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Intelligence

Report of the Inquiry into  Australian Intelligence Agencies  

Chapter 4 - Oversight of the Australian Intelligence Community


[Table of Contents]

 

Current Accountability Arrangements
Inquiry's Findings in Relation to Accountability Arrangements
Priority Setting Arrangements
Assigning Resources to Priorities

Our liberal, democratic society demands that all elements of government are accountable. Australians are entitled to be confident that government institutions are operating according to law, under the authority of ministers, and that they offer value for money, efficiency and effectiveness.

Intelligence agencies are no exception. Indeed, these obligations are, if anything, higher in relation to intelligence agencies than other branches of government. With the capacity to infringe on citizens' privacy and to undertake acts that without specific legislation might be unlawful, Australians are entitled to expect that intelligence collection agencies are properly scrutinised and held to account.

Complicating the requirement for accountability is the need for parts of the intelligence function to remain secret. It is not possible to disclose publicly the sources and methods of intelligence tradecraft without alerting intelligence targets. Disclosure of the technical capabilities of the agencies would limit their usefulness. And it is not possible to disclose the identities of some members of intelligence agencies without exposing them to danger, including counter-intelligence attack.

The system of accountability and oversight of intelligence agencies therefore differs from other parts of government. Purpose-specific institutions and systems are needed to deal with the tension between accountability and secrecy. But the need for secrecy should be no bar to a robust, effective and occasionally intrusive system of accountability. Where possible, intelligence agencies should be subject to the same scrutiny mechanisms as other parts of government. Where that is not possible, special systems and institutions should be in place to ensure a form of accountability that protects the viability of vital agency capabilities.

Current Accountability Arrangements

A system that balances oversight requirements and the need to avoid disclosure in sensitive areas has been developed over successive governments. The system provides a high degree of oversight, while keeping much of the work of the intelligence agencies out of the public domain. While it has public elements, the system necessarily works principally through a select group of ministers and parliamentarians, with the support of officials.

Much of this report details the substantial change in the intelligence community in recent years. The focus of the intelligence community is increasingly on terrorism; the level of public interest in intelligence activities is greater; and the funding available to the agencies has increased by nearly 90 per cent since September 11. In some areas, the oversight and accountability mechanisms applying to the foreign intelligence community have also changed - the passage of the Intelligence Services Act 2001 and the establishment of the National Security Division within the Department of the Prime Minister and Cabinet are key reforms. But many other parts of the intelligence oversight machinery have remained unchanged - much of the architecture was established by Justice Hope, and other elements predate his inquiries.

At the highest level of government, the key oversight mechanism is the National Security Committee of Cabinet (NSC), and the Secretaries Committee on National Security that serves it. The National Security Committee, chaired by the Prime Minister, sets policy and decides the agencies' budgets. The NSC has a particular role in oversight: each year, the Committee considers the performance of the intelligence agencies, based on advice from the Department of the Prime Minister and Cabinet. In turn, the Department's advice draws heavily on an overview report on the performance of the foreign intelligence agencies prepared by ONA. In addition to this annual exercise, the Committee considers a range of high level issues on intelligence throughout the year, as part of its broader governance of national security policy.

In recent years, there has been a significant increase in the Committee's work programme, as defence issues and counter-terrorism have become pressing national concerns. The Committee has met at least monthly on average, and there have been periods when it has met on a daily basis. As a result, the Prime Minister and the group of responsible ministers are now much more focused on intelligence, and have developed a vigorous engagement with intelligence issues. One benefit from this has been that ministers take decisions on intelligence and security matters in a more timely manner than would have been possible previously. On the negative side, the heavy workload on counter-terrorism and defence issues has driven out some less immediate but important work. In particular, the annual reports of the intelligence agencies have not been considered by the National Security Committee for the past two years, a situation that is regrettable.

