Auditor-General's Report

AUDITOR-GENERAL'S REPORT

The Hon. G.E. GAGO (Minister for Agriculture, Food and Fisheries, Minister for Forests, Minister for Regional Development, Minister for the Status of Women, Minister for State/Local Government Relations) (15:30): I move:

That standing orders be so far suspended as to enable the report of the Auditor-General for the year ended 30 June 2013 to be referred to a committee of the whole and for ministers to be examined on matters contained in the report for a period of one hour.

Motion carried.

In committee.

The Hon. D.W. RIDGWAY: I have just three questions I would like to ask the minister in relation to the Auditor-General's Report in relation to the South Australian Forestry Corporation. I thought I would get them out of the way first and then we could ask some questions more generally about PIRSA. I am just waiting while her adviser makes his way to the chair and table, because I am sure she will not know the answer and I will have to repeat it for his benefit.

I refer to page 1525 of Part B, Volume 5, and I note in the commentary it says that while the corporation has not yet submitted its report for the financial year ending 30 June, the Auditor-General refers to the forward sale. He notes that the corporation manages plantations in return for a fee. What is that fee and how is it calculated?

The Hon. G.E. GAGO: I have indicated in this place on a number of occasions that that fee is commercially in confidence, so I am not able to divulge that.

The Hon. D.W. RIDGWAY: I do not accept you cannot divulge it, but how is it calculated? On what basis is the fee arrived at? Is it an annual fee? Is it part of the contractual arrangements of the sale? Is it changed every year? Could you give us some information around the fee even if you are not able to tell us the details?

The Hon. G.E. GAGO: I am advised it is a contractual fee which was devised at the outset of the forward sale. I am advised it is adjusted annually through an agreed arrangement.

The Hon. D.W. RIDGWAY: How long was the arrangement in place for that fee to be charged to OneFortyOne Plantations? How long is ForestrySA going to provide that service?

The Hon. G.E. GAGO: I am advised that the management arrangements are in place for a contracted period of five years and that, in relation to the fee being adjusted annually, it is adjusted annually in accordance with an agreed formula and that formula is an agreement in itself. It cannot be adjusted outside of those agreed parameters.

The Hon. D.W. RIDGWAY: Another question in relation to the fact that ForestrySA is contracted to do work for OneFortyOne Plantations. For the benefit of your officers here, minister, I asked you a question recently about the shortfall between ForestrySA's costs minus the revenue. Of course, you pointed to a budget line but that covers all of ForestrySA's activities. Today I am interested in: what is the difference between the cost of providing the service for OneFortyOne Plantations and the actual revenue you received?

The Hon. G.E. GAGO: These are in the budget documents, these are not matters of the Auditor-General's Report.

The Hon. D.W. Ridgway: No, they are not.

The Hon. G.E. GAGO: Well, refer to the relevant section of the Auditor-General's Report.

The Hon. D.W. RIDGWAY: Volume 5, page 1525: it says the primary focus of the corporation is to manage the plantation forests under the functions of the corporation. My question to the minister is: what is the difference between the fee that is arrived at and the actual cost of providing the service?

The Hon. G.E. GAGO: It is not part of the Auditor-General's Report. These are budgetary questions. The honourable member is able to ask me in question time tomorrow, if he so desires, but these are not matters of the Auditor-General's Report.

The Hon. D.W. RIDGWAY: Is the minister committing to bring an answer back? I will ask that question tomorrow if the minister pledges to give me an answer.

The Hon. G.E. Gago: Ask it tomorrow. I am not going to use up this question time for a question for tomorrow. You ask me tomorrow.

The Hon. D.W. RIDGWAY: One last question on forestry. We have 198 full-time equivalent public sector employees. Why do we still have that number of employees in the forestry corporation now that we have sold off a major part of our assets?

