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Annual Report 2014–15

Volume 1, Part 1 : Defence Overview

Chapter 2
Departmental overview

Role

The primary role of Defence is to defend Australia against armed attack and to be able to deploy more widely in pursuit of Australia’s national security interests. Australia’s defence policy is founded on the principle of self-reliance in the direct defence of Australia, but with a capacity to do more where there are shared interests with partners and allies.

Mission

The Australian Defence Force (ADF) is constituted under the Defence Act 1903 and its mission is to defend Australia and its national interests. In fulfilling that mission, the ADF serves the Australian Government of the day and is accountable to the Australian Parliament, which represents the Australian people, for efficiently and effectively carrying out the Government’s defence policy.

Values

Defence Australian Public Service (APS) employees conduct their duties in accordance with the Values and Code of Conduct presented in the Public Service Act 1999. The ADF—the Navy, the Army and the Air Force—has service-specific codes of conduct and values.

In addition to the APS and single-service values, specific Defence values provide a common and unifying thread for all people working in Defence. These values are:

Professionalism
Striving for excellence in everything we do
Loyalty
Commitment to each other and Defence
Integrity
Doing what is right
Courage
The strength of character to honour our convictions (moral courage) and bravery in the face of personal harm (physical courage)
Innovation
Actively looking for better ways of doing our business
Teamwork
Working together with respect, trust and a sense of collective purpose

Portfolio structure

The Defence portfolio consists of a number of component organisations that together are responsible for supporting the defence of Australia and its national interests. The most significant bodies are:

  • the Department of Defence—a department of state headed by the Secretary of the Department of Defence
  • the ADF—commanded by the Chief of the Defence Force (CDF) and consisting of the three Services, which are commanded by Service Chiefs
  • the Defence Materiel Organisation (DMO)—a listed entity headed by a Chief Executive Officer. As recommended in the First Principles Review, Defence began action to remove DMO as a listed entity as of 1 July 2015 and to integrate it into the Department of Defence.

The portfolio contains a number of smaller entities, including the Australian Strategic Policy Institute, and a number of statutory offices created by the Defence Act, Defence Force Disciplinary Act 1982, Naval Defence Act 2010 and Air Force Act 1923.

The Defence portfolio structure is shown in Figure 2.1.

Figure 2.1: Defence portfolio structure as at 30 June 2015

Organisational structure

The joint leadership of Defence by the Secretary and the CDF is known as the ‘diarchy’. The diarchy reflects the individual and joint responsibilities and accountabilities of the Secretary and the CDF through directions given by the Minister for Defence. Figure 2.2 shows Defence’s organisational structure at 30 June 2015.

Defence reports against its programmes under four outcomes—three for Defence and one for the DMO. See the inside front cover for a detailed structure of Defence outcomes and programmes.

Figure 2.2: Defence organisational structure as at 30 June 2015

Strategic direction

In 2015–17, major whole-of-organisation reform will shape Defence’s future.

The implementation of the First Principles Review will move Defence to a single, integrated organisation that delivers enhanced joint capability (see Chapter 7). Recommendations from the review will be implemented over the next two years.

The Defence White Paper will present an affordable and achievable long-term plan for meeting Australia’s defence objectives that aligns strategy, capability and resources. It will set out Australia’s planned capability acquisitions for the coming decades, including investment in infrastructure, personnel and information technology systems that are critical to maximising the ADF’s effectiveness as an integrated joint force. Finally, it will focus on Defence’s role as an element of a broader national approach to addressing Australia’s future challenges.

Through the White Paper, the Government will clearly define the scope of the tasks it expects Defence to perform to defend Australia and its national interests.

In support of the White Paper, a fully costed review of force structure is underway to design a more capable and agile ADF that is equipped to respond to a wide range of potential contingencies.

Changes in ministerial responsibilities

Following the Prime Minister’s announcement of changes to the ministry on 21 December 2014, on 23 December 2014 the Hon Kevin Andrews MP was sworn in as the Minister for Defence, replacing
Senator the Hon David Johnston.

Changes in senior leadership

Air Chief Marshal Mark Binskin, AC, was appointed Chief of the Defence Force on 1 July 2014, replacing
General David Hurley, AC, DSC.

