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Budget and accountability framework

The budget process provides the opportunity to identify cross-portfolio priorities and establish how they are to be considered. Ministers should be assisted by the APS to determine the most suitable form of appropriation; governance (decision making) structures; information-sharing arrangements; accounting procedures; reporting mechanisms; and timing and evaluation requirements.

The existing outcomes and outputs budget framework has the flexibility to provide appropriate budget and accountability arrangements for whole of government projects. The key to maximising the flexibilities within the framework is early consideration of budget and accountability arrangements. Early consideration is essential to the proper planning, resourcing and management of whole of government priorities.

Financial disciplines which are very useful for prioritising within portfolio proposals, such as requiring fully offsetting savings, may be counterproductive for cross-portfolio priorities. Other approaches may therefore be required to setting expenditure caps and finding necessary resources.

The Department of Finance and Administration should continue to provide advice to agencies on appropriation, governance and reporting structures and should be consulted at an early stage in the development of major cross-portfolio initiatives.

The Department of Finance and Administration should encourage and facilitate the exchange of financial information between Australian government agencies to:

  • develop and maintain standard templates for financial management information systems and budgetary model specifications, with the assistance of a reference group of chief finance officers
  • facilitate the development of best practice principles to assist all agencies to better leverage work in this area by lead agencies
  • The current outcomes and outputs budget framework provides flexibility which can accommodate the appropriation of funds for whole of government outcomes.
  • To date, whole of government measures have been accommodated within the existing outcomes framework of agencies because of synergies with related programs.
  • It is, however, difficult to identify resourcing and performance of whole of government measures from year to year through current budget documentation.
  • Other approaches to the appropriation and reporting of major whole of government initiatives already available within the current framework can assist transparency.
  • Agencies should consult the Department of Finance and Administration for early advice concerning possible approaches for consideration by ministers.

Introduction

The previous chapters presented culture, structures and information infrastructure as enablers that support more effective whole of government work. This chapter discusses how we can best support and enhance whole of government work through the way it is resourced. It details the existing budget framework and the flexibilities it provides for whole of government work.

The introduction of accrual budgeting in 1999 improved the transparency of the Australian Government’s financial position. The outcomes and outputs framework provides ministers and agencies with flexibility in determining how the appropriation of funding should be organised according to particular outcomes.

All agencies and authorities in the general government sector are funded in accordance with these outcomes. The parliament appropriates funds against a series of outcomes. Outcomes are the results or impacts which the Australian Government wishes to achieve.

Outputs (or departmental outputs) are the goods and services produced by agencies on behalf of the Australian Government or external organisations or individuals. Outputs include goods and services produced for other areas of government external to the agency and departmental expenses that agencies control directly. Administered items are revenues, expenses, assets and liabilities that the Australian Government controls, but an

agency manages on the government’s behalf. They include expenses such as grants, subsidies, benefit payments and transfers to other levels of government and account for around 80 per cent of Australian government expenditure.

Taken together, outcomes, departmental outputs and administered items are the elements of the Australian Government’s budget and accountability framework. Outcome statements appear in the Appropriation Bills. A Portfolio Budget Statement (PBS) is produced each year for each portfolio. It identifies the supporting outputs and administered items, together with measures of how well the portfolio performed. Agencies are required to report subsequent performance against outcomes in their annual report.

This alignment of budget documentation is known as the ‘clear read’ and enables performance to be assessed against the targets set at budget.

Decisions concerning the way in which resources are appropriated to particular outcomes are a matter for the government. The budget framework offers flexibility in relation to the way whole of government measures can be appropriated, including through the use of common outcomes across agencies. However, common outcomes have not been used to date. Rather, elements of current whole of government initiatives have been appropriated within the existing outcomes structures of each agency involved in the whole of government task. This helps agencies manage these measures with other activities of the portfolio. It does not, however, allow for clear identification of whole of government measures both between and within agencies in budget documentation. The challenge is to balance agencies’ ability to manage and account for these measures while at the same time addressing parliament and stakeholder needs to see the whole picture.

Current framework

The outcomes and outputs framework was introduced in the 1999–2000 Australian Government Budget to coincide with the introduction of accrual budgeting. It replaced the existing program management and budgeting (PMB) Framework.

PMB was a cash-based arrangement. Also, because resources for agencies were appropriated by line item rather than by outcome, it was not always possible to align expenditure with individual programs and was no longer appropriate to an accrual budgeting environment.

