Implementing machinery of government changes

On 18 May 2023, the Queensland Government announced an unexpected Cabinet reshuffle and changes to the way the public sector functions and departments’ responsibilities are organised.

We commenced this report in November 2022, to collate the volume of insights we have gleaned across our work and provide advice ahead of the 2024 Queensland state election. Now, with the 2023 announcement, our recommendations are more pertinent than ever.

The scope of each change can vary greatly in terms of complexity. What does not vary is that they divert focus from leading service delivery. As we prepared to send this draft report to departments for consultation, Queensland was facing 11 functions being transferred between 10 departments, noting 6 of those also moved in the 2020 restructures. The most moved areas continue to be arts and multicultural affairs; however, youth justice has moved 4 times in under 6 years. The Department of Communities, Housing and Digital Economy lost communities and digital economy, but had already progressed beyond transactional changes following 2020 and started implementing strategies for longer-term benefits.  

Departments will now shift their attention to change implementation, thus reducing their ability to focus on improving the efficiency and effectiveness of their service delivery. A risk that is difficult to quantify, but is very real, is the grief and frustration employees will experience as they respond, while continuing business as usual in their desire to do the right thing for the community.

Professor Coaldrake shared advice on machinery of government changes in his 2022 report on culture and accountability in the Queensland public sector. He urged self-restraint by any government in limiting changes to those that are necessary, and assessing benefits against cost and loss of momentum. I paraphrase, but he points out that the burden of disruption typically lands on the agencies dealing with vulnerable community groups. We see this with the 2023 shifts for youth justice, seniors, and disabilities.

I have had ongoing concerns about the disruption of such changes. In State entities 2021, tabled April 2022, we recommended the Department of the Premier and Cabinet (DPC) and Queensland Treasury advise on the risk of restructures and guide departments on how to measure and report on costs and benefits. As covered in this report, DPC advised it has partially implemented this recommendation, with expected completion before the 2024 election. I will assess if the 2023 announcement affects progress. 

I am concerned that government does not have a good enough understanding of the costs of the re-organisation – both initially, and ongoing as departments deliver new or altered services. I am concerned that government is not clear on the benefits it aims to gain from such reorganisations.  

I call out the bearing on financial reporting. The timing of this change means 11 departments will need to reflect this in their 2022–23 financial statements. This takes additional time, and also means financial information is no longer comparable with the prior year or published budget. If this decision occurred 2 weeks later, it would have taken effect for 2023–24 financial statements – preventing additional effort to prepare and audit financial statements, and reducing confusion when assessing financial performance.

Professor Coaldrake also points out that agencies must work together to tackle the biggest issues facing government, rather than emphasising demarcating boundaries. I agree that restructuring agencies is not a substitute for strategy, nor does it guarantee better service delivery. The need for effective strategies, and multi-agency collaboration, are learnings I have repeatedly reported on.

Machinery of government changes can take months, or even years, before new functions are fully integrated. However, there are learnings from the past that Queensland can action from the very onset. I draw attention to the guidance in this report, including the checklist on common issues that will arise. It is my desire that our insights are immediately valuable for departments. I endeavour to limit the repeat of the same issues and consequential disruption to the delivery of public services in years to come.

Brendan Worrall
Auditor-General

The government of the day has the right to decide how best to organise the functions it governs. Restructures of government functions (referred to as machinery of government changes) often occur after an election, and many functions have been moved between departments over many governments. The restructures can seek to align services with the government’s objectives and ministers’ skills and backgrounds. However, they are rarely quick, inexpensive, or simple.

Following the most recent Queensland general election on 31 October 2020, a machinery of government change was announced on 12 November 2020. This affected 17 of the core departments and moved 23 functions, with transfers of over 6,200 staff and approximately $8.3 billion in assets. Only 6 core departments were not affected by this change.

This report provides insights into central agency leadership during the change, analyses the change management practices of 4 departments that were significantly affected, and assesses the effect that restructures have on departments’ internal controls (their people, systems, and processes).

Central agency leadership makes a difference

The Public Service Commission (since renamed as the Public Sector Commission) established a framework to oversee the implementation of the 2020 changes and guide decision-making. The sector viewed this positively, but challenges still arose, largely due to complications from past changes. Queensland Treasury is now undertaking a review of one department’s budget to identify and resolve any remaining issues. The information supporting this framework should be updated before the next change to ensure it remains appropriate, and can be applied consistently during future changes.

All 4 departments we reviewed had errors in the amounts they agreed to transfer. Departments would benefit from guidance on how to resolve disagreements over errors.

Experience and knowledge have been lost

The changes in 2020 relied heavily on the knowledge of a small number of senior public servants, some of whom have since left the public sector. Those departments that did not have that experience had more difficulty in implementing the changes. This needs to be carefully managed in future.

