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House of Assembly - Fifty-Third Parliament, Second Session (53-2)
2017-10-31 Daily Xml
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Auditor-General's Report

Auditor-General's Report

The Hon. J.R. RAU (Enfield—Deputy Premier, Attorney-General, Minister for Justice Reform, Minister for Planning, Minister for Industrial Relations, Minister for Child Protection Reform, Minister for the Public Sector, Minister for Consumer and Business Services, Minister for the City of Adelaide) (15:59): I move:

That standing orders be and remain so far suspended as to enable the report of the Auditor-General for the year ended 30 June 2017 to be referred to a committee of the whole house and for ministers to be examined on matters contained in the report in accordance with the timetable as distributed.

Motion carried.

In committee.

Mr PEDERICK: I refer to page 336 of Part B: Agency Audit Reports, regarding PIRSA. On that page, the Auditor-General notes that PIRSA's internal audit plan had not been updated, and as such the current risks and priorities of the department were not reflected in the current plan. Resources may be directed at internal audit projects that are no longer a priority. PIRSA has responded that the chief executive, as at July 2017, was considering a draft plan which stretches to June 2020. Can the minister outline the risks and priorities which are current to the department and had not been documented in a current plan, assuming they are now part of the draft?

The Hon. L.W.K. BIGNELL: I thank the member for Hammond for the question. I am advised that PIRSA acknowledges the audit finding but had in fact redirected its resources to undertake internal audits and reviews which were deemed to be of a higher priority. This was noted by the audit team which reported that PIRSA delivered a number of critical internal audit reports during 2016-17. An updated three-year internal audit plan is now in place for the period 2017-18 to 2019-20.

The internal audit plan documents both the internal and external resourcing requirements necessary to deliver each audit activity. PIRSA undertook its most recent review of risk assessment during October 2017. The review has confirmed the internal audit plan is current and aligns to address key risks and controls applied across the agency. PIRSA will continue to actively manage its internal audit program and monitor and review the resources applied to the program to ensure deliverables are met.

PIRSA's independently chaired Audit and Risk Committee recommended a draft three-year rolling internal audit plan from 2017-18 to 2019-20 at its June 2017 meeting. After consideration by PIRSA's executive committee, the internal audit plan was approved by the chief executive in September 2017. This plan details a scheduled audit activity is necessary to provide an independent assessment of the effectiveness of controls and treatment plans assigned to PIRSA's risks, compliance and completion of key performance indicators, as detailed in PIRSA's policy procedures, guidelines and standards, and PIRSA's compliance with legislative obligations such as Treasurer's Instructions, agency-wide and divisional activities and programs to deliver PIRSA's key objectives, as defined in the PIRSA corporate plan. PIRSA has either commenced or completed each scheduled audit activity as per the internal audit plan since its approval in September 2017. To date, this totals seven audit activities.

Audits and reviews completed during 2016-17 include the monthly purchase card exception reporting; the lower value procurement review; fraud and corruption process and toolkit; digital information security; privileged account review; the Regional Development Fund; business continuity plans, including state disaster preparedness and response, returned to the senior executive management council; the risk management review; policy procedure and guideline framework; conflict of interest declarations; financial management compliance program; use of departmental vehicles; and attractive items. That is across PIRSA and SARDI.

Mr PEDERICK: Has the minister received any advice on what resources have been injected into projects which were no longer a priority?

The Hon. L.W.K. BIGNELL: There were none that were no longer a priority.

Mr PEDERICK: In regard to the revised internal audit plan, has the department obtained final sign-off from you on that?

The Hon. L.W.K. BIGNELL: I am not required to sign off on that. That was signed off by the chief executive and the chair of the audit committee.

Mr PEDERICK: Again on page 336 the Auditor-General has concerningly identified that PIRSA has no central legislative compliance framework. Essentially, this means that the different divisions of PIRSA are not working in unison to identify, manage and meet legislative obligations on the department. The Auditor-General has noted that this could have resulted in ineffective application of resources to meet legislative responsibilities and, more seriously, a risk of noncompliance, which could lead to litigation and subsequent losses to the department. My first question is: has the minister received any advice on how many resources have been wasted on such ineffective application?

The Hon. L.W.K. BIGNELL: I am advised that there was not any ineffective use or waste of resources. I am advised that audit did not identify any instances of noncompliance but was suggesting improvements to existing control mechanisms. PIRSA has commenced a review of the issues identified by the Auditor-General and is on track to complete this in line with the time frame advised to the Auditor-General at the time of the audit.

PIRSA's new framework will ensure a consistent and coordinated approach to managing compliance with the legislation that PIRSA must comply with. The framework will include an overarching legislative compliance policy and details of how PIRSA will integrate governance frameworks such as policy and procedure development and review, risk management, and internal audit and compliance testing. Significant work has been completed, and a draft legislative compliance framework is planned for consideration by PIRSA executive in November 2017, with a finalised framework and associated policies planned for consideration by the PIRSA Audit and Risk Committee in December 2017.