The current outcomes and outputs framework reports actual performance in annual reports against proposed performance information about broad outcomes at Budget. As part of a package of changes introduced with accrual budgeting, the framework contributed to a more comprehensive picture of the government’s financial position and performance. The full cost of government activity, not simply the cash component, was reported, including a clear separation of capital and recurrent outlays.

Treatment of whole of government initiatives

Literature surrounding the introduction of the outcomes and outputs framework did not deal explicitly with the treatment of whole of government budget initiatives. While the new framework has always been flexible in its ability to accommodate such measures, this may not have been fully appreciated by agencies considering and/or involved in whole of government initiatives.

The way in which outcomes were initially identified may also have unintentionally discouraged the use of the framework to transparently accommodate whole of government measures. The identification of outcomes was left to individual ministers, with an endorsement role for the Minister for Finance and Administration. As a result, the number of outcomes per agency and the extent to which they identified Australian government policy priorities varied significantly. As a general rule, outcomes were very broad and tended to represent areas of continuing Australian government responsibility rather than particular policy priorities of government. While the ‘clear read’ from appropriation to PBS to annual report was achieved, performance in relation to particular Australian government initiatives has not always been easy to assess, given the number of programs and activities contained within some outcomes and the inconsistent reporting of related outcomes across portfolios.

Evolution of the outcomes and outputs framework

The Australian government outcomes and outputs framework has been progressively refined on the basis of experience.

This has included work to examine the scope for the framework to accommodate whole of government measures.

While outcomes are still determined by agencies and individual ministers, the Minister for Finance and Administration now approves all proposals for new or changed outcome statements. This enables a more consistent approach to outcome definition.

As a result of this process a small number of agencies have increased the number of their outcomes. For example, in the lead-up to the 2003–04 budget, Defence’s single outcome was disaggregated into seven outcomes as an interim measure. This change was made pending a further report to the Australian Government on a more enduring outcomes structure.

To date, outcomes have not been disaggregated to the level of specific policy priorities as represented by individual funding initiatives. There are advantages in having broad outcomes. More generalised outcomes help performance measurement over time, as they increase the chances that agencies have the same or similar objectives from year to year. Also, broad outcomes provide flexibility, enabling funds to be used throughout the year to match demand.

The Australian National Audit Office in its Better Practice Guide on annual performance reporting suggests that broad (or shared) outcomes are useful as they can involve contributions from a number of areas within and outside an agency. The key challenge is to identify the agency’s area of influence and acknowledge this in performance measurement and annual reporting.

The guide suggests a number of standards relevant to shared outcomes that agencies could use in their performance reporting framework—for example: identifying and explaining the agency’s contribution; cross-referencing to other agencies’ contribution to the shared outcomes; report on measurement and evaluation of the size and significance of the contribution; and explaining how cross-agency effectiveness is being improved.1

Other approaches to whole of government reporting

Like the Australian Parliament, other parliaments do not generally appropriate funds for a single outcome involving more than one portfolio.

Some state governments have, however, identified high- level whole of government outcomes or policy priorities. This approach potentially provides a simple way for stakeholders to assess government progress towards broad outcomes without the need to reconcile budget documentation.

The Victorian Government has adopted four overarching outcomes (described as the government’s ‘broad vision’) with a target date of 2010 under the banner of Growing Victoria Together. These four outcomes are:

  • “Innovation leads to thriving industries generating high- quality jobs.
  • Protecting the environment for future generations is built into everything we do.
  • We have caring, safe communities in which opportunities are fairly shared.
  • All Victorians have access to the highest-quality health and education services all through their lives.”2

These outcomes are supported by a series of benchmark targets and progress towards them is being reported in annual budget statements. While reporting in a number of areas is embryonic, examples of targets against which performance will be measured include:

  • “Victorian primary school children will be at or above national benchmark levels for reading, writing and numeracy by 2005.
  • Waiting times and levels of confidence in health and community services will improve.
  • Health and education outcomes for young children will improve.”3

The Queensland Government has adopted five Priorities in Progress and, consistent with Queensland’s Charter of Social and Fiscal Responsibility4, proposes to report annually on progress. The five priorities are:

  • “More jobs for Queensland—skills and innovation— The Smart State.
  • Safer and supportive communities.
  • Community engagement and a better quality of life.
  • Valuing the environment.
  • Building Queensland’s regions.”

The above priorities are supported by, and matched to, individual outcomes. There are a total of eight outcomes, which are shared by identified principal policy agencies.

In Queensland, although information is provided to parliament in relation to planned outcomes, appropriations are made at the departmental level and not at the level of specific outcomes or outputs.