Vice Admiral Ray Griggs, AO, CSC, RAN, was appointed Vice Chief of the Defence Force on 1 July 2014.

Vice Admiral Tim Barrett, AO, CSC, RAN, was appointed Chief of Navy on 1 July 2014, replacing
Vice Admiral Ray Griggs, AO, CSC, RAN.

Lieutenant General Angus Campbell, DSC, AM, was appointed Chief of Army on 16 May 2015, replacing
Lieutenant General David Morrison, AO.

Lieutenant General John Caligari, AO, DSC, was appointed Chief of Capability Development Group on
3 October 2014, replacing Vice Admiral Peter Jones, AO, DSC, RAN.

Mr Harry Dunstall was appointed Acting Chief Executive Officer, DMO from 2 March 2015 until 31 July 2015, replacing Mr Warren King.

Mr Steve Wearn was appointed Acting General Manager Commercial, DMO from 11 March 2015 until 30 June 2015.

Resource summary

As at 30 June 2015, the Defence departmental net cash spend was $28,827 million. This was an underspend of
$232 million when compared to the revised estimate as at the Defence Portfolio Budget Statements 2015–16, primarily as a result of an underspend of $185 million, in no-win/no-loss operations funding.

Table 2.1: Total cost of Defence outcomes and programmes on an accrual basis 2014–15

2014–15
budget
estimate[1]
$’000

2014–15
revised
estimate[2]
$’000

2014–15
actual
result
$’000

Variation
$’000

%

Outcome 1: The protection and advancement of Australia’s national interests through the provision of military capabilities and the promotion of security and stability

Departmental net cost of service

25,462,517

25,492,580

25,717,306

224,726

1

Administered net cost of service

3,445,710

4,562,296

4,496,710

–65,586

–1

Net cost of service for Outcome 1

28,908,227

30,054,876

30,214,016

159,140

1

Outcome 2: The advancement of Australia’s strategic interests through the conduct of military operations and other tasks as directed by government

Net cost of service for Outcome 2

352,729

789,002

518,107

–270,895

–34

Outcome 3: Support for the Australian community and civilian authorities as requested by government

Net cost of service for Outcome 3

67,740

67,740

42,058

–25,682

–38

Net cost of service for Defence outcomes

Departmental net cost of service

25,882,986

26,349,322

26,277,471

–71,851

Administered net cost of service

3,445,710

4,562,296

4,496,710

–65,586

–1

Total cost of Defence outcomes

29,328,696

30,911,618

30,774,181

137,437

Notes

  1. As published in the Portfolio Budget Statements 2014–15.
  2. As published in the Portfolio Budget Statements 2015–16.
Table 2.2: Overall cost to government of Defence outcomes (departmental and administered), 2014–15

