Defence

Cover story

Balancing the books

Side story: The bottom line

Money, as the Roman orator Cicero said, is the sinews of war. But it's not unlimited - there's a finite amount to manage in the Defence Budget.

The 2005-2006 Federal Budget will be presented in May so why are we preparing now? Karlene Sargent explains why our budget processes are integral to the business of Defence.

The budget is an enduring process - it happens every May, come rain, hail or shine, tsunami disaster or continuing operational efforts in Iraq. So why is it that it still seems to come as a surprise to some?

With a clear framework and set of guidelines, and a supporting timetable of key events in place, First Assistant Secretary Budgets and Financial Planning (FASBFP) George Veitch is candid when it comes to operating within the budget process framework.

"If you don't play the money game, you don't get a guernsey in the budget allocations," he says.

In a career that has spanned more than 30 years in Defence, and has included positions across all three Services and the Defence Headquarters environment, it's abundantly clear that Mr Veitch didn't come down in the last shower.

Having occupied a string of finance-related positions throughout his career, including the principal business adviser to the Chief of Air Force, Mr Veitch arrived at his current post as FASBFP in late 2002 with the unenviable challenge of managing - and improving - the annual Defence budget process.

Early engagement with Mr Veitch is crucial and his message is this: "Resources are finite and there are simply not enough resources to satisfy everyone's requirements - at the Defence and the Commonwealth level."

In Defence, the challenge is to manage the requirements of the competing categories (capital investment, personnel and operating costs).

Competition at the Government level is about expenditure on Defence, versus expenditure on other key portfolios - particularly those relating to health, education and other social services.

"The principal thing of interest to me is getting the balance right between the competing demands," he says.

In his role, Mr Veitch needs to be aware of Government direction, which incorporates the White Paper commitments, the Defence Capability Plan, and commitments made as part of last year's election, as well as the legislative framework within which Defence operates.

"The challenge," he says, "is to achieve the requirements of Government and be responsible to the taxpayers of Australia.

"I feel I've done a good job - I sleep well at night - if I get this right."

So what about the budget process?

The Minister for Defence, Robert Hill, is required to bring forward a Portfolio Budget Submission in February each year that contains proposals for additional funding and/or savings measures across Defence.

As such, this is the only method - excepting special circumstances, such as additional funding for tsunami relief - through which new money can be allocated for the Defence budget.

In the context of the budget process, the Minister sees the White Paper as Defence's contract with him.

"The Government's focus is on being assured that we are spending money within agreed timeframes and more importantly, that the money is being spent for the purpose it was intended," Mr Veitch says. "That means I'm focused on providing that assurance."

Supporting the annual budget submission is the Defence Management and Finance Plan (DMFP), which provides a 10-year view of the Defence budget including resourcing strategies and management challenges facing Defence on a 10-year planning horizon.

Putting all this into context, the DMFP focuses on delivering the White Paper commitments, the Defence Capability Plan, and the initiatives that underpin the Defence Priorities 2005.

Interestingly, Defence is currently the only Commonwealth department to provide strategic guidance through a 10-year management and finance plan.

The DMFP essentially provides a tool for wider Government planning and is going some way to improving Defence's performance and subsequently, our reputation, in terms of the broader budget cycle.

Believe it or not, in an organisation that seems to churn out more planning documents than it has shelves to stack them on, the high-level plans in Defence are, in fact, linked.

The Workforce and People Plans, for example, have been used to develop the "People" chapter in the DMFP.

Similarly, the key initiatives under the 'Excellence in Management' priority (as depicted in Defence Priorities 2005), such as "create DMO as a prescribed agency" and "implement Financial Statements remediation plans", are not only reflected in the DMFP, but funding has been allocated to them.

But plans and processes are only as good as the people and relationships that support them. Without effective, productive relationships with his stakeholders and customers, Mr Veitch and his team would not be making the headway with the budget process that has been achieved over the past two years.

Daily dealings with the Secretary and CDF cover two dimensions - on the one hand it's about helping the diarchy to meet their ministerial charter obligations from an accountability perspective, and on the other, it's about balancing the delivery of capability and operational requirements in an efficient and effective way.

"My relationship with the Secretary and CDF focuses on managing the Government's expectations with efficiency, sustainability and viability," he says.

Relationships with the Service Chiefs, Group Heads and their staffs are also pivotal in the budget process. The improvements that Mr Veitch, supported by his team, has been able to orchestrate and achieve with the budget process and outcomes would simply not have been possible without the support and close relationships that have developed with the Services and Groups.

"It's an ongoing challenge," he says, "to be seen to be equitable in my dealings with the Services and Groups."

That's why it's of utmost importance to him that he operates within a clear, open and transparent framework. And nowhere is this open relationship more visible than at the Defence Committee (DC) level.

"Ultimately, the DC is where all of the hard decisions must be taken," he says.

In the same way that the central agencies ensure the validity and integrity of all proposals going to Cabinet, Mr Veitch plays the role of gatekeeper at the Defence level. If he isn't satisfied that proposals and associated costings are robust, he knows they will only falter at the next level.

In fact, all Cabinet submissions and ministerial submissions with resource implications are cleared through Mr Veitch, so it pays to provide him with timely, accurate, considered and coordinated information - the first time.

Mr Veitch credits this single feature of the budget process with enabling him to get the budget back in control.

"At the end of the day," he says, "I'm here to help make those new proposals happen, so it's in the interests of all areas in Defence to be engaged and play by the rules."

So when Mr Veitch isn't caught up in the throws of delivering the budget to Government, and playing gatekeeper to the Defence coffers, what does he find time to worry about?

Understandably, he's concerned about the ongoing accounting problems and their impact on the overall budget process.

"It's important," he says, "in building on the gains already made, to get accounting right because it has a repercussive effect. The bottom line is we're dependent on good financial statements."

In terms of challenges closer to home, Mr Veitch feels growing concern about the changing demographics and Defence's ability to recruit suitably skilled people to both the ADF and the APS. As far as he's concerned, "it's the single biggest challenge for Defence".

Indeed, the future integrity of the budget process will rely on Defence meeting this challenge by attracting people with the level of financial skills, supported by appropriate qualifications, required to ensure a robust budget cycle.

Karlene Sargent is Assistant Director Internal Communication and Governance, CGR Branch

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