Home page
> Publications > Implementing Machinery of Government Changes: A good practice guide > Financial management > Next: People management
> Employment policy and advice
‹ Previous page

Last updated: 29 November 2007

Implementing Machinery of Government Changes: A good practice guide

4 Financial management

MOG changes will generally affect financial management arrangements. These can include outcomes and performance information, FMA Act section 32 directions and section 31 receipts, superannuation costs, Special Accounts, special appropriations, FMA Act delegations, assets and liabilities, insurance, and reporting requirements for financial statements and annual reports.

4.1.Outcomes and performance information

Sometimes MOG changes will impact on outcomes and performance information. If this occurs, agencies should reassess their outcomes framework to determine its ongoing relevance.

If an agency does not have a suitable outcome for a function it has acquired through a MOG change, it should take steps to update the agency outcome structure. Such a change may also require the outputs, programmes, performance indicators and measures to be modified, or consideration to be given to how administered items are portrayed to better reflect how the agency will achieve its outcomes.

Generally, changes to outcomes and performance information are put in place before the Budget or Additional Estimates to ensure the outcomes are reflected in Appropriation Bills¹.

Changes to outcomes outside the Budget process can only be implemented through Additional Estimates Bills if there has been a substantive change in agency business since the Budget, or if changes to the AAO require the development of new outcomes.

4.1.1 Process for changing outcomes

Outcomes are the results or impacts on the community or the environment that the Government intends to achieve. To change an existing outcome, or create a new one, agencies must:

consult Finance to ensure the outcomes proposed are consistent with Government policy
obtain legal advice to ensure a new outcome meets the outcome policy
obtain approval from the relevant portfolio Minister
ask their portfolio Minister to obtain approval from the Minister for Finance and Administration (Finance Minister).

Agencies should liaise with the relevant Agency Advice Unit (AAU) in Finance to ensure new outcome structures are reflected in the central budget management system maintained by Finance and in the Appropriation Bills.

Refer to the Finance website http://www.finance.gov.au/gf/ for more information on the process for developing outcomes and performance information.

4.1.2 Continuation of funding for a function pending a new outcome

Where an agency has gained a function, the appropriation in respect of the function can be made available to the gaining agency through a section 32 direction under the FMA Act.

The gaining agency must, nonetheless, take steps to have a suitable outcome for the transferred appropriation approved through the next appropriation cycle in either the Additional Estimates or Budget processes. Where an agency has not had a suitable outcome approved prior to seeking a transfer of an amount of appropriation under section 32 of the FMA Act, Finance should be consulted for guidance in relation to this matter.

4.2 Section 32 directions

4.2.1 Annual appropriations

Annual appropriations are appropriations that appear in one of the annual appropriation Acts.Three annual appropriation Acts are prepared at the time of the Budget (i.e.Appropriation Act (No. 1), Appropriation Act (No. 2) and Appropriation (Parliamentary Departments) Act (No. 1)) and a further three are prepared, as necessary, at Additional Estimates. The Government may prepare further annual appropriation Acts, if necessary, at other times during the year.

Appropriations provided in each of the annual appropriation Acts are either departmental or administered appropriations.

Where a MOG change results in partial or full transfer of a function to another agency, the losing agency will need to make arrangements for the transfer of any remaining departmental and administered appropriations relating to the function to the gaining agency.

4.2.2 Section 32 of the FMA Act

Section 32 of the FMA Act allows for the transfer of an amount that has been appropriated where a function becomes a function of another agency, either because an agency is abolished or for any other reason.

The Finance Minister, or his or her delegate, may issue directions to transfer from the losing agency to the gaining agency some, or all, of an amount that has been appropriated for performing that function by the losing agency.

If it subsequently appears that the amount needs to be adjusted (e.g. if the amount transferred was excessive), the Finance Minister, or his or her delegate, has the power to transfer an amount back to the losing agency.

The Finance Minister may not issue a direction that transfers an amount between parliamentary departments except in accordance with a written recommendation of the Presiding Officers.

A direction takes effect from the date it is issued. A direction does not affect any time limit that applies to an appropriation.

