Assessing public sector performance management

Garreth Handley:
This is With Interest, a business, finance, and accounting news podcast brought to you by CPA Australia.

Chris Hatzis:
Welcome to this special episode of With Interest, brought to you by CPA Australia.

On the 5th of August, 2025, CPA Australia CEO Chris Freeland AM brought together senior leaders from across the public sector for a roundtable lunch in our nation’s capital.

The keynote speaker was Australia’s Auditor-General, Dr Caralee McLiesh PSM FCPA, who shared insights on the Commonwealth Performance Framework, regulation, productivity and themes from the upcoming Australian National Audit Office (ANAO) Annual Report.

In this part one episode, you’ll hear Dr McLiesh’s keynote in full. Stay tuned for part two, where Chris and Caralee continue the conversation in a fireside chat.

Caralee McLiesh:
Thank you, Yasmin, and thanks for the opportunity to be here today.

I would like to start by acknowledging the traditional custodians of the land on which we meet, the Ngunnawal people, and pay my respects to elders, past and present, and extend that respect to First Nations people here with us today.

And my sincere thanks to CPA Australia for the opportunity to speak at this round table today, and also just for the important work that you do in connecting and developing, supporting, representing professionals in the sector.

So today I want to say a few words about performance management in the Commonwealth public sector, drawing upon some of the very many findings in the Australian National Audit Office, or ANAO's audits.

So this year marks the 10th year of implementation of the Commonwealth Performance Framework. It is, as you know, a principles-based framework that was established under the Public Governance Performance and Accountability, or PGPA Act of 2013. And under the framework, for the first time, Commonwealth entities were mandated to produce corporate plans and annual performance statements, tools that are designed to raise the quality of how performance is planned, reported and managed.

And the framework is really central to accountability of the Commonwealth. It aims to provide meaningful information, both to the Parliament, to the public about what government does and the results that are achieved. The transparency allows the Parliament to hold government to account for its actions and for the public to do the same, and it really is the foundation of public trust and confidence in our Westminster system of democracy.

Accountability, beyond transparency, also means that actions are taken on the basis of performance that's observed. At one level, and the level that many people focus on, that could mean public censure or employee dismissal or some other employee sanction under the Public Service Act.

But the vast majority and, arguably, the most effective type of accountability mechanisms involve observing performance, learning what drives it and making decisions to improve it. So doing things differently, depending on what you observe, fixing weaknesses that are identified, expanding programmes that are doing well and stopping programmes which are not, which tends to be something that is extremely hard to do in government.

At the time the Commonwealth Performance Framework was introduced, the Joint Committee of Public Accounts and Audit, or JCPAA, reported on how it was designed to help improve performance of Australian government entities, including through a clear read between planning and reporting. So that improved line of sight enables results to be assessed against what was expected and understanding of what's working, what isn't working, and really importantly, informing decisions on how to do things better.

Now, audit has a really important role in this system of accountability. Audits can provide independent, rigorous, frank and fearless assessments of performance. But also they can provide insights, what is and isn't working, analysis of gaps and a way for audited entities to learn and to continually improve. It's about making things better.

The ANAO has one outcome measure in our own portfolio budget statement, which is to improve public sector performance and accountability through independent reporting on Australian Government administration to the Parliament, the executive and the public. Audits help Parliament in their important scrutiny role, and also they contribute to the system of accountability by helping entities to understand and to improve their performance towards what is our shared goal, which is getting better outcomes for people in Australia.

So the ANAO is now in its fourth full year of audits of performance statements. We had 14 entities audited last financial year. We're doing 21 this financial year, which represent about 90% of Commonwealth expenditure.

And the ANAO is a leader internationally in this area. There are a relatively small number of audit offices, a growing number that conduct similar audits of performance measures.

The audits create an incentive to lift the quality of performance statements. Over the last four years, the ANAO has observed stronger compliance of performance measures with legal requirements, greater reliability of measures. In entities with repeat audits, we tend to see fewer findings, and we also tend to see more maturity in performance measurement systems the more that audits are conducted.