The 4 departments we reviewed all prepared checklists and established project groups to manage the initial implementation of the changes. Two of the 4 departments engaged internal audit at 6 months into the change to assess the implementation. This was effective in focusing them on the remaining action needed to implement the change. However, none of the 4 departments kept complete project documents or documented lessons learned from the process. This loss of knowledge, combined with the loss of experience, increases the risk of departments ‘reinventing the wheel’ or repeating past mistakes.

Departments need to focus on culture and on records 

It often takes over 2 years to implement a change, with the initial focus on transfers of budgets, employees, assets, and systems. This can be further complicated if different systems are used across departments. There are longer-term impacts on organisational culture. Given Queensland general elections occur every 4 years, changes may only be fully implemented as the next change is announced. This encourages departments to adopt a faster ‘plug and play’ approach, which risks longer-term benefits.

Operational requirements can take priority, and issues such as recordkeeping can be neglected. Recently, departments have identified over 87,000 records that were not transferred correctly as part of restructures in 2017 and 2020. They have not yet been appropriately transferred or disposed of. This increases the risk of sensitive information being lost.

We make the following 7 recommendations in this report:

Prior year recommendation to be addressed before the next Queensland general election

In our report, State entities 2021 (Report 14: 2021–22), we made the following recommendation, which the Department of the Premier and Cabinet has advised is expected to be completed before the 2024 Queensland general election.

Reference to comments

In accordance with s. 64 of the Auditor-General Act 2009, we provided a copy of this report to relevant entities. In reaching our conclusions, we considered their views and represented them to the extent we deemed relevant and warranted. Any formal responses from the entities are at Appendix A.

Machinery of government changes involve the restructure of functions across government departments. They are based on an order made by Governor in Council (which is the Governor acting on advice of the Executive Council to approve the decisions of Cabinet. All Cabinet ministers are members of the Executive Council, with at least 2 ministers and the Governor needed for a meeting). Machinery of government changes can occur at any time, although they commonly occur after an election to align services with the government’s objectives and facilitate changes to ministers’ portfolios.

Source: Queensland Treasury Guidelines for Machinery of Government (MoG) changes.

Restructures can vary in size and impact, ranging from the transfer of minor functions to the creation and abolition of departments. Figure 2A shows the number of functions that have been transferred following Queensland general elections between 2009 and 2020.

Transferring functions between departments requires the transfer of budgets, employees, assets, records, information systems, and other resources. The change in 2020 restructured 17 departments and transferred over 6,200 staff and approximately $8.3 billion in assets.

This takes considerable time and effort on the part of the affected departments, and this report analyses the change management practices adopted during this change. Figure 2B shows the functions that transferred on 1 December 2020.

Further changes were announced on 18 May 2023, outside of the 4-year election cycle. This saw 11 functions transferred between 10 departments, with 6 of those functions also moved in the 2020 changes. This is shown in Figure 2C.

Specifically, youth justice has now moved departments 4 times in just under 6 years. This diverts the focus of public servants to the restructure, as they re-establish the corporate services that support frontline service delivery. This constant change reduces their ability to improve the efficiency and effectiveness of their services.

Restructures come at a cost, and risks must be carefully managed

An elected government has the right to decide how to organise its executive functions, but restructures come at a cost. When a restructure takes considerable time and effort to implement, there is a risk that the costs outweigh the benefits.

The benefits of a machinery of government change should be realised through improved efficiency and effectiveness of government service delivery. Restructuring aims to achieve this by refocusing the priorities of government, improving accountability, streamlining roles and responsibilities, and centralising policy formation.

It is difficult to quantify the costs of these changes. Direct costs are not consistently tracked by affected departments, and there are also indirect costs, such as inefficiencies experienced through loss of staff knowledge and diversion of effort from business improvement activities.

In our report, State entities 2021, we recommended that the Department of the Premier and Cabinet requires departments to articulate, measure, and report on the benefits to be achieved, and the cost to implement the restructure. This requirement should include guidance on how to measure and report benefits and costs.

The Department of the Premier and Cabinet agreed ‘in principle’ with our recommendation. It has advised us that it has undertaken significant work on this recommendation, which it expects will be completed before the 2024 Queensland general election.

Departments need to manage the risks of not achieving benefits or of incurring excessive costs from machinery of government changes. There are some common risks that should be consistently assessed, including that:

• changes in senior leadership mean new relationships need to be established (both internal and external to the department). This can affect strategic initiatives and project delivery
• different cultures within individual functions mean the department does not work cohesively to achieve the same strategic objectives and adopt the same corporate values
• the people, systems, and processes (internal controls) do not address the risks or meet the needs of the new department
• the transfer of information between systems and networks does not occur in a timely manner or is inaccurate, increasing inefficiencies and cost of implementation
• all records are not transferred appropriately, so information cannot be efficiently accessed by staff, or records are misplaced or not held securely
• the implementation is not appropriately planned and resourced, resulting in
  • the initial disruption to business-as-usual activities (particularly in corporate services) being significant
  • not all changes required to fully integrate functions being completed, as this needs to occur over years.

