Australia’s public sector has been lauded in the past as one of the best public administration systems in the world. At this time Australia also had 20 years of good government under Hawke and Keating and Howard and Costello. However, most Australians would now agree that the performance of the Commonwealth Government over the past ten years has been very disappointing.

Australia has had six Prime Ministers in six years (2007 to 2013). Close election results have increased the political influence of the minor parties, and reduced the capacity of Government to make the tough decisions required for good government. There has been an increase in poor policy choices in response to popular issues (e.g. super profit tax on the big four banks).

Politics is too often focused on low value political issues such as citizenship and travel rorts instead of robust debate on core social, environmental and economic policies. The Government of the day faces the difficult challenge of rebuilding the public’s confidence in the political process.

There have been a number of significant government failures during the past ten years, which have resulted in significant waste of public funds, failed to achieve policy objectives, and contributed to a massive increase in government debt. Each of these government failures were major projects with national implementation.

Notable failures in the past ten years include:

  • Building the Education Revolution (BER);
  • Home Insulation Program (HIP);
  • Green Loans Program;
  • National Rental Affordability Scheme;
  • Day Care;
  • Job Active Employment Services;
  • Vocational Education and Training (VET);
  • Job Active Employment Services; and
  • National Broadband Network (NBN).

It is worth noting that there have been a number of early warning advices (e.g. Productivity Commission and ANAO reports) on significant issues with the National Disability Insurance Scheme (NDIS). The sheer scale and complexity of the NDIS indicates that this will be added to the above list in the foreseeable future.

A number of these government failures were based on public funded subsidies to private providers of human services. It is apparent that any scheme that makes large amounts of public money readily available is likely to be the target of rorting by the unscrupulous private sector operators through taking advantages of weak controls and processes (e.g. false claims for payments and provision of incentives to clients to sign up and artificially drive demand or provide evidence to support claims).

This paper does not seek to make comments on the setting of government policy objectives. In general, it is not difficult for most Australians to understand the broad outcomes that the Government is seeking to achieve when it makes policy decisions. For example, the government policy objectives for the VET sector was to increase the level of participation in technical and trade disciplines and improve the overall quality of education (i.e. better meet student needs, ensure that student skills are valued by employers, and contribute skilled human capital to the economy). It is important to highlight that policy formulation is difficult work. It is subject to high levels of scrutiny, there is rarely a correct answer which is accepted by all, there are often unrealistic expectations, and there are low levels of public trust in government processes.

There have been too many major policy failures to be accounted for by random one-off sets of circumstances and they look to have common origins. Most, if not all of these failures could have been avoided by sound government and public sector management processes. This includes both the Government of the day (i.e. Cabinet approves new policy and Ministers make the policy decisions), and the Australian Public Service which is responsible for implementation and delivery of new policy (i.e. system wide organisational failure).

There is an opportunity to learn from these recent experiences and ensure that these problems do not surface again in the future. The common root causes that have been identified with these failures include:

  • unrealistic expectations of the Government to achieve the stated outcomes within short timeframes to achieve poll driven outcomes;
  • policy design was not evidenced based[1] and supported by robust debate in Cabinet;
  • policy design did not evaluate all alternative options and consider alternative policy views (i.e. frank and fearless advice by public servants);
  • Government did not consult widely enough with the key stakeholders to develop the necessary depth of understanding of the relevant industry sector and determine the potential impact on the sector;
  • inadequate documentation and record keeping of the policy decisions (i.e. explain the basis of decisions and an audit trail of the advice provided);
  • separation of policy design and policy implementation processes[2];
  • insufficient program and project management capability[3] of the public sector, and limited resource capacity to support the implementation of the new policy due to budget constraints;
  • program management processes set up on the run, and a full scale roll out of the program without adequate testing of the business model with controlled sample groups;
  • payments made in advance;
  • insufficient due diligence on the accreditation of new entrants to the market;
  • poor budget control (i.e. ‘blowout’);
  • misuse of public funds;
  • failure to identify key fraud risk exposures;
  • inadequate regulatory controls in place to mitigate the key risks; and
  • limited if any effective monitoring of performance and compliance.

Importantly there have been no penalties or consequences for those responsible for the decisions.

