Welcome to the Latest Edition of Comcover Connect the Year in Review

The Comcover team Gateway, the Business Intelligence Reporting Tool, and the annual risk management benchmarking survey. Improved access to real-time information and Welcome to the latest edition of Comcover analysis helps Fund Members become more self reliant. Connect – the year in review. Reporting capabilities have developed substantially throughout the year. What a busy year 2016 has been. Looking back, some of the highlights have included providing specific The Risk Insight Report was launched in 2016, giving program and project insurance advice to Fund Fund Members a more holistic view of their risk Members covering the extraordinary breadth of profiles. For the first time, Fund Members can access Commonwealth activities—from transporting information about claims, insurance and risk radioactive material from France to Australia to management in a single report. covering valuable artworks travelling around Australia and overseas. Comcover has three program reviews in progress as part of its continual improvement process to ensure The Guidance to support entities in implementing services and programs provided to Fund Members the Commonwealth Risk Management Policy was remain relevant and useful. released. The guidance includes a range of fact sheets on topics such as maintaining an entity’s risk The Comcover Risk and Insurance Conference was profile and understanding risk appetite and tolerance. successful with 165 attendees. It was also an opportunity to recognise winners from this year’s Implementation of Comcover Legal Services Awards for Excellence in Risk Management which Parcelling Arrangements in July now allows Fund showcase risk management excellence across the Members to access 10 legal service providers for Commonwealth. insurance-related litigation and dispute resolution advice. Fund Members can benefit from significant The Department of Agriculture and Water Resources’ rate discounts and value-added services, such as win in the risk initiative category is detailed in this secondments and training. edition (see page 5). Future editions of Comcover Connect will cover some of the conference While continuing to provide the opportunity for Fund presentations and award winners. Members to access Foundation and Senior Executive Service officer pathways for learning, Comcover has This edition highlights a presentation by Catherine focused on building the next two pathways. The Pinfold from Deloitte on risk culture (see page 3) and Generalist pathway will be released early in 2017 Peta Stevenson, from King & Wood Mallesons; Nicole followed by the Specialist pathway mid-year. Wearne, from Norton Rose Fulbright; and Jodie Potts, from Moray & Agnew Lawyers; answer some common One point of contact for Fund Members questions about class actions and identify their key messages from the conference discussion (see page This year saw Comcover deliver additional resources 7). through the Comcover Launchpad—our Fund Member portal. The Launchpad now has all We hope you enjoy this edition of Comcover Connect. applications available via a single sign-on, including We are always keen to get feedback. Please email the Comcover Learning Centre, Comcover [email protected] to let us know what you find valuable, what topics are important to you, and what you want to read more about. Your feedback is vital to ensure Comcover Connect remains relevant and useful. The Comcover team wishes you and your family and friends a safe and happy festive season. The 2016 Comcover Insurance and Risk Conference and Awards for Excellence in Risk Management.

Ms Halton said the awards not only recognised the work of individual Fund Members, but showed good risk management was now part of the Australian public service’s DNA. ‘ Risk management is not easy. It takes time, tenacity, asking difficult questions, engaging with uncertainty, and steering a course through often uncharted waters,’ she said. ‘But we ignore good risk management practices at our peril,

