CSIRO Submission to Commonwealth Financial Accountability Review
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CSIRO Submission to Commonwealth Financial Accountability Review
June 2012
Executive Summary
CSIRO welcomes the opportunity to comment on the proposals outlined in the Commonwealth Financial
Accountability Review Discussion Paper Is less more? Towards better Commonwealth performance and to
suggest other potential reforms.
The key points in this submission are:
• Governance and financial management arrangements should be driven by strategies to improve the
delivery of government policies and programs. The strategy will inform issues like the balance between
centralisation and devolution, how entities and governance arrangements are structured to add value, the
application of risk based approaches and level of detail required at various levels for decision making, and
performance monitoring and reporting.
• To achieve effective governance, the Australian Government’s financial framework should clearly articulate
the roles, relationships and accountabilities of elements within the framework. The various elements should
form a closed resource management and performance cycle.
• The proposal to introduce single, principles-based legislation may be appropriate provided it enables a
variety of ‘fit for purpose’ governance arrangements.
• Board-governance arrangements are an effective way of achieving transparency and accountability,
particularly where the entity is engaged in public good and commercial work and where an element of
independence is required to fulfil its functions and build community confidence.
• Boards of appropriately qualified directors bring knowledge, experience and governance competencies to
the delivery of government programs.
• The Government should continue to appropriate to outcomes. Outcomes provide a clear statement of the
intent of the Government and the expectations of the entities who deliver their policies and programs.
Accountability comes from having a clear view from the outcomes funded by Government and strategies
pursued by the entity to the benefits delivered. Appropriating to outcomes provides a basis for cross-
portfolio or cross-government collaboration and more integrated resource management.
• Government funding of outcomes is particularly important and appropriate for an entity where a Board will
determine the direction and strategy of the entity and will be accountable for an entity’s performance.
• Long term funding commitments (four year) are required for effective planning in a research environment
and ten years plus commitments are required for research infrastructure development.
• The capacity to facilitate integrated resource prioritisation and management and to fund government
objectives that cross portfolio and organisational boundaries should be pursued. Flexibility with
accountability is required for the Government to act in an integrated and coordinated way and to address
national challenges.
Contact: Ms Hazel Bennett
Chief Finance Officer
CSIRO
PO Box 225 Dickson ACT 2602
Tel: 02 6276 6633
Email: hazel.bennett@csiro.au
CSIRO Page 1 of 16CSIRO Submission to Commonwealth Financial Accountability Review
CSIRO welcomes the opportunity to comment on the proposals outlined in the Commonwealth Financial
Accountability Review Discussion Paper Is less more? Towards better Commonwealth performance and to
suggest other potential reforms. The Review is a valuable and timely contribution to public policy and has the
potential to genuinely enhance government operations.
The Discussion Paper canvases a number of important issues with respect to the efficiency and effectiveness of
funding arrangements, governance, performance and accountability. A number of these are whole of
government in nature and extend beyond the operations of CSIRO but may nevertheless have implications for
the Organisation’s ability to fulfil its functions.
The CSIRO submission comments on the following areas:
• Effective Governance
• Integrated resource prioritisation and management
• Devolution and centralisation
• Program delivery, accountability and risk
• Other Potential Reforms
• Framework for the Future
The submission includes two case studies: the Governance of CSIRO (Attachment 1) and the National Research
Flagships Program (Attachment 2). Specific comments on the proposals outlined in the Discussion Paper are at
Attachment 3.
The observations and comments are from the perspective of CSIRO, established and constituted under the
Science and Industry Research (SIR) Act 1949 and operating under the Commonwealth Authorities and
Companies (CAC) Act 1997.
Effective Governance
CSIRO has considered the governance reforms in the Discussion Paper from first principles and in the context of
CSIRO’s current governance arrangements, as summarised in Attachments 1 and 2.
In this context, we referred to the description of governance provided in the Review of the Corporate
Governance of Statutory Authorities and Office Holders (Uhrig Review) in 2003:
“Corporate governance encompasses the arrangements by which the power of those in control of the
strategy and direction of an entity is both delegated and limited to enhance prospects for the entity’s
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long-term success, taking into account risk and the environment in which it is operating.”
From CSIRO’s perspective, the insights for the governance proposals outlined in the Discussion Paper are:
• It is important that governance and financial management arrangements are driven by strategy not
structure and focus on delivering benefits (impact). Strategic goals can often be more effectively achieved
through collaboration and goodwill, and by empowering the managers to manage, than introducing
additional governance or operational structures.
• Legislative and other reforms should recognise the benefits of a Board-governance model for entities that
operate across the public-commercial domain, especially where the community requires confidence in the
impartiality and integrity of the work of the entity.
o Boards of qualified directors bring knowledge, experience and governance competencies to
the delivery of government programs.
• Directors should continue to be required to act in the entity’s long-term interest and to take into account
risk and the environment in which the entity is operating.
o As with the private sector, directors should continue to be held accountable for exercising a
duty of care and for the entity’s performance.
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Review of the Corporate Governance of Statutory Authorities and Office Holders, June 2003 page 2
CSIRO Page 2 of 16• Legal cases involving director duties under Corporations Act inform directly the
conduct of public sector (CAC Act) boards, so consistency will enhance governance
practices.
