Challita v NSW Department of Education and Training

[2010] NSWADT 175

CITATION:	Challita v NSW Department of Education and Training [2010] NSWADT 175
DIVISION:	General Division
PARTIES:	APPLICANTS Jolanda and Peter Challita RESPONDENT NSW Department of Education and Training
FILE NUMBER:	083155
HEARING DATES:	25 November 2008
SUBMISSIONS CLOSED:	24 November 2009
DATE OF DECISION:	14 July 2010
BEFORE:	Montgomery S - Judicial Member
CATCHWORDS:	Freedom of Information Act - access to documents
LEGISLATION CITED:	Administrative Decisions Tribunal Act 1997 Freedom of Information Act 1989
CASES CITED:	Challita v NSW Department of Education and Training (No.2) [2009] NSWADT 174 Director General, Department of Education and Training v Mullett and Randazzo (No. 2) [2002] NSWADTAP 29 McKinnon v Secretary, Department of Treasury [2006] HCA 45 Robinson v Director General, Department of Health [2002] NSWADT 222
REPRESENTATION:	APPLICANT In person RESPONDENT A Johnson, solicitor
ORDERS:	The agency's decision to refuse access to the requested document is affirmed.

REASONS FOR DECISION

Background

1 This matter is part of a series of applications brought by the applicants under the Freedom of Information Act 1989 ("the FOI Act”) seeking access to documents held by the Department of Education and Training ("DET"). The documents sought concern the operations of the DET’s selective schools unit, the Selective Schools process and the role of the Selection Committee.

2 The applicants requested access to three categories of documents. Jurisdictional issues in regard to part of the matter were the subject of my determination in Challita v NSW Department of Education and Training (No.2) [2009] NSWADT 174. That determination was the subject of an appeal, which was ultimately finalised on 24 November 2009.

3 The remaining issue for determination concerns the third category of documents. The applicants requested access to a report regarding the 2005 Audit of the Selective Schools Unit (“the Audit Report”). A copy of the Audit Report has been provided to the Tribunal on a confidential basis.

4 The DET contends that the Audit Report is exempt under Clause 16(a)(i) of Schedule 1 to the FOI Act, which provides:

16 Documents concerning operations of agencies
A document is an exempt document if it contains matter the disclosure of which:
(a) could reasonably be expected:
(i) to prejudice the effectiveness of any method or procedure for the conduct of tests, examinations or audits by an agency, or
… and
(b) would, on balance, be contrary to the public interest.

The applicants’ case

5 The applicants rely on their own evidence. Their case is essentially that audits are undertaken to evaluate an organization, system, process, project or product and that a conflict of interest can arise if the department being audited has a 'good relationship' with those who are auditing them. There is no guarantee that an employee will tell the whole truth in an audit just because they have a good relationship with those who are auditing them and just because they believe that the outcome of the audit will remain confidential.

6 The applicants submit that it is part of human nature to for an employee will to try to cover-up or minimise areas where they are not performing their duties to the appropriate level or standard. It can be expected that this will happen regardless of the relationship with those who are auditing them and regardless of whether audits are confidential or not.

7 The applicants say that that DET’s belief that those audited would be more likely to tell the whole truth if audits are confidential is not a good reason to withhold these documents. They argued that those being audited have the obligation and responsibility to tell the whole truth regardless of the relationship with those doing the audit.

8 The Applicants submit that it is in the public interest to allow the public to see what has been identified in these audits so that some sort of external public oversight can be had and to ensure that matters are dealt with, as policy and procedure require. They say that their experience over many years of dealing with the DET’s Selective School system has led them to believe that the system is open to tampering, bias and manipulation and the identification process is therefore an unreasonable waste of public money. They contend that the disclosure of audit reports would ensure openness and transparency in regard to how agencies manage public resources and in relation to the integrity of the administration of their departments.

