assets.

Dr WATSON: What are those registers? Are they just a physical count, or do you have values

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· attached to themt?

Mr Sutherland: In some instances they have values attached; in other instances, they are justphysical counts of what we have on the books.

Dr WATSON: Could I ask for elaboration on one topic? Mr Johnson talked about trial balances. Whatdo you mean by "trial balances"?

Mr Howard: They are not trial balances in the accounting sense. From a forester's point of view, theyare arriving at balances for certain specific opening entries to the books for the subsequent year. They are nottrial balances in an accounting sense, of debits and credits arriving at a trial balance of the ledger.

Dr WATSON: Could you explain to me what they are again?

Mr Howard: Forestry is arriving at opening balances for the likes of the equipment that they currentlyhave. I would think there is a conflict in the terminology that Geoff used and your interpretation as anaccountant, that a trial balance is a trial balance in the accounting sense, whereas he is merely arriving at a trialeffort at the moment to establish an opening balance for a particular or several-

Mr ELLIOTI: Plant items.

Mr Howard: Yes.

Dr WATSO N: Essentially what you are saying is that you are looking at every individual asset,identifying each asset and attaching a value to each asset?

Mr Howard: We are in the process thereof.

Mr ELLIOTI: This will be a major task, will it not? Do you think you will be able to do it in the time?

Mr Johnson: I think there has been a fair bit of work done already on valuing our non-currentassets-for example, our buildings and various items of equipment that we have. There has also been a lot ofwork done on valuing our forest estate, particularly our plantation estate. We are able to prepare "trial" profit andloss statements-whether that is a real accounting term or not--

Dr WATSON: They usually say "pro forma" or something like that.

Mr Johnson: Yes. We have done that using the various methods that we have available to us forvaluing that forest estate. Until there is a standard established for that, we are unable to come up with a finalapproach to it.

Dr WATSON: There are a number of ways to value forestry resources. Companies do that. There isno problem with establishing the value under a couple of the different methods. You will require basically thesame information, irrespective of the final method used. To gather information on cash flows, you probably haveto gather all your other information in any case. If you are going to use a discounted cash flow technique, you willprobably basically have to get all the other information that is necessary even to arrive at an historical cost.

Mr Johnson: Yes, I agree with you. I think the target date of the end of June 1993 is achievable.

Dr WATSON: Well, the opening balances have to be submitted by 1 July this year.

Mr ELLIOTT: So, do you have a plan that really spells out where you are coming from, how you aregoing to achieve that, and will that be in place and organised-even though it is done manually-by 1 July?

Mr Johnson: I would have to defer that question to Ray.

Mr Sutherland: Certainly in the case of Water Resources, yes, we do. As I said, we are undertakingstocktakes now and we have a plan to have that in place by 1 July 1992. Our problem could well be the valuationof infrastructure assets, because there are a lot of infrastructure assets out there. We are asking our managersto have a look at those and give us a valuation. In the case of forestry-we produced financial statements at theend of 1991 and, pending the resolution of the issue with regard to the valuation, we should be able to havesomething in place by 1 July 1992.

Mr ELLIOTT: Do you have an involvement in the corporate planning section, or has it been basicallyleft to Forestry and Water Resources to do their own thing?

Dr Clarkson: That is not part of the corporate plan.

Mr ELLIOTT: I think everyone is satisfied as far as the opening balances side of things areconcerned. That is obviously what the Committee was concerned about. Your department's letter states thatless stringent cash reporting requirements need to be negotiated for the commercial business units and that it'Nouta be impractica! to support detaH raporting on beth an accrua1 and a cash basis. Couid you ten us iri rnoredetail about your concern and whether you have spoken to Treasury about it?

Mr Howard: We have spoken to Treasury. The concern we have there is that the requirements for

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reporting at the moment are detailed at a statistical level, and whilst we are quite happy to comply at the programlevel, to try to develop two systems that support a commercial organisation that is supposed to be lean andmean-and management is going to be operating on a commercial basis, which surely in anyone's mind would beon the accrual accounting basis-whilst you would need cash flow management and various budget reporting,you do not need it against statistical information at the level that is currently being collected through theTreasury QGFMS system. We are not sure what detail we would be able to provide and that would be dependenton the choice of a system and subsequent negotiations with management in terms of if management wishes totake on the extra workload involved and to what extent there is an extra workload.

Mr ELLIOTT: You see this whole system, as far as your commercial arms are concerned, as beingimpractical?

Mr Howard: No. We think that the extent of the requirements may be burdensome from a commercialpoint of view. It may well be that we choose from a community service obligation to still collect that information.That decision has yet to be finalised.

Mr ELLIOTT: Internally, have you had some sort of think tank on this whole suggestion on where thePSMC end everyone else is coming from in regard to this, and looked at an alternative which you think is morepractical and more likely to keep you mean, lean and trim as far as those operations are concerned?

Mr Howard: We have looked at three alternatives. At the moment, we have yet to pursue further withTreasury what their final requirements have been. They have, in fact, indicated that they may accept a lesserquantum of statistical information on the cash reporting side at our last meeting.

The CHAIRMAN: What is Treasury's view at this stage? Do they have a view?

Mr Howard: They still want some cash reporting information, and rightfully so. We acknowledge that.It is just the quantum; we are trying to develop a happy agreement between the two.

Mr ELLIOTT: Your department's letter states that valuation of assets is both sizeable and difficult interms of the variety of methodologies that may be needed. It goes on to state that no standard currently existsfor regenerative assets such as forest plantations and that it would be difficult if each asset must be individuallyvisited and appraised as to value. It also states that other assets, such as housing, may require individualvaluations. It appears to the Committee that there is a tremendous amount of asset valuation work that stillneeds to be done by your department. We have been touching on that subject.

The CHAIRMAN: We will try to get some specific questions about that.

Mr ELLIOTI: What resources have been allocated to attend to these valuation matters, particularlyas far as forestry is concerned? You mentioned something before about looking at a system. Have you come toa decision in respect of that?

Mr Johnson: The valuation of houses and those sorts of things was delegated to district managersand they were given authority to liaise with whoever they needed to in terms of arriving at a market value forthose assets. As I mentioned before, the valuation of our forest assets-there is action in hand in relation tothose issues.

The CHAIRMAN: Basically, your problem is that work has been done and that there al e till eemethodologies that you can use and you are not sure as yet which one is going to be chosen.

Mr Johnson: That is a fair summary, yes.

The CHAIRMAN: When and how will that be done?

Mr Johnson: I think the Australian Accounting Foundation is researching and preparing a discussionpaper on that issue of the valuation of regenerative assets. That goes through the accounting profession andthrough their usual procedures for establishing standards.

Mr ELLIOTT: That could take some time.

Mr Johnson: It could be some time.

Mr Howard: But, nonetheless, the profession usually adopts those standards once they arepublished in draft form. If there is little question or discussion around it, the profession then narrows down fromperhaps a dozen different methods to a choice of one or two and, quite often, you can tailor it to cover both.There are often variations on the theme. It is a requirement of the Public Finance Standards that we actuallyfollow the Australian Accounting Standards.

Mr ELLIOTI: Private forestry operations and public forestry operations in some States operate on anaccrual basis and have valued their regenerative assets. They must apply some rational basis, I would imagine.Have you consulted such bodies?

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Mr Johnson: There are a number of organisations that value their forest assets in Australia. I thinkthe South Australians are using a market value approach to do valuations. From our point of view, there aresome deficiencies in relation to that because of values of undersized, immature trees in a market situation whichdoes not reflect the management intent for those trees. The management intent is to grow high-value, clearwood. As small trees, they are valued as thinnings. That is a complication. Our view is that discounted cash flowanalysis does take into account the future potential value of those trees.

Mr ELLIOTT: When it is all said and done, what does it really matter? If you arrive at a decision thatthat is the way you want to do it, why do we not all say that that is what we ought to do and go out there and do itand put that to Treasury? If they accept that, what is the problem? Why must we go through this long, projectedprocess?

Mr Johnson: Unless we comply with the standard which is presently non-existent, I take it we cannotget the appropriate--

Mr ELLIOTT: What is the problem? Basically, you are saying that that is the most practical thing todo.

Mr Johnson: Yes.

Mr ELLIOTT: Why do you not say that that is what you propose to do and let Treasury challenge thatif they want to? Would that not be the most practical way to go about it instead of going through some charteredinstitute and have a protracted, drawn-out, long-winded exercise that might take 6 to 12 months?

Mr Howard: One could end up reVisiting the same area.

Mr ELLIOTT: Absolutely. It seems impractical to me.

Mr Howard: I would probably err on the side of conservatism in that if a draft standard is about tocome out, we may be better off utilising that draft standard as our policy. We understand that it is less than amonth away.

The CHAIRMAN: So, you have district managers in Forestry basically doing the valuation of assets.Is that the same for Water Resources too?

Mr Sutherland: In the case of infrastructure assets, there is a team that is the valuations ofthose.

The CHAIRMAN: Who is on that? I do not mean names.

Mr Sutherland: Generally, some engineers.

The CHAIRMAN: Are they looking at everything, like dams, etc.?

Mr Sutherland: Our problem is going to be getting through all of them by 1 July because there issuch a massive amount of infrastructure assets out there. We have done some pilot valuations using engineerswithin the organisation.

Mr ELLIOTT: How do you arrive at things like dams and roads? What are you going to do there?Roads have some value in as much as what it costs to put it through a forest. That obviously has some value. Isthere a standard there?

Mr Sutherland: In the case of dams, there is a standard adopted by most water authorities inAustralia which is current cost. We are following that.

The CHAIRMAN: So current cost for all infrastructure?

Mr Sutherland: Yes.

Mr ELLIOTT: What about for roads? Are you going to do the same for roads?

Mr Sutherland: We do not have too many roads.

Mr ELLIOTT: Department of Forestry would have a few.

Mr Johnson: Forest roads are valued through the DCF approach simply by identifying an averageannual roading cost and discounting that to the discounted rate. The discounted cash-flow analysis, from ourpoint of view, takes into account all future flows of expenditure and revenue.

The CHAIRMAN: I want to finish with this team again. You have some engineers working on theinfrastructure valuation?

Mr Sutherland: Yes.

The CHAIRMAN: Are they moving around the State?

Mr Sutherland: They are doing some pilots at this stage. We have such a massive amount and we

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are not going to be able to do it all at once.

The CHAIRMAN: Have you some pilots that are completed?

Mr Sutherland: I am not sure whether they are completed, but I know that they have been started.

The CHAIRMAN: Can you give us some idea of how much work is involved, in time, to do one job? Isuppose it varies from job to job.

Mr Sutherland: I would have to talk with engineers about how long it is taking. My understanding isthat it is taking a long time because you have to go back to specifications and drawings.

The CHAIRMAN: And work out what it would cost to do it today?

Mr Sutherland: Yes, to work out what it would cost to do it today. It is a fairly protracted exercise,and we anticipate that we will have an opening balance at 1 July. We will refine that as we go.

Mr ELLIOTT: This, hopefully, will be a one-off exercise. Once you do it once, you will not have to gothrough any of these things again. How will you arrive at future dates?

Mr Howard: We hope to apply it to a class of assets so that we are not actually visiting every singlething at this point; but, as time goes on, we will need to visit each asset.

The CHAIRMAN: Could you explain that a little bit more? That is fairly interesting.

Mr Howard: A class of assets?

The CHAIRMAN: Yes.

Mr Howard: In the case of forestry, trees. If there is a similar plantation and you have figures at yourfingertips historically, then you know what is coming up. You are not going to go out and visit every singleplantation. Even in a particular district, you would say, "Look, we've got so many hectares of this type of tree."We can apply the methodology.

The CHAIRMAN: Would that be the same with infrastructure assets as well-trying that techniqueinitially?

Mr Sutherland: Yes. At this stage, we would be using a class of assets, and what we would probablyuse each year is some sort of indexing of the current cost, depending on public construction costs indices forthat particular year.

The CHAIRMAN: It sounds like that would be the only way you would be possibly ready for thebeginning of July. Do you know how many classes of assets you have of infrastructure assets?

Mr Sutherland: How many classes of infrastructure assets? We are probably taking some verybroad classes like dams, weirs and pump stations, those sorts of things.

Mr Howard: Irrigation channels--

Mr Sutherland: Yes, we have irrigation and distribution works and we have pipelines, so we wouldprobably use those as fairly broad categories of assets at this stage.

Mr PERRETT: Obviously, this is a fairly major undertaking that is taking lip a lot of time andpersonnel. Does it mean that because personnel have been assigned to this particular duty that there are otherareas within the operation that are falling being the eight ball?

Mr Howard: Collectively, you would have to say that of all the areas that we have got to cover atpresent, we are not as advanced as we would like to be because of the volume and size of the issues that thisdepartment has to cover.

Mr ELLIOTT: In this particular exercise we are talking about here?

Mr Howard: In a number of areas, even other areas that we have yet to cover today. We would like tohave been further forward than where we are, but we cannot address the size and complexity of our organisationon every single front all at the one time.

Dr WATSON: I have no doubt about the size and complexity, but it seems to me you have to have asystematic plan for achieving that. Do you have a systematic plan whereby, first of all, you specify completelythe classes of assets; how you are going to sample within that class to arrive at a value to begin with; what kindsof resources you have allocated to determining those classes and doing the sampling; what kind of resourcesyou are allocating to determine the current costing; and the timetable to achieve that? Has all that been laid out,or are you just saying, "Look, we have got this amorphous problem out there and it is too big to handle." I get thatcoming through, but I do not get the systematic attack on the problem coming through. Is that available? Is thatbeing done?

Mr Howard: In both forestry and water resources, they have a team and it is that team's responsibility

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to progress a plan. We do not have that plan with us here today.

Dr WATSON: Do you have a plan?

Mr Howard: Each of those teams does.

Dr WATSON: In detail-to address the issues such as the classes of assets and evaluation of thoseclasses and things like that?

Mr Howard: Geoff is on the forestry team and we do not have any other participants on the waterresources team.

Mr Sutherland: Can I just add, though, that for the water resources team there are practicestatements that we have developed for the valuation of assets and we are systematically going to each districtoffice and asking them to do those inventories. We are doing a count of the physical assets and are using thatpractice statement as a way of valuing those particular assets.

Dr WATSON: If the committee asked for the plan, it could see a copy of the plan of what you aregoing to achieve by 1 July 1992; if the accounting standards come down in June, whether or not you can getappropriate valuations by 1 July; if not, what you are going to do about it. Has that all been set down andaddressed, or not?

Mr ELLIOTT: Would it not really be corporate planning's role to address that overall, or is that not theway at all?

Dr Clarkson: That would be within the operational plans of those units because that is an activityrather than something that you find in a strategic or corporate plan, and there would be allowances for carryingout those sorts of projects. Those projects would have milestones and time frames.

Dr WATSON: Can I come back with my original question to Mr Miller. Is that being done?

Mr Miller: I would have to be less optimistic than some of my colleagues about the 1 July deadline. Iknow there has been a lot of activity going on, but I have not seen a well defined plan such as you are outlining. Isuspect that there has been, as I said, quite a lot of orderly activity going on in those areas, but as far as I knowand as far as stating how it might be done, the department has not got a plan to move to accrual accounting by 1July.

Mr Howard: By 1 July-I was not trying to intimate that, either.

Dr WATSON: I was not trying to intimate that you would have full accrual accounting by then, butwhat I was suggesting is that you keep telling the Committee that you have a major problem out there in thevaluation of assets. I accept that, and I think the Committee accepts that. Our question is, "What are you tryingto do to meet the Public Finance Standards, and do you have a plan to achieve it?" You have come up withsuggestions on classes of assets and things like that, and I do not have any problem with saying that that is areasonable, potential approach, but where is the systematic method of achieving that?

Mr Howard: The plan is at the operational level, as Rosemary referred to, and we would have to seekadvice of those particular people about their individual plans. I in no way mean to say that we will haveeverything ready by 1 July, because we certainly will not; on the other hand, I do not believe we will have all thevaluations done by then, either. Quite clearly, you can establish a valuation in arrears on some of these thingsat a particular point in time. Even land can be valued at a subsequent date, so if we do not actually have itphysically there as at 1 July, the plan of how to attack that is within these operational unit plans.

Dr WATSON: I agree with you totally. That is possible, but I would have thought you would haveknown what assets you can do that with, and what you are going to do to keep track of the assets between thenand when you finally arrive at a valuation. That ought to be known. If I was an accountable officer of thedepartment, I would like to know that information and I would like to be sure that I am going to be able to sign off.

Mr Miller: I think we have got such a lot of information on the inventory on plantation size, structureand a whole range of things that this whole issue is complicated by the lack of clear Government policy in someof these areas. At this stage, we do not even really know what the Government's policy is in respect ofcommercialisation of water. We are much clearer on forestry, but even there we have been back to Cabinet fordeferral before we actually locked it into place. There are elements in both the Queensland Forest Service andthe Water Resources Commission that are clearly commercial and there are elements of it that are purely forpublic benefit, and we have not really clearly differentiated between those two elements of policy yet. It willundoubtedly require a restructuring of our program basis when we do that, but the Government has notreally--

Mr ELLIOTT: It has not really firmed up-

Mr Miller: We are not going to go back to the Government with the PSMC recommendations unless

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they have been worked through with industry. Until we do, some of those issues cannot be answered.

Mr ELLIOTT: I would be interested to hear your comment on the time and effort that this is all takingas far as your overall corporate plan for other areas is concerned. On what areas is this impacting in terms of theability of the Department of Primary Industries, generally, to give services in the traditional sense? Is thiscausing some drama in those areas? Is that fair comment, or not?

Mr Miller: It is fair comment. I believe the department, right back when the three previousdepartments came together, had a machinery of Government committee which had a commitment to maintainingoutput of those groups. That has been our major focus over the last couple of years, and that is not easy whenyou are bringing three large organisations together. I have to say that from where I sit my commitment to theexercise of accrual accounting is far less than my commitment to maintaining the output of the department andthe outcomes of the department in a viable sense. I am not suggesting that we are ignoring it, but there are a lotof other issues out there that are also at least as important if not more important.

Mr J. H. SULLIVAN: I thought that the answer to the previous question where you talked aboutcommercialisation and not being aware of the policy, particularly in respect of Forestry and Water Resources,was being used as an excuse to do nothing or to do little in those areas. Would not commercialisation of thosetwo areas be easier to be achieved if you as a department were to do your work in the interim?

Mr Miller: I am not quite sure about your question, but we certainly do know some elements of theForest Service business are clearly commercial, such as the selling of pine trees. There is no doubt that that is acommercial business. There are some elements of water supply where we sell water for irrigation purposes,supply water for industrial purposes and supply water for domestic purposes. That is less clear. If we wererequired to recover full costs on all the money that we have sunk into dams, water would be very expensive. Iguess that is really a question of policy, and I believe that policy has not yet been determined by theGovernment.

The CHAIRMAN: I would like to move off asset management. We have an idea of what you are doingin that area. Before we leave accrual accounting-obviously the information on asset management is necessarysoon-can you tell us what other plans you have in relation to the implementation of accrual accounting?

Mr Howard: I will give that to the General Manager, Finance.

The CHAIRMAN: We will leave the asset valuation issue aside. Apart from that, how are you placed?

Mr Sutherland: At this stage, the systems implementation of it, we will not have available by 1 July.We are anticipating an implementation date of 1 January, even though we are looking to have opening balancesat 1 July. We are not in the race of having it at 1 July at this stage. From the point of view of the culture change,that is another program that we have to get up and going by the first half of the next financial year.

The CHAIRMAN: What resources have you allocated to that?

Mr Sutherland: At this stage we have no resources allocated to the systems implementationbecause we are still looking at what is the best way to do it. But we have two temporary people in WaterResources looking at the stocktaking issue and getting those pro forma statements done at quickly as we can.

Mr ELLIOTT: Are there any issues that are causing problems with respect to depreciation? Is thatside of it pretty well under control?

Mr Sutherland: In the case of infrastructure assets, there is a debate that we have to have withTreasury about whether we use depreciation for certain assets or whether we use infrastructure accounting.

Mr ELLIOTT: Are you going to some of the seminars that Treasury has held and are they helpingyou?

Mr Sutherland: We have started discussions about infrastructure accounting at this stage.Treasury does not favour infrastructure accounting, but we can see some advantages in implementinginfrastructure accounting particularly for assets which you can maintain in perpetuity.

Mr ELLIOTT: We understand that the Queensland Government Financial Management System fixedasset system was piloted in the Queensland Forest Service earlier this year. What is the current status of thisproject and has conversion to the system been finalised?

Mr Sutherland: At this stage, we have run a piloting test and that has been quite successful. Wehave not yet put it into production.

Mr ELLIOTT: But you are pretty happy with it?

Mr Sutherland: We are pretty happy about it. The only thing we need to do is to convert the data intoproduction. We have not had the resources to be able to do that yet.

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· Mr ELLIOTT: The department's letter states that ''training of management and staff in accrualaccounting is also a significant issue". Could you outline for us the problem and tell us what you propose to doabout it?

Mr Sutherland: This is what I mentioned before about cultural changes. We believe we need toprogram to start early next financial year to show managers the implications of converting to accrual accounting.

Mr ELLIOTT: Will your department encounter any major problems in determining the accrued value ofemployee entitlements? Is this information readily available?

Mr Sutherland: We have to have that information by 30 June, anyway. I understand that DEVETIR isworking on that with respect to the HRMS system. I am not sure of the progress on that at this stage, but Iunderstand that they are doing it as a central group to try to identify all the employee entitlements for alldepartments. In the case of wages, we have a number of wages employees. We are producing that inaccordance with the new Treasury guidelines at 30 June.

Mr ELLIOTT: For the 1992-93 financial year, will your department be in a position to prepare generalpurpose financial statements for your department's forest and water delivery operations?

Mr Sutherland: At this stage, we believe so.

Mr ELLIOTT: Given that the Public Finance Standards became operative on 1 July 1990, do youthink the 30 June 1993 deadline for financial reporting compliance is reasonable? If not, why not?

Mr Sutherland: I suppose it is resolution of those issues, but I believe that at 30 June we will have ittogether. As I said, we have already started work some time ago. We have been working on it for some monthsalreadY-;Jiven that we had the implementation date of 30 June 1993 to produce the first lot of statements.

The CHAIRMAN: So it has been a three-year transitional period and obviously there has been otherchange as well. Do you think that a three-year transitional period is fair or not?

Mr Sutherland: I think perhaps if we had had fewer changes in other areas the three-year transitionalperiod was fair. But, because of the other changes in the departments-putting them together-and the PSMCrecommendations and reviews, that has probably caused a slight problem for us.

Mr Howard: And, as Jim said, the unclear nature of the discrete commercial of the two units.That has not been clear for three years. It has only almost been clarified in recent months.

Mr PEARCE: I have some questions on the financial management practice manuals. The Committeeconsiders financial management practice manuals to be very important. As you know, they are to prescribe thepractices and procedures, etc. to be followed by staff in the financial administration process in your departmentand are a key element of the overall financial management policy and principles upon which the Public FinanceStandards are based. Your department's letter indicates that your department does not have a complete and up­to-date financial management practice manual. It is not clear to the Committee exactly what the status of yourmanual is and what is being done about it. Could you tell us exactly what the current position is?

Mr Miller: I could comment generally and then hand it over to Ray. The three previous departmentshad financial management practice manuals but they also had three different accounting systems and are in theprocess of putting the three different accounting systems together. We are still in the process of working outhow that will occur. The system is still evolving. Perhaps Ray can comment on our current position in respect offinancial management practice manuals. We are certainly committed to them but we cannot put them into placeuntil we get our system fully operational and sorted out.

Mr Sutherland: What Jim said is right. We are trying to put together three quite complexorganisations. We do have three separate financial management practice manuals which we need to integrate toone financial management practice manual. We are still working on integration of systems. We anticipate thatthat will probably be finalised by 1 July and we will have a financial management practice manual by 1 July 1993,that is, once we have integrated our systems further than we have. We have had massive changes in oursystems over the last two years.

Mr PEARCE: You might be able to indicate what is actually being done to comply with the PublicFinance Standards and the Financial Administration and Audit Act?

Mr Howard: In regard to financial management practice manuals?

Mr PEARCE: Yes.

Mr Howard: We are at the moment employing a temporary person in a vacant position that we havewho will progress the pulling together of the three practice manuals into one. There are obviously other aspectsthat need to be considered as part of it, and commercialisation and the systems that we actually use for thosecommercial units, as Ray and Jim have said, will dictate whether we will in fact have one overall system or

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individual systems tailored to the commercial needs of an organisation and thereby just exactly how muchdocumentation needs to be done in the financial management practice manual. But we do have one temporaryperson who has experience within the department across these areas in particular.

Mr PEARCE: What sort of hours have been put in?

Mr Howard: Full time.

Mr PEARCE: A temporary person has been given that job?

Mr Howard: The person will in fact be standing in for a position that is currently vacant and theposition will be advertised. It may well be that as some of the individual systems are clarified, the volume of workwill obviously increase and we will increase the resources accordingly.

Mr PEARCE: Have you got in place any sort of time frame for the completion of the manual?

Mr Howard: 1 July next year it must be complete.

Mr PEARCE: Departments have been required to have practice manuals or accounting manuals formany years. Do you find that they are difficult to maintain and keep up to date?

Mr Howard: No. I guess you can never keep anything exactly up to date because it is a resourcingissue that, if delegations change, systems change and you have to be aware of those things occurring. It is amatter of as a system is developed and implemented there are often post-implementation reviews that changethe way the practices are in fact followed out subsequently, in which case you are not going to write theprocedures either during implementation or right after when they first are implemented. There is a timing problem.You will never be completely up to date, but in a practical sense they would be as near as practical thereto.

The CHAIRMAN: We might move on to program management.

Dr WATSON: In the department's reply to the Committee, you indicated you have a strategic plan for1992 to 1996. I guess my first question is how available that strategic plan is to your staff. Are they conversantwith the goals? Are they committed to it?

Mr Miller: Yes, we have got what we call a corporate plan, 1992 to 1996. It has been widely circulatedto the staff. Certainly, staff were involved in the drawing up of the corporate plan. It is not just a seniormanagement team document. Perhaps Rosemary, whose job fits that category, might like to comment.

Dr Clarkson: As well as the corporate plan itself-the document-we have a summary of it on asheet which is more useful probably to more junior staff. We also have a large poster for staff that is put up in allthe working areas that sets out vision and purpose and the corporate goals for staff. The strategic plan is widelydistributed to industry-all our clients-and we ask them for feedback. We have got letters still comingin-about three or four a week-from industry commenting on the corporate plan.

Dr WATSON: Favourably, I presume?

Dr Clarkson: Yes. We have some nice comments, actually, about things that they feel we shouldinclude. So those are circulated, and we look at those each year when we start the planning cycle again.

Dr WATSON: I presume then the staff are well aware of the part they play in achieving the cor oratepan.

Dr Clarkson: Yes.

Dr WATSON: The principles of program management as set out in the Public Finance Standardsrequire resource management systems which focus on outputs, that is, the goods and services provided, andoutcomes-the desired results-as a primary concern. Resources allocated and utilised are important as theyprovide the means or limitations for achieving desired outcomes but should not be the primary focus formanagement. Are your department's management information systems structured such that they provideregular reports by program to management to monitor not only financial and budgetary matters but alsoinformation to measure progress towards the achievement of program goals?

Mr Miller: I think Rosemary can answer that in more detail.

Dr Ciarkson: They are. In fact, it is probably easier for someone else in the financial system, Iguess, to answer that. We have some reporting of activities. What I am saying is that we divide our reports upinto operational performance, that is, how projects are going, how the actual operational work is going within thebusiness groups by program, and we also have financial performance reporting. So we use two reportingsystems. The programs are usually managed within the business groups. In other words, the executive directorin charge of the business group has a regular reporting system from his staff reporting on operationalperformance at project or perhaps at section or divisional level within his area. As well as that, we have financialmanagement information systems reporting by business group in program, but I cannot comment on those sorts

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of things. Somebody else might be able to comment on that.

Dr WATSON: Are the programs then basically wholly contained within business groups, or are theyacross business groups?

Dr Clarkson: No, they are corporate programs.

Dr WATSON: And the projects are wholly contained within programs, or are they cross programs?

Dr Clarkson: Some of them cross programs. Actually, they cross subprograms. But sometimes theycross programs as well.

Dr WATSON: I may come back to that in a moment. One of the important principles of programmanagement is the need to have an appropriate set of performance indicators which should link in with thestrategic plan. The practice statements to the Public Finance Standards require that programs be reviewed interms of key performance indicators annually and at such other times. Your department's letter to the Committeestated that "performance indicators have been developed for some programs" and that others are beingdeveloped. The letter also stated that programs are not reviewed annually in terms of key performanceindicators but indicated mechanisms are being developed. For which programs do performance indicators needto be developed? In other words, which ones are still outstanding?

Mr Miller: We are well short of the line.

Dr WATSON: Is it easier to tell us which ones you have got?

Mr Miller: I do not know if we have any of them fully developed. That is why we have got Rosemaryemployed.

Dr Clarkson: I have only come back to the department in the last three weeks, so I am still coming togrips with some of this. You will see against each of the programs listed in the last of the annual reports that wehave key success areas, we have a report on performance and a report on actual achievement. So there is infact a great deal of performance reporting against some key success areas in the annual report. Our problem isthat this annual report-because the annual reports are lagging a full financial year behind the actual corporateplan-reports on the previous set of programs that the department had. When the department amalgamated, ithad to establish another set of programs. Those programs are spanning the three original departments. So infact we have had to turn around again and reset performance indicators with a whole new program structure andsubprogram structure.

Dr WATSON: So that is what you mean then by "the processes are being developed"?

Dr Clarkson: Yes. If you look in the annual report, you will see we are reporting against performanceindicators in programs. That is an old set of programs. Again in the corporate plan you will see that we havewritten in fact a whole set of achievements against each program, and that is the new program structure. Wehave a list of achievements written against every program and so in fact our annual report this year will bereporting against those predicted achievements.

Mr ELLIOTT: Do you have those against extensions, for argument's sake, in the primary industriesarea? Have you done those? Are you continuing to evaluate those?

Dr Clarkson: Yes. We only have them at that very high level in the corporate plan at this stage,though within individual programs there are performance indicators going further down.

Mr ELLIOTT: What sort of performance indicators would you look at in extension, for argument'ssake? What tells you whether that is going well or whether you are giving the service that is desired out in themarketplace? How do you appraise that?

Mr Miller: I think in an extension we would always appraise it against what the industry requires. Ithas got to be outcome focused. We would endeavour to do that by discussion. You are probably aware that wehave discussion groups with a whole range of industries. We can only measure that against what we thought wewere going to do. That can be changed by droughts, by floods and by a whole range of other things. In someareas, to get definitive performance appraisal mechanisms is fairly difficult.

Mr ELLIOTT: For argument's sake, how do you evaluate the exercise that has happened where youare putting more and more people into sub-head offices-in Toowoomba for example-as opposed to the peoplewho are out in the regions, as they used to be, and now there are all those sub-management groups withinToowoomba? I am just using Toowoomba as an example. I am not sure if the same thing is happening in otherparts of Queensland. How do you evaluate how successful that is compared with the old system?

Mr Miller: Again, we have not developed those mechanisms at that level yet. Our regionalisationprogram is only partially in place. We have oUr regional directors in place and our regional group managerslargely in place. They will have to draw up operational plans for the regions. I do not necessarily accept that we

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are ever going to get them to places like Toowoomba. I suspect that has occurred to some extent, but thespread of people throughout the countryside should not be much different from what it was before. But the focusof their activities will be much more regional than it has been in the past.

The CHAIRMAN: Rosemary, will it be your job to go down to a lower level in the programs andsubprograms and find things that can be measured?

Dr Clarkson: Yes. In fact, I do not see any difficulty with measuring extension. Obviously, you wouldhave to measure things such as the level of technology uptake.

Mr ELLIOTI: With a minimum till or whatever, you could say how many people are actually taking thisup due to extension officers going out there and consulting.

Mr Howard: Client surveys.

Dr Clarkson: Yes. And as we convert to using information centres rather than one to one, we have tolook at indicators of how many people are using that centre, the sorts of areas in that centre that they arefocusing on when they are drawing information from that, the number of inquiries that come in from people sayingthat they cannot find data in the information centre, the changes in the number of telephone calls asking forextension and help-that sort of thing. There is plenty of scope for measuring it.

The CHAIRMAN: So there is a lot of work to do, but you do not really see any problem in developingappropriate performance indicators?

Dr Clarkson: No, not at all.

Mr PERRETT: What you are really saying is that the financial management standards for eachparticular region would have to be tailored to the needs of that region?

Dr Clarkson: Yes.

Dr WATSON: The performance indicators?

Dr Clarkson: Yes. There are also generic ones. The level of uptake of technology is a generic one,but the type of technology that you are looking at would vary throughout regions.

Mr ELLIOTT: In a cost-recovery sense, how do you decide which areas you are going to see ascomplete cost recovery or, alternatively, as an extension of the role of your department to giving service?

Mr Miller: The extension process is currently being worked up. We will be going into discussion phasewith the industry fairly soon. I think we come back to the concept of what is private good versus what is publicgood. We certainly have not got a concept of charging for all extensions. We believe that there are majorelements of public good involved in that. We will be pulling away from the old farm visit, which was veryexpensive, and, as Rosemary pointed out, using more and more community-based information systems whichmight not be much cheaper in the short term but, we would hope, would be more effective in getting messagesacross to many more people. One of the things that we have to be careful about in assessing the effectivenessof those things is that sometimes you can measure activity and equate that with success.

Mr ELLIOTT: But it does not necessarily follow. That is true.

Mr Miller: It IS really the outcomes and the changes that take place in the target groups that you haveto measure.

The CHAIRMAN: That is why you have the right performance indicators.

Dr WATSON: In this year's annual report, you are going to have developed at least some, if not all, ofthe new performance indicators, but you will not necessarily, I presume, be able to compare performanceagainst those, because presumably you have not been collecting data if you have not got the performanceindicators developed. Right?

Dr Clarkson: And that is also one of our aims in the first round of program evaluations, to actually setsome benchmark levels against which the next round of evaluations-the five-year evaluations-we canmeasure performance back against. You are quite right; we do have to set some benchmarks.

Dr WATSON: I will get on to the program evaluations in a moment. You are expecting-and again Ihate to use this date-from 1 July this year, at least on some of those programs, if not all of them, to be able tostart to compare the performance of the program with the performance indicators that you have developed? Isthat fair enough?

Dr Clarkson: Yes.

Mr Miller: Some are certainly more complete than others.

Dr WATSON: Do you have an idea of when you will complete the determination of the performance

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indicators?

Dr Clarkson: We have a goal ahead of us at the moment-at program level and down to subprogramlevel-to have a complete set of goals, strategies and performance indicators that directly relate to those goalsand strategies in place across all the programs and subprograms.

Dr WATSON: By when?

Dr Clarkson: By the end of August. That is a stage in our implementation process. Across all ourprograms and subprograms, we are actually still appointing managers at that level in regions and in our divisions.As each area has its managers come on board, as part of a team-building exercise and as part of theimplementation we are facilitating sessions to do that.

Mr ELLIOTT: What is the program for those managers? Are you calling out there in the pUblic forthose, or is that an internal process?

Dr Clarkson: No, it will be­

Mr Miller: In the appointment?

Mr ELLIOTT: Yes. In terms of appointing those managers, would you be advertising widely for those?

Mr Miller: We meet the PSMC standards for appointment.

Dr WATSO N: I notice in your reply to the Committee that you have reviewed the plant industry'sprogram. That was in November 1990. You have six more programs to be done before June 1993. Is that arealistic timetable that you have laid out there, so that we can be confident that you will actually achieve them?Secondly, since you have just indicated that your performance indicators are going to be done by August, doesthat mean that Forestry and Industry Services, which are being reviewed currently or in the near future, will notbe reviewed in relation to performance indicators?

Dr Clarkson: You have asked me a number of questions. The first one is: will we achieve thatprogram evaluation schedule? I have to tell you that we are running a bit behind with the forest production, whichstarts on 1 June. I believe that we will have all of them started by June 1993. In other words, that last one willhave commenced, but they will not be complete. When we talk about "complete", we talk about a finalised reportthat is ready to be submitted to Treasury. So the answer is no, we will not. We are finding that more onerous thanwe thought, and we are having trouble resourcing.

Mr Miller: There is a complication there. In fact, the plant industry's program, which was reviewedpreviously, does not exist any more. So in fact, it is largely wrapped up in Industry Services. But some elementsof that will make the review of Industry Services a lot easier, one would think.

Dr Clarkson: In terms of performance indicators, although the two programs are new, I guess insome ways they are to a large extent complete. The Water Production Program and the Forest ProductionProgram do lie fairly discreetly within a business group, and they have been more advanced in settingperformance indicators than the others. So those program evaluations can proceed with some-perhaps not thebest set of performance indicators, but we certainly have some goals and performance indicators to use forthose first two. In fact, the way in which we are going to run the program evaluations is that the facilitator for thatwill go in a month before and ensure with Industry Services that they have their goals and performanceindicators ready. I agree that there is no point starting until you have got that. We are planning to go in a monthahead of what is written on that schedule to bring those programs up to scratch with their performanceindicators.

Mr Howard: In fact, corporate management and support internally to the group has considerable workalong the track of goals and performance indicators already established. It is just that it has not been formalisedas a program evaluation exercise.

Dr Clarkson: Product development and marketing have already made a time to do that, and they willhave that set by the end of July, and natural resource management will be very close by the end of July. Wehave got a program of planning sessions with those groups.

Mr Howard: So that is actually separate to the program evaluation process.

Dr WATSON: Could I ask who is going to make up the review teams-either individual personnel ortheir titles.

Dr Clarkson: There will be three levels of program evaluation teams. They obviously need a steeringcommittee and they have an actual evaluation team and they will need an implementation team. That is theminimum. Some of them will wish to use an advisory panel or reference panel, which will be more in a technicalsense. The steering committee of the program evaluation is made up of the nominated program director, who isalso an executive director of the business group that has most interest in that particular program; the Deputy

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Director-General; the Director of the Strategic Policy Unit in terms of overall corporate policy with that review,and some of the general managers and subprogram managers from that program make up that team. There isalso a process consultant for giving advice on our evaluation process.

Dr WATSON: Is that someone from Treasury?

Dr Clarkson: It has been, and it is for the first two. In fact, we have acquired someone from Treasury,so that we actually now have an expert process consultant in program evaluation employed by the department.

Dr WATSON: Will there be anyone external to the department involved in any of these review teams?

Dr Clarkson: Not as far as I have seen-sorry, the water production is using an external processconsultant as well as having a member of Treasury there. They have employed that external consultant from anexternal consultancy group. Are you talking about technical-industry and clients--

Dr WATSON: Anywhere. For example, client group, user group-

Mr Miller: I think you have to accept that we have a whole raft of industry policy committees andadvisory councils, that will have input into this process, that are representing various industries across theState.

Dr Clarkson: The evaluation process also includes surveys of the client and industry groups-aformal, written survey, as well as some interviews with client and industry groups.

Dr WATSON: Finally, you have outlined a schedule for each of those program evaluations. Could Ihave an indication as to whether that is the length of time you would expect that to take, even if the timing isslightly different.

Dr Clarkson: I would have to say that that is optimistic. In my experience, it takes at least fourmonths to do a review. Most of these have a three-month time period. I believe the time period they were settingwas really about the time at which the actual physical part of the review was complete, but in order to produce areport it takes more like four months. I believe that they have been optimistic with that, and that in fact we couldextend all of those by a month to produce a final report.

Dr WATSON: Obviously you were not there when they wrote the letter.

Dr Clarkson: No, I was not. Now I have to live with it.

Mr Howard: Another officer in that area wrote that letter.

Dr WATSON: Very briefly, what benefit do you think these comprehensive program evaluations aregoing to be for the management of the department?

Mr Miller: I think we are in a state of rapid change, and it certainly will give us the opportunity to reallyfocus on the issues that are important in those programs and to address the performance appraisal conceptsthat are put up and to measure them against what the steering committee and others see as being relevant. Ithink it gives us a chance to focus our attention. I think it is very important to finetune what the department isdoing in those program areas.

Dr WATSON: You think it will help in the organisation and running of the department? Is that what youare saying?

Mr Miller: Sorry?

Dr WATSON: Do you think it will help in the organisation and running of the department?

Mr Miller: Yes. I have no doubt about that.

Dr WATSON: Is it worth the cost?

Mr Miller: I do not think the cost is that great. The cost is largely in the time it takes and the people'stime it blocks up. Having gone through the process once, it then becomes much easier to revisit and to fine tunelater on. I think the system that we are currently operating under as outlined in the Public Finance Standardsrequires a much more quantitative approach than we have had in the past. This is all part and parcel of that.

Dr WATSON: Thank you for those answers. I have to leave now.

Mr PERRETT: I have a couple of questions on system appraisals. The Public Finance Standardsrequire that all your department's revenue, expense, asset and liability systems be appraised each financialyear to determine the proper functioning of controls and the appropriateness of procedures followed. Yourdepartment's letter to the committee indicates that your department's systems are not subject to annualappraisal. It is almost two years now since the standards were introduced. Why does your department notcomply with the standards, and what is being done about it?

Mr Howard: It is not developed at present. We have in fact just completed a major exercise to

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develop our information technology strategic plan. That plan has in fact incorporated a systems appraisalacross the whole department, but not at the operational level across the whole department. We have beenunable to comply in the past, in that with three departments coming together, we had three different systems in alot of areas and it was not possible to set people aside to review individual systems that are applicable to thedisparate activities of the organisation. We are in fact planning to conduct those appraisals on the centralisedsystems that are now envisaged as part of that strategic plan. That was why we were unable to comply in thepast, rather than not being willing to comply.

Mr PERRETT: Do you perceive that you will get some benefits from system appraisals?

Mr Howard: Most definitely. You can look at both your efficiency and effectiveness, and you can lookat your control aspects in terms of weaknesses in regard to fraud; you can look at the management of yourorganisational assets and operatives, and perhaps even staffing.

Mrs BIRD: Just to clarify the point-in 30 months you have had integration of three departments, thePSMC, and apart from that you have had all your departmental realities, your corporate plans and a whole heapof disruptions--

Mr Miller: Could I just add the most important one of all? We have had cost of dollar budget impact.

