u ,~ Australian Government ~~-.-!'!

6/;,:~ Department of Climate Change and Energy Efficiency

Department of Climate Change and Energy Efficiency's Response to the Hawke Report on the Home Insulation Program and the Faulkner Inquiry into the Green Loans Program.

List of Abbreviations

; AC ACCRA APS CIA

, CPRS DCCEE

, DEWHA FMIS GPS

HIP

r HIPRO

HR ICT PMO

, SES

Audit Committee

Australian Climate Change Regulatory Authority Australian Publlc Service

Chief Internal Auditor

Carbon Pollution Reduction Scheme

Department of Climate Change and Energy Efficiency Department of the Environment, Water, Heritage and the Arts Financial Management Information System

Governance and Program Support Division

Home Insulation Program

Home Insulation Program Review Office Human resources

Information and Communications Technology Program Management Office

Senior Executive Service

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Introduction

This document outlines the Department of Climate Change and Energy Efficiency's response to the reviews into the Home Insulation Program (HIP) and the Green Loans Program which were conducted respectively by Dr Allan Hawke (the Hawke Report) and Ms Patricia Faulkner AD (the Faulkner Inquiry). The Department of the Environment, Water, Heritage and the Arts (DEWHA) is also undertaking actions to respond to the Hawke Report and Faulkner Inquiry.

While these reports contain the findings of very different reviews, on different scales, with differing terms of reference, both the Hawke Report and the Faulkner Inquiry hold important lessons for the newly formed Department of Climate Change and Energy Efficiency (the Department).

The Department of Climate Change and Energy Efficiency was formed in March 2010 following Machinery of Government changes which brought together the energy efficiency programs from the Department ofthe Environment, Water, Heritage and the Arts (including HIP and the Green Loans Programs) with the activities of the former Department of Climate Change.

The Terms of Reference for the Hawke Report required the reviewer to examine and report to the Secretaries of the Department, the Department of the Environment, Water, Heritage and the Arts (DEWHA), Department of Finance and Deregulation and Prime Minister and Cabinet on the effectiveness of program design, administration and delivery arrangements that were in place for the HIP. The Hawke report provided a high level assessment of issues and practical identification of lessons learned from a whole of government perspective. The findings in the report were considered in the context of the objectives of the Australian Government's $42 billion Nation Building and Jobs Plan in response to the global financial crisis in 2009.

Reflecting the Machinery of Government change of March 2010, the Terms of Reference for the Faulkner Inquiry required the reviewer to report to the Minister for Climate Change, Energy Efficiency and Water and the Secretary of the Department on the probity of the contractual arrangements and procurement processes and decisions that formed part of the final design and implementation of the Green Loans program. The findings within the report were based on detailed analysis of 84 procurements undertaken within the Green Loans program. The review did not consider the wider issues associated with the achievement of objectives of the program.

These reviews were conducted at a time when the ANAD was undertaking two cross portfolio audits which included activities of the Department, as well as separate audits into the HIP and Green Loans programs. Inquiries were also underway into both the Energy Efficient Homes Package and the Green Loans program by the Senate Standing Committee on the Environment, Communication and the Arts.

Key findings

The Hawke Review and the Faulkner Inquiry both highlighted a number of key elements which led to the unintended consequences of the programs, in particular:

the need for stronger leadership and governance balanced to the level of risk; the quality of program design, planning and management;

need for improvements in organisational culture;

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the conduct of risk, audit and compliance activities within the programs, and specifically the need for much earlier rollout of such activities; and

the lack of resources (both individuals with appropriate skills and experience and fit-forpurpose business systems) devoted to the Programs.

How the Department will respond

The Department notes the findings within the reports and commits itself to addressing the shortcomings in program administration which the reports identify.

In particular the new Department is committed to:

promoting strong leadership, supported by strengthening governance frameworks; applying robust program design, planning and management;

supporting a culture which promotes fiscal responsibility, prudence and probity

applying appropriate frameworks for audit and compliance, which are implemented at the commencement of program delivery;

investing in our resources, including well-trained and supported staff that exemplify professional behaviour, integrity and uphold the APS Values; and

well designed, scalable and flexible business systems, especially information technology, human resource and financial platforms.

At a practical level the Department will achieve this by taking actions in the following areas:

improving governance;

strengthening the skills of our program managers; improving business platforms and systems; and establishing a change management taskforce.

Action is currently underway to investigate potential breaches identified in this report. The Department will conduct any necessary investigations and follow up actions where further potential breaches of the APS Code of Conduct (as defined in the Public Service Act 1999 (PS Act)), the Financial Management and Accountability Act 1997 (FMA Act) and the Criminal Code are identified.

The Department is committed to an independent review of its response within 18 months to ensure implementation has occurred. An internal action plan to deliver this response will be developed and the Executive Board will regularly track progress against this. In addition, the Audit Committee will monitor the internal action plan between now and the conduct of the independent review.