The DET’s case

9 The DET contends that the Audit Report is exempt under Clause 16(a)(i) of Schedule 1 to the FOI Act. It relies on the evidence of Mr Bill Middleton who is the Director of the DET’s Audit and Risk Management Directorate (“the Directorate”). DET also lodged a statement by Mr Alun Davies who was relieving in that role whilst Mr Middleton was on leave. Mr Davies was not available for cross-examination and Mr Middleton provided a statement to add to that of Mr Davies and he adopted Mr Davies’s evidence as to the DET’s audit process. Mr Middleton also gave oral evidence before the Tribunal and was cross-examined.

10 Mr David Wasson, the Director of the DET’s Educational Measurement and School Accountability Directorate provided a statement in which he stated that he has participated in several internal audits conducted by the Directorate. It is his understanding that audits have always been confidential, for internal management purposes and that the contents of audit reports are not made public. His evidence is that oversight by the Directorate is welcome and that staff give officers of the Directorate an honest appraisal of systems and operations and identify their perceptions of faults and problems. He says that if audit reports were released, there would be a temptation for staff to put more of a gloss or positive spin on their work. He doubts that their engagement with the internal auditors would be as candid as it is now.

11 The evidence is that the Directorate conducts internal audits of nominated directorates of the DET annually, in accordance with an annual audit plan. Audit reports are part of a system used by the DET to identify areas of risk or deficiency in existing systems, improve controls and implement a method for managing the risk and for ongoing monitoring. The object of internal audits is to ensure: compliance with policies, standards, procedures, laws and regulations; significant financial, managerial, and operating information is accurate, reliable, and timely; employees' actions are in compliance with policies, standards, procedures, and applicable laws and regulations; resources are acquired economically, used efficiently, effectively, and adequately protected; programs, plans, and objectives are achieved; quality and continuous improvements are fostered in the organisation's control process; and significant legislative or regulatory compliance issues impacting on the organisation are recognised and addressed appropriately.

12 Information from audit reports is referred to the Audit and Risk Management Committee (“the Committee”). The Committee's purpose is to assist the DET’s Executive in fulfilling its oversight responsibilities for the integrity of the DET's financial statements; the DET's compliance with legal and regulatory requirements; the independent auditor's qualifications and independence; the performance of the DET's internal audit function; the alignment of the audit, risk management, corruption prevention and consultancy services function with strategic priorities; and assurance that appropriate action is taken on audit findings.

13 The Committee is comprised of an Independent Chair and DET’s Director-General; Deputy Director-General, Schools; Deputy Director-General, Workforce Management and Systems Improvement; Deputy Director-General, Strategic Planning and Regulation; Deputy Director-General, TAFE and Community Education; Deputy Director-General, Finance and Infrastructure and Executive Director, Strategic Relations and Communication.

14 The Committee's meeting are attended by DET’s Director, Audit and Risk Management; Senior Manager, Risk Management and Consulting Services and officers from the Audit Office of NSW.

15 The Directorate is subject to international standards for the professional practice of internal auditing established by The Institute of Internal Auditors. When conducting an audit, audit officers will generally do a site visit of the directorate; conduct interviews with directorate staff; facilitate a risk assessment workshop with directorate staff; conduct their own risk assessment of the directorate's systems; test the controls in place in the directorate; identify any gaps in the directorate's systems and practices; identify solutions, generally in the form of a checklist of recommendations, action proposed, a responsible officer and a deadline; draft a confidential report in relation to the audit for comment by the directorate; and draft a confidential final report for submission to the relevant Deputy Director-General, with copies to the Director-General, Directorate, Audit Office of NSW and the Chair of the Committee.

16 The process of conducting an audit can take up to a year. During that time, audit officers also act as advisors to staff and management of the directorate on how to take action to overcome any identified risks. Often, the management of the directorate have taken significant steps to implement the recommendations prior to the completion of the final report. After the final report is completed, the Directorate continues to monitor compliance with its recommendations and advises on appropriate solutions.