The Hon. G.E. GAGO: I have been advised that the number of employees that we have at the moment are those needed to assist in the management arrangements for OneFortyOne because we are still undertaking those responsibilities, and also obviously managing our Mid North and Mount Lofty forests as well. I have been given some advice that the figures, as of today, would be somewhere in the vicinity of 170 FTEs, so the employment numbers are being revised all the time. We are always looking at streamlining and improving the efficiencies of our practices and adjusting staffing accordingly.

The Hon. D.W. RIDGWAY: I want to refer back to the question in relation to the fee that is charged, minister, that it is a five-year arrangement. What happens at the end of that five years? Is it a rolling arrangement? Is it for the next government of whatever persuasion to renegotiate it? Is the formula that is used to calculate it up for negotiation as well?

The Hon. G.E. GAGO: I am advised that at the end of five years there will be a contestable process in which ForestrySA has the right to match the best commercial result. So we sort of get first dibs, if you like.

The Hon. D.W. RIDGWAY: So it will be an open process, but ForestrySA will get the right, if you like, to match whatever the best bid is. I do not have any further questions on forestry. My first question in relation to PIRSA, which of course is referred to in the Auditor-General's Report, is in regard to Part B, Volume 4, at the bottom of page 1324. Under the Corporate governance heading, it states:

no authorised strategic plan was established for 2012-13 and the strategic directions statement, Towards 2017...

My question to the minister is: why was there no authorised strategic plan for 2012-13?

The Hon. G.E. GAGO: I have been advised that the audit findings reflected the influence of machinery-of-government changes and the appointment of a new chief executive during 2012-13. The 2012-13 divisional plans and strategic plan had been prepared and, whilst not formally endorsed, were being used to monitor performance against activities and outcomes. The planning processes and associated documentation for this year (2013-14) have been completed and endorsed and I am advised that the review of various policies and framework is under way, obviously with some completed and others to be finalised in the next few years. So basically it was the machinery-of-government changes.

The Hon. D.W. RIDGWAY: My next question relates to the top of page 1325, which states:

the fraud and corruption policy and whistleblowers policy and procedure had not been updated since 2009 and the risk management framework and risk management guidelines had not been updated since 2008

Why had there been no update to the fraud and corruption policy and whistleblowers policy and procedure since 2009?

The Hon. G.E. GAGO: I am advised that there was a changeover in our risk manager, and this was one of the policies that work had commenced on. It was available in draft form but had never been formally adopted. As I said, we are reviewing various policies and frameworks that are underway and working through to complete those.

The Hon. D.W. RIDGWAY: The next question I have is more in relation to the next dot point, regarding requirements of the Audit and Risk Management Committee terms of reference. It was approved in December but was not met in terms of number of independent members and meetings held. Why have they not met? In terms of the number of independent members, why was that the case?

The Hon. G.E. GAGO: I am advised that at the time one of our independent members resigned, and that affected the numbers. Since then the terms of reference have been reviewed and the current number of independents now complies with the requirements.

The Hon. D.W. RIDGWAY: Can the minister explain the role of that committee? I know it is a current issue but, as an example (and I am sure there have been other cases in the past), I use the commitment that the government has made to a program in China, a program that was put up by some private people for the government to invest in. Where does the government do its due diligence and probity on, if you like, proposals that are put up by members of the public? Is it through this process or is it through another process?

The Hon. G.E. GAGO: I am advised that this committee is not responsible for the due diligence processes of business and other trade opportunities that government is approached with from time to time. This is a committee that deals with internal processes and risks. In terms of business proposals, it would depend on what the proposal is; it is usually a combination of work done through agencies like DMITRE and some activity from PIRSA as well.

The Hon. D.W. RIDGWAY: So that is actually done by individuals within the agency, rather than by a committee or a group of people, to assess a proposal that is put to government for funding that comes from an external bid?

The Hon. G.E. GAGO: No; it depends on what the proposal is. For instance, I give the example of the Riverland Sustainable Futures Fund. It is public money that is being spent on private business proposals. There is a process within PIRSA that has a panel of people with cross-agency expertise that applies a rigorous process and protocol. A third-party due diligence is also applied as well. I cannot think of the name of the firm now, but an independent third party gives us some accounting advice on the strength of the finances of the organisation.

