Profile: Ian McPhee FCA

By Emily Chantiri

Some people would say that working with senior politicians and government officials is like swimming with sharks: fraught with unseen danger and risk. But Ian McPhee FCA doesn’t see it that way. As Australia’s Auditor- General, it’s his job to dive into government department records and check that financial statements are in order; to peer beneath the surface and see whether programs have been administered effectively.

While many would be daunted by these responsibilities, McPhee has positively thrived since he took up the post in 2005. “My office, myself included, is aware of the responsibility of the position we hold as auditors of Australian government activities. I can’t be directed by a minister or the government, or indeed the parliament, as to which particular audits I will undertake. In my experience, ministers have always been very respectful of the independent role of the Auditor-General. The legislation provides strong statutory support for my independence.”

McPhee’s office reports to the Special Minister of State for administrative purposes, but he says that when it comes to his audit responsibilities, he remains totally independent, reporting directly to parliament on the audits undertaken by his office.

His role is also subject to checks and balances. “I have a statutory 10- year term. This is paramount to allow the Auditor-General to perform his or her responsibilities effectively, and report objectively on the state of public administration, without fear or favour.” McPhee’s use of that last phrase is telling; it’s the very motto of Chartered Accountants in Australia.

The Australian National Audit Office (ANAO) also bears scrutiny just like any other public sector entity. “The ANAO has an external auditor whose selection requires the endorsement of the Joint Committee of Public Accounts and Audit. That auditor is also empowered to conduct performance audits, which are done on a regular basis, largely in the way the ANAO conducts its own audits of the ANAO.”

A public sector veteran, he says the main difference between the private sector and public sector concerns the challenges in measuring the success of government programs. “It is not just the case of the financial bottom line, which is of course important. But more about the impact of government policies and whether they are making a difference. Administration by public sector agencies must be appropriate, efficient and effective to achieve the objectives of the government. As Auditor-General, I cannot comment on the merits of government policy, but I can look into, and report on, the effectiveness and efficiency of the delivery of government policy by agencies,” he adds.

Throughout his term as Auditor-General, the toughest times, says McPhee, are dealing with sensitive audits. “From time to time, we have dealt with issues regarding the administration of government grants, and some sensitive audits, such as the performance audit of a range of matters relating to representations to the Treasury regarding automotive finance arrangements for car dealers,” says McPhee.

Questions had been raised in parliament, and the media, concerning financing assistance for individual motor dealers and, in particular, whether one representation made by an acquaintance of then Prime Minister Kevin Rudd had received favourable treatment. This led to questions as to whether the then Prime Minister and/or Treasurer Wayne Swan may have misled the parliament.

McPhee was asked to conduct an urgent investigation into these allegations.

The audit found that favourable treatment had not been given to Rudd’s acquaintance. Rather, the audit highlighted failures in the Department’s implementation of the assistance scheme, and raised serious questions about the conduct of the senior departmental official primarily responsible for the implementation of the policy response to motor dealer industry liquidity issues, including improper use being made of confidential information by that official.

“In these sensitive audits, we have discussions with ministers and the CEO of responsible agencies to make sure we have a clear understanding of the issues. We hear their perspective and, at the end of the day, we deliver an objective and balanced report,” he explains. McPhee further adds that, regardless of whether auditing practices occur within the public or private sector, the auditing standards are designed to provide ‘reasonable assurance’ on the financial reporting or administrative performance of the audited entity.

With high expectations resting upon his shoulders, there’s no let up for McPhee – but that’s just the way he likes it. “We are forever on a mission to continue to improve the quality of our work, and provide professional development and support to our audit staff in the work that they do. These are important responsibilities which are never too far from my mind.”

The ANAO employs around 350 staff, including a range of contractors from accounting firms. The office undertakes the audits of all government entities, from bodies such as the Reserve Bank and Australia Post, through to public sector departments and statutory authorities.

Last year, 260 individual audits of financial statements were undertaken, as well as 54 performance audits on the effectiveness of the administration of government programs. One area McPhee is particularly proud of is the Better Practice Guides produced by his office. He says the breadth of experience and research from his office over the past several years have lead to ANOA producing a series of these guides on a variety of topics. “For example, we have produced a guide on how to manage innovation, and another on the preparation of financial statements. We have found that this initiative has assisted us in two ways. Firstly, the obvious benefit is that the guides In these sensitive audits, we have discussions with ministers and the CEO of responsible agencies to make sure we have a clear understanding of the issues. help public sector entities to improve and streamline their own approaches, and secondly, by these entities having improved administration, it can save us resources and time,” he explains.

Looking back over his 40-year career, McPhee says the biggest change across accounting and auditing standards has been the requirements for greater transparency in financial reporting, and the need for more robust auditing approaches. “Auditors are expected to understand the business they are auditing. They must understand the entity, the particular programs subject to audit, how they are being managed and the risks to their performance, and how sound the reporting systems are. All of those complexities that executives and managers see the auditors must see as well, and be aware of. And, yes, it’s more demanding, as the timeframes we work to have shortened in both public and private sector reporting. This puts more pressure on auditors to deliver on time, which is no different from all other industry or business,” he says.

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From small pond to big fish

In 1971, Ian McPhee, then a young cadet, moved away from his home town in Rockhampton to take a job with the national audit office, initially in Brisbane and then in Canberra. At the time, he hadn’t expected the move to be permanent. Over the next 40 years, McPhee would carve out a longstanding career in public sector auditing, leading to his current role as Auditor-General.

“At the time, I didn’t have grand visions for myself, but I knew the cadetship would provide me with a great opportunity,” he remembers, “Canberra has been my home since 1972.”

Prior to his appointment as Auditor-General in 2005, McPhee worked for the Department of Finance as a deputy secretary before coming back full circle to take on the position as the Auditor-General for Australia. McPhee was already familiar with the role, having spent five years as Deputy Auditor-General before leaving his post in 2003 to work for the Department of Finance.

Along the way, McPhee has received recognition from his peers. In 2002, he was awarded a Public Service Medal for his work in public sector accounting and auditing, and for his contribution to the development of industry accounting standards. More recently, McPhee was named a CIPFA honorary member at the Chartered Accountants Leadership in Government Awards in Canberra. McPhee is also a member and deputy chair of the Australian Accounting Standards Board. 

Article last updated 31 January 2012