This chapter describes the various strategies adopted by central agencies and 4 departments when implementing the changes that occurred in 2020. We chose 4 departments that were significantly affected by the 2020 changes and that had different approaches to implementing the changes. This chapter explores the strengths and weaknesses of those strategies, and identifies the change management practices that were the most effective.

Snapshot

Importance of central oversight of machinery of government changes

As machinery of government changes affect multiple departments, adequate central agency oversight is required to ensure that:

• the implementation process is timely and efficient
• equitable decisions are made about the transfer of budget, employees, assets, and systems.

While these restructures are not uncommon in Queensland, experience in implementing them is not always the same across entities, making it even more important that departments are well supported by central agencies.

The Public Sector Commission (renamed from the Public Service Commission (PSC) in March 2023) supports public sector agencies in managing their workforces. It also briefs incoming or returning governments on the functions of government that can help inform decisions on changes, and assists departments as they implement the government’s decisions.

The Public Sector Governance Council was established under the Public Sector Act 2022. It replaced the former PSC Board. A function of the council under the legislation is to oversee the implementation of changes to the machinery of government and resourcing decisions related to the changes.

The Public Sector Commission works closely with the Department of the Premier and Cabinet, which oversees policy and broader government strategy; and Queensland Treasury, which manages the state’s finances. Queensland Treasury also publishes the Guidelines for Machinery of Government (MoG) changes and supports departments in meeting accounting and budget requirements following a change. The guidelines provide an overview of requirements for transferring functions between departments.

Framework for the 2020 machinery of government changes

Following the 2017 changes, the PSC began a project designed to improve departments’ preparedness for the next change. It used learnings and key reflections sought from departments following the 2017 changes to identify improvements to the process.  

The review identified the need for key principles to be developed that would help guide departments through the changes and associated decision-making process. It also identified the need for the PSC and other central agencies to provide governance during the process.

The PSC started implementing its findings prior to the 2020 election in preparation for another machinery of government change. This included developing a framework that outlined the governance arrangements summarised in Figure 3A.

The framework also outlined the principles to be adopted in decision-making for the machinery of government change. These were agreed with the Heads of Corporate Services group and included the following:

• Costs are to be minimised as far as possible and result in a neutral impact on the state budget.
• Existing public service resources will be redistributed to support the delivery of government priorities, and minimum corporate services thresholds (see Appendix C) will inform corporate services resource decisions. This distribution will be based on the current state, not on historical decisions, and may involve the contribution of resources by departments not affected by changes.
• Existing shared service arrangements should be used as much as possible by new or affected departments.
• Resourcing decisions for departments subject to changes are to be finalised within 90 days, or by a date approved by the PSC Board.

The first principle is achieved when no additional budget is provided to a department for implementation of the change. However, that does not mean the change does not have a cost. Employee effort is just redirected – from service delivery to implementing the change. At present there is no requirement for departments to record the cost of implementing a machinery of government change. In our report, State entities 2021, we recommended that the Department of the Premier and Cabinet require departments to measure and report on the cost to implement these changes. The Department of the Premier and Cabinet has advised this recommendation is expected to be completed before the 2024 Queensland general election.

The corporate services thresholds range from 6 to 23 per cent of a department’s workforce, depending on the size and services of the department. This acknowledges that each department must have a minimum viable corporate services function to support its frontline service delivery and meet its legislative obligations, but the specific needs will vary.

Other information is considered in using these thresholds to guide decision-making. This includes the use of shared service arrangements and corporate partnerships in departments. For example, the Information and Technology Partners group within the Department of Agriculture and Fisheries (DAF) is a corporate partnership that provides strategic and operational information technology and information management services for multiple departments. This means DAF would have a higher ratio for information and communication technology (ICT) employees, and the departments it supports would have low or no ICT staff.

Outcome of the 2020 machinery of government process

In May 2022, the PSC conducted a survey to obtain feedback from all the departments’ heads of corporate services on the 2020 change process. The survey was designed to assess the impact of the PSC’s new framework, and to identify further improvements. Survey responses showed that while there were improvements in the process, with the principles contributing to more consistent decision-making, there were still issues with the distribution of resources.

The PSC survey questions were focused on 4 key elements in the framework. Figure 3B summarises the findings by each of the elements.

Our review of the PSC survey and the 4 departments’ practices for implementing the 2020 changes confirmed the need for strong leadership by central agencies during a machinery of government change. This was particularly evident for decision-making and the escalation and resolution of issues.

Decisions about resource distribution were complicated by lingering issues from previous changes and the short time frame (of 90 days) allowed for resourcing decisions. While the 90-day time frame is realistic for smaller changes, for larger and more complex changes, it presents a significant challenge.