• Common or consistent governance principles and requirements will enhance public
understanding of the transparency and accountability of government operations.
• Approving and funding ‘outcomes’ aligned to the policy intent and expectations of the Government and
then allowing the entity flexibility to determine its strategies to achieve those goals is a responsible and
effective approach. Entities will also have flexibility to respond to emerging issues, reprioritise activities
and ultimately improve the quality of outcomes and deliver those outcomes ‘on brief, budget and time’ as
approve by the Government.
• Multi-year funding arrangements provide stability for effective planning in a research environment; and
allowing entities to carryover amounts and to retain money saved in any period provides an incentive for
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better resource management.
• Managing programs with broad cross-portfolio government objectives, within existing entity and
governance structures (such as CSIRO does for the National Research Flagship Program) is an effective and
efficient approach.
o The formation of new or additional entities can add structural complexity and costs to
Government.
o Program delivery arrangements involving new entities or formal joint ventures can reduce the
line of sight a Board has of the organisation’s commitments, risks and performance. In some
circumstances, it may be better to rely on existing management controls within the entity
and its overarching governance framework, than to form new and potentially less efficient
arrangements.
CSIRO supports initiatives that provide “participative and networked arrangements” and which “will help make
the public sector more connected and agile and better placed to address complex problems in an uncertain
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environment”.
Integrated resource prioritisation and management
A key success measure for the revised financial framework will be its capacity to facilitate integrated resource
prioritisation and management.
The comment in the Discussion Paper on the community expectation that governments will act in an integrated
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and coordinated manner resonates with the strategic advice CSIRO has received over the past decade, which
led to the leadership role CSIRO has played through the National Research Flagships.
CSIRO would like to see the Review continue to pursue mechanisms to prioritise and manage resources more
flexibly across portfolios and direct them towards whole of government solutions. Looking at challenges and
opportunities through such a lens will potentially identify and provide the means to resolve conflicting objectives,
avoid fragmentation and waste, and minimise transaction costs involved in arguably competing processes.
Certainly in the national innovation system in which CSIRO operates, challenges like climate adaption,
preventative health and food security require whole of government responses that are best delivered through
integrated resource prioritisation and management.
CSIRO’s experience is that our research and science-based advice often has broader government applications
and our capacity to deliver benefits often depends on our ability to form partnerships which cross boundaries.
CSIRO (and others) could engage earlier and more efficiently with a mechanism that is focused on achieving
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This is consistent with the comment on page 46 of the CFAR Discussion Paper - Is less More? Towards better Commonwealth
Performance Commonwealth Financial Accountability Review, March 2012
3
CFAR Discussion Paper, page 4
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CFAR Discussion Paper, page 1 notes: “In addition, community expectations of government have changed. Citizens expect the
government to act in an integrated and coordinated way and to respond to increasingly complex issues efficiently and effectively.
They expect services that meet their needs, rather than services that reflect organisational structures and boundaries.”
CSIRO Page 3 of 16outcomes through resource integration across the whole of government; and provide more effective advice on
the possible research dimensions which look beyond current structural boundaries.
Recognising the complexities of the Government’s financial framework, an issue is whether the framework
needs to better support the Government’s capacity to marshal and direct capability to deliver Government
policies and programs.
There is probably no simple solution across government however, at an entity level, CSIRO applies governance
and funding solutions to direct the deployment of resources for the delivery of programs. Within CSIRO, most
staff are deployed from their capability home (Divisions) to work on one or more Flagships that deliver
outcomes. Funding is directed primarily at outcomes (Flagships) and not inputs. A key role of the
Organisation’s Executive leadership is to establish the overarching strategy as the context within which the
Flagships establish their objectives and outcomes, and then to monitor progress against goals through the
performance measurement framework. The roles and accountabilities of key positions within CSIRO reflect
these operational relationships and emphasise collaborative behaviours necessary to successfully achieve the
organisational outcomes.
CSIRO considers that there are a number of propositions in the Discussion Paper that are potentially conflicting
and need to be reconciled to achieve this integrated resource prioritisation and management, such as:
• Simplify the appropriation bills by no longer appropriating to outcomes, but with outcomes retained in the
performance context (page 3)
• Structure the financial framework to allow for more integrated portfolio governance
• Recognise in the financial framework legislation that the responsibilities of office holders, management and
staff can extend beyond their individual organisations to delivering wider government objectives, including
joint activities.
• Structure the financial framework to allow for pooled funding arrangements and for appropriated amounts
to be more readily redistributed among entities pursuing shared objectives. (page 4)
In terms of resource management, the first proposal appears to be at cross purposes to the other proposals
because outcomes provide a basis for cross government collaboration. (The point in the Discussion Paper
about outcome statements being too high level and the information becoming “more voluminous and
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complex” is a secondary issue.)
From the perspective of first principles, outcomes also provide a very clear statement of the intent of the
Government and the expectations of the entities who deliver their policies and programs. Accountability
comes from having a clear view from the outcomes funded by Government and strategies pursued by the
entity to the benefits delivered.
By appropriating to outcomes, entities can contribute to outcomes irrespective of portfolio or organisational
structure boundaries. The entities in turn should be accountable for their contribution to appropriately
constructed cross-portfolio or organisation strategies and activities.