Mrs BIRD: Of course; that is a very important aspect. It must be appealing to you to investigate somesort of options for extensions of time-say another year. Is that the feeling? Would you be looking at requestingsome exemption from the time scale?

Mr Miller: I do not think we have any difficulty with the great majority of things that are outlined in thestandards. I am less optimistic than some of my colleagues about our ability to meet the time, particularly if webring the agriculture groups into the ring, particularly in accrual accounting--

Mr Howard: In particular, if we have to separate the commercial activities, because that is a completefocus separate to the department as a GOE.

Mr Miller: I think we will certainly have to address that on an ongoing basis. I would imagine that insome areas, we will be trying to meet the time, but it is fairly clear that in some areas we will not, and we will beseeking approval to take more time on some of those issues.

Mrs BIRD: Where are you at with the quarterly position assessments?

Mr Miller: We have monthly business reports, but they really do not give all that information. Raymight like to comment.

Mr Sutherland: We do have monthly business reports, which basically give us a positionassessment of our expenditure according to budget and revenue according to budget, but apart from that--

Mrs BIRD: Do they comply with the standards?

Mr Sutherland: I suppose we are still developing them as we go. They would come close, but for therest of the position assessments, we really have to do more development on those. We are planning, as oursystems become integrated and as our system changes start to settle down, to systematise our positionassessments into those new systems that we are developing. We anticipate we will have them finished by 1 July1993.

Mrs BIRD: Did any of the staff attend the position asse~sment training workshops run by Treasury?

Mr Sutherland: Yes. Mr Howard and I did.

Mrs BIRD: Were they beneficial?

Mr Sutherland: Yes, I think they were from the point of view that it was a workshop-type situationand they were beneficial from the point of view of being able to exchange ideas with other Governmentdepartments about how they are looking at putting in position assessments.

Mrs BIRD: Could they have been improved in your opinion?

Mr Sutherland: I suppose they could have been if, in fact, we were able to focus, say, on DPI ratherthan all departments. There were representatives from all departments. There was some advantage in that aswell because you can get a cross section of ideas. Perhaps it could have been a DPI focus or a focus ondepartments which are close to the same sort of business. Certainly, there could have been some moreguidelines issued about what position assessments are about.

Mr Howard: Perhaps I could clarify that. As you are aware, I was here yesterday. I would wonder thatthe guidelines were, in fact, established. There seemed to be some talk about whether there were guidelines orwhether there were workshops. Ray and I have spoken to each other and we believe that it was workshops andthat there was no definitive principle for any individual department issued at that point in time. I have gone

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through my file on the proceedings that day. We have benefited quite considerably from that workshop-do notget me wrong in that regard. I just do not believe that there is anything that you could refer to as specificguidelines.

Mrs BIRD: Will position assessments be beneficial to the management?

Mr Howard: Yes. They are very similar to systems appraisals. You will be able to look at a broadrange of things. If we are drawing an analogy, it is like a commercial business looking at its balance sheet andanalysing the weaknesses that it has in its overall structuring.

Mr Sutherland: It enables you to take a pro-active approach to the management of the business.

The CHAIRMAN: Your letter said that each of the three former departments had their own internalaudit section and you are in the process of combining them to one. Exactly where are you at with that?

Mr Miller: We are progressing. We currently have only one or two people allocated to the internal auditfunction and they are really just doing investigatory-type work. We have got plans well advanced to put fourpeople internal in the organisation and also to use external consultants for part of the internal audit function.

The CHAIRMAN: Two now, moving to four.

Mr Miller: We have four full-time and then part-time assistants by an external agency.

The CHAIRMAN: At this stage there is no plan, program or charter for the internal audit unit?

Mr Miller: The charter is largely spelt out in the document, anyhow. We certainly have positionsavailable for them. We have position descriptions developed for those positions. We will be well advanced withinthe next month or two. We will have the extra people in place.

The CHAIRMAN: When that unit is established, do you envisage that they will be full-time internalaudit people? Would they be called upon to do other duties or will they strictly be internal audit staff?

Mr Miller: They will strictly be internal audit staff attached to the office of the Director-General. Theywill not be attached to the Corporate Services group, as such.

Mr PERRETT: I have a question on the internal audit. In your letter to us you mentioned that majorprojects had been undertaken by the internal audit unit. You mentioned investigations into possiblemisconduct-three investigations-by departmental staff. Has that been resolved satisfactorily?

Mr Miller: Yes and no. An internal auditor's report normally comes to me and I have to make adecision as to whether it is a criminal problem, in which case we refer it to the police. If it is official misconduct, Iam required to refer it to the CJC. One of those cases went to the police and the other case went to the CJC.That has been resolved. I think that two of those three have been resolved; one is still outstanding. The CJCgoes through a process and if they determine that there is a criminal element within it they will prefer chargesagainst the person. We have not quite finished with that process yet. Normally, we like to try to solve theminternally. It depends on the nature of the offence.

The CHAIRMAN: The role of Treasury has been mentioned a couple of times. In what areas have youreceived help, guidance or advice from Treasury in relation to the implementation of these standards?

Mr Sutherland: We have mentioned the position assessments seminar. There has been someongoing discussion with Treasury with respect to some of the a~set evaluation difficulties that we are having.

Mr Howard: There were some very early seminars on the Public Finance Standards as a broadconceptual thing as well.

Mr ELLIOTI: Were statutory bodies involved in this or just your departmental staff?

Mr Howard: In the early ones, no. In the position assessments, I would say that you would have toask Treasury. .

Mr Miller: It was an early intent that the statutory bodies were going to be involved, but I suspect atthis stage-

Mr ELLIOTT: Overall, in this whole thing with all the questions that we have been asking you,generally speaking, have the statutory bodies not been involved as much as your department has or are theylooking like getting involved? Where do we go with them?

Mr Howard: It is envisaged that my unit will provide some service to our statutory bodies to ensurethat nothing does fall through in terms of a support as a department. However, we do not see it as our primeresponsibility. That is why I say you would have to check with Treasury.

Mr Miller: The statutory bodies have been required to produce an annual report. As far as I know noneof these 160-odd statutory authorities that are attached to the DPI have an exemption from that.

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Mr ELLIOTT: So it would be a massive cost for them. They would not have the resources that youhave in some instances, would they? They would have to bring in outside consultants.

Mr Howard: They would probably be more likely to comply in many instances.

Mr ELLIOTT: Because they have been out there doing financial business?

Mr Miller: They are running simple businesses, too.

Mr Howard: They are running a business and probably accrual accounting already.

Mr Miller: I am Chairman of the Bureau of Sugar Experimental Stations. We have already moved intoaccrual accounting and program management. In fact, we wish the department was as well advanced in somerespects as they are. It is a $10m business versus a $540m business. It is quite a large difference.

The CHAIRMAN: Your department does have a role in assisting the Minister's statutory bodies?

Mr Miller: Very much so. Some of that role is not necessarily regulatory.

The CHAIRMAN: For instance, helping to ensure that small groups such as water boards physicallycomply. .

Mr Howard: We would not physically do the work for them. We would provide an advisory service,perhaps as a support to the Minister's responsibility. We would fill a void where statutory authorities go to theirMinister, quite rightfully, as distinct from the Treasury who are informing about the actual guidelines themselves.We may not do the work for them.

The CHAIRMAN: Have you considered whether any of these statutory bodies, especially some ofthe smaller ones, should seek exemption? Has there been any discussion in relation to exemptions?

Mr Miller: I am not aware of any. Almost all the statutory bodies that we deal with, deal with industrymoney rather than Government money. Generally speaking, they are not that small. Most of them are handlingmultimillions of dollars in the commodity trading area or service area. I would not think it is appropriate for them toseek exemption. There is an acceptance by most of the statutory authorities of the standards-both thesestandards and a whole range of other standards. My department is quite heavily involved in helping them adjustto those standards in front of any push by Treasury or anyone else to comply.

The CHAIRMAN: Back to the role of Treasury with the department-have there been anydiscussions with Treasury or involvement by Treasury in program management or program evaluation?

Dr Clarkson: Evaluation teams give advice in processing and asking the right questions and thosesorts of things. They have been most willing to do that. We have not had any problems. They have also run someseminars on program management. I guess my feeling is that virtually all staff need to know what programmanagement is, and Treasury obviously cannot service that. In that area, I personally do not have anyproblems. Program management is intelligent and logical, and it is really quite easy to present that to staff. I donot have any problems in terms of informing staff and having sessions and talking to staff. I feel Treasury hasdone what it can in terms of the size of the Government sector, but they cannot go far enough down throughindividual departments, and departments have to take on that responsibility and spread the word themselves.

Mr Miller: I think it is highly appropriate that departments do that themselves because Treasury reallyhas a focus on financial accountability, which I guess it must have. In terms of our program management, wemust focus on outcomes. I agree that we have to spend our money wisely and well, and all those sorts of things,but the key issue is what changes you are getting out there, and not how well you spend your money. The issueis what changes you are getting out there in the client group, and that is where our program focus has to be,rather than just whether you are spending your money according to your budget and all that sort of thing.

The CHAIRMAN: Overall, then, it does not sound as though your department would have anycomplaints about the role of Treasury in implementation? I am mostly talking about the degree of assistance andthe degree of guidance.

Mr Miller: No, I would not think so.

Mr Johnson: I think Treasury has played a useful role in the formative years of programmanagement, in terms of training and administration.

The CHAIRMAN: I think that probably completes our questions, unless any Committee member hasa final question. Is there .anything else anyone of you would like to say? You do not have to say anything. Ithank Mr Miller, Mr Howard, Dr Clarkson, Mr Johnson and Mr Sutherland for their evidence. I now adjourn this"0=" "'1::). We 'Nil! recommence at 1.30.

The Committee adjourned at 12.17 p.m.

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The Commijtee resumed at 1.35 p.m.

The CHAIRMAN: I reconvene this hearing. Before witnesses commence to give evidence, I amobliged to inform them that the proceedings here today are legal proceedings of the Legislative Assembly andthat the Committee requires that evidence be given on oath or affirmation.

BARRY JOHN NUTIER, sworn and examined;

CHRISTOPHER THOMAS HOOPER, sworn and examined.

The CHAIRMAN: Mr Nutter, could you please state your full name, your place of employment, andthe title of the position you hold?

Mr Nutter: Barry John Nutter, Department of Employment, Vocational Education, Training andIndustrial Relations, Acting Director-General.

The CHAIRMAN: Mr Hooper, could you please state your full name, your place of employment andthe title of the position you hold?

Mr Hooper: Christopher Thomas Hooper, Department of Employment, Vocational Education, Trainingand Industrial Relations, Executive Director, Corporate Services Division.

The CHAIRMAN: By way of introduction, I will make a brief statement. The Parliamentary Committeeof Public Accounts is an all-party Committee of the Queensland Parliament whose purpose is to scrutinise andprovoke reform of the financial administration of the public sector and to ensure that Executive Government isaccountable to Parliament. The Committee conducts its business in accordance with the Public AccountsCommittee Act and the Standing Rules and Orders of the Legislative Assembly relating to select committees.

The Committee is presently conducting an investigation into the implementation of the Public FinanceStandards in departments and statutory bodies. These standards are issued under the Financial Administrationand Audit Act and commenced operation on 1 July 1990. The Committee has a particular interest in therequirements of the standards relating to financial management practice manuals, position assessments,systems appraisals, program management, internal audit, and the move to general purpose financial reportingby business undertakings and statutory bodies. The use of private consultants in implementation of thestandards is also of interest to the Committee.

I inform you as witnesses that you are required here today to answer all questions relevant to thesubject matter of this inquiry. The Committee would like you to answer its questions frankly and to provide it withan accurate and clear view of your organisation's position on the issues canvassed. Various Committeemembers will direct questions to you, Mr Nutter, and you may answer or refer to Mr Hooper as you see fit.

Mr PEARCE: The first area we will look at is financial management practice manuals. The Committeeconsiders these to be very important. They are to prescribe the practices and procedures, etc., to be followedby staff in the financial administration process in your department and are a key element of the overall financialmanagement policy and principles upon which the Public Finance Standards are based. Your letter to theCommittee indicated that various accounting manuals in various states of currency exist within yourdepartment. You stated that many operating units rely on administrative instructions, finance branch manualsand memos, policy statements, guidelines and, in some instances, the old Treasurer's Instructions for operatingdirection. Your letter also stated that when physical integration of the department and the former bureau occurs,a consolidated practice manual will be prepared. Can you tetl the Committee what stage the integration processhas reached and when it will be finalised?

Mr Nutter: The departments were integrated in the second half of last year. At that stage, wecombined various divisions of the two departments-corporate services, putting that together, human resourcemanagement and information technology. At that stage, the positions were spilled in the departments. We havebasically filled all those positions. We now have our finance area in place. We have taken steps to advertise fora systems accountant who will be appointed on 1 June. Obviously, that was advertised some months ago,having regard to the system of getting an appointment made in the public service. His primary duty will bedevelopment of a consolidated financial management practice manual. Before his appointment, we had called forinformation to gather information and assist in the preparation of that manual. He will be visiting colleges of TAFEto talk to them about systems that they have so that we are able to better incorporate in the manual what isnecessary. We will be using the manual itself as a base document with, obviously, the principles and otherthings in that manual; but, in addition to that, there will basically be operating statements with which the divisionsthemselves will have to assist. We do not want a manual that is four inches thick.

Mr PEARCE: You have indicated that you are using resources from within the department.

Mr Nutter: Yes.

Mr PEARCE: There is no intention to go looking for external consultants?

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Mr Nutter: No, we do not intend to do that. We believe that, if we are able to do it from inside, it wouldbe better for us to do it that way. We are more likely to get ownership in doing it that way.

Mr PEARCE: How important do you think it is to have a consolidated, complete practice manual inyour department?

Mr Nutter: It is very important. It will provide us with-we do not have it at the moment-a type ofquality control across the whole of the department so that everyone will do things in a particular way and weknow what is happening. It will ensure accountability across the department because people will know that theymust meet the manual requirements and they can use that as a base when they are doing their operatingstatements beyond that. That document probably will assist in the performance of people. At the moment,although we have accounting manuals for the Division of Workers Compensation and IR, and educationadministrative memos for the TAFE-Teq area, it is not a consolidated document. It is probably a bit more of amishmash than it should be. Once we are able to develop that manual, it will be a very useful document. I amfairly enthusiastic that we do develop it. But the situation has been that,not knowing what the outline andstructure of the department was to be-it did not become clear until the early part of 1991 because theGovernment was looking at different things-there was really no point in our proceeding to do it at that stage andthen having to redo it. It just was not a practical solution for us.

Mr PEARCE: Once you have it in place, what about the updating of the manual? Do you see anydifficulties there?

Mr Nutter: It will be the systems accountant's responsibility to make sure that it is updated. That willbe part of his job. I have not sorted out how we will do that review but Iwould imagine certainly yearly I would becalling for an assurance that it has been updated. He would be required to give me an undertaking that it hasbeen.

Mr PEARCE: The Committee also sent its Public Finance Standards implementation questionnaire tothe Workers Compensation Board of Queensland and was advised that your department's response would coverall information as it relates to the board.

Mr Nutter: Yes.

Mr PEARCE: The position of the board with respect to the financial manual isnot clear to the Committee. Will the board have its own financial management practice manual or will it form partof your department's consolidated manual?

Mr Nutter: It will form part of the department's consolidated manual. The Workers CompensationBoard office, if I could say that, rather than the board itself, is an operating client division of the wholedepartment. They operate in very much the same way as TAFE-Teq will, as the Industrial Division will and theDivision of Workplace Health and Safety. They are just part of the department. The divisional head of that areareports directly to me. There is no reason why they should have a different manual at all.

Mr J. H. SULLIVAN: I will ask some questions about internal audit. In our questionnaire theCommittee asked you whether your department's annual internal audit work plan includes coverage of all areasreferred to and required to be included by Public Finance Standard 610(3). Your response was: "When theforward audit plan is prepared Public Finance Standard 610(3) is used as a guide and it is up to the auditcommittee and chief executive to set priorities and amend the plan where necessary. Program evaluations arealso included and these must be balanced against audit priorities." The Committee would like to know preciselywhether or not your department's annual internal audit work plan includes coverage of all areas required byPublic Finance Standard 61 0(3)?

Mr Nutter: Yes, as far as we are aware, it does.

Mr J. H. SULLIVAN: The Committee is concerned with your statement that Public Finance Standard610(3) is used as a guide and that program evaluations must be balanced against audit priorities. On whatgrounds are you able to avoid full compliance with the internal audit requirements of the Public FinanceStandards?

Mr Nutter: We are not attempting to avoid full compliance. I guess the words we used were that, asfar as we are aware, we have fully complied. Additional to meeting the Public Finance Standards, we havespecific audits as the audit committee wQuld require from time to time of the audit people.

Mr J. H. SULLIVAN: The words "used as a guide" are poorly chosen as a response to thequestionnaire?

Mr Nutter: Yes, I would say so.

Mr J. H. SULLIVAN: What is the current balance between the performance of audit functions andthe other review functions of this unit?

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Mr Nutter: I guess I see them as a little bit mixed. We have our evaluation of programs. Basicallythere are three auditors in that area. There is one vacancy at the moment, but they will evaluate programs. Inrelation to the straight audit area where we have a manager and two auditors, we would be doing systems audits,anyway. The audit committee has decided that we are going to get away from flick and tick basically, if youunderstand what I mean, to a systems-based audit. It is through doing systems audits and flow charting that wecan test check the systems to see whether in fact they are operating well. I guess those people are still tendingto do almost evaluation audits, but the evaluation audit people will be doing the program audits as such. They willbe auditing the Industrial Division program to sea how that is going.

Mr J. H. SULLIVAN: Within the unit, are people doing a distinct job? Are they dedicated to internalaudit or appraisals of the system?

Mr Nutter: Yes. They are dedicated at present to audits or evaluation. In addition to that, we haveanother section that has been created where we have advertised for people for audits in the informationtechnology area. We have been very weak on that. Although with information technology, with the introduction,we talked to our audit director and he believes that he needs more support in that area. So we just do not havethe technical people who are available to assist us there. That will be a separate section also.

Mr J. H. SULLIVAN: Those positions have been advertised?

Mr Nutter: They hav€,sn advertised, yes.

Mr J. H. SULLIVAN: V. en would you anticipate you would fill those positions?

Mr Nutter: As soon as possible. About six weeks, perhaps.

Mr J. H. SULLIVAN: How is actual progress against the internal audit work plan monitored and towhat extent have plans been achieved to date?

Mr Nutter: We have an audit committee that consists of me, the head of Corporate Services, thedirector of the evaluation strategic audit unit and currently, because we believe this area is most likely to needthe greatest audit at this stage, the TAFE-Teq area. We review the audits that are made. We get six-monthlyreports of how it is going. I personally go through each of the audit reports and personally make sure that thatprogram is on target. We do, of course, build into that program a bit of spare time for special audits. So unlessthere are real problems, we can keep up to date.

Mr J. H. SULLIVAN: That is the sole role of the audit committee, to monitor the progress, as it were,against the work plans?

Mr Nutter: There is a charter for the audit committee that I think we may have provided. It probablyshows it wider than that. I could supply you with a copy of the terms of reference of the audit committee.

Mr J. H. SULLIVAN: I think the Chairman may actually have a copy of that. You mentioned that youget six-monthly reports from the audit area. Does the audit committee only meet six-monthly or more frequently?

Mr Nutter: No, the audit committee meets as and when necessary. We have had a couple of meetingsin the last four weeks. When an audit report comes in, what happens is that the program manager-say if it isTAFE-Teq, the head of TAFE-Teq-will get the audit report and within a set period of a couple of weeks,depending on how we see the report, I guess, IS then reqUired to give a response. The audit committee will lookat that response and consider the response as to what should be done and what action should be taken. So weget the thing every six months, definitely. But we would be meeting a lot more regularly than that. I can think oftwo meetings in the last six weeks.

Mr J. H. SULLIVAN: Could you tell us how you see the benefits of internal audit to yourmanagement of the department?

Mr Nutter: I guess the internal audit is my insurance policy, to make sure that the divisions are reallyworking in an effective and an efficient manner as far as the evaluation is concerned; making sure that we are infact meeting our objectives. It is no good being efficient-that is doing things right-unless we are doing theright things, which is what "effective" is. So they are making sure that we are meeting the requirements againstthe strategic plans and policies and all those other things in the department.

As well as that, on a systems-based audit, they are giving me insurance that we have systems in placethat will protect us financially and agqinst major catastrophes, if any occur. One of the things that the D11.or ofEvaluation and Strategic Audit is responsible to me for is risk management in the department, and he wil! essesswhere we are at risk in continuing our efficient operations of the department, not only financially but if theWorkers Compensation computer went down, can we operate tomorrow and pay claims? It is his responsibility tomake sure that systems are in place so that we do not leave ourselves at risk there as well. He is my insurancepolicy, I guess. By doing audits, he is keeping the program managers on their toes and he is providing an outsidelook at what they are doing. If you are working on a day-to-day basis, it is sometimes very hard to see where

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things are not going as right as they should be, perhaps.

Mr J. H. SULLIVAN: Are you able to give us a specific example of where an improvement has beenmade in the administration of the department as a result of a recommendation from your internal audit function?

Mr Nutter: We have many recommendations coming through on the evaluation. Out of each auditcoming through, there might be 40 or 50 types of recommendations. Are you asking me whether I can pick one ofthose up?

The CHAIRMAN: Something that has been quite useful.

Mr Nutter: The most recent one we have had is a review of the adult education program in the TAFE­Teq area, which is supposed to be fully funded through the provision of charges and is also supposed to be, Iguess, geared towards vocational training more than anything. One of the things that has come out of that auditis the fact that we are not fully funding adult education. We are funding some of the charges with the fees comingin, but we are not charging infrastructure charges. The second thing coming out of that is whether in fact it is partof our responsibility to do other than vocational courses, and we are having this assessed by TAFE-Teq and theaudit committee, and we will have a look at our total plan as to what we should be doing. TAFE-Teq is abouttraining and it is about employment. It is really perhaps not about some of these other things. In particular, whenwe are saying to Cabinet that it is fully funded, we need to make sure that in fact it is fully funded.

Mr J. H. SULLIVAN: More generally then, to what extent are recommendations made by internalaudit actually implemented within the department?

Mr Nutter: What happens is that they go to the program manager. He advises us what he is preparedto do with them. We have a look at that and see whether we agree with him or not, from the audit committee. If heagrees to implement them-and under normal circumstances 90 per cent would be subject to agreement-thedivision then attaches an officer. We get a list showing the officer assigned and date of implementation. We do afollow-up check on that to make sure that that occurs.

Mr J. H. SULLIVAN: So you have got 90 per cent voluntary implementation, you would suggestthen, and the other 10 per cent becomes a bit of a negotiating thing between the functions?

Mr Nutter: I would say it is probably better than 90 per cent. The audit team, when they go in, areconsulting with the division. They are having discussions with them. They may have more thoughts initially, buthaving discussed it with the division they probably understand that some things may not be practical. So by thetime it comes to us, most of the recommendations are practical. There may be some that cannot be implementedbecause of staffing restraints. In those, we have to see if we can negotiate it, or we just say to the audit people,"It is not possible for that to be done. We don't have the staff available."

Mr J. H. SULLIVAN: Carrying on with that staffing situation-are your internal audit staff ever takenaway from audit duties to relieve in vacant line positions or fill other shortages?

Mr Nutter: I do not think they have been at the present time. We have had a fairly rapid build-up ofaudit staff, certainly in the operational audit that was in TAFE. People did relieve in that position or relieved inother positions there. But as far as the overall department audits are concerned-and we only established theindustrial side of the department audit in December 199D-we have really been on a build-up. I would be probablyanxious not to have them relieve at this stage, not because they are not capable of relieving but because wehave got a hell of a lot to do in audit.

Mr J. H. SULLIVAN: Do you think having them relieve elsewhere would curtail and weaken theeffectiveness of the internal audit?

Mr Nutter: No, I do not think so. I think once we build up our staff they will get a fairly good idea of howthe department operates. I think they will be very useful. It lets them see the other side of the fence, too. I didoperational audits myself many years ago, for about three years. It is quite easy to tell people how to do work. Itis sometimes not as easy to do it yourself. I think it provides the balance. I would like to see my audit peoplerelieving in other areas once we stabilise.

Mr J. H. SULLIVAN: Public Finance Standard 400 requires that internal audit functions areconsulted when computerised accounting systems are in the specification and development phases and beforeimplementation. Are you following that practice in the department?

Mr Nutter: Yes, we do. We had a revenue system brought into finance and he was consulted inrelation to that. But I would have to say that we still lack expertise in that area and that is why we have gone toincrease staff in that area.

Mr J. H. SULLIVAN: Finally, if I can ask, to bring us back to something you were questioned onearlier-does your internal audit function provide coverage of the Workers Compensation Board's activities?

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Mr Nutter: Yes, they have carried out an operational review of the claims area fairly recently inWorkers Compo Workers Comp is treated as an identical division to any other divisions.

The CHAIRMAN: I might ask a few questions about program management. First of all, how availableis your department's strategic plan to your staff, and are they aware of the goals of the department and what rolethey have in trying to get to those goals?

Mr Nutter: Yes, every officer in the department was supplied with a copy of the strategic plan and theoperational plan. We made sure that every officer in the department received one, irrespective of what level. Infact, that goes through the details of the various areas, the policies, goals, strategies, performance indicatorsand things of that nature. So they should be aware of their part in the overall departmental operation.

The CHAIRMAN: Could you just talk about performance indicators for a moment? Programmanagement focuses very much on outputs and outcomes-getting the results. While you have to monitorresource utilisation, that is not the only focus; it is also making sure that you effectively get towards your goals.Have you got appropriate performance indicators set up so that you can measure your progress towards goals?

Mr Nutter: We have had performance indicators as part of our program for a couple of years now. Wehave been refining them. I do not think they are perfect. I think we are getting better. I think they are certainlybetter than they were 12 months ago, and I think in 12 months' time they will be better than they are now. I guessthat we are trying and we are getting better, but we are not perfect. Certainly we do have our performanceindicators against the five criteria that are basically set down, and we do concentrate more on the effectivenessside to make sure that we are doing the right things. In the past, for instance, in TAFE colleges-if I could justexpand a bit-one of the performance indicators was the number of student hours. Now, that is good from anefficiency point of view, because you can say that you have put more students through. But if you have putthem through, say, a macrame class, as against putting through students who have problems with literacy, youcan perhaps have only one or two students with a teacher in a literacy class, but the output there might be moreuseful vocationally and to the community than would 40 people doing a macrame class for two hours. On the onehand you are looking at output of 80 hours, and on the other an output of four hours. We really have to first lookat our effectiveness. We are trying to do that-and looking to make sure that, in being effective, we are doingthat as efficiently as possible.

The CHAIRMAN: Have you been able to change some of those indicators in TAFE, or are you stillaware of the issues and still looking for the things to measure?

Mr Nutter: We have regionalised TAFE to the extent that we are having regional directors who will beresponsible for a group of colleges. One of the main things that they will be doing is making sure that we aredelivering the right goods to the right people, which will help the economy best of all, rather than having a number­crunching game. We expect that we will get improvements there. But the regional directors are only appointedthis year.

The CHAIRMAN: This is not a trick question, but in your letter you listed programs and subprogramsreviewed to date and scheduled for review by your department. It is just that we have had some difficulty in liningup the program titles with those in the annual budget papers. For example, in your letter you refer to a SupportServices Program, a Labour Market Program and a Foundation Education Program. That just does not seem toline up with the program structure as outlined in the 1991-92 budget papers. I am just wondering whether thingshave changed, or what has happened.

Mr Nutter: Yes, things have changed. The previous program structure, as it were, of the TAFE-Teq,was a very blurred structure. We did not have direct accountability for programs with specific managers. Ittended to be a more matrix-type organisation. What has happened with the PSMC reviews and in discussion withus-we tried to have program accountability for the type of fixed functions and we restructured the whole of ourTAFE-Teq area to provide program managers to have responsibilities for particular programs, and they would bethe programs that you are seeing there. We just had no-one really accountable previously, and somethingneeded to be done about it.

The CHAIRMAN: So we will be seeing a new program structure in this year's budget papers?

Mr Nutter: Yes, we could provide you with an up-to-date structure that is now in operation.

Mr Hooper: Time has caught up with us. We prepared our strategic plan during integration, and thenwe moved to a different structure arid into a budget mode, so it has come out differently. But we have revised ourinternal program structure there.

The CHAIRMAN: I suppose that most of the underlying work will still be the same, it is just how it isaggregated into topics.

Mr Nutter: It will facilitate holding managers responsible for their budgets.

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The CHAIRMAN: According to your letter, a number of programs and subprograms have beenevaluated. The Public Finance Standards require that a comprehensive evaluation of all programs be completedby 30 June 1993.

Mr Nutter: Yes.

The CHAIRMAN: Are you fairly confident that you will be able to achieve that?

Mr Nutter: We will achieve that.

The CHAIRMAN: You have given us a schedule that will basically complete the evaluation of yournew program structure by 30 June 1993?

Mr Nutter: Yes. There is no problem unless risk management fails on us.

The CHAIRMAN: What would be a typical composition of one of the evaluation teams? Who would beinvolved?

Mr Nutter: We involve someone from audit and we involve someone from the division that is audited.We normally only have two in a team.

Mr Hooper: There are two in a team, and we have a steering committee from that program area thathas oversight of the actual review, and that report then goes through to the audit committee-the finaldetermination of the debate about what is to be implemented, or not.

The CHAIRMAN: Typically, who would be on the steering committee?

Mr Hooper: It would be subprogram heads and section heads. Or if you had a particular area ofexpertise in curriculum, you would make sure you had those people on the steering committee. That was to makesure that the audit team had a body to go back to to check perceptions and understanding of some of the issuesthat the actual audit team might not have in their group.

Mr Nutter: Our program heads are very senior officers. For instance, a program head would be theGeneral Manager, Workers Compensation Board, or the head of Workplace Health and Safety. They are fairly bigprograms. That is why we do go into subprograms in a number of areas.

The CHAIRMAN: Have you had any involvement with Treasury in any of the evaluations that youhave done to date?

Mr Nutter: We had involvement in the employment area of TAFE-Teq. They were quite supportive ofus in that particular program. In fact, I think they suggested that we get more money. I am wondering whether Ishould go down to the races to see if I can get it in an alternative way! But they were very supportive, and it didwork well.

The CHAIRMAN: You are happy that the department has the expertise to perform theseevaluations?

Mr Nutter: Yes.

The CHAIRMAN: And you will not be looking to any external sort of personnel involved in the reviewteam?

Mr Nutter: Not at this stage, although when we were looking at our strategic plan for computing andtechnology, we felt we needed outside help to help us design tllat. I think we ended up with PA Consultants, andthey had a look at everything that we had in technology and had a talk to all divisions as to what we needed,sorted our priorities where all the divisions were involved-what seemed to be from all divisions our mainpriorities-did that type of work and carried us through that. We just did not really have the expertise to do that.On all of these, if we do not think we have the expertise, I have no objection to outside consultants. I think theydo bring a focus in from outside if we do not have that internally.

The CHAIRMAN: Do you think your department has already benefited from the evaluations that havebeen completed so far?

Mr Nutter: Yes, I do. It does improve our operation. It makes people look at what they are doing. Ithink it makes them more accountable. I think it improves our performance.

The CHAIRMAN: Again, can you think of any specific instance where something has changed as theresult of an evaluation? I suppose that is going into a bit of detail.

Mr Nutter: There are a lot of small things that change as a result of the evaluations. In relation to anaudit recently on our major Ipswich College=the type of thing that is highlighted there is the need for additionalsystems in colleges, and the result of that will be that we have a team-our accountant and the head ofExecutive Services, I think it is-talking to all colleges about what they are doing so that we can introduce a

right across that will We cannot be the way we

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were in that situation.

The CHAIRMAN: That is a sort of financial management system you are referring to?

Mr Nutter: Yes.

Mr Hooper: Out of that situation, we prepared a booklet on TAFE-Teq financial issues. It was fromthat audit we realised we had exposure, so we looked at strategic issues and we formed a project group to go outon the routine issues to cover the exposure that we had and also to look at how colleges are coping with theadvice and support they have from head office. We listen to the audits and try to act on what we find.

The CHAIRMAN: Again, can you think of an example where services are being delivered moreeffectively as the result of an evaluation?

Mr Hooper: In the area of workers' compensation, out of an evaluation, we drew the need to makerehabilitation and compensation work closer together. We are moving in the district offices to have those peopleworking together instead of really as separate identities, because they deal with the same issues-an injuredworker's recovery or accident recovery and return to work. It has brought about closer coordination of those twoactivities in a program area.

Mr Nutter: In relation to the industrial division-in the inspection area, they have been able to do a lotof work on statistical data. We are able to see where the staff would be able to be better deployed, as it were.

The CHAIRMAN: Are you talking about target groups or-­

Mr Nutter: Yes, things of that nature.

The CHAIRMAN: What about costs in implementing program management? Have they beensignificant, and can they be identified?

Mr Nutter: It is very difficult to identify costs of implementing program management. The set-up costsinitially probably are not cheap, but for a department with the size of our budget, it is probably relativelyinexpensive. I think on a continuing basis the costs are fairly small. If you do not have program management,you have to have other management systems in place to say how you are working or how your programs areworking. You need something to tell you what it is costing to run a function, because you need to know whether itis worth while doing that function or doing other functions. I think program management is a fairly good tool to dothat.

The CHAIRMAN: All in all, you seem to have a fairly positive view of program management as amanagement tool.

Mr Nutter: Yes, I think it is very useful as a management tool.

Mr J. H. SULLIVAN: There is one thing I am not very clear on. Are your department's managementinformation systems structured in such a way that they provide regular reports by program to management sothat they can monitor not only financial and budgetary matters, but also information to monitor progress towardsthe achievements of program goals?

Mr Nutter: Yes.

MI PERRETT. I have a couple of questions on system appraisals. The Public Finance Standardsrequire that all your department's revenue, expense, asset and liability systems be appraised each financialyear to determine the proper functioning of controls and the appropriateness of procedures followed. Your letterindicates that the process of undertaking these system appraisals is being examined by your evaluation andstrategic audit unit, and that after attending the Treasury training workshops next month, an options paper willbe presented to your departmental audit committee for consideration. It is now almost two years since the PublicFinance Standards were introduced. Why has not your department acted earlier, and when do you expect to bein a position to comply with the requirements of the standards?

Mr Nutter: As you have indicated, we have not complied at this stage, and I accept that as a fact. Isuppose while we have no excuse, we have probably been trying to deal with other pressing problems andsetting the audit groups up and things of that nature. We acknowledge that systems appraisal will address theissue in a structured manner. We have been waiting for guidance from Treasury and input from their workshops,because they really have not moved on that at this stage. I am not making any excuses for it, but I am sayingthat as soon as we are able to get further information from them-we will have that options paper, and theoptions paper will not mean whether we will do it or will not do it; it will be how we will do it. It will be put into placeas soon as it is practicable.

Mr PERRETT: You obviously see benefits for your department in this particular--

Mr Nutter: I think all these things help management. System appraisals will certainly helpmanagement. They are the responsibility, of course, of the program managers as such in the operating areas,

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and as it relates to the finance and human resources divisions, it is the responsibility of the Director of CorporateServices or the head of HRM, with the audit people, who again are my insurance to make sure that everything isgoing all right.

Mr PERRETT: Will the system appraisal process create extra costs for your department?

Mr Nutter: I think they would be negligible, wouldn't they?

Mr Hooper: I doubt if it will, because systems appraisals, in our view, is another form of audit. Duringthe course of an audit in a location or a business unit, you will look at systems within that unit. To me, systemsappraisal is a better approach, in that it links systems across your department where they go across thedepartment, and many of our systems do. It will probably mean a redirection of the audit program and theallocation of auditors, but overall, I doubt whether it will result in any more costs to the department, except if webuilt up our information technology area, we would obviously have to get a better systems appraisal in that area,and those resources are not cheap. It costs a lot to employ people who can conduct that sort of systems audit.

Mr Nutter: I just wonder what the alternatives are. It seems to be a systematic way of doing things atvery little extra expense.

Mr J. H. SULLIVAN: Standard 6103 requires that internal audit determine whether or not systemappraisals have been done properly, undertaken and acted upon. Do you really think it is appropriate for internalaudit to perform those appraisals?

Mr Nutter: I think it is appropriate for the program managers to do the appraisals. I think it isappropriate for the audit area, on my behalf, to look and make sure that they have been done or they have beendone properly.

Mr J. H. SULLIVAN: That is what the standard says they should be doing.

Mr Nutter: That is right.

Mr J. H. SULLIVAN: In your case, the program managers are doing the appraisal and then auditlooks at their appraisal.

Mr Nutter: We pay them pretty good money to do that.

Mrs BIRD: Your letter suggests that your department has made a lot of progress with respect toimplementing the position assessment requirements of the Public Finance Standards. Do the positionassessments undertaken in your department fully comply with the Public Finance Standards?

Mr Nutter: Yes. I have a pro forma copy of the quarterly position assessments which we forwarded toall program managers for completion. That says that at 12 March we in fact upgraded these positionassessments following attending a seminar held by Treasury. We already had them before that. In fact,excluding TAFE-Teq, they are the position assessments that have come back from each of my divisions which Ibasically go through and sign. The director of the finance branch goes through them on a financial basis to giveme advice on whether we are behind on expenditure, overexpended or underexpended, what the reasons areand things of that nature. I am very keen to have that because it protects me, in budget requirements and otherrequirements, on use of assets and things like that. They have to say that they are using those effectively. It isa jolt to their memory to make sure that they are doing it.

Mrs BIRD: You were well on your way before the workshops, obviously?

Mr Nutter: We were well on our way before the workshops.

Mrs BIRD: How many of your staff attended the workshops?

Mr Nutter: We had six, I think.

Mr Hooper: Five to six people attended the workshops. They then came back from the workshopsand spoke to the officers involved in each program and subprogram on the requirements and on our procedures.We issued a guideline on position assessments and then on the first two or three assessments that were done.We reviewed them with the same people-how we went, how we' felt, what they found difficult-and, as Mr Nuttersaid, we are probably in our third version of our internal procedures, which is an amalgamation of what wethought necessary, what we gained from the Treasury workshops and what the officers doing them have said tous about whether they think it is an unrealistic imposition on the detailing, etc. We are reasonably happy nowthat we have a working document that means something to the Director-General and the officers preparing it,and it is not too much of an imposition in terms of detail and data.

Mrs BIRD: They did not feel that it was an unnecessary imposition?

Mr Hooper: I think initially they did. I remember one officer, about three or four levels down in thedepartment, said to me after about the third go, "I actually now know what is in my budget." While he meant it in a

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half joking, negative way, to me it was a positive sign that we were getting the right people involved in knowingabout their budget, reacting to it, complaining about it or knowing what it was all about. Previously, budgetarymatters and where we stand had not been down far enough in the organisation.

Mr Nutter: First up they are difficult for people. I know that TAFE-Teq found their first one for thequarter ended Decemberfairly difficult. Obviously, this is the second one that has been done by TAFE-Teq andthey are a bit behind at the moment on getting it to me. They are a useful tool, as I said, for us.

Mrs BIRD: As part of the position assessment process the Public Finance Standards require that anannual determination be made as to whether assets are being used in the best and most efficient way possible.What type of assets does your department control?

Mr Nutter: We do not have a great range of assets. The Workers Compensation Board owns buildingsand houses for some of the staff as a trust-funded area, plus the type of computers and information technology.The remainder of the department would be mainly computers and things of that nature. The buildings are ownedby the Works Department or Administrative Services.

Mr Hooper: And the TAFEs.

Mr Nutter: And TAFEs.

Mr Hooper: They have a lot of teaching-type lathes and kitchen boilers.

Mr ELLIOTT: You have a lot given to you. It is interesting to see what is used in Toowoomba, forarguments sake. How do you hold your reserves? You can see that you have tremendous reserves when youlook at workers' compensation.

Mr Nutter: Towards $600m in total cash, although that is not all reserves. It is invested withQueensland Investment Corporation. All the surplus funds go to that corporation to invest on our behalf.

Mr ELLIOTT: In your program management, or in this new system that you are coming into, howwould you work out-would you just look back behind you and take a line through there as some sort ofprojection as to what you expect in respect of reserves? For arguments sake, depending on what sort ofjudgments you have made by judges around the place in accident cases, it must vary tremendously what sort ofproblems you are likely to run into as to whether it blows out or comes in low. How do you make those valuejudgments?

Mr Nutter: We rely on the Queensland Investment Corporation to do that. That is why I have greyhairs because initially at the beginning of the year, for example, we were told that we would get something like 12per cent or 13 per cent minimum. As the year went on, about a month or so ago that had slipped out to anexpectancy of 8 per cent-a possibility of 6 per cent ranging to a maximum of 10 per cent. When you have$600m and you are looking at balancing your fund out and paying merit bonuses, it is a problem. We haveincreased our reserves to the extent that we will be able to ride the humps and, hopefully, we will be able toachieve this. This year, if we decide to go on merit bonuses up at the level they were last year, we might have toride a bit of a loss. All we can do is rely on the best information that we have available. Fortunately, they revisedtheir judgment, and I think that we are now up to 8 per cent or 10 per cent again. It is not quite as bad as itseemed a month ago.

Mrs BIRD: What process does your department follow to determine whether assets are being used inthe best and most efficient way?

Mr Nutter: We rely basically on the program managers to advise that they are doing that and on theaudit when they are doing the operational reviews to advise us that that is the case.

Mrs BIRD: The Public Finance Standards also require that the position assessment process includean annual determination as to whether suitable asset replacement programs have been approved and are inoperation. Is this done in your department and what is the process?

Mr Hooper: We review all our assets on the basis of replacement on obsolescence or if it isirreparable. Each year during the stocktake we generally cover most of that unless something happens duringthe year.

Mrs BIRD: As the accountable officer Mr Nutter, do you personally examine all position assessmentscompleted by your department?

Mr Nutter: Yes, I do. I have been interested in that type of thing since my audit days of having a lookto see how operational each of the divisions are doing. In fact, I think the last time they did not have all theposition assessments in by about 18 April. I asked them for copies of the ones they already had in so that Icould have a look at them and to find out when the others would arrive. I am very interested in them.

