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

6 Nov 2013

The objective of this audit was to examine 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 respect to Queensland reconstruction projects.

Overall conclusion

The flooding that occurred in Queensland during the spring and summer of 2010–11 was widespread. Reconstruction was expected to be expensive, with the latest (February 2013) data available estimating the cost of the resulting damage to be more than $7 billion. A significant proportion of reconstruction expenditure is expected to be paid for through the Natural Disaster Relief and Recovery Arrangements (NDRRA), which provide for the Australian Government to meet up to 75 per cent of the cost of reconstruction.

Value for money review processes were an important element of the additional oversight and accountability mechanisms introduced, given the significant financial assistance that was expected to be provided to Queensland under NDRRA. In this respect, a reasonable start has been made on the Inspectorate’s planned program of 129 project reviews, with 81 projects selected for review and 70 Tier One reviews8 completed by the Taskforce as at the end of March 2013. However, many of the completed reviews are provisional assessments based on early project estimates, and further assessment will be required once tender results and project progress reports are available and/or projects are completed.

In addition, progress with the reviews has been slower than planned (as the aim had been to select the projects and complete all 129 reviews by 31 December 2012). This situation reflects some delays with the delivery of the reconstruction program by state and local government agencies, challenges that have been experienced by the Taskforce in obtaining and analysing project information, as well as some shortcomings in the Taskforce’s sampling procedures.

The purpose of the value for money project assessments was to compile a representative sample that could be used to make judgements about the reconstruction program as a whole. Reporting by QRA and the Inspectorate has outlined that there has been significant reconstruction progress but the project level information obtained by the Taskforce has indicated delays across the reconstruction program. Queensland has been granted a 12 month extension to the allowable period under NDRRA in which to complete reconstruction work. There has also been little in the way of project progress reports provided to the Taskforce to enable it to monitor the delivery of the individual projects it has sampled. In these circumstances, and given the situation with the planned program of project reviews, it is too early to reliably extrapolate the findings to the reconstruction program.

Notwithstanding this situation, it is evident that, for a relatively modest investment given the expected cost to the Australian Government of reconstruction activity, the establishment of the Inspectorate with the support of the Taskforce to conduct value for money reviews has been effective in providing the Australian Government with greater visibility and more timely assurance concerning reconstruction expenditure than would have occurred under NDRRA. 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 the audited claims submitted by states and territories, with no project level information provided in these claims. In this context, the experience to date of the project level scrutiny provided by the Inspectorate and the Taskforce (which have identified potential reductions in NDRRA claims from Queensland totalling more than $100 million) is likely to be beneficial in informing the approach adopted by Emergency Management Australia in its ongoing administration of NDRRA in respect to natural disasters that occur in other states and territories. It also underlines for other Commonwealth agencies the potential benefits of closely considering arrangements for assuring information provided by the states and territories, where this information determines the amount of Commonwealth payments.

In addition to providing greater insights into the nature and estimated cost of reconstruction work, the Inspectorate’s value for money reviews have identified issues concerning the eligibility of estimated expenditure in a number of the projects that have been examined. In this respect, in July 2012 a process was agreed on the actions to be taken where the Inspectorate determines that a project does not represent value for money. Specifically, the Inspectorate may recommend to the Attorney-General that the Commonwealth’s reimbursement under NDRRA reflect the likely cost of the project had value for money been achieved, rather than the actual project costs incurred. As at the time of completing the audit fieldwork, there have been no projects that the Inspectorate has determined do not represent value for money although, for a number of projects, the Inspectorate has written to QRA identifying items of estimated expenditure that it considered should not be claimed under NDRRA. In addition, in March 2013 the Inspectorate wrote to QRA, the Auditor-General of Queensland, and EMA recommending that the state not be reimbursed for profit margins in respect to reconstruction projects undertaken by RoadTek, a state government entity.

To increase the benefits that are derived from the program of value for money reviews, the ANAO has made four recommendations. The first two recommendations are aimed at the Taskforce obtaining information that allows the project reviews to examine the scope and cost of works actually being delivered (rather than early estimates) and improvements to the application of the sampling approach to make it more representative of the reconstruction program. The remaining two recommendations relate, respectively, to improvements in the approach taken by the Taskforce to: scrutinising the cost of delivering reconstruction projects; and stronger oversight of the timeliness of the delivery of reconstruction work.

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