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Chapter 5 - Corporate governance


One Defence: Our continuing journey

Authority

Defence is administered by a diarchy, which is the term used to describe the joint leadership of Defence by the Secretary of Defence and the Chief of the Defence Force under the general control of the Minister for Defence. The concept, which is supported by legislative and administrative arrangements, encompasses the individual and joint responsibilities and accountabilities of the Secretary and the Chief of the Defence Force.

Senior management committees and their roles

Defence’s enterprise management and advisory committees are the primary mechanisms for providing direction and assuring the alignment of strategy, capability and resources. A brief overview of each committee is provided in this section.

Defence Committee

The Defence Committee is the primary decision-making committee in the department. It is focused on the major capability and resource trade-offs and the management of the Secretary’s and the Chief of the Defence Force’s shared accountabilities. The Defence Committee is also responsible for setting the direction and driving the implementation of the 2016 Defence White Paper and the recommendations from the First Principles Review.

The Defence Committee is supported by two subordinate committees—the Enterprise Business Committee and the Investment Committee.

Table 5.1 shows membership of the Defence Committee as at 30 June 2018.

Table 5.1: Membership of the Defence Committee as at 30 June 2018

Position Incumbent
Secretary (Chair) Mr Greg Moriarty
Chief of the Defence Force (alternative Chair) Air Chief Marshal Mark Binskin
Associate Secretary Ms Rebecca Skinner (acting)
Vice Chief of the Defence Force Vice Admiral Ray Griggs
Deputy Secretary Strategic Policy and Intelligence Mr Scott Dewar (acting)
Chief Finance Officer Mr Steven Groves

Enterprise Business Committee

The Associate Secretary chairs the Enterprise Business Committee, which is responsible for ensuring the effective running of Defence. Its remit includes corporate planning, performance monitoring and reporting, enterprise risk management, information management and service delivery reform.

Table 5.2 shows membership of the Enterprise Business Committee as at 30 June 2018.

Table 5.2: Membership of the Enterprise Business Committee as at 30 June 2018

Position Incumbent
Associate Secretary (Chair) Ms Rebecca Skinner (acting)
Vice Chief of the Defence Force Vice Admiral Ray Griggs
Chief of Joint Capabilities Air Vice-Marshal Warren McDonald
Deputy Secretary Strategic Policy and Intelligence Mr Scott Dewar (acting)
Chief Finance Officer Mr Steven Groves
Chief of Navy Vice Admiral Tim Barrett
Chief of Army Lieutenant General Angus Campbell
Chief of Air Force Air Marshal Gavin (Leo) Davies
Deputy Secretary Capability Acquisition and Sustainment Mr Kim Gillis
Deputy Secretary Defence People Ms Justine Greig
Chief Information Officer Mr Stephen Pearson
Deputy Secretary Estate and Infrastructure Mr Steve Grzeskowiak
Chief Defence Scientist Dr Alex Zelinsky

Investment Committee

The Vice Chief of the Defence Force chairs the Investment Committee, which focuses on the future force. The committee is responsible for bringing the future force and supporting enablers into being. The Investment Committee governs the delivery of the Integrated Investment Program through review of proposals, taking into account force requirements, all necessary enabling functions and full-life costs. The Investment Committee provides advice to the Defence Committee to assure the alignment of strategy, capability and resources.

Table 5.3 shows membership of the Investment Committee as at 30 June 2018.

Table 5.3: Membership of the Investment Committee as at 30 June 2018

Position Incumbent
Vice Chief of the Defence Force (Chair) Vice Admiral Ray Griggs
Associate Secretary Ms Rebecca Skinner (acting)
Deputy Secretary Strategic Policy and Intelligence Mr Scott Dewar (acting)
Chief Finance Officer Mr Steven Groves
Chief of Navy Vice Admiral Tim Barrett
Chief of Army Lieutenant General Angus Campbell
Chief of Air Force Air Marshal Gavin (Leo) Davies
Chief of Joint Capabilities Air Vice-Marshal Warren McDonald
Deputy Secretary Capability Acquisition and Sustainment Mr Kim Gillis
Chief Defence Scientist Dr Alex Zelinsky
Deputy Secretary from the Department of Finance Mr David Fredericks
Deputy Secretary from the Department of the Prime Minister and Cabinet Mr Allan McKinnon
Director General Australian Signals Directorate Mr Mike Burgess
Deputy Director General from the Office of National Intelligence (permanently invited official) Dr Paul Taloni
First Assistant Secretary Contestability (permanently invited official) Mr Ciril Karo (acting)