Production of the framework has incorporated the full review of current legislative obligations, consideration of systems and practices used across other government agencies for the monitoring and notification of key legislative changes and the development of a new policy to formalise the PIRSA legislative compliance framework.

Mr PEDERICK: Has the department sought legal advice on potential legislative failures which may have occurred throughout the period and associated legal consequences?

The Hon. L.W.K. BIGNELL: I have been advised that there was no identification of noncompliance within the legislation, so therefore no legal advice was required.

Mr PEDERICK: On page 337, the Auditor-General talks about general revenue contracts signed by SARDI employees which did not meet the definition of research and development contracts and which were signed under the R&D contract delegation. Could the minister clarify, perhaps by way of example, the distinction between general revenue contracts and R&D contracts?

The Hon. L.W.K. BIGNELL: I am advised that the auditors did not identify any inappropriate or adverse financial implications as a result of a small number of revenue contracts being signed with reference to the research and development contract authority, rather than a general revenue contract authority.

To address this issue, and to eliminate any potential ambiguity moving forward regarding revenue contracts, I am advised that the distinction between R&D contracts and what had previously been considered general revenue contracts—for example, diagnostic service provision, infrastructure use or consultancy services—has been removed. This has been done by consolidating revenue contracting authority into a single revenue contracts category within the agency's financial authorisations list.

Revenue contract authorisations have been reviewed and revised for select senior managers at SARDI as part of the 2017-18 financial and procurement authorisation review process that was undertaken with effect from 1 July 2017. The importance of diligence in exercising contracting authorities has been reinforced with those senior managers with revenue contracting authority. In the interim period, from the time of the audit finding in mid-April 2017 until the new authorisation list took effect from 1 July 2017, a direction was given that if any non-R&D revenue contracts needed to be signed they were to be forwarded to a PIRSA officer with the appropriate delegation.

One of the revenue contracts identified by the auditors was with the commonwealth Department of Defence for the hire of the SARDI Ngerin research vessel on a fee-for-use basis. This was for the Department of Defence to undertake their own field research activities. This is an example of one of a small number of revenue contracts raised by audit that did not meet the criteria for R&D services that were signed by officers using the now superseded R&D contract authority as a reference.

Mr PEDERICK: In regard to these contracts and the distinction between general revenue contracts and R&D contracts, the Auditor-General has noted that the failure may have resulted in PIRSA entering into revenue contracts that did not meet its own objectives. Could the minister provide some details around these objectives and whether any specific contracts have been identified that were signed off on and did not meet those objectives?

The Hon. L.W.K. BIGNELL: I have been advised that there were no contracts entered into that would not have been part of normal business for the agency.

Mr PEDERICK: At the bottom of page 337, the Auditor-General noted that manual accounting journals need to be independently checked to assure their accuracy before they are submitted to Shared Services. The Auditor-General tested a sample of 10 out of a total of 30 of PIRSA's manual journals and there was no evidence of any being independently reviewed. Can the minister give a general explanation of the nature of items included in that manual journal?

The Hon. L.W.K. BIGNELL: I am advised that this is a minor administrative matter for which the audit team acknowledged that there were no inappropriate journal adjustments identified. While the reviewer was copied into the email that was forwarded to Shared Services for processing the journal adjustments, there was no other evidence to indicate whether the review had been undertaken.

The relevant staff have been reminded of the need to ensure there is evidence of a review being undertaken. This is primarily achieved by the reviewer forwarding the email to Shared Services SA, rather than just being cc'd in by the preparer of the internal journal adjustment. It should be noted that there are other controls in place, in terms of independent reviews of general ledger transaction reports, that also mitigate the risk of inappropriate journals being processed.

Mr PEDERICK: On page 343, the Auditor-General references the Northern Adelaide Food Park project when discussing revenues from the SA government. To date, how much has been spent on the food park?

The Hon. L.W.K. BIGNELL: The state government allocated $1.994 million for the planning and investigations phase of the Northern Adelaide Food Park initiative, and has committed a further $7 million over two years as part of the Northern Economic Plan for tenant attraction to the Northern Adelaide Food Park.

Mr PEDERICK: Has all that funding been expended and, if not, how much has been expended?

The Hon. L.W.K. BIGNELL: The first part has been expended, but the $7 million has not. We are still out in the marketplace talking to potential tenants for the Northern Adelaide Food Park. We have made industry aware that there is $7 million out there to attract businesses to this precinct. Food South Australia and other people in the food manufacturing sector have asked government to try to bring people together into the one precinct. We think it is a good idea for the site at Edinburgh Parks, and we will be working with people who either want to buy their land out there or, if they want a lease, we can also make arrangements through that with Renewal SA. They are working with PIRSA and members of the Economic Development Board and Food South Australia to make sure that we can come up with the very best precinct for the Northern Adelaide Food Park.