For whole of government initiatives, a lead agency is nominated to lead and coordinate the initiative. For example, the Department of Aboriginal and Torres Strait Islander Policy (DATSIP) is the lead agency for Queensland Government Indigenous outcomes for Cape York, but funding for various elements of the strategy is allocated to relevant departments.

Where agencies have agreed to contribute funding towards specific activities within the initiative (e.g. development of alcohol management plans for Cape York), departments make payments to DATSIP.

In Queensland, as well as other jurisdictions, funding for whole of government activities is yet to be appropriated for the same activity across more than one department or portfolio.

The UK Government has whole of government service targets. Departments are responsible for achieving targets (sometimes jointly) and a website provides advice on public service reporting against these targets. Many targets are precise and ambitious (e.g. ‘Enhance the take-up of sporting opportunities by 5–16 year-olds by increasing the percentage of school children who spend a minimum of two hours each week on high-quality Physical Education and school sport beyond the curriculum from 25 per cent in 2002 to 75 per cent by 2006’)5. It is too early to assess the benefits of this approach.

Appropriation models for the treatment of whole of government measures

Work to date suggests that while the Australian Government is making more use of whole of government cross-portfolio initiatives, the current budget framework’s flexibilities are not being fully used to accommodate them. Agencies tend to plan, manage and evaluate whole of government initiatives against several portfolio-wide outcomes. Agencies have different approaches to defining outcomes and it is therefore hard to achieve a coherent set of overarching objectives for a whole of government measure. Four broad approaches to the appropriation of whole of government initiatives have been identified:

  • use of a single or common outcome
  • use of agency purchaser–provider arrangements
  • nomination of a lead agency
  • multi-agency package. These are discussed below.

Single outcome

A single outcome approach could be used by agencies that jointly deliver a specific outcome:

  • Funding would be targeted solely to the initiative and could not be used to fund other outcomes within participating portfolio agencies.
  • Administered and departmental funds could be moved across portfolios if necessary (provided parliament indicated that this was what was intended—for example, in a note or separate section of the Appropriation Acts).
  • Agencies would develop separate outputs, but budget papers, PBSs and annual reports would identify linkages with the common outcome. Some ministerial statements (‘blue books’ issued at budget time) also perform this function in areas such as the environment and Indigenous and women’s affairs.
  • Alternatively, a stand-alone annual report on a particular whole of government outcome or all whole of government outcomes could be published.

If agencies and ministers wished to consider use of a single shared outcome, there are a range of budget policy considerations which would need to be addressed. For example, if offsetting of savings is required to fund an initiative, responsible ministers are likely to seek assurance that all participating portfolios will be treated consistently. Also, if a single outcome is to permit transfer of departmental funds between agencies, the basis for doing so would need to be agreed at the outset. Agencies have different cost structures and this may need to be reflected in any arrangements governing use of departmental funds.

Purchaser–provider agreements

Under a purchaser–provider agreement, a lead agency would be fully appropriated (under its existing outcome structure) to purchase the required services from one or more agencies and then be accountable for the outcome associated with the activity.

Lead agency

Under a lead agency approach, agencies would be appropriated funds in accordance with their prevailing outcome structure, but a nominated lead agency would be responsible for coordination and reporting. In addition to reporting on its own measures in the PBS and annual report, the lead agency would be responsible for ensuring adequate cross-referencing to the program elements delivered by other agencies in their budget documents and annual reports. The lead agency would need to compile performance information for the evaluation of the initiative as a whole. A weakness of this model is the limited leverage which the lead agency has to ensure a consistent approach to performance measurement. This situation could be improved if the lead agency’s role and performance measurement were both explicitly recognised at the time of the budget decision.

Multi-agency package

Under a multi-agency approach, agencies could be appropriated funds for a common policy outcome, but with no formal requirement for continuing coordination. Typically this could relate to measures that are simply extensions of existing programs or initiatives.

How should funds be appropriated for whole of government initiatives?

Each of these models offers particular advantages and disadvantages. These should be considered by agencies in advising ministers on how a whole of government initiative could be structured.

A single outcome approach ensures funding and performance information is easy to identify in budget documentation.

However, it also means that accountability is diffuse; agencies have reduced flexibility to move funds to meet demand; and rules need to be developed to govern treatment of savings, underspends and movement of funds.

Purchaser–provider arrangements afford clear accountability, which generally resides with a single minister. Provided that participating agencies can agree about presentation, funding and performance, information can be readily identified in budget documentation. However, accountability of the lead or purchasing agency depends on the actions of other agencies.