With this expansion of National Security Committee activity related to intelligence and security has come a more concentrated focus for the Department of the Prime Minister and Cabinet. This is particularly so in view of the strong whole-of-government character of many of the recent reforms. However, only a small handful of staff in the Department of the Prime Minister and Cabinet are involved in intelligence matters. This Department has a key role to play in piloting policy in all areas of government, and a modest reinforcement of its resources and focus on intelligence matters would be warranted.

Like other branches of government, the key accountability mechanism applying to intelligence agencies is their relationship to ministers: ONA to the Prime Minister; DSD, DIO and DIGO to the Minister for Defence; and ASIS to the Minister for Foreign Affairs. Ministers, individually and collectively, oversee agencies' activities, approve their budgets and, in many cases, ministerial approval is required for individual operations. The sense of accountability to ministers is deeply embedded in the culture of the intelligence agencies. There is no hint in Australia of the semi-detachment from governmental structures and lines of authority that is a feature of some intelligence systems.

Australian Intelligence Agencies: Ministerial Responsibilities

The limitation on some public forms of accountability places a special responsibility on ministers to be alert to the proper functioning of intelligence agencies. While other forms of accountability will assist, fundamentally it is ministers - with their high level of control over agencies - on whom much of the responsibility will fall. They should scrutinise carefully operational proposals that come to them and, while focusing broadly on the national interest, should consider as well the privacy and probity issues engaged in the work of the agencies. They will not have the time for exhaustive day-to-day investigation of the agencies but they and their staff should be alert to signs of sub-optimal practice, both in terms of propriety and efficiency. This places a heavy burden on ministers, who are inevitably busy with other tasks.

Following reforms in recent years, the accountability framework for most intelligence agencies has been provided by legislation. ASIS, DSD, ONA and ASIO all have legislation that authorises their functions, and circumscribes their activities. The Intelligence Services Act 2001 provides the first legislative basis for the work of ASIS and DSD. The legislation clarifies the functions of the agencies and indicates publicly what the agencies may, and may not, do. In relation to ASIS, DSD and ASIO, the legislation renders legal activities that would otherwise not be so.

Overall, the Intelligence Services Act has been a major step forward in accountability arrangements for ASIS and DSD and is working well. In this context, the absence of a legislative framework for DIGO - like ASIS and DSD a collection agency that has the potential to infringe on the individual liberties of Australians - is a deficiency in the system that requires attention.

In addition to legislation, Cabinet oversight and ministerial responsibility, specific forms of oversight and accountability have been developed reflecting the particular needs of intelligence agencies.

Prime amongst these is the Parliamentary Joint Committee on ASIO, ASIS and DSD (PJCAAD). With the intelligence agencies unable to report to the parliament in the normal way, some system of scrutiny by parliamentarians forms a crucial part of the oversight system.

The forerunner of the PJCAAD was the Parliamentary Joint Committee on ASIO, established in 1988 under the Hawke Government. The expansion of the mandate of the Committee in 2001 to embrace ASIS and DSD represents a major step forward in the accountability of the agencies. The activities of the Committee have provided a significant parliamentary insight into the intelligence community, as well as opportunities for the agencies to benefit from the perspectives of experienced parliamentarians. Further, in the case of Iraq WMD, the Committee provided independent scrutiny of a particular issue of considerable community concern, without jeopardising the confidentiality required for the work of the agencies.

The Committee's mandate has two key limits: its terms of reference extend only to the budget and administration of the agencies, not policy and operational activities; and its coverage is of ASIO, ASIS and DSD only - not DIGO, ONA and DIO. The limitation to budget and administration reflects the complementary role that the Committee serves vis-a-vis the Inspector-General of Intelligence and Security: the Committee focuses on budget and administration, while the Inspector-General deals with the legality and propriety, including of the operational activity of the agencies.

