Follow up of Oversight and Accountability of Committees of Management

Tabled: 5 September 2018

4 Governance and appointments

Our 2014 audit found that DEPI needed to significantly improve the governance of CoMs. Specifically, we found that DEPI was not using consistent and sufficiently robust methods to appoint members to higher-risk CoMs, and it was not ensuring that higher-risk CoMs had adequate internal governance processes. We found that probity checks were adequate but not tailored to risk.

4.1 Summary of progress

Figure 4A shows our assessment of DELWP's progress to address the two recommendations from the 2014 audit that relate to governance and appointments, as well as progress against the actions it committed to and updates provided through our annual follow up survey.

Figure 4A
Status of recommendations—governance and appointments

Recommendation

Agency progress

2

That DEPI apply its categorisation framework to develop a tailored and consistent approach to governance processes for CoMs

Incomplete

 

DEPI's committed actions, 2014

 
 

'DEPI has committed to use its revised categorisation framework to develop a tailored and consistent approach to:

  • appointment methods—ensuring that higher-risk CoMs are appointed using a skills-based process, where possible
  • probity requirements—including reducing declaration of private interest requirements for lower-risk CoMs
  • reporting, governance and compliance requirements—this includes assessing whether it should recommend additional higher-risk CoMs become subject to the governance requirements of Divisions 2 and 3 of Part 5 of the Public Administration Act 2004, and considering remuneration for these CoMs.

DEPI is also evaluating the compliance risks posed by CoMs that are appointed on an ongoing basis, and will determine an appropriate oversight mechanism for them.'

  • Some higher-risk (Category 2) CoMs are not using a skills-based appointment process.
  • DELWP introduced a reduced 'declaration of private interests' form for Category 3 CoMs in 2015, although it has not had this reduced probity requirement endorsed by the responsible minister as is required by the Victorian Government's Appointment and Remuneration Guidelines effective 1July 2017.
  • All Category 1 CoMs are now subject to the governance requirements of the Public Administration Act 2004.
 

DEPI Action Plan

'The improved categorisation framework will reduce red tape for smaller CoMs and ensure compliance requirements for larger CoMs are in line with their responsibilities.'

'The department will determine which additional Category A and B CoMs it recommends become subject to Divisions 2 and 3 of Part 5 of the Public Administration Act 2004 under an Order of the Governor in Council.'

'The department will ensure CoMs subject to Division 2 and 3 of Part 5 of the Public Administration Act 2004 are aware of VAGO audit requirements.'

'The department will evaluate the compliance risk of ongoing committees to determine an appropriate oversight mechanism.'

'The department will determine its position in relationship to CoMs that are incorporated associations.'

  • All Category 1 CoMs are now remunerated, and their eligibility for remuneration is clearly communicated in the categorisation framework.
  • DELWP has not reviewed the compliance risks of ongoing CoMs or determined a mechanism to oversee the additional probity risks that can exist with these CoMs.
  • Incorporated associations are no longer required to provide an annual return to DELWP which removes an unnecessary reporting burden but has inappropriately reduced DELWP's oversight of these CoMs.
 

DELWP's response of our 2015 follow up survey

 

'Pursuant to the development of the CoM Categorisation Framework, the department:

  • confirmed the seven CoMs that will be subject to divisions 2 and 3 of Part 5 of the Public Administration Act 2004; and
  • concluded that for most CoMs that are incorporated associations, an adequate governance framework is in place pursuant to the Associations Incorporation Act 2012 (the department will only become involved where there are issues specific to Crown land).'

3

That DEPI review and revise its appointment procedures for skills‑based CoMs to ensure that they are robust and are applied consistently

Incomplete

 

DEPI's committed actions, 2014

 
 

'DEPI has committed to review and revise the procedures it uses to recommend appointment of members to skills-based CoMs, to ensure that they are robust and consistently applied.'

DEPI Action Plan, 2014

Nil

  • DELWP reviewed its appointment procedures which resulted in a flowchart documenting the processes, but it deemed no revisions necessary. DELWP could not provide evidence of the review process.
 

DELWP's response to our 2015 follow up survey

 
 

'Pursuant to the development of the categorisation framework the recruitment methodology for each CoMs (CoM) category has been confirmed. Separately, detailed Visio flowcharts have been developed to guide the consistent application of those processes by DELWP regions.

Other ongoing CoMs (over 90 per cent) are incorporated associations which are subject to a governance framework pursuant to the Associations Incorporation Act 2012 … DELWP's involvement with these CoMs will be confined to issues that are specific to Crown land.'

  • The 'Oversight' chapter of the categorisation framework describes the appointment methods for each CoM category.
  • The appointment flowcharts lack specificity in critical areas such as probity checks.
  • DELWP does not monitor whether CoMs that are incorporated associations are capable of managing their Crown land reserves, though this remains its responsibility.