17 The reports are part of the broader audit-reporting framework, which is overseen both internally by the Committee and externally by the Audit Office of NSW. The DET’s external auditor is the NSW Auditor-General. The Auditor-General’s role includes providing independent opinions on NSW government agencies financial reports, identifying whether agencies comply with accounting standards and relevant laws, regulations and government directions and confirming that specific legislation, directions and regulations have been adhered to by government agencies. A report on each financial audit is provided to the Minister responsible for the agency, to the agency and the Treasurer and to the Parliament through the Auditor-General's Reports to Parliament.

18 It is Mr Middleton’s view that releasing reports out of context of the entire internal audit process would prejudice the objects of the audit, specifically, the objects of ensuring that programs, plans, and objectives are achieved, and quality and continuous improvements are fostered in the organisation's control process.

19 Audit reports are prepared as working documents to enable the DET to formulate advice and recommendation to management for consideration. These documents do not consist merely of factual or statistical material or matter that appears in the DET's policy documents. The audit process is one of continuous improvement and the information contained in the reports into the DET's directorates continues to be used by the DET in making decisions about identifying risk and improving systems.

20 Mr Middleton’s evidence is that the audit process is a co-operative one. Audit officers work to gain the trust and co-operation of DET staff and management in identifying areas of concern and providing access to relevant information in a timely manner. Because the process is a co-operative one, DET’s staff speak frankly with audit officers about any risks or imperfections in their current systems, without fear of reproach from the directorate's management or the audit officers. He says that working collaboratively with DET’s operational and management staff is essential to ensure the risk is eliminated or reduced and that ongoing monitoring systems are implemented to reduce the DET’s exposure to risk.

21 He says that the existing arrangement ensures that the Directorate can do its job independently, report frankly to management about issues and make unbiased recommendations for improvement. He says that as a fundamental premise, internal audit reports are designed for internal consumption. To do otherwise would compromise the whole process and bias internal audit reports to be nothing but positive for fear of external criticism of either management or the auditors. Likewise, those internal officers providing information to the auditors would be less than forthright in providing information should they know their comments were to be put into the public domain.

22 The Audit Report is the final report of an audit of the Selective Schools Unit that looked at IT issues and Management issues and covered the placement of students at selective high schools and opportunity classes in 2005. The Audit Report was forwarded to DET’s Deputy Director-General, Schools. Copies were also provided to the Chair of the Committee, the General Manager, Learning and Development (the head of the DET directorate in which the Selective Schools Unit operates), the Director Educational Measurement (who has direct responsibility for the Selective Schools Unit) and the Audit Office of NSW.

23 Mr Middleton’s evidence is that the frank co-operation of the Selective Schools Unit's staff was essential to the preparation of the Audit Report. He said that an atmosphere of confidentiality is essential to obtaining that co-operation from staff. The degree to which the Selective Schools Unit had already implemented a significant number of recommendations prior to the final report being completed is indicative of their co-operation and involvement in the audit process.

24 It is Mr Middleton’s view that release of the Audit Report would jeopardise the co-operation of DET staff with audit officers in undertaking future audits. That would in turn jeopardise the accuracy, effectiveness and timeliness of the DET's internal audits generally. He says that if employees were aware that the raw data identifying the directorate and area of risk provided in accordance with internal audit procedures could be released under freedom of information, they would be reluctant to provide similar information in future. This would reduce the effectiveness of this method of conducting the audits.

25 The DET accepts that it is in the public interest to ensure openness and transparency in Government especially in regard to how agencies manage public resources. It says that the results of audits are published in the DET’s annual reports in general terms. Where the audits reveal activity that is not in accordance with the DET’s Code of Conduct, the matter is reported and dealt with according to the DET’s disciplinary procedures. Where corrupt conduct is suspected, the matter is reported to the Independent Commission Against Corruption.

26 However, it contends that it is also in the public interest for the DET to have an effective internal system for identifying areas of risk and implementing systems to improve controls and minimise exposure to risk. It says that disclosing part of the information that contributes to that system would undermine the effectiveness of the system. It submits that on balance, disclosure of audit reports would be contrary to the public interest.

