OUR EFFICIENCY AND EFFECTIVENESS

FIGURE 16: CENTRELINK EXPENSES AS A PROPORTION OF PROGRAM OUTLAYS

HIGHLIGHTS FOR 2003–04

• 
  Achieved a $6.3 million operating surplus. Accumulated deficits over the life of Centrelink stood at $6.7 million on 30 June 2004 or 0.05 per cent of total revenue managed by Centrelink since its inception in 1997–98 ($12.8 billion) (page 196)
  
• 
  maintained a positive cash position of $194.9 million at year end(a) (page 198)
  
• 
  the Centrelink Funding Model was endorsed by Government in the 2004–05 Federal Budget, for implementation from 1 July 2004 (page 200)
  
• 
  further enhanced Strategic Cost Management as a methodology to better assess costs and allocate internal resources across Centrelink’s service delivery network (page 200)
  
• 
  successfully established the IT Refresh Program by delivering base capabilities required for future projects (page 211).
  

DESCRIPTION

Funded primarily by the Australian Government through our client agencies, Centrelink is continuing to develop improved efficiency indicators through the implementation of Strategic Cost Management. The organisation remains subject to ongoing efficiency dividends and must continue to demonstrate sound budgetary controls.

Centrelink will continue to develop the information technology capabilities needed for future service delivery options. New capabilities will support the delivery of robust and reliable customer self service via the telephone and the Internet and facilitate more effective interactions between Centrelink and government agencies, commercial organisations and the community sector. It is also a priority to work with client agencies to identify and address the scope for simplification of legislative requirements.

Three of the eight key areas that customers want Centrelink to focus on to improve the customer experience fall within this goal:

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  promptness and consistency of service delivery
  
• 
  aligning future arrangements with customer expectations and preferences
  
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  access to and integration of services.
  

KEY STRATEGIES

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  manage our budget effectively (page 196)
  
• 
  identify and implement better practice (page 201)
  
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  effectively implement IT Refresh (page 211)
  
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  tailor our service offers (page 213)
  
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  simplify, streamline and re-engineer our processes (page 217).
  

MANAGE OUR BUDGET EFFECTIVELY

Business managers are responsible and accountable for delivering business outcomes in line with their Business Improvement Plan and within budget allocation. Financial performance against planned outcomes continues to be analysed and addressed on a monthly basis to ensure that all business priorities are met within available revenue.

A longer-term approach to capital budgeting is planned for implementation in 2004–05 with the objective of developing a five-year capital plan. This will better position Centrelink to make longer-term strategic capital improvement decisions.

Centrelink is continuing to develop improved efficiency indicators through the implementation of Strategic Cost Management. This will provide us with an improved understanding of cost drivers and cost containment ensuring active cost reduction strategies are in place across all teams.

Operating result

Centrelink reported a net operating surplus of $6.3 million for 2003–04. This equates to 0.3 per cent of total 2003–04 annual revenue of $2.2 billion. This result is a reflection of sound financial management and due to a concerted effort to tighten discretionary administrative expenses. Another factor affecting the operating result was the requirement for Centrelink to return approximately $19 million in revenue to government as part of the reconciliation process of actual customer numbers to estimates funded under the former Regional Funding Model. In addition Centrelink’s base revenue was reduced by $19 million compared to 2002–03 as a result of the application of the annual efficiency dividend.

TABLE 36: CENTRELINK’S NET OPERATING RESULT 2003–04 AND 2002–03

	2003–04	2002–03
	$’000	$’000
Revenue	2 156 704	2 016 297
Expenses	–2 150 443	–2 064 008
Net operating result	6 261	–47 711

Revenue

Centrelink’s operating revenue is primarily derived from client agencies with whom Centrelink has Business Partnership Agreements (BPAs). Centrelink is paid in accordance with the arrangements specified in each BPA for the delivery of agreed services. Though Centrelink provides services on behalf of 25 agencies, FaCS remains Centrelink’s major source of revenue, providing approximately 91 per cent of Centrelink’s overall revenue in 2003–04.

TABLE 37: REVENUE TO CENTRELINK FOR SALE OF SERVICES 2003–04

Source of revenue(a)	$’000
FaCS	1 967 171
DEWR	116 999
DEST	16 150
DAFF	22 155
Other client revenue	28 662
Total revenue from sale of services	2 151 137

(a) Excludes $5.567m in revenues comprising resources received free of charge ($4.766m), proceeds on sale of assets ($0.430m), direct appropriations received from Government ($0.250m) and foreign exchange gains ($0.121m).

TABLE 38: SUMMARY OF RESOURCES

	Budget(a) 2003–04	Actual 2003–04	Budget(b) 2004–05
	$’000	$’000	$’000
Price of agency output Output: Efficient delivery of Commonwealth services to eligible Customers
Revenue from government (Appropriation) for departmental output	250	250	250
Revenue from other sources	2 152 782	2 156 454	2 208 848
Total price of output	2 153 032	2 156 704	2 209 098
Total revenue for outcome (Total price of output)	2 153 032	2 156 704	2 209 098
Equity injection	40 676	40 676	23 730
Total capital for Agency	40 676	40 676	23 730
Staffing years (number)	24 418	24 153	23 992

(a) Portfolio Budget Statements 2004–05 Estimated Actual Result for 2003–04

(b) Portfolio Budget Statements 2004–05 Budget for 2004–05.

Balance sheet and cash flow

Centrelink’s financial position is strong, with the value of assets exceeding liabilities by $121.4 million. Cash available at the end of the year totalled approximately $195 million.