Under a more integrated financial framework it should still be possible to assign cross-portfolio
accountabilities, including Ministerial accountabilities. This is obviously much easier within an entity but
essentially collaborations work best when parties are open about shared costs, risks and benefits. Success
depends on addressing behavioural aspects (i.e. who gets credit or blame, authority, etc). There is a risk with
any arrangement that lines of accountability are not clear, which leads to poor decision making. Hence, the
importance of role clarity within the framework.
Furthermore, the financial framework needs to allow entities the flexibility to reprioritise the use of
appropriation funds to deliver better quality outcomes ‘on brief, budget and time’ and respond to emerging
issues. This should be possible provided the entity is transparent and accountable for variations and does not
change the intent of the outcome approved by the Government.
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CFAR Discussion Paper, page 3
CSIRO Page 4 of 16In term of financial accounting, the Discussion Paper includes a discussion on the influence of accrual
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appropriations and accounting on resource management. The discussion goes to what information the
Government needs to responsibly manage resources and programs and the implications of accrual accounting
for different types of entities within the framework (e.g. companies and agencies). Certainly accrual accounting
enables entities to understand their financial position and to fully cost projects. Visibility of the cash position is
also important for considerations of liquidity and for example, the capacity to fund items such as asset
replacement and employee liabilities as they fall due. As to whether accrual appropriation supports or
constrains better resource management, the more critical issue is the need to have all financial levers aligned
to the same underpinning financial framework as inconsistency between cash and accrual based information
will obscure transparency and may sub-optimise decision-making.
Devolution and centralisation
The Discussion Paper articulates the dilemma:
“The shift to devolution and greater managerial freedom continues to yield benefits in innovation,
adaptation and responsiveness. However, there have been, and continue to be, shortcomings in the
public accountability mechanisms required to balance the increased managerial flexibility” (page 32)
The Paper then goes on to discuss having an “increased strategic capacity at the centre” (page 32) and consider:
“how the framework can provide an appropriate balance between devolution and centralisation, with
the appropriate level of accountability. The nature and extent of direction from the centre necessary for
the Commonwealth to operate as a coherent whole is an important consideration” (page 33).
CSIRO’s experience suggests that the balance between devolution and centralisation is primarily about
governance, how to direct and manage government operations, rather than the financial framework. An over
emphasis on financial aspects could indeed work against the more fundamental governance objectives.
The balance is also about clarifying roles, relationships and accountabilities. Essentially, what the ASX principles
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refer to as ‘lay solid foundations for management and oversight’ and ‘structured boards to add value’.
The framework needs to recognise that the balance between devolution and centralisation will also vary
according to the nature and maturity of entities within the framework and that is appropriate.
From the perspective of first principles, the key role of the centre is in establishing the policy settings and
objectives and then advising Government on the overall resource implications and planned outcomes,
establishing parameters within which entities operate and reviewing the delivery of outcomes (such as through
lapsing program reviews), i.e. providing an integrated resource management and performance cycle (closed
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loop approach) . The leaders of the entity are responsible for delivery, i.e. implementing an effective
governance framework, determining the strategies of the organisation, managing the operations and
monitoring performance right through the delivery cycle to the achievement of the outcomes expected and
established by the centre.
The entire process, both centralised and devolved, is then supported by assurance mechanism, such as the role
of the ANAO. The centre also adds value to the assurance process by looking at performance across
government (an important and distinct role that complements but doesn’t seek to duplicate the performance
monitoring within entities); and by providing the overarching resources and training.
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CFAR Discussion Paper, page 23 notes: “Cash appropriations, based on the net annual cash requirement of an entity, would simplify
appropriations. They could be structured to have no impact on accrual accounting and financial reporting by appropriating against an
entity’s cash flow statement. This would also facilitate a clear read between appropriations and annual financial statements.”
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Corporate Governance Principles and Recommendations with 2010 Amendments 2nd Edition ASX Corporate Governance
Council, page 10
8
See section on Implementing a Integrated Resource Management Cycle in CFAR Discussion Paper, page 42
CSIRO Page 5 of 16The CSIRO case study at Attachment 1 shows devolution with accountability is an appropriate model for
delivering within the Government’s financial framework.
In defining the balance between centralisation and devolution, the test should be whether or not the elements
add value to an overall framework and do not detract from or diminish the accountabilities of others. Part of
the problem with the current framework is the proliferation of government entities and fragmentation of
control. There are some 110 FMA Act agencies and 84 CAC Act entities. This does not include related joint
venture entities or reflect the way entities co-invest in collaborative programs.
The extent to which the current framework is necessitating this fragmentation goes to the previous section in
this submission on the need to have a framework that facilitates cross-portfolio and jurisdiction arrangements
without necessarily forming more structural entities.
Program delivery, accountability and risk
Understanding risk is fundamental to program delivery and program design is probably the key measure for
determining risk.
By its very nature scientific research and the discovery and innovation process involves risk. Whilst the
scientific process and sound commercial practices mitigate some risk, there is always the prospect that the
outcomes will not be achieved. Market theory tells us however that ‘riskless approaches’ will lead to lower
returns or impact. Nothing ventured, nothing gained.
The point where policy makers, program managers and politicians need to exercise judgement is in balancing
risks and benefits, and in understanding the quantum of waste or loss that they can bear. This judgement will
inevitably depend on their risk appetite that should be based on a proper assessment of the risks and
opportunities involved in the economic, environment and social arena.
