Audit objective and criteria
The objective of the audit was to examine whether the Australian Postal Corporation (Australia Post) is meeting its obligations efficiently and the effectiveness of Commonwealth shareholders in monitoring value for money. To form a conclusion against the audit objective, the following criteria were adopted:
- Has Australia Post implemented strategies to improve the efficiency of meeting its obligations?
- Is Australia Post meeting its obligations efficiently?
- Do the Departments of Finance, and Communications and the Arts, effectively monitor the ongoing costs and benefits of meeting the obligations?
Australia Post has developed strategies to improve the efficiency with which it meets its obligations. It has not, however, improved its efficiency in its letters business as quickly as its international counterparts. The Department of Finance (Finance) and the Department of Communications and the Arts (Communications) provide briefing to their respective Ministers on Australia Post’s performance, but greater transparency is required regarding the costs and benefits of the obligations, the distribution of those costs and benefits within the Australian community, and the longer-term strategy for Australia Post’s business model.
Australia Post’s strategies to improve its efficiency have focussed on process optimisation and automation along with labour force flexibility, all with the objective of improving labour productivity. Australia Post has been relatively slow in developing and implementing some of these strategies. In particular, Australia Post has not fully implemented its strategies to improve labour productivity, which were to be a key driver of the planned efficiency improvements.
Australia Post has improved its efficiency over time, however these improvements have been relatively slow compared to its international peers, particularly in relation to its management of operating costs.
While Australia Post monitors and evaluates the efficiency with which it meets its obligations, there would be scope for Australia Post to provide its shareholder with more strategic information on the long-term sustainability of the letters business; changes in Australia Post’s performance over time; and the assumptions driving key forecasts that underpin the enterprise valuation.
The dual shareholding arrangements that underpin many Commonwealth Government Business Enterprises (GBEs) are intended to ensure that the public policy objectives delivered by the GBE are balanced by an appropriate focus on financial performance. The guidance underpinning the governance arrangements for GBEs does not distinguish between the roles of Finance, and that of the relevant portfolio entity (in this case, Communications) as advisers to their respective ministers.
Finance and Communications have established regular monitoring and reporting mechanisms in their capacity as advisers to the Shareholder Ministers. The departments have also advised Government on the forecast decline in the letter delivery service. This advice supported major changes that were introduced in 2016, and informed the identification of the need for further change. The advice by the departments has typically focussed on the net profitability of Australia Post as a whole and on conservative cost estimates of the CSOs. The entities’ advice has not directly addressed the impact of reserved letter delivery service on Australia Post’s competitive market activities. In addition, Communications, in its role as the lead policy agency, has not advised its Minister on the benefits provided by the CSOs, or the distribution of those benefits within the community. Consequently, the advice has provided the department’s respective ministers with an incomplete picture of the costs and benefits of the CSOs.
Generating stakeholder support for policy change, particularly in the context of the current framework of the CSOs, is a lengthy process, and it can be a number of years from developing a proposal through to its implementation. Developing and testing proposals for more fundamental reforms of Australia Post’s business model may take considerably longer. The current regulations underpinning the CSOs have a ‘sunsetting’ date of April 2019. This represents an opportunity for Finance and Communications to re-evaluate the CSOs, and Australia Post’s role in delivering them, into the future.