The limitation of the Committee's mandate to ASIO, ASIS and DSD reflects a range of historical and policy issues. In relation to DIGO, the legislation that established the Committee was prepared before DIGO came into existence. In relation to ONA and DIO, the principal argument has been that, as assessment agencies, they do not engage in the sensitive activities that warrant additional parliamentary scrutiny over and above that provided by the relevant Senate Legislation Committee. While recognising those distinctions, for reasons set out in full later in this chapter the Inquiry does not find them compelling reasons for continuing to limit the parliamentary scrutiny of some intelligence agencies.

Another accountability mechanism designed specifically for the intelligence community is the Inspector-General of Intelligence and Security (IGIS). With strong legislative backing (powers akin to those of a standing Royal Commission), the Inspector-General helps to provide independent assurance that agencies act legally, with propriety, under ministerial direction, and with regard to human rights.

The Inspector-General's functions vary: they are broadest in relation to ASIO, almost as wide in relation to the two other collection agencies (ASIS and DSD) and more limited for ONA and DIO. The Inspector-General can conduct an inquiry in response to a request by the Prime Minister, a minister responsible for an agency or, in relation to some agencies, without any specific direction from ministers. In certain circumstances, the Inspector-General can make inquiries in response to a complaint. The Inspector-General's authority includes complete access to agency records and strong powers to require evidence. The Inspector-General makes an annual public report, tabled in parliament, on the work of the office, including details on the nature and number of complaints received.

A further important mechanism, unique to the foreign intelligence community, is the oversight role performed by ONA. The Office of National Assessments Act 1977 (section 5(1)(d)) provides that ONA should keep under review "activities connected with international intelligence" and bring to the government's notice "any inadequacies in the nature, extent or... coordination, of those activities". A key way in which ONA undertakes this function is the production of an annual report devoted to the performance of the intelligence community. This report examines the performance of collection and assessment agencies and draws broad conclusions about the adequacy of their activities.

While, overall, this reporting mechanism is of benefit to government, there are features of this arrangement that are not optimal. First, as ONA's resources have been stretched, the effort devoted to its intelligence oversight function has suffered. An oversight role for the complex and sensitive foreign intelligence programme of around $500 million per year warrants more than the scant resources that ONA has been able to devote to it in recent years. Second, the terms of ONA's coordination role, as set out in legislation, are unclear. Third, there is no set mechanism in the Australian intelligence community to assist ONA's coordination efforts. And, finally, assessing its own performance presents complexities for ONA and can undermine the credibility of its role in reporting on the performance of other intelligence agencies. These shortcomings warrant attention, and a set of reforms is proposed later in this chapter.

Finally, the Australian National Audit Office undertakes annual audits of the financial statements of ONA, ASIO and ASIS. These are similar to audits of other federal government agencies generally. It conducts audits of the Department of Defence which broadly consider the financial operations of DSD, DIO and DIGO. The Audit Office also undertakes occasional performance audits of programmes relevant to the intelligence agencies, normally as part of broader cross-government work on security issues.

Inquiry's Findings in Relation to Accountability Arrangements

Overall, the accountability arrangements in the Australian intelligence community are working effectively. The National Security Committee of Cabinet is vigorous and engaged. The Intelligence Services Act has worked well in practice. The Parliamentary Joint Committee (by reviewing administration and expenditure) and the Inspector-General of Intelligence and Security (by reviewing operations and activities) provide complementary forms of scrutiny. And the oversight of the intelligence community exercised by ONA provides insights into the effectiveness of the agencies, on which ministers can draw for their own management.

There are, however, a number of deficiencies in current arrangements that warrant attention.

First, it is anomalous that DIGO does not come under the purview of the Intelligence Services Act. As a collector of intelligence, it has the capability to impinge on the privacy of Australians and, possibly, its actions could breach Australian laws. It is therefore appropriate that, like ASIS and DSD, DIGO's mandate be set out in legislation, so that the community can have confidence about what its functions do, and do not, involve. Similarly, it is appropriate that DIGO come within the purview of the Parliamentary Joint Committee in the same way that ASIS and DSD do.

