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    A u s t r a l i a n N a t i o n a l A u d i t O f f i c e

    T h e A u d i t o r - G e n e r a l

    Audit Report No.51 200203

    Performance Audit

    Defence Housing and Relocation Services

    Department of Defence

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    Commonwealthof Australia 2003

    ISSN 10367632

    ISBN 0 642 80713 2

    COPYRIGHT INFORMATIONThis work is copyright. Apart fromany use as permitted under theCopyright Act 1968, no part may bereproduced by any process withoutprior written permission from theCommonwealth, available fromAusInfo. Requests and inquiriesconcerning reproduction and rightsshould be addressed to:

    The Manager,Legislative Services,AusInfoGPO Box 1920Canberra ACT 2601

    or by

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    Canberra ACT

    19 June 2003

    Dear Mr PresidentDear Mr Speaker

    The Australian National Audit Office has undertaken a performance audit inthe Department of Defence in accordance with the authority contained in theAuditorGeneral Act 1997. I present the report of this audit, and theaccompanying brochure, to the Parliament. The report is titled DefenceHousing and Relocation Services.

    Following its presentation and receipt, the report will be placed on theAustralian National Audit Offices Homepage

    Yours sincerely

    P. J. BarrettAuditor-General

    The Honourable the President of the SenateThe Honourable the Speaker of the House of RepresentativesParliament HouseCanberra ACT

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    The Auditor-General is head of theAustralian National Audit Office. TheANAO assists the Auditor-General tocarry out his duties under the Auditor-General Act 1997 to undertakeperformance audits and financialstatement audits of Commonwealthpublic sector bodies and to provideindependent reports and advice forthe Parliament, the Government andthe community. The aim is to improveCommonwealth public sectoradministration and accountability.

    For further information contact:The Publications ManagerAustralian National Audit OfficeGPO Box 707Canberra ACT 2601

    Telephone: (02) 6203 7505Fax: (02) 6203 7519Email:

    ANAO audit reports and informationabout the ANAO are available at ourinternet address:

    Audit TeamNicola ThatcherDanielle Smith

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    Abbreviations 6

    Summary 11

    Recommendations 17

    Audit Findings and Conclusions 19

    1. Introduction 21

    Defence housing policy 21

    Defence Housing Authority 24

    The audit 25

    Response to the audit report 26

    Cash subsidy alternative to housing assistance 27

    Report structure 28

    2. Formalising the Service Arrangements 30

    Prior to the Services Agreement 30

    Developing the Services Agreement 30

    Is the Services Agreement a contract? 42

    Relocations Services Agreement 43

    3. Strategic and Operational Management of Services 48

    Defence officers on DHA board 48

    Strategic management 50

    Operational management 51

    Independent review of Services Agreement operation 58

    4. Performance Management of Services 59

    Aim of the Services Agreement 59

    Outstanding issues on signature 59

    Housing Management Instructions 61

    Continuous Improvement Program 62

    Key Performance Indicators 64

    One Stop Shop 65

    Contract management structure 66

    Defence Housing Forecast 69

    Provision and allocation of housing stock 72

    Vacancy management reporting 79

    Authority for implementing Defence policy 81

    5. Financial Management of Services 84

    Extra charges under the Services Agreement 84

    Supplementary Funding 87

    Cost of Defence housing and relocations assistance 91

    Rent bill/baseline/valuations/calculations 97

    Invoice validation 100

    Appendices 103

    Appendix 1: ANAOs 1994 Report on Defence Housing Assistance 105

    Appendix 2: Previous Performance Audits in Defence 106

    Index 107

    Series Titles 109

    Better Practice Guides 113

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    ADF Australian Defence Force