Defence Audit and Risk Committee

The Defence Audit and Risk Committee, chaired by Mr Paul Rizzo, operates under the authority of the Secretary and is a central element of governance in Defence. It provides robust, independent advice on all aspects of Defence governance to the Secretary and the Chief of the Defence Force. The role and responsibilities of the Defence Audit and Risk Committee are to review all aspects of the governance and assurance frameworks, including financial, performance and risk management, the internal controls framework, compliance, accountability and audit.

Table 5.4 shows membership of the Defence Audit and Risk Committee as at 30 June 2018.

Table 5.4: Membership of the Defence Audit and Risk Committee as at 30 June 2018

Position Incumbent
External member (Chair) Mr Paul Rizzo
External member (Deputy Chair) Mr Alan Beckett
Associate Secretary Ms Rebecca Skinner (acting)
Vice Chief of the Defence Force Vice Admiral Ray Griggs
External member Ms Jennifer Clark
First Assistant Secretary Audit and Fraud Control Dr Tom Clarke (acting)
Chief Finance Officer (Observer) Mr Steven Groves
Australian National Audit Office (Observer) Ms Serena Buchanan / Mr David Brunoro
Australian National Audit Office (Observer) Mr Garry Sutherland

Chiefs of Service Committee

The Chief of the Defence Force chairs the Chiefs of Service Committee, which is the primary mechanism for providing his direction to the ADF and for governing achievement of the Chief of the Defence Force’s Preparedness Directive. The effectiveness of military operations in meeting government policy requirements is monitored through the Chief of the Defence Force’s Strategic Command Group.

Strategic Policy Committee

The Strategic Policy Committee is a whole-of-Defence forum that considers and makes decisions on key strategic issues including, but not limited to, strategic guidance for major capability decisions; development of Cabinet submissions on major policy issues; Defence policy for major initiatives or international engagements; and the Defence position for significant international dialogues.

The Strategic Policy Committee is chaired by the Secretary, and the decisions of the committee are binding across the Defence organisation.

Gender Equality Advisory Board

The Gender Equality Advisory Board was established to drive and shape the strategic direction of the Secretary’s and the Chief of the Defence Force’s gender equality priorities within the broader Defence cultural reform agenda. The board considers the most significant gender equality issues applicable to the Defence workforce and monitors and evaluates whole-of-Defence performance on these matters.

The Gender Equality Advisory Board comprises seven internal Defence members, including the Secretary and the Chief of the Defence Force, four external members and one special adviser. The board is chaired jointly by the Secretary and the Chief of the Defence Force.

Performance and accountability

The purpose of enterprise performance management is to keep strategy, capability and resources aligned with Government direction. Performance management is a critical part of Defence’s overall management strategy, and the Public Governance, Performance and Accountability Act 2013 (PGPA Act) obliges all Commonwealth officials to apply good governance and management practices in their day-to-day work.

Defence’s enterprise performance is achieved by ensuring that the Government’s strategic direction and policy requirements are translated into corporate planning and budget allocation, which can then be implemented and resourced through Group and Service business plans. Performance and risks to achievement are monitored and reported by Responsible and Accountable Officers to the Enterprise Business Committee, the Defence Committee and the Minister for Defence.

In 2017–18 Defence undertook a body of work to improve the quality of planning and reporting, guided by the Department of Finance and the Enhanced Commonwealth Performance Framework. Defence’s Enterprise Performance Management Framework describes how Government policy direction and requirements are translated into the required corporate planning and budget allocation framework and then cascaded into a set of activities that are implemented and resourced through Group- and Service-level plans.

Defence’s Strategy Framework 2017 is a key element of Defence’s enterprise performance management. It includes the 2016 Defence White Paper, the Integrated Investment Program, the Defence Industry Policy Statement, the First Principles Review and the Defence budget. This policy direction shapes strategic policy guidance, including the Defence Planning Guidance.