The most effective way to mitigate risk is through sound governance - clarifying roles and accountabilities,
empowering those roles, and closing the loop through effective performance monitoring and reporting.
The way to address “shortcomings in public accountability” is through better practices and being transparent
and open from the top down about risk.
In principle, CSIRO supports the propositions in the Discussion Paper on risk. Although Cabinet / new policy
proposals currently require consideration of risk, there is no risk framework against which entities should
respond or the Government should measure or compare risks.
A few dimensions of risk which are not in the Discussion Paper but could be considered are:
• Aggregated risk:
o The challenge of managing the integration of entity risk assessments and considering
the implications of combined or aggregated risk (i.e. the whole is greater than the
sum of the components and understanding an entity’s or government’s ability to
respond if all risks materialise at one time).
o The need to consider multi-entity risks involved in collaborative arrangements.
• Government risk appetite:
o In strategic planning, as well as articulating an entity’s risk appetite, it would be
extremely useful to understand the Government’s risk appetite towards a certain
position or approach. This could be articulated in Government policy, statements of
expectation and the approval of new policy proposals.
o Recognising the nature of politics, transparency about the risks on which a decision
is based and how they will be managed may assist government communication.
• Bipartisan position on risk:
o For entities like CSIRO, given the long term and uncertain nature of scientific
research and innovation, a bipartisan position wherever possible on the risk appetite
would be invaluable.
• Transparency about risk:
o Government announcements could note the risk implications.
CSIRO Page 6 of 16Other Potential Reform
The following are some suggestions for other potential reforms to improve government operations:
• Government investment in research infrastructure, through entities like CSIRO, should recognise the
strategic nature of the investment and long lead times involved in planning and delivery, which extend
beyond annual and quadrennial cycles. Significantly once plans are approved, certainty of funding is
essential to ensure that entire programs can be successfully completed and elements not left “stranded”
due to inconsistent or absent decision-making. Such interruptions may lead to ineffective delivery of
programs and sub optimisation of program outcomes.
• If four year funding arrangements are in place then consider allowing entities the flexibility to deliver
savings measures / efficiency dividends over that period, recognising that entities sometimes need to
‘invest to save’. This is particularly relevant after the continued application of the Efficiency Dividend where
discretionary savings from “low hanging fruit” have been taken and entities need now to pursue more
fundamental and innovative approaches to achieve sustainable improvements in cost containment and
productivity improvement.
Framework for the Future
The Discussion Paper identified three broad but not mutually exclusive approaches for potential reform:
− Upgrading the existing entity based framework
− Strengthening portfolio governance arrangements; and
− Strengthening the whole-of-government performance framework.
In many respects this choice is not an issue of FMA Act or CAC Act. Many of the propositions may be possible
without changes to the legislation.
The risk is focusing too much on financial management aspects rather than the most efficient and effective way
of directing, controlling (governance) and managing (integrated resource allocation) program delivery, and also
of relying on process solutions and controls to what may also be behavioural issues.
These factors influence our understanding and application of:
• roles and accountabilities within the framework
o flexibility and autonomy required by leaders to deliver programs successfully
• the devolution of decision making
o what decisions are appropriate at what level based on the information available
and policy objectives
• ability to identify and manage risk
• ability to monitor performance and respond in a timely and effective manner
• level and detail of reporting.
CSIRO recognises that any approach will always be complicated by the political dimension and reality of dealing
with the real and perceived expectations of the public with respect to accountability.
As the Review continues, CSIRO will be interested in the implications for the Organisation’s role in the national
innovation system. Like all entities, considering the propositions in both their specific and broader context will
be important.
We are also interested in how the framework might better support integrated resource prioritisation and
management and program delivery, including cross-portfolio and cross-jurisdictional arrangements.
Attachment
1. Case Study 1: Governance of CSIRO
2 Case Study 2: National Research Flagships Program
3. Specific Comments on Propositions in CFAR Discussion Paper
CSIRO Page 7 of 16Attachment 1
Case Study 1: Governance of CSIRO
Australian innovation policy has long recognised the inherent risk in scientific research and development, and
the associated investment. Currently, CSIRO as a separate legal entity has powers to act with a considerable
degree of autonomy, scientific independence and commercial agility. CSIRO’s status as an independent legal
entity enables it to conduct commercial activities and to protect its intellectual property, consistent with its
statutory functions (i.e. conduct scientific research and facilitate its application). As a scientific body, it enables
CSIRO be seen to be at arms’ length from government, especially with regard to the provision of independent
scientific advice to government, industry and the community.
Like other agencies, the Commonwealth Government funds a planned outcome-programs for CSIRO, as stated
in the Portfolio Budget Statement. CSIRO’s funding submission to Government takes into consideration the
findings of a Lapsing Program Review and CSIRO’s strategies for achieving its functions and delivering outcomes
over the coming four years and beyond. The strategy is guided by what CSIRO has identified, in consultation
Government and other stakeholders, as its distinct role in the national innovation system.
Since the early 1990s CSIRO has been funded on a triennium, now quadrennial funding basis. This provides
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“financial stability and an appropriate timeframe for scientific research planning” . CSIRO has a four-year
funding agreement with the Government that outlines the outcomes and programs we need to deliver and our
performance and reporting requirements.