Further, the mandate of the Parliamentary Joint Committee should be expanded to encompass ONA and DIO, as well as DIGO. This reform would widen the scope of parliamentary oversight to provide comprehensive coverage of Australia's intelligence agencies. In turn, that would enhance confidence in the parliament and the public that the full range of intelligence agencies is accountable to a senior group of parliamentarians. The extension of the Committee's mandate will contribute to the better understanding of the agencies in the parliament and the broader community.

As is the case for ASIO, ASIS and DSD, parliamentary scrutiny of ONA and DIO should only extend to budgetary and administrative matters. It should not include the content of the assessments that they produce for government. Just as the advice that officials provide to ministers is not disclosed in Senate Legislation Committee hearings, the judgments of assessment agencies should not be subject to parliamentary scrutiny. Opening assessments to scrutiny by parliament would also weaken the instinct amongst assessors to provide forthright advice for government, which is vital for good assessment. However, the processes by which ONA and DIO produce their assessments is an area which could be open to parliamentary scrutiny.

In recommending that DIO and ONA become subject to the Parliamentary Joint Committee, the Inquiry is conscious that some of the factors which make it appropriate for ASIO, ASIS and DSD to be subject to the Committee are not relevant to DIO and ONA. As assessment agencies, they do not undertake acts that might, without specific legislation, be illegal. Nor do ONA and DIO impinge on the privacy of Australian citizens. However, the functioning of Australia's intelligence agencies is a matter of greater public interest and scrutiny than it has been in the past; and that interest is now strong in relation to assessment agencies as well as collection agencies. In these circumstances, it is appropriate that the parliament and, through it, the public should enjoy greater confidence in the activities of the assessment agencies. Moreover, ONA in particular, as the agency at the peak of the foreign intelligence structure, and which has an oversight role, should be subject to scrutiny in the way that other agencies are.

The Inquiry is also conscious that the budget of ONA is already available for public scrutiny in a way that the budgets of the collection agencies are not, and for that reason the argument for parliamentary oversight of ONA is not so pressing as it is for agencies whose budgets are not disclosed. While scrutiny by the Parliamentary Joint Committee may involve a degree of redundancy in terms of oversight, that redundancy will be of benefit if it contributes to public confidence in the intelligence system.

RECOMMENDATION:

The mandate of the Parliamentary Joint Committee on ASIO, ASIS and DSD (PJCAAD) should be extended to all of Australia's intelligence agencies - that is, it should cover also ONA, DIO and DIGO on the same basis as it at present covers ASIO, ASIS and DSD. The parliament may consider renaming the committee as the Parliamentary Joint Committee on Intelligence and Security (PJCIS).

The Inquiry found that the Inspector-General of Intelligence and Security performs an important function in the system of accountability of the agencies. Most valuable among the roles of the Inspector-General is the power to investigate deeply into the conduct of the agencies. The penetrating character of those powers is a strong feature of Australia's accountability systems.

However, the Inquiry found that the power of the Inspector-General is not sufficiently broad. In particular, it is anomalous that the most recent addition to the intelligence community, DIGO, is not covered in the legislation governing the Inspector-General's activities. Although an informal arrangement has been settled that allows the Inspector-General to monitor DIGO, formal coverage of DIGO (comparable to the coverage of ASIS and DSD) should be provided by legislation.

Further, the Inquiry recommends that the Inspector-General should have the authority to initiate inquiries into ONA and DIO without ministerial referral. Currently, the Inspector-General needs the approval of the appropriate minister before undertaking inquiries into these agencies. While it is fully understood that assessment agencies do not have the capacity to infringe the liberties of individuals in the way that collection agencies do, it is still appropriate for the Inspector-General to have authority in relation to ONA and DIO. There is significant public interest in the activities of the assessment agencies, and recent cases have highlighted the questions that can arise about the propriety of the assessment agencies' activities, particularly from within their own ranks. It would be difficult for these questions to be dealt with by the normal public service processes, in view of the sensitivity and security issues involved. It is therefore appropriate for a mechanism to be in place for the Inspector-General to initiate his own inquiries into the work of DIO and ONA, on a similar basis to his role in relation to the collection agencies. The mandate of the Inspector-General should, however, relate to the propriety and legality of ONA and DIO's activities; and should not extend to judgments about the accuracy of their assessments.

