Section 1 SECTION 1 - Department of Defence€¦ · of appropriate civil–military relations. Finally, our engagement with the countries of South East Asia was highlighted by the

Section 1executive summary

CHAPTER 1 The year in review

CHAPTER 2 Defence overview

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Chapter 1The year in review

Overview by the Secretary and the chief Of the defence fOrce

For many, the image of the Australian Defence Force is soldiers in Afghanistan and Iraq, peacekeeping in Timor-Leste, and the spectacular power of our platforms—billions of dollars worth of tanks, planes and ships. Occasionally attention focuses on controversial issues—a soldier wounded in action, a contract delay, or a sensational newspaper headline. Between these two extremes can be found a big Australian organisation—with a wealth of experiences and successes that plays an important part in Australia’s life and economy.

For example, over the next decade Defence will spend around $100b on buying and maintaining military equipment. Over the past year the Defence Materiel Organisation, a prescribed agency within Defence, signed around 3,000 contracts valued at $100,000 or more, or roughly 10 such contracts every working day. We also made 900,000 payments to more than 230,000 registered suppliers during the year. All this while looking after our more than 90,000 people (including serving 7,700,000 meals to our military personnel) and tracking 280,000,000 bits of equipment ranging from computer chips to ship propellers.

During the reporting year, our major operational deployments continued unabated, and were supplemented by a number of smaller, short-notice operations, such as those to Tonga to stabilise a tense situation, preparations in support of a potential evacuation of Australian nationals in

Fiji, and an evacuation of nationals in Lebanon. There were also a number of significant acquisition decisions, improvements to our financial position and further management reform.

These developments all point to the ever-increasing workload of Defence—that is, our focus on the operational capability of our forces as the tempo of our international deployments continues unabated. This means that it is more important than ever to make sure Defence is getting the best value for taxpayers’ money, and that we have a dedicated and motivated workforce willing to give their all to achieve our aims.

Defence’s departmental income for 2006–07 was $18.480b and our administered revenue was $790.2m. This was set against liabilities of $3.507b (departmental) and $32.478b (administered).

At 30 June 2007, Defence’s total assets were $57.472b (departmental) and $1.188b (administered). Our staff comprised 51,504 permanent members of the Australian Defence Force (ADF), 19,562 reservists, 14,516 civilian staff and 810 professional service providers.

Our ministerial team welcomed a new member in January 2007, when Mr Peter Lindsay MP took over as Parliamentary Secretary from Senator Sandy Macdonald.

defence annual report 2006–07 / volume one�

OperatiOnS

The ADF’s operational tempo continues to match the complexity and challenges of the global environment. As at 30 June 2007, approximately 3,850 ADF personnel were deployed on 10 ongoing operations overseas, while an additional 450 personnel were deployed to protect Australia’s borders and offshore maritime interests. A further 120 personnel were providing support to the Northern Territory Emergency Response Task Force working in Indigenous communities. With the ADF also managing five short-notice contingencies during the course of 2006–07, the people of Defence have risen to the challenges of continuing rotations in Africa, the Middle East, the Pacific, and Australia.

The transfer of security in Al Muthanna and Dhi Qar provinces to Iraqi control was a major milestone for the Coalition, the ADF and Iraq under Operation Catalyst. Now known as the Overwatch Battle Group (West), approximately 515 ADF personnel have been deployed to support the Iraqi Security Forces while an additional 70 trainers have also been deployed to Iraq to improve the logistics skills of the Iraqi Army. Our Security Detachment, personnel embedded in headquarter, P-3 Orions and C-130s continue to do valuable work in support of the Coalition.

Australia has continued its longstanding commitment of a frigate to maritime security operations in the Northern Persian Gulf. In November 2006, Commodore Peter Lockwood supported by an Australian Command team became

only the second Australian since World War II to command a multinational naval force on operations.

Australia’s support to International Security Assistance Force reconstruction and security operations in Afghanistan, Operation Slipper, has been substantially boosted in the past year with the deployment of the Reconstruction Taskforce as part of the Dutch-led Force in Oruzgan, the recent return to Afghanistan of the Special Operations Task Group, the deployment of an Air Force Mobile Control and Reporting Unit as well as an additional C-130 Hercules to the Middle East.

We have also continued providing support to the Government of Timor-Leste and the United Nations Police deployed in that country. Through Operations Astute and Tower, Defence is working to provide a peaceful and stable environment for the people of Timor-Leste. The recent peaceful conduct of elections is testimony to the improving security environment.

Hostilities between Hezbollah and Israel created a security crisis in Lebanon in July 2006 that led to 120 ADF personnel assisting with the evacuation of 5,300 Australians and 1,350 foreign nationals as part of Operation Ramp.

Around 50 ADF personnel were deployed to Tonga as part of the New Zealand-led combined military force that supported the Tongan Security Forces in stabilising the security situation after riots in the city of Nuku’alofa in November 2006. Known

The Minister for Defence, the Hon. Dr Brendan Nelson MP, talks to Warrant Officer Class 2 Andrew Stuart and Lieutenant Colonel Mick Mahy during his visit to the Middle East Area of Operations in early September 2006.

defence annual report 2006–07 / volume one

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the year in review : chapter 1

as Operation Quickstep, this also saw a taskforce deployed in the South Pacific, prepared if necessary to evacuate Australians from Fiji following the unacceptable military coup in that country. Other rapid deployments to support our region included assistance following an earthquake in Indonesia, the Garuda plane crash in Yogyakarta, and medical aid to Solomon Islands following a tsunami.

The deployment of a company of Reserve personnel to Solomon Islands as part of the Regional Assistance Mission to Solomon Islands remains significant. These deployments—part of Operation Anode—highlight the indispensable role of our Reserve personnel, and the invaluable contribution they and their employers make to Australia’s security. This year witnessed the largest deployment of Reservists from New South Wales since World War II. More information about this deployment is in Chapter 3 of this report.

Defence’s commitment to maritime border security was greatly enhanced during 2006–07. The Joint Offshore Protection Command transformed into Border Protection Command and assumed responsibility for whole-of-government operational coordination and control for enforcement responses to illegal foreign fishing. An important example of their work took place 1 July 2006 when HMAS Dubbo and HMAS Success struck a major blow against illegal fishing by apprehending seven Indonesian fishing boats at once. Sixty-seven people were on board and 4,300kg of reef-fish were seized.

Defence’s successes in complex and intense operations during the year serve as a demonstration of the excellent leadership, training and equipment of our troops, but risk is ever present. The loss of two fine soldiers in the tragic Black Hawk accident during Operation Quickstep in the South Pacific was a blow felt by all in Defence. This tragedy highlights the difficult and dangerous conditions in which our people operate.

A further mark of the intensity of recent military operations is that in the past 12 months, nine Australian Gallantry awards and 27 Distinguished Service awards have been made for active ADF service in the Middle East. Some are related to Commando service, for which individuals cannot be identified, including the award of the Star of Gallantry to a Commando sergeant in the Middle East—the only one ever awarded. This award exemplifies the courage of our personnel in the highest traditions of the ADF. On 9 July 2006, during a coalition operation to capture an anti-coalition militia leader in the Oruzgan Province, the sergeant displayed superior leadership and personal courage under heavy militia fire. Throughout protracted engagements, and disregarding his own safety, he displayed multiple acts of conspicuous gallantry. His selfless actions contributed to the success of the mission and, ultimately, the safe return of his platoon.1

1. Further details are included within the case study at the end of this chapter.

Private M Purdon, Private Michael Litchfield and Major Andrew Williams greeting local Solomon Islanders at the Honiara Wharf during a routine patrol as part of Operation Anode.


chapter 1 : the year in review

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Such military action is supported by a large Defence workforce engaged on activities as diverse as command and control intelligence analysis, equipment procurement, strategic policy development and a myriad of other supporting activities. All of these contribute in vital ways to our operational success.

We pay tribute to all the families that allow their loved ones to serve this nation with distinction. To them, as always, we owe our gratitude.

Strategy

Along with the annual classified Defence Planning Guidance, Defence produced two major public strategy documents in 2006–07. In May 2007, Joint Operations for the 21st Century, which outlines the Chief of the Defence Force’s ‘vision’ for future military operations, was released, and the Prime Minister launched a new Defence Update in July 2007. The update reviewed the Government’s response to the changing security environment, including Defence’s evolving military posture and capabilities, and emphasised the importance of partnerships in securing Australia’s strategic interests at the global, regional and local levels. Both documents underlined the increasing integration within the separate arms of the ADF, and between Defence and other government agencies.2

International engagement

In international engagements, two of the highlights of the year were related to Australia’s strategic relations with Japan and France.