    ADFPAY Australian Defence Force Pay System

    ANAO Australian National Audit Office

    APS Australian Public Service

    CDF Chief of the Defence Force

    CEIs Chief Executives Instructions

    CIP Continuous Improvement Program

    CSIG Corporate Services and Infrastructure Group

    CSM-R Client Service ManagerRelocations

    DBF Defence Business Forum

    DCS Defence Corporate Support

    DDG Defence Domiciliary Group

    DE Directorate of Entitlements

    DEFMIS Defence Financial Management Information System

    DFA Defence Families of Australia

    DHA Defence Housing Authority

    DHRP Directorate of Housing and Removals Policy

    DHF Defence Housing Forecast

    DOC Domiciliary Operations Committee

    DPE Defence Personnel Executive

    DRC Defence Relocations Centre

    DRH Directorate of Relocations and Housing

    FMA Act Financial Management and Accountability Act 1997

    HDCS Head Defence Corporate Services

    HDPE Head Defence Personnel Executive

    HMC Housing Management Centre

    HMIs Housing Management Instructions

    KPI Key Performance Indicator

    NCGSF National Consultative Group of Family Services(became DFA)

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    NOD National Operations Division

    PACMAN Defences Pay and Conditions Manual

    PBS Portfolio Budget Statements

    RA Rent Allowance

    ROMAN Resource and Output Management and AccountingNetwork

    SR Service Residence

    TAPS Tenant Accommodation and Property ManagementSystem

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    Background1. Defence has long provided housing assistance for members of theAustralian Defence Force (ADF) and their families. In 1988, this function passedto the Defence Housing Authority (DHA), which was established to providesuitable housing to meet Defences operational needs. DHA became aGovernment Business Enterprise (GBE) in 1992. In response to the Governmentsdesire that DHA operate more commercially, provision of housing was formalisedin 2000, when Defence and DHA signed a Services Agreement valued at$3.5 billion over 10 years. Some 17 000 ADF members and their families arebeing housed by DHA or through rental allowance arrangements. Defenceremains responsible for setting housing standards and for overall managementof housing and relocations assistance for the ADF.

    2. The Government considers that providing high-quality accommodationis essential if the ADF is to retain valued members. It has commented positivelyon DHA, which has done much to improve housing for members and theirfamilies. DHA surveys of ADF tenants indicate a high degree of customersatisfaction with their housing.

    3. During 2000 and 2001 DHA began providing Defence with housing relatedservices, which were formalised in a second agreement in 2002. These are mainlyhousing allocation and relocation services; arranging for Defence to makepayment of Rent Allowance (RA) to members to use private houses; payment ofrelocation and temporary accommodation allowances (on a reimbursementbasis); and arrangement of end-of-tenancy cleaning of service residences.

    4. Total payments to DHA for rent and other services amounted to$424 million in 200102. ADF members contribute to rent paid by Defence toDHA. Contributions amounted to $98 million in 200102. Fringe Benefits Taxpaid on Defences contribution to housing assistance for members was some$126 million in 200102.

    5. Defence also provides members with a removals service, under contract,which cost $98 million in 200102. Defence home purchase assistance formembers cost $44 million in 200102. Overall, the cost to Defence of housingand related services amounted to some $594 million in that year, net of membercontributions.

    6. The objective of the audit was to assess whether Defences managementof its housing and relocation services provided for ADF members meets specifiedrequirements; and to make practical recommendations for more efficient,

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    effective and economical use of public resources provided for this purpose. Itwas not an audit of DHAs performance in providing housing and relocationservices to Defence.

    Key audit findings and conclusions

    Formalising the service arrangements

    7. During Defences negotiations for the Services Agreement, the responsibleMinisters stated that it must be a properly constructed commercial contract,reflecting in an unambiguous manner the risks and obligations of each party.The Agreement as signed, however, is not such a contract and was not preparedby Defences legal advisers.

    8. Before Defence signed the Agreement, its legal advisers expressed strongreservations about it. The advice was that the Agreement would not meetDefences objective of putting arrangements with DHA on a more commercialfooting; significantly limits the advantages Defence could otherwise obtain froma commercial arrangement; leaves Defence with an unsatisfactory level of risk,with risk-sharing concepts lacking clear responsibility; raises potentially seriousrisks to Defences interests on issues such as performance quality and budgetarycontrol; and lacks normal terms about failure to perform, the right to withholdmoney payable, record-keeping and audit requirements.

    9. These aspects of the legal advice were omitted from the summary of theadvice that Defence provided to the


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