RECOMMENDATIONS:

The functions and ministerial accountabilities of DIGO should be formalised in legislation by amendments to the Intelligence Services Act 2001. Similarly, the Inspector-General of Intelligence and Security Act 1986 should be amended to include scrutiny of DIGO on a basis comparable with that which applies to DSD and ASIS.

The mandate of the Inspector-General of Intelligence and Security should be extended to allow IGIS to initiate inquiries at his or her own discretion into matters relating to ONA and DIO without ministerial referral, consistent with the IGIS jurisdiction in respect of ASIO, ASIS and DSD.

In the Australian system, ministers direct their individual agencies. ONA is responsible for coordination, and for identifying areas of improvement in the intelligence community. ONA's responsibility is an important one. Ministers, with other heavy responsibilities, cannot be expected to exercise comprehensive daily oversight of their agencies: ONA's deep understanding of the foreign intelligence community provides a useful tool to assist ministers.

For a range of reasons, but not least for scarcity of resources, ONA's coordination role has not been fulfilled optimally in recent years. In Chapter 7 the Inquiry recommends an expansion of funding for ONA. That is principally to strengthen its role in assessments, but additional resourcing is also required to ensure that ONA properly acquits its oversight role.

ONA's oversight role also needs to be clearer, and its coordination mandate stronger. The wording of section 5(1)(d) of the ONA Act is obscure and does not clearly articulate ONA's responsibility for monitoring and reporting on the agencies' performance. Further, the Act does not provide ONA with the strong mandate for community coordination that it needs. Given the complex character of the coordination task and the key role that ONA needs to play in supporting the management of the intelligence community by ministers, a stronger coordination mandate is required.

RECOMMENDATION:

The Office of National Assessments Act 1977 should also be amended to strengthen ONA's community coordination role in section 5(1)(d).

ONA also needs additional government machinery to assist it in its coordination role. The current mechanism by which the Director-General of ONA can consult with colleagues on key issues affecting the intelligence community is an informal meeting known as the Heads of Intelligence Agencies Meeting (HIAM). While HIAM has a role in maintaining informal contact among agency heads, a more formal mechanism is needed if the Director-General of ONA is to undertake his monitoring and coordination role in a more thorough and professional way.

The Inquiry therefore proposes the establishment of a formal committee, which could be known as the Foreign Intelligence Coordination Committee (FICC). Chaired by the Director-General of ONA, the FICC would include the heads of the intelligence agencies and the Australian Federal Police, and representation from the Departments of the Prime Minister and Cabinet, Defence and Foreign Affairs and Trade.

The key function of the FICC would be to assist the Director-General of ONA in his coordinating, monitoring and reporting function. The Committee should also consider cross-community issues including intelligence policy, capability development and resources. The Inquiry has also identified a wide range of specific issues, listed in the recommendations in Chapter 8, that the FICC should address at an early opportunity to assist in the better coordination and management of the intelligence community.

The FICC would, where appropriate, report to the Secretaries Committee on National Security and through it to the National Security Committee of Cabinet. Its work on resource issues would complement, and not replace, existing budget and policy processes, overall coordination of which would continue to rest with the Department of the Prime Minister and Cabinet. The Committee would undertake some of the more formal functions of HIAM, which would revert to meeting in an informal way.