But while we are seeing improvement, there is a lot further to go, and today I wanted to highlight three areas where the ambition of the PGPA Act reforms that came about 10 years ago are yet to be fully realised.

So the first is the opportunity to report more meaningful information, which is a key objective under the PGPA Act. The Commonwealth Performance Framework aimed to shift Commonwealth entities from compliance towards outcomes reporting by requiring entities to define their purpose while they're here and then to measure and assess their performance against that purpose.

Yet the ANAO audits still find many instances where entities are focused more on what can be measured, rather than measuring what matters. For example, a measure like whether the funds are provided to service delivery agents, are the funds out the door? They're likely to fulfil technical criteria on reliability and verifiability, but it doesn't really say much about how an entity is achieving their purpose.

An important indicator of whether performance statements are achieving the PGPA Act objective of being meaningful is whether or not they're being used effectively. Are they being used by Parliament in their scrutiny role by entities or by the public? We don't observe many agencies testing this, how their performance statements are being used.

Meaningful statements have measures that are useful to stakeholders, providing insights on an entity's performance and supporting entity decision-making. They're also complete, presenting a fair, balanced and accurate picture of the entity's performance, and a lack of completeness or a lack of usefulness are two of the key themes in ANAO's modified conclusions and audit findings.

We're really conscious also that audits should not set perverse incentives to prioritise compliance over meaningful reporting on performance, so selecting measures to pass muster with audit, rather than measuring what matters.

We are encouraging entities to consider how to best tell their performance story for the Parliament and for the public. That could mean using analysis, qualitative information narrative in annual performance statements that explains results against targets, explains the trends over time, the why and the how behind reported results. So that is, we're interested both in measuring and also in the telling around performance statements.

So the second opportunity that I wanted to highlight is on measuring efficiency and productivity. The Commonwealth Performance Framework encourage a combination of outputs, efficiency and effectiveness measures. Last year, the ANAO assessed 393 different performance measures. Anyone want to guess how many were about efficiency? Any takers?

Three.

So they were the NDIA's measure of NDIA spend as a proportion of total NDIA spend, the ATO's measure of cost to collect a hundred dollars, and Department of Agriculture, Fisheries and Forestry's measure of equal or reduced cost of levies administration compared with levies disbursed. And I also would acknowledge some good efforts that are taking place in Services Australia now on developing an efficiency measure.

Now, proxy efficiency measures accounted for 57 out of 393 measures, around 15%. So it's really surprising just how infrequently efficiency productivity are measured.

Outputs account for the larger proportion of measures, 42%, closely followed by effectiveness measures, 37%.

So I think the lack of output-to-input measures, or efficiency measures, is at a time when the Productivity Commission has shown Australia's productivity growth is at its slowest in 60 years. Government sector accounts for a really large share of the economy. Productivity growth by nature is lower in the government sector and growth in government-funded services, such as health education and the care sector, is one of the causes of Australia's productivity slowdown. Moreover, as we all know and are experiencing, fiscal constraints are also tight and expected to remain so, with agencies subject to savings targets, alongside managing costs and demand pressures.

Government has set a priority on productivity reforms and is committed to fiscal targets. And so in this context, there is a real opportunity, I think, for agencies and particular people in this group gathered here today, COOs and CFOs, to bring together financial and non-financial performance information to develop measures around efficiency and productivity and manage to those.

Now that can be really difficult in the public sector, measuring productivity, but making progress on this could enhance our ability to understand and to improve productivity and lift living standards in Australia.

The third area for improvement that I wanted to highlight today is putting in place enterprise performance systems that help agencies to run their business well. Effective enterprise performance systems align external reporting with internal reporting systems. They're embedded in an entity's governance, strategic business planning, finance people management processes.

But too often we see entities focus on performance reporting more as compliance for external accountability purposes. And there's still more work to do to make sure that those systems are providing helpful information for driving performance within an agency.

