International Journal of Public Sector Management

Australian Federal Police drug investigations: benefit-cost analysis

Michael McFadden Toni-Lee Porter
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IJPSM
24,4 Australian Federal Police drug
investigations: benefit-cost
analysis
368
Michael McFadden
Social Research Centre, The University of Queensland, Brisbane, Australia, and
Toni-Lee Porter
Australian Federal Police, Canberra, Australia
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Abstract
Purpose – The purpose of this paper is to assess the social impact, i.e. the estimated return to the
Australian community, of Australian Federal Police (AFP) drug law enforcement effort in general and
the relative success of specific policy initiatives.
Design/methodology/approach – Benefit-cost analysis (BCA) was employed in the assessment of
2,716 drug investigations that took place between 2000 and 2005. Costs associated with the Australian
Customs Service, the legal process and prisons were included. Benefits related to the economic
estimate of reduced harm in terms of death and injury, crime, reduced productivity, and pain and
suffering associated with the use of illicit drugs.
Findings – The results suggest that the Australian community receives $5.80 of benefit in terms of
potential harm avoided for every dollar invested in drug law enforcement. Specific policy initiatives
were found to result in higher than average returns: investigations involving domestic and
international partners ($6.00 and $9.20 respectively), an emphasis on serious and complex crime
($9.20), and intelligence-led policing ($7.90).
Research limitation/implications – The estimation of economic benefits is the most contentious
area of the study. The AFP is undertaking a review of its estimation of benefits.
Originality/value – The results suggest that AFP drug law enforcement provides a positive
contribution to the wellbeing of the Australian community. Furthermore, the findings indicate that
specific drug law enforcement initiatives enhance the relative effectiveness of drug law enforcement in
Australia. The study also provides an example to other public sector agencies of the use of BCA to
determine the social impact of their policies.
Keywords Performance measurement (quality), Cost benefit analysis, Law enforcement, Drugs,
Australia
Paper type Research paper

1. Introduction
The demands on government are many and varied. Not all needs can be met, nor all
community expectations satisfied within available funding. As such, governments
must have some means of prioritising competing demands and public sector agencies a
means of assessing the potential costs and benefits of competing courses of action.
Recently the Australian government has formally adopted a position that government
International Journal of Public Sector policy should generate the greatest net benefit to the Australian community (Office of
Management Best Practice Regulation, 2009) and such a position is in line with both practice in other
Vol. 24 No. 4, 2011
pp. 368-378 countries and commonsense. The difficulty, of course, lies in demonstrating the
q Emerald Group Publishing Limited potential or realised value to the community of government regulation, policy or
0951-3558
DOI 10.1108/09513551111133506 services. In general, the costs associated with any proposed or current course of action
 can be readily quantified as they are part of an agency’s budgetary process (Australian AFP drug
Federal Police, 2005, 2006b). The most significant hurdle that any agency faces in investigations
making such assessment is in the estimation of benefits, especially where these
benefits lie primarily in the future. This paper outlines and evaluates an approach for
measuring the community benefits of one element of Australian government policy,
viz. drug law enforcement, and comparing these benefits to the costs. It is essential in
any such undertaking that the method and the assumptions are wholly transparent 369
(Office of Best Practice Regulation, 2009). It should be noted that all figures are in
Australian dollars.