RECOMMENDATION:

A Foreign Intelligence Coordination Committee (FICC) should be established under the chairmanship of the Director-General of ONA comprising the heads of ASIO, ASIS, DIO, DSD, DIGO and the AFP and Deputy Secretary-level representation from the Departments of the Prime Minister and Cabinet, Defence, and Foreign Affairs and Trade. The FICC should assist the Director-General of ONA in undertaking his role in coordinating, monitoring and reporting on the performance of the Australian foreign intelligence community, and should consider cross-community issues including intelligence policy, capability development and resources. The FICC should report to the National Security Committee through the Secretaries' Committee on National Security.

ONA's coordination role should be complemented by a less intensive, but still engaged, involvement by the Department of the Prime Minister and Cabinet in intelligence community management. While ONA will have the detailed knowledge of the intelligence community, the Department of the Prime Minister and Cabinet should have primacy in advising ministers, and take a particular interest in issues of funding. The Department of the Prime Minister and Cabinet should see ONA, with its deep background in intelligence matters, as a resource to use when issues of community management require decisions by government. But ONA should also have a role in highlighting issues that deserve further government action, and on which ONA will require the Department's support to pilot through the system. In short, the relationship between the two institutions on intelligence community management should be complementary and symbiotic - the Department of the Prime Minister and Cabinet should draw on ONA's knowledge base, and ONA should use the Department's authority in government to pursue key reforms.

A weakness in the system of performance reporting at present is ONA's role in assessing its own performance, as well as that of the rest of the community. This arrangement is out of step with wider performance reporting systems in government, provides at best a questionable guide to ONA's performance, and weakens ONA's role in reporting on other agencies. ONA's self-reporting role should be abolished. Instead, the Department of the Prime Minister and Cabinet should take responsibility for undertaking a short, focused analysis of ONA's performance designed for ministers, and timed to coincide with ONA's own report on the broader intelligence community.

RECOMMENDATION:

The Department of the Prime Minister and Cabinet should undertake an annual review of ONA's performance, replacing ONA's current role in reviewing its own performance.

Beyond all these standing measures, an evolving field like intelligence warrants occasional external examination. Such an examination can assist in managing the intelligence agencies by bringing fresh perspectives and assurance that systems are modern and effective. As a supplement to the full suite of accountability arrangements set out above, ministers may wish to consider the merits of an outside review every five to seven years.

RECOMMENDATION:

The intelligence community should be subject to periodic external review every five to seven years.

Priority Setting Arrangements

A strong priority setting mechanism is vital for a healthy intelligence system. Effective priority setting ensures that the intelligence community is properly focused on matters judged to be priorities by Australian ministers. It gives collectors of intelligence the clearest identification of what information they are expected to collect. It ensures that expensive and potentially risky covert collection is not undertaken except where it is genuinely needed. And an effective priorities system helps to sort into an agreed set of targets the disparate needs of various parts of government.

While a rigorous priority setting system would have value in any system of information collection, it is particularly important for intelligence. Given the civil liberties issues and international sensitivities potentially involved, ministers should agree on what it is that covert collectors should target.

In the Australian system, the highest level intelligence priorities are set by the National Security Committee of Cabinet, which considers national requirements as a group at around 18-month intervals. The Committee also adjusts these priorities in the interim, as developments require. Overall, the Cabinet-approved priorities serve as a key source of guidance for the intelligence community.

Below this high-level consideration, considerable work goes on to ensure that collection agencies understand at a detailed level what information they are expected to collect. A monthly meeting of officials, chaired by ONA, spells out requirements in detail and indicates which collectors are expected to deliver on particular requirements. In addition, these meetings settle a list of mandatory topics for the month, on which all collectors are expected to gather intelligence, wherever possible. This provides an additional element of flexibility and allows short-term intelligence requirements to be met.

Beyond these formal priority setting processes, the collectors and their clients have developed a range of informal means by which they exchange information on their needs. The Inquiry heard from a number of intelligence agencies the high value that they place on these informal means of guiding collection effort.