Government entities that manage foreseeable risks which is why we need policies, processes and controls in place to identify and manage as many risks or challenges as through innovative processes and policies will be we can.’ She said there were no short cuts to risk culture in the best position to give taxpayers high quality excellence, particularly in the public sector where there was a strong focus services and value for money, former Department on governance, performance and accountability. It required of Finance Secretary Jane Halton says. robust but flexible risk management practices. ‘Good risk management and a strong risk culture should mean It was important for public service entities and officials to we, as policy practitioners, program implementers and service remember decisions they took every day impacted on delivery agents, deliver the outcomes that are intended and, in Australian industry and communities and to plan accordingly. A doing so, identify where the risks lie and develop strategies to poorly managed policy or program had potential to adversely engage with and manage them.’ impact on how people did business and lived their lives. Ms Halton said the quality of this year’s entrants showed the Ms Halton was speaking at the presentation of the 2016 Australian public service had a strong commitment to quality Comcover Awards for Excellence in Risk Management during risk management frameworks. the Department of Finance’s 22 September Insurance and Risk Management Conference. ‘Twenty years ago, Australian governments at all levels and in all jurisdictions did not actively practice risk management, if Awards were presented to Comcover Fund Members that they even knew what it was in those days. had demonstrated best practice risk management processes that benefited their own programs and could be shared with ‘ And just a decade ago, while risk management was other government entities. slowly becoming a common term in the public and private sector vernacular, processes were often ad hoc and The Department of Agriculture and Water Resources took included in a project or policy as an afterthought,’ Ms top honours in the risk initiative category for its export Halton said. certification reform program, and was highly commended in the enterprise- wide category for its overall commitment to ‘That is changing rapidly, and the work of government risk management policies and frameworks. entities clearly demonstrates how far we have come in a relatively short time.’ The awards recognised that the department was at the forefront of government efforts to systematically embed risk The judges’ decision to withhold an enterprise-wide winner management into business processes and service delivery. demonstrated the challenges entities faced in developing and implementing best risk management practices. The Australian Tax Office received an honourable mention in the risk initiative category for its whole-of-government business ‘ But [despite there being no winning entrant] the continuity project and its commitment to improving other entities’ recipients are great examples of strong risk cultures that risk capability structures by sharing knowledge and frameworks. demonstrate innovative approaches to implementing policy, programs and projects for the benefit of all Australians,’ Ms Halton said. She said entrants had demonstrated that good risk management was an integral part of program planning and processes, particularly through leadership, cooperation and shared best practice. Entities’ strong approach to risk management had led to the successful delivery of key government programs and services across the country. Ms Halton said the awards were important because they gave entities opportunities to learn from their peers and include winning processes into their own frameworks. ‘Sharing what we do well is critical, and is consistent with the transformation journey currently being undertaken across the Australian public service, in that we need to share more of what we do without constraining our ability to innovate,’ she said. Embedding effective risk management brings risk culture focus

By Catherine Pinfold, Manager, Risk Advisory, Deloitte

Since the global financial crisis, financial institutions have had a continued focus on risk culture. Now other sectors are being put under the spotlight, including government. All are increasingly facing regulatory pressure and media exposure over poor decision making, unconscious risk-taking and reputation-damaging incidents— these events are often attributable to a poor risk culture. The independent report into the failure of the Catherine Pinfold speaks at the Comcover Conference. government- run Home Insulation Program, which led to four deaths and hundreds of house fires, highlighted several key issues: catch-all term focusing on behaviour, ‘the way we do things • Deficient risk management around here, even when no one is looking’. However culture is more than that. • Ineffective communications Organisational psychologist Edgar Schein describes culture • Ambiguity of risk appetite in a more nuanced, layered way. His view of organisational culture identifies three distinct layers. • Responsibility and accountability found lacking. The Commonwealth’s Risk Management Policy takes a 1. Artefacts: ‘what you can see, hear and feel’ principle-based approach to improving the way government • Behaviours: Day-to-day actions entities engage with and manage risk. The overarching goal of the nine policy elements is to embed effective risk • Systems: Tangible frameworks, systems, polices and management as part of entities’ culture. approaches Three elements in particular are important when considering organisational culture: • Symbols: Interpretation of systems or observed behaviours. 2.Espoused values: ‘what people say they support’ Element 4: embed systematic risk management into business processes • Purpose: ‘Reason for being’ that guides decision-making The best policies and processes are only as good as the • Values: The organisational ‘personality’ that guides extent to which people understand and readily follow them. A behaviours. focus on risk culture helps to understand what may prevent risk management requirements being followed. Element 5: develop a positive risk culture A focus on risk culture should give insights on culture- related vulnerabilities (the one per cent or exceptions to organisational ‘norms’ of behaviour) that may result in unconscious risk taking, detrimental outcomes or an undesirable level of risk exposure. Those vulnerabilities may undermine the effectiveness of the risk management approach. Focusing on the drivers of identified vulnerabilities drives a more positive risk culture. 3. Core beliefs: ‘unconscious beliefs, thoughts Element 9: review and continuously improve the and feelings’ management of risk • How individuals see themselves, their environment and their purpose Acting on insights from the benchmarking survey reinforces a continuous improvement focus for how entities identify and • They can be activated in different situations (for effectively manage the risks to which they are exposed. example, moments of stress). Managing risk well relies on more than slavish adherence to a prescriptive risk framework; no risk framework can prescribe how to deal with every risk. At times decisions need to be made, and risks managed, in circumstances of incomplete information, inadequate resources and competing priorities. It is often an entity’s strength of risk culture that determines the extent to which risk is appropriately identified, assessed, communicated and managed in those circumstances. Continued on page 4 What is culture? There are many definitions of culture. The most common is a From page 3 Risk culture is a subset of organisational culture and subject to the same levers, but it cannot be measured the same way. Traditional culture or engagement surveys measure the 99 per cent—or the ‘averaged norms’ of behaviour. While that is important, that focus will often miss specific situations where decisions or actions manifest but are ‘averaged out’ with traditional culture measurement approaches. Risk culture focuses on the one per cent, the specific situations where staff deviate from what’s expected. The one per cent of situations are those that can get you on a newspaper front page. 99% ‘While organsational structure can be a powerful preventitive control... assessing culture through the lenses of risk, conduct and compliance is an effective detective control that surfaces organisational vunerabilities and design flaws that result in detrimental outcomes.’ 1% Grant Mackinnon, Principal Risk Culture Specialist, Deloitte

