THE PGPA ACT REVIEW (PART 3) - LESS PROCESS, MORE LEADERSHIP
In two earlier articles, I discussed the draft report of the Independent Review of the Public Governance, Performance and Accountability Act 2013 and Rule (the review), and the recommendations relating to managing and engaging with risk.
This time around, I will consider the review’s recommendations on audit committees, Accountable authorities, ministers and the Parliament, the Comcover Benchmarking survey Tool, clarifying reporting requirements and reducing the reporting burden.
A copy of my submission to the review can be found here (submission-to-pgpa-act-review.html).
Overall, I agree with the review that good governance is tied to strong culture and the need to engage with risk, and that APS leaders must actually ‘lead’ on these issues. I also agree with the intent of many of the recommendations addressing structural and system improvements, however, consistent with my earlier articles, too many recommendations rely on process driven solutions likely to increase the reporting and compliance burden and not deliver the cultural and behavioural changes required.
Improving governance and performance requires a sustained, dedicated and increased resource investment (time, people and money). This will not get any easier in a resource constrained APS, where many remain to be convinced of either the merit of such an investment or that it is also their responsibility.
Audit Committees: Recommendations 4 – 8, 15 – 22.
Recommendations 4-8 to improve the skills, capability and focus of audit committees are welcome, as are the suggestions to support them with learning programs. A key element, as noted by the Joint Committee of Public Accounts and Audit (JCPAA), remains the need to set clear governance parameters – what is the committee’s role, what are their powers, what outputs are expected from them (quality, timing and value), how do they interact with other committees and the Executive Board and who is accountable for the committee’s outcomes and findings.
Recommendations 15 to 22 suggest increasing the independence of audit committees, increasing accountable authority and senior management involvement, broadening the skills and qualifications of audit committee members, regularly refreshing committee membership, ensuring regular briefing and training, and improving transparency of the audit committee’s membership, attendance, remuneration and operations.
Audit committees do not tend to be exemplars of diversity, so widening the pool of potential audit committee candidates, consistent with the changes occurring in the private sector, is long overdue. Organisational capture and ‘group think’ are obvious risks in committees that are not regularly refreshed with ‘new blood’, with newer members likely to be more willing to ask difficult questions or seek more information when they are not satisfied with the information put before them.
The Prudential Inquiry into the Commonwealth Bank of Australia Final Report (John Laker AO, Jillian Broadbent AO and Graeme Samuel AC) (CBA Inquiry) also considered that continuity of membership can lead to other organisational risks. In the case of CBA committees and the Board, the lack of change, when combined with a collegiate style of senior management interaction, meant that the Board and various committees put too much faith in trusting their colleagues, and not enough on interrogating the material put before them.
Increasing senior management involvement is necessary to ensure the right ‘tone from the top’ and to clarify committee governance arrangements. This requires a greater commitment to improve the quality of information put before the committee and to build relationships with the chair and committee members which are robust enough to deal with the ‘hard questions’ that should be asked at committee meetings. Constructive and challenging committee discussion is critical.
Whether all committee members should be independent of not just the entity, but the APS, is an interesting suggestion. This recommendation is likely to be resisted by entities based on confidentiality concerns, that members may have little understanding of government or the entity’s business drivers (and therefore add no value) and that it would significantly increase the reporting burden.
Rather than a zero-tolerance position, I suggest that one or two members of the committee could be employed by the entity (obviously not the Chair), and always on the basis that such members would be in the minority. This would enable a stronger link into the entity to facilitate movement of information and outcomes, improve organisational understanding of audit committee roles and functions, yet maintain the committee’s independence.
Accountable authorities, ministers and the Parliament – Recommendation 11
Recommendation 11 deals with increased leadership on risk, risk appetite and the need for an improved dialogue with ministers and Parliament about risk management. The review noted that:
The risk appetite of accountable authorities is strongly influenced by that of ministers and the Parliament. To effectively instil a more positive risk culture within entities, accountable authorities need support from their ministers, and the Parliament. Put another way, they need to be given some leeway to fail. However, there is no evidence the risk appetite of ministers, or the Parliament, has shifted in recent years…
…Entities’ approach to risk could be enhanced if the Parliament acknowledged the complex environment in which government operates….
This issue influences many interactions at senior levels of the APS. Heightened concerns about the risks of failure, how it will be reported and potential career impacts are hardwired into the APS. This is not aided by the combative nature of politics and the 24/7 news cycle.
Changing this dynamic will require robust relationships and conversations between accountable authorities and ministers, a willingness ‘to ride out’ the media storm when it occurs, and an ability to maintain a focus on the ‘big picture’.