The signature of the Joint Declaration on Security Cooperation by Prime Minister Howard and Japanese Prime Minister Abe on 13 March 2007 shows the maturity of the strategic relationship between Australia and Japan. Under the auspices of this agreement, Defence will contribute to security cooperation by regularly exchanging personnel, conducting reciprocal visits by aircraft, ships and other military capability, and planning for disaster relief in our region.

2. Web versions of these documents can be found at www.defence.gov.au/publications.cfm.

In December 2006, Minister Nelson and the French Minister for Defence, Michele Alliot-Marie, signed the Australia–France Defence Cooperation Agreement in France. This agreement is Australia’s first defence cooperation agreement with a European country, and it will provide a framework for further cooperation across a broad range of military and defence civilian areas such as materiel and capability planning.

In other areas, the steady work of Defence diplomacy continued. We continued efforts to enhance Australia’s policy standing with the United States by improving access to US technology and developing cooperative initiatives, both in support of coalition operations and activities in the Asia–Pacific region. Defence cooperation with India included ongoing strategic dialogue and the signature of an Information Sharing Arrangement on 11 July 2007. Preparations continued for the expected reciprocal naval visits by China’s People’s Liberation Army-Navy and the Royal Australian Navy. Defence engagement in the South Pacific continued its aim of fostering and supporting regional security and stability by enhancing the professional skills of the region’s security forces and on promoting the development of appropriate civil–military relations. Finally, our engagement with the countries of South East Asia was highlighted by the signature and ratification of the Australia–Indonesia Framework for Security Cooperation (the Lombok Treaty) and the signature of the Status of visiting Forces Agreement between Australia and the Philippines. Further information about developments in Defence’s international relationships can be found in Chapter 3 of this report.


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http://www.defence.gov.au/publications.cfm

capability

Since the Defence White Paper3 was published in December 2000, the Government has approved more than 180 major projects or phases of projects at an approximate cost of $42.6b. During 2006–07, more than 30 projects and studies were approved at a cost of over $14.3b. Among these projects, the following are critically important:

acquisition of 24 F/A-18F Super Hornets (AIR 5349 Phase 1)

acquisition of three Air Warfare Destroyers (SEA 4000 Phase 3)

acquisition of two amphibious ships (JP 2048 Phase 4A/4B)

extensive structural refurbishment of additional F/A-18 aircraft through the procurement and installation of centre barrel modification kits (AIR 5376 Phase 3.2C)

first pass approval for the Joint Strike Fighter aircraft (AIR 6000 Phase 2A/2B New Air Combat Capability).

The Super Hornet acquisition and Joint Strike Fighter first pass approval ensure that Australia will retain a key edge in air combat capability as we make the transition to the next generation of combat aircraft. The decision to acquire the Air Warfare Destroyers and amphibious ships will significantly enhance our capacity to transport and protect Australian forces and to operate with friends and allies on maritime tasks.

3. More information can be found at www.defence.gov.au/whitepaper/.

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In addition to approving these key equipment projects, the Government significantly expanded the size and capability of the Army as part of its Hardened and Networked Army initiative. Among their expected outcomes, the initiative will enhance the survivability of deployed forces by increasing its firepower and combat weight, increase interoperability through enhanced networking, and improve the preparedness and utility of the Army Reserve through new roles and tasks. Building on the capability enhancements of a Hardened and Networked Army, the Enhanced Land Force initiative began in December 2006 and will deliver two extra infantry battalions to the Army, increasing the number of battalions to eight and the size of the Regular Army to around 30,000.

Activity on the Defence Estate is increasing as infrastructure and facilities projects are developed and delivered in support of the Defence Capability Plan and Government initiatives such as the Hardened and Networked Army. This effort is reflected in projects at RAAF Amberley, Queensland ($700m), and at Holsworthy, New South Wales ($350m), where high value capital works are in development or are currently being constructed.

Defence continues its use of public–private partnerships with Praeco Pty Ltd for the Headquarters Joint Operations Command Project at Bungendore in New South Wales and with Plenary Living Pty Ltd for the delivery, under Phase 1 of Project Single LEAP, of accommodation services. Single LEAP (Living Environment and Accommodation Precinct) is a Defence project to

HMAS Sirius and HMAS Toowoomba conducting a replenishment at sea in the Western Australian Exercise area.



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http://www.defence.gov.au/whitepaper/

bring living-in accommodation for single members of the ADF into line with community standards. It is one of the largest social infrastructure projects to be undertaken in Australia as a public–private partnership arrangement.

Shoalwater Bay Training Area has been a major asset for elements of the ADF for 42 years. In 2006–07 new training assets were constructed, including an urban operations training facility, the associated urban assault range and an exercise control facility. All of these were used for Exercise Talisman Sabre ’07, a major joint training exercise with the US armed forces. The significant environmental and heritage values of the training area were preserved while maintaining a hectic training schedule in the past year.4

peOple

The success of the ADF in carrying out its objectives relies first and foremost on recruiting and retaining the right people. This year we have seen some major achievements in recruitment and retention, making Defence more attractive to new and existing members.

During the year, the Government provided $3.1b of new funding to enable the ADF to streamline its recruitment processes, making a career in the ADF more accessible, and for the provision of financial retention initiatives to maintain the ADF

4. More information can be found in Chapter 4 of this report.

as an employer of choice. Further details about these initiatives can be found in Chapter 4 of this report.

This year, the compulsory retirement age for permanent ADF members was raised to 60 years, reflecting community standards and recognising the desire of many ADF members to serve longer. Reservists’ compulsory retirement age was increased to age 65, providing options for permanent force members to continue serving beyond age 60.

Substantial policy development work undertaken in 2006–07 has contributed to the continuing improvement of subsidised housing offers for ADF members. The new Defence housing classification policy, which took effect on 1 July 2007, gives ADF personnel with dependants greater choice and improved standards in subsidised housing. For those who wish to purchase their own home, the Defence Home Ownership Assistance Scheme announced in the 2007–08 Budget will deliver substantially higher levels of home loan subsidy and give access to a selection of mortgage providers.

Following a clothing review last year which highlighted the contribution of clothing industry collaboration for improved understanding of Defence’s requirements and purchasing patterns, an industry forum was established. This forum is helping to ensure that we provide our personnel with the best possible equipment and clothing.

Proud mother Anne Ramsey and daughter Casey Ramsey, 17, on the flight deck of HMAS Kanimbla. Casey is joining the Navy as a Bosun’s Mate from Training Ship Coral Sea.


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Progress in implementation of improvements to the military justice system

Good progress continues in reforming the military justice system to deliver impartial, rigorous and fair outcomes. During the year, a total of 21 out of the 30 agreed recommendations from the Senate Committee’s on Foreign Affairs Defence and Trade’s report into military justice were completed. Twenty-two of the recommendations are now complete with the rest on track to be finished by the end of 2007 in line with the Government’s commitment.5

A new permanent Australian Military Court—independent of the ADF chain of command—will soon replace the current system of trials by Courts Martial and Defence Force Magistrates,6 while a new joint ADF investigative unit has been established to investigate more serious incidents with a service connection.

The complaints and redress of grievance process is also being streamlined. On 18 June 2007, the acting Commonwealth and Defence Force Ombudsman, Dr Vivienne Thom, released a report on ADF handling of unacceptable behaviour complaints and said that ‘the report concludes that, for dealing with complaints of unacceptable behaviour, Defence currently provides an effective complaint management mechanism, that is accessible and responsive’.7

A new mandatory form of inquiry (to be known as a Chief of the Defence Force Commission of Inquiry) into suicide by ADF members and deaths in service has also been put in place. The Chief of the Defence Force Commission of Inquiry will be chaired by a civilian with judicial experience. This new arrangement will contribute to the enhanced independence, impartiality and transparency of such inquiries.

5. As at 1 October 2007, 23 of the recommendations are complete.

6. The Australian Military Court commenced on 1 October 2007.7. The Ombudsman’s report can be found at www.defence.gov.

au/fr/Reports/ADF_unacceptable_behaviour_042007.pdf.

Learning culture inquiry

An independent Inquiry into the Learning Culture in ADF Schools and Training Establishments was commissioned in order to determine whether a culture of harassment and bullying exists and whether irregularities against established policies and processes occur. After its completion, the inquiry report and the Defence response to it were publicly released on 6 December 2006. Although the inquiry team reported that it considered the ADF to be a highly professional training organisation and found no evidence of a culture that supported bullying or harassment, it was able to identify areas where we are not yet a best-practice learning organisation and concluded that the underlying training culture still had some way to go before it firmly opposes harassment and bullying. Defence agreed to 46 of the report’s 47 recommendations and these are being implemented as a matter of priority.

