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While mystery surrounds Scott Morrison’s sacking from Tourism Australia, a buried audit report shows numerous anomalies and concerns over contracts worth $184 million. By Karen Middleton.

Exclusive: Auditor-general found Morrison breaches

Prime Minister Scott Morrison.
Credit: Ryan Pierse / Getty Images

Ever since Scott Morrison was sacked from his job as managing director of Tourism Australia in 2006, the reasons for his dismissal have been kept secret.

At the time and since, public speculation has variously attributed the now prime minister’s removal to a personality clash with his minister, a falling out over changes to the organisation’s structure, and a dispute over the agency’s contentious “Where the bloody hell are you?” campaign.

But an auditor-general’s report completed 10 years ago, which has escaped public scrutiny until now, reveals that in the period leading up to Morrison’s dismissal, his agency faced a series of audits and a review of its contractual processes ordered by the Department of Prime Minister and Cabinet, amid serious concerns about its governance.

The auditor-general’s inquiry into Tourism Australia – which followed these reviews, and was conducted after Morrison’s departure – reveals information was kept from the board, procurement guidelines breached and private companies engaged on contracts worth $184 million before paperwork was signed and without appropriate value-for-money assessments.

The Australian National Audit Office (ANAO) report examines three major contracts that Tourism Australia signed while Scott Morrison was managing director. It criticises processes in all three cases but especially the contracts for global creative development – advertising campaigns – and media placement services.

Ten years since the audit, and 13 years since the contracts were signed, those two completed contracts appear not to be listed on the government’s AusTender website, where all contracts are required to be available for public viewing.

Searches, including by AusTender staff, have failed to locate them on the site this week. Procurement rules say they must be reported within 42 days of the contracts being entered. The 2005 request-for-tender documents announcing the proposed contracts are listed.

Government records show the ANAO audit was first proposed in July 2006. It is believed to have commenced in the second half of 2007, while the Howard government was still in office and before the November 2007 election in which Labor defeated the Coalition, and former New South Wales Liberal Party director Scott Morrison entered parliament in the Sydney seat of Cook.

Morrison began at Tourism Australia in November 2004 and left 19 months later. The ANAO audit covered the 2005 pre-contract period to mid-2008 and documented a series of governance failures at the agency, which coincided with Morrison’s time at its helm.

The report does not mention Morrison by name or position, nor apportion blame to any individual but rather to Tourism Australia as a whole. The chairman of its board at the time was former deputy prime minister and Nationals leader Tim Fischer, who is currently undergoing treatment for leukaemia.

The audit report criticises extensively the agency’s processes for drafting, executing and managing the contracts, the opaque accounting processes involved in aspects of them and poor communication with the board and regional offices, including by service providers. It details Tourism Australia’s failures at the time to adhere to guidelines – the signing of a contract without incorporating measurable performance indicators and non-existent risk assessments or value-for-money analysis.

Tabled in parliament on August 6, 2008, the report was one of more than 40 the Audit Office had produced in the previous 12 months.

It escaped public attention at least partly because it was not among the handful that parliament’s joint committee on public accounts chose to examine further in its role as chief audit scrutineer. At the time, the committee was chaired by then Labor MP Sharon Grierson with then Liberal MP Petro Georgiou as her deputy.

When the report was tabled, Morrison was a member of the public accounts committee, which was tasked with considering it for review. He resigned from the committee six weeks after the report was tabled and, it is understood, some months before the committee formally considered it. The Saturday Paper does not suggest Morrison influenced the audit’s treatment. Grierson says that as Tourism Australia had accepted its three recommendations, and nobody on the committee raised any issues, the report was not officially examined further – standard procedure in dealing with the volume of audits each year.

The Saturday Paper lodged detailed questions about the audit report with Morrison’s office but was told he was not able to answer them in the time available.

Performance reviews of the two key contracts between 2005 and 2007 – contained in the audit – revealed Tourism Australia had failed to disclose to its own board that it had underspent $3.9 million on one of the contracts in 2006-07.

It was found that in one case invoices had been raised before the contract was signed and that in another case the price paid in some areas of a contract was “more expensive than the benchmark”.

The audit report does not mention then tourism minister Fran Bailey’s sacking of Morrison in July 2006, nor any of the alleged preceding tension between them that has been the subject of public speculation since.

But The Saturday Paper understands the events and issues the audit report outlines played a significant role in Morrison’s removal. Unconfirmed news reports have since alleged that he received a payout of more than $300,000.

Asked to comment this week on the report’s contents in relation to Morrison’s dismissal, Bailey would only repeat the one comment she has made before: “I reiterate that it was a unanimous decision to get rid of Mr Morrison by the board and the minister.”

She added: “I have always treated confidential matters as confidential.”

The report’s description of the chronology of events would suggest matters came to a head between Morrison and Bailey when the organisation asked her to approve the agency’s annual upper spending limit for the three-year creative development and media placement contracts – required because of their high value – in June 2006.

The year before, during the selection of tenderers, Bailey had raised concerns with the Department of Prime Minister and Cabinet about Tourism Australia’s evaluation process for short-listing companies.

