Financial management and budget frameworks

The financial management and budget frameworks for the Australian Government emphasises the efficient, effective and ethical use and management of public money and public property by FMA Act agencies. Also, Directors’ duties help ensure that bodies under the CAC Act use resources in good faith in the best interests of the relevant body, and for a proper purpose . Agency heads have a significant level of responsibility and accountability under the frameworks.

Key aspects include:

• Financial management legislation
• Financial management policies
• Appropriations framework
• Budget framework
• Financial reporting framework

Financial management legislation

The financial management responsibilities of heads of agencies that are financially part of the Commonwealth are set out in the Financial Management and Accountability Act 1997 (FMA Act). Such agencies include Departments of State, Departments of the Parliament and agencies prescribed under the FMA Act, collectively prescribed agencies. The head of a prescribed agency is the Chief Executive. The Chief Executive of a prescribed agency is usually also the agency head for the purposes of the Public Service Act 1999.

Entities that are legally and financially separate from the Commonwealth will generally be subject to the requirements of the Commonwealth Authorities and Companies Act 1997 (CAC Act).

The Australian Government has decided that Financial Management and Accountability Act 1997 (FMA Act) agencies and CAC Act bodies in the GGS must report on legislative compliance and financial sustainability, on an annual basis, to the responsible Minister and the Minister for Finance and Deregulation (Finance Minister)

Financial Management and Accountability Act 1997

The Financial Management and Accountability Act 1997 (FMA Act) provides a framework for the proper management of public money and public property— that is, money or property that is in the custody or control of the Commonwealth or in the custody or under the control of any person acting for or on behalf of the Commonwealth. Property or money held for the benefit of a person other than the Commonwealth is also accommodated under the financial framework.

Under the FMA Act, the agency Chief Executive (generally also an agency head for the purposes of the Public Service Act 1999) must manage the affairs of the agency in a way that promotes the efficient, effective and ethical use of the Commonwealth resources, that is consistent with the policies of the Commonwealth, for which the Chief Executive is responsible (section 44).

Other specific responsibilities of Chief Executives under the FMA Act include:

• instituting a fraud control plan (section 45)
• establishing an audit committee (section 46)
• pursuing the recovery of debts owed to the Commonwealth for which that chief executive is responsible (section 47)
• ensuring accounts and records are kept in accordance with the Finance Ministers Orders (section 48)
• providing the Auditor-General with financial statements in the required form (section 49).

The Finance Minister has also delegated powers under the FMA Act and the Financial Management and Accountability Regulations 1997 (FMA Regulations) to chief executives, through the Financial Management and Accountability (Finance Minister to Chief Executives) Delegation 2007 No. 2 (as amended) (the Delegation). Delegations are to be exercised in accordance with the limits and directions provided.

Financial Management and Accountability Regulations

The Financial Management and Accountability Regulations 1997 (FMA Regulations) cover matters necessary or convenient for carrying out or giving effect to the Financial Management and Accountability Act 1997 (FMA Act).

Under regulation 6 of the FMA Regulations, the Chief Executive of an agency is authorised to give instructions to officials in that agency (Chief Executive's Instructions–CEIs) on any matter necessary or convenient for the carrying out or giving effect to the FMA Act, FMA Regulations or the Financial Management and Accountability Orders 2008.

Regulations 9 to 13 set out the requirements that must be satisfied before a Chief Executive, or his or her delegate or authorised official, can enter into a contract, agreement or arrangement under section 44 of the FMA Act that will result in a commitment to spend public money.

Under regulation 13, a person must not enter into a contract, agreement or arrangement under which public money is, or may become, payable unless a proposal to spend public money for the proposed contract, agreement or arrangement has been approved under regulation 9 and, if necessary, authorised in accordance with regulation 10.

Regulation 10 requires that where there is not sufficient appropriation to support the cost of a spending proposal, an approver must not approve the spending proposal unless the Minister for Finance and Deregulation has given written authorisation for the approval. The Finance Minister has delegated powers under regulation 10, with some limitation, to agency chief executives.

Regulation 9 requires that an approver must not approve a spending proposal unless the approver is satisfied, after making such inquiries as are reasonable, that the proposed expenditure (a) is in accordance with the policies of the Commonwealth; and (b) will make efficient and effective use of the public money. If the proposal involves the expenditure of “special public money” then paragraph 9(c) requires the approver to also ensure it is consistent with the terms under which the money is held by the Commonwealth.

The FMA Regulations also prescribe a number of agencies for the purposes of the FMA Act–that is, those agencies, which are not Departments of State, or Departments of the Parliament, to which the FMA Act applies (see Schedule 1 to the FMA Regulations).