ManageMent and accOuntability

Defence Management Review

The Defence Management Review was established by the Minister in August 2006 and chaired by Ms Elizabeth Proust. The review examined efficiency and effectiveness across Defence, looking specifically at management structures, decision-making, and non-operational business processes and information management processes and systems. The completed review was forwarded to the Minister in April 2007.

The report acknowledged the significant progress Defence had made over the past decade in a range of areas, most notably in military operations but also in policy development and a range of public sector reforms. Since the 2000 White Paper, more than $85b worth of projects have been approved and planned; major procurement reforms have been implemented; command and control arrangements have been progressively refined to reflect the essentially joint nature of modern warfare; and Defence has become a better place to work, with the introduction of programs that emphasise organisational values and extensive reform of the military justice system.



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Having acknowledged these achievements and successes, the review team made 53 recommendations about how Defence could improve its performance in key areas including the need for clearer accountabilities; the need to be more responsive in supporting Ministers and the Government; the impact of a focus on current operations at the expense of long-term planning; the need to streamline the committee system and decision-making processes; and the need for better business systems and processes, specifically in service delivery and information communication and technology.

The review provided the impetus for us to implement reforms and improvements across all areas of Defence’s business. Of the 53 recommendations, Defence agreed to 50 in full and two in part and did not agree on one. While we work to implement the review’s proposals, our focus is to ensure that Defence constantly strives to renew and improve our business. There is more that can be done to improve our management to make sure we are even better placed to support ADF operations now and into the future.

Over the next few years, our reforms will focus on four key areas: providing clear accountabilities and a streamlined governance framework; better supporting the Minister; building a skilled, adaptable and responsive workforce, and strengthening our strategic personnel policy capacity; and reforming our business systems and processes.8

8. More information can be found in Chapter 7 of this report.

Accountability to Ministers and Parliament

The year under review saw continuing improvement in our responsiveness to Ministers and to the Parliament as a whole, despite the growth in our overall workload. This is reflected in the 5,660 submissions or briefs sent to the Ministers and the Parliamentary Secretary. A total of 9,347 items of ministerial correspondence were tasked to Defence and 9,582 were completed in this financial year (taking account of additional items from the previous financial year).

Defence appeared at 25 separate parliamentary briefings, as well as at eight private briefings. This was in addition to supporting a number of visits by parliamentary committees to Defence establishments and units, and addressing 344 questions from committees either on notice or in writing.

The Defence Management Reivew acknowledged improvements already under way in relation to supporting the Minister. These have been enhanced by a range of targeted programs and educational tools developed over the past year to ensure Defence personnel understand our government and parliamentary system and are well informed, responsive and accountable to Ministers as we undertake our work of developing and implementing government policies.

Members of the Defence organisation undertake training on the development of complex government submissions.


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Financial management and support

Defence has continued to focus on improving its financial management and made significant progress during the year.

During 2006–07, Defence built on the work of 2005–06 and has no new areas of qualification by the Australian National Audit Office (ANAO). In addition, the 2005–06 ANAO qualification relating to Repairable Items has been successfully remediated, with the only outstanding area of qualification relating to the uncertainty around General Stores Inventory.

This was achieved by:

successfully implementing a Financial Controls Framework which identified and continually monitored controls relating to all financial processes

establishing project teams to focus on management and reporting issues associated with high-risk areas such as inventory and employee entitlements

producing Defence accounting position papers to develop a shared understanding of technical issues with the ANAO

instituting a comprehensive, multi-layered quality assurance process over the underlying transactions of the financial statements.

Work still remains to address the uncertainty of General Stores Inventory prices, and this will be the focus during 2007–08. Given the size and diversity of its stock holdings and the legacy challenges it confronts, Defence has made good progress in improving the management and reporting of its inventory.

In light of the extent of ANAO qualifications to Defence’s financial statements over the past five years, the current state of Defence’s financial management is a major achievement, and a credit to all Defence personnel involved in this work.9

9. More information on financial management and support can be found in Chapter 3 of this report.

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Security of Defence weapons, munitions and explosives

In December 2006, as a result of a joint police investigation into weapons and ammunition theft, the Minister directed Defence to undertake an audit into Defence security arrangements for weapons and explosive ordinance. The audit reported its findings and recommendations in the second half of 2007. These will be addressed in next year’s annual report.

Tritium contamination

As a result of concern about potential tritium contamination at Bulimba Barracks in Queensland, we instituted a review of the policy and procedures to manage equipment containing tritium-based light sources. The review was set up in mid-May 2007 and drew on specialist support from the Australian Radiation Protection and Nuclear Safety Agency (ARPANSA), Queensland Health Scientific Services (QHSS) and Comcare. The review examined files, sought advice from subject-matter experts, undertook site visits, and interviewed a wide range of personnel.

Both ARPANSA and QHSS advised that the radiation dose to which the employees in the Electrical and Instrument Repair workshop at Bulimba may have been exposed was well within internationally and nationally accepted radiation limits. The review found that there was no statistically significant data to suggest that exposure to low levels of tritium contamination has adverse health effects. The review made a number of recommendations regarding the management of tritium-based light sources within Defence but did not recommend the conduct of a follow-on, external review. Rather, Defence will implement the recommendations with external oversight from ARPANSA.

Defence formed a steering group that includes all stakeholders to address these concerns in a comprehensive manner. Action has already commenced on all of the 21 recommendations made by ARPANSA.



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HMAS Westralia allegations

At the Senate Estimates Hearings in February 2007, claims were raised following media reports that Defence was warned of problems with faulty fuel lines three months before a fatal fire on HMAS Westralia in 1998. Defence’s examination of available documentation suggests that the claims were unfounded. Nevertheless, to ensure full transparency we recommended to the Ministers that the allegations be independently investigated. As a result, the matter was passed to the Commonwealth Ombudsman who has since commenced an own-motion investigation of the matter. We acknowledge the depth of public feeling the welfare of the survivors and relatives of those who perished in the HMAS Westralia fire, and hope that our openness in responding to their claims demonstrates that we take these matters very seriously indeed and will continue to investigate any new claims as they arise.

cOncluSiOn

It is difficult in this brief review to fully capture the vast array of achievements that the people who make up the ADF and the Department of Defence have accomplished in 2006–07. Their commitment, professionalism, team spirit and innovation are what make Defence a unique force in operations and a respected organisation at home. Whatever successes Defence has enjoyed over this year, it is because of the work and dedication of our people—so to them we give our thanks.

Angus Houston AO AFC Air Chief Marshal Chief of the Defence Force

Nick Warner PSM Secretary Department of Defence


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Australia first Star of Gallantry, along with Medals for Gallantry, were awarded during the year to members of the 200-strong Special Forces Task Group, now returned from southern Afghanistan.

A sergeant received the Star of Gallantry, the ADF’s second highest award after the Victoria Cross, and a corporal the Medal for Gallantry during a 4th Battalion Royal Australian Regiment (Commando) ceremony at Holsworthy Barracks in Sydney on 26 November 2006. They cannot be further identified for security reasons.

Special Operations Commander Major General Mike Hindmarsh said the soldiers displayed conspicuous gallantry and leadership during combat operations: ‘They operated and performed in some of the most difficult and demanding country in the world against one of the most courageous and tough enemies you’d want to fight against.’

Governor-General Major General Michael Jeffery, Prime Minister John Howard, Defence Minister Brendan Nelson and Chief of the Defence Force Air Chief Marshal Angus Houston joined family and friends of the soldiers during the ceremony.

Commando Sergeant A said he was humbled to be Australia’s first recipient of the Star of Gallantry.

‘To be awarded something like this is just incredible,’ Sergeant A said.

The award citations told how the recipients put their team and mission first, placed themselves in hazardous positions during intense fire, and fought on despite fear, injury and overwhelming odds.

The soldiers were also quick to point out the courage of their mates, and Major General Jeffery announced the awarding of a Unit Citation for Gallantry to the task group’s

combat elements, while the entire task group was awarded the Meritorious Unit Citation.

During his presentation of the awards, Major General Jeffery said the soldiers’ actions were ‘in the highest traditions of the Special Operations Command—Australia, the Australian Army and the ADF’.

Sergeant a’S StOry

‘At one stage I had a look around and everybody in the Force Element was firing at someone,’ Sergeant A said.

Sergeant A’s section was the lead element of a Commando Reaction Force sent in to secure the extraction point for a coalition assault force that had come under intense anti-coalition militia fire.

The force secured the helicopter landing ground and provided covering fire for more than an hour, coming under heavy rocket and small arms fire from multiple flanks.

Sergeant A was responsible for securing the northern flank, repelling a number of assaults while being engaged from as close as 50 metres.

‘Our vehicles suffered quite a few strikes,’ he said.