The gaining agency should ascertain whether interim delegations may need to be established if there is a delay between the gaining agency receiving the function, and the section 32 transfer.

4.2.3 Determining the amount to be transferred under section 32 of the FMA Act

In determining the amount of appropriation to be transferred under section 32 of the FMA Act,it is necessary to consider available appropriations.These may include unspent appropriations that relate to accrual expenses, such as depreciation on assets that are transferred and/or accrued employee entitlements for employees who have been transferred.

The losing agency may need to retain some appropriation to pay outstanding invoices; however, it is expected that gaining agencies would normally pay for invoices received after the date of transfer, even if the losing agency accrued the expenses. Agencies should contact Finance for advice on calculating and accounting for adjustments in appropriations as a result of restructuring.

4.2.4 Processing a section 32 request

It is desirable that agencies reach agreement on the amount of appropriation to be transferred as early as possible.There may be situations where it will be difficult to immediately determine the exact amount, particularly where functions are to be split between agencies, or where the losing agency agrees to continue to provide some services for a period of time until other arrangements can be made. Agencies are asked to advise Finance of the reason for any delays in reaching agreement on the amount to be transferred, and the proposed timetable for resolution.

Once agencies have decided on the amount to be transferred, the chief financial officers of each agency need to provide the information to Finance. Agencies should contact Finance for the appropriate forms and assistance with completion. Following approval, the amounts relating to the appropriations will be transferred in the central budget management system maintained by Finance. Section 32 directions take effect on the date issued by the Finance Minister or the Finance Minister’s delegate.

Subsequent to Finance confirming that section 32 directions have been finalised, agencies should enter adjustments into the central budget management system maintained by Finance and into the estimates baseline for the current and forward years. Section 32 transfers should also be reflected in Portfolio Budget Statements and Portfolio Additional Estimates Statements.

4.2.5 Transfer of functions between FMA Act agencies and CAC Act bodies

Section 32 transfers of functions can only occur between FMA Act agencies. That is, where a function has been transferred from a body subject to the Commonwealth Authorities and Companies Act 1997 (CAC Act) to an FMA Act agency or vice versa, section 32 of the FMA Act has no application.

Agencies should contact the relevant AAU in Finance to discuss specific circumstances and it is possible that agencies may need to seek legal advice on these issues. Where legal issues are likely to take some time to resolve, Finance will consider if interim measures may need to be put in place to enable continuation of service delivery.

4.3 Section 31 receipts.

Section 31 of the FMA Act allows the Finance Minister to enter into agreements with other Ministers for the purposes of items marked ‘net appropriation’ in Appropriation Acts, which provide that the relevant item is increased in accordance with the agreement. The increase enables agencies to spend receipts that the agency would not otherwise be able to spend. For example, an agency’s annual appropriation would be increased where the agency receives payment for performing a service, providing the receipt was covered by the agency’s section 31 agreement.

Agencies affected by a MOG change should review the contents of their section 31 agreements as soon as possible, and advise Finance of any variations the agreements need. For example, where the losing agency performs a function that involves receipts for services that are covered by a specific clause in the agency’s section 31 agreement, and that function is transferred to the gaining agency, both agencies may require variations to their agreements—to remove the relevant clause from the losing agency’s agreement, and to add the relevant clause to the gaining agency’s agreement.

When a function is transferred between agencies, the gaining agency is not automatically entitled to amounts received by the losing agency under authority of its section 31 agreement. The gaining agency would need to consider whether a new, or varied, section 31 agreement is needed to cover future receipts relating to the transferred function. Typically,section 31 receipts have not been transferred as part of section 32 directions. Agencies should contact the relevant AAU in Finance to ensure that an appropriation authority supports the amounts transferred.

4.4 Superannuation costs

Australian Government employers should be providing superannuation for most of their employees and also for contractors who are not common law employees but who are engaged principally for their labour.² Where MOG changes occur, the superannuation arrangements for affected employees may change. Further information about these arrangements is detailed in section 5.13.