Organisational Governance
CSIRO has operated with a Board and Chief Executive governance structure since 1986. In 2007, following the
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2003 Uhrig Review , CSIRO’s governing legislation, the Science and Industry Research (SIR) Act 1949, was
further amended to bring the governance arrangements even more into line with standard corporate practice
such as the ability of the Board to appoint and terminate the Chief Executive. The Minister now also provides
the Board with a Statement of Expectations.
Today, CSIRO’s operations are enabled and supported by its governance and resource management but driven
by its core purpose.
CSIRO is structured to conduct scientific research and to work in partnership with industry and other research
users to facilitate and encourage the application of the research results for the benefit of Australia.
Consecutive strategies have been building the foundations and platforms for delivering programs in response
to national challenges and opportunities.
Our ability to deliver positive economic, social and environmental impact depends on a range of interrelated
governance factors including our:
• relationship with the Government (portfolio department, Minister and Parliament)
• separate legal status and commercial agility
• capacity to determine and pursue long term, sustained strategies
• capacity to operate at a scale necessary to achieve results and to deploy and manage intellectual and
physical capability effectively.
Our governance arrangements enable us to:
• achieve our legislative functions and deliver the outcomes and programs agreed and funded by
the Government
• form and manage commercial relationships whilst fulfilling our broader public good role
• manage intellectual property in a manner which provides a platform for further research and development
and delivers long term, sustained national benefits
• manage collaborative, national research programs, which cross organisational and jurisdictional boundaries
within existing governance arrangements (e.g. the National Research Flagship Program)
• identify strategic and operational risks, articulate our risk appetite, and then manage risk based on an
understanding of the business
• monitor performance and be accountable for our decisions.
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Quadrennium Funding Agreement between CSIRO and the Portfolio Minister and Finance Minister
10
Review of the Corporate Governance of Statutory Authorities and Office Holders, June 2003
CSIRO Page 8 of 1611
If we look at the governance of CSIRO from first principles then some of the key advantages of this model for
CSIRO and the Government include:
• CSIRO is structured to “enhance prospects for entity’s long-term success, taking into account risk and the
environment in which it is operating”
o The power of the Board and Chief Executive to direct and control the entity is defined and
transparent
• Directors must act in the best interest of the entity (CAC Act Division 4) which inevitably requires looking
beyond the normal political cycles and is highly appropriate for an organisation engaged in long term
strategic research
o This may create perceived tensions from time to time with the Government and with the
implementation of other government programs but serves to reassure the community of the
integrity of decision making within an entity like CSIRO. It is balanced effectively by the
accountability of the Board to the Government and the ability of the Government to direct the
Board in a transparent manner, if required.
o Equating director and senior managers duties with those in the private sector (Corporations Act
2001), including the application of civil and criminal penalties, builds a common understanding of
duties. It also encourages directors, in particular, to work across public-private sector divide and
enables access to related competencies.
• Organisational direction and strategies are informed by directors with private and public sector experience,
commercial acumen and knowledge of sectors in which CSIRO operates.
o This governance capability minimises risk to Government and helps ensure a focus on delivering
outcomes (i.e. positive impact from the successful adoption of research results).
• Accountability and responsiveness of directors and senior managers is enhanced by:
o Proximity of decision makers to operations of entity and their intimate understanding of its environment
o Capacity to monitor performance and flexibility to respond to changing circumstances.
Program Delivery
CSIRO has been pursuing a major strategic reform agenda for a decade. This has taken perseverance, continuity
and resources. From the start, the Board ensured the reforms were based on good governance and the
connection between governance, financial management, risk and return.
The key ingredients were:
• Role clarity and strategic purpose – CSIRO’s strategy was to position itself as a national provider of large
scale, mission directed, multidisciplinary R&D focused on generating positive impact. i.e. not finished until
research is applied, not science for science sake
• Portfolio design and optimisation – articulation of CSIRO’s broad direction, based on an understanding of
its potential research capability and national challenges and opportunities, necessitated a reduction in short
term near market research and increase in longer term, higher risk research, with the explicit objective of
looking to increase returns over the medium term while still delivering today
• Enterprise resource allocation – application of an investment and prioritisation process based on criteria of
relevance and impact
• Performance management framework – line managers accountable for identifying and monitoring against
key progress goals, with central executive oversight and external review.
• Integrated Governance/Risk framework – clarifying direction and control through a coordinated operating
model and statements of roles and accountabilities.
• Professionalised enterprise services – focus on providing an integrated service to the business, not just support.
The centre piece of the strategy has been the National Research Flagships program. The program is an example
of a program, with a governance framework within the overarching CSIRO governance framework, marshalling
capabilities through internal and external collaboration to deliver research outputs that address national
challenges (see separate case study at Attachment 2).
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“Corporate governance encompasses the arrangements by which the power of those in control of the strategy and direction of an
entity is both delegated and limited to enhance prospects for the entity’s long-term success, taking into account risk and the
environment in which it is operating.” (Uhrig Review, 2003)
CSIRO Page 9 of 16Attachment 2
Case Study 2: National Research Flagships Program
Since 2000, CSIRO’s strategy has been to focus on addressing national challenges and opportunities and to
differentiate its role in the national innovation system as Australia’s large scale, multi-disciplinary, mission
directed science and technology organisation. This required a fundamental change to the way CSIRO operated.