While accountability for delivering the actions contained in this response will be specifically assigned, collective responsibility for supporting the overall change management agenda in the Department will rest in the first instance with the Senior Executive officers (SES) of the Department. Their leadership will be critical to the success of this response. Beyond them, responsibility will also lie with every officer in the department and will be reflected in performance agreements across the organisation.

Improved Governance

Good governance requires that the Department has appropriate structures in place upon which to build and develop strategies to reach its agreed objectives and monitor its performance outcomes. A key element of the Department's response to the Hawke Report and Faulkner Inquiry is a new

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Division which will focus on improving governance. The Governance and Program Support Division (GPS) was established as part of an organisational restructure which commenced in May 2010. The Faulkner Inquiry in particular noted that while central corporate capabilities in the areas of legal, finance, information technology and program management were available to program areas there was a lack of integration that created weaknesses. The GPS Division will support program design, implementation, monitoring and review by bring together existing and new capabilities. The GPS Division will partner with a strengthened Corporate Support Division (CSD), Communications Branch and program areas to provide subject matter expertise, advice and to enhance skills in the fields of risk management, governance, compliance, program management, legal services, ICT, procurement and communications.

The Department is improving other aspects of its governance framework to ensure it appropriately supports the expanded functions, in particular program design and delivery. The intention is that future programs have standardised governance arrangements in place which will provide independent oversight, increased transparency around program delivery and consistent reporting and evaluation along the following lines:

• the introduction of Program Boards which will help the Executive and staff to oversight highlevel program implementation, and to manage risks and issues that have been escalated noting that ultimate responsibility for program delivery remains with program managers;

• a newly formed Program Management Committee (a sub-committee ofthe Executive Board) which will manage program interdependencies, review and monitor escalated program risks and ensure consistent approaches to program implementation and management across the Department;

• clarity that Program areas remain responsible for the development of risk management plans, risk mitigation actions and compliance activities, and that these are to be developed, resourced and operating at the commencement of new programs; and

• improved monitoring and reporting to help ensure that an appropriate level of accountability exists and that critical issues are elevated in a timely way to the appropriate level within the organisation (and to the Minister where applicable).

Some elements of the revised framework are already operating, with the aim that entire framework will be operating by 31 December 2010.

Improvements to procurement management and financial systems

A Business Support Service Branch in CSD will support the procurement and contract management processes throughout the Department. The Branch will establish a program for raising awareness and ensuring consistent application of Commonwealth Procurement Practice and staff obligations under the Financial Management Accountability Act, 1977 (FMA Act) and Commonwealth Procurement Guidelines (CPGs). The Branch will:

• establish a contract register that captures all known contracts and forward procurement plans prepared by program managers;

institute improved documentation of new procurements and contract variations, including the process of consolidating variations into new schedules; and

work with line areas to ensure that proposed material procurement decisions are brought to the Procurement Review Board (PRB) to ensure the procurement is consistent with the FMA Act and CPG requirements and is aligned to business needs.

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The Branch, in conjunction with Human Resources, will provide targeted training in contract, probity and procurement to all staff that consider and undertake procurement activity. This training will commence in mid July 2010.

The Branch will continue to monitor procurement activity in line with the Departmental Chief Executive Instructions (CEI) which outline that all program procurement activity's with a value of $70,000 and over are required to be submitted to the PRB for approval. The objectives of the PRB are to provide assurance to the Executive Board that high value and high risk procurements within the Department are conducted in accordance with the relevant policies and legislation.

Whereas the former Department of Climate Change undertook around 7,000 financial transactions annually, the Department is expected to undertake in excess of 100,000 financial transactions per annum. Accordingly, the Department is reviewing its current financial management processes including business processes and automated controls within the Financial Management Information System (FMIS). The review will seek to automate financial controls, provide a more streamlined procurement to payment process and integrate contract and grant management into the FMIS. This will provide more transparency and greater support to staff and provide management with greater assurance that sufficient financial and management controls are in place.

Strengthening the skills of our program managers

Closely linked to improved governance frameworks will be a focus on strengthening program management throughout the Department. Our managers (Executive Level staff and SES Officers) need to lead by example by demonstrating strong program leadership. They will be expected to take responsibility for their development in line with the APS Integrated Leadership System and the APS Values and Code of Conduct. To this end, the Department will develop and implement appropriate support and training for managers.

Strengthening Human Resources

The Department has increased its investment in Human Resources (HR) by creating a Human Resource Branch, which will be responsible for implementing an HR strategy to link performance, learning and development and workforce planning within a robust Leadership Framework. The HR strategy will assist the Department by promoting a culture of strong leadership and accountability of staff across the Department.

The HR strategy will focus on:

a strategic learning and development plan describing identified capability gaps;

• a workforce planning approach which will include people performance reporting, benchmarking and analysis; and

a revised, performance management process incorporating a strengthening of the SES and Director leadership assessment criteria utilising an on-line system which will enable the HR Branch to monitor all steps of the performance cycle.

The HR Branch will be responsible for ensuring the Department has a skilled, capable and resilient workforce able to deliver programs to the level expected by the Government and the community.