Later this month, the ANAO will report on themes from our performance audits over the last year. Of the 44 audits that were tabled in the last year, 30 or 68% included a finding related to entity performance monitoring, evaluation, and reporting. Of these, more than half had overall audit conclusions that were ineffective or partly effective.

Some of the common challenges that we see include incomplete or inadequate performance information at a programme level, including a lack of reporting on programme outcomes. So the high-level reporting is set, but the more detailed programme reporting is not developed.

Entities collecting performance information, but not analysing it and capturing lessons to feed into improvement and to planning. So for example, we saw many agencies collecting data on complaints, while indicators like monitoring the time to respond to complaints were in place. There was little analysis of patterns about what people are complaining about and, therefore, missing a really valuable opportunity to get some business intelligence on how to improve services. And that's an opportunity that's pretty standard in many commercial companies.

We also see a lack of planning for evaluation at the start of a programme and, in some cases, deficiencies in contract and supplier performance management. For example, in one agency, we audited 33 contracts. More than half of those lacked any performance requirements at all, and none had a formal contract management in place.

So addressing these and other weaknesses in performance management will help to lift public sector productivity, but it also has a role in driving private sector productivity. So more effective health education services, support a more productive workforce, more efficient transactions with government, whether that's in taxes, customs, visas, receiving payments, that means more time for citizens on other activities.

Making regulation more effective is particularly important for Australia's productivity. And it's a topic of much public discussion today, and one that I just want to say a few words on.

I think caution is needed on a blunt approach to cutting red tape. Regulation is there for a reason usually. The question is whether regulation is effective in achieving its purpose and whether it's being efficiently administered. So are the costs of the regulation to both the public and the private sectors outweighed by the benefits that are being delivered?

But if regulators aren't measuring their effectiveness and efficiency, then how can decision-makers know whether regulations need reform or how they need to be reformed? And a consistent theme in ANAO audits of regulators are gaps in performance reporting with some regulators not fully measuring efficiency effective, some not at all, and a few instances of evaluation of regulation.

I would like our performance audits to be able to report more on whether intended outcomes of regulation are being achieved, not just on compliance. But often, the performance information simply isn't available to answer that question.

Evaluations of proposals before they are decided can help mitigate the risk of ineffective regulation or services. An ANAO audit of the Office for Impact Analysis found that their processes, the sort of ex-ante assessment of policies were largely effective, but the coverage of proposals was relatively low. So out of 3800 policy proposals in the audit period, only 97 were required to have an impact analysis upfront and 69 were assessed and published by the OIA, so less than 2%.

So here I'd just like to take a moment to address what I think is a common myth, which is that audit can hamper productivity or innovation or delivery. That audit is necessarily about more rules, not less.

The ANAO audits performance against frameworks and rules, but the audit office does not set those frameworks. We don't set those rules. We audit those that already exist. And so if agencies are undertaking innovative approaches, flexible approaches, then we would look for a fit-for-purpose framework to be in place. We'd expect agencies to be thinking about risk carefully upfront, and then designing their planning, their governance, their frameworks to manage that risk.

I think writing it down upfront is important, not just for audit because that's going to help set up the programme for success, and that's what we were ordered against. So it's not about more rules. It's about finding those fit-for-purpose rules and frameworks. So more meaningful reporting, more emphasis on efficiency and putting in place enterprise performance management frameworks, so I think big opportunities.

How about building capability for better performance management? So one big benefit of being the government's auditor is that you can look right across agencies and that helps to provide a structured way of promoting better practises across the public sector. It's something I'm very keen to do in my role.

The ANAO has developed a model to assess the maturity of enterprise performance frameworks and reporting systems. The purpose is to provide some transparency on how we assess maturity and to help entities understand where they stand, identify some strengths and weaknesses and prioritise areas for improvement. Ultimately, it aims to support better decision-making, continuous improvement.