Mrs BIRD: Do you find them a costly process?

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Mr Nutter: I do not think so. I think that we have to have processes where we can make sure that theorganisation is working effectively. That is a very good process. It may take some of my officers a bit of time todo.

Mrs BIRD: What sort of time?

Mr Nutter: I would say half an officer a division, something like that. We are running fairly bigbudgets. The TAFE-Teq budget, for example, is $400m-odd. We need to make sure that we are doing thingsright. With that diversity we have to have these. I think they will take time to do. The time is well spent doingthem. I have not done them myself, fortunately, so I could not give you an exact time. I could ask people and getthe information to you, if you wish.

Mrs BIRD: No.

Mr Hooper: I think that time comes into it because the position assessment is really a managementtool. If an area where we have a revenue flow suffers a drop in the revenue, the manager must explain. I thinkthat the time and the effort has to be balanced against what you stop doing, because even before we hadpositions assessment if, say, workplace health and safety revenue was down, sooner or later we have toaddress that question and someone has to interest themselves in it. The trick is to make sure that you do notkeep doing the old things in the ad hoc or separate way and you address it through the position assessment.Some officers tend to try to keep doing the old things with the new things. The position assessment is a totalconsolidation of practically all the reporting requirements from a management side to the Director-General. To tryto say that it is extra work-it is not extra work if you stop doing the old things. It is more comprehensive in onedocument and it is also a record. You build up a picture.

Mrs BIRD: It sounds like you are relying on it a fair bit.

Mr Nutter: Yes. I think we need to, but we are doing that in conjunction with our operational audits andother things as well. Certainly, in relation to these, you have discussions with the program managers as well.There are two or three things that you are doing to make sure that things are running okay in that respect.

The CHAIRMAN: We might conclude with some general questions about Treasury. Are you satisfiedwith the role Treasury has played in guiding implementation of these standards?

Mr Nutter: Yes, I guess-excluding what I think of them about budgets. I would say that 7 or 8 out of10 would be a fair estimation.

The CHAIRMAN: Do you feel that your department has had sufficient advice on matters such asposition assessments, systems appraisal and things like that?

.Mr Nutter: As much as they can do, because I think in the ultimate our position assessments have tosuit our operation, and our operation is different from DPI and Justice and everyone else's. They can give us aframework only and then we have the people to sort out what we actually need beyond that framework. I thinkthey have done all they can.

The CHAIRMAN: You are quite happy with the frameworks that they have provided and the timing ofthe frameworks being provided?

Mr Nutter: Yes, I think so.

The CHAIRMAN: Have there been any problems?

Mr Hooper: Probably, if I took our position assessment document, 50 per cent of that is fromTreasury and 50 per cent is from us. The initial assistance and the framework and some of the references wegave link back to it, and when we look at it we think it is 50 per cent Treasury input and 50 per cent from thedepartment. I think that is how it has to be.

The CHAIRMAN: What about the financial management practice manual? You have not really hadany guidance there.

Mr Hooper: No. I think that Treasury appear to have concentrated on the program management areaand some of the other areas may be starting to come through now.

The CHAIRMAN: Mr Nutter, in summary, it sounds like you would be quite confident that you will notget a qualified audit through non-eompliance at the end of next year.

Mr Nutter: I hope not. I guess the only problems we really had have been at colleges which, to someextent, were given the right to do their own thing. We are now roping them back into a network of not restrictingthem from their client base but meeting the requirements of Government in respect to accountability. A.s MrHooper showed you, we have that framework as to how they must operate. That is my only concern. We aresending teams around there to try to fix it up. In the other areas, I think we are fairly safe.

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The CHAIRMAN: The Workers Compensation Board and so forth-you have complied?

Mr Nutter: Yes. I am fairly confident of that, yes.

The CHAIRMAN: Are there any other questions from members of the Committee? Thank you verymuch, Mr Nutter and Mr Hooper for your evidence. I now adjourn this hearing. We will recommence at 3 p.m.

The Committee adjourned at 2.33 p.m.

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The Committee resumed at 3.14 p.m.

The CHAIRMAN: I reconvene this hearing. Professor Gibson and Mr Nelson, thank you very muchfor your attendance. Before you commence 'to give evidence, I am obliged to inform you that the proceedingshere today are legal proceedings of the Legislative Assembly and the Committee requires that your evidence begiven on oath or affirmation.

ROBERT DENNIS GIBSON, sworn and examined:

JOHN ARTHUR NELSON, sworn and examined:

The CHAIRMAN: Professor Gibson, could you please state your full name, place of employment andthe title of the position you hold?

Prof. Gibson: Robert Dennis Gibson. I am Vice-chancellor of the Queensland University ofTechnology.

The CHAIRMAN: Mr Nelson, could you please state your full name, your place of employment andthe type of position you hold?

Mr Nelson: I am John Arthur Nelson. I am the Director, Finance and Facilities, Queensland Universityof Technology.

The CHAIRMAN: By way of introduction, I will make a brief statement. The Parliamentary Committeeof Public Accounts is an all-party Committee of the Queensland Parliament whose purpose is to scrutinise andprovoke reform of the financial administration of the public sector and to ensure that Executive Government isaccountable to the Parliament. The Committee conducts its business in accordance with the Public AccountsCommittee Act and the Standing Rules and Orders of the Legislative Assembly relating to select committees.The Committee is presently conducting an investigation into the implementation of the Public Finance Standardsin departments and statutory bodies. These standards are issued under the Financial Administration and AuditAct and commenced operation on 1 July 1990. The Committee has a particular interest in the requirements of thestandards relating to financial management practice manuals, position assessments, system appraisals,program management, internal audit and the move to general purpose financial reporting by businessundertakings and statutory bodies. The use of private consultants in implementation of the standards is also ofinterest to the Committee. I inform you as witnesses that you are required here today to answer all questionsrelevant to the subject matter of this inquiry. The Committee would like you to answer its questions frankly and toprovide it with an accurate and clear view of your organisation's position on the issues canvassed. ProfessorGibson, members of the Committee will direct questions to you. Feel free to answer them or refer them to MrNelson, if you think that is appropriate.

Mr PEARCE: To start the afternoon off, I will talk about financial management practice manuals. ThePublic Finance Standards and the Financial Administration and Audit Act require each statutory body to have afinancial management practice manual which prescribes the practices and procedures, etc., to be followed bystaff in the financial administration process in their particular organisation. These manuals are a key element ofthe overall financial management policy and principles upon which the Public Finance Standards are based. Imight add that the Committee was pleased to read in your university's letter of response to our questionnairethat your university has a complete and up-to-date practice manual which complies with the requirements of thePublic Finance Standards. I would like to ask you how important you find this manual is to the financialadministration processes of your university.

Prof. Gibson: John, would you like to answer that?

Mr Nelson: Yes, I will answer that. The financial practice manual was adopted by council at a meetingearlier this year and is in the process of being disseminated and distributed to cost centres of the university. It isnota manual that stands in isolation but part of a manual of operating policies and procedures. The financialpractice section is in the process of being edited and distributed to the cost centres. Yes, we find that it isessential to have such a manual. The policies and procedures must be stated. Of course, what is more importantis that when people receive them; they understand them and understand howto use them in a dynamic sense;they do not just gather dust. In that context, we find it highly relevant and very important.

Mr PEARCE: In a follow-on question to that, to whom are copies of your university'S financialmanagement practice manuals distributeq? Is the manual readily accessible to all staff who could have a need torefer to it?

Mr Nelson: Yes. The manual is distributed to cost centres throughout the university. In anyuniversity context, this means faculties, schools within faculties, administrative units and SUbunits withinadministrative units. As I indicated before, it is part of a broader manual-a manual of policies and procedures.In addition to the broad financial management practice manual, we have a subsidiary manual which is in more

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detail and that is available to the same cost centres. We intend to flesh that out further. This has not been doneyet, but we will develop it into smaller segments so that personnel actually in charge of various functions at costcentre level will have detailed procedures. It is a flow-down process. If you look at a pyramid, at the highest levelyou have the Public Finance Standards and then the development of our financial management practice manualsout of those Public Finance Standards, and then a more detailed manual, and then it explodes down further. Thatis the process that we are adopting.

Mr PEARCE: In the future, can you anticipate any difficulty in trying to maintain it in an up-to-datestate?

Mr Nelson: No. The financial management practice manual, as I indicated, is part of a broader policymanual. These decisions come out of the council of the university. We have a central secretariat that isresponsible for bringing together policy decisions of council and distributing them through the policy manual sothere is an automatic process that puts into the manual policy decisions.

The CHAIRMAN: What are you going to do to make sure that it does not just gather dust?

Mr Nelson: First of all, we need to see that it is distributed to appropriate cost centres. But, as Iindicated, we need to be sure that people understand what is in that document and in fact use it. As part of aninitiative, for the first time in the second semester this year we are including it as part of our staff developmentprogram. We have a fairly comprehensive staff development program. One ofour programs will be on financialmanagement, which means that administrative staff and others throughout the university, should they wish, canparticipate in a program and have a day on it. In addition to that, our finance officers have a policy of makingregular contact with cost centre people.

Prof. Gibson: We have staff development programs for academic and general staff and part of theissues that staff development for general staff pick up are issues like this, and we run continuing developmentprograms for administration officers in schools and faculties.

The CHAIRMAN: For instance, the academic head of a faculty, you think, should also be at leastfamiliar in general principle as to what is going on in the financial administration-not necessarily with the sameexpertise as the financial manager?

Prof. Gibson: That is right.

The CHAIRMAN: You would encourage that process?

Prof. Gibson: Yes. In fact, we may come back to this later. When we talk about the way theuniversity operates, there is a fair devolution of financial responsibility to faculties so that the deans and headsof the faculties have fairly wide financial responsibilities and, by virtue of that, get involved in a lot of financialmatters.

Mr ELLIOTT: I have some questions on financial reporting. First of all, the Public Finance Standardsrequire that statutory bodies prepare accrual-based general purpose financial statements. The Committee hasnoted that the interinstitutional working party of Queensland universities has produced a report detailing astandard format of reporting and establishing accounting policy guidelines covering matters such as assetvaluation, etc. At what stage have you reached with implementing accrual accounting systems into youruniversity? When will they be introduced?

Mr Nelson: We have a leeway of one year under the'Public Finance Standards but we intend at thispoint to produce the 1992 accounts on an accrual accounting basis-in other words, the published accounts forthe end of this year.

The CHAIRMAN: You are not going to have any trouble achieving that?

Mr Nelson: I would not say that. There has been a lot of trouble in simply compiling this manualadopted by universities throughout Queensland. A lot of effort has gone into the new financial statement format.I think it must be said that certainly in the initial stages it is primarily directed to the external reporting function ofthe university. There is no doubt that internally we will manage. our affairs on a cash accounting basis. Whetheror not the effort that has gone into the thrust towards accrual accounting is justified in the long term I thinkremains to be seen in terms of universities.

Mr ELLIOTI: What stage have you reached with respect to the valuation of university assets?

Mr Nelson: In relation to land, that will be brought to account at Lands Department valuation. Inrelation to buildings and services infrastructure assets, we have engaged a consultant to make a valuation forreporting purposes. Of course, it should be said also that we probably need that information for insurancevalues, but it is also an exercise that is going on simultaneously.

Mr ELLIOTI: You see some value in it for your own purposes, anyway?

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Mr Nelson: Yes, in relation to that.

Mr ELLIOTT: Obviously, there is time involved to start with, but, once you get on top of it, I guess itwill be a helpful exercise?

Mr Nelson: Yes.

Dr WATSON: Is a Lands Department valuation a realistic valuation?

Mr Nelson: I doubt it.

Dr WATSON: It is a fairly valuable site down there, is it not?

Prof. Gibson: Many people have tried to get it over the years.

Mr Nelson: What is the meaning of valuation in relation to land on which a university is situated? I'really have to ask the question: what value is there in valuing it?

Mr ELLIOTT: How difficult have you found the asset valuation process to be? Has it been a bigproblem?

Mr Nelson: It is a problem. We have engaged a firm of valuers based on the quantity surveyordiscipline to undertake the valuation for us. They have just commenced the process. I think we indicated in ourreply that there is a cost associated with that; I think it was $36,000.

Dr WATSON: What about intellectual property? That is another issue that universities ought to befacing. Are you valuing that for the purposes of your financial reporting?

Prof. Gibson: I do not know that we are in terms of financial reporting. We are certainly spending alot of money on solicitors' fees in terms of looking at intellectual property, as I am sure many universities arethroughout Australia.

Dr WATSON: I was going to say "despite"; but, as these proceedings do not attract privilege, I hadbetter not say anything about it.

Prof. Gibson: Yes, we are involved in intellectual property but the issue of evaluation of that issomething that we have not made much progress on.

Dr WATSON: So that is not going to be included as part of your assets or part of your financialstatements?

Mr Nelson: Not as this stage, no.

Dr WATSON: In many respects, that is probably "the major value" in a university.

Mr Nelson: It is an intangible asset. I suppose that there are ways, as you would know, of valuingthat or attempting to value it.

Prof. Gibson: You are talking about intellectual property in more than just the value associated withpatents etc.?

Dr WATSON: In my original question I was thinking of patents and potential commercial activities, butalso technically there is some value associated with research and development that is going on. As well,obviously lecturers and staff are not necessarily the property of the university but there is a lot of intellectualvalue there, too. I wondered about that issue, because valuation is obviously a problem. Land is one thing, butthat intangible issue of intellectual property is fairly important for universities, as it is for the CSIRO andorganisations such as that.

Mr ELLIOTT: Do you have systems in place which enable depreciation on non-current assets to bereadily determined?

Mr Nelson: Yes. We are introducing the systems as part of our asset register and we do havestandard rates of depreciation which are common to other universities as adopted in this blue book.

Mr ELLIOTT: How difficult are you finding the transition from cash accrual accounting and reportingsystems? You really covered that before, I guess, to some degree, did you not?

Mr Nelson: Yes. As I indicated, it is purely for external reporting. It probably should be disregarded inthe first instance for internal reporting.

Mr ELLIOTT: What will be the benefits to your university of the change from cash-based financialreporting to accrual financial reporting?

Mr ELLIOTT: When will your university be in a position to produce general purpose financialstatements? You indicated to us that that will possibly be by the end of this financial year.

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Mr Nelson: Yes, at the end of this financial year. We are on a calendar year.

Dr WATSON: Let me get on to the accrual accounting. I am a little surprised, if you like, when you sayit is purely for external reporting. I would have thought from a management viewpoint, even down to the facultiesand departments, that there may have been some value in accrual accounting. Universities for a long timefought for the issue of being able to carry over surpluses and losses and things like that, which is partly anaccrual concept, and finally they got that flexibility. Would you like to elaborate on why you see it only as anexternal reporting issue and not also an internal reporting issue?

Mr Nelson: Specifically in answer to your comment that universities fought long for the carry-overprovisions-we have substantially got that now in the cash accounting system.

Dr WATSON: I agree with you. That is what you have done. That is why I would have thought that theaccrual was at least consistent with that.

Mr Nelson: Yes. This is a personal view here. I think for internal reporting, commitment accounting isprobably more relevant. We make the distinction between uncommitted funds that are carried forward for afaculty at year end and committed funds. A faculty does not lose funds at the end of a financial year as this isjust a point in time at which one budget folds into the next.

The CHAIRMAN: Would it make any difference in terms of long-range financial planning? Would ithelp or improve long-range financial planning to perhaps be more fully cognisant of future expenses?

Mr Ne Ison: I doubt it. We do that now. Universities are not like some other statutorycorporations-business undertakings. I have no quarrel with accrual accounting where you are in agovernmental or semi-governmental business undertaking where you are attempting to match revenue andexpenditure over a period of time and to develop appropriate pricing structures in that context. In our situation,we plan our cash flows. Take, for example, our capital program. We have plotted that through to the latter part ofthis decade, and of course that has to be done on a cash basis. It is hard cash or ultimately, perhaps, loanraisings that can deliver the capital program in universities.

Maybe over a very, very long term, as perhaps the public sector generally moves to accrual accountingand grants are made on that basis and the whole system is geared to other than cash, it would be probablyappropriate. But while an individual statutory authority, such as a university, derives a substantial part of itsrevenue from Government cash grants and other cash grants and cash raisings, I think that cash accountinghas served us well; it has been conservative and I believe we have been very responsible within it. That is not tosay that we do not disclose or, under cash accounting, that we cannot disclose, the value of our assets. We do,as part of the notes to the accounts. It is just a question of whether you bring it all together in a balance sheet.

The CHAIRMAN: What about depreciation? How do you know that one faculty perhaps is notmanaging assets in terms of depreciation and so forth and paying enough attention to when they should bereplaced?

Mr NeIson: I do not think depreciation would give you that much benefit in relation to that particularissue. As to whether a faculty or a cost centre is properly managing its assets really goes to the heart of yourmanagement structure and the devolution of responsibility for management within scarce resources. As the vice-chancellor has Indicated, faculty IS heavily Involved in financial management. Financial management is notdivorced from delivery of programs. If a faculty head has to make judgments about the allocation of scarceresources to either this piece of equipment or that piece of equipment, we believe that that is probably one of themost effective ways of achieving effectiveness and efficiency. I do not think that depreciation as such wouldenhance that objective.

The CHAIRMAN: Some more formal recording of it, as would happen in accrual accounting.

Mr ELLJOTI: Really, your plant register is, do you think, quite adequate? You have had that before?

Mr Nelson: Yes. We have a plant and equipment register. I think there is probably some marginaladvantage in that it more formalises the recording of assets. I think perhaps it should be said that there is a moreformal recording of the assets. But that is the marginal advantage.

Dr WATSON: I would like to move to the area of program management. I guess the Committee notedthe letter, and at least I have some idea of the problems concerned with the restructuring of the OUT and BCAE.But despite that, we would like to ask a few questions on the program management area. You mentioned that youdo have a strategic plan for a five-year period, I presume from 1991 to 1996. We would like to know how availablethat university strategic plan is to university staff. Are they aware of the university's goals and the part that theyhave to play in achieving those goals?

Prof. Gibson: If I could spend a few minutes talking that through-as you do know, we have beenthrough a change from alT to OUT a couple of years ago, and then amalgamation with BCAE two years ago. One

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of the approaches we took to the amalgamation was an agreement prior to amalgamation that we completely. restructure the university, and we literally knocked everything down and built it back up again. It was asignificantly different approach to amalgamation from the approach taken by other universities, where maybe alittle college was grafted on to a big university. We knocked everything down and started again.

The old QIT had a very well developed strategic planning approach which had developed over the 1980swhich involved the development of a strategic plan as a result of a university-wide initiative, and then devolutionof responsibilities in a financial sense to the programs, the faculties or the divisions and a reporting on an annualbasis back in terms of achievement of goals. So we have tried to graft that on to this new larger university, andwe had our first crack at it last year. In fact, we amalgamated in May 1990. One of the first things we did as auniversity was to try to decide on the mission and goals statement for the university. It took us about six monthsto get there after very wide debate-extensive debate-involving the outside community as well as universitystaff and students.

Having got the mission and goal statement, early last year I wrote a personal paper which was called"QUT 1996-a context and issues paper". It was a first attempt to try to develop a strategic position for 1996. Itwas not a strategic plan, it was an attempt to identify the key issues; "context" talking about the environment,"issues" talking about key issues. The paper went all around the university, all the committees of the university,and it was distributed outside the university. I personally spoke to every school, department and division in theuniversity about that plan. It took about two or three months to do it. As a result of that, I was in a position to putout a one-year plan for 1992, which is called VC's Guidelines for 1992. In that we spelt out what we thought ourstudent load would be, what new programs were going to come on board, how much money we had, what ourresearch initiatives were, and so on. It was a fairly broad brush, but it gave the faculties and divisions enough tobe playing with. The context and issues paper and the one-year plan for 1992 went to the faculties and divisions.There was a lot of discourse about what they were trying to do in 1992. The follow-up paper, QUT 1996, thestrategic plan, is not yet finished, but it has to go to the university council a week tomorrow. It is as close asthat. It has followed a lot of discussion and a lot of retreats. I think we have got the key issues for the strategicplan identified. I am as confident as I can be in any university that there has been very wide-ranging discussionon missions and goals and agreement on strategic directions. That is not to say that if you go and ask anyacademic they will be able to give you a university approach to issues, but I think we have come out fairlythoroughly.

Dr WATSON: The principles of program management as set out in the Public Finance Standards andthe practice statements require resource management systems which focus on outputs, that is, the goods andservices provided, and the outcomes, that is, the desired results, as a primary concern. Resources allocatedand utilised are important as they provide the means or limitations for achieving desired outcomes, but of courseshould not be the primary focus for management. Are your university's management systems structured suchthat they provide regular reports by program to management-I presume both academic and non-academichere-to monitor not only financial and budgetary matters but also information to measure progress towards theachievement of program goals?

Prof. Gibson: At the presenttime we do not have a range of 10 performance indicators. If you havefollowed the discussion in the academic literature over the last year or so since the Linke report produced by theLinke committee on academic performance indicators-there was a myriad in that, and there has been no realagreement on what the key academic performance indicators are. We have a working party in the university atthe present time that reports in the next few weeks. I think that we will hopefully be coming up with a few keyacademic performance indicators, but we are not there yet. Let me tell you what we do at present.

Dr WATSON: I will come back to those other issues.

Prof. Gibson: Okay. Let me tell you what we do. Some of the things are structural, and some are adhoc. When the VC's guidelines go out for planning for the next year, each faculty comes back with a plan anddollars. We negotiate between the centre and the faculty a reasonable sum of dollars to run the faculty, whetheror not any of the goals or actions that the faculty want to achieve are in line with the university mission and goalsand specific directions for the next year. Sometimes we say no. We try to come back with a match betweenplans and dollars. When I say "we", that is a working party of the university Planning and Resources Committee,like a university finance committee. There are a significant number of outsiders on Planning and ResourcesCommittee. The plans are all pulled together in the university budget, so the budget is a plan at faculty level plusfinances. Within the financial guidelines of the university, the faculty goes through the year, and at the end ofthe year it reports against the achievement of the goals set out at budgeting time. Again, another committee ofthe university reviews the achievement of thos€! goals and reports to the univorsity council.

Dr WATSON: Are they basically then in financial terms?

Prof. Gibson: No, they are actions in terms of running a new program and trying to get a new

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research contract. They are very specific.

Dr WATSON: Is it both financial and non-financial in terms of did you achieve X number of ARGCgrants, or something like that?

Prof. Gibson: Exactly-UDid you write 20 papers? Did 10 members of staff go on study leave? Didyou agree that 100 of your subjects would be evaluated by student evaluation? Did that take place?", and so on.That is reviewed at the end of the year in terms of attainment of those goals by this little working party, againinvolving outsiders. That is the structural thing on a year-by-year basis. On a quinquennial basis, we have areview of each faculty and division. In fact, we just finished our very first review of a faculty a week ago, and westart a review of the law faculty next week. We would hope to do all of the eight faculties and the four supportdivisions on a five-year basis. They are the two structural things. I would hope that we would get performanceindicators in due course. We have a few at the moment, but they are patchy. I certainly would not claim that theyare complete. We have things like course progression and attrition rates, which to me is one of the key statisticsin a university. If a student does a year's work, how much of it does that student pass? How long are studentstaking to complete programs? In fact, I think that Australia does not do all that well in those particular areas asagainst other parts of the world. We track those through on a faculty basis and report to our AcademicCommittee, which is the academic forum underneath the university council. On a.n annual basis, courses with,say, an attrition rate greater than whatever and a progression rate lower than whatever are identified and lookedat. Faculties are requested to say what has gone wrong and what they are doing about it. But that is ad hoc.

Dr WATSON: I guess you understand that the practice statements to the Public Finance Standardsrequire programs to be reviewed in terms of key performance indicators, annually or at such other times as areappropriate. When do you think that your key performance indicators will be available? At the moment you haveindicated that the working party is doing something on that. When are they going to be available? When are theygoing to be integrated into this process so that it gets reported in the annual report?

Prof. Gibson: I would not like to give a hard decision in terms of time here and now. I think theworking party will be reporting in the next three or four weeks. As you say, that system has to be grafted onto theuniversity. It has to be accepted by the university. That will take time. You have to go to all the faculty boardsand the academic committee. There has to be a long talk about the issue inside the university. I cannot see usdoing anything about that in 1992. If we could build it into our planning for 1993, that would be extremely useful.

Dr WATSON: At the moment, would you expect those performance indicators to be substantiallydifferent from the kind of ad hoc things that you have described?

Prof. Gibson: No. I think that the two I have just talked about would be part of the range of maybe upto 10 performance indicators.

Dr WATSON: Do you think it would be reasonable to have such performance measures or indicatorshaving universal application across universities?

Prof. Gibson: Between universities as well as within universities?

Dr WATSON: Between universities as well as within universities.

Prof. Gibson: My problem in the next few weeks is to get agreement to have it within the university,and it would apply across the Arts faculty and the Engineering faculty.

Dr WATSON: For example, the rates of progress of students through degrees-and I think we did thisat the University of Queensland-one can presumably look at those across the departments and faculties, andone can presumably look at those rates across the universities. Do you think it is appropriate that a set ofperformance indicators are developed which have universal application or do you think that is inappropriate?

Prof. Gibson: I may think that that would be a good thing, but having read the Linke report, I mustsay that I think it will be impossible to achieve.

Dr WATSON: Because of the diversity of programs or because the academics will--

Prof. Gibson: Just because of the academic politics. I can see no reason why we cannot have anoutput measure for all universities which is output in terms of graduation rates. For every hundred students thatcome in, a good rate would be 80 graduating in three years from a three-year degree, or maybe three and a half,and a bad rate would be 50 graduating in four and a half years. I cannot see why we could not have similarperformance measures like that acros's the university system. However, I do not think that is achievable.

Dr WATSON: We might have a discussion on that at another time. With respect to program reviewsand assessments-the practice statements to the Public Finance Standards state that each statutory bodyshall prepare a report for the Minister detailing the results of all reviews and assessments conducted during theyear, and that appropriate evaluation comments be given in the statutory body's annual report. The practicestatement also lists a number of minimum requirements that should be included in the report. The Committee

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noticed in your university's letter that you stated that no provision has been made for reporting on reviews andassessments to the Minister, although if such a request was forthcoming, appropriate action would be taken. Toquote the statement, "Appropriate evaluation comments shall be given in the annual report" of a department orstatutory body. I was wondering whether or not the university was intending to do that, even if the Minister doesnot request it.

Prof. Gibson: Let me say that we still have not received the report from the first review committeefrom a fortnight ago. The problem is that the Chair of that review committee has just been appointed as Governorof Queensland, so we have a problem in presenting it to the University Council. The report will go back to thefaculty for their comments. That is how it operates in the university-we get this report from the reviewcommittee, it goes to the faculty for their comment, and every member of staff in the faculty gets a chance tocomment on the report and its recommendations. That comes back to the centre, and it is pulled together in afinal report that goes to the University Council. We were looking earlier today in terms of whether that would beable to get to August council, and it may not. If it is September council, I can see no reason why that should notgo straight to the Minister. Let me assure you that it will go straight to the Minister.

Dr WATSON: In the longer run, I presume the results of evaluations, reviews and assessmentsundertaken will be included in the annual report for the university.

Prof. Gibson: Yes.

Dr WATSON: You would intend to do that?

Prof. Gibson: Yes.

Dr WATSON: Program management is a particular management technique. Do you think it isappropriate for the Public Finance Standards to be mandatory and require statutory bodies such as theuniversity to implement a program management?

Prof. Gibson: There are a couple of things. First of all, QIT has operated in this way for seven oreight years, so we think it is good practice. Secondly, the Commonwealth has encouraged all universities tomove in this direction in the last three orfour years. The Commonwealth operates on a rolling triennium. By theend of June, we have to submit a very detailed description of where the university will be in 1995 in order to bidfor funds and additional student places for 1995--a description of the university in terms of student enrolmentsdown to a faculty level, undergraduate, postgraduate and so on, so it is quite a detailed description. Universitieshave been moving in the direction of strategic planning, program management etc. for a number of years. I donot have any problem with the prescriptions that we are talking about today.

Dr WATSON: Given that you have been doing this for six or seven years, what benefits do you thinkyou have derived from adopting a program management approach at the university?

Prof. Gibson: I think that has been at two levels. First of all, it has helped us to think and actstrategically. A university is a very complex organisation, as you know. Everybody wants to run in all directionsat the same time, and it is very difficult to get people to concentrate on one or two issues for any length of time. Ithink the approach of involving staff in developing a mission and goals, talking about strategic plans etc. hasgiven us a focus, which has been tremendously important. The second one is, by devolution of financialresponsibilities and one-line budgeting to line managers which gives you a much more efficient expenditure ofthose funds for purposes directly related to the actions of that faculty. Those are the two benefits that I haveseen.

Dr WATSON: I would not disagree with that, but have you actually got an indication of the measuresof what you think is the extra efficiency or effectiveness that are gained out of things like that devolution ofprogram management? For example, can you tell me that the department of accounting has gone further with itsdollars than it would have under the previous structure?

Prof. Gibson: Where would the university have been if we had not had strategic planning?

Dr WATSON: Yes. There is a difference between a gut feeling as against hard evidence.

Prof. Gibson: Yes. You go to management courses and hear what learned people have to say. Youlearn, you study; you try to adopt what people tell you are the best modern management practices. I think youcan see a better direction in the place. You can see old attitudes changing. In terms of hard measures-let megive you a few of those. If you look at the institution in terms of dollars per EFTSU, it is teaching a lot morestudents at a lower rate of dollars per EFTSU. Its research performance has increased tremendously. I think ifyou look at the normal measures in a university, you will find a significant improvement over seven or eight}'ears. V'lhether tha.t !mprovsment vvou!d have been more if n'e had dOlle nothing, ; cannot say.

Dr WATSON: Have there been any negatives?

Prof. Gibson: Accusations of being management driven instead of collegial those sorts of

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things. I do not find those a disadvantage, but you will hear a lot of discussions of that nature at the university.

Dr WATSON: What about the costs? Do the benefits, in your opinion, outweigh the costs?

Prof. Gibson: Yes. I think-and I am almost being philosophical now-that since the CommonwealthLabor Party came into power in 1983, over those nine years, it is really interesting to look at the way universityfinancing has changed. For this year, 1992, for OUT-and we are not an unusual university; I would. suspect theUniversity of Oueensland would be even more in the direction I am about to talk about-56 per cent of ourrevenue is from Commonwealth and State operating and capital grants. Seventeen per cent is HECS-HigherEducation Contribution Scheme-which is a payment by students for a service. It is not taxpayers' money. Ithappens to go via the tax office, but it is not taxpayers' money. It is a fee for service and then 27 per cent is justother activities-our research, our continuing education, our business enterprises etc.; 56 per cent is from theCommonwealth and 44 per cent is really fee for service. That is an enormous change and all the indications arethat we will go even more in that direction. The Commonwealth has, more or less, semiprivatised universities andwe will be in 50/50 within the next two or three years. I think that that has been a good thing for universities. Ithas made us much more outward looking, muchmore dynamic and I think it has been a very good trend for us, agood discipline.

The remarkable thing is how successful Australian universities have been in it. You would not believethat from reading in the press, but they have been extremely successful. I am not talking about OUT, I amtalking about the system. As far as we are concerned, I think the way we have talked, acted and planned withinthe institution has been very much a part of the way those things have developed.

Mr PERRETT: I would like to now refer to system appraisals. In your letter you indicated that youruniversity has implemented processes to formally appraise its financial systems on an annual basis. Arefinancial administration procedures performed at your various campus locations included in the annual appraisalprocess?

Mr Nelson: Yes, they will be. Our answer indicates that we have documented what has to happen withour systems appraisal. The first formal systems appraisal-and I emphasise the word '10rmal"-will take placelater this year. In relation to our campuses, there is very little detailed financial systems management at thislevel. Our major financial systems are highly centralised. In answer to your question, the systems appraisalwould look at the totality.

Mr PERRETT: What process do you follow in conducting your system appraisals? Can you add anymore to what you have just said?

Mr Nelson: We have documented in our accounting manual the officers within the finance area whoare responsible for aspects of the systems appraisal. The results of these systems appraisals will be madeavailable to both the external auditor, which is the Auditor-General, and our internal auditor. We do not involveour internal auditor in the actual systems appraisal. The role of the internal auditor is to evaluate whether, in fact,that process has taken place. It puts at arm's length the internal audit role from the management role ofappraising its own systems.

Mr PERRETT: Of what benefit do you find annual systems appraisals are to the management of theuniversity?

Mr Nelson: It formalises matters. Management should be continually appraising its systems and wehave done that since the amalgamation. We have had some major overhauls in systems. We have some fairlymajor overhauls to come. I think that the requirement that there be an annual systems appraisal-so long as it isnot narrowly interpreted-is a good thing. It formalises it. Management needs to look at what is going on,document it, record it and make it available for internal and external audit. It is part of an ongoing process.

Mr PERRETT: Could you give us an example of a deficiency detected due to the process?

Mr Nelson: In our post amalgamation era, for example, our accounting system, which was developedfor the former OUT, (it is a CA-that is computer associates-accounting system) had to be adapted to operatein a much larger organisation and it certainly showed up some deficiencies there. The speed with whichinformation can be made available to cost centres has been a problem. The sheer volume of transactions andthe slow response times has meant that a number of cost centres have developed some subsidiary systems inorder to gain up-to-date information. Information is certainly well up to date at the end of each month. I am talkingabout on-line, day-to-day information. That sort of deficiency has shown up and it will be part of our plan tocompletely review the accounting system to see whether an upgraded version, say, of computer associates, willbe appropriate or, if not, the development of a whole new system. This, of course, would be based on the needsof cost centres and the need to fulfil the external reporting requirements and statutory obligations like paymentof suppliers accounts, production of annual accounts, payment of salaries and wages as well as the internal up­to-date management information at cost centre level. That is one of the deficiencies that has been shown.

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Mr PERRETT: Does the need to undertake these systems appraisals create an extra cost burden forthe university?

Mr Nelson: I do not believe so. I believe that management should be continually assessing theefficiency of its systems and rectifying any problems. If the requirements of the Public Finance Standards arenarrowly interpreted that each year there be a complete review and overhaul of every detailed system ratherthan viewing it as part of an ongoing process, that could create an additional burden. It has to be properlyinterpreted.

Mrs BIRD: In your letter you indicated that the first of your position assessments at the universitywould be undertaken in the first quarter of 1992. Has that been completed?

Mr Nelson: That was completed. It needs to be understood that that is part of the total process ofreview that goes on within the university. For example, we have had quarterly budget reviews for quite a longperiod of time. Budget reviews focus on the adequacy of your revenue and expenditure, so that takes intoaccount the position assessment in relation to revenue and expenditure. In the past, we have not, as such,formalised reviews of assets and liabilities on a quarterly basis. However, because the Public FinanceStandards require current assets and current liabilities now to be evaluated on a quarterly basis then If you aretalking here about such things as debtors and investments, reviews are quite appropriate. In fact, they shouldbe continually reviewed.

Properly interpreted, the university has been undertaking quarterly reviews well before therequirements of the Public Finance Standards. The formality of the Public Finance Standards brings it a little bitmore into focus. Those charged with evaluation from an external point of view-and I am referring here to theoffice of the Auditor-General-will need to understand that with quarterly position assessments you just cannotgo to one box and tick it; you have to understand that some of the information is over here, some over there,some is somewhere else. In other words, quarterly assessments are part of the ongoing dynamic process ofevaluation and review.

Mrs BIRD: So you now comply with all PFS requirements?

Mr Nelson: Yes, I believe we do.

Mrs BIRD: Do they entail more than just the budgetary requirements that you were talking about aminute ago?

Mr Nelson: The traditional budget review takes into account the revenue assessment and theexpense assessment. The other part of the review referred to in the Public Finance Standards refers to assetand liability; current assets and current liabilities are reviewed under the Public Finance Standards on a quarterlybasis. We undertook that review for the first time this last quarter. The annual review, that is, of fixed assets andlonger-term liabilities, has yet to be undertaken. We would undertake that on an annual basis as, no doubt, partof our preparation of our annual financial statements.

Mrs BIRD: But you see the quarterly position assessments as being too frequent?

Mr Nelson: For fixed assets and long-term liabilities?

Mrs B IR0: As set down in the Public Finance Standards. You mentioned that they were toocumbersome.

Mr Nelson: No, I do not see them as too frequent, provided that it is very broadly interpreted.

Mrs BIRD: Of what benefit are they to you in terms of management of the university?

Mr Nelson: Certainly, the assets and liabilities quarterly assessments-the formal quarterlyassessments-are of no more value than the ongoing, normal management process of evaluating, for example,debtors and whether they are overdue and should be followed up, or investments. We are doing that on a dailybasis. I think it does not really add to what is already going on.

The CHAIRMAN: It just makes sure that everybody is doing it, I suppose.

Mr Nelson: Yes, I think that is the advantage.

The CHAIRMAN: Some people might be doing it in one institution and in some other institution orstatutory body those matters might not be dealt with if there is not a formal process of compliance.

Prof. Gibson: The information in the quarterly budget review is very important, but, as John says,that information would probably be available anyway to managers. It is just a matter of whether it is collectedtogether in one document and reported to the university council. Certainly, a lot of the information in it gives leadto a lot of management action. Given that we are moving to 50/50 funding, you find that 50 per cent of thefunding comes from university-generated activities. If you have planned to get certain income from a certainplace at a certain level and it has not eventuated, you have to chase it up in terms of action, such

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as a full fee paying overseas student program.

Dr WATSON: It becomes more important as the source of funding becomes less certain.

Prof. Gibson: That is right.

Mrs BIRD: Do you find it is costly?

Mr Nelson: The quarterly budget reviews that take place have always taken place, so in terms of costI would say that there is no additional cost.

Mrs BIRD: The standards require that the position assessment process include annualdeterminations as to whether assets are being used in the best and most efficient way possible. Your universitywould have significant assets under its control. Do you currently have procedures in place to satisfy thisrequirement of the standard?

Mr Nelson: This is again a question of how that is to be interpreted in the university environment. Ifyou take a fairly narrow view which says, "Are there particular assets under the control of a faculty at a point intime? Are they being utilised to optimum .level?", determining that would probably be almost impossible orimpracticable. However, if you take the broader view and say that the acquisition of assets and the utilisation ofthose assets are under the control of management, which is charged with performance within the allocation ofresources to them, then I believe that the evaluation and review process that management is subject to is theonly practical way that this area of the Public Finance Standards can be interpreted within the university.

Mrs BIRD: And is that how you are going to fulfil that requirement?

Mr Nelson: That is our current thinking. As I said, at this stage, we have not addressed our annualappraisal, but if it is to be interpreted any more narrowly than that, the answer to your question before as toadditional costs would be that it would be horrendous. I think it would be impossible to actually go around at theend of a particular year or at a particular point in time and say to faculties that they have to make somejudgments as to whether all the assets under their control are being efficiently and effectively utilised at thatpoint in time. It has to be in a much broader context.

Mrs BIRD: The Public Finance Standards also require that an annual determination be made as towhether "suitable asset replacement programs have been approved and are in operation". What process do youfollow to satisfy this requirement of the standard?

Mr Nelson: Again, this is an assessment that will take place later this year. Our view is that it is partof the allocation of resources within our action planning process. The budgets are allocated in accordance withaction plans. Reviews against those action plans are part of a longer-term fitting in with the strategic direction ofthe university.

Prof. Gibson: If you take one of the major areas of assets-computing, for instance-we alwayshave a rolling computing plan and we try to budget that out three or four years into the future. That includes a lotof replacement of ageing computers and introduction of new systems. So in terms of major expense, that is oneof the major assets and we plan that long term.

Dr WATSON: A tradition at the universities that I guess indicates there has been a problem withreplacement has been the sCience lab. At least at the University of Queensland, they seem to get out of dateover a long period. I presume that those are the types of things that in terms of replacement would be consideredin that type of question-not that I am familiar with science labs. The question would be, "Is there a program ofreplacing scientific equipment?", and things like that.

Prof. Gibson: Do you mean the equipment or do you mean the fabric of the laboratories? It tends tobe as much minor works as it is equipment, and certainly we have got a commitment for the next three or fouryears for refurbishment of a major part of the university for science going up to 1995.

Mr Ne Ison: Yes, it is probably a $10m refurbishment program that is going on at the Gardens Pointcampus as part of our capital plan to which I referred earlier. I think that illustrates the point that it really is part ofa longer-term planning and review process rather than being reduced simplistically to an annual review. That isthe point I was really trying to make before. It simply cannot be reduced to a snapshot of a point in time andsimply tick a box.

Mrs BIRD: Treasury earlier this year had some workshops on position assessments. Did any of yourstaff go to those workshops?

Mr Nelson: Yes.

Mrs BIRD: What was their feeling about them?

Mr Nelson: I think the general feeling was that Treasury, perhaps, was not sufficiently aware of howuniversities operate or the level of management sophistication that is in place and has been in place for many

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years in universities. I think that probably illustrated the point that perhaps the Public Finance Standards needto be interpreted in the broadest sense. Broadly interpreted, it is an excellent document. I think it is all aboutgood management. I do not think we would have any argument about that. I think that where statutory authoritiessuch as us will find difficulty is if Treasury attempts to be in any way prescriptive. I think it must be left tostatutory authorities within the broad intent of the Public Finance Standards to interpret for themselves how tofulfil those standards, or meet those standards.

Mrs BIRD: Are you saying that there is not quite enough flexibility, or do you just simply mean thatthey are too narrow?

Mr Nelson: We would be concerned that Treasury may issue some prescriptive requirements underthe Public Finance Standards. We have not experienced that to date, although there have been a number ofdiscussions which would suggest that that could happen. I have been given an assurance that that is notTreasury's intent. The problem with the Public Finance Standards too narrowly interpreted is that it attempts tocover the whole range of ministerial departments, Government business undertakings and statutory authoritiessuch as universities which derive grant money and other revenue. To attempt to prescribe detailed standards forthat fairly broad mass of public sector organisations, I think, is impossible other than in the broadest sense.

Dr WATSON: Treasury has claimed here that that is its intention, just in terms of a very broadapproach and not a prescriptive approach. That is why they claim they want to get away from the Treasurer'sInstructions. Why do you think they may be tempted to be a bit more prescriptive? Obviously you haddiscussions with Treasury which led you to have at least some concern?