Delegations

The FMA Act and FMA Regulations confer powers and functions on chief executives that may be delegated. A Chief Executive may, in writing, delegate a power or function to one or more officials. Note that the delegate does not have the power to sub-delegate, without a specific provision in legislation. However, there may be a capacity for an authorisation - officials should be aware of the capacity that they are acting within and seek legal advice if necessary.

Chief Executive’s Instructions

Chief Executive's Instructions (CEIs) are the primary mechanism for a Chief Executive to set out the processes to promote the proper use of Commonwealth resources, including public money and property by officials in his or her agency.

The Australian National Audit Office (ANAO) has recommended in ANAO Performance Audit Report, No. 42, 2003-2004, Financial Delegations for the Expenditure of Public Monies in FMA agencies on the use of financial delegations for the expenditure of public money, that agencies’ CEIs:

• specify the responsibility and timeframe for review and updates
• include specific details of the FMA Regulations legislative framework that are to be adhered to and how they are to be applied
• are accurately reflected in other procedural documents
• are updated regularly so that only references to current Commonwealth and agency practices are included.

Financial Management and Accountability Orders

The Financial Management and Accountability Orders 2008 also cover matters related to the Financial Management and Accountability Act 1997

. They provide additional detail in relation to the following responsibilities of chief executives:

• Audit committee functions and responsibilities
• Fraud control report to responsible Minister
• Maintenance of accounts and records
• Preparation of Budget Estimates
• Care and custody of public money and public property
• Use of a Commonwealth credit card for particular purposes
• Delegation of chief executive powers under these Orders.

Finance Minister's Orders (FMOs)

Chief executives of agencies subject to the Financial Management and Accountability Act 1997 (FMA Act) (in most cases, the agency head) are required to:

• prepare annual financial statements, in accordance with the Finance Minister's Orders, which give a true and fair view of the matters required by those Orders (section 49(2))
• provide annual financial statements to the Auditor-General (section 49(1)).

These audited financial statements are included in Agency Annual Reports

For this purpose the Minister for Finance and Deregulation (Finance Minister) makes the Financial Management and Accountability (Financial Statement) Orders each year. These Orders are referred to as the Finance Minister’s Orders (FMOs) and they include Schedule 1 Requirements for the Preparation of Financial Statements of Australian Government Entities.

Commonwealth Authorities and Companies Act

The Commonwealth Authorities and Companies Act 1997 (CAC Act) applies to Commonwealth authorities and Commonwealth companies.

Commonwealth authorities are bodies corporate that are established by legislation for a public purpose, and which hold money on their own account. For Commonwealth authorities, the CAC Act contains detailed rules about reporting and accountability, and deals with other matters such as banking and investment and the conduct of officers.

Commonwealth companies are companies registered under the Corporations Act 2001 in which the Commonwealth has a direct controlling interest. For Commonwealth companies, the CAC Act contains reporting and other requirements that apply in addition to the requirements of the Corporations Act 2001.

The Commonwealth Authorities and Companies Regulations 1997 provides more detail about the matters addressed in the Act.

The Finance Minister has made Finance Minister’s Orders under the CAC Act for the preparation of annual reports by Commonwealth authorities, relating to the financial statements (equivalent to the FMOs made under the FMA Act) and the annual Report of Operations.

Financial management policies

Financial management policies have been developed based on the Financial Management and Accountability (FMA) legislation. In particular, agency chief executives are required to comply with Government policies when approving commitments to spend public money under regulation 9 of the Financial Management and Accountability Regulations 1997.

This section covers the procurement framework and contains links to key financial management policies:

• Procurement framework
• Insurance - Comcover
• Finance Circulars

Procurement framework

The procurement framework aims to assist and ensure that agencies subject to the Financial Management and Accountability Act 1997 (FMA Act) achieve value for money in their procurement activities.

The Commonwealth Procurement Guidelines (CPGs) are issued by the Minister for Finance and Deregulation under regulation 7 of the Financial Management and Accountability Regulations 1997 (FMA Regulations) on matters related to the procurement of all property and services. The CPGs establish the procurement policy framework and articulate the expectations that exist on FMA Act agency officials, or their agents, when performing duties related to procurement. Regulation 8 of the FMA Regulations requires an official performing duties in relation to the procurement of property or services to have regard to the CPGs

The CPGs are further supported by a collection of Guidance documents and Finance Circulars, which provide more detail and advice on the procurement framework. Operational aspects of procurement, for example the requirements for tendering and contract management, are addressed by each agency's Chief Executive's Instructions (CEIs).