So we look at five different categories of maturity: leadership and culture around performance, governance, data and systems, capability and reporting and records. And for each category, there is a level of maturity that's defined alongside guidance to help agencies conduct a self-assessment and see where they might want to get to and how to get there over time.

We see lots of good examples or examples of good practise in the maturity assessment. So for example, leaders in the treasury, in defence really actively promote a performance culture, and they demonstrate a really strong accountability for performance management systems.

We're in the process of auditing the performance statements for defence for the first time this year, and some of the most senior leaders in defence were sitting down with our audit teams for three hours to do a walkthrough of performance indicator methodology. It's a really detailed analysis, and they are devoting huge amounts of time for it, reflecting the importance that they place on this work for driving their business performance.

Some agencies, including DAF, Home Affairs have established really strong central performance reporting teams with authority to work across their departments.

Department of Health is also making some really great strides in improving its enterprise performance framework, drawing upon some lessons from DSS, which has more mature systems.

So these assessments are not part of the ANAO's performance statements audits. They're meant to be a value-add to help agencies to understand how they can develop their capability to improve performance reporting.

So discussion on capability for performance would be remiss without mentioning technology. Emerging technologies including AI offer the promise of automating routine tasks, enabling data-driven insights and improving efficiency and the quality of decision-making.

ANAO work highlights the importance of agencies building capability in AI and emerging technologies. There are significant risks that must be managed in adopting emerging technologies, but also significant risks of not doing so.

In the APS, if the organisations you regulate, the citizens you interact with are all using AI and you are not, you risk not being able to do your work effectively. AI can empower public services and I think the sector risks less relevance, less impact, less productivity if it's not being used. And that certainly goes for audit for the ANAO as well.

I think the ability to manage risks of emerging technologies is also compromised if agencies do not have a good understanding of these technologies, good capability in them. The sector already has challenges. We know in managing risks with long-standing technologies, findings in audit on IT controls are widespread. And so leaders really do need to build capability to understand and address IT risks in a world that is increasingly adopting technology, including AI.

Earlier this year, the ANAO released an audit on governance of AI in the ATO. We observed many good practises there, and one of the key messages for all agencies is ensuring that appropriate governance arrangements and risk management arrangements are put in place up front before the technology is adopted. And we encourage audited entities to prioritise the governance and risk management.

And finally, in building capability for performance management, I'd just encourage everybody to consider how to best draw on audit. The ANAO's audits provide independent in-depth assessments and performance of your entity's activities, and we aim to contribute to better performance. This works best when our respective teams, it goes for audit as well as audited entities are really engaging constructively early and with a learning mindset.

Internal audits can also play a really valuable role in improving performance. There are, I think, lots of opportunities to strengthen that role through examining the scope of their work, looking at business and service delivery as well as internal matters, corporate matters, resourcing and ensuring that appropriate governance arrangements are in place.

I think it's notable that the Commonwealth does not currently have a framework for internal audit as a recommendation from the JCPAA and that, unlike other jurisdictions, internal audit standards are not mandated.

Supporting greater professional development in internal and performance audit can strengthen performance management more broadly. And I just want to take a moment to acknowledge the work of CPA Australia and also CIPFA in building a performance audit training module. And we really look forward to seeing this work develop and to support current and future auditors.

So in closing, 10 years on from the introduction of the Commonwealth Performance Framework, I think it's really timely to ask about some of the lessons on how the framework is operating and what more we need to do to make sure that the original objectives are achieved.

We see a lot of opportunity for more of an emphasis on meaningful reporting, on productivity and efficiency and linking reporting to decision-making through enterprise performance systems. And I think building capability and performance management will help to realise the ambitions of a transparent, accountable and high-performing public sector that delivers better outcomes for Australians.

Thank you.

Chris Hatzis:
We hope you enjoyed listening to Australia’s Auditor-General Dr Caralee McLiesh's keynote.

And don't forget, part two will be available shortly on With Interest, where Chris and Caralee continue the conversation and elaborate on her key points in an in-depth fireside chat.

Until next time, thanks for listening.

Garreth Handley:
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