Problems with bureaucratic incapacity or just differing views of mission? The Australian Electoral Office has been dismissive of a negative report by the ANAO regarding the AEC's administration of the political donation system.
In Administration of Financial Disclosure Requirements under the Commonwealth Electoral Act the ANAO concludes that the AEC had failed to take any concrete steps to improve following a 2012 review, which found it needed to be more proactive in its approach to compliance.
Its assessment is that -
- the AEC is failing to obtain key records from some donors. In four years, the AEC has not obtained 75 annual returns – a key record detailing a donors’ contribution in any given financial year.
- Many records are being submitted late, in some cases by more than a month. Around a quarter of annual returns and 17% of election returns were submitted late. 44 donors were late by an average of more than 30 days.
- The AEC is doing little to verify that the information it does receive is accurate and complete. It appears to looking for empty fields in forms and obvious errors but not validate by comparing what a donor has reported to other data from internal or external sources.
- The AEC is failing to meet its own target for compliance reviews, which are used to audit a donor’s claims, notably failing to conduct 58 of the 168 reviews it had planned in the five years examined in the audit.
- No compliance reviews have been conducted on entities who claimed to have made no donations in any particular period.
- Donation records from third parties such as the Minderoo Foundation, the Australian Christian Lobby and unions are not analysed.
- The AEC failed to analyse donation records submitted during elections by candidates, Senate groups or election donors, instead relying on records handed in by political parties.
ANAO again offers recommendations to improve the AEC’s handling of the political donations system, strengthening analysis of the accuracy of the data, improved collection of donation records, and adopting a more targeted approach to its compliance activities.
The AEC response has been unenthusiastic. The recommendation to use a more graduated system of punishments for noncompliance by donors, including the use of criminal prosecutions was rejected outright, because the AEC said it already takes such an approach. Other recommendations were accepted with qualifications.
The AEC report states in part
Background
1. The financial disclosure scheme was introduced in 1983 to increase overall transparency and inform the public about the financial dealings of political parties, candidates, senate groups and others involved in the electoral process. Regulation of the receipt and public disclosure of campaign funding and expenditure was seen as complementary and a necessary corollary to the introduction of public funding of political parties and candidates.
2. The financial disclosure scheme requires specified participants (entities) in the electoral process that receive funding, provide funding, or incur political, now electoral expenditure to lodge financial disclosure returns with the Australian Electoral Commission (AEC). Such information assists voters to make judgements knowing who funds political representatives and to what extent.
Rationale for undertaking the audit
3. The administration of the financial disclosure requirements by the AEC was selected for audit because the purpose of the financial disclosure scheme is to preserve the integrity of the electoral system, maintain public confidence in the electoral process and reduce the potential for undue influence and corruption. The financial disclosure scheme is also a central pillar of the Australian arrangements to provide electors with sufficient information on which to base selection of their political representatives.
Audit objective and criteria
4. The objective of the audit was to examine the effectiveness of the AEC’s management of financial disclosures required under Part XX of the Commonwealth Electoral Act 1918, including the extent to which the AEC is achieving accurate and complete financial disclosures.
5. To form a conclusion against the audit objective the following high level audit criteria were used: Has the AEC established effective arrangements to administer the financial disclosure scheme? Has the AEC developed and implemented effective compliance monitoring arrangements?
Conclusion
6. The AEC‘s management of the financial disclosures required under Part XX of the Commonwealth Electoral Act 1918 is partially effective.
7. The arrangements that the AEC has in place to administer the financial disclosure scheme are limited in their effectiveness as: across the four year period examined, while the AEC has obtained 5882 annual and election returns, as at 30 June 2020, 75 returns have not been obtained. There have also been delays with the submission of returns to the AEC with 22% of annual returns and 17% of election returns lodged after the legislated due date; the AEC does not make effective use of available data sources to identify entities that may have a disclosure obligation that have not submitted a return; there is insufficient evidence that the returns that have been provided are accurate and complete5; there is limited analysis undertaken of returns that are obtained; and risks to the financial disclosure scheme are not managed in accordance with the risk management framework.
8. Compliance monitoring and enforcement activities are partially effective with the result that the AEC is not well placed to provide assurance that disclosure returns are accurate and complete.
