Defence consultancy fees out $5.8m

THE Defence Department has declared an extra $5.8 million in consultancy spending, launched a review of its disclosure systems and vowed to re-train officials after being alerted to reporting errors by The Australian.

THE Defence Department has declared an extra $5.8 million in consultancy spending, launched a review of its disclosure systems and vowed to re-train officials after being alerted to reporting errors by The Australian.

In its recently tabled annual report for 2008-09, the department said it had spent $72.8m on consultants, a 7 per cent rise on the $68m it reported for the previous year. Defence now concedes the total figure should be at least $78.6m, a 16 per cent jump at a time when the Rudd government is trying to rein in military spending.

Last financial year, the department initiated a series of major policy projects and audits as part of the white paper review. It engaged dozens of academic and private-sector experts to map out a long-term future for the Australian Defence Force and to identify areas where officials could trim costs.

In the detailed listing of about 800 new Defence consultancies for 2008-09, The Australian discovered omissions last Wednesday and alerted the office of Defence Minister John Faulkner.

For instance, three McKinsey Pacific Rim Inc contracts -- $3.8m for a defence budget audit, $1.65m for the white paper companion review and another contract for $118,800 -- were not included. As well, two contracts worth $288,000 for the defence budget audit for consultant George Pappas, a founding partner of the firm that is now the local offshoot of multinational Boston Consulting Group, were also not on the list.

It is a reporting requirement in the federal sphere that all government contracts "let" in excess of $10,000 must be declared on the AusTender website and properly identified; new consultancies must be listed in annual reports or in electronic formats that accompany the reports. According to a Defence Department spokesperson, the consultancies identified by The Australian "were incorrectly coded as contractor expense in Defence's Financial Management Information System". "Under the Whole of Government definitions these contracts should more correctly have been classified as consultancies," the spokesperson said in a written response. "As a result the amounts identified in the Defence Annual Report understated the value of consultancies by approximately $5.8m.

"Defence is ensuring that AusTender and the Defence Web site includes reference to the missing consultancy contracts.

"In response to the issue raised, an immediate review of purchase orders was undertaken by the department. Based on a check of a purchase order sample, no further miscodes were identified."

The department conducted further reviews over several days and as of yesterday it had not identified any further errors.

"For ongoing assurance purposes, Defence will implement centralised controls designed to assure the accuracy of contractor and consulting coding," the spokesman said.

"This will include providing additional guidance for staff entering data into the financial system."

Opposition spokesman on affairs of state Michael Ronaldson said yesterday it was "absolutely astounding that a blunder of almost $6m could be made by this government".

"Annual reports are the most important single document that a department produces in any given year," Senator Ronaldson said. "If you cannot get a simple accounting job right in an annual report, how can taxpayers have any assurance about the government's management of multi-billion-dollar projects?"

In its initial report for 2008-09, Defence said it entered into 817 new consultancy contracts involving actual expenditure of $41.1m. In addition, there were 508 ongoing consultancy contracts worth a total of $31.7m. By yesterday, the error had still not been corrected in the annual report.