According to a number of public servants working in large government departments, the end-of-financial-year spend-up before June 30, 2013 was one of the largest they had ever seen. Now, analysis by The Canberra Times has provided quantitative evidence of the tendency of agencies to spend more in the months preceding the end of the financial year. The data comes from Austender, so it does not cover all spending, but it is an indicator.
There can be good reasons why an agency might want to spend more towards the end of the year. Where there is a genuinely discretionary spending that the agency considers desirable, but possibly unaffordable unless it achieves internal savings during the remainder of the year, it might include end-of-year spending as part of a planned strategy. That is, it can make sense to delay spending until you know you really can afford it.
Given that this wasteful spending has become a commonplace discussion among gatherings of public servants, there seems no reason for the Finance Department to pretend it does not exist.
In some cases, there may be urgent work arising from the May budget that necessitates spending in June. There is also a seasonal pattern in spending due to the long Christmas/New Year break. Politicians and ministers often take a break at this time, as do many public servants. The generally accepted start date for the resumption of normal business in the Canberra-based parts of the public service is Australia Day, January 26. So mid-year spending will always be a little higher than average, especially in agencies where purchasing is centralised in Canberra-based head offices.
However, the sheer size of the end-of-year spend-up - more than three times the spending (by value) in other times of the year - suggests a proportion of this spending is likely to be hurried and unwise. Anecdotal accounts of unnecessary office refits, repainting, IT systems, build-up of stocks of office supplies, travel, training courses and the like abound. It can also be seen in a spike in engagement of services, including legal, accounting and other consultancies.
The problem of end-of-year spend-ups was endemic in the public service before reforms of the running-costs system in the late 1980s. Running costs at the time were much the same as what is now known as departmental expenses: that is, the total costs of staff (permanent and temporary), leave entitlements, travel, office equipment, consultancies, accommodation and other expenses. Agencies had a firmly entrenched ''spend it or lose it'' mindset which led them to rush to spend the whole of their running-cost budget before the end of the financial year regardless of how unnecessary particular spending items were.
The Finance Department, in an attempt to address this problem, revised the running-cost arrangements to allow a 10 per cent carry-over or bring-forward of an agency's running-cost budget. This reform had a large impact. Although it was rare for agencies to get anywhere near their 10 per cent limit, carry-overs of a few per cent a year became common. Agencies were a bit more cautious about bringing forward money from later years but that also happened. As a result of these rule changes, the incidence of wasteful end-of-year spending dropped markedly.
In some agencies, the practice never died out completely. The Defence Department, for example, was notorious for having pockets of the organisation that indulged in entirely unnecessary last-minute spending binges. In very large distributed bureaucracies, old habits die hard. In most of the public service, though, more sensible spending patterns based on real need were adopted over time.
With the introduction of accrual budgeting in 1999-2000, running costs were replaced by departmental expenses. A quirk in accounting rules meant that, if an agency spent cash that it had not been appropriated but had carried over from a past year, it would record a loss. Finance Department approval was required for an agency to plan a loss. This issue was identified at the time of that change, and a flexible approach to allow sensible planning between years was, initially, the preferred approach. Finance Department loss approval was reasonably forthcoming. The same basic rule - that departmental appropriations are ongoing and that administered appropriations lapse - applies the same now as it did then.
In recent years, it appears we have seen a return of the end-of-year spend-up. There are a number of probable causes.
Over its last few budgets, the government has been desperate to achieve a surplus in future years. The surplus estimates have been extraordinarily thin - which means anything that adds to spending in later years, no matter how small, encounters more resistance.
Feedback from several agencies suggests it has become much harder to have a loss approved. Departments also appear far more concerned than ever that, if they underspend in any one year, the Finance Department will use that as ammunition to argue for spending cuts in the budget process. As we have seen in recent budgets and economic statements, the expenditure review committee of cabinet has shown a tendency towards second-guessing agency management decisions. It has imposed detailed central controls through extra efficiency dividends, restrictions on travel, management of IT purchasing, rules on accommodation and the like. So agency concerns about how their spending patterns might be used against them are not without foundation.
In a position paper on the Commonwealth financial and accountability review, Finance Minister Penny Wong suggested that ''consideration should be given to allowing entities to spread cash across years in order to effectively run their operations, without detracting from overall budget and expenditure control''. It is a vague statement surrounded by caveats rather than a firm plan, but it at least recognises that a problem exists.
It is unclear whether the financial arrangements that will be promulgated under the new Public Governance, Performance and Accountability Act 2013 will enable carry-overs (or, as Wong puts it, spreading cash across years). It may be a matter to be covered by rules, yet to be drafted, provided for in sections 101 to 103 of that act. This could have been one of the matters considered by the joint committee on public accounts and audit if it had taken more than a few days to consider the Public Governance, Performance and Accountability Bill 2013 - one of the most rushed and unsatisfactory reviews of a major piece of legislation in the history of the Parliament.
This is likely to be one of the many outstanding issues from the financial and accountability review that still awaits implementation. If the budget and financial management rules, and the policies applied in the budget process, can be amended to allow carry-overs and to put in place incentives for agencies to avoid wasteful spend-ups, it will be a good reform.
There is an interesting contrast between the consultative approach adopted in reforms of the 1980s and 1990s, and the more secretive processes of both the present government and its immediate predecessor. Readers who remember back to the 1980s will recall the numerous public speeches, position papers and articles coming out of the Finance Department about budgetary reforms (even if, in reality, most of the audience consisted of working public servants). The experience was that this bolstered the cause of reform and helped enlist supporters in the media and Parliament.
Given wasteful end-of-year spending has become a commonplace discussion among gatherings of public servants, there seems no reason for the government to pretend it does not exist. Some advisers still think that controlling all information, and only admitting to a problem if the government has already solved it, is the best political strategy. The rushed processes for passage of the Public Governance, Performance and Accountability Bill were testament to this. They appeared to be driven more by politics, turmoil and deal-making inside Parliament House than by the public servants involved.
Post-election, a more confident government, perhaps with a stable majority rather than a hung Parliament, may see the wisdom of putting its thinking out for wider public scrutiny. Even better, it would encourage the Finance Department to comment publicly, not only on carry-overs but other aspects of financial management.
Stephen Bartos is executive director, Canberra, at ACIL Allen Consulting, and a former senior public servant.