Mr PEDERICK: How much was spent on the former proposed site prior to relocating to the Edinburgh Parks site?

The Hon. L.W.K. BIGNELL: That figure was given during estimates, so it is on the public record. As I said, $1.994 million has been expended to this point. A lot of that money has been put into things that were relevant to both the Parafield Airport site and the Edinburgh site that have been identified mainly by people who want to own a part of a potential food park. The Parafield site did not allow people to do that, given that the airport itself is leasing that airport land on a long-term lease from the federal government, so it was not possible to be able to sell bits of Parafield Airport to potential manufacturers who wanted to move into the Northern Adelaide Food Park and buy their own land.

Mr PEDERICK: In regard to that, minister, at what stage is the new park? Have people taken up the option of purchasing land at Edinburgh Parks?

The Hon. L.W.K. BIGNELL: Not yet, member for Hammond. As I explained, that $7 million is there. There are some very good negotiations going on with three companies at this stage. As I mentioned before, it is quite a collaborative approach by government and the private sector. We have members of the Economic Development Board working with executives from PIRSA, as well as Renewal SA staff and the board of Renewal SA.

Renewal SA owns a big chunk of land at Edinburgh Parks and there are other parcels nearby that are privately owned. It has the potential to grow into quite a big park over many years, but it can be done in a modular way as companies decide to join up and bulk up, if you like, around a precinct that can have not only food manufacturing but great logistic services, packaging services and testing to make sure that food is safe as well.

There are a whole range of things that can be done in this precinct, but we are very much at the foundation days at the moment. We are looking for the right anchor tenants to get them on board, and from there we will see it grow. It is a bit like what has happened at Tonsley, where we had to get the initial tenants in there, and now it has become a very popular place to move in. We see what that has done for the high-tech manufacturing sector on the Tonsley site in the south of Adelaide. We think we will see this—and this is our hope and desire—in the future for food manufacturing.

Food manufacturing is one of the only sectors that has grown in South Australia year on year for 19 years in a row. It is a really important sector, as you would know, member for Hammond. The whole agribusiness sector employs one in five working South Australians and is worth around $19.6 billion to the South Australian economy. This is something that Food South Australia and their members really wanted, so we will continue to work with them and make sure that we have anchor tenants in there as soon as possible, and then we will see it grow from there.

Mr PEDERICK: I want to refer to the South East Forestry Partnerships Program. On page 345, under Administered Items, it is noted that PIRSA received $4 million from the South Australian government in order for the South Australian Forestry Corporation to execute its 'community service obligations'. Can the minister provide some detail on these community service obligations, particularly in light of the privatisation of the forests? How did the sale affect those obligations?

The Hon. L.W.K. BIGNELL: The South Australian Forestry Corporation, trading as ForestrySA, operates under a charter to provide commercial forest management services on behalf of the South Australian government. The charter also mandates a range of community service obligations (CSOs) to cover non-commercial activities which go beyond what Forestry SA would elect to do as a commercial entity.

The government funds these non-commercial activities through Primary Industries and Regions SA, including native forest management, community use of forest reserves, forestry industry development, community fire protection, and management of the Mid North Forests. The provision of these activities is not affected by OneFortyOne Plantations taking over the management of its commercial forests in the Green Triangle from Forestry SA during 2015. Delivery of community service obligations in the Mid North is being revised, as the Mid North Forests Future Strategy is implemented in order to provide ongoing environmental and social benefit in the most cost-effective manner.

The state's forest reserves contain large areas of biodiverse native forests intermingled with the plantation estate. This vegetation is managed to protect its important conservation values via pest, fire and people management programs. The forests at Mount Crawford, Kuitpo, Wirrabara and Bundaleer are used extensively by the community for a range of recreational activities such as camping, dog walking, mountain bike riding and horse riding. These activities are popular in planation areas as the activities are mostly not permitted in state reserves under the National Parks and Wildlife Act 1972.

Funding is provided to support community bushfire protection activities in excess of ForestrySA's commercial requirements. It assists the maintenance of airstrips, stand-by costs for staff during the fire danger season, and response to fires on private property, native forests and other public land. It also funds fuel reduction burning in native forest reserves and fire detection services, including fire towers and aerial detection.

With the Australian government's announcement of funding for a national institute for forest products innovation, PIRSA and ForestrySA are working with the Department of Agriculture and Water Resources to determine collaboration opportunities for the efficient delivery of the forestry industry development program via a partnership with the University of South Australia. PIRSA and ForestrySA regularly review community service obligation programs to ensure the services delivered are contemporary with community needs. The process also seeks budget efficiencies for these activities.