This is because issues may not become immediately apparent. It takes time for departments to gain enough understanding of the functions they are receiving to be able to effectively negotiate for resources.

They need to understand the services provided, any significant government commitments or strategies, the operating structure (and the degree of independence or integration within the previous department), the systems used, the people required to deliver the services, the cost of service delivery, and the approved budget.

When further information becomes available, it is important that there is an avenue for departments to escalate these matters to central agencies so an appropriate review can occur. Otherwise, issues arising from past decisions will continue to present a challenge for the department until the next change, when they will be passed to the next department.

Case study 1, in Figure 3C, provides an example of decisions that affected one department in the 2020 change. It demonstrates the importance of departments being large enough and having the corporate structure to be able to effectively implement a machinery of government change. It also shows the benefit of leadership from central agencies, and the need for relevant experience within a department. Finally, it highlights the challenges that can arise when functions that have been integrated are transferred out. This can incentivise departments to operate a ‘plug and play’ model as they wait for the next change, which can prevent long-term efficiencies being achieved.

Principles of change management for machinery of government changes at individual departments

Machinery of government restructures can require extensive changes for individual departments. This presents challenges for individual departments when planning for the change and looking to realise the benefits. Change programs must identify the end state they are aiming for, and the benefits they want to realise. Then they can effectively plan to achieve them.

In our report State entities 2021 (Report 14: 2021–22), we recommended the Department of the Premier and Cabinet and Queensland Treasury take lead roles in these restructures by providing guidance to individual departments on key matters such as the measuring of/reporting on how benefits are realised.

We used a change management maturity model to assess the maturity (the increase in efficiency and effectiveness) of the processes that departments undertook to manage the restructure. The model was tailored for machinery of government changes, based on the change management principles listed in Figure 3D under 4 main steps.

Time taken to implement a machinery of government change

In assessing the practices of 4 departments, we observed that machinery of government changes differ from other projects for which change management would commonly be implemented, for example, a system implementation.

This is because decisions about the transfer of functions are made by the government of the day, with limited ability for public servants to prepare for changes before they occur. A lot of the planning for a change occurs after it is announced, with 90 days given to plan and approve the transfers of budgets, employees, and assets. Actual transfers and system changes take over a year to implement.

Once those aspects are finalised, management can assess the alignment of the strategy and culture within the new department, and implement longer-term strategies to achieve the desired outcomes. Figure 3E shows our observations from recent changes about the time frames required for the full implementation of the changes.

Given Queensland general elections occur every 4 years, changes may only be fully implemented as the next change is announced.

Departments can improve their practices for implementing machinery of government changes

We assessed the maturity of change management practices at 4 of the 17 departments affected by the 2020 change. These 4 departments were significantly affected by the change, and had different approaches to planning and implementing the changes, allowing us to assess and compare the approaches (see Appendix D). These different approaches were taken due to the history of previous changes, the structure of the departments prior to the change, and the use of shared service providers and common information systems.

Two departments acknowledged the challenges arising from previous changes and their former structure. They took 12 months to plan and then implement the initial changes. Their use of shared service providers and common systems meant the changes then took effect quickly. The other 2 departments started implementing the initial changes almost immediately, but staffing challenges and the lack of common systems meant that these changes took 23 months to implement.

The departments generally handled the initial stage of the implementation process well. Departments have milestones they are expected to hit by certain times that are set by central agencies. Apart from that, the departments are responsible for the ongoing delivery of the changes and for providing support to staff. Figure 3F shows that after initial implementation the departments progressed at different rates, due to the different challenges experienced and approaches adopted.

Maturity of change management practices

We developed a model to measure the maturity of change management practices used by 4 departments in implementing machinery of government changes. A copy of this model – Implementing machinery of government changes maturity model – is available on our website at www.qao.qld.gov.au/reports-resources/better-practice. The model includes 25 questions about the processes, people, and systems departments relied on in implementing such changes. Figure 3G summarises the results, showing:

• the average result from these components for each department – as a coloured dot
• the average result across all 4 departments – as a solid line.

The average maturity of departments in implementing the changes was ‘established’, with responses to individual questions for the 4 departments ranging from ‘developing’ to ‘optimised’ across each of the components.

Given how frequently machinery of government changes occur, action needs to be taken to improve the efficiency and effectiveness with which departments implement these changes. This should result in their maturity being more consistently in the ‘integrated’ to ‘optimised’ range (as indicated by the shading in Figure 3G). While the desired maturity of change management practices may vary for individual departments depending on the size and complexity of a change (for example, where changes are smaller or a department is not receiving any functions, the change management practices may not need to be as mature), a lower maturity is likely to mean the changes take longer to implement and may not be fully implemented before the next change is announced. This can prevent a department from achieving its objectives, and result in non-compliance with legislative requirements.

Processes supporting change management

Our assessment of the processes supporting change management focused on departments’ governance, planning, risk management, and reporting for the 2020 change.