Mr Nelson: Take for example one of those seminars to which I think you referred. Treasury officersthere were, by way of illustration, presenting a form for the quarterly position assessment statement and ofexpense, revenue, assets and liabilities. It was almost question and answer and tick a box. It was verysimplistic. Maybe you can reduce it to that, but you cannot reduce it to that for the whole of the public sector.Government business undertakings are quite different from universities and from ministerial departments. Tohear you say that Treasury has given an indication that it does not wish to be prescriptive is very encouragingand we would certainly welcome that. I suppose it is more a fear of what might happen rather than what has infact happened. What we were a bit concerned about-I mean, the horse has bolted on this one and there aresome good points as well in it4ut the whole of right across the public sector,treating in a sense Government business undertakings and universities in the same way-if that sort ofprescription were to be ongoing, I think problems could be created. But, interpreted in the broadest Sense alongthe lines of the questions that we have answered, we have no quarrel with it.

Dr WATSON: In some respects you are concerned not simply with Treasury saying you have got todo X and treat an expense item in a particular way; you are also saying, even prescribing the standards rightacross the public sector, not taking account of variations between the three groups you have given, could beinappropriate?

Mr Nelson: Yes.

Dr WATSON: I am not quite sure that Treasury would have gone that far.

Mr Nelson: No. It is encouraging to hear that that is not its intent.

Dr WATSON: What I am saying is that I am not quite sure that Treasury would have gone to the pointof saying "I don't think the thing should apply right across the public sector." It would certainly say that it had nointention of saying you have got to treat expense item X in a particular way-not that kind of prescription. I donot want to mislead you on how generously Treasury thinks.

Mr J. H. SULLIVAN: To follow that up, at the risk of making it into a larger topic than it ought to be,on the reason that you should bring up this fear. I have detected a certain longing in sections of the publicservice for them to actually have more work of that nature done by Treasury for them and not as if they arethinking the same way as you are. I think there is perhaps a longing for the prescriptiveness of the past in termsof these processes. I wondered why-my colleague Dr Watson was on to this point-it may have come, if in factthere has been any university notice of that same longing.

Prof. Gibson: For the prescription of the past?

Mr J. H. SULLIVAN: Yes. Had you noticed that not within the university but from within the broaderpublic sector?

Mr Nelson: I cannot speak obviously for Government departments.

Mr J. H. SU LLiVAN: I was not asking you to speak for them. I was wondering whether perhaps inthe circles you move you had noticed something of that nature?

Mr Nelson: I can only comment for people with whom I discussed the issue in the university sector. I

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think it would almost be a universal desire for the lack of prescription of the past.

Mr J. H. SULLIVAN: That is fine. I am quite happy with that. If everybody is finished on thatsubject, I would like to talk about internal audit. Public Finance Standard 400 requires that the internal auditfunction be consulted when computerised accounting systems are in the specification and development phasesand before implementation. Is this practice followed in your university?

Mr Nelson: Yes, this is a practice. In fact, we have just moved to a new personnel payroll system inwhich we involved internal audit in that process as indicated.

Mr J. H. SULLIVAN: Are your internal audit staff-as a side question, is your manager in placecurrently?

Mr Nelson: Yes. He started about two weeks ago.

Mr J. H. SULLIVAN: This question probably does not refer to him; perhaps it refers to hispredecessor. Are they ever called upon to perform non-audit related duties within the university, for example, torelieve in vacant line positions or to fill other staff shortages?

Mr Nelson: No. They are completely separated from line positions.

Mr J. H. SULLIVAN: Do you find the internal audit process beneficial to your management of theuniversity?

Prof. Gibson: In the past-by the past I am talking about pre-amalgamation, pre-university days;say, two and a half or three years ago-we have used internal audit in an efficiency sense on specific projects,but for the last two or three years I think I am right in saying they have been very much involved in complianceauditing.

Mr J. H. SULLIVAN: Are you able to give us a specific example of an improvement in theadministration of the university which arose from a recommendation of your internal audit?

Prof. Gibson: I have to go back a few years, as I say. Internal audit has been involved withcompliance auditing for the past two or three years. A few years ago-I am now talking about six years ago-wehad a review of technical staff in one of our science departments that had a very large team of technical staff.We looked at distribution of duties, how they operated in laboratories and so on. As a result of that, we did agreeto some redistribution of staff and working with a slightly smaller establishment in future. That is only oneexample that comes to mind.

Mr J. H. SULLIVAN: In a more general sense, in your experience, to what extent haverecommendations made by internal audit actually been implemented in the university?

Prof. Gibson: In a compliance sense, I would have thought virtually always.

The CHAIRMAN: The Public Finance Standards require that competitive procurement arrangementsincluding, where applicable, those required by the State purchasing policy be established. Does your universitycomply with the requirements of the State purchasing policy?

Mr Nelson: We have only recently been able to obtain a copy of the State purchasing policy manual.We are a'Nare of the requirements under the State purchasing policy. We are in the process of studying theimplications of this for the university. I should add, in case it is misunderstood, that the university has alwayshad in place competitive purchasing procedures. The requirements of the State Purchasing Policy, as I said, arebeing analysed. We have appointed, just recently, a senior officer to head up our central purchasing area. Thatofficer will be charged with responsibility for oversighting the implementation of the State Purchasing Policy. Itwould be true to say that, in terms of the State Purchasing Policy, we have not gone too far down the track.

The CHAIRMAN: I am going to ask one final question about the flexibility of the standards that wehave already been through a little while ago. You have explained fairly clearly your view in terms of the generalapplicability of the standards versus their interpretation. Do you think they need to be written in a more flexibleform? I want to clarify that point. You seem to be happy enough with the standards as they exist as long as theyare interpreted, from your point of view, in a reasonably flexible manner in some areas. Do you think there needsto be more flexibility in the way they are written?

Mr Nelson: That is a bit hard to answer. I just cannot recall the detail. It is written in a fairly formalsense. Maybe they need to be cast in a wider context with a preface which says very clearly that these are thePublic Finance Standards in order to facilitate the accountability process ultimately through to the Parliament ofthe State, through the responsible Ministers, but that it is for each statutory authority, Government departmentand Government business undertaking to interpret within those broad parameters the policies, the proceduresand chains of accountability within their own organisation that facilitate the meeting of these objectives. I do notknow whether we can interpret the Public Finance Standards, as they now stand, as perhaps being that flexible.

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But that is what I would suggest.

The CHAIRMAN: Could you again just summarise the areas in which you have some concern for youruniversity, where you think that flexibility will be required?

MI' Nelson: Just take an example that I mentioned before. Perhaps under position assessment inrelation to, say, assets and whether assets are being properly utilised-I think that that needs a fairly broad andflexible interpretation.

The CHAIRMAN: That is the main area?

Mr Nelson: Well, assets, liabilities, yes. I have not come prepared to answer that questionspecifically. Perhaps on notice I could have done a bit more research, but that would be one of the main areas.

The CHAIRMAN: Professor Gibson, are you satisfied with the role Treasury has taken with regard tothe implementation of the Public Finance Standards?

Prof. Gibson: Yes.

The CHAIRMAN: You are happy with the degree of guidance and direction that Treasury hasprovided?

Prof. Gibson: I believe so. I do not have any problems with that.

Mr Nelson: We do not have a problem. As I said, we have not had that much interaction withTreasury. We have had the one seminar and it provided its broad interpretation.

The CHAIRMAN: The Committee is also interested as to the process by which statutory bodies aremade aware of new requirements with respect to their financial administration. Could you describe for us thecommunication channels which occur when new requirements such as the Public Finance Standards orlegislative changes occur?

Prof. Gibson: Communication channels within the university?

The CHAIRMAN: No. More directly to the university. As a statutory body, how do you find out thatnew Public Finance Standards have come about, new requirements, new legislative changes that affect you? Doyou read the paper? Obviously we are interested in the link between statutory body and the rest of the publicsector.

Mr Nelson: I think that there is probably a fairly significant deficiency there. I do not think Treasuryhas directly liaised, to my knowledge, with statutory authorities, certainly with the universities. It probably hasdone it, maybe, if it has done it at all, through the Minister who has portfolio responsibility for the particularstatutory authority. I think that dilutes the interaction between statutory authority and Treasury, if that is theway it is operated. We have not had very much contact with Treasury.

The CHAIRMAN: Specifically, has there been contact between the university and the EducationDepartment in relation to these matters?

Mr Nelson: Not a high level of interaction.

Prof. Gibson: I cannot recall what correspondence we have had on this matter from the Minister.

Mr Nelson: What we probably would have got-and I cannot recall the detailed correspondence-isperhaps from the Office of Higher Education a note to say, "Are you aware of the Public Finance Standards?Here are the Public Finance Standards." I think that there needs to be much more a direct relationship betweenlarge statutory authorities such as ourselves and Treasury if there is discussion on Public Finance Standardsthat relate to us.

Dr WATSON: These I think were originally in draft form. I can certainly recall seeing them in draftform. Did you receive a copy of the draft standards and were you given an opportunity to give input on thosedraft standards, for example, the kind of input that you have given here today about the flexibility, or not?

Mr Nelson: That opportunity was given, but I do not recall how that opportunity was made available tous. Unfortunately for aUT, it was right at the time when we were in the midst of a fairly major amalgamation. I donot recall whether we made a response as such, but in fairness, we had the opportunity to make it. Whetherthose organisations that did make a response had their views taken into account, I have heard-and you wouldhave to ask others this-that one of the major complaints is that the views that were put forward by otheruniversities were not taken into account.

The CHAIRMAN: Just to pursue that communication channel again-if there was an amendmentpassed by the Parliament of relevance to aUT, how would you find out about it?

Prof. Gibson: I do not know.

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The CHAIRMAN: So you cannot be confident that there would be a direct link, say, from theDepartment of Education to the university to advise you?

Prof. Gibson: I would assume that I would hear from the Minister. I would assume that.

The CHAIRMAN: Finally, are there any other issues concerning the Public Finance Standards thatyou would like to raise with us?

Prof. Gibson: You were talking about flexibility before. I think the major flexibility as far as theuniversity is concerned is that we can interpret programs to be faculties and divisions-to be the majororganisational bits of the university. Within that framework, we find that much of what is said here isstraightforward and in line with what we do. But programs can mean other things than large organisational units.

Mrs BIRD: What would be the one point that you would change in all of the standards? If you had theopportunity to change them to suit yourself, would that be the one thing you would change?

Prof. Gibson: The only thing that I would want to change is where in the document it talks aboutprogram. We can take that to mean a major organisational bit of the university as distinct from a program, whichcould mean all sorts of things. On my first reading of the document, that was the track that I went down.

Dr WATSON: You mean that one could look at a university and say you have a teaching program or aresearch program as against a particular degree structure.

Prof. Gibson: That is right. If the program was a degree program, say, a science degree program,which cut right across the university, it would be very difficult. Some universities operate that way, but it wouldbe very difficult for us.

The CHAIRMAN: Thank you, Professor Gibson and Mr Nelson for your evidence. You are nowdischarged. That concludes the Committee hearing for today.

The Committee adjourned at 4.41 p.m.

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PARLIAMENTARY COMMITTEE

OF PUBLIC ACCOUNTS

MEMBERS: Dr J. G. FLYNN (Chairman)

Mr J. A. ELLIOTT (Deputy Chairman)

Mrs L. R. BIRDMrJ. PEARCEMr T. J. PERRETT

Dr D. J. H. WATSON

IMPLEMENTATION OF THE PUBLIC FINANCESTANDARDS

TRANSCRIPT OF PROCEEDINGS

(Copyright in this transcript is vested in the Crown. Copiesthereof must not be made or sold without the written authorityof the Chief Reporter, Parliamentary Reporting Staff.)

WEDNESDAY, 27 MAY 1992

The CQmmittee resumed at 9,03 a,m.

The CHAIRMAN: I declare Qpen this public hearing Qf the Parliamentary CQmmittee Qf PublicAccQunts. I welcQme Mr O'RQurke and Mr Scheuber. This public hearing is being held pursuant tQ the PublicAccQunts CQmmittee Act 1988. We have CQnvened this hearing tQday to hear evidence in relation tQ theCQmmittee's inquiry intQ the implementatiQn Qf the Public Finance Standards in the Queensland public sectQr. Iwould like tQ infQrm members of the media and the public that tape-recQrding Qf these prQceedings is nQtpermitted. On behalf of the Committee, I welcome the witnesses frQm Queensland Rail. BefQre commencing togive evidence, I am obliged tQ infQrm YQU that the prQceedings here tQday are legal prQceedings Qf theLegislative Assembly and that the CQmmittee requires that YQur evidence be given Qn Qath Qr affirmatiQn,

VINCENT JOHN O'ROURKE, SWQrn and examined:

ROBERT ERNEST SCHEUBER, SWQm and examined:

The CHAIRMAN: Mr O'RQurke, CQuid YQU plea.se state YQur full name, place Qf emplQyment and thetitle Qf the pQsitiQn YQU hold?

Mr O'Rourke: Vincent JQhn O'Rourke,Queensland Railways, Chief Executive.

The CHAIRMAN: Mr Scheuber, CQuid YQU please state YQur full name, place of emplQyment and thetitle of the pQsitiQn that YQU hold?

Mr Scheuber: My full name is RQbert Ernest Scheuber. I wQrk fQr Queensland Rail. My place QfemplQyment is 305 Edward Street, and my full title is GrQup General Manager, Financial Services.

The CHAIRMAN: By way Qf intrQductiQn, I will read an Qpening statement. The ParliamentaryCommittee Qf Public AccQunts is an all-party CQmmittee Qf the Queensland Parliament whQse purpose is toscrutinise and prQvQke refQrm of the financial administratiQn Qf the public sector and to ensure that ExecutiveGQvernment is accQuntable tQ Parliament. The CQmmittee cQnducts its business in accordance with the PublicAccQunts CQmmittee Act and the Standing Rules and Orders Qf the Legislative Assembly relating tQ selectcQmmittees.

The Committee is presently cQnducting an investigatiQn intQ the implementatiQn of the Public FinanceStandards in departments and statutQry bQdies. These Standards are issued under the Financial AdministratiQnand Audit Act and cQmmenced QperatiQn Qn 1 July 1990. The CQmmittee has a particular interest in therequirements Qf the Standards relating tQ financial management practice manuals, pQsitiQn assessments,system appraisals, prQgram management, internal audit, and the mQve tQ general purpQse financial repQrting bybusiness undertakings and statutQry bQdies. The use Qf private cQnsultants in implementatiQn Qf the Standardsis alsQ Qf interest tQ the CQmmittee.

I infQrm YQU as witnesses that YQU are required here tQday tQ answer all questiQns relevant tQ thesubject matter Qf this inquiry, The CQmmittee WQuid like YQU tQ answer its questiQns frankly, and tQ prQvide it withan accurate and clear view Qf YQur QrganisatiQn's pQsitiQn on the issues canvassed.

Mr O'RQurke, bQth the members Qf the CQmmittee and I will direct questiQns tQ YQU, You can feel free torefer them tQ Mr Scheuber, if that is necessary, Our first series Qf questiQns relate tQ financial repQrting, A majQrissue in implementing the requirements Qf the Public Finance Standards in Queensland Rail is the need tQprepare accrual-based general purpQse financial statements, The standards require that these financialstatements be prepared on an accrual basis by nQ later than 30 June 1993, which is little mQre than a year awaynQW, Failure tQ cQmply with this requirement of the Public Finance Standards WQuid in all prQbability meanqualificatiQn Qf YQur aCCQunts by the AuditQr-GeneraL The CQmmittee hQpes that Queensland Rail will be in apQsitiQn tQ ensure that this situatiQn will nQt Qccur.

The CQmmittee is aware that the change tQ accrual accQunting gives rise tQ a number Qf significantissues that need tQ be addressed, and we would like now to discuss SQme Qf these matters further with YQU, MrO'RQurke, what stage have YQU reached with the develQpment Qf accrual accounting systems in QueenslandRail?

Mr O'Rourke: The prQcess tQwards accrual accQunting is quite advanced in Queensland Rail. We arenQW programming tQ intrQduce accrual accQunting as frQm 1 July this year, SQ Qur annual repQrts fQr 1991-92 willbe Qn the same basis as the previQus years, with the departmental-type structure, but next year in 1992-93 wewill repQrt on an accrual basis.

The CHAIRMAN: For the last cQuple Qf years, the AuditQr-General has repQrted tQ Parliament thatQueensland Rail needs tQ establish reliable and complete values fQr railway assets such as prQperty, plant andequipment. YQur letter tQ the CQmmittee stated that Queensland Rail still has cQnsiderable wQrk tQ dQ withrespect tQ asset valuatiQns. Could YQU tell us exactly hQW YQU are currently placed?

Mr O'Rourke: We are in the process of determining the that we would use for asset

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valuations for railway assets. I am sure that you would appreciate that it is a very complex issue for the railwaysnot just here in Queensland but right across Australia. We are seeking advice from Treasury as to the types ofmethodologies that we would use in terms of valuing our assets, whether it is written down replacement valuesand those sorts of issues-matters that we are considering-we have an internal committee that is working onthat at the moment, and we are also getting some consultancy support to help us in establishing asset values.Obviously, there are areas of our business where we are able to establish those asset values now-those thatare on a market basis, such as property values and those sorts of issues. I guess the difficult ones for us wouldbe how do you establish, say, the asset value of track maybe in central Queensland. Those sorts of things arevery vexed problems for railway industry generally. We are doing a lot of work on that, and we would be confidentthat we would have those asset values in place say late in 1992-93.

Dr WATSON: 50 you will not necessarily have the asset values for opening balances as at 1 July?

Mr O'Rourke: No, we would not have those asset values as at 1 July this year. I think that is going tobe an ongoing process for us through 1992-93. We have the accounting systems in place-asset registers.They will be there. Mechanisms to be able to put our accounts in place-profit and loss accounts and balancesheets-they will be there. But the methodologies of actually determining asset valuations will be a big andheavy process for railways.

Dr WATSON: During 1992-93, you are going to be able to backtrack to get the opening balances ofthose accounts?

Mr Scheuber: We will be trying to put in place reasonable estimates of asset values for the openingvalues from 1 July 1992. But to go through and do a comprehensive value of things such as property is going totake us some time. We may require outside help to be able to do that-to be able to properly assess thosevalues. We have adopted a view of trying to bring to account the best estimate that we have of asset values foropening values from 1 July. We will probably put a note in the financial statements to that effect because, toproduce balance sheets, we need opening balances. There is just not the time to be able to do that in time for 1July. That is the process that we have been looking at. We have also compiled our view of the assetmethodology that we think should be used. We were waiting to see the methodology which may be put forwardunder the proposed GOE legislation, but, with that not coming forward, we have put our own forward andprovided a copy of that to the Treasury.

The CHAIRMAN: Could I ask a bit more specifically about infrastructure assets. You have just saidthat you are in the process of determining the methodology that needs to be used to value those assets.Consultation with Treasury is involved in that?

Mr Scheuber: That is correct.

The CHAIRMAN: Where are we? When do you think a decision will be made on the methodology to beused?

Mr Scheuber: I cannot answer for Treasury, of course. We have put forward our own policy, which webelieve complies with the view put forward in the GOE White Paper. We have gone forward to value our assets orto come up with a reasonable estimate of the value of the assets from 1 July in accordance with that. Thatbasically uses a concept of written dovin replacement cost for assets whele we believe tile assets will bereplaced. The first thing to look at is to say: is this asset going to be replaced in the future? If it is, we then try touse a replacement value for that. We write down that replacement value based on the years of use that the assethas already given. That is the basic concept that we have used for assets.

In terms of particular assets, such as property-we look first at the market value and say: is there amarket value for that property? If it is and if it is property that we would sell, then that seems to be a fairlysensible approach to use in valuing the property. Then we apply that methodology to all of our asset categories.We have very good information for some of them, such as rolling stock-that is, things such as locomotives andwagons. We have very good details of those. That information is fairly readily available. On some of our assetssuch as plant and buildings, it is not as readily available. First of all, we have had to put the software in place,which we have done. We have had to define how the information will be collected. We have done that. We are inthe process of collecting that information. For the Committee's information, the view would be that, from 1 July,we would have a clear detail of all of our assets at what we believe would be a reasonable value for valuing thoseassets.

Dr WATSON: When did you send your advice to Treasury? Have you had any indication of whether ornot they concur with that advice yet?

Mr Scheuber: We sent a copy of the advice to Treasury within about the last month after havingsome earlier discussions with them. They have basically come back to us and said that their view is that theyhave some concerns about some of the definitions that we have used but, basically, they believe that the

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statement is a big step forward and they do not find anything inherently wrong with it.

The CHAIRMAN: Does that mean you can proceed?

Mr Scheuber: We are proceeding on that basis, yes. We do not expect that, when the GOElegislation comes forward, there would be any major problem in being able to convert from the model that we haveto one which may be put forward under the GOE legislation.

The CHAIRMAN: So you made a lot of progress in establishing the principles. Have you establisheda plan and a timetable for completion of asset valuations-physically getting around to wherever you have to goand doing it all?

Mr Scheuber: Yes, we are in the process of doing that now. A working party has been established.The first thing was to put forward the methodology; in other words, to define how you actually do the assetvaluations. That was done, and that went through a number of draft processes, which involved the chief internalauditor for our organisation. It also involved the Government auditor. We were getting a view from those peopleas to whether the methodology that we were putting forward was appropriate. The second thing was to define thecollection forms which were necessary. I should have said initially that the first thing was to actually select thesoftware, which was done and implemented by January of this year. We are using Dun and Bradstreet software.That is the software supplier. Within that package, we had to define how the information would be collected. Wehave done that, and those collection sheets have gone out. To ensure that that is collected in time-by 30June-we have a working party in place. which monitors that collection. The information is already being enteredinto the computer, so the asset system in terms of software is operational. The information is being collected.We are working on our methodology being an acceptable methodology. It certainly is to us. I have given a viewabout where I see Treasury seeing that methodology.

Dr WATSON: So the definitional problems are not really methodological problems but defining a classof asset or something?

Mr Scheuber: That is correct. and what we would see as being included in that class.

THE CHAIRMAN: Who is on the working party? We do not want names, necessarily, but would youplease give the Committee an idea of the composition of that working party?

Mr Scheuber: Certainly. The working party consists of representatives from the financial accountingside, also from the systems development side-one of my divisions which is charged with the responsibility ofputting that system into place. Then we have people from our corporate services area, which is responsible forthe technical engineering expertise, and we have people from each of the three business groups of OR. that is,coal and minerals, passengers and freight. It is a representation of all of the asset users who are on the workingparty. The people on the working party are fairly senior-level managers, because we recognise the importance ofhaving asset information as reliable as we can get it, I am certainly not going to give this Committee a view that Ibelieve that that is 100 per cent reliable. That would be inappropriate. We are trying to attach our best estimate.That is all we can hope to do.

Mr O'Rourke: I might add that the findings of the working party-the end results-will also be subjectto approval by the senior executive of OR and, obviously. will go forward to our board. It is. of course, a majorissue for the board to determine the value of their assets.

The CHAIRMAN: So you expect all of your valuations to be finalised by 30 June this year?

Mr Scheuber: I expect us to have the best estimate values by 30 June for the purpose ofestablishing the opening balance values from 1 July 1992, and for all the valuations to be completed by 30 June1993 so that we can properly provide the general purpose financial statements, which are required to complywith Public Finance Standards for 1992-1993. So, I would expect that we would fully comply with therequirements of the Public Finance Standards and also the transitional arrangements set out in Public FinanceStandard 501.

The CHAIRMAN: Are you able to estimate how much the valuations will cost OR?

Mr O'Rourke: The actual working out of the valuations? What we might pay?

The CHAIRMAN: How much it will cost your organisation to do the work to value the assets?

Mr O'Rourke: I think that will depend on just how much consultancy support we would need, but itwould be, I would think, a considerable sum.

Mr Scheuber: If I could just add one estimate that we had for valuation of property-that was $1.5m.TI.at was just a valuatiofl of piopefty. 'We IId:Vesoon as you say that you are going through accrual accounting-I am sure you appreciate that we getconsultants from everywhere. Most of those are unsolicited and one simply wrote in and said, "lf your property is

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worth $500m, we will charge you $1.5m to do a valuation of it." We have not gone into that in any way. That is justto give you a view-and property is only one area of our assets, of course.

Mrs BIRD: When you are assessing the valuation of those properties, is it necessary for that workingparty to actually physically go there to actually visit the areas in terms of real estate?

Mr Scheuber: There are two answers to that. Up to 30 June, no, there is not for the establishment ofopening values but if you are going to get a proper property valuation done, yes, it would be necessary for thevaluer to visit those properties if they were major properties. So, if the property is worth, say, $10m, then thevaluer would want to actually go and look at that particular property. On some of the smaller properties, theynormally make a judgment-"This is a property at Emerald and that property is normally worth 'X' amount ofdollars." So, they would not visit all properties. They would certainly visit all major properties and they wouldcharge us accordingly for the cost of those visits.

The CHAIRMAN: At this stage, have all Queensland Rail's assets been identified and recorded inasset registers?

Mr O'Rourke: I think that it is fair to say that we have the systems. As Bob has said, we have got thesoftware in place, but we have not got the valuations on all of the assets. I mean, we have estimates and wehave not really identified all the assets at this stage.

The CHAIRMAN: And that is what this data collection is that is going on at the moment?

Mr Scheuber: That will be done by 30 June. So, if you asked me the question on 30 June, my answerwould be, "Yes", and my answer now is that we are in the process of doing that.

The CHAIRMAN: Over time, the Auditor-General has raised concerns about the physical control andcustody of railway plant and equipment. He has commented in the past upon the failure to reconcile assetregister details with financial ledger records, thereby resulting in uncertainty about the completeness andaccuracy of those asset registers. What is the present position?

Mr O'Rourke: I think that the answer to that is that it is an ongoing process for us to more clearlyidentify our assets. It is rather difficult to reconcile asset registers to plant when we really have not got a fullreport of it at this stage, but we are working hard to have it in place by 30 June. I might add that we also have avery strong internal audit group within QR that watches those issues very closely.

The CHAIRMAN: In past years, the Auditor-General has also commented upon Queensland Rail'sfailure to regularly perform plant and equipment stocktakes in all cases. So, what is the present position?

Mr O'Rourke: The present position in terms of stocktake-again, our internal audit group, which hasbeen strengthened over the last couple of years, is very actively engaged in that. We also have, as part of ourorganisational restructure, reorganised our stores and supply group. Part of the function of that group will be afull inventory of all stock, plant and equipment right throughout the railways, and that is happening now.

The CHAIRMAN: In the past, Queensland Rail's accounts have made no provision for depreciation.Do you have systems in place which enable depreciation on non-current assets to be readily calculated?

Mr O'Rourke: Yes, as part of the development of our accrual accounting systems, there will beprOVIsion In the new systems for depreCiatIOn to be calculated on assets and charged against revenue

The CHAIRMAN: Are there any particular issues which are causing problems with respect tocalculating depreciation-special to QR?

Mr Scheuber: No, there is not at this stage. If I could just answer in respect to the last question-wehave not made provision for depreciation previously because, as I am sure that this Committee is aware, the factis that depreciation is a non-eash transaction. Of course, we have always reported on a cash basis. I mean, ithas always been mystifying to me to require people to bring to account depreciation when it is a non-cash entry.We have not done that. Yes, we are, as part of accrual accounting, making arrangements to account fordepreciation. There are no major issues in being able to do that. The major issue, of course, is the valuation andthen the rates of depreciation that you use. We have put forward our view as to what those rates should be, afterconsidering the rates which are used for taxation purposes and also the rates which are used for industrygenerally. So, there is no major issue that I am aware of. The software that we have-once we establish theopening values and also the rates of depreciation, it will be calculated automatically.

The CHAIR M.AN: Last year, the Auditor-General reported to Parliament that certain loanindebtedness relating to the Brisbane suburban rail electrification project was recorded in the accounts of theDepartment of Transport. He further stated that, "As the corresponding assets are owned by QueenslandRailways, the debt estimated at $197m should be reflected in the railway accounts once agreement has beenreached between the Department of Transport and Queensland Railways on the value and treatment of thisdebt." Has there been any progress in resolving that issue?

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Mr O'Rourke: The issue is still as it was at that stage. I guess that comes back to a concept as towhere those debts should lie in terms of social welfare infrastructure for the railways. It is something that willneed to be dealt with as we become a corporation. I guess my view is that social welfare infrastructure, such assuburban railways, and any debt, should be a matter that should be funded by Government, and debt for therailways is more of an issue of commercial debt. So it could be argued that probably the correct place for thatdebt could be within the Department of Transport.

The CHAIRMAN: There have been ongoing discussions over that matter?

Mr Scheuber: Yes, there have been discussions both with the Treasury-not so much with theDepartment of Transport, but certainly with the Treasury. That is one part of the debt. There is also a thing calleda State loan fund debt which, I think, in our accounts, stood at something in the order of $700m as at 30 June1991. We have had discussions with Treasury on that as well. How you treat those various aspects of debt reallycomes down to setting QR up-if this is what the Government wants to do-as a corporation under GOElegislation, and what the Government then has to do is to say, "What is the financial structure of thisorganisation? What debt should it be responsible for? What equity, if any, should the Government take as ashareholder in the organisation"-as the only shareholder in the organisation. So, we have been approaching theissues on that basis. The view that we have adopted is that any commercial debt, any debt that we haveundertaken which we believe will either increase revenue or reduce cost to the extent of being able to repay thatdebt, is something that we must be responsible for as an organisation. So, something in the order of about $1.1billion, for example, of main line debt, that is, main line electrification, we believe is commercial and we aremaking repayments on that on a quarterly basis. The debt was arranged through the Queensland TreasuryCorporation.

Dr WATSON: Just taking it a little bit further-things which really you would define as communityservice obligations, you will be trying to separate that out in your accounts-presumably in accrual-if you areleft with the debt and if you are, presumably, left with any obligations to service that debt, or any payments withrespect to community service obligations. They will be clearly stated in the accounts. Is that your intention?

Mr O'Rourke: Yes, and that is part of the corporate plan that QR is required to submit to theGovernment. We have already submitted a draft corporate plan. That will be part of the argument, that if we areto be set up as a commercial organisation-and personally, I do not have any conflict between social welfareprograms and commercial programs provided they are clearly identified and they are quite transparent. We seethat it would be the Government that would fund our non-commercial programs, and that QR itself would borrowto fund commercial programs, such as our coal revenue and profitable business or parts of our freightoperations.

The CHAIRMAN: When do you think this issue might be resolved?

Mr Scheuber: That depends on the GOE legislation.

Mr O'Rourke: It is an issue that obviously will need to be dealt with in the forthcoming year as GOElegislation comes forward, and also as the Government comes to grips with QR's corporate focus.

Mrs BIRD: Have the negotiations between you and Treasury advanced the issue at all?

Mr Scheuber: Yes, they continue all the time. For example, we have discussions on debt; we havediscussions on CSOs-community service obligations-for the passenger side of our business-that is, thesuburban network and also the long-distance passengers-and those discussions are ongoing. We are notsitting back and saying, "It will all be solved when the GOE legislation comes." We try and move forward as muchas we can. There are some issues-for example, a financial structure for QR-on which the Treasury says,"Sorry, that will not be negotiated until the GOE legislation is in place." Quite appropriately, we come up againstsome brick walls that we cannot resolve until the legislation is put in place. In the mean time, if there are anyareas where we can move forward, we work on moving forward with those constructively. I am sure theCommittee is aware that QR is no longer funded from the Consolidated Revenue Fund, and that has been one ofthe moves to try and move the organisation away from being a Government department, through the process ofcommercialisation to corporatisation under the GOE legislation. There have been a number of changes made,and I am quite happy to speak about those, if any members of the Committee thinks that is valuable. It is not acase of sitting back and waiting, because I do not believe things ever come to people who wait. You have to beinvolved in trying to help move the process forward.

The CHAIRMAN: Has all Queensland Rail's debt been identified? I suppose it has been identified; itis just a matter of to whom it belongs.

Mr Scheuber:lhe answer is, yes, it has all been identified.

The CHAIRMAN: Note (f) to Queensland Railways Accounts for 1991 refers to property, plant andequipment. In part, this note states, "In addition, certain other assets, including motor vehicles and trucks,

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office equipment and small plant and tools have been charged directly to operations in the year in which theywere purchased. The value of these assets is not currently available. Further, certain trucks were provided forfrom Department of Transport appropriations. This policy is under review." What action have you taken toidentify and value these assets, and are they recorded in your asset registers, or will they be when you completethe data collection?

Mr Scheuber: Once again, that is an issue which arose out of cash accounting and also out of theway in which the organisation was funded. About two years ago, the Treasury changed the funding policy formotor vehicles. They used to provide that from the Consolidated Revenue Fund as special funding, and the wayin which it was provided was that it was charged to what is called operational expenditure. From 1 July 1991, wechanged that to be charged against capital expenditure, recognising that the correct accounting treatment isthat motor vehicles are fixed assets-that they last longer than one year. From 1 July 1991, that matter hasbeen resolved, and the vehicles are now being correctly brought to account. We do have a problem with ourmotor vehicle asset register, which is now being finalised, and will be brought into the fixed assets register from1 July 1992. That issue has been resolved. The correct accounting treatment has now been picked up byQueensland Rail. While there are some problems to be resolved with the asset registers, they are being workedthrough. That issue came about as a direct result of the way in which those vehicles were funded. For example,the trucks that came through the Department of Transport-the only way that Treasury can make allocation toQueensland Railways from the Consolidated Revenue Fund, because we are not consolidated funded any more.So, in this case, those funds came through the Department of Transport as a special allocation to QR. Thatallocation was the last of those in one of the changes to moving QR to commercialisation, and that was finalisedon 30 June 1991. From 1 July 1991, we are fully responsible for the replacement of all of our motor vehicles andtrucks.

The CHAIRMAN: Your letter to the Committee also states that the matter of employee entitlementsrequires a considerable amount of work to be done. What are the problems and what is being done?

Mr O'Rourke: I think the issue there is that, over the years, there have been unfunded liabilities interms of employee entitlements. There has not been any provision made in QR's accounts for long service leaveor any accumulated leave, and that is a significant issue that will need to be dealt with as part of our corporateplan. There is something in the order of $300m of unfunded employee entitlements, which is a contingent liabilityon the organisation. That issue is still there, but it is one that we can clearly identify and one that we will need toaddress in the whole GOE/corporatisation issue.

Mr Scheuber: Just to add to that, those liabilities break down into annual leave, long service leave,and something which is unique to railways called retiring allowance, which is in lieu of superannuation. Themajority of our employees are not in a superannuation scheme; they are in a scheme called retiring allowance,which is in fact an unfunded scheme. By that, I mean that QR meets its obligations to that scheme on an annualbasis. So, if you are an employee who is retiring this year, we have to meet those obligations, and they arebudgeted for on an annual basis. We have clearly determined the value of those liabilities. That is not inquestion. What is in question is the presentation of the information and how they are to be funded. That is one ofthe issues that we have to resolve as part of the corporatisation process. We now clearly know the extent, andhave known for a considerable period of time, of the current value of annual leave, long service leave and retiringallowance. That has all been clearly identified.

Dr WATSON: Earlier when we were discussing the work to be done, I think we skipped over thequestion of inventories. Your letter indicated there was a considerable amount of work to be done there. Couldyou tell us in a bit more detail the work still to be done with respect to inventories?

Mr O'Rourke: As part of our reorganisation, I mentioned earlier that our stores and supply group arein the process of a major stocktake of inventories around the State. The issue there has been that, in the past,QR has adopted a policy of actually charging inventories out to the various groups. We have a stock or storesupply account, and the process has been to take any stores and supplies into that account and then chargethat out to the various groups or divisions that existed at the time. We will be reviewing that policy with a view tobringing all those items of inventory back into stock.

Dr WATSON: But you do have a listing or a register of the stocks; there is no question about that?

Mr O'Rourke: Yes, that is right.

Mr Scheuber: Certainly for the stock that is controlled by the general manager supply, that is themajor item of stock we have. There are clear details in the stock system in place. For the items that have beencharged out to groups, no, we do not have complete details of those.

Dr WATSON: But you are in the process of collecting those through that mechanism you mentionedearlier?

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Mr Scheuber: That is right. That is a process that we have to go through. Part of that process is toident~y whether that stock really has any value at all-in other words, some of it could be old, it could beobsolete or it could simply have deteriorated, and each of those issues have to be taken into account. Theywere some of the problems that we were envisaging in the reply that we made to the Committee.

Dr WATSON: When you talk about obsolete stock-as part of the accrual accounting system, areyou going to be implementing an inventory management system with respect to inventories to make surethat-

Mr O'Rourke: Yes. That will be part of the ongoing restructuring of our stores and supply group, thatthere will be a proper inventory system in place as part of our general accounting package.

The CHAIRMAN: You have already answered my final question on financial reporting, but just toformalise it, I might ask it again. Will Queensland Rail be in a position to produce general purpose financialstatements on a full accrual basis and in compliance with the Public Finance Standards for the 1992-93 financialyear?

Mr O'Rourke: The answer to that is, "Yes". We are well on track and our programs, ~ anything, arefurther advanced than I had hoped they would be at this time. I am very confident that we will be in a position toproduce reports for the 1992-93 year on a general purpose basis in accordance with the Financial AdministrationAct.

Mr PEARCE: I have several questions relating to the financial management practice manual. TheCommittee considers financial management practice manuals to be very important. They are to prescribe thepractices and procedures, etc., to be followed by staff in the financial administration process in your departmentand are a key element of the overall financial management policy and principles upon which the Public FinanceStandards are based. From your letter, the Committee notes that a series of manuals will comprise yourdepartment's financial management practice manual and that preparation of a certain number of these volumeshas commenced. You indicate that you are developing policy statements and procedure statements and that thepolicy statements will be practically completed by 30 June 1982.

Mr O'Rourke: Yes.

Mr PEARCE: I also note that the manual is being developed on accounting systems at 1 July 1992.When do you expect your practice manual, including the procedure statements, to be fully completed?

Mr O'Rourke: There have always been accounting procedure manuals in Queensland Rail-probablynot detailed or consistent with all the processes that we are heading into now. So as part of the preparation foraccrual accounting, we basically have two new manuals under production. One is a taxation manual; the other isan accounting manual. They are quite advanced. We have drafts of them and Mr Scheuber has one of the copiesof the taxation manual here with him. We are confident that they will be in place by 1 July to start the new year.They are quite advanced and are in draft form right now. The taxation manual and accounting manual have awhole series of statements and procedures that back them up.

Mr PEARCE: What access do your staff have to these manuals as they are?

Mr O'Rourke: There will be full access right across the organisation as far as those manuals areconcerned. It is the general process that QR, as an organisation, is embracing full disclosure of those sorts ofissues; it is something we do not hold in a small group. It is spread amongst the areas, business groups andsupport groups and it will be a well read document right throughout the organisation.

Mr PEARCE: From your comments, it would appear that you do not have much trouble in keepingthese manuals up to date. Do you do that on a regular basis?

Mr O'Rourke: Yes. They will be processed on a machine and we will keep those up to date. Thetaxation manuals, I believe, are with a quite strong taxation group within our finance group and those manualswill be kept up to date as an ongoing process.

Mr PEARCE: A question that we are trying to get some feedback on is: how important do you thinkthose manuals are?

Mr O'Rourke: Personally, I believe they are of a basic fundamental importance to the organisation.There are not only accounting manuals, there are a number of other manuals and procedures to be set in place toestablish the direction of QR. To have in place accounting and taxation manuals is a fundamental part of thefabric of the organisation.

Dr WATSON: I would now like to turn to the issue of ~rogram management c The Cnmmittt=lA i5':interested to know how available this Queensland Rail corporate plan is to your department's staff and are theyaware of the goals of Queensland Rail and what part they have to play in achieving those goals?

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Mr O'Rourke: In the establishment of the new direction for Queensland Rail, and certainly upon myappointment some 18 months ago, we clearly established a strategic and planning process. The very broadgoals of the organisation were set out and communicated to staff quite widely at that time. We also embarked, Ibelieve very strongly, on a corporate strategic planning process-a process which is not just a top-downprocess where there are a few guidelines set out at the top of the organisation, but a process of bottom-updevelopment of business and divisional plans that funnel up into a corporate plan. That process is quiteadvanced. It is at the stage where we now have produced a draft corporate plan with all the various subsets ofbusiness plans and divisional plans that focus into that. We have provided a draft corporate plan to the Ministerin accordance with our requirements under the Railway Act. An important issue is the involvement of people rightacross the organisation in putting that plan into place. It is not just a wishy-washy statement that says that wewant to be the best railway in the world. It is a document--

Dr WATSON: It does not say that you do not want to be?

Mr O'Rourke: It says that we want to be. It says that quite clearly and I am very confident thaI we willbe. It has stronger things attached to it than just qualitative statements. It is very much a documen' that hastargets and performance indicators attached to it and there are goals that people must meet right across theorganisation. This funnels up to a very powerful corporate plan which sets the course of Queensland Rail overthe next five years.

Dr WATSON: I will come back to that in a moment. Basically you are saying that the process that youadopted ensures that people understand the part that they have to play in achieving the goals in the corporateplan?

Mr O'Rourke: I might add that we have also adopted, as part of the management style of QueenslandRail, a process of communication right across the organisation where messages such as our corporate directionand key result areas are communicated quite widely and not just at the very top of the organisation. It is a matterof communicating at a very low level within the organisation. Only last week, my senior managers and I travelledacross the State and delivered those sorts of messages to some 800 managers and supervisors throughoutQueensland Rail. That is an ongoing process.

Dr WATSON: In your letter to the Committee, you stated that Queensland Rail has not formallyadopted the criteria of program management as outlined by Public Finance Standard 310. In what way doQueensland Rail's procedures differ from the program management principles prescribed in the Public FinanceStandards?