Common causes of weakness Strengthening risk culture Oversight The Minister/Secretary set and reinforce the Trying to change culture by focusing on behaviour is tone Sponsorship and role modelling of strong like trying to change the weather by focusing on the risk behaviour starts at the top and must be thermometer. You first need to understand the underlying continually reinforced through organisational drivers of behaviour—the mindset and unique moments of mechanisms, for example, performance reviews, organisational or personal stress. promotions, recognition and rewards. In many organisations the efficacy of understanding the risk Define Purpose + values = aspiration culture is undermined by the organisation’s culture itself. Code of conduct = minimum standards + Across all industries there are some common causes that can aspiration be attributed to several functions. Minimum standards of behaviour must exist and apply to all employees. Behaviour must be reinforced by managers and leaders through reward or consequence mechanisms. Implement Risk, HR and audit play key yet distinct roles. All three functions need to work together to ensure appropriate levers and assurances exist to drive a strong risk culture. Understand Multiple techniques/sources (validated externally) Several techniques are needed to assess an entity’s risk culture, including data analysis and risk culture surveys, complemented by face-to- face discussions to gather specific examples of misalignment. Influence Intervention-specificity drives impactful correction Clear specific actions focused on the root causes of a weakened risk culture will have a greater impact than just training and communications. While those things are important, it is vital to understand what is driving behaviour and actively work to remedy it. Strengthening and changing culture can feel daunting and somewhat intangible. Developing an effective risk culture starts with an entity’s most senior leaders, including self- awareness of their effectiveness and the extent to which they currently influence culture. Robust frameworks appropriate to business complexity need to be established that engage the entire organisation and there is an array of techniques entities can use to conduct ongoing and reliable assessments of culture. processing costs, and increased business operational flexibility in plant and product export industries. Dr Chris Parker, Assistant Secretary, Plant Export Operations, told Comcover Connect the trigger for the export certification reform program was an independent review of quarantine and biosecurity arrangements, One biosecurity: a working partnership. It recommended full cost recovery of export certification functions. Agriculture consulted each plant and plant-based product commodity sector and industry and government worked Reducing red tape and simultaneously saving together to implement the new model. money are just two of the key benefits from the Dr Parker said the AO model enabled ‘appropriate Department of Agriculture and Water Resources’ regulatory intervention’ and balanced risk and return. It had ‘hit export certification reform program. the sweet spot’ in achieving benefits for industry and the Australian Government. The design and implementation of the authorised officer A ‘big step’ was identifying that inspections could be (AO) model as part of the certification reform program won conducted by industry. The shared risk approach met a Agriculture the risk initiative category in the 2016 range of views, from industry participants who thought the Comcover Awards for Excellence in Risk Management. government should retain full control to ‘others who wanted The program required close consultation with industry and government right out’. Australia’s trading partners; a new authorised officer model; ‘We needed a level of assurance for ourselves and our and new certification procedures. trading partners that product being exported was high The judges said the benefits to Australia, exporters and quality and met importing country requirements,’ Dr Parker trading partners included: said. • Increased inspection timing flexibility The AO model was rolled out over four years, starting with countries known as ‘non-protocol’, meaning the levels of • Improved resource allocation and more appropriate certification they required were less onerous than ‘protocol’ regulatory intervention to improve performance and countries. compliance • Reduced departmental costs from $30 million to $21 Continued on page 6 million through transitioning staff to external AO roles • Reduced government intervention, reduced export