Agencies make employer superannuation payments to the Budget (through ComSuper) towards the costs of benefits from the Commonwealth Superannuation Scheme (CSS), the Public Sector Superannuation Scheme (PSS) and the Public Sector Superannuation Accumulation Plan (PSSAP) for employees who are members of those schemes. Where employees’ membership of the CSS, the PSS or the PSSAP is continued after MOG changes the rate of those employer payments may change.

Queries concerning employer superannuation costs should be directed to the Superannuation Branches in Finance, in the first instance, at http://www.finance.gov.au/super/about_superannuation_branch.html.

4.5 Special Accounts

Special Accounts record amounts that can be appropriated from the Consolidated Revenue Fund for specific purposes. A Special Account may be established either by a Finance Minister’s determination under section 20 of the FMA Act (section 20 Special Account), or by other enabling legislation (section 21 Special Account).

The Finance Minister may vary, revoke or abolish a section 20 Special Account by tabling a determination in each House of the Parliament. Either House may pass a resolution disallowing the determination within 5 sitting days after the determination was tabled. If neither House passes such a resolution, the determination takes effect on the day immediately after the last day upon which such a resolution could have been passed.

In the event of MOG changes, agencies should consider whether any Special Accounts they manage will be affected.

Where responsibility for administering legislation is transferred between Ministers through the AAO process, responsibility for administering any section 21 Special Accounts established by that Act is also automatically transferred. No action is required by the relevant agencies to effect the transfer. However, the establishing legislation would need to be amended if there was a subsequent need to vary or abolish the section 21 Special Account.

Where responsibility for a function that is related to a section 20 Special Account is transferred between agencies, officials should consider whether responsibility for administering the section 20 Special Account should also be transferred.

If it is proposed to transfer administration of a section 20 Special Account between agencies, this arrangement should be reflected in correspondence between the relevant Chief Executives. Generally, transferring responsibility for administering a section 20 Special Account will not involve a determination of the Finance Minister. However, in some cases it may be necessary for the gaining agency to consult Finance as soon as possible after the transfer of a section 20 Special Account between agencies (e.g. where the title or purpose of that account includes the name of the losing agency). In these cases, it may be appropriate to ask the Finance Minister to vary or abolish the existing section 20 Special Account and, if necessary, establish a new one for the gaining agency. Such arrangements will usually require a written request to the Finance Minister from the relevant agency’s Minister.

Where it is not possible to immediately establish or vary a section 20 Special Account (e.g. where Parliament has risen), temporary arrangements may be put in place to enable the gaining agency to have access to an existing section 20 Special Account. For example, the gaining agency may be issued with drawing rights against a section 20 Special Account.

Agencies should consult the relevant AAU in Finance about any proposals to transfer, establish, abolish or vary Special Account determinations. If changes to legislation may be required for a section 21 Special Account, agencies should also contact the Legislative Review Branch in Finance at <LRB@finance.gov.au>.

4.6 Special appropriations

A special appropriation is an appropriation that appears in an Act (other than those in the annual appropriation Acts), which appropriates money from the Consolidated Revenue Fund for a particular purpose. When a MOG change occurs, portfolio departments should review the allocation of responsibilities for administering relevant special appropriations to ensure the responsibilities lie with the appropriate agency. Whenever responsibility for administering a special appropriation is transferred, the gaining portfolio department should ensure the gaining agency is able to comply with its statutory responsibilities. Further guidance can be found in Finance Circular 2005/13: Allocation of responsibilities for special appropriations, available on the Finance website at http://www.finance.gov.au/finframework/finance_circulars.html.

4.7 Delegations under the FMA Act

Section 62 of the FMA Act and Regulation 24 of the Financial Management and Accountability Regulations 1997 allow the Finance Minister to delegate any of his or her powers or functions to Chief Executives. Some of the powers which have been delegated include the authority to enter into agreements with banks to open bank accounts, issue drawing rights, borrow money for short periods, commit future appropriations and enter into agreements for receipt of public money by outsiders. Chief Executives are responsible for promoting the efficient, effective and ethical use of Commonwealth resources under section 44 of the FMA Act.