Mr PEDERICK: In regard to the South East Forestry Partnerships Program—I will try to group this up a bit—first, is the minister aware of the change in definition of sawlog used by OneFortyOne Plantations from 150 millimetres to 200 millimetres? Is the minister aware that this change of definition will result in an additional 100,000 tonnes of wood that does not fall into the category of saw log?

The Hon. L.W.K. BIGNELL: Chair, could you ask the member for Hammond what page he is referring to for this stuff about the sawlog?

Mr PEDERICK: It is to do with the South East Forestry Partnerships Program, which is on page 343 through to page 345.

The Hon. L.W.K. BIGNELL: Does that mention log size?

The CHAIR: Can you help us, member for Hammond?

Mr PEDERICK: I am having a look.

The CHAIR: The member for Mitchell might like to ask a question in the interim.

Mr WINGARD: My question relates to page 311. The report talks about the department as far as projects are concerned.

The Hon. L.W.K. BIGNELL: Sorry, are we moving on to sport now? We have the PIRSA people here, so I will have to wait for the sport people to get in here.

The CHAIR: Rather than the PIRSA people leaving, in case we find the log size reference, maybe you could sit in the back.

The Hon. L.W.K. BIGNELL: I do not think the log size is in the Auditor-General's Report.

Mr PEDERICK: On that, it is in reference to the South East Forestry Partnerships Program, which is on page 343. It is a broad reference to the South East Forestry Partnerships Program.

The Hon. L.W.K. BIGNELL: Yes, but there was nothing specific there about log sizes.

Mr PEDERICK: The minister should be aware of log sizes and the implications on the industry.

The Hon. L.W.K. BIGNELL: Yes, but we are here to discuss the Auditor-General's Report.

Mr PEDERICK: Yes, and it is directly related to forestry.

The Hon. L.W.K. BIGNELL: The Auditor-General has not referenced log sizes.

The CHAIR: It is a bit tangential, unfortunately, member for Hammond. Member for Mitchell, what is your question?

Mr WINGARD: My question is in relation to page 311, as I said. There was work done to arrange a better process for assessing projects on the pathway through DPTI. I wonder, from a sporting perspective, what the wash-up was and what plans will be implemented in the future to ensure there is a measure on projects that are done?

The CHAIR: That is the dot point on procurement and contracting, is it?

Mr WINGARD: Yes.

The CHAIR: You are in the middle of page 311; is that right?

The Hon. L.W.K. BIGNELL: I think at the bottom. Because that is a reference right across all of DPTI, I cannot speak for all of that, but are you referring to grants?

Mr WINGARD: No, it is more the facilities funding. Yes, fundamentally it would be through grants.

The Hon. L.W.K. BIGNELL: I think we might actually be comparing something with something different here.

Mr WINGARD: So it is a separate part of DPTI is what you are saying?

The Hon. L.W.K. BIGNELL: Yes, I think so.

Mr WINGARD: So when they did not accept it on DPTI—

The Hon. L.W.K. BIGNELL: We got a clean bill of health for our bit. I cannot speak for the rest of DPTI, but the grants program was given a clean bill of health. Most of the projects that we are involved with are in terms of a fund provider. We usually work in collaboration, as you know, with local sporting associations or sporting groups. We do not build things ourselves; we help facilitate that and give money to groups who are building things.

Mr WINGARD: The report states that across DPTI there was not a consensus, if you like, of ways of analysing that and determining who gets funding for which projects. I am asking from a sports perspective whether any work was done to look at that to determine, in the grant allocation for projects, which projects were selected over others.

The Hon. L.W.K. BIGNELL: I thank the member for the question. I think it might be a question better directed towards the Minister for Transport and Infrastructure. As I said, we have a small component of it, and the area that we have has been given a tick. I have not looked at what the Auditor-General said about other parts of the department.

The CHAIR: Unfortunately, the time has expired for the examination of your areas, minister, so we thank you and your advisers and ask the Minister for Investment and Trade and all those other things to bring his advisers in as quickly as possible. The member for Mitchell is leading off. Could you let us know what page you are looking at?

Mr WINGARD: Part B of the Agency Audit Report, Department of State Development, page 455.

The CHAIR: And which part are you going to be looking at?

Mr WINGARD: Page 455. I just want to reference the $13 million DSD provided to the Our Jobs Plan. Can the minister outline which programs he is responsible for?

The Hon. M.L.J. HAMILTON-SMITH: Which volume are you referring to?

Mr WINGARD: Part B.

The CHAIR: The Audit Agency Report is part B. The member is looking at page 455.

