The Department of Human Services (DHS) payment system poses a "significant risk to a core function of government", the National Commission of Audit has said in its report released today.
The payment system handles AU$400 million in payments each day, delivers over 200 different services for more than 20 commonwealth and state agencies, with the Commission estimating that the cost of replacing the system would be in the range of AU$1.2 billion to AU$1.5 billion.
"The Income Security Integrated System was developed to calculate and administer social welfare payments nearly 30 years ago," the report said.
"It is written on now defunct information technology codes, is inflexible and expensive. The system adds significant costs for processing payments, maintaining the ICT system, producing letters and responding to appeals and reviews, and it increases the need for debt recovery."
Funds for the creation of a strategy to replace or upgrade the system were allocated in the 2013-14 budget, with AU$16.2 million set aside for the business case that is due by 2015.
Australian Treasurer Joe Hockey said this week that the system is run down, aging, and in bad shape.
"The two most important computers arguably in the Government are the mainframe for the Australian Taxation Office and the mainframe for Centrelink," he said.
In concert with developing a replacement, the commission emphasised the need for government payment processes to be simplified and for changes to payments to be more easily adjusted.
"The complexity of the current system arises from a multitude of policy decisions about the structure and goals of the welfare system and ad hoc changes to payments over decades," the commission said in the report. "Many of them are enshrined in legislation."
"According to the Department of Human Services, the largest driver of complexity in technology and cost is the system's magnitude, which has 34 payments and 38 add-on payment types."
The report said that even with a simpler payment structure, redesigning the system would involve expertise from both the public and private sector.
"The Commission considers that the Government should appoint a highly credentialed business technology expert to oversee the new system design, working with experts from the Department of Human Services."
The prospect of outsourcing the system was raised in the report, with the touted benefits of such a move being increased effectiveness, efficiency and lower cost. Any move in this direction would be complicated by the need to simplify the system, ensure the protection of citizen rights, and the quality of any requirements scoping, the report said.
"Specialist outsourcing providers prefer high volume, low complexity stand-alone activities because they are generally low risk and can be managed relatively easily," it said.
"Experience also indicates that outsourcing works best where the required service can be easily specified and monitored and where a competitive market of potential suppliers exists independently of government patronage."
The commission warned that taking the outsourcing route would not "exempt government and ministers from responsibility for failures", and that it would require very careful consideration.
"The commission recognises outsourcing of the payments system arrangements would be a substantial and potentially high risk undertaking," it said.
"This would include a judgement on whether the assessment of entitlements is an appropriate activity for outsourcing; whether outsourcing should be confined to the development and maintenance of the replacement for the Income Security Integrated System, or whether the payment mechanism only should be outsourced."
Outsourcing the assessment of entitlements was not supported by the commission and it suggested that the market be tested for delivering other parts of the payment system.
"A scoping study should be developed, informed by the advice of a business technology expert," the report said.
In 2012, DHS ended its outsourcing arrangements with HP and IBM, with CIO Gary Sterrenberg saying at the time that the move was about "value creation".
"Harvesting that value is what we're going to be doing in the next two to three years," he said.
Beyond the Department of Human Services, the report recommended the staged adoption of shared corporate services across the federal government.
"All Commonwealth agencies perform common corporate functions, such as paying employees and preparing financial statements. Given these activities are common across government, there is scope for economies of scale to be achieved, both in the procurement of back-office technology and service delivery."
In a similar tone to its recommendation for a greater uptake of cloud computing services in government, the report lamented the use of bespoke IT system throughout commonwealth agencies.
"Even where agencies have off the shelf systems, they often differ. For example, many agencies use the SAP enterprise resource planning software — there are more than 40 versions of the package currently in use."
It was recommended that the public service standardise its corporate processes to improve purchasing power and allow a move to shared services to reduce costs and increase efficiency.
"Any approach to shared services will need to be carefully researched and appropriately implemented. A key lesson from other jurisdictions is that standardising business processes is a necessary pre-condition to successful shared services projects and provides efficiencies just as significant as those gained from economies of scale."
The report said that an audit should be made on the public sector's support services, and the Department of Finance create a register of business systems to stop agencies from rebuilding the wheel.