Chief Executives may delegate their powers under section 53 of the FMA Act to officials. Where a function has been transferred or abolished, FMA Act delegations for the function may cease to have effect and the responsible agency will generally need to make new delegations, including drawing rights. Agencies should therefore review their internal delegations as soon as possible after a MOG change.

Apart from the need to review FMA Act delegations (and any other delegations arising under other legislation), where there has been a change of office-holder such as the Chief Executive or Minister, it is important to review any authorisations that a previous office-holder may have approved. Agencies should contact Finance through the relevant AAU for further advice. For information specific to legal issues following a general election, see the Australian Government Solicitor Legal Briefing Number 72, available at http://www.ags.gov.au/publications/agspubs/legalpubs/legalbriefings/index.htm.

4.8 Assets and liabilities

The process for determining the amount of appropriation that is to be transferred is separate and distinct from the process of transferring assets and liabilities. Agencies should identify those assets and liabilities that are to be transferred,preferably under an MoU. This identification needs to consider those assets (including cash) and liabilities that belong to the function that is to be transferred. Cash to be transferred may include amounts of cash that have been accumulated to meet future commitments, including provisions, make good and funding of depreciation. Accounting for the transfer should be in accordance with relevant accounting standards and the Finance Minister’s Orders (FMOs); see http://www.finance.gov.au/ace/ index.html.

The FMOs require Commonwealth entities to record the transfer at the amount recognised in the books of the losing agency as at the transfer date.The FMOs state that net book values (less any token consideration) of assets and liabilities transferred as a result of a MOG change must be treated as contributions by, or distributions to, owners. A transfer of an administered asset or liability should therefore be reflected in the reconciliation of the opening and closing balances of administered assets less administered liabilities at existing book value.

4.8.1 Transfer of physical assets

Losing and gaining agencies will need to reach agreement about the transfer of physical assets (including, but not limited to, property, plant, equipment, and fitout) and contracts for the use of physical assets (e.g. accommodation leases). The decision to transfer assets depends on the particular circumstances of each case. Some agencies lease assets and it will be a matter between the gaining and losing agencies to decide who will take responsibility for these leasing arrangements.

Where assets have been purchased from an appropriation for the function that is being transferred, it would generally be appropriate to transfer these items unless, for example, a gaining agency indicates it has no requirement for them. The position in relation to assets purchased from some other appropriation but used for the performance of the function being transferred is less clear and should be subject to an agreement between the agencies.

4.8.2 Commenced but not finalised procurements

At the time of a MOG change, there may be procurements that are underway, but not yet finalised. In such instances, and in line with the Commonwealth Procurement Guidelines, the procurement should go ahead unless the gaining agency determines that it is no longer in the public interest to award a contract. Public interest grounds generally arise in response to unforeseen events or new information which materially affects the objectives or reasons underlying the original procurement requirement.The Guidance on the Mandatory Procurement Procedures cites a number of examples where it may not be in the public interest to award a contract including “machinery of government changes affecting responsibilities between agencies for programmes to which the procurement relates”.

However, after making the above considerations, it is a matter for the gaining agency to determine whether to proceed with the procurement, cease any further procurement action or start the procurement process anew.

Refer to the Finance website http://www.finance.gov.au/procurement/ for more information on the Commonwealth Procurement Guidelines and the Guidance on the Mandatory Procurement Procedures.

4.8.3 Cost issues

There are no established rules about who pays for transition costs. Agencies should come to agreement on how costs, including overhead costs, that are incurred during the transition will be funded.The general principle to be applied is that agencies should bear their own costs for the re-location. For example, it is reasonable to expect that a losing agency would pay for physical movement of employees, furniture, equipment and files; downloading information and other information technology activities relating to the move; and updating internal records. Conversely, gaining agencies would be expected to pay for the costs of establishing the transferred employees in their new premises, including re-loading information, setting up access to the network, security arrangements, and updating internal records. Agencies are urged to enter into the transition arrangements in a spirit of cooperation and to be reasonable and fair in their expectations.

To help prevent misunderstandings and disputes later, it is very important that cost issues, particularly regarding costs that will need to be recovered for services provided after the transfer, be agreed upon and documented in an MoU. Examples where cost recovery may apply include where salary is paid by the losing agency to the end of a fortnight for administrative ease, or where services are provided for a certain period. Agencies may make arrangements to recover costs at a later date.