Prior to 2002 CSIRO worked through around 22 semi-autonomous, discipline-based Divisions which conducted
science and managed commercial activities.
In order to build the scale necessary to achieve results the Organisation had to change the way it invested
resources; to work across internal boundaries and build a “one-CSIRO” culture, operating environment and
support structures; and to partner better with government, other research bodies, commercial clients and the
end users of research.
At the same time, CSIRO needed to continue to develop its research capabilities, people and facilities, and
maintain its reputation for scientific excellence.
This led to the formation of the National Research Flagships program. The Flagships are R&D partnerships that
bring together multidisciplinary capabilities from across CSIRO to work closely with research collaborators and
partners in government, industry and the community to tackle national R&D challenges and opportunities. The
Flagships are specifically designed to operate at a scale and over timeframes necessary to achieve results.
Fundamentally and critically, the Flagships focus on delivering economic, social and environmental benefits
(positive impact) through the successful application of research results.
An initial investment in 2003 was the catalyst for establishing a small set of Flagships and the implementation
of a governance framework, which also served to encourage further investment. The Government responded
by providing $305m in new funding over 7 years in 2004 (including $97m for the Flagship Collaboration Fund)
and an additional $174 million over 4 years in 2007. With funding from CSIRO and external revenue the total
funding in 2009/10 was $535m (46% of CSIRO).
Today, there are 11 Flagships in the areas of climate adaptation, energy, food, future manufacturing, minerals,
preventative health, sustainable agriculture, wealth from oceans, and water management. Two new flagships
in the areas of biosecurity and digital productivity and services commenced on 1 July 2012. The program will
grow to 65% of CSIRO’s budget over the next 4 years till 2015.
The program encompasses the Flagship Collaboration Fund. The main element of the Flagship Collaboration
Fund is the Flagship Clusters, which facilitate the involvement of the broader research community in addressing
the research goals of the Flagships. Clusters are funded through a competitive process administered by the
Flagship program for 3 years but the relationships are enduring. To date 27 Clusters have been funded
involving around 40 different national and international research institutions.
The lessons from the evolution of the Flagship include:
• Appoint an Executive champion (Deputy Chief Executive level) to lead the program and provide
executive commitment and passion.
• Establish a governance framework for the Flagships, within CSIRO’s governance framework, that
recognised these are “National” Flagships involving a wide range of research and commercial partners
and end users.
o The framework includes a senior executive-level committee to oversight the overall program,
Flagship Directors, Flagship Advisory Committees (external members) for each Flagship, and a
robust performance measurement framework and external evaluation.
• Articulate CSIRO’s Operating Model, which includes the Flagships, so staff and partners clearly
understand the way CSIRO works.
o Create Flagships as an operating unit in the organisation structure and define accountabilities
of Flagships and Divisions.
CSIRO Page 10 of 16 Divisions are custodians of capabilities that are applied to meet the objectives of
Flagship and other themes that deliver outputs/outcomes.
o Enable the deployment of capabilities to Flagship projects from a range of discipline /
capability based Divisions, i.e. when a project finishes staff are redeployed to other projects.
o Articulate and value respective roles and accountabilities
Define roles for development, external engagement, project management and
delivery, and capability development and management
Appoint, empower and support the right leaders
• Plan and invest at a theme (output) level rather than on a structural basis. Un-lock and redirect
resources directly to Flagship themes (outputs) to target priority areas and change behaviours.
• Promote positive behaviours (values) and celebrate success (e.g. recognition received by the Water for
Healthy Country Flagship).
An important calibration, as an Organisation, was to recognise the need to invest directly in capability to
ensure Australia’s scientific preparedness. Specifically, this led to an additional, targeted investment in the
development of ‘Transformational Capability Platforms’ on which future advances might be based.
The evolution of the Flagships has involved considerable change, including to structures to breakdown ‘silos’,
but has succeeded because they have been driven by the strategy.
From the perspective of the Government’s financial framework, the program demonstrates the efficiency and
effectiveness of managing a major program, designed to address national challenges and opportunities, within
the existing governance framework of CSIRO and related processes and controls.
The CSIRO governance framework, with its Board of directors, has line of sight over the direction and
performance of the program. This enables transparency and accountability as well as flexibility and commercial
agility. CSIRO may close a Flagship (or themes within a Flagship) if it has achieved its goals or won’t achieve its
goals, and redirect those capabilities, without structural constraints.
The capabilities, including research support, are housed in the Divisions or enterprise-wide Functions and
available for redeployment. Intellectual property generated is managed as part of CSIRO’s overall portfolio,
which might extend well beyond the life of the Flagship.
The program also demonstrates that a complementary collaborative funding scheme can be managed
efficiently within the program, utilising existing CSIRO processes and systems.
CSIRO Page 11 of 16Attachment 3
Specific Comments on Propositions in CFAR Discussion Paper
All propositions
• Legislative and operational reforms should:
o Build on the strengths of the current frameworks with respect to their alignment with the corporate
governance practices applied in other sectors. This would be consistent with the proposition of a
single, principle based piece of legislation which enables a range of governance models within an
integrated framework.
o Recognise the importance of the governance and financial management arrangements as ‘an enabler’.
They give the Government and community confidence that government objectives are being met.
