29. Consideration of the DMO's acquisition process is important in understanding the operations of the entity and designing and implementing a test program for the ANAO's review. This test program includes the examination of the DMO's financial control framework, enterprise risk management arrangements and formal assurance mechanisms. Additionally, this year's report covers a number of specific governance areas that the JCPAA requested the ANAO to examine in the course of reviewing the project data. This includes Earned Value Management Systems (EVMS) at a project level, the controls over the use of contingency budgets, and the management of prepayments to contractors.
30. Relevant governance areas in the review included:
● DMO's new assurance mechanism, the GRAB process, which is designed to provide the Chief Executive Officer of the DMO (CEO DMO) with assurance that all identified risks for a project are manageable, and that costs and schedule are likely to be under control prior to a project passing various stages of its life cycle;
● the Minister's Projects of Concern process, which is designed to address project issues deemed to be of concern to the DMO and the Government;20
● the DMO's business systems rationalisation process, which is aimed at consolidating process and systems in order to provide a more manageable system environment; and
● the project skills professionalisation and development program in DMO and industry, which is directed to enhancing the skill sets available to manage the DMO's Major Projects.
31. During the 2009-10 MPR review, the ANAO continued to observe a lack of consistency in the application of various policies, practices and systems at a project level which were relevant to the provision of assurance over the information contained in the PDSSs. This extends to areas such as financial management, where some projects adopted varied financial management policies and plans; and to risk management, where a diversity of approaches at a project level impact on a consistent and strategic risk management approach at the whole of DMO level.
32. The ANAO also noted that, for some projects, there are issues with the accuracy and completeness of information in the current DMO systems for reporting on project status to senior management. This was highlighted in the case of one Major Project during the ANAO's review, where a number of monthly project status reports were examined for the period during which it was experiencing a major issue. The ANAO found little in the way of report metrics and narrative to adequately alert the reader to the impact of the issue on the project's position.21 22
33. Nevertheless, there are a range of enterprise and project level acquisition governance initiatives underway, although some, such as the inclusion of project level GRAB reviews in DMO's risk control framework, are still in their formative stages. It is expected to take a number of years for the results of the GRAB review process to flow through across the portfolio of the DMO's Major Projects. An assessment of these governance initiatives and the outcomes they have been able to achieve will be made by the ANAO following advice from DMO in 2010-11, and when the results become available.
34. Beginning in 2010-11, the method of indexing DMO project budgets is changing such that each project's price updated component of their budget will be indexed at a fixed indexation of 2.5 per cent per annum. Previously, price updates to budgets reflected movements in the non-farm Gross Domestic Product implicit price deflator.23 The ANAO plans to have regard to how fixed price indexation is being dealt with at a project level, and the impact in areas such as contingency budgets and general contract management, as part of its review next year.
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20 The previous Minister for Defence Materiel and Science and the current Minister for Defence Materiel maintain a process by which an increased focus on projects and industry is implemented in order to address project issues seen as significant by the CEO DMO and the government.
21 The greater enhancement of the DMO's project reporting and monitoring mechanisms has been highlighted in previous ANAO reports (see for example, Australian National Audit Office, Lightweight Torpedo Replacement Project, Performance Audit Report No.37 2009-10, p.20).
22 The DMO has recently advised that, from the beginning of 2011, it intends to change its monthly project reporting template to be more key metric focused and less narrative.
23 In the five year period 2004-05 to 2008-09, the non-farm GDP implicit price deflator's average annual increase was 4.8 per cent (Australian Bureau of Statistics, Australian System of National Accounts, Cat. no. 5204.0, 2008-09, Table 26).