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The audit office has raised concerns regarding Defence’s management of a multibillion-dollar program aimed at streamlining ICT processes.
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The Australian National Audit Office (ANAO) has released findings from its review of Defence’s Enterprise Resource Planning (ERP) program — a $1-2 billion initiative aimed at integrating Defence business processes associated with hundreds of separate Defence ICT applications into one SAP S/4HANA system.
The SAP S/4HANA system — a cloud network with built-in intelligent technologies, including AI, machine learning, and advanced analytics — is expected to power better governance, faster processing and lower maintenance and support costs.
Defence has split the ERP program into three tranches, with the ANAO review focusing on Tranche 1 (Release 1A and Release 1B), which has an approved value of $364 million.
The ANAO found that Defence’s management of Tranche 1 has been “largely effective”, but identified several issues relating to governance arrangements, particularly the management of “probity” and the “management of conflicts of interest” associated with the Tranche 1 contract awarded to global ICT juggernaut, IBM.
“Defence’s program change arrangements give rise to both real and perceived conflicts of interest, as contractors are involved in the department’s substantive decision-making processes relating to their contracts, including contract variations with financial consequences for the Commonwealth,” the ANAO reported.
The ANAO found that the Change Control Board had IBM representation at each of the 31 meetings reviewed by the ANAO, with meeting minutes documentation revealing that “price-impacting variations” to the contract were approved at six of the 31 meetings, resulting in four contract variations worth a total of just under $484,000.
Despite the perceived conflict of interest, relevant meeting minutes did not record any declarations or include recusations from participants.
In light of these findings, the auditor general has issued five key recommendations for consideration, which include:
- Reviewing arrangements for its internal reporting and its reporting to government on Enterprise Resource Planning program risks, to ensure there is the consistency in program risk reporting.
- Reviewing its probity arrangements with respect to its use of contractors, and applying lessons learned to similar programs; and develop “more robust” processes for on-boarding contractors.
- Reviewing decision-making arrangements to ensure they are clearly and consistently set out in program guidance documentation; avoiding real and perceived conflicts of interest where contractors are potentially involved in decision-making regarding their contracts; and enabling delegations to be exercised by individuals who are in positions where they are able to make independent judgements.
- Reviewing contract governance arrangements to ensure timesheet approvals are made by personnel with adequate visibility of work performed.
- Developing benefits realisation plans for each ERP program tranche and the program overall.
Defence has accepted all five recommendations issued by the ANAO.
Release 1A of Tranche 1 of the ERP program reached final operating capability (FOC) in December 2020, with Release 1B scheduled to achieve FOC in mid-2023.
The broader ERP program is expected to run until at least 2025.