The Hon. M.L.J. HAMILTON-SMITH: My agencies are dealt with in Volume 2 and Volume 5 of—

The CHAIR: It is a bit like when we do the budget. There is a big document, and if he can draw some sort of tangential line into Volume B—do you have a Volume B, or would you like one?

The Hon. M.L.J. HAMILTON-SMITH: No, I do not have Volume B.

Mr WINGARD: I refer to the last paragraph.

The Hon. M.L.J. HAMILTON-SMITH: Can you repeat the question?

Mr WINGARD: I will repeat the question; I am happy to do so to help out the minister. It states:

Industry, innovation, science and small business grants include payments for the Our Jobs Plan program totalling $13 million, of which $5 million was a payment for the Next-Generation Manufacturing Works project.

Of the $13 million DSD provided to Our Jobs Plan, can the minister outline which programs he is responsible for?

The Hon. M.L.J. HAMILTON-SMITH: I am advised none of those.

Mr WINGARD: Again, just to seek clarification, the paragraph states:

Industry, innovation, science and small business grants include payments for the Our Jobs Plan program totalling $13 million…

You are not responsible for any of those small business grants?

The Hon. M.L.J. HAMILTON-SMITH: The arrangement with DSD is that there are, I think, five ministers who cross over DSD. There is a basket of grants and programs that is managed by this very large department, reporting to different ministers. None of the grant programs listed as Our Jobs Plan, totalling $13 million, is administered or managed by me. Minister Maher is responsible for those particular programs. They are not regarded as small business portfolio programs. The $5 million payment to the Next Generation Manufacturing Works program is again managed by another minister, so none of those particular programs referred to on the bottom of page 455 is managed by me.

Mr WINGARD: For clarification, is 'industry, innovation, science and small business grants' potentially a typo, or are there other small business grants that come under other ministers, not the small business minister?

The Hon. M.L.J. HAMILTON-SMITH: There is a division within DSD that deals with industry, innovation, science and small business grants. That is the section within DSD. Industry is minister Maher, innovation is minister Maher and science is minister Maher. Some small business grants come to me if they are specifically allocated to the small business portfolio, but there are some other grants that could be characterised as small business and go to small businesses but from other sources. The particular paragraph at the bottom of page 455 to which you refer does not include any amounts managed by me.

Mr WINGARD: This is getting confusing, and I apologise, but I am trying to seek clarification because, as you said, DSD goes through a lot of ministers. Still on page 455, the first paragraph under 'Other grants' states:

Other major categories of grants include skills and employment grants of $47 million ($44 million) and industry, innovation, science and small business grants of $42 million ($29 million). These grants generally include specific milestones or deliverables that are monitored by DSD.

What measurables is the minister responsible for, how are these milestones monitored and what is the process of reviewing these grants? The precursor question is: are you responsible for any of these small business grants?

The Hon. M.L.J. HAMILTON-SMITH: There are three funds that come under my portfolio: the small business job creation fund, the $10 million fund that was first announced in the budget before last; the Centre for Business Growth, which is an amount of $1.395 million mentioned in the Auditor-General's briefing; and a further small business initiatives fund, which is principally money allocated to Business SA, which is managed by me. The others are managed by other ministers.

Mr WINGARD: I asked about the milestones, the monitoring and the measurables. Do you have any records there?

The Hon. M.L.J. HAMILTON-SMITH: Firstly, on the small business initiatives, which is the money principally provided to Business SA, we have a signed written agreement with Business SA on how that money will be managed, and they have to report in accordance with certain KPIs set out in that written agreement.

There is the small business job creation fund, which I receive a weekly report upon every Monday. That report indicates to me how many applications have been received, how many grants have been made, the criteria upon which they have been addressed, how many jobs have been created and what outcomes have been delivered as a consequence of those grants. I get that weekly, and there is quite an elaborate table.

Each recipient of a grant under the job creation fund has a written agreement with the government that requires certain KPIs and certain outcomes to be reported as a condition for the receipt of that loan. The Centre for Business Growth is reported quarterly and, again, a list of KPIs and outcomes are contained in that quarterly report. Those three funds are the ones that come to me.

Mr WINGARD: Are those reports made publicly available?

The Hon. M.L.J. HAMILTON-SMITH: We do not post them up on a website or specifically report on them as individual funds. However, we will be making a small business statement later this year, which is a fairly thorough written report on all that has occurred in the preceding year. That will include a summary of what has happened in regard to those funds, and they are available for a briefing. If the honourable member would like a briefing on each of those funds, I would be more than happy to provide it. Mr Reid, who is with me, would be very happy to explain to you how they work, what has been happening with them, and if you would like that briefing I will ask him to contact you and offer it.

Mr WINGARD: Thank you.

Mr WHETSTONE: I refer to Volume 5, page 91, overseas representative offices. Minister, can you provide a breakdown on cost to operate our overseas trade offices, and can you also give us the number of staff in each of those offices—two I presume that is.