As an example, the VET policy was designed to increase competition through encouraging more private providers to enter the market (i.e. contestable model), and the student loan scheme (i.e. VET Fee Help[4]) was designed to establish more of a level playing field for Registered Training and Organisations (RTOs) and Universities. Key issues identified with the program include:

  • high rate of students not completing courses;
  • poor quality of the courses delivered;
  • no control over the quality of courses or the number of students enrolled in courses;
  • high levels of student debt that is unlikely to be repaid;
  • low barriers to entry for new RTOs (i.e. low level of scrutiny in accreditation process);
  • uncontrolled growth in expenditure;
  • number of RTOs being declared bankrupt; and
  • unscrupulous behaviour by a number of RTOs to maximise profits with little regard for educational outcomes.

Another example is the HIP, which had a number of conflicting policy objectives including:

  • GFC stimulus package;
  • employment for low skilled workers; and
  • energy efficiency and reduce carbon emissions.

Prior to the HIP there were 200 businesses in Australia installing insulation for 70,000 homes each year. The insulation business sector was largely unregulated and relatively immature. The implementation of the HIP resulted in a 15 fold increase in business activity. To provide the cash flow required for the stimulus program, the implementation timeframe was set at five months. The policy design was completed in two days by two staff working alone without any industry expertise. The program design was not tested through extensive trials to ensure it was working before it was rolled out on a national basis.

The Department of Environment did not have a proven capability to implement a program of this size and nature, and it did not have the systems and processes required to manage the program. This resulted in a number of control weaknesses in the program that were easily perpetrated by fraudsters. There was inadequate consultation with both the public on what they wanted and industry on the best way to deliver the outcome. The Commonwealth Government did not consult with the State and Local Government agencies responsible for regulating the industry, take heed of international experience, and did not develop in-house expertise or engage external advisors[5].

Approved providers in existing State Government programs would have been expected to be classified as having a lower risk (i.e. proven performance). New providers were not subject to robust accreditation processes and were not differentiated from the existing providers. Industry representatives raised safety concerns (e.g. risk of injury to installers) at an early point but these were not included in the risk register. The training requirements for installers were subsequently relaxed which exposed them to the risk of death.

Lessons Learnt

When implementing business change, successful organisations in the private sector do not open their doors for business until they have assurance that all of the management and governance arrangements, people, processes and systems are in place and working properly. The private sector adopts a flexible approach and learns quickly. They partner when they enter unchartered territory and respond quickly to issues as they arise. They start small, experiment and test what works.

Government needs to follow suit and adopt an adaptive model for implementation, and undertake extensive consultation with industry and key stakeholders to develop a depth of understanding of all aspects of the market and to test the logic of the policy design at an early stage in the process.

Ministers need to define their risk appetite at an early stage in the policy design process, develop a full understanding of all identified risks, and obtain assurance that the appropriate controls are in place to mitigate the key risk exposures. Ministers need to resist the temptation to move too fast and adopt a more patient approach, and move to full scale slowly and cautiously, admit failure and learn from it.

Building industry capability to deliver government services takes time and an upfront investment. New entrants to the market need to be subject to higher levels of scrutiny than approved providers of existing programs. Regulation needs to be risk based. Bad providers need to be either denied accreditation or be quickly ousted from the market, poor providers need to be subject to higher levels of scrutiny, and good providers need to be rewarded with less regulation.

The policy design and implementation processes must be fully integrated. The implementation project teams must have realistic time frames and budgets, and a suitably experienced and skilled capability (i.e. best available people).

Program management needs to be much more than a simple ‘tick and flick’ acquittal process at the end of each year and the collection of compliance reports at key milestones. It should be based on effective monitoring of compliance and performance with early intervention to address issues as they arise.

Program assurance processes should be based on detailed fraud risk assessments which identify all possible rorting techniques by external providers[6], design controls to prevent such occurrences[7], monitoring and compliance processes to detect incidents, and have sufficient powers in the legislation to provide an effective deterrence (i.e. enforcement powers).

[1] Business cases and cost benefit analysis.

[2] Policy is only as good as how well it is implemented. The implementation of a major project on a national basis is an extremely challenging assignment. When the policy design is decided, the implementation process is when the hard work begins.

[3] Program Managers must be the best people available within the Department with strong expertise in policy development, program management, governance and a wide range of experience in different programs.

[4] The same program was operated prior to Australia in the US and UK with the same results.

[5] Ian Harper QC in the HIP Royal Commission stated that prior to intervening in a market in which it has no previous experience or involvement, the Government must develop a depth of understanding of the business.

[6] For example, billing for goods and services not provided.

[7] For example, payments for services should not be paid upfront and should be based on standard commercial arrangements and paid in arrears when goods and services have been delivered.

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