Supporting findings
9. Across the four year period examined by the ANAO the AEC has obtained 5882 annual and election returns, and as at 30 June 2020, has not obtained 75 returns. Compliance with legislated timeframes has also been an issue, with 22% of annual returns and 17% of election returns lodged after the legislated due date. Forty four entities have submitted annual returns on average over 30 days late on two or more occasions, with 12 (27%) having lodged, on two or more occasions, on average over 120 days late. Additionally, the AEC does not make effective use of available data sources to identify entities that may have a disclosure obligation and have not submitted a return.
10. There is insufficient evidence that annual and election returns are accurate and complete. While the AEC checks that all fields have been completed and looks for some obvious errors it does not compare the figures disclosed with other data available from internal or external sources, instead relying on its annual compliance review program to provide sufficient evidence that the annual and election returns are accurate and complete.
11. The effectiveness of the analysis undertaken by the AEC is limited. Annual returns submitted by third parties and donors are not analysed. Election returns submitted by candidates, senate groups or election donors are not analysed. The analysis that is undertaken of annual returns submitted by political parties and associated entities is limited as there is no detailed analysis of the financial information, and effective data analytics and data matching techniques are not employed by the AEC.
12. Risks to the financial disclosure scheme have not been managed in accordance with the AEC’s risk management framework. While the risk appetite and tolerance statement of this framework states that the AEC has a low/moderate risk tolerance for risks associated with the disclosure function there is no evidence that risks relating to all entities that have a disclosure obligation have been assessed and are being managed appropriately. Additionally, there is no treatment plan in place for the risk that has been identified by the AEC, being the risk of non-compliance by political parties.
13. While the AEC has identified some lessons that it could learn from other electoral bodies that regulate financial disclosure schemes, there is little evidence of any resulting changes having been made to how the Commonwealth scheme is administered. The AEC has also not taken adequate steps to implement agreed recommendations from a review it commissioned in 2012 of the disclosure compliance function (which concluded that the AEC needed to become more proactive in its approach).
14. The AEC does not apply an appropriate risk based approach to planning and conducting compliance activities. While most reviews are planned on the basis of a risk assessment, there are a number of limitations in the risk assessment methodology employed. Over the period assessed the AEC did not undertake a compliance review of any election donor returns or of any annual returns that included no financial disclosures (that is, a nil return).
The number of reviews, and the resources allocated to them, have declined considerably across the five year period analysed. These reductions do not reflect an assessment that the risk of non-disclosure or non-compliance has reduced and this situation is also at odds with the significant growth that has occurred in the total value of receipts and other figures included in the financial disclosure returns provided to the AEC.
15. Planned compliance activities are not implemented in a timely and effective manner. Of the 168 reviews that were planned to have been conducted over the five year period examined by the ANAO, 58 (35%) have not been completed. While completion rates have improved in the last two years this is due to the AEC significantly reducing the number of planned reviews, narrowing the scope of planned reviews, and reducing the value of the transactions being tested. There has also been a marked decline in the number of full reviews that are being conducted on large entities with disclosure obligations.
16. The AEC does not appropriately act upon identified non-compliance. It is not making effective use of its enforcement powers and as such has not implemented a graduated approach to managing and acting on identified non-compliance.
The ANAO's recommendations in summary are -
Recommendation no.1
Paragraph 2.19 The Australian Electoral Commission improve the extent to which it is obtaining annual and election returns by taking: greater steps to identify entities with a reporting obligation, and drawing that obligation to the attention of those entities; and more effective action to obtain returns that have not been submitted by an entity with an identified disclosure obligation.
AEC Response: Agreed with qualification
Recommendation no.2
Paragraph 2.43 The Australian Electoral Commission use data analytics and data matching techniques to provide greater assurance over whether data included in returns can be relied upon, and as an indicator of returns that may require investigation.
AEC Response: Agreed with qualification
Recommendation no.3
Paragraph 2.52 The Australian Electoral Commission identify and develop treatment plans for risks relating to the financial disclosure scheme and manage the scheme in line with its revised risk management framework.
AEC Response: Agreed
Recommendation no.4
Paragraph 3.13 The Australian Electoral Commission apply the lessons learned that have been identified through: accessing specialist expertise to test the effectiveness of the processes and practices that are in place to identify undisclosed financial transactions; and establishing arrangements with other government agencies to share intelligence gathering, data interrogation and risk based sampling techniques.
AEC Response: Agreed with qualification
Recommendation no.5
Paragraph 3.39 The Australian Electoral Commission adopt a risk based approach to its compliance review program that: assesses the aggregate level of risk to inform decisions about the size and coverage of the program; includes all disclosures required under the updated legislative framework; and improves the effectiveness of the risk matrix used to select the majority of reviews, and better address risks of non-disclosure and incomplete disclosure.