Outcome 1
$’000

Outcome 2
$’000

Outcome 3
$’000

Total
$’000

Departmental

Expenses

10,247,338

90,915

17,983

10,356,236

Employees

11,443,367

333,238

24,075

11,800,680

Suppliers

10,966

104,398

115,364

Grants

4,257,845

4,257,845

Depreciation and amortisation

137,869

137,869

Finance cost

1,421,750

1,421,750

Writedown of assets and impairment of assets

2,054

2,054

Net losses from sale of assets

51,643

51,643

Other expenses

116,734

8

116,742

Total expenses

27,689,566

528,559

42,058

28,260,183

Income

Revenue

Goods and services

849,440

10,452

859,892

Other revenue

790,683

790,683

Total revenue

1,640,123

10,452

1,650,575

Gains

Reversals of previous asset writedowns

294,866

294,866

Net gains from sale of assets

Other gains

37,271

37,271

Total gains

332,137

332,137

Total income

1,972,260

10,452

1,982,712

Net cost of departmental outcomes

25,717,306

518,107

42,058

26,277,471

Administered

Expenses

5,927,001

5,927,001

Revenue

1,430,291

1,430,291

Net cost of administered outcomes

4,496,710

4,496,710

Total departmental and administered outcomes

30,214,016

518,107

42,058

30,774,181

Table 2.3: Defence resource statement, 2014–15

Actual available appropriation for 2014–15
$’000

Payments made
2014–15
$’000

Balance remaining
2014–15
$’000

Ordinary annual services

Outcome 1

25,492,580

25,225,948

266,632

Outcome 2

789,002

789,002

Outcome 3

67,740

67,740

Total departmental outputs

26,349,322

26,082,690

266,632

Total ordinary annual services

26,349,322

26,082,690

266,632

Other services

Departmental non-operating

Equity injection

2,758,491

2,758,491

Total departmental non-operating

2,758,491

2,758,491

Total other services

2,758,491

2,758,491

Total available annual appropriation

29,107,813

28,841,181

266,632

Special appropriations

Special appropriations limited by criteria/entitlement

Defence Forces Retirement Benefits Act 1948
Part 1 s. 15D and VIC, s. 82ZJ

23,000

23,000

Defence Force Retirement and Death Benefits Act 1973 Part XII, s. 125

1,794,000

1,782,195

11,805

Military Superannuation and Benefits Act 1991 Part V, s. 17

4,080,883

4,023,444

57,439

Defence Force (Home Loans Assistance) Act 1990 Part IV, s. 38

1,357

1,156

201

Defence Home Ownership Assistance Scheme Act 2008 Part VI, s. 84

103,175

97,206

5,969

Other administered

Total special appropriations

6,002,415

5,927,001

75,414

Total appropriations

35,110,228

34,768,182

342,046

Funding from other sources

2,513,673

2,548,645

–34,972

Returns to the official public account (net)

–1,453,059

–1,520,430

67,371

Previous years’ outputs (appropriation receivable)

414,742

195,419

219,323

Cash available

35,490

44,150

–8,660

Total other available resources

1,510,846

1,267,784

243,062

Total resourcing

36,621,074

36,035,966

585,108

Special accounts

Opening balance

68,382

68,382

Appropriation receipts

Appropriation receipts—other agencies

Non-appropriation receipts to special accounts

39,951

41,349

–1,398

Total special accounts

108,333

109,731

–1,398

Web table 2.1 Departmental net cost of service (cash)

budget
estimate[1]
$'000

revised
estimate[2]
$'000

actual
result
$'000



Variation
$'000

Cost of service

Employee payments

10,491,430

10,312,603

10,440,150

127,547

Supplier payments

10,090,184

10,637,452

10,224,383

(413,069)

Purchase of specialist military equipment

5,677,403

6,011,568

6,302,121

290,553

Purchase of inventory

1,161,511

1,064,033

1,005,880

(58,153)

Purchase of property, plant and equipment

1,555,374

1,780,084

1,497,854

(282,230)

Other

1,023,954

1,056,443

1,045,662

(10,781)

Total cash used

29,999,856

30,862,183

30,516,050

(346,133)

Own source revenue

1,654,045

1,803,822

1,689,267

(114,555)

Net cost of service (cash)

28,345,811

29,058,361

28,826,783

(231,578)

Funded by

Appropriation Bills 1, 3 and 5 (price of outcomes)

25,882,986

26,349,322

26,082,690

(266,632)

Appropriation Bills 2, 4 and 6 (equity injection)

2,463,678

2,758,491

2,758,491

-

Other appropriation movements

-

(71,357)

-

71,357

Returns to official public account

(853)

(853)

(2,410)

(1,557)

(Increase)/decrease to cash at bank

-

22,758

(11,988)

(34,746)

Total funding source

28,345,811

29,058,361

28,826,783

(231,578)

Additional output funding

 

 

 

-

Revised total funding source

28,345,811

29,058,361

28,826,783

(231,578)

Defence no-win/no-loss hand-back (net)

 

 

 

50,205

Departmental variance

 

 

 

(181,373)

Notes

  1. As published in the Portfolio Budget Statements 2014–15 table 45.
  2. As published in the Portfolio Budget Statements 2015–16 table 46.
  3. Includes purchase of land and buildings, infrastructure, plant and equipment, intangibles and heritage and cultural assets.
  4. Includes grants, GST payments, finance costs, repayment of debt, selling costs on sale of assets and other cash used.
  5. Includes sale of goods and services, other cash received, interest received, GST and proceeds from sale of assets.
  6. Includes cash returned to the official public account, Section 74 receipts from official public account less Section 74 receipts transferred to official public account. 