‘Rocket-propelled grenades were going within one metre of our personnel, actually striking the ground or in the vicinity within two to three metres.’

When the extraction of the coalition element was complete, the Commando Reaction Force withdrew but was ambushed several times on its return to base.

Sheer courage



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Sergeant A, commanding the lead vehicle, led his section in counter-ambush assaults and cleared the militia, despite frequent, heavy and effective fire from as close as five metres.

cOrpOral b’S StOry

‘Adrenaline took over and I saw out the rest of the day, but that night my injuries hampered me.’

Corporal B’s platoon came to the support of a coalition infantry company pinned down by heavy rocket-propelled grenade and small arms fire on multiple fronts, with six wounded and one dead.

As the platoon manoeuvred forward, it too came under heavy fire, including from a volley of grenades that wounded six Commandos.

Despite being one of the wounded, Corporal B led his team on a swift and aggressive assault

to clear a group of compounds from which they were receiving fire.

‘I knew I,d been injured but I wasn,t too bad. I was still able to crack on,’ Corporal B said.

Clearing the compounds allowed coalition elements to regain the initiative and continue the battle.

Corporal B inspired his team to repel continued attacks and later that day he successfully led a team to infiltrate the militia-held territory, killing several fighters.

‘They,re tenacious, they,re tough fighters and I,ve got a lot of respect for them,’ he said.

Based on the Australian Army newspaper story by Corporal Mike Mc Sweeney.

The Star of Gallantry was established on

15 January 1991 to accord recognition to

members of the Australian Defence Force

and certain other persons who perform

acts of gallantry in action.

The Star of Gallantry is awarded only

for acts of great heroism or conspicuous

gallantry in action in circumstances of

great peril. In order of precedence, it

ranks after the Victoria Cross of Australia

but before the Medal for Gallantry.

Subsequent awards to the same person

are made in the form of a Bar. It may

be awarded posthumously.

Sergeant A and Corporal B share a common bond as they look at the medals they have been presented with.

the Star Of gallantry


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Year in view

Major Mark Tanzer with an Iraqi Jundi (Private) inside the Iraqi Army

Headquarters building before its transfer to provincial Iraqi control in

Al Muthanna on 13 July 2006.

A United States Air Force (USAF) B-2 bomber being refueled by a USAF KC-10 tanker. The aircraft are taking part in the United States Strategic Bomber Training Program conducted over Delamere Air Weapons Range in the Northern Territory. This demonstrates the closeness of our alliance relationship with the United States.

Leading Aircraftwoman Chantal Day takes boarding passes from Australian nationals as they board a C-130J for their evacuation flight from Lebanon to Turkey as part of Operation Ramp. Members of the Australian Defence Force were deployed to support the Department of Foreign Affairs and Trade in the evacuation of Australian nationals from Lebanon to places where flights were available to return to Australia.

July 2006



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Australian Reconstruction Task Force soldiers on the ground in Oruzgan

Province, Afghanistan. The Force is a mix of engineers and security personnel working

on reconstruction and community-based projects on a deployment of up to two years.

Leading Aircraftman Paul Thorp from the 2nd

Air Field Defence Squadron talks to residents of a displaced persons’ camp in Dili as Joint Task Force 631 conducts a routine sweep. Members of the ADF are working with international police forces from the Australian Federal Police, New Zealand Police, and Royal Malaysia Police in support of Operation Astute.

A displaced Timorese man and his child stand by as

members of the Joint Task Force conduct a security

sweep through their camp.

auguSt 2006


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Abrams tanks being unloaded at the Port of Melbourne.

Trooper Scott Cridge from the Brisbane-based 2nd/14th Light Horse Regiment serves as a light armoured vehicle driver in Combat Team Alpha—part of Overwatch Battle Group (West), Iraq.

A Navy clearance diver fits a Kevlar improvised explosive device suit

to one of the many interested members of the public during the

Fleet Base East Open Day.

SepteMber 2006



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A C-17 Globemaster III performs for the crowd

at the 2006 Defence Force Air Show, held at

RAAF Richmond.

Corporal Matthew Crighton (left) and Trooper Brandon Long after a battle physical training session at Camp Terendak, Iraq as part of Overwatch Battle Group (West).

Submariner Reservist Petty Officer Marine Technician Bryce Jackson at work on one of the Collins class submarines.

OctOber 2006


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nOveMber 2006

Members of the Australian Public Service taking part

in the Defence Civilian Army Familiarisation Course at

Puckapunyal, Victoria.

Lance Corporal Eliesa Holaafolau of 1st Battalion, Royal Australian Regiment, is greeted by a Tongan local girl on the streets of Nuku’ alofa. He has been deployed to assist the Government of Tonga in establishing an environment in which a peaceful resolution to the current unrest can be expedited.

Indonesian ships alongside HMAS Coonawarra’s wharf in Darwin during Operation

Cassowary.

Craftsman Dave Wilson is welcomed home by his mother, Gayle, and girlfriend, Sherie Litzow, at Brisbane International Airport after six months in Iraq with the Overwatch Battle Group (West).



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deceMber 2006

Mr Ric Smith, AO PSM, retiring Secretary of Defence, hangs

his official portrait with those of past Secretaries of Defence.

Thirteen members from Headquarters Joint Task Force 631 celebrate an early Christmas with around 20 children from the Fundasaun Hadom Timor Oan orphanage in Timor-Leste.

Children: (left to right) Fransisca Araujo, Maria Cardoso, Torres Vidigal, Zenilda Dina, Lucia Nunes and Fidelia Siqueira.

Task Force members: (left to right) Captain Laura Cranston (NZ Army), Corporal David Pilgrim, Captain David Fagan, Major Sean Faulkner and Captain Alison Kaine.

Soldiers from the Darwin-based 2nd Calvary Regiment and the 5th Battalion, Royal Australian Regiment gather for a Christmas photo during a break in operations in southern Iraq.

A C-17 Globemaster III taxis down the airfield. The first C-17 was

delivered in December and will be based at RAAF Amberley.


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Australian 1st Reconstruction Task Force soldiers celebrate Australia Day in Afghanistan with their version of Alice Springs’ famous Henley-on-Todd Regatta.

Royal Australian Air Force members act as pall bearers for the casket of Sir James

Killen at St John’s Anglican Cathedral in Brisbane. Sir James, who was Minister

for Navy from 1969 to 1971 and Minister for Defence from 1975 to 1982, served

in the Royal Australian Air Force as a gunner during World War II.

A young Afghan boy washes himself in preparation for prayers. The 1st Reconstruction Task Force is undertaking projects to rebuild vital infrastructure in a country that has been devastated by more than 30 years of conflict.

January 2007



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Trooper James Price joins in as a small number of Iraqi soldiers from the 1st Battalion in Al Muthanna train to become Physical Training Instructors. Australia has trained more than 15,000 members of the Iraqi Army.

Phil, a retired Chief of Solomon Islands Police, hands a fresh

pineapple to Private Jason Hamilton-Smith for soldiers of

2 Platoon, on a visit to the island of Bina as part of Operation Anode.

Two F/A-18 Hornets from RAAF Tindal conduct a flyover during the commemoration service to mark the 65th anniversary of the bombing of Darwin.

february 2007


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A No. 6 Squadron F-111C performs a ‘dump and burn’ fly-past at the 2007 Avalon International Air Show.

Armoured personnel carriers conduct a night firing serial

during Exercise Predator’s Strike at the El Alamein Army Camp in

Cultana, South Australia.

Members of the Special Air Service Regiment wait for the docking of MV Seahorse Standard, which is carrying the late Trooper Joshua Porter’s remains. Trooper Porter was fatally injured during the Black Hawk accident, which also took the life of Captain Mark Bingley.

March 2007



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An Aussie slouch hat surrounded by poppy flowers in Afghanistan. The poppy is a significant symbol in military tradition dating back to World War I. Fields of wild poppies were a vivid part of Anzac Day for those serving in the Australian Reconstruction Task Force, just as for their predecessors in the European and African campaigns of 1914–18 and 1939–45.

The Minister for Defence, The Hon. Dr Brendan Nelson MP, pays his respects to the nine ADF members who tragically lost their lives in the Sea King helicopter accident on 2 April 2005 at a memorial service in Canberra.

Ms Catherine Curry is lifted into a Zodiac during a water safety drill in the pool at Larrakeyah

Barracks as part of Exercise Executive Stretch. The exercise offered 10 employers from Darwin

the opportunity to spend a few days at Robertson Barracks to gain an insight into the military

training of the Army Reserve.

april 2007


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The Australian Special Operations Task Group is deployed to Afghanistan on Operation Slipper to conduct special operations in support of the US-led Coalition security and reconstruction efforts in the country.