As I am trying to explain, there are different processes for different proposals, but there are certainly rigorous processes in place. For any spending of public money we make sure that we do the due diligence that is required and that it is an efficient and effective use of public money wherever possible.

The Hon. D.W. RIDGWAY: I accept the minister's explanation using the Riverland Futures Fund, but to go to the example of the Fujian project in China, where would that have been judged, assessed and the due diligence done, because I think the minister will accept that is a different type of project?

The Hon. G.E. GAGO: It is not this committee that it is referred to. It is not the audit committee and we are now wasting the time of this chamber. The role of this hour is to look at the Auditor-General's findings and I am happy to take further questions on those matters.

The Hon. D.W. RIDGWAY: I remind the minister that nor is the Riverland Futures Fund in the Auditor-General's Report.

The Hon. G.E. Gago: I will not try to be helpful next time.

The Hon. D.W. RIDGWAY: You could be helpful and answer the next question. That would be very helpful for all of us.

The ACTING CHAIR (Hon. J.S.L. Dawkins): The honourable member asked some questions. This is not a conversation, so I call the Hon. Mr Ridgway.

The Hon. D.W. RIDGWAY: I apologise, Mr Acting Chairman, and I know I only have a few minutes left, so I need to turn to page 1338. It lists the objectives of PIRSA and among these are the strategic priority of premium food and wine from our clean environment and providing strong research and innovation capabilities. In light of this, can the minister explain why Primary Industries and Regions is one of the only agencies to continue to decrease in operating expenditure from 2011-12 to 2014-15? This follows a total decrease of $63 million from 2011-12 to 2014-15?

The Hon. G.E. GAGO: The changes in operational expenditure largely have been influenced by grant programs that have come to completion, so things like the completion of our drought program, our locust plague program, exceptional circumstances, etc. It is those grant funding arrangements that are no longer needed, that have come to an end, that have been removed from the budget and it is those that are having a significant impact on the bottom operational expenditure figure.

The Hon. D.W. RIDGWAY: I know some functions have been shifted to DMITRE, but how many are just budget savings?

The Hon. G.E. GAGO: Can you repeat the question?

The Hon. D.W. RIDGWAY: It has decreased by $63 million and you have said that some of them are operational matters and some are machinery of government. I noticed earlier in the Auditor-General's Report that some functions have transferred to DMITRE. How much of that $63 million is transfers to DMITRE and how much is actual PIRSA savings measures?

The Hon. G.E. GAGO: Which two years?

The Hon. D.W. RIDGWAY: From 2011-12 to 2014-15, there is a decrease of $63 million.

The Hon. G.E. GAGO: We are outside the Auditor-General's Report, so which figures within this report are you asking about?

The Hon. D.W. RIDGWAY: I will rephrase the question. On page 1326, I note that total expenditure has dropped from $203 million to $172 million. I notice that there is some transfer of staff. In relation to employee benefits, that has dropped from $108 million to $90 million, but I am interested to know whether that has dropped just because of transfers to DMITRE or are there some PIRSA budget savings as well?

The Hon. G.E. GAGO: I have been advised that revenue from government has gone down by just over $16 million, $6.4 million of which, I am advised, is attributed to savings and around $10.7 million is attributed to machinery-of-government changes, transferred to DMITRE.

The Hon. D.W. RIDGWAY: I will now jump to page 1349. Under the heading of Employee benefit expenses, I particularly refer to targeted voluntary separation packages payments. I am always interested in these payments in that we lose skills that have been built up over many, many years. The minister may not have the details with her, but can she advise how many scientists, agronomists and technical people were part of that reduction?

The Hon. G.E. GAGO: I am advised that approximately 38 staff accepted packages in the 2012-13-year and only a minority of those—perhaps 10 or fewer—would be scientific staff, unlike the huge cuts to scientists by the current federal government to the CSIRO. I think there are about 400 or 500 cuts to scientists.

