The Australian National Audit Office has expressed concerns over the handling of a $19.5 billion government loan to NBN Co, with the communications department unable to provide evidence of a suitable governance framework to oversee the company’s compliance with the lending arrangements.
The ANAO today released its interim report on key financial controls of major Commonwealth entities. Every year the office prepares two reports based on audits it conducts that are intended to assess agencies’ ability to prepare accurate financial statements.
The interim report released today by the ANAO reveals misgivings relating to how the Department of Communications and the Arts has managed the loan to NBN Co.
Government funding for NBN Co falls into two categories. The majority — $29.5 billion — is treated as an investment, with the expectation that the government will eventually receive a modest return on the equity it invested in the publicly owned company.
In 2015 NBN Co revealed that the ‘multi-technology mix’ network backed by the government was turning out to be more expensive than expected.
As a result, NBN Co said it would seek to raise private sector debt to cover the gape. However, in late 2016 the government announced it would instead loan NBN Co the $19.5 billion it needed to complete the build of its network. Last year the government varied the terms of the loan, giving NBN Co additional time to repay it.
The ANAO said that during its scrutiny of the Department of Communications and the Arts, it found that the department “had not established the practices necessary to manage the risks associated with the loan facility”.
According to the ANAO, the department was unable to provide:
• undertaking of the evaluation and assessment in establishing the loan, including suitability of the terms and conditions within the contract, other than the interest rate, and details of assessment undertaken to determine NBN Co’s capacity to fully service the loan;
• a governance policy or a suitable framework for Communications’ oversight, review and monitoring of NBN Co’s compliance with the lending arrangements;
• ongoing monitoring of NBN Co’s compliance with several aspects of the loan agreement; and
• an analysis to progressively assess NBN Co’s capacity to fully repay the loan.
The department’s “failure to fully establish practices to manage the risks associated with this loan significantly increases the Commonwealth’s risk of exposure to loss,” the report said.
NBN Co’s sole shareholder is the government, which means any losses would need to be borne by Canberra.
The ANAO said that the department was in the “process of implementing a governance and risk management framework to better support the ongoing management of the loan facility”.