They support and facilitate the delivery of the functions (purpose) of government entities and their
programs but are not necessarily an end in themselves.
o In this context, recognise the ‘fit for purpose’ appropriateness and effectiveness of current governance
models such as the Board model in CSIRO.
• The criteria for what activities are delivered through different model could be reassessed on the basis of
risk and complexity.
o The cost effectiveness of operating small FMA and CAC Act agencies and authorities, with boards and
audit committees, separate enterprise agreements, systems and processes would be considerable.
Transparency and accountability
Simplify the appropriation bills by no longer appropriating to outcomes, but with outcomes retained in the
performance context.
The implications of this proposition need to be further discussed. See submission.
• Appropriating to outcomes is particularly appropriate where the entity has a board of directors, whose
function is to determine the direction and strategy of the entity and who is accountable for the entity’s
performance
• Boards need flexibility to marshal resources to achieve the Government’s policy objectives (outcomes).
Restructuring Portfolio Budget Statement to more closely align external reporting with internal planning and
management reporting by entities.
Disagree
• Restructuring the PBS to align with internal planning would be problematic.
• This proposal goes to the roles and accountabilities and the level of information required by different
players in the framework to fulfil their responsibilities.
• The expectation that someone centrally will be able to drill down from the PBS to internal management
reporting is unworkable.
• The onus should be on the entity to demonstrate how it’s internal planning and management reporting
aligns with PBS and external reporting (transparency).
Align standards better for preparing appropriation bills, Portfolio Budget Statements, annual reports and
audited financial statements to enable comparisons and a clear read between budgeted and actual
expenditure and performance.
Supported in principle.
• The ‘clear read’ principle should still apply.
Develop criteria for establishing and reviewing special appropriations.
No comment.
Offer enhanced training and ongoing professional development to Parliamentarians and their advisers in
relation to appropriations and other framework issues.
CSIRO Page 12 of 16Agree.
Governance Arrangements
Operate Commonwealth entities, which are not commercial in nature, from a single Commonwealth bank
account.
Entities like CSIRO should retain separate legal status and bank account.
Apply directors’ duties based on those in the Corporations Act 2001 only to entities that are commercial in
nature.
Agree. This should include entities like CSIRO.
• This is fundamental to the Board governance model.
• It is part of the due diligence and value/risk proposition presented to the private sector when engaging in
public-private partnerships to deliver government objectives.
• The framework needs to recognise that directors must act in the best interest of the entity.
o The implication being that the Government needs to define / delegate powers within which Boards
operate and the ‘outcomes’ expected. But then allow Boards flexibility to determine strategies to
achieve ‘outcomes’ and manage resources.
o The framework should not dilute or evocate this authority and accountability by imposing
inappropriate or additional oversight.
• Aligning public and private sector corporate governance practice provides consistency, clarifies expectations
and encourages directors to work across private and public sector domains.
• It enables the public sector to build on broader corporate governance and Corporation Act rulings, i.e. there
is a body of law to support the interpretation of director’s duties.
• Entities need ‘fair dinkum’ boards that set direction and drive the strategy through a chief executive, who
manages the organisation. Entities will not be able to attract top CEOs and directors if there is a disconnect
between ‘accountabilities’ and the ‘power to act’; and if that ‘authority’ is subject to some central
coordination or inappropriate oversight.
• The framework needs to avoid blurring lines of accountability (re: the Discussion Paper on page 32 notes:
“Departments play a significant role in advising and assisting ministers’ oversight of their portfolios. In
recognising the role of departments, Ahead of the Game recommended that a departmental secretary
should play a leadership role in the portfolio, although arrangements should not abrogate the statutory
accountabilities of relevant entities and individual office holders.)”
Structure the financial framework to allow for more integrated portfolio governance.
• The Commonwealth needs to look at innovative ways to deliver government objectives that cross portfolio
and organisational boundaries. See section in submission on Integrated Resource Prioritisation and
Management.
• In terms of portfolio governance, the roles, relationships and accountabilities of entities within the
framework should be clearly articulated and structured to add value.
o The prospect of imposing additional layers of oversight is neither efficient nor effective and works
against the accountability of the entity. The onus should be on the entity to demonstrate to its Board
or Chief Executive that the entity or program is being managed effectively. To monitor and address
performance effectively you need ‘line of sight’ to the operations of the entity.
Recognise in the financial framework legislation that the responsibilities of office holders, management and
staff can extend beyond their individual organisations to delivering wider government objectives, including
joint activities.
Supported in principle.
• This proposition needs to recognise that directors and senior managers in CAC Act entities are required to
act in best interest of the entity. That requirement is not necessarily inconsistent with the proposition
provided the responsibilities are transparent. Entities, like CSIRO, regularly enter joint venture activities
where there is a shared commitment to a wider government objective.
CSIRO Page 13 of 16• A statement of joint ‘outcomes’ would potentially achieve this proposition without over engineering the
financial framework.
Structure the financial framework to allow for pooled funding arrangements and for appropriated amounts
to be more readily redistributed among entities pursuing shared objectives.
Supported in principle.
• The focus should be on program delivery – shared costs, risk and benefits.
• The Discussion Paper confuses this issue (see page 34) by using the example of shared administrative
services, which should be able to be achieved through existing arrangements.
