'Wasteful' end-of-year spending explained This week, The Canberra Times published the findings of its investigation of the federal bureaucracy's end-of-year spending habits: a hunt for the fabled profligacy known as the "spend-up season." You can read the story, my comment or analysis from former Finance Department deputy secretary Stephen Bartos. We lacked space in the newspaper to publish the full responses of both Finance Minister Penny Wong and the agency with one of the worst records, the Department of Human Services. So I've published their responses (and my questions) below. Advertisement First, from Penny Wong's spokeswoman: Agencies are far more likely to enter into short-term contracts just before the end of the financial year. This appears to be wasteful, discretionary spending. Do you agree? If not, why do agencies tend to spend their funds in May and June? We disagree. Agencies actively manage their procurements to meet the requirements of their work programs and the procurement policy framework, and they do this in an environment of competing demands and shifting priorities. The contract start date represents the end of the procurement cycle, which includes development, time to market and approval processes of weeks or months duration. The trend of agencies' procurement activities reflect the budget cycle, and are consequently back-loaded in the second half of the financial year. This pattern is consistent across agencies and reporting years. Lindsay Tanner said the public service's "spend it or lose it"' approach to budgets was "endemic to any system where you have annual budgeting" (Canberra Times, February 25, 2010). If not, why not? Annual budgeting is the system under which Australian government agencies operate, and agencies manage their finances and work programs within this framework. What have you done, or will you do, to try to prevent this practice? See responses to questions 1 and 2. Will you investigate the agencies with the worst record? For example, on the contracts published in the period examined, the Department of Human Services spent $157 million. About 78 per cent of that ($123 million) was on contracts begun in May or June. The Australian government operates under a devolved procurement environment. Agencies are responsible for ensuring procurements are carried out in accordance with the procurement policy framework, which is underpinned by the Commonwealth Procurement Rules and the various policies that link into that framework. The Australian National Audit Office is responsible for providing audit services to Commonwealth public sector agencies and regularly audits procurement activities. The procurement framework will continue to evolve to meet the ANAO's recommendations. And from the Department of Human Services' general manager and spokesman, Hank Jongen. My questions and his responses: The Department of Human Services is more likely than almost all other government agencies to enter into a short-term contract in May or June. The department spent $157 million on short-term contracts in the period examined. About 78 per cent of that ($123 million) was on contracts that began in May or June. The nature of that spending was varied, but much was on recruitment, training, office fit-outs and IT services. This trend appears to demonstrate wasteful, discretionary spending. If this is not the case, explain why. What is the department doing to prevent wasteful end-of-year spending? The Department of Human Services rejects any assertion about wasteful spending. All procurement activity is conducted to achieve priorities within the budget cycle and to gain maximum value for money. The department has an operating budget of $4.3 billion, with about 35,000 staff delivering essential services like Centrelink and Medicare at more than 700 sites across the nation. Short-term contracts are a small proportion of expenditure. It should be noted the AusTender data reflects the possible total value of contracts entered into, not the total spend, and these funds may be outlaid in later months and be for one-off expenses, such as annual software licensing renewals. There is a range of procurement activity required over these months to prepare for 1 July changes to payments and services, which have to be implemented across the Australian Government's primary service delivery network - from updating systems to distributing public information and communicating new initiatives. In addition, the new financial year is a peak period for the department with tax time linked to benefits like family payments. Decisions on short-term staffing needs for demand peaks are generally made at this time. The federal budget in May is also a trigger to commence work on legislative changes or new programs. This provides certainty to allocations and enables preparatory work to commence for projects like service centre upgrades and co-locations. This is normal budget practice and is consistent with how government departments manage changing priorities over the course of the year.