2. Background
Drug policy is a suitable example to discuss the issues surrounding the assessment of
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the social impact of policy. It has generated considerable public debate and there is
only moderate consensus across stakeholder groups as to the preferred policy
approach for addressing the issues of drug abuse: options from zero tolerance to
legalization have been vigorously debated (Transform Drug Policy Foundation, 2009;
Wodak, 2003).
The damage associated with drug abuse worldwide is well documented. According
to the United Nations (2006), the negative impacts of illicit drug use affect every society
in the world and every level of human security from individual health to community
safety and social welfare. The United Nations (2006) has estimated that 200 million
people worldwide used illicit drugs in 2005 and that 25 million of these were problem
drug users. Collins and Lapsley (2002) have estimated the social cost of drug abuse for
a single year in Australia at $6.1bn.
Government programs that address illicit drug abuse and addiction are necessarily
expensive, and drug law enforcement is no exception (Collins and Lapsley, 2002).
Nevertheless, most governments are strongly committed to fighting the illicit drug
problem. Funding of drug law enforcement must compete with a wide range of other
priorities in a rapidly changing environment where new challenges such as terrorism
and regional instability have emerged (Australian Federal Police, 2005). To that end,
governments expect the resources they invest in law enforcement to be directed to the
highest priority areas and that these services are delivered in a cost effective manner.
One approach the Australian Federal Police (AFP) has used to demonstrate the
value of significant activities within its functions is benefit-cost analysis (BCA). BCA is
widely used in the public sector as a means of assessing the relationship between the
inputs to a program and the outputs or outcomes realised, measured in monetary terms
wherever possible. Its application to law enforcement activities is relatively recent and
certainly diverse. A number of studies have focused on specific activities; for example,
Crew and Hart (1999) analysed the costs and benefits of police pursuits; Greasley (2001)
examined the cost effectiveness of police custody; and Hooke et al. (1996) evaluated the
cost effectiveness of speed cameras. Other studies have addressed the issue of police
costs in general (Edmonds and McCready, 1994; Stockdale et al., 1999). To date the
AFP has commissioned benefit cost analyses of drug law enforcement (McFadden et al.,
2002), the investigation of economic crime (McFadden and Mwesigye, 2002) and the
protection offered to Australian and non-Australian office holders (Centre for
International Economics, 2004). The current paper extends the use of BCA as a tool for
the measurement of specific policy initiatives in law enforcement. It replicates the
 IJPSM AFP’s earlier study into the overall effectiveness of drug law enforcement (McFadden
24,4 et al., 2002) and extends its scope to examine three important elements of the AFP’s law
enforcement strategy.
The AFP’s role in drug law enforcement, as in many other areas, is not that of a
typical community police force. Australian state/territory police agencies provide the
great majority of services that most would associate with modern policing:
370 investigation of property crime and crime against the person, traffic policing,
security at large public events, and safeguarding communities. The AFP is concerned
specifically with federal law relating to national security issues including border
protection, counter terrorism and peacekeeping. In the case of drug law enforcement,
the AFP is primarily concerned with the large-scale importation of illicit drugs or their
precursors into Australia by organised crime. This role has affinities with the Drug
Enforcement Administration in the USA and the Serious Organised Crime Agency in
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the UK. A minor part of this role will include individuals attempting to import small
amounts of illicit drugs for personal use, who are usually detected as they pass through
immigration/customs at airports or sea ports. Day-to-day offences relating to
trafficking and drug use are usually dealt with by state/territory police, as is the
manufacture and/or cultivation of illegal drugs within the country.
The AFP has adopted three specific policies to enhance the effectiveness of its law
enforcement operations. First, the AFP has sought to develop of strategic partnerships
with agencies domestically and internationally to prevent and combat complex crimes
(Australian Federal Police, 2006a). With respect to drug law enforcement, the AFP has
a close partnership with the Australian Customs Service (ACS) to combat the illegal
importation of drugs. Internationally, the AFP has developed close links with regional
agencies to prevent the importation of illicit drugs into Australia either at the source
country or some other point prior to actual arrival in Australia (Australian Federal
Police, 2005).
Second, the AFP has committed itself to the most effective use of AFP resources by
concentrating its efforts on serious and complex crime that has a major impact on
Australian society (Australian Federal Police, 2006b). In practice, the AFP seeks to
disrupt large-scale importations of illicit drugs into Australia as an effective strategy
for reducing the availability of illicit drugs in the community. Previous research has
demonstrated that reduction in availability of illicit substances reduces the level of
social and individual harms associated with these drugs (Caulkins, 2001; Darke et al.,
1999; Smithson et al., 2005).
Third, the AFP has increased and improved its intelligence function to ensure that
the AFP is an intelligence-led law enforcement agency. Intelligence is an integral part
of the investigative process and in the prevention of criminal activities, and an
essential precursor to most significant AFP operations (Keelty, 2004). The current
study attempts to quantify the success of these individual policy initiatives with
respect to drug law enforcement.