From left to right: Rosanna Carr; Chris Parker; Marion Healy; Daryl Quinlivan, Secretary, Department of Agriculture and Water Resources; Karina Keast; Jenny Dunn; and Jane Halton AO PSM, Secretary, Department of Finance; accept the award on behalf of the Department of Agriculture and Water Resources. From page 5 competencies were ‘not inconsistent across job functions’. Dr Parker said the AO model was now a ‘fully mature Job functions include export inspections for empty program’ with 1,024 external AOs conducting inspections containers; woodchips; logs; processed forest products; hay across all markets. and straw; grain and plant products; raw baled cotton; fruit Having external AOs meant greater flexibility in the supply and vegetables; cut flowers and foliage; tissue cultures and chain so exporters’ costs have reduced. In the past, exporters cuttings; and plants and nursery stock. had to book a government inspector, wait until one was free The model has created a niche small business career for AOs. to come onsite and conduct the inspection, then await export ‘There is risk mitigation in having full-time AOs. The riskiest approval. AOs are those who just do inspections every now and then,’ Dr One challenge in operationalising the model was ensuring Parker said. AO candidates were ‘appropriate’, that their roles and duties were very clear, and that the comprehensive audit process Most AOs were employed by exporters and some large ensured inspections were always conducted properly. packhouses had as many as 10. When conducting export inspection work, external AOs are regarded as Australian Government officials, so they must sign deeds of obligation, which outline the export service standards required of AOs and the services they can perform and provide them with protection from liability. ‘Department officials no longer see every product leaving Australia, so instead of having an inspection-based workforce, we now have an audit and verification process,’ Dr Parker said. ‘We reduced the number of departmental inspectors, and Dr Parker said trading partners took comfort from the fact the have focused on building our audit workforce. The point of phytosanitary certificates required for all exports were still control is now audit and verification and correct selection of signed by the Australian Government because Australia was ‘a AO candidates.’ trusted country with a highly developed biosecurity system’. AOs need to be ‘fit and proper’ people to do the job. Several Certification meant the Australian Government was mechanisms are in place to manage AOs’ performance. acknowledging the product met the importing countries’ AO candidates are subject to training and competency requirements. Importing countries also conduct their own assessments. audits of Australia’s biosecurity systems. Online training must be completed and the pass mark is 100 Dr Parker said lessons learnt from implementing the per cent. Trainers also conduct commodity-specific training. export certification reform program included engaging with AO appointments are reviewed every two years and subject industry early in developing the model. to AOs being audited against specific performance standards set by the department. AOs are audited every 12 months. ‘You also need to be very clear about what your real risk is. Ours is simple—product not meeting an importing country’s For example, for citrus there is basic inspection training requirements. for protocol and non-protocol countries, then specific training for cold treatment to mitigate fruit flies and metal ‘We conducted a lot of early work on quantifying the risk and bromide fumigation, which some importing countries how to mitigate it.’ require. AOs’ potential conflicts of interest were identified as a possible Since the AO model’s roll out, there had been no ‘market risk, but Dr Parker said that was resolved via the deeds of issues’ with any product, which Dr Parker said was ‘a sign the obligation, which was an agreement between the government model operates as it should’. and individual AOs, not between AOs and exporters. Since the model’s introduction, the number of AOs has ‘ That’s also why we have a very robust audit system and reduced, but many remaining AOs have multiple job functions, AOs can be subjected to penalties, not just revocation of for example, being qualified to conduct inspections across their AO authorisation,’ he said. commodities available in different seasons. Dr Parker said AO Agriculture has revoked appointments or required AOs to conduct additional training. The penalty depended on ‘the severity of the activity, if it’s deliberate circumvention of the process, rather than ignorance or a lack of understanding’. Dr Parker said Agriculture would continue to improve the audit and verification process, which underpinned the entire model. ‘Even though it’s very sound, it can never be robust enough.’ The program was not a ‘set and forget’, which he said would be a recipe for disaster. Performance monitoring tools were key to operationalising the model at a very high standard. Dr Parker said growers had indicated increased exports and significant cost reductions. For example, one cherry grower had exported two-and-a-half times more cherries in 2015-16 than the prior fiscal year and had saved about 75 per cent in costs associated with inspections. Dr Parker said growers appreciated having greater autonomy over their products; increased flexibility with inspections; and reduced red tape. Agriculture achieved greater consistency nationwide in training and inspections; and a better alignment of resources, enabling it to focus on audit and verification. Class actions trend upwards