Consideration

27 The DET contends that the Audit Report is exempt under Clause 16(a)(i) of Schedule 1 to the FOI Act. Clause 16(a)(i) was considered by the Appeal Panel in the matter of Director General, Department of Education and Training v Mullett and Randazzo (No. 2) [2002] NSWADTAP 29. At issue in that matter was a report prepared by the Audit Directorate of the DET into the question of whether a proper process had been followed for the appointment of a school principal.

28 The Appeal Panel noted at paragraphs [79] – [80]:

79 In this instance the agency invokes three of the categories of exemption found in cl 16, being sub-paras (i), (ii) and (iii) of para (a) of the clause (read in conjunction with sub-para (b)).

80 There is in each instance a three step analysis involved:
· one, does the administrative practice in issue fall within the description of the administrative practice to which protection is given;
· two, has the degree of prejudice specified been demonstrated; and,
· three, ‘would [disclosure], on balance, be contrary to the public interest.’

29 The Appeal Panel held at paragraph [86]:

86 In our view, the term ‘audit’ carries the connotation of a systemic, broad ranging examination of specified activities of the organisation the subject of the audit. While the expression is most commonly used in connection with the conduct of audits of the financial affairs and operations of an organisation, it is now often used to describe examinations of non-financial aspects of an organisation’s activities, for example the level of compliance of the organisation with regulatory standards or best practice standards (a form of audit sometimes called a compliance audit or a quality audit).

30 In Mullet and Randazzo, the Appeal Panel noted that the Audit Directorate also comprised an internal investigations unit and concluded that the report that was in issue was not an "audit" within the meaning of Clause 16(a)(i).

31 The Audit Report in question here was an audit in relation to IT and management issues in the Selective Schools Unit. I have considered the copy of the Audit Report provided by the DET and I am satisfied that it falls within the criteria set down by the Appeal Panel in Mullet and Randazro. In my view it concerns an "audit" within the meaning of Clause 16(a)(i).

32 The issues then are whether the degree of prejudice specified been demonstrated; and whether disclosure would, on balance, be contrary to the public interest.

33 Ms Johnson referred to the consideration of the notion of "reasonably be expected" in McKinnon v Secretary, Department of Treasury [2006] HCA 45. Hayne J stated at paragraphs [61] - [63] (citations omitted):

61 In Attorney-General's Department v Cockcroft the Full Court of the Federal Court considered the operation of s 43(1)(c)(ii) of [the Freedom of Information Act 1982 (Cth) (“the Act”)] - a provision which contained the words "could reasonably be expected to prejudice the future supply of information". In their joint reasons, Bowen CJ and Beaumont J rightly pointed out that it was undesirable to attempt any paraphrase of these words. Thus when their Honours said, as they did, that the words required a "judgment to be made by the decision-maker as to whether it is reasonable, as distinct from something that is irrational, absurd or ridiculous," to expect certain consequences, they are not to be understood as having used the latter expression as a paraphrase of the former. Rather, they are to be understood, and have since been understood, as doing no more than drawing an emphatic comparison. To do more would have been, as their Honours correctly said, "to place an unwarranted gloss upon the relatively plain words of the Act". And the same approach should be taken to the expression "reasonable grounds" when it is used in s 58(5) of the Act.
62 It follows that the appellant was right to say that the characterization of any one reason favouring non-disclosure of documents as "non-absurd" does not of itself require an affirmative answer to the statutory question posed in s 58(5). That is, it would be an error to treat the statutory question as requiring an affirmative answer wherever there is any "non-absurd" reason favouring non-disclosure of the documents in question.
63 In deciding whether reasonable grounds exist for a claim, the Tribunal must take account of any relevant evidence that has been adduced and of any relevant arguments that have been advanced. It must consider the particular claim that has been made and that will require consideration (and commonly the examination) of the particular documents that are in question.

34 Ms Johnson noted that for a claim under Clause 16(a)(i) to be made out, it is enough that disclosure could prejudice the effectiveness of the audit. Unlike Clause 16(a)(iii) or (iv) there is no need to demonstrate that there would be a "substantial adverse effect”. If an agency can demonstrate a reasonable expectation of some prejudice, that is sufficient to meet the second criteria. I accept that submission.