3. Methodology
Benefit-cost analysis is a quantitative method used to assess the economic success of a
program. Two of the most common BCA tools, i.e. return on investment (ROI) and net
present value (NPV), are used in the current study. Both measures require the
estimation of the benefits and costs associated with a program. NPV provides the
 discounted net value of the program in absolute terms. It is computed by converting AFP drug
the program benefits and costs to their current year value by applying a discount (or investigations
interest) rate for each year (Rolstadas, 1995). NPV is calculated as follows:
ðB2 2 C 2 Þ ðB3 2 C 3 Þ ðBn 2 C n Þ
NPV ¼ ðB1 2 C 1 Þ þ þ 2
þ ... ;
ð1 þ i Þ ð1 þ i Þ ð1 þ i Þn21
where B1 are the benefits in year 1, C1 are the costs in year 1, B2 . . . Bn are the benefits
371
in year 2 to year n, C2 . . . Cn are the costs in year 2 to year n, i is the annual interest rate,
and N is the number of years the of program’s life.
While NPV is an absolute measure of the return provided by a program, ROI is a
relative measure of its benefits. It is the ratio of total benefits to the total investment
(Rolstadas, 1995). ROI is calculated as follows:
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B1 þ B2 =ð1 þ i Þ þ B3 =ð1 þ i Þ2 þ . . .Bn =ð1 þ i Þn21

ROI ¼ :
C 1 þ C 2 =ð1 þ i Þ þ C 3 =ð1 þ i Þ2 þ . . .C n =ð1 þ i Þn21
Good or profitable programs will have positive NPVs and ROIs greater than one. These
techniques are discussed more formally in the original study (McFadden et al., 2002) and
by the Office of Best Practice Regulation (2009). As both costs and benefits occurred over
a number of years and some (such as prison costs) can accrue up to 20 years into the
future, a discount factor of 5 per cent, based on the ten-year bond rate (Australian Bureau
of Statistics, 2006), was applied. (Again, the interested reader is referred to Office of Best
Practice Regulation, 2009, for a detailed discussion of discount rates).
A summary of the components of cost and benefits and sources of the data is given
in Table I.

4. Estimating the benefits of drug law enforcement

The measurement of benefits is perhaps the most problematic part of any BCA and
may require independent research. The benefits associated with drug law enforcement
are measured by attaching specific harms measured in economic terms to specific drug
types. Thus, for a standard quantity of any drug, there is an associated amount of
potential harm. The seizure of the drug will prevent this harm from being realised.
A method for relating reduced harm to drug seizures was developed by the AFP and
is referred to as the AFP Drug Harm Index. Readers interested in the detail of the index
should consult McFadden (2006). In short, the index is based on the Collins and Lapsley
(2002) study of the social cost of drugs in Australia. That study estimated the total
harm associated with drug use in a single year was $6.1bn. It included drug-related
crime ($2.5bn), lost productivity ($1.3bn), death, pain and suffering and other
intangibles ($1.0bn) with the remainder spread over health and other costs. That the
total amount of illicit substance consumed per annum is responsible for the observed
harm in that year is consistent with the method adopted by Collins and Lapsley (2002).
Using existing sources, McFadden (2006) allocated the Collins and Lapsley (2002) cost
estimates to classes of drugs and used previously published estimates of consumption
to derive an average amount of harm associated with a given quantity of drug. For
example, one kilogram of heroin is estimated to cause $1.1m of harm, whereas one
kilogram of cannabis is estimated to be responsible for approximately $25,000 of harm
(McFadden, 2006).
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24,4

372

Table I.
IJPSM

short description
collection period,
discount applied and
benefits, data source,
Component costs and
Data source Collection period Discount applied Short description

Costs
AFP investigation costs AFP time recording 2000-2005 Yes Used total hours multiplied by average $ cost per
hour
AFP support costs AFP time recording 2000-2005 Yes Used total hours multiplied by average $ cost per
hour
Estimated ACS costs Estimated 2000-2005 Yes Used Collins and Lapsley (2002) estimate
Legal – prosecution DPP 2000-2005 Yes Cost of prosecution per offender derived from
Annual Report statistics
Legal – defence Estimated 2000-2005 Yes No direct estimate available. Assumed equal to twice
DPP costs per offender
Legal – court Productivity Commission 2000-2005 Yes Productivity Commission estimate of costs adjusted
by proportion of offenders
Prison Productivity Commission 2000-2025 Yes Productivity Commission estimate of cost of prison
per offender