AEC Response: Agreed with qualification
Recommendation no.6
Paragraph 3.73 The Australian Electoral Commission establish performance measures for its compliance program that are relevant, reliable and complete.
AEC Response: Agreed
Recommendation no.7
Paragraph 3.90 The Australian Electoral Commission implement a graduated approach to addressing non-compliance, including by making better use of its investigatory powers and seeking to have prosecutions undertaken by the Commonwealth Director of Public Prosecutions or civil penalties applied by the courts where serious or repeat non-compliance has been identified.
AEC Response: Not agreed
The AEC's response in summary is
An effective and transparent financial disclosure scheme is a key pillar of Australia’s democratic framework, and the outcomes of this audit demonstrate there are aspects of the AEC’s administration of the disclosure scheme that would benefit from further enhancements. The AEC acknowledges the audit team’s work and notes the observations, which we will address in line with our responses to the recommendations. However, the ANAO’s categorisation of the AEC’s management of the disclosure scheme as ‘partially effective’ is rejected. The proposed report contains some errors of fact and superficial analysis that lead to some flawed observations. It demonstrates a misunderstanding of the AEC’s business and the legislation under which it operates. The ANAO’s decision to conduct this audit prematurely –before recent legislative changes have had a chance to take effect — is akin to a building inspector assessing a two-storey house after only the first level had been completed. The result is a report that gives the Australian public an unduly negative and misleading impression of the effectiveness of the scheme.
The ANAO’s finding that the AEC’s management of the disclosure scheme is ‘partially effective’ runs counter to the extent of disclosure achieved by the AEC (obtaining 98.9% of annual returns and 99.6% of election returns during the four year period examined), the transparency of the current system, and the successful operation of the scheme within existing legislative boundaries.
The AEC view is that the ANAO has misunderstood the intent of the legislation. Over the period the AEC has been administering the requirements of the Electoral Act, the AEC has not detected systemic issues, wilful or large scale non-compliance with the legislation. And nor have others that scrutinise this scheme through our transparent sharing of the data. Our experience is that incomplete or incorrect disclosures are almost entirely caused by administrative mistakes or misunderstanding of disclosure obligations, which participants rectify. As a result, disclosure is achieved in line with the legislation.
The AEC’s risk based approach to compliance reviews is the outcome of balancing the competing tensions of natural justice, apprehended bias and prudent use of Commonwealth funds with the preservation of public confidence in the transparency of the financial dealings of political parties and others involved in the electoral process.
Moreover, the AEC disagrees with the ANAO’s view that it does not make effective use of its enforcement powers. The ANAO seems to have misinterpreted parliament’s intent on this issue. The AEC’s view, supported by data, is that the AEC has successfully achieved disclosure through consultation and education. The proposition the AEC should be more heavy-handed in its approach to enforcement is rejected, as prosecutorial action for amendments and other administrative mistakes would be disproportionate.
The AEC believes the ANAO’s misunderstanding of the intent of the legislation exaggerates the nature of the recommendations and the perceived risk to electoral integrity.
In contrast the ANAO comments
The core elements of the financial disclosure scheme were introduced in 1983 and required disclosure reporting to the AEC and also provided the AEC with powers to undertake reviews and inquiries to maintain compliance with the disclosure provisions as well as a range of penalties aimed at discouraging non-compliance. Since its introduction, the financial disclosure provisions of the Electoral Act have been subject to four substantial amendments, most recently in 2018. The impact of those recent amendments on the AEC’s practices was considered as part of the audit. Reflecting that the key elements of the AEC’s responsibilities for administering the scheme are longstanding the audit examined administration of the disclosure scheme across four financial years spanning two federal elections and eleven by-elections.
To achieve the purpose of the disclosure scheme, it is important that reports be obtained from all those with a reporting obligation and that the reports obtained be timely, accurate and complete. While almost all returns sought by the AEC were obtained:
- reporting has not been sufficiently timely, with 22% of annual returns and 17% of election returns lodged after the due date with some entities submitting returns late on multiple occasions; and 78% of returns reviewed by the AEC required amendment
- yet, rather than increasing its scrutiny of the reports that have been obtained, the AEC:
- significantly reduced the number of planned reviews, narrowed the scope of planned reviews, and reduced the value of the transactions being tested;
- did not undertake or did not complete 35% of planned compliance reviews; and
- has not undertaken a compliance review of any election donor returns or of any annual returns that included no financial disclosures (that is, a nil return).