35 The DET’s evidence as to the likely prejudice to audit processes if its audit reports were to be disclosed is that the DET has a comprehensive audit process that relies heavily on the co-operation of DET staff and their honest assessment of the faults and failings of their own systems. Audit officers then work co-operatively with DET staff to address and improve those systems. This co-operation is premised on the fact that the reports are for internal use only, have limited circulation and are largely confidential, even within the DET. It is submitted that if the reports were to have a wider circulation, DET staff may be tempted to put a positive spin on their systems and workplace. It is Mr Middleton’s view that the loss of frankness would prejudice the effectiveness of the audit process.

36 I accept this evidence and Ms Johnson’s submissions on this point. I accept that disclosure of the Audit Report could prejudice the effectiveness of the audit.

37 In Mullet v Randazzo, in the context of a claim under Clause 16(a)(iii), the Appeal Panel noted at [100] to [102]:

“100 We have referred at paras [55-56] and in our previous decision, Director General, Dept of Education and Training v Mullett & Randazzo [2002] NSWADTAP 13 at [90] and following to the nature of the public interest balancing exercise. This exemption is, as we see it, focussed on the effective conduct of the agency's personnel management function.
101 The public interest factors that arise under cl 13 being those relevant to the protection of confidential communications are not identical to those that arise under cl 16(a)(iii) surrounding the preservation of good personnel management practices. Protection of confidentiality is merely one important aspect of what is involved in the preservation of good personnel management practices.
102 The public interest considerations that surround the preservation of good personnel management practices are numerous and competing. Today there is, for example, an increased emphasis on transparency and openness in personnel management; and the use of such techniques as regular formal staff appraisal and feedback.”

38 When considering the exemptions in Clause 16 the focus must be on the future effect on a function of the agency, not on the effect of disclosure in the present controversy: see Robinson v Director General, Department of Health [2002] NSWADT 222 at paragraphs [63] ff.

39 In my view, the considerations that surround the preservation of good personnel management practices are significant to the outcome of this matter. The "effective performance" of the audit function depends, to a large extent, on the co-operation of those who have information relevant to it.

40 It is common ground that there is a public interest in the transparency of the DET's decision making processes and in the public's understanding of any deficiencies in the DET's systems and in the effectiveness of the steps being taken to redress those deficiencies.

41 Ms Johnson submits that the public interest in favour of disclosure and transparency is partly satisfied by the inclusion of information about audits in the DET's annual report. She says that the public interest is also satisfied to an extent by the oversight of the DET's audit process offered by the Audit Office.

42 However, she argues that there is also a significant public interest in the DET having an effective internal audit system, so that it can identify risk and improve its systems and effectiveness, It is submitted that the public interest in maintaining an effective internal audit system outweighs the public interest in releasing this report.

43 The applicants dispute the effectiveness of the oversight of the DET's audit process and assert that there is a greater public interest in disclosure of audit reports, as it would ensure openness and transparency in regard to how agencies manage public resources and in relation to the integrity of the administration of their departments.

44 I agree with the applicants’ concerns about the lack of transparency in regard to the internal workings of the DET and I also agree with their concerns about the limited information that is available through the DET's annual report. I also agree that a conflict of interest can potentially arise if the department being audited has a 'good relationship' with those who are auditing them. However, in the circumstances of this matter, I do not consider that those concerns are warranted. It is my view that an effective internal audit system is essential to the effective operation of the agency.

45 For the reasons argued by the DET, I agree that disclosure of the Audit Report would prejudice the effectiveness of that audit process. On balance, I consider that the oversight process outlined above, and in particular the oversight of the DET's audit process offered by the Audit Office, is sufficient to meet the public interest in favour of disclosure and transparency. Accordingly, I find that the DET’s claim under Clause 16(a)(i) has been made out. I consider that there are no strong grounds for releasing the exempt material in this case. It follows that it is my view that the correct and preferable decision is that the Audit Report should not be disclosed.

46 I do not consider that this is a matter in which an order for costs should be made.

Order

The agency's decision to refuse access to the requested document is affirmed.