4.8.4 Transfer of employee leave entitlements

The Finance Management and Accountability Orders 2005 (FMA Orders), in particular FMA Order 6.4, require a payment for leave entitlements when an ongoing employee in an agency moves to another agency, or to a Commonwealth authority on or after 1 July 2001.

FMA Order 6.4 does not apply if the employee movement is a direct consequence of a transfer of a Government function, including MOG changes, as the funding arrangements in these situations would be considered as part of the section 32 transfer process. Assistance regarding the transfer of employee leave entitlements where the employee movement is as a consequence of an AAO or MOG change is provided in Finance Brief 6: Adjustment of appropriations on transfer of functions (http://www.finance.gov.au/ace/finance_brief_06.html).

For more information on FMA Order 6.4, contact the Legislative Review Branch in Finance at <LRB@finance.gov.au>.

4.9 Insurance

When a function is created, abolished, or transferred between agencies, there may be a corresponding change in the risk profile of the affected agencies. With any MOG change, Comcover should be contacted by both the gaining agency and the losing agency in order to reassess the risk profiles of the affected agencies and adjust the insurance premiums and coverage as appropriate.

4.10 Reporting requirements for financial statements

Chief Executives of FMA Act agencies are required, under section 49 of the FMA Act, to provide annual financial statements to the Auditor-General.

FMA Act agencies are required to prepare financial statements in accordance with the FMOs issued by the Finance Minister under section 63(1) of the FMA Act. The Chief Executive must sign a certificate that states:

whether, in his or her opinion, the financial statements give a true and fair view of the matters required by the FMOs
whether the statements have been prepared based on properly maintained financial records
when additional information has been included in the notes to give a true and fair view, then the reasons for forming the view and the location of the additional notes in the financial statements
the date on which the statement is made.

Section 51 of the FMA Act provides that, where an agency ceases to exist, the financial statements that the Chief Executive of that agency would have been required to prepare under section 49 must be prepared, instead, by another Chief Executive nominated by the Finance Minister.

If a function is transferred between two or more agencies in a financial year, the Chief Executive of one of those agencies, or the Chief Executives of two or more of those agencies, as directed by the Finance Minister, must prepare the financial statements for that function.

In respect of the period for which agencies should prepare financial statements for a function/ activity/programme that has been transferred to another agency, Australian Accounting Standard 29 requires that:

the losing agency should report on that function/activity/programme up to the date of restructure (that is, the date the AAO is signed)
the gaining agency should report on the function/activity/programme from the date of restructure.

Agencies should include a note to the financial statements explaining the reason for the partial reporting of a function (e.g. transfer of a function as a result of restructuring) and the impact of the restructuring on the agency. Changes to appropriations will also need to be reflected in the Portfolio Additional Estimates Statements and the Portfolio Budget Statements.

4.11 Reporting requirements for annual reports

The practice for reporting programme information in annual reports is different from that required for financial statements.

Departments of state, pursuant to section 63(2) of the PS Act, and executive agencies, pursuant to section 70(2) of the PS Act, are subject to the Requirements for Departmental Annual Reports (the Requirements), approved on behalf of the Parliament by the Joint Committee of Public Accounts and Audit. As a matter of policy, the Requirements also apply to prescribed agencies under section 5 of the FMA Act.

The Requirements state that, in cases of a MOG change during the reporting period, where functions or offices are gained or lost, the established practice is that the gaining agency must report on that function or office for the entirety of the reporting period, whether or not the losing department continues to exist.

Further details can be found in PM&C’s Requirements for Annual Reports at http://www.pmc.gov.au/guidelines/index.cfm. Alternatively, agencies should contact PM&C’s Parliamentary and Government Branch.

1 Outputs and other performance information are not reflected in Appropriation Bills but are incorporated into Portfolio Budget Statements.

2 Further information on when these people may be regarded as employees for superannuation purposes is available from the Australian Taxation Office website at http://www.ato.gov.au/super.

Downloads:

Contents:

Site help

Site menu