Mr O'Rourke: The answer to that is that our view of program management is more conducive to aGovernment department that needs to specifically identify certain outcomes consistent with the appropriationsof finance through the Consolidated Fund to ensure that there is strict compliance with spending authorisations.From my point of view, I see QR as more of a trading organisation with a very strong commercial arm rather thanjust focusing on specific projects and programs. We are in a very dynamic and volatile business environmentwhere things are shifting all the time. It is more proper-certainly a better way to control the organisation-thatour strategies and targets are clearly set out in business plans. If we just talk about the revenue side of ourorganisation, which is a little bit different to a normal Government department, that is shifting all the time. Thereare contracts with customers that have been basically negotiated on a daily basis. It is very difficult for us tosay, just in a straight program basis, that our revenue will increase by Xper cent at certain points of time. It doeshappen in certain areas of our business, but as a general principle, in a fluid commercial organisation thosethings are being negotiated on a dynamic basis.

Dr WATSON: Just to take your points-you would not, for example, have, say, two programs; onecommercial and one community service obligations?

Mr O'Rourke: No. Even the community service areas are still very much fluid situations and bettercontrolled by business plans where they are now. We have clear strategies of development and where we aregoing in all of those areas. Obviously, being community service areas, there is a requirement for closeinteraction with the Department of Transport and Government on those issues. They are still not straightprograms and projects that you could identify on a program basis.

The CHAIRMAN: Even under corporatisation, QR will still have the job of delivering to certaincommunity service organisations?

Mr O'Rourke: Yes.

The CHAIRMAN: They will need to be measured to see if the goals of those community serviceobligations are being met efficiently and effectively. You are saying that for QR that is better done throughbusiness plans than program management?

Mr O'Rourke: I believe so. Our business plans and the direction that we will head in in terms of

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community service obligations will need to have the imprimatur of Government. I would see that in, for example,our metropolitan railway, which is a community service obligation, we would enter into CSQ-community serviceobligation--eontracts between ourselves and Government. However, there would be certain levels of efficiencyrequired for the funds to flow into our organisation. The process that I believe we will move through over the nextcoming months and few years is that those areas of our business that are quite clearly community serviceobligations and services that we need to provide for, which would not be operated as a strict commercialorganisation, will be the subject of a contract between us and the Government.

The CHAIRMAN: For instance, if there was a program called urban passenger transport, do you thinkthat it should be a program within the Department of Transport where you are the service provider, if you like.

Mr O'Rourke: Yes.

The CHAIRMAN: And that sort of program, the Government program of moving passengers in town,should be the Department of Transport's responsibility in terms of setting aims and objectives, and then fundingyou, as the service provider, to carry out that task.

Mr O'Rourke: To a certain degree, I believe that is how the process would work in that the funds thatwould flow into QR would be through the Department of Transport and there would be a contract between us andthe Department of Transport on just how services would be provided as, I guess, against the funds that wouldflow to us. The Government direction would come through the Department of Transport.

Dr WATSON: Can I just push you a little bit further on the issue of its being inappropriate for programmanagement? Program management is really based upon the PPBS system, which was taken by McNamarafrom Ford into the Department of Defense. It originated, if you like, in commercial operations. Therefore, I aminterested in asking you: given that its origin was in commercial organisations, why is it inappropriate in yourcommercial organisation?

Mr O'Rourke: I do not think we are saying that it is completely inappropriate. There are projectswithin our organisation that are set up as special projects, but I certainly believe that program management, interms of the strict public service type of arrangement where you are setting up and measuring strict outcomesfor special projects, would be better handled and controlled in terms of strategies that are set out quite clearly inbusiness plans and that are funded as part of the corporate plan, which, in itself, will need the authority ofGovernment for us to move forward.

The CHAIRMAN: Are you not talking about similar things, really?

Dr WATSON: Do not business plans talk about development programs? They might also talk aboutproblem markets and things like that.

Mr O'Rourke: Certainly, yes. It is really the same issue.

Mr Scheuber: It depends on how you interpret the term "program management". For example, theway that it is interpreted in Queensland is that there has to be a corporate services program, and that is aTreasury ruling. I find that totally inappropriate because Queensland Railways does not exist to run a corporateservice program. It exists to provide services into the community, that is, both the business community andalso, if you like, the social community, the people of Queensland. It depends on how tightly you define "programmanagement". As I understand program management, it is all about focusing on outcomes and how you controlthose. If Queensland Railways, as a trading enterprise, in fact adopts accrual accounting, you can thencompare all the financial ratios of which I am sure you are aware to assess our performance compared to othertransport operators and compared to industry, generally. You can take into account the specific communityservice obligations within a well accepted framework, but if you allow specific programs such as corporateservice programs to exist, then you have an inconsistency in trying to compare this organisation with otherorganisations. The important point is that it depends on how tightly you interpret the term "program".

The other problem we have in QR is joint costs. If you said, for example, that a program is running theSunlander and we come along to Government and say, "It costs us $10m to run the Sunlander each year. Wewant $10m", and the Government says, "Axe the Sunlander and we'll save $10m", we then say, "Look, I amsorry, you won't. Because of joint costs, you will actually save $4m." Then Government says, "But you told usthe cost was $10m." It depends on whether you cost your program based on a fully distributed cost basis or amarginal cost basis. I think it is a matter of degree as to how important it is and also how tightly you stay with thewording of program management and how you implement that, rather than the spirit. As far as I am concerned,the whole spirit of it is to focus on outcomes. Quite clearly, as an organisation, that is exactly what we havebeen doing. What we are saying is that the best way to measure that performance is in accordance with thestandard commercial ratios which exist. That allows this Committee and the Government to in fact monitor ourperformance relative to other transport operators and relative to other organisations. Those controls are alreadyin place, and it seems to me that that is not inconsistent with a reading of "program management". It depends on

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how "program management" is read, and if it is read that we have to have an individual program for, say, runningthe Sunlander, then I would really caution the people concerned about how the program is costed and how thatinformation is interpreted. I think it is a matter of degree more than being, in fact, a complete disagreement, but Icertainly have a fundamental disagreement with a program called "corporate services" because as anorganisation we are not trying to run a corporate services program. We are out there trying to run an organisationwhich delivers services. Inevitably, some of the things that you have, such as computer services for examplewhich the organisation needs, do not neatly fit into program boxes, hence the need for this separate thing called"corporate services"; but I see that as a fundamental problem in actually addressing the issue of corporateservices programs.

Dr WATSON: Let me move on. Practice statements to Public Finance Standards require that acomprehensive evaluation of all programs be completed within a three-year period ending 30 June 1993. Giventhat you have a single program under the Railway Fund, has this program been comprehensively evaluated yet?If not, will it be done by June 1993?

Mr Scheuber: I think it is important to note that there has been a fundamental change in theorganisation. I might just start this off, and I am sure that the chief executive will want to make some comments.There has been almost a revolutionary review. I am sure that all members are aware of where QR is going as anorganisation. Let me start off with a couple of things. First of all, the whole organisation was restructured lastyear and we moved from having a focus on a public service type of delivery of service to breaking up theorganisation into business groups which were focusing on individual product areas, such as supply tocustomers. There has been a fundamental change in direction of the organisation, and that is a start. Second tothat has been a complete restructure of management of the organisation which is directed towards, "What are wetrying to achieve as an organisation? What outcomes are we trying to deliver? What is the best organisationalstructure to do that?" That has meant that the top 250 positions in the organisation have all been fundamentallychanged. Some of the old positions that existed no longer exist. Some positions have a complete change offocus. Applications were all called, in the main, external to the organisation, and appointments were madethrough an independent process, so that has also been another major change. The whole corporate planningprocess in QR-the five-year corporate plan-is also directed towards a whole outcome process. I think wehave been much more intensively involved in reviewing where we are going as an organisation than probably anyother organisation in Queensland. I think Mr O'Rourke probably has some comments he would like to make inthat regard.

Mr O'Rourke: I think that the whole process of change that has been occurring here, as Bob hasquite rightly said, has been a complete change of direction. As part of that, the major reform program that isoccurring right across the organisation, basically, is that you might say we are turning over every rock andreviewing every part of the process of howwe operate right throughout Queensland. I think it is fair to say thatthere are some runs on the board already indicating that the program of reform through this organisation is nowstarting to take some significant e.ffect. We have some performance indicators on the way that we are workingour assets. Our asset productivity has increased over the last two years by something in the order of 30 percent. We are working our assets 30 per cent harder than we were two years ago. Our labour productivity hasincreased by 14 per cent over the last two years, and I guess that is a reflection that while the or anisation iscarrying more usmess t an we were, we are shifting many more tonnes through the organisation with fewerpeople. Over the last couple of years, we have brought the siz~ of the organisation down from 21 000 to 18 500.We are much more productive than we were. In terms of asset utilisation, we are working all of our trains~urcoal trains and our freight trains-much harder than we were a year ago. We have reduced the size of ourfleet~ur wagon fleet in our general freight area-from something in the order of 21 000 wagons. Whereas thiSorganisation had a wagon for every person in it only a couple of years ago, we now have the size of our fleetdown to about 16 000 or 15 500, and it will continue to decline. Our locomotive fleet has been reduced in theorder of some 60 locomotives. As a general principle, we have reduced our asset base and we are carrying morebusiness. Our productivity has increased substantially. As part of working our assets and getting moreproductivity from our people, there is a whole new focus on the way that we are doing business in QR. It is muchmore commercially focused. We are on a program of involving our people. We see that 70 per cent of our costsare involved in labour and it is fundamental that there is much more people involvement in the way that we arechanging the focus of this organisation. It is all about being much more competitive, being more productive andchanging the management style involving our people right at the shop floor and trying to generate synergy andinnovation from the very bottom of the organisation.

Dr WATSON: Following that up, I guess we could say that you have already identified keyperformance measures in the six key operating areas?

Mr O'Rourke: Yes.

Dr WATSON: They are well developed now?

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Mr O'Rourke: Yes.

Dr WATSON: In both financial and non-financial senses?

Mr O'Rourke: Yes. As part of the corporate plan, as part of the six key result areas that we have todrive our plan forward, we have a number of performance indicators to back those up to ensure that we are ontarget for each of the programs such as customer satisfaction, safety issues, staff relations issues, efficiencyand effectiveness and also the issue of corporate image. They are all fundamental parts of the reform programthat we are undergoing and they are key performance indicators. We have a lot of those now and we aredeveloping newer ones. They are all spelt out in our corporate plan that allows us to measure our progress overthe next few years. There are some good, healthy signs on the broad indicators that we are already getting that.

Dr WATSON: The performance indicators that are specified link directly with the corporate plan?

Mr O'Rourke: Yes.

Dr WATSON: And therefore the management information system you have links in to ensure thatthose items are reported on a regular basis to management for them to act on?

Mr O'Rourke: Yes. The reporting streams are quite strong now. As you would appreciate, we have aboard giving us direction. I and my executive group meet on a regular basis fortnightly. We consider theperformance indicators and where the organisation is going generally, and specifically in the various businessgroups. I personally receive a report on expenditure and revenue issues performance indicators each month andthe board also is made aware of how the organisation is travelling. In terms of performance indicators, when Isay it is early days, we have quite a lot of them but we are also refining those and processing them. There arelots of issues developing in railways nationally and around the world on what are the world's best standards forrailways. We see ourselves measuring ourselves against not only how we have performed in the past but howother organisations are performing so that we can get some benchmark on where Queensland Rail sits with therest of the industry.

Dr WATSON: Do you expect to report those publicly as part of your annual report or othermechanisms?

Mr O'Rourke: Yes. We see that we would report on key result areas and that we would have someperformance indicators showing productivity indicators. Certainly the more public we can make a lot of those,the better it is for us. We will produce, maybe in simple terms, a score card of how QR is going and with a numberof performance indicators that will measure our performance over the year.

Dr WATSON: Do you think that the process you have gone through in establishing the corporate planhas been beneficial to the running of the organisation?

Mr O'Rourke: I think it is a fundamental process. Certainly, from my point of view, one of the keyissues to me is that we develop clear strategies and business and corporate plans to be able to carefullymanage the program of change so that we have our future clearly charted for us.

Dr WATSON: Are there any negatives in that process that you have adopted-things that have beendetrimental to your performance?

Mr O'Rourke: I guess going through a process of change is always a very difficult issue in the sensethat it is not without its pain in terms of employment issues. We would need to carefully manage our way throughthat. The whole issue of communication is always a very difficult one when you are in a reform process as big aswe are. What is happening in QR is one of the biggest management restructures that has occurred not only inQueensland but probably right across Australia over the last two years. By and large, while we went throughsome early stages of communication issues, the difficulty of getting the message right down from the top of anorganisation through to middle management-a complete culture change of saying to an organisation that it is anentirely new organisation with another focus-is rather difficult to communicate. We had some difficulties withthat in the early stages. I believe we are on top of that now and there are some clear signs around the systemthat people are getting to understand more clearly the different nature of this organisation and the way that it isheading.

Dr WATSON: You indicated earlier that, according to the performance indicators you have, youbelieve you have become a more efficient and more effective organisation?

Mr O'Rourke: Yes.

Dr WATSON: Do you have any idea of the costs associated with that?

i,'l, C'Nuu,K.. ; Y"''''' in t",rn.", Of our expenditure--our expenditure this, year wiii be lower than what itwas last year. After providing for debt repayments and the whole lot, we will reduce our deficit quite substantiallythis year as to where we were last year. Just talking broad numbers, the bottom line figure for QR in 1989-90 was

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a deficit of $133m, and we brought that down to $109m in 1990-91. I believe this year we will get it somewherewell below $30m. Inside those numbers obviously there has been some increase in revenue, but a major issuethere has been cost control. As I said, our expenditure this year will be lower than last year. It may be somethingin the order of $20m; that is in absolute terms, not in real terms. It also takes into consideration that there was atwo and a half per cent salary and wages increase from August last year that we have been able to cover.Generally, I believe that we have got our expenditure well under control. The budgetary process that is rightacross the organisation is quite powerful and there is a new realisation of managers in OR that financialmanagement is a very important issue for us. I do not think it was an issue in the past-financial managementbudgetary control was pretty much an issue at the top level of the organisation-but now it is very much rightdown at the bottom part of the organisation. I guess I am saying that we have got the runs on the board.

Dr WATSON: The benefits outweigh the costs.

Mr O'Rourke: Most certainly. Bob just reminded me that in the process of reform, of changing thesize of the organisation. which has come down quite substantially, we have been doing that through a process ofnatural attrition and voluntary early retirement. We have made a clear commitment to our staff that no-one will besacked or forced out of the organisation. We have stood behind that. I do not believe that there is any otherorganisation in Australia that is doing that. We are carefully and sensibly managing that whole process ofvoluntary early retirement and natural attrition. In that way. we can get our work force levels consistent with thedemands or output of the organisation and get a good balance between expenditure and revenue and, thebottom line, results.

Mr PERRETT: I would like to ask a question about system appraisals. In your letter you informed theCommittee that you had developed a system appraisal questionnaire for your expense systems and that it wastrialled for the 30 September 1991 quarter.

Mr O'Rourke: Yes.

Mr PERRETT: You also stated that the questionnaire is now being revised and that, in future.distribution will be limited to your most senior managers-level two managers.

Mr O'Rourke: Yes.

Mr PERRETT: Will this process enable the functional and internal control mechanisms of all yourdepartment's financial systems to be appraised?

Mr O'Rourke: I believe that is only one way in which we will appraise the various systems throughoutthe organisation. The survey of managers is one powerful mechanism to be able to get a systems appraisal. Butthere are some other mechanisms that we use, and one of those obviously is the internal audit function. As Isaid earlier, I do not believe I am being brash in saying that I believe that OR's internal audit function may be thebest in the State. They are a very professional group of people who are involved in systems appraisal rightacross the organisation. It is very much an independent body reporting directly to me and also to the board. Interms of systems appraisal, we have the processes in place to carefully monitor systems across QR and it is anongoing process.

Mr PERRETT: Will procedures followed at Queensland Rail's various offices throu hout the State beinC U e In t e process.

Mr O'Rourke: Yes. I have adopted a very open style of management. As far as I am concerned,there are no hidden agendas in QR. It is very much all out on the table. It is a matter of full disclosure with ourmanagers and people right across the organisation. So in terms of systems appraisals, it will be a processinvolving the management at all ranks throughout the organisation.

Mr PERRETT: Have you encountered any difficulties in determining a suitable process of systemsappraisals?

Mr O'Rourke: Maybe my colleague can answer that.

Mr Scheuber: In terms of the systems appraisals-as you know, there are five set out in the PublicFinance Standards; ones for revenue. expenditure. assets, liabilities and equity. The standards require thosesystems appraisals to be made quarterly. I do not think that is always appropriate, and let me give you anexample in terms of revenue. If you look at Queensland Rail's revenue, which is $1.3 billion--

The CHAIR~AN: The systems appraisals are annually and position assessments are quarterly.

Mr Scheuber: Position assessments are quarterly, sorry. In terms of the position assessmentsbeing done quarterly, they are not always appropriate to our organisation in terms of systems appraisals. If youlook at revenue, for example, our revenue base totally is reviewed annually, and that is not necessarily theresponsibility of one individual manager, or some managers operating in that area do not have the responsibilityof effecting that. What I mean by that is that 70 per cent of our revenue comes from export coal, and that

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revenue is tied to contracts between the organisation and the mining company, and there is an escalationformula set in that contract for escalation revenue. So reviewing your revenue each year just is nonsensicalbecause there is already a process in place.

About the systems appraisals generally-as we are converting from cash accounting to accrualaccounting, all of your accounting systems are changing. The process we have is to design the way in whichthose systems will change, then to involve, as the chief executive has said, the chief internal auditor and alsothe Government auditor at the time that we are actually doing the change so they can have input into theprocess and see if there are proper controls in the process in terms of accounting and financial systems.

Mr PERRETT: In your letter, you seem to imply that the systems would be appraised quarterly. Is thiswhat you intend, or will these systems be appraised annually?

Mr Scheuber: It is neither quarterly nor annually. We go through the process fairly well consistently.We have had to do that as we have been changing accounting systems. I can give you a number of examples ofthat. If you just look at the change from the expenditure being on a cash basis to an accrued basis, that meansthat you have got to look at how you bring that expenditure to account. Under cash, you just bring it to accountwhen the cheque is paid. Under the accrued expenditure concept, you have got to deal with expenditure when itis incurred; you have got to deal with what accountants call accruals and prepayments. So those issues have tobe brought to account. We have to change the systems for doing that. We have to have a methodology. Wehave to have clear policy. So in putting those things in place, that is the process we have to go through, andthen that is continuously refined. We have not sat down deliberately and said that every quarter we will look at allof our systems because I believe that that is almost impossible to do. But in terms of a comprehensive review,what you do is an examination of those to see whether in fact the changes that we have been making areadequate changes. I think it has been a case that we have been making so many changes that to try to actuallyjudge whether they are adequate or not is fairly difficult at this point in time.

Mr PERRETT: When will you be in a position to undertake appraisals of all your revenue, expense,asset, liability and equity systems as required by the Public Finance Standards?

Mr Scheuber: As I have said, as we go through we are continuously doing that. As the chiefexecutive has mentioned, the chief internal auditor carries out a program. He has a three-year program breakingdown into an annual program where it goes through and carries out specific reviews on a number of areas. Also,as we have changed systems, we have actually reviewed the old system that we had in place. We have lookedat what might be the most appropriate way of doing it in the future. In converting from cash to accrual, you areeffectively throwing out a lot of the old systems that you had. They just cease to exist. You also are bringing onsome new ones such as assets. The Public Finance Standards talk about requirements in terms of assets andalso liability accounting. With equity, we have not got in to that yet. As I have explained, there is no properfinancial structure for the organisation, and that will not come, as far as I can see, until the GOE legislation, ifand when it comes into place, and the Government makes a decision about equity within the organisation. So aswe go through that process, we are continually reviewing our systems. Almost every system that we have gothas been reviewed.

Mr PERRETT: What benefit do you believe the system appraisal process will be to the managementofQR?

Mr Scheuber: One of the things that we have been doing in terms of computerisation particularly is tocarry out post audits in areas and look particularly in the clerical, the admin and the accounting side, to look atwhether the manual processes associated with those are still current, etc. Certainly, from the point of view of myarea within OR, we have reduced by 25 positions or about 6 per cent since 1 July last year, and that has comeabout from post auditing the computer installations that we have put in. I think that is particularly an area whereyou have to fundamentally force yourself to carry out the reviews, because quite often you can finish oneprocess and go on to the next one and you do not pick up the benefits unless you come back and say, "Well, wehave now put this in place. What are the benefits?" So I think there can be demonstrated to be positive benefitsof systems reviews. The way that we have done it is more related to as we have made the systems change inareas.

One of the big areas in my area of control has been in terms of the provision of payroll services, wherewe have computerised that to a much greater extent than we had before by instead of having the payroll done aspeople entering information on time sheets, they enter information directly to the computer system. We havegone back to post audit that virtually on a monthly basis saying, "As a result of those changes, what is thestaffing level required? What is the organisational structure, etc?" There are some reviews being done at thepresent time which will look at further refining those processes. I think there can be real benefits, and by that Imean in reduced cost of operation, in greater efficiency. We have taken out a lot of the forms we used to use; forexample, we have ceased paperwork in a lot of areas, while always within the context of ensuring that there is

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proper internal control, because one of the things that is said is, ''You get rid of all the paperwork-that is veryeasy to do-and what you also do is get rid of all the controls as well." So in any of the stages that we take, welook fundamentally, and hence the involvement of the chief internal auditor and the Government auditor toensure that my view and my people's view is not too sort of unclear in that regard. But what we do is look at it interms of ensuring that there are proper controls. I am sure no-one wants a situation where we reduce costs butdramatically increase exposure.

Mrs B IRD: I want to raise a matter that you raised on position assessments before and theinappropriateness that you see of it for QR. You have already commenced your quarterly position assessments,I take it?

Mr Scheuber: Yes.

Mrs BIRD: How are you handling that, given that you consider it to be inappropriate? Does thatprocess also include the budget reviews that you made reference to earlier?

Mr Scheuber: Yes. As I said, in terms of the three-monthly review, I think it is totally inappropriate toan organisation such as QR because, as the chief executive has mentioned, some of those contracts arewritten daily. So to review them quarterly is just not necessary. In terms of expenditure, we review our budget ona monthly basis and we look at our cost control, and I think the chief executive has given examples of howeffective that cost control has been in the organisation. So I just think that having a mandatory requirement ofquarterly is inappropriate to some organisations. It is inappropriate to ours. For example, in revenue, 70 per centof our revenue is set at the time that you actually write the contract. So reviewing it quarterly, there is nothingthat the manager can do in terms of reviewing it quarterly. I just think that the period of quarterly is inappropriatein some circumstances.

Mrs BIRD: But have the position assessment requirements of the Public Finance Standards beenimplemented in Queensland Rail?

Mr Scheuber: In our reply, we said that we did the first assessments in September of last year. Wehave now reviewed the questionnaire, which is to look at specific requirements of those quarterly assessments.Yes, we will be trying to comply with it even though we believe that the circumstances are inappropriate.

Mrs BIRD: So the one that you have already done was not totally in compliance?

Mr Scheuber: The one that we have done would comply, yes. We think that it can be improved upon,bearing in mind that at the time that that was done we were changing the whole management structure of theorganisation. By sending out a circular to a person saying, "Do you comply with the Public Finance Standards?",the person might have said "Yes" without clearly understanding fully what the ramifications of that were. Wehave tried to improve that.

Mrs BIRD: How? What you are saying is that you are going to comply but at the same time you aregoing to make some changes. Is that right?

Mr Scheuber: Yes, that is right. We believe that the format that we have used can be improved. Theway in which the questions are asked can be made clearer; looking more at format than substance.

Mr O'Rourke: I think it is fair to say with position assessments With us, It IS a much shorter timeframe than three months. Our expenditure is being assessed on a monthly basis. We are really inside the three­months criteria. We are much closer than that.

Mrs BIRD: There is a requirement that the position assessment process include an annualdetermination as to whether assets are being used in the best and most efficient way possible. Queensland Railhas very significant assets, as you have already pointed out, and there is some difficulty with valuation of thoseassets. Do you currently have procedures in place to satisfy this requirement in accordance with theStandards?

Mr Scheuber: The answer is no, because as we have explained to you we have not yet brought toaccount all of our assets. That is the thing that you have to do first before you can review all the usage of thoseassets. We have also given examples of where, for example, wagon numbers have reduced and wherelocomotive numbers have also reduced. At the global level, we are looking at asset productivity and how thoseassets are used. But in terms of every individual asset to be able to comply with the Public Finance Standards,you must first know every individual asset. That is the process that we are putting in place first.

Mrs BIRD: It also requires that there be suitable asset replacement programs. Have they beenapproved?

Mr Scheuber: With each set of assets which we acquire, we look at the economic efficiency of thoseassets. In some areas, whether they are replaced or not comes down to whether the Government is prepared toput up funds to replace those assets. We have always looked at what is the economic efficient life of an asset,

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but we may not replace it in accordance with that.

Mrs BIRD: But there will be an annual determination within the process?

Mr Scheuber: Yes, there can be an annual determination within the process.

Mrs BIRD: What benefit to OR are position assessments? Given that you feel that the quarterlyposition assessments are inappropriate, what do you see are the benefits?

Mr Scheuber: I have no disagreement with the principle of assessments. The only disagreement thatI have is the time frames which were set. Before the Public Finance Standards were put forward, I made thoseviews well known at the time. I think that the benefits that can come are the benefits that we have talkedabout-the reductions in the number of wagons, reductions in the number of rolling stock, looking at howproductively you are using your assets-I think that is totally appropriate, but it may not be appropriate fororganisations, and I do not believe that it is appropriate for ours on a quarterly basis.

Mrs BIRD: Is it an expensive exercise for you, preparing the quarterly position assessments?

Mr Scheuber: No, it is just another demand that you put on managers. If they do not see the directneed for it because they are doing the thing every month, or because they are being asked as a part of thecapital process put forward for bidding for money to do those sorts of examinations, you are more likely to gettick answers rather than an effective review. What I am saying is that the review time must be appropriate for theorganisation for managers to have a commitment to it.

Mrs BIRD: Did any of the staff attend the workshops run by Treasury?

Mr Scheuber: Yes, we have had a number of our people attend all of the workshops. With everyworkshop put on by Treasury we at least have some involvement. I have been to a number. A number of mysenior managers have been to workshops.

Mrs BIRD: Was there any criticism of the Treasury procedures within the workshops, or the results,or what was relayed in the workshops?

Mr Scheuber: In the early workshops relating to the Public Finance Standards you will seecomments, which I am sure Treasury took down, that I made about the position assessments, etc., and anumber of areas to do with the Public Finance Standards. I raised the issues of quarterly assessments and theappropriateness of them then.

Mrs BIRD: But in the content of the workshops themselves, were there any negative responses tothat? I mean, did they find them beneficial?

Mr Scheuber: For our people attending the workshops?

Mrs BIRD: Yes.

Mr Scheuber: Yes, they are beneficial, because we get an understanding of where Treasury is tryingto take the issues and what may be the difference between the words that are written in the Public FinanceStandards and how Treasury interprets them. That is very important, because you can do a lot of work to provideinformation only to find that Treasury wants this amount of information compared with that which we haveprovided. To provide any information takes a lot of time and is very costly. It takes staff off doing other matters.So yes, the workshops are helpful.

Mrs BIRD: But no negativity about what was portrayed in them?

Mr Scheuber: No.

Mr J. H. SULLIVAN: If I could ask a couple of questions relating to internal audit, I think they will befairly brief because most of the areas have been covered. Public Finance Standard 400 requires that the internalaudit function be consulted when computerised accounting systems are in the specification and developmentphases and before implementation. You have taken on Dun and Bradstreet fixed asset register?

Mr Scheuber: Yes.

Mr J. H. SULLIVAN: Was that in consultation with your internal auditor?

Mr O'Rourke: Yes, most certainly. Our internal audit area has a systems group attached to it, andthey are involved in any systems appraisal before any system is actually developed in the early stages, thedevelopment stages and also the implementation phase. The internal audit is a fundamental part of that. Thechief internal auditor also sits on our IT steering committee that we have internally to control all computerfunctions.

Mr J. H. SULLIVAN: To what extent are your internal audit staff called upon to perform non-auditrelated duties, relieve in vacant line positions, and that sort of thing?

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Mr O'Rourke: As a general principle we do not bring our internal audit people into line managementexcept maybe to give them some experience or exposure in some areas. The internal audit group is very muchan independent group reporting directly to me. They are involved in operational audits, compliance audits, andmaking sure that we comply with different regulations and also the systems aspect that I talked about. Theycertainly get very much involved in processes and procedures right around the organisation. They are operatingin all parts of Queensland Rail.

Mr J. H. SU LLIVAN: In an earlier answer you indicated that internal audit was involved in thesystems appraisals in relation to this new group. Is that correct? Is the internal auditor doing your systemsappraisals?

Mr O'Rourke: He is certainly involved in part of that process.

Mr J. H. SULLIVAN: Standard 610.3 requires that internal audits determine whether or not systemsappraisals have been undertaken properly. Do you see any conflict in them doing the appraisal?

Mr Scheuber: The internal auditor is not actually doing the appraisal. They are actually helping indetermining the process, which is then done by line managers.

Mr J. H. SULLIVAN: You have had an internal audit function for about 80 years. How important doyou think that internal audit is, and how does it benefit your management of QR?

Mr O'Rourke: I think it is of basic fundamental importance to the organisation and has increasinglybecome important over the past few years. Especially with a board in place, they tend to rely very heavily oninternal audit functions to ensure that financial management and the systems in the organisation are operatingcorrectly. We have also reinforced the internal audit function with an audit committee that is chaired by a directorof the board. The whole process is very strong within the organisation. As far as I am concerned, I also lean veryheavily on the chief internal auditor to provide advice to me that the financial systems, operating systems andgeneral performance standards of the organisation are independently viewed from his point of view.

Mr J. H. SULLIVAN: This may be a little unfair-I do not know-but could you give a specificexample of an improvement to the administration of QR that has been made out of a recommendation from theinternal audit function?

Mr O'Rourke: Yes. It is fair to say that, in our new small freight business, that is a massive change indirection for us. We have reorganised our small freight business. I had some concerns in the early days aboutsome of the paperwork procedures, consignment-note processing and all of those issues. Our internal auditpeople went out and did a review on that and proposed a new way of doing it, which has substantially improvedthe .small freight business. They have also provided to me a number of reports in terms of operational reviews.They reviewed our catering service on how we could more productively operate our catering services. Thatreview was done in conjunction with our Group General Manager, Passenger. We basically changed the way inwhich we provide catering on our trains as a result of an internal audit review. There are a number of exampleswhere operational reviews have happened around the State and, after those reviews have been considered byline management, new procedures have been put in place.

Mr J. H. SULLIVAN: More generally-to what extent have the recommendations of the internalaudit actually been Implemented by the department?

Mr O'Rourke: There is a good acceptance of the internal audit processes within QR. One of thereasons for that is that they tend to operate very closely to the business groups in the sense that, after they dotheir audit, there is a consultative process. They would talk to the group general manager of the division in whichthey are working and give him an understanding of their program-of what they are doing. There are no realsurprises, except if there is a defalcation or something of that nature. Generally, there is good cooperation.Within 21 days, there is a requirement that action would need to be taken by the group that has been underinvestigation. Obviously, that report would come through me to activate it, too.

Mr J. H. SULLIVAN: At the moment, you are involved in a fairly heavy asset valuation managementprogram. You have had internal audit for 80 years. This seems to have come about as something that the Auditor­General has recommended. Has the internal audit not looked at your asset programs in that period of time?

Mr O'Rourke: It is fair to say that the way we were set up as a Government department was notnecessarily to have valuation of assets. It is only now that we are moving towards accrual accounting andsetting up balance sheets that there is a real need to know the value of your assets.

The CHAIRMAN: In its questionnaire, the Committee asked about consultancy engagements toassist with implementation of the Public Finance Standards. You stated that you had hired Dun and Bradstreetfor the installation of a fixed asset register but indicated that no payment was required as Queensland Rail hadaccrued credits for previous work charged but not performed. How did those credits arise and what value of

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credits was applied to installing the fixed asset register?

Mr Scheuber: I can answer that. In 1988, we licensed five packages from Dun and Bradstreet. .Aspart of that process and as part of the negotiation which I did for the fees involved, we negotiated a number ofdays-and I really cannot tell you the number of days involved-of consultancy services. They could be used atany time by OR in introducing those packages. They could also be held over if it happened that we did not needthem on a particular package. It was as a result of that, and the introduction of fixed assets itself, I think, tooksomething like five days of consultancy time, that is, to install the package, to put it in place and to ensure that itactually runs on our computer system. If the Committee is interested in value-about $900 to $1,000 a day isabout the cost.

The CHAIRMAN: Have you been satisfied with the role Treasury has taken with regard toimplementing the Public Finance Standards into the public sector?

Mr O'Rourke: I guess the answer to that is, "Yes". From our point of view, there is good cooperationbetween ourselves and Treasury-between our finance division and Treasury. There is close cooperation indiscussions on Public Finance Standards and our accounting processes generally.

The CHAIRMAN: So there has been sufficient action on matters such as discussing thesemethodologies for valuing assets and so forth?

Mr Scheuber: We would always like to see it done faster, of course. I will be absolutely honest withyou, as I have answered. We would have liked the methodology for assets to be done State Government wide,rather than being done individually by organisations. With that not occurring and with us having to have amethodology in place, we went forward and did it ourselves. Inevitably, that is more costly for the Governmentas a whole because, if each department in the organisation goes through and does its own policy, that is morecostly than one group doing it. We would always like it to be done more quickly, of course.

The CHAIRMAN: What about in relation to guidance on matters such as program management,position assessments and systems appraisals?

Mr Scheuber: I have clearly put forward my view on the concerns about program management andalso systems appraisals. We have moved OR towards commercialisation-corporatisation-under the GOElegislation, which I believe goes further than the Public Finance Standards do. In some cases, we find ourselvestrying to facilitate that process with Treasury.

The CHAIRMAN: Mr O'Rourke, what would be the appropriate model for OR in the future, possiblyafter GOE legislation?

. Mr O'Rourke: In terms of just the general direction of the organisation?

THE CHAIRMAN: No, I am thinking in terms of company model, statutory body model.

Mr O'Rourke: I think that we would shift pretty much towards a company-type model as we progress.Obviously, the model is reasonably clearly set out now in the White Paper. As QR develops, it will focus veryheavily on its commercial issues. The model that we have been quite open about here is that there is a wholeseries of social welfare services that need to be provided for within that model. That is where it is a bit differentfrom a strict commercial model. I like to believe that we do it a little bit differently from the other States, in thatthere are services that we need to provide around the State, and that will be part and parcel of the whole modelfor the future development of Queensland Rail.

The CHAIRMAN: If you were to move to a company model in the future, what would be the place ofthe Public Finance Standards? They technically would not apply.

Mr Scheuber: That would depend on how far you developed the Public Finance Standards. At theperiphery, of course, they incorporate a whole series of the accounting standards which have been laid down bythe accounting profession. If the Public Finance Standards continue to change and pick up those standards, infact, the two may come together. There is still a fundamental problem for the Treasury to resolve, that is, theystill want people to report on cash accounting but they want to move organisations to accrual accounting. Thereis a bit of a fundamental problem there to be resolved. Our view is that you move the organisation towardscorporatisation as though it was a private company, even though it can be fully owned by the Government. Theownership question is for the Government to decide. If the Public Finance Standards do not change to pick upand move towards the generally accepted accounting principles and the standards which have been laid down,then that is the direction that we would be going. It really depends on whether Public Finance Standards actuallychange.

Mr J. H. SU LLIVAN: I would like to pull a couple of your earlier answers together and put a positionto you. Earlier, in answer to the question of the $197m debt for urban rail, you said that you felt that that moreproperly lay with the Government, and hence the department, because it was a community service obligation. In

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· answer to a later question from the Chairman as to, if there were an urban rail program, you said that should be aGovernment program or a departmental program and you would be the service provider on some form ofcontract. Who do you think in those circumstances should own the asset?

Mr O'Rourke: I believe that the assets would be part of our balance sheet.

Mr J. H. SULLIVAN: So, what you are saying is that the debt on the asset is owned by theGovernment as part of the CSO, but you own the asset.

Mr O'Rourke: Yes, that is right.

Mr J. H. SULLIVAN: You do not think you should, perhaps, own the asset and the debt andcontract accordingly?

Mr O'Rourke: No, I think that the assets could reside in our balance sheet, but the debt could be partof Government and would be serviced by Government for a social welfare program.

Mr Scheuber: It depends on how much Government is going to pay for the CSO. If we are going tomeet the debt repayment, of course, that is going to come from somewhere. That is probably a negotiation that isstill going to be had with Government through the Department of Transport and Treasury as to whether we areonly funded for the operating costs, and the CSO relates to that, or we are also funded for the capital repayment,and the view that we have adopted is that it is up to the Government to decide the level of service that it wants. Ifit wants to provide an extra 30 suburban trains for an extra $1 OOm, then it is effectively making that decision toprovide that and finance that in whatever way it wants to. I mean, we operate that service and we are paid for thecost of operating the service.

Mr J. H. SULLIVAN: Basically, what I am getting at is: ultimately, under this scenario, theGovernment pays.

Mr Scheuber: Yes.

Mr J. H. SULLIVAN: Would it not be much neater if the asset and the debt resided in the same setof accounts?

Mr Scheuber: Not necessarily, but I think that could certainly be explored.

The CHAIRMAN: Under a possible future company model for QR, what would be the responsibility ofthe chief executive officer to the Parliament in terms of accountability?

Mr O'Rourke: I think the responsibility of the chief executive officer at the moment is to manage theorganisation and be responsible to the board. I think that the way that the organisation is structured, and wouldbe in the future with a company model, is actually the board itself that has the responsibility to Government. Myresponsibility is to the board and, really, that is where it is right now, except we are in a bit of a transitional phaseat the moment in that as the accountable officer, really, I am responsible under the Financial Administration andAudit Act. I guess there is a grey area in the sense that the board has the overall responsibility for QueenslandRailways, but we are still subject to the Financial Administration and Audit Act as a second issue. As we moveand become a corporation, I would see it that that would change. Obviously, it is the board that has the fullaccountability for Queensland Railways and my responsibility is to the board.

The CHAIRMAN: Mr O'Rourke, are there any other issues concerning the Public Finance Standardsthat you would like to raise with us?

Mr O'Rourke: Just at this time, I believe that we have made our position quite clear on the PublicFinance Standards and that as we move more towards being a corporate entity, I think that we need to questionjust where Public Finance Standards fit in with us and whether our relationship is more for the broader publicindicators of the accounting conventions and those sorts of issues, or where they stand relevant to the PublicFinance Standards. I think that is an issue that will be sorted out in the future.

The CHAIRMAN: Thank you, Mr O'Rourke and Mr Scheuber for your evidence. I will now adjourn thishearing. We will recommence at 11 a.m.

The Committee adjourned to 10,43 p.m.

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The Committee resumed at 11 a,m,

The CHAIRMAN: I reconvene this hearing, On behalf of the Committee,1 welcome the witnessesfrom the University of Southern Queensland, Professor Leal and Mr Maguire, Before commencing to giveevidence, I am obliged to inform you that the proceedings here today are legal proceedings of the LegislativeAssembly and that the Committee requires that your evidence be given on oath or affirmation,

ROBERT BARRY LEAL, sworn and examined:

PATRICK DENIS MAGUIRE, sworn and examined:

The CHAIRMAN: Professor Leal, could you please state your full name, place of employment andthe title of the position you hold? .

Prof. Leal: Professor Robert Barry Leal, I am Vice-chancellor of the University of SouthernQueensland in Toowoomba,

The CHAIRMAN: Mr Maguire, could you please state your full name, place of employment and thetitle of the position you hold?

Mr MagUire: Patrick Denis Maguire, University of Southern Queensland, Acting Bursar,

The CHAIRMAN: By way of introduction, I will just read a brief statement The ParliamentaryCommittee of Public Accounts is an all-party Committee of the Queensland Parliament whose purpose is toscrutinise and provoke reform of the financial administration of the public sector and to ensure that ExecutiveGovernment is accountable to Parliament The Committee conducts its business in accordance with the PublicAccounts Committee Act and the Standing Rules and Orders of the Legislative Assembly relating to selectcommittees,

The Committee is presently conducting an investigation into the implementation of the Public FinanceStandards in departments and statutory bodies, These Standards are issued under the Financial Administrationand Audit Act and commenced operation on 1 July 1990, The Committee has a particular interest in therequirements of the Standards relating to financial management practice manuals, position assessments,system appraisals, program management, internal audit, and the move to general purpose financial reporting bybusiness undertakings and statutory bodies, The use of private consultants in implementation of the standardsis also of interest to the Committee,

I inform you as witnesses that you are required here today to answer all questions relevant to thesubject matter of this inquiry, The Committee would like you to answer its questions frankly and to provide it withan accurate and clear view of your organisation's position on the issues canvassed,

Professor Leal, either I or various Committee members will address questions to you. Feel free toanswer them yourself or refer them to Mr Maguire, if you feel that is more appropriate,

Mr PEARCE: I will kick the.ball off this session, I will refer to financial management practice manuals,The Committee considers financial management practice manuals to be very important. They are to prescribethe practices and procedures, etc" to be followed by staff in the financial administration process in youruniversity, They are a key element of the overall financial management policy and principles upon which thePublic Finance Standards are based. In your letter, you state that your university does not have a financialmanagement practice manual, as required by the Public Finance Standards, You indicate that the manual is inthe course of preparation, Could I ask: what stage has the preparation of this manual reached, and howadvanced is the project?

Prof. Leal: I think Mr Maguire should answer that question,

Mr Maguire: The manual is reaching the stage where it is in a first draft position. We will be employinga person to accelerate the production of the manual, because there is still considerable work to be done on It,and I believe that that type of manual is a document that needs to be maintained and requires continual work.

Mr PEARCE: When you say you are employing somebody, could you give us a better idea of whatyou mean? Is that going to be consultants, or are you just employing somebody specifically to do that job?

Mr Maguire: No, it will be an employee,

Mr PEARCE: What other resources will you allocate to the preparation of the manual?

Mr Maguire: The resources that we have been using to date, but it is obvious that they areinadequate and we are going to have to increase the resources,

iii. PEARCE. You obviously have aiai! way to go, Couid you give us an indicalion of when you think itcould be completed?

Mr Maguire: I would hope that we can have a manual that would be adequate by the end of the year.

