A federal audit has found that the majority of large Commonwealth contracts designed to support Indigenous employment and enterprise have failed to comply with core requirements of the Indigenous Procurement Policy, raising concerns over oversight, exemptions and accountability within the National Indigenous Australians Agency.

The Australian National Audit Office reported that 1,475 federal contracts, with a combined value exceeding $70 billion, were granted exemptions from the Indigenous participation requirements between 2016 and 2023. These rules require that at least three percent of a contract's workforce be Indigenous, or that an equivalent value be spent on goods or services sourced from Indigenous-owned businesses.

The policy applies to contracts valued above $7.5 million, provided that more than half of the contract value falls within one of 19 designated sectors, including construction, healthcare and environmental management.

According to the audit findings, close to 70 percent of applicable contracts were exempted from the Indigenous participation rules. In many instances, exemption decisions were poorly documented. A third of these exemptions cited "other" as the reason, without providing further clarification.

Compliance monitoring was also found to be limited. Only 21 percent of contracts subject to the participation rules were reviewed for compliance. Among those, just one in four was found to have met the requirements.

Auditors concluded that the high rate of exemptions and the low level of compliance checks significantly undermined the objectives of the Indigenous Procurement Policy. The audit also found that the NIAA had not updated its contractor guidance materials since July 2020, despite changes to federal reporting requirements during that period.

The NIAA is responsible for administering the policy and coordinating Indigenous procurement across Commonwealth agencies. It was established in 2019 and operates under the Department of the Prime Minister and Cabinet.

This latest audit follows a 2023 report from the same agency that identified widespread weaknesses in contract oversight, fraud prevention and risk management within the NIAA. That report recommended seven reforms, all of which the agency agreed to adopt. Minister for Indigenous Australians Linda Burney also directed the agency to establish a dedicated "Integrity Group" to strengthen internal governance. The group has not yet been established.

A government spokesperson said the agency was working to implement the new recommendations and improve compliance across the system.

"The NIAA is progressing reforms to enhance guidance, training and technology systems to support more robust administration of the Indigenous Procurement Policy," the spokesperson told Indigenous Business Review.

The spokesperson also pointed to reforms announced by the government in 2024 to tighten eligibility criteria and improve transparency for Indigenous suppliers. Since its inception, the policy has resulted in the awarding of more than 80,000 contracts to Indigenous businesses, valued at $11.4 billion.

Opposition spokesperson for Indigenous Australians Senator Kerrynne Liddle called for a full review of the policy, including how Indigenous businesses are defined for procurement purposes.

"It is clear the current policy settings are not achieving their intended purpose," Senator Liddle said. "We must strengthen safeguards against black cladding and ensure genuine Indigenous participation in Commonwealth contracting."

Independent Senator Lidia Thorpe also raised concerns about the lack of accountability for exemptions.

"When most contracts are exempt and almost none of the remainder are reviewed, that is a systemic issue," she said. "The government must disclose who approved the exemptions, why they were granted and whether they align with the policy's original goals."

NIAA Chief Executive Jody Broun wrote to the Auditor-General in May 2023 confirming that the agency would implement the original audit's recommendations. However, the ANAO's latest review found significant gaps in the handling of fraud investigations and closure processes.

Five fraud investigation closure reports were reviewed by auditors. Of those, three had not been approved by a senior officer, one was undated and most did not include documentation of lessons learned. No performance metrics for fraud investigations were tracked between July 2020 and December 2022.

In the 2021–22 financial year, the NIAA funded over 1,000 external providers to deliver around 1,500 activities under the Indigenous Advancement Strategy, at a cost of $1.03 billion. The IAS is the primary Commonwealth framework for delivering programs aimed at improving outcomes for Indigenous Australians.

Ms Broun has since announced she is stepping down as Chief Executive of the Agency.

A case study in the audit detailed a fraud allegation involving improper loans made to senior executives of an Aboriginal corporation using Commonwealth grant funds. The NIAA initially chose not to pursue a formal investigation, citing difficulty in verifying the source of funds, the relatively low amount of money involved and improvements in governance under new leadership. The case was later reconsidered when it was found that the value of the alleged misuse may have been higher than initially reported.

The Noongar Chamber of Commerce and Industry said the audit confirmed longstanding concerns from Indigenous businesses about insufficient oversight in federal procurement. Chairperson Gordon Cole said Indigenous businesses would continue to engage constructively with the system while pressing for improvements.

"It is concerning that standards of reporting and anti-fraud measures remain inadequate," Mr Cole said. "Australia has the capacity to manage these processes effectively, and we expect government agencies to meet that standard."

The ANAO's latest report made seven recommendations to improve policy administration, transparency and compliance. The NIAA has agreed to implement six of them in full and the majority of the seventh. Planned actions include updated contractor guidance, expanded staff training and upgrades to digital systems used to track participation data.

Auditors noted that the use of exemptions continues to increase. While some were found to be valid, others lacked a clear rationale or supporting documentation. The report concluded that the excessive and poorly managed use of exemptions impairs the policy's capacity to deliver meaningful economic outcomes for Indigenous Australians.