The performance criteria in the 2017–18 Defence Corporate Plan and the Portfolio Budget Statements 2017–18 demonstrate a clearer relationship between Corporate Plan activities and Portfolio Budget Statements deliverables than in 2016–17. Lessons from performance reporting during 2017–18 have enabled further alignment of the performance information in the Portfolio Budget Statements 2018–19 and the 2018–19 Defence Corporate Plan. This will enable Defence to continue to create a clearer line of sight in the Defence Annual Report 2018–19.

Risk

Defence’s risk management approach has matured further in 2017–18, with prioritised activities in a number of key areas. Defence is:

  • stocktaking legislative compliance obligations to ensure they are being met in accordance with Commonwealth standards and the expectations of Government
  • embarking on a process to identify the pressures that affect Defence’s capacity to deliver at an organisational level
  • building awareness of the need to strengthen links between on-the-ground risk management and whole-of-enterprise risk management within Defence.

Defence’s senior leadership risk training program fosters a positive risk culture and builds senior leaders’ ability to recognise key and emerging risk management issues as administrators. The training continued in 2017–18, with 40 SES/Star rank participants over the 12 months.

In 2017–18 two independent reviews of the Defence Risk Management Framework and the proposed internal control assurance processes were undertaken. The recommendations from these reviews will form part of a three-year forward work program to mature Defence’s approach to risk management and governance. The focus will be on greater information sharing, robust evidence-based performance measures and a closer relationship between risk and performance monitoring across the enterprise.

Major Projects Report

The annual Major Projects Report reviews and analyses progress on selected major acquisition projects that Defence manages. Its aim is to improve the accountability and transparency of Defence acquisitions for the benefit of Parliament and other stakeholders. The report is a joint publication between Defence and the Australian National Audit Office (ANAO), and it is prepared in accordance with guidelines endorsed by the Joint Committee of Public Accounts and Audit. The Joint Committee of Public Accounts and Audit assesses the overall content, accessibility and transparency of the information provided in the Major Projects Report as well as specific details of individual projects.

The Joint Committee of Public Accounts and Audit’s review of the 2015–16 Major Projects Report (ANAO report no 40 of 2016–17) was published in October 2017. The Major Projects Report is usually published in November each year. However, the tabling date depends on the resolution of issues that arise in any given year. The published reports are available on the ANAO website.

Capability delivery

The Capability Life Cycle commenced in April 2016 to address First Principles Review Recommendation 2, which called for Defence to ‘Establish a single end-to-end capability development function within the Department to maximise the efficient, effective and professional delivery of military capability’. The Capability Life Cycle is Defence’s response to this recommendation.

Over the last two years, Defence has implemented the Capability Life Cycle, which is the mechanism that delivers the Government’s capability aspirations outlined in the 2016 Defence White Paper and the Integrated Investment Program. The Capability Life Cycle provides Defence with an end-to-end process for capability development and delivery of capital projects, and associated through-life support, related to major capital equipment, infrastructure, enterprise enablers and information and communications technology. Several factors were key to this success:

  • Enhanced Capability Managers accountability: The new Capability Life Cycle has been designed with strong partnerships between the Capability Managers (customers) and the Delivery Groups (suppliers) founded on clear end-to-end accountabilities and responsibilities. Program and Project Sponsors work closely with the Delivery Group to ensure that they have a clear and achievable plan (in terms of both time and resources) to deliver and sustain all fundamental inputs to capability before the acquisition phase begins.
  • The maturing of the Six Capability Stream Framework: The 2016 Defence White Paper and accompanying Integrated Investment Program introduced six ‘capability streams’:
    • Intelligence, Surveillance, Reconnaissance, Space, Electronic Warfare and Cyber
    • Maritime and Anti-Submarine Warfare
    • Strike and Air Combat
    • Land Combat and Amphibious Warfare
    • Key Enablers
    • Air and Sea Lift.
  • Capability streams better represent the key force elements and support a clearer picture between strategy, capability and resources. The introduction of the capability streams has assisted in reducing ‘stovepipes’ in Defence (that is, preventing a situation where the flow of information within Defence is largely up and down through lines of control, inhibiting or preventing cross-organisational communication) and shift the focus from a project-centric view to a capability effect view of Defence investment activities.
  • Integration and continuous improvement of Force Design, Contestability and the Smart Buyer decision-making framework: Defence has continued to refine and embed these key functions across the organisation. Force Design takes a lead role in providing decision-makers with evidence-based analysis, aligned with strategic guidance, to enable capability investment decisions. Contestability assures senior Defence decision-makers that proposals have been robustly examined. Through the application of the Smart Buyer decision-making framework, Defence is becoming more effective in identifying key project risks and developing suitable project management, acquisition and sustainment strategies that deliver the best value for money. This ensures that timely and informed decisions can be made for each project, based on an understanding of risk.