Lead agency and multi-agency arrangements provide maximum funding flexibility for agencies and clear accountability for elements of the package. However, accountability for delivery of the package as a whole is unclear and if a lead agency is not given leverage to determine reporting arrangements, funding and performance information is difficult to identify.

Examples of appropriation models for whole of government work

Some governments are considering how the appropriation of funds and accountability for them in relation to a single outcome can involve more than one minister. There are models currently being used involving the nomination of a lead agency with responsibility for facilitating a whole of government outcome, such as the Queensland Government’s management of Cape York Indigenous outcomes.

Within the Australian Government, purchaser–provider arrangements have been used to achieve a proxy for a single outcome shared by two ministers to facilitate the management of the Natural Heritage Trust (NHT) and the National Action Plan on Salinity (NAP). In relation to these two whole of government initiatives, the government nominated the two delivery agencies—the Department of Environment and Heritage (DEH) and the Department of Agriculture, Fisheries and Forestry (DAFF).

Natural Heritage Trust and National Action Plan on Salinity

The NHT was created to increase investment in environmental protection supported by funding generated from the sale of Telstra. Initially $1.25 billion was provided. As programs relating to environmental protection were spread across both the DEH and DAFF portfolios at that time, it was decided that the responsibility for Trust investments should be shared by the two portfolio ministers.

This was achieved through the Trust legislation (the Natural Heritage Trust of Australia Act 1997) by the establishment of a ministerial board comprising the two ministers. Among other things this board is legislatively required to make decisions on what investments are made from the Trust. Both ministers are jointly accountable for the use of money made by the Trust.

Investments in the NHT are funded through a special account established by the NHT Act. Appropriations into the special account are made to a DEH outcome. Where investments are to be made through a DAFF-administered program (e.g. for Landcare), funds are transferred from the special account to that agency. For reporting purposes, however, all revenues and expenses of the Trust are reported in DEH’s accounts.

NHT funds administered by DAFF are shown in the Environment and Heritage PBS under a purchaser–provider arrangement. DAFF reports separately on programs that it administers under the NHT.

Investments in the NAP are subject to normal annual appropriation arrangements, with all funds being appropriated to DAFF’s sole departmental outcome.

To facilitate a whole of government approach, the joint DAFF/DEH Natural Resource Management Team has been formed to jointly oversee program delivery. Implementation of the NAP and related natural resource management issues is overseen by a board of management consisting of senior representatives of Agriculture, Fisheries and Forestry; Environment and Heritage; Transport and Regional Services; the Prime Minister and Cabinet; and the Australian Greenhouse Office.

The Minister for Agriculture, Fisheries and Forestry is responsible for the funds appropriated for NHT and is ultimately accountable for the use of funds.

Australians Working Together (AWT)

AWT provides an integrated package of income support measures to groups including parents, people over 50, people with a disability, job seekers, Indigenous Australians and youth. It was announced in the May 2001 Budget as the first-stage response to the government’s commitment to welfare reform.

The second stage was announced in December 2002.

Responsible departments are: Family and Community Services (FaCS); Employment and Workplace Relations (DEWR); and Education, Science and Training (DEST); and the Aboriginal and Torres Strait Islander Services (ATSIS). Service delivery

is generally through Centrelink. Funding is appropriated within the existing outcome structure of all participating agencies.

Agencies report on their individual funding responsibilities in their PBS. All but two of the AWT measures are delivered solely by individual agencies.

In relation to the communications component of AWT, FaCS is appropriated funds but provides some funds in turn to DEWR for communications functions performed by that agency.

The communications strategy is developed jointly by FaCS and DEWR. The evaluation measure is the most genuinely collaborative measure within AWT. FaCS and DEWR jointly chair a welfare reform committee consisting of FaCS, DEWR, DEST and ATSIS. The committee has several subcommittees including an evaluation steering committee, of which the Department of Finance and Administration (Finance) is a member.

National Illicit Drugs Strategy (NIDS)

Another whole of government initiative organised along similar lines is NIDS. NIDS describes a broad range of activities to reduce the supply of, and demand for, illicit drugs. The initial strategy was launched by the Prime Minister in 1997 and new measures have since been added.

Funds are appropriated to separate outcomes in: the Department of Health and Ageing (DOHA), DEST, FaCS, Attorney-General’s, the Australian Federal Police and the Australian Customs Service. DOHA chairs a committee which oversees the initiative. Agencies report benefits from the clear demarcation of respective roles and responsibilities.