Australian Army Cadet Gabrielle Fejo (centre) from the Bulyuen community stands to attention during the Australian national anthem with her fellow cadets at the final parade for the Indigenous Participation Program Cadet Camp.

HMA Ships Ipswich and Townsville, the last of the Fremantle class patrol boats, have their Australian White Ensigns lowered and handed to their respective commanding officers during the decommissioning ceremony held at Trinity Wharf, Cairns.

May 2007



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Family members (left to right) Private Craig Norman (son), Corporal Jeffery Norman (father), and Private Lanceton Norman (nephew) are working with NORFORCE in Alice Springs in support of Operation Outreach.

Leading Seaman Aircrewman Nick Anderson on board Sea King Shark 20 from 817 Squadron, embarking on HMAS Manoora during Exercise Talisman Sabre.

The Army’s Landing Craft Medium conducts a well deck docking with US Navy Ship Juneau during Exercise Talisman Sabre.

June 2007


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Chapter 2Defence overview

pOrtfOliO Structure

The Defence portfolio consists of a number of legally distinct organisations. The three most significant are:

the Department of Defence—a department of state, headed by the Secretary of Defence

the Australian Defence Force (ADF)—a body consisting of the three Services (including Reserves) and headed by the Chief of the Defence Force. Each Service Chief also administers his or her respective Cadet service, although the Cadet service is not a component of the parent Service

the Defence Materiel Organisation (DMO)—a prescribed agency, headed by its Chief Executive Officer.

In practice, these bodies work together so closely that they are effectively one organisation known simply as Defence (or the Defence organisation), although it has no separate legal identity. A series of internal directives and delegations effectively creates a unified organisation.

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The portfolio also contains a number of smaller entities, which include:

a number of statutory offices created by the Defence Force Discipline Act 1982 which are independent but reside administratively within Defence. These include the Judge Advocate General, the Chief Judge Advocate, the Director of Military Prosecutions and the Registrar of Military Justice

various trusts and companies, including:

– Defence Housing Australia

– Army and Air Force Canteen Service (Frontline Defence Services)

– Australian Military Forces Relief Trust Fund (Army Relief Trust Fund)

– Australian Strategic Policy Institute Ltd

– Royal Australian Air Force Veterans’ Residences Trust Fund

– Royal Australian Air Force Welfare Trust Fund

– Royal Australian Navy Relief Trust Fund.

The Minister for Defence’s portfolio also contains the Department of Veterans’ Affairs and its associated bodies, as these are designated as part of the Defence portfolio in the Administrative Arrangements Order. Nonetheless, the Department of Veterans’ Affairs is administered separately to Defence.

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chapter 2 : defence overview

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Figure 2.1—Portfolio Structure

OrganiSatiOnal Structure

Defence consists of the Australian Defence Force—members of the Navy, the Army and the Air Force—and civilians in the Australian Public Service. During 2006–07, Defence underwent a number of organisational changes to drive performance improvement, particularly in the areas of service delivery, strategy and business planning and organisational reform.

Key structural changes

The creation of the Defence Support Group as a consolidated service delivery organisation for Defence, based around the Corporate Services and Infrastructure Group combining with organisations formerly part of Personnel Executive to form two new divisions, Personnel Services Division and Health Services Division.

The creation of the Office of the Secretary and the Chief of the Defence Force, which includes a consolidated strategy, coordination and governance function, led by Deputy Secretary

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Mr Michael Pezzullo. This office will support the Secretary and the Chief of the Defence Force so that they can better respond to the demands of high operational tempo and ensure that there is a closer linkage between the Government’s strategic direction, Defence’s business planning framework and the reform agenda.

As part of the realignment of functions associated with the creation of the Strategy Coordination and Governance Executive, the International Policy Division was placed under the leadership of Deputy Secretary Mr Stephen Merchant to create a new Intelligence, Security and International Policy Group.

As a result of the Defence Management Review, positions in the Chief Information Officer Group and People and Strategies Group will be established in 2007–08.

The organisational structure as at 1 June 2007 is depicted at Figure 2.2.

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Australian Defence Force

Navy Army Air Force

Navy Reserves

Army Reserves

Air Force Reserves

Navy Cadets

Army Cadets

Air Force Cadets

Department of Defence

Defence Materiel Organisation

Various small trusts &

companies

Disciplinary appointments

(DFDA)

Defence Housing Australia

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defence overview : chapter 2

(1) (2) (4)

Chief of the Defence ForceACM Angus Houston

Parliamentary Secretary to the Minister for Defence

Mr Peter Lindsay MP

Minister Assisting the Minister for Defence

The Hon Bruce Billson MP

Minister for DefenceThe Hon Dr Brendan Nelson MP

(4) (8)

Inspector GeneralDr Ian Williams

(7)

Chief Executive OfficerDefence Materiel Organisation

Dr Stephen Gumley

Deputy SecretaryStrategy, Coordination & Governance

Mr Mike Pezzullo

(1) (3) (4)

Inspector General Australian Defence Force

Mr Geoff Earley

(1) (3) (4)

(3) (4) (5)

Head Military Justice Implementation Team

RADM Mark Bonser

(3) (4)

Australian Defence Force Investigative Service

COL Tim GrütznerProvost Marshal

(4)

Chief Capability Development GroupLTGEN David Hurley

(4)

Chief Finance OfficerMr Phillip Prior

(4)

Vice Chief of the Defence Force/ Chief Joint Operations

LTGEN Ken Gillespie

(4) (9)

Deputy SecretaryPeople Strategies & Policy

TBA

Deputy SecretaryDefence Support Group

Mr Martin Bowles

Deputy Secretary Intelligence, Security and

International PolicyMr Steven Merchant

(9)

Chief Information OfficerTBA

Chief Defence ScientistDr Roger Lough

Commander Joint LogisticsMAJGEN Grant Cavenagh

(6)

Chief of NavyVADM Russ Shalders

(6)

Chief of ArmyLTGEN Peter Leahy

(6)

Chief of Air ForceAIRMSHL Geoff Shepherd

SecretaryMr Nick Warner

Director of Military Prosecutions

BRIG Lyn McDade

Acting Judge Advocate General

BRIG The Hon JusticeRichard Tracey

(1) Statutory appointment.(2) The Judge Advocate General reports directly to the Minister for Defence in accordance with Section 196A of the Defence

Force Discipline Act 1982.(3) Directly responsible to the Chief of the Defence Force.(4) Supported by shared corporate management services.

(5) Position will exist to end of 2007.(6) Section 9(3) of the Defence Act 1903 requires the Service Chiefs to advise the Minister on matters relating to their

command.(7) Under the agreed business model for DMO as a prescribed agency, the CEO DMO Ministerial Directive identifies that the

CEO DMO is directly accountable to the Minister for DMO’s performance but remains accountable to the Secretary and CDF.

Figure 2.2—O

rganisational chart as at 1 June 200�

defence annual repo

rt 2006–07 / volum

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SeniOr executive changeS

The Defence Senior Executive includes the Chief of the Defence Force, the Secretary, Group Heads and Service Chiefs. The changes to the Senior Executive during 2006–07 were as follows:

Mr Nick Warner commenced as Secretary of Defence on 4 December 2006, following the retirement of Mr Ric Smith.

Mr Martin Bowles was appointed to the new position of Deputy Secretary Defence Support Group on 4 September 2006.

Mr Shane Carmody, Deputy Secretary Intelligence and Security, left Defence on 22 September 2006. He was replaced by Mr Stephen Merchant on 25 September 2006.

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defence OutcOMe and Output Structure

Defence outcomes are the results that the Government sees from Defence, and are achieved through the successful delivery of outputs, to the standards set in the Portfolio Budget Statements 2006–07 and, where applicable, revised in the Portfolio Additional Estimates Statements 2006–07. The Defence Annual Report 2006–07 reports Defence’s achievements against these targets, in both financial and non-financial terms.

The outcome and output structure remained consistent for 2006–07 and covered 28 departmental outputs and three administered outputs. As of 1 July 2007, a new outcome and output structure was to be introduced, as foreshadowed in the Portfolio Budget Statements 2007–08 (pages 13–15).

RIC SmITh’S aChIEvEmENTS

During a public service career that spanned 38 years, Ric Smith developed a long list of significant achievements across a number of departments and agencies. His last appointment as Secretary of Defence was challenging, but one that left the organisation better coordinated and more efficient. Ric oversaw the amalgamation of corporate support functions and the realignment of output areas, resulting in improved service delivery to Ministers and the Government. The remediation of Defence’s financial statements was made a priority, with significant progress achieved in financial management reform. Defence’s high operational tempo was also a challenge Ric had to meet. He was particularly successful in managing the entire Defence organisation to meet ADF priorities in logistics support, equipment, communications and intelligence. Defence has much to thank Ric for.