In relation to complexity, there is no shortage of cross portfolio policies and programs requiring intricate interactions across entities, APS staff and external stakeholders. The fact of complexity is likely to already be acknowledged by Parliament. Part of the issue may lie in the limited information provided to Parliament, which feeds the suspicion that the APS is hiding something.
What may be required is a more fulsome explanation to Parliament from ministers or the APS about how a policy or program was implemented and whether it is being adequately managed to meet its publicly stated goals.
The CBA Inquiry noted that the complexity of some program risks across the CBA’s business lines was used as an excuse for complacent behaviour in addressing those risks. Similar arguments can also be made across the APS. Clarifying responsibility and accountability, especially identifying a program owner, shifts the onus on to that person to not only deal with risk, but explain it to stakeholders, including Parliament.
Comcover Benchmarking Survey Tool - Recommendation 39
Recommendation 39 suggests that Finance should review the interaction between the Commonwealth Risk Management Policy and the Comcover Benchmarking Survey Tool. This is a useful suggestion as the Survey Tool has an important role in triggering risk culture discussions within organisations.
The Survey Tool is a self-assessment tool, used for many years voluntarily by entities, and provides useful information about an entity’s risk maturity. When the Commonwealth Risk Management Policy was implemented as part of the PGPA Act, the Survey Tool was substantially revised to reflect the Policy, providing a new baseline for measuring risk maturity.
An entity’s engagement with the Survey Tool varies significantly, depending on their willingness to invest time and effort into the survey, to test risk issues with their line areas, and engage with senior management.
Often, as an organisation learns more about its risk practices, there is a realisation that more could and should be done to improve risk culture. Yet, if previous surveys have shown that the organisation has a high risk maturity (4 out of 5) there is sometimes a reluctance to accept this reality and suffer a drop in the ratings from a 4 to a 3. Put another way: “What, we are getting worse at managing risk? But we are doing more..” Risk maturity means accepting this and communicating this message to key stakeholders such as the minister, peers and staff.
Clarifying reporting requirements and reducing the reporting burden - Recommendations 23 to 28
These recommendations seek to clarify and simplify the reporting burden and provide a stronger line of sight between an entity’s portfolio budget statements (PBS), corporate plans and annual reports, thereby further improving transparency and accountability.
While a worthy aim, doing so will require a significantly improved understanding and appreciation of the purpose of each document, their key stakeholders and owners, and how these documents interact with each other. Such knowledge usually falls within the rather narrow domain of ministers’ offices, the ANAO, Finance department officers, CFO areas and budget teams in central and line agencies.
As a starting point, this cohort of stakeholders should have an agreed understanding of the purpose and content of these documents. This understanding should then be communicated across the APS, to small and large entities alike, so that those undertaking the work also understand the linkages and start tailoring their reporting and accountability to match public expectations.
Again, this requires investing time and effort in communicating between the various APS layers, from top to bottom. In the absence of such efforts, irrelevant data will continue to be painstakingly collected, passed up the line and inserted into reports based on a strongly held belief that this is what is needed for accountability, and corporate documentation like the PBS, corporate plans and annual reports will remain poorly understood and prone to minimalist compliance based box ticking.
Recommendation 26 proposes amending the PGPA Rule on corporate plans to require entities to outline how they will achieve their purpose(s) over four years, how they will coordinate with others and how key risks will be identified and managed.
If the review’s goals include improving transparency and lessening the reporting burden on entities, then Recommendation 26 will achieve neither outcome. Further, it will lead to a proliferation of wishful thinking, crystal ball gazing and weasel words. Given that agencies are struggling with the current reporting framework, quadrupling the extent of reporting, guesswork and forward planning will not improve the quality of information provided in the public domain.
Recommendations 32 and 33 appears to be based on the premise that there is limited evidence that the PGPA Act has enhanced cooperation between Commonwealth entities, and that further, more formal, steps should be used by the Government and the Secretaries Board to improve cooperation. It is just not clear what the issue is and what is being recommended. Neither will it reduce the reporting burden.
An initial question is the basis for the assumption. Is there data or performance metrics supporting this view? Is it anecdotal, personal? I suspect the answer is no, given the option in Recommendation 33 to develop and report on whole of government performance information.
A deeper analysis of the incentives, drivers and rationale is required, rather than setting up another process involving more written priorities and objectives for leaders. Cooperation, particularly on complex issues, requires discussion, clarification, negotiation, acceptance of responsibility and accountability.
This requires a change of culture, not process.
As the review noted earlier, the key to improved culture is leadership. But leaders need to substantially increase their investment in governance. If you want to drive change in an organisation, get a bus, not a bicycle. You get what you pay for..