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The CHAIRMAN: Have you yet advertised the position, or are you still formulating the jobdescription?

Mr Maguire: We are still formulating the job description, but we will be advertising in the near future.

The CHAIRMAN: When would you hope that someone might start?

Mr Maguire: Probably in July.

Prof. Leal: Could I add a comment at this stage? Since my arrival at the University of SouthernQueensland in January-I have been there almost five months-there has been considerable restructuring inthe senior administration. At the moment, we have advertised for the position of Bursar. We anticipate we willmake that appointment within the next four or five weeks. I simply make that comment to indicate that there hasbeen a certain amount of restructuring, but nevertheless, work on the manual is proceeding, and that will beaccelerated by the employment of someone else to do that specijic task in July.

Mr PEARCE: So you recognise the need to get on with the job and finalise it as quickly as possible?

Prof. Leal: Indeed.

Mr PEARCE: For some time, the Financial Administration and Audit Act has required a statutory bodysuch as yourself to have financial management practice manuals or an accounting manual. Has yourorganisation ever had such a manual? I also refer back to when your organisation was a college.

Mr Maguire: There has been considerable work done in that area at various times, but we have neveractually consolidated an accounting manual as such.

Mr PEARCE: How important do you think it is to have a practice manual that is up to date?

Mr Maguire: I think it is very important, and I think that is recognised by the fact that we are, perhapsbelatedly, putting the necessary resources into that area.

Mr PEARCE: With the absence of a complete and up-to-date manual, how are your staff apprised asto the practices and procedures they need to follow in performing their duties?

Mr Maguire: I indicate here-and this is relevant to the financial management practices manual-thatwhen the Public Finance Standards were first issued, we recognised that we were not going to be able to meetthe financial reporting requirements unless we updated our accounting systems. As a result, we have purchasedand are fairly well advanced in implementing a completely new accounting system, which is a comprehensiveaccounting system that covers assets, accounts payable, accounts receivable and general ledger-the wholerange of financial management areas. Obviously, when you implement a completely new system, that has someimpact on procedures. We have been developing procedures as we have implemented the new systems.

The CHAIRMAN: I would like to ask a few questions about general purpose financial reporting. ThePublic Finance Standards require that statutory bodies prepare accrual-based general purpose financialstatements. The Committee has noted that the inter-institutional working party of Queensland universities hasproduced a report detailing a standard format of reporting and establishing accounting policy guidelines coveringmatters such as asset valuation, etc. At what stage is your university in implementing accrual accountingsystems?

Prof. Leal: I can give you a general answer, but if you want details, it is best to ask Mr Maguire. Wewent over to accrual accounting at the end of last year. That is partially implemented, and the latestcorrespondence I have had from the finance department was that it would be totally in operation by the end ofthis year. I wonder whether with Mr Maguire might like to give some details?

Mr Maguire: As I said before, we have put in a new system and we are also introducing accrualaccounting which has compounded the difficulty that we are facing. The system is now almost completelyimplemented. We are in the process at the moment of moving completely towards accrual-based accounting. Weare confident that we will report at the end of this year on an accrual basis.

The CHAIRMAN: Which will be one year in advance of what the standards require?

Mr Maguire: Initially it was this year, but then it was put back a year. By the time it was put back wewere committed and we are proceeding on that basis.

The CHAIRMAN: You expect that your financial report for the calendar year 1992 will be based onaccrual accounting?

Mr Maguire: That is right.

The CHAIRMAN: Do you anticipate that those general purpose financial statements will be fullycompliant with the Public Finance Standards? .

Mr Maguire: That is our intention.

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The CHAIRMAN: How difficult are you finding the transition from cash to accrual accounting?

Mr Maguire: We are probably fortunate that we have on staff several accountants who have acommercial background and who are more used to accrual accounting than the cash accounting environmentthat they found themselves in. To that extent, we are not experiencing great difficulties at the technical level. Ithink there will be greater problems with the wider university community coming to understand the changes whichare implicit in accrual accounting, and the impact on some of the activities.

The CHAIRMAN: By that you mean there may be some problems in gaining all of the financial datathat you need from departments?

Mr Maguire: No. I do not anticipate any major problems in gaining the data. It is more a problem ofunderstanding by some people.

Dr WATSON: You are saying that you are moving to a point where all your internal management ismoving from a cash basis-for your heads of departments-to an accrual basis, and that is what they are goingto get?

Mr Maguire: I think that, to a large extent for internal management purposes, there will not be a greatdeal of change. It is probably where you move from the stricter cash in the total context to the principles of abalance sheet and the moving from the view that there is a certain amount of money available that you havespent this year which is really not necessarily applicable once you move on to accrual accounting. It is in thebalance sheet area that people will have difficulties understanding the change. As far as the operatingstatements are concerned, they will not be terribly different to what they have been used to.

Prof. Leal: From my point of view, the number of complaints that I have had have been reducing overthe last five months. I have been rather encouraged by that.

Dr WATSON: Maybe they are giving up.

The CHAIRMAN: Will there be benefits to your university as a result of the change from cash-basedfinancial reporting to accrual financial reporting?

Mr Maguire: I believe there will be.

The CHAIRMAN: Can you specify?

Mr Maguire: In many ways the accrual basis is a more accurate measure of expenditures andrevenues than the cash basis. On the cash basis there were some distortions that are not obvious to people andthey will largely be eliminated under the accrual basis.

The CHAIRMAN: What stage have you reached at your university with respect to the valuations ofassets?

Mr Maguire: We have had professional valuations of all buildings done now for some years. Theworking paper document that you referred to earlier redefined the definition of equipment. We have notaddressed valuations there at this stage, but I would expect that we will very likely use a professional valuer toundertake that work.

The CHAIRMAN: Have you developed a planned timetable for trying to do that valuation of plant andequipment?

Mr Maguire: The assets are only just being loaded into the new system. Once we get them in then wewill look at what we have there. I would not think from my experience that we would have any problems in gettinga professional valuation between now and the end of the year.

The CHAIRMAN: Do you know whose job it will be to undertake that work? Will it be someone youcurrently have?

Mr Maguire: At present, we have been using Casagrande and Associates. There has not really beena decision made on whether we will continue with them. We have had proposals from other valuers.

The CHAIRMAN: Because of inadequate accounting controls over non-current assets, the 1990accounts of your former university college were qualified by the Auditor-General. The Auditor-General reported anumber of system and procedure deficiencies to Parliament and stated that the question of asset managementis one requiring serious attention to en.sure compliance with the Public Finance Standards. The Committee wouldlike to know whether these issues have been fully addressed. Do you now maintain a financial control accountover your register of non-current assets?

'.'r tj'ag:.:ir~: \AJith the ;mp:ementation of the ne,v system it is, in fact, U'.e case H"jat tj"H:: assets registeris fully integrated with the general ledger so that the control account is actually the general ledger account forassets. Yes, we will reconcile those accounts.

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The CHAIRMAN: That reconciliation should be able to be done this year?

Mr Maguire: We will do it on an ongoing basis so that it is up to date.

The CHAIRMAN: Is an inventory check of the university's non-current assets, such as plant andequipment, undertaken at least annually?

Mr Maguire: That has been done within the last six months, and we will continue to do that in thefuture.

The CHAIRMAN: Do you have procedures in place to ensure all purchases of equipment are enteredinto the university's asset registers?

Mr Maguire: Yes.

The CHAIRMAN: Can you explain what those procedures are?

Mr Maguire: Whether they are an item of equipment to be entered is identified at the point ofpurchase by coding. Once it is identified there, then there are procedures to follow up and ensure that all thenecessary data relevant to that asset is entered into the assets register.

The CHAIRMAN: The Auditor-General also reported that procedures had not been adopted to ensurethe correct transfer of data from your manual asset register to a new computerised asset register. Further, hereported that certain assets, which had been written off, had not been deleted from your asset register. Haveyou taken steps to attend to those problems?

Mr Maguire: Yes. As the basis for the creation of the new computerised assets register we haveundertaken a complete stocktake or inventory check of the assets as a starting point.

The CHAIRMAN: Appropriate additions and deletions have been made from the manual register?

Mr Maguire: Yes.

The CHAIRMAN: Do you have systems in place which enable depreciation on non-current assets tobe readily determined?

Mr Maguire: That is part of the new assets system. It will automatically calculate depreciation.

The CHAIRMAN: Do you have systems in place which enable employee entitlements to bedetermined and provided for?

Mr Maguire: We are in the process at the moment of attempting to decide on a new payroll systemand that is one of the issues that we are addressing in the decision relating to that purchase.

The CHAIRMAN: Basically, you are considering a new computerised payroll system?

Mr Maguire: Yes.

The CHAIRMAN: Which will take into account future employee entitlements?

Mr Maguire: Yes. With our existing systems, we have a system that calculates long service leaveentitlements and we know how many days have accrued in sick leave, but we do not have a system of easilyconverting that to a monetary value.

Dr WATSON: Just to finish off the topic of accrual accounting before moving on, have you thoughtabout the issue of intellectual property? I know it is an important part of universities? Does the university havean evaluation and a way of putting that into the accrual accounting system?

Mr Maguire: We have not specifically addressed that within the university at this stage.

Prof. Leal: We are certainly considering that, especially since the university is moving into the areaof research rather more strongly than it has in the past.

Dr WATSON: That is right.

Prof. Leal: In fact, inquiries have been made. This is not related specifically to the finance office, butinquiries have been made about the practice in other universities, particularly in myoid university, MacquarieUniversity. The matter is being pursued, but I am not aware that we have plans to include that in theresponsibilities of the finance office. That is something I have not quite thought about, except as far ascontracts are concerned. Is that the sort of thing you are getting at?

Dr WATSON: They vary, of course. One of the things is patents and things like that. I am not quitesure about USQ but at the University of Queensland, which I know something about, contracts were beingestablished between the academics and the university in relation to sharing future profits and things like that.That was the kind of thing I was thinking about in terms of the valuation because that is an asset. Perhaps in thelong run, it may be a particularly valuable asset of the university.

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Mr Maguire: I think at this time there are very few of those types of things within our university.

Dr WATSON: Vice-chancellor, I would like to move to the issue of program management. I will start byasking you a question about the strategic plan. In a letter to the Committee, you stated that the university doesnot yet have a strategic plan but indicate that a five-year plan is being prepared. I wonder if you can inform theCommittee of exactly what stage the university has reached in the development of a strategic plan.

Prof. Leal: Yes. Quite a lot of work has been done on this in the last few months. We are at the stageof finalising the five-year strategic plan. In fact, within the next couple of weeks, that should be finalised. Thestage has been reached, I think-and I say "I think" because I have been away from the university for the last 10days-at which it has gone out to strategic areas of the university for comment, but it will be in place within thenext couple of weeks.

Dr WATSON: And that will be from 1992 to 1997, or is it 1993 to 1998? What is the time frame?

Prof. Leal: We start at the beginning of next year, so it will be five years from then.

Dr WATSON: Your letter informed the Committee that your university activities are groupedaccording to common purposes or programs for management decision and resource allocation purposes. Wouldyou like to give us an idea of exactly what the program structure is now at the USQ?

Prof. Leal: Yes. I have some difficulty with the word "program". I am not quite sure how to divide upthe university's activities into different programs. As far as the academic program is concerned, there are sevenschools and almost all our academic activities are included there. I say "almost" simply because there is onecentre which is separate from the schools. We have a certain number of cost centres apart from the academicarea. I am a little bit doubtful about how to categorise our programs in the way that you require.

Dr WATSON: I think that this is an issue. Certainly, yesterday OUT spoke about exactly the sameissue. One can think of a degree program; undergraduate versus postgraduate versus other kinds of academicprograms. One can think of teaching versus research versus administration as programs of a university. Eachof those perhaps has a different implication for how you structure and how you coordinate them in a financialsense. Do you have any preference at the university? How would you like to see programs defined so that youcan actually meet standards?

Prof. Leal: That is a question of the way you cut your cake, actually. I think we cut our cakesdifferently from time to time but, obviously, the undergraduate may be considered as one area, and then we tendto associate the research activity with postgraduate work-not necessarily, but we tend to, especially if thatpostgraduate work is research rather than course work. I think those would be two areas that we would tend toseparate. I suppose there is also the area of consultancy and other contact with outside bodies. Once again,that tends to go into the postgraduate area, but not necessarily so.

Dr WATSON: Yesterday, QUT indicated that they would be happy if programs were defined accordingto faculties, if I recollect what Dennis said yesterday. Would you be happy if the program was interpreted asbeing related to your schools?

Prof. Leal: I think that is the most logical way to look at the academic programs. It is just two totallydifferent ways. We have obviously got a range of activities from engineering across to education and arts andcreative arts, and so on. Within all that, of course, you have the undergraduate element and the postgraduateelement, but the basic division, I suppose, should be on the grounds of schools or faculties and disciplines. Ijust do not think that you can have one or the other, actually, even though yesterday I was at a committee inSydney and there were a number of postgraduate students who were pushing quite hard for the establishment ofgraduate schools in universities on the US model. That is something which has not really come into the system inAustralia. It may in the future, but to have that you need to have a very strong graduate program across all theschools.

Dr WATSON: That is right. One of the important principles of program management is a need to havean appropriate set of performance indicators which should be part of a strategic plan. The practice statements ofthe Public Finance Standards require that programs be reviewed 'in terms of key performance indicators annuallyand at such other times as are appropriate. I guess the question we would like to know the answer to is, "Will yoube formulating a set of performance indicators in conjunction with the development of your strategic plan?"

Prof. Leal: I think the answer is, quite clearly, "Yes." The three traditional areas of universityactivity-at least in the academic area which we are talking about at this stage-tend to be teaching, researchand what is generally called service to the community. I am not terribly happy with that last term because I thinkour principal service is precisely in teaching and research. but IT tends to be separated into other areas ofservice to the community. We have some mechanisms in place to encourage teaching. There are awards forteaching, for example, and also there are appraisals of staff that take place. I think that is done annually at thisstage. That system has been more or less forced on even though there is not much I

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suspect. In the area of teaching, we have already moved a certain way along that path.

In the area of research, there is more to be done, but that is being incorporated into the strategic plan.In other words, we are giving some encouragement to schools financially, actually, for the research activity thatis generated over a particular period. In other words, the finances that are given to schools will contain a bigelement for teaching and a smaller element for research, and that research element may in fact increase as timegoes on and there will be certain ways of calculating the performance in research, so it will be in the interests ofthe schools to move gradually into that area. In the third area, that of other service to the community, I supposethat is built into our promotion procedures to some extent, but there always tends to be in universities a thirdadditional element that is not one of the principal two. I agree with that, even though I recognise the importanceof the relation of the university to the community. I cannot say that we have had any performance indicators assuch in that third area except in so far as they are counted in a not very precise way in questions of tenure orpromotion.

Dr WATSON: Are you going to try to develop those in a more formal sense and link them into thestrategic plan of the university, or are you going to leave them, as probably most universities are-I agree withyou-in the other section for the promotion?

Prof. Leal: It is very difficult to quantify things such as "other service to the community". My view isthat what one should expect of an academic is adequate-in fact, good-performance in teaching and alsoresearch. The balance, of course, between those two is to be determined. I would be very reluctant to imposesome sort of service component on all academics. If they fulfil those first two very well, I think that their serviceto the community is as much as one can expect.

Dr WATSON: Here we are really talking about the university's performance, not necessarily each andevery academic member.

Prof. Leal: I think it is very important. In fact, we have taken a lot of steps over the years-I havemade a few steps this year-to relate to the community and to serve the community in specific ways. I would findit very difficult indeed to evaluate in some sort of objective way the service component of an academic's work. Iwant to recognise it, but it would be very difficult to quantify.

Dr WATSON: How do you appraise the effectiveness and efficiency of your university programscurrently defined by schools and faculties?

Prof. Leal: I am not altogether aware of what has gone on in the past. I have certainly got some idea.Perhaps Mr Maguire can confirm this. First of all, there are relationships between the professional faculties andprofessional bodies, particularly of accounting and engineering. There is a necessary relationship betweenthose schools and the professional accreditation bodies simply to ensure that we can keep accreditation. Thathas to be kept in perspective, because we simply do not blindly follow the requests of such bodies. We like topreserve our autonomy. I think that probably that attitude is respected by the professional bodies. At that levelthere is a watch on the curriculum that we teach. In other areas I suppose there is relationship between theuniversity academics and outside organisations. With engineers, for example, every so often there arecommittees to look at the performance of the school and they tend to involve professionals. That is apart fromthe professional accreditation bodies.

Dr WATSON: At the moment, how do you as a vice-chancellor evaluate whether or not you believe aparticular school is performing satisfactorily? Are they carrying out their programs in an effective way or anefficient fashion in terms of the use of resources that have been allocated to them? I realise you have only beenthere for five months, but I would have thought that that was one of the things you might have had someinformation on. You might have spoken to the deans about the issue or something like that?

Prof. Lea I: At great length, in fact. My own impression is that we appraise-that is the word thesedays-the programs that we offer rather too much. The current regulation is that every course-every unit-thatis taught is appraised every year. I think that is too much. It is probably a waste of time and resources. A verycareful watch is kept on courses and this tends to be by the students. The students will fill in questionnaires andgive their impressions of the courses that they have been following. Rather than there not being enough, I thinkthere is too much at the moment, to the extent that we probably are preventing ourselves from seeing the biggerpicture by concentrating on the individual elements. That is just my general impression over the last few months.The other point about research-research is becoming more important. I think that it is true to say that peoplewho are doing research are given credit for that now quite clearly. The people who are not doing researchperhaps need to be followed up. In other words, we are identifying the higher fliers but perhaps not the others.

Dr WATSON: The practice statements to the Public Finance Standards require that a comprehensiveevaluation of all programs be undertaken within the three-year period ending 30 June 1993. It is also arequirement that the results of all program reviews and assessments conducted during the year be reported to

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· your Minister and that appropriate evaluation comments be given in your annual report. Your letter indicates thatyour university is not at the moment complying with these requirements. Do you believe that you should meetthese requirements and do you intend to follow them in the future?

Prof. Leal: Yes. I think if we can get a clear picture of what is meant by the program in the universityenvironment, I would not see much objection to that at all. In fact, I think it is reasonable.

The CHAIRMAN: Treasury has a Program Management Branch which has provided some advice todepartments on the implementation of program management. Have you heard of them or are you aware that theyexist?

Prof. Leal: No. Perhaps I should add something else. There is a fair amount of pressure coming fromCanberra as well on this whol~ area of quality. "Quality" is one of the watchwords these days. You have probablynoticed this yourself in the press. There is a great deal of pressure for universities to d~fine quality in theirenvironment. I must say that there is also a great deal of resistance to that. I can understand both sides. Theworry from the university's point of view is that, if you try to define "quality" in quite clear categories, you maywell end up by missing the essential part of university education simply because you exclude what cannot bequantified. That debate is raging, that is probably the best way to describe it. I mention that simply because thatprovides some sort of focus for the sorts of things that we are talking about.

Dr WATSON: Program management is a particular management technique. Do you think it isappropriate for the Public Finance Standards to mandatorily require statutory bodies such as your university toimplement a program management system?

Prof. Leal: I think in general terms it may well be. There is the question of accountability ofuniversities to the community, which I accept and agree with. I think it is a question of how precise you have tobe for an organisation like a university, which is unique in the community in the sense that it is difficult to relate itto statutory bodies, to Government departments and so on. As long as that difference is recognised, I do notsee too much problem. But the real question, I think, is in identifying that difference and perhaps modifying someof the requirements accordingly.

Dr WATSON: Do you think that difference is not recognised currently in the standards?

Prof. Leal: I think I would like to turn that over to Mr Maguire. Certainly the feeling is very muchabroad that it is not recognised sufficiently. I have had discussions with some of the people on our staff alongthose lines and I simply have the general picture that some of those standards are not appropriate. For thedetails, I wonder whether Mr Maguire might have something to add.

Mr Maguire: My perception of the standards is that they appear to basically be developed withGovernment departments in mind. I am not sure how much thought has gone into their application to statutorybodies and universities, which is one group of statutory bodies, but there is obviously an enormous range ofstatutory bodies around, some very large and some very small. I think there is a difficulty in trying to apply theone set of standards to every situation.

The CHAIRMAN: Before we leave this topic, program management is one aspect of the standardsthat does have to be complied with, and obviously for universities there is a number of issues about whatprogram management is. At this stage, there seems to be little discussion about it at your university. Theuniversities have obviously got together to try to come to grips with accrual accounting and provide a standardformat. Has there been any discussion within the universities about how to deal with some of the other aspectsof the standards, both some of the technical aspects in terms of things like system appraisals that we might geton to next, and some of the broader issues like program management?

Mr Maguire: There has been no formal discussion to my mind. The main work has been done on-­

The CHAIRMAN: Accrual accounting.

Mr Maguire: Yes, on meeting the financial reporting requirements.

The CHAIRMAN: So that has been the main objective?

Mr Maguire: Yes.

The CHAIRMAN: And there has probably been little discussion about some of the other aspects ofthe standards?

Mr Maguire: I think that is true.

Dr WATSON: Has it been raised with the Vice-chancellor at a regular meeting at the QueenslandUniversity?

Prof. Leal: Not so much in the financial area, but I come back to the academic area. It certainly hasbeen raised at any recent Vice-ehancellors committee or a subcommittee of that. There is strong feeling

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about that. For example, how would such a State body review the program in a department of philosophy? It isnot that that particular department, say, should not be accountable; it is a question of how you measure itseffectiveness and what test do you put its graduates through to ensure that the teaching has been doneproperly? In other words, it is trying to define clearly and objectively the qualities that a graduate, particularly inan area like that, should have at the end of the road. It is a problem that is being grappled with. Those are thesorts of limitations that I think we have got on program management.

With the more technical or professional areas, there is not so much of a problem because we can pointto the fact that our accountancy courses, for example, and engineering and so on are recognisedprofessionally. It is just those other areas, which a lot of people think of as being at the heart of the university,that make the problem difficult. That is certainly discussed a lot by vice-chancellors.

Mr PERRETT: I would like to refer now to system appraisals. The Public Finance Standards requirethat all your university's revenue, expense, asset, liability and equity systems be appraised each year todetermine the proper functioning of controls and the appropriateness of procedures followed. Your letter statesthat your university has not implemented the system appraisal requirements of the Public Finance Standards.Why are system appraisals not performed, and what do you propose to do about it?

Mr Maguire: I think I have got to come back to the fact that we have gone out and purchased acompletely new system. I suppose to that extent we did do some kind of appraisal and decided that what we hadwas not adequate. The response there is probably technically correct in that we are still in the process ofimplementing the systems that we have purchased. To comply, we will need to undertake some form of review ofjust how the systems are working on an annual basis from henceforth.

Mr PERRETT: Do you perceive that the implementation of system appraisals would be of benefit tothe management of the university?

Mr Maguire: There is some discussion about who should do the system appraisals in the universityand whether there is some overlap with internal audit and just where those two meet. Unless that is clearlydefined, there is a danger of overlap and inefficiency as a result with more than one person supposedly doing thesame thing.

Mr PERREn: Will the system appraisal process create added costs for you?

Mr Maguire: I do not believe we can do it without additional resources. Somebody has got to do it.

Mr PERREn: Would you have any idea of just how much in additional costs might be involved?

Mr Maguire: No, I have not done any firm estimates of that at this stage. We have been focusing ongetting the system in.

Mrs BIRD: The Public Finance Standards require that statutory bodies such as your universityundertake position assessments of their revenue, expenses, assets, liabilities and equity. Generally, theseposition assessments need to be done quarterly, but there are some exceptions such as non-current assetswhere an annual assessment is required. To what extent have the position assessment requirements of the PFSbeen implemented at your university?

Mr Maguire: I think in relation to the specifics tllere are probably sorlie deficiencies. But for sometime now we have undertaken a formal quarterly review of the annual operating budget which encompasses a lotof the things that are talked about in those position assessments. Probably what we are not doing is performingthe position assessment as formally in some ways as is required. To formalise it, it is probably not going to be asignificant problem in most areas. Obviously in reviewing the operating budget, we are looking at revenues, andwe are looking at expenses.

Mrs BIRD: You are aware of the requirements of the Public Finance Standards with regard to theposition assessments?

Mr Maguire: Yes.

Mrs BIRD: It is almost two years now since the Public Finance Standards were introduced. Why hasyour university not acted to implement the position assessment requirements of the standards?

Mr Maguire: I think we have probably considered that what we were doing was largely meeting them.

Mrs BIRD: In compliance- with them?

Mr Maguire: Yes. We have probably, in more recent times, looked more closely and realised thatperhaps there are some deficiencies in what we are doing in strictly meeting the requirements.

Mrs BIRD: Are they large deficiencies?

Mr Maguire: No. As I said, I think a lot of it is really in the formality that is required by those

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standards. A lot of it can be complied with simply by formally doing some of the things that the standards require.

Dr WATSON: You are currently doing things, but not in a formal way?

Mr Maguire: I think we are doing them, but in a rather informal way.

Mrs BIRD: Would they have been on a quarterly basis?

Mr Maguire: They are on a quarterly basis.

Mrs BIRD: So you do plan to comply with the standards?

Mr Maguire: Yes.

The CHAIRMAN: How long have you been doing those quarterly budget reviews? It sounds like youare doing a budget review of expense and revenue?

Mr Maguire: Yes.

The CHAIRMAN: Which is a fair component of the position assessments. How long have you beendoing those?

Mr Maguire: On a quarterly basis, I think we have probably been doing them for three or four years.Before that we were still doing them, but not on a quarterly basis. It was more like three times a year.

Mrs BIRD: That is a fair way down the process?

Mr Maguire: Yes.

Mrs BIRD: What benefit do you perceive the position assessment processes required by the PublicFinance Standards would be to the management of your university?

Mr Maguire: I think they are largely the reasons that we do the quarterly reviews that we have beendoing. You need to look at whether your estimates which you made some time ago are still valid and that thingsare on course. If they are not, you need to take some action to get back on course.

Prof. leal: From my perspective, very valuable.

Mrs BIRD: Do you want to elaborate on that?

Prof. Leal: It is just that the Vice-Chancellor is responsible for almost everything. So it is importantthat he or she should know what the situation is. I think that what Mr Maguire said is perfectly correct, that weare most of the way there. It is just that with this changeover to this new system, there are all sorts of bits andpieces that are not quite as clear as they might be. But I am looking forward to the day when it is quite clear.

Mrs BIRD: Earlier this year, Treasury conducted a number of workshops. Did any of the staff from theuniversity attend those workshops?

Mr Maguire: Yes, I attended two.

Mrs BIRD: Did you find them beneficial?

Mr MagUire: I was disappointed in the content of them generally.

Mrs BIRD: Did you find them helpful in any way?

Mr Maguire: I found them of limited help. I think one of them touched on some areas that may nothave been specifically related to the Public Finance Standards, which was of interest because it was somethingthat I was unaware of. But I do not know that they added too much to my knowledge of the Public FinanceStandards or their requirements.

The CHAIRMAN: There was one workshop conducted specifically on position assessments, andwhat is required, I suppose.

Mr Maguire: Yes.

The CHAIRMAN: Were you at that one?

Mr Maguire: Yes.

The CHAIRMAN: Was that of use in clearly outlining what the requirements are for your university?

Mr Maguire: I think the general feeling from the participants in that was that what was being proposedby Treasury was not appropriate for universities in performing those position assessments.

The CHAIRMAN: Has there been any avenue to discuss that with Treasury-what you consider to beinappropriate to universities? Has it been raised perhaps with other universities?

Mr MagUire: It has been discussed. between universities. At the end of that workshop, they asked forresponses. From what I could gather from the participants, there would not have been too many favourable

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responses to the workshop.

The CHAIRMAN: I presume that if there is some resolution for the universities in terms of interpretingwhat position assessments are, universities will have to comply fully with the technical details of a positionassessment which, as you know, requires the quarterly assessment of revenue, expense, liabilities, assets andequity. I am just wondering if anybody is trying to pursue this issue on behalf of the universities, or whethereverybody has given up. Either you have to comply, win some lenience or some altered guidelines foruniversities, or presumably be found in 18 months' time again to be non-compliant.

Mrs BIRD: I understand from the Vice-Chancellor that he is looking forward to the positionassessments.

Prof. Leal: I am looking forward to a clear statement. I mean, it is going to make my job easier.Whether that implies following each of the requirements is a different matter.

The CHAIRMAN: As far as you are aware, the issue is not really being pursued?

Mr Maguire: I am not aware of any pursuit of it, but I recognise what you are saying. Perhaps weshould be pursuing it to get at least some agreement between some of the parties involved as to what therequirements might be.

Dr WATSON: Did you receive a draft copy of the Finance Standards?

Mr Maguire: When they were originally issued?

Dr WATSON: When they were issued in draft form.

Mr Maguire: In early 1990?

Dr WATSON: Yes.

Mr Maguire: Yes, I believe we did.

Dr WATSON: Did you make comments on the draft at that stage?

Mr Maguire: No, we did not.

Dr WATSON: Given the problems with them now, did you not perceive them at the time.

Mr Maguire: I think the reason that we did not was that the time that was allowed was fairly limited,and we really decided not to put the resources that would have been necessary to make a response in the timerequired.

Mrs BIRD: In preparing the position assessments in compliance with the Public Finance Standards,will that create an additional cost for the university.

Mr Maguire: That is probably going to be dependent upon what agreement is eventually reached as towhat the specific requirements might be. Whether there will be an additional cost will depend upon how muchadditional work we find that we need to do over and above what we are currently doing to meet whatever therequirements are.

Prof. Leal: I suspect that one of the problems is the interpretation. I do not know a great deal aboutthe specifics, but just from what I have read and heard there IS a question of interpretation for the Universities,not so much complying but what is actually meant.

Mrs BIRD: In respect of terminology?

Prof. Leal: Yes, I think so. This is just my general impression. In fact, I was wondering whether Icould ask a question. If in fact the universities do get together and decide what is and is not appropriate, towhom do they make representations?

Dr WATSON: I guess at the moment we have a public inquiry--

The CHAIRMAN: That is one issue that we are interested in. Treasury is obviously going to playakey role in interpreting these things. But how much latitude they have in interpretation-I mean, they are PublicFinance Standards, and it is policy that they be complied with.

Mr Maguire: I think that the Auditor-General would playa role in the interpretation.

Mr J. H. SULLIVAN: If! could ask a couple of questions in relation to internal audit, your letterstated that you established an internal audit function in August of last year and that the only projectsundertaken have been special investigations. Public Finance Standard 610(3) specifies a range of work whichshould be incorporated in the annual internal audit work plan. When will your internal audit function be able toundertake this range of audit duties?

Prof. Leal: I would have hoped that it would have started to undertake that before this. It is simply

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that the special investigations-as we state in question 11-have taken a lot longer than we imagined. I havehad a number of conversations with our internal auditor on this, and I would hope that within two or three monthshe will get onto the functions that I regard as appropriate for an internal auditor rather than the specialinvestigations that he has been immersed and almost submerged with to date.

Mr J. H. SULLIVAN: Do you feel that you are adequately resourced in the internal audit function toenable you to properly fulfil those functions?

Prof. Leal: Up to now, no, because of this other work that has been done. I would anticipate that inthree months' time we will have one full-time person doing this work, and I would hope that that would besufficient.

Mr J. H. SULLIVAN: What qualifications does your internal auditor hold?

Prof. Leal: I am not sure of the details, but he is certainly a qualified accountant.

Mr Maguire: Yes, he is a qualified accountant. His background was initially with the New South WalesAuditor-General's Department and, more recently, with some relatively large private enterprises.

Mr J. H. SULLIVAN: This question will probably be fairly difficult for you to answer at this stage, butis your internal auditor ever called upon to take on non-audit duties such as relief in vacant line positions or to fillother staff shortages?

Mr MagUire: No, he has never been called upon to do that.

Mr J. H. SULLIVAN: Public Finance Standard 400 requires that the internal audit function beconsulted when computerised systems are in the specification and development phases and beforeimplementation. Have you been doing this?

Mr Maguire: Yes, we have consulted with the Auditor-General's Department before and during theimplementation of the systems.

Mr J. H. SULLIVAN: Finally, how important do you feel internal audit will be to your management ofthe university?

Prof. Leal: Very important, I think. Probably an indication of that is the fact that there are very fewpeople, apart from the four head of divisions, who report directly to the Vice-Chancellor. We have the four headsof divisions-that is, two Deputy Vice-Chancellors, the Registrar and the Bursar. That is all coming togethernow. Apart from that, only two people report directly, or at least through the Vice-Chancellor, to the auditcommittee. The internal auditor is one of those people. The other one is a person responsible for communityaffairs, who is yet to be appointed. An indication of the importance that I would attach to it is that I want theinternal auditor to report through me to the audit committee, as is required.

The CHAIRMAN: Professor Leal, the Public Finance Standards require that competitive procurementarrangements including, wherever possible, those required by the State Purchasing Policy be established. Doesyour university comply with the requirements of the State Purchasing Policy?

Prof. Leal: I think so, but perhaps I should ask Mr Maguire.

Mr Maguire: We are still waiting for the final copy of the State Purchasing Policy. We believe that it isnow available and we have ordered it. We have been complying with the requirements of the draft policy that hasbeen available.

The CHAIRMAN: Do you find the requirements of the Public Finance Standards to be overlyprescriptive for the administration of your university?

Prof. Leal: Yes.

The CHAIRMAN: Do you think that the Public Finance Standards should provide for more flexibility intheir application, especially for statutory bodies?

Prof. Leal: Yes. That is a stronger "Yes" than the first one.

Dr WATSON: Why and in what respects?

Prof. Leal: That has probably been covered by the discussion-at least the second one. I had aslight hesitation after that first one. It is because of the question of interpretation.

The CHAIRMAN: Are you satisfied with the role Treasury has taken with regard to the implementationof the Public Finance Standards into the public sector?

~rof. La.. !: I would like Mr Maguire to answer that one. There have been suggestions of someproblems between departments-or among departments, even. Treasury has been involved there.

The CHAIRMAN: In your letter, you were critical of the level of consultation by Treasury. I suppose

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that is what I am asking about, specifically.

Mr Maguire: Yes, we referred specifically to the amendments that are proposed. We found out aboutthose through some informal communication channels after the closing date for comment. There have beenother problems, some of which I think have been at least partially overcome, in that Treasury has adopted theview that they will communicate to departments and the departments will communicate onwards to statutorybodies. Where the problem lies is not necessarily clear, but I do not think that all the communications fromTreasury have always reached the statutory bodies in a timely manner.

The CHAIRMAN: This next question may follow on from that. The Committee is interested as to theprocess by which statutory bodies are made aware of new requirements with respect to their financialadministration. Could you describe for us the communication channels and the consultation processes whichoccur when new requirements such as the Public Finance Standards or legislative changes occur? How do youthink you are supposed to hear about those things?

Mr Magu ire: The current channel, I understand, is that communication goes to the EducationDepartment and an officer in the Education Department is responsible for then communicating with the statutorybodies.

The CHAIRMAN: But that channel has not worked particularly well?

Mr Maguire: I think there was some confusion initially as to who in the Education Department wasresponsible for the communication.

The CHAIRMAN: Do you know whether there has been any progress in sorting that out for the futureor is it still a bit of a grey area?

Mr Maguire: I understand that it has been resolved, but it is a bit hard to know whether you have notreceived communication.

The CHAIRMAN: So, recently there has not been a successful channel of communication to confirmit has been fixed?

Mr Maguire: No.

The CHAIRMAN: Professor Leal, are there any other issues concerning the Public FinanceStandards that you would like to raise with us?

Prof. Leal: I do not think so, no. Can I give Mr Maguire an opportunity to answer that one, too?

The CHAIRMAN: Yes.

Mr Maguire: I think we have covered most of the issues.

Mrs B I R0: Professor Leal, earlier you mentioned some obligations from the CommonwealthGovernment. How do you find that those have been an interference, if you like, in the introduction of most of thePublic Finance Standards? Do you find that as being a delaying factor or that it created a problem? I want toclarify a comment that you made earlier.

Prof. Lea I: I do not think it has really overlapped. I think it is just that we have to devote moreresources to responding to these things just getting somebody else to chase it up. I am referring basically tothe academic area. It really does not relate to the financial area.

Mrs BIRD: I misinterpreted what you said.

The CHAIRMAN: In relation to interpretation of the Public Finance Standards-you have indicatedthat, in general terms, the university will be able to comply with accrual accounting and, in general terms, withthe standards, depending upon interpretation of some matters. As specifically as possible, could you outline theexact areas where you may have trouble complying and with which you may also think it is inappropriate for youruniversity to comply?

Prof. Leal: I would say it was just that program-but that is the interpretation.

The CHAIRMAN: What about position assessments?

Mr Maguire: It is in the program-the position assessments.

The CHAIRMAN: What components of position assessments?

Mr Maguire: The question of systems appraisals-this may be an internal question of delineatingwhat the internal auditor's responsibilities are and what somebody else's responsibilities are. It is clear under thePublic Finance Standards that it is intended that it be somebody other than the internal auditor who undertakesthat process.

The CHAIRMAN: I think that that is the desired option, but it is allowed for the internal auditor to

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perform a system audit. Thank you very much, Professor Leal and Mr Maguire, for your evidence. I now adjournthis hearing. We will recommence at 1.30 p.m.

The Committee adjourned at 12.09 p.m.

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The Committee resumed at 1.32 p.m.

The CHAIRMAN: I reconvene this hearing. On behalf of the Committee, I welcome the witnessesfrom the Queensland Corrective Services Commission, Mr Hamburger and Mr Taylor. Before commencing to giveevidence, I am obliged to inform you that the proceedings here today are legal proceedings of the LegislativeAssembly and the Committee requires that your evidence be given on oath or affirmation.

ROBERT KEITH HAMBURGER, sworn and examined:

GARY WILLIAM TAYLOR, sworn and examined:

The CHAIRMAN: Mr Hamburger, could you please state your full name, place of employment, andthe title of the position you hold?

Mr Hamburger: My name is Robert Keith Hamburger. I am the Director-General of the QueenslandCorrective Services Commission.

The CHAIRMAN: Mr Taylor, could you please state your full name, place of employment, and the titleof the position you hold?

Mr Taylor: My full name is Gary William Taylor. My title is General Manager, Finance andAdministration. I work for the Queensland Corrective Services Commission.

The CHAIRMAN: By way of introduction, I will read a brief statement. The Parliamentary Committeeof Public Accounts is an all-party Committee of the Queensland Parliament whose purpose is to scrutinise andprovoke reform of the financial administration of the public sector and to ensure that Executive Government isaccountable to Parliament. The Committee conducts its business in accordance with the Public AccountsCommittee Act the Standing Rules and Orders of the Legislative Assembly relating to select committees. TheCommittee is presently conducting an investigation into the implementation of the Public Finance Standards indepartments and statutory bodies. These standards are issued under the Financial Administration and Audit Actand commenced operation on 1 July 1990. The Committee has a particular interest in the requirements of thestandards relating to financial management practice manuals, position assessments, system appraisals,program management, internal audit, and the move to general purpose financial reporting by businessundertakings and statutory bodies. The use of private consultants in implementation of the standards is also ofinterest to the Committee. I inform you as witnesses that you are required here today to answer all questionsrelevant to the subject matter of this inquiry. The Committee would like you to answer its questions frankly, andto provide it with an accurate and clear view or your organisation's position on the issues canvassed. MrHamburger, both I and members of my Committee will direct questions to you and you may answer them or, if youfeel it appropriate, refer them to Mr Taylor.

Mr PEARCE: We will refer to the financial management practice manual. The Public FinanceStandards and the Financial Administration and Audit Act require each department and statutory body to have afinancial management practice manual which prescribes the practice and procedures etc. to be followed by staffin the financial administration process in their particular organisation. These manuals are a key element of theoverall financial management policy and principles upon which the Public Finance Standards are based. In yourletter to the Committee, you state that a draft manual was issued in September 1990 and that an updated versionwould be issued in Mayor June of thiS year. Could you tell the Committee what the current position IS Withrespect to that updated manual?

Mr Hamburger: Yes, it will be released by 1 July this year. Our current manual, which you arewelcome to have a copy of, is the one, the draft manual, that was issued in September 1990, and that is the onethat our financial managers throughout the commission are actually operating to. As a result of their experiencewith it and the reviews that we have generally done of it, we will be publishing a revised version of this documenton 1 July.

Mr PEARCE: In relation to the stores procedures in the manual which you stated was currently beingrewritten, could you tell us where we are with that as well?

Mr Hamburger: Could I refer that one to Mr Taylor?

Mr Taylor: There has been a stores practices and procedures manual issued and that basicallyendorses the State stores policy.

The CHAIRMAN: Is that included in that?

Mr Taylor: No, it is a separate document.

Mr PEARCE: To whom are the copies of the financial management practice manual distributed? Is themanual readily accessible to all staff if they have a need to refer to it?

Mr Hamburger: We have about 75 manuals in existence throughout the commission and they are

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basically issued to our finance and administration managers in each of the cost centres, that is, at thecorrectional centres, and in the regions of community corrections. Gary might like to elaborate on just where itgoes.

Mr Taylor: Probably, they are mainly stored in the administration and finance area, but they arereadily accessed if anyone wants access to them in those centres.

Mr PEARCE: Do the staff take advantage of that? Do they access these manuals often?

Mr Taylor: They do on particular items. For example, if they want details on how to handle petty cash,or travel advances or something, they will come and refer to the manual.

Mr PEARCE: What about the updating of manuals? 06 you find it difficult to keep them up to date?

Mr Taylor: That is always a difficult task. It is one of those ones that probably falls behind more thananything because it is not a daily function. It has to be consciously looked at every two or three months.

Mr PEARCE: In saying that, how important do you think it is to keep it up to date?

Mr Taylor: As soon as there are any changes to legislation, it is automatically updated, or if there areany major change to Government policy, like when the State stores policy came out, we updated the version.

Mr PEARCE: You see it is important to move on that as quickly as you can?

Mr Taylor: Yes.

Mr PEARCE: Do you find that your practice manual is beneficial to the financial administrationprocess of the commission?

Mr Taylor: I would have to say it is, seeing as I am one of the main ones who put it together. As withany manual, I suppose a lot of people would just see it as a shelf document that they put on the shelf and onlyrefer to when they have a particular query or they want to make sure they are doing the right thing.