During the year accounts receivable from clients (excluding moneys held on behalf of Centrelink in the Official Public Account) decreased by $26.4 million.

Centrelink invested $23.6 million in infrastructure, plant and equipment during the year. This was mainly for Information and Technology acquisitions, including personal computers, mainframe equipment and cabling.

Centrelink also acquired over $40 million in software during 2003–04, including internally developed systems, to support customer service delivery initiatives. A portion of this investment was required to replace outdated applications.

Accounts payable to suppliers at year-end were lower than in prior years, consistent with the tightening of expenses towards year end. Other liabilities, such as revenue received in advance, also declined over the 2003–04 year.

Purchasing activity and contract management

See Appendix 2 (page 271) for details of:

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  advertising and direct mail expenditure
  
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  payments $1500 and over made to advertising agencies and agencies with advertising campaigns
  
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  payments $1500 and over made to direct mail organisations
  
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  Payments $1500 and over made to market research organisations.
  

Consultancy services

During 2003–04, Centrelink awarded 132 consultancy services contracts. Table 39 provides a breakdown of these figures. See Appendix 1 (page 265) for all consultancy contracts let during the 2003–04 financial year with a value of $10 000 or greater.

TABLE 39: SUMMARY OF CONSULTANCY SERVICES

Number of consultancy contracts let in 2003–04 by total value (inclusive of GST)			Total value of consultancy contracts let $10 000 or greater (inclusive of GST)	Total consultancy services expenditure (inclusive of GST)
$10 000 or Greater	Less than $10 000	Total	2003–04	2003–04(a)
49	82	131	$4 666 493	$8 516 086

(a) The total expenditure for consultancy services in 2003–04 includes expenditure for all consultancy services contracts let prior to the 2003–04 financial year regardless of value.

Competitive tendering and contacting

Since its inception, Centrelink has market tested and externally sourced a wide range of corporate service functions. A considerable number of functions within the human resources, financial management, property, Office service, legal and audit areas have been externally sourced. As well, several of Centrelink’s direct service delivery functions are also now serviced through external contractors, such as property valuation services, translation services, medical assessments, debt recovery, surveillance services and the vast rural and Indigenous agent’s network. Centrelink continues to look for market testing opportunities on a case-by-case basis.

Policy for the selection and engagement of consultants

Centrelink’s policy on the selection and engagement of consultants is based on the relevant Commonwealth Procurement Guidelines and Chief Executive Instructions. It is Centrelink policy to restrict the use of consultants to circumstances when the required expertise or services are unavailable from within the APS and the task is short term and discrete.

In general, Centrelink’s requirements for consultancy services can be identified against a number of broad categories which may include advertising and promotional campaigns, business analysis and review, training and service delivery advice.

Selection procedures

The method of selecting consultants is based on principles consistent with the procurement methodology used for obtaining other goods and services and underpinned by the Commonwealth Procurement Guidelines. Factors taken into account in the selection of consultants include the extent of competition available in the market place, the complexity and the estimated cost of the proposed consultancy, the available timeframe and the cost of approaching the market and evaluating offers. Centrelink considers that this is best achieved through a combination of public and restricted tendering processes.

Purchasing

Centrelink’s Chief Executive Instructions include the requirements for all officers involved in procurement to be aware of, understand and have regard to Centrelink’s procurement policies and procedures and the Commonwealth Procurement Guidelines (CPGs). These include the requirement to consider small to medium enterprise participation. Since December 1997 it has been mandatory for departments and agencies operating under the Financial Management Accountability Act 1997 to source at least 10 per cent of their purchases from small to medium sized enterprises.

The number of payment transactions made to small to medium enterprises was 75 percent of the total number of payment transactions and was 28 per cent of the total value of all payments to suppliers.

Strategic Cost Management and Centrelink Funding Model

The development of Strategic Cost Management (SCM) within Centrelink has continued in the 2003–04 financial year.

Strategic Cost Management utilises a systems based approach whereby mainframe and other transactional data is captured and then linked to the associated staff effort. Strategic Cost Management data is being utilised to enhance internal performance management, provide the source data for use within the Centrelink Funding Model, inform internal allocations to create a greater alignment and linkage with external funding and will lead to greater transparency in the costing of Centrelink services. Further refinement and development of Strategic Cost Management will occur in the 2004–05 financial year.

The Centrelink Funding Model (CFM) is a financial model that has been developed by Centrelink with our major client agencies—Department of Family and Community Services (FaCS), Department of Employment and Workplace Relations (DEWR) and the Department of Education, Science and Training (DEST)—and the Department of Finance and Administration. The CFM was endorsed by Government in the 2004–05 Federal Budget, and will be implemented from 1 July 2004 for services delivered on behalf of FaCS, DEWR and DEST. It introduces a new, improved funding arrangement for Centrelink with funding linked to workload unlike previous models. It seeks to ensure an appropriate level of funding for Centrelink to deliver services to fulfi ll the expectations of the Government and client agencies such as FaCS.

Strategic Cost Management will:

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  facilitate the analysis of Centrelink’s outputs in terms of both expenditure and operational performance
  
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  assist Centrelink in better strategic alignment of resource allocations with workload
  
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  deliver information reporting and modelling capabilities that empower managers when making business decisions.
  

The Centrelink Funding Model provides:

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  greater transparency and improved accountability of Centrelink’s funding
  
• 
  considerably more detailed information on the costs of service delivery
  
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  a much more stable and predictable funding base for Centrelink.
  

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