The Hon. M.L.J. HAMILTON-SMITH: We do not have many dedicated overseas offices because, as a result of the Hartley review, we really found them not to be cost effective, but we do have a dedicated office in London. The Department of the Premier and Cabinet funds that office, the Agent-General's office, while the Department of State Development funds international representatives to support the implementation of our strategies, generally through Austrade, in other locations.

We do have a dedicated office in Jinan, which is a stand-alone office, and that is our office in China. So we have dedicated offices in London and in China. The cost of the Jinan office in 2016-17 was $296,000; in 2017-18, it is expected to be $320,000; and, in 2018-19, $326,000. We also have embedded offices in Shanghai; they are with Austrade. They are an office, if you like; they are an officer.

Mr WHETSTONE: No, I just want the stand-alone offices.

The Hon. M.L.J. HAMILTON-SMITH: That is China, which I have mentioned, and Great Britain.

Mr WHETSTONE: Minister, what is the reason for the reduction in operating expenses from 2016 to 2017? It is only a small amount, but there is a reduction.

The Hon. M.L.J. HAMILTON-SMITH: Can you give me a budget line or an Auditor-General's line for that because I have it as an increase.

Mr WHETSTONE: It is in operations 11, overseas representative offices, operating expenses.

The Hon. M.L.J. HAMILTON-SMITH: Which page? Volume 5, page 91, is it?

Mr WHETSTONE: Yes.

The Hon. M.L.J. HAMILTON-SMITH: You are talking about section 11, operating expenses. You are saying that from 2016, $569,000 to $524,000. I can get back to the member with an explanation, but the quick advice from my office is that some years before, I think in 2015, the government decided to close the full office it maintained in Shanghai. That office—and the Hartley review commented on this—was not effective. We closed that office, resulting in some reductions in expenditure, which flowed over into 2016.

I think it was a flow-over effect from 2015 where we had a full office in Shanghai. It was not performing effectively, so we closed it, resulting in a drop in expenditure. We have since reconstituted an office in China, in Jinan, and you will probably see that figure bounce up a little bit in 2018.

Mr WHETSTONE: You said that you closed the office in Shanghai in 2015, so how many staff did you have in the office at the time it was closed?

The Hon. M.L.J. HAMILTON-SMITH: This was long before my time, so I am not aware of all the details, but I visited that office as the shadow minister for trade. It had a—

Mr WHETSTONE: You have been the minister since 2014, yet you said you closed it in 2015.

The Hon. M.L.J. HAMILTON-SMITH: I think it was before that. It was closed when I became the minister, so I think it might have been 2013. As I said, we will get back to you on that; it might have even been 2012. There were some flow-on issues with the closure in regard to the payment of entitlements and so on. I will ask the agency to give you a full briefing or prepare a fulsome answer. My recollection is that there was a gentleman we had hired there as a chief representative and I think three or four other permanent staff. There was a residence and a full office. It was quite expensive. I understand it was decommissioned prior to the last election because it was certainly gone by the time I became the minister.

The CHAIR: The leader has questions in another area; is that correct?

Mr MARSHALL: Yes. I would not worry about changing around advisers because I am not 100 per cent sure whether you are the person to ask, but it is covered off in the Auditor-General's Report regarding Defence SA.

The CHAIR: What page are we on?

Mr MARSHALL: Page 105, Part B. It is to do with the sale of Techport. My question is simply—you do not need to turn to it as it is just a procedural question—who was responsible for negotiating the deal with the commonwealth for the sale of Techport? Can the minister make some comments regarding why the Auditor-General has made a comment in his report that the sale price represented a reduction in what was called the fair value of these assets of $11.5 million?

The Hon. M.L.J. HAMILTON-SMITH: Yes, I can reply to that. I was responsible for negotiating the matter and I appointed the CE of Defence SA and the CE of DPC to deal with that matter at an officer-to-officer level. The independent advice obtained by the Auditor-General advised that these assets should be reclassified as assets held for sale. They include the Common User Facility, the expansion land, the Maritime Skills Centre and certain land parcels.

The book value of these assets at 31 May 2017, I am advised, was $241.525 million. The consideration payable by the Australian government is $230 million, resulting in a loss on revaluation of $11.5 million. The impact of this reclassification can be explained as follows: the effects of the sale were recorded in the 2016-17 financial year, instead of 2017-18; an impairment loss of $11.5 million occurred; and reduced depreciation of $0.4 million, and that was an improved operating result. The budget effects of this sale, which were expected in the 2017-18 financial year, had the reclassification not been required would have been donated assets comprising land purchased from Renewal SA of $3.6 million, six months' depreciation of the Common User Facility at $3.6 million and a loss of disposal of assets of $4.5 million.