Mr PEARCE: I suppose the key thing is that the staff know it is available and they make use of it.

Mr Taylor: In the update, what we are trying to do is make it a bit more user friendly and have a muchbetter index so that they can find certain things a lot easier. The main criticism of the current draft manual hasbeen that it is difficult to find the exact section you are looking for quickly.

Mr Hamburger: I have one thing to add to that, if I could. We are in the process of definingperformance accountabilities right across the commission for our management staff, and as far as the financialadministration managers are concerned, one of the key performance accountabilities will be to ensure that theirfinancial practices meet the standards that are prescribed in this manual. They will be reviewed on that on a six­monthly basis.

Dr WATSON: I would like to move to questions of program management. I notice in your reply to theCommittee that you said the commission does have a strategic plan covering a five-year period. Is that for 1991to 1996?

Mr Hamburger: It actually was from the commencement of the commission in December 1988through to 1993, but we are pushing it three years out from each year.

Dr WATSON: How available is the commission's strategic plan to staff? Are they aware of thecommission's goals and what part each of them has to play in achieving those goals?

Mr Hamburger: Yes. We have published two public documents which we have released widely, notonly to staff, but also to stakeholders. The first was in September 1990, which was our philosophy and directiondocument, which sets out the mission of the commission, its goals, its key result areas. That was widelycirculated to staff and, in fact, training sessions were conducted right across the commission to acquaint themand our stakeholders with the philosophy and direction of the commission. In recent weeks, we have released afurther updated strategic plan, because we have changed the programs under which we operate. If I could justmake a general comment before I come back to the specifics there. I believe that one of the strong pluses of thePublic Finance Standards is that it does force an integratio'n of strategic planning and financial planning,because it does link in and it makes managers look at their budget in the context of the goals and objectives andprograms. That has been a problem with public service accounting in the past, I believe, where the counter usedto stand alone and would count his biros and things like that, but he would not relate that to the objectives of theorganisation. We originally, up until the coming financial year, have worked on programs that have identifiedfunctional areas within the commission, such as custodial corrections, community corrections, corporateservices, etc. We have consciously changed that in the next year's plan, and defined our programs as our keyresult areas, and the key result areas were published in September 1990 in our philosophy and directiondocument, which deals with our offenders, our stakeholders-the five key things that we believe are important toour Commission. Next year, there will be five programs linked to our key result areas, and then the budget will be

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broken up across those programs. We have made that public and made it available to staff, and we have hadtraining sessions for staff. I would not pretend to say that people right down to the workface at this stagethroughout the commission fully understand the details of that, but that is a challenge that we have to meetthrough our training programs.

Dr WATSON: You indicated that the strategic plan started in 1988. Do you review it each and everyyear?

Mr Hamburger: Yes.

Dr WATSON: So that is an ongoing yearly review?

Mr Hamburger: That is right.

Dr WATSON: The principles of program management as set out in the Public Finance Standardsrequire resource management systems which focus on outputs-that is obviously the goods and servicesprovided-and outcomes-the desired results-as a primary concern. Resources allocated and utilised areimportant, as they provide the means or limitations for achieving desired outcomes, but should not be theprimary focus for management. Are the commission's management information systems structured such thatthey provide regular reports by program to management to monitor not only the financial and budgetary matters,but also information to measure progress towards the achievement of program goals?

Mr Hamburger: We have two key reporting processes. One is that each month, our board-and aswe are a statutory authority, our board meets formally once per month-requires from me as chief executive amonthly position statement on the accounts of the organisation and our progress towards our financialobjectives. We give a detailed monthly accounting report to the board and, prior to going to board, that is vettedby the executives in the organisation. Therefore, each executive knows the budget status and progress towardsit. The board seriously considers that at each meeting and spends a fair bit of time analysing it, and then wesend any directions that the board may have back through the system. In addition to that, we have implementedthe quarterly position assessment process, which once again is one of the pluses of this system. What itenables us to do is every quarter bring together the cost centre managers, which in our case happen to beexecutive staff from central office, plus the general and regional managers out in the field. We have an examplehere of the quarterly position assessment document, which contains analysis program by program of what ishappening, draws attention to outstanding creditors and debtors and workers' compensation liabilities and all thethings that could be affecting our budget. That is then discussed. This document is in fact prepared by MrTaylor, and he makes recommendations in the document. Once the document is discussed with the cost centremanagers, if we feel that we want to proceed with his recommendations or make other recommendations, Iactually sign off on those and approve them, and the cost centre managers then implement thosarecommendations. That meeting of the managers is very important, because it brings a lot of peer grouppressure upon people that perhaps are not performing as well as others, or areas where improvement is needed,and it also allows constructive suggestions to be made around the table as to how we can meet the issues thatwe are facing. That is basically the process. Mr Taylor may wish to add something to what I have said.

Dr WATSON: Before he does-you said that you mainly concentrate on budgetary and financialinformation. Is there other information which is regularly looked at in a non financial sense as well?

Mr Hamburger: That is the area where we are weakest. What you are talking about is performanceindicators in relation to the programs?

Dr WATSON: Yes.

Mr Hamburger: We do get other information, but I am not comfortable at all at the moment with thelevel of measurement of the non-financial performance of the organisation. That is something we are working onin this current financial year to try to refine.

Mr Taylor: I suppose I would like to add that when the Public Finance Standards came out, there wereno guidelines as to what was really expected. We experimented with this type of report just to try to cover all ofthe areas that I felt were required from a financial point of view in the Public Finance Standards. We have refinedit each quarter since then.

Mr J. H. SULLIVAN: Could you leave that document with us? Would that be possible?

Mr Taylor: Sure.

Dr WATSON: As you mentioned a moment ago, one of the important principles of programmanagement is the need to have an appropriate set of performance indicators, and they should be linked into thestrategic plan. The practice statements to the Public Finance Standards require that programs be reviewed interms of key performance indicators annuEllly and at such other times as appropriate. Your letter to theCommittee stated that performance indicators for evaluating program effectiveness and efficiency are currently

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being developed, and that indicators in the past have been largely financial or quantitative-type indicators whichmay not accurately reflect the true effectiveness and efficiency of the commission's programs. What stage hasthe development of meaningful performance indicators reached, and when do you think the commission will be ina position to have finished that development?

Mr Hamburger: As recently as late last week, we in fact finalised a broad list of indicators for eachprogram. They are still probably too detailed, in my view, and probably too extensive for useful managementwork at the moment. The next stage is to take that to a meeting of our managers and force that down to a moreworkable group of indicators which we will experiment with throughout the next financial year in relation to therevised five programs that we now have. I would hope that by the end of next financial year, we will haveexperience at least with the first cut of these indicators that we have developed. Over the next two months, I willbe entering into performance agreements with my cost centre managers-which are my general and regionalmanagers-based on performance accountability for their positions. They will also have probably five or six keyperformance accountabilities attached to their position specification or performance agreement. They obviouslywill have relevance in relation to the other indicators within their correctional centre or within their communitycorrections region.

Dr WATSON: Are you telling us that within a couple of months you ought to be in the position where,at least for some of them, you will be starting to use these in your management supervision?

Mr Hamburger: In the next two months the senior management staff of the commission will haveperformance indicators with a review period six months from the date that we sign off on the performanceagreements. Probably towards November of this year we will be doing our first round of reviews of performanceof senior management against those indicators.

Dr WATSON: Is it a year away before you have a good cut of a range of performance indicators forprograms?

Mr Hamburger: I would hope that we would have the actual indicators defined before the end of thiscalendar year, but by the end of this financial year we will have had the first review of how they have gone.Treasury, in our budget submission this year, have asked for us to at least indicate the programs and theindicators and I would like to work that through this financial year and report back at the end of the financial yearof how we have gone.

Dr WATSON: Obviously, the performance indicators are going to be incorporated as part of yourstrategic plan?

Mr Hamburger: Yes.

Dr WATSON: The achievements that you have were going to be measured against theseperformance indicators and reported publicly in the annual report?

Mr Hamburger: Yes.

Dr WATSON: The practice statements to the Public Finance Standards require that a comprehensiveevaluation of all programs be completed within a three-year period ending 30 June 1993. In your letter to theCommittee you stated that the commission's legislation contains a sunset clause which requires acomprehensive evaluation of the performance of the commission by independent experts. It is felt that thisreview will satisfy the requirements of the Public Finance Standards. Is this sunset clause you referred tosection 72 of the Corrective Services (Administration) Act 19BB?

Mr Hamburger: Yes, that is correct.

Dr WATSON: That requires the Minister to carry out a review of the operation of both the CorrectiveServices (Administration) Act and the Corrective Services Act. Why do you feel that this review will satisfy thecomprehensive program evaluation requirements of the Public Finance Standards?

Mr Hamburger: In September 1990 we released our philosophy and direction document in which welisted a whole range of key objectives that we saw that if we achieved that in the life of this commission, wewould have been a successful organisation and, in fact, I guess they are performance indicators. For example,we talked about reducing the imprisonment rate, reducing the number of Aboriginal and Torres Strait Islanderpeople in prison, increasing the number of Aboriginal and Torres Strait Islander people employed and improvingour revenue from prison industries. There are a range of indicators like that and we have not lost sight of thoseindicators. They are the sorts of things that we would expect to be reviewed against when this review is done. Myunderstanding is that this review will be a very comprehensive one which will look at all of our programs, look atour achievements and look at our budget performance. i see that as the son of thing that is being sought by thePublic Finance Standards.

Dr WATSON: Can we probe that a little bit further, because earlier you said that you basically have

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five programs and our understanding would be that the performance indicators have to relate specifically tothose programs and the evaluation and review take place in relation to the performance indicators and theprograms?

Mr Hamburger: Yes.

Dr WATSON: Do you think, therefore, the review that you are talking about under the Act will satisfythat comprehensive nature of the performance indicators with each of those programs? Is it going to be thatdetailed?

Mr Hamburger: I would hope that ~ would be. The format of the review has not been decided as yet,but that is the sort of review I am sure the commission would be asking for.

Dr WATSON: Have you discussed with, for example, Treasury whether or not that review will satisfythe requirements of the Public Finance Standards?

Mr Hamburger: No, we have not.

Dr WATSON: When will that review begin and take place in a comprehensive fashion?

Mr Hamburger: My understanding is that it has to be reported to the Parliament before the end of1993. I would not imagine that such a review could take place under much less than probably a six-monthelapsed period. So it depends when the last parliamentary sitting is in 1993. It would have to commence probablymid-way through the first half of 1993, I would expect.

Dr WATSON: Will you discuss with Treasury whether or not that review is going to satisfy the PublicFinance Standards?

Mr Hamburger: We would certainly talk to Treasury and we would talk to the Public SectorManagement Commission. We would probably seek assistance from the Public Sector Management Commissionand Treasury in setting up the parameters and specification for the review. My understanding would be that thereview should be conducted by some independent process-an outside group most probably-and we wouldcertainly talk to the PSMC and Treasury, in particular, about the specification for that review.

Dr WATSON: Who makes the decisions? Does the Minister make the decision on who is going to dothat review?

Mr Hamburger: That would be my understanding, yes.

Dr WATSON: Obviously you do not have any idea who that review team would be?

Mr Hamburger: No, there has been no formal approach from the commission to the Minister aboutthat as yet.

Dr WATSON: To date, have any of the commission's programs been comprehensively evaluated?

Mr Hamburger: Not as a full program, no. We have done independent audits and reviews of certainoperational aspects, but not of a full program.

Dr WATSON: Earlier in the evidence you seemed to be enthusiastic about the effect of the PublicFinance Standards. Can you tell me what effect program management has had upon the operation of thecommission?

Mr Hamburger: I think program management provides a focus for the development of strategies toachieve your objectives. It breaks down your organisation into manageable, focused areas that you can dealwith. It is a developmental thing as far as we are concerned. As with most agencies, we started off with programsthat related, as I said, to our functional areas. Aside from that, we had a concept called "key resultareas"-areas which are critical to the survival or the improvement of our organisation. They were distinct fromour program structure initially and, in fact, up till now. What we try to do in the commission is not to allow ourprocesses to be budget driven. We try to look at our goals and objectives and then decide what we want to doand then relate our budget to that. When we went through the process some months back, looking at the nextthree years, we came to the conclusion that these key result areas that we had perhaps would be better if theywere defined as our programs. For example, "offenders" was one of our key result areas.

The CHAIRMAN: Can you just explain that a little bit more?

Mr Hamburger: Offenders are the clients of the system who are either in prison or under supervisionof the community. Under the previous system that we have had, we had a program called "communitycorrections" and we had a program called "custodial corrections", so we separated the offenders into two blocks,if you like, and then dealt with them in that way. We had a key result area of offenders which said that if we dothings right in that area in certain ways with offenders, we will achieve our objectives. Because the commissionhas been working on a process of phased release of prisoners and moving more to community supervision and

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having people coming out of prison through hostels, parole and home detention-our western Outreachcamps-you find offenders across the continuum of community and custodial corrections. We felt it was betterthen to use the key result area of offenders as the total program, analyse it and set up objectives, which breaksdown the barriers between the functional groups in the organisation with community on the one hand andcustodial on the other.

That is the other problem that can develop with program management-people write the programsaround their existing organisational structure which could entrench an inefficient, bureaucratic process. Justbecause you happen to have your structure here with community corrections there and custodial there, so youput your programs that way. We did that for a while, but now we have had another good look at it and said thatthat is wrong because offenders float between the two areas and perhaps our structure is wrong. We have nowgot the programs up and we are now relating our organisational structure to the programs and trying to breakdown the previous rigid barriers that were based on what now seems to be outdated functional lines.

Dr WATSON: Previously, you had five programs. You have less than five programs now?

Mr Hamburger: No, we have five now, but they are different.

Dr WATSON: They are redefined?

Mr Hamburger: Yes.

Dr WATSON: Can you tell me what they are?

Mr Hamburger: They are "offenders", "stakeholders"-which are the outside people who relate withour organisation--

The CHAIRMAN: Does that include the community or is it more just relatives and staff?

Mr Hamburger: No, these are the community organisations like Drug Arm, politicians, public, mediaand anybody who has an interest in what we do we regard as a stakeholder and we have a responsibility to keepthem informed. That is another area where we felt we needed to give more focus. If we are going to sell themessage of corrections in Queensland, the way that we want to operate and get support for that we really needto communicate well with our stakeholders. We see that as a very important program, not as an adjunct tosomething else. So, "offenders", "stakeholders", and "human resources"-which are obviously critical to ouroperation-"facilities" and '1unding". That is the five. "Facilities" is our physical infrastructure, equipment,vehicles and things; '1unding" we have put as a program. Treasury has debated that with us and said thatfunding is not really a program, and has suggested changing the wording. I think Gary might be able to help mewith that.

Mr Taylor: They have asked us to call it "industries", which is really concentrating on the funding thatwe provide through our farms and industry activities.

Dr WATSON: So they are commercial operations?

Mr Hamburger: Yes.

Mrs BIRD: Confined to that-eommercial operations?

Mr Taylor: That program will be, yes.

Dr WATSON: Finally, what are the important benefits that you have derived? One is to re-Iook at yourorganisation, as you have said. Obviously, you think there is some benefit there. Are there any other benefitsthat come out of program management that you can identify?

Mr Hamburger: Yes. When you work through a redefinition of your program and your structure, youhave to get your senior management team together and you really have to challenge basic concepts of whatbusiness you are in and why you are doing this. I think one of the biggest benefits that I see as chief executiveis that it is forced learning, if you like, for all of us in the organisation about the concepts behind our business,what business we are in, and where we should focus our attention. The sessions get very intense, a lot ofbrainstorming goes on and a lot of wide discussion takes place before you come back to the concepts. Thatchange we made from the five functional programs to the five other programs was not something that happenedquickly. It was months of meetings and discussions, and at the end of it I think we all felt a lot better andunderstood the business we were in a lot better, and it gave us a better focus. I think that is the main benefit Isee, and it stops this process of bureaucratic organisation or government organisation being budget-driven. Inthe past, you just used to look at a line item budget and try to get an incremental increase, or whatever, and thenspend your budget. This process of melding the programs, and your budget systems flowing from that, force youIiot to be budget-driven but to be driven by wilatever your objectives and goais are.

Dr WATSON: Are there any negatives or disadvantages?

Mr Hamburger: There are some process problems that we have had that Gary can talk about in

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relation to the timing and training. In relation to a concept, my broad answer to that is, "No." I think that I am verycomfortable with the concept that is driving it and the broad processes that are in place. There have beenproblems with shifting to that from where the organisation was. As Gary said, there was no training and therewere no guidelines. Some of the things about certification-and detailed things that we can come to later,perhaps-eaused us some concern; but as far as the concept is concerned, I am pretty comfortable with it.

Dr WATSON: Do you think that the organisation of the commission has meant that the services arebeing delivered more efficiently and effectively?

Mr Hamburger: As a result of this?

Dr WATSON: Yes, as a result of adoption of program management.

Mr Hamburger: Yes, I do. I think it is not going to--

Dr WATSON: Can you demonstrate that in any way?

Mr Hamburger: Right. The shift from looking at community and custodial corrections as separateentities is one example. Before, they were separate, and by bringing them into one program of offenders andcutting across both areas, one of the advantages is that now they are starting to share resources. We are nowbreaking down the barriers between the organisational structures in that way. I can give you an example. Weestablished our western outreach camps, which means taking prisoners out of prison under section 69 of our Actand putting them into community supervision situations in camps in the west. In those western areas, we alsohave groups of people being supervised by community correctional officers-traditionally, for a long time-whoare under community service supervision orders. Because the work scheme was run by custodial correctionsand the community supervision was run by community corrections, never the twain shall meet. Now we arelooking at it as a program for offenders and we have got our regional community corrections people and ourcustodial people together, and the supervision of the community service people will be done shortly by thecustodial people on the work camps. We have just amalgamated two functions, if you like, because we are nowstarting to stress to our management people that they should look at ways to cooperate on the ground. Shortly,we will be doing that in the north and in the gulf where the people who were previously supervised by communitycorrections will begin to be supervised by custodial corrections people when we open some new work camps upthere. That is just one example.

As a result, probably, of the accountability aspect in this, the other thing we did was make our regionaland general managers accountable on the ground as real cost centre managers. We reviewed our directoratestructure in the central office and whereas we had a Director of Custodial Corrections who actually directed andran the custodial component, we have now abolished that position and made a general manager position incentral office as a support position to provide facilitative support to people in the field but not to direct them, andmake the people on the ground accountable. We are starting to flatten our structure. The reason I paused when Istarted to answer this question was that it is hard for me to say to you right now that I can show a quantum leapin improvement, but I reckon that in12 or 18 months when these things start to bite, I will be able to answer moredefinitively. I am quite confident that I will be saying, "Yes, as a result of reviewing our programs in this way,there has been a definite improvement in our efficiency."

Dr WATSON: Do you nave any idea of tile costs involved in implementing the program?

Mr Hamburger: I cannot answer that, but Mr Taylor mjght be able to.

Mr Taylor: There are certainly additional costs in the operational audit area. Prior to the PublicFinance Standards coming out, we did not really have an audit section. Now we have something like five peoplein the audit section and they are doing full program evaluations of each centre. They actually go to a prison andmake sure that the standard of food is up to an acceptable standard and that cleanliness is okay. They look atthe financial side of it and security aspect, so they cover the whole continuum of what is happening in a prison tomake sure that it is up to an acceptable level. There has certainly been a cost in that term of getting an auo)section up to date. I suppose there is always a fair amount of cost involved in training and in getting peOf.:'efamiliar with the new requirements. The only other costs are the additional costs of having to produce documentsand of having regular meetings, and that type of thing.

Dr WATSON: Generally, it would be fair to say that you believe that the benefits outweigh the costs?

Mr Hamburger: Yes, most certainly. I am looking at some notes that I have here. There is one matterI should raise as a benefit. Because of the quarterly position assessment process, there are things brought tomy attention and to the attention of executives that would not have come to our attention before if we had nothad this process. One in our industry is workers' compensation liabilities. Previously, they were paid by theWorkers Compensation Board and claims would come in, but because of this quarterly position assessment, weare trying to look at not only what has happened but what our commitments might be. It has now been highlightedto us that we have a workers' compensation situation where we have a lot of outstanding indebtedness coming

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· up, if you like. They are the sorts of things that suddenly get brought to the attention of management in a timelyfashion to enable us to start planning and taking remedial action to look at why we are having such an extensiveincrease in workers' compensation. So, the benefits outweigh many of the problems, yes. That is not to say thatthere will not be more problems in implementing it over the next 12 months or so, but I think that looking from twoor three to five years out, the public sector will be all the better for them, in my view.

Mr J. H. SULLIVAN: I notice that Mr Taylor was speaking about the financial internal audit and Iwant to get to that. However, before we get off program management, let me say that earlier during questions onprogram management we were talking about the commission's strategic plan and you indicated that annually it ispushed out another year to three years. The practice statements for Public Finance Standards require that astrategic plan be five years or longer. Have you had any discussions or do you have any thoughts on pushingthat out to a five-year period?

Mr Hamburger: I will ask Mr Taylor to strengthen this, but I think it is a five-year plan. When I say thatit is pushed out to three years, I think that when it gets out to the fourth and fifth years it is looking a bit tenuousin terms of specifics. It is more specific over the first three-year period.

Mr Taylor: The current strategic plan goes from 1992 to 1996 and it is a dynamic document that isreviewed each year. As the situation changes, it is updated.

Mr J. H. SULLIVAN: So the next review will make it 1993 to 1997, but it is starting to get fairly mistyat the ends?

Mr Taylor: Yes.

Mr J. H. SULLIVAN: That is fine. I wanted to talk about internal audit. The letter that you wrote to usindicates that the commission has an operational audit section which comprises a package of resourcesattending to matters of finance, operations, security and investigations, etc. We would like to concentrate onfinancial internal audit matters as this is the area of internal audit relevant to the Public Finance Standards. Youhave virtually answered both of these questions already, but just to put them together in the one step, can youtell me when the financial internal audit function was established by the commission and how many staff itcomprises?

Mr Taylor: We currently have one financial accountant who is a qualified accountant. He has beenwith us probably six months now. Prior to that, the situation was that various people were seconded from otherareas. So people from my area would be seconded to do an audit on a prison to check its financial results.Before that, we were largely reliant on the Auditor-General's reports in terms of financial compliance.

Mr J. H. SULLIVAN: So the financial audit function has one qualified accountant?

Mr Taylor: At the moment.

Mr J. H. SULLIVAN: Are there any plans to increase that at this stage?

Mr Taylor: I think there are intentions for two more.

Mr J. H. SULLIVAN: Public Finance Standard 400 requires that the internal audit function beconsulted when computerised accounting systems are in their specification and development phases beforeimplementation. Is that the practice of the commission?

Mr Taylor: We have largely followed the Government systems of MSA. We are assuming that theyhave already gone through and got all those systems approved. We have not actually developed any newsystems.

Mr J. H. SULLIVAN: You may have answered part of this. Is your internal audit function adequatelyresourced to enable it to fulfil the internal audit requirements prescribed by the Public Finance Standards and theFinancial Administration and Audit Act? I note from your letter that the internal auditor will also be undertakingthe commission's system appraisals.

Mr Taylor: It will not be just that financial auditor. The system appraisals will cover the wholecontinuum of the systems from financial systems to operating systems. It is actually a team that goes into aprison to do an audit comprising of the financial auditor, the operational expert on security and the one who dealswith prisoners'

problems and those types of things..

Mr J. H. SU LLIVAN: Under the standards, internal audits are required to basically ensure thatsystem appraisals are properly done and adequately done. You do not think there is a possibility of any conflictthere?

Mr Taylor: They will not actually be developing the systems. The general managers and regionalmanagers at the sites will probably develop those systems, or our Information but the

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internal audit section will be checking that those systems are in place and operating effectively.

Mr J. H. SULLIVAN: Public Finance Standard 610 (3) prescribes a range of tasks which arerequired to be incorporated into the internal audit annual work plan. Your letter states that ''the annual internalaudit work plan covers most of the areas referred to by Public Finance Standard 610 (3) with the exception ofsystems appraisals". Is this the only exception, or are there others?

Mr Taylor: There would have to be other exceptions. I have not been closely involved in the auditprogram, but we had Touche Ross brought in as consultants to develop the total audit program for us. They havetried to cover virtually every aspect of operations in a prison or in a community corrections environment.

Mr J. H. SULLIVAN: I guess our concern is that it covers every aspect of the Public FinanceStandards as well as the operations. You are not able to comment on that?

Mr Taylor: When they developed the audit program, they were attempting to incorporate what is inthere into the audit program.

Mr J. H. SULLIVAN: "Attempt", "virtually" and "most" are not very explicit. Are you confident that itis all done, or are you certain that it is not?

Mr Taylor: I am not the auditor, so I cannot really say what they do. I do not even see the audit report.

Mr Hamburger: I cannot answer that, either, but I am happy to check on that and communicate backto you.

Mr J. H. SULLIVAN: I would be happy if you would. How is the actual progress against the internalaudit work plan monitored and to what extent have those plans been achieved to date?

Mr Hamburger: The general manager in charge of the audit section reports to me and to the board. Amonthly report comes to our board from all the sections, including the audit section, as to their progress. Icannot tell you now the answer specifically as to the progress against that, but the reporting process is from thegeneral manager of the audit section to me, to the board.

Mr J. H. SULLIVAN: Are you able to tell us just generally to what extent recommendations frominternal audit have been actually implemented by the commission?

Mr Hamburger: I would be surprised if there were any outstanding recommendations that had notbeen implemented. We certainly touch on some of those things at times in our performance quarterly reportingas well. Gary might have something further to say. But we treat those things very seriously.

Mr Taylor: Most of the time the audit reports are taken very seriously and followed up unless thegeneral manager feels that there has been some misunderstanding or some reason why he has not fullycomplied with those requirements.

Mr J. H. SULLIVAN: Are you able to tell us the benefits of internal audit to your management of thecommission?

Mr Hamburger: I would be very concerned and worried if I did not have an internal audit process. It isessential that we have somebody who independently looks at the financial systems that we have and to theircompliance. The Auditor General's review is certainly not detailed in that sense; so it is an area, as we haveindicated, that another two people would be put into in the not-too-far-distant future. It is an area that isunderresourced, in my view, at the moment given the size of our organisation and the complexity of the financialarrangements.

Mr J. H. SULLIVAN: You see it as fairly vital, yet it is also fairly new?

Mr Hamburger: It is new in terms of having a fixed establishment. As Mr Taylor said, we have overtime seconded people into that function. So we have always addressed the function; it is just that we are nowformalising having a fiJ(:ed establishment.

Mr J. H. SULLIVAN: And the impetus for that has come through the Public Finance Standards andthe requirements of that?

Mr Hamburger: I think that has been part of the driving influence, yes.

Mr J. H. SULLIVAN: Again I am referring to financial internal audit, and you may not be able toanswer the question completely. Do you ever need to take those internal audit staff, or that person, away fromaudit duties to put into vacant line positions or to fill other staff shortages?

Mr Taylor: They have on occasions. I know the general manager has relieved as a general manager inone of the prisons. But, as far as I know, the financial auditor has never been required to relieve in a financialaudit position.

Mr J. H. SULLIVAN: I should have thought that was pretty reasonable given that it has only just

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arrived, so to speak.

Mr Taylor: Yes.

Mr PERRETT: I would like to refer to system appraisals. The Public Finance Standards require that allthe commission's revenue, expense, asset and liability systems be appraised each financial year to determinethe proper functioning of controls and the appropriateness of procedures followed. Your letter indicates that, atpresent, the commission relies on the Auditor-General to perform its system appraisals. The Public FinanceStandards vest this responsibility in the commission's management and not the Auditor-General. Is this principleof the standards clear to you?

Mr Taylor: It is to me as a financial person and an ex-auditor myself. I am certainly aware of therequirement. The fact has just been that resources have not been made available to really increase these areas,and so far we have been able to get five people into that audit section with a move towards seven in the nearfuture. It is really a matter of whether we have more auditors or more reform. I suppose up to date it has been acombination of as much reform with the audit that we could afford.

Mr PERRETT: Your letter also indicates that, while detailed system appraisals have not beendeveloped, "recent additions to the internal audit section should allow appropriate systems to be developed inthe near future". What stage has the development of the commission's system appraisal processes reached andwhen will you be in a position to perform these appraisals as required by the Public Finance Standards?

Mr Taylor: I suppose system appraisals is the area in which we are weakest in terms ofimplementation. We have concentrated largely on the position assessments and we have been relying fairlyheavily on our information technology group to start assessing some of those systems, but at the moment theyare heavily involved in the second stage of a correctional information system on prison management. Once thatsecond stage is finished, it will free up a few more resources to be able to concentrate on system appraisals.

Mr PERRETT: Will the commission's system appraisal process involve an annual review of financialsystems and procedures operating at all its offices and centres throughout the State?

Mr Taylor: I would certainly hope it would. As a finance manager, the appraisals will relate to me aswell as any other general manager. The auditors will come and do an assessment of my performance and thesystems that I have in place as well.

Mr PERRETT: Why do you propose to have the commission's system appraisals performed by theinternal auditor rather than by the persons responsible for each of the accounting functions?

Mr Taylor: It will probably be a combination of both. As I said before, the general managers in theinformation technology group will actually do the development side of it, but the internal audit will be doing thereview and the compliance testing to see whether the systems are actually working.

Mr PERRETT: What benefit do you perceive the appraisal process will be to the management of thecommission?

Mr Taylor: It is really an independent check to see whether the systems are working, are workingefficiently and are working effectively. That is another reason why we are proposing that part of that reviewprocess be undertaken by the audit section, which is independent of the day-to-day operations.

Mr PERRETT: Will the process of implementing the system appraisals create additional costs for thecommission?

Mr Taylor: I think there is no doubt that they will. It is just a matter of whether the benefits of improvedsystems outweigh that cost, and I think they will.

Mr PERRETT: Would you be able to elaborate and perhaps give us a few details of where you thinkextra costs could be involved in establishing the systems?

Mr Taylor: There are certainly additional costs involved in any sort of software development. The CISsystem that we are using for offender management has cost us in the order of $4m to develop, but once that isfully in place, it does allow staff reductions in other areas because the prisoner movements and the prisonerrecords are all computerised rather than in a manual system.

Mr PERRETT: Are you saying that you feel the initial costs will lead to savings further down thetrack?

Mr Taylor: Yes. .

Mrs B!RD: A !ittle earlier. you spoke favourably about position assessments. I think you referred tothem and said that you consider them a plus.

Mr Taylor: Yes.

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Mrs BIRD: What do your quarterly position assessments entail? You have been doing them since1990. Do they entail more than a progressive budget review of receipts and expenditure?

Mr Hamburger: We have a bundle of them here. Do you want to have a look at one, or I will talk youthrough one?

Mr Taylor: They are the ones going right back to July, so you will have different periods. But they arebasically in the same sort of format.

Mrs BIRD: I would still like some sort of response for the record.

Mr Hamburger: It provides an overview of the financial position for the quarter and then it analyses,area by area, the current position in relation to expenditure and makes recommendations as to areas that weneed to correct or in which we need to do things. It is really initially Mr Taylor looking at the total budget pictureevery quarter but on a month-by-month basis and looking at the trends, looking at areas that he sees asproblems and then highlighting to me areas where corrective action is needed. That means that I get the costcentre managers together and we talk about this report.

Mrs BIRD: Did any of your staff attend the workshops by the Treasury?

Mr Taylor: Yes. A number of our staff did, including myself.

Mrs BIRD: There is no need to be complimentary to Treasury, we would like an honest appraisal. Whatdid you think of them?

Mr Taylor: I thought the expectations were a bit high. Some of the certifications they were expectingwere unreasonable. They were expecting this type of report to be produced within two weeks of the close of thequarter. I pointed out that we managed to produce that within three weeks, that it is almost impossible to get itany sooner because we are regionalised and decentralised. We have to get information on inventories,stocktakes and all those types of things sent in and then collated. It is almost impossible to achieve that withintwo weeks. The main concern I had was that after each section they were expecting a certification whereby, Ithink they called it, the assessment officer signed a certificate which said that in their opinion the assets hadbeen used in the most efficient and effective manner and you went on to virtually sign your life away, really, thateverything was hunky-dory. I just felt that you would not be in a position to sign that form of certificate with thecurrent systems that we have in place for the Government.

Mrs BIRD: What about communications with Treasury prior to the workshops and since theworkshops?

Mr Taylor: I think Treasury has really picked their game up in the last 12 months, and that is shown inthat they are now starting to have training sessions and seminars. My biggest criticism was that these arrivedvirtually on our doorstep and we were expected to implement them with no guidelines or expectations or whatthey should contain. So I supposed those documents are really just my interpretation of what I thought wasexpected as a result of this document. I know that a number of other Government departments have actuallyrung me and said, "Look, what do you do with your position assessment?" So I have sent them copies of ourdocuments and said, "This is what we are doing. We don't know if it is right or wrong or could be improved, or iscompletely in the opposite direction to what was required."

Mrs BIRD: Have you been doing the annual determination about whether the assets are being used inthe best and most efficient way possible, that is part of the Public Finance Standards?

Mr Taylor: The only thing we have got in those position assessments is a level of inventories as atthe end of each quarter. We have not moved into a depreciation or an asset valuation system. We just do nothave the systems in place to be able to do that. The commission actually developed its own fixed asset registerapproximately two years ago. Our main concern was that we did not have an assets register and theGovernment accounting systems did not have anything at that stage. So we actually got our informationtechnology people to write us their own software. We are now in the process of converting over to the MSA fixedassets system, which is one of the core suite that the rest of the Government departments are using.

Mrs B IR0: I suppose it follows then-the Public Finance Standards also require that the positionassessment process include an annual determination as to whether suitable asset replacement programs havebeen approved and are in operation. Does the commission do this?

Mr Taylor: We attempted t6 do that probably two years ago but we found we just did not have thefunds. Basically, we identified through our asset register all of the items that should have been replaced, butthere just were not the funds around to do it. We have an ageing infrastructure. A number of our prisons arereaching 30 years plus. A number of the major items of equipment are starting to break down, like bakery ovens,laundry equipment and that type of thing. Really, it has been a matter of replacing assets when they die ratherthan a proper regular planned process of replacement, which we would like to introduce but have not had the

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resources to do it.

The CHAIRMAN: But you are obviously capable of assessing what is needed.

Mr Taylor: I think we know what needs to be replaced.

Mrs BIRD: You have a process?

Mr Taylor: Yes.

Mrs BIRD: Mr Hamburger, you said earlier that you personally examined the position assessmentsthat were compiled for the commission.

Mr Hamburger: I personally signed off the recommendations in here. Gary makes recommendations,we review them and then I sign off on them or amend them or make other suggestions.

Mrs BIRD: You also mentioned earlier that there were some benefits flowing from the positionassessments. I think you mentioned something like peer group pressure developing and that sort of thing.

Mr Hamburger: Yes.

Mrs BIRD: Would you like to elaborate on that in other areas? Are there other areas where you seesome benefit in the position assessments.

Mr Hamburger: Apart from the--

Mrs BIRD: What are the benefits apart from just the peer group pressures?

Mr Hamburger: As I said earlier, one of the things is that it does bring to my attention and toexecutives' attention things that we would not have necessarily known about, other commitments that arecoming up. It certainly gives us a chance to review our outstanding creditors, particularly in our industry side,and see how many are over 90 days and 60 days and whether we need to take remedial action.

Mrs BIRD: It does not playa role with workers' compensation, for instance.

Mr Hamburger: Yes, workers' compensation liabilities, and that is one big problem that it did highlightto us. Probably one key thing is that it gets the executives and cost centre managers sharing the responsibilityfor managing the organisation, because we all know that budgets are difficult and we all sit down and we see theproblem we are ail facing. Sometimes in public service departments there is a tendency to get your bucket ofmoney and guard it jealously and not try to help your mate if in fact he has overspent and you have underspent.When you get a situation when you are all sitting around the table and you can see that somebody is in troubleand you have made some gains over here, it can open up the discussion to try to work as one organisation, notas a whole group of little fiefdoms within the one organisation. So I think it opens up the whole financial system toyour management scheme in a far more constructive way and they can get the total over to you.

Mr PEARCE: Is that really working, that sharing of responsibility?

Mr Hamburger: It is starting to because we learn by experience, I guess. When we first had themeetings to discuss these quarterly assessments, I used to just have the central office directorate, if you like,management team reviewing it. For the last quarterly assessment, for the first time we brought in all of thegeneral and regional managers and it made a tremendous difference. The fellows could see the total picture andwe could all talk about it. With every assessment from now on, that will happen. It was a big meeting. I think therewere 20 or 30 people there by the time they brought their finance managers with them as well. It took up a fewhours, but it was so worth while that we will continue that every quarter.

Mr Taylor: I suppose there is always a feeling that central office has got some money hidden awayand that, if you overspend your budget, do not worry about it because head office will bail you out. This sort ofopens it up to show where the money is, where we have got savings and where we have overexpended, and itreally puts the pressure on one general manager, because the others are saying, "I am not going to continue toprop up your overtime unless you start taking some action to reduce it."

Mrs BIR0: You referred earlier to additional costs at the internal audit being forced onto thecommission. Does the position assessment process involve extra costs?

Mr Taylor: The actual compilation of that probably does not, other than stocktakes and things out inthe field to get the information to produce it.

Mrs BIRD: So you can basically coordinate the two, and the extra costs would be purely printing?

Mr Taylor: Printing and time for cost centre managers to go and value their crops in the ground ortheir herd of cattle or the finished goods that are on their shop floor, and that type of thing.

Mr Hamburger: I think the extra costs there are offset by management action that you can take as aresult of the information. For example, we have put a lot of emphasis on our industries. One of the things that I

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recall coming out of one discussion about a quarterly assessment was the amount of stock on hand in a numberof industries. The revenue had dropped, but we had a build-up of stock. So we were able to ask questions like,"What is happening? Why aren't you getting it out?" and things like that. The resultant remedial action that youtake, on my view-and I think Gary agrees-would save more than the cost of doing the process.

Mr Taylor: Previously you had the old cash accounting situation where you had only details of whatwas collected and what was paid. You had no idea what the outstanding commitments were, what the value ofinventories on hand was, outstanding debtors and outstanding creditors. They are all brought out in thisdocument. At the back of the document we have an abridged profit and loss statement for our farms andindustries that tries to bring all those factors in. The only thing that we are not really catering for is depreciation.We have still got some problems in the valuation of assets and that type of thing.

Mrs BIRD: Twice before you have referred to the lack of guidelines from Treasury. Do you think thatbecause of the lack of guidelines some sections of the Finance Standards have been a little more costly thanthey would have been if you had had some set guidelines in place?

Mr Taylor: I suppose it would help us in terms of uniformity with other departments, rather than eachone reinventing the wheel. If there had been more guidelines as to what was actually expected and how to goabout achieving that, it would have saved a lot of time and resources.

Mrs BIRD: It may have ended in a more concise report, do you think?

Mr Taylor: It may have, yes. These documents are purely my interpretation of what is required underthat document. They may not be what was intended. They may be completely--

Mrs BIRD: Far and above what they needed?

Mr Taylor: Yes.

The CHAIRMAN: I might conclude with another question or two about Treasury. In your letter youstate that while the commission is attempting to implement all the requirements of the Public Finance Standardsin as short a time as possible, "implementation has been difficult due to no additional resources provided for theimplementation requirements, and until recently, limited guidance as to the format or expectations from thecentral agencies." Presumably, you are referring mainly to Treasury?

Mr Taylor: Basically, yes.

The CHAIRMAN: So you think there has been insufficient guidance in interpretation of thestandards?

Mr Taylor: I am not trying to place the blame on Treasury. They have had a difficult role as well. I justfeel that to produce something totally different from the old Treasurer's Instructions without any guidance ortraining was probably in hindsight deficient in what should have been required.

The CHAIRMAN: I suppose that Treasury would also argue that most departments should have theexpertise to implement them. I gather that your department certainly has the expertise to deal with these issues.So it is really a matter of interpretation.

Mr Taylor" To a certain extent we do, and to a certain extent we do not. If you look at the oommissionoverall, I think we have got something like six qualified accountants in the entire commission. When youdecentralise and regionalise, you have regional administration and finance managers who do not haveaccounting qualifications, and you are asking them to do fairly detailed accounting-type work. With a lack oftraining, that makes it very difficult for them.

The CHAIRMAN: Can you be specific in what areas you think that more training should have beenprovided, at least at an earlier time, or more guidance?

Mr Taylor: For example, in the systems appraisals, it is still unclear to me how detailed thosesystems appraisals are supposed to be-whether they are really getting right down into a full operational audit ofthe entire program, whether it should be broken up into parts of a program, or just how you go about it. I supposein other areas such as evaluation of assets, there have been few guidelines. With the recent exposure draft 55on Government department reporting, my comment is that we really should be moving towards some uniformity. Ipointed out that we could value our assets in five different ways that would give five totally different answers.For example, we could value a prison at replacement cost, where you could have a replacement cost of $60m.You could value it at a historical cost, which would mean that some centres would be valued at $1 Om becausethey were built 100 years ago. You could value them at the replacement cost of the land, which could have anyvalue depending on where the prison is situated. Or it could be a written-down value. Each one of those couldgive you a totally different figure. If you start bringing in depreciation on those different valuations, you could gettotally different answers under each of those. I felt that we really should be moving towards uniformity so youcan compare not only Corrective Services in Queensland against Corrective Services in New South Wales and

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Victoria, but you could also compare the cost of running Corrective Services against the cost of Education,Primary Industries or one of those areas. Without some definitive guideline as to which method and which way togo, you are really leaving it up to the individual people to point in whichever direction or to paint whatever picturethey want to. I could paint a very grim picture if I think it is going to help us get more funding. Or I could paint avery optimistic picture if I want to do it a different way.