Overall, the national priority setting process is working well. It engages ministers appropriately, and gives collectors a clear indication of the weight to be placed on different collection objectives. The distinctions and linkages between the processes delivering high-level guidance, and those providing finer detail are appropriate. Ministers have limited time to devote to the priority setting process, and it is appropriate that the details of intelligence requirements are dealt with by officials. The processes of informal feedback and tasking are a vital part of the system, and they too seem to be working well.

An improvement would be made to the system, however, if the National Security Committee of Cabinet were to consider intelligence priorities more frequently. As set out in detail later in this chapter, the system would benefit from working to an annual cycle, to fit into the reporting and resource allocation mechanisms (both of which are done annually). Setting priorities annually will also allow the identification of shortcomings in intelligence collection, which the reporting processes should highlight, to inform the development of priorities for the coming year.

While the national priority setting process is strong, the absence of a link to the priorities for Defence clients is a weakness. A separate system which set intelligence priorities specifically for Defence clients has fallen into disuse and, when it operated, it contained no link to the national priority system. The effect of maintaining separate national and Defence priorities is that ministers do not have the opportunity to judge the relative weight to be given to issues in the Defence priorities and those in the national priorities. Further, the absence of an integrated Defence and national priorities system means that individual collectors are left to decide what takes priority between Defence and national priorities. An important function of the priorities setting system is to ensure that collectors themselves are not forced into the difficult position of deciding between the needs of different clients.

To remedy this, the Inquiry recommends that the national and Defence priority systems be integrated. The integrated priorities system should generally follow the style (in terms of categories and level of detail) established for the national priorities system. The succinct and focused style of the national priority system is a considerable advantage of the current system, and should not be lost. Effort should be made to avoid it becoming cluttered with unnecessary detail and jargon. The integrated priorities system should be prepared jointly by ONA and Defence, in consultation with the Department of the Prime Minister and Cabinet, for consideration on an annual basis by the Foreign Intelligence Coordination Committee, the Secretaries Committee on National Security and the National Security Committee of Cabinet.

RECOMMENDATION:

The Department of the Prime Minister and Cabinet should ensure the national and defence priorities systems are integrated, and approved by Cabinet annually.

Once priorities are set, continuous analysis of the success that collection agencies are having against key targets is also important. As part of their role, intelligence analysts should identify areas where there are gaps in coverage, and ensure that collection agencies are aware of those gaps. Further, to ensure that the collection effort is managed across the intelligence community at a senior level, there is a role for the proposed Foreign Intelligence Coordination Committee in analysing what collection agencies are producing against priorities, and what gaps are left. The committee should keep under review the success of collectors in producing intelligence on key targets, and ensure that government needs are met by a community-wide collection management strategy.

RECOMMENDATION:

The Foreign Intelligence Coordination Committee should develop and implement a community-wide collection management strategy.

Assigning Resources to Priorities

With more than $500 million invested each year in foreign intelligence, the government needs to be sure that the effort of the agencies is appropriately directed. This section analyses the mechanisms by which agency budgets are settled, and the relationship between budgeting, performance reporting and priority setting. While this chapter deals with systems, the actual resources devoted to each intelligence agency are dealt with in Chapter 7.

Resource management in the intelligence community is considered in two ways - agencies' financial allocations are settled as part of the normal budget process; and a separate report provides ministers with a comprehensive picture of the funding being applied across the intelligence community.

Each year, the budgets of ONA and ASIS (as well as ASIO) are settled by ministers as part of the budget process. The allocations for DIO, DSD and DIGO form part of the Defence budget, although specific issues relating to these agencies are occasionally considered at the National Security Committee of Cabinet and the Expenditure Review Committee.

Beyond these regular budget setting measures, current processes also give recognition to the intelligence community as a group, operating across portfolios. The National Security Committee of Cabinet has in recent years considered a report (the resource report) examining the budgets of the agencies together, and giving ministers the opportunity to scrutinise budgets across portfolio boundaries.