Improving performance
Reflect in financial framework legislation the responsibilities of chief executives and directors for key
elements of resource management, including budgeting, performance management, reporting and
evaluation, to support a more comprehensive approach to resource management across the
Commonwealth.
Supported in principle.
• Essentially, the duties and approach of directors and chief executives should mirror those in the private
sector when capital raising, dealing with the market and reporting to shareholders. The motivations and
measures of success in the public sector are broader than in the private sector but the same attributes of
building shareholder value, sustainability and return on investment still apply. They should be approached
with equal, if not more emphasis, on accurate and timely disclosure given public accountability and need
for transparency.
• CSIRO endorses the comment in the Discussion Paper (see page 87) about making these requirements more
explicit, i.e:
“It might be prudent to make explicit certain obligations that are only implicit within the
framework. This could enhance accountability, improve performance and contribute to cultural
change. Suggested enhancements to current legislation include:
• chief executives and directors having more direct and formal obligations in relation to the
quality and timeliness of Budget estimates;
• making chief executives and directors explicitly accountable for the oversight and management
of risk; and
• placing explicit responsibilities on chief executives and directors in relation to developing
performance criteria for their organisation.”
Consider introducing multi-year appropriations, especially for major programs and projects.
Agree.
• This is critical to entities engaged in long term, strategic activities such as scientific research.
• Consideration should also be given to capital/infrastructure investment, which may have a 5-10+ year
horizon.
Develop a coherent and integrated performance management framework to give a clear and shared
understanding of the government’s priorities and strategic direction.
Supported in principle. See submission.
Develop indicators that allow for performance to be measured and compared across the public service.
Supported in principle.
• The publication of performance against indicators should be accompanied by a statement of organisational
context and analysis or explanation (i.e. performance indicators and benchmarks raise questions, they don’t
give answers).
• The selection of indicators and benchmarks is critical to avoid un-intended consequences and goal
displacement.
• It should be clear these are indicators, not targets.
CSIRO Page 14 of 16Engaging with risk
Develop an overarching risk management framework for the Commonwealth to set the context for entities’
risk practices.
Agree. This would be a good initiative.
• The Commonwealth risk management framework should be based on the Australian standard, so there is a
consistent language and methodology applied across private and public sector.
Require entities to establish policies for oversight, management and reporting of material risks and to report
to government on the management of these risks.
Agree.
• CSIRO has a risk policy and procedures for assessing risk. These are also integrated into commercial, project
management, HSE and other procedures.
• The report to government should recognise the responsibility of a board and chief executive for the
oversight of strategic and material risk.
• It should be a duty of directors to ensure systems and processes are in place to identify and manage risk.
Directors should focus on strategic risk.
Make risk management a core competency in government, with the Department of Finance and
Deregulation (Finance) providing a more coordinated and systematic approach to risk management training.
Agree.
• To fully empower people to take appropriate risk, you need ‘executive commitment’ and support (to
understand their risk appetite), to clarify roles and accountabilities, to establish standards and procedures
within which to operate, to integrate risk into the delegation of powers, training and the skills to identify
and manage risk, and adequate resources.
Building capability and culture
Increase Finance’s coordination and targeting of training and enhance guidance material, including
developing web-based tools, to improve financial literacy across the Commonwealth.
Supported.
Clearly articulate qualifications, experience and minimum responsibilities for Chief Finance Officers.
Supported. The selection of the CFO is an entity decision.
Simplifying requirements
Restructure the financial framework so that primary legislation is more clearly principles-based and focused
on areas of high risk, with clearer and more detailed guidance to support entity performance.
Supported in principle. See submission.
• The financial framework should be structured to support program governance and delivery.
• The legislation should allow for a variety of ‘fit for purpose’ governance models within the financial
framework.
Simplify financial framework legislation and rules applying to managing appropriations and public money to
reduce compliance burdens.
Supported in principle.
Simplify and better align financial framework rules for grants and procurement and base their requirements
on the level of risk involved.
Supported in principle.
• It should be the responsibility of the entity to demonstrate how they have achieved value for money and
ensured fair competition. There should be greater discretion (within Commonwealth Procurement
Guidelines) for entities to determine the best approach.
CSIRO Page 15 of 16Develop a more focused approach to reporting to remove duplication and reduce the burden on entities and
managers.
Supported in principle.
Develop a risk-based approach to reporting allowing for tiered reporting based on an entity’s risk exposure.
Supported in principle.
Simplify the penalties and sanctions regime in the financial framework by relying on the Criminal Code for
criminal conduct and removing overlapping offences.
Supported in principle.
• Commonality will help people work across public-private sectors.
Clarifying obligations
Adopt a more risk-based approach to imposing requirements within the financial framework, reporting
compliance against those requirements and addressing non-compliance.
Agree.
• The focus at government level should be on requiring the entity to have processes and systems in place to
support compliance and identify and address non-compliance.
Consider making the regulatory requirements that apply to FMA and CAC Act entities more consistent.
Agree and disagree.
• The issue is not consistency but about governance and accountability.
• If the regulatory requirements currently required of CAC Act authorities are deemed adequate and effective
then additional requirements should be avoided.
• Bring FMA arrangements into line with CAC arrangements.
Make language consistent between financial framework and related legislation, including the enabling
legislation of statutory authorities and the Public Service Act 1999.
Supported in principle.
CSIRO Page 16 of 16You can also read