Figure 3H shows some of the individual strengths and areas for improvement we identified in the processes that support change management across the 4 departments.

Good use of checklists and collaboration between departments

The 4 departments all prepared checklists and established project groups to manage the initial implementation of the changes. In doing so, they referred to existing guidance provided by Queensland Treasury and to the Queensland Audit Office’s Checklist for managing machinery of government changes that was originally developed in 2017. This checklist has recently been updated and is included in Appendix F. However, for one department these processes were only formalised in a change management plan after an internal audit review in July 2021.  

There were also instances of good collaboration. For example, all 4 departments collaborated with Queensland Shared Services in implementing system changes. Two departments also collaborated well in determining the best allocation of corporate services staff between them after the change.

The effectiveness of collaboration was influenced by the process they followed and the people who were involved. Those with more experience in implementing changes placed a strong emphasis on regular communication and on bringing people together to find the best solution for all involved. This is explored further under the section headed ‘The people aspect of change management’, later in this chapter.

A collaborative approach made the process easier, but all departments involved noted the additional workload for staff as they implemented the change and met their ongoing business-as-usual work commitments. Given the budget constraints that departments were under at this time arising from the government’s savings and debt plan, they were not able to employ additional staff or contractors to assist them.

Additional support for departments and shared service providers immediately following a change may help them to progress the implementation and to get back to business-as-usual processes more quickly, while still maintaining effective internal controls.

The concept of a flying squad (public sector employees with experience in implementing machinery of government changes, who could assist affected departments for short periods) was included in the PSC’s A framework to support preparations and implementation of machinery of government (MoG) changes. This was explored prior to the changes being announced, but the wide-spread nature of the changes meant this was not used in 2020. This may be worthwhile considering for future changes.

Risks, benefits, and lessons need to be documented for longer-term benefit

As part of assessing the maturity of the departments’ change management practices, we reviewed their documentation of the processes performed throughout the implementation. Through this, several areas were identified where documentation could be improved. These gaps largely reflected a focus on the initial implementation, and a desire to get back to business-as-usual due to staffing constraints, without sufficient consideration of longer-term outcomes.

Examples of the documentation that could be improved included:

• approved terms of reference for project groups
• risk registers that identified all risks associated with the change and an appropriate response, not just those related to a system change
• identification of longer-term benefits and expected outcomes that could be achieved from the change, or recognition of the impact on strategy and culture, and how this could be aligned
• lessons learned at the end of the project, so good practices continue and past mistakes are not repeated.

While all departments followed a similar process and used similar documents, all project documents had been individually created. There is an opportunity for the Public Sector Commission to develop and template support materials for all departments to use, including common project documents. This could guide departments through the process and help them achieve more thorough project management and documentation.

Internal audit reviews helped identify action that was still needed

Two of the departments’ internal audit functions performed reviews over their changes in 2020–21. These reviews were extremely effective in focusing the departments on the remaining action needed to implement the changes. They also enabled the departments to reflect on their processes and determine lessons learned and areas for future improvement – either internally or to be communicated as feedback to the PSC.

Errors in transfers between departments

Queensland Treasury’s Guidelines for Machinery of Government (MoG) changes indicates that departments need to agree on their assets and liabilities at the date of the change, and on the budgeted revenues and expenses that are to be transferred between departments. Once agreed, these amounts are reflected in the sign-off form, which is approved by the directors-general of each department.

It is not uncommon for errors to be identified in the amounts transferred. These errors can arise for a variety of reasons, including that:

• assets were not accurately recorded at fair value (the cost of replacing the asset) at the effective date of the transfer. Assets like land and buildings are recorded at fair value by government departments, with annual processes in place to update the fair value of these assets as at 30 June each year. The value can fluctuate throughout the year, and it can be challenging to accurately reflect the fair value at the effective date of the change
• additional information is identified after the transfer. Depending on the complexity of the change, it can be difficult to accurately record all assets and liabilities to be transferred within the required time frame.

When these errors are identified, the error should be corrected in the original department and a new sign‑off form be signed, with the updated amounts being transferred.

All 4 departments identified errors in their original sign-off forms. Two departments agreed to adjust the original amounts transferred due to valuation changes that occurred before the machinery of government change but were not accurately reflected on the original sign-off form.

A similar error was identified for the other 2 departments, but no change was agreed, and the sign-off form was not updated. This was despite the error being considered large for the new department. Further guidance on how to resolve disagreements over errors is needed.

The people aspect of change management

In assessing the people aspect of change management, we reviewed:

• the way management restructured the department
• the assigned responsibilities and lines of accountability
• the involvement of and commitment from senior management
• how changes were communicated to the workforce.

Figure 3I shows some of the individual strengths and areas for improvement we identified in the people aspect of change management across the 4 departments.