In overall terms with this negotiation, the commonwealth originally put to me that they wanted the land for free: they were doing us a favour, and we should simply hand it over, and that was our contribution. I took the view, and the government took the view, that this was the South Australian taxpayers' money and that there should be a transfer between the two governments. We went in and negotiated hard, and I must give credit to the two chief executives, particularly Don Russell, who was superb during this.

The net result was that we got a very good outcome for South Australian taxpayers, which included, by the way, certain infrastructure works that we are required to do down there. But to not only get the benefit of the work but also enable the South Australian taxpayers to get their money back was an absolute coup for the government. I remember when the government first took this to the parliament some time ago, realising it was a fairly bold and courageous move and that there was no guarantee that we would win either the air warfare destroyer or subsequent work at the time. This could have finished up being a white elephant.

Gracefully, that is not the case. Not only is it not a white elephant, it is going to be a vibrant, thriving shipyard, and the South Australian taxpayers have their money back and the benefits of all the work. I must say that it has been a pretty superb bit of work from the government officers involved and all who took part.

Mr MARSHALL: On a supplementary, given that the book value the minister has just indicated was $241.5 million, how did he settle on $230 million? What was the rationale for settling on $230 million?

The Hon. M.L.J. HAMILTON-SMITH: I think basically that was the best deal we were going to get in a fairly—

Mr Marshall interjecting:

The Hon. M.L.J. HAMILTON-SMITH: I think we did superbly. Considering that the opening ambit from the commonwealth was zero and they wanted it gifted—

Mr Marshall interjecting:

The Hon. M.L.J. HAMILTON-SMITH: What the leader will find, if he is in government, is that negotiating with the commonwealth is a little bit like root canal therapy. You give some, you take some; it is like any other negotiation. I must say that the commonwealth at the end of the day was pretty reasonable. They could have driven a harder bargain with us. They could have turned around and said, 'If you don't want to hand that asset over for free, we'll go and look elsewhere, or we'll move some of the work—' for example—'that was booked in at your shipyard to somebody else's shipyard, like WA'. They could have said, 'We'll build all of the patrol vessels in WA, or we'll build half the frigates in WA and half the frigates in Adelaide.'

There are a number of devices the commonwealth could have used to be quite difficult. I think at the end of the day they were pretty fair about it. We landed on that value. It is not far off the mark, I have to say. We had an opening position. It could have been far worse for the South Australian taxpayer, so I think Mr Russell and Mr Keogh did a pretty good job of getting an outcome for South Australians.

Mr MARSHALL: Did the minister put forward the number of $230 million to the commonwealth, or did he start at $241.5 million and was beaten down by the commonwealth?

The Hon. M.L.J. HAMILTON-SMITH: I am not going to go into the details of those negotiations. They were essentially between the commonwealth and the South Australian government, so I do not want to go into that commentary. The detailed work was actually done by the two chief executives, because it was really done between very senior federal and state government officials. They had to work through all of the issues. As I said, I must give credit to Mr Russell in particular, who played a very significant role in getting that fantastic outcome for us.

There were quite a few things on the table—for example, access to the site for non defence-related work, should it be needed, at some point in the future.

Mr MARSHALL: That is incorporated into the contract?

The Hon. M.L.J. HAMILTON-SMITH: Yes, there is a—

Mr MARSHALL: It is in the contract?

The Hon. M.L.J. HAMILTON-SMITH: Well, you have probably seen the contract; there is a clause in there about consultation. There can be no guarantees. They will own the land. They are prepared to consult and be flexible on that. There were a range of other variables. There was certain infrastructure work that needed to be done at the site that they wanted us to do. There was certain support they needed from us, certain other considerations. In the overall negotiation, that was the outcome.

I can tell you that there are not many ministers who can go to the Treasurer with a cheque for $230 million and hand it back. Usually we are going to the Treasurer asking for money. I can lay claim to being the only minister who has taken a cheque of that magnitude to any treasurer probably in living history. It was a really good outcome for South Australians.

Mr MARSHALL: Can the minister confirm to this committee that it was in fact your wish that that be sold to the commonwealth; that was the position you took to cabinet?

The Hon. M.L.J. HAMILTON-SMITH: I took options to cabinet. I am not going to get into cabinet discussions. We have taken a risk by selling the land to the commonwealth, and that risk is that we have diminished our ability to influence what happens down there to some extent by not having ownership of the site. Should a future commonwealth government, of any political persuasion, decide to sell off the site or make radical changes to the ownership structure, we will not be a party to that. There were some—

Mr Marshall interjecting:

The Hon. M.L.J. HAMILTON-SMITH: If you listen I will tell you, instead of answering your own question. There were risks with us selling it, but there were also advantages. In the end, a cheque is a very persuasive negotiating tool, a very powerful negotiating tool. The other point is that I think the commonwealth made a very good argument that, if they were going to make such a significant investment down at that site, they wanted to own it. Frankly, at the end of the day, they were able to convince us all that that was the right thing to do.

