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Implementing the White Paper

Initiatives to Improve Provision of Advice and Decision Making

Transparency and Accountability

The Secretary and Chief of the Defence Force have been provided with new Ministerial Directives and new charters have been established between the Secretary and Chief of the Defence Force and all Group Heads. The Defence Capability and Investment Committee's role has been broadened to give more focus to the balance between current capability and future investment. The role of the Defence People Committee has been broadened to address strategic workforce planning and people issues including the cost of the total workforce. The 'Defence Matters' scorecard was improved and the Defence Committee is now provided with enhanced performance and financial information on a monthly basis.

After successfully trialing organisational performance agreements in the last budget cycle, new agreements have been established for 2003-04 covering the ten-year planning period. Customer supplier agreements have been established between enabling Groups and the six outcome capability managers. Further work remains to strengthen the customer supplier agreements between the Defence Materiel Organisation and the Services, particularly as these apply to the logistics support budget. This matter will be addressed as part of the implementation of the Defence Procurement Review.

In 2002-03, Defence made considerable progress in addressing several budget challenges facing the organisation. The timeliness and accuracy of Defence's budget estimates have been improved, whilst the quality of associated documents, including the Defence Management and Finance Plan and the Portfolio Budget Submission has been enhanced. These documents have enabled the Government to make important resourcing decisions in respect of the Defence portfolio. For future years, Defence's planning cycle has been changed so that the Defence Management and Finance Plan will be available for the Senior Ministers' Review in October each year.

Reforms to the budget process include: budgeting at the outcome, output and program level; the introduction of a rolling program of zero-based budget reviews aimed to eliminate large-scale unforecasted variations; and timely release of budgets and ten-year forward allocations to all Defence Groups.

Underpinning these reforms are an agreed set of programming principles and business rules designed to strengthen the accountability of senior leaders in managing their budget allocations. The use of extended charters and organisational and individual performance agreements has also improved accountability. A culture of economy is now being established within the organisation.

Efforts to strengthen the management framework and business processes for managing an integrated workforce continue. The concept of a total workforce has been introduced to place more rigorous control over the management of the total workforce rather than the separate components of the permanent military forces, Reserves, civilian staff and professional service providers. Under the new business rules, managers are able to trade between elements of the workforce without exceeding overall strength and financial allocations.

information systems and performance management tools

Despite recent improvements, longstanding financial management problems still affect Defence's ability to control costs, ensure accountability, anticipate future costs and claims on the budget, measure performance and maintain fund's control. Several years of further hard work are required to address the challenges facing Defence in these areas. Against this backdrop, Defence put in place a comprehensive financial transformation strategy that seeks to significantly improve its financial management capability. In particular, the strategy aims to embed lasting processes and understandings which will support more effective planning, estimation and reporting of Defence's finances.

The strategy maps improvement against a set of financial management goals and provides a set of metrics to track, monitor and report upon the success of initiatives. The five goals are:

In 2001-02, the Defence management systems improvement project was initiated to improve management information systems and provide managers with tools to enable better decision making. This project is now complete and the final report has been provided to the Minister for Finance and Administration. In addition, notable progress was made in respect of:

Pivotal to the achievement of ongoing success was the establishment by the Chief Information Officer of an overarching architecture framework for the management information domain. The project will develop a high-level architecture and associated process maps, using best practice enterprise architecture as a starting point and diverging only where necessary to meet actual statutory and operational requirements. It will link strategic planning to the financial planning and reporting cycle, flowing from a whole-of-government requirement to portfolio and Group contributions. Complementing this work has been the development of data warehouses within the financial, materiel and personnel domains.

Significant improvements have also been made to Defence's preparedness management system which assisted in better understanding and management of the linkages between preparedness levels and costs. In turn, the work on the decision support systems project will, from early 2004, enable Defence to accurately cost Force Element Groups and this will facilitate a more comprehensive understanding of through-life costs.

In order to improve data quality, tiger teams have been established around the following key priority areas:

To improve the quality of its financial reporting processes, Defence initiated a comprehensive planning and management process, focusing attention on high-risk financial areas including inventory and other key asset areas that were the subject of the 2001-02 audit qualification. Detailed plans were established in consultation with the Australian National Audit Office (ANAO) designed to ensure that all steps in the financial statement process were undertaken, quality assurance procedures completed, time frames clearly articulated and the required internal sign-offs and assurances received. The plans were supported by analytical review processes, internal audit, independent quality assurance programs and Service Chief/Group Head sign-off statements that assured substantial coverage and assurances across the key areas of the 2002-03 financial statements.

As was the case in 2001-02, the financial statement process included the completion of a financial business review diagnostic. This tool is designed to provide a detailed analysis of the composition of the assets, liabilities, equity, revenues and expenses that describe the financial performance and financial position of Defence in a fiscal year. A data-quality diagnostic was also embedded in the process to identify underlying data integrity issues at their source, be they process, policy or system driven.

The financial statement planning processes and the data-quality initiatives have meant that Defence's 2002-03 financial statements are of better quality than those of previous years, with the balance sheet in better shape than at any time previously reported. Defence has continued to leverage off the improvements made in 2001-02 with further improvement made in accounting for, and reporting of, approximately $50b of assets.

Although the 2002-03 financial statements have again been qualified by the ANAO, the extent of the qualification is much reduced over that of 2001-02, demonstrating improvements in the management and accounting for inventory and repairable items. Defence was further qualified in the area of military leave provisions. Defence is addressing this issues through a comprehensive data quality assurance program.

Alignment of budget with strategic direction

Defence has implemented a strategy-focused planning framework which has as its keystone documents the Defence White Paper and Australia's National Security: A Defence Update 2003. This framework identifies key objectives and risks, and focuses on the means for achieving objectives. This strategic guidance is then reflected in the annual development of a Defence Management and Finance Plan, which sets out for Government consideration, Defence's planned performance and funding levels over a ten-year period.

The alignment of the Defence budget with the Government's strategic direction has been achieved through the introduction of an outcomes and outputs framework which focuses on the achievement of Defence outcomes and the delivery of Defence outputs to the Government, with regular reporting to the Government on financial and non-financial performance. A review of this framework was undertaken in 2002-03 and the results were reflected in the expanded outcomes and outputs presentation in the Portfolio Budget Statements 2003-04.

Defence has made notable progress in implementing the Government's Budget Estimates and Framework Review recommendations. It has successfully implemented an 'as-needed' cash draw-down arrangement, and was the first agency to achieve this milestone. A new program structure was implemented in the 2003-04 Budget and monthly forecasting and reporting of cash at program level has commenced on schedule. This has required significant staffing resources and investment in financial systems and business processes, particularly in Defence's portfolio Budgeting and Output Reporting Information System (BORIS). Defence staff continue to work closely with the Department of Finance and Administration implementation team.