The Department will strengthen workforce planning, reporting and analysis to enable it to monitor and review cultural measures, including employee engagement and organisational climate as well as indicators of organisational stress including absenteeism, compensation claims and turnover. The Department will achieve this through improved reporting from the new Human Resource

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Management Information System and through other qualitative and quantitative measures obtained through formal staff surveys (the first in September 2010) and pulse surveys (the first to be conducted by 31 July 2010).

Another critical aspect ofthe HR strategy will be to ensure that the right people get to where they are needed quickly. This is a quality and a quantity issue. It involves placing enough people with the requisite skills in areas of program design and delivery in order to reduce the risks inherent in these activities and better achieve the Government's outcomes. We will do this by ensuring that the workforce planning approach is interwoven with the business planning cycle ofthe Department.

Improving the business platform/systems

The Department has identified the need to provide our staff with the training and resources they need to do their work effectively and is actively investing in business programs and resources to achieve this. The Department recognises that a key element in developing successful programs which deliver on their aims is to ensure the program is resourced appropriately from its inception. Gaps in resourcing present a real risk to the Department in meeting its fiduciary responsibilities for expenditure of public funds, and can adversely impact on organisational performance and outcomes.

Into the future, program areas, GPS and CSD will work together to identify business requirements including technical resourcing requirements and business support systems early in the program development phase. Early consultation will involve subject matter experts in legal, ICT, compliance, risk and project management partnering with program teams. In this way the Department will actively address the capacity issues that the program may face, and will work to identify appropriate solutions.

ICT resources

The newly appointed Chief Information Officer (Cia) has been actively engaging with business areas to improve immediate systems issues following the transfer of Energy Efficiency Programs from the DEWHA ICT environment to the Department's environment. The Department has identified a need for an increased range of business support systems and for the delivery of coherent ICT services across programs. The cia is developing a model for ICT service delivery focused on delivering an integrated suite of ICT applications to support most of the Department's work online. This will provide online services to support program delivery; stakeholder and customer management, compliance and reporting, as well as fully online corporate processes and electronic controls on activities (for instance exercise of delegations). These solutions will enable reporting and data analysis to underpin robust evidence based policy development.

The Department is currently seeking funding to undertake these activities. It is also important to note that building improved platforms of this kind take time.

Where appropriate we will continue to partner with other Commonwealth agencies and external providers for the delivery of business system solutions.

Client service charter and complaints handling mechanisms

Given its new program delivery responsibilities the Department must offer proper mechanisms for grievances and issues to be heard and resolved. The Department is drafting a Client Service Charter that explains what clients can expect, how they can help the Department to help them, and how they can provide the Department with feedback or make a complaint. The Client Service Charter will underpin the development of a coordinated complaints, review and appeals management system to ensure the Department is responsive and proactive in its engagement with the community.

ensure that our systems and structures deliver appropriate outcomes for Government; ensure investment in learning and development enable our people to perform roles relevant now and in the future;

provide grounded and well-founded advice to Government on the design and roll-out of programs;

develop our relationships with stakeholders to improve our policy and program efficacy, effectiveness and responsiveness;

foster a positive culture that enables high performance; and

foster a united leadership approach and effective management group.

The Client Service Charter will also play an important role internally, setting out our standards for service delivery and provide a basis for developing our culture of responsiveness.

The Department will provide staff with improved mechanisms for identifying actions which erode culture. A Chief Internal Auditor (CIA) will be appointed to work with the Audit Committee to provide an independent and objective view of the conduct of activities within the organisation. The CIA will also have discretion to raise issues and concerns directly with the Secretary. Staff will be able to report matters of concern on issues of ethics, governance and fiscal management directly to the Chief Internal Auditor. The Probity Officer (General Counsel) will continue to playa key role in education and delivery of the Department's Probity Policy and can be called upon where necessary to assist staff in managing issues with probity in accordance with the governance framework.

Change Management Taskforce

The Executive recognises that there is a compelling need to establish an enhanced frame of reference for the behaviour and performance of the Department's staff. The reforms outlined above will not happen in a short timeframe and a continued focus on building and improving our processes, practices and culture is necessary. To ensure our continued focus on the lessons from these reviews the Department has established a Change Management Taskforce, which commenced on 9 June 2010. The Taskforce, led by a First Assistant Secretary reporting directly to the Secretary, and comprising senior stafffrom across the Department will set a clear direction and will work to develop an engaged workforce that is characterised by high levels of satisfaction and professionalism. It will help to foster a culture that builds on the combination of expertise that our staff members bring to the organisation.

The Taskforce will work closely with the SES and all staff across the organisation to:

The Taskforce will advise the Secretary on the change management strategy, process and communication. It will be responsible for engaging staff throughout the Department via Change Management consultative forums and other mechanisms. The Taskforce will work in concert with the management team responsible for specific actions in response to these reviews and continue for such time as necessary to embed the activities outlined in this response.

Conclusion

The new Department is determined to build a reputation as a professional, responsive and accountable organisation. It will embark on this task drawing on the significant capability and commitment which already exists in our people. This is not an easy task and will take time, but it is worth doing and we have a significant opportunity to do so at this early stage in the Department's life.