A common objective of any privatisation is to obtain a fair value from the sale. ANAO audits of trade sales have adopted the Australian Accounting Standards'84 definition of fair value, namely: the amount for which an asset could be exchanged between a knowledgeable, willing buyer and a knowledgeable, willing seller in an arm's length transaction. In trade sales, fair value can be achieved through an open, competitive tender process that enables a market value for the assets or business to be established. For this reason, a clear focus of performance audits of trade sales has been on the tender process and the evaluation of tenders.
From these audits, ANAO has identified a number of principles of sound administrative practice to guide future Commonwealth trade sales, including:
● the advantages of flexible data access arrangements to minimise the costs of potential buyers understanding the business in order to develop their bid;
● adopting structures such as tender evaluation committees to enhance transparency and accountability as well as structuring these committees so that relevant agencies are able to satisfy themselves that the evaluation is fully informed, properly conducted and identifies the best possible offer for each business;
● the development of appropriate priorities which set out the relative importance attaching to each evaluation criterion;
● carefully considering the nature of fees paid to commercial advisers to ensure advisers do not have a pecuniary interest in the outcome of the tender process;
● seeking early resolution of the government's position on future service requirements, and any ongoing subsidies or payments to the business, so that bidders have a full picture of the potential for the business and can frame their bids accordingly; and
● the merits of undertaking a credible assessment of the net financial benefits of all tenders in order to maximise financial returns from the sale.
It has been pleasing to observe that ANAO privatisation audits have had a real impact on the way sales are being conducted. For example, Federal airports in Australia have, to date, been sold in three major tranches with total proceeds of approximately $8.3 billion. The first two major tranches have been audited, and the audit of the third major tranche commenced in September, shortly after the sale of Sydney Airport in June 2002 to a consortium led by Macquarie Bank. An aspect of ANAO's approach to auditing the second tranche sale was to examine action taken in response to recommendations made in the audit report on the first tranche sale. The ANAO found that all eleven recommendations in the 1998 report were implemented by agencies, even though not all had been fully agreed to by the agency responsible for Federal asset sales. The improved processes resulting from implementation of these recommendations supported an effective overall outcome for the Phase 2 sales. This outcome was also due to the greater understanding of the accountability requirements by private sector contractors who not only addressed audit comments but also initiated related discussions with the auditors concerned.
The ANAO audit of the first sale of Telstra shares received serious attention during the planning and conduct of the second sale, which was completed late in 1999 and was audited by ANAO. The 1998 audit report on the first sale found that overall value for money in future sales could have been improved and the report included 11 recommendations aimed at improving the future management of Commonwealth public share offers, particularly financial management. Although the recommendations were not universally accepted by the relevant agencies, the Government required that the issues raised in the 1998 report be taken into account in the management of the Telstra 2 transaction. The subsequent audit of late 2000 confirmed substantial improvements in contract management and tendering, maximising the Commonwealth's bargaining position. However, the audit also found substantial opportunities to improve the transparency of accountability by ensuring adherence to proper processes, ensuring timely advice from relevant specialists and providing an appropriate audit trail.85
Achieving positive outcomes from such audit activity demonstrates the value of the latter in providing assurance to all stakeholders and in promoting improved performance by the public sector and their private sector advisers and contractors. This outcome reflects the value of recommendations aimed at assisting the achievement of better outputs and outcomes and concomitant commitment to their implementation - in other words, a win-win situation.
It would be remiss to imply that the latter is always achievable. ANAO's recent audit of the sale of Commonwealth Estate Property86 highlighted the potential for conflict faced by Auditors-General. In this instance, the contested issue of accountability was whether or not the agency commissioned to sell almost $1 billion of Commonwealth property was also bound to protect the Commonwealth's overall interest with respect to the retention or divestment of the properties. The audit found that the sale of properties for which the Commonwealth had an ongoing interest in the form of long-term leases exposed the Commonwealth to future liabilities that, over time, effectively negated the sale proceeds. The ANAO view was that, in implementing the Government's property sales policy, the Commonwealth's legislative framework for financial accountability continued to bind the agency. This would require that it undertake an assessment of whether proceeding with a sale and leaseback represented the best overall value for money outcome for the Commonwealth, and provide such advice to Government. Importantly, the agency took the contrary view, arguing that its role was to implement the Executive Government's decision to divest property, and that it was not charged with the role of protecting the "overall" interest of the Commonwealth, which it argued had been considered in the development of the relevant policy.87 The responsible Minister suggested that the ANAO's view represented a view that the policy should be questioned.88
A key point for the audit was the efficiency and effectiveness of advice provided by the agency as its 'output', which was considered to be wrongly based. More broadly, in a Westminster system of government, it is inevitable that tensions will arise between the prerogative of Executive Government to formulate and implement policy, and the right of the Parliament to be informed about the value for money obtained in the use of public money. Such tensions can, as in this case, involve the Auditor-General's status as an Officer of the Parliament rather than of the Government. In some respects, the tension reflects the price of accountability in the Australian system of responsible government.