First ANAO audit of Commonwealth shared services

At an audit cost of $736,000, the ANAO recently published its first performance audit report on a shared services arrangement.

Although it is about a specific shared services arrangement, we think at least some of the report’s findings are worth noting for other joint activities between Commonwealth entities.

Shared services and whole-of-government

Inter-agency cooperation, ‘whole-of-government’ and standardisation is de rigueur in Commonwealth government circles nowadays. Not since the abolition of the Department of Administrative Services (DAS) has the Commonwealth moved as one…moving forward. Evidence of Commonwealth collective spirit includes:

  • whole-of-government procurement;
  • a standardised approach to market and contract documents for lower value procurements (the Commonwealth Contracting Suite);
  • a Commonwealth-wide, low-risk grant agreement template;
  • the Commonwealth’s Shared and Common Services Programme;
  • inter-agency shared services arrangements, e.g. the Attorney-General’s Department (AGD) providing back-office operations for Commonwealth cultural institutions within the AGD portfolio, and the Departments of Education and Employment’s Shared Services Centre; and
  • the establishment of two ‘grant administrative hubs’ – one with the Department of Industry, Innovation and Science and the other with the Department of Social Services.

However, despite inter-agency cooperation and whole-of-government arrangements, the post FMA Act Commonwealth financial framework has maintained agency autonomy and agency head (‘accountable authority’) accountability for agency (‘Commonwealth entity’) governance.

The Shared Services Centre

Originally established in 2013 to cater for corporate needs of the Departments of Education and Employment (‘partner departments’) following the most recent of several MoG separations of those two portfolios, the Shared Services Centre (SSC) was later expanded to offer shared services to other public sector customers (and customers more broadly). In September 2016, the SSC’s core transactional services were moved to the Department of Finance.

The SSC is not a separate entity to the partner departments, but is administered by a CEO (an Education employee) and staff of both departments in accordance with heads of agreement. A Governance Board chaired by the Employment Secretary provides oversight and guidance. SSC operating costs and revenues are budgeted and shared by the partner departments.

Audit scope

The ANAO audited the SSC against three criteria:

  • Governance arrangements;
  • Mechanisms for effective service delivery; and
  • Reporting arrangements and review activities provide for ongoing monitoring and continuous SSC operational improvement.

The ANAO recommended that the partner departments:

  • not expand the SSC to take on additional clients until the SSC’s future direction and governance arrangements are settled;
  • review the SSC’s compliance with competitive neutrality policy;
  • improve information and communication to the SSC board and sub-committees; and
  • establish performance and cost parameters with clients.

Subsequent to the audit, various of the SSC’s core transactional services were moved to the Department of Finance in September 2016.

Governance concerns

The ANAO found that, inconsistent with its originally envisaged role, the SSC Governance Board:

  • had limited oversight of SSC activities and operations;
  • on occasions, was not consulted or involved in decision-making about SSC strategic direction and operational priorities; and
  • had limited involvement in financial matters.

The ANAO also found that the MoU between the partner departments lacked important details including in relation to legislative compliance, governance and delineating responsibilities between the SSC and its clients.

Competitive neutrality

The ANAO did not say whether it thought competitive neutrality principles applied to the SSC. On request by the SSC, the Department of Finance somewhat obliquely advised that competitive neutrality principles did not apply to the SSC. The ANAO nevertheless recommended that the SSC departments review whether competitive neutrality applied and inform their Ministers accordingly.

Service delivery

In February 2016 the SSC serviced 16 core client agencies formalised via a separate MoU with each client. The MoU directs clients to a service catalogue.

The ANAO found:

  • details of SSC obligations to be limited, and without service credits if the SSC failed to meet service level performance targets;
  • no delineation of responsibilities between the SSC and its clients;
  • changeable service catalogue and service levels, subject to SSC board approval;
  • instances of significant changes to service levels not being referred to the SSC board for approval;
  • inconsistent treatment of changes to service levels; and
  • inconsistencies in reporting to clients on performance versus performance measures in the services catalogue.

Service charges

The SSC has applied different cost-recovery arrangements, more recently using a model that apportions the SSC’s costs to arrive at a unit price per service which is then charged to the partner departments and clients depending on service usage. On a quarterly basis, the SSC charges clients on forecast unit prices and then actual consumption, with rebates to clients if the SSC materially over-recovers revenue.

The ANAO recommended transparent and sound processes for agreeing and monitoring performance and cost centres with clients.

Lessons learned

Stepping back from the report’s minutiae, we think that lessons for shared services which can be gleaned from this audit include:

  • Ensure that shared services design and implementation are effective at achieving the respective objects of all Commonwealth entities concerned. For example, in relation to shared services, objects may include:
    • For the ‘vendor’ agency – creating a revenue source and offsetting the costs of the vendor agency providing the same services to itself; and
    • For the ‘client’ agency – securing quality corporate services on an outsourced basis more cost effectively and efficiently than the client agency could achieve using its own resources.
  • Have a clear, well organised governing body that is kept well informed and is appropriately involved in relevant decision-making. The role of any governing body will need to allow for the overarching responsibilities of accountable authorities under the Public Governance, Performance and Accountability Act 2013.
  • Clearly articulate in writing (e.g. an inter-agency MoU) the respective roles and responsibilities of relevant Commonwealth entities to:
    • Ensure appropriate accountability for deliverables; and
    • Support good governance within each of the relevant Commonwealth entities.
  • Monitor and review implementation to ensure effectiveness for all Commonwealth entities involved. Report to and obtain strategic direction from the governing body on these issues.

Whilst we acknowledge that this report relates to a specific shared services arrangement, we think that the broader ‘messages’ in this report may be relevant to the design and implementation of other activities where two or more Commonwealth entities work together – for example:

  • other shared services arrangements;
  • grant administrative hubs; and
  • shared programme responsibility (where two or more Commonwealth entities share responsibility for a program under Administrative Arrangements Orders).

Concluding remarks

It will be interesting to see the outcome of the move of certain SSC shared services to the Department of Finance. Will the Department of Finance move to mandate agency use of its own shared services? And where is all this heading? Could there one day be a single Commonwealth entity responsible for corporate services to Commonwealth entities? Perhaps it could be called the “Department of Administrative Services”?

The ANAO report into the Shared Services Centre can be viewed on the ANAO website.

For advice on drafting inter-agency agreements contact:

Geoff Adams — Partner — Government
(02) 6279 4377
geoff.adams@mvlawyers.com.au

Athol Opas — Special Counsel — Government
(02) 6279 4468
athol.opas@mvlawyers.com.au