NICk WaRNER—bIOgRaphy

Nick Warner was appointed Secretary of Defence in December 2006. In assuming this position Nick returns to Defence after nearly 30 years—he worked in the Joint Intelligence Organisation from 1973 to 1977. Nick has held senior positions within the Department of Foreign Affairs and Trade (DFAT) and the Office of National Assessments, including Special Coordinator of the Regional Assistance Mission to Solomon Islands (2003–04), High Commissioner, Port Moresby (1999–2003) and Ambassador to Iran (1994–1997). Immediately before taking up the position of Secretary, Nick was the Senior Adviser (International) to the Prime Minister, a role he occupied from July 2005.


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Defence’s financial management continues to meet improvement targets and significant progress has been made in financial reporting and financial controls management.

The financial statements are once again signed off on a ‘true and fair except for’ basis. The level of uncertainty surrounding the financial statements balances is now contained to $1,974m of general stores inventory. During the year, uncertainty around repairable items and not-in-catalogue issues was removed. Plans are now in place to deal with the remaining uncertainty surrounding general stores inventory.

The achievements in financial management have been made through continued focus on the operation of financial controls, financial training, robust budgeting and timely management action on financial operations.

The budgeting process continued to be well managed and timely and reliable information was provided to the Government through the annual Defence Management and Financial Planning document. The Portfolio Budget Statements 2006–07 submission and Portfolio Additional Estimates Statements 2006–07 documents were once again of high quality and produced in a timely manner to support the Government’s decision-making processes.

The financial controls framework is now fully established and has allowed Defence’s Chief Financial Officer (CFO) to be able to attest that a

sound and effective system of internal controls exists across all significant financial areas. This control environment gives complete coverage of all material balance sheet accounts. Major achievements in this area were the testing and monitoring of some 1,169 key controls (including information technology application controls) and the development of centralised monitoring processes for financial transactions.

Financial training underpins the financial awareness and focus required to ensure the progress becomes an enduring part of the normal way of doing business in Defence. During the year 18,916 people were provided with finance-related training. Eight new financial management courses and 10 new training courses in financial systems were introduced by the Chief Financial Officer Group. In addition, the CFO has worked with the Air Force in incorporating new financial management modules into existing Air Force courses and has engaged with the Defence Science and Technology Organisation, Defence Signals Directorate and Australian Defence College to provide tailored senior officer financial training to those areas.

The financial reform agenda achieved positive results during the year and Defence is now within striking distance of producing unqualified financial statements.

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defence reSOurcing

Defence’s financial statements are presented in Appendix 15 of this report. A separate Defence resourcing presentation (see Table 2.1) is used to show the total funds available to Defence in 2006–07. The total departmental funding element of this presentation (Table 2.1, serial 7) is the most common way of measuring Defence’s budget.

At the time of the publication of the Portfolio Additional Estimates Statements 2006–07, the projected level of resourcing available to Defence in 2006–07 was $22,781.9m, comprising total

departmental funding of $19,964.9m and a further $2,817.0m for administered appropriation. The total departmental funding allocation of $19,964.9m (Table 2.1, serial 7) comprised funding for outcomes from the Government of $17,157.7m, an equity injection of $1,998.3m, own-source revenue of $751.4m and net capital receipts of $57.6m.

The actual result for 2006–07 was $109.2m higher than the revised estimate, including a variation of $121.2m in departmental funding and a decrease of $12.0m in administered appropriation. Table 2.1 summarises the total Defence resourcing in 2006–07 compared to the revised estimate.

Table 2.1—Total Defence resourcing

2005–06 Actual result

2006–07

Serial No.

Budget estimate[1]

Revised estimate[2]

Actual result Variation

($’000) ($’000) ($’000) ($’000) ($’000)

Departmental

1 16,064,341Revenue from Government for price of outcomes 17,063,404 17,157,664 17,221,662 63,998

2 1,159,680 Equity injection 1,937,879 1,998,277 1,998,277 –

3 17,224,021 Total revenue from Government (1+2) 19,001,283 19,155,941 19,219,939 63,998

4 635,393 Own-source revenue[3] 594,645 751,380 771,226 19,846

5 61,358 Net capital receipts 23,192 57,603 95,005 37,402

6 696,751 Sub-total 617,837 808,983 866,231 57,248

7 17,920,772 Total departmental funding (3+6) 19,619,120 19,964,924 20,086,170 121,246

Administered

8 2,754,208 Administered appropriation 2,632,000 2,817,000 2,804,999 -12,001

9 20,674,980 Total Defence resourcing (7+8) 22,251,120 22,781,924 22,891,169 109,245

Note1. Budget estimates are consistent with Portfolio Budget Statements 2006–07 (page 20).2. Revised estimates are consistent with Portfolio Additional Estimates Statements 2006–07 (page 13).3. Own-source revenue (Table 2.1, serial 4) excludes revenue from ‘assets now recognised’ and ‘net gains from sale of assets’.


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defence’S departMental incOMe StateMent

Defence recorded an operating loss of $667.5m (expenses exceeded revenues) in 2006–07. The loss was due primarily to significant variation in depreciation and write-down and impairment of assets expenses.

Table 2.2 provides details and it is followed by a section explaining the variations.

Table 2.2—Income statement

Budget

estimateRevised

estimateActual result Variation

($’000) ($’000) ($’000) ($’000)

INCOME

Revenue

Revenue from Government for outcomes 17,063,404 17,157,664 17,221,662 63,998

Goods and services 530,482 686,512 674,514 -11,998

Other revenue 65,663 66,368 96,712 30,344

Total revenue 17,659,549 17,910,544 17,992,888 82,344

Gains

Reversals of previous asset write-downs 200,000 467,350 456,258 -11,092

Other gains – 6,200 30,488 24,288

Total gains 200,000 473,550 486,746 13,196

Total income 17,859,549 18,384,094 18,479,634 95,546

EXPENSES

Employees 6,609,082 6,793,492 6,895,744 102,252

Suppliers 7,649,136 7,786,632 7,801,660 15,028

Grants 5,592 2,992 3,003 11

Depreciation and amortisation 3,336,323 3,332,924 3,665,338 332,414

Finance costs 20,412 20,412 38,594 18,182

Write-down of assets and impairment of assets 235,000 443,595 735,514 291,919

Other 4,004 4,047 7,277 3,230

Total expenses 17,859,549 18,384,094 19,147,130 763,036

Operating result – – -667,496 -667,496



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Explanation of variations

The variation in Defence’s overall operating performance of $667.5m comprised a $95.5m increase in income and a $763.0m increase in expenses.

INCOmE

Income received was $95.5m more than the additional estimate of $18,384.0m. The main elements of the increase were:

Revenue from Government (+$64.0m)—The higher than anticipated result was due to additional funding for Operation Catalyst and Operation Slipper. Funds were drawn from the Appropriation receivable with reimbursement from the Government received in the 2007–08 Budget.

Goods and services (-$12.0m)—The lower than anticipated result was due to:

– higher than anticipated revenue from other Governments (+$8.8m)

– greater than expected rations and quarters recovered by the ADF (+$1.9m).

Other revenue (+$30.3m)—The higher than anticipated result was mainly due to:

– proceeds of litigation in a claim by the Commonwealth. The claim commenced in April 2001 and concluded in June 2006 (+$11.8m)

– higher than expected diesel fuel rebate (+$15.0m)

– recategorisation of grants revenue to ‘other gains’ from ‘other revenue’ (-$1.5m)

Reversals of previous asset write-downs (-$11.1m)—The lower than anticipated result was mainly due to:

– prior year adjustments made to the capitalisation of assets (-$153.0m)

This was offset by:

– capitalisation of specialised military equipment and other plant and equipment previously below the threshold (+$115.2m)

– buildings identified through the revaluation program performed by the Australian Valuation Office (+$16.3m)

– further capitalisation of Mulwala related assets (+$10.6m).

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Other gains (+$24.3m)—The higher than anticipated result was predominantly due to resources received free of charge, which included:

– the MPS-36 radar system at Woomera supplied by the German Government (+$9.6m)

– the donation of the previously privately owned Air Art Museum in Nowra (+$4.2m)

– Navy and Army decommissioning cost revision impact on profit and loss (+$7.5m)

– recategorisation of grants revenue from ‘other revenue’ to ‘other gains’ (+$1.5m)

ExpENSES

Expenses were $763.0m higher than the revised estimate mainly due to:

Employees (+$102.3m)—The higher than anticipated result was due to:

– military employee expenses (+$102.0m) (this variation is explained in Chapter 4)

– reserve employee expenses (-$10.6m) (this variation is explained in Chapter 4)

– civilian employee expenses (+$10.8m) (this variation is explained in Chapter 4).