Mr Hamburger: From a slightly different perspective to Mr Taylor's comments about the Treasury andwhether it should or should not have provided guidelines-if you took the other position and said that Treasuryshould have sent out guidelines, you could well have people like us complaining, "Here it is. They have producedthat. Now they have laid down these guidelines, they are going to tell us how to do it, and we have to abide bythat." There probably would have been equal criticism of Treasury if in fact they had done that. When you bring ina new proposal like this, there is probably room for interactive development between Treasury and the agencies,and perhaps some of the work we do. Providing there is a lot of consultation, out of that we can then get the sortof uniformity that Mr Taylor mentioned. As a chief executive, I would probably be a little hesitant to say thatTreasury should have sent out specific guidelines, because as a CEO I would have then looked at them andsaid, "What the hell is this? I am being constrained. Why can't we develop something?" I think Treasury isprobably damned if they do and damned if they do not in that case. I support Mr Taylor in perhaps the need formore interactive relationship between Treasury in a collaborative development over those first two to three yearsanyway from the publication of that. Perhaps two to three years out, you could have some standard guidelinesdeveloped on the basis of experience of all the different agencies.

Mrs BIRD: Did you have any problems with interpretation, so far as the commission is concerned,with some of the terminology?

Mr Taylor: Personally, I did not. I had a fairly good idea of what was intended in the document, andthat is what I have tried to implement in these statements that I have produced.

Mr J. H. SULLIVAN: I was interested in your answer in terms of expertise within the commission,when you said that many of your regional finance managers would not have an accounting qualification. Whatkind of qualification do you need in the commission to get a finance job?

Mr Taylor: We have a person who is called the Manager of Finance and Administration. The financialside might take up only 30 per cent of that person's time in a day. The majority of their time is in prisoneradministration, records management, control of assets, stores management and all those areas. We are tryingto have a generalist-type manager rather than a specialist accountant, so we tend to have our qualifiedaccountants at central office.

. Mr J. H. SULLIVAN: When you talk about regional finance managers, you are not talking about afUll-time finance person; you are talking about a multiskilled officer?

Mr Taylor: That is right.

The CHAIRMAN: Are there any other issues in relation to the Public Finance Standards that youwould like to raise with us?

Mr Hamburger: Not from my point of view, no.

The CHAIRMAN: Thank you very much for your evidence. I now adjourn this hearing. We willrecommence at 3.15 p.m.

The Committee adjourned at 2.40 p.m.

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The Committee resumed at 3.17 p.m.

The CHAIRMAN: I reconvene this hearing. On behalf of the Committee, I welcome the witnessesfrom the Department of the Premier, Economic and Trade Development, Mr Finger and Mr Leighton. Beforecommencing to give evidence, I am obliged to inform you that the proceedings here today are legal proceedingsof the Legislative Assembly and the Committee requires that your evidence be given on oath or affirmation.

ERIK FRANZ FERDINAND FINGER, sworn and examined:

TERRY ANTHONY LEIGHTON, sworn and examined:

The CHAIRMAN: Mr Finger, could you please state your full name, place of employment and the titleof the position you hold?

Mr Finger: My name is Erik Franz Ferdinand Finger. I work for the Department of the Premier,Economic and Trade Development and I am the Director-General of that department.

The CHAIRMAN: Mr Leighton, could you please state your full name, place of employment and thetitle of the position you hold?

Mr Leighton: My name is Terry Anthony Leighton. I work at the Department of the Premier, Economicand Trade Development and I am the Director of the Financial Services Branch.

The CHAIRMAN: By way of introduction, I would like to read a brief statement. The ParliamentaryCommittee of Public Accounts is an all-party Committee of the Queensland Parliament whose purpose is toscrutinise and provoke reform of the financial administration of the public sector and to ensure that ExecutiveGovernment is accountable to Parliament. The Committee conducts its business in accordance with the PublicAccounts Committee Act and the Standing Rules and Orders of the Legislative Assembly relating to selectcommittees.

The Committee is presently conducting an investigation into the implementation of the Public FinanceStandards in departments and statutory bodies. These standards are issued under the Financial Administrationand Audit Act and commenced operation on 1 July 1990. The Committee has a particular interest in therequirements of the standards relating to financial management practice manuals, position assessments,system appraisals, program management, internal audit and the move to general purpose financial reporting bybusiness undertakings and statutory bodies. The use of private consultants in implementation of the standardsis also of interest to the Committee.

I inform you as witnesses that you are required here today to answer all questions relevant to thesubject matter of this inquiry. The Committee would like you to answer its questions frankly and to provide it withan accurate and clear view of your organisation's position on the issues canvassed. Mr Finger, both I and othermembers of the Committee will direct questions to you. You may answer and, if appropriate, refer to Mr Leighton.

Mr Finger: Yes, I will certainly do that.

Mr PEARCE: Just to help you settle in, I have a couple of questions on financial managementpractice manuals. The Public Finance Standards and the Financial Administration and Audit Act require eachdepartment to have a financial management practice manual which prescribes the practices and procedures,etc., to be followed by staff in the financial administration process of their particular organisation. Thesemanuals are a key element of the overall financial management policy and principles upon which the PublicFinance Standards are based. I might add that the Committee was pleased to read in your letter of response toits questionnaire that your department has a complete and up-to-date practice manual, which complies with therequirements of the Public Finance Standards. I would like to ask: how important do you find this manual is to thefinancial administration process of your department?

Mr Finger: The manual is fundamental to the financial practices within the department. As you wouldknow, it is issued throughout the department. The executive directors of the various divisions of the departmentand all the other branch and relevant managers are able to refer to it in terms of their responsibility, theiraccountability and their requirements. It is basically the fundamental document for our financial managementpractices.

Mr PEARCE: Could you elaborate on how it is distributed throughout the department and to whatextent the staff take advantage of the manual?

Mr Finger: It is certainly distributed to all the divisions throughout the organisation. My colleaguehere on my right may be able to give you a more precise picture of its distribution.

Mr Leighton: The manual has been distributed to well over 50 holders throughout the department andto each of our overseas offices. Basically, anyone who is a critical operative in the financial accounting processhas access to the manual. It goes to executive and branch directors. People such as administrative officers

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who handle a lot of the processes associated with finance have access to it as well.

Mr PEARCE: One of the most important things is keeping those manuals up to date. Is that a difficulttask?

Mr leighton: It is. Here is a copy of the manual. It is quite a substantial document. To simplify theprocess, we have split it up into four discrete areas. The first one is, I suppose, a financial management policydocument, something in the form of the former Treasurer's Instructions, which basically specifies parametersand policy to apply with regard to all sorts of financial endeavours. The second part is what we call an instrumentof delegation. It is more like a financial practice statement. It states who has authority to approve what and onwhat basis, and it states the rules and parameters under. which certain types of expenditure will beapproved-things like entertainment expenditure, travel, conference attendance etc. That is the document thatis changing consistently as a result of audit reports and our management's own real attention towards enhancingaccountability. This particular part of the manual has been updated twice since the first manual was produced inMay 1991.

The third part is something that we call systems flows. They are basically flow charts which identify thecritical elements in the process and the accountability mechanisms in that process. That is more a document forthe Financial Services Branch to use. That really will not change to a degree unless we adopt new systems. Thedepartment is adopting new systems from July, so that should change significantly next year. The fourth part isa manual for our overseas offices, which really have a branch operation requirement and they have specificrequirements for their operation.

Mr PEARCE: That is a detailed answer. I appreciate that. Something that I have not asked before is:who is responsible for the updating? Who does that updating?

Mr Leighton: I do.

Dr WATSON: Mr Finger, in your reply to the Committee's initial letter, you indicated that you do have astrategic plan for the department for the period 1991 to 1995. We were really concerned with how available thatstrategic plan is to your staff, how aware the staff are of the goals that are contained in the strategic plan for thedepartment, and are they aware of what part they play in achieving those goals.

Mr Fing~r: The document is widely available throughout the department. In fact, every officer doeshave access to it, if, indeed, they do not have a copy of their own. It has been widely publicised throughout thedepartment and, indeed, there was wide participation in the development of the document throughout thedepartment. It was also prominently launched to all staff of the department in the presence of myself and, if Irecollect correctly, the Premier was there also, so that all staff should be aware of it. I believe the level ofawareness is high, because in talking to members of the staff, they do relate their work function, somewhat atleast, to the goals and objectives that are set out in that document. Indeed, there is frequent reference bymembers of the staff to the goals and objectives in the document.

Dr WATSON: You are fairly confident that they are committed to those goals and objectives becausethey have participated in the development of them?

Mr Finger: Well, I think that in the Premier's Department, corporate planning is something that isrelatively new. When I came to the department, corporate planning had not been undertaken and, therefore, Ithink that it is going to take time for the sort of ethos of the corporate plan to permeate the whole of theorganisation, but I am confident that we have made a very good start. As I have said, I think there is a high levelof awareness. I think there is a satisfactory level of commitment at this time, but as you would be aware, therehave been quite a few changes to the organisation over the last couple of years as, indeed, there have been tothe whole of the public service. So, perhaps other matters such as workload and stress have been tending toovershadow and occupy people's minds.

Dr WATSON: That feeling is based upon an informal evaluation by yourself?

Mr Finger: Sure. No formal survey has been done.

Dr WATSON: The principles of program management, as set out in the Public Finance Standards inthe practice statements, require resource management systems which focus on outputs, that is, the goods andservices produced, and the outcomes, that is, the desired results, as a primary concern. Resources allocatedand utilised are important as they provide the means or limitations for achieving desired outcomes, but shouldnot be the primary focus for management. The Committee is interested in finding out whether your department'smanagement information systems are structured in such a way that they provide regular reports by program to

towards the achievement of the stated goals.

Mr leighton: At this stage, the clear answer is, "No." The department is only in the early stages of

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implementing program management. We have developed a corporate plan, as Erik said before. We are currentlyin the stage of developing operational plans, which are the real focus, or the integration with the budget process,or the one year focus, at the subprogram level. They include performance indicators which will be used as thebasis for assessing future performance of programs. Certainly, financial information on financial inputs isprovided to management. We, as part of the program management process, have talked to management andhave made it their responsibility to start to collate and collect data which reflects their own performance at theirdiscretion, but the development of an integrated management information system is really a little bit far off at thisstage. We are just coming to grips with the nuts and bolts of program management at this stage.

Dr WATSON: You say that you have got the performance indicators at the operational level. You donot have performance indicators yet developed for the broader programs for the department.

Mr Leighton: No. We made the conscious decision in the corporate plan to look at things likemissions statements and statements of goal at the departmental level, but because of the diverse nature of ourdepartment, with the number of very discrete functional areas, it is very hard for us to develop departmentalperformance indicators. So, we thought in the short term we would be better taking a bottom-up approach,looking at the subprogram level, developing performance indicators at that level, using that in the short term toevaluate performance at that subprogram level, and by implication, we assume that if all of the subprograms areperforming, then the programs are performing, and also the department is performing.

Dr WATSON: That then begs the question-you have said that you are assuming-unless you havesome performance indicators at the program level, you cannot actually be sure that the subprograms· arecontributing to an overall satisfactory performance at program level. I mean, by missing out performanceindicators at that level--

Mr Leighton: There is a definite linkage between the corporate plan and the operational plan. All ouroperational plans are structured in a format so that each subprogram's goals, objectives, and performanceindicators are directly linked to the program objectives and strategies in the corporate plan. So, we have got thatlogical linkage there to try to keep some sort of fail-safe mechanism.

Dr WATSON: I guess that was the next question. The performance indicators are meant to be linkedin with the strategic, or corporate plan. So, you are saying that they are.

Mr Leighton: There is a linkage.

Mr Finger: There is a linkage there, and I am quite confident that the programs that we have aresuited to the overall objectives and goals of the department, and that is clearly demonstrated in the way westructure our programs and link them in to the corporate plan. It is just a question of the overall performanceindicators that at this time have not been developed in terms of the total program.

Dr WATSON: The Public Finance Standards, of course, require that programs are reviewed in termsof key performance indicators annually, or at other times if appropriate. In the letter from the department, MrFinger, you indicated that performance indicators are currently being developed for your department as part ofthe 1992-93 operational planning process. Do you have any indication then, following on from what you havesaid, when your department's performance indicators will be finalised?

Mr Finger: I envisage that the performance indicators for the department will be finished by the end ofthe 1992-93 financial year. Indeed, we will be carrying out a program evaluation plan for all our programs in the1992-93 year and that will mean that, essentially, the indicators will have to be set during that time. So, by theend of the 1992-93 year, we will have them.

Dr WATSON: So, during the 1992-93 year, you are going to be using those in terms of managing thedepartment.

Mr Finger: And evaluating programs.

Dr WATSON: And evaluating programs. Your letter indicated that you planned to commence its firstcomprehensive program evaluation, in fact, earlier this month. You also expressed your concern about therequirement under the Public Finance Standards that all programs would be evaluated by 30 June next year andyou stated that, "This deadline does not fully allow for the impact of the major organisational changes which haveoccurred during the past couple of years". You also indicate that meaningful evaluations of a significant numberof newly created programs could not have been undertaken earlier and that your first corporate plan with asettled program structure was only finalised last November. It seems to the Committee that perhaps you mayhave problems completing the comprehensive program evaluations by 30 June 1993. Perhaps, you would like toelaborate on that. Have we got the wrong impression from the letter?

Mr Finger: No, I do not think that you have the wrong impression. The fact is that it will be a challengeto finish the program evaluation by 30 June next year. I have got an internal audit unit program here-I can send

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a copy to the Committee-which lists the proposed commencement and finishing dates for the evaluation of allthe programs that the department has. That runs through virtually until the end of the next financial year, 30June 1993. The point that we have made is that because a number of these programs have been only introducedin relatively recent times, ~ is going to be fairly difficult to evaluate the performance, seeing that they have nothad a long time to be bedded down and, in fact, have not got much of a track record at this stage. Nevertheless,I see benefit in doing that program evaluation, if only to pick up any gl~ches that are emerging or any areaswhere we are going off the track at the present time.

Dr WATSON: So you are fairly confident that you have now got the thing under control in terms ofgetting the evaluations done?

Mr Finger: We will certainly get the evaluations done, yes. I have been talking to our internal auditun~ in recent days. They have given me this program and the undertaking that ~ can be done.

Mr J. H. SULLIVAN: I would be interested to hear your comment on how you feel other departmentsmay fare, given the same sorts of circumstances-the amalgamations of other departments, the PSMCsituation, and the requirement to meet these deadlines-and in the light of what you have said about your owndepartment.

Mr Finger: I think there would be a number of departments in our situation. There is no doubt thatthere has been an enormous amount of change in the public service in the last couple of years and that there isongoing change in terms of the introduction of new systems and new standards and having to have thosebedded down. In the first instance, a lot of resources in departments are going into doing that-introducing thenew systems and standards-and those requirements are coming from a range of areas, not only the PublicSector Management Commission, but Treasury, Cabinet and other areas. Naturally, a number of otherdepartments would be in the position that we are in, in that they would have fairly recently introduced programsthat are probably having some difficulty-not difficulty necessarily, but are taking time to bed down, e~her interms of simply being able to introduce the programs and the controls and the guidelines that are necessary todo so, and secondly from a financial point of view. I think a number of them would have some problems.

Mr J. H. SULLIVAN: Given the global situation, if you like, is this deadline realistic, in your opinion?

Mr Finger: I really cannot answer for each and every other department, except to say that I couldimagine that some other departments would probably prefer the date to be extended. As I said before, I can seesome benefit in requiring the evaluations to be carried out by 30 June, simply to provide a snapshot of what theposition is at that time, and as to how effectively departments are able to introduce these programs. .

Mr J. H. SULLIVAN: My concern refers to the fact that if a department does not meet the deadline,its accounts will be qualified by the Auditor-General. I am concerned that that may not be a fair s~uation forsome departments. You have indicated a concern on your own behalf, and I understand that you can onlyanswer for yourself, but that is why I am concerned about the realistic nature of the deadline.

Mr Leighton: I have got a small comment on that-­

The CHAIRMAN: What program have you started on?

Mr Finger: We started on trade and investment development, and the next one will be economicdevelopment. I specifically asked yesterday for that to be the next one, as a matter of fact. Then we will go intothe others-parliamentary and government services, arts and information, corporate services and legislativeservices. Legislative services will probably be the last to be done.

Dr WATSON: You are going to give us a copy of that?

Mr Finger: Yes.

Dr WATSON: One of the things the Committee was interested in was how long you expect eachprogram evaluation to take, and also what the composition of the evaluation teams would be.

Mr Finger: We have not got that information here, but we can take a note of that and provide it to you.Generally, it will probably take about two to three months.

Mr Leighton: Treasury's advice to us is that it takes two to three months, with a staff of two to threepeople per evaluation. That is what we have based it on.

Dr WATSON: That seems to be the common advice, although some of the departments haveindicated that four months would be more realistic.

Mr lei~hton: It is one of those things. You could write a thousand pages or a hundred pages. !t reallydepends on how deep you dig and to what extent you go. With regard to your question about the time frame-Ithink a fundamental concept of program management is improvement in management practice, and forcingmanagement to not only do things but look at what they are achieving and how they are allocating resources and

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using resources. From that perspective, as an ongoing tool, I would not mind seeing some relaxation in the timeframe, because I do not think it is achieving anything by rapping people across the knuckles for not meeting alltheir evaluations within the set deadline. How far you should relax that deadline, I am not sure.

Mrs BIRD: I share some of Mr Sullivan's concerns. I am just reading your letter. In your letter, yousay, "This is very little time for a complex task that demands great thoroughness and rigour." It concerns me thatperhaps you might meet the deadline, but perhaps we are not getting the completeness and thoroughness that isrequired. I share what Mr Sullivan was saying, that the Auditor-General's report may reflect that.

Mr Finger: I think there certainly is that element, that the reviews may be rushed and therefore maynot be as thorough, meaningful, helpful and useful as they otherwise might be. Nevertheless, from my point ofview, they will provide me-even if they are not in absolutely great detail-with an overview of how well thedepartment is performing and how well, broadly speaking, each program is performing. I think there is a questionof how much detail these reviews go to-and indeed with many of the aspects we will be discussing thisafternoon, how much detail is required'whether it is 10 pages or 100 pages or a number of hundreds of pages. Ithink it is only by experience that we are going to learn how detailed these investigations and reviews should be,and how many resources they should consume. I can imagine it would be possible for resources to be spent onthese sorts of reviews which, in the long term, may not be justifiable. I think Mr Leighton may have somecomments on that.

Dr WATSON: That is a question we would like to pursue. The questions I suppose that follow fromthat are, first of all, what the costs are and how we specify the costs; secondly, what the benefits are, and wewould like your opinion on what benefits there can be from conducting these program reviews. As you have notdone very many yet, you may not really have a detailed knowledge of that. We would also like an evaluation ofwhether or not you think the costs are going to outweigh the benefits or the other way around-the benefits willoutweigh the costs. I think the Committee would agree with you, that you can almost go ad infinitum on thesekinds of things. It is a question of getting a balance, and that is what has to be obtained.

Mr Leighton: I think the costs are very difficult to quantify, because there are a lot of indirect or sunkcosts involved in the program management process. It is basically consuming an awful lot of management'stime, and there is no economic cost to the taxpayer from that, because we are already paying those people withsalaries; they are not getting overtime; they are going away for weekends; they are spending a certain amount ofweeks or months each year doing an annual review of their performance; they are developing corporate plansand operational plans, etc. The direct costs for our department-we have engaged a senior officer, Dr RobertKidston, as Principal Finance Officer to implement, coordinate, train, develop and facilitate the process ofprogram management. We would have other direct costs-printing, preparing corporate plans, disseminatinginformation to staff. I would suggest the direct costs alone would amount to several hundred thousand dollarsper annum, and that is not taking into account the economic cost of management's time-considerable time-inattending to the process.

The CHAIRMAN: Presumably that will decrease in the longer term.

Mr Leighton: It will. I think the fundamental problem with program management is that it has to belooked at in perspective. There tends to be an awful lot of forces around who are trying to over-complicate theprocess, when it is really just a simple management tool. It should be as simple and as practical as possible, andit should not be nearly as paper-intensive as it is.

Dr WATSON: Are you confident then that you can get the review at a point where the benefits youcan derive are greater than the costs, or are you pessimistic when it comes to that?

Mr Finger: As I said, without much experience it is difficult to comment. If the program review canproduce a number of small improvements or if it can produce one large improvement, the potential is there to,broadly speaking, recover the costs. Those are tangible benefits, if you like. There are obviously otherintangible benefits in terms of ensuring that there is no corruption, that there is no misconduct and that there IS

no mismanagement going on. That is an intangible which you cannot really qualify in terms of the impact on theGovernment and on the department itself. From a management point of view, I support the process, but I thinkthe managers need to be able to have the power to make judgment on the worthwhileness of the process in termsof its complexity and its detail. There should be some flexibility.

Mr PERRETT: I would like to move on to the subject of system appraisals. Your letter states thatyour department undertakes quarterly system appraisals and that the process involves monthly meetingsattended by senior financial services branch staff. It is the Committee's understanding that the Public FinanceStandards require clerical and system procedures followed in practice to be formally examined so as to ensurethat internal controls and systems are operating as intended and that those systems and procedures areappropriate and sound. Documented appraisals are required to be referred to management. Do the monthlymeetings you refer to address all of these issues?

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Mr Leighton: They address many of the issues from a snapshot point of view. The monthly meetingstake into account things like the impact of internal audit reports at this stage and, in the longer term, externalaudit reports when they come on. We have not been subject to audit this year since we have been doing them.They address those sorts of issues. The internal audit reports are the real comprehensive analysis of systemsand processes and there has been a number of them. In fact, the internal audit unit's first task was to look atexpenses and accounting systems and things like that. They have addressed that. We tend to do a snapshotlook at that each month to make sure that we have addressed audit recommendations and that anything theyhave recommended about systems and processes has been put in place and is working. That is the level ofreporting we have got in our systems appraisals at the moment which we have been doing quarterly inconjunction with position assessments, although they are only required annually.

As for comprehensive system appraisals, we have not stopped and looked significantly at any of ourfinancial systems or processes because the department is embarking on a whole new accounting environmentfrom 1 July where we are taking on board the QGFMIS accounting package. It is a whole new system and wehave a systems development team working flat out getting that on board by 1 July. There is not much use,therefore, in looking at what we have until we have something substantial to look at, which is in the long term.

Mr PERREn: Has the convening of these monthly meetings been in response to the requirements ofthe Public Finance Standards or are they just a continuation of an already established practice?

Mr Leighton: No, it is a continuation of an established management practice.

Mr PERRETT: You mentioned that you are doing these appraisals quarterly. Why did you decide todo them quarterly?

Mr Leighton: We have to do position assessments quarterly. There are some big issues in position""assessments which have to be looked at. The same sorts of issues, in a financial accounting environment,~apply to systems as well. We, just through convenience, have dedicated one person the task of coordinatingthat process in conjunction with position assessments.

Mr PERRETT: You feel they go hand in hand. Have you found the system appraisal processbeneficial to your department?

Mr Leighton: It is difficult to say because I think to seriously do a system appraisal one has to lookcomprehensively at the whole system from top to bottom. It is more like a major audit review. Given that we havenot done that to date, I cannot see that we have received any significant benefit out of it, other than the fact thatwe are keeping on track with external and our own recommendations for change with regard to systems andprocesses.

Mr PERRETT: Could you give us an example of a deficiency which has been illustrated by theprocess?

Mr Leighton: The internal audit unit in a recent report identified deficiencies with regard to theprocesses involved in the administration of arts grants-the control procedures regarding who reviews it, whoapproves it and who authorises it. That is one such deficiency which has been picked up and addressed in thatprocess.

Mr PERRETT: Just one question on added cost. Do you feel that the system appraisal process hascreated any additional costs for your department?

Mr Leighton: Yes, it certainly has. We have one person, as I said, who spends quite a considerableamount of time each quarter doing this and looking at a snapshot of systems-where they stand with regard toaudit recommendations. If we looked at it seriously and did a comprehensive review of our overall financialsystems, be they financial accounting systems, asset management systems, other sorts of personnelsystems, HRM systems, we would incur a significant cost for something that is probably already looked at inperspective by audit, particularly by internal and external audit. They probably already look at that as part oftheir audit plan. There is a duplication there that can be quite costly and for very little added benefit, in my mind.

The CHAIRMAN: If you are using internal audit to check your systems and report at these monthlymeetings, depending on what area they are looking at, I would presume that if you made sure that all systemswere checked by the end of 1992-93 and presented those elements together, you would have complied with theformal requirement for system appraisal without--

Mr Leighton: As long as it was formally documented, I would suggest.

The CHAIRMAN: Have you considered, or have you a plan. to make sure that that occurs if the workis already being done on an as needs basis? Have you a plan to make sure that it all comes together?

Mr Leighton: Our major impediment is that we are completely revolutionising accounting systemsfrom 1 July. If you put it into context, we are getting a whole new accounting environment from 1 July and there

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are new modules being added to that and new modules being integrated with that from 1 July right through toDecember-June the following year. From my perspective, in the next financial year the major review will be thepost-implementation review of the system we implement from 1 July. That will be a major review carried out by oursystems development team next year. As an ongoing exercise, what you are saying is probably appropriate.Once things are up and going and we have a suite of systems in place, that will be an appropriate mechanism toachieve the requirement for systems appraisals.

Dr WATSON: Just as clarification, you mentioned earlier major changes and a revolutionary newsystem and that there are going to be substantial differences to the flow charts. Can you explain exactly whatthe differences are?

Mr Leighton: The department some years ago developed its own in-house suite of accountingsoftware and applied that software progressively for the last two to three years to maintain its accounts,produce its reports and provide all sorts of information to management. The Government has looked at a wideragenda and has decided that all Government departments should use a central suite of accounting softwarecalled the Queensland Government Financial Management Information System-QGFMS. We are moving froman in-house, on-line, real-time accounting system, developed using a proprietary software package, Dataflexsoftware, to the QGFMS accounting system which is centrally used throughout the Queensland Government.

Mrs BIRD: You mentioned earlier about your quarterly position assessments. When did you startdoing those?

Mr Leighton: This financial year. The first one was the quarter ending September 1991.

Mrs BIRD: So it was completed in September 1991?

Mr Finger: We have had September, December and March quarterly assessments.

Mrs BIRD: Are they totally compliant?

Mr Leighton: They are quite comprehensive. We could always give you a copy of one. It is quite alengthy document in which we address each of the benchmarks in the Public Finance Standards. We thendetermine what departmental performance indicator there is for that benchmark. We then assess our position oneach of those performance indicators and we have a final column which relates to action required or proposed asa result of that assessment.

Mrs BIRD: The Public Finance Standards require that an annual determination be made as to whetherassets are being used in the best and most efficient way possible. What process does the department follow tosatisfy this requirement of the standards?

Mr Leighton: It is a very interesting question. I think the question of appropriate or efficient use ofassets is really the subject of a major evaluation. It is another one of these things to look at and it is very difficultto do in a snapshot quarterly position assessment, which you are doing every three months. We tend to look at itfrom a purely financial viewpoint at this stage-things like current assets, receivables and how we are placedwith them, and are we in a position to be fairly confident that we can recover all our advances. We have somesignificant advances with regard to the Film Development Office that we are monitoring. We have to know wherewe stand wtlh that process and we are in a position to know where we stand in regard to recovery of each ofthem. As for fixed assets such as plant and equipment and computers, it is certainly the case that we now havean information technology strategic planning process which looks significantly at the level of investment incomputers and whether they are being effectively used. To this date, we have not seriously looked atdetermining whether there is an efficient or effective economic return on our investment in assets. We assumethat they are appropriate.

Mrs BIRD: Can you do that?

Mr Leighton: We assume that they are appropriately used by management. There is no surplus orredundant stock. There is very little surplus or redundant stock picked up by way of annual stocktakes. Weassume that they are effectively used to this date.

Mrs BIRD: How are you going to handle that part of the requirement?

Mr Leighton: I would suggest that we would have to do an audit of our assets, our physical assets.

Mrs BIRD: That is very intensive, is it not-very extensive?

The CHAIRMAN: What sort of assets does your department hold?

Mr Leighton: In physical assets, we hold an awful lot of investment in plant and equipment andcomputers. To this date we have not had custody of our buildings or our furniture, so all these sorts of thingscomplicate the real exercise. You have got desks and cupboards everywhere but you do not own them.

Mrs BIRD: Treasury conducted a series of position assessment workshops earlier this year. They

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were specifically designed to provide guidance on what the Public Finance Standards require. Did arepresentative from your department attend those workshops?

Mr Leighton: Yes. I am certain we scheduled someone to go. I did not personally go, but I think-­

Mrs BIRD: Would you know if they found any benefit?

Mr Leighton: The feedback I got from people who went to the seminars was that they were not veryhelpful. Everyone seemed to have the same sorts of questions such as, "To what degree do we go? Do we write100 pages or 500 pages?" The questions related to things such as the current levels of assets or the efficientuse of assets. These are things that you could address in a significant sense or as a one-liner. I think we havegone into things reasonably comprehensively, but the more I look through our assessments, the more I do notthink we are adequately addressing some questions. I think that some of those questions are almost impossibleto address.

Mrs BIRD: Have there been any suggestions that specific guidelines would have been of benefit?

Mr Leighton: I have asked Treasury for it personally. I have asked Treasury for some advice and Ihave talked to Auditor-Generals, too, and asked them for some sort of assistance.

Dr WATSON: Some specific guidelines?

Mr Leighton: Some sort of examples. A pro-forma would be marvellous-a pro-forma of how youassess the adequacy of something against a specific benchmark.

Dr WATSON: I would have thought that the Treasury-type of answer is, ''They're the guidelines. Youpeople are being paid a lot of money to run your departments. Run them."

Mr Finger: Yes, and we do.

Dr WATSON: "You should be able to figure out how you are going to evaluate them without Treasurygiving you detailed guidelines."

Mrs BIRD: What you are saying is--

Mr Leighton: What I am trying to say is that we would do it in a cost-effective manner. I mean, whyshould we do 1 000 pages if we can do it in a much more cost-effective manner at least cost to the taxpayer andachieve the desired result.

The CHAIRMAN: Specifically, what issues did you raise with the Auditor-General and Treasury?

Mr Leighton: I suppose the issue we discussed with them was what we had to do when we were doingour first assessment. We were scratching our heads about what it really meant and what would be theappropriate benchmarks to indicate that we were achieving the requirements and to what degree. Particularly inrelation to the question of the efficient use of assets, to what degree do you go to try to indicate that you areachieving that requirement?

The CHAIRMAN: But even now you still cannot really feel confident that you produce a documentthat provides a lot of management information, and it is one that you are obviously happy with. It is obviouslyone that is cost effective, what you have got there at the moment.

Mr leighton: I think it is cost effective. We employ a fair amount of resources to produce what wehave got and we do an awful lot of number-crunching and produce an awful lot of figures for what we have got.

The CHAIRMAN: You still cannot be completely confident that that is going to fully comply with thestandards?

Mr leighton: I think it will comply with audit requirements; but from my perspective, if there is aquestion, I would like it appropriately addressed.

Dr WATSON: I will play devil's advocate for the moment and suggest that that is what Treasury wouldsay-that is, "The standards are there and you ought to know what is best to run your department and you oughtto know what is appropriate in terms of how much of that you have to do to meet the standards. What is theproblem?"

Mr Finger: That is the attitude we will take. We will go ahead and do what we believe is the right thingand what is satisfactory from our point of view in terms of our management requirements, and also to the best ofour knowledge what will meet the standards that are required. That is what we will do. I suppose what we feel isthat there is no real point of reference to know whether we are way out or close to what is required in terms ofreasonableness, in terms of cost-effectiveness, and in terms of perhaps even meeting the standards.

Dr WATSON: And you need some comfort from Treasury's instructions?

Mr Finger: I suppose it is because we are in the relatively early days of the whole process.

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Experience will come after a couple of years and more networking between the departments as to what otherdepartments are doing and what the public service as a whole is doing. I am sure that Treasury will probablycome in and carry out some review at some stage and address the issue of cost-effectiveness of the fundmoney that is being spent on these reviews. At this stage, I think we are saying that we are a little bit in theunknown; but we are hoping, and probably erring on the side of doing too much work or going a bit too far.

Mrs BIRD: What concerns me about that is that every time it is done, people will relax a little bit moreand we are going to find that they are condensing a little bit more and perhaps not maintaining the same sort ofthoroughness that they do at the outset. Do you have any comments to make about that? How will you beapproaching them in the future?

Mr Leighton: I am going to leave them with the same sort of rigour at this stage, subject to anycomments from our internal audit unit and the Auditor-General. If they want more, we will give them more, but Icertainly will not be reducing what we have got.

Mr Finger: At this stage, they are the sort of beacons that we have got to guide ourselves with, theAuditor-General.

Mr Leighton: I have got some from other departments and I have had a look at them. I think ourscompare quite favourably, so I am happy from that point of view.

Mrs BIRD: You mentioned costs before. Is the position assessment process a costly exercise for thedepartment?

Mr Leighton: Probably $20,000 a year, I would suggest, in direct labour costs.

Mrs BIRD: You have someone on systems appraisals?

Mr Leighton: Someone full-time spending a month every quarter, and you have secretarial peopletyping that, producing it and distributing it. It is probably somewhere around $20,000, including on-costs.

Mr J. H. SULLIVAN: Public Finance Standard 400 requires that the internal audit function beconsulted when computerised accounting systems are in specification and development phases beforeimplementation. Is that the practice in your department?

Mr Finger: It certainly is the practice. We involve our internal audit team in that process.

Mr J. H. SULLIVAN: Are your internal audit staff ever called upon to perform non-audit relatedduties within the department to fill vacant line positions or other staff shortages?

Mr Finger: Not to my knowledge.

Mr Leighton: Not to date. The unit has only recently been established, but certainly not to date.

Mr J. H. SULLIVAN: I note from the response in the questionnaire that you have six departmentalemployees in the unit. What type of qualifications do they hold?

Mr Leighton: To my knowledge, the director holds a Bachelor of Business Management and iscurrently studying a Master of Business Administration. There are three senior auditors all of whom holdBachelor of Business Accounting degrees. There is one vacant position. I think the secretarial support person isstudying towards a Bachelor of Business in computing.

Mr J. H. SU LLiVAN: From the papers you enclosed with your letter, I note that your internal auditunit provides internal audit services to the Premier's statutory bodies such as the museum and the QueenslandCultural Centre Trust. How well do you find those arrangements are working?

Mr Finger: In my regular meetings with the Director of the Internal Audit Unit, he reports to me on hisrelationships with those organisations and he has not reported any problems to me in terms of his relationshipswith them. In fact, I think that the relationships are very good. One area that we do not audit is the QueenslandPerforming Arts Trust. They use private sector auditors. They prefer to do that and we are happy with that.

Mr J. H. SULLIVAN: You have had the unit established since November 1990. How beneficial haveyou found internal audit to the management of your department?

Mr Finger: I think it has been beneficial. They have conducted a number of audits which have shownthat there are some problems, in terms of keeping of records and information. In particular, I suppose theHRMS-human resource management system-which is controlled by DEVETIR but which is used for payrollpurposes has shown it as being a new system problem, but in terms of checking on some of the very sensitiveareas of the departments, that is areas relating to payroll matters, expenses and so forth, it has performed avery useful function.

Mr J. H. SULLIVAN: Are you able to give us a specific example of an improvement in theadministration of the department which has arisen from a recommendation of your internal audit?

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Mr Finger: Again, the one that was mentioned previously when the internal audit was done in the ArtsDivision, the shortcoming in terms of dealing with funding of film entrepreneurs has shown up. That has resultedin an ongoing addressing of a fairly significant problem.

Mr J. H. SULLIVAN: More generally, to what extent have recommendations made by internal auditactually been implemented in the department?

Mr Finger: The Internal Audit Unit has got a function of following up to ensure that itsrecommendations, if approved by the director-general, have been implemented. So there is a process there. Tothe best of my knowledge, no recommendation of the internal audit unit has been not approved by me, and theyare following up the implementation of those recommendations.

The CHAIRMAN: If we could go back to the role of Treasury-we have already touched on it in termsof what guidance they should and should not provide. Could you make an overall comment as to what you thinkthe role of Treasury should be in relation to providing guidance on the implementation of the standards? Has itbeen adequate or is more detail required?

Mr Finger: I may have some different views from my colleague. I think that Treasury's primary rolereally is to set the standards and the guidelines and then leave it for the departments to act on those. I do notexpect the Treasury to be coming in and providing physical assistance to departments to implement thosethings. For example, in the area of financial management practice manuals, I think that every department wentahead and developed a manual for itself. I am sure that led to a lot of duplication. It may well have been thatsome development of a model manual or elements of such a manual by Treasury would have been useful andhelpful in preventing that sort of duplication. It is a little bit of horses for courses. But, broadly speaking, I do notexpect Treasury to come in and hold the hand of the department in the development of the department'sprocesses to meet the standards and the requirements of Treasury. My colleague might have some differentideas on that.

Mr Leighton: No, that is fine.

The CHAIRMAN: Could you summarise what aspects of the standards you think there is still somedoubt about? Obviously, you are generally reasonably well placed in terms of a complete and up-to-date manual;your program management is under way, with perhaps some concern about whether you will get everythingevaluated in time and how detailed that process needs to be; and the internal audit is running. What aspectsspecifically of your department still remain to be clarified? Are you confident that you are completely complyingwith the Public Finance Standards, or when you finish by the end of next year you will be complying?

Mr Finger: Yes, I am confident that we are. The only concern I have-it is not really a majorconcern-is whether we are overresourcing or overexpending resources in this area and whether in abenefit/cost type situation we are reaping as much benefit as it is costing us. I mean, that depends onresources. It relates to resources we have to put into it and that relates to the sort of extent to which you have togo to comply with the requirements. As you probably gather from what we have said, it is at this stage a bitnebulous. I think that within a couple of years we will be able to be much more confident that we are in the rightballpark in terms of the resources that we are devoting. I certainly do not want to see the sort of standard ofaccountability and the standard of information reporting and information to senior management slipping. Ifanything, it has to improve and increase, but it may be able to be done better than it is at present. I think that isthe main point-perhaps my colleague would agree-that probably from lack of experience with the programsand the systems we have those doubts.

The CHAIRMAN: Is there any technical matter that you would like to add as to what is nebulous?Obviously we understand in general terms where the uncertainties are. Would you like to point the finger at anyspecific area.

Mr Leighton: No. I have no problem with the standards. We have come pretty well to grips with thetechnical requirements of them. It is just to what degree, and I think that will come from experience. I am prettyconfident that the department is pretty well placed in regard to implementation of the standards, so we are in agood position in that regard.

The CHAIRMAN: I am also interested in the lines of communication between departments andstatutory bodies. Obviously, that varies considerably and obviously the department does not physically haveresponsibility for the statutory bodies, but it is interesting to note that you make your internal audit servicesavailable to your Ministers' statutory bodies.

I\IIr Finger: Yes. and also to EARC and the CJC.

The CHAIRMAN: Does the department then assume a sort of a responsible role in making sure thatinformation about these Public Finance Standards is being disseminated to those organisations, apart fromactual of services like internal audit?

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Mr Leighton: Yes, I am actually the departmental liaison officer for the Public Finance Standards without statutory bodies, and with all the South Bank agencies in particular, I convene regular meetings with all theirfinancial managers and we talk through issues like adoption of general purpose accounting standards andformats of financial statements. We actually established a committee where both myself and a representative ofthe Auditor-General provided them with support in their process of conversion from cash to accrual-basedstatements.

The CHAIRMAN: So you have taken a lead in making sure they know what is going on and that theyare complying?

Mr Leighton: Yes. We obviously have no stick, but we are­

The CHAIRMAN: You are providing the information?

Mr Leighton: Providing a facilitation role.

The CHAIRMAN: Are you also providing an informal monitoring role as well?

Mr Leighton: We ask, at the request of the Premier, for information on all sorts of issues and we askquarterly for something that we call a position assessment-it is really not a position assessment, it is afinancial position statement-for advice to the Premier. At this stage, through those informal meetings, we havefound wide cooperation. Everyone appears to be complying with the requirements, so there is no need to reportto the Premier any problems, or report to the board any problems.

The CHAIRMAN: In general terms, have those statutory bodies had the resources to be able toimplement standards on their own?

Mr Leighton: They are finding it very difficult because I think the smaller the organisation-some ofour statutory bodies' financial personnel would be one, two or three people. To adapt with position assessments,system appraisals and all these sorts of things, and to adapt to a conversion from cash to accrual-basedaccounting is really quite resource intensive and they have found quite a degree of difficulty. I suppose that iswhy we spent a bit of our own resources developing pro forma financial statements for them and also giving themadvice about certain issues like valuation of assets and all sorts of related issues.

The CHAIRMAN: What are some of your very small statutory bodies?

Mr Leighton: EARC would be the smallest. EARC actually opted to not move to accrual-basedstatements. It had the Premier's endorsement for exemption. Certainly, places like the museum and the artgallery do not have a big corporate service staff establishment, so they have found it quite difficult as well. Thebigger places like the Criminal Justice Commission have not found too many problems.

The CHAIRMAN: Have there been any exemptions granted?

Mr Leighton: EARC.

The CHAIRMAN: EARC is the only one?

Mr Leighton: Yes.

The CHAIRMAN: The criteria for exemptions are fairly stringent?

Mr Leighton: Yes. It is basically the size of the organisation, and whether it is in the public interestthat the accounts be presented on an accrual basis or in accordance with generally accepted accountingprinciples. EARC's agenda is short term. The department is actually providing an agency service. They are usingour accounting systems. For them to convert to accrual based would mean they would have to develop their ownaccounting systems. Their continuing agenda is only short term, so they got an exemption on those grounds.There is no public interest served in them converting, given the short time frame involved.

The CHAIRMAN: When we have looked at exemptions, it would seem that obviously very fewexemptions will be granted. There are five criteria, all of which have to be complied with. It seems to be a veryrigid set of criteria for exemption. Would you consider that the exemption criteria as they currently exist in thestandards are appropriate?

Mr Finger: From my perspective they are, yes.

Mr Leighton: I think they should be rigorous. I cannot see any basis for statutory bodies gettingexemption from accrual accounting. Their reports should be prepared reflecting information on the balancesheet, profit and loss, and source and application of funds. All that information should be provided. They shouldadopt program management, just like anyone else.

The CHAIRMAN: And system appraisals and position assessments.

Mr Leighton: Yes.

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The CHAIRMAN: Are there any matters in relation to the standards that you would like to raise withus?

Mr Leighton: No.

The CHAIRMAN: Any final questions from the Committee? Thank you very much, Mr Finger and MrLeighton, for your evidence. That concludes the Committee's hearing. Thank you, Hansard.

The Committee adjourned at 4.20 p.m.

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