The Australian Government Reconstruction Inspectorate's conduct of value for money reviews of flood reconstruction projects in Victoria

Australia Victoria
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This audit assessed the effectiveness of the Australian Government Reconstruction Inspectorate, supported by the National Disaster Recovery Taskforce, in providing assurance that value for money is being achieved in flood recovery and reconstruction expenditure in Victoria.

Key findings:

The flooding that occurred in Victoria over the 2010–11 summer was widespread. Reconstruction was expected to be expensive, with the latest (December 2012) data available from Victoria estimating the cost to the state of the resulting damage to be in the vicinity of $1 billion. A significant proportion of reconstruction expenditure is expected to be met by the Australian Government through the Natural Disaster Relief and Recovery Arrangements (NDRRA).

With the stated intention of ensuring recovery and rebuilding could start as soon as possible, a significant advance payment was made in 2010–11 to Victoria ($500 million). The advance payment also assisted the Australian Government to secure the agreement of Victoria to the additional oversight and accountability measures announced by the Prime Minister in early February 2012, which were then included in the NPA.

The conduct of value for money project reviews by the Inspectorate was expected to provide a greater level of oversight and assurance concerning reconstruction expenditure than would have occurred relying solely on NDRRA, which provides for the Australian Government to meet up to 75 per cent of the cost of reconstruction. This is because NDRRA generally operates on a reimbursement basis, with the Australian Government having little oversight of reconstruction as it occurs as there is no reporting from the states until such time as they seek reimbursement, which is commonly some years after the disasters occur. In addition, limited Australian Government oversight at the conclusion of reconstruction is afforded by audited claims submitted by states and territories, with no project level information provided in these claims. NDRRA also does not include value for money assurance arrangements.

Monthly reports from Victoria to the Taskforce indicate that recovery and reconstruction in flood-affected areas is well underway. However, to date, the creation of the Australian Government Reconstruction Inspectorate has not provided the Australian Government with the expected assurance that value for money is being achieved through Victorian reconstruction projects. This is because, as at December 2012, no value for money reviews have been completed in respect to any Victorian projects, and a review of one project had only recently commenced. In this context, in November 2012, the Inspectorate wrote to Victoria stating that:

The Inspectorate is also troubled that, more than 18 months after the disaster events, it has been unable to complete a value for money assessment on any Victorian project. In comparison, the National Disaster Recovery Taskforce, on behalf of the Inspectorate, has completed 61 value for money reviews of Queensland reconstruction projects.8

In addition, in January 2013 the Taskforce advised the ANAO that this issue has been the subject of discussion between the Attorney-General’s Department (AGD) and the Department of the Prime Minister and Cabinet (PM&C), in the context of Victoria’s request for an extension of the timeframe for NDRRA funding. In this respect, in December 2012 the Chair of the Inspectorate wrote to the Minister for Regional Australia, Regional Development and Local Government raising this issue and recommending that any extension to funding arrangements in Victoria be contingent upon the Inspectorate being provided with sufficient projects to be able to provide the required level of assurance. The Minister responded in February 2013, advising that he: shared the Inspectorate’s concerns about its ability to assess value for money in circumstances where only one project had been identified for review; strongly supported the Inspectorate’s recommendation that an extension to the allowable period for reconstruction be contingent upon Victoria’s agreement to increase oversight; and had written to the Attorney-General recommending this approach as responsibility for the extension request rests with Emergency Management Australia.

ANAO analysis is that the lack of value for money reviews of Victoria reconstruction projects at the time the ANAO’s audit work was completed reflects that:

  • the Taskforce initially focused its work on developing a review methodology and project sampling processes for Queensland, given this is where the majority of expenditure will occur. There was relatively little attention given at that time, or subsequently, to developing a robust methodology for identifying projects to review in Victoria (proportionate to the level of expenditure expected in that state); and
  • the parties to the NPA intended that the Inspectorate would only examine reconstruction projects with a value more than $5 million. Even allowing for this threshold, the Taskforce has not been active in seeking to ensure that projects with a value greater than $5 million are identified for value for money review. One project has been identified for review, but it is not representative of the reconstruction program and there is also some evidence that a number of other projects with a value above $5 million have proceeded, without being referred to the Taskforce for a value for money review. At the time of preparing this ANAO report, no formal requests had been made to Victoria concerning Inspectorate reviews of these other projects.

The audit highlights the importance of greater attention being given to oversighting reconstruction activity in Victoria. The Taskforce is currently funded to continue operating until the end of 2013 (and this date may be extended), thereby providing time for some value for money project reviews to be undertaken in Victoria. However, as reflected in the protocol with Victoria, in order to obtain the maximum benefit, it was intended that the Inspectorate’s review of a project for value for money would be conducted at the development phase of projects, although they can also be undertaken on completion of the project.

Notwithstanding advice from both the Taskforce and PM&C that it was intended that the NPA place restrictions on the Inspectorate’s ability to examine projects with a value below $5 million, there were opportunities for the Taskforce to have obtained greater insight into reconstruction projects being undertaken in Victoria. In particular:

  • the Taskforce was the lead Australian Government agency in terms of developing the work plans with Queensland and Victoria but, as discussed in the related audit of the development of the work plans with these two states, in many instances the work plan for Victoria identifies broad categories of work rather than specific reconstruction projects; and
  • the operating protocol with Victoria was negotiated by the Taskforce, but this did not require the state to provide and regularly update information on all reconstruction projects (which is the approach taken in Queensland). This would have enabled the Taskforce to identify those projects costing over $5 million that the Inspectorate wishes to review.

The ANAO recognises that the majority of the expected expenditure under the two NPAs relates to Queensland. Nevertheless, reconstruction activity in Victoria was significant in absolute terms and relative to the amount of natural disaster assistance expenditure typically experienced. Further, additional oversight and assurance through Inspectorate reviews of individual reconstruction projects was anticipated in the agreement reached between the Australian and Victorian Governments. In this context, there was considerable scope for the Taskforce to have more actively supported the work of the Inspectorate.

In addition, whereas the Inspectorate has endorsed the value for money strategy applied by the Queensland Reconstruction Authority (QRA) to projects in that state prior to a project being reviewed by the Taskforce, similar work has not been undertaken in respect to Victoria. These different circumstances place added importance on value for money project reviews being undertaken by the Taskforce of Victorian reconstruction projects in the remaining lifetime of the Inspectorate. Accordingly, the ANAO has recommended improved arrangements for conducting value for money reviews of Victorian reconstruction projects.

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