Overall, these arrangements have worked well - the effective way that the budget mechanisms were used to respond to the need for greater intelligence support since 2001 is noteworthy. In response to the substantial need for greater intelligence resources following the September 11 and Bali attacks, government responded flexibly, with targeted packages of resources for agencies, tailored to the additional value they could add to government.

The Inquiry found, however, that there is scope to use the resource report better to advise ministers on the budget needs of the agencies, and to make recommendations on savings and efficiencies to be made within and across agencies. There is a key role for the Department of the Prime Minister and Cabinet, with the help of ONA, to develop the resource report as a mechanism to give ministers options for changes in resource allocation (including from one intelligence agency to another), which could flow through to the formal budget process. The resource report should also focus on the capital projects being undertaken by intelligence agencies in the Department of Defence, and provide advice to ministers on how these capability improvements relate to the wider intelligence effort.

RECOMMENDATIONS:

The Department of the Prime Minister and Cabinet should take an enhanced role in assisting Ministers manage the foreign intelligence community, using ONA's knowledge of the community as a resource. The Department of the Prime Minister and Cabinet should:

a) advise the National Security Committee annually on the performance of the foreign intelligence community

b) advise the National Security Committee on the appropriate priorities for the agencies, based on advice from ONA

c) undertake the central role for advising the National Security Committee on the resource needs of the foreign intelligence community.

The Inquiry found that while the budget, priority setting and annual reporting processes all work well, the absence of strong links among the three processes is a weakness. Optimal practice in financial management is to have a strong connection between processes for reporting on past activities, and planning and budgeting for future activities. The systems currently in place in the intelligence community do not provide this strong connection.

To remedy this, the Inquiry recommends a new cycle for performance reporting, priority setting and budgeting that is integrated, and designed to fit the broader government reporting and budgetary cycle. Specifically, the Inquiry proposes the following cycle:

SEPTEMBER - OCTOBER

  • agencies' annual reports and ONA's report on the performance of the Australian intelligence community considered by the National Security Committee of Cabinet with advice from the Department of the Prime Minister and Cabinet

NOVEMBER - DECEMBER

  • review of national priorities (reflecting any gaps identified in the performance reporting) and the report on resources, with proposals for changes in agency budgets and treatment of capital investment projects

JANUARY - FEBRUARY

  • agency budget bids, reflecting ministers' consideration of the report on resources

This cycle should be led by the Department of the Prime Minister and Cabinet, with the assistance of ONA and, for the resource elements, the Department of Finance and Administration. The Department of the Prime Minister and Cabinet should also ensure that the performance reporting process feeds into the priority setting process; and that both the performance reporting and the priority setting processes feed into the resource report and budget processes. Further, the Department of the Prime Minister and Cabinet has a vital role to play in ensuring that these processes are in line with a realistic appraisal of the time that ministers can devote to intelligence community management.

Parallel to the systems for reporting on and resourcing foreign intelligence, there is a similar system in place for security intelligence. There would be practical benefit in Cabinet considering reporting and resource issues relating to ASIO at the same time as it considers those issues relating to foreign intelligence. That would promote better governance between the two systems, and ensure that complementary issues between the foreign and security intelligence communities are dealt with in parallel.

RECOMMENDATIONS:

The Department of the Prime Minister and Cabinet should ensure that the foreign intelligence community's reporting, priority setting and resource allocation mechanisms are aligned. Specifically:

a) The annual reports of agencies and ONA's report on the agencies' performance should be produced and considered by the National Security Committee promptly.

b) Annual reports, in particular the identification of intelligence gaps therein, should inform the priorities setting process, which should be undertaken annually.

c) Both the reporting and priority setting processes should inform the National Security Committee's consideration of the resource report.

d) The resource report should be considered each year in sufficient time to inform the individual budget processes of each agency.

The Department of the Prime Minister and Cabinet should ensure that ASIO's performance and resource reporting is undertaken in parallel with the process outlined in the previous recommendation for the foreign intelligence community.

 

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