Benefits
Harm avoided – drug seizures AFP drug seizures 2000-2005 No Drug seizures converted to estimated harm avoided
using AFP Drug Harm Index
Harm avoided –deterrence AFP drug seizures 2000-2005 No Estimated as 10 per cent of harm associated with
drug seizures
 Preventing illicit drugs from entering the country prevents the ensuing harms from AFP drug
occurring and so the social, health and economic impact of drug seizures can be investigations
calculated using the AFP Drug Harm Index. The interested reader is referred to
Roberts et al. (2006) for a detailed discussion of drug harm indices and their uses. It is
important to note that the estimation of benefits can be complex and may require quite
separate strands of research. The AFP is currently undertaking the third revision of
the DHI since its inception in 2001. 373
For the purposes of this study, the benefits of drug law enforcement were calculated
in terms of the AFP Drug Harm Index value of AFP drug seizures for the five-year
period 2000-2001 to 2004-2005. The Australian Standard Classification of Drugs of
Concern (Australian Bureau of Statistics, 2000) was used to classify the seizures
according to the type of drug seized. Consistent with groupings used by Collins and
Lapsley (2002), each seizure was then grouped into one of four categories:
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(1) cannabis;
(2) opioids;
(3) stimulants; and
(4) other.

The total weight of seizures in each category was multiplied by the average harm
associated with a kilogram of that substance as identified by the Drug Harm Index.
The estimated direct benefit of AFP drug investigations between 2000/2001 and
2004/2005 was $1,595.9m.
The current study also took into account the deterrence effect that may be derived
from prosecuting individuals who attempt to import illicit drugs into Australia;
however, it should be noted that the value of any deterrence effect is particularly
difficult to estimate. Using time series techniques, Smithson et al. (2005) estimated the
lagged impact of AFP heroin seizures on the availability of heroin. Extrapolating
cautiously from these results, this study employed an estimated deterrence effect of 10
per cent of the direct impact, i.e. a seizure of 100 kg of heroin now would reduce future
importations by 10 kg. Deterrence of future importations is a secondary and not very
strong effect of drug seizures in the present. It should be noted that this refers to
large-scale importations into Australia, not to everyday trafficking within the country.
On this basis, the estimated deterrence effect of drug investigations between 2000-2001
and 2004-2005 was $159.6m.

5. Estimating the costs of drug law enforcement

Generally, the cost of providing an effective law enforcement program is high and the
components need to be identified. For the purposes of this study, the major cost
components of drug law enforcement activity were identified as policing, the legal
system and prisons.
There are two major components to federal policing activity:
(1) a detection and prevention service provided by the ACS; and
(2) an intelligence and investigation service provided by the AFP.

