Defence procurement is a major area of federal government spending and a regular subject of performance audits by the Australian National Audit Office. The purchase of Hawkei light protected vehicles, to replace the army's ageing Land Rovers, at the cost of about $2 billion was therefore an obvious policy for assessment on the standard audit values of effectiveness and value for money. The Defence Department was the main focus of the report and, during 2017, received a draft of the report for comment under the ANAO's usual procedure. Discussions between the ANAO and the department continued along standard lines, with the ANAO making the customary adjustments in response to the department's comments.

Difficulties arose, however, after the ANAO gave an extract from the report to the vehicle manufacturer, Thales Australia, recognising that the company had a special interest in its content. Thales clearly objected to aspects of the report and sought to have them removed. It asked Porter to exercise a little-used clause in the Auditor-General Act – section 37(1) – which empowers the Attorney-General to issue a certificate saying the disclosure of certain information would be "contrary to the public interest". The effect of such a certificate is to prevent the auditor-general from disclosing the information to Parliament or its committees. The act provides several reasons that would justify such suppression, many of which are familiar from similar laws on official information, including national security, cabinet deliberations, dealings with other governments and unfair prejudice to commercial interests. Thales quoted prejudice to commercial interests as the basis for its request.

The company also instituted separate legal proceedings in the Federal Court seeking to restrain the publication on the same grounds. However, this action was later suspended after Porter issued his own certificate to ban disclosure. Significantly, the grounds for the certificate were extended beyond Thales' original request to include prejudice not only to commercial interests but also to "the security, defence or international relations of the Commonwealth". In complying with this certificate, the Auditor-General, Grant Hehir, was forced to redact significant sections of his report, leaving him unable to reach public conclusions on his main questions: whether the purchase of the vehicles met the criteria of effectiveness or value for money.

Thales, having secured its main objective, saw little point in pursuing its own independent legal action. However, it was still unhappy with the draft report and made a second application to Porter for a certificate to remove extra information. In this case, Hehir, reluctant to see his report delayed even further, voluntarily removed the information in question on the ground that it did not have a material impact on the audit's findings. The final report, with redactions indicating the absence of relevant information and analysis, was published in September.

In response to such an unusual use of the attorney-general's power, the joint committee of public accounts and audit, which oversees the ANAO, has instigated a full inquiry. In his submission to the inquiry, Hehir set out his version of events, carefully omitting public reference to any of the offending subject matter. He also, in typically tactful prose, raised several powerful objections to the procedure adopted by the government.

He notes that this is only the second use of the certificate procedure in the ANAO's century-long existence and the first under the new 1997 act. The other occasion (under the former Audit Act) was in 1987, relating to the air force's use of explosive ordnance. Since then, the ANAO has handled countless issues of defence and security in consultation with the relevant departments and resolved them with due respect for considerations of national security. What was so different this time, Hehir implies, particularly when defence officials had not raised any insuperable objections before the possibility of a certificate was raised?

Hehir also comments on the very broad grounds given for Porter's intervention. While Thales had cited commercial interests, the government added security, for no obvious reason. Moreover, while the act mentions the non-disclosure of "particular information", the certificate applied not only to items of information but also to the ANAO's own analysis in relation to the audit's objectives. In addition, the government's willingness to protect a contractor's commercial interests appears to go against the spirit of the 2011 extension of the auditor-general's power to enable the office to "follow the money" and audit Commonwealth partners in joint enterprises.

Hehir is particularly concerned about the precedent this certificate sets. If repeated, it could apply to all performance audits of Commonwealth procurement contracts, particularly but not solely in defence. He revealed two agencies had already flagged the possibility of seeking their own certificates to suppress audit information. He recommends that Parliament consider legislative changes that would constrain the further use of the power to issue certificates and avoid parliamentary scrutiny.

Hehir's language may be moderate but his objections are strongly made, and rightly so. That the government would overturn established conventions of parliamentary audit at the behest of a powerful contractor is shocking enough. That it would double down on these protests by adding another vague ground of objection – the ever-useful cover of "security" – compounds the offence. Without knowing what information was suppressed, we can only speculate on what offended the government's and the contractor's tender sensitivities.

However, a separate court document relating to the litigation between Thales and the Auditor-General indicates that the main issue was a cost comparison with overseas alternatives. A public comment from a Thales spokesperson – that the ANAO placed "zero value" on Australian content and Australian jobs – suggests the ANAO's sin was to consider the purchase of locally made vehicles less cost-effective than buying overseas equivalents. The finding would be hardly surprising. The government has been following the well-established strategy of funding comparatively costly local defence equipment as a means of shoring up employment in struggling states. The government and Thales appear to be fearful that Hehir might spell out, and put a price on, what everyone knows and what both sides of politics support!

At worst, Hehir might be accused of straying into issues of policy, which are beyond his brief. This is a familiar risk associated with auditing inefficient programs that governments have adopted for political reasons, as they are fully entitled to. Previous examples include the compulsory outsourcing of IT and the sale of government buildings. But enforcing a wholesale ban on relevant information in order to avoid a political debate about the purposes of defence spending policy is an excessive use of executive power. It also involves patent dishonesty through abuse of the concept of national security for political reasons.

Resort to a gagging certificate is reminiscent of the former "conclusive certificates" that allowed treasurers to ban the release, through freedom of information law, of politically uncomfortable Treasury documents. The official, statutory reason was that disclosure would be against the national interest but, in practice, that meant that it was against the government's partisan interests. Fortunately, this power was removed in 2009 and has not been missed, except possibly by secretive ministers and bureaucrats. Parliament should seriously consider extending the same fate to audit certificates. At present, the auditor-general, Parliament's principal officer of accountability and transparency, is subject to more severe restrictions on the right of publication than ordinary citizens exercising their rights under FOI.

Parliament should also push back against the reluctance of companies on government contracts to be publicly accountable for how they spend public money. Commercial companies are naturally accustomed to private-sector standards of audit and accountability and resent any imposition of stricter public-sector expectations. They are quick to claim "commercial-in-confidence", on the ground that any extra exposure will supposedly harm their market competitiveness. Politicians and bureaucrats have also happily used this excuse as a cover for politically embarrassing information ("politically-embarrassing-in-confidence").

Auditors-general, on the other hand, have typically adopted an opposite presumption: that all public funds should be subject to the same standards of accountability and audit, whether the funds are being spent by government agencies or by private contractors. With the Senate's help, they have successfully curbed the overuse of commercial confidentiality as a protection of information about government contracts. Though the government, in the Thales case, did not rely solely on prejudice to commercial interests to justify its certificate, the exemption, as currently worded, is sufficiently broadly worded to have encouraged Thales and its lawyers to initiate legal proceedings against the Auditor-General. That the ANAO had to part with over $220,000 from its overstretched budget in legal fees to fend off the challenge from Thales indicates the pressure that powerful companies can exert on agencies of public integrity.

The accountability of contractors is a major issue at present, as the Senate and the Thodey review of the public service grapple with the increasing privatisation of government functions and the effect on long-standing conventions of parliamentary control of public spending. The activation of a dormant statutory mechanism to silence an auditor-general's capacity to scrutinise a private contractor is an unwelcome extension of the executive's avoidance of accountability. Fortunately, the certificate is so blatant and Hehir's response so pointed that the incident may well prompt a major reassertion of parliamentary authority.

Richard Mulgan is an emeritus professor at the ANU's Crawford school of public policy. richard.mulgan@anu.edu.au