Chapter 9: Agency governance

Abbreviations

A list of the abbreviations used in this report is available in the Glossary

Key chapter findings

The high level of interest in public sector governance on the part of governments, international organisations, private sector regulators, public sector auditors and academics continued during 2005-06. International public sector governance reforms have been driven by strategic reform processes based around reviews, consultation and research and are focused on increasing accountability and improving internal agency mechanisms with the aim of improving services to citizens.

Within Australia, the implementation of the Uhrig Review, although not yet completed, has led to revised governance structures and processes across a range of statutory authorities and office holders. These reviews are helping to place lines of accountability between departments, Ministers and statutory agencies on a stronger footing.

The recommendations contained in the Palmer and Comrie reports have been accepted by DIMA. DIMA has implemented a new governance structure and a number of projects identified in the DIMA implementation plan have already been completed. The Commission has encouraged all APS agencies to examine their governance structures in the light of the Palmer and Comrie reports.

Results from the agency and employee surveys provide some indication of the effectiveness of governanceprocesses in the APS against some of the key components of governance identified by ANAO.

In relation to the exercise of authority, there has been extensive attention to the development of decision-making structures across agencies. Agencies report a wide range of committee structures, with the variation across agencies suggesting that they are, at least in part, being adapted to agency circumstances. Many agencies have also recognised the importance of ensuring that committee members understand their roles and the authority they exercise, and that they have the right capability to perform their functions. Where agencies have adopted formal charters, they have been better able to identify the training needs of committee members. There is potential, however, for more agencies to take a more systematic approach to member role definition.

There also appears to be widespread implementation of some basic aspects of stewardship, specifically in the management of risk and in the communication of key aspects of financial management to employees. The high level of activity in these areas, at least to some extent, reflects specific legislative obligations on employees under the Financial Management and Accountability Act 1997 and the Commonwealth Authorities and Companies Act 1997. Nevertheless, it is heartening to know that agencies are taking their obligations seriously.

Issues of accountability were most clearly assessed in the agency and employee surveys through questions on the management of conflict of interest. Results show that agencies are increasingly recognising the importance of dealing systematically with issues of conflict of interest, with substantial improvement in recent years in the provision of policies and measures to help employees manage conflict of interest in a range of key areas. There is potential, however, for small agencies to take a more rigorous approach. There also needs to be greater attention to policies for avoiding conflict of interest when taking up employment after leaving the APS.

The employee survey results provide some indication of the extent to which agencies have been successfulat communicating their policies on decision-making, and on risk and financial management, to employees. In general, the level of understanding or awareness reported by employees is high. However, some agencies may need to assess the effectiveness of their information dissemination on governance issues. This may be particularly so for EL employees who in many agencies act as the lynchpin for translating messages from senior leadership to all employees. Greater use of diagrammatic representations of governance structures in communicating to employees may be one strategy agencies could consider.

The results show that there are real benefits for agencies in ensuring that employees understand their policies. In particular, agencies that take an active role in ensuring employees are familiar with agency policies and procedures for managing conflicts of interest make a real difference to levels of employee confidence about how such issues are handled.

In other areas, it is more difficult to make a comprehensive assessment of the effectiveness of APS governance processes, in particular the extent to which the organisational structures that agencies report are effective in practice, and make an active contribution to assurance and decision-making. The extent to which they help to provide agencies with meaningful advice on the management of risk and emerging problems is also not clear.

One of the key difficulties in making an assessment of the effectiveness of governance processes in the APS is the lack of information about what effective governance processes should look like. In work undertaken for the Public Service Commissioners' Conference, the Commission has identified some features of good governance that are likely to be found in healthy organisations, including a culture of integrity and accountability, an open, transparent culture that encourages information sharing, effective information and record keeping management, and a sound management system that appropriately integrates systems and processes for finance, HR and ICT. Conversely, ineffective governance arrangements may lack clarity in accountabilities and responsibilities, lack effective evaluation measures, have poor resource management and ineffective alignment of resources with business needs, and initiate change through crisis management rather than through a strategic reform process.

There is clearly a need for more information on how good governance practices should apply to the APS. The Commission is undertaking further work in this area in consultation with Finance and other agencies, both in relation to the identification of good practice governance principles, and the governance issues related to contracting out and the use of external partnerships for the delivery of services.

The employee survey results generally showed that employees have moderate to high levels of satisfaction with governance issues in their agency. Governance issues also showed a positive relationship to some key indicators of employee engagement, including how satisfied employees were with the overall say they have in decisions that impact on their work and job satisfaction. These findings, and findings from research on the link between integrity of processes and the attractiveness of public sector employment to potential employees, suggests that attention to governance issues can have a range of benefits for agencies, beyond the more direct benefits of transparent and effective decision-making.

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