Costs associated with AFP investigations are reasonably easy to estimate. The AFP
has in place an internal time recording system that allows its members to attribute time
 IJPSM directly to the case they are working on. The operational resources allocated to drug
24,4 investigations can be accurately determined from these time records. In addition, each
investigation is augmented by a number of support activities such as intelligence,
forensic services and surveillance. Hours from these activities were also included in the
analysis. For internal pricing purposes, the AFP has developed an estimate of the
average cost per hour worked on investigation. This estimate includes overheads and
374 was $103 per hour worked as at June 2005. This price was applied to operational and
support hours worked on drug investigations between 2000/2001 and 2004/2005. On
this basis the total discounted cost of AFP drug investigations was $157.4m.
The other key component of policing is the service provided by the ACS. No direct
estimates of ACS costs are available and the current study depended on previous
research to develop an estimate of these costs. Collins and Lapsley (2002) estimated
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ACS expenditure on illicit drugs investigations at 21 per cent of that of the AFP in the
year studied. Assuming that the relationship between AFP and ACS costs has
remained constant, ACS costs were set at 21 per cent of total AFP operational costs,
which equated to $33.3m.
Another key cost component is the operation of the courts in relation to illicit drug
prosecutions. There was no direct attribution of costs to drug-related cases available at
the time of the study. Instead, attempts were made to locate overall expenses relating to
particular legal activities and the number of defendants processed to produce a unit
cost per defendant. This approach was possible with respect to Director of Public
Prosecutions (DPP) and court costs. The value of DPP cases were calculated using the
2002/2003 Commonwealth DPP expenditure ($61.3m) divided by the total number of
defendants convicted in that year, i.e. 4,308 (Commonwealth Director of Public
Prosecutions, 2003). A discount factor of 5 per cent was assigned to align the values to
2005. The DPP cost per defendant was rounded to $15,000 per offender.
Total court costs for 2002-2003 were also available but not the number of offenders.
Assuming that the relative amount of work between the DPP and the court remained
constant, an average cost per offender was calculated using the average DPP cost of
$15,000 per offender multiplied by the ratio of total Court costs, $468.1m (Productivity
Commission, 2006), to total Commonwealth DPP costs of $61.3m to give an average
court cost of $35,000 per offender.
It was not possible to estimate defence costs by the above method. In the absence of
other guides, it was assumed that defence costs were double DPP costs. Similarly,
appeal costs could not be directly inferred. Where a full appeal was made, legal costs
(i.e. DPP þ defence þ court) were doubled, and where the appeal was against the
severity of the sentence, the legal costs were increased by 50 per cent. On these
assumptions, the total discounted cost of legal process from 2000/2001 to 2004/2005
was estimated at $29.4m.
The cost of maintaining prisons is the final cost associated with drug law
enforcement. During the period 2004/2005, 1,291 individuals were charged with
drug-related offences and 271 received prison sentences ranging from 17 days to 20
years. The average cost per prisoner was $79,570 per year (Productivity Commission,
2006). Prison costs for convictions in the current study totalled $82.8m following
appropriate discounting of costs.
 6. Results AFP drug
Table II summarises the results for the AFP as a whole and for each strategic approach investigations
to drug law enforcement. In total, there were 2,716 cases, of which 90 per cent were
investigations and 10 per cent intelligence-collection cases. For the $302.8m invested in
drug investigations over the five-year period since July 2000, the estimated NPV was
$1,452.7m. The ROI for the same period was estimated at 5.8.
375
6.1 Strategic partnerships
The study was able to isolate investigations involving the AFP’s major domestic
partner in drug law enforcement, the Australian Customs Services. Of the 2,716 drug
investigation cases over the five-year period, 1,936 were referred by the ACS. These
investigations provided a benefit of $1,067.9m at a cost $177.5m over the five-year
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period, with an estimated NPV of $890.4m and ROI of 6.0.

Cases involving the AFP’s international posts are indicative of the value of
international partnerships. In 2005, there were 31 posts with 62 officers in 26 countries
(Australian Federal Police, 2005). The international network was involved in 314 cases
over the period at a cost of $174.1m. The resulting benefit of $1,607.8m provided a NPV
of $1,433.7million and ROI of 9.2.

6.2 Serious and complex investigations

The AFP through its Portfolio Budget Statement sets a target for the allocation of its
resources against crimes with a high impact on Australian society (Australian Federal
Police, 2006b). There were 371 such investigations during the period of the study.
During that time, costs were estimated at $175.3m and benefits at $1,606.0m, resulting
in a NPV of $1,430.7m and ROI of 9.2. By way of comparison, matters otherwise
classified (investigations with a minor or medium social impact) returned a NPV of
$22.0m and an ROI of 1.2.

6.3 Intelligence-led policing

The AFP is committed to intelligence led policing (Keelty, 2004). From 2000-2001 to
2004-2005, there were 277 cases devoted specifically to illicit drug intelligence. This
intelligence contributed to 506 investigations during the period. For the $197.4m
invested in AFP intelligence, the estimated NPV was $1,359.4m and the ROI 7.9.