Overall the implementation of the Capability Life Cycle is enabling Defence to deliver on the ambitious $200 billion recapitalisation outlined in the 2016 Defence White Paper. This is evidenced through the significant throughput to Government discussed further in Chapter 8, ‘Capability investment’.

For more information on the Capability Life Cycle, see the Capability Life Cycle Detailed Design.

Feature: Vision for success

Audit

The Defence internal audit program provides independent assurance to senior internal stakeholders on the department’s controls and the effectiveness of those controls in mitigating strategic enterprise risks. In 2017–18, 20 audit reports were issued and nine management-directed review tasks were completed.

Defence also supported audit activities undertaken by the ANAO. In 2017–18, the Auditor-General completed five performance audits on Defence, one cross-portfolio audit involving Defence, and the priority assurance review (Major Projects Report).

Defence also monitors the implementation of recommendations from internal audits and ANAO audits, reporting to the Defence Audit and Risk Committee and the Enterprise Business Committee.

Fraud and ethics

In 2017–18 Defence continued to meet its mandatory obligations to prevent, detect and respond to fraud and corruption in line with the Commonwealth Fraud Control Framework 2017. Defence has a comprehensive fraud and corruption control program, which uses a range of strategies to manage, evaluate and report fraud and corruption activities. Defence:

  • promotes integrity and development of a strong ethical culture through mandatory and focused training, publications and an ethical advice service
  • runs a rigorous fraud and corruption risk assessment program focusing on Defence-wide vulnerabilities
  • has an intelligence-led and targeted fraud and corruption detection program
  • investigates fraud, corruption, misconduct and unethical conduct and applies the appropriate criminal, civil, administrative or disciplinary action
  • recovers the proceeds of fraudulent and corrupt conduct
  • develops and strengthens partnerships, at the Commonwealth and international levels, to facilitate information-sharing arrangements.

Investigations

In 2017–18, there were 249 fraud investigations registered within Defence, with 242 investigations completed during the year (some of those completed were registered in previous years). Approximately 33 per cent of completed investigations resulted in criminal, disciplinary or administrative action. Of these, approximately 27 per cent related to disciplinary action under the Defence Force Discipline Act 1982.

Table 5.5: Determined fraud losses and cash recoveries, 2013–14 to 2017–18

 
2013–14
($)
2014–15
($)
2015–16
($)
2016–17
($)
2017–18
($)
Total
Loss
1,400,422
480,937
535,766
608,593
605,351
3,631,069
Cash recovery1
430,239
418,120
272,380
425,165
795,438
2,341,342

Notes:

  1. In previous annual reports the cash recovery figure showed the total amount recovered for investigations closed within the financial year. This enabled a direct comparison on the same dataset for the fraud loss and the amount recovered at a point in time. However, as recovery action can span many financial years, this method under-reported the actual recovery payments received in the financial year for all fraud matters. The table has been changed to show the cash recovery figure relating to payments received in the financial year, regardless of the year in which the investigation was closed, and includes recoveries relating to matters that are currently the subject of investigation.

Compliance with finance law

During 2017–18, Defence reported 26 instances of significant noncompliance with the finance law which were proven as fraud committed by an official. Defence authorities addressed these instances through criminal, or disciplinary prosecution action. Significant fraud cases are also reported separately to the Minister for Defence in accordance with reporting requirements set out in the Commonwealth Fraud Control Framework. Strategies for minimising instances of fraud are outlined above (see ‘Fraud and ethics’).