The Hon. J.M.A. LENSINK: At page 1814, referring to a contract management framework for the renewable energy and operations and management of the desalination plant, the report in one of the dot points says that 'significant changes were required to incorporate the [Adelaide desalination plant] requirements into that framework'. Can the minister outline what sort of changes were required?

The Hon. I.K. HUNTER: Could you repeat the question?

The Hon. J.M.A. LENSINK: I am reading from page 1814, the second to last dot point, that says there were significant changes to the draft contract management framework for the Adelaide desalination plant in relation to operation and management and the renewable energy contract. I was just wondering if the minister could outline what that means and what level of change is needed to be made.

The Hon. I.K. HUNTER: My advice is, and I hope I get this right, that the contract initially was established to manage a privately-owned plant. However, we have a separate energy contract to manage the electricity at the plant and we needed to make changes to the management framework to allow for efficient use of the electricity during the operation of the plant.

The Hon. J.M.A. LENSINK: So, that is efficiency as in cost or efficiency as in consumption?

The Hon. I.K. HUNTER: Both.

The Hon. J.M.A. LENSINK: Is the minister able to provide more detail about the operations and management contract changes that needed to be made?

The Hon. I.K. HUNTER: The honourable member may want more detail: if she wants more she can come back to me. I understand that the changes at the detailed level of the management contract are because, essentially, the desal plant that we have is a peaking plant, whereas the management contract framework was in fact based on the Riverland 10 plants, which are base load plants. We needed to build more flexibility into the system so that it could be used on/off rather than a base load delivery of water.

The Hon. J.M.A. LENSINK: On the next page, 1815, it refers to procurement practices and issues that have been raised. Can the minister outline whether these are small-scale things or whether they are much larger things, such as the construction of water treatment plants and the like, or whether it is throughout the system?

The Hon. I.K. HUNTER: I understand this issue mentioned in the report does not go to the actual contracts, whether they are small or large: it is about the governance of the contracts, how they are managed and the use of probity auditors on all our contracts.

The Hon. J.M.A. LENSINK: Page 1818: so we are onto income now and we have it nicely spelt out how much the income has been increasing, courtesy of water and wastewater charges. The community services obligations, however, have been reducing. Can the minister explain why that is the case?

The Hon. I.K. HUNTER: My advice is that we need to make up the difference between revenue received and the cost of providing services. We are basically talking about the gap between income and cost. As income has gone up the gap has reduced and hence the difference.

The Hon. J.M.A. LENSINK: I know that involves the subsidy for country customers but where in the scheme of things does the CSO part 4 concession fit in? Is that in this bit as well?

The Hon. I.K. HUNTER: I guess the short answer is yes. The CSO payments, of course, match the level of concession. When the government puts up concessions then the CSO also goes up.

The Hon. J.M.A. LENSINK: Water usage: the table on the top of page 1819 shows that—I assume these are done in financial years—water usage is expected to exceed 190 gigalitres. Is that correct?

The Hon. I.K. HUNTER: The amount, I suppose, is the amount that is the agreed basis used by ESCOSA in the pricing order. It is a little bit early to tell how close we will get to that estimate but my advice is that currently we are running just below, a fraction below, and so it seems like it may well be a very good guess.

The Hon. J.M.A. LENSINK: Can you be more specific than just 'a fraction'? Can you give us a percentage?

The Hon. I.K. HUNTER: My maths is not that good but it would be in the order of a couple of gigalitres.

The Hon. J.M.A. LENSINK: So what is likely to happen to water prices in the following financial year if that target is not reached?

The Hon. I.K. HUNTER: I am advised that it should have no impact. The water prices have been set by the agreement with ESCOSA and my understanding is that the agreement stipulates that water prices will go up by around CPI.

The Hon. J.M.A. LENSINK: Still on SA Water, page 1821, we are on to expenses now. The first dot point refers to increased borrowing costs. I assume that is referring to additional interest payments as well. Can the minister advise how much that interest payment would have increased in the current financial year as a result of those increased expenses of some $343 million?

