Utility regulator OfReg’s first three years in operation have been plagued by a lack of strategic planning, little oversight and inconsistent leadership, according to a performance audit released by the Office of the Auditor General on Monday.
The Utility Regulation and Competition Office was established in January 2017 under the Utility Regulation and Competition Law by merging the regulatory functions of four existing organisations – the Electricity Regulatory Authority, the Information and Communications Technology Authority, the Petroleum Inspectorate and part of the Water Authority.
But the lack of effective planning for the merger created problems for the regulator from the outset.
Value for money
Even before the performance audit, which should be carried out every three years, the auditor general had raised concerns about a lack of policies and procedures and the wasting of public money.
The report confirmed that from 2017 to 2019, OfReg spent $1.72 million on consultants without always following its procurement manual. The regulator spent $414,000 on official travel over two years without a spending policy, and wasted $355,000 leasing a property that it never moved in to.
“I have identified a number of weaknesses in relation to spending and poor value for money through this audit and our financial audits in 2017 and 2018,” Auditor General Sue Winspear said in a press release. “I am pleased to note that spending on consultants and travel has reduced significantly in 2019 and policies and procedures have now been put in place that will help to control spending and demonstrate value for money.”
The report reviewed OfReg’s legal framework and governance; strategy and performance; value for money; and the impact of its regulatory decisions.
While the report concludes that the legal framework is generally clear, it notes certain inconsistencies and conflicts in laws that need to be fixed.
“OfReg has had a difficult first few years with, among other things, inconsistent leadership and limited governance and oversight,” Winspear said. “A number of the challenges it faced can be attributed to the merger being poorly planned in the first place.”
The regulator’s five-year strategic plan developed in 2017 was a good start but it contains several gaps, the audit found, mainly because it does not use performance measures or any connection to financial plans.
“The overall aim of the audit was to assess the efficiency and effectiveness of OfReg,” Winspear said. “However, this has proven impossible to do due to a lack of performance measures and no systems being in place for tracking progress or reporting performance.”
The report said organisations achieve better results and improve their performance when they have well designed performance measures and targets in place and can take corrective actions as a result of effective monitoring and reporting.
Even though utility regulation should serve to achieve a number of objectives, such as consumer protection, so far, OfReg has not carried out any regulatory impact assessments (RIAs). While OfReg’s regulatory approach does include some of the elements that would be found in an RIA, the report said, the majority of its decisions have no effect on consumer protection.
Consumer protection regulations, planned to be completed by 2019, have not been implemented.
The audit also criticised the governance of the regulatory body.
Initially, some decisions were made in the absence of a full board with only two voting members – the chair and the chief executive officer. These decisions should have been subject to more scrutiny, the report noted.
In the current board structure, the traditional roles and responsibilities of non-executive board members and senior management are blurred, because all executive directors are full non-voting members of the board.
Rather than provide strategic direction and holding management to account, the board spent much of its time dealing with merger issues and the vacant CEO position, the report found.
Although OfReg should have a risk and audit subcommittee, it was only recently created and has never met. In any case, the regulator does not have an internal audit function, “so it is not clear how the Risk and Audit sub-committee will get the assurances that it needs on the internal control framework”, the report stated.
Winspear said, “The board has not always functioned as we would expect, although governance and oversight have improved over the three years.”
The auditor general has made several recommendations to strengthen governance which will require legislative changes.
Winspear concluded that “OfReg is still a young organisation and I am pleased to note that it has addressed some and is in the process of addressing many of the issues that it faced in the early days.”
Malike Cummings, who was appointed CEO of the multi-sector regulator in late 2019, admits that while the entity has come a long way, more remains more to be done.
In a press release, he said OfReg faced significant challenges from the start due to the absence of a comprehensive change-management plan. The effects continue to impact the regulator today.
“The entity is young and requires time to build and mature to fully satisfy its regulatory remit and inculcate core values and established positive culture,” Cummings said.
He said OfReg had significantly reduced its spending on consultants and overseas travel, with strict policies now in place.
In addition to establishing the implementation of the audit and risk committee, OfReg has hired a full-time financial controller to improve its financial accounting and reporting.
Cummings said OfReg’s regulatory decision-making process uses elements of regulatory impact assessments. A robust framework will be implemented shortly and the creation of Consumer Protection Regulations for all sectors is also in its final stages, he added.
Read the full report here.