Web figure 2.1: Departmental net cost of service (cash) six year trend

Note

  1. Departmental net cost of services figures based on in-year dollars.

Web table 2.2: Departmental income and expenses

budget
estimate[1]
$'000

revised
estimate[2]
$'000

actual
result
$'000



Variation
$'000

Expenses

       

Employees

10,534,578

10,353,275

10,356,236

2,961

Suppliers

12,074,675

12,482,328

11,800,680

(681,648)

Depreciation and amortisation

4,178,150

4,288,756

4,257,845

(30,911)

Other expenses

1,112,231

1,228,377

1,845,422

617,045

Total expenses

27,899,634

28,352,736

28,260,183

(92,553)

Income

       

Revenue from the Government

25,882,986

26,349,322

26,298,242

(51,080)

Other income

2,016,648

2,003,414

1,982,712

-20,702

Total income

27,899,634

28,352,736

28,280,954

(71,782)

Surplus/(deficit) attributable
to the Government

-

-

20,771

20,771

Notes

  1. As published in the Portfolio Budget Statements 2014–15 table 53.
  2. As published in the Portfolio Budget Statements 2015–16 table 54.
  3. Includes grants, finance costs, write-down of assets and impairment of assets, foreign exchange losses, losses from sale of assets and other expenses.
  4. Includes sale of goods and rendering of services, rental income, other revenue and gains.

Web figure 2.2: Administered net cost of service (cash) six year trend

Note

  1. Administered net cost of services figures based on in-year dollars.

Web table 2.3: Departmental income and expenses net variations

Income and
expense
variation
$'000


Variation
adjustment
$'000


Net
variation
$'000

Expenses

Employees

2,961

 

 

offset by:

 

 

no win / no loss - operations

 

20,026

 

net employees

 

 

22,987

Suppliers

(681,648)

 

offset by:

 

 

no win / no loss - operations

 

164,949

net suppliers

(516,699)

Depreciation and amortisation

(30,911)

 

 

net depreciation

(30,911)

Other

617,045

 

offset by:

 

 

reversal of previous asset write-downs and impairment

 

18,652

no win / no loss - operations

 

(19,297)

net other expenses

616,400

Total expenses

(92,553)

184,330

91,777

Income

Revenue from the Government

(51,080)

 

offset by:

 

 

no win / no loss - operations

 

185,253

net revenue from the Government

134,173

Other income

(20,702)

 

offset by:

 

 

no win / no loss - operations

 

(19,575)

reversal of previous asset write-downs and impairment

 

18,652

net other income

(21,625)

Total income

(71,782)

184,330

112,548

Surplus/(deficit) attributable
to the Government

20,771

-

20,771

Web table 2.4: Administered Net Cost of Service (cash)

budget
estimate[1] $'000

revised
estimate[2] $'000

actual
result
$'000



Variation
$'000




%

Cost of service

Employees

2,120,422

2,137,800

2,148,777

10,977

1

Subsidies

113,164

104,532

98,346

(6,186)

(6)

Grants

-

-

-

-

-

Loans to Commonwealth Authorities and Companies (CAC) Act bodies

85,000

-

-

-

-

CAC Act body investments

-

-

-

-

-

Other

-

-

-

-

-

Total cash used

2,318,586

2,242,332

2,247,123

4,791

0

Cash received

Military superannuation contributions

1,324,094

1,316,539

1,369,877

53,338

4

Fees

13,335

13,953

15,102

1,149

8

Interest

34,791

29,636

28,610

(1,026)

(3)

Dividends

50,525

53,991

53,991

-

-

Other

51,375

38,087

50,440

12,353

32

Total cash received

1,474,120

1,452,206

1,518,020

65,814

5

Net cost of service (cash)

844,466

790,126

729,103

(61,023)

(8)

Funded by

 

Appropriations

 

 

 

 

 

Cash from the official public account for appropriations

2,318,586

2,242,332

2,247,123

4,791

0

Cash transfer to the official public account

(1,474,120)

(1,452,206)

1,518,020

2,970,226

(205)

Cash holdings at the beginning of the reporting period

-

-

-

-

-

Total funding source

844,466

790,126

3,765,143

2,975,017

377

Notes

  1. As published in the Portfolio Budget Statements 2014–15 table 64.
  2. As published in the Portfolio Budget Statements 2015–16 table 65.