In the negotiation, of course, the arrangement for the air warfare destroyer program was that we had ownership of a part of the site and we worked together as partners. Their preferred arrangement, given that the scale of this was much greater, was to have complete control of the site and, on reflection, I think they were right about that. It was a negotiation. There were a range of options that were put on the table and ultimately I was able to take back to cabinet a recommendation to accept their offer of $230 million, which is what I put.

Mr Marshall: They offered $230 million, did you say? You said they offered $230 million.

The Hon. M.L.J. HAMILTON-SMITH: The agreed outcome.

Mr Marshall: It was not their offer of $230 million; it was your offer of $230 million?

The Hon. M.L.J. HAMILTON-SMITH: At the end of the day, that is what was agreed during the negotiation.

Mr Marshall: You said their offer, but it wasn't their offer, was it?

The Hon. M.L.J. HAMILTON-SMITH: I am telling you that is what the parties agreed upon.

Mr Marshall interjecting:

The Hon. M.L.J. HAMILTON-SMITH: Have you ever been involved—

The CHAIR: Order!

The Hon. M.L.J. HAMILTON-SMITH: —in a negotiation?

The CHAIR: Order! I am on my feet.

The Hon. M.L.J. HAMILTON-SMITH: If you have you would know—

The CHAIR: I am on my feet; that means you sit down. If you are going to ask questions, you do need to wait for the minister to finish his response, and you need to stand up. Let's try to restore some order in our last nearly five minutes. The minister has finished that answer. Is there another question?

Mr WHETSTONE: I refer to Volume 5, page 92, commonwealth revenues, under TradeStart. How much is allocated for Tradestart in the 2017-18 year and over the forward years? How much of the contribution towards Tradestart comes from the commonwealth and how much comes from the state?

The Hon. M.L.J. HAMILTON-SMITH: Can the shadow minister tell me what line he is referring to?

The CHAIR: Commonwealth revenues, under grants, third line down, Tradestart.

The Hon. M.L.J. HAMILTON-SMITH: That is $292 million. The agency is not able to give me that split here today, but I will make sure that we follow that up with either a briefing for the member or a response on notice. It is a commonwealth program effectively that we manage on behalf of the commonwealth. We bid for it and we compete for it with others. We have to win that work. We then position people around the state, particularly in the regions, to deliver those services.

We do contribute, but I will take on notice the exact split between the commonwealth and the states. I am just advised that we contribute roughly 60 per cent of that amount and the commonwealth contributes 40 per cent and that the commonwealth regards the arrangements with South Australia as a benchmark for other states in terms of how best to deploy the program.

Mr WHETSTONE: In last year's Auditor-General questions, you stated that four new staff were being appointed in 2016-17 into Thailand, Indonesia, the Philippines and Vietnam. The Philippines and Vietnam positions were never appointed. Why is that?

The Hon. M.L.J. HAMILTON-SMITH: Is that the Philippines and Vietnam?

Mr WHETSTONE: Yes, the Philippines and Vietnam were never appointed.

The Hon. M.L.J. HAMILTON-SMITH: Just to update you, the appointment to Malaysia has been made. It is a very important market. The appointment to Jakarta has been made. It is a very important market. Frankly, in the end we did not have the funding to position a person in the Philippines, although it is a very prospective market and I would like to put someone there. Vietnam is extremely prospective. I have been unable to get the funding to position that person now, but I am taking action to fix that for next year. You are right: I think it would be good if we had people in those two jurisdictions, but the funding in the end was not available for those two positions to be filled.

Mr WHETSTONE: Maybe the Treasurer does not think trade is important enough. On Volume 5, page 71, how much of the income for activity to fees and charges is from trade mission registration fees in 2016-17?

The Hon. M.L.J. HAMILTON-SMITH: I will have to again take that on notice. It is a fairly detailed question, but you raise a good point. When we first started organising these trade missions, we did not charge users for attending. We do now. They have to pay their way. It is not a great deal, but it is in the tens of thousands. I will get an exact figure for the member on notice.

Mr WHETSTONE: Grants and subsidies increased from 2016 to 2017. Can you provide a breakdown of grant program spending for that period?

The Hon. M.L.J. HAMILTON-SMITH: Again, I will have to take that on notice. It is a fairly detailed question, but I am more than happy to do so. If the shadow minister would like a briefing at any time on these issues, I am happy to ensure that it is provided.

The CHAIR: We thank the minister and his advisers.

Progress reported; committee to sit again.

The Hon. M.L.J. HAMILTON-SMITH: I draw your attention to the state of the house, ma'am.

A quorum having been formed:

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