As a result of the Finance Minister’s (CAC Act Procurement) Directions 2004, some Commonwealth authorities and Commonwealth companies are also subject to aspects of the CPGs. These bodies are prescribed in Schedule 1 of the Commonwealth Authorities and Companies Regulations 1997.

Risk management and insurance—Comcover

Comcover operates as part of the Department of Finance and Deregulation. It is responsible for the administration of the Commonwealth's self-managed fund for insurable risks including the property and liability risks of its members. Comcover also supports Australian Government agencies in the integration of risk management practices into their operations.

Australian Government agencies operating within the general Government sector, including those covered by the Financial Management and Accountability Act 1997 and the Commonwealth Authorities and Companies Act 1997, are to be insured by Comcover unless specifically exempted.

Finance Circulars

Finance Circulars are issued by the Department of Finance and Deregulationand provide policy guidance on matters under the FMA Act and the CAC Act, such as appropriations, banking, investment and cash management, financial management, governance and procurement.

The Department of Finance and Deregulation provides a list of current Finance Circulars on its website at  http://www.finance.gov.au/publications/finance-circulars/.

Appropriations framework

Expenditure of public money from the Consolidated Revenue Fund (CRF) must be supported by an appropriation made by law (as required by sections 81 and 83 of the Constitution). This is a mechanism for safeguarding Parliament’s control over both the amount of money to be spent and the purposes on which that money may be spent.

Laws authorising public money to be drawn from the CRF can be classified as either legislation with special appropriations, or are one of the annual appropriation Acts. The annual appropriation Acts are the source of funding for approximately 20 per cent of all Government expenditure and are considered as part of the annual Budget and Additional Estimates processes. Annual appropriation Acts may also be considered at other times during the year. The remaining 80 per cent is funded by special appropriations.

Annual appropriations

The annual appropriation Acts contain appropriations of specified amounts for particular purposes. The Bills proposing the annual appropriations are key legal documents in the Government’s annual Budget (for information about the annual Budget see: www.budget.gov.au).

Annual appropriations are split into those that provide for the ordinary annual services of the Government and those that do not. Amounts for the ordinary annual services are appropriated according to whether they are departmental or administered. Departmental appropriations are for expenses over which an agency has control, such as salary payments to staff and payments to suppliers. Administered appropriations are for activities administered by the agency on behalf of the government, and are normally governed by eligibility rules and conditions established by the government or the Parliament such as grants, subsidies and benefit payments. Administered expenses are appropriated separately for agency outcomes, specifying precisely how much funding can be expended on each outcome. Outcomes are the results of impacts on the community or the environment that the Government intends to achieve. They are specified by the responsible portfolio Minister with the endorsement of the Minister for Finance and Deregulation (Finance Minister).

Appropriations that are not for the ordinary annual services of government are appropriated in a separate Act. This Act covers amounts, such as 'non-operating costs' (sometimes called 'capital' costs) which are used to fund activities such as the creation or purchase of new assets.

Special appropriations

Special appropriations are contained within Acts and provide authority for amounts to be drawn from the CRF for the purposes of the Act, for example, to finance a particular project or a programme such as social security payments. There are a number of different kinds of special appropriations including those which:

• provide appropriation of a fixed amount (e.g. grants to Schools Assistance (Learning Together – Achievement Through Choice and Opportunity) Act 2004
• establish a method for calculating the amount to be spent, often triggered by eligibility criteria (eg. welfare payments under the Social Security Act 1991); and
• provide an automatic appropriation in certain situations (eg. repayments of amounts paid to the Commonwealth, under section 28 of the Financial Management and Accountability Act 1997 (FMA Act).

Special Accounts

Special accounts are established for specific purposes under sections 20 and 21 of the Financial Management and Accountability Act 1997 (FMA Act). A Special Account may draw and spend funds from the Consolidated Revenue Fund, up to the uncommitted balance recorded in the Special Account.

The amounts recorded as credits in a Special Account can reflect funding from various sources. For example, agency appropriations (annual or special) or external contributions (e.g. from other Australian Government agencies, other governments or industry).

Relevant agency receipts

Under section 31 of the Financial Management and Accountability Act 1997 (FMA Act), agencies may increase their most recent departmental item with Relevant Agency Receipts as prescribed by the Financial Management and Accountability Regulations 1997 (FMA Regulations) 15 and 16.

Australian Government Budget

The Australian Government Budget provides a complete picture of Australia’s planned financial performance, setting out the framework for the conduct of the Government’s fiscal policy for the financial year ahead.