Performance reporting

The Australian Government’s budget process, which determines funding commitments by assessing competing priorities, provides an effective mechanism for the development of whole of government initiatives. Such initiatives are identified clearly in Budget Paper No.2.

The examples discussed suggest that the current outcomes and outputs framework is being used creatively to accommodate whole of government measures within existing structures.

It provides agencies and ministers with a range of choices to enable them to determine how best to balance efficient operation and seamless service delivery.

The standard budget mechanisms for providing advice on continuing performance are, however, less effective in relation to whole of government measures. Performance measures for NHT and NAP, for example, are spread between DEH and DAFF PBSs. They are organised differently, reflecting the way in which those programs are managed within the outcome and output structures of the relevant administering departments.

Performance information in relation to the AWT package is similarly disaggregated. However, the package was developed with clear, measurable objectives.

An evaluation strategy was designed at the outset, coordinated by FaCS and DEWR. A range of methodologies was identified including qualitative and quantitative measures, case studies, qualitative research, longitudinal analysis and net impact studies. Year-on-year monitoring of particular packages can be difficult. It does not, however, appear to inhibit program evaluation, with formal reviews for major initiatives like NHT, NAP and AWT agreed in advance. For this reason, there may be limited benefit in requiring responsible agencies to develop stand-alone reporting arrangements outside existing structures for cross-portfolio initiatives.

If the Australian Government considered that whole of government initiatives would benefit from consolidated reporting of year-on-year budget progress and performance information this should be determined by ministers when initial funding decisions are made.

Whole of government financial management

One area where the operation of NAP and NHT has highlighted the need for attention is the lack of compatible financial management information systems (FMISs) across the Australian Government. The operation of incompatible FMISs by DEH and DAFF significantly reduces the effectiveness of whole of government management because of the difficulty of exchanging financial and performance information for the programs they jointly administer.

Finance has not provided guidance in this area since the mid- 1990s. Guidance may be a valid extension of the budget estimates and framework implementation work.

A possible approach could involve Finance developing and maintaining standard templates for FMISs and budgetary model specifications with the assistance of a chief finance officer (CFO) reference group. Such work could be expanded to facilitate the development of best practice principles, providing opportunities to enhance knowledge sharing between CFOs, showcasing good/best practice and assisting the Australian Government to better leverage off work being done in lead agencies.

Interoperability of FMISs is, however, likely to be some time away and involve significant capital investment. A recent survey of Australian government agencies by Finance identified 17 primary FMISs currently being used across the Australian Government. In addition, agencies tend to customise systems. The number and nature of agencies which the Australian Government may wish to call upon to deliver a whole of government initiative is difficult to predict. This can result in requirements to transfer data between agencies with very different business (and IT) requirements.

The NIDS initiative, for example, involves welfare delivery and law enforcement agencies. Participating agencies have identified information sharing as one of the most significant challenges in delivering the initiative. They consider that clearer identification of data-sharing needs at the start of the project would have been valuable. This seems a useful prerequisite for any whole of government exercise.

Putting it into action

Whole of government initiatives are currently resourced under arrangements where funds are appropriated to individual agencies within existing outcomes structures. Activities are then managed independently, cooperatively or through purchaser–provider arrangements. Other mechanisms, such as common outcomes or lead agency arrangements could be used.

In advising ministers about the most appropriate framework for whole of government budget initiatives, agencies should consider resourcing issues at the time funding decisions are made.

Budget reporting on the progress and performance measurement of whole of government initiatives is not available in a consolidated form. Elements of the initiative are reported against the outcome and output structures of responsible departments. Recent guidance from the Australian National Audit Office concerning cross-agency governance indicates that ‘Cross-agency policy development or operational arrangements should not inadvertently result in an accountability gap where responsibility for outcomes is unclear

or ambiguous’.6 While reporting is disaggregated, accountability for elements of whole of government initiatives examined appears clear. There would be merit in determining reporting and evaluation arrangements for whole of government budget initiatives at the point at which budget decisions are made.

This would remove scope for ambiguity.

Case studies examined during this report suggest that whole of government initiatives could be more effective if more thought were given to the appropriation, management and governance of such measures when budget decisions are made. Decisions in these areas are a matter for ministers. Finance could build on its existing role by providing advice to agencies as whole of government measures are developed. Advice could include possible choices about appropriation structures, accountability, evaluation, governance structures, information management and accounting requirements. Agencies should consult Finance early in the development of major cross-portfolio initiatives for advice on possible approaches.