Suppliers (+$15.0m)—The higher than anticipated result was mainly due to:

– transfer of funding for Enhanced Land Force initiative from a civilian employee expense to a supplier expense (+$5.5m)

– reclassification of the Comcare premium from a military employee expense to a supplier expense (+$4.2m).

In addition, there were minor variations across suppliers that are not attributable to any single cause.

Depreciation and amortisation (+$332.4m)— The higher than expected result was due to:

– reduction in the useful lives of Defence F-111 and F/A-18 aircraft (+$85.9m)

– capitalisation of Other Plant and Equipment due to a reduced asset threshold (+$87.1m)

– classified Army and Air Force assets brought to account (+$65.0m)

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– Information and Communication Technology assets brought to account (+$24.0m)

– recognition of High Frequency Modulator relating to Other Plant and Equipment and intangibles (+$21.8m)

– reclassification of the Australian Defence Industries Benalla lease as a finance lease (+$11.8)

– increase in useful lives of repairable items (+$5.0m)

– reduction in depreciation on low value Other Plant and Equipment asset pool (+$5.9m)

– other minor projects rolled out earlier than expected (+$10.0m).

Finance costs (+$18.2m)—The higher than expected result was due mainly to costs associated with discounting restoration and decontamination provisions.

Write-down and impairment of assets (+$291.9m)—The higher than expected result was due to:

– special military equipment assets under construction reviewed and written off (+$50.7m)

– adjustment of pooled special military equipment items in non-control accounts (+$50.5m)

– impairment of the Orion Infra-Red Detection System (+$48.0m)

– Information and Communication Technology asset review (+$45.0m)

– amounts incorrectly capitalised and revised asset valuations (+$6.4m)

– provision for obsolescence adjustments as a result of increased war stock (+$3.4m)

– reversal of a prior year accrual (-$6.0m)

– reconciliation of asset holdings recorded on corporate information systems (+53.8m)

– infrastructure stock-take adjustments (+$20.7m)

– derecognition of the submarine combat system simulator (+$19.1m).

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Other expenses (+$3.2m)—The higher than anticipated result was due to:

– an increase in ex gratia payments to Reece Hire, members associated with Melbourne/Voyager and the Kovco family (+$2.6m)

– greater than expected Defence Administration Scheme payments (+$0.3m)

– foreign exchange losses (+$0.3m)

defence’S departMental balance Sheet

The balance sheet sets out Defence’s assets, liabilities and equity as at 30 June 2007. Its purpose is to provide a snapshot of the long-term sustainability of the organisation.

Net assets were $161.6m higher than the revised estimates forecast of $53,803.9m. This includes an increase in assets of $342.1m, offset by an increase in liabilities of $180.4m. After setting aside movements relating to the transfer of assets under construction back to Defence and the wind-down in the prepayments to the DMO which are largely offsetting in nature, the major variations include land and buildings assets (+$525.0m), infrastructure, plant and equipment (-$1,063.8m), intangibles (-$11.5m), heritage and cultural (+$40.3m), and inventories (+$466.0m). The increase in liabilities mainly related to an increase in provisions and payables of $175.1m, which include $118.1m in employee provisions, $44.3m in accounts payable and $12.7m in other payables.

Table 2.3 provides details and it is followed by an explanation of the variations.

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Table 2.3—Balance sheet

Budget

estimateRevised

estimate Actual result Variation

($’000) ($’000) ($’000) ($’000)

ASSETS

Financial assets

Cash 161,249 36,221 32,007 -4,214

Appropriation receivable[1] 455,451 263,802 199,628 -64,174

Other receivables 256,235 163,479 174,517 11,038

Other financial assets – 49,270 127,537 78,267

Total financial assets 872,935 512,772 533,689 20,917

Non-financial assets

Land and buildings 10,982,127 11,355,726 11,880,750 525,024

Infrastructure, plant and equipment 38,216,881 39,472,661 38,408,842 -1,063,819

Intangibles 306,210 287,892 276,399 -11,493

Heritage and cultural 800,459 723,572 763,944 40,372

Inventories 4,169,043 4,236,060 4,702,035 465,975

Other non-financial assets 289,816 541,424 906,498 365,074

Total non-financial assets 54,764,536 56,617,335 56,938,468 321,133

Total assets 55,637,471 57,130,107 57,472,157 342,050

LIABILITIES

Debt

Leases 228,290 308,089 313,588 5,499

Other interest-bearing liabilities 2,631 2,404 2,254 -150

Total debt 230,921 310,493 315,842 5,349

Provisions and payables

Employees 1,493,890 1,599,953 1,718,072 118,119

Suppliers 608,219 719,941 764,231 44,290

Other 527,606 695,855 708,535 12,680

Total provisions and payables 2,629,715 3,015,749 3,190,838 175,089

Total liabilities 2,860,636 3,326,242 3,506,680 180,438

Net assets 52,776,835 53,803,865 53,965,477 161,612

EQUITY

Capital 6,482,741 6,909,196 6,876,202 -32,994

Reserves 10,610,860 11,157,841 11,900,862 743,021

Retained surpluses or accumulated deficits 35,683,234 35,736,828 35,188,413 -548,415

Total equity 52,776,835 53,803,865 53,965,477 161,612

Note1. Appropriation receivable represents undrawn appropriations from the Commonwealth at 30 June 2007.


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Explanation of variations

Defence’s net asset position at 30 June 2007 was $53,965m, which was $161.6m higher than the revised estimate. The variation in Defence’s net asset position of $161.6m resulted from an increase in assets of $342.1m and an increase in liabilities of $180.4m.

TOTal aSSETS

Assets were higher by $342.1m. The main elements in this were:

Cash (-$4.2m)—The variance relates to unforseen payment run requirements that resulted in less than the required appropriation being drawn and cash at bank decreasing.

Appropriation receivable (-$64.2m)—The variance was due to an additional funding requirement for Operations Catalyst and Slipper. Funds were drawn from the appropriation receivable with reimbursement from the Government received in the 2007–08 Budget.

Other receivables (+$11.0m)—The variance against the revised estimate was due to:

– increase in overseas debtors contributed mainly by the Fuel Exchange Agreements with the US Government, NZ Government and Singapore Air Force (+$6.8m)

– increase in Comcare refunds (+$2.3m)

– increase in employee receivable for Overseas Outlay Allowance (+$1.9m).

Other financial assets (+$78.3m)—The variance against revised estimate was predominantly due to the accrued revenue increase associated with the operational funds that were drawn down from the appropriation receivable in 2006–07, to be returned in the 2007–08 appropriation.

Land and buildings (+$525.0m)—The variance against revised estimate was due to:

– the restatement of the 1 July 2006 opening balances as per Australian Equivalents to International Financial Reporting Standards (-$37.0m)

– revaluations of land and buildings (+$407.0m)

– higher than planned additions of building facilities (+$135.0m)

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– return of assets previously held for sale back to land and buildings (+$185.0m)

– an increase in assets first recognised (+$17.0m)

– higher than budgeted depreciation in line with the variance in additions and revaluations (-$123.0m)

– higher than planned disposal, write-offs and write-downs of assets (-$46.0m)

– reclassification of land and building assets to other categories (-$13.0m).

Infrastructure, plant and equipment (-$1,063.8m)—The variance against the revised estimate was mainly due to:

– delays in the acquisition of assets by the DMO (-$511.3m)

– higher than planned disposal, write-offs and write-downs of assets (-$552.5m).

Intangibles (-$11.5m)—The variance against the revised estimate for computer software and other intangible assets was primarily due to write-offs of the variance in opening balances as a result of assets under construction moving from the DMO to Defence.

Heritage and cultural (+$40.4m)—The variance against the revised estimate was due to:

– revaluation of 306 heritage and cultural assets (+$29.1m)

– buildings being reclassified as a result of them being classified as having heritage and cultural value (+$4.2m)

– various assets now meeting the criteria to become heritage and cultural assets (+$7.1m).

Inventories (+$466.0m)—The variance against the revised estimate was due to a number of factors, including:

– adjustments to the provision for obsolescence as a result of quality assurance activities (+$178.0m)

– explosive ordnance increased as a result of assets under construction roll-outs (+$102.0m)

– lower than expected write-down of inventories (+$175.9m)

– lower than expected inventory consumed in training exercises as a result of a large number of ADF members being deployed for operations.