Agency heads must ensure their agencies comply with Budget requirements published regularly by the Department of Finance and Deregulation including:

• provision of information, including costing information, on new policy proposals for inclusion in the portfolio Minister’s portfolio budget submission
• preparation of estimates for the Budget and, later in the year, for the publication of the Mid Year Economic and Fiscal Outlook report (MYEFO). The estimates must be prepared in the form specified, and be provided as required by the Finance Department's chief executive Financial Management and Accountability Orders 2008, Suborders 2.4.1 and 2.4.2)
• preparation of budget documentation, including Portfolio Budget Statements (PBS) and Portfolio Additional Estimates Statements (PAES), according to the guidance for the preparation of PBS issued by the Department of Finance and Deregulation to assist agencies; and
• input into the Statement of Risks and Government Finance Statistics (GFS) functional commentary to be reported in both the Budget papers and the MYEFO report.

Charter of Budget Honesty and Pre-election Economic and Fiscal Outlook

The Charter of Budget Honesty Act 1998 (the Charter) sets out principles and requirements that guide the government’s management of fiscal policy, including making transparent the government’s fiscal position. The purpose of the Charter is to provide a legal basis for the way the Government conducts and reports fiscal policy.

The overall purpose of the Charter is to facilitate:

• sound fiscal management of the Australian economy
• the public being kept better informed about public finances
• transparency in fiscal policy.

The Charter commits the Government to:

• set out its medium-term fiscal strategy in each budget, along with its shorter-term fiscal objectives and targets
• an annual government reporting cycle of general government sector estimates, including economic assumptions underlying budget estimates
• producing a budget and mid-year fiscal outlook for the budget and three forward years, a Final Budget Outcome and five-yearly Intergenerational reports
• report against specified external reporting standards, including content format in outlook reports and reporting timeframes
• processes for fiscal reporting in the lead up to a federal election
• processes for costing election campaign promises of major political parties.

Of particular relevance to agency heads is the requirement the Charter places on the secretaries to the Treasury and the Department of Finance and Deregulation to release a Pre-election and Fiscal Outlook (PEFO) report. The PEFO report provides updated information on the economic and fiscal outlook in the caretaker period, and must be released within ten days of the issue of the writ for a general election.

Like other outlook reports, the information in the PEFO report is to take into account, to the fullest extent possible, all Government decisions, and all other circumstances, that may have a material effect on the fiscal and economic outlook.

To assist in the preparation of the PEFO, and other outlook reports, the Secretary of the Treasury or the Secretary of the Department of Finance and Deregulation may request a Commonwealth body to provide information. Under the terms of the Charter, a Commonwealth body is to comply with a request in time to allow the information to be taken into account in the preparation of the report, unless it is not practicable to do so or if doing so would contravene another law of the Commonwealth.

Final Budget Outcome

The Charter of Budget Honesty Act 1998 requires the Treasurer to release publicly and table a Final Budget Outcomes report for each year no later than three months after the end of the financial year. The report contains fiscal outcomes for the general government sector, public financial corporations and public non-financial corporations including information on actual revenue, expenses, net capital investment, Federal/State financial relations and other information for the financial year. The information provided by agencies in their annual financial statements enables the Government to compile the Financial Budget Outcome report.

Financial reporting framework

Monthly financial statements for the Australian Government

The Financial Management and Accountability Act 1997 (FMA Act) requires the Minister for Finance and Deregulation to publish monthly financial statements in a form consistent with the Budget Estimates, as soon as practicable after the end of each month (Section 54).

Chief executives of FMA Act agencies and the directors of relevant CAC Act bodies are required to provide the Finance Minister with any information required about the financial affairs of the Agency, including financial statements covering a period of less than a financial year ( FMA Act Section 50 and CAC Act Section 16 and 41 ).

Accordingly, agencies and non-commercial authorities are required to present monthly financial statements to the Department of Finance and Deregulation by the 10^th day of each month. If the 10th of the month falls on a weekend or public holiday, agencies will be required to present monthly financial statements on the preceding workday.

Consolidated financial statements for the Australian Government

The Financial Management and Accountability Act 1997 (FMA Act) requires the Minister for Finance and Dergulation to publish annual financial statements for the Commonwealth as soon as practicable after the end of each financial year (Section 55).

These financial statements are known as the Consolidated Financial Statements for the Australian Government. Agency input into these statements is derived from their audited annual financial statements, prepared in accordance with Section 49 of the FMA Act, Section 41 of the CAC Act and the Finance Minister's Orders.