Exercise of the Defence Minister’s powers under the Customs Act

In accordance with the requirements of section 112BC in Division 1AA of the Customs Act 1901 (the Act), the Minister for Defence must table a statement on the exercise of the Minister’s powers under Division 1AA of the Act for each preceding year. For the period 1 July 2017 to 30 June 2018, the Minister for Defence did not exercise the powers pursuant to Division 1AA of the Act.

Report of the Inspector-General of the Australian Defence Force

The Inspector-General of the Australian Defence Force independently and impartially monitors and assesses the health and effectiveness of the ADF military justice system. The position of Inspector-General of the Australian Defence Force is established under section 110B of the Defence Act 1903. This statutory appointment is outside the ordinary chain of command.

The functions of the Inspector-General of the Australian Defence Force are to:

  • provide the Chief of the Defence Force with a mechanism for internal audit and review of the military justice system
  • provide an avenue by which failures in the military justice system may be examined and remedied
  • provide advice on matters concerning the military justice system
  • conduct internal reviews of redress of grievances
  • conduct inquiries into or investigate deaths of ADF members (where the death appears to have arisen from, or in the course of, the member’s Defence service)
  • inquire into or investigate matters concerning the ADF as directed by the Minister or the Chief of the Defence Force.

In 2017–18 the operating tempo in the Office of the Inspector-General of the Australian Defence Force increased significantly compared with previous reporting periods. There was an increase in the number of submissions received for investigation or inquiry, an increase in the number of military justice performance audits conducted, and an increase in the number of inquiries into deaths in service being completed.

There were also 48 open inquiry submissions carried over from 2016–17. In 2017–18, the Inspector-General of the Australian Defence Force received 65 new inquiry submissions—an approximate increase of 6 per cent over the number submitted in 2016–17. Approximately 30 per cent of those submissions proceeded to a full inquiry—a figure comparable to previous reporting periods. As at 30 June 2018, 53 submissions had been finalised as a result of Inspector-General of the Australian Defence Force inquiry or assessment and 60 submissions remain under inquiry.

The Inspector-General of the Australian Defence Force received an additional 35 notifications of possible Service Police professional standards breaches. Of those, 24 became the subject of investigations. The Inspector-General of the Australian Defence Force assessed the remaining 11 notifications as matters that should more appropriately be addressed by another Defence Investigative Authority or the military chain of command.

At the request of the Chief of Army, and at the direction of the Chief of the Defence Force, the Inspector-General of the Australian Defence Force has established an inquiry into rumours of breaches of the law of armed conflict in Afghanistan between 2005 and 2016 and associated matters. In 2017–18, the inquiry gained significant momentum after a public call for information was made on 1 September 2017. The public call concluded on 3 November 2017, and the inquiry is now pursuing additional lines of inquiry. Over 200 witnesses have been interviewed to date.

In 2017–18, the Inspector-General of the Australian Defence Force conducted 57 military justice performance audits—a slight increase of approximately 8 per cent from 2016–17. Potential material deficiencies were identified in three ADF units, which means they will be re-audited within 12 months. During the conduct of the military justice performance audits, 3,690 ADF personnel participated in focus group discussions.

In 2017–18, the Inspector-General of the Australian Defence Force initiated 40 new reviews of deaths of serving ADF members and finalised 69 reviews (24 from deaths that occurred in 2017–18 and 45 from deaths in previous reporting periods).

In 2017–18, the Inspector-General of the Australian Defence Force received 392 new applications for redress of grievance—a decrease of approximately 8 per cent from 2016–17. As at 30 June 2018, 397 applications had been finalised (285 applications received in 2017–18 and 112 in previous reporting periods).

Pursuant to section 110R of the Defence Act 1903, the Inspector-General of the Australian Defence Force prepares an annual report on the operations of the Office for the Minister, for presentation to the Parliament, at the end of each financial year. For more information and to access a copy of the latest Inspector-General of the Australian Defence Force Annual Report are detailed in Appendix B.

Feature: Women, Peace and Security in 2017–18