At the Comcover Risk and Insurance Conference, three of Comcover’s legal providers participated in a panel discussion on class actions. There has a been an upward trend in class actions against the Commonwealth in recent years and Comcover Connect asked Peta Stevenson, from King & Wood Mallesons; Nicole Wearne, from Norton Rose Fulbright; and Jodie Potts from Moray & Agnew Lawyers to answer some common questions about class actions and identify a key message to highlight from the conference discussion. Peta Stevenson, Partner, King & Wood Mallesons What does it take to establish a class action? From left, Peta Stevenson, Jodie Potts and Nicole Wearne at the Comcover Conference. A class action is a court proceeding taken on behalf of a class or group of people. It is representative in nature and the class or group of non-parties represented by a named plaintiff managed through one legal team. That reduces costs will be bound by the outcome of the proceeding whether by and assists in ensuring, where appropriate, a whole-of- settlement or court judgement. government approach to the litigation. It is relatively easy to establish a class action in Australia. It • Class size—The number of potential class action members just requires seven or more people who each have a claim will impact on the resourcing required and the need to against the same person or persons; whose individual identify and collect key documents. A larger membership claims involve similar or related facts and circumstances; is likely to involve significant levels of documentation, and which involve a substantial (non-trivial) common issue particularly in seeking to understand the quantum of the of law or fact. loss alleged. • Litigation funder—A litigation funder’s involvement Are some claims more suited to class actions than influences many factors, including whether courts others? give security for costs and whether a common fund is established. It also influences settlement negotiations Claims will be more suited to resolution by a class action as the funder has usually negotiated a commission to be rather than individual proceedings if: deducted from any agreed settlement. • there is a single act, omission or contravention that causes • Legal provider relationship—Developing a good working loss to multiple parties on a mass scale relationship with the plaintiff’s lawyers assists with working • causation (proof the act, omission or contravention caused through protocols around disclosure and quantum analysis. the loss suffered) can be established without needing • Whole-of-government context—Lawyers and departmental individual or uncertain evidence staff must work closely to ensure broader policy and reputational implications of a potential settlement or • the loss is readily quantifiable and can be established judgement are understood. That aspect is critical to without the need to determine individual issues. determining the course the litigation will take. Key message • Determine the lines and methods of communication—Class action litigation is fast moving and high profile. Ensure Engage all stakeholders early. Consider (a) which protocols are in place to escalate sensitive issues arising government entities are or may become defendants and from class action litigation with other stakeholders to how to manage their different interests; (b) whether other enable all involved in managing the litigation to be informed entities may have and prepared. a broader interest in the proceeding; and (c) who needs to be • Early evidence gathering—Early identification of key briefed on developments in the case. witnesses and relevant documents is critical to developing Agreeing early on a strategy and the mechanisms for decision the litigation strategy and allocating resources. making on a class action can reduce the management Key message time required, save costs and optimise the outcome for the government. Class actions require detailed planning and management to obtain the best outcome for all parties. Appointing lawyers Nicole Wearne, Partner, Norton Rose Fulbright with strong class action experience and a good understanding of government operations will produce the best results. What factors should be considered in developing a Collaboration is critical. litigation strategy when defending a class action? Fund Members working together as a team with Comcover Being a defendant to any proceeding requires an and the lawyers will ensure all stakeholders are focused on the understanding of court process and the facts and legal litigation strategy. The litigation strategy should be regularly principles central to the claim. As a class action defendant, reviewed to ensure new information is considered, and any the same issues arise but the resources required to manage changes accommodated, with stakeholder agreement. the scale of the litigation are often not anticipated. Early consideration of the defence strategy to be adopted will Continued on page 8 enable better planning and management of the demands of large-scale litigation. The litigation strategy should consider: • Single or multiple defendants—Representation of multiple defendants involved in one legal dispute is often best From page 7 Jodie Potts, Partner, Moray & Agnew Lawyers Events calendar 2017 How are most class actions resolved? Once procedural formalities (for example, proper definition of the class and advertising opt-out notices) are finalised, the court will actively manage the litigation and usually require (by order or agreement) the parties to attend mediation. Most class actions are resolved at mediation or some other form of alternative dispute resolution. Class actions rarely proceed to a judgement. What is required to dispose of proceedings? A representative proceeding cannot be settled or discontinued without court approval. When applying for approval, the parties need to persuade the court the proposed settlement: • is fair and reasonable in regard to the claims made on behalf of group members who will be bound by the settlement • is in the interests of the group members. Once a settlement has been approved, the court oversees distribution of the settlement funds. The process may be lengthy with numerous court applications and potentially a managed compensation scheme. Key message Given a settlement binds group members who are not parties to the proceedings, courts will not simply rubber stamp settlements reached by the parties. Group members may object to a proposed settlement so their concerns are considered by the court. Courts will not approve a settlement if it is considered it will not operate fairly and reasonably.

To learn more about how to access Comcover’s services, email [email protected] or call 1800 651 540.

Disclaimer: Comcover Connect provides general information for the benefit of Fund Members. Comcover does not guarantee, nor accept legal liability arising from or connected to, the accuracy, reliability, currency or completeness of any material contained in Comcover Connect. Fund Members are asked to evaluate the accuracy, currency, completeness and relevance of the material this newsletter contains for their purposes. Comcover Connect is not a substitute for independent professional advice and Fund Members should obtain appropriate professional advice relevant to their particular circumstances.