Web table 2.5: Administered income and expenses

budget
estimate[1] $'000

revised
estimate[2] $'000

actual
result
$'000



Variation
$'000




%

Expenses administered on behalf of the Government

Military superannuation benefits

4,707,555

5,802,000

5,760,238

(41,762)

(1)

Military retention benefits

95,883

95,883

68,389

(27,494)

(29)

Subsidies

113,164

104,532

98,363

(6,169)

(6)

Grants

-

-

-

-

-

Foreign exchange losses

-

-

-

-

-

Other

-

-

11

11

-

Total expenses

4,916,602

6,002,415

5,927,001

(75,414)

(1)

Income administered on behalf of the Government

Interest

34,791

29,636

28,610

(1,026)

(3)

Foreign exchange gains

-

-

798

798

-

Military superannuation contributions

1,324,094

1,316,539

1,285,809

(30,730)

(2)

Dividends

47,795

50,274

54,637

4,363

9

Fees

13,335

13,953

14,297

344

2

Other

50,877

29,717

46,140

16,423

55

Total income

1,470,892

1,440,119

1,430,291

(9,828)

(1)

Notes

  1. As published in the Portfolio Budget Statements 2014–15 table 62.
  2. As published in the Portfolio Budget Statements 2015–16 table 63.

People summary

Defence’s workforce consists of APS employees and ADF members of the Navy, Army and Air Force.

The actual funded strength of the ADF increased by 796 to 57,718, and the actual full-time equivalent (FTE) for the APS reduced by 1,201 to 18,787. These actual staffing figures include adjustments for part-time staff and are the most reliable indicator of end-of-year staffing levels.

The ADF’s funded strength grew by 796 (from 56,922 to 57,718) during 2014–15, and is forecast to continue its growth in future years. The growth has resulted from falling separation rates and sound recruiting achievements.

The reduction in the APS continues the downward trend of the previous two years and is also evident in other workforce measures. The average FTE for 2014–15 of 19,342 was 1,154 lower than in 2013–14, and the downward trend is expected to continue in 2015–16. As the APS workforce trends down, the average FTE figure will always be above the end-of-year actual figure.

Defence’s APS headcount for the year also showed a downward trend, from 21,1911 at 30 June 2014 to 19,967 at 30 June 2015, a reduction of 1,224. The headcount figure includes paid and unpaid employees, counting full-time, part-time, ongoing and non-ongoing employees equally.

Further details on the workforce are in Chapter 8.

Workforce planning figures

Table 2.4: Defence workforce table

 

2013–14 actual

2014–15 budget estimate[1]

2014–15 revised estimate[2]

2014–15 actual

Variation[3]

Number %

 

ADF[4]

 

 

 

 

 

 

1

Total ADF permanent force

56,364

58,839

57,688

57,512

–176

–0.3

 

APS

 

 

 

 

 

 

 

APS—Defence

15,280

14,883

14,426

14,861

435

3.0

 

APS—DMO

4,812

4,777

4,539

4,075

464

10.2

 

APS—DMO (APS backfill)

404

432

406

406

2

Total APS

20,496

20,092

19,371

19,342

–29

–0.1

 

Contractors[5]

 

 

 

 

 

 

 

Defence contractors

340

445

319

350

31

9.7

 

DMO contractors

18

48

48

11

37

77.1

3

Total contractors

358

493

367

361

–6

–1.6

 

Total workforce strength
(1+2+3)

77,218

79,424

77,426

77,215

–211

–0.3

Notes

All numbers represent average full-time equivalents. Employees on forms of leave without pay are not included.

  1. As published in the Portfolio Budget Statements 2014–15.
  2. As published in the Portfolio Additional Estimates Statements 2014–15.
  3. Figure is the difference between 2014–15 revised estimate and 2014–15 actual.
  4. Numbers for ADF permanent force include ADF members in the DMO and Reservists on continuous full-time service but excludes active and high ready Reserve Reservists who rendered service during the financial year. These are excluded because, due to the nature of Reserve service, numbers for the Reserve force represent headcount rather than average full-time equivalents.
  5. Contractors are individuals under contract performing agency roles. Contractors are not APS employees.

Figure 2.3: Defence workforce summary as at 30 June 2015


Some 30 June 2014 figures have been adjusted from what was reported in the Defence Annual Report 2013–14 to account for retrospective transactions.