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Other non-financial assets (+$365.1m)—The variance against the revised estimate was due to:

– delays in the provision of acquisition and sustainment services by the DMO which caused the DMO prepayment to exceed the budgeted result (+$511.3m)

– variation in the prepayments relating to retention bonuses (+$34.5m)

– assets held for sale being less than anticipated due to revaluation of buildings (-$180.7m).

TOTal lIabIlITIES

Liabilities were higher than anticipated due to:

Leases (+$5.5m)—The variance against the revised estimate was mainly due to a change in lease liability for Headquarters Joint Operational Command at Fairbairn, ACT.

Employees (+$118.1m)—The variance against the revised estimate was due to:

– revaluation of leave liabilities in line with the Actuarial report and higher than anticipated leave balances as a result of increased deployment activity

– this increase is offset by the reclassification of Pay As You Go and Fringe Benefits Tax provisions from this category to ‘other provisions’.

Suppliers (+$44.3m)—The variance against the revised estimate was primarily due to the increased expenditure against Operations Catalyst and Slipper in line with the decrease in appropriation receivable.

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Other (+$12.7m)—The variance against the revised estimate was due to:

– a reduction in provision for restoration, decontamination and decommissioning for Mulwala (-$53.0m)

– a reduction in provision for Melbourne/Voyager as a result of payment made (-$16.0m)

– a reclassification of Fringe Benefits Tax and Pay As You Go provisions from ‘employees’ to ‘other’ (+$63.7m)

– a reclassification of deferred lease liability under this category (+$18.0m).

EquITy

Equity comprised:

Capital (-$33.0m)—The variance against the revised estimate was mainly due to:

– capital withdrawal associated with the sale of housing (-$26m)

– appropriation determination for the 2006-07 financial year (-$5.7m).

Reserves (+$743.0m)—The variance mainly reflects the revaluation activity of non-financial assets undertaken during the financial year.

Retained surpluses or accumulated deficits (-$548.4m)—The variance against the revised estimate was due to a combination of differences in the opening balance and the operating result for the financial year, as well as recognising prior period corrections.

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defence’S departMental caSh flOw SySteM

Defence sources its annual cash requirements mainly from the appropriation for outcomes, the equity injection, own-source revenue, capital receipts and cash reserves. The allocations are subject to government approval as part of the annual budget process. Once funds are appropriated for Defence purposes, they remain in Defence’s accounts even

if not fully used in the budget year. Any unused funds are held as an appropriation receivable in the Official Public Account and are available to Defence to meet liabilities as they fall due, including employee liabilities, subject to government approval.

uSE Of CaSh IN 2006–07

During the financial year Defence’s level of cash at bank decreased by $4.2m as detailed in Table 2.5.

Table 2.�—Use of cash

2006–07 Revised estimate

($’000)

2006–07Actual result

($’000)

Sources of cash

36,221 2005–06 opening cash at bank[1] 36,221

17,157,664 Appropriations Bills Nos 1, 3 & 5 (Price of Outcomes) 17,133,408

1,998,277 Appropriations Bills Nos 2, 4 & 6 (Equity Injection) 1,998,277

841,584 Own-source revenue[2] 723,279

391,019 GST refund from Australian Taxation Office[3] 441,076

Effect of exchange rate movements -306

103,412 Cash from Official Public Account 167,586

20,528,177 Sub-total—Cash available 20,499,541

Use of cash

6,677,014 Employee payments 6,570,436

7,177,805 Supplier payments 6,983,772

GST expense 439,068

27,451 Other operating expenses (grants, borrowing costs and other) 22,044

4,393,333 Purchase of specialist military equipment 4,393,676

912,344 Purchase of property, plant and equipment[4] 891,100

1,254,989 Purchase of inventory 1,070,934

30,420 Repayments of debt 54,166

18,600 Cash transfer to Official Public Account 42,338

20,491,956 Sub-total—Cash used 20,467,534

36,221 2006–07 closing cash at bank 32,007

Notes1. This figure represents the actual cash at bank at 1 July 2006, rather than what was in the estimates for the 2006–07 Budget.2. Includes sale of goods and services ($529.9m), other revenue ($71.0m), and proceeds from sale of assets ($122.5m).3. Includes GST refund from the Australian Taxation Office ($420.9m) and GST receipts from customers ($20.2m).4. Includes purchase of land and buildings ($623.0m), property, plant and equipment ($179.8m), heritage and cultural

assets ($2.1m), infrastructure ($69.5m), and intangibles ($16.8m).



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defence adMiniStered activitieS

Defence undertakes management of the provision of superannuation and housing support to current and retired military personnel as administered activities. Defence also administers reimbursements from the United Nations for costs associated with Timor-Leste. The operations of the superannuation scheme are managed by ComSuper on behalf of Defence.

As at 30 June 2007, the total liability associated with employee provisions was $32,478m.

During the year, the administered activities resulted in a net appropriation of $693.5m against a budgeted net appropriation of $809m which was which was mainly due to:

higher than anticipated interest and dividend revenue (-$13.0m)

higher than anticipated superannuation contributions (-$48.6m)

lower than anticipated payments for military employees (-$53.4m).

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Administered Expenses – Special Appropriation

These expenses, administered on behalf of the Government, comprise:

Administered superannuation expenses representing members’ accrual expenses and interest expenses for the two military superannuation schemes (Defence Force Retirement and Death Benefits and Military Superannuation and Benefits Scheme). The cash payments of benefits paid under these schemes are subject to biannual indexation of benefits, similar to the Australian Public Service superannuation schemes.

The Defence HomeOwner Scheme, which provides assistance to current and retired Defence personnel. This scheme provides a subsidy on the interest payable on a home loan for members of the ADF under the Defence Force (Home Loans Assistance) Act 1990.

The retention benefit is a lump sum payment made directly to military personnel who, on completion of 15 years’ service, undertake to complete a further five years’ service. It is not a superannuation benefit, but is an incentive payment made via the administered accounts.

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fINaNCIal RESulTS

Administered expenses were some $12.0m lower than the revised estimate of $2,817.0m. This variance against the revised estimate is mainly due to lower than anticipated retention benefits paid during the year (-$12.5m). Table 2.6 provides details.

Table 2.�—Revenues ands expenses administered on behalf of the Government


($’000)


($’000)


($’000)

2006–07Revised

estimate ($’000)


($’000)

2006–07Variation

($’000)

Revenues Administered on behalf of Government

Interest 2,273 3,044 5,265 4,005 12,277 8,272

Housing Dividends 230,698 70,672 68,000 76,400 77,599 1,199

Military Superannuation Contributions 604,885 661,607 651,158 754,610 700,595 -54,015

Other 24,265 10,615 5,139 788 -231 -1,019

Total Revenues Administered on behalf of Government 862,121 745,938 729,562 835,803 790,240 -45,563

Expenses Administered on behalf of Government

Housing Subsidies 8,202 9,177 9,781 11,000 10,487 -513

Retention Benefits 27,297 44,718 40,427 44,000 31,512 -12,488

Military Superannuation Benefits 2,261,210 2,727,850 2,704,000 2,762,000 2,763,000 1,000

Other 22,792 11,705 – – – –

Total Expenses from Ordinary Activities 2,319,501 2,793,450 2,754,208 2,817,000 2,804,999 -12,001

Net Operating Result -1,457,380 -2,047,512 -2,024,646 -1,981,197 -2,014,759 -33,562



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In September 1999 the Australian Defence Force was committed, at short notice, to raise and deploy forces to stabilise and enforce the peace in East Timor, which resulted in the largest number of Australian personnel serving overseas since the Vietnam conflict. Many of those destined to make up the initial force had already been away from home on military exercises for many weeks before their departure for Timor-Leste, so a new unit was rapidly established to support the families of those personnel during such a lengthy absence. This was the National Welfare Coordination Centre (NWCC).

Drawn almost exclusively from the three arms of the ADF Reserve forces all across Australia, the NWCC was established at Randwick Barracks in Sydney. The foundation members included an alpaca breeder, a retired Chief Petty Officer, a newly enlisted Private, a solicitor, a grandmother, a nurse, a surveyor and a retired Flight Sergeant. Equipped with maturity, 300 odd years of combined Service experience and a borrowed photocopier, this ad hoc force of volunteers was quickly assembled into teams and a 24 hour call centre was born.

Almost eight years later, the NWCC has now become an integral part of Headquarters Joint Operations Command and continues to support the ADF by coordinating welfare support to the families of all personnel deployed away from home. The call centre operators are now a mixture of Reserve and regular personnel who undertake nationally accredited training, and whose focus remains firmly on assisting families.

National Welfare Coordination Centre

Warrant Officer Alan Tarr.


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Documents

Section 1 SECTION 1 - Department of Defence€¦ · of appropriate civil–military relations. Finally, our engagement with the countries of South East Asia was highlighted by the