No of cases Costs ($m) Benefits ($m) NPV ($m) ROI

Whole of AFP 2,716 302.8 1,755.5 1,452.7 5.8

Partnerships
ACS 1,936 177.5 1,067.9 890.4 6.0
International 314 174.1 1,607.8 1,433.7 9.2 Table II.
Summary of results:
Serious and complex crime 371 175.3 1,606.0 1,430.7 9.2 number of cases, costs,
Intelligence-led 277 197.4 1,556.8 1,359.4 7.9 benefits, NPV and ROI
 IJPSM 7. Discussion
24,4 The study has limitations. While all efforts were made to provide informed estimates of
the costs and benefits related to federal drug law enforcement it should be borne in
mind that the attribution of benefits and costs is at best an inexact science. Certainly,
there is room for further discussion on measuring the harm associated with illicit drug
use. As Roberts et al. (2006) noted there has been significant achievement in this area,
376 including the AFP Drug Harm Index, yet there is room for further development. As
noted previously, the AFP has initiated a review of its own Drug Harm Index.
A second concern relates to the accuracy of cost data from other service providers.
While the AFP has in place systems to account for its expenditure against illicit drug
matters other authorities do not. The accuracy of the final estimates would be much
improved by more accurate data from those authorities. Third, it should be noted that
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the estimate of benefits is conservative. In order to collect all relevant information the
study was restricted to cases that began and finished within a five-year period. Drug
investigations with the largest seizures result in protracted court cases and thus such
cases are more likely to be excluded from the current analysis. Finally, the model treats
each of the three strategies separately and did not test for possible interactions,
although the authors hope to treat this issue at a later point. Further research is also
required to test whether the results achieved by the AFP can be generalised to other
similar organisations or meaningfully compared with BCA results from other drug
policy initiatives.
The results confirm that federal drug law enforcement has provided a positive
return to the Australian community. In the period 2000-2005, it is estimated that the
social benefit in terms of harm avoided was $1.5bn and this was equivalent to a return
to the community of $5.80 for every dollar invested. These results provide the AFP
with an evidence-base for the social impact of its drug law enforcement efforts. The
analysis included not only the direct costs incurred by the AFP but also other costs
incurred by the ACS, the legal system and prisons. There are few if any hidden costs
and this is an important point in establishing the credibility of any BCA.
The study also established that the specific enforcement policies adopted by the
AFP (viz. partnerships, serious and complex crimes, intelligence-led policing) had ROIs
in excess of the overall rate, indicating that they were effective approaches for dealing
with drug crime. The results should assist the AFP in planning its drug law
enforcement approach and in internal resource allocation across crime types. Thus, in
addition to measuring the social impact of government policy, BCA can also assist
public sector agencies in measuring and improving their own efficiency. The use of
BCA has become an integral part of the internal and external performance reporting
systems in the AFP. From an AFP perspective, there is an ongoing commitment to the
use of BCA for fraud and drug investigations, and an interest in extending this style of
analysis to areas such as people smuggling and counter-terrorism.
It should be noted that BCA is rarely a cheap solution. The development of an
appropriate model will involve a significant initial outlay and, if the model is to retain
its relevance, it must be updated on a regular basis. The integration of BCA into
internal reporting systems tends to facilitate the collection and maintenance of data
required by the model thereby maintaining currency and reducing the ongoing costs
associated with BCA.
 In summary, the implications of the study extend beyond the immediate conclusion AFP drug
regarding the strategic direction of the AFP and its law enforcement policies. The investigations
results demonstrate that BCA can be used to provide an evidence base with respect to
policy or management initiatives, and equally important, as a management tool to
increase the efficiency and effectiveness of policy implementation.

377
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About the authors

Michael McFadden is Adjunct Professor at the University of Queensland Social Research Centre.
He has a BA from the University of Sydney and a PhD from the University of New South Wales.
His interests include law enforcement, road safety, organisational behaviour and uncertainty.
Michael McFadden is the corresponding author and can be contacted at: [email protected]
Toni-Lee Porter is Senior Researcher, People Strategies, Australian Federal Police with
responsibility for organisational research. She has a BA in Commerce from the University of
Canberra. Her interests include law enforcement and workforce planning.

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