The prime minister’s department ordered a re-evaluation, which produced the same result.

The ANAO report describes the documentation provided as “not comprehensive” and, as a result, the selection process “lacked transparency”.

Unconfirmed media reports at the time recorded industry insiders alleging that advertising and marketing company M&C Saatchi – which was subsequently awarded the contract – had been given early access to information.

It’s understood there had also been tension over Tourism Australia’s commissioning of an AC Nielsen survey of Australians’ stockpiling of annual leave, which then formed the basis for a marketing campaign “No Leave, No Life” to encourage people to take holidays.

It is believed some in the Howard government were annoyed, seeing it as potentially undermining its workplace relations policies.

The audit report mentions the campaign and survey as an example of Tourism Australia’s domestic activities, without comment or criticism.

In mid-2006, before approving the annual upper spending limits, Fran Bailey asked Tourism Australia to provide a fully completed internal assessment of all of its 2005-06 contracts, an independent assessment of whether the two contracts were value for money, and details of the mechanisms in place to monitor and manage the contracts for the following financial year.

Awaiting the information and to avoid disrupting an international marketing campaign already under way, Bailey agreed to authorise expenditure of $25.8 million for the two contracts.

An independent assessor was appointed to review the contracts as requested, but Tourism Australia told the minister the review couldn’t be finished until September.

The agency said that delaying the approvals until then could “lead to a loss of discounts worth $6.7 million” and urged her to act.

“In light of this, the former minister felt she had no option but to approve (in July 2006) the total annual expenditure of $82.6 million,” the 2008 report says, with the bracketed date included.

Bailey added two conditions to her agreement: that the board must be satisfied the evaluation, once completed, showed taxpayers had received value for money; and that the following year’s funding approval request should provide evaluation material upfront.

The audit report omits the next event in the chronology of relations between the minister and Tourism Australia – that Bailey sacked Morrison the same month. The then prime minister, John Howard, did not intervene to prevent it.

The 2008 audit report goes on to say that once the reviews were completed in 2006, as the minister had requested, the agency advised its board that the service providers’ overall performance was satisfactory and, in October 2006, the board conveyed that to the minister.

Some of the financial management issues the auditor-general describes had emerged earlier that year in a broader annual review, prompting Tourism Australia to implement a monthly reconciliation process from February.

Despite that, the auditor still had concerns in 2008 – two years after Morrison left the organisation.

It also raised serious concerns about the board’s handling of conflicts of interest.

Acknowledging that conflicts were to be expected in the tourism industry and on a board that straddled the public and private sectors, the audit report noted that, as of 2007, every board member had registered at least four potential conflicts, and on average between seven and 20, with the highest number for any board member being 71.

But only one case had been documented in which a board member had stepped out of a meeting over a potential conflict.

The audit report noted that instead of abiding by its charter, the board had amended the charter to reflect its practice. One of its 2008 recommendations, all of which Tourism Australia accepted, was to change it back.

The ANAO report says that since July 2007, Tourism Australia had improved its processes further but, as of August 2008, “was unable to demonstrate whether all recommendations from the internal and external reviews, which were agreed to, have been properly implemented”.

Tourism Australia’s annual reports since then have not given rise to any further ANAO investigation.

The 2008 audit report also details other aspects of the two contracts about which it had most concern.

It describes how its media placement contractor struck a deal with American network the Discovery Channel for the production of three special Australian episodes of the television series American Chopper, which would air in 2007 and expose Australia as a tourism destination to a potential audience of 300 million households in 160 countries.

Three separate contracts were signed covering the deal, one of which involved having a motorcycle custom built.

But the auditor-general identified accounting problems. Although it established that Tourism Australia’s contribution to the building of the bike was $150,000, it was unable to establish what happened to the bike. Confusion over the way the agency recorded the bike as an asset meant the auditor was unable to establish the actual cost.

None of this rang alarm bells for the parliamentary joint committee on public accounts when the report was tabled in 2008, presented as it was with a slew of others.

Among the dozens of reports produced between August 2007 and August 2008, the committee selected six for further inspection through public inquiries, based on their wider implications.

The findings on Tourism Australia didn’t capture members’ attention, nor flag any broader issues warranting examination and neither they nor the then new Labor tourism minister, Martin Ferguson, rated them for a separate public inquiry.

Most of the auditor-general’s reports follow a similar path onto the shelf for sheer reasons of resourcing and the need to prioritise.

Having been elected in 2007, Morrison had joined the committee in March of 2008 when it was re-formed in the new parliament.

He served on it for just over six months, resigning along with another Liberal MP on September 25 – three days after having been promoted to the opposition front bench and six weeks after the audit report into the agency he had headed was published and sank without trace.

Ten years later, people involved still won’t say why Morrison was sacked as head of Tourism Australia. Given he is now prime minister, it was a minor setback.

This article was first published in the print edition of The Saturday Paper on Nov 10, 2018 as "Auditor-general found Morrison breaches". Subscribe here.

Karen Middleton
is The Saturday Paper’s chief political correspondent.