The Hon. I.K. HUNTER: I think, taking advice, that this is probably more of an estimates question than an Auditor-General's question, but essentially our borrowings have gone up due to our capital investment program. There is no surprise there.

The Hon. J.M.A. LENSINK: A different issue but still on expenses: there is a dot point that refers to the increase in employee benefits due to additional staff hired between 2009 and 2012 due to water restrictions, drought initiatives, capital and operational projects. Can the minister explain what sort of tasks those staff would have been doing but that are no longer required, I assume?

The Hon. I.K. HUNTER: My advice is that the additional staff are mainly in the area of capital programs and water conservation programs. For instance, our capital spend went from about $120 million up to $900 million a year at its peak, so I guess those staff are required to work with that increase in capital spending. Also, in addition to our water conservation program, we had additional staff in the water call centre dealing with extra inquiries and permits that were requested for exceptions to restrictions—for instance, watering of newly laid lawns, etc.

The Hon. J.M.A. LENSINK: There is an item which I assume is new, which is $16 million that SA Water pays to, it says, 'the responsible government agency'. Can the minister advise which agency that is, what this particular payment is called and the rationale for it?

The Hon. I.K. HUNTER: My advice is that $16 million payment goes to DEWNR. It is the water planning and management charge that used to go to the department for water. Now it goes to the amalgamated DEWNR. It is for the policy functions that they undertake in terms of water resource planning and water allocation.

The Hon. J.M.A. LENSINK: Does that planning apply across the state, or is it just to the regions that are covered by the SA Water network?

The Hon. I.K. HUNTER: My advice is that it is comprised of the proportion that can be attributed to SA Water activities.

The Hon. J.M.A. LENSINK: Moving on to page 1826 or thereabouts and pricing issues, I understand that ESCOSA is undertaking a review of water and sewerage charges at the moment. I appreciate that it is probably within the current revenue envelope that the ESCOSA review is taking place, but does the minister have a view as to what structural changes might come out of that review?

The Hon. I.K. HUNTER: The simple answer is we do not know, but we do know that the ESCOSA review will be looking at the fixed element charge in terms of water billing. They will also be looking at the property base charges for wastewater sewerage, but we really have no idea where ESCOSA will take themselves. It is not our responsibility.

The Hon. J.M.A. LENSINK: Renewable energy certificates for the Adelaide desalination plant: how much do they cost us?

The Hon. I.K. HUNTER: My advice is that that figure is commercial in confidence.

The Hon. J.M.A. LENSINK: On page 1828, there is a little table for the current 2013-14 financial year through to 2015-16. The drinking water retail services is $778.7 million for those three financial years. On what basis is that figure static? It is the same number for each financial year.

The Hon. I.K. HUNTER: My advice is that figure is in nominal terms and it has not been inflated year on year by CPI.

The Hon. J.M.A. LENSINK: So what will happen in the forward years if the consumption is less than 190 gigalitres a year?

The Hon. I.K. HUNTER: My advice is that SA Water would bear the costs incurred during the regulatory period but there will be an opportunity in the next pricing regime to reflect that next determination of the costs that were borne.

The Hon. J.M.A. LENSINK: The item that appears once again is the crown land based information. Can the minister explain why this project continues to appear in these papers and what the long-term plan is?

The Hon. I.K. HUNTER: My advice is that the Auditor-General's Report comments that the department has not been able to formulate suitable methodology for determining the value of unalienated crown land. I am advised that a methodology for evaluating unalienated crown land was not progressed substantially during the year 2012-13 due to the process of the restructure being undertaken throughout the year both to merge two former agencies into the current department and integrate NRM boards. We set a different priority, I guess.

It is also important to note that during 2012-13 the Department of Planning, Transport and Infrastructure commenced a two-year project to replace the Land Ownership and Tenure System (LOTS) with the South Australian Land Integrated System (SALIS). This new system will capture more accurate information for all land ownership in South Australia, including crown land. I am advised that this project is currently scheduled to be completed in December 2014. The department is being consulted in finalising the new system.