Source: VAGO.

4.2 Performance improvements

DELWP has tailored its governance and appointment processes to the four categories of CoMs, which has reduced some unnecessary burdens on lower‑risk CoMs.

DELWP has also revised the process for CoMs to declare private interests—in focus groups conducted during our 2014 audit, lower-risk CoMs described the previous process as highly inappropriate and out of step with the risks of their roles, as well as creating a significant barrier to recruiting new committee members. In our survey for this audit, 78 per cent of committee members who were aware of the process for declaring private interests reported it as being appropriate for the risks they manage.

DELWP has removed the requirement for incorporated associations to provide an annual return, which was similar to their annual reporting to Consumer Affairs Victoria (CAV), addressing the unnecessary reporting burden we identified in 2014. However, creating the Category 4 classification also removed all probity checks and DELWP oversight of these CoMs and the reserves they manage, which is inappropriate.

4.3 Impacts

Good governance enables organisations to do their work well. The Australian Institute of Company Directors describes governance as the rules, relationships, systems and processes that management within organisations uses to exercise their authority and control the organisation's operations. It includes the mechanisms used to hold companies and management to account.

In our survey of CoM volunteers, 18 per cent of respondents said their CoM did not comprise the right mix of skills. They also described examples of governance challenges:

  • 'I tried to apply [to join the CoM for many years] but didn't quite know how to go about it.I had spoken to the Secretary but she refused to give me information.'
  • 'Even to this day people have to pay for the minutes of our meetings.'
  • 'I am hoping the new [DELWP] managers will help in getting the controlling dysfunctional committee to work with the community and not for their own self-interest. DELWP are going to teach us how to hold forums with the community and lots of other interesting things which sounds reassuring.'
  • 'There are five committee members. The Treasurer is resigning, I am currently the Chair and Secretary because no one was willing to take on these roles, I feel I may now need to be Treasurer as well which I'm not even sure is allowed?'

4.4 Residual risks

DELWP cannot be assured that CoMs' governance arrangements are tailored to risk because it has not analysed the risks facing CoMs, as discussed in Section 3.2.

DELWP could not provide any evidence of the review it conducted of the process for making skills‑based appointments to CoMs. DELWP advised us that it did review the process and decided that no revisions were necessary. However, there is no evidence that it has resolved the issues identified in our 2014 audit. These issues included that DELWP's appointment processes do not:

  • place sufficient emphasis on governance skills and business acumen
  • consider the past performance of renominating members and consult with CoM members regarding the CoM's skill gaps
  • stagger appointments to allow greater continuity of CoM members.

When a CoM is confirmed as an incorporated association under the Incorporated Associations Act 2012, DELWP allocates the CoM to a very low level of oversight and does not obtain, review or confirm the annual returns the CoM submits to CAV. Further, the information the CoMs submit to CAV is limited to finance and governance matters and does not include any information that could help DELWP assess the CoMs' effectiveness or viability as a land manager. In turn, this increases some of the risks that we identified in the original audit. DELWP cannot rely solely on the CAV annual returns process to oversee CoMs and assure itself that these CoMs are managing their Crown land reserves effectively.

There are 11 CoMs that DEPI initially assessed as high risk under its 2012 framework but that DELWP has since reduced to the lowest risk category because they are incorporated associations—see Figure 4B. DELWP revised these risk assessments without considering any risks to the Crown land reserves that the CoMs manage. Three CoMs in this list have annual expenditure or a cash balance exceeding $1 million and a further eight exceed $250 000.

Figure 4B
CoMs that DELWP reduced from high-risk (Category 1 or 2) to the lowest risk (Category 4) because they are incorporated associations

Category

Expenditure or cash balance

CoMs

A

≥$1 million or borrowings with approval of the Treasurer of Victoria

  • Bendigo Agricultural Show Society
  • Geelong Racing Club
  • Yarra Valley Racing

B

≥$250 000

  • Ballarat Turf Club
  • Terang Harness Racing Club
  • Royal Geelong Agricultural and Pastoral Society
  • Geelong Lawn Tennis Club
  • Isabel Hendersen Kindergarten
  • Chinese Museum of Australian History
  • Collingwood Children's Farm
  • Parklands Albury-Wodonga

Source: VAGO based on DELWP's Portal database as at March 2018.

Our 2014 audit found that the 168 CoMs appointed on an ongoing basis may pose additional compliance risks because the members are often the primary users and beneficiaries of the reserve they manage. This makes it difficult for DELWP to be assured that CoMs are managing the reserves for the broader public good, rather than for their own benefit. DELWP has failed to deliver the agreed action to determine an appropriate oversight mechanism for this group.

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