The ANAO has delivered another savaging of the Department of Environment, this time over the Housing Insulation Program.

The report closely follows one of the most damning indictments of the bureaucracy in recent years by the ANAO, in relation to that Department’s handling of the Green Loans program.

While the ANAO confirmed the outcome of earlier reviews, such as that by Allan Hawke, that showed that the Government’s demand for a speedy roll-out of the program and the unregulated nature of the insulation industry opened the way for high levels of non-compliance under the program’s guidelines, the audit identified the switch on 1 July 2009 from paying households the insulation subsidy, to directly paying it to installers, as a key decision that substantially increased risks in the program.

And again, as under the Green Loans program, Minister Peter Garrett was given “overly-optimistic” (particularly about the Department’s capacity to manage risks) and “inaccurate” reports by his Department, which — crucially — never told him of resource constraints within the Department that prevented the program was being delivered effectively. In October 2009, Garrett demanded that Department improve the timeliness and accuracy of its briefing of him.

The resulting internal departmental review found a number of systemic problems both with the Department’s own information systems and its reporting processes. Four months later, the Department still hadn’t rectified some of the problems.

In the ANAO’s view, the initial phase of the program — meant to be an interim phase — “had reasonably sound processes for assessing householders’ claims for rebates against the program’s eligibility criteria and payments to householders provided a degree of assurance that the installations had been completed.” The second phase, intended to be the main phase of the program, was developed by the Department after an extensive round of consultations, and aimed at a faster implementation (the Department had originally proposed a five-year rollout for the program but had been told by the Government to implement it within two-and-a-half years).

While the main phase of the program was being developed, the relevant division of the Department charged with handling the program was warning the Departmental executive that it was “already seriously stretched in terms of its capacity to deliver.”

In developing the main phase of the program, the ANAO found that the Department assumed that householders would bother to check what sort of job installers were doing, and that installers would voluntarily comply with program guidelines about training, safety and installation. Both assumptions turned out to be flawed.

The design of Phase 2 was strongly influenced by the clear riding instruction from the Commonwealth Coordinator‐General to reduce red tape and commence work on projects as soon as possible, in keeping with the stimulus objective of the program. Consequently, some of the controls and mitigation strategies which could have been expected to have been implemented as part of HIP were not in place. While the department took steps to address some of these risks, treatments were inadequate.

Critically — as the Hawke Review found — the Department did not have an effective audit and compliance program in place to coincide with the main phase of the program, partly reflecting the flawed assumption that installers would voluntarily comply with guidelines. This was the governance gap that saw shonky operators converge on the industry, with tragic results, even as the Department introduced training and accreditation processes into the industry for the first time outside South Australia.

The interim compliance program was ineffective in stopping fraud and fly-by-nighters.

It wasn’t until late September that a more effective compliance program, run by PwC after a lengthy tender process, was established, and even then there continued to be problems with Departmental resourcing — PwC complained in February this year that the relevant area appeared too under-resourced to respond effectively.

While this report isn’t quite as damning as that relating to the Green Loans program, it shows again the serious failings of a Departmental executive that under-resourced a critical area (for much of 2009, the same area as that running Green Loans), allowed their Minister to be misled on crucial issues and given an inaccurate picture of how the program was being implemented, and failed to push back against Government demands that the program be rolled out as quickly as possible.

Peter Fray

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