The Hon. J.M.A. LENSINK: Referring to page 545 in relation to purchase cards, clearly there has been some misuse of those and the Auditor-General's Report advises that purchase cards may be suspended or cancelled. Can the minister advise whether that has taken place under any circumstances, and how many cards have been suspended or cancelled?

The Hon. I.K. HUNTER: My advice is that none have been cancelled or suspended to this point. We are in the process of updating our policies and procedures and undertaking training for staff around these issues.

The Hon. J.M.A. LENSINK: Regarding the Coorong, Lower Lakes and Murray Mouth projects, some $118 million is to be expended to 2015-16.

The Hon. I.K. HUNTER: Sorry, what page?

The Hon. J.M.A. LENSINK: Page 551. Can the minister advise what the status is of that particular project, and are some of these projects depending on the Lake Albert salinity scoping study?

The Hon. I.K. HUNTER: I do not really have sufficient information before me to answer that question, but I will take it on notice, if the honourable member is happy.

The Hon. J.M.A. LENSINK: Chowilla would come under the Murray Futures project, I assume. Similarly, if the minister is able to take on notice as to where the Murray Futures funding is at and how much has been expended to date, particularly in relation to the water buyback from willing sellers. Does the minister have that information available?

The Hon. I.K. HUNTER: No. My advice is that I will need to come back with further detail on that one.

The Hon. J.M.A. LENSINK: That is all I have on DEWNR.

The Hon. I.K. HUNTER: The EPA is next.

The Hon. J.M.A. LENSINK: I refer to page 511. There was a decrease in tonnages processed during the 2012-13 financial year. Can the minister explain why that took place?

The Hon. I.K. HUNTER: My advice is that this is a trend that we are currently observing. We believe that it probably affects the general economic activity in the state. There is a decrease across the commercial and residential sector, but it has been a recent trend and we are watching it and waiting for it to tick up again.

The Hon. J.M.A. LENSINK: You are optimistic, but you cannot guarantee that it will return to previous levels. So what does that do to—and this may well be a budget question—the anticipated fund amount for the Waste to Resources Fund?

The Hon. I.K. HUNTER: My advice is, in fact, that tonnage going down is a good thing. We actually budget, I am told, for the impact of our regulations to bring down the tonnage. That is the whole point of trying to reduce the amount of waste that goes to landfill. So it is budgeted for, as is generally the case, and at this point in time it will have no real dramatic impact.

The Hon. J.M.A. LENSINK: I was asking you a financial question, not a policy question about whether we think that less landfill is a good thing or not. Under the Waste to Resources Fund, on page 513, it advises that there is $43.7 million in that fund. What does the government anticipate will be in that fund at 30 June 2014? In other words, how much does it expect to expend?

The Hon. I.K. HUNTER: Mr Chairman, try as I might and strain as I can, I cannot see that that is an Auditor-General's question.

The Hon. J.S.L. DAWKINS: Mr Chairman, I spoke to the Leader of the Government earlier about possibly asking a couple of brief questions. I realise she no longer has her officers here, so in the very short period of time remaining I would like to get them on the record.

The CHAIR: You have 35 seconds.

The Hon. J.S.L. DAWKINS: In relation to the Branched Broomrape Eradication Program Ministerial Advisory Committee, I understand that whole scheme is now one of control rather than eradication. I would like to clarify why the members of that committee are all listed as having retired when the actual committee has not been listed as disbanded, as is the case with some other committees or advisory panels.

The Hon. G.E. GAGO: My understanding—as reported and spoken about in this place previously—is that a federal assessment was made that we could no longer feasibly look to eradicate branched broomrape, so we shifted to a management program. Therefore, the committee structure established as part of the eradication program is no longer functional. That is my understanding. It no longer operates.

The Hon. J.S.L. DAWKINS: Will the minister advise whether or not the committee will actually be disbanded, as listed for some other previously disbanded bodies?

The Hon. G.E. GAGO: My understanding is that it will be disbanded; however, I will double-check that. I am happy to take that on notice and bring back a response.

The CHAIR: The examination of the Auditor-General's Report is concluded.