Departments that have been more recently affected by machinery of government changes are more likely to need to update their policies and procedures so they are contemporary and accessible, as well as to develop effective workforce plans. These are areas that require attention across the Queensland Government, and are explored further in Chapter 4.

Senior leadership drives strategy and culture

Departments identify the immediate changes required for staff and systems following a restructure. They are also quick to establish new strategic plans that outline their objectives. However, some changes extend well beyond the initial implementation. Longer-term changes require a thorough understanding of the functions within the department, and of whether their individual culture and values align with the strategic direction. The strategy and culture of a department is driven by its senior leadership. 

Machinery of government changes often coincide with changes in senior leadership. Two of the 4 departments had acting directors-general until June 2021 – for one a new appointment was made at that time; for the other the acting director-general was appointed. Existing directors-general were appointed to lead the other 2 departments. Both had responsibility for some functions of their departments before the change, but also took on new functions.

Our model considered whether departments had assessed their culture following the change. The most common method for departments to assess this was through pulse surveys, although 2 departments were performing detailed reviews of their current culture. These reviews were assessing the alignment of values across the department, to inform the development of future workforce strategies that will be implemented in 2023.

Systems should reflect the needs of the new department

In assessing the departments’ systems, we focused on:

• planning for information systems after a machinery of government change
• information security controls and initiatives
• policies and procedures
• recordkeeping. 

Figure 3J shows some of the individual strengths, areas for improvement, and potential future challenges that may arise in the systems used by the 4 departments.

Machinery of government changes significantly impact on a department’s information systems. While new departments will likely need to implement new systems, departments affected by transferring functions also need to make changes to their systems.

The information systems and the information security controls and initiatives in place at the departments were assessed by management following the change. They confirmed their systems were largely compatible with their needs, and where required, plans were developed and implemented for the transfer of information from old to new systems.

This was in line with the results of the 4 departments’ reports on their information security management systems (which identify and manage information security risks). Their assessments of maturity before and after the change were also largely the same. The assessments were supported by a list of their information assets, with both business and finance systems included in scope. However, immediately following the change all departments moved to performing their own assessment, which provided less assurance than an independent assessment. This was so the departments could properly assess the new functions that had transferred to the department, including correctly identifying all their information assets and defining the systems in scope, before obtaining independent assurance in the future. In 2021–22, 3 of the 4 departments reported an improvement in the maturity of their information security management systems, after they stabilised their information system changes.

Use of a shared service provider enables departments using the same systems to adopt a collaborative approach

Our report Delivering shared corporate services in Queensland (Report 3: 2018–19) observed that shared service arrangements in Queensland aimed to minimise disruption from machinery of government changes. Our review of the 2020 changes confirmed the support provided by shared service providers during the implementation was beneficial.

Two of the 4 departments used Queensland Shared Services (QSS), the shared service provider for most departments’ payroll, expenditure, and general ledger services. These departments adopted a collaborative approach between them and QSS to implement the changes. This enabled a combined piece of work to be undertaken, and provided both departments with oversight of the required changes.

In this instance, both departments were using the same version of the QSS‑supported finance system, allowing a smoother transfer of information between systems, and of employee roles between departments. While considerable effort has been made to move government departments to a single finance and payroll system, it is not compulsory for departments to use the systems and services of QSS. This can further complicate restructures.

One department had moved off the QSS-supported finance system to a new, self‑supported system in 2016–17. This department has since been subject to several machinery of government changes, including in 2020.

Two functions that transferred out in 2020 went to departments that used a QSS-supported finance system. One of these departments made the decision to move to a QSS-supported finance system quickly, and the system change took effect from August 2021.

The second department did not make a decision to move to a QSS-supported finance system until March 2022. This was over a year after the machinery of government change. The migration to the QSS‑supported finance system occurred on 10 October 2022. Until this time, the original department continued to provide some form of corporate support services to the new department. This meant the initial implementation of the machinery of government change went on for 23 months.

Some reviews of records have been performed, but this needs to occur across all departments

Two departments had performed a review of records that were being transferred to them following the machinery of government change. This allowed plans to be developed for records to be included digitally in their centralised records management systems, along with details of their retention and disposal dates, in accordance with the Public Records Act 2002.

However, department records were not consistently stored in a central location in a digital format. This can impact on the efficiency of a department’s service delivery, as information is not readily available for public servants to perform their job. It also increases the risk of records being lost, improperly accessed, or not appropriately transferred when a change occurs. This is an area that requires attention across the Queensland Government, and is explored further in Chapter 4.

Internal controls are the people, systems, and processes that ensure an entity can achieve its objectives, prepare reliable financial reports, and comply with applicable laws. Features of an effective internal control framework include:

• strong governance that promotes accountability and supports strategic and operational objectives
• secure information systems that maintain data integrity
• robust policies and procedures, including appropriate financial delegations
• regular monitoring and internal audit reviews.

Any change in an entity’s operations will affect its internal controls. Changes need to be carefully assessed and planned to avoid long-term negative impacts such as objectives not being achieved, higher operating costs, instances of fraud, and non-compliance with laws or regulations.

This chapter reports on the maturity of internal controls at the 20 core departments that existed at 30 June 2022 (core departments are entities gazetted as departments under the Public Service Act 2008, and are responsible for most of the public services that departments provide). It compares the maturity of internal controls for the 11 departments that were involved in significant machinery of government changes in recent years (as outlined in Appendix G) with that of the 9 departments that either had no or minor changes. It also identifies the control areas that departments should focus on when implementing future machinery of government changes.

Chapter snapshot

Internal controls are affected by machinery of government changes

We are developing a suite of models to measure the maturity (the increase in efficiency and effectiveness) of entities’ internal controls relevant to financial reporting and compliance. This is explained further in Appendix E.

In 2021–22, we assessed the maturity of departments’ internal controls using the Annual internal control assessment available on our website at www.qao.qld.gov.au/reports-resources/better-practice. Our annual assessment includes 41 questions across 11 components.

It provides an option for departments to decide what level of maturity they want to achieve with their internal controls (this is their 'desired' state). Management can then focus attention and investment on the biggest gap between their current and desired states, to improve the internal controls that will be of most benefit to their departments. Their decisions on this should be based on the risk if those internal controls do not work effectively or efficiently, and on the cost of improving them – this will be different for every department.

Figure 4A summarises the results, showing the average result for departments for each component as a coloured dot, comparing those that were significantly affected by machinery of government changes in recent years (the orange dot) with those that were not (the blue dot). The green star shows the average of the desired state, as assessed by management.

The departments subject to recent changes generally have lower internal control maturity ratings than departments that have not been affected by these changes. The reasons for this are discussed in further detail in this chapter. 

Records management

The departments affected by machinery of government changes had the lowest maturity rating for records management. This was because their records management is decentralised, with multiple records management systems used by different business areas. These systems often do not link to allow for automated processes or central oversight.

In some departments there were instances of documents stored outside of approved records management systems and paper records still being received or created. This creates challenges for government functions subject to restructures when transferring business records to their new department.

One large department affected by machinery of government changes has begun a project to retrieve records following the 2020 change. This is described in Case study 2 in Figure 4B.

Nine departments were not consistently using electronic records management systems that supported effective central oversight or robust processes for the appropriate retention and disposal of records. While more than three‑quarters of them were subject to recent significant machinery of government changes, this area requires attention from all departments.

Governments hold a significant amount of sensitive information, including but not limited to information related to children, patients, businesses, and employees. Government has a responsibility to only collect the information it needs, to protect the information it has collected, and to dispose of that information safely at the correct time.

When departments do not know or regularly review the information they hold, there is a significant risk that this information is not stored securely or disposed of appropriately at the correct time. It may also prevent the community accessing information held by the government under right to information legislation, or impact decision-making, because relevant information cannot be found. In the case of a natural disaster or a security breach, sensitive information could be lost or inappropriately accessed.

Departments should take the opportunity to implement consistent electronic records management systems and practices. This would improve the security of sensitive information held by government and the efficiency of records management practices.

The Queensland State Archives has published guidance for Recordkeeping during MOG and administrative change. The guidance is available to all entities and includes information on how to prepare, identify impacted records, agree on who is responsible for the records and information, and transfer the records. The guidance is supported by resources and tools developed for records management that will assist departments implementing best practice records management and in preparing for a future machinery of government change.

Information systems

The second lowest maturity rating for all departments was for information systems. This is consistent with findings raised in our report State entities 2022 (Report 11: 2022–23), with 43 out of 66 internal control issues reported to core departments in 2021–22 relating to information systems security.

It is also consistent with departments’ reporting on their information security management systems (ISMS) in 2020–21. The ISMS is a systematic approach to identifying and managing information security risks, including the risk of a cyber attack. While the ISMS maturity of the Queensland Government is improving, more can still be done. In 2020–21, only 33 per cent of departments had an operating level ISMS where risks are identified, managed, and continuously improved. In 2021–22, this increased to 73 per cent. The target is 100 per cent.

The information systems component was the only one where those departments affected by machinery of government changes reported the same average internal control maturity rating as those that were not affected by a change.

Non-change-affected departments tended to have large, decentralised, and complex information technology environments, with multiple systems, sub-systems, and legacy systems used by different business areas. The complex environment creates challenges in terms of maturing internal controls – including greater risk, longer time, and higher cost involved in improving internal controls.

In contrast, change-affected departments are more likely to have a smaller, more centralised, and less complex information technology environment. For these entities, a change can also provide the opportunity and incentive to streamline through the use of common information systems and shared service providers or corporate partnerships. This can have longer-term benefits.

A lot of departments use a shared service provider such as Queensland Shared Services, or a corporate partner such as the Information Technology and Partners group (which is part of the Department of Agriculture and Fisheries and provides information technology and information management services for multiple departments). These providers have well-established processes for implementing machinery of government changes, and can provide consistent services when future changes occur.

Culture

Culture was the area assessed as having the largest difference between departments that were involved in recent significant changes and those that were not. Departments and functions frequently subject to changes generally reported lower maturity ratings for internal controls relating to culture.

This does not mean they have a poor culture. All have a code of conduct on which employees receive training, and all have conducted an annual staff survey to identify areas for improvement. A lot of departments place great reliance on these measures, but after a machinery of government change, more may need to be done. There are opportunities to analyse other information – for example, about complaints, leave balances, absenteeism, or resignations – to identify any cultural issues that need to be addressed.

Functions that frequently move during government restructures are less likely to fully integrate into their new departments due to the anticipation that they will be moved again during the next restructure. These functions may also operate under different values, which will impact on their alignment with the strategic objectives of their current department. This creates a risk of departments and their functions operating in silos, which can affect the flow of information within a department and can also impact on risk management and decision-making. 

In our review of 4 departments affected by 2020 changes, 2 had started projects to assess and influence their culture following the changes.

Management wants to improve grants management

Across all departments, the most significant difference between the current and desired states was in grants management. We previously assessed the maturity of internal controls over grants management for 8 grant programs at 5 departments. Our findings were included in Improving grants management (Report 2: 2022–23). The report found that older grant programs (which have had a longer time to establish and develop internal controls) tend to have more efficient and effective systems in place than newer programs.

Similarly, machinery of government changes affect the maturity of grants management across departments. This is because different systems and processes are used for grants management across the Queensland Government. When these changes occur, multiple functions can transfer to a new department, each with their own system and process for grants management. Departments rarely have time to implement consistent systems and processes before the next change occurs.

The Department of State Development, Infrastructure, Local Government and Planning has established a project to lead improvements in grants management across the Queensland Government. This may provide departments with an opportunity to implement consistent systems and processes more easily.

Other maturity areas for improvement

The average results for each component reflect responses to several specific questions. Lower ratings for individual questions can be offset by higher ratings for other questions in the same component. Individual questions with lower-than-average ratings were noted in governance, procure-to-pay, and monitoring of compliance with laws and regulations.

Governance – workforce management

One key maturity measure is the implementation of policies and procedures to support staff attraction, development, and retention. This includes effective workforce planning and performance management. While all departments had these policies and procedures in place, they were not always implemented consistently. Ten departments did not have effective workforce plans in place, and also did not have consistent and formalised processes for assessing staff performance. Of these departments, 8 were recently affected by significant machinery of government changes.

While these internal controls can take time to implement following a restructure, they are important in ensuring a department’s workforce remains appropriate for its service delivery, determining the training required, assisting in the retention and advancement of qualified personnel, and managing poor performance.

Governance – policies and procedures

All departments have policies and procedures in place to establish rules and provide guidance to employees on matters like human resources, finance, and information systems.

After a machinery of government change, most departments adopt the policies and procedures of their former departments, with some updates to reflect the operations of the current department. Departments noted their intention to revise their policies to make them more contemporary and accessible, but that this work was frequently delayed due to other priorities. As a result, policies were assessed as having the largest difference between departments that were involved in recent significant changes and those that were not.

It is important that employees understand what is expected of them, so they can provide a consistent level of service and comply with legislative requirements. Policies and procedures that are relevant, and are easy to find and follow, are integral to this. Where policies are out of date, there is a greater risk of inconsistent practices and poor decision-making, that may result in financial loss or non-compliance with legislation.

Procure-to-pay

The majority of departments use different systems for their procurement, contract management, and finance processes, with a lack of integration between the systems used. This increases the risk of different information being recorded in each system and of poor contract management practices. It can result in the maximum value for money not being achieved under existing contracts. Of these departments, 69 per cent were recently affected by significant machinery of government changes.

Monitoring compliance with laws and regulations

Strong practices for monitoring legal and regulatory compliance include implementing reporting tools to monitor and report incidents, oversighting from committees, and developing action plans for identified risks. Eight departments had a maturity rating of established or lower, and 7 of these departments had been affected by machinery of government changes.

Departments need to monitor their own compliance with laws and regulations, but may also have regulatory responsibilities to ensure individuals and businesses comply with legislative requirements. Where this is the case, departments need to ensure their monitoring extends to their regulatory responsibilities, so they can promptly respond to instances of non-compliance.

Regulators’ failure to monitor compliance is a common observation in our performance audit reports. We published guidance for improving regulator performance in chapter 4 of Regulating animal welfare services (Report 6: 2021–22). It drew on findings from across many performance audits over a number of years. It identified that departments needed to improve their planning, monitoring, and reporting of compliance.

This can be exacerbated by machinery of government changes. Internal